1. Strategic Planning and Decision Making
Chapter Five
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2. Learning Objectives
LO1 Summarize the basic steps in any planning process. LO2 Discuss how strategic planning should be integrated with tactical and operational planning. LO3 describe the strategic management process and the importance of SWOT analysis in strategy formulation. LO4 Analyze how companies can achieve competitive advantage through business strategy.

3. Learning Objectives (cont.)
LO5 Identify the keys to effective strategy implementation. LO6 Explain how to make effective decisions as a manager. LO7 Give examples of some individual barriers that affect rational decision making. LO8 Summarize principles for group decision making.

4. Planning
Planning
conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future.
a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization.

5. Formal Planning Steps
Step 1 Analysis the Situation Step 2 Develop alternative Goals and Plans Step 3 Evaluate Goals and Plan Step 4 Select Goals and Plan Step 5 Implementation Step 6 Monitor and Control

6. Step 1-Situational Analysis
Analyze the Situation
A process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration.

7. Step 2-Generate Alternative Goals and Plans
Should stress creativity and encourage managers and employees to think in broad terms about their jobs.
Goal
A target or ends that management desires to reach
SMART goals

8. SMART
Specific-When goals are precise, employees know what they need to do to accomplish them.
Measurable-As much as possible, the goal should quantify the desired results, so that there is no doubt whither it has been achieved.
Attainable( but challenging)-Employees need to recognize that they can attain their goals, so they won’t become discouraged. However, they also should feel challenged to work hard and be creative.
Relevant-Each goal should contribute to the organization’s overall mission and be consistent with its values, including ethical standards.
Time-bound-Effective goals specify a target date for completion.

9. Examples of S.M.A.R.T. Goals?
Starbucks: “In fiscal 2006, we plan to open approximately 1,800 net new stores globally.”
Walgreen: “Second is to hire a significant number of people with disabilities in our South Carolina distribution center, scheduled to open in 2007, and achieve 20% productivity gains there.”
UPS: “65% of drivers will have access to the new technology (implemented in 2004) by the end of 2005.” and “In 2005, we will increase operating profit in each of our 3 key businesses: domestic, int’l, supply chain.”
Wrigley: “In 2005, the company will decrease the long-term rate of return assumption for the assets of its U.S. (pension) plans from 8.75 % to 8.5%.”
Halliburton: “We estimate that 74% of the backlog existing on 12/31 will be eliminated the following fiscal year.”
Martha Stewart Living Omnimedia: “In 2004 we will discontinue the Catalog for Living and its online product options, and sell remaining inventory in early fiscal 2005.”
These phrases were all pulled from annual reports of the companies listed. How do they measure up as S.M.A.R.T. goals?

10. Question
___________ are the actions or means managers intend to use to achieve organizational goals.
Missions
Plans
Strategies
Services
The correct answer is b – plans. See next slide

11. Step 2-Generate Alternative Goals and Plans
The actions or means managers intend to use to achieve organizational goals
Contingency plans
sets of actions to be taken when a company’s initial plans have not worked well or if events in the external environment require a sudden change

12. Step 3-Evaluate Goals and Plans
Managers will evaluate the advantages, disadvantages, and potential effects of each alternative goal and plan.
Must prioritize those goals and even eliminate some of them.
Managers must consider carefully the implications of alternative plans for meeting high priority goals.

13. Step 4-Select Goals and Plans
Managers will select the option that is most appropriate and feasible
The evaluation process will identify the priorities and trade-offs among the goals and plans
Scenario
A narrative that describes a particular set of future conditions.

14. Step 5-Implement the Goals and Plans
Managers and employees must understand the plan, have the resources to implement it, and be motivated to do so
Successful implementation requires a plan to be linked to other systems in the organization, particularly the budget and reward systems

15. Step 6-Monitor and Control Performance
Managers must continually monitor the actual performance of their work units against the unit’s goals and plans.
Manager’s also need to develop control systems to measure that performance and allow them to take corrective action when the plans are implemented improperly or when the situation changes

16. Hierarchy of Goals and Plans
Exhibit 5.2

17. Levels of Planning Strategic planning Strategic goals
A set of procedures for making decisions about the organization’s long-term goals and strategies
Strategic goals
major targets or end results that relate to the long-term survival, value, and growth of the organization.

18. Strategic Planning Strategy
A pattern of actions and resource allocations designed to achieve the organization’s goals

19. Strategic Planning Where will we be active? How will we get there?
How will we win in the marketplace?
How fast will we move and in what sequence will we make changes?
How will we obtain financial returns?

