Chapter 5Planning establishes the basis for all the other things managers do as they organize, lead, and control.Planning is deciding on the organizations objectives or goals and getting the job done by establishing an overall strategy for achieving those goals and developing a comprehensive hierarchy of plans to integrate and coordinate activities. Planning can be informal or formal. Smaller businesses often use informal planning where little is verbalized or written down and the planning is general and lacks continuity. Formal planning, however, defines specific goals that are to be met in a specific time period. They are written down and made available to organization members. Then managers develop specific plans that clearly define what the organization will do to move from where it is to where it wants to be.Managers should plan for at least four reasons, as seen here in Exhibit 5-1.1. Planning establishes coordinated effort. It gives direction to both managers and nonmanagerial employees so each knows what he or she must contribute individually and as a groupto reach the organizations goals. Planning stimulates intra- and inter-department coordination of activities, which fosters teamwork and cooperation. 2. Planning reduces uncertainty. It forces managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses. It also clarifies the consequences of the actions managers might take in response to change. 3. Planning reduces overlapping and wasteful activities. Coordination before the fact is likely to uncover waste and redundancy.4. Finally, planning establishes the goals or standards that facilitate managerial control to ensure that the plans are carried out and the goals are met.Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning. Planning may create rigidity with goals and a timetable that are set under the assumption that the environment wont change. Managers need to remain flexible and not be tied to a courseof action simply because its the plan1. Formal plans cannot replace intuition and creativity. Planning should enhance and support intuition and creativity, not replace it.2. Planning focuses managers attention on todays competition, not on tomorrows survival. Formal planning tends to focus on how best to capitalize on existing business opportunities instead of ways to reinvent the industry. Instead of focusing on today, managers should plan with an eye to untapped opportunities.3. Formal planning reinforces success, which may lead to failure. Its difficult to shift from the comfort of what works to the uncertainty of the unknown. However, managers may need to face that unknown and do things in new ways to be even more successful.Does it pay to plan? In a nutshell, yes. First, the data generally support the position that organizations should have formal plans and that these plans generally translate into higher profits, higher return on assets, and other positive financial results. Second, the quality of the planning process and appropriate implementation of the plan probably contribute more to high performance than the extent of planning does. Finally, in organizations in which formal planning did not lead to higher performance, the constraints of the environmentsuch as governmental regulations and unforeseen economic challengesreduced the impact of planning on the organizations performance. In the space of a week, here are a few headline makers: Swedish furniture giant IKEA Group says its planning to set up 25 stores in India in coming years, a move made possible by a change in Indian government policy that says some retailers can now own 100 percent of their Indian units. Airbus, a unit of European Aeronautics & Space Co. plans to build a $600 million factory in Alabamaits first in the United States. In a fierce battle over tablet computers, Apple announced that its building a miniature iPad to rival Amazons Kindle Fire, Googles Nexus 7, and Barnes & Nobles Nook Color. The race to build book-size tablets is driven by consumer desire forgreater portability.Strategic management is very much a part of what managers do.Strategic management is important to avoid weakening ones position due to poor economic conditions and myriad external and interval variables. Two strategies that helped clothing chain retailer Buckle Inc. were its location strategy of not placing the majority of its 400-plus stores in states falling on hard times and a differentiation strategy of offering customer perks, such as custom pants fittings and free hemming of its jeans. Reasons why strategic management is so important include: 1. It can make a difference in how well an organization performs. Research has found a generally positive relationship between strategic planning and performance.2. It prepares managers in organizations of all types and sizes to cope with continually changing situations and to examine relevant factors in planning future actions.3. Each part of an organization needs to work together to achieve the organizations goals; strategic management helps accomplish this. For example, with more than 2.1 million employees worldwide working in various departments, functional areas, and stores, Walmart uses strategic management to help coordinate and focus employees efforts on whats most important.Strategic management isnt just for business organizations. Organizations such as government agencies, hospitals, educational institutions, and social agencies also need strategic management. For example, the skyrocketing costs of a college education, competition from for-profit companies offering alternative educational environments, cuts to state budgets, and cutbacks in federal aid for students and research have led many university administrators to assess their colleges aspirations and identify a market niche in which they can survive and prosper.The strategic management process, seen here in Exhibit 5-2, is a six-step process that encompasses: Strategy planning Implementation, and EvaluationEven the best strategies fail if management doesnt implement or evaluate them properly.Now lets look at each of these six steps independently.STEP 1 of the strategic management process is to identify the organizations current mission, goals, and strategies. The mission is a statement of the organizations purpose. Defining the mission forces managers to identify what the organization is in business to do. For instance, the mission of Avon is