CHAPTER 8. The Manager as a Planner and Strategist LEARNING OBJECTIVES

Transcription

1 CHAPTER 8 The Manager as a Planner and Strategist LEARNING OBJECTIVES To describe the three steps of the planning process. To explain the relationship between planning and strategy. To explain the role of planning in forecasting the future and in activating organizational resources to meet future emergencies. To outline the main steps in SWOT analysis. To differentiate among corporate-business-,and functional level strategies. To describe the important role played by strategy implementation in determining managers ability to achieve an organization s mission and goals. 2 1

2 The Planning Process Definitions Planning Process of identifying and selecting appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. Strategy The cluster of decisions and actions that managers take to help an organization reach its goals. Mission A broad declaration of an organization s purpose that identifies the organization s products and customers and distinguishes the organization from its competitors. Planning is a three-step process (Fig.8-1) : i. Determining the Organization s Mission and Goals Dfii Definingthe organization soverridingpurposeand idi d its goals. ii. Formulating (creating) strategy Managers analyze current situation and develop the strategies needed to achieve the mission. iii.implementing (executing) strategy Managers must decide how to allocate resources between groups to ensure the strategy is achieved. Therefore, planning is both a goal-making and a strategy-making process. 3 Fig. 8.1 Three Steps in Planning 4 2

3 The Nature of the Planning Process To perform the planning task, managers: 1. Establish where an organization is at the present time 2. Determine its desired future state 3. Decide how to move it forward to reach that future state Why planning is important? 1. Necessary to give the organization a sense of direction and purpose 2. Useful way of getting managers to participate in decision making 3. Helps coordinate managers of the different functions and divisions of an organization 4. Can be used as a device for controlling managers 5 Why Planning is Important Henri Fayol, the originator of Fayol s principles of management we discussed in Chapter 2, said that effective plans should have the following four qualities: Unity - at any one time only one central, guiding plan is put into operation Continuity planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels Accuracy managers need to make every attempt t to collect and utilize all available information at their disposal Flexibility plans can be altered and changed if the situation changes 6 3

4 Levels of Planning In large organizations planning usually takes place at three levels of management: corporate, business or division, and department or functional. Let s see how General Electric (GE) operates in Figure Fig. 8.2 Levels of Planning at General Electric A division is a business unit that competes in a distinct (separate) industry. 8 4

5 Corporate-Level Plan Levels of Planning Top management s decisions pertaining to the organization s mission, overall strategy, and structure. Provides a framework for all other planning. The corporate level plan provides the framework within which divisional managers create their business-level plans. Corporate-Level Strategy A plan that indicates in which industries and national markets an organization intends to compete. 9 Levels of Planning Division business unit that has its own set of managers and departments and competes in a distinct industry (Fig.8-3) Divisional managers Managers various divisions of an organization who control the Business-Level (or Division-Level) Plan Divisional managers decisions pertaining to divisions long-term goals overall strategy, and structure. Identifies how the business will meet corporate goals. The business-level plan providesthe frameworkwithin which functional managers propose to pursue to help the division to attain its business-level goals. Business-Level (or Division-Level) Strategy A plan that indicates how a division intends to compete against its rivals in an industry Shows how the business will compete in market. 10 5

6 Levels of Planning Functional-Level (or Department-Level) Plan Functional managers decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals. A function is a unit or department in which people have the same skills or use the same resources to perform their jobs, i.e. accounting, marketing, etc. Functional (or Department-Level) t Strategyt A plan that indicates how a function intends to achieve its goals. 11 Fig. 8.3 Levels & Types of Planning In large organizations planning takes place at all levels of management. The figure shows the link between the three steps in the planning process and the three levels of management. 12 6

7 The Planning Process Time Horizons of Plans Time Horizon The intended duration of a plan. Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years. Short-term plans are less than 1 year. Corporate and business-level goals and strategies require long- and intermediate-term plans. Functional plans focus on short-to intermediate-term plans Most organizations have a rolling planning cycle to amend plans constantly. 13 The Planning Process Types of Plans Standing Plans Use in programmed decision situations (i.e. ethical behavior) Policies are general guides to action. Rules are formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow. Single-Use Plans Developed for a one-time, nonprogrammed issue. Programs: integrated plans achieving specific goals. (i.e. to build a tourist village) Project: specific action plans to complete programs. (i.e. to build a shopping complex within the tourist village) 14 7

8 The Planning Process Scenario Planning (Contingency Planning) The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Planning seeks predict the future, but the future is unknowable. By generating multiple possible futures, a firm can see how its plans might work in each and prepare for the possible outcomes. Scenario planning is a learning tool to improve strategic planning results. It is one of the most widely used planning techniques is scenario planning, i.e. oil price changes affect production. 15 Determining the Organization s Mission & Goals To determine an organization s mission, managers must first define the business. Answers to these questions help managers define their business and determine the organization s missions and goals. Defining the Business Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs Establishing Major Goals Provides the organization with a sense of direction Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved. 16 8

9 Fig. 8.4 Four Mission Statements 17 Formulating Strategy Strategic Formulation Managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals. Managers analyze the current situation to develop strategies for achieving the mission. SWOT Analysis (Fig.8-5) A planning exercise in which managers identify organizational strengths and weaknesses. Strengths (e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities) and external opportunities and threats. Opportunities (e.g., entry into new related markets). Threats (increased competition) Questions for SWOT analysis are also shown on Table 8.1 The Five Forces model, which we will examine later helps to identify opportunities and threats in the external environment. 18 9

