Strategic Management of Business

Source : Chapter 3 from MIS by waman S Jawadekar

The concept of corporate planning …..(1)

What is a plan?
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A plan is a predetermined course of action to be taken in the future It is a document containing the details of how the action will be executed Made against a time scale Goals and objectives that are to be achieved by the plan should have been decided

What are the pre requisites?

What is the relevance of planning to top management?

Primary task of management is to set the goals and objectives

The concept of corporate planning …..(2)

Planning

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Looking into future and asses likely events in the total business environment and taking suitable actions to meet any eventuality Generating the courses of actions to meet the most likely eventuality A dynamic process Future becomes present, might force changes in course of action Continuous assessment of predetermined course of action Vs the current requirements of the environment In essence, eliminating threats and converting opportunities into business

The concept of corporate planning …..(3)

Planning is a course of actions


Chain of decisions One after other Successful implementation of a plan means the execution of each decision in the chain went correct one after other Long range Short range

Planning can be
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market share etc. establishing some position in the corporate world.The concept of corporate planning …. its acquisition and allocation Technology (No emphasis on methods and procedures Strategy Right strategy improves the chances of success  Talks about   . direction of business. Deals with   Resource selection.. rate of growth.(4)  Long range planning      5 Years or more More concerned about the business as a whole Focus on Goals Deals with subjects like growth.

(5)  Short range planning   Concerned with attainment of business results of the year More in terms of business tasks like     Launch of a new product Starting a manufacturing facility Completion of a project Achieving intermediate milestones   Focus on Objectives Hierarchy of objectives which together take the company towards attaining the goals .The concept of corporate planning …..

(6)  Corporate Business Planning   Deals with corporate business goals and objectives Apart from the company considers         World trends in business The industry Technology International markets National priorities Competitors„ Business plans Corporate strengths and weaknesses  Complex exercise .The concept of corporate planning …..

manpower . marketing.The concept of corporate planning …. or research and development Goals and objectives will be stated in terms of these entities A corporate plan may have several entities  Entity     .. capacity. finance.(7)  Dimensions of planning  Time    Execution of plan is year after year Plan is made on a rolling basis where every year it is extended by one year Rolling plan provides an opportunity to correct or revise the plan in light of any new information the planner may receive Entity is the thing on which planning is focused Entity could ne production.

divisions.. functional groups.(8)  Dimensions of planning  Organization    Plan for the company has to be taken down to subsidiaries.The concept of corporate planning …. product groups or projects Corporate plan is a master plan The master plan is broken down into smaller organizational units helps to fix the responsibility for execution Corporate plan is made out of several elements Begins with mission and the goal Policy statements Strategies in various business functions Business objectives and targets budgets  Elements       .

. investment details and variety of schedules Plan is confidential and known only to few Long term plans are flexible where as short term plans are not flexible .(9)  Dimensions of planning  Characteristics     No defined characteristics Typical characteristics are the goals. resources. important milestones.The concept of corporate planning ….

Essentiality of strategic planning…(1)  The following reasons make planning an essential management process to keep the business in god shape and condition 1) 2) 3) 4) 5) Market forces Technological change Complex diversity of business Competition Environment .

growth. profitability Need to reorient organization quickly to meet eventualities Reorientation is possible only by having a business plan Technological breakthroughs are a threat and at the same time open new business opportunities Managerial and operational styles get affected Can pose questions on survival of a company Need preplanned investment in business plan for recovery management  Technological change     .Essentiality of strategic planning…(2)  Market forces      Difficult to predict Ability of organization to predict these forces is limited These forces affect sales.

service etc Need to evolve new strategies to deal with competition which calls for forward thinking and planning  Competition    . Quality. delivery.Essentiality of strategic planning…(3)  Complex diversity of business       Different products Different market segments Multiple locations Dependence on external factors So many uncontrollable factors & Increased complexity Need plans for diversification. expansion etc Direct or indirect competition Multiple issues such as knowhow.

organizing systemically the efforts and measuring the results against feedback  Peter drucker   Planning does not eliminate risk but provides an effective tool to face it . economic. technological environments A mix of environment changes affect business Forecasting environment changes is a major task under corporate planning  Evolving strategies to meet these changes is also a major task Defines planning as the process of making the present managerial decisions systematically and with the best possible knowledge of futurity. industrial. business.Essentiality of strategic planning…(4)  Environment     Management cannot control Social.

