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Planning

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Identifying and selecting appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals.

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Strategy

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The cluster of decisions and actions that managers take to help an organization reach its goals

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Mission Statement

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A broad declaration of an organization's overriding purpose Identifies what is unique or important about its products Seeks to distinguish or differentiate the organization from its competitors

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Three Steps in Planning

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1. Determining the organization's mission and goals: Define the business and Establish major goals. 2. Formulating Strategy: Analyze current situation and develop strategies. 3. Implementing strategy: Allocate resources and responsibilities to achieve strategies.

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Determining the organization's mission and goals

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Defining the organization's overriding purpose and its goals. Provide customers with goods or services they value.

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Steps in determining the organization's mission and goals

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1. Defining the Business 2. Establishing Major Goals 3. Strategic Leadership

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Defining the Business

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Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs? What kind of value customers are receiving?

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Establishing Major Goals

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set of primary goals to which the organization is committed, Gives sense of direction or purpose. Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.

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Strategic Leadership

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the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates.

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Formulating Strategy

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Managers analyze current situation and develop the strategies needed to achieve the mission

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Steps in Formulating Strategy

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Strategic Formulation: Managers work to develop the set of strategies (corporate, divisional and functional) that will allow an organization to accomplish its mission and achieve its goals. SWOT Analysis

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SWOT Analysis

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A planning exercise in which managers identify: internal organizational strengths and weaknesses. external opportunities and threats

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Implementing Strategy

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Managers must decide how to allocate resources between groups to ensure the strategy is achieved.

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To perform the planning task, managers?

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1. Establish where an organization is at the present time. 2. Determine its desired future state. 3. Decide how to move it forward to reach that future state.

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Why is planning important?

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1. Necessary to give the organization a sense of direction and purpose. 2. Useful way of getting managers to participate in decision making. 3. Helps coordinate managers of the different functions and divisions of an organization. 4. Can be used as a device for controlling managers.

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Effective plans should have four qualities: Henri Fayol

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Unity, Continuity, Accuracy, Flexibility

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Unity

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At any one time only one central, guiding plan is put into operation.

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Continuity

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planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels

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Accuracy

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managers need to make every attempt to collect and utilize all available information at their disposal

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Flexibility

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plans can be altered and changed if the situation changes

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In large organizations, planning usually takes place at three levels of management:

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corporate, business or division, and department or functional.

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Corporate-Level Plan

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Top management's decisions pertaining to the organization's mission, overall strategy, and structure. Provides the framework within which divisional managers create their business level plans.

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Corporate Level Strategy

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A plan that indicates in which industries and national markets an organization intends to compete. Primary responsibility of top or corporate managers.

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Division

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business unit that has its own set of managers and departments and competes in a distinct industry

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Divisional managers

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Managers who control the various divisions of an organization.

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Business Level Plan:

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Long-term divisional goals that will allow the division to meet corporate goals. Division's business level and structure to achieve divisional goals. Provides the framework within which functional managers divise their plans.

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Business Level Strategy

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Outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry.

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Functional Level Plan

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Goals that the managers of each function will pursue to help their division attain its business level goals. This allows the entire company to achieve its corporate goals.

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Functional Strategy

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A plan of action that managers of individual functions can take to add value to an organization's goods and services. It increases the value customers receive.

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Planning Across the three different levels should be

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Consistent. Company operates in harmony. Increases efficiency and effectiveness.

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Time Horizon

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Period of time over which they are intended to apply or endure. They have: long term, intermediate and short term plans.

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Long Term Plans

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usually 5 years or more

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Intermediate Term Plans

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are 1 to 5 years

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Short term Plans

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are less than 1 year.

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Corporate ; Business level goals and strategies require:

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long and intermediate plans.

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Functional level goals and strategies focus on:

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short to intermediate term plans

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Most organizations have a:

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rolling planning cycle to amend plans constantly.

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Rolling Plan:

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A plan that is updated and amended every year to take account of changing conditions in the external environment.

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Types of Plans

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Standing Plans, Single-use Plans, and Scenario (Contingency Plans)

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Standing Plans

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Use in programmed decision situations. Policies are general guides to action. Rules are formal written specific guides to action. Standard Operating Procedures (SOP) specify an exact series of actions to follow.

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Single Use Plans

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Developed for a one-time, non programmed issue, for a unusual or one of a kind situation. Programs: integrated plans achieving specific goals. Project: Specific action plans to complete programs.

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Scenario Planning (Contingency Planning)

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The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Helps managers to think about the future - to think strategically.

