Planning

Planning

Planning
management process of determining what an
organization needs to do and how best to get it done

Planning has three main components. It begins when

managers determine the firm’s goals. Next, they develop a
comprehensive strategy for achieving those goals. After a
strategy is developed, they design tactical and operational
plans for implementing the strategy.

3–2
 Planning Process

3–3
 Organizational Goals
Purposes of Goals

Guidance and unified Promotion of good Evaluation

Source of motivation
direction planning and control

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
3–4 organization.
 Organizations Have a Purpose—
That’s Why They Need Goals

Identification

Adaptation Integration
Uses for Goals in
Organizations

Collaboration Revitalization

3–5
 Kinds of Organizational Goals

Setting Organizational Goals

By Level By Area By Time Frame

Mission statement Operations Long-term goals
Strategic goals Marketing Intermediate goals
Tactical goals Finance Short-term goals
Operational goals Production Explicit goals
Open-ended goals

3–6
What Goals Do

• By Level
• Mission statement is a statement of the organization’s fundamental purpose.
• Strategic goals, set by top management, address broad competitive issues.
• Tactical goals, set by middle managers, that focus on how to operationalize
actions to strategic goals.
• Operational goals, set by lower-level managers, focus on actions in support of
tactical goals.

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 Planning Flow in Organizations

Strategic Plans
(upper management)

Tactical Plans
(middle management)

Operational Plans
(lower-level managers)

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 Kinds of Organizational Plans

• Strategic Plans
• Are general plans outlining resource allocation, priorities, and action steps to
achieve strategic goals.
• Are set by and for top management.
• Tactical Plans
• Are aimed at achieving the tactical goals set by and for middle management.
• Operational Plans
• Have a short-term focus.
• Are set by and for lower-level managers.

3–9
Time Frames for Planning
• The Time Dimension of Planning
Planning must provide sufficient time to fulfill the managerial commitments involved.

1 5 10

Long-range (strategic)
plans of 5 or more years

Intermediate-range
(tactical) plans of 1–5 years

Short-range (operational)
action and contingency
plans of 1 year or less
Years

3–10
 The Nature of Strategic Management

• Strategy
A comprehensive plan for accomplishing an organization’s goals.
• Strategic Management
The comprehensive and ongoing process of formulating and
implementing strategies to approach business opportunities and
challenges.

Effective Strategies
Promote a superior alignment between organization and
environment and achievement of goals.
3–11
Strategic Management
The first step in strategic management is to define an explicit strategy

A Strategy is a plan of action that describes resource allocation and activities for
dealing with the environment, achieving a competitive advantage, and
attaining the organization’s goals

Competitive advantage refers to what sets the organization apart from others
and provides it with a distinctive edge for meeting customer or client needs in
the marketplace

The essence is How the organization will be different

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The Strategic Management Process:
SWOT Analysis

3–17
SWOT Analysis: Evaluating Strengths
• Organizational Strengths
• Skills and abilities enabling an organization
to conceive of and implement strategies.
• Distinctive Competencies
• Strengths possessed by only a small number of competitors that are useful for
competitive advantage and superior performance.
• Competitive Advantage
• Results from a firm exploiting its unique competencies to attain superior
performance.

3–18
 SWOT Analysis: Evaluating Weaknesses

• Organizational Weaknesses
• Insufficiencies of skills and capabilities that limit an organization’s choice of
strategic actions in support of its mission.
• Weaknesses can be overcome by:
• Making investments to obtain the strengths needed.
• Modifying the organization’s mission so it can be accomplished with the
current workforce.

3–19
 Evaluating an Organization’s
Opportunities and Threats
• Organizational Opportunities
• Areas in the organization’s environment that may generate higher
performance.
• Organizational Threats
• Areas in the organization’s environment that make it difficult for the
organization to achieve high performance.

3–20
What are the essentials of strategic analysis?
Drucker’s strategic questions for strategy
formulation:

• What is our business mission?

