Session 4. Essentials of Planning

Transcription

1 Session 4 Essentials of Planning

2 Basics of Planning Planning is defined as the process of coping with uncertainty by formulating future courses of action to achieve specific results Planning sets the stage for all other major managerial functions Planning is a never-ending process 2

3 Planning: The Primary Management Function 3

4 Uncertainty Reality of Organization State uncertainty: unpredictable environment Will it rain on the day of our wedding? Effect uncertainty: unpredictable impacts of environmental changes Will outdoor guests be uncomfortable if it rains? Response uncertainty: unpredictable consequences of decisions Will our outdoor wedding reception still be fun if we decide to have it inside rented tents and it doesn t rain? 4

5 Organizational Responses to Uncertainty Defenders: Be very good at doing a few things relying on a primary technology and/or a narrow product line to remain competitive. Prospectors: Stay a step ahead of the competition seeking first-mover advantage by aggressively making things happen and not waiting for them to happen. Analyzers: Follow the leader following the market leader and imitating what works, avoiding expensive R&D mistakes. Reactors: If it ain t broken, don t fix it waiting for adversity (e.g., declining sales) to occur before taking corrective action. 5

6 Essentials of Planning Having a PLAN objective (end) plus an action statement (means) What, when, and how things should be accomplished considering organization s capabilities and environmental uncertainties Important components: Types of planning Organizational mission Objectives & priorities Planning/control cycle 6

7 Types of Planning 7

8 Types of Planning (cont d) Strategic planning: determining how to pursue long-term goals with available resources. Intermediate planning: determining subunits contribution with allocated resources. Operational planning: determining how to accomplish specific tasks with available resources. 8

9 Criteria for Effective Mission Statements: Organizational mission: A clear, formally written, and publicized statement that guides the organization by 1. defining the organization for key stakeholders. 2. creating an inspiring vision of the organization. 3. outlining how the vision will be accomplished. 4. establishing key priorities. 5. stating a common goal and foster togetherness. 6. creating a philosophical anchor for the organization. 7. generating enthusiasm and a can do attitude. 8. empowering organization members to believe every individual is a key to success. 9

10 Strategic Intent (Vision) The holy grail Leveraging of a firm s resources, capabilities, and core competencies to accomplish the firm s goals in the competitive environment Internally focused Seek to ensure that all of the organization s employees are focused on achieving the firm s goals To be the leader in the global document market. ----Xerox 10

11 Bush s decision to lay his party s holy tax grail on the table was not so much the product of an epiphany as it was incremental dawning that something must be done. 11

12 Strategic Mission An application of strategic intent A statement of a firm s unique purpose and the scope of its operations in product and market terms Externally focused Establish a firm individuality, inspiring and relevant to all stakeholders Connecting, informing and entertaining people everywhere in innovative ways that will enrich their lives. ----Time Warner 12

13 Stakeholders Stakeholders are the individuals and groups who can affect, and are affected by, the strategic outcomes achieved have enforceable claims on a firm s performance Types of stakeholders Capital market stakeholders shareholders, major capital suppliers Product market stakeholders customers, suppliers, host communities, unions Organizational stakeholders all employees Stakeholders interests may conflict 13

14 Your Mission Statement? So for group project, you will create a company What is your company s mission statement? Remember, you should include the mission statement in your written report. 14

15 Strategic Management Strategy is an integrated externally-oriented perception of how to achieve the organization s mission. Strategic management is the ongoing process of ensuring a competitively superior fit between an organization and its changing environment. Strategic Management = Strategic Planning + Implementation + Control 15

16 Strategic Management Process Study the external and internal environments Identify marketplace opportunities and threats Determine how to use core competencies Use strategic intent to leverage resources, capabilities and core competencies and win competitive battles Integrate formulation and implementation of strategies Seek feedback to improve strategies 16

17 Strategic Management Process 17

18 Step 1: Formulation of a Grand Strategy Grand Strategy A general explanation of how the organization s mission is to be accomplished. Situational Analysis Finding the organization s niche by performing a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to match unfolding opportunities with resources being acquired. 18

19 Determining Grand Strategy Through SWOT Analysis 19

20 This is a must know model The External Environment 20

21 True or False? Demographic, economic, political/legal, sociocultural, technological, and global are the six elements comprising the industry environment. 21

22 False!!! Demographic, economic, political/legal, sociocultural, technological, and global are the six elements comprising the GENERAL environment. 22

23 The External Environment: General Environment Dimensions in the broader society that influence and industry and the firms within it Economic Socio-cultural Global Technological Political/legal Demographic 23

24 The External Environment : Industry Environment Set of factors directly influencing a firm and its competitive actions and competitive responses Threat of new entrants Power of suppliers Power of buyers Threat of product substitutes Intensity of rivalry among competitors 24

