Lecture 4: Planning and Decision-Making PDF

BIZ 2331 Dr. Jaume Franquesa Lecture 4 Planning and Decision-Making Planning and Decision Making...

BIZ 2331 Dr. Jaume Franquesa Lecture 4 Planning and Decision-Making Planning and Decision Making Learning Objectives By the end of this module, you should be able to: LO 1. Discuss the benefits and pitfalls of planning. LO 2. Outline the steps for creating an effective plan. LO 3. Discuss how companies can use plans at all management levels, from top to bottom. LO 4. Use the steps and avoid the limitations to rational decision making. LO 5. Understand how group decisions and group decision-making techniques can improve decision making. BIZ 2331 -Dr. Franquesa 1  Planning LO 4-1: Discuss the benefits and pitfalls of planning. Planning: setting goals and developing a strategy to achieve them. Planning has advantages and disadvantages. Benefits of Planning Provides direction Encourages the development of better ways to do things Intensifies efforts Leads to persistence Helps in developing Sustained Competitive Advantage Works for both companies and individuals (i.e., employees) BIZ 2331 -Dr. Franquesa 2  Pitfalls of Planning Could impede change, and prevent or slow needed adaptation. May create a false sense of certainty (if plan is based on wrong assumptions) May be affected by the detachment of top- level planners from the complexity and constraints in daily of operations. Effective Planning Process LO 4-2: Outline the steps for creating an effective plan. BIZ 2331 -Dr. Franquesa 3  Effective Planning: # 1- Set goals Effective Planning: # 2- Develop Commitment Goal commitment: the determination to achieve a goal (really wanting to achieve it). How to achieve goal commitment? Setting goals participatively. Making the goal public. Top management’s repeated support for (and reinforcement of) the goal. BIZ 2331 -Dr. Franquesa 4  Effective Planning: # 3- Develop Action Plans Action plan: Lists the specific steps, people and resources involved, and timeline (schedule) for attaining the goal. Effective Planning: # 4- Track Progress Methods for tracking progress: Setting proximal goals (that indicate progress toward distal goals) ➖Distal goals: Long-term or primary goals ➖Proximal goals: Short-term goals or subgoals (i.e., intermediate milestones) Gathering and providing performance feedback BIZ 2331 -Dr. Franquesa 5  Effective Planning: # 5- Maintain Flexibility Easier said than done! Options-based planning is one method to maintain flexibility: Keep options open by making small, simultaneous investments in several alternative plans (until more information is available). Avoid or postpone the commitment of resources, thus maintaining slack. ➖Slack resources: Cushion of extra resources that can be used to adapt to unanticipated problems/opportunities. Knowledge Check Vertical Space, a construction company, must complete the construction of a large apartment complex by the end of the next year. To meet this target, the site engineers have made detailed plans. In this scenario, Vertical Space’s plan to complete one floor each week is an example of a. a capstone goal b. a proximal goal c. a distal goal d. a passive goal BIZ 2331 -Dr. Franquesa 6  Planning from Top to Bottom LO 4-3: Discuss how companies can use plans at all management levels, from top to bottom. Mission Vision Strategic Plans Planning: Starting at the Top Top management is responsible for developing mission and vision statements, as well as long-term (2 to 5 year) strategic plans: Mission (Purpose statement): Declaration of a company’s purpose or reason for existing. Vision (Strategic objective): Long-term but specific goal that: ➖Grows out of the mission ➖Unifies company-wide efforts ➖Stretches and challenges the organization ➖Possesses a finish line and a time frame BIZ 2331 -Dr. Franquesa 7  Mission Nestlé is the world's leading nutrition, health and wellness company. Our mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night. Mission We help people realize their hopes and dreams through products and services designed to protect them from life’s uncertainties and to prepare them for the future. BIZ 2331 -Dr. Franquesa 8  Vision Our Strategic Vision is to deliver substantially more value than the competition by reinventing protection and retirement to improve customers' lives.  Is this a good vision statement?  