Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Learning Outcomes After studying this chapter, you will be able to: Discuss the nature and purposes of planning. Explain what managers do in the strategic management process. Compare and contrast approaches to goal setting and planning. Discuss contemporary issues in planning. After studying this chapter, you will be able to: Discuss the nature and purposes of planning. Explain what managers do in the strategic management process. Compare and contrast approaches to goal setting and planning, and Discuss contemporary issues in planning. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

What Is Planning? Planning establishes the basis for all the other things managers do as they organize, lead, and control. Planning is deciding on the organization’s objectives or goals and getting the job done by establishing an overall strategy for achieving those goals and developing a comprehensive hierarchy of plans to integrate and coordinate activities. Planning can be informal or formal. Smaller businesses often use informal planning where little is verbalized or written down and the planning is general and lacks continuity. Formal planning, however, defines specific goals that are to be met in a specific time period. They are written down and made available to organization members. Then managers develop specific plans that clearly define what the organization will do to move from where it is to where it wants to be. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Reasons for Planning Managers should plan for at least four reasons, as seen here in Exhibit 5-1. Planning coordinates effort. It gives direction to both managers and nonmanagerial employees so each knows what he or she must contribute— individually and as a group—to reach the organization’s goals. Planning stimulates intra- and inter-department coordination of activities, which fosters teamwork and cooperation. Planning forces managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses. It also clarifies the consequences of the actions managers might take in response to change. Planning reduces overlapping and wasteful activities. Coordination before the fact is likely to uncover waste and redundancy. Finally, planning establishes the goals or standards that facilitate managerial control to ensure that the plans are carried out and the goals are met. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Criticisms of Formal Planning
Formal planning may: Create rigidity Replace intuition and creativity Focus managers’ attention on today’s competition, not on tomorrow’s survival Reinforce success, which may lead to failure Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning. Planning may create rigidity with goals and a timetable that are set under the assumption that the environment won’t change. Formal plans cannot replace intuition and creativity. Planning should enhance and support intuition and creativity, not replace it. Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival. Formal planning tends to focus on how best to capitalize on existing business opportunities instead of ways to reinvent the industry. Instead of focusing on today, managers should plan with an eye to untapped opportunities. Formal planning reinforces success, which may lead to failure. It’s difficult to shift from the comfort of what works to the uncertainty of the unknown. However, managers may need to face that unknown and do things in new ways to be even more successful. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Formal Planning and Organizational Performance
Formal planning generally results in: Higher profits Higher return on assets Improved quality of planning Appropriate implementation of the plan Does it pay to plan? In a nutshell, yes. First, the data generally support the position that organizations should have formal plans and that these plans generally translate into higher profits, higher return on assets, and other positive financial results. Second, the quality of the planning process and appropriate implementation of the plan probably contribute more to high performance than the extent of planning does. Finally, in organizations in which formal planning did not lead to higher performance, the constraints of the environment—such as governmental regulations and unforeseen economic challenges—reduced the impact of planning on the organization’s performance. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Management One important aspect of an organization’s formal planning is strategic planning, which managers do as part of the strategic management process. In the space of a week, here are a few headline makers: German engineering giant Siemens AG is rethinking its strategic goal of becoming a major player in the nuclear power industry. Best Buy Co. is shrinking its “big-box store” strategy to better position itself to compete online against Amazon.com. Burberry Group PLC’s CEO Angela Ahrendts, pictured here, is outfitting company stores in China with the latest digital technology to woo younger customers. Now let’s take a look at the what, how, and whys of strategic management. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Importance of Strategic Management
Has positive impact on org performance Prepares managers to cope with changing situations Guides managers to examine relevant factors in planning future action Strategic management is what managers do to develop an organization’s strategies—that is, the plans for how the organization will do what it’s in business to do, compete successfully, and attract and satisfy its customers in order to achieve its goals. Strategic management is important to avoid weakening one’s position due to poor economic conditions and myriad external and interval variables. Two strategies that helped clothing chain retailer Buckle Inc. were its location strategy of not placing the majority of its 400-plus stores in states falling on hard times and a differentiation strategy of offering customer perks, such as custom pants fittings and free hemming of its jeans. Reasons why strategic management is so important include: It can make a difference in how well an organization performs. Research has found a generally positive relationship between strategic planning and performance. It prepares managers in organizations of all types and sizes to cope with continually changing situations and to examine relevant factors in planning future actions. Each part of an organization needs to work together to achieve the organization’s goals; strategic management helps accomplish this. For example, with more than 2.1 million employees worldwide working in various departments, functional areas, and stores, Walmart uses strategic management to help coordinate and focus employees’ efforts on what’s most important. Strategic management isn’t just for business organizations. Organizations such as government agencies, hospitals, educational institutions, and social agencies also need strategic management. For example, the skyrocketing costs of a college education, competition from for-profit companies offering alternative educational environments, cuts to state budgets, and cutbacks in federal aid for students and research have led many university administrators to assess their colleges’ aspirations and identify a market niche in which they can survive and prosper. