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Planning & Strategy

Planning: Definition & Characteristics

Planning involves selecting missions & objectives and the actions to achieve them. It requires the following: decision making, a rational approach to pre-selected objectives, managerial innovation, it bridges the gap between where we are & where we want to be, is closely linked to control

Types of Plans

Purposes or Missions (basic function or task of an org.) Objectives (ends or results towards an activity is aimed) Strategies (approach used to implement a plan) Policies (general statement which guide the thinking in decision making) Procedures (detailed method of achieving any activity) Rules (specific required actions allowing no discretion) Programs (composed of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed and other elements necessary to carry out a given course of action and may be supported by budgets) Budgets (statement of expected results in numerical terms)


Functions of Planning
1) Discover new opportunities 2) Anticipate and avoid future problems 3) Developing effective courses of action 4) Comprehend the uncertainties and risks with various options

Steps in planning

aware of opportunities Setting objectives or goals Considering planning premises Identifying alternatives Comparing alternatives in the light of goals sought Choosing an alternative Formulating supporting plans Numberizing plans by making budgets


important ends towards which individual and organizational activities are directed Objectives chosen should be verifiable

Objectives & Organizational Hierarchy

Socio-economic purposeBoard of Directors & Top mgt. MissionBoard of Directors & Top mgt. Overall objectives of the organization (long range & strategic)..Top mgt. Division objectivesmiddle mgt. Dept. & unit level objectives..lower level managers Individual objectives (performance & personal development objectives).. lower level managers


is a comprehensive managerial system that integrates many key managerial activities in a systemic manner & that is consciously directed toward the effective & efficient achievement of organizational & individual objectives.

Growth of MBO

systemic effort by Drucker (1954) GE used MBO to decentralize managerial decision making by identifying KRA and a measurement of performance 1957 McGregor criticized the traditional performance management sys.which emphasized on personality He suggested short term objectives (individual goal setting) to be reviewed in a timeframe by superiors.

Growth of MBO

only on short term goal has limitation so long term goals also emphasized (strategic planning)

The Process of MBO


preliminary objectives at the top Clarifying organizational roles Setting subordinate objectives Recycling objectives Quantitative & qualitative objectives

Model of the MBO Process

Step 1: Setting Goals
Corporate Strategic Goals Departmental goals Individual goals

Step 2: Developing Action Plans Action Plans

Review Progress Step 3: Reviewing Progress Corrective Action Appraisal Of Overall Performance Step 4: Appraising Overall Performance

MBO Benefits and Problems

Benefits of MBO
1. Manager and employee efforts are focused on activities that will lead to goal attainment. 2. Performance can be improved at all company levels. 3. Employees are motivated 4. Departmental and individual goals are aligned with company goals.

Problems with MBO

1. Constant change prevents MBO from taking hold. 2. An environment of poor employeremployee relations reduces MBO effectiveness. 3. Strategic goals may be displaced by operational goals. 4. Mechanistic organizations and values that discourage participation can harm the MBO process. 5. Too much paperwork saps MBO energy.

The Shewhart Cycle of Continuous Improvement

1. Plan 4. Act Analyze results; put Decide what changes are desirable, and plan a leaning into action change or test 2. Do Carry out the change or test

3. Check Observe the results

Single-Use Plans
For Goals Not Likely To Be Repeated

program is a complex set of objectives and plans to achieve an important, onetime organizational goal project is similar to a program, but generally smaller in scope and complexity

Standing Plans

policy is a general guide to action and provides direction for people within the organization Rules describe how a specific action is to be performed Procedures define a precise series of steps to be used in achieving a specific job Total quality management (TQM) to improve quality and production.