How can we make it better? Planning: Starting at the Top (cont.) Mission and vision are not yet strategic plans. (They are inputs for plans) Strategic Plans (i.e., strategies) = overall company plans that clarify how the company will achieve its vision, including: what specific markets will be served, how will customers be served in these markets, how will the firm position itself against competitors in other to beat them, and what resources and capabilities will be needed. BIZ 2331 -Dr. Franquesa 9  Strategy (i.e., strategic plan) Sell branded products for ≤ 14% over cost. Create efficiencies by: Carefully selecting and selling only one high-quality item in each product category. Selling straight off shipping pallets. Maintain extremely low overhead. Planning: Bending in the Middle Middle management develops and carries out tactical plans to implement strategic plans and accomplish strategic objectives. Tactical plans: Plans that direct behavior, efforts, and attention over the next six months to 2 years. Example: A regional manager for Costco planning for the opening of a new store, or for the addition of a new product line, or for a marketing campaign. BIZ 2331 -Dr. Franquesa 10  Planning: Finishing at the Bottom Lower-level managers develop and carry out operational plans. Operational plans: day-to-day plans for producing or delivering the organization’s products/services over a 30-day to six-month period. Example: Costco store manager’s monthly personnel schedule. Three types of operational plans: Single-use plans Standing plans Budgets (and schedules) Types of Operational Plans Single-use plans: plans that cover unique, one-time-only events. Standing plans: plans used repeatedly to handle frequently recurring events Policies: indicate the general course of action that should be taken in response to a particular event or situation. Rules and regulations: establish specific actions that must happen or not happen in response to a particular event. Set constraints on acceptable behavior. Procedures: indicate the specific steps that should be taken in the performance of a task or action. Budgeting: quantitative plans through which managers decide how to allocate available money to best accomplish company goals. BIZ 2331 -Dr. Franquesa 11  Rational Decision-Making LO 4-4: Use the steps and avoid the limits to rational decision-making. Decision making: Process of choosing a solution from available alternatives. Rational decision making: Systematic process of defining problems, evaluating alternatives, and choosing optimal solutions. Steps in Rational Decision-Making (slide 1 of 3) Step 1: Define the problem Problem: a gap between an existing state and a desired state. Managers must: ➖be aware of the problem ➖be willing to solve the problem (many leaders avoid making tough calls… ) ➖have the knowledge, skills, abilities, and resources to fix the problem BIZ 2331 -Dr. Franquesa 12  Steps in Rational Decision-Making (slide 2 of 3) Step 2: Identify decision criteria Decision criteria: dimensions used to contrast alternatives and guide judgments. Step 3: Weigh the criteria Absolute weights: a process in which each decision criterion is compared to a standard and given its own (independent) importance rating. Relative weights: a process in which the importance of each decision criterion is set by comparison with every other criteria. Example: Absolute Weighting of Decision Criteria BEST CARS RANKINGS 1. Predicted reliability = 5 Weighting scale 2. Owner satisfaction = 2 5 =critically important 4 =important 3. Predicted depreciation = 1 3 =somewhat important 4. Avoiding accidents = 4 2 =not very important 1 =completely unimportant 5. Fuel economy = 5 6. Crash protection = 4 7. Acceleration = 1 8. Ride = 3 9. Front seat comfort = 5 BIZ 2331 -Dr. Franquesa 13  Example: Relative Weighting of Decision Criteria Getting ready to select among three house options… Decision Criteria L SSQ IP SR QS NBH Daily commute (L) +1 -1 -1 -1 0 School system quality (SSQ) -1 -1 -1 -1 -1 In-ground pool (IP) +1 +1 0 0 +1 Sun room (SR) +1 +1 0 0 0 Quiet street (QS) +1 +1 0 0 0 Newly built house (NBH) 0 +1 -1 0 0 Total RELATIVE weight +2 +5 -3 -2 -2 0 You could now transform the relative weights into absolute weights by adding +4 to each of the relative weights. Steps in Rational Decision-Making (slide 3 of 3) Step 4: Generate alternatives. Step 5: Evaluate (rate) each alternative against each criterion, systematically. Step 6: Compute weighted scores for each