Objectives Decision making process. Foundation of Planning. Strategic Management.
Decision Making Process Point No. 1…
Decision Making “The process of selecting a course of action or alternative among different alternatives”.
Types of Decisions Programmed decisions. Nonprogrammed decisions.
Programmed Decisions Type of problem: Frequent, repetitive, routine, much certainty regarding cause and effect relationship. Procedure: Dependence on policies, rules, and definite procedures. Examples: Business, University, Healthcare. Nonprogrammed Decisions Type of problem: Novel, unstructured, much uncertainty regarding cause and effect relationship. Procedures: Necessity for creativity, intuition, tolerance for ambiguity, creative problem solving. Examples: Business, University, Healthcare. Types of Decisions
Conditions of Decision-making Certainty. Risk. Uncertainty.
Barriers to Effective Decision Making Psychological biases: – Illusion of control – Farming effect – Discount the future Time pressures: – Real time information – Involve people more effectively and efficiently Social realities:
Decision Making Process 1.Identifying the problem. 2.Identifying decision criteria. 3.Allocating weights to the criteria. 4.Developing alternatives. 5.Analyzing alternatives. 6.Selecting an alternative. 7.Implementing the alternative. 8.Evaluating decision effectiveness.
Decision Making Process Problem Identification “New Supplier is required ” Identification of Decision Criteria Price Quality Mode of payment Credibility Location Allocation of Weights to Criteria Quality 10 Price 8 Mode of Pay 5 Location 4 Credibility 3 Development of Alternatives Anex Haji & sons Linkers Hassan Bro. Globe Inn Implementation of an Alternative Hassan Bro. Evaluation of Decision Effectiveness Analysis of Alternatives Anex Haji & sons Linkers Hassan Bro. Globe Inn Selection of an Alternative Anex Haji & sons Linkers Hassan Bro. Globe Inn
Foundation of Planning Point No. 2…
Planning “Planning is the process of establishing goals and a suitable course of action to achieve these goals. It requires decision making, that is, choosing future courses of action from alternatives.”
Planning (cont.) Planning is concerned with bridging the gap between where the organization is now and where it wants to be in the future. This involves two distinct processes measuring the current "state of play" of the organization and then predicting the future in a quantifiable way or qualifiable way.
Planning (cont.) The plan acts as a target to aim for and a yardstick for controlling operations - deviations from the plan give feedback signals for corrective action if necessary. Long term planning (forecasts) are, however, increasingly used by large companies to cover any period from five to fifteen years, depending to a certain extent on the type of industry (the oil industry for example, works on very long term plans because of the length of time needed for exploration of oil-fields and the commissioning of refineries).
Mangers and Planning 1.Strategic Planning. 2.Tactical Planning. 3.Operational Planning.
Mangers and Planning (cont.) Top Level Managers Middle Level Managers First Line Managers Strategic Planning Tactical Planning Operational Planning
Strategic Planning Planning that apply to the entire organization, establishes the organization’s overall objectives and seek to positions an organization in terms of its environment is called strategic planning. It takes place at the highest level of the organization.
Tactical Planning It is the technique of determining how strategic objectives will be accomplished. It is usually the job of Middle level Managers.
Operational Planning It specifies the detail how overall objectives are to be achieved. It is typically the job of First Line Managers.
Tools for Planning Brain Storming. Forecasting. Breakeven Analysis. Gantt Chart. Program Evaluation and Review Technique (PERT). Critical Path Method (CPM). Delphi Technique.
Barriers to Planning Inappropriate Goals Improper Reward System Complex Environment Resistance to Change Constraints Information Deficiency
Long Term Plans A long term plan is the only way to: 1.Ensure the most efficient use of existing production facilities. 2.Enable cash resources to be planned to the best advantage. 3.Assess the capital expenditure requirements over the period. 4.Assess manpower requirements (both management and labour) for the period so that the necessary programmers can be developed.
Long Term Plans (cont.) 5.Define the kind and size of acquisitions needed to complement the existing companies or units within a group. 6.Determine which products are declining and which are expand. 7.Assess what sort of group or company it will be in five years time.