sets direction of the organization and decides scope and boundaries of the business After setting mission.Development of business strategies         Definite process and methodology involved Top management responsibility Starts with deciding the social responsibility proceeds to spell out the business mission and goals and the strategies to achieve them Mission statement relates the organization‟s existence. set goals Goals are specific and have a limited time frame (3-5 Yrs) After goals set objectives Objectives have further less time may be a year or two .

attitudes. the life cycle. government policies Needs to consider the strength of the organization while deploying resources and at the same time has to cover for organization weakness Unstructured exercise  How hard it is to formulate a strategy?    . material. markets. work culture. money and the know-how will be put over a period of time to achieve the goals Resources of the organization are deployed based on its goals and objectives but also based on the competition being faced by it Strategy development considers environmental factors such as technology. such as men. What is strategy ?   The manner in which the resources.

Strategy formulation Model .

but not always. marketing strategy .Types of strategies       A strategy means specific decision(s) usually. product strategy. strategy can be classified as any one of the below Overall company strategy. regarding the development of the resources to achieve the mission and goals of the organization Pure strategy : If a strategy considers a single point of attack by a specific method Mixed strategy : If a strategy acts on many fronts by many fronts A business strategy can be a series of pure strategies handling several external forces simultaneously Whether pure or mix. growth strategy.

 E. Overall company strategy   Long term business perspective Overall strength of the entire company and evolves policies of business which will dominate the course of the business movement. consolidate and maintain a leadership and acquire a competitive edge in the business and industry . Wal-Mart strategy of Mass merchandising  Growth strategy   Growth can be from existing business or through expansion and diversification Growth is possible in the organic way also  By acquiring companies  Growth strategies are adapted to establish.g.

where the company chooses a certain product with particular characteristics becomes a product strategy Potential to expand as a family of products  Market strategy     Closely related to product strategy Deals with distribution. pricing. market share. services. market research. communicating consumer needs and explains how they are fulfilled . advertising. Product strategy   A growth strategy. packing and the choice of market itself Act as expediting and activating force for the product and growth strategy Creates consumer loyalty.

etc Control mechanism Self motivating tool . production.g. expenses. capital expenditure. budgets for sales.Short range planning     Deals with targets & objectives of the organization Normally for 1 year with specified targets accompanied by specific budgets The organization translates long range planning into target covering all the critical areas f business Budgets      are resources required to achieved targets Physical terms to financial terms E.

Relationships of Budgets to Financial Budgets .

Advantage of short range planning with budgets        Gives the manager a clear target of achievement Specifies to the manager the resource allocation for a given task and freedom to use it Provides the manager with information on the performance Helps the management assess the overall performance of the business in light of the short terms targets and long term goals Provides an efficient tool to coordinate all the efforts within the organization Provides the management with selective information on shortfalls and over runs for immediate action Provides information in monetary terms to compare between any two business entities in the organization .

Tools of planning      They are decision making tools Business plans have a number of alternatives upon being planned Optimum resource allocation and profit maximization Achieving the common goals Tools are influenced by the below factors     Creativity Systems approach Sensitivity analysis Modelling .

an intuition of an individual or a group of individuals Only tool when judgment is required for a situation where no precedent is available Conceptual skills of individuals     Ability to generate ideas rapidly Change quickly from on frame of reference to another Originality in interpreting an event and generating different views on the situation Ability to handle with clarity and ease a complex relationship of various factors in a given situation  More no of creative people at key positions might create new ideas and new strategies of business development .Creativity    Comes out of an experience. a judgment.

operation and economic feasibility Tools like GANT. generate alternative courses of action and select the nest in given circumstances Used in situation of risk / uncertainty Testing the solutions for technical. PERT / CPM are used .Systems approach      Systems approach to planning considers all the factors and their inter relationship relevant to the subject Analytical study of the total system.