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Steps in the Strategic Management Process
The strategic management process, seen here in Exhibit 5-2, is a six-step process that encompasses: Strategy planning Implementation, and Evaluation. Even the best strategies fail if management doesn’t implement or evaluate them properly. Now let’s look at each of these six steps independently. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Step 1: Mission, Goals, & Strategies
STEP 1 of the strategic management process is to identify the organization’s current mission, goals, and strategies. The mission is a statement of the organization’s purpose. Defining the mission forces managers to identify what the organization is in business to do. For instance, the mission of Facebook is “a social utility that connects you with the people around you,” and the mission of the National Heart Foundation of Australia is to “reduce suffering and death from heart, stroke, and blood vessel disease in Australia.” The components of a mission statement, seen here in Exhibit 5-3, includes target customers, markets, and goals and strategies, and each should be assessed to see if managers should change any of them. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

External and Internal Analyses
STEP 2: External Analysis Know the competition Examine components of the environment Identify opportunities and threats STEP 3: Internal Analysis Resources Capabilities In STEP 2, managers conduct an external analysis so they can: Know what the competition is doing, how pending legislation might affect the organization, and how stable the local labor supply is in locations where it operates. Examine all components of the environment—that is, economic, demographic, political/legal, sociocultural, technological, and global—to see the trends and changes. Pinpoint opportunities that the organization can exploit and threats that it must counteract. In STEP 3, managers conduct an internal analysis, which provides critical information about an organization’s specific resources and capabilities. An organization’s resources are its assets—financial, physical, human, and intangible—that it uses to develop, manufacture, and deliver products to its customers. In comparison to assets, its capabilities are its skills and abilities in doing the work activities needed in its business. The major value-creating capabilities of the organization are known as its core competencies. Both resources and core competencies determine the organization’s competitive weapons. After completing an internal analysis, managers should be able to identify organizational strengths and weaknesses. Any activities the organization does well or any unique resources that it has are called strengths. Weaknesses are activities the organization doesn’t do well or resources it needs but doesn’t possess. The combined external and internal analyses are called the SWOT analysis because, together, they are an analysis of the organization’s strengths, weaknesses, opportunities, and threats. After completing the SWOT analysis, managers are ready to formulate appropriate strategies that: (1) Exploit an organization’s strengths and external opportunities, and (2) Buffer or protect the organization from external threats. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Formulating, Implementing, and Evaluating Results
STEP 4: Formulating Strategies Corporate Business Functional STEP 5: Implementing Strategies STEP 6: Evaluating Results How effective have the strategies been? What adjustments are necessary? STEP 4 is formulating strategies. As managers formulate strategies, they should consider the realities of the external environment and their available resources and capabilities to design strategies that will help their organization achieve its goals. Managers typically formulate three main types of strategies: corporate, business, and functional. We’ll describe each shortly. STEP 5 involves implementing strategies. Once strategies are formulated, they must be implemented. No matter how effectively an organization has planned its strategies, performance will suffer if the strategies aren’t implemented properly. STEP 6 is evaluating results. This is the final step in the strategic management process, where managers ask, “How effective have the strategies been at helping the organization reach its goals? What adjustments are necessary?” For example, when Anne Mulcahy was first named Xerox’s CEO, she assessed the results of previous strategies and made strategic adjustments—such as cutting jobs, selling assets, and reorganizing management—to regain market share and improve her company’s bottom line. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategies Managers Use