Long Term Plans (cont.) The essence of these plans are: 1.A soundly based plan with defined standards of performance (i.e. not necessarily base on the organization's previous performance) in all aspects of the business. 2.Speedy reporting, preferably monthly, so that variations in the plan are brought out as early as possible. 3.Early remedial action to rectify as far as possible divergences from the plan.
Budgetary Plans Budgets (plans, forecasts) are pre-determined statements of management policy during a given period which provides a standard for comparison with the results actually achieved. Budgetary Control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with that budgeted and acting upon results to achieve maximum profitability.
Budgetary Plans (cont.) 1.The establishment of a plan or target of performance which co-ordinates all the activities of the business. 2.The recording of actual performance. 3.The comparison of the actual performance with that planned. 4.The calculation of the difference, or variances and an analysis of the reasons for these differences. 5.The action - immediately if necessary - to remedy the situation.
Budgetary Plans (cont.) The objective of budgetary Control: 1.Combine the ideas of all levels of management in the preparation of the budget. 2.Co-ordinate all the activities of the business. 3.Centralize control. 4.Decentralized responsibility on to each manager involved. 5.Act as a guide for management decisions when unforeseeable conditions affect the budget.
Importance of Planning The ability to make and carry out good plans is one of the most valuable assets a manager can have. It is the first step toward easy, smooth, and certain completion of work. It makes work easier, since the people detailed to do the jobs know in advance where they are going, how they can get there, and when they should arrive. Good planning, when properly communicated to subordinates, improves working relationships and employee morale because subordinates know the overall plan as well as their place in it.
Importance of Planning (cont.) Good planning helps in the accomplishment of tasks by enabling subordinates to go ahead with the minimum of direction. Having knowledge of the total plan enables them to go from one stage to the next as a matter of course. In summary, by good planning: 1.Purposeful action is more readily achieved. 2.Crises are anticipated and delays avoided. 3.Delegation is made-easier, with less need for direction.
Importance of Planning (cont.) And, above all else, sound and competent planning gets the best out of people. Brilliant people may well obtain fair results without much planning, but with it average people can be made to produce infinitely better results.
Approach to Planning There is no mystery about planning. It involves turning ideas into actua1ities by a series of logical THINKING steps. 1.By defining the major objectives. 2.By breaking down into minor objectives. 3.By allocating priorities for minor objectives.
Application to Planning Having considered the steps involved in planning, we now turn our attention to the way in which they should be applied. Planning must be applied downward in any organization, but with the active co-operation of subordinate staff all down the line. Once minor objectives have been decided at the top, they become in effect major objectives for subordinates, which they in turn will sub-divide for their own subordinates.
Application to Planning (cont.) It follows that every level should understand the planning approach outlined and should be able to allocate priorities and work out precise details. Only in this way can a really major objective be broken down into the mass of detailed activities which become necessary for its accomplishment. In the end, only a proper job of planning by the entire supervisory staff of an organization will ensure unified and successful action.
Planning via Use Of Time
Involving Time and Efforts It is therefore hardly surprising that a great deal of work goes unplanned because managers and supervisors, particularly in the lower echelons, simply do not leave themselves sufficient time to do it properly. Planning the use of time is to an important a factor to leave to chance. Some effort devoted to finding ways of controlling its use will pay dividends. This, then, is the important aspect of supervision which we shall next discuss.
Time is Spent 1.Routine work: Routine work is that which occurs repetitively and requires little or no skill; such as making out requisitions, duty rosters, time sheets, etc. 2.Regular Work: The major portion of every day is spent doing things which can be classed as regular work. This includes such activities as assigning jobs, carrying out inspections, writing reports, attending meetings, etc. the daily activities that are necessary to keep departments going.
Time is Spent (cont.) 3.Special Work: These special jobs are generally of an urgent nature, and demand the flexibility to push aside routine and regular work. Finally, there is creative work, which includes any time devoted to planning. There can be no denying that this is the most important part of supervision, because it is time spent on planning which leads to lowering costs, increasing quality, improving customer service, reducing scrap, reducing waste or the frequency of accidents, or improving some aspect of the business to make it more efficient.
