Planning Definition defining the organization's goals establishing an overall strategy developing a hierarchy of plans to achieve goals Formal vs. Informal Informal - very little written down - objectives are rarely verbalized - small businesses Formal - specific objectives are written down & made available to its members Because of the dynamic & unpredictable business environment, it is important that managers plan and plan well. Reasons for Planning 1) Provides Direction - managers & non; greater co-operation 2) Reduces the impact of Change - forces managers to look ahead, anticipate change & develop appropriate responses 3) Minimizes waste & redundancy - wasteful and inefficient activities can be prevented 4) Sets standards to facilitate control - planning establishes objectives & in the controlling process, performance is compared against the objectives Criticisms of formal Planning 1) Planning may create rigidity - may not take into account possible changes in environment; doesn't allow for flexibility 2) Formal planning reinforces success - success may breed failure in an uncertain environment ; successful plans may provide "false sense of security", generating more confidence than they deserve Does Planning Improve Performance? Studies have shown mostly positive financial results Types of Planning Strategic - apply to entire organization - establish overall objectives - long-term Tactical - specify HOW the overall objectives are to be achieved - short-term Short Term Plans - less than 1 year Long Term Plans - extend beyond 5 yr *The greater the uncertainty, the more plans should be of the short-term as they allow for better flexibility to meet changing demands. Specific Plans - clearly defined objectives Directional Plans - plans that identify general guidelines ** When uncertainty is high and flexibility is needed directional plans are preferable. Single-use plans - used to meet the needs of a particular or unique situation i.e. students planning a special event Standing plan - ongoing, guides for actions that are performed repeatedly in an organization i.e. graduation exercises The Strategic Management Process A 9-step process which involves strategic planning, implementation & evaluation (senior management) 1) Identify current mission, objectives & strategies mission statement - defines an organization's purpose (WHY) next, company can develop objectives & strategies to achieve the business outcomes 2) Analyze the environment - in order to anticipate changes in environment environmental scanning - screening large amounts of information to detect emerging trends i.e. Competitive intelligence i.e. information on the actions of competitors, gov't legislation, preferences of customers, supply of labour (workers) Steps 3,4,5 (external factors & internal resources) 3) Identify Opportunities & Threats - assess the + opportunities and - threats that face organization ** What one organization sees as a threat may in fact be an opportunity for another company 4) Analyze the organization's resources - $, workers' skills 5) Identify Strengths & Weaknesses - once organization looks at internal resources it can determine the strengths & weaknesses of those resources. From this the organization will be able to identify its core competency (the strengths that will provide the company with a competitive edge) 6) Reassess the organization's mission & objectives Are they realistic? Do they need to be modified? If no changes are necessary, ready to begin next step 7) Formulate Strategies - strategies need to be set for all levels in organization The 4 Grand Strategies Theory a) Growth - attempts to increase the level of its operations (i.e. more employees, more sales revenues) i) direct expansion - does not involve other firms ii) merger - 2 companies combine their resources to form a new company iii) acquisition - when larger company buys smaller one & incorporates the acquired company's operations into its own b) stability strategy - stays the same c) retrenchment strategy - organization reduces its size or sells off less profitable product lines d) combination strategy - the pursuit of 2 or more strategies i.e. one part of organization may be pursuing a growth strategy while another is retrenching 8) Implement Strategies - strategic plan is put into action 9) Evaluate Results - How effective have the strategies been? - What adjustments, if any, are necessary?