20. Tactical and Operational Planning
Tactical planning
A set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing.
Specify how a company will use resources, budgets, and people to accomplish goals within its mission. (6 months to 2 years)

21. Management by Objectives
Steps to Management by Objectives:
Discuss possible goals
Select goals that are challenging, attainable and consistent with the company’s overall goals
Jointly develop tactical plans that lead to the accomplishment of tactical goals and objectives
Meet regularly to review progress
For years, both managers and management researchers have wondered how much of a difference planning made in terms of organizational performance, or whether it really made any difference at all. While proponents argued that planning encouraged workers to work hard, to persist in their efforts, to engage in behaviors directly related to goal accomplishment, and to develop better strategies for achieving goals, opponents argued that planning impeded organizational change and adaptation, created the illusion of managerial control, and artificially separated thinkers and doers.
Now, however, the results from 70 different organizations strongly support the effectiveness of management by objectives (i.e., short-term planning).
Management by objectives is a process in which managers and subordinates at all levels in a company sit down together to jointly set goals, to share information and discuss strategies that could lead to goal achievement, and to regularly meet to review progress toward accomplishment of those goals. Thus, MBO is based on goals, participation, and feedback. On average, companies that effectively use MBO will out produce those that don’t use MBO by an incredible 44.6 percent! And in companies where top management is committed to MBO, that is, where objective-setting begins at the top, the average increase in performance is an even more astounding 56.5 percent. By contrast, when top management does not participate in or support MBO, the average increase in productivity drops to 6.1 percent. In all, though, there is a 97 percent chance that companies that use MBO will outperform those that don’t! Thus, MBO can make a very big difference to the companies that use it.

22. Tactical and Operational Planning
The process of identifying the specific procedures and processes required at lower levels of the organization.
Day-to-day plans for producing or delivering products and
services over a 30-day
to six-month period

23. Planning All levels of planning should be aligned
To be effective, tactical, operational, and strategic goals must be consistent, mutually supportive, and focused on achieving a common purpose and direction.
Companies frequently use strategic maps to align strategic and operational goals.
Strategy maps show the relationship between a firm’s practices and its long-term success. They include:
financial goals
learning and growth goals
internal goals
customer goals

24. Strategic Planning Process
Strategic management
A process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies.

25. The Strategic Management Process
Exhibit 5.3

26. Question
An organization’s __________ is the basic purpose and scope of operations.
Mission
Strategy
Goal
Policy
The correct answer is a - mission. See next slide

27. Step 1-Establish a Mission, Vision, and Goals
An organization’s basic purpose and scope of operations.

28. Mission Statements Advanced Auto Parts Aflac Ford
It is the Mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers.
Aflac
To combine aggressive strategic marketing with quality products and services at competitive prices to provide the best insurance value for consumers.
Ford
We are a global family with a proud heritage passionately committed to providing personal mobility for people around the world.

29. Establish a Mission, Vision, and Goals
Strategic vision
the long-term direction and strategic intent of a company
provides a perspective on where the organization is headed and what it can become

30. Vision Statements Alcoa Anheuser-Busch Ford
At Alcoa, our vision is to be the best company in the world--in the eyes of our customers, shareholders, communities and people. We expect and demand the best we have to offer by always keeping Alcoa's values top of mind.
Anheuser-Busch
Be the world's beer company. Through all of our products, services and relationships, we will add to life's enjoyment.
Ford
To become the world's leading Consumer Company for automotive products and services.

31. Step 2-Analyze External Opportunities and Threats
Successful strategic management depends on an accurate and thorough evaluation of the environment.
Stakeholders
Groups and individuals who affect and are affected by the achievement of the organization’s mission, goals, and strategies

32. Analyze External Opportunities and Threats
Industry profile
Industry growth
Industry forces
Competitor profile
Competitor analysis
Competitor advantages
Legislation
Political activity
Social issues
Labor issues
Macroeconomic conditions
Technological factors

33. Step 3-Analyze Internal Strengths and Weaknesses
Resources
Inputs to a system that can enhance performance
Resources fall into two broad categories:
Tangible assets such as real estate, production facilities, raw materials, etc
Intangible assets such as company reputation, culture, technical knowledge, patents, as well as accumulated learning and experience.

