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Planning Defined Defining the organization’s objectives or goalsEstablishing an overall strategy for achieving those goals Developing a comprehensive hierarchy of plans to integrate and coordinate activities Planning is concerned with ends (what is to be done) as well as with means (how it is to be done). Planning is defining organizational goals, establishing a strategy for reaching those goals, and developing a comprehensive hierarchy of plans to integrate and coordinate activities. It can be either formal or informal, depending on the time frame and amount of documentation Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Reasons for Planning Managers should plan for four reasons:First, planning coordinates effort by giving direction to managers and non-managers. Second, planning reduces uncertainty by forcing managers to look ahead, anticipate change, and develop appropriate responses. Third, planning reduces redundancy. Fourth, planning sets standards or objectives that facilitate control over the process of achieving goals. Exhibit 3.1 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Criticisms Of Formal PlanningPlanning may create rigidity. Plans can’t be developed for a dynamic environment. Formal plans can’t replace intuition and creativity. Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival. Formal planning reinforces success, which may lead to failure. Formal planning has been popular in business since the 1960s, but critics have observed the following: Planning may create rigidity. Assuming that conditions will remain relatively stable, formal plans lock organizational units into specific goals and time frames. Plans can’t be developed for a dynamic environment. Managing chaos and turning disasters into opportunities requires flexibility, not rigid, formal plans. Formal plans can’t replace intuition and creativity. Developing strategy depends as much on intuition and creativity as it does on formal analysis. Because most successful strategies are visions, not plans, merely following a systematic framework will not yield incisive thinking. Planning focuses a manager’s attention on today’s competition, not on tomorrow’s survival. Formal planning stresses capitalizing on existing opportunities, not reinventing or creating an industry. Formal planning reinforces success, which may lead to failure. Success can breed failure. Since change is motivated by problems, success may not motivate managers to challenge the status quo. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Planning and PerformanceFormal planning generally means higher profits, higher return on assets, and other positive financial results. Planning process quality and implementation probably contribute more to high performance than does the extent of planning. When external environment restrictions allowed managers few viable alternatives, planning did not lead to higher performance. The evidence is mostly positive and suggests several conclusions: Formal planning in an organization is frequently associated with positive financial results. In those organizations in which formal planning did not lead to higher performance, the environment was typically the culprit. The quality of the planning process and the implementation of the plans affect performance more than does the extent of the plans. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Types of Plans Strategic Long term Directional Single useBREADTH TIME SPECIFICITY FREQUENCY OF USE FRAME OF USE Strategic Long term Directional Single use Tactical Short term Specific Standing The most popular ways to describe plans are by their breadth (strategic versus tactical), time frame (long term versus short term), specificity (directional versus specific), and frequency of use (single use versus standing). These classifications are not mutually exclusive. Upper-level managers develop strategic plans that apply to the entire organization, establish overall objectives, and position the organization within its environment. Lower-level managers focus on tactical plans that specify how the overall objectives will be achieved. These plans differ in time frame and scope: operational plans are limited in scope and are measured daily, weekly, or monthly; strategic plans are broader, less specific and encompass five or more years. Exhibit 3.2 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Planning: Focus and TimeStrategic plans Plans that are organization-wide, establish overall objectives, and position an organization in terms of its environment Tactical plans Plans that specify the details of how an organization’s overall objectives are to be achieved Short-term plans Plans that cover less than one year Long-term plans Plans that extend beyond five years The short-term covers less than one year, the intermediate-term covers one to five years, and the long-term is five years or more. The commitment concept is relevant to classifying plans because the more current plans affect future commitments, the longer the time frame for which managers must plan. The length of the planning horizon increases up the management hierarchy and decisions of top management imply greater commitments of resources than decisions of lower managers. With respect to the degree of variability, the greater the uncertainty, the more plans should be of the short-term variety. This is so because shorter-term plans allow for better accommodation of change by providing more flexibility. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Strategic Planning Strategic plansApply broadly to the entire organization. Establish the organization’s overall objectives. Seek to position the organization in terms of its environment. Provide direction to drive an organization’s efforts to achieve its goals. Serve as the basis for the tactical plans. Cover extended periods of time. Are less specific in their details. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Tactical Planning Tactical plans (operational plans)Apply to specific parts of the organization. Are derived from strategic objectives. Specify the details of how the overall objectives are to be achieved. Cover shorter periods of time. Must be updated continuously to meet current challenges. