Business policy, strategy, annual budget and action plan are essential documents for effective company management. Their creation is influenced by both internal and external factors.
Business consultants Biljana Lazarević and Veljko Davidović explain that internal factors pertain to the company’s growth and development.
- A key internal factor is the need for decentralization, which arises as companies grow. With an increase in business volume, it becomes impractical for all decisions to be made at the top. Hence, a company’s business policy is designed to decentralize decision-making, shifting authority from upper management to lower levels, such as directors and managers.
External factors also play a role. Banks or institutions that oversee business operations through loans or subsidies require these documents as part of the application process, demonstrating a systematic and planned approach to business management.
- An essential part of the decentralization process is defining the business policy, which includes specifying authority and responsibilities in critical areas. This involves setting out the company’s general business policy, which covers its philosophy, vision, mission, values, and overall goals. This policy answers questions like: What direction are we heading in? What do we aim to achieve? What are our core values?
For companies focusing on sales, it’s crucial that everyone understands that sales is a way of life. Similarly, if the focus is on innovation or cost-efficiency, the business environment must support these aspects.
- When establishing business policies, it’s important to address authorization levels and control for decentralized powers at various organizational tiers. Companies may face negative consequences from decentralization, leading to poor decision-making and suboptimal business results, potentially creating management challenges as the company grows.
Strategy involves a set of decisions aligned with the long-term development goals of the company’s owners and top management. While often seen as a reflection of business policy, strategy is an ongoing process of evaluation, re-examination, and adjustment.
- Strategy can be likened to a ship’s captain who continuously monitors the horizon and adjusts the course as needed. The captain must be ready to change direction if necessary (a strategy shift), such as in response to a storm or threat. Some literature compares strategy to military tactics. Economically, strategy involves assessing competitive advantages, market and customer acquisition, and aligning internal strengths and weaknesses while addressing external threats and opportunities (SWOT analysis) to maximize profit potential or achieve set objectives.
According to the consultants from Casa Forte, a strategy is effective if it is clearly understood by all employees and if they comprehend their role in achieving the strategy’s goals.
Success also depends on properly training employees for their roles and ensuring these roles align with the decentralized authority granted.
Based on the strategy and defined goals—specific, measurable targets the company aims to reach—the annual budget is prepared.
The budget is a fundamental planning tool that forecasts expected revenues, expenses, profits, and cash flow for the upcoming period.
The action plan, an operational instrument, tracks the implementation of activities outlined in the budget. The successful execution of the budget is a key indicator of the company’s performance and is used for external evaluations by potential investors, creditors, and partners.
- Additionally, a well-structured budget and effective goal measurement are crucial for evaluating employee performance. It is advisable to display the strategy’s key points in visible areas within the company, such as bulletin boards, to ensure all employees are informed, conclude the business consultants Biljana Lazarević and Veljko Davidović.
