Chapter 5

Lecture Outlines

Planning and Strategy

Chapter Objectives
1. Identify four organizational responses to uncertainty, and distinguish the three types of planning. 2. Write good objectives and discuss the role of objectives in planning. 3. Explain the concept of synergy and identify four kinds of synergy. 4. Describe Porters model of generic competitive strategies. 5. Identify and discuss at least three e-business strategy lessons from the Internet revolution.

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Chapter Objectives (contd)

6. Identify and describe the four steps in the strategic management process, and explain the nature and purpose of a SWOT analysis.

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Coping with Uncertainty

Planning
The process of coping with uncertainty by formulating courses of action to achieve specified results.

Three Types of Uncertainty

State uncertainty: occurs when the environment, or a portion of the environment, is considered unstable. Effect uncertainty: occurs when impacts of environmental change are unpredictable.

Response uncertainty: arises when the consequences of decisions are unpredictable.

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Figure 5.1
Planning: The Primary Management Function

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Coping with Uncertainty (contd)

Organizational Responses to Uncertainty
Defenders: rely on a primary technology and/or a narrow product line to remain competitive. Prospectors: seek first-mover advantage by aggressively making things happen and not waiting for them to happen. Analyzers: follow the market leader and imitate what works; thereby, avoiding expensive R&D mistakes. Reactors: wait for adversity (e.g., declining sales) to occur before taking corrective action.

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Balancing Planned Action and Spontaneity in the Twenty-First Century

Command-and-Control Model
Top-down tight control of operations through exacting planning created organizational inflexibility to deal with unanticipated events and limited success.

Contingency Model
Participative planning and control balance planned action with creative flexibility to take advantage of unexpected opportunities and to cope with the need for change.

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The Essentials of Planning

A Plan:
Is a specific documented intention consisting of an objective (end) and an action statement (means). States what, when, and how something is to be done.

Essentials of Sound Planning

Organizational mission Types of planning Objectives Priorities The planning/control cycle

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The Essentials of Planning (contd)

Organizational Mission
A clear, formally written, and publicized statement that guides the organization by 1. defining the organization for key stakeholders. 2. creating an inspiring vision of the organization. 3. outlining how the vision will be accomplished. 4. establishing key priorities. 5. stating a common goal and foster togetherness. 6. creating a philosophical anchor for the organization.

7. generating enthusiasm and a can do attitude.

8. empowering organization members.

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The Essentials of Planning (contd)

Types of Planning
Strategic planning: determining how to pursue longterm goals with available resources. Intermediate planning: determining subunits contribution with allocated resources.

Operational planning: determining how to accomplish specific tasks with available resources.

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Figure 5.2
Types of Planning

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The Essentials of Planning (contd)

Planning Horizon
The elapsed time between the formulation and the execution of a planned activity. Planning horizon length corresponds to the type of plan with which it is associated, lengths shorten as the planning process evolves from strategic to intermediate to operational plans.

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The Essentials of Planning (contd)

Objectives
An objective is a firm commitment to achieve a measurable result within a specified period.

Writing Good Objectives

Objectives should be expressed in quantitative, measurable, and concrete terms. What specific result is to be achieved? When is the result to be achieved? How the result is to be measured? Who will be responsible for achieving the result?

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The Essentials of Planning (contd)

The Importance of Objectives (Uses of)
Targets: sets specific goals to achieve. Measuring sticks: gages how much was achieved. Commitment: encourages pursuit of the objective. Motivation: provides a challenge for achievement.

Management by Objectives (MBO)

A comprehensive management system based on measurable participatively set objectives that leverages the motivational power of objectives.

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The Essentials of Planning (contd)

The Means-Ends Chain of Objectives
Achievement of lower-level objectives creates a means for achieving higher-level objectives

Priorities
A ranking of goals, objectives, or activities in order of importance that guide the order and timing of decisions that management makes regarding the allocation of resources.

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The Essentials of Planning (contd)

The A-B-C Priority System
A: Must do objectives critical to successful performance. B: Should do objectives necessary for improved performance. C: Nice to do objectives are desirable for improved performance but not critical to survival or improved performance.

