Business Management Planning & Strategy Management PDF

08:51 BUSINESS MANAGEMENT Planning & Strategy Management Foundations of Planning LEARNING OBJECTIVE 1 Define the nature and purposes of planning. ...

08:51 BUSINESS MANAGEMENT Planning & Strategy Management Foundations of Planning LEARNING OBJECTIVE 1 Define the nature and purposes of planning.  08:51 THE WHAT AND WHY of planning What Is Planning? When we use the term “planning”, we are implying formal planning. As we stated in first lecture, planning encompasses defining the organization’s Specific objectives are formulated covering a objectives or goals, establishing an overall period of years. These objectives are committed strategy for achieving these goals, and to writing and made available to organization developing a comprehensive hierarchy of plans members. to integrate and coordinate activities. Finally, specific action programs exist for the All managers engage in planning, but it might be achievement of these objectives; that is, only the informal variety. In informal planning, management clearly defines the path it wants to nothing is written down, and there is little or no take to get from where it is to where it wants to sharing of objectives with others in the be. organization. This describes planning in many small businesses; the owner-manager has a vision of where he or she wants to go and how he or she expects to get there. The planning is general and lacks continuity. THE WHAT AND WHY of planning Why Do Managers Plan? 3. Planning minimizes waste and redundancy. When work activities are coordinated around We can give you at least four reasons: plans, inefficiencies become obvious and can be 1. Planning provides direction to managers and corrected or eliminated. nonmanagers alike. When employees know what 4. Planning establishes the goals or standards their organization or work unit is trying to used in controlling. When managers plan, they accomplish and what they must contribute to develop goals and plans. When they control, they reach goals, they can coordinate their activities, see whether the plans have been carried out and cooperate with each other, and do what it takes the goals met. to accomplish those goals. Without planning, there would be no goals 2. Planning reduces uncertainty by forcing against which to measure work effort or identify managers to look ahead, anticipate change, deviations. consider the impact of change, and develop appropriate responses. Although planning won’t eliminate uncertainty, managers plan so they can respond effectively.  08:51 Why Do Managers Plan?  08:51 Types of Plans Strategic Versus Operational Plans Plans that specify the details of how the overall objectives are to be achieved are called Plans that apply to the entire organization, that operational plans. establish the organization’s overall objectives, and that seek to position the organization in Strategic and operational plans differ in their time terms of its environment are called strategic frame, their scope, and whether or not they plans. include a known set of organizational objectives. Plans should reflect the organization’s mission. Operational plans tend to cover shorter periods A mission is a broad statement of an of time. An organization’s monthly, weekly, and organization’s purpose that provides an overall day-to-day plans are almost all operational. guide to what organizational members think is Operational plans assume the existence of important. objectives. Operational plans offer ways of Strategic plans tend to include an extended time attaining these objectives. period—usually five years or more. Finally, strategic plans include the formulation of objectives Types of Plans Short-Term Versus Long-Term Plans Specific Versus Directional Plans Financial analysts traditionally describe It seems intuitively correct that specific plans are investment returns as short-, intermediate-, and always preferable to directional, or loosely long-term. guided, plans. Short-term plans covers up to one year. Specific plans There is no ambiguity, no problem with misunderstandings. For example, a Any time frame beyond five years is classified as manager who seeks to increase his or her firm’s long-term plans. sales by 20 percent over a given twelve-month The intermediate plans cover the period in period establish specific procedures, budget between. allocations, and schedules of activities to reach that objective. Directional plans identify general guidelines. They provide focus but do not lock management into specific objectives or specific courses of action.  08:51 Types of Plans Single-Use Versus Standing Plans Some plans that managers develop are ongoing while others are used only once. A single-use plan is a one-time plan specifically designed to meet the needs of a unique situation. For instance, when Walmart wanted to expand the number of its stores in China, top-level executives formulated a single-use plan as a guide. In contrast, standing plans are ongoing plans that provide guidance for activities performed repeatedly. For example; nondiscrimination and anti-harassment policies. Managing Strategy LEARNING OBJECTIVE 3 Define competitive advantage, strategy and the strategic management process.  08:51 Defining Competitive Advantage What is Competitive Advantage? Economic value is simply the difference between what customers are willing to pay for a Of course, the ultimate objective of the strategic firm’s products or services (the value perceived management process is to enable a firm to by customers) and the total cost of producing choose and implement a strategy that generates these products or services. a competitive advantage. Thus, the size of a firm’s competitive advantage But what is a competitive advantage? is the difference between the economic value a In general, a firm has a competitive advantage firm can create and the economic value its rivals when it can create more economic value than can create rival firms.  