10 Fig. 8.5 Planning and Strategy Formulation Based on SWOT analysis, managers at the different levels of the organization select the appropriate corporate, business, and functional-level strategies to best position the organization to achieve its mission and goals. 19 The Five Forces Model by Michael Porter, also known as Porter s Five Forces Model. It is a well-known model that helps managers isolate particular forces in the external environment that are potential threats because they affect how much profit organizations competing within the same industry can expect to make. The Threat of Substitute t Products The Power of Suppliers The Level of Rivalry Among Organizations in an Industry The Power of Customers The Potential for Entry into an Industry 20 10

11 The Five Forces explained: Competitive Forces Level of Rivalry Potential for Entry Power of Suppliers Power of Customers Substitutes Increased competition results in lower profits. Easy entry leads to lower prices and profits. If there are only a few suppliers of important items, supply costs rise. If there are only a few large buyers, they can bargain down prices. More available substitutes tend to drive down prices and profits. 21 Formulating Corporate-Level Strategies The principal corporate-level strategies that managers use to help a company grow are four: A. Concentration on a Single Business Can become a strong competitor, but can be risky. Organization uses its functional skills to develop new kinds of products or expand its locations Appropriate when managers see the need to reduce the size of their organizations to increase performance B. Vertical Integration (Fig.8-6) A strategy that allows an organization to create value by producing its own inputs or distributing its own products. Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers. A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown

12 Fig. 8.6 Stages in a Vertical Value Chain The figure shows the four main stages in a typical raw-materials to consumer value chain. Value is added at each stage. 23 Formulating Corporate-Level Strategies C. Diversification It is the strategy of expanding operations into a new business or industry and producing new goods or services, (i.e. PepsiCo Frito Lays, Philip Morris Miller Beer). There are two types: i. Related diversification into similar market areas to build upon existing competencies. (i.e. Kleenex tissues moving into toilet paper) Synergy: two divisions working together perform better than the sum of their individual performances. ii. Unrelated diversification is entry into industries unrelated to current business. Attempts to build a portfolio of unrelated firms to reduce risk of single industry; difficulty to manage. Research evidence suggests that many diversification efforts have reduced value rather than create it

13 Formulating Corporate-Level Strategies D. International Expansion tries to answer the question: To what extent do we customize products and marketing for different national conditions? Opportunities opening new markets, reaching more customers, and gaining access to new sources of raw materials and to low-cost suppliers Threats encountering new competitors, and responding to new political, economic, and cultural conditions i. Global strategy Selling the same standardized product and using the same basic marketing approach in all countries. (no customization) Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage. ii. Multidomestic Strategy Customizing products and marketing strategies to specific national conditions. (customization) Helps gain local market share. Raises production costs 25 Choosing a way to expand internationally i. Exporting making products at home and selling them abroad ii. Importing selling at home products that are made abroad iii. Licensing allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee iv. Franchising selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits v. Strategic alliance managers pool resources with those of a foreign company Organizations agree to share risk and reward vi. Joint venture strategic alliance among companies that agree to jointly establish and share the ownership of a new business vii.wholly Owned Foreign Subsidiary managers invest in establishing production operations in a foreign country independent of any local direct involvement 26 13

14 Formulating Corporate-Level Strategies The previous strategies are Growth Strategies. t There are also Defensive Strategies (such as Divestiture, Turnaround, Bankruptcy, Liquidation, Harvesting) and Stability Strategies (such as Growing Slowly, Noheavy investment, Not taking risks). 27 Formulating Business-Level Strategies A. Low-Cost Strategy Driving the organization s total costs down below the total costs of rivals. Manufacturing at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable. B. Differentiation Distinguishing i the organization s products from those of competitors on one or more important dimensions. Differentiation must be valued by the customer in order for a producer to charge more for a product

15 5. Formulating Business- Level Strategies C. Stuck in the Middle Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. Difficult to achieve low cost with the added costs of differentiation. Tend to have lower levels of performance that do those that pursue a low-cost or differentiation strategy. D. Focus Strategies Focused Low-Cost Serving only one market segment and being the lowest-cost organization serving that segment. i.e. Cott, a company making soda s for Wal-Mart but not competing with Pepsi and Coke. Focused Differentiation Serving only one market segment as the most differentiated organization serving that segment. i.e. Toyota 29 Table 8.2 Porter s Business Level Strategies Porter also came up with a theory of how managers can select a business-level strategy, a plan to gain a competitive advantage in a market. According to Porter, managers must choose between two basic ways of increasing the value of an organization s products: differentiating the product to add value or lowering the costs of value creation. Also, they must choose between serving the whole market or serving just one segment or part of a market. Number of Market Segments Served Strategy Many Few Low-cost Focused low-cost Differentiation Focused differentiation 30 15

16 Planning & Implementing Strategy 1. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation 4. Allocate appropriate resources 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals. Review Questions 1. Discuss the importance of planning and provide examples where appropriate to support your answer. 2. What is SWOT analysis? Give examples where appropriate