The 80/20 Principle (Pareto Analysis)

A majority of causes, inputs, or efforts tend to produce a majority of results, outputs, or rewards.

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The Essentials of Planning (contd)

The Planning/Control Cycle
Planning sets in motion activities to accomplish the planned objectives. Control functions to direct and monitor activities for deviations from plans (i.e., attainment of objectives).

Planning uses feedback from controls to improve/alter plans and implement corrective actions where necessary.

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Figure 5.4
The Basic Planning/Control Cycle

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Thinking Strategically (Including E-Business Strategies)

Synergy
The concept that the whole is greater than the sum of the parts.

Types of synergy
Market synergy: extending products to new markets. Cost synergy: savings from combinations of common-base operations, resources, and facilities. Technological synergy: the transfer and application of technologies to new markets. Management synergy: complementary skills that make for more effective overall management.

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Porters Generic Competitive Strategies

Models Competitive Variables
Competitive advantage: how to compete in a market. Competitive scope: how broad of a market to target.

Cost Leadership Strategy

Having the lowest overall cost in a market provides a competitive advantage in pricing over competitors.

Differentiation Strategy
Providing unique and superior value for the customer that builds brand loyalty.

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Porters Generic Competitive Strategies (contd)

Cost Focus Strategy
Attempting to gain a competitive edge in a narrow (or regional) market segment by controlling (competitively dominating) the segment.

Focused Differentiation
Involves achieving a competitive edge by delivering a superior product and/or service to a limited audience.

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Thinking Strategically (contd)

E-Business Strategies for the Internet
The Internet changes everythingbut it doesnt change everything overnight. Some of the old rules still applyan investment should still either save you money or make you money.

First, we overestimated the Internet; dont underestimate it nowits long-term impact will likely exceed expectations.

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Thinking Strategically (contd)

Lessons from the Dot-com World
Evolving Internet technologies are still emerging. There is no one-size-fits-all Internet strategy. There are still a lot of ways to make money on the Internet. Customer loyalty is built with reliable brand names and sticky web sites.

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The Strategic Management Process

Four Steps in the Strategic Management Process
1. Formulation of a grand strategy. 2. Formulation of strategic plans. 3. Implementation of strategic plans. 4. Strategic control.

Corrective action based on evaluation and feedback is takes place throughout the entire strategic management process.

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Formulation of a Grand Strategy

Grand Strategy
A general explanation of how the organizations mission is to be accomplished.

Situational Analysis
Finding the organizations niche by performing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding opportunities with resources being acquired.

Capability profile
Identifying the organizations strengths and weaknesses.

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Formulation of a Grand Strategy (contd)

Situational Analysis (contd)
Key capabilities for todays companies Quick response to market trends. Rapid product development. Rapid production and delivery. Continuous cost reduction. Continuous improvement of processes, human resources, and products. Greater flexibility of operations.

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Formulation of Strategic Plans

Criteria for Formulating Strategic Plans
Develop clear results-oriented objectives stated in measurable terms. Identify activities required to accomplish the objectives. Assign specific responsibilities to the appropriate personnel. Estimate times to accomplish activities and their appropriate sequencing. Determine resources required to accomplish the activities. Communicate and coordinate the above elements and complete the action plan.

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Strategic Implementation and Control

Implementation of Strategic Plans
Execution is fundamental to strategy and has to shape it. Developing a systematic filtering down process (selling the strategy) that facilitates the translation of strategic plans into lower-level plans requires considering: 1. Organizational structure. 2. People. 3. Culture. 4. Control systems.

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Strategic Implementation and Control (contd)

Strategic Control
A formal control system should be developed that helps keep strategic plans on track by setting up and testing channels for information on progress, problems, and the fit of strategic assumptions to the environment. using software programs for real-time tracking of production, financial, and marketing reports.

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Strategic Implementation and Control (contd)

Corrective Action Based on Evaluation and Feedback
Negative feedback should prompt corrective action at the step immediately before the problem occurs. Possible corrective actions include: updating strategic assumptions. reformulating strategic plans. rewriting policies.

making personnel changes.

modifying budget allocations.
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