Planning Process Stages

 Organizational mission: It is defined in the mission

statement which is a broad declaration of the
firms overriding purpose.
 The mission statement identifies product, customers
and how the firm differs from competitors.
 Formulating strategy: managers analyze current
situation and develop strategies needed to
achieve the mission.
 Implementing strategy: managers must decide
how to allocate resources between groups to
ensure the strategy is achieved.
 Planning Levels
 Corporate-level: These are decisions made by top
managers.
 It considers which businesses or markets to be in.
 It provides a framework for all other planning.
 Business-level: It details the divisional long-term
goals and structure.
 It identifies how this business meets corporate goals.
 It shows how the business will compete in the market.
 Functional-level: They are actions taken by
managers in departments of manufacturing,
marketing, etc.
These plans state exactly how business-level
strategies are accomplished.
 Types of Plans:
 They can be categorized into two:
a. By their Time frame
b. By their scope.

By their time frame:

 Time horizon: refers to how far in the future the plan applies.
 Long-term plans are usually 5 years or more.
 Intermediate-term plans are 1 to 5 years.
 Short -term plans are usually 1 year or less

By their scope.
• Strategic Plans
• Tactical plans
• Operational plans
 PLANNING CYCLE

The corporate and business level plans specify long

and intermediate term.
Functional plans focus on short to intermediate term.
Most firms have a rolling planning cycle to amend

plans constantly.
 Who Plans?
 Corporate level planning is done by top
managers.
 They also approve business and functional level plans.
 Top managers should seek input on corporate level
issues from all management levels.
 Business and Functional planning is done by
divisional and functional managers.
 Both management levels should also seek information
from other levels.
 Responsibility for specific planning may lie at a given
level, but all managers should be involved.
 Why Planning is Important
Planning determines where the organization is
now and where it will be in the future. Good
planning provides:
 Participation: all managers are involved in
setting future goals.
 Sense of direction & purpose: Planning sets
goals and strategies for all managers.
 Coordination: Plans provide all parts of the firm
with understanding about how their systems fit
with the whole.
 Control: Plans specify who is in charge of
accomplishing a goal.
 Scenario Planning
 Scenario Planning: It involves generating
several forecasts of different future conditions
and analyzes how to effectively respond to
them.
 Planning seeks to prepare for the future, but the
future is unknown.
 By generating multiple possible “futures” we can
see how our plans might work in each.
 Allows the firm to prepare for possible surprises.
 THE PLANNING PROCESS
 Planning is not a random activity that managers
undertake, but a management process that must
be managed effectively and efficiently.
 To gain the benefits of planning managers need
to:-
- Understand the Planning Process
- Identify Barriers to Effective Planning
- Overcoming the Barriers to Effective
Planning.
1.Determining Mission and
Goals
 This is the first step of the planning process
and is accomplished by :
A. Defining the business: It seeks to identify our
customer and the needs we can and should satisfy.
It also pinpoints competitors.

B. Establishing major goals: It states who will

compete in the business.
It Should stretch the organization to new heights.
 Goals must also be realistic and have a time period in
which they are achieved.
 2. Situation Analysis
 It allows managers to analyze the current situation to
develop strategies to achieve the mission.
 The following techniques are used to analyze the situation

a). SWOT analysis: It’s a planning tool to identify:

 Organizational Strengths and Weaknesses.
 Strengths: manufacturing ability, marketing skills.
 Weaknesses: high labor turnover, weak financials.
 Environmental Opportunities and Threats.
 Opportunities: new markets.
 Threats: economic recession, competitors
b) The Five Forces Model by
Michael Porter
Potential
Potential
for
forEntry
Entry

Power Rivalry Power

Powerofof
Powerof
of
Buyer Among Supplier
Supplier
Buyer
Organizations

Substitute
Substitute
Products
Products
THE FIVE FORCES MODEL
 Michael Porter developed a model that helps managers isolate
particular forces that are potential threats and thus affect how much
profits organizations competing in the same industry can expect to
make.
 The level of rivalry among organizations in an industry- the more
companies compete for customers in the market, the lower the
profits.
 The potential for entry into an industry- If barriers to entry are low,
the more the competitors and the lower the profits.
 The power of Suppliers – If there are only few suppliers of an
important input (e.g. KPLC), they can drive up the price of that
input.
 The power of customers – If only a few large customers are
available to buy an industry’s output, the can drive down the price
 The threat of substitute products
 3. Formulating Corporate-Level
Strategies
a) Concentration on a single business: Most
organizations start by focusing on one product or a
market e.g focusing in the fast food business.
 It can become very strong, but can be risky.
b) Diversification: Organization moves into new
businesses and services. There are two types off
diversification:
Related diversification: a firm diversifies in similar areas
to build upon existing divisions so that synergy is
created: two divisions work together to obtain more than
the sum of each separately, eg. Nation and standard
newspapers diversified into related fields of radio and
television
  Unrelated Diversification
It involves entering in new industries or buy companies
in new industries that are not related in any way to the
current business areas that have no relationship with
the existing business. E.g. K.C.C announced that it’s
going to start producing detergents
The advantage is a firm can build a portfolio of
unrelated firms to reduce risk or trouble in one
industry.
The disadvantage is that it is very hard to manage i.e.
control becomes difficult
C. International Expansion
To what extent do we customize products and
marketing for different national conditions?
A firm can thus decide on the following:

Global strategy: It involves having a single, standard product

and marketing approach is used in all countries.

