Mod-2

The process of establishing goals and a suitable course of action for achieving those goals.

It requires decision making

Definition of Planning

Close Relationship of Planning and Controlling

Steps in Planning1 • Being aware of opportunities

2 •Establishing objectives or goals

3 •Developing premises

4 •Determining alternative courses

5 •Evaluating alternative courses

6 •Selecting a course

7 •Formulating derivative plans

8 •Quantifying plans by budgeting

Objectives

Objectives are the important ends toward which organizational and individual activities are directed

An objective is verifiable (provable) when at the end of the period one can determine whether or not the objective has been achieved

The Nature of Objectives

Hierarchy of objectives Key Results Areas: Areas in which performance is

essential for success e.g. service & quality.

Setting objectives and the organizational hierarchy

Multiplicity of objectives

Relationship of Objectives and the Organizational Hierarchy

Management by Objectives (MBO)

Management by Objectives (MBO): This approach is proposed by Peter Drucker in his book ‘The Practice of Management’.

MBO refers to a formal set of procedures that begins with goal setting and continues through performance review.

MBO goes beyond setting annual objectives for organizational units to setting performance goals for individual employee

OrganizationalObjectives

DivisionalObjectives

DepartmentalObjectives

IndividualObjectives

What Is Management by Objectives?

Elements of MBO system

Commitment to the Program

Top-Level goal setting

Individual goals

Participation

Autonomy in implementation of plans

Performance review

Benefits of MBO

Motivate.Improve managing through results-

oriented planning.Clarify organizational roles, structures,

and the delegation of authority. Encourage commitment to their

personal and organizational goals.

Failures of Management by Objectives

•Failure to teach the philosophy of MBO

•Failure to give guidelines to goal setters

•Overuse of quantitative goals•Encourage individual rather than team efforts

Evaluation of MBO: The success of MBO program depends upon three key concepts- Specific goal setting, feedback on performance and participation.

In summary, MBO has been widely used for performance appraisal &employee motivation, but it is really a system of managing.

Strategies, Policies & Planning Premises

Strategy: The broad program for defining & achieving an organization’s objectives; the organization’s response to its environment over time.

Policies: General statements or understandings that guide manager’s thinking in decision making.

Strategic Management

“The management process that involves an organization’s engaging in strategic planning & then acting on those plans.”

Strategic Management Process

Goal setting

Strategy formulation

Administration (individual reactions)

Strategic control( feedback)

Levels of strategy

Corporate level strategy: strategy formulated by top management to oversee the interests & operations of multiline corporations

The major questions at this level are:1.What kind of businesses should the

Company be engaged in ?2. What are the goals and expectations for

each business?3.How should resources be allocated to reach

these goals?

Business unit strategy is formulated to meet the goals of a particular business, also called line-of-business strategy

The major questions at this level are: 1.How will the business compete within its

market? 2.What products/services should it offer? 3. Which customers does it seek to serve? 4. How well resources be distributed within

the business?

Functional level strategies create a framework for managers in each function-such as marketing or production to carry out business-unit strategies and corporate strategies.

The Strategic Planning Process

The Corporate Portfolio Approach

In this approach, top management evaluates each of the corporation’s various business units with respect to the market place.

When all business units have been evaluated, an appropriate strategic role is developed for each unit with the goal of improving the overall performance of the Organization.

The corporate portfolio approach is rational and analytical, is guided primarily by market opportunities, and tends to be initiated and controlled by top management only

Portfolio framework advocated by Boston Consulting Group known as BCG Matrix is one of the best examples of corporate portfolio approach.

The BCG approach focuses on three aspects of each business unit: its sales, the growth of the market, and whether it absorbs or produces cash in its operations.

The BCG Matrix

Stars= (high growth, high market share)Use large amounts of cash & are leaders in the

market so they should also generate large amounts of cash.

Attempt should be made to hold share, bcos the rewards will be Cash Cow if market share is kept & when growth rate declines.

Cash Cow=( low growth rate , high market share)

Profits & cash generation should be high, bcos of low growth investments needed are less, & high profit margins.

Foundations of the company

Dogs=(low growth, low market share)Avoid & minimize the number of dogs in

the CompanyNeither generate nor consume large

amounts of cashLiquidate (shut down) / divest ( separate )

Question Marks=(high growth rate , low market share)

Have the worst cash characteristics of all, bcos high demands & low returns due to low market share

If nothing is done to change the market share, it will absorb large amounts of cash & later become Dogs.

Either invest / sell off. Or invest nothing & generate ( increase market share)

Limitations of the BCG Matrix

Some limitations of the Boston Consulting Group Matrix include:

High market share is not the only success factor. Market growth is not the only indicator for

attractiveness of a market. Sometimes Dogs can earn even more cash as Cash

Cows. The problems of getting data on the market share and

market growth. There is no clear definition of what constitutes a

"market". A high market share does not necessarily lead to

profitability all the time. A business with a low market share can be profitable

too.

MATRIX of MARUTI SUZUKISTAR: The Company has long run opportunity for

growth and profitability. They have high relative market share and high

Growth rate. SWIFT, SWIFT DESIRE AND ZEN ESTILO is the fast growing and has potential to gain substantial profit in the market.