34. Step 3-Analyze Internal Strengths and Weaknesses
Financial analysis
Human resource assessment
Marketing audit
Operations analysis
Other internal resource analyses
• Financial analysis —Examines financial strengths and weaknesses
through financial statements such as a balance sheet
and an income statement and compares trends to historical
and industry figures.
• Human resources assessment —Examines strengths and
weaknesses of all levels of managers and employees and
focuses on key human resources activities, including recruitment,
selection, placement, training, labor (union) relationships,
compensation, promotion, appraisal, quality of work
life, and human resources planning.
• Marketing audit —Examines strengths and weaknesses of
major marketing activities and identifies markets, key market
segments, and the organization’s competitive position (market
share) within key markets.
• Operations analysis —Examines the strengths and weaknesses
of the organization’s manufacturing, production, or service
delivery activities.
• Other internal resource analyses —Examine, as appropriate,
the strengths and weaknesses of other organizational activities,
such as research and development (product and process), management
information systems, engineering, and purchasing.

35. Step 3-Analyze Internal Strengths and Weaknesses
Effective internal analysis provides a clearer understanding of how a company can compete through its resources.
Resources are a source of competitive advantage only under the following circumstances:
Create customer value-they increase the benefits customers derive from a good or service relative to the costs they incur.
Rare-not equally available to all competitors
Difficult to imitate -resources are harder to imitate if they are complex, with many independent variables and no obvious link between behaviors and desired outcomes.
Well organized

36. Step 4-Formulate Strategy
SWOT analysis
A comparison of strengths, weaknesses, opportunities, and threats that helps executives formulate strategy.

37. Step 3-Analyze Internal Strengths and Weaknesses
Core capabilities
the less visible, internal decision-making routines, problem-solving processes, and organization cultures that determine how efficiently inputs can be turned into outputs.
Distinctive competence
is something that a company can make, do, or perform better than its competitors.
Benchmarking
process of assessing how well one company’s basic functions and skills compare with those of another company or set of companies.
goal of benchmarking is to thoroughly understand the “best practices” of other firms and to undertake actions to achieve both better performance and lower costs

38. Formulate Strategy Corporate strategy
The set of businesses, markets, or industries in which an organization competes and the distribution of resources among those entities
Concentration
A strategy employed for an organization that operates a single business and competes in a single industry.
Vertical integration
The acquisition or development of new businesses that produce parts or components of the organization’s product

39. Conduct a SWOT Analysis and Formulate Strategy
Related diversification
A strategy used to add new businesses that produce related products or are involved in related markets and activities
Unrelated diversification
A strategy used to add new businesses that produce unrelated products or are involved in unrelated markets and activities

40. BCG Matrix
Exhibit 5.5
• Question marks —These high-growth, weak-competitive position
businesses require substantial investment to improve
their position, or else they should be divested.
• Stars —Businesses with high growth and a strong competitive
position require heavy investment, but their strong position
lets them generate the needed revenues.
• Cash cows —These low-growth businesses with a strong competitive
position generate revenues in excess of their investment
needs, so they fund other businesses.
• Dogs —These low-growth, weak-competitive-position businesses
should be divested after their remaining revenues are realized.

41. BCG Matrix companies with a large share of a fast-growing market Stars
companies with a small share of a fast-growing market
Question Marks
companies with a large share of a slow-growing market
Cash
Cows
companies with a small share of a slow-growing market
Dogs
3.1

42. BCG Matrix      Market Growth Relative Market Share Small Large
Low
High
Question Marks
Company A
Company B
Stars
Company C
Company D
Dogs
Company H
Company G
Cash Cows
Company F
Company E     
Exhibit 6.3:
Arrow 1: While the substantial cash flows from cash cows last, they should be reinvested in stars.
Arrow 2: Over time, as their market growth slows, some stars may turn into cash cows.
Arrow 3: Cash flows should also be directed to some question marks because of greater potential in a fast-growing market.
Arrow 4: Some question marks will become stars over time, as their small markets become larger ones.
Arrow 5: Because dogs lose money, they should “find a new owner” or be “taken to the pound” (sold or closed down and liquidated for their assets).
3.1
Adapted from Exhibit 6.3