Strategies need to be formulated for the three organizational levels: corporate, business, and functional, as seen here in Exhibit 5-4. A corporate strategy is an organizational strategy that specifies what businesses a company is in—or wants to be in—and what it wants to do with those businesses. The corporate strategy is based on the mission and goals of the organization and the roles that each business unit of the organization will play. For example, PepsiCo’s mission is: To be the world’s premier consumer products company focused on convenient foods and beverages. It pursues that mission with a corporate strategy that puts it in different businesses, including PepsiCo Americas Beverage, PepsiCo International, Frito-Lay North America, Quaker Foods North America, and Latin America Foods. The second part of corporate strategy is when top managers decide what to do with those businesses. The three main types of corporate strategies are growth, stability, and renewal. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Growth Strategy Growth strategy – An organization expands the number of markets served or products offered Activities can include: Concentration Vertical integration Horizontal integration Diversification Growth strategy is a corporate strategy in which an organization expands the number of markets served or products offered, either through its current business or through new business. Because of its growth strategy, an organization may increase revenues, number of employees, or market share. Organizations grow by using concentration, vertical integration, horizontal integration, or diversification. An organization that grows by using concentration increases the number of products offered or markets served in its primary business. A company can also grow by vertical integration, either backward, forward, or both. In backward vertical integration, the organization becomes its own supplier. In forward vertical integration, the organization becomes its own distributor. One example is Apple, which has hundreds of retail stores around the globe. In horizontal integration, a company grows by combining with competitors. Horizontal integration may be regulated so that one company does not monopolize the market. Finally, an organization can grow through diversification, either related or unrelated. Related diversification is when a company combines with other companies in different, but related, industries. Unrelated diversification is when a company combines with firms in different and unrelated industries. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Stability & Renewal Strategies
Stability strategy – An organization continues to do what it is currently doing Renewal strategy – An organization addresses declining organizational performance Retrenchment strategy Turnaround strategy During times of economic uncertainty, many companies choose a stability strategy in which the organization continues to do what it is currently doing, such as serving the same clients by offering the same product or service, maintaining market share, and sustaining the organization’s current business operations. When an organization is in trouble, however, managers need strategies called renewal strategies, which address declining performance. There are two main types of renewal strategies: A retrenchment strategy is a short-run strategy used for minor performance problems. This strategy helps it stabilize operations, revitalize organizational resources and capabilities, and prepare to compete once again. When an organization’s problems are more serious, they need to use the turnaround strategy. While managers cut costs and restructure organizational operations in either renewal strategy, these measures are more extensive than in a retrenchment strategy. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Competitive Strategy A competitive strategy is a strategy for how an organization will compete in its business. A competitive strategy is a strategy for how an organization will compete in its business. For a small organization in only one line of business or a large organization with little product or market diversification, the competitive strategy describes how the organization will compete in its primary market. For organizations in multiple businesses, each business has its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and so on. When an organization engages in several different businesses, those single businesses that are independent and formulate their own competitive strategies are often called strategic business units (SBUs). Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

The Role of Competitive Advantage
Competitive advantage – The distinctive edge that comes from the org’s core competencies of doing things different or better than others Three competitive strategies: Cost leadership strategy Differentiation strategy Focus strategy Developing an effective competitive strategy requires an understanding of the organization’s competitive advantage, which is whatever sets it apart from the competition. That distinctive edge comes from the organization’s core competencies. Competitive advantage also can come from the company’s resources—something that the organization has that its competitors don’t. When choosing a competitive strategy, Michael Porter, a leading researcher in strategy formulation at Harvard’s Graduate School of Business, argues that managers have three generic choices—cost leadership, differentiation, and focus—to give an organization a distinct advantage by capitalizing on its strengths and on the industry it’s in. A cost leadership strategy is when an organization competes by having the lowest costs in its industry. A low-cost leader is highly efficient and, although it doesn’t place a lot of emphasis on “frills,” its product must be perceived as comparable in quality to that of its rivals, or at least be acceptable to buyers. A company that competes by offering unique products that are widely valued by customers is following a differentiation strategy. Such product differences might come from exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image—such as Apple (for product design) and Coach (for design and brand image). Although cost leadership and differentiation strategies are aimed at the broad market, the final type of competitive strategy—the focus strategy—involves a cost advantage (or “cost focus”) or a differentiation advantage (also called “differentiation focus”) in a narrow segment or niche. Segments can be based on product variety, customer type, distribution channel, or geographical location. The feasibility of a focus strategy depends on the size of the segment and whether the organization can make money serving that segment. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Sustaining Competitive Advantage
