An organization`s guiding philosophy establishes the values and beliefs of the organization about what is important in both life and business, how business should be conducted, its view of humanity, its role in society, the way the world works, and what is to be held inviolate. An organization`s philosophy establishes the relationship between the organization and its stakeholders, employees, customers, shareholders, suppliers, government, and the public at large.

The guiding philosophy of an organization should normally be a rather permanent statement and is usually articulated by the chief executive officer. For small businesses, the owner establishes the philosophy either in writing or through his or her personal behavior. In many larger organizations, the founder of the business establishes the corporate philosophy and it is maintained throughout the life of the organization.

The content and specific wording of organizational statements of philosophy vary from organization to organization. The philosophies of excellent companies typically include the following basic beliefs:

  1. Belief in being the best.

  2. Belief in the importance of the details of execution, the nuts and bolts of doing the job well.

  3. Belief in the importance of people as individuals.

  4. Belief in superior quality and service.

  5. Belief that most members of the organization should be innovators, and, its corollary, the willingness to support failure.

  6. Belief in the importance of informality to enhance communication.

  7. Belief in a recognition of the importance of economic growth and profits.

It is extremely important to remember that, if an organization`s philosophy is to have meaning, it must be adhered to in all situations. Ignoring the organizational philosophy in crisis situations is a major mistake for management. It is through the day-to-day decisions and actions of management that philosophies are confirmed and strengthened or become meaningless words on a piece of paper.

Developing Organizational Policies from the Guiding Philosophies

Finally, an organization`s guiding philosophy provides the general framework for the establishment of organizational policies. Organizational policies provide guides to action for employees of the organization. Policies help to ensure that all units and levels of an organization operate within the guiding philosophy. They also facilitate coordination and communication between various organizational units. For example, in an organization with empowered work teams, organizational policies should define the limits or constraints within which the work teams must act if they are to remain self-directing. Once the organization defines its objectives and guiding philosophy and sets appropriate policies, the work teams are able to make and implement decisions within those boundaries.

Several other factors influence the formulation of policies. One important factor has been federal, state, and local government. Government regulates organizations in such areas as competition (antitrust and monopoly), product standards (safety and quality), pricing (utilities), hiring practices (civil rights), working conditions (Occupational Safety and Health Administration, or OHSA, regulations), wages (minimum wages), accounting practices (income tax regulation), and issuance of stock (Securities and Exchange Commission, or SEC regulations). Policies need to be developed to guide employees in following these regulations. For example, as a result of government regulation, many organizations have developed a policy that declares the organization`s unqualified opposition to all forms of discrimination. Policies of competitors also influence an organization`s policies. This is especially true with human resource policies, such as wages, benefits, and working conditions.

An extremely important consideration in policy formulation is that policies should facilitate the successful accomplishment of organizational objectives. All too frequently policies emerge from history, tradition, and earlier events. Changing environment conditions and changed organizational objectives should trigger an evaluation of organizational policies to ascertain if they are still appropriate or should be changed. Exhibit 1 presents several examples of organizational policies.


  1. To answer all written consumer complaints in writing (e.g., policy of a firm`s public relations department.)

  2. To distribute at least 30 percent of net earnings to stockholders (e.g., policy of any organization.)

  3. To accept all returns that are accompanied by a sales slip (e.g., policy of retail store.)

  4. To require a minimum down payment of 10 percent of the purchase price (e.g., policy of a mortgage company.)

  5. To pay the shipping costs of all goods bought from the company (e.g., policy of an online retail store or shopping club.)

Note: Formal written policies are recommended. However, the presence of certain conditions in an organization minimizes the need for written policies. One condition that minimizes the need for written policies is a strong organizational culture. If the culture is strong, the organization`s key values are intensely held and widely shared. Substantial training has been expended to achieve this high degree of acceptance, minimizing the need for formal, written policies.

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