Sensitivity analysis       Test the validity of the solution under variable conditions Problem situation is handled with certain assumptions and conditions and based on these assumptions a rational solution is found Will the solution remain valid if assumptions changed Finds out the impact of change on the solution in economic terms when certain conditions change Validate optimal solutions Test solutions on the principles of utility .

constraints and parameters  Model is based on the relationship between variables Long range dynamic. short range static   Dynamic or static  E.Modeling      Meaningful representation of a real situation in mini scale Only significant factors are highlighted Purpose is to understand the complex situation based on only the significant factors Can be physical or logical Mathematical models use variables. statistical regression models .g. break even analysis model.

Strategic analysis of business   Kindly remember the earlier class in which we talked about Porter‟s five forces model Moving up the value chain can be a option in terms of gaining competitive advantage using information technology .

Value chain and six dimensions of improvement .

Strategic Analysis Model .

What is the Balanced Scorecard (BSC)?  Developed in early 90s   Robert Kaplan (Renaissance Group) David Norton (Harvard Business School)   “Translating Strategy Into Action” Traditional financial measures were    Too narrow – no connection to strategy Too focused on the past – not predictive Encouraged tendency to manage qtr to qtr  Too much “what” – Too little “why” 32 ASQ Vermont Section 5/14/2012 .

BSC: Four Perspectives     Financial perspective Customer perspective Internal Business perspective Learning & Growth perspective 33 ASQ Vermont Section 5/14/2012 .

Mark. No 6 34 ASQ Vermont Section 5/14/2012 . Supporting the Balanced Scorecard.BSC strategic focus Sanger. Work Study. V 47.

Example of a Balanced Scorecard 35 ASQ Vermont Section 5/14/2012 .

Financial perspective   Uses traditional tools and reports Considers EVA© and ROCE  Economic Value Added  NOPAT.(capital x cost-of-capital)  Return on Capital Employed  Emphasizes growth and improvement  Links financial performance to strategy 36 ASQ Vermont Section 5/14/2012 .

000 Activity Based Costing Select suppliers $82.000 Benefits 92.BSC encourages use of ABC Traditional accounting Salaries $375. 37 ASQ Vermont Section 5/14/2012 .000 Procure mat‟ls 175.000 Johnson.000 Phone 8. Introduction to the Balanced Scorecard and Performance Measurement Systems..000 Total $535.500 Travel 13.000 Total $535. Christian C.500 Expedite shortages 83.000 Resolve problems 103.000 Supplies 47.000 Certify vendors 92.

Linking Finance to Strategy 38 ASQ Vermont Section 5/14/2012 .

Customer Satisfaction Market Share Customer Acquisition Customer Profitability Customer Retention Customer Satisfaction 39 ASQ Vermont Section 5/14/2012 .

Customer perspective     Market share (various criteria) Customer retention (absolute or relative) Customer acquisition (absolute or relative) Customer satisfaction   Specific performance criteria Defined value proposition Profitability by account Net of any special account-specific expenses  Customer profitability   40 ASQ Vermont Section 5/14/2012 .

Customer perspective  Value proposition typically includes elements of    Time Quality Price 41 ASQ Vermont Section 5/14/2012 .

Internal Business perspective    Focus on process improvement Chose processes aligned with strategy Identify customer need      Identify the market Create the product/service offering Build the products/services Deliver the products/services After-sale customer service  Customer need satisfied 42 ASQ Vermont Section 5/14/2012 .

Learning & Growth perspective  Core measurements    Employee productivity Employee satisfaction Employee retention  Enablers    Staff competencies Technology infrastructure Climate for action/change 43 ASQ Vermont Section 5/14/2012 .

Balancing the BSC Heaviest emphasis is on business processes 44 ASQ Vermont Section 5/14/2012 .

quality.MIS : Strategic business planning        Business environment is prone to change Factors like market forces. technological changes and competition have significant impact MIS design is supposed to provide insight into these factors enabling the management to evolve strategies MIS supplies information to top management for strategy formulation Current information on business status Vs goals is given by MIS Continuous assessment of business progress in terms of sales. profit by MIS Feedback mechanism . market.

mobilization and mix of resources Generate standards.To summarize  MIS helps top management in        Deciding goals and objectives To determine the correct status of the further business and projects Provide correct focus Evolve decide and determine mix of strategies Evaluate performance and give critical feedback Provide cost benefit evaluation to decide on choice. norms. ratios and the yardsticks for measurement and control .

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