Not every organization is able to effectively exploit its resources and to develop the core competencies that can provide it with a competitive advantage, but strategic management helps. The organization must be able to sustain that advantage despite competitors’ actions or evolutionary changes in the industry. Market instabilities, new technology, and other changes can challenge managers’ attempts to create a long-term, sustainable competitive advantage. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Functional Strategy Functional strategy – A strategy used in an organization’s various functional departments to support the competitive strategy The final type of strategy managers use is the functional strategy, a strategy used in an organization’s various functional departments to support the competitive strategy. For instance, when Starbucks found itself facing increased competition from the likes of McDonald’s and Dunkin’ Donuts, it put additional emphasis on its marketing, product research and development, and customer service strategies. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Weapons & Benchmarking
Customer service Employee skills and loyalty Innovation Quality Benchmarking In today’s intensely competitive and chaotic marketplace, organizations are looking for whatever “weapons” they can use to achieve their goals. Some of these weapons include customer service, employee skills and loyalty, innovation, and quality. All of these “weapons” have been covered—or will be covered in future chapters—except for quality, which we will look at now. Many organizations employ quality practices to build competitive advantage and attract and hold a loyal customer base. If implemented properly, quality is a way for an organization to create a sustainable competitive advantage. If a business is able to continuously improve the quality and reliability of its products, it may have a competitive advantage that can’t be taken away. Incremental improvement is something that becomes an integrated part of an organization’s operations and can develop into a considerable advantage. To promote quality, managers in diverse industries—such as health care, education, and financial services—are discovering the benefits of benchmarking, which is the search for the best practices among competitors and noncompetitors that lead to their superior performance. Benchmarking helps managers improve quality by analyzing and then copying the methods of leaders in various fields. Once managers have the organization’s strategies in place, it’s time to set goals and develop plans to pursue those strategies. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Setting Goals and Developing Plans
Types of Goals: Financial goals – The financial performance of the organization Strategic goals – All other areas of an organization’s performance Planning involves two important aspects: goals, which are objectives, and plans, which are desired outcomes or targets. Plans guide managers’ decisions and form the criteria against which work results are measured. They usually include resource allocations, budgets, schedules, and other necessary actions to accomplish multiple goals. Most company’s goals can be classified as either strategic or financial. Financial goals are related to the financial performance of the organization while strategic goals are related to all other areas of an organization’s performance. Stated goals are official statements of an organization’s goals, which it wants its stakeholders to believe. But if you want to know an organization’s real goals—those goals an organization actually pursues—observe what organizational members are doing. Actions define priorities. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Setting Goals Goals provide the direction for all management decisions and actions, and form the criterion against which actual accomplishments are measured. Everything members of the organization do should be oriented toward achieving goals, which can be set either through a process of traditional goal setting or by using management by objectives. In traditional goal setting, goals set by top managers flow down through the organization and become subgoals for each organizational area, as seen in Exhibit 5-5, and are passed down to each succeeding organizational level. Then, at some later time, performance is evaluated to determine whether the assigned goals have been achieved. A problem with traditional goal setting is that when top managers define the organization’s goals in broad terms—such as achieving “sufficient” profits—these ambiguous goals have to be stated more specifically as they flow down through the organization. Managers at each level define the goals and apply their own interpretations and biases as they make them more specific. When the hierarchy of organizational goals is clearly defined, it forms an integrated network of goals, or a means-ends chain. Higher-level goals (or ends) are linked to lower-level goals, which serve as the means for their accomplishment. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Characteristics of Well-Written Goals
Instead of using traditional goal setting, many organizations use management by objectives (MBO), a process of setting mutually agreed-upon goals and using those goals to evaluate employee performance. A manager using this approach would sit down with each member of his or her team to set goals and periodically review whether progress is being made toward achieving those goals. MBO programs have four elements: Goal specificity Participative decision making An explicit time period, and Performance feedback. MBO uses goals to both make sure employees are doing what they’re supposed to be doing and to motivate them. Studies show that actual MBO programs can increase employee performance and organizational productivity, and that goal setting can effectively motivate employees. No matter which approach is used, goals have to be written and clearly indicate what the desired outcomes are, as seen here. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Steps in Goal Setting Review the organization’s mission and employees’ key job tasks. Evaluate available resources. Determine the goals individually or with input from others. Managers should follow six steps when setting goals: Review the organization’s mission and the employees’ key job tasks. Goals should reflect the mission, and managers need to clearly define what they want employees to accomplish as they do their tasks. Evaluate available resources. Goals should be challenging but realistic with regards to available resources. Determine the goals individually or with input from others. The goals reflect desired outcomes and should be congruent with the organizational mission and goals in other organizational areas. These goals should be measurable, specific, and include a time frame for accomplishment. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Steps in Goal Setting (cont.)
