Strategies, Policies and Planning Premises

Strategy A company’s strategy consists of the competitive moves, internal operating approaches, and action plans devised by management to produce successful performance. Strategy is management’s “game plan” for running the business. Managers need strategies to guide HOW the organization’s business will be conducted and HOW performance targets will be achieved.

Levels of Strategy

Levels of Strategy Corporate-level Strategy 2. Business-level Strategy The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. 2. Business-level Strategy How the organization conducts business in a particular industry. Functional-level Strategy Strategy developed for specific functional areas such as marketing, finance, and so forth.

Levels of Strategy-Making Corporate Strategy Business Strategies Functional Strategies

? BCG Matrix* High Question Marks Stars Market Growth Rate Cash Cows Dogs Cash Cows Low Relative Market Share High Low

BCG Market Share/Market Growth Matrix

What is Strategic Planning? Strategic planning is a systematic process through which an organization agrees on and builds commitment among key stakeholders to priorities that are essential to its mission and are responsive to the environment. Strategic Planning guides the acquisition and allocation of resources to achieve these priorities.

Strategic Planning vs. Operational Planning formulation What, where ends vision effectiveness risk Operational Planning implementation how means plans efficiency control

Three Big Strategic Questions Where Are We Now? Where Do we Want to Go? How Will We Get There?

Strategic Planning Process Developing a Vision and a Mission Assessment Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

Strategic Planning First Stage of Strategic Planning may involve: Futures Thinking Thinking about what the business might need to do 10–20 years ahead Strategic Intents Thinking about key strategic themes that will inform decision making

Strategic Planning The Vision Aims and Objectives: Communicating to all staff where the organisation is going and where it intends to be in the future Aims and Objectives: Aims – long term target Objectives – the way in which you are going to achieve the aim

Strategic Analysis Constantly evaluate their position Strategic analysis includes different methods of assessing the current position of the business in the market place Two basic methods: Internal External

Internal Audits Productivity Efficiency Costs Other Internal Data Labour turnover, absenteeism Customer satisfaction surveys Quality procedures Cash flow statements Sales trends Skills audit Strengths and weaknesses analysis Core competencies

External Audits PEST factors Political – e.g. change of government General business environment – Inflation, competitiveness, unemployment/employment, growth, consumer spending Competitors PEST factors Political – e.g. change of government Economic – Trends in economic growth, inflation, etc. Social-changed outlook, age structure of population, etc. Technological

SWOT Analysis Strengths Weaknesses Opportunities Threats Vision & Mission SWOT Analysis An organization’s fundamental purpose SWOT Analysis To formulate strategies that support the mission Strengths Weaknesses Opportunities Threats Internal Analysis External Analysis Strengths Opportunities (distinctive competencies) Weaknesses Threats Good Strategies Those that support the mission and: exploit opportunities and strengths neutralize threats avoid weaknesses

Strength’s Strength’s – Those things that you do well, the high value or performance points Strengths can be tangible: Loyal customers, efficient distribution channels, very high quality products, excellent financial condition Strengths can be intangible: Good leadership, strategic insights, customer intelligence, solid reputation, high skilled workforce

Weaknesses Weaknesses – Those things that prevent you from doing what you really need to do Since weaknesses are internal, they are within your control Weaknesses include: Bad leadership, unskilled workforce, insufficient resources, poor product quality, slow distribution and delivery channels, outdated technologies, lack of planning, . . .

Opportunities Opportunities – Potential areas for growth and higher performance External in nature – marketplace, unhappy customers with competitor’s, better economic conditions, more open trading policies, . . Timing may be important for capitalizing on opportunities

Threats Threats – Challenges confronting the organization, external in nature Threats can take a wide range – bad press coverage, shifts in consumer behavior, substitute products, new regulations, . . . The more accurate you are in identifying threats, the better position you are for dealing with the “sudden ripples” of change

Suppliers of Key Inputs Five Forces Model of Competition Substitute Products (of firms in other industries) Suppliers of Key Inputs Rivalry Among Competing Sellers Buyers Potential New Entrants

Porter’s Five Competitive Forces Threat of new entrants Competitive rivalry Threat of substitute products Power of buyers Power of suppliers

Gap = Basis for Long-Term Strategic Plan Gap Analysis Vision Assessment Gap = Basis for Long-Term Strategic Plan

Setting Objectives The purpose is to convert the mission into Specific Performance Targets Yardsticks for tracking company progress and performance. Should be set at levels that require stretch and disciplined effort.

