Business Strategy and Policy Lecture 07 Business Policy and Management

Business Policy and Management Recap Importance of Vision and Mission Statement Reason for developing a written Mission Statement Components of Mission Statement Business Policy and Management

Components of Mission Statement Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self Concept Concern for public image Concern for employees Business Policy and Management

Business Policy and Management Today’s Lecture Why Firms do not Plan strategically? Poor Reward Structures Fire-fighting Waste of Time Too Expensive Laziness Content with Success Business Policy and Management

Business Policy and Management Today’s Lecture Fear of Failure Overconfidence Prior Bad Experience Self-Interest Fear of the Unknown Honest Difference of Opinion Disbelief Benefits of planning Strategically Business Policy and Management

Why Firms do not Plan strategically? Poor Reward Structures—when an organization assumes success, it often fails to reward success. - Where failure occurs, then the firm may punish. In this situation, it is better for an individual to do nothing (and not draw attention) than risk trying to achieve something, fail, and be punished. Business Policy and Management

Why Firms do not Plan strategically? Fire-fighting: An organization can be so deeply involved in crisis management and fire-fighting that it does not have time to plan. Waste of Time: Some firms see planning as a waste of time since no marketable product is produced. Time spent on planning is an investment. Business Policy and Management

Why Firms do not Plan strategically? Too Expensive: Some organizations are culturally opposed to spending resources. Laziness: People may not want to put forth the effort needed to formulate a plan Content with Success: —Particularly if a firm is successful, individuals may feel there is no need to plan because things are fine as they stand. But today’s success does not guarantee success tomorrow. Business Policy and Management

Why Firms do not Plan strategically? Fear of Failure: — By not taking action, there is little risk of failure unless a problem is urgent and pressing. Whenever something worthwhile is attempted, there is some risk of failure. Overconfidence: — As individuals build up experience, they may rely less on formalized planning. Rarely, however, is this appropriate. Being overconfident or overestimating experience can bring failure. Forethought is rarely wasted and is often the mark of professionalism. Business Policy and Management

Why Firms do not Plan strategically? Prior Bad Experience: — People may have had a previous bad experience with planning, where plans have been long, cumbersome, impractical, or inflexible. Planning, like anything, can be done badly. Self-Interest: — When someone has achieved status, privilege, or self-esteem through effectively using an old system, they often see a new plan as a threat. Business Policy and Management

Why Firms do not Plan strategically? Fear of the Unknown — People may be uncertain of their abilities to learn new skills, their aptitude with new systems, or their ability to take on new roles. Honest Difference of Opinion: — People may sincerely believe the plan is wrong. They may view the situation from a different viewpoint, or may have aspirations for themselves or the organization that are different from the plan. Different people in different jobs have different perceptions of a situation. Suspicion: — Employees may not trust management. Business Policy and Management

Benefits of planning Strategically Following are the major benefits of Strategic management: Proactive in shaping firm’s future Initiate and influence actions Formulate better strategies (Systematic, logical, rational approach) Business Policy and Management

Benefits of planning Strategically Financial benefits: Improved productivity Improved sales Improved profitability Non-Financial benefits: Increased employee productivity Improved understanding of competitors’ strategies Greater awareness of external threats Understanding of performance reward relationships Better problem-avoidance Lesser resistance to change Business Policy and Management

Business Policy and Management Summary Why Firms do not Plan strategically? Benefits of planning Strategically Financial Non-Financial Business Policy and Management

Business Policy and Management Next Lecture How to conduct external strategic-management audit. Discuss 10 major external forces that affect organizations Identify key sources of external information, including the Internet. Business Policy and Management