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What is Planning?

 It is a systematic attempt to look ahead in future to foresee


opportunities; by forecasting the likely possibilities and
scenarios at different times and then devising means and
actions to be taken to take advantage from them.
 Planning is an exercise that determines in advance:
a. The ends (What is to be done or achieved?)
b. The means (How it is to be done?)
c. The timing (When to do what?)
d. The responsibility (Who should do what?)
e. The reason (Why it should be done?)
What Is Planning?
 Planning
 Managerial function that involves:
 Defining the organization’s goals
 Establishing an overall strategy for achieving those goals
 Developing a comprehensive set of plans to integrate and
coordinate organizational work
 Types of planning
 Informal: not written down, short-term focus; specific to
an organizational unit
 Formal: written, specific, and long-term focus, involves
shared goals for the organization
Purposes of Planning

 Provides direction
 Reduces uncertainty
 Minimizes waste
 Sets the standards for controlling
How Do Managers Plan?
 Elements of Planning
 Goals (also objectives)
 Desired outcomes for individuals, groups, or entire
organizations
 Provide direction and performance evaluation criteria
 Plans
 Documents that outline how goals are to be accomplished
 Describe how resources are to be allocated
Planning and Performance
 The Relationship Between Planning and Performance
 Formal planning is associated with:
 Higher profits and returns on assets
 Other positive financial results
 The quality of planning and implementation affects
performance more than the extent of planning
 The external environment can reduce the impact of planning on
performance
Steps in Formal Planning: The Planning Process
 Step I: Environmental Scanning
 Step II: Constructing the Planning Premise
 Step III: Forecasting Outcomes and Events
 Step IV: Determining Objectives
 Step V: Search Alternative Courses of Action
 Step VI: Evaluation of Alternatives
 Step VII: Selecting an Alternative
 Step VIII: Formulation of Derivative Plans
 Step IX: Budgeting
 Step X: Building Agreement
 Step XI: Implementation
 Step XII: Review
SCAN THE ENVIRONMENT
INTERNALLY AND EXTERNALLY

DETERMINE THE ALTERNATIVES


FOR YOUR GOAL
AND CHOOSE THE BEST ONE

IMPLEMENTATION OF
SUPPORTING PLANS
ALONGWITH MAIN PLAN
Types of Plans
Types of Plans
 BREADTH
 Strategic Plans
 Apply to the entire organization
 Establish the organization’s overall goals
 Seek to position the organization in terms of its
environment
 Cover extended periods of time
 Operational Plans
 Specify the details of how the overall goals are to be
achieved
 Cover short time period
Types of Plans (cont’d)
 TIME FRAME
 Long-Term Plans
 Time frames extending beyond three years
 Short-Term Plans
 Time frames of one year or less

 SPECIFICITY
 Specific Plans
 Clearly defined and leave no room for interpretation
 Directional Plans
 Flexible plans that set out general guidelines, provide focus,
yet allow discretion in implementation
Exhibit 3.4 Specific Vs. Directional Plans
Types of Plans (cont’d)
 FREQUENCY OF USE
 Single-use Plan
 A one-time plan specifically designed to meet the
needs of a unique situation
 Standing Plans
 Ongoing plans that provide guidance for activities
performed repeatedly
Types of Plans
Plans can be classified as
(1) mission or purposes,
(2) objectives or goals,
(3) strategies,
(4) policies,
(5) procedures,
(6) rules,
(7) programs, and
(8) budgets
Types of Plans
 The mission, or purpose, identifies the basic purpose
or function or tasks of an enterprise or agency or any
part of it
 Objectives, or goals, are the ends toward which
activity is aimed
 Strategy is the determination of the basic long-term
objectives of an enterprise and the adoption of courses
of action and allocation of resources necessary to
achieve these goals
 Policies are general statements or understandings that
guide or channel thinking in decision making
 Procedures are plans that establish a required method
of handling future activities
Types of Plans – cont.
 Rules spell out specific required actions or nonactions,
allowing no discretion
 Programs are a complex 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
 A budget is a statement of expected results expressed in
numerical terms
Developing Plans