Strategic Planning
Strategic planning is the process of:

Diagnosing the organizations external and internal environments Deciding on a vision and mission Developing overall goals Creating and selecting general strategies to be pursued Allocating resources


Tactical Planning
Tactical planning involves making concrete decisions regarding:

What to do

Who will do it How to do it

within a normal time horizon of a year or less

Focus of Strategic and Tactical Planning

Intended purpose Nature of issues addressed Time horizon

Strategic Planning Tactical Planning

Ensure long-term effectiveness and growth How to survive and compete Long term (usually two years or more) Means of implementing strategic plans How to accomplish specific goals Short term (usually one year or less)

How often done

Where plans are primarily developed Level of detail

Every one to three years Middle to top management

Every six months to one year Employees, up to middle management High

Low to moderate

Identifying the Risks and Opportunities of Diversification

What can we do better than other firms if we enter a new market? What strategic resources do we need to succeed in the new market? Will we simply be a player in the new market or will we emerge a winner? What can we learn by diversifying, and are we sufficiently organized to learn it?


Level of Diversification and Planning



Scope of strategic planning

Lucent Technologies Cemex
Singlebusiness firm Dominant- Relatedbusiness business firm firm

Low High
Unrelatedbusinesses firm

Level of Diversification


General Electrics Strategy and Planning Levels

Corporate Level
Chairman of the Board & CEO, Vice Chairman & Executive Officers Assessing new businesses, allocating resources to business level companies, coordinating businesses
Pres. & CEO GE Aircraft Engines Pres. & CEO, NBC Pres. & CEO GE Appliances Pres. & CEO of other businesses

Business Level


Marketing Human Resources Finance/ Accounting Other

Marketing Human Resources Finance/ Accounting Other

Functional Level

Human Resources Finance/ Accounting Other

Functional Units in each line of business

Checklist for Analyzing Organizational Strengths and Weaknesses

Management and Organization Management quality Degree of centralization Organization charts Planning, information, control systems Marketing Distribution channels Market share Advertising efficiency Customer satisfaction Product quality Service reputation Sales force turnover Production Plant location Machinery obsolescence Purchasing system Quality control Productivity/efficiency Human Resources Employee experience, education Union status Turnover, absenteeism Work satisfaction Grievances Research and Development Basic applied research Laboratory capabilities Research programs New-product innovations Technology innovations

Profit margin Debt-equity ratio Inventory ratio Return on investment Credit rating

Corporate Strategic Approach BCG Matrix Parameters :market growth & relative market share Cash cow: Market growth rate low & relative market share high Star: market share high, growth rate high Q mark: market share small, growth rate high Under dogs: low market share low or stagnant growth

The Five Forces Affecting Industry Competition

Potential New Entrants Threats of new entrants Substitute Products from Other Industries Threat of substitute products The Firms Rivalry versus Industry Competitors

Buyers Bargaining power of buyers

Bargaining power of suppliers Suppliers

Growth Strategies

Integration Backward Integration Horizontal Integration Concentric diversification Conglomerate diversification


Developing Functional Strategies: Issues Addressed

Sample Functions
Human resources

Sample Key Issues

What type of reward system is needed?


What is the desired mixture of borrowed funds and equity funds? What goods or services should be emphasized? What should be the level of commitment to total quality?


Operations (manufacturin g)


Generic Strategies Model


Differentiation strategy

Cost leadership strategy

Strategic Target
Focus strategy
Narrow Uniqueness Low Cost (price)

Source of Advantage


Application of the Generic Strategies Model

Business-Level Strategy

Premium Quality Brand image Technological leadership

Company Examples
Toyota Mercedes-Benz Honda


Customer service Lexus


Application of the Generic Strategies Model (cont.)

Business-Level Strategy

Careful identification of target market (niche) Cost leadership emphasis or differentiation emphasis applied to a specific niche Constant review of customer demand in niche Create a unique image for the products



Cost Leadership Strategy

Essential actions associated with a cost leadership strategy:

Utilizing facilities or equipment that yield high economies of scale Constantly striving to reduce per unit overhead, manufacturing, marketing, labor and follow-up service costs Minimizing the labor-intensive personal services and sales forces Avoiding customers whose demands would result in high personal selling or service costs

Tools for Putting Strategy into Action

Environment Organization
Leadership Persuasion Motivation Culture/values Structural Design Human Resources Organization Chart Recruitment/selection Teams Transfers/promotions/training Layoffs/recalls Centralization/decentralization Facilities, task design Information and Control Systems Pay, reward system Budget allocations Information systems Rules/procedures