4: Planning
Overview of the Planning Process
Definition of Planning:
Planning is the process by which managers identify and select goals and actions for the organization.
The organizational plan that results details the goals to be attained.
Strategy:
A cluster of decisions and actions managers take to reach these goals.
Importance of Planning
Why Planning is Important:
Determines the current state and future trajectory of the organization.
Provides:
Participation
Sense of direction & purpose
Coordination
Control
Qualities of Effective Plans
Effective Plans Have Four Qualities:
Unity: All plans should be cohesive and support each other.
Continuity: Plans should be consistent over time.
Accuracy: Plans must be based on correct information and realistic assumptions.
Flexibility: Plans must be adaptable to changes in the environment.
Levels and Types of Planning
Levels of Planning:
Corporate Level Planning:
Executed by top managers, includes decisions regarding overall business direction.
Approve plans at business and functional levels.
Business Level Planning:
Conducted by divisional and functional managers.
Should seek information from all organizational levels.
Functional-Level Planning:
States the specific goals that managers of each function will pursue.
Types of Plans:
Standing Plans:
For programmed decisions; includes policies, rules, and Standard Operating Procedures (SOPs).
Single-Use Plans:
Developed for specific, one-time, non-programmed issues.
Time Horizons of Plans
Time Horizons:
Long-Term Plans: Typically corporate and business level, aimed at achieving long-term goals.
Intermediate-Term Plans: Used for business-level planning as well.
Short-Term Plans: Mainly focus on functional levels, addressing immediate issues.
Rolling Plans: Regularly updated plans reflecting changes in the external environment.
Scenario Planning and Crisis Management
Scenario Planning:
Involves generating multiple forecasts for future conditions, followed by an analysis of effective responses.
Crisis Management Plans:
Created to address potential future crises.
Five Steps in the Planning Process
Determining Vision, Mission and Goals:
Vision statement reveals the organization’s big picture.
Mission statement establishes core purpose.
Major goals provide sense of direction and strategic leadership.
Qualities of Good Goal Formulation:
Goals should be SMART + C:
Specific, Measurable, Assignable (Achievable, Attainable, Action-oriented, Acceptable, Agreed-upon, Accountable), Realistic (Relevant, Result-Oriented), Time-related (Timely, Time-bound, Tangible, Traceable), and Communicated.
Analyzing the Environment:
Strategy formulation involves a current situation analysis using tools like SWOT Analysis and Porter’s Five Forces Model.
Developing Strategy:
Corporate-Level Strategy:
Focuses on industries and countries for investment.
Principal corporate-level strategies:
Concentration on a single business
Diversification
Vertical integration
International expansion
Strategy Implementation:
Allocate responsibility, draft action plans, establish timetables, allocate resources, and hold accountable parties responsible for reaching goals.
Evaluating Strategy:
Monitor progress, evaluate performance, and make corrective adjustments if actual performance deviates from the goals.
Evaluating Strategy
Evaluation Framework:
Set qualitative and quantitative strategic goals.
Measure actual performance against benchmarks.
Analyze the variances: determine if gaps are acceptable.
Take corrective action: revisit vision, mission, goals, and strategies accordingly.
Summary and Review
Overview of the Planning Process:
Management sets goals and identifies strategies to achieve them at all organizational levels.
Scenario or contingency planning anticipates future developments, while crisis management deals with unforeseen issues.
Five Steps in Planning:
Determine vision, mission, and goals.
Analyze environmental forces.
Formulate strategy.
Implement strategy.
Evaluate strategy.
Strategic Analysis Techniques:
SWOT analysis assesses internal strengths/weaknesses, while Porter's Five Forces evaluates competitive dynamics.
Strategies aimed at gaining competitive advantages include differentiating products and managing operational costs.
MIDTERM: Case-based, serious of corresponding questions. 1 case. Handwritten. Bring a double-sided letter-size cheat sheet. All short-answer.
SWOT analysis
PESTI analysis
5 forces
6-ish questions
Planning
Identifying and selecting suitable goals, courses of action.
Applies to both day-to-day and long-term goals. Links to strategy.
STEPS:
determine the vision/mission/goals → nature
environmental analysis → SWOT & 5 Forces
formulate strategy → corporate, business & functional levels
implement → assign responsibility and allocate resources
evaluate → measures of success?
Visions, Missions & Values
future state? strategic plan?
what’s the purpose? primary products/services customers
philosophical priorities of the firm?
Top-level managers create high-level strategy. First-line managers make day-to-day decisions.
Planning horizons:
time horizon: duration?
standing plans: recurrent situations to develop programmed decisions, policies & rules
single use plans: unusual situation planning.
Strategic plans: multi-year time horizons. Avoid frequently altering strategic plans.
web search, cloud computing, Skype, MSN, Windows Phone, retail stores, console gaming, AI
they’re all example of technology and the expansion of technology to facilitate Microsoft’s vision.
Tactical plans: shorter term actions to deal with a specific opportunity or threat.