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Directional versus Specific PlansExhibit 3.3 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Specific and Directional PlansSpecific plans Plans that have clearly defined objectives and leave no room for misinterpretation. “What, when, where, how much, and by whom” (process-focus) Directional plans Flexible plans that set out general guidelines. “Go from here to there” (outcome-focus) It appears intuitively correct that specific plans are always preferable to directional, or loosely guided plans. Specific plans have clearly defined objectives and leave no room for misinterpretation. However, specific plans are not without drawbacks. They require a clarify and predictability that often does not exist. When uncertainty is high and flexibility is needed, directional plans are preferable. Since directional plans identify general guidelines, they provide focus but do not lock managers into specific objectives or courses of action Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Single-Use and Standing PlansSingle-use plans A plan that is used to meet the needs of a particular or unique situation Single-day sales advertisement Standing plan A plan that is ongoing and provides guidance for repeatedly performed actions in an organization Customer satisfaction policy Some plans are meant to be used only once; others are used repeatedly. A single-use plan is used to meet the needs for a particular or unique situation. A standing plan is ongoing and guides for actions that are performed repeatedly in an organization. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Management by ObjectivesManagement by Objectives (MBO) A system in which specific performance objectives are jointly determined by subordinates and their supervisors, progress toward objectives is periodically reviewed, and rewards are allocated on the basis of that progress. Links individual and unit performance objectives at all levels with overall organizational objectives. Focuses operational efforts on organizationally important results. Motivates rather than controls. Management by objectives (MBO) emphasizes participation to set goals that are tangible, verifiable, and measurable. MBO’s appeal lies in its emphasis on converting overall organizational objectives into specific objectives for units and members of the organization. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Cascading of ObjectivesAs the figure above shows, the organization’s overall objectives are translated into specific objectives for each succeeding level (divisional, departmental, or individual) in the organization. But because lower-unit managers jointly participate in setting their own goals, MBO works from the “bottom-up” as well as from the “top down.” The result is a hierarchy of objectives that links objectives at one level to those at the next level. And for the individual worker, MBO provides specific personal performance objectives. So each person has an identified specific contribution to make to his or her unit’s performance. If all individuals achieve their goals, then their unit’s goals will be attained and the overall objectives of the organization will become a reality. Exhibit 3.4 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Elements of MBO Goal specificity Participative decision makingExplicit time period for performance Performance feedback There are four ingredients common to MBO programs: participation in decision making, goal specificity, an explicit time period, and performance feedback. MBO objectives should be concise statements of expected accomplishments. It is not enough merely to state the desire to cut costs, improve service, or boost quality. Such desires have to be converted into tangible objectives that can be measured and evaluated: for example, to cut costs by seven percent. The objectives of MBO are not unilaterally set by the boss and then assigned to subordinates. MBO replaces imposed goals with participatively set goals. The superior and subordinate jointly choose the goals and agree on how they will be measured. Each objective has a specific time period in which it is to be completed. So managers have not only specific objectives but also stipulated time periods in which to accomplish them. The final ingredient in an MBO program is feedback on performance. MBO seeks to give continuous feedback on progress toward goals so that individuals can monitor and correct their own actions. Continuous feedback, supplemented by more formal periodic management evaluations, takes place at all levels of the organization. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Setting Employee ObjectivesIdentify an employee’s key job tasks. Establish specific and challenging goals for each key task. Allow the employee to actively participate. Prioritize goals. Build in feedback mechanisms to assess goal progress. Link rewards to goal attainment. Employees should understand what they are trying to accomplish. Managers can help employees set work goals by using the following guidelines: Identify an employee’s key job tasks. The employee’s job description can be used to define what he or she is supposed to accomplish. Establish specific and challenging goals for each key task. Performance levels, specific targets, and clear deadlines should be set for all employees. Allow the employee to actively participate. When employees participate in goal setting, they are more likely to accept the goals. Prioritize goals. The purpose of prioritizing goals in order of importance is to encourage the employee to take action and expend effort on each goal in proportion to its importance. Build in feedback mechanisms to assess goal progress. Feedback lets workers know whether their level of effort is sufficient to attain the goal. It should be frequent and recurring. Link rewards to goal attainment. Linking rewards to the achievements will help each employee to answer the question “What’s in it for me? Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Is There a Downside to MBO?Goal Difficulty Goal Specificity Is There a Downside to MBO? Top Management Participation Research indicates that MBO is most effective if goals are difficult enough to require a worker to stretch. While MBO promotes participative goal setting, when goal difficulty is held constant, assigned goals often work just as well. But, participative goal setting does induce individuals to set more difficult goals. Studies of actual MBO programs confirm that MBO effectively increases employee performance and organizational productivity. A review of seventy programs, for example, found organizational productivity gains in sixty-eight of them. The same review discovered that top management commitment is critical for MBO to reach its potential. When top management was committed to MBO, the average productivity gain was 56 percent. When top management was not committed to MBO, the average gain was only 6 percent. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Strategic Management Strategic Management ProcessA nine-step process that involves strategic planning, implementation, and evaluation . The energy crisis, deregulation in the marketplace, rapidly changing technology, and increasing global competition have changed the nature of planning forever. Managers now must analyze the environment, assess organizational strengths and weaknesses, and identify opportunities for gaining competitive advantage. Then, they must develop strategic plans based on their findings. Senior management uses the nine-step strategic management process to develop organizational strategy. Exhibit 3.5 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
