chapter five strategic planning and decision making © 2013 by mcgraw-hill education. this is...
TRANSCRIPT
Chapter Five
Strategic Planning and
Decision Making
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner.
This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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Planning
Planning conscious, systematic process of making decisions
about goals and activities that an individual, group, work unit, or organization will pursue in the future.
a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization.
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Formal Planning Steps
Step 1 Analysis the SituationStep 2 Develop alternative Goals and PlansStep 3 Evaluate Goals and Plan Step 4 Select Goals and Plan Step 5 ImplementationStep 6 Monitor and Control
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Step 1-Situational Analysis
Analyze the Situation A process planners use, within time and resource
constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration.
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Step 2-Generate Alternative Goals and Plans
Should stress creativity and encourage managers and employees to think in broad terms about their jobs.
Goal A target or ends that management desires to
reach SMART goals
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SMART Specific-When goals are precise, employees know what
they need to do to accomplish them. Measurable-As much as possible, the goal should quantify
the desired results, so that there is no doubt whither it has been achieved.
Attainable( but challenging)-Employees need to recognize that they can attain their goals, so they won’t become discouraged. However, they also should feel challenged to work hard and be creative.
Relevant-Each goal should contribute to the organization’s overall mission and be consistent with its values, including ethical standards.
Time-bound-Effective goals specify a target date for completion.
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Examples of S.M.A.R.T. Goals?
Starbucks: “In fiscal 2006, we plan to open approximately 1,800 net new stores globally.”
Walgreen: “Second is to hire a significant number of people with disabilities in our South Carolina distribution center, scheduled to open in 2007, and achieve 20% productivity gains there.”
UPS: “65% of drivers will have access to the new technology (implemented in 2004) by the end of 2005.” and “In 2005, we will increase operating profit in each of our 3 key businesses: domestic, int’l, supply chain.”
Wrigley: “In 2005, the company will decrease the long-term rate of return assumption for the assets of its U.S. (pension) plans from 8.75 % to 8.5%.”
Halliburton: “We estimate that 74% of the backlog existing on 12/31 will be eliminated the following fiscal year.”
Martha Stewart Living Omnimedia: “In 2004 we will discontinue the Catalog for Living and its online product options, and sell remaining inventory in early fiscal 2005.”
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Step 2-Generate Alternative Goals and Plans
Plans The actions or means
managers intend to use to achieve organizational goals
Contingency plans sets of actions to be
taken when a company’s initial plans have not worked well or if events in the external environment require a sudden change
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Step 3-Evaluate Goals and Plans
Managers will evaluate the advantages, disadvantages, and potential effects of each alternative goal and plan.
Must prioritize those goals and even eliminate some of them.
Managers must consider carefully the implications of alternative plans for meeting high priority goals.
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Step 4-Select Goals and Plans
Managers will select the option that is most appropriate and feasible
The evaluation process will identify the priorities and trade-offs among the goals and plans
Scenario A narrative that describes a particular set of
future conditions.
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Step 5-Implement the Goals and Plans
Managers and employees must understand the plan, have the resources to implement it, and be motivated to do so
Successful implementation requires a plan to be linked to other systems in the organization, particularly the budget and reward systems
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Step 6-Monitor and Control Performance
Managers must continually monitor the actual performance of their work units against the unit’s goals and plans.
Manager’s also need to develop control systems to measure that performance and allow them to take corrective action when the plans are implemented improperly or when the situation changes
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Levels of Planning
Strategic planning A set of procedures
for making decisions about the organization’s long-term goals and strategies
Strategic goals major targets or end
results that relate to the long-term survival, value, and growth of the organization.
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Strategic Planning
Strategy A pattern of actions
and resource allocations designed to achieve the organization’s goals
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Strategic Planning
1. Where will we be active?
2. How will we get there?
3. How will we win in the marketplace?
4. How fast will we move and in what sequence will we make changes?
5. How will we obtain financial returns?
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Tactical and Operational Planning
Tactical planning A set of procedures for translating broad strategic
goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing.