Contingency Factors in Planning


 Degree of environmental uncertainty
 Stable environment: specific plans
 Dynamic environment: specific but flexible plans
 Length of future commitments
 Current plans affecting future commitments must be
sufficiently long-term to meet the commitments
Approaches to Establishing Goals

 Traditional Goal Setting


 Broad goals are set at the top of the
organization
 Goals are then broken into subgoals for
each organizational level
 Goals are intended to direct, guide, and
constrain from above
Approaches to Establishing Goals
(cont’d)
 Management By Objectives (MBO)
 Specific performance goals are jointly determined
by superior and subordinates.
 Progress toward accomplishing goals is periodically
reviewed.
 Rewards and punishments are allocated on the
basis of progress toward the goals.
 Key elements of MBO:
 Goal specificity, participative decision making, an explicit
performance/evaluation period, feedback
Jointly set Action plans
Review
Objectives implemented

Managers and
Objectives
employees
allocated
work on Feedback
to specific
action plan
division
together

Develop
Objectives actions
allocated to plans to Rewards
department achieve
objectives
Does MBO Work?
 Reason for MBO Success
 Clarity of Objectives
 Clarity of authority and responsibility
 Periodic review
 Potential Problems with MBO Programs
 Not as effective in dynamic environments that
require constant resetting of goals
 Overemphasis on individual accomplishment
may create problems with teamwork
 Failure to teach MBO philosophy
Benefits of Management by Objectives
Clear goals:
 Motivate
 Improve managing through results-
oriented planning
 Clarified organizational roles, structures and
the delegation of authority
 Encourage personal commitment to their
own and organizational goals.
 Facilitate effective controlling, measuring
results, and leading to corrective actions
Failures of Management by
Objectives
 List some failures and limitations of MBO
 What would you do to overcome the failures?
Criticisms of Planning
 Planning may create rigidity
 Plans cannot be developed for dynamic environments
 Formal plans cannot replace intuition and creativity
 Planning focuses managers’ attention on today’s
competition, not tomorrow’s survival
 Formal planning reinforces today’s success, which may
lead to tomorrow’s failure
STRATEGIC
MANAGEMENT
STRATEGIC MANAGEMENT
 The set of
managerial
decisions and
actions that
determines the
long-run
performance of an
organization
The Strategic Management Process

External Analysis
• opportunities
• threats

Identify the
organization's Formulate Implement Evaluate
current mission, SWOT Strategies Strategies Results
goals, Analysis
and strategies

Internal Analysis
• strengths
• weaknesses
Strategic Management Process
 Step 1: Identify the Organization’s Current
Mission, Objectives, and Strategies
 Mission: the firm’s reason for being
 Goals: the foundation for further planning
 Step 2: Conduct an Internal Analysis
 Assessing organizational resources, capabilities, activities,
and culture:
 Strengths (core competencies) create value for the
customer and strengthen the competitive position of the
firm
 Weaknesses (things done poorly or not at all) can place
the firm at a competitive disadvantage
Strategic Management Process (cont’d)

 Step 3: Conduct an External Analysis


 The environmental scanning of specific and general
environments
 Opportunities: The positive trends in the market that can
be harnessed beneficially.
 Threats: The negative trends in the environment which can
hamper our growth.
Steps 2 and 3 combined are called a SWOT analysis.
(Strengths, Weaknesses, Opportunities, and
Threats)
Strategic Management Process (cont’d)

 Step 4: Formulate Strategies


 Develop and evaluate strategic alternatives
 Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
 Match organizational strengths to environmental
opportunities
 Correct weaknesses and guard against threats
Strategic Management Process (cont’d)