25 The External Environment: Competitor Environment All of the companies that the firm competes against. 25

26 Analysis of the External Environments: What to Analyze? General environment Focused on the future Industry environment Focused on factors and conditions influencing a firm s profitability within an industry Competitor environment Focused on predicting the dynamics of competitors actions, responses and intentions 26

27 Analysis of the External Environments: Why Analyze? To identify opportunities and threats: Opportunity A condition in the general environment that if exploited, helps a company achieve strategic competitiveness Threat A condition in the general environment that may hinder a company s efforts to achieve strategic competitiveness 27

28 Analysis of the External Environments: How to Analyze? Four-step process: 28

29 General Environment (I) The Demographic Segment Population size Age structure Geographic distribution Ethnic mix Income distribution 29

30 General Environment (II) The Economic Segment Inflation rates Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product 30

31 General Environment (III) The Sociocultural Segment Women in the workplace Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences 31

32 General Environment (IV) The Global Segment Significant international events Emerging and changing global markets Global outsourcing Access to resources on a global basis 32

33 General Environment (V) The Technological Segment Product innovations Applications of knowledge Focus of private and government-supported R&D expenditures New communication technologies 33

34 General Environment (VI) The Political/Legal Segment Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies Intellectual property enforcement 34

35 True or False? Firms can easily control the elements of the six segments of the general environment. 35

36 False!!! Firms can NOT directly control the elements of the six segments of the general environment. 36

37 Industry Environment Industry Defined A group of firms producing products that are close substitutes Firms that influence one another Includes a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns 37

38 Porter s Five Forces of Competition Model This is a must know model 38

39 A More Traditional Look of Porter s Model 2. New entrants 5. Industry competitors 1. Suppliers 3. Buyers Intensity of rivalry 4. Substitutes 39

40 1 st Force: Threat of New Entrants Barriers to entry Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation 40

41 2 nd Force: Bargaining Power of Suppliers Supplier power increases when: Suppliers are large and few in number Suitable substitute products are not available Individual buyers are not large customers of suppliers and there are many of them Suppliers goods are critical to buyers marketplace success Suppliers products create high switching costs. Suppliers pose a threat to integrate forward into buyers industry 41

42 3 rd Force: Bargaining Power of Buyers Buyer power increase when: Buyers are large and few in number Buyers purchase a large portion of an industry s total output Buyers purchases are a significant portion of a supplier s annual revenues Buyers can switch to another product without incurring high switching costs Buyers pose threat to integrate backward into the sellers industry 42

43 4 th Force: Threat of Substitute Products The threat of substitute products increases when: Buyers face few switching costs The substitute product s price is lower Substitute product s quality and performance are equal to or greater than the existing product Differentiated industry products that are valued by customers reduce this threat 43

44 5 th Force: Intensity of Rivalry Among Competitors Industry rivalry increases when: There are numerous or equally balanced competitors Industry growth slows or declines There are high fixed costs or high storage costs There is a lack of differentiation opportunities or low switching costs When the strategic stakes are high When high exit barriers prevent competitors from leaving the industry 44

45 Interpreting Industry Analyses Low entry barriers Suppliers and buyers have strong positions Strong threats from substitute products Intense rivalry among competitors Unattractive Industry Low profit potential 45

46 Interpreting Industry Analyses High entry barriers Suppliers and buyers have weak positions Few threats from substitute products Moderate rivalry among competitors Attractive Industry High profit potential 46

47 True or False? The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a firm-level analytical model. 47

48 False!!! The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is an INDUSTRY-level analytical model. 48

49 Competitor Analysis Competitor Intelligence The ethical gathering of needed information and data that provides insight into: A competitor s direction (future objectives) A competitor s capabilities and intentions (current strategy) A competitor s beliefs about the industry (its assumptions) A competitor s capabilities 49

50 Competitor Analysis Components 50

51 Components of Internal Analysis This is a must know model 51

52 Resources Are the source of a firm s capabilities Represent inputs into a firm s production process Alone, does not yield a competitive advantage 52

53 Resources: Tangible and Intangible Tangible resources Financial resources Physical resources Technological resources Organizational resources Intangible Resources Human resources innovation resources Reputation resources Tangible and intangible resources, which are more important? 53

54 Capabilities Firm s capacity to deploy resources that have been purposely integrated to achieve a desired end state Emerge over time through complex interactions among tangible and intangible resources Developed in specific functional areas or as part of a functional area 54

55 Core Competencies Resources and capabilities that serve as a source of a firm s competitive advantage Distinguish a company competitively and reflect its personality Crown jewels of a company 55

56 True or False? A firm s resources and capabilities always lead to competencies. 56

57 False!!! A firm s resources and capabilities DO NOT always lead to competencies. 57

58 Discovering Core Competencies (I) 58

59 Checklist of Four Criteria #1: Valuable? Help a firm neutralize threats or exploit opportunities #2: Rare? Not possessed by many others #3: Costly-to-imitate? Historically unique? A unique and a valuable organizational culture or brand name Causally ambiguous? The causes and uses of a competence are unclear Socially complex? Interpersonal relationships, trust, and friendship among managers, suppliers, and customers #4: Nonsubstitutable? No strategic equivalent 59