To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women on a global level. The mission of the National Heart Foundation of Australia is to reduce suffering and death from heart, stroke, and blood vessel disease in Australia.The components of a mission statement, seen here in Exhibit 5-3, includes target customers, markets, and goals and strategies, and each should be assessed to see if managers should change any of them.In STEP 2, managers conduct an external analysis so they can:1. Know what the competition is doing, how pending legislation might affect the organization, and how stable the local labor supply is in locations where it operates.2. Examine all components of the environmentthat is, economic, demographic, political/legal, sociocultural, technological, and globalto see the trends and changes.3. Pinpoint opportunities that the organization can exploit and threats that it must counteract. In STEP 3, managers conduct an internal analysis, which provides critical information about an organizations specific resources and capabilities. An organizations resources are its assetsfinancial, physical, human, and intangiblethat it uses to develop, manufacture, and deliver products to its customers. In comparison to assets, its capabilities are its skills and abilities in doing the work activities needed in its business. The major value-creating capabilities of the organization are known as its core competencies. Both resources and core competencies determine the organizations competitive weapons.After completing an internal analysis, managers should be able to identify organizational strengths and weaknesses. Any activities the organization does well or any unique resources that it has are called strengths. Weaknesses are activities the organization doesnt do well or resources it needs but doesnt possess.The combined external and internal analyses are called the SWOT analysis because, together, they are an analysis of the organizations strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to formulate appropriate strategies that: (1) Exploit an organizations strengths and external opportunities, and(2) Buffer or protect the organization from external threats.STEP 4 is formulating strategies. As managers formulate strategies, they should consider the realities of the external environment and their available resources and capabilities to design strategies that will help their organization achieve its goals. Managers typically formulate three main types of strategies: corporate, business, and functional. Well describe each shortly.STEP 5 involves implementing strategies. Once strategies are formulated, they must be implemented. No matter how effectively an organization has planned its strategies, performance will suffer if the strategies arent implemented properly.STEP 6 is evaluating results. This is the final step in the strategic management process, where managers ask, How effective have the strategies been at helping the organization reach its goals? What adjustments are necessary? Strategies need to be formulated for the three organizational levels: corporate, business, and functional, as seen here in Exhibit 5-4.A corporate strategy is an organizational strategy that specifies what businesses a company is inor wants to be inand what it wants to do with those businesses.The second part of corporate strategy is when top managers decide what to do with those businesses. The three main types of corporate strategies are growth, stability, and renewal.Growth strategy is a corporate strategy in which an organization expands the number of markets served or products offered, either through its current business or through new business. Because of its growth strategy, an organization may increase revenues, number of employees, or market share. Organizations grow by using concentration, vertical integration, horizontal integration, or diversification. An organization that grows by using concentration increases the number of products offered or markets served in its primary business. A company can also grow by vertical integration, either backward, forward, or both. In backward vertical integration, the organization becomes its own supplier. In forward vertical integration, the organization becomes its own distributor. In horizontal integration, a company grows by combining with competitors. Horizontal integration may be regulated so that one company does not monopolize the market. Finally, an organization can grow through diversification, either related or unrelated. Related diversification is when a company combines with other companies in different, but related, industries. Unrelated diversification is when a company combines with firms in different and unrelated industries.During times of economic uncertainty, many companies choose a stability strategy in which the organization continues to do what it is currently doing, such as serving the same clients by offering the same product or service, maintaining market share, and sustaining the organizations current business operations. When an organization is in trouble, however, managers need strategies called renewal strategies, which address declining performance. There are two main types of renewal strategies: 1. A retrenchment strategy is a short-run strategy used for minor performance problems. This strategy helps it stabilize operations, revitalize organizational resources and capabilities, and prepare to compete once again. 2. When an organizations problems are more serious, they need to use the turnaround strategy. While managers cut costs and restructure organizational operations in either renewal strategy, these measures are more extensive than in a retrenchment strategy. In both renewal strategies, managers can (1) cut costs and (2) restructure organizational operations but actions are more extensive in turnaround strategyA competitive strategy is a strategy for how an organization will compete in its business. For a small organization in only one line of business or a large organization with little product or market diversification, the competitive strategy describes how the organization will compete in its primary market.For organizations in multiple businesses, each business has its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and so on. When an organization engages in several different businesses, those single businesses that are independent and formulate their own competitive strategies are often called strategic business units (SBUs).Developing an effective competitive strategy requires an understanding of the organizations competitive advantage, which is whatever sets it apart from the competition. That distinctive edge comes from the organizations core competencies. Competitive advantage also can come from the companys resourcessomething that the organization has that its competitors dont. 1. Cost leadership strategy 2. Differentiation strategy. 