Make sure goals are well-written and then communicate them to all who need to know. Build in feedback mechanisms to assess goal progress. Link rewards to goal attainment. 4. Make sure goals are well-written and then communicate them to all who need to know. 5. Build in feedback mechanisms to assess goal progress. If goals aren’t being met, change them as needed. 6. Link rewards to goal attainment. Once the goals have been established, written down, and communicated, managers are ready to develop plans for pursuing them. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Types of Plans Managers need plans to help them clarify and specify how goals will be met. As we see here in Exhibit 5-7, strategic plans are usually long-term, directional, and single-use, while tactical plans are short-term, specific, and standing. Now let’s look at each type of plan and what it means: Breadth involves strategic plans, which are those that apply to an entire organization and encompass the organization’s overall goals, versus tactical plans (also referred to as operational plans), which specify the details of how the overall goals are to be achieved. Time frame refers to the number of months or years used to define short-term and long-term plans. Specificity refers to whether a plan is specific or more general. Due to current environmental uncertainty, managers must be flexible in responding to unexpected changes, so they’re more likely to use directional plans that set general guidelines. Managers who engages in planning must weigh the flexibility of directional plans against the clarity that specific plans offer. Frequency of use describes whether plans are ongoing or used only once. Standing plans are ongoing plans that provide guidance for activities performed repeatedly, whereas single-use plans are one-time plans specifically designed to meet the needs of a unique situation. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Developing Plans The process of plan development is influenced by three contingency factors and by the kind of planning approach followed. Three contingency factors that affect the choice of plans are: Organizational level Degree of environmental uncertainty, and Length of future commitments. Exhibit 5-8, shown here, illustrates the relationship between a manager’s level in the organization and the type of planning that manger does. For the most part, lower-level managers do operational (or tactical) planning while upper-level managers do strategic planning. The second contingency factor is environmental uncertainty. When uncertainty is high, plans should be specific but flexible. Managers must be prepared to change or amend plans as they’re implemented. The third contingency factor relates to the time frame of plans. The commitment concept says that plans should extend far enough to meet commitments made when the plans were developed. But planning for too long or too short a time period is inefficient and ineffective. For example, when organizations increase their computing capabilities, many have found their “power-hungry” computer” generate so much heat that the electric bills have skyrocketed because of the increased need for air conditioning. This illustrates the commitment concept: When organizations expand their computing technology, they’re “committed” to whatever future expenses are generated by that plan. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Approaches to Planning
“Top-down” traditional approach – Top-level managers plan; plans flow down to the different levels. Development by organizational members – Employees at various levels and in various work units develop plans to meet their specific needs. Organization plans can best be understood by looking at who does the planning. In the traditional approach, planning is done entirely by top-level managers who often are assisted by a formal planning department, which is a group of planning specialists whose sole responsibility is to help write the various organizational plans. Then the plans flow down through other organizational levels and are tailored to the particular needs of each level. Although this approach makes managerial planning thorough, systematic, and coordinated, too often the focus is on developing “the plan” which is later not implemented. Another planning approach involves the input of organizational members at the various levels and in the various work units who participate in developing the plans to meet their specific needs. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Contemporary Issues Of the many contemporary planning issues that managers face, let’s turn our attention to two: Planning effectively in dynamic environments, and How managers can use environmental scanning, especially competitive intelligence. These days, the external environment is continually changing. In such an uncertain environment, managers should develop plans that are specific but flexible. Managers need to recognize that planning is an ongoing process and that plans serve as a road map—although the destination may change due to dynamic market conditions. The flexibility to change direction is particularly important as plans are implemented. Even when the environment is highly uncertain, it’s important to continue formal planning to improve organizational performance. Persistence and practice in planning contributes to significant performance improvement. In dynamic environments, making a flatter hierarchy means lower organizational levels can set goals and develop plans because organizations have little time for goals and plans to flow down from the top. Managers should teach their employees how to set goals and to plan, and then trust them to do it. Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Similar presentations

Presentation on theme: "Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Similar presentations

Presentation on theme: "Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall"— Presentation transcript:

Similar presentations

About project

Feedback