Strategic Planning_ RobbinsCh07

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia

Chapter 7/ Topic 6

Foundations of PlanningStrategic Planning

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 2

L E A R N I N G O U T L I N E Follow this Learning Outline as you read and study this chapter.

l What is planning?

• Define planning.

• Differentiate between formal and informal planning.

l Why do managers plan?

• Describe the purposes of planning.

• Discuss the conclusions from studies of the relationship between planning and performance.

l How do managers plan?

• Define goals and plans.

• Describe the types of goals organisations might have.

• Explain why it’s important to know an organisation’s stated and real goals.


L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.

l How do managers plan? (cont’d)

• Describe each of the different types of plans.

l Establishing goals and developing plans

• Discuss how traditional goal setting works.

• Explain the concept of the means–end chain.

• Describe the management by objective (MBO) approach.

• Describe the characteristics of well-designed goals.

• Explain the steps in setting goals.

• Discuss the contingency factors that affect planning.

• Describe the approaches to planning.


L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.

l Contemporary issues in planning

• Explain the criticisms of planning and whether or not they’re valid.

• Describe how managers can effectively plan in today’s dynamic environment.


Assignment 2

Case Study – “Acer”: Changing Strategy &

Structure

l Applying Case Study Method focusing upon Planning, Organising & Control and

Decision Making issues

l Again please understand the marking criteria


Aids to Assignments

l Introduction to Writing and Study Skills Booklet

l Case Method by Reynolds

l Supplement to case study from Sankaran

l Writing reports

l Learning & Assistance

l Citing References: Harvard; Author/Date system

In summary “How do we apply the lessons

of Topics 1-5 to better understand and

respond to our environment?


Mapping SWOT for Strategic FitOpportunities

Strengths

Threats

Weaknesses

Few OpportunitiesDeficiencies Evident

Multiple OpportunitiesDistinct CompetenciesMany Strengths

Ominous ThreatsLimited Strengths

Visibly exposed to Multiple ThreatsInternally extremely vulnerable


The Market Attractiveness-Business Position Matrix

Bu

sin

es

s P

osit

ion

Market Attractiveness

Hig

hM

ed

ium

Lo

w

High Medium Low

Invest/Grow

SelectiveInvestment

Harvest/Divest


What is planning?

l Planningm A primary functional managerial activity that

involves:n Defining the organisation’s goals

n Establishing an overall strategy for achieving those goals

n Developing a comprehensive set of plans to integrate and coordinate organisational work.

m Types of planningn Informal: not written down, short-term focus; specific to an

organisational unit.

n Formal: written, specific, and long-term focus, involves shared goals for the organisation.

Significance of writing a plan. Can one say planning has properly occurred unless a formal document is produced?


Why do managers plan?

l Purposes of planning

m Provides direction

m Reduces uncertainty

m Minimises waste and redundancy

m Sets the standards for controlling

Examples of Corporate Collapse: To what extent may lack of planning been a contributing factor?


Planning

l Planning

m general nature of planning

n planning

n importance of planning

n factors affecting planning

n organisational goals

m setting objectives

n management by objectives (MBO)

l Strategic planning

m SWOT

m levels of planning


Planning and performance

l The relationship between planning and performancem Formal planning is associated with:

n Higher profits and returns on assets.

n Positive financial results.

m The quality of planning and implementation affects performance more than the extent of planning.

m The external environment can reduce the impact of planning on performance,

m Formal planning must be used for several years before planning begins to affect performance.

The last 2 points appear contradictory. How can they both be applicable?


How do managers plan?

l Elements of planning

m Goals (also Objectives)n Desired outcomes for individuals, groups, or entire

organisations

n Provide direction and evaluation performance criteria

m Plansn Documents that outline how goals are to be accomplished

n Describe how resources are to be allocated and establish activity schedules


Goals or Plans

l The term, “high flyer”, is normally ascribed to entrepreneurs and famous leaders, but is less often associated with someone who develops detailed plans and activity schedules.

l Goals and objectives are the dreams, while plans and details are the reality

l Which would you rather have more of in your organisation – goals or plans. Consider if an organisation could survive for long on just one?


Overview of planning

l Objective - future target or end result that

an organisation wants to achieve

m What is your objective in taking up an MBA?

m Is it a goal or have you established clear objectives?

l Plan - A means to achieve these objectives

m what means will you use to complete your MBA on schedule? In other words, how have you resourced that plan?