43. Porter’s Positioning Strategies
The aim of positioning strategies is to minimize the effects of industry competition and build a sustainable competitive advantage
Cost Leadership
Differentiation
After analyzing industry forces, the next step in industry-level strategy is to effectively protect your company from the negative effects of industry-wide competition and to create a sustainable competitive advantage. According to Michael Porter, there are three positioning strategies: cost leadership, differentiation, and focus.
Cost leadership means producing a product or service of acceptable quality at consistently lower production costs than competitors, so that the firm can offer the product or service at the lowest price in the industry. Cost leadership protects companies from industry forces by deterring new entrants, who will have to match low costs and prices. Cost leadership also forces down the prices of substitute products and services, attracts bargain-seeking buyers, and increases bargaining power with suppliers, who have to keep their prices low if they want to do business with cost leader. Differentiation means making your product or service sufficiently different from competitors’ offerings that customers are willing to pay a premium price for the extra value or performance that it provides. Differentiation protects companies from industry forces by reducing the threat of substitute products. A focus strategy means that a company uses either cost leadership or differentiation to produce a specialized product or service for a limited, specially targeted group of customers in a particular geographic region or market segment. Focus strategies typically work in market niches that competitors have overlooked or have difficulty serving.
Focus Strategy
4.2

44. Business strategy
Business strategy – defines the major actions by which an organization builds and strengthens its competitive position in the marketplace.
Low-cost strategy is a strategy an organization uses to build competitive advantage by being efficient and offering a standard, no-frills product.
Differentiation strategy is a strategy an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions.
Each functional area of the organization implements functional strategies to support the business strategy.

45. Firm-Level Strategies
Market commonality
the degree to which two companies have overlapping products, services, or customers in multiple markets. The more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies.
Resource similarity
the extent to which a competitor has similar amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors.

46. Strategic Moves of Direct Competition
Attack
A competitive move designed to reduce a rival’s market share or profits.
Response
A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit.
While corporate-level strategies help managers decide what business to be in and business-level strategies help them determine how to compete within an industry, firm-level strategies help managers determine when, where, and what strategic actions should be taken against a direct competitor. Firms in direct competition can make two basic strategic moves: attacks and responses.
An attack is a competitive move designed to reduce a rival’s market share or profits.
A response is a countermove, prompted by a rival’s attack, designed to defend or improve a company’s market share or profit.
Attacks and responses can include smaller, more tactical moves, like price cuts, specially advertised sales or promotions, or improvements in service. However, they can also include resource-intensive strategic moves, such as expanding service and production facilities, introducing new products or services within the firm’s existing business, or entering a completely new line of business for the first time. Of these, market entries and exits are probably the most important kinds of attacks and responses. Entering a new market is a clear offensive signal to an attacking or responding firm that your company is committed to gaining or defending market share and profits at their expense. By contrast, exiting a market is an equally clear defensive signal that your company is retreating.
5.2

47. Direct Competition Market Commonality Resource Similarity Low High III
III IV
McDonald’s
Burger King
Wendy’s
Luby’s Cafeteria
Subway
The shaded area in each quadrant depicts market commonality. The larger the shaded area, the greater the market commonality. Shapes depict resource similarity, with rectangles representing one set of competitive resources and triangles representing another. Quadrant I shows two companies in direct competition, because they have similar resources at their disposal and a high degree of market commonality, as they try to sell similar products and services to similar customers. In Quadrant II, the shaded parts of the triangle and rectangle show two companies going after similar customers with some similar products or services, but doing so with different competitive resources. In Quadrant III, the very small shaded overlap shows two companies with different competitive resources and little market commonality. Finally, in Quadrant IV, the small shaded overlap between the two rectangles shows two companies competing with similar resources but with little market commonality.
5.1

48. Step 5-Strategy Implementation
Managers must ensure that new strategies are implemented effectively and efficiently in addition to formulation of the appropriate strategies.
Steps in Strategy Implementation
Define strategic risks
Assess organization capabilities
Develop an implementation agenda
Create an implementation plan

49. Strategic Control Strategic control system
A system designed to support managers in evaluating the organization’s progress regarding its strategy and, when discrepancies exist, taking corrective action.
Strategic control systems typically include budgets
strategic - creates and maintains long-term effectiveness (a flexible budget)
operational - tightly monitored to achieve efficiency

50. Managerial decision making
Lack of structure is the usual state of affairs in managerial decision-making.
Programmed decisions are decisions encountered and made before having objectively correct answers, and solvable by using simple rules policies, or numerical computations.
Non-programmed decisions are new, novel, complex decisions having no proven answers.

51. Managerial Decision Making

52. Uncertainty and Risk
Certainty exists when decision-makers have accurate and comprehensive information.
Uncertainty means the manager has insufficient information to know the consequences of different actions.
Risk exists when the probability of an action being successful is less than 100 percent.