The Organization’s Current IdentityMission statement Defines the present purpose of the organization. Objectives Specific measures (milestones) for achievement, progress, and performance. Strategic plan A document that explains the business founders’ vision and describes the strategy and operations of that business. First, management must identify the mission, objectives, and strategies of the organization. A mission statement defines an organization’s purpose and provides guidance to managers and employees. A clear mission statement forces management to identify the scope of its products or services carefully It answers questions such as the following: What business are we in? What are we trying to accomplish? All organizations have strengths and weaknesses. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Analyze the EnvironmentEnvironmental scanning Screening large amounts of information to detect emerging trends and create a set of scenarios Competitive intelligence Accurate information about competitors that allows managers to anticipate competitors’ actions rather than merely react to them In step two, managers analyze the environment in which the organization operates: actions of competitors, pending government legislation, preferences of customers, and supply of labor. Managers use environmental scanning to anticipate and interpret environmental changes. The term refers to screening information to detect trends, monitor the actions of others, and create scenarios. This slide and the next one review four environmental-scanning techniques: competitive intelligence, scenario development, forecasting, and benchmarking. The seeking of basic information about competitors, competitive intelligence can allow managers to anticipate rather than react to the actions of competitors. Advertisements, promotional materials, press releases, governmental reports, annual reports, want-ads, newspaper articles, databases, trade shows, industry studies, and competitor’s products supply 95% of the data required for this technique to work. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
SWOT: Identifying Organizational OpportunitiesTo plan strategy, managers must complete steps three, four, and five by assessing the organization’s strengths, weaknesses, opportunities, and threats within its operating environment. To do so, they conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) which compares the organization’s resources against opportunities in the environment. Environmental scanning reveals opportunities (positive external factors) for the organization to exploit and threats (negative external factors) that the organization must face. How an organization defines opportunities or threats depends on its resources. The figure above illustrates the objective of SWOT analysis. A successful analysis identifies a niche in which the organization’s products or services can have some competitive advantage. The area in which the opportunities in the environment overlap with the organization’s resources represents the niche wherein the organization’s opportunities lie. SWOT analysis Analysis of an organization’s strengths, weaknesses, opportunities, and threats in order to identify a strategic niche that the organization can exploit Exhibit 3.6 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
SWOT Analysis Strengths (strategic) WeaknessesInternal resources that are available or things that an organization does well. Core competency: a unique skill or resource that represents a competitive edge. Weaknesses Resources that an organization lacks or activities that it does not do well. Opportunities (strategic) Positive external environmental factors. Threats Negative external environmental factors. Management analyzes the internal resources of the organization, such as capital, skills of workers, or patents. These resources are the strengths of the organization. The strengths that represent unique skills or resources are called the organization’s distinctive competence. In contrast, weaknesses are resources that are lacking in the organization. Based on the results of the SWOT analysis, management must complete step six by assessing the opportunities that are available, reevaluating its missions and objectives, and making necessary changes. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Grand Strategies Growth strategy Stability strategyA strategy in which an organization attempts to increase the level of its operations. Stability strategy A strategy that is characterized by an absence of significant change. Retrenchment strategy A strategy characteristic of a company that is reducing its size, usually in an environment of decline. Combination strategy The simultaneous pursuit by an organization of two or more of growth, stability, and retrenchment strategies. In the seventh step, management must set strategies for all organizational levels. Four grand strategies are available: growth, stability, retrenchment, and combination. The Growth Strategy: organizations can grow through direct expansion, merger, and acquisition. The Stability Strategy. characterized by an absence of change, this strategy is appropriate if several conditions exist: a stable and unchanging environment, satisfactory organizational performance, absence of valuable strengths and critical weaknesses, and nonsignificant opportunities and threats. The Retrenchment Strategy: characteristic of an organization that is downsizing, this strategy is used in an environment of decline.. The Combination Strategy. This strategy is the simultaneous pursuit of two or more strategies. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Growth Strategies Direct Expansion Merger AcquisitionInvolves increasing a company’s size, revenues, operation, or workforce. Merger Occurs when two companies, usually of similar size, combine their resources to form a new company. Acquisition Occurs when a larger company buys a smaller one and incorporates the acquired company’s operations into its own. A direct expansion strategy involves increasing a company’s size, revenues, operation, or workforce. A merger occurs when two companies (of similar size) combine resources to form a new company. An acquisition occurs when a larger company “buys” a smaller one and absorbs its operations. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Competitive StrategiesStrategies that position an organization in such a way that it will have a distinct advantage over its competition: Cost-leadership strategy Becoming the lowest-cost producer in an industry. Differentiation strategy Attempting to be unique in an industry within a broad market. Focus strategy Attempting to establish an advantage (such as cost or differentiation) in a narrow market segment. An organizational unit must translate the grand strategy into a set of strategies that gives it a competitive advantage. Using Michael Porter’s framework, management can select a strategy that gives its organization a competitive advantage. Porter named three strategies from which management may choose: cost-leadership, differentiation, and focus. When an organization aims to be the low-cost producer, it is following a cost-leadership strategy. The firm that seeks to be unique in ways that are widely valued by buyers is following a differentiation strategy. The focus strategy aims at a cost advantage or differentiation advantage in a narrow segment. If an organization cannot use any one of these three strategies to develop a competitive advantage, then it is stuck in the middle unless it is competing in a highly favorable market or all of its competitors are also stuck in the middle. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Sustaining a Competitive AdvantageCompetitive advantage counts for little if it cannot be sustained over the long-term. Factors reducing competitive advantage Evolutionary changes in the industry Technological changes Customer preferences Imitation by competitors Defending competitive advantage Patents, copyrights, trademarks, regulations, and tariffs Competing on price Long-term contracts with suppliers (and customers) To sustain a competitive advantage, managers create barriers to competition through patents, copyrights, or trademarks; using economies of scale to reduce price to boost volume; locking up suppliers with exclusive contracts and lobbying for government policies to limit foreign competition. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Implementation and ExecutionEvaluating Strategy Strategy Formulation Implementation and Execution Step eight requires leadership from top management and commitment from middle or lower-level managers. In step nine, management must evaluate the results obtained from the strategic management process. Evaluation Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Quality as a Strategic WeaponBenchmarking The search for the best practices among competitors or noncompetitors that lead to their superior performance. ISO 9000 series Standards designed by the International Organization for Standardization (ISO) that reflect a process whereby independent auditors attest that a company’s factory, laboratory, or office has met quality management requirements. TQM focuses on quality and continuous improvement. If integrated into ongoing operations, incremental improvement can accumulate into a competitive advantage that others cannot steal. Benchmarking is the practice of using a measurable scale to compare key business operations with those of successful organizations. It involves four steps. (1) Form a team to identify the following: benchmarking targets, “best practices” of other organizations, and data collection methods. (2) Collect data from internal operations and external organizations. (3) Analyze data to identify performance gaps and determine their causes. (4) Prepare and implement an action plan to meet or exceed performance standards. To show that its products meet world standards for quality management, a company must gain ISO 9000 certification. The certificate attests that the company has met rigorous standards for quality and consistency as defined by the International Organization for Standardization in Geneva. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Attaining Six Sigma QualityA philosophy and measurement process developed in the 1980s at Motorola. To design, measure, analyze, and control the input side of a production process to achieve the goal of no more than 3.4 defects per million parts or procedures. A philosophy and measurement process that attempts to design in quality as a product is being made. The six sigma philosophy was developed in the 1980s at Motorola. Its premise is to “design, measure, analyze, and control the input side of a production process.” Rather than measuring the quality of a product after it is produced, six sigma uses statistical models, specific quality tools, high levels of rigor, and process improvement “know how” to design in quality as the product is being made. Accordingly, six sigma is designed to decrease defects to fewer than four per million items produced. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Six Sigma 12-Process StepsSelect the critical-to-quality characteristics. Define the required performance standards. Validate measurement system, methods, and procedures. Establish the current processes’ capability. Define upper and lower performance limits. Identify sources of variation. Screen potential causes of variation to identify the vital few variables needing control. Discover variation relationship for the vital variables. Establish operating tolerances on each of the vital variables. Validate the measurement system’s ability to produce repeatable data. Determine the capability of the process to control the vital variables. Implement statistical process control on the vital variables. Source: Cited in D Harold and F. J. Bartos, “Optimize Existing Processes to Achieve Six Sigma Capability,” reprinted from Control Engineering Practice, © 1998, p. 87, with permission from Elsevier Science. Exhibit 3.7 Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Identifying A Competitive AdvantageEnvironmental sources of entrepreneurial opportunity The unexpected The incongruous The process need Industry and market structures Demographics Changes in perception New knowledge Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Web Links Visit the Robbins/DeCenzo companion WebsiteAt for this chapter’s Internet resources, including chapter quiz and student PowerPoints. Diversity Perspectives Log onto and assume the role of a manager in the Bureau of Children with Disabilities as it struggles to obtain information vital to its planning efforts. Copyright © 2005 Prentice Hall, Inc. All rights reserved.
Insert Video Link Here (Size to this window)Video Case Application Whirlpool Puts a New Spin on Productivity and Quality Insert Video Link Here (Size to this window) Copyright © 2005 Prentice Hall, Inc. All rights reserved.
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