3. Focus strategyinvolves a cost advantage (or cost focus)4. Stuck in the middleUse strategic management to get a sustainable competitive advantage.Those strategies used by an organizations various functional departments (marketing, operations, finance/accounting, human resources, and so forth) to support the competitive strategy.In todays intensely competitive and chaotic marketplace, organizations are looking for whatever weapons they can use to do what theyre in business to do and to achieve their goals. We think six strategic weapons are important in todays environment: customer service, employee skills and loyalty, innovation, quality, social media, and big data. Weve covered customer service in previous chapters and will discuss employee-related matters in. Now well look at quality, social media, and big data.Many organizations employ quality practices to build competitive advantage and attract and hold a loyal customer base. If implemented properly, quality is a way for an organization to create a sustainable competitive advantage. If a business is able to continuously improve the quality and reliability of its products, it may have a competitive advantage that cant be taken away. Incremental improvement is something that becomes an integrated part of an organizations operations and can develop into a considerable advantage.To promote quality, managers in diverse industriessuch as health care, education, and financial servicesare discovering the benefits of benchmarking, which is the search for the best practices among competitors and noncompetitors that lead to their superior performance. Successful social media strategies should (1) help peopleinside and outside the organizationconnect; and (2) reduce costs or increase revenue possibilities or both. As managers look at how to strategically use social media, its important to have goals and a plan.Big data can be an effective counterpart to the information exchange generated through social media. All the enormous amounts of data collected about customers, partners, employees, markets, and other quantifiables can be used to respondto the needs of these same stakeholders. With big data, managers can measure and know more about their businesses and translate that knowledge into improved decision making and performance. Case in point: When Walmart began looking at its enormous database, it noticed that when a hurricane was forecasted, not only did sales of flashlights and batteries increase, but so did sales of Pop-Tarts. Now, when a hurricane is threatening, stores stock Pop-Tarts with other emergency storm supplies at the front entrance. This helps them better serve customers and drive sales.Planning involves two important aspects: goals, which are objectives, and plans, which are desired outcomes or targets. Plans guide managers decisions and form the criteria against which work results are measured. They usually include resource allocations, budgets, schedules, and other necessary actions to accomplish multiple goals. Most companys goals can be classified as either strategic or financial. Financial goals are related to the financial performance of the organization while strategic goals are related to all other areas of an organizations performance. Stated goals are official statements of an organizations goals, which it wants its stakeholders to believe.But if you want to know an organizations real goalsthose goals an organization actually pursuesobserve what organizational members are doing. Actions define priorities.Goals provide the direction for all management decisions and actions, and form the criterion against which actual accomplishments are measured. Everything members of the organization do should be oriented toward achieving goals, which can be set either through a process of traditional goal setting or by using management by objectives.In traditional goal setting, goals set by top managers flow down through the organization and become subgoals for each organizational area, as seen in Exhibit 5-5, and are passed down to each succeeding organizational level. Then, at some later time, performance is evaluated to determine whether the assigned goals have been achieved. A problem with traditional goal setting is that when top managers define the organizations goals in broad termssuch as achieving sufficient profitsthese ambiguous goals have to be stated more specifically as they flow down through the organization. Managers at each level define the goals and apply their own interpretations and biases as they make them more specific. When the hierarchy of organizational goals is clearly defined, it forms an integrated network of goals, or a means-ends chain. Higher-level goals (or ends) are linked to lower-level goals, which serve as the means for their accomplishment.Instead of using traditional goal setting, many organizations use management by objectives (MBO), a process of setting mutually agreed-upon goals and using those goals to evaluate employee performance. A manager using this approach would sit down with each member of his or her team to set goals and periodically review whether progress is being made toward achieving those goals.MBO programs have the four elements listed on the slide.MBO uses goals to both make sure employees are doing what theyre supposed to be doing and to motivate them. Studies show that actual MBO programs can increase employee performance and organizational productivity, and that goal setting can effectively motivate employees.No matter which approach is used, goals have to be written and clearly indicate what the desired outcomes are, and some goals more clearly indicate what the desired outcomes are. Exhibit 56 lists the characteristicsManagers should follow six steps when setting goals:1. Review the organizations mission and the employees key job tasks. Goals should reflect the mission, and managers need to clearly define what they want employees to accomplish as they do their tasks.2. Evaluate available resources. Goals should be challenging but realistic with regards to available resources. 