Notes on Chapter 7: Principles of Planning and Planning Tools; Chapter 9: Strategic Planning: Strategies, Tactics, and Competitive Dynamics

Chapter 7: Principles of Planning and Planning Tools

• Key focus of Chapter 7: Principles of Planning and Planning Tools
  • General characteristics of planning
  • Different types of plans
  • Major steps in the planning process
  • Relationships between planning and organizational objectives
  • Potential of planning tools (MBO and other planning tools)

General Characteristics of Planning (1 of 5)

• Defining Planning
  • Process of determining how an organization can get where it wants to go and what it will do to accomplish its objectives
  • Through planning, the firm identifies:
  • Where it is going
  • How it will get there
• Planning is a critical management activity regardless of the type or size of organization
• Practical example: A company must ship 1{,}000 units per month, each product containing 2{,}000 items
  • Lack of planning confuses people; constantly changing plans have the same effect
  • Analogy: A grocery store relies on right planning to ensure replenishment by suppliers

General Characteristics of Planning (2 of 5)

• Purposes of Planning
  • Minimize risk by reducing uncertainties (protective)
  • Increase degree of organizational success (affirmative)
  • Establish a coordinated effort within the organization
  • Ensure integration among various business units
  • Facilitate achievement of organizational objectives
• What planning means (illustrative steps):
  1. Buyer buys the right part at the right time
  2. Planner cuts the right job
  3. Production builds the right parts
  4. Make money for the organization
• Practical challenge example: Plan for shipping 1{,}000 units per month for 12 months; how to ensure success?

General Characteristics of Planning (3 of 5)

• Advantages of Planning
  • Helps managers become future-oriented (look beyond day-to-day)
  • Enhances decision coordination (how today’s decisions impact tomorrow)
  • Emphasizes organizational objectives
  • Supports sustainability of the firm
  • Helps managers identify and address problems as the firm operates
• Common problems to anticipate:
  1. End-of-life items
  2. Supplier challenges
  3. Shelf-life limiting items
  4. Counterfeit materials
  5. Capacity/material availability
  6. Engineering team and obsolescence management
  7. Slow-moving inventory

General Characteristics of Planning (4 of 5)

• Disadvantages of Planning (when misapplied)
  • High managerial time involvement (overemphasis on planning can be costly)
  • Rigidity and lack of adaptability
  • Need to balance time spent on planning with organizing, influencing, and controlling
• Relation to budgeting
  • The budgeting process can require hundreds of hours
  • In aerospace or other high-stakes industries, missed numbers or beating numbers have organizational consequences
• Key management functions linked to planning: organizing, influencing, and controlling

General Characteristics of Planning (5 of 5)

• Primacy of Planning
  • Planning is the primary management function
  • It serves as the basis for organizing, leading, and controlling
  • Only after planning can managers determine how to structure the organization and monitor progress toward objectives
• Example: Planning a plan to ship 1{,}000 units per month reveals:
  • Operations: how many people and machines are needed; floor space
  • Engineering: finish design work and fix bugs
  • Accounting: funds required and timing; profit margin considerations (labor, materials, overhead, outsourcing, pricing, redesign)

Types of Plans (Top-Level Overview)

• Standing Plans (used repeatedly)
  • Policies: broad guidelines for action aligned with objectives (e.g., weapons policy)
  • Procedures: specific actions to accomplish tasks (more detailed than policies; e.g., Apple’s adoption of green technology)
  • Rules: specific required actions with no deviation (e.g., no smoking rule)
  • Figure 7.2: Standing plans and single-use plans
• Single-Use Plans (used once or few times)
  • Programs: carry out a special project; contributes to long-term success
  • Budgets: financial plan for a specified period; details of funds, labor, materials, capital goods, information systems, marketing, and funding
  • Figure 7.2: Standing plans and single-use plans

Steps in the Planning Process (1 of 4)

