C2—Functions of Management: Planning

Planning

• Process of organizing ideas into actionable steps

• “In business, planning is about deciding what to do and how to do it.”

• Major categories; Strategic, tactical, operational, & contingency planning.

TYPES OF PLANNING

Strategic Planning (Top Management)

• Is about the big goals

• A firm’s overall master plan that shapes its destiny. This is big-picture planning. It’s about setting long-term goals for the whole business and deciding what direction the company should take.

• Sets the approach for achieving an organiation’s long term goals & objectives

• Acts as a framework for decisions

• Assists in setting corporate benchmarks

Tactical Planning (Middle Management)

• Is about the steps to achieve those goals

• Takes the big goals from strategic planning and breaks them down into smaller, more specific plans. These are usually short term actions that help achieve the bigger goals

• Determines resources and actions necessary to implement stratetgic plan

Contingency Planning (Middle Management)

• Is about being ready for surprises

• This type is like having a backup plan. It’s about preparing for unexpected events or problems that could disrupt the business

Operational Planning (First-Line Management)

• Is about the everyday tasks

• Day-to-day planning. Focuses on the details ofhow things should be done on a daily basis. Operational plans make sure that everything runs smoothly, like organizing schedules, tasks, and processes.

A FRAMEWORK FOR PLANNING

A structured approach that helps organizations or individuals systematically develop, implement, and evaluate their plans. It provides a set of guidelines or steps that ensure all aspects of planning are considered and addressed. The framework serves as a roadmap for moving from an idea or goal to actionable steps and measurable outcomes

It’s a step-by-step guide that helps you figure out what you want to achieve, how to get there, and what to do if

things don’t go as planned. It ensures you don’t miss any important details and helps you stay organized

1. Define the Present Situation

• includes measuring success and examining internal capabilities and external threats

2. Establish Goals and Objectives

• Goals are broader than objectives, whereas objectives function as smaller goals that support the bigger goals.

3. Analyze the Environment to Forecast Aids & Barriers to Goals & Objectives

• attempts to predict which internal and external factors will foster or hinder attainment of the desired ends.

4. Develop Action Plans to Reach Goals & Objectives

• An action plan consists of the specific steps necessary to achieve a goal or objective.

5. Develop Budgets

• Planning usually results in action plans that require money to implement

6. Implement the Plans

• If the plans developed in the previous five steps are to benefit the firm, they must be put to use.

7. Control the Plans

• The control process measures progress toward goal attainment and indicates corrective action if too much deviation is detected.

Make Contingency Plans

• an alternative plan to be used if the original plan cannot be implemented or a crisis develops

Strategy

• The organization’s plan, or comprehensive program, for achieving its vision, mission, and goals in its environment.

THE NATURE OF BUSINESS STRATEGY

Strategy Rests on Unique Activities

• Competitive strategy means deliberately choosing a different set of activities to deliver a unique value.

A Sustainable Strategic Position Requires TradeOffs

• After a firm finds a strategic position (or place in the market), it can best sustain it by making tradeoffs with other positions. Trade-offs are necessary when activities are incompatible.

Fit Drives Both Competitive Advantage & Sustainability

• Strategy includes efficiently combining activities related to making a product or service. Company activities fit and support each other to form an effective system.

Strategy Involves More Than Operational Effectiveness

• A starting point in understanding the nature of business strategy is to understand that it involves more than operational effectiveness or being efficient.

THE DEVELOPMENT OF BUSINESS STRATEGY

Strategic planning

• encompasses those activities that lead to the statement of goals and objectives and the choice of strategies to achieve them.

Vision

• an idealized picture of the future of the organization.

Mission

• identifies the firm’s purpose and where it fits into the world. Specifying a mission answers the question “What business are we really in?”

Three Major Approaches to Developing Strategy

1. Gathering Multiple Inputs

• Many strategic leaders arrive at their ideas for the organization’s future by consulting with a wide range of parties at interest

• An extreme approach to gathering multiple inputs for strategy is a development termed crowdcasting

2. Analyzing the Realities

• The strategist must make valid assumptions about the environment

• Firms must constantly change in order to be aligned with their key environments.

• Sometimes management can shape the nature of the business to match the external environment

3. Performing a SWOT Analysis

• SWOT Analysis - A method of considering the strengths, weaknesses, opportunities, and threats in a given situation. Considered the most applicable to the early stages of strategic and marketing planning. Elements of a SWOT analysis are included in the general planning model and in the strategic inventory used to size up the environment.

Preparing for the Analysis

1. It is important to be clear about what you are doing and why.

2. It is important to select appropriate contributors.

3. Allocate research & information-gathering tasks.

4. Create a workshop environment by encouraging open communication among participants.

Conducting the Analysis

• Strengths - the internal attributes and resources that give an organization an advantage over others in achieving its objectives.

• Weaknesses - are internal limitations or factors that place an organization at a disadvantage in comparison to others.

• Opportunities - are external factors or situations that an organization can capitalize on to achieve its goals

• Threats - are external factors that could potentially negatively impact an organization's success.

Levels of Business Strategies

A strategy chosen to reach an important goal depends considerably on the level it serves within the organization.

• Corporate-level strategy

Focuses on the total direction of the enterprise and the selection of specific businesses.

• Focus: The overall direction of the entire organization.

  • What It Does: Determines what businesses or markets the company should be involved in.

• Business-level strategy

Focuses on the question of how to compete in each of our businesses.

• Focus: How to compete effectively in each specific business or market.