alternative. i.e., multiply the rating for each criterion by the weight of that criterion and then add-up the generated scores. Step 7: Select alternative with highest overall score. BIZ 2331 -Dr. Franquesa 14  Example: New Office Location Decision Available Office Qualified Staff Freedom from Quality of Life Easy to Travel Cost/Value of Travel within to/from City Office Space munications Languages Weighted Access to Pollution Telecom- Business Markets Average Ranking Climate Spoken Cost of Space Staff City Criteria Weights: 0.60 0.53 0.52 0.42 0.33 0.32 0.25 0.21 0.20 0.20 0.16 0.16 Amsterdam 0.42 0.40 0.39 0.68 0.30 0.19 0.30 0.96 0.47 0.34 0.44 0.63 1.72 5 Barcelona 0.23 0.32 0.16 0.29 0.52 0.59 0.52 0.23 0.31 0.47 1.08 0.42 1.45 8 Berlin 0.44 0.39 0.41 0.35 0.78 0.40 0.79 0.50 0.34 0.78 0.38 0.29 1.85 4 Brussels 0.46 0.43 0.37 0.48 0.44 0.17 0.42 0.98 0.37 0.29 0.41 0.27 1.65 7 Dusseldorf 0.30 0.30 0.23 0.21 0.37 0.14 0.28 0.18 0.17 0.22 0.20 0.26 0.97 10 Frankfurt 0.68 0.57 0.70 1.17 0.38 0.11 0.44 0.57 0.38 0.35 0.17 0.18 2.16 3 London 1.50 1.36 1.27 1.79 0.27 0.10 0.42 1.48 0.55 1.26 0.46 0.15 4.03 1 Madrid 0.45 0.46 0.27 0.41 0.52 0.61 0.67 0.22 0.29 0.53 0.67 0.13 1.70 6 Munich 0.34 0.47 0.48 0.37 0.18 0.03 0.18 0.30 0.22 0.47 0.62 0.57 1.36 9 Paris 1.09 0.84 0.89 1.36 0.22 0.10 0.37 0.58 0.30 1.07 0.52 0.12 2.83 2 Group Decision-Making: Advantages and Pitfalls LO 4-5: How group decision techniques can improve decision-making. Advantages: Groups perform better than individuals in defining the problem and in generating alternative solutions. Pitfalls (barriers to good decision-making): Groupthink: pressure for members to agree with each other in cohesive groups. Individuals can dominate group discussions, limiting discussion/consideration. Individual members may not feel accountable. Equality bias causes acceptance of proposals from less competent members. BIZ 2331 -Dr. Franquesa 15  Types of Conflict in Group Dec-Making The right kind of conflict fosters better decisions: C-type conflict (cognitive conflict): disagreement that focuses on issue-related differences of opinion. Involves a willingness to examine, compare, and reconcile the differences to produce the best possible solution. A-type conflict (affective conflict): disagreement that becomes personal rather than being strictly focused on issues. Results in hostility, anger, resentment, distrust, cynicism, and apathy  Undermines effectiveness. Methods of Generating C-Type Conflict Devil’s advocacy: individual or subgroup is assigned the role of criticizing and questioning proposed solutions. Dialectical inquiry: every proposed solution (thesis) must be met by a conflicting or opposite counterproposal (antithesis). Designate advocates for each position, who engage in debate. BIZ 2331 -Dr. Franquesa 16  Nominal Group and Delphi Techniques Nominal group technique: group members quietly write down ideas, share ideas followed by some discussion, and then again quietly rank the ideas, and idea with the highest average rank wins. Improves group decision-making by decreasing a- type conflict, but also restricts c-type conflict ! Delphi technique: panel of experts respond to questions and to each other (in writing) until reaching agreement on an issue. What Would You Do? After a 15-day quarantine, 621 people on the Diamond Princess cruise ship were infected with the coronavirus. Eight passengers subsequently died. While the cruise industry was experienced at dealing with communicable diseases like the norovirus, the coronavirus was new and unknown. As the coronavirus pandemic spread across the world, governments and corporations put in place strict travel restrictions. The global economy slowed dramatically and companies moved into defensive positions to cut costs. Costa Cruises cancelled four Asian cruises, while Royal Caribbean cancelled 18. If you were the CEO of Carnival Cruise Lines, which owns Princess Cruise Lines, what would you do? BIZ 2331 -Dr. Franquesa 17  Summary Now that the lesson has ended, you should have learned how to: 1. Discuss the benefits and pitfalls of planning. 2. Outline the steps for creating an effective plan. 3. Discuss how companies can use plans at all management levels, from top to bottom. 4. Use prescribed steps and avoid the limits to rational decision- making. 5. Explain how group decisions and group decision- making techniques can improve decision-making. BIZ 2331 -Dr. Franquesa 18