QUESTION MARK: there are also called as wild cats that are new products with potential for success but there cash needs are high

And cash generation is low. In auto industry of MARUTI SX4, GRAND VITARA, ASTAR there has been improve the organization reputation

As they want successful not only in Indian market but as well as in global market.

CASH COW: It has high relative market share but compete in low growth rate as they generate cash in excess of their needs.

MARUTI 800, ALTO AND WAGONR have fallen to ladder 3 & 4 due to introduction of ZEN ESTALIO and A STAR.

DOG: The dogs have no market share and do not have potential to bring in much cash. BALENO, OMINI, VERSA There business have liquidated and trim down thus

The strategies adopted are that are harvest, divest and drop.

Five forces of Corporate StrategyFive forces of Corporate Strategy:

This approach to corporate strategy is designed by Michel Porter known as Porter’s ‘five forces’ model.

In porter’s view, an organization’s ability to compete in a given market is determined by the organization’s technical and economic resources, as well as by five environmental forces, each of which threatens the organization’s venture in to new market.

Porter’s 5 force model

Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability. These five "competitive forces" are

- The threat of entry of new competitors (new entrants)- The threat of substitutes- The bargaining power of buyers- The bargaining power of suppliers- The degree of rivalry between existing competitors

Threat of New EntrantsNew entrants to an industry can raise the level of

competition. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants).

Key barriers to entry include - Economies of scale ( mass production to reduce cost)

- Capital / investment requirements- Customer switching costs- Access to industry distribution channels

Threat of SubstitutesThe presence of substitute products can

lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute- The relative price and performance of substitutes- The costs of switching to substitutes

Easy to Enter if there is: Difficult to Enter if there is:

Common technology Patented or proprietary know-how

Little brand franchise Difficulty in brand switching

Access to distribution channels Restricted distribution channels

Easy to Exit if there are: Difficult to Exit if there are:

Saleable assets Specialized assets

Low exit costs High exit costs

Independent businesses Interrelated businesses

Bargaining Power of SuppliersSuppliers are involved in the businesses that supply

materials & other products into the industry.The cost of items bought from suppliers (e.g. raw

materials, components) can have a significant impact on a company's profitability. The bargaining power of suppliers will be high when:

- There are many buyers and few dominant suppliers- There are undifferentiated, highly valued products- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets)- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organizations who create demand in an industry

The bargaining power of buyers is greater when

- There are few dominant buyers and many sellers in the industry- The industry is not a key supplying group for buyers

Intensity of RivalryThe intensity of rivalry between competitors in an

industry will depend on: The structure of competition - for example, rivalry is

more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader

Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry

Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier

Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry

Generic StrategiesDetermining ABusiness-Level Strategy

DifferentiationCost

Leadership

Focus

Industry Force Generic Strategies

  Cost Leadership Differentiation Focus

Entry Barriers

Ability to cut price inretaliation deterspotential entrants.

Customer loyalty can discouragepotential entrants.

Focusing develops corecompetencies that can act asan entry barrier.

Buyer Power

Ability to offer lowerprice to powerfulbuyers.

Large buyers have less power tonegotiate because of few closealternatives.

Large buyers have less powerto negotiate because of fewalternatives.

Supplier Power

Better insulated from

powerful suppliers.Better able to pass on supplierprice increases to customers.

Suppliers have powerbecause of low volumes, but adifferentiation-focused firm isbetter able to pass on supplierprice increases.

Threat ofSubstitutes

Can use low price todefend againstsubstitutes.

Customer's become attached todifferentiating attributes

( quality), reducing threat of substitutes.

Specialized products & corecompetency protect againstsubstitutes.

RivalryBetter able tocompete on price.

Brand loyalty to keep customersfrom rivals.

Rivals cannot meetDifferentiation - focusedcustomer needs.

SWOT Analysis

SWOT Analysis

Decision Making Process

Definition: The process of identifying and selecting a course of action to solve a specific problem.

Factors that go in to decision making:

Time and human relationships are crucial elements in the process of decision-making.

Decision making connects the organization’s present circumstances in to actions that will take organization in to future.

Decision making also draws on the past, past experiences-positive and negative- play a big part in determining choices managers see as feasible or desirable.

A manager does not make decisions in isolation.Decision making is a process that managers

conduct in relationship with other decision makers.

Some thoughts on decision-making:1.Decision-making deals with problem.2.Problem is a situation that occurs when an actual

state of affairs differs from a desired state of affairs.3. In many cases, a problem may be an opportunity in

disguise.4. Problem-finding process is often informal and

intuitive.

Problem Finding Process

1• A deviation from

past experience

2• A deviation from a

set plan

3 • Other people

4• The performance of

competitors

Problem finding is not always straightforward.Common errors managers are making in

sensing problems are:>False association of events.( main frame

computers)>False expectation of events.>False Self perceptions.>Social image.

It is not always clear whether a situation faced by a manager presents a problem or an opportunity.

Problem is something that endangers the organization’s ability to reach its objectives.