Why do organisation’s plan?

l sets direction

l reduces the impact of change

l minimises wasted efforts

l eliminates redundant efforts

l establishes standards for control

l helps in coordination

l gives direction to employees

l reduces uncertainty

l planning aids in control!


Types of goals

l Financial goals

m Are related to the expected internal financial performance of the organisation.

l Strategic goals

m Are related to the performance of the firm relative to factors in its external environment (e.g., competitors).

l Stated goals versus real goals

m Broadly-worded official statements of the organisation (intended for public consumption) that may be irrelevant to its real goals (what actually goes on in the organisation).


Strategic and Financial Goals

l Discuss the extent to which strategic goals are related to financial goals.

Consider whether the two can be established in isolation from one another? Why?


Stated objectives from large U.S. companies

Financial Objectives

• Faster revenue growth

• Faster earnings growth

• Higher dividends

• Wider profit margins

• Higher returns on invested capital

• Stronger bond and credit ratings

• Bigger cash flows

• A rising stock price

• Recognition as a “blue chip”company

• A more diversified revenue base

• Stable earnings during

recessionary periods

Strategic Objectives

• A bigger market share

• A higher more secure industry rank

• Higher product quality

• Lower costs relative to key competitors

• Broader or more attractive product line

• A stronger reputation with customers

• Superior customer service

• Recognition as a leader in technology and/or product innovation

• Increased ability to compete in

international markets

• Expanded growth opportunities

Source: A.A. Thompson Jr. and A.J. Strickland III. Strategic Management 12th ed. (New York: McGraw-Hill/Irwin, 2001), p. 43.Achievement of one usually contributes to achievement of the other

either Directly or Indirectly (Relationships)?


Types of plans

Figure 7.1


Types of plans (cont’d)

l Strategic plans

m Apply to the entire organisation.

m Establish the organisation’s overall goals.

m Seek to position the organisation in terms of its environment.

m Cover extended periods of time

l Tactical plans

m Specify the details of how to implement the overall goals of thestrategic level.

m Cover medium time period

l Operational plans

m Specify the details of how the overall goals are to be achieved.

m Cover short time period


Types of Plans (cont’d)

l Long-term plans

m Plans with time frames extending beyond three years

l Short-term plans

m Plans with time frames on one year or less

l Specific plans

m Plans that are clearly defined and leave no room for interpretation

l Directional plans

m Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation.


Specific versus directional plans

Figure 7.2

Under what circumstances might a directional planbe more useful than a specific plan and vice versa? What type of plan is your MBA program?


Types of plans (cont’d)

l Single-use plan

m A one-time plan specifically designed to meet the need of a unique situation.

l Standing plans

m Ongoing plans that provide guidance for activities performed repeatedly.

l Think of situations that would suit the development of each type of plan?


Approaches to establishing goals

l Traditional goal setting: Top/Down

m Broad goals are set at the top of the organisation.

m Goals are then broken into subgoals for each organisational level.

m Assumes that top management knows best because they can see the “big picture.”

m Goals are intended to direct, guide, and constrain from above.

m Goals lose clarity and focus as lower-level managers attempt to interpret and define the goals for their areas of responsibility.


Traditional objective setting

Figure 7.3

direct and guide the employees in their day to day work but, in some way they can constrain individuals work behaviour.

managers lower levelsprovide operational meaningWhat problems can occur?


Objectives

l Vision, Mission and objectives (Table 8.1 p276)

l Multiple objectives

l Why set S.M.A.R.T. objectives (Specific.Measurable.Assignable.Realistic.Timely)

m increase performance

m clarify achievement expectations

m facilitate controlling

m motivation through satisfaction

l Levels

m strategic/tactical/operational

? What will be some of the strategic/tactical and operational objectives of the 2012 London Olympics?


The strategic management process


Objective setting

l Set by the top and deployed through the organisation

m non-operational

m lose clarity and unity at lower levels

l MBO

m goal setting by departments

m small measurable objectives

m Joint goal setting and periodic review


Approaches to establishing goals (cont’d)

l Maintaining the hierarchy of goals

m Means (Resources)–Ends (Outcomes) Chainn The integrated network of goals that results from a

establishing a clearly-defined hierarchy of organisational

goals.

n Achievement of lower-level goals is the means by which to

reach higher-level goals (ends).

n the core of the traditional goal setting philosophy. Why would managers move to different models to establish organisational goals?