Specify how a company will use resources, budgets, and people to accomplish goals within its mission. (6 months to 2 years)
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Management by Objectives
Steps to Management by Objectives:
1. Discuss possible goals
2. Select goals that are challenging, attainable and consistent with the company’s overall goals
3. Jointly develop tactical plans that lead to the accomplishment of tactical goals and objectives
4. Meet regularly to review progress
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Tactical and Operational Planning
Operational planning The process of identifying the specific procedures
and processes required at lower levels of the organization.
Day-to-day plans for producing or delivering products and
services over a 30-day to six-month period
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Planning
All levels of planning should be aligned • To be effective, tactical, operational, and strategic goals
must be consistent, mutually supportive, and focused on achieving a common purpose and direction.
• Companies frequently use strategic maps to align strategic and operational goals.
– Strategy maps show the relationship between a firm’s practices and its long-term success. They include:
» financial goals» learning and growth goals» internal goals» customer goals
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Strategic Planning Process
Strategic management A process that involves managers from all parts of
the organization in the formulation and implementation of strategic goals and strategies.
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Step 1-Establish a Mission, Vision, and Goals
Mission An organization’s basic
purpose and scope of operations.
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Mission Statements
Advanced Auto Parts It is the Mission of Advance Auto Parts to provide personal vehicle
owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers.
Aflac To combine aggressive strategic marketing with quality products and
services at competitive prices to provide the best insurance value for consumers.
Ford We are a global family with a proud heritage passionately committed
to providing personal mobility for people around the world.
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Establish a Mission, Vision, and Goals
Strategic vision the long-term direction and strategic intent of a
company provides a perspective on where the organization
is headed and what it can become
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Vision Statements
Alcoa At Alcoa, our vision is to be the best company in the
world--in the eyes of our customers, shareholders, communities and people. We expect and demand the best we have to offer by always keeping Alcoa's values top of mind.
Anheuser-Busch Be the world's beer company. Through all of our products,
services and relationships, we will add to life's enjoyment.Ford
To become the world's leading Consumer Company for automotive products and services.
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Step 2-Analyze External Opportunities and Threats
Successful strategic management depends on an accurate and thorough evaluation of the environment.
Stakeholders Groups and individuals
who affect and are affected by the achievement of the organization’s mission, goals, and strategies
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Step 3-Analyze Internal Strengths and Weaknesses
Resources Inputs to a system that can enhance performance Resources fall into two broad categories:
• Tangible assets such as real estate, production facilities, raw materials, etc
• Intangible assets such as company reputation, culture, technical knowledge, patents, as well as accumulated learning and experience.
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Step 3-Analyze Internal Strengths and Weaknesses
Effective internal analysis provides a clearer understanding of how a company can compete through its resources.
Resources are a source of competitive advantage only under the following circumstances: Create customer value-they increase the benefits
customers derive from a good or service relative to the costs they incur.
Rare-not equally available to all competitors Difficult to imitate -resources are harder to imitate if
they are complex, with many independent variables and no obvious link between behaviors and desired outcomes.
Well organized 5-35
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Step 4-Formulate Strategy
SWOT analysis A comparison of strengths, weaknesses,
opportunities, and threats that helps executives formulate strategy.
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Step 3-Analyze Internal Strengths and Weaknesses
Core capabilities the less visible, internal decision-making routines, problem-solving
processes, and organization cultures that determine how efficiently inputs can be turned into outputs.
Distinctive competence is something that a company can make, do, or perform better than its
competitors. Benchmarking
process of assessing how well one company’s basic functions and skills compare with those of another company or set of companies.
goal of benchmarking is to thoroughly understand the “best practices” of other firms and to undertake actions to achieve both better performance and lower costs
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Formulate Strategy
Corporate strategy The set of businesses, markets, or industries in
which an organization competes and the distribution of resources among those entities• Concentration
– A strategy employed for an organization that operates a single business and competes in a single industry.