• Figure 7.4: Elements of the planning process
• Example scenario (illustrative):
  • 2021 target: ship 100 ext{pc} / month
  • Make vs. Buy assessments
  • Company lacks expertise in building certain assemblies; decide to buy
  • Supplier focuses on machined products; procure those items
  • Chose right supplier, communicate plan, establish periodic checks
  • Create purchase orders for buy items; create work orders for make items; hire adequate employees; procure equipment

Steps in the Planning Process (2 of 4)

• Step 1 – State Organizational Objectives
  • Start with a clear statement of the organization’s objectives
• Step 2 – List Alternative Ways of Reaching Objectives
  • List as many alternatives as possible for achieving the objectives

Steps in the Planning Process (3 of 4)

• Step 3 – Develop Premises on Which to Base Each Alternative
  • Identify premises and assumptions underlying the alternatives
• Step 4 – Choose the Best Alternative for Reaching Objectives
  • Determine which alternative best accomplishes the objective

Steps in the Planning Process (4 of 4)

• Step 5 – Develop Plans to Pursue the Chosen Alternative
  • Begin strategic/long-range and tactical/short-range plans based on the chosen alternative
• Step 6 – Put the Plans into Action
  • Implement the plan and evaluate results of the planning process

Chapter 9: Strategic Planning: Strategies, Tactics, and Competitive Dynamics

• Chapter focus: Strategic planning, strategy formulation, implementation, and competitive dynamics
• Learning objectives (highlights):
  • Definitions of strategic planning and planning
  • Environmental analysis components
  • Role of organizational direction in strategic management
  • Strategy formulation and strategic control
  • Coordination of strategic and tactical planning
  • Impact of competitive dynamics on financial performance

Strategic Planning: Definitions and Process

• Strategic planning is long-range planning focused on the organization as a whole
• Management’s focus: organization’s strategic goals and what must be done to attain them over the long term
• Long-range planning generally covers 3-5 years: 3 ext{-}5 ext{ years}
• Long-term questions include: industry choices, profitability through pricing and cost reduction, automation, outsourcing, etc.
• Strategy definition: broad, general plan for long-term objectives; provides broad direction and aligns with objectives and purpose

Environmental Analysis and Organizational Direction

• Environmental analysis: study of the organization’s environment to identify factors influencing operations
  • Helps understand internal and external factors while identifying appropriate strategy
• Managerial environment (Figure 9.2): organization + levels of environment + components of those levels
• External environment components (General Environment)
  • Economic: resource use, distribution, wages, taxes, material costs, profitability drivers
  • Social: demographics, social values
  • Political: lobbying and regulatory considerations
  • Legal: laws like Clean Air Act, Affordable Care Act
  • Technology: automation, efficiency
  • International: cross-border regulatory and market considerations
• External environment implications: broad, long-term impacts on the organization

Industry and Internal Environments

• Industry/Operating Environment: Porter's Five Forces Model (Figure 9.3)
  • Threat of New Entrants
  • Buyer Power
  • Supplier Power
  • Threat of Substitute Products
  • Intensity of Rivalry
• Internal Environment: internal operations and capabilities (marketing, finance, accounting, planning, organizing, influencing, controlling)
• Example to illustrate internal vs external: Product line team structure and the idea of an A Team

Strategic Management Process (Overview)

• Figure 9.1: Steps of the strategic management process (with links to video resources for illustration)
• Core sequence: environmental analysis → setting directions → strategy formulation → strategy implementation → strategic control
• Practical takeaway: the process is applicable to personal life planning as well (e.g., debt repayment planning) with steps like environmental analysis, setting directions, strategy formulation, implementation, and control

Environmental Analysis in Practice

• Environmental analysis focuses on identifying factors that affect strategy
• The environment includes both macro-level (general environment) and industry-specific factors
• Tools to analyze environment: SWOT, Porter’s Five Forces, PESTLE-like thinking (economic, social, political, legal, technology, international)