Time is Spent (cont.) 4.Creative Work: Yet most supervisors are so pre-occupied with routine, regular, and special work that they are unable to find time to do creative work. Doing creative work takes time. To find this time, the supervisor or manager must learn how to get all his assigned work done in less than a full working day.
Planned Timesaving Further time can be saved by orderly work habits. A time saver of first importance is the practice of grouping all the items of one type of work, and accomplishing them at one time. These may include activities such as telephone calls, correspondence, personal contacts, appointments, inspections, reports, and records.
Planned Timesaving (cont.) Making ten telephone calls at one sitting uses a lot less time than making ten calls at different times during the day. Similarly, grouping interplant travel into single trips saves a lot of time. The aim should be to anticipate related items and, by grouping them together for attention, extend the working day through planned timesaving.
Establishing Time Budget Unless the supervisor established a time budget into which he schedules the time necessary for routine, regular, special, and creative work, he will never get round to any creative work. He will never have time for it. He will tend to postpone even regular and routine work in order to handle the special rush jobs. A useful approach is to keep a record of daily activities in order to get some idea of the time normally devoted to routine matters, to necessary regular work, and to special jobs. After a while, this shou1d settle down into a pattern sufficiently accurate for rough planning purposes. Based on this information, a time budget can be calculated in which the supervisor:
Establishing Time Budget (cont.) 1.Schedules routine work. 2.Schedules regular work. 3.Estimates for rush jobs and urgent special work. 4.Leaves a margin for planning and creative work. Planning in this way makes all the difference between the supervisor running a job and his letting the job run him. It starts by planning the day in writing and using time to best advantage. It helps to find the time needed for creative work, in the end, which really makes the biggest contribution to the successful running of a company.
Strategic Management Point No. 3…
Strategy…? “Strategy is the direction and scope of the organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.”
Continued… “The determination of the long run goals and objectives of an enterprise, the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”
Strategic Management…? “Strategic Management includes understanding the strategic position of an organization, strategic choices for the future and managing strategy in action.”
48 Continued… The aim of strategy is to plan how the firm will achieve its future goals. This means having a very good understanding of: 1.The organization’s current capabilities & liabilities. 2.Searching for new market opportunities. 3.Exploiting existing capabilities in quality, innovation and processes and so on.
49 Continued… 4.Examining way of improving in-house capabilities. 5.Searching for partners and linking with other firms.
50 Continued… New strategies often result from competitive threat. The new strategy must be made clear and be understood by employees, and must be supported by operations capabilities in order to work.
51 Examples Examples…
52 Honda ( Whittington, 1993, pp.69-70 ) When Honda was over taken by Yamaha as Japan’s # 1 motorbike manufacturer, the company responded by declaring ‘Yamaha so tsubu su!’ (We will crush, squash and slaughter Yamaha!). They followed a stream of no less then 81 new products in 18 months.
53 APPLE ( Financial Times, 12 November 1997 ) Mr. Jobs………… declared ‘war’ on Dell Computers, one of Apple’s most successful competitors. ‘We are coming after you buddy, Mr. Jobs declared as he displayed a huge image of Michael Dell, Dell founder and chief executive, with a target superimposed on his face.
54 General Motors Highly competitive automobile Industry Market share eroding Rebate strategy Weakness in product offerings (8 brands) Toyota (2 brands) Long lead time to redesign What is a sustainable market share?
55 Large profit margins ($8 billion 2004) Asian manufacturers (LG Electronics and Royal Philips, Sony and Samsung, and Matsushita) North America’s Dell Flat Panel TVs
56 Examples Illustrated Shortage of employees often necessitates need to improve productivity. Increased competition (especially foreign competition) another reason why companies seek to improve their productivity. Improving productivity is often dependent on new technologies.
Levels of Strategy Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes. –includes decisions about diversification, vertical integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units. Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals. Functional strategy... the detailed deployment of resources at the operational level.