• Who are our customers?
• What do our customers consider value?
• What have been our results?
• What is our plan?

Early 1900s Current

 Democratize the automobile  To become the world's leading
Consumer Company for automotive
products and services
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Competitive Advantage
• The term competitive advantage describes an organization’s ability to
use resources so well that it performs better than the competition.

• Typical sources of competitive advantage are

• Technology—using technology to gain operating efficiencies, market exposure,
and customer loyalty.
• Cost and quality—operating with greater efficiency and product or service
quality.
• Knowledge and speed—doing better at innovation and speed of delivery to
market for new ideas.
• Barriers to entry—creating a market stronghold that is protected from entry by
others.
• Financial resources—having better investments or loss absorption potential
than competitors.
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 How can a strategy be effective…
Synergy can create additional value with existing
defines the customers and which of their needs are
resources, providing a
to be served
Business car rental companies, car manufacturer
big boost to the bottom line
FMCG Manufacturers exploiting their distribution channels
segmentation like Mercedes, Volvo
& sales force

Creating & delivering value to the customer is the

Core Competence is something that the organization heart of strategy
does especially well in comparison to its competitors Like loyalty cards in starbucks & hotels, dinner at movie
Cost leadership at Walmart theaters
26
 Purpose of Strategy
• Strategy:
• Plan of action
• Resource allocation
• Activities for dealing with the environment
• Achieving competitive advantage

• Strategy should:
• Exploit Core Competence
• Build Synergy
• Deliver Value
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 The Strategic Management Process
2 3

8
6 7

4 5 28
A corporate strategy is one that specifies what businesses a company is in or wants to be in and what it wants to
do with those businesses.
 Corporate-Level Strategies

Strategic Choices

Single-product Related Unrelated

strategy diversification diversification
(simplicity) (synergy) (risk/return)

3–30
Concentration: Focusing on a primary line of business and increasing the number of products offered or markets served.
Vertical Integration:
−Backward vertical integration: attempting to gain control of inputs (become a self-supplier).
−Forward vertical integration: attempting to gain control of output through control of the distribution channel or
provide customer service activities (eliminating intermediaries).
Horizontal Integration: Combining operations with another competitor in the same industry to increase competitive strengths
and lower competition among industry rivals.
Related Diversification: Expanding by combining with firms in different, but related industries that are “strategic fits”.
Unrelated Diversification: Growing by combining with firms in unrelated industries where higher financial returns are possible.
 Implementing Related Diversification
A strategy in which an organization operates in several different businesses,
industries, or markets that are somehow linked

Bases of Diversification Relatedness:

.

Similar Common Common brand Common

technology marketing and name and customers
resources distribution skills reputation and markets

3–32
 Related Diversification’s Advantages

Competitive Advantages
of Related Diversification

Creation of economies of Synergistic sharing of

Reduction of business
scale and strengths and
and economic risk
scope competencies

3–33
 Unrelated Diversification

• Unrelated Diversified Organization

• Operates multiple businesses that are not logically associated with one another.

• Advantages
• Resources can be allocated to areas with the highest return potentials to maximize
corporate performance.

• Disadvantages
• The strategy does not usually lead to high performance due to the complexity of
managing a diversity of businesses.
• Firms with unrelated strategies fail to exploit important synergies, putting them at a
competitive disadvantage to firms with related diversification strategies.

3–34
 Developing and Executing
Tactical Plans

Developing tactical plans Executing tactical plans

• Recognize and understand • Evaluate each course of action
overarching strategic plans in light of its goal
and tactical goals • Obtain and distribute
• Specify relevant resource and information and resources
time issues • Monitor horizontal and vertical
• Recognize and identify human communication and integration
resource commitments of activities
• Monitor ongoing activities for
goal achievement

3–37
 Types of Operational Plans

Single-use Plans 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 Plans 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 Standing plan outlining steps to be followed in

procedure particular circumstances

Rules and regulations Standing plans describing exactly how specific

3–38 activities are to be carried out
 Contingency Planning and Crisis Management

• Contingency Planning
• The determination of alternative courses of action to be taken if an intended
plan is unexpectedly disrupted or rendered inappropriate.
• Crisis Management
• The set of procedures the organization uses in the event of a disaster or other
unexpected calamity.