• Vertical integration– The acquisition or development of new businesses that
produce parts or components of the organization’s product
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Conduct a SWOT Analysisand Formulate Strategy
• Related diversification – A strategy used to add new businesses that produce related
products or are involved in related markets and activities
• Unrelated diversification – A strategy used to add new businesses that produce unrelated
products or are involved in unrelated markets and activities
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BCG Matrix
companies with a small share of a slow-growing market
companies with a small share of a slow-growing marketDogsDogsDogsDogs
3.13.1
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BCG Matrix
42Relative Market ShareRelative Market Share
Mar
ket
Gro
wth
Mar
ket
Gro
wth
Small Large
Low
High Question MarksQuestion Marks
Company A
Company B
StarsStarsCompany C
Company D
DogsDogs
Company H
Company G
Cash CowsCash Cows
Company F
Company E
Adapted from Exhibit 6.3
3.13.1
Porter’s Positioning Strategies
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Cost LeadershipCost Leadership
DifferentiationDifferentiation
Focus StrategyFocus Strategy4.24.2
The aim of positioning strategies is to minimize the effects of industry competition and build a sustainable competitive advantage
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Business strategy
Business strategy – defines the major actions by which an organization builds and strengthens its competitive position in the marketplace.
• Low-cost strategy is a strategy an organization uses to build competitive advantage by being efficient and offering a standard, no-frills product.
• Differentiation strategy is a strategy an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions.
• Each functional area of the organization implements functional strategies to support the business strategy.5-44
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Firm-Level Strategies
Market commonality the degree to which two companies have
overlapping products, services, or customers in multiple markets. The more markets in which there is product, service, or customer overlap, the more intense the direct competition between the two companies.
Resource similarity the extent to which a competitor has similar
amounts and kinds of resources, that is, similar assets, capabilities, processes, information, and knowledge used to create and sustain an advantage over competitors. 45
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Strategic Moves of Direct Competition
Attack
A competitive move designed to reduce a rival’s market share or profits.
Response
A competitive countermove, prompted by a rival’s attack, to defend or improve a company’s market share or profit.
5.25.2
Direct Competition
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Resource SimilarityResource Similarity
Low High
High
Low
Mar
ket
Co
mm
on
alit
yM
arke
t C
om
mo
nal
ity
III
III IV
McDonald’sMcDonald’s
McDonald’sMcDonald’s
BurgerKing
Wendy’s
Luby’s Cafeteria Subway
5.15.1
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Step 5-Strategy Implementation
Managers must ensure that new strategies are implemented effectively and efficiently in addition to formulation of the appropriate strategies. Steps in Strategy Implementation
• Define strategic risks• Assess organization capabilities• Develop an implementation agenda• Create an implementation plan
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Strategic Control
Strategic control system A system designed to support managers in
evaluating the organization’s progress regarding its strategy and, when discrepancies exist, taking corrective action.
Strategic control systems typically include budgets• strategic - creates and maintains long-term
effectiveness (a flexible budget)• operational - tightly monitored to achieve efficiency
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Managerial decision making
Lack of structure is the usual state of affairs in managerial decision-making. Programmed decisions are decisions
encountered and made before having objectively correct answers, and solvable by using simple rules policies, or numerical computations.
Non-programmed decisions are new, novel, complex decisions having no proven answers.
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Uncertainty and Risk
Certainty exists when decision-makers have accurate and comprehensive information.
Uncertainty means the manager has insufficient information to know the consequences of different actions.
Risk exists when the probability of an action being successful is less than 100 percent.
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Formal Decision Making
1. Identifying and diagnosing the problem • The first stage in the decision-making process is to recognize
that a problem exists and must be solved.• Questions to ask and answer in this stage include:
a. Is there a difference between what is actually happening and what should be happening?
b. How can you describe the deviation, as specifically as possible?
c. What is/are the cause(s) of the deviation?d. What specific goals should be met?e. Which of these goals are absolutely critical
to the success of the decisions?5-54
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Generating alternative solutions
The second stage, problem diagnosis is linked to the development of alternative courses of action aimed at solving the problem. Ready-made solutions are ideas that have been
seen or tried before, of follow the advice of others who have faced similar problems.