The World’s Most Valuable Companies: Performance Under Different Profitability Measures The World’s Most Valuable Companies: Performance Under Different Profitability Measures COMPANYMARKET CAP. ($BN.) NET INCOME ($BN) RETURN ON SALES (%) RETURN ON EQUITY (%) RETURN ON ASSETS (%) RETURN TO SHARE- HOLDERS (%) Exxon Mobil37236.119.934.917.811.7 General Electric36316.410.722.214.7(1.5) Microsoft28112.340.330.018.8(0.9) Citigroup23924.622.021.91.54.6 BP23322.39.927.910.710.2 Bank of America21216.527.014.11.22.4 Royal Dutch Shell21125.314.726.711.611.8 Wal-Mart19711.25.521.48.1(10.3) Toyota Motor19712.110.713.04.8(22.1) Gazprom1967.3184.108.40.206n.a. HSBC19015.923.016.31.0(11.8) Procter & Gamble1908.717.3220.127.116.11
Above Normal Profits (in Excess of the Competitive Level) Avoid Competitors Be Better Than Competition Attractive Industry Attractive Niche Cost Advantage Differentiation Advantage Attractive Strategic Group Entry Barriers Mobility Barriers Isolating Mechanisms Sources of Superior Performance
Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives. Strategic Management –Defined
Purpose of Strategic Management To exploit and create new and different opportunities for tomorrow.
Strategic Management In essence, the strategic plan is a company’s game plan.
Stages of Strategic Management
Stages of the Strategic Management Process 1.Strategy Formulation. 2.Strategy Implementation. 3.Strategy Evaluation.
Issues in Strategy Formulation Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover Businesses to enter Businesses to abandon Allocation of resources Expansion or diversification International markets Mergers or joint ventures Avoidance of hostile takeover
Peter Drucker: Think through the overall mission of a business. Ask the key question: “What is our Business?” Prime Task of Strategic Management
The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty. Integrating Intuition & Analysis
Intuition is based on: – Past experiences – Judgment – Feelings Continued… Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives
Involve management at all levels Intuition & Judgment Influence all analyses Continued…
Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed. Adapting to Change
Strategic Management Communication is a key to successful strategic management.
Benefits and Pitfalls of Strategic Management
Benefits of Strategic Management
Continued… Nonfinancial Benefits – Enhanced awareness of threats – Improved understanding of competitors’ strategies – Increased employee productivity – Reduced resistance to change – Clearer understanding of performance-reward relationship – Enhanced problem-prevention capabilities
Why Some Firms Do No Strategic Planning Lack of knowledge of strategic planning Poor reward structures Fire fighting Waste of time Too expensive Laziness Content with success
Continued… Fear of failure Overconfidence Prior bad experience Self-interest Fear of the unknown Honest difference of opinion Suspicion
Pitfalls in Strategic Planning Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory.
Effective Strategic Planning is: A people process more than a paper process. A learning process. Words supported by numbers. Simple and no routine. Varying assignments, team membership, meeting formats, and planning calendars. Challenging assumptions underlying corporate strategy.
Continued… Welcomes bad news. Requires open-mindedness and a spirit of inquiry. Is not a bureaucratic mechanism. Is not ritualistic or stilted. Is not too formal, predictable, or rigid. Does not contain jargon or arcane language.
Continued… Is not a formal system for control. Does not disregard qualitative information. Is not controlled by “technicians”. Does not pursue too many strategies at once. Continually strengthens the “good ethics is good business” policy.
Comparing Business and Military Strategy Strategic planning started in the military. Similarity: – Both business and military organizations must adapt to change and constantly improve. Difference: – Business strategy assumes competition. – Military strategy assumes conflict.
Important Strategic Problems
Decreasing profitability and low return on investment. Decreasing market share. Decreasing stockholder wealth. Deteriorating financial position. Rising overall costs. Growing debt and week balance sheet.
Continued… Deterriorating of competitive advantages. Decreasing quality, and the loyalty of main customers. The growth rate lower than the industry avarage. Obsolate facilities and technical infrastructure.
Continued… Decreasing innovativity, slow product innovation Weakening the brand image Lots of underutilised plant capacity Entry a new strong competitor, or increasing competition within the industry Costly new regulatory requirements Long-term shift in buyer needs