Planning

Planning and Strategic Management

3–2

What Is Planning?What Is Planning?

• Planning–Managerial function that involves:

• Defining the organization’s goals

• Establishing an overall strategy for achieving those goals

• Developing a comprehensive set of plans to integrate and coordinate organizational work

–Types of planning• Informal: not written down, short-term focus; specific

to an organizational unit

• Formal: written, specific, and long-term focus, involves shared goals for the organization

3–3

Purposes of PlanningPurposes of Planning

–Provides direction–Reduces uncertainty–Minimizes waste and redundancy–Sets the standards for controlling

3–4

How Do Managers Plan?How Do Managers Plan?

• Elements of Planning–Goals (also objectives)

• Desired outcomes for individuals, groups, or entire organizations

• Provide direction and performance evaluation criteria

–Plans• Documents that outline how goals

are to be accomplished• Describe how resources are to be

allocated and establish activity schedules

3–5

Decision Making and the Planning ProcessDecision Making and the Planning Process

• The Planning Process

Strategic goals Strategic plans

Tactical goals

Operational goals Operational plans

The organization’s mission

The Environmental Context

• Purpose • Premises • Values • Directions

Tactical plans

Figure 3.1

3–6

Organizational GoalsOrganizational Goals

• Purposes of Goals–Provide guidance and a unified direction for people in

the organization.–Have a strong effect on the quality of other

aspects of planning.–Serve as a source of

motivation for employees of the organization.

–Provide an effective mechanism for evaluation and control of the organization.

3–7

Kinds of GoalsKinds of Goals

• By Level–Mission statement is a statement of an organization’s

fundamental purpose.–Strategic goals are goals set by and for top

management of the organization that address broad, general issues.

–Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals.

–Operational goals are set by and for lower-level managers to address issues associated with tactical goals.

3–8

Different Goal Setting Processes in OrganizationsDifferent Goal Setting Processes in Organizations

Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions.

3–9

Kinds of PlansKinds of Plans

• Strategic Plans–A general plan outlining resource allocation, priorities,

and action steps to achieve strategic goals. The plans are set by and for top management.

• Tactical Plans–A plan aimed at achieving the

tactical goals set by and for middle management.

• Operational Plans–Plans that have a short-term focus.

These plans are set by and for lower-level managers.

3–10

Contd.Contd.

• Long-Term Plans–Time frames extending beyond three years

• Short-Term Plans–Time frames of one year or less

• Specific Plans–Clearly defined and leave no room for interpretation

• Directional Plans–Flexible plans that set out general guidelines, provide

focus, yet allow discretion in implementation• Single-use Plan

–A one-time plan specifically designed to meet the needs of a unique situation

• Standing Plans–Ongoing plans that provide guidance for activities

performed repeatedly

3–11

Strategic Management ProcessStrategic Management Process

• The set of managerial decisions and actions that determines

the long-run performance of an organization

SWOT Analysis

Identify theorganization's

current mission, goals,and strategies

Internal Analysis• strengths• weaknesses

External Analysis• opportunities• threats

FormulateStrategies

ImplementStrategies

EvaluateResults

3–12

Process Contd.Process Contd.

• Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies–Mission: the firm’s reason for being

• The scope of its products and services

–Goals: the foundation for further planning• Measurable performance targets

• Step 2: Conduct an External Analysis–The environmental scanning of specific and general

environments• Focuses on identifying opportunities and threats

3–13

Components of a Mission StatementComponents of a Mission Statement

• Customers: Who are the organization’s customers?

• Products or services: What are the organization’s major products or services?

• Markets: Where does the organization compete geographically?

• Technology: How technologically current is the organization?

• Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?

3–14

Components of a Mission StatementComponents of a Mission Statement

• Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?

• Self-concept: What is the organization’s major competitive advantage and core competencies?

• Concern for public image: How responsive is the organization to societal and environmental concerns?

• Concern for employees: Does the organization consider employees a valuable asset?

3–15


• Step 3: Conduct an Internal Analysis–Assessing organizational resources, capabilities, activities,

and culture:

• Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm

• Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.

• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

3–16


• Step 4: Formulate Strategies–Develop and evaluate strategic alternatives–Select appropriate strategies for all levels in the

organization that provide relative advantage over competitors

–Match organizational strengths to environmental opportunities

–Correct weaknesses and guard against threats

3–17


• Step 5: Implement Strategies–Implementation: effectively fitting organizational

structure and activities to the environment–The environment dictates the chosen strategy;

effective strategy implementation requires an organizational structure matched to its requirements

• Step 6: Evaluate Results–How effective have strategies been?–What adjustments, if any, are necessary?

3–18

• TheRelationshipsofStrategiesby OrganizationalLevel

3–19

MissionAn organization’s fundamental purpose

Best Strategies

SWOT AnalysisTo formulate strategies that support the mission

Those that support the mission and• exploit opportunities and strengths• neutralize threats• avoid (or correct) weaknesses

Internal AnalysisStrengths(distinctivecompetencies)

Weaknesses Threats

External AnalysisOpportunities

SWOT SWOT AnalysisAnalysis

• Strengths• Weaknesses• Opportunities• Threats

3–20

Types of Strategic AlternativesTypes of Strategic Alternatives

• Corporate-level Strategy–The set of strategic alternatives that an

organization chooses from as it manages its operations simultaneously across several industries and several markets.