Crafting a Strategy

Generic Strategies Porter’s Generic Strategies Differentiation strategy An organization seeks to distinguish itself from competitors through the quality of its products or services. Developing an image perceived as unique Overall cost leadership strategy An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms. Focus strategy An organization concentrates on a specific regional market, product line, or group of buyers.

Types of Strategy Market Dominance Achieved through: Internal growth Acquisitions – mergers and takeovers New product development: to keep ahead of rivals and set the pace Contraction/Expansion – focus on what you are good at (core competencies) or seek to expand into a range of markets? Global – seeking to expand Global operations

Strategy Implementation Technology Human Resource Reward System Decision Process

Characteristic of the Good Strategy Implementation An ongoing exercise Proper Communication Contingency Plan Emphasis on Organisation Culture Regular Review Importance of Planning

DECISION-MAKING

What is Decision-Making? The process of choosing a course of action for dealing with a problem or opportunity.

Types of Decisions Programmed decisions. Nonprogrammed decisions. Involve routine problems that arise regularly and can be addressed through standard responses. Nonprogrammed decisions. Involve nonroutine problems that require solutions specifically tailored to the situation at hand

Decision environments Certain environments. Risk environments. Uncertain environments.

Certain environments. Exist when information is sufficient to predict the results of each alternative in advance of implementation. Certainty is the ideal problem solving and decision making environment.

Risk environments Exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence. Probabilities can be assigned through objective statistical procedures or personal intuition.

Uncertain environments. Exist when managers have so little information that they cannot even assign probabilities . Uncertainty forces decision makers to rely on individual and group creativity to succeed in problem solving. Also characterized by rapidly changing: External conditions. Information technology requirements.

Classical Vs. Behavioral Decision Theory Classical decision theory. Views the decision maker as acting in a world of complete certainty. Behavioral decision theory. Accepts a world with bounded rationality and views the decision maker as acting only in terms of what he/she perceives about a given situation.

Classical decision theory The classical decision maker: Faces a clearly defined problem. Knows all possible action alternatives and their consequences. Chooses the optimum alternative. Is often used as a model of how managers should make decisions.

Rationality Problem is clear and unambiguous. Single goal. All alternatives are known. Clear and constant preferences. Maximum payoff. The decision is in the best interest of the organization—not the manager.

Behavioral decision theory Recognizes that human beings operate with: Cognitive limitations. Bounded rationality. The behavioral decision maker: Faces a problem that is not clearly defined. Has limited knowledge of possible action alternatives and their consequences. Chooses a satisfactory alternative.

Bounded Rationality Behavior that is rational within the parameters of a simplified model that captures the essential features of the problem. Making a decision that is “good enough.” (Satisficing Model)

Bounded Rationality Inadequate Information and Control Limited Search Satisficing Decisions

Other decision making models The garbage can model A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the “garbage can” of the organization. Incremental Model

Intuitive Decision Making An unconscious process of making decisions on the basis of experience and accumulated judgment. Making decisions on the basis of gut feeling It does play an important role in managerial decision making.

Range of decision making Too Slow Too Quick Procrastination Indecision “Analysis paralysis” “Ready, fire, aim” Impulsive, compulsive Arbitrary

Cultural and Social Influences Ethnicity, Race, and Religion Household and ref. groups Psychographics: Lifestyle, Person. Socio-Econ: income,educ. Demographic:Gender, Age Perception MOTI VATION AFFECT Basic Psychological Processes Learning and Memory Attitudes Decision-Making Process Problem Recognition Search Evaluation Choice Outcomes

Group Decision-Making

Forms of Group Decision Making Interacting groups Delphi Methods Nominal groups

Decision-Making Techniques Marginal Analysis Financial Analysis Break-Even Analysis Ratio Analysis OR Technique Linear Programming Queuing Method Game Theory Simulation Decision Tree