4-1McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning ObjectivesL01: Basic steps in planning process.L02: Integration of strategic planning with

tactical and operational planning.L03: Define strategy after analysis of external

environment and firm’s strength’s and weaknesses.

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Learning ObjectivesL04: Companies can achieve competitive

advantage through business strategy.L05: Keys to effective strategy

implementation.L06: Making effective decisions as a

manager.L07: Principles for group decision making.

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The Planning Process (see Fig 4.1) Step 1: ANALYZE the situation

Situational analysis: Gather, interpret, and summarize all

information relevant to planning issue under consideration.

Focuses on internal forces within organization and the influences from external environment.

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The Planning Process (see Fig 4.1) Step 2: Generate ALTERNATIVE goals and plans

Goals: Target or end that management desires to reach.

Stresses creativityEncourages managers and employees to think

broadly

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“SMART” GoalsSpecific

Goals are precise, describing particular behaviors and outcomes.

MeasurableAttainable (but challenging)Relevant

Contribute to overall mission and consistent with its values, including ethical standards.

Time-boundSpecify a target date for completion.

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Plans – “what will we do?” The actions or means managers intend to use

to achieve organizational goals.

Single-use plans: designed to achieve goals not likely to be repeated in the future.

Standing plans: focus on ongoing activities to achieve an enduring set of goals.

Contingency plans: specify actions to take when a company’s initial plans have not worked well or events in the external environment require a sudden change – BACK-UP PLAN

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The Planning Process (see Fig 4.1) Step 3: EVALUATE goals and plans

Evaluate advantages, disadvantages, and potential effects of each alternative goal and plan.

Prioritize the goals.Consider costs of each initiative and likely

ROI.

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The Planning Process (see Fig 4.1) Step 4: SELECT goals and plans

Select most appropriate and feasible alternative.

Identifies priorities and trade-offs among goals and plans.

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The Planning Process (see Fig 4.1) Step 5: IMPLEMENT goals and plans

Key to achieving goalsRequires understanding, adequate resources

and motivation.Link plan to other systems in the organization,

such as rewards, to help ensure successful implementation.

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The Planning Process (see Fig 4.1) Step 6: Monitor and CONTROL performance

Monitor actual performance of employees against the goals and plans.

Adjust course as necessary.

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Levels of PlanningTop-level managers

Strategic (long-term, big picture)Middle-level managers

Tactical (medium-term, medium detail)Lower-level managers

Operational (day-to-day, lots of detail)

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Strategic Planning – “The HOW” Strategic Planning

Procedures for making decisions about organization’s long-term goals and strategies.

Strategic goalMajor targets or end results relating to

organization’s long-term survival, value and growth.

StrategyPattern of actions and resource allocations

designed to achieve organization’s goals.

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Questions to ask in strategic planning

1. Where will we be active?2. How will we get there?3. How will we win the marketplace?4. How fast will we move, and in what

sequence will we make prices?5. How will we obtain financial returns?

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Strategic Planning Process

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Strategic Planning Process (see Fig. 4.3)Step 1: ESTABLISH a mission, vision, and goals

Mission - PURPOSEOrganization’s basic purpose and scope of

operations.

Strategic vision - VIEWLong-term direction and strategic intent Points to the futurePerspective on where organization is headed

and what it can become

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Microsoft’s Mission Statement

“At Microsoft, our mission is to enable people and businesses throughout the world to realize their full potential…

We consider our mission statement a promise to our customers. We deliver on that promise by striving to create technology that is accessible to everyone—including people who experience the world in different ways because of impairments and disabilities.”

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Vision StatementsINSPIRE organization membersOffer a WORTHWHILE TARGET to achieve.

DuPont’s Vision Statement“To be the world’s most dynamic science

company, creating sustainable solutions essential to a better, safer and healthier life for people everywhere.”

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Strategic goals – “SMART” TARGETS

Evolve from the organization’s mission and vision.

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Strategic Planning Process (see Fig. 4.3)Step 2: ANALYZE ETERNAL opportunities / threats

Industry ProfileGrowthForces

Competitor ProfileAnalysisAdvantages

Legislative / regulatory activities

Political activitySocial issuesSocial interest

groupsLabor issuesMacroeconomic

conditionsTechnological factors

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Stakeholders – “Vested Interest”

Groups and individuals who affect and are affected by the achievement of the organization’s

mission, goals, and strategies.Examples

Buyers, suppliers, competitors, government and regulatory agencies, unions and employee groups, financial community, owners and shareholders, and trade associations.

