1.6 Organizational Planning Tools

Review Business Plan Components:  Executive Summary Overview of new business  Description of Business Opportunity What will be sold, why, and to whom  Marketing & Sales Strategy Why will customers buy, how will sell  Management Team & Personnel Skills of entrepreneur and the management team  Operations Where are production facilities, IT systems  Financial Forecasts Sales projections, cash flow, profits

Review Decision Making Intuitive decision-making ◦Using your gut instincts to make choices Is this ever useful? Scientific decision-making ◦Basing choices on data analysis and formal decision making frameworks Is this ever useful?

Review Formal Decision Making Framework Set Objectives Assess the problem Gather data to analyze problem Ideas and options to consider Decision-making tools to decide Action Control & Review against companies objectives

Review Internal vs External Constraints Internal: Your organizations structure Financial considerations Labor Attitudes of workforce – resistant or acceptance of change External: The current business cycle (prosperity, recession, recovery or depression) Changes in legislation

Higher Level Planning Tools Fishbone Diagram ◦Also known as cause and effect diagram ◦Also known as the Ishikawa diagram May include the 6 M’s Methods Machines Manpower Materials Measurement Mother Nature

Higher Level Decision Tree Used to outline options connected with financial outcomes or economic returns Squares indicate decisions on the tree Circles indicates a range of outcomes from the decision Limitations: Only as good as the accuracy of data

1.7 Growth and Evolution

Review Economies of Scale ◦Purchasing economies “bulk buying” – discounts for large orders ◦Technical economies Production lines – produce products at a reduced cost because of efficiency Computer systems – afforded by large firms that can absorb greater fixed costs ◦Financial economies Banks show preference to large corporations Large firms can “go public” with their stock ◦Marketing economies Advertising costs for large companies can be spread over a large product line ◦Managerial Economies Large firms can higher specialists

Review Diseconomies of Scale ◦Communication Problems ◦Alienation of Workforce ◦Poor Coordination and slow decision making ◦Large Scale production costs

Review Growth Internal Growth Companies expand by creating new offices, opening new stores, growing existing business External Growth Merging with other firms, or acquiring other firms through purchase

Review Merger When companies agree to combine and operate under one board of directors with shareholders in both businesses owning the newly merged company. Takeover When a company buys over 50% of the shares of stock to gain controlling interest

Review Franchise A business that uses the name, logo, and marketing methods of the franchiser. Example: McDonald’s, Dairy Queen, Wendy’s, Subway NOT: Walmart, Target, Harris Teeter

Review Joint Venture Two or more businesses agree to work closely together to further a common interest. Costs are shared Different companies have different strengths Different market shares that could be combined Example: DowCorning (Dow Chemical with Corning Glass Works) Dow Chemical combined their silicone based products with Corning Glass Works glass products.

Review Ansoff’s Matrix A model used to show risk with the four growth strategies Market Penetration – higher market shares in existing market with existing products Market Development – selling existing products in new markets Product Development – sales of new or improved products in existing markets Diversification – selling different or unrelated products in new markets

Higher Level Porter’s Generic Strategies 2 Categories of Strength 1 – Cost Advantage Being the lowest cost producer in your industry 2 – Product Uniqueness or Differentiation Your product or service is unique which allows you to charge a premium FOCUS Strategy Narrow or Broad Narrow – a small market segment Broad – industry wide