Contingency planning:
planning to handle unforeseen circumstances.
e.g. crisis management: COVID, prevention, preparation, containment.
containing discrete events with severe consequences.
links to implications of a PESTI analysis
Scenario planning: managers can create a series of “what if” scenarios and have a plan/reaction for each. Forces creative thinking — flexibility is required, e.g. Kodak’s refusal to change.
Goal setting:
Specific, measurable, attainable, relevant, time-bound, communicated.
Competitive Forces
Porter’s 5 forces, a competitive landscape is driven by:
threat of new entrants
when profits are available, business entities will enter a market. → basic microeconomics.
Barriers to entry: economies of scale, e.g. logistics & brand loyalty, e.g. Starbucks —→ “the moat”
bargaining power of buyers
Ability of buyers to influence prices charged by firms in an industry
#/size of buyers. Choice between firms. Switching costs.
Buyers can be other businesses or consumers
Powerful buyers can squeeze profits from an industry. → e.g. Walmart
Producers can become reliant on the buyer.
bargaining power of suppliers
Ability of suppliers to influence prices charged by firms in an industry
e.g. amount purchased by firms, dependence & choice, switching costs.
threat of substitutes
Goods and services of different businesses can satisfy similar customer needs.
Existence of close substitutes can shrink a market’s potential profits. Consumers have choice.
intensity of rivalry
Intense rivalries reduce profits in a market.
Rivalry is based on product nature, supply/demand, cost and industry structure. Commoditization of products lead to lower profits.
Canadian telecom & banking: oligopolies with few competitors who collude to keep prices high.
We pull this into the SWOT analysis and organizational environment. Used to determine and analyze the competitive landscape, to assess whether or not it is an attractive industry.
Planning Process Steps
Developing strategy: actions which managers take to attain an organizational goal.
Uncertainty involving competitors
Corporate-level: growth and development of an organization in its industry
focus, diversify, vertical integration, international expansion.
when/why/how to enter/exit markets.
Diversification:
entry into new business area, either related or unrelated. Leverage core competencies.
Economies of scope: cost reduction associated with sharing resources across businesses.
Vertical integration:
diversification within a single value chain. Moving upstream into supplier’s businesses or downstream into businesses that use the firm’s outputs.
Business-level: take advantage of favourable opportunities and counter threats to compete effectively
Do you compete on cost, quality or by being different in a way that consistently allows you to charge more?
Low-cost strategy: organization costs are kept low. Charge less than competitors. Economies of scale help out. It does not mean selling cheap goods.
Differentiation: increase the value of goods and services in the eyes of the consumer. Reliability, functions, service.
You could do both of these at the same time — but it’s difficult.
Functional-level: improve the ability of an organization’s departments to create value.
Competitive Advantage
obtained when an organization outperforms its rivals.
4 goals:
attain superior efficiency, inputs:outputs ratio
attain superior quality, enhance reputation & brand
attain superior innovation, improve products & processes
attain superior responsiveness to customers, charge higher prices.
Finding distinction:
distinctive competency: strengths that rivals lack.
Often the source of competitive advantage.
Sustaining distinctive competencies is difficult, competitors can imitate.
Defending distinction:
barriers to imitation, e.g. intellectual property, brands, processes.
Legacy constrains: rivals can be stuck.
Walmart Case & Porter’s 5 Forces
Threat of new entrants: Low risk. New entrants are incapable of competing against the size, scale and relationship which Walmart possesses with suppliers. Any new grocery start-up relying on a few small stores do not have the capacity to negotiate scaled deals with suppliers, even if they offer no fees and fines. It’s simply unsustainable as suppliers cannot rely on small start-ups to offset the cost of Walmart’s fees.
Bargaining power of buyers: Low risk. Given Walmart’s size and scale, immense bargaining power is possessed. Walmart refuses to compromise on fees despite supplier pushback — the same suppliers who are highly reliant upon Walmart for their sales and revenue.
Bargaining power of suppliers: Low risk. The size and scale of Walmart significantly dilutes supplier bargaining power. As the case states, removing products from shelves is considered the option of “nuclear […] armageddon,” as Walmart possess the ability to switch to a supplier whose willing to pay the fees. If anything, this new supplier would be grateful for the ability to enter Walmart.
Threat of substitutes: Moderate risk. Walmart’s competitive advantage is based primarily on cost advantage against Canada’s other grocery stores. By this virtue alone, Canadian shoppers may be unwilling to substitute Walmart with existing, expensive, Canadian-owned grocery stores. Unless suppliers are willing to mark down their prices (which already possess slim profit margins) for other grocery stores, substitutes are incapable of competing.
Intensity of Rivalry: Moderate risk. The Canadian grocery store rivalry sees all Canadian grocery stores compete on cost, quality and shopping experience. If suppliers collaborate and collectively bargain against Walmart’s fees, this may benefit other Canadian grocers as the stability of Walmart’s supply chain is put at risk — an issue that is already prevalent given the case’s pandemic era.
Don’t be focused on the company. →» it’s the customers. The Customers are the buyers.
Food manufacturers are the suppliers for Walmart.