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Strategic Planning Process (see Fig. 4.3) Step 3: ANALYZE INTERNAL strengths / weaknesses

Internal resource analysisFinancialHuman resources MarketingOperations

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Resources and capabilitiesResources

inputs to production that can be accumulated over time to enhance firm’s performance.

Resource typesTangible assets – real estate, production of

facilities, raw materials – “touchy-feely”Intangible assets- company reputation,

culture, technical knowledge, and patents, accumulated learning and experience – “can’t touch that!”

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Resources - a competitive advantage

Rarenot equally available to all competitors

InimitableMatchless; can’t be copied

Valuableinstrumental for creating customer benefits

Organizedefficient organization of resources

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Core Competence – “What We Do Best”

A unique skill and/or knowledge an organization possesses that gives it an EDGE over competitors

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Benchmarking - “Best Practices”

Measure company’s basic functions and skills compare with those of another company or set of companies.

To undertake actions to achieve better performance and lower costs

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Strategic Planning Process (see Fig. 4.3) Step 4: SWOT Analysis

Strengths

Skilled management

Positive cash flow

Well-known brands

Weakness

Lack of spare production capacity

Absence of reliable suppliers

Opportunities

New technology

Underserved market niche

Threats

Possibility of competitors entering underserved niche

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Corporate StrategyIdentifies

BusinessesMarkets Industries

in which the organization competes and the distribution of resources among those businesses

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Four Alternative Corporate Strategies1. Concentration

single business / single industry focus

2. Vertical integration – “UP and DOWN” expanding into the organization’s supply

channels or to distributors; eliminates uncertainties and reduces costs

associated with suppliers or distributors

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Alternatives to Corporate Strategy

3. Concentric diversification – “related variety” Moving into new businesses related to company’s

original core business.

4. Conglomerate diversification – “unrelated expansion”

Enter unrelated businesses, typically to minimize risks due to market fluctuations in one industry.

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BCG Matrix

?

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BCG Matrix (see Fig. 4)BCG Categories of BusinessesQuestion Marks - ?

High-growth, weak-competitive positionRequire substantial investment to improve their

positionElse divest

Stars – High growth, strong competitive position Require heavy investment

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BCG Matrix (see Fig. 4) BCG Categories of Businesses

Cash cows – Low-growth, strong competitive position generate revenues in excess of their

investment needsfund other businesses

Dogs – low-growth, weak-competitive-positiondivest after their remaining revenues are

realized

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Business StrategyThe major actions by which an organization

builds competitive advantage in a particular industry or market.

Low-cost strategyEfficiency, offering a standard, no-frills product.

Differentiationunique in its industry or market segment along

one or more dimensions.

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Technology LeadershipAdvantages

First-mover advantageLittle or no competitionGreater efficiencyHigher profit marginsSustainable advantageReputation or innovationEstablishment of entry

barriersOccupation of best market

nichesOpportunities to learn

Disadvantages

Greater risksCost of technology

developmentCosts of market development

and customer educationInfrastructure costsCosts of learning and

eliminating defectsPossible cannibalization of

existing products

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Functional StrategyImplemented by each functional area Support the organization’s business strategyDeveloped with input of and approval from

the executives responsible for business strategy.

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Strategic Planning Process (see Fig. 4.3) Step 5: IMPLEMENT the strategy

1. Define strategic tasks.2. Assess organization capabilities.3. Develop an implementation agenda.4. Create an implementation plan.

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Strategic Planning Process (see Fig. 4.3) Step 6: CONTROL Your ProgressStrategic control system

Evaluate organization’s progress with its strategy

When discrepancies exist, taking corrective action

Encourage efficient operations that are consistent with the plan while allowing flexibility to adapt to changing conditions.Includes a budget to monitor and control major

financial expenditures.

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Formal Decision Making1. Identify and diagnose the problem.2. Generate alternative solutions.3. Evaluate alternatives.4. Make choice.5. Implement the decision.6. Evaluate the decision.

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Barriers to Good DecisionsPsychological biases

Illusion of controlFraming effectsDiscounting the future

Time Pressures

Social Realities

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Identifying the ProblemRecognize there is a problem or opportunityManagers compare current performance

against: past performance, or current performance of other organizations or units, or future expected performance

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Diagnosing the ProblemDecision maker must want to do

something and believe that the resources and abilities to solve the problem exist

Diagnostic Questions:Is there a difference between what is actually

happening and what should be happpening?How can you describe the deviation, as

specifically as possible?What is/are the cause(s) of the deviation?What specific goals should be met?Which of the these goals are absolutely critical

to the success of the decision?