3–39
Contingency Planning

3–40
 Formulating Business-Level Strategies

Porter’s Generic
Strategies

Differentiation Overall cost Focus

strategy leadership strategy strategy

Differentiation Strategy
Seeking to distinguish an organization from its competitors through the quality of its products or services.
Overall Cost Leadership Strategy
Attempting to gain competitive advantage by reducing overall costs below the costs of competing firms.
Focus Strategy
Concentrating on a specific regional market, product line, or group of buyers
3–41
 Competitive advantage can be achieved through:
10

COST
> operate with lower costs than competitors and thus earn profits
with prices that competitors have difficulty matching.
QUALITY
> create products and services that are of consistently higher
quality for customers than what is offered by competitors.
DELIVERY
> outperform competitors by delivering products and services to
customers faster and on time, and by developing timely new
products.
FLEXIBILITY
> adjust and tailor products and services to fit customer needs in
ways that are difficult for competitor to match
 Strategies Based on the Product Life Cycle

Product Life Cycle

A model that shows sales volume changes over the life of products.
• Introduction stage: demand may be very high and sometimes outpaces
the firm’s ability to supply the product.
• Growth stage: more firms begin producing the product, and sales
continue to grow.
• Mature stage: overall demand growth begins to slow down.
• Decline stage: demand for product decreases.

3–43
The Product Life Cycle: is a model that shows how sales volume changes over the
life of products. Understanding the four stages in the product life cycle helps
managers recognize that strategies need to evolve over time.

Life Cycle Stages

High

Introduction Growth Maturity Decline

Sales Volume

Low Time

3–44
 Product Life Cycle could be used as a framework for plotting different
strategies over the life of a product.
In the introduction stage, demand may be very high and sometimes outpaces the firm’s ability to supply the product. At this
stage, managers need to focus their efforts on “getting product out the door” without sacrificing quality. Managing growth
by hiring new employees and managing inventories and cash flow are also concerns during this stage.

During the growth stage, more firms begin producing the product, and sales continue to grow. Important management
issues include ensuring quality and delivery and beginning to differentiate an organization’s product from competitors’
products. Entry into the industry during the growth stage may threaten an organization’s competitive advantage; thus,
strategies to slow the entry of competitors are important.

After a period of growth, products enter a third phase. During this maturity stage, overall demand growth for a product
begins to slow down, and the number of new firms producing the product begins to decline. The number of established
firms producing the product may also begin to decline. This period of maturity is essential if an organization is going to
survive in the long run. Product differentiation concerns are still important during this stage, but keeping costs low and
beginning the search for new products or services are also important strategic considerations.

In the decline stage, demand for the product or technology decreases, the number of organizations producing the product
drops, and total sales drop. Demand often declines because all those who were interested in purchasing a particular
product have already done so. Organizations that fail to anticipate the decline stage in earlier stages of the life cycle may go
out of business. Those that differentiate their product, keep their costs low, or develop new products or services may do
well during this stage.
 The International Business Environment
14

It took McDonald’s more than a year to figure out that Hindus in India do not
eat beef because they consider the cow sacred. The company’s sales took
off only after McDonald’s started making burgers sold in India out of lamb.

When IKEA launched a superstore in Bangkok, managers learned that some of

its Swedish product names sound like crude terms for sex when pronounced in
Thai.

In Africa, the labels on bottles show pictures of what is inside so illiterate

shoppers can know what they’re buying. When a baby-food company
showed a picture of an infant on its label, the product didn’t sell very well.

United Airlines discovered that even colors can doom a product. The airline
handed out white carnations when it started flying from Hong Kong, only to
discover that, to many Asians, such flowers represent death and bad luck