Mission, Vision, and Organizational Direction

• Establishing Organizational Direction (1 of 4)
  • Determining Organizational Mission: purpose and reason the organization exists
  • Reflects type of products and services; broad direction
  • Think about real-world examples and how mission attracts people
• Developing a Mission Statement (2 of 4)
  • Written document describing the organization’s mission
  • Management leads with input from managers and employees
  • Needs to be communicated and understood throughout the organization
• Importance of Organizational Mission (3 of 4)
  • Increases success probability; directs effort; explicit targets and goals
  • Helps allocate resources and defines work areas and jobs
• Relationship Between Mission and Objectives (4 of 4)
  • Objectives flow from the mission; mission is informed by environmental analysis
  • Real-world question: why was a particular model (e.g., Southwest Airlines) difficult to copy?

Strategy Formulation: Tools

• Strategy formulation involves determining appropriate courses of action to achieve objectives
• Strategic tools include:
  • Critical Question Analysis
  • SWOT Analysis
  • Business Portfolio Analysis

Critical Question Analysis

• Key questions:
  • What are the purposes and objectives of the organization? Where should it be going?
  • Where is the organization presently going? Is progress satisfactory?
  • What kind of environment exists now? How to adapt for the future?
• Practical example: McDonald’s early franchise challenges illustrate environmental and control considerations

SWOT Analysis

• SWOT matches internal strengths and weaknesses with external opportunities and threats
• Internal environment: Strengths, Weaknesses
• External environment: Opportunities, Threats
• Illustration: Tesla Q4 2021 earnings context (FSD, robot, new battery, capacity growth, competition, product liability, regulatory issues) fits into S/W/O/T framing

Business Portfolio Analysis

• Purpose: analyze relation among businesses of an organization and derive strategy recommendations
• Tools:
  • BCG Growth-Share Matrix
  • GE Multifactor Portfolio Matrix
• Purpose: decide which businesses to keep, invest in, or divest

BCG Growth-Share Matrix (Figure 9.4)

• Categories:
  • Star: large growth market, requires cash for growth; high ROI
  • Cash Cow: large market share, slow growth; generates cash to fund other units
  • Question Mark: small share in high-growth market; uncertain investment value
  • Dogs: small share in low-growth market; may drain cash
• Limitation: does not account for product development risks, inflation, or socio-political pressures

GE Multifactor Portfolio Matrix (Figure 9.5)

• Framework for strategic decisions based on:
  • Industry attractiveness (factors like market size, growth, competition, etc.)
  • Business strength (financial position, supplier leverage, technology, etc.)
• Visual: circles represent SBUs; size indicates market size; shaded portions show market capture
• Usage: guides where to invest, keep, or divest

Strategy Formulation Types

• Differentiation: develop products/services that are distinct from competitors
• Cost Leadership: compete by producing cheaper products
• Focus: target a particular customer segment

Sample Organization Strategies (Table 9.1)

• Growth: increase business via organic growth or acquisitions (e.g., Amazon ongoing expansion; analysis via cash flow statements)
• Stability: maintain or slightly improve business (often cash cows)
• Retrenchment: defend/fortify; apply to cash cows or stars losing market share
• Divestiture: eliminate underperforming units (dogs)

Strategic Management Process (Figure 9.1) and Implementation

• Steps: environmental analysis, setting directions, strategy formulation, strategy implementation, strategic control
• Strategy implementation requires four basic skills:
  • Interacting Skill: managing people during implementation; empathize with teams
  • Allocating Skill: budgeting, scheduling, allocating resources
  • Monitoring Skill: feedback and roadblock identification
  • Organizing Skill: placing the right people to solve implementation problems
• Example: Intel’s approach to implementing a new strategy with Motorola as a case study (illustrative)

Strategic Controls and Tactical Planning

• Strategic Controls: monitor and evaluate the strategic management process as a whole; ensure steps are compatible and functioning
• KPI (Key Performance Indicators): used to measure progress toward strategic objectives
• Tactical Planning: short-range planning focusing on current operations; typically 1 year or less
  • Areas: production, marketing, personnel, finance, facilities
  • Examples: hire a new engineer, launch a product variation, offer discounts