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Generate Alternative Solutions

Based on the diagnosis, alternative courses of action aimed at solving the problem are developed.Ready-made solutions: ideas that have been

or tried before.

Custom-made solutions: new, creative solutions designed specifically for the problem.

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Evaluate AlternativesDetermine the value or adequacy of the

alternatives that were generated.Predict the consequences that will occur if

the various options are put into effect.Original goals must be taken into accountConsider the potential consequences of

several different scenarios.

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Making the ChoiceMaximizing: achieving the best possible

outcome, the one that realizes the greatest positive consequences and the fewest negative consequences.

Satisficing: choosing the first option that is minimally acceptable or adequate; the choice appears to meet a targeted goal or criterion.

Optimizing: achieving the best possible balance among several goals.

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Implement the Decision1. Determine how things will look when the

decision is fully operational.2. Chronologically order, perhaps with a flow

diagram, the steps necessary to achieve a fully operational decision.

3. List the resources and activities required to implement each step.

4. Estimate the time needed for each step.5. Assign responsibility for each step to

specific individuals.

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Evaluate the DecisionCollect information on how well the decision is

working.Gather objective data for accurately

determining the decision’s success or failure.Feedback provides information on the success

or failure of the decision.

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Managerial Decision Making

Programmed DecisionsProblem is frequent,

repetitive, routine, with much certainty regarding cause-and-effect relationships

Decision procedure depends on policies, rules, definite procedures

Examples: periodic reorders of inventory; procedure for admitting patients

Nonprogrammed DecisionsProblem is novel,

unstructured, with much uncertainty regarding cause-and-effect relationships

Decision procedure needs creativity, intuition, tolerance for ambiguity, creative problem solving.

Examples: diversification into new products and markets; purchase of experimental equipment; reorganization of departments.

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Psychological BarriersIllusion of control

belief that one can influence events despite no one having control.

Framing effectsphrasing / presenting problems or decision

alternatives in a way that subjective influences override objective facts.

Discounting the futureweighing short-term costs and benefits more

heavily than longer-term costs and benefits.

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Time PressuresTactics for decision-making under time

pressure:Instead of relying on old data, long-range

planning, and futuristic forecasts, focus on real-time information.

Involve people more effectively and efficiently in the decision-making process.

Take a realistic view of conflict.

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Advantages of Group Decision Making More information available. Greater number of perspectives; different

approaches to problem-solving. Opportunity for intellectual stimulation. More likely to understand why decision

was made. Higher level of commitment

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Disadvantages of Group Decision Making One group member may dominate

discussion. Satisficing may occur. Groupthink – the pressure to avoid

disagreement can lead to a phenomenon. Goal displacement – decision-making group

loses sight of its original goal and a new, less important goal emerges.

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Effective Management of Group Decision Makers

Appropriate leadership style Constructive use of disagreement and

conflict. Enhancement of creativity

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Remaining slides are review.

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YOU should be able toL01: Summarize the basic steps in any

planning process.L02: Discuss how strategic planning should be

integrated with tactical and operational planning.

L03: Describe how strategy is based on analysis of the external environment and the firm’s strength’s and weaknesses.

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YOU should be able to (cont’d)L04: Discuss how companies can achieve

competitive advantage through business strategy.

L05: Identify the keys to effective strategy implementation.

L06: Explain how to make effective decisions as a manager.

L07: Summarize principles for group decision making.

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Test Your Knowledge

Describe the basic steps in any planning process.

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Test Your Knowledge

Identify the keys to effective strategy implementation

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Test Your Knowledge

The manager of the Gallery Restaurant noted that the restaurant had experienced a decreased number of evening customers. The manager promptly ordered the chef to rewrite the evening menu. Customer feedback later indicated that the problem had not been the menu but poor service from the wait staff. The manager's decision to have the menu revised suggests that she failed to: A) identify the problem. B) evaluate the alternatives and consequences. C) properly diagnose the cause of the problem. D) evaluate the decision and its consequences. E) identify a solution.

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Test Your Knowledge

Discuss the principles for group decision making.

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Triton Logging Read the Triton story on page 84.

Classify and describe what you believe Triton Logging’s corporate strategy to be. How does this strategy reflect Chris Godsall’s vision?

Triton Logging practices a business strategy of differentiation, setting itself apart from other logging firms by finding new technology to harvest timber in an ecofriendly way. What are the potential advantages and disadvantages of this type of leadership?