3. Determine the goals individually or with input from others. The goals reflect desired outcomes and should be congruent with the organizational mission and goals in other organizational areas. These goals should be measurable, specific, and include a time frame for accomplishment.4. Make sure goals are well-written and then communicate them to all who need to know. 5. Build in feedback mechanisms to assess goal progress. If goals arent being met, change them as needed.6. Link rewards to goal attainment.Once the goals have been established, written down, and communicated, managers are ready to develop plans for pursuing them.Managers need plans to help them clarify and specify how goals will be met. As we see here in Exhibit 5-7, strategic plans are usually long-term, directional, and single-use, while tactical plans are short-term, specific, and standing. Now lets look at each type of plan and what it means:1. Breadth involves strategic plans, which are those that apply to an entire organization and encompass the organizations overall goals, versus tactical plans (also referred to as operational plans), which specify the details of how the overall goals are to be achieved. 2. Time frame refers to the number of months or years used to define short-term and long-term plans.3. Specificity refers to whether a plan is specific or more general. Due to current environmental uncertainty, managers must be flexible in responding to unexpected changes, so theyre more likely to use directional plans that set general guidelines. Managers who engages in planning must weigh the flexibility of directional plans against the clarity that specific plans offer.4. Frequency of use describes whether plans are ongoing or used only once. Standing plans are ongoing plans that provide guidance for activities performed repeatedly, whereas single-use plans are one-time plans specifically designed to meet the needs of a unique situation.The process of plan development is influenced by three contingency factors and by the kind of planning approach followed.Three contingency factors that affect the choice of plans are: 1. Organizational level2. Degree of environmental uncertainty, and 3. Length of future commitments.Exhibit 5-8, shown here, illustrates the relationship between a managers level in the organization and the type of planning that manger does. For the most part, lower-level managers do operational (or tactical) planning while upper-level managers do strategic planning.The second contingency factor is environmental uncertainty. When uncertainty is high, plans should be specific but flexible. Managers must be prepared to change or amend plans as theyre implemented. The third contingency factor relates to the time frame of plans. The commitment concept says that plans should extend far enough to meet commitments made when the plans were developed. But planning for too long or too short a time period is inefficient and ineffective. For example, when organizations increase their computing capabilities, many have found their power-hungry computer generate so much heat that the electric bills have skyrocketed because of the increased need for air conditioning. This illustrates the commitment concept: When organizations expand their computing technology, theyre committed to whatever future expenses are generated by that plan.Organization plans can best be understood by looking at who does the planning.In the traditional approach, planning is done entirely by top-level managers who often are assisted by a formal planning department, which is a group of planning specialists whose sole responsibility is to help write the various organizational plans. Then the plans flow down through other organizational levels and are tailored to the particular needs of each level. Although this approach makes managerial planning thorough, systematic, and coordinated, too often the focus is on developing the plan which is later not implemented.Another planning approach involves the input of organizational members at the various levels and in the various work units who participate in developing the plans to meet their specific needs.Two issues currently affecting planning are:1. Planning effectively in dynamic environments, and 2. How managers can use environmental scanning, especially competitive intelligence.In todays changing and uncertain environment, managers should develop plans that are specific but flexible. Managers need to recognize that planning is an ongoing process and that plans serve as a road mapalthough the destination may change due to dynamic market conditions. The flexibility to change direction is particularly important as plans are implemented. Even when the environment is highly uncertain, its important to continue formal planning to improve organizational performance. Persistence and practice in planning contributes to significant performance improvement. In dynamic environments, making a flatter hierarchy means lower organizational levels can set goals and develop plans because organizations have little time for goals and plans to flow down from the top. Managers should teach their employees how to set goals and to plan, and then trust them to do it.A managers analysis of the external environment may be improved by environmental scanning. which involves screening large amounts of information to detect emerging trends. One of the fastest-growing forms of environmental scanning is competitive intelligence, which is accurate information about competitors that allows managers to anticipate competitors actions rather than merely react to them.Much of the competitor-related information managers need to make crucial strategic decisions is available and accessible to the public. In other words, competitive intelligence isnt organizational espionage. Advertisements, promotional materials, press releases, reports filed with government agencies, annual reports, want ads, newspaper reports, information on the Internet, and industry studies are readily accessible sources of information.Managers do need to be careful about the way information, especially competitive intelligence, is gathered to prevent any concerns about whether its legal or ethical Competitive intelligence becomes illegal corporate spying when it involves the theft of proprietary materials or trade secrets by any means.