Custom-made solutions must be designed for specific problems and are the combination of ideas into new, creative solutions.
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Evaluating alternatives
The third stage involves determining the value or adequacy of the alternatives that were generated. Which solution will be the best? Key questions to ask:
• a. Is our information about alternatives complete and current? If not, can we get more and better information?
• b. Does the alternative meet out primary objectives?• c. What problems could we have if we implement the
alternative?– Ready-made solutions are ideas that have been seen or tried
before.– Custom-made solutions are new, creative solutions designed
specifically for the problem. 5-56
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Making the choice
To maximize is to make the best possible decision, the greatest positive consequences and the fewest negative consequences.
To satisfice is to choose the first option that is minimally acceptable or adequate: the choice appears to meet a targeted goal or criterion.
Optimizing means that you achieve the best possible balance among several goals.
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Implementing the decision
The decision-making process does not end once a choice is made.
Decision-makers must understand the choice and why it was made.
They must be committed to its successful implementation.
They must plan implementation carefully.• Determine how things will look when the decision is fully
operational.• Chronologically order the steps necessary to achieve a fully
operational decision.• List the resources and activities required implementing each step.• Estimate the time needed for each step.• Assign responsibility for each step to specific individuals. 5-58
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Implementing the decision
Decision-makers should assume that things will not go smoothly during implementation. Useful question to ask are: What problems could this action cause? What can we do to prevent the problems? What unintended benefits or opportunities could
arise? How can we make sure they happen? How can we be ready to act when the
opportunities come?5-59
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Evaluating the decision
The final stage in the decision-making process is evaluating the decision.
Collect information on how well the decision is working.
Decision evaluation is useful whether the feedback is positive or negative.
If the decision appears inappropriate, it’s back to the drawing board.
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Human nature erects barriers to good decisions
Psychological biases • Illusion of control is a belief that one can influence
events, even when one has no control over what will happen.
• Framing effects refer to how problems or decision alternatives are phrased or presented, and how these subjective influences can override objective facts.
• Discounting the future is a bias weighing short-term costs and benefits more heavily than longer-term costs and benefits.
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Human nature erects barriers to good decisions
Time pressures • Instead of relying on long-range planning and futuristic
forecasts, focus on real-time information.• Involve people more effectively and efficiently.
Social realities • Interpersonal factors decrease decision-making
effectiveness.• Many decisions are the result of intensive social
interactions, bargaining, and politicking
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Groups make many decisions
Groups can help More information is available when several people
are making the decision. There are a greater number of perspectives on the
issues, or different approaches to solving the problem.
An opportunity for intellectual stimulation is achieved.
People are more likely to understand why the decision was made.
Groups lead to a higher level of commitment to the decision.
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Groups can hurt Sometimes one group member dominates the
discussion. Satisficing is more likely with groups. Pressure to avoid disagreement can lead to a
phenomenon called groupthink. Groupthink occurs when people choose not to
disagree or raise objections because they don’t want to break up a positive team spirit.
Goal displacement often occurs in groups.• Goal displacement is a condition that occurs when a
decision-making group loses sight of its original goal and a new, possibly less important goal emerges.
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Groups must be well led Appropriate leadership style.
• The leader of a decision-making body must attempt to minimize process-related problems.
• The leader should avoid dominating the discussion.• Don’t lose sight of the problem.• Make a decision!
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Constructive Use of Disagreement and Conflict
The most constructive type of conflict is cognitive conflict, or differences in perspectives or judgments about issues. Affective conflict is emotional and directed at other
people. A devil’s advocate has the job of criticizing ideas. The dialectic goes a step beyond devil’s advocacy by
requiring a structured debate between two conflicting courses of action.
Enhancement of Creativity Brainstorming-group members generate as many
ideas as they can. 5-66
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Assignment
Get in your groupsDo a SWOT analysis on Texas Tech University
What are its strengths? What are its weaknesses? What are the opportunities? What are the threats?
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