Approaches to establishing goals (cont’d)

l Management by objectives (MBO)m Specific performance goals are jointly determined by

employees and managers.

m Progress toward accomplishing goals is periodically reviewed.

m Rewards are allocated on the basis of progress towards the goals.

m Motivation not control! MBO seeks pro-active engagement/commitment to goals (rather than reactive sanctioning/punishment)

m Key elements of MBO:

n Goal specificity, measurable, objective, time-phased, participative decision making, an explicit performance/evaluation period, feedback


Steps in a typical MBO program

1. The organisation’s overall objectives and strategies are formulated.

2. Major objectives are allocated among divisional and departmentalunits.

3. Unit managers collaboratively set specific objectives for their units with their managers.

4. Specific objectives are collaboratively set with all department members.

5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees.

6. The action plans are implemented.

7. Progress toward objectives is periodically reviewed, and feedback is provided.

8. Successful achievement of objectives is reinforced by performance-based rewards.

How do you these steps compare with Means-Ends Chain ?


Does MBO work?

l Reason for MBO success

m Top management commitment and involvement

l Potential problems with MBO programs

m Not as effective in dynamic environments that require constant resetting of goals.

m Overemphasis on individual accomplishment may create problems with teamwork.

m Allowing the MBO program to become an annual paperwork shuffle.

l Does the prevailing (chaotic) nature of the business environment today tend to work for or against the MBO approach?


Characteristics of well-designed goals

l Written in terms of outcomes, not actions

m Focuses on the ends, not the means.

l Measurable and quantifiable

m Specifically defines how the outcome is to be measured and how much is expected.

l Clear as to time frame

m How long before measuring accomplishment.

l Challenging yet attainable

m Low goals do not motivate.

m High goals motivate if they can be achieved.

l Written down

m Focuses, defines, and makes goal visible.

l Communicated to all

m Puts everybody “on the same page.”

S.M.A.R.T Goals/Objectives

What relationship between Leadership and well designed goals?


Steps in goal setting

1. Review the organisation’s mission statement.

• Do goals reflect the mission? Has it changed?

2. Evaluate available resources.

• Are resources sufficient to accomplish the mission? Objective commitment!

3. Determine goals individually or with others.

• Are goals specific, measurable, and timely? Chance to consult?

4. Write down the goals and communicate them.

• Is everybody on the same page? Agreement/Consensus

5. Review results and whether goals are being met.

• What changes are needed in mission, resources, or goals? Gap Analysis


Developing plans

l Contingency factors in a manager’s planning

m Manager’s level in the organisationn Strategic plans at higher levels

n Tactical plans for middle levels

n Operational plans at lower levels

m Degree of environmental uncertainty

n Stable environment: specific plans

n Dynamic environment: specific but flexible plans

m Length of future commitments

n Current plans affecting future commitments must be sufficiently

long-term to meet the commitments.

Key is achieving balance between stability & flexibility to achieve goals in changing conditions


Planning in the hierarchy of organisations

Figure 7.6

Consider the positive and negative implications of

strategic planning being mostly completed by

the fewer numbers of top executives?


Approaches to planning

l Establishing a formal planning department

m A group of planning specialists who help managers write organisational plans.

m Planning is a function of management; it should never become the sole responsibility of planners.

l Involving organisational members in the process

m Plans are developed by members of organisational units at various levels and then coordinated with other units across the organisation. What are possible positive/negative implications?


Contemporary Issues in planning

l Criticisms of Planning

m Planning may create rigidity. Why?

m Plans cannot be developed for dynamic environments. Why?

m Formal plans cannot replace intuition and creativity. Why not?

m Planning focuses managers’ attention on today’s competition not tomorrow’s survival. What’s the problem?

m Formal planning reinforces today’s success, which may lead to tomorrow’s failure. Why is this?


Contemporary Issues in planning

l Criticisms of Planning

m Planning may create rigidity. Why?

n Formal plans can lock organisations into specific goals

to be achieved within certain time frames. If environmental factors change and managers attempt to follow the plan rather than be flexible and respond to the environmental forces, then the organisation could be in

trouble

m Plans cannot be developed for dynamic environments. Why?

l Most organisations today face dynamic environments. This requires managers to be flexible and that may mean not being tied to formal plans.