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Michael Porter's Five Forces:

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well known model that helps managers focus on the five most important competitive forces in the external environment.

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Porter's Five Forces

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1. Level of Rivalry 2. Potential for Entry 3. Power of Suppliers 4. Power of Customers 5. Substitutes

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Level of Rivalry

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Increased competition results in lower profits

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Potential for Entry

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Easy entry leads to lower prices and profits

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Power of Suppliers

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If there are only a few suppliers of important items, supply costs rise.

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Power of Customers

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if there are only a few large buyers, they can bargain down prices.

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Substitutes

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More available substitutes tend to drive down prices and profits

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Hypercompetition

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industries that are characterized by permanent, ongoing, intense, competition brought about by advancing technology or changing customer tastes and fads and fashions.

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Formulating Business Level Strategies

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Low Cost, Differentiation, Stuck in the middle, Focused Low cost, and Focused differentiation

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Low-Cost Strategy

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Driving the organization's total costs down below the total costs of rivals. Manufacturing at lower costs, reducing wastes. Lower costs than competition means that the low cost producer can sell for less and still be profitable

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Differentiation

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Distinguishing the organization's products from those of competitors on one or more important dimensions, Differentiation must be valued by the customer in order for a producer to charge more for a product.

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Stuck in the Middle

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Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. Can't do both because it lowers levels of performance. Difficult to achieve low cost with the added costs of differentiation.

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Focused Low Cost

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Serving only one market segment and being the lowest cost organization serving that segment.

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Focused Differentiation

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Serving only one market segment as the most differentiated organization serving that segment.

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Formulating Corporate level strategies

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Concentration in single business, vertical integration, Diversification, International Expansion. An organization will benefit from pursuing any of these strategies only when the strategy helps further increase the value of the organization's goods and services so that more customers buy them.

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Concentration in Single Business

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Organization uses its functional skills to develop new kinds of products or expand its locations. Reinvesting a company's profits to strengthen its competitive position in its current industry. Appropriate when managers see the need to reduce the size of their organizations to increase performance.

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Vertical Integration

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strategy that involves a company expanding its business operations either backward into a new industry that produces inputs (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company's products (forward vertical integration).

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Diversification

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strategy of expanding a company's operations into a new industry in order to produce new kinds of valuable goods or services. Two kinds: related and unrelated.

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Related Diversification

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strategy of entering a new industry and establishing a new business division that is LINKED to a company's existing divisions because they share resources that will improve the competitive position.

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Synergy

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performance gains that result when individuals and departments coordinate their actions. Obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently.

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Unrelated Diversification

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Firms establish divisions or buy companies in new industries that are NOT LINKED to their current business or industry. Portfolio strategy: Apportioning resources among divisions to increase returns or spread risks among different business.

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International Expansion

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Decide on the appropriate way to compete internationally. Basic Question, Global Strategy, and Multi-domestic Strategy.

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Basic Question

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to what extent do we customize products and marketing for different national conditions?

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Global Strategy

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Undertaking very little customization to suit the specific needs of customers in different countries. Standardization provides for lower production costs. Ignores national differences that local competitors can address to their advantage. The same everywhere. Same standardized product in each national market

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Multi Domestic Strategy

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Customizing products and marketing strategies to specific national conditions. Helps gain local market share and raises production costs. Customize products and marketing strategies to specific national conditions.

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Choosing a way to expand internationally

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Opportunities: opening new markets, reaching more customers, and gaining access to new sources of raw materials and to low-cost suppliers. Threat: encountering new competitors, and responding to new political, economic, and cultural conditions.

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Exporting

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making products at home and selling them abroad.

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Importing

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selling at home products that are made abroad

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Licensing

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allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee.

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Franchising

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selling to a foreign organization the rights to use a brand name and operating know - how in return for a lump - sum payment and a share of the profits.

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Strategic alliance

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managers pool resources with those of a foreign country. Organizations agree to share risk and reward. Separate identities.

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Joint venture

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strategic alliance among companies that agree to jointly establish and share the ownership of a new business. Signing contracts.

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Wholly Owned Foreign Subsidiary

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managers invest in establishing production operations in a foreign country independent of any local direct involvement.

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Functional Level Strategies

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A plan that indicates how a function intends to achieve its goals. Seeks to have each department add value to a good or service. Marketing, service, and production functions call all add value to a good or service through: Lowering the costs of providing the value in products. Adding new value to the product by differentiating. Functional strategies must fit with business level strategies.

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Planning and Implementing Strategy

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1. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation. 4. Allocate appropriate resources. 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.

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