 Step 5: Implement Strategies


 Implementation: effectively fitting organizational
structure and activities to the environment
 The environment dictates the chosen strategy;
effective strategy implementation requires an
organizational structure matched to its requirements
 Step 6: Evaluate Results
 How effective have strategies been?
 What adjustments, if any, are necessary?
Levels of Organizational Strategy
Corporate Multi business

Level Corporation

Business Strategic Strategic Strategic

Level Business Unit 1 Business Unit 2 Business Unit 3

Functional Research and Human


Manufacturing Marketing Finance
Level Development Resources
Types of Organizational Strategies
 Corporate-level Strategy
 The company’s grand strategy for the entire
organization and its strategic business units
 Types of Grand Strategies
 Growth: expansion into new products and
markets
 Stability: maintenance of the status quo
 Retrenchment: addresses organizational
weaknesses that are leading to performance
declines
 Combination: simultaneous pursuit of two or
more of the strategies above
Corporate-Level Strategies
 Growth Strategy
 Seeking to increase the organization’s business by
expansion into new products and markets
 Stability Strategy
 A strategy that seeks to maintain the status quo
to deal with the uncertainty of a dynamic
environment, when the industry is experiencing
slow- or no-growth conditions, or if the owners of
the firm elect not to grow for personal reasons
Corporate-Level Strategies (cont’d)

 Retrenchment Strategy
 Reduces the company’s activities or operations
 Retrenchment strategies include:
 Cost reductions
 Closing underperforming units
 Closing entire product lines or services
Corporate-Level Strategies (cont’d)

 Combination Strategy
 Simultaneous pursuit by the organization of
two or more of growth, stability, and
retrenchment strategies
Business-Level Strategy
 Business-Level Strategy
 A strategy that seeks to determine how an
organization should compete in each unit within
the organization to create a competitive
advantage
 Competitive advantage
 An organization’s distinctive competitive edge that is sourced
and sustained in its core competencies
Functional-Level Strategy
 Functional-level strategies support the
business-level strategy
 i.e., Marketing, human resources, research and
development, and finance all support the
business-level strategy
 Problems occur when employees or customers
don’t understand a company’s strategy
SWOT ANALYSIS
PORTFOLIO MATRIX OR BCG
MATRIX
Forces in an Industry Analysis
(Five Forces Model Given by: Porter
New
Entrants

Threat of
New Entrants

Bargaining
Power of
Buyers
Intensity of
Rivalry Among
Suppliers Current Buyers
Competitors
Bargaining
Power of
Suppliers

Threat of
Substitutes

Substitutes
Five Competitive Forces
 Threat of New Entrants
 The ease or difficulty with which new competitors
can enter an industry
 Threat of Substitutes
 The extent to which switching costs and brand
loyalty affect the likelihood of customers adopting
substitute products and services
 Bargaining Power of Buyers
 The degree to which buyers have the market
strength to hold away over and influence
competitors in an industry
Five Competitive Forces (cont’d)
 Bargaining Power of Suppliers
 The relative number of buyers to suppliers and
threats from substitutes and new entrants
affect the buyer-supplier relationship
 Current Rivalry
 Intensity among rivals increases when
industry growth rates slow, demand falls, and
product prices descend
BLUE OCEAN STRATEGY
 Blue Ocean Strategy is a business strategy book first published in
2005 and written by W. Chan Kim and Renée Mauborgne of The Blue
Ocean Strategy Institute at INSEAD. The book illustrates what the
authors believe is the best organizational strategy to generate growth
and profits. Blue Ocean Strategy suggests that an organization should
create new demand in an uncontested market space, or a "Blue
Ocean", rather than compete head-to-head with other suppliers in an
existing industry
 Blue oceans, denote all the industries not in existence today – the
unknown market space, untainted by competition. In blue oceans,
demand is created rather than fought over. There is ample
opportunity for growth that is both profitable and rapid. In blue
oceans, competition is irrelevant because the rules of the game are
waiting to be set. Blue ocean is an analogy to describe the wider,
deeper potential of market space that is not yet explored.

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