Multi domestic strategy: Here products and marketing are

customized for each country of operation. However,
customization provides for higher costs.
 D. Vertical Integration

When the firm is doing well, managers can add more value by
producing its own inputs or distributing its products.
The two strategies are
Backward vertical integration: the firm produces its own
inputs. Eg. Kenya breweries grows its own barley and produces
its own bottles through Central Glass Ltd. The major advantage
is that it can lower the cost of supplies.
Forward vertical integration: the firm distributes its outputs or
products. Eg. Some of the oil companies in Kenya have their
own filling stations. The advantage is that a firm can lower
costs and ensure final quality.
 4. Formulating business-
level Strategies.
 Low-cost: gain a competitive advantage by driving down
organizational costs.
 Managers manufacture at lower cost, reduce waste.
 Lower costs than competition mean lower prices.
 Eg Kuguru Ltd has used this strategy with its softa sodas to
capture the price sensitive segment of the market.
 Assumptions:
 This strategy can work if:
a. The market is price sensitive
b. It should lead to economies of scale
 Differentiation: It involves gaining a competitive advantage by
making your products different from competitors.
 Differentiation must be valued by the customer.
 Successful differentiation allows you to charge more for a product.
 Stuck in the middle
Stuck in the middle: It is difficult to simultaneously become
differentiated and low cost.
The above strategies involves firms choosing to serve the
entire market, however they can focus on one or a few
segments of the market. Thus they can pursue the following
business strategies:
Focused low-cost: tries to serve one segment of the market
but be the lowest cost in that segment. Eg. Equity bank has
been using this strategy by focusing in Central parts of Kenya.
Focused differentiated: Firm again seeks to focus on one
market segment but is the most differentiated in that segment.
City Bank provides a good example by concentrating in
Corporate banking.
5.Formulating Functional-level
Strategies
 It seeks to have each department to add
value to a good or service.
 Marketing, service, production departments
e.t.c all add value to a good or service.
 Value is added in two ways:
1. lower the operational costs of providing the value in
products.
2. add new value to the product by differentiating.
 Functional strategies must fit with business level
strategies.
Goals for successful functional
strategies:
1. Attain superior efficiency: the measure of outputs for a given unit of
input.
2. Attain superior quality: products that reliably do the job they were
designed for.
3. Attain superior innovation: new, novel features about the product or
process.
4. Attain superior responsiveness to customers: Know the customer needs
and fill them.

Attaining these goals requires the adoption of many state of the art
management techniques and practices such as total quality
management, flexible manufacturing systems, just – in- time inventory,
self-managing teams, cross functional teams, process reengineering,
and employee empowerment.
• It is the responsibility of managers at the functional level to identify
these techniques and develop them.
Functional level Techniques
 Attaining these goals requires the adoption of
many state-of-the art management techniques
and practices like:
a) Total quality management
b) Flexible manufacturing systems
c) Just-in-time inventory
d) Self managing teams
e) Cross functional teams
f) Process reengineering
g) Employee empowerment
 5. Implementing Strategy and
Monitoring Strategy:

 It involves
1. Allocating responsibility for implementation to the
appropriate individuals or groups
2. Drafting detailed action plans that specify how a strategy is
to be implemented.
3. Establishing a time table for implementation that include
precise, measurable goals linked to the attainment of the
action plan
4. Allocating appropriate resources to the responsible
individuals or groups
5. Holding specific individuals or groups responsible for the
attainment of corporate, divisional and functional goals
 EFFECTIVE PLANNING
 To make plans effective managers need
to:
1. Understand the barriers to effective
planning
2. Overcome the barriers to effective
planning
 BARRIERS TO PLANNING
 Rapidly changing environmental barriers
 Lack of relevant information
 Poor goal formulation
 Lack of financial resources to implement plans
 Resistance to change
 Lack of Top management support
 Too much reliance on experience
 Poor control mechanisms
 Structural rigidity
 Poor alignment of structure and strategy
 OVERCOMING THE
BARRIERS
 Management participation at all levels
 Flexibility of plans
 Enhance communication at all levels of the
organization
 Consistency in planning at all planning levels
 Scenario planning
 Implementing change management techniques
 Manager participation