Contemporary Issues in planningm Formal plans cannot replace intuition and creativity. Why

not?

l Successful organisations have typically evolved because of someone's

vision. Success and growth brings with it the need for a thorough investigation of the organisation's capabilities and opportunities and a mechanistic analysis that reduces the vision to a type of programmed

routine. This can spell disaster for some organisations.

m Planning focuses managers’ attention on today’s competition not tomorrow’s survival. What’s the problem?

l Because formal planning tends to focus on capitalising on current opportunities it often doesn’t allow managers to consider creating or reinventing an industry.

m Formal planning reinforces today’s success, which may lead to tomorrow’s failure. Why is this?

l This may be the case in an uncertain environment where managers are

reluctant to change or discard previously successful plans for plans which may not work.


Contemporary issues in planning (cont’d)

l Effective planning in dynamic environments

m Develop plans that are specific but flexible (Agile).

m Understand that planning is an ongoing process (Dynamic).

m Change plans when conditions warrant. (Contingency)

m Persistence in planning eventually pay off. (Learning Loops)

m Flatten the organisational hierarchy to foster the development of planning skills at all organisational levels. (Engagement)

List some successful contemporary organisations that seem to be

applying this effective planning approach in dynamic

environments. Compare this with the earlier list of corporate

collapses. Discuss the similarities and differences in approaches


Planning situations

l Hierarchy

m Strategic

m Tactical

m Operational

l Life cycle (Product & Organisational)

m Predictability

m Flexibility

l Environment (5 Forces Analysis)

m Uncertainty

m SWOT – Strategies to adopt (renewal, retrenchment, turnaround p.272)

l Commitment through involvement: MBO

l SWOT Analysis: McWilliams Wines


Porter’s Five-Factor Model

Competition

Among Existing Firms

Competition

Among Existing Firms

Threat of Potential Entrants

Threat of Potential Entrants

Bargaining Power of

Customers

Bargaining Power of

Customers

Threat of SubstituteProducts

Threat of SubstituteProducts

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Source: Adapted from Michael E. Porter, “Industry

Structure and Competitive Strategy: Keys to Profitability”

Financial Analysis Journal,July-August 1980,p.33.Figure 5.3


Strategic Planning

l Levelsm Corporate (SWOT, Ansoff Product/Vector Matrix,

BCG Portfolio)n in what business/es should we be?

m Business (Porter’s Generic Competitive Strategies) Fig. 8.7 p277

n How should we compete in each of our businesses?

n Concept of SBU’sn Blue Ocean/Red Ocean (Eliminate-Reduce-Raise-

Create Grid)

m Functional (Innovation, Quality, Efficiency, Customer service)

n How do we support the business level strategy (Porter’s Value Chain)?


The Market Attractiveness-Business Position Matrix

Bu

sin

es

s P

osit

ion

Market Attractiveness

Hig

hM

ed

ium

Lo

w

High Medium Low

Invest/Grow

SelectiveInvestment

Harvest/Divest


The Growth-Share Matrix

Stars?Problem Children

DogsCash Cows

Competitive Position

Mark

et

Gro

wth

Rate

Lo

wH

igh

High Low

Research & Development


Ansoff’s Product/Market Vector

Products

Market Penetration

Existing New

New ProductsMARKETS

Existing

NewMarket Development Diversification

RelatedUnrelated

Highest Risk

Vertical Integration


Porter’s Generic Competitive Strategies

Mass Volume

SmallVolume

Differentiation Lowest Cost

Niche/BoutiqueMarket

Cost Focus


Marg

in

Marg

inThe generic value chain to identify possible SCAs

Primary Activities

Su

pp

ort

Ac

tiv

itie

s

Procurement

Serv-

ice

Technology development

Human resource management

Firm infrastructure

Inbound

logistics

Opera-

tions

Out-

bound

logistics

Market-

ing

and

sales


Strategic management process

l Identify mission, objectives and strategy

l Analyse the environment

l Identify opportunities and threats

l Analyse organisational resources

l Identify strengths and weaknesses

l Reassess mission and objectives based on SWOT

l Formulate strategies

l Implement strategies

l Evaluate results


Corporate strategy

l Grand strategym stability

m growth

m downsizing or rightsizing

m combination

l Portfolio analysis

l Modern views: Resource-base view (V.I.R.A)

l Competitive Forces and the Rule of 3: p281

l New Directions: Innovation, E-Business, Customer Service


Business-level strategies

l Adaptive (Scenario Planning)

m defenders

m prospectors

m analysers

m reactors

l Michael Porter’s framework

m five forces

m selecting and sustaining a competitive

advantage

m DVD: Decision Making & Planning MYOB