08:51 Defining Strategy Defining Strategy But here is the challenge. It is usually very difficult to predict how competition in an industry A firm’s strategy is defined as its theory about will evolve, and so it is rarely possible to know for how to gain competitive advantages. sure that a firm is choosing the right strategy. Each of these theories—like all theories—is Therefore, a firm’s strategy is almost always a based on a set of assumptions and hypotheses theory: It’s a firm’s best bet about how about the way competition in an industry is likely competition is going to evolve and how that to evolve and how that evolution can be exploited evolution can be exploited for competitive to earn a profit. advantage. The greater the extent to which these assumptions and hypotheses accurately reflect how competition in this industry evolves, the more likely it is that a firm will gain a competitive advantage from implementing its strategies. The STRATEGIC management process Strategic management is the formulation and implementation of initiatives by top management—taking into consideration resources and environmental opportunities— that will allow the organization to achieve its goals.  08:51 The STRATEGIC management process Step 1: Identifying the Organization’s Current A Firm’s Mission Mission, Goals, and Strategies The strategic management process begins when As noted in the previous chapter, every a firm defines its mission. organization needs a mission—a statement of A firm’s mission define both what a firm aspires its purpose. Defining the mission forces to be in the long run and what it wants to avoid in managers to identify what it’s in business to do. the meantime. What should a mission statement include? Missions are often written down in the form of Exhibit 9-2 describes some typical components. mission statements. The STRATEGIC management process  08:51 The STRATEGIC management process Step 1: Identifying the Organization’s Current High-quality objectives are tightly connected to Mission, Goals, and Strategies elements of a firm’s mission and are relatively easy to measure and track over time. Objectives Low-quality objectives either do not exist or are Whereas a firm’s mission is a broad statement of not connected to elements of a firm’s mission, its purpose and values, its objectives are are not quantitative, or are difficult to measure or specific measurable targets a firm can use to difficult to track over time. evaluate the extent to which it is realizing its mission. The STRATEGIC management process Step 2: Doing an External Analysis Once they’ve analyzed the environment, managers need to pinpoint opportunities that the What impact might the following trends have for organization can exploit and threats that it must businesses? counteract or buffer against. Cell phones are now used by customers more for Opportunities are positive trends in the external data transmittal and retrieval than for phone environment; threats are negative trends. calls, and the number of smartphones in use continues to soar. By conducting an external analysis, a firm also examines how competition in this environment is The unemployment rate has been declining. likely to evolve and what implications that Interest rates have been rising. evolution has for the threats and opportunities a firm is facing.  08:51 The STRATEGIC management process Step 3: Doing an Internal Analysis Now we move to the internal analysis, which provides important information about an On the other hand, its capabilities are its skills organization’s specific resources and and abilities in doing the work activities needed capabilities. in its business—“how” it does its work. An organization’s resources are its assets— financial, physical, human—that it uses to The major value-creating capabilities of the develop, manufacture, and deliver products to its organization are known as its core customers. They’re “what” the organization has. competencies. The STRATEGIC management process Step 3: Doing an Internal Analysis Completing an internal analysis, managers should be able to identify organizational strengths and weaknesses. The combined external and internal analyses are called the SWOT analysis, an analysis of the Any activities the organization does well or any organization’s Strengths, Weaknesses, unique resources that it has are called Opportunities, and Threats. strengths. After completing the SWOT analysis, managers are ready to formulate appropriate strategies. Weaknesses are activities the organization doesn’t do well or resources it needs but doesn’t possess.  08:51 The STRATEGIC management process Step 4: Formulating Strategies As managers formulate strategies, they need to Business-level strategies are actions firms take consider the realities of the external environment to gain competitive advantages in a single and their available resources and capabilities in market or industry. These strategies include order to design strategies that will help an cost leadership, product differentiation organization achieve its goals. The three main types of strategies managers will Corporate-level strategies are actions firms formulate include corporate, competitive, and take to gain competitive advantages by operating functional. in multiple markets or industries The strategic choices available to firms fall into simultaneously. These strategies include vertical two large categories: business-level strategies integration strategies, diversification strategies, and corporate-level strategies. strategic alliance strategies, and merger and acquisition strategies. The STRATEGIC management process (1) supports the firm’s mission; Step 4: Formulating Strategies (2) is consistent with a firm’s objectives; The strategic management process, the objective when formulating strategies is to choose a (3) exploits opportunities in a firm’s strategy that: environment with a firm’s strengths; and (4) neutralizes threats in a firm’s environment while avoiding a firm’s weaknesses.  08:51 The STRATEGIC management process Step 5: Implementing Strategies Of course, simply choosing a strategy means nothing if that strategy is not implemented. Strategy implementation occurs when a firm Step 6: Evaluating Results adopts organizational procedures, rules, policies and other practices that are consistent with its The final step in the strategic management strategy. process is evaluating results. Three specific organizational practices are How effective have the strategies been at helping particularly important in implementing a strategy: the organization reach its goals? (1) a firm’s formal organizational structure; What adjustments are necessary? … (2) its formal and informal management control systems; and (3) its employee compensation policies. The STRATEGIC management process Successful process => competitive advantage  08:51 COMPETITIVE ADVANTAGE MAIN COURSEBOOK 26  08:51 OTHER COURSEBOOK 27