  • What It Does: Decides how to position the business against competitors in a particular industry.

• Functional-level strategies

formulated to specify actions required to successfully implement strategies at the corporate and business levels.

• Focus: Specific actions within departments or functions to support the business and corporate strategies.

  • What It Does: Details how different parts of the organization, like marketing, finance, or production, will implement the broader strategies.

Type of Business Strategies

Corporate-level strategies

• Strategic Alliances

  • Common approach to business

  • Alliances are partnerships with other companies

  • Sharing resources with other companies to succeed in the market

  • Growth of alliances due to the enormous costs and time involved in developing and distributing products when a company starts from zero

• Diversification of goods and services

  • “Don’t put all your eggs in one basket”

  • It serves as a hedge in case the market for one group of products or services softens.

  • It can lead to immediate growth at the same time

• Sticking to core competencies

  • Guard against spreading yourself too thin.

  • Confine efforts to business activities they perform best—their core competencies

Business- level strategies

• Product Differentiation

  • Attempts to find a niche or offer a product or service that are different from available alternatives.

  • Create a new market in which competition does not exist, referred to as a blue ocean strategy

• Focus Strategy

  • The organization concentrates on a specific regional or buyer market.

  • Specialized medical products, such as leg and arm prostheses, are based on a focus or niche strategy.

• Cost Leadership

  • Provides a product or service at a low price in order to gain market share.

  • A cost leadership strategy can create ethical problems because of what suppliers must do to cut costs

Functional-level strategies

• Find and retain the best people

  • A foundation strategy is to find and retain competent people.

  • Concentrating on hiring talent can be considered a functional level strategy because people are usually hired into specific departments.

• High speed

  • Satisfy customer needs more quickly and you will make more money.

  • High-speed managers focus on speed in all of their business activities, including product development, sales response, and customer service. “time is money,” they use time as a competitive resource

Michael Porter's Five Forces Analysis

Porter's Five Forces analysis, developed by Michael E. Porter, is a tool that helps businesses understand the competitive forces that shape an industry and determine its attractiveness or profitability.

Five Competitive Forces

1. Bargaining Power of Buyers

• have a significant impact on prices

• Buyer power is highest when buyers are large relative to the competitors serving them, products are undifferentiated and represent a significant cost for the buyer, and there are a few switching costs.

2. Bargaining Power of Suppliers

• can demand premium prices and limit your profit

• Powerful suppliers can use their negotiating leverage to charge higher prices or demand more favorable terms from industry competitors which lowers industry profitability. if there are only one or two suppliers of an essential input product for example or if switching suppliers is expensive or time consuming a supplier group wields more power

3. Threat of New Entrants

• can force current players to keep prices down and spend more to retain customers. Actually, entry brings new capacity and pressure on prices and costs. the threat of entry therefore, what's a cap on the profit potential of an industry.

• the threat of entry also depends on the capabilities of the likely potential entrants. if there are well established companies in the industry operating in other geographic regions the threat of entry rises

4. Threat of Substitutes

• will limit your ability to raise prices

• When a new product or service meets the same basic need in a different way, industry profitability suffers. Video conferencing is a substitute for travel. e-mail is a substitute for express mail.

• The threat of a substitute is high if it offers an attractive price performance trade off relative to the industry's product or if the buyer's cost of switching to the substitute is low.

5. Rivalry among Existing Competitors

• intense competition leads to reduced profit potential for companies in the same industry

• If rivalry is intense, it drives down prices or dissipates profits by raising the cost of competing. companies compete away the value they create. rivalry tends to be especially fierce if competitors are numerous or are roughly equal in size and market position.

Operating Plans

• The means through which strategic plans alter the destiny of the firm

• Involve organizational efficiency (doing things right), whereas strategic plans involve effectiveness (doing the right things).

• Operating plans focus more on the firm than on the external environment.

• Operating plans tend to be drawn for a shorter period than strategic plans.

Policies

• General guidelines to follow in making decisions and taking action.

• Many policies are written; some are unwritten, or implied.

• Many firms have strict policies against employees accepting gifts and favors from vendors or potential vendors.

Procedures

• A customary method for handling an activity. It guides action rather than thinking.

• Procedures exist at every level in the organization, but they tend to be more complex and specific at lower levels.

Rules

• A specific course of action or conduct that must be followed. It is the simplest type of plan.

• When rules are violated, corrective action should be taken.

Managing by Objectives

• Management by objectives (MBO)

  • a systematic application of goal setting and planning to help individuals and firms be more productive.

  • Began in the 1950s

  • Involves people setting many objectives for themselves.

  • usually involves sequential steps

• Establishing organizational goals

  • Top-level managers set organizational goals to begin the entire MBO process. Managers determine what the organizational units must accomplish to meet these goals

• Establishing unit objectives - Unit heads then establish objectives for their units. Objectives set at lower levels of the firm must be designed to meet the general goals established by top management

• Reviewing group members’ proposals

  • Group members make proposals about how they will contribute to unit objectives. Each team member is given the opportunity to set objectives in addition to those that meet the strategic goals.

• Negotiating or agreeing - Managers and team members confer together at this stage to either agree on the objectives set by the team members or negotiate further

• Creating action plans to achieve objectives

  • After the manager and team members agree upon objectives, action plans must be defined. Sometimes the action plan is self-evident.

• Reviewing performance - Performance reviews are conducted at agreed upon intervals. When objectives are not attained, the manager and group member mutually analyze what went wrong.