60 Discovering Core Competencies (II) 60

61 Team Project: SWOT Analysis Your goal in this exercise is to conduct SWOT analysis for your company! Remember, you should include the SWOT analysis in your written report. 61

62 Thinking Strategically: Synergy Synergy occurs when two or more variables interact to produce an effect greater than the sum of the effects of any of the variables acting independently (Kreitner, 2007: 191). Synergy has been called the 1+1=3 effect. Types of synergy Market synergy: extending products to new markets. Cost synergy: savings from combinations of commonbase operations, resources, and facilities. Technological synergy: the transfer and application of technologies to new markets. Management synergy: complementary skills that make for more effective overall management. 62

63 Thinking Strategically: Porter s Generic Competitive Strategies 63

64 Business-Level Strategy An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets Key Issues: Business-level Strategy Which good or service to provide How to manufacture it How to distribute it 64

65 Customers: Business-Level Strategic Issues Customers are the foundation of successful business-level strategy Who will be served by the strategy? What needs those target customers have that the strategy will satisfy? How those needs will be satisfied by the strategy? 65

66 Customer Needs Who? Determining the Customers to Serve Consumer Markets Customers Industrial Markets Market Segmentation 66

67 Strategic Focus: Southwest 67

68 Types of Business-Level Strategies This is a must know model 68

69 #1: Cost Leadership Strategy What is it? Acceptable features at the lowest cost Relatively standardized products Cost saving actions required by this strategy: Building efficient scale facilities Tightly controlling production costs and overhead Minimizing costs of sales, R&D and service Building efficient manufacturing facilities Monitoring costs of activities provided by outsiders Simplifying production processes 69

70 #1: Cost Leadership Strategy Defending Against 5 Competitive Forces Can frighten off new entrants due to: Their need to enter on a large scale in order to be cost competitive The time it takes to move down the learning curve Can mitigate suppliers power by: Being able to absorb cost increases due to low cost position Being able to make very large purchases, reducing chance of supplier using power Can mitigate buyers power by: Driving prices far below competitors, causing them to exit, thus shifting power with buyers back to the firm 70

71 #1: Cost Leadership Strategy Defending Against 5 Competitive Forces (cont.) Can fend off product substitutes, because cost leader is well positioned to: Make investments to be first to create substitutes Buy patents developed by potential substitutes Lower prices in order to maintain value position Can deter rivals, because: Rivals hesitate to compete on basis of price Lack of price competition leads to greater profits 71

72 #1: Cost Leadership Strategy Competitive Risks Processes used to produce and distribute good or service may become obsolete due to competitors innovations Focus on cost reductions may occur at expense of customers perceptions of differentiation Competitors, using their own core competencies, may successfully imitate the cost leader s strategy 72

73 #2: Differentiation Strategy What is it? Being different Nonstandardized products Customers value differentiated features more than they value low cost! 73

74 #2: Differentiation Strategy Defending Against 5 Competitive Forces Can defend against new entrants because: New products must surpass proven products New products must be at least equal to performance of proven products, but offered at lower prices Can mitigate suppliers power by: Absorbing price increases due to higher margins Passing along higher supplier prices because buyers are loyal to differentiated brand Can mitigate buyers power because: Well differentiated products reduce customer sensitivity to price increases 74

75 #2: Differentiation Strategy Defending Against 5 Competitive Forces (cont.) Well positioned relative to substitutes because Brand loyalty to a differentiated product tends to reduce customers testing of new products or switching brands Defends against rivals because: Brand loyalty to differentiated product offsets price competition 75

76 #2: Differentiation Strategy Competitive Risks The price differential between the differentiator s product and the cost leader s product becomes too large Differentiation ceases to provide value for which customers are willing to pay Experience narrows customers perceptions of the value of differentiated features Counterfeit goods replicate differentiated features of the firm s products 76

77 #3 & 4: Focus Strategies What is it? Serve a particular competitive segment Particular buyer group (e.g. youths or senior citizens Different segment of a product line (e.g. professional craftsmen versus do-it-yourselfers Different geographic markets (e.g. East coast versus West coast) Types of focused strategies Focused cost leadership strategy Focused differentiation strategy 77

78 #3 & 4: Focus Strategies What factors drive them? Large firms may overlook small niches A firm may lack the resources needed to compete in the broader market A firm is able to serve a narrow market segment more effectively than can its larger industry-wide competitors Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage 78

79 #3 & 4: Focus Strategies Competitive Risks A focusing firm may be outfocused by its competitors A large competitor may set its sights on a firm s niche market Customer preferences in niche market may change to more closely resemble those of the broader market 79