Strategic vs Tactical Planning (Table 9.3)

• Differences include: level of involved personnel, data availability, level of detail, time horizon, etc.
• Strategic planning is often conducted by upper-level management with broader, long-term scope; tactical planning is more detailed and carried out by lower-level management for shorter horizons

Competitive Dynamics

• Focus: actions and reactions among competitors in an industry
• Attacker vs Defender: who initiates actions and how the other responds
• Why this matters: understanding how strategic and tactical actions influence competitive balance and financial performance
• Three factors affecting firm actions in competitive dynamics:
  • Competitor Awareness: mindfulness of rivals’ actions (e.g., Barnes & Noble vs Amazon price actions)
  • Competitor Motivation: incentives to act (e.g., price cuts to gain share)
  • Competitor Capability: financial and operational ability to respond

Practical Takeaways for Exam Preparation

• Remember the sequence of planning: objectives -> alternatives -> premises -> choose -> develop plans -> implement and control
• Distinguish standing vs single-use plans; know examples (policies, procedures, rules; programs, budgets)
• Be able to explain the primacy of planning and its link to organizing, directing, and controlling
• Be able to describe environmental analysis and its components (economic, social, political/legal, technology, international)
• Know Porter’s Five Forces and the internal/external environment distinction
• Be familiar with SWOT, BCG Matrix, GE Matrix, and the purpose of each in strategy formulation
• Understand the difference between strategic (long-term, broad scope) and tactical (short-term, detailed) planning
• Recognize the four skills essential to strategy implementation and what each entails
• Appreciate how mission statements influence objectives, resource allocation, and organizational direction
• Remember example milestones and figures (e.g., 1,000 units/month; 12 months; 3–5 years) and how they illustrate planning concepts

Notable References and Examples Mentioned

• Example: avionics manufacturing and complex product development—illustrates risks of poor planning
• 1000 units per month; each unit containing 2000 items; planning relationship to supplier replenishment
• Mission statements and real-world company examples mentioned: Southwest Airlines, UPS, Microsoft, Google, McDonald’s (strategic links to mission and direction)
• Real-world strategic tools and concepts illustrated with company cases (Ford, Burger King, CP Railroad; Tesla examples referenced in SWOT)
• YouTube references associated with the Strategic Management Process illustrations

Key Equations and Numerical References (LaTeX)

• Long-range planning horizon: 3 ext{-}5 ext{ years}
• Monthly shipping target (example): 1{,}000 units per month
• Items per unit in example: 2{,}000 items per unit
• Time until plan horizon for strategic planning (general rule): 3 ext{-}5 ext{ years} (reiterated)
• Percent targets: 100 ext{ extpercent} (as in 100 ext{pc}/month in an example)

Relationships and Takeaways

• Planning as the foundation: planning informs organizing, influencing, and controlling (Figure 7.1)
• Mission and objectives alignment: mission informs objectives; objectives must flow from mission and environmental analysis
• Strategic management cycle complements tactical actions: environmental analysis → direction setting → strategy formulation → implementation → control
• Tools and frameworks support decision-making under uncertainty and guide resource allocation

Quick Study Prompts

• Define planning and list its primary purposes
• Distinguish standing plans from single-use plans; provide examples
• Outline the six steps in the planning process and give a brief description of each
• Explain the primacy of planning and how it influences other management functions
• Describe Porter’s Five Forces and how each force affects industry competitiveness
• Compare and contrast strategic and tactical planning in terms of scope, time horizon, and level of management involved
• Summarize SWOT analysis and how it informs strategy formulation
• Explain the four essential skills for strategy implementation and give a real-world example for each
• Describe the GE Multifactor Portfolio Matrix and its managerial use
• Discuss the role of mission statements in guiding organizational direction and resource allocation