Essentials of Contemporary Management - Chapter 4 Study Notes

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

1. 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.

2. Analyzing the Environment:

   • Strategy formulation involves a current situation analysis using tools like SWOT Analysis and Porter’s Five Forces Model.

3. 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

4. Strategy Implementation:

   • Allocate responsibility, draft action plans, establish timetables, allocate resources, and hold accountable parties responsible for reaching goals.

5. 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:

  1. Determine vision, mission, and goals.

  2. Analyze environmental forces.

  3. Formulate strategy.

  4. Implement strategy.

  5. 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:

1. determine the vision/mission/goals → nature

2. environmental analysis → SWOT & 5 Forces

3. formulate strategy → corporate, business & functional levels

4. implement → assign responsibility and allocate resources

5. 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.

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.

  • Differentiation: increase the value of goods and services in the eyes of the consumer. Reliability, functions, service.

• Functional-level: improve the ability of an organization’s departments to create value.