53. Stages of Decision Making
Exhibit 5.6

54. Formal Decision Making
1. Identifying and diagnosing the problem
The first stage in the decision-making process is to recognize that a problem exists and must be solved.
Questions to ask and answer in this stage include:
a. Is there a difference between what is actually happening and what should be happening?
b. How can you describe the deviation, as specifically as possible?
c. What is/are the cause(s) of the deviation?
d. What specific goals should be met?
e. Which of these goals are absolutely critical to the success of the decisions?

55. Generating alternative solutions
The second stage, problem diagnosis is linked to the development of alternative courses of action aimed at solving the problem.
Ready-made solutions are ideas that have been seen or tried before, of follow the advice of others who have faced similar problems.
Custom-made solutions must be designed for specific problems and are the combination of ideas into new, creative solutions.

56. Evaluating alternatives
The third stage involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best?
Key questions to ask:
a. Is our information about alternatives complete and current? If not, can we get more and better information?
b. Does the alternative meet out primary objectives?
c. What problems could we have if we implement the alternative?
Ready-made solutions are ideas that have been seen or tried before.
Custom-made solutions are new, creative solutions designed specifically for the problem.

57. Making the choice
To maximize is to make the best possible decision, the greatest positive consequences and the fewest negative consequences.
To satisfice is to choose the first option that is minimally acceptable or adequate: the choice appears to meet a targeted goal or criterion.
Optimizing means that you achieve the best possible balance among several goals.

58. Implementing the decision
The decision-making process does not end once a choice is made.
Decision-makers must understand the choice and why it was made.
They must be committed to its successful implementation.
They must plan implementation carefully.
Determine how things will look when the decision is fully operational.
Chronologically order the steps necessary to achieve a fully operational decision.
List the resources and activities required implementing each step.
Estimate the time needed for each step.
Assign responsibility for each step to specific individuals.

59. Implementing the decision
Decision-makers should assume that things will not go smoothly during implementation. Useful question to ask are:
What problems could this action cause?
What can we do to prevent the problems?
What unintended benefits or opportunities could arise?
How can we make sure they happen?
How can we be ready to act when the opportunities come?

60. Evaluating the decision
The final stage in the decision-making process is evaluating the decision.
Collect information on how well the decision is working.
Decision evaluation is useful whether the feedback is positive or negative.
If the decision appears inappropriate, it’s back to the drawing board.

61. Human nature erects barriers to good decisions
Psychological biases
Illusion of control is a belief that one can influence events, even when one has no control over what will happen.
Framing effects refer to how problems or decision alternatives are phrased or presented, and how these subjective influences can override objective facts.
Discounting the future is a bias weighing short-term costs and benefits more heavily than longer-term costs and benefits.

62. Human nature erects barriers to good decisions
Time pressures
Instead of relying on long-range planning and futuristic forecasts, focus on real-time information.
Involve people more effectively and efficiently.
Social realities
Interpersonal factors decrease decision-making effectiveness.
Many decisions are the result of intensive social interactions, bargaining, and politicking

63. Groups make many decisions
Groups can help
More information is available when several people are making the decision.
There are a greater number of perspectives on the issues, or different approaches to solving the problem.
An opportunity for intellectual stimulation is achieved.
People are more likely to understand why the decision was made.
Groups lead to a higher level of commitment to the decision.

64. Groups can hurt Sometimes one group member dominates the discussion.
Satisficing is more likely with groups.
Pressure to avoid disagreement can lead to a phenomenon called groupthink.
Groupthink occurs when people choose not to disagree or raise objections because they don’t want to break up a positive team spirit.
Goal displacement often occurs in groups.
Goal displacement is a condition that occurs when a decision-making group loses sight of its original goal and a new, possibly less important goal emerges.

65. Groups must be well led Appropriate leadership style.
The leader of a decision-making body must attempt to minimize process-related problems.
The leader should avoid dominating the discussion.
Don’t lose sight of the problem.
Make a decision!

66. Constructive Use of Disagreement and Conflict
The most constructive type of conflict is cognitive conflict, or differences in perspectives or judgments about issues.
Affective conflict is emotional and directed at other people.
A devil’s advocate has the job of criticizing ideas.
The dialectic goes a step beyond devil’s advocacy by requiring a structured debate between two conflicting courses of action.
Enhancement of Creativity
Brainstorming-group members generate as many ideas as they can.

67. Assignment Get in your groups
Do a SWOT analysis on Texas Tech University
What are its strengths?
What are its weaknesses?
What are the opportunities?
What are the threats?

68. Video: Free for All How does “free” work as a business model?
How does Google leverage its ownership of YouTube?