3–21

Types of Corporate StrategiesTypes of Corporate Strategies

• William. F. Glueck: Scheme of Grand Strategy–Growth: expansion into new products and markets–Stability: maintenance of the status quo–Retrenchment: addresses organizational

weaknesses that are leading to performance declines

–Combination Strategy: Corporate portfolio analysis: involves a number of businesses; guides resource allocation

3–22

Growth StrategiesGrowth Strategies

• Growth Strategy–Seeking to increase the organization’s business by

expansion into new products and markets

• Types of Growth Strategies–Concentration: Product or Market–Vertical integration: Backward or Forward–Horizontal integration–Diversification: Related or Unrelated

3–23

Stability StrategyStability Strategy

• Stability Strategy–A strategy that seeks to maintain the status quo to

deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons

3–24

Retrenchment StrategyRetrenchment Strategy

• Retrenchment Strategy–Reduces the company’s activities or operations–Retrenchment strategies include:

• Cost reductions

• Layoffs

• Closing underperforming units

• Closing entire product lines or services

3–25

Corporate Portfolio AnalysisCorporate Portfolio Analysis

• Used when an organization’s corporate strategy involves a number of businesses

• BCG Matrix

– Considers market share and industry growth rate

– Classifies firms as:

• Cash cows: low growth rate, high market share

• Stars: high growth rate, high market share

• Question marks: high growth rate, low market share

• Dogs: low growth rate, low market share

3–26

BCG MatrixBCG Matrix

Stars

Heavily invest

QuestionMarks

Sell off orturn into stars

CashCows

Milk for cash

Dogs

Sell off orliquidate

High Low

Market ShareL

ow

Hig

h

An

tic

ipa

ted

G

row

th R

ate

3–27

Managing DiversificationManaging Diversification

• GE Business Screen–A method of evaluating business in a diversified

portfolio along two dimensions, each of which contains multiple factors:

• Industry attractiveness.

• Competitive position (strength) of each firm in the portfolio.

–In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.

3–28

GE Business ScreenGE Business Screen

Competitive position

Low

Winner

Medium

High

Good

Competitive position1. Market share2. Technological know-how3. Product quality4. Service network5. Price competitiveness6. Operating costs

Industry attractiveness1. Market growth2. Market size3. Capital requirements4. Competitive intensity

PoorMedium

Winner

Profitproducer

Winner

Averagebusiness

Loser

Questionmark

Loser

LoserInd

us

try

gro

wth

ra

te

Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.

3–29

Business-Level StrategyBusiness-Level Strategy

• Business-Level Strategy–A strategy that seeks to determine how an organization

should compete in each of its SBUs (strategic business units

–The Role of Competitive Advantage

• Competitive Advantage–An organization’s distinctive competitive edge that is

sourced and sustained in its core competencies

• Quality as a Competitive Advantage–Differentiates the firm from its competitors–Can create a sustainable competitive advantage–Represents the company’s focus on quality

management to achieve continuous improvement and meet customers’ demand for quality

3–30

Porter’s Generic StrategiesPorter’s Generic Strategies

• Differentiation strategy–An organization seeks to distinguish itself from

competitors through the quality of its products or services.

• Overall cost leadership strategy–An organization attempts to gain competitive

advantage by reducing its costs below the costs of competing firms.

• Focus strategy–An organization concentrates on a specific regional

market, product line, or group of buyers using cost or differentiation advantage.

3–31

Pursuing Porter’s Competitive StrategiesPursuing Porter’s Competitive Strategies

3–32

Functional-Level StrategyFunctional-Level Strategy

• Functional-level strategies support the business-level strategy–i.e., Marketing, human resources, research and

development, and finance all support the business-level strategy

3–33

Tactical PlanningTactical Planning

• Developing and Executing Tactical Plans

Developing tactical plans

• Recognize and understand

overarching strategic plans

and tactical goals

• Specify relevant resource and

time issues

• Recognize and identify human

resource commitments

Executing tactical plans

• Evaluate each course of action

in light of its goal

• Obtain and distribute

information and resources

• Monitor horizontal and vertical

communication and integration

of activities

• Monitor ongoing activities for

goal achievement

3–35

Types of Operational PlansTypes of Operational Plans

Plan Description

Single-use plan Developed to carry out a course of action not likely to be repeated in the future

Program Single-use plan for a large set of activities

Project Single-use plan of less scope and complexity than a program

Standing plan Developed for activities that recur regularly over a period of time

Policy Standing plan specifying the organization’s general response to a designated problem or situation

Standard operating procedure Standing plan outlining steps to be followed in particular circumstances

Rules and regulations Standing plans describing exactly how specific activities are to be carried out

Table 3.1

3–36

Contingency PlanningContingency Planning

• Contingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change.

Ongoing planning process

Action point 1 Action point 2 Action point 3 Action point 4

Develop plan,

considering

contingency events

Implement plan and

formally identify

contingency events

Specify indicators

for the contingency

events and develop

contingency plans for

each possible event

Successfully complete

plan or contingency

plan

Monitor contingency event indicators andimplement contingency plan if necessary

Figure 3.6

Planning

Economy & Finance

Transcript of Planning