EOM-04_Essentials of Planning

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Chapter 2

Essentials of Planning



2-2

Learning Objectives

1. Summarize a general framework for planningand apply it to enhance your planning skills.

2. Describe the nature of business strategy.

3. Explain how business strategy is developed,

including performing a SWOT analysis.4. Identify levels of business strategy, competitive

forces, and types of business strategies.

5.

Explain the use of operating plans, policies,procedures, and rules.

6. Present an overview of Management ByObjectives (MBO).





A Framework for Planning

1. Define the present situation

2. Establish goals & objectives

3. Forecast aids and barriers to goals & objectives

4. Develop action plans to reach goals & objectives

5. Develop budgets

6. Implement the plans

7. Control the plans

E v a l u a t i o n a

n d F

e e d b a c k



2-5

Define the present situation

Knowing where you are is critical toestablishing goals for change.Defining the present situationincludes measuring success andexamining internal capabilitiesand external threats.



2-6

Establish goals & objectives

The second step in planning is toestablish goals and identifyobjectives that contribute to theattainment of goals.

Goals are broader than objectives,whereas objectives function assmaller goals that support thebigger goals.


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Forecast aids and barriers to goals & objectives

As an extension of defining thepresent situation, the manager orother planner attempts to predictwhich internal and externalfactors will foster or hinderattainment of the desired ends



Develop action plans to reach goals& objectives

Goals and objectives are onlywishful thinking until action plansare drawn. An action planconsists of the specific stepsnecessary to achieve a goal orobjective.



Develop budgets

Planning usually results in actionplans that require money toimplement.





Control the plans

The control process measures progresstoward goal attainment and indicatescorrective action if too much deviation isdetected.

The deviation from expected performancecan be negative or positive. Progress againstall of the goals and objectives mentionedabove must be measured.

Note the phrase “Evaluation and Feedback” on the left. The phrase indicates that thecontrol process allows for the fine-tuning of

plans after implementation.



Strategy: The organization’s plan, orcomprehensive program, for achievingits vision, mission, and goals

Vision: An idealized picture of the future of an organization.

Mission: The firm’s purpose and where it

fits into the world.

Michael Porter: True business strategyhas four components

2. The Nature of Strategy



More thanOperational

Effectiveness

Business Strategy

A SustainableStrategic Position

Requires Trade-offs

StrategyRests on

Unique Activities

(We have to performactivities differently than do

our rivals.)

(Would you like lower costs ormore frills? You can’t have both.)

(We’re great. All ouractivities fit and reinforce

each other.)

(We cannot just be moreeffective or quality

conscious than our rivals.)

Fit DrivesCompetitive

AdvantageandSustainability



3. Major Approaches to StrategyDevelopment

Gathermultipleinputs toformulate

strategy

Analyze the

realities of thebusinesssituation

Conduct a

SWOT analysis -Strengths,Weaknesses,

Opportunities,Threats



Performing a SWOT Analysis

Four steps are recommended tobring about a successful SWOTanalysis.

First, it is important to be clear about

what you are doing and why. Second, it is important to select

appropriate contributors - usually six toten people are enough.

Third, allocate research andinformation-gathering tasks.

Fourth, create a workshopenvironment by encouraging open

communication among participants.



4. Levels of Strategy, Competitive Forces, andTypes of Business Strategies

a. Levels of Business Strategies



b. Five Competitive Forces

Michael E. Porter: business-level strategies are the

result of five competitive forces in the company’senvironment.

i. The power of customers to affect pricing and reduceprofit margins

ii. The power of suppliers to influence the company’spricing

iii. The threat of similar or substitute products to limitmarket freedom and reduce prices and thus profits

iv. The level of existing competition that affectsinvestment in marketing and research and thus erodesprofits

v. The threat of new market entrants to intensifycompetition and further affect pricing and profitability



c. Types of Business Strategies

Corporate-level Strategies i. Forming strategic alliances,

ii. Diversification of goods and services

iii. Sticking to core competencies

Business-Level Strategies iv. Product differentiation

v. Imitation

vi. Focusing on a target market

vii. Cost leadership

Functional-Level Strategies

vii. Find and retain the best people

viii. Moving at high speed



Forming strategic alliances



Diversification of goods and services



Product differentiation



Imitation



2-23

Focusing on a target market



2-24

Cost leadership



2-25

Cost leadership

- Low price to gain market share

-Cut cost



2-26

Redefining the industry



2-27

High speed

Takes 24 hours tocomplete an order

5 Operating plans policies procedures



2-28

Implementingstrategic plans

involves . . .

Operating Plans:

Means throughwhich strategic plansalter destiny of firm

Rules:

Specific course of action that must befollowed; thesimplest type

of plan

Policies: General guidelines

to follow inmaking decisions

and taking action

Procedures: Customary methods

for handlingactivities; guides

action, not thinking

5. Operating plans, policies, procedures,and rules

6 Management by Objectives: Essential

5 8



2-29

6. Management by Objectives: EssentialSteps

1. Establishorganizational

goals

3. Reviewgroup

members’

proposals

2. Establishunit

objectives

4. Negotiateor agree onobjectives

5. Createaction plansto achieve

objectives

6. Reviewperformance

5.8



Homework for group presentation

Prepare for a 15 minute grouppresentation on Case Problem 4-B: “What Should Dell Do Next?”,page 148:

Describe shortly the case problem

Answer questions 1, 2, 3 and 4 in thecase problem

Email your files to the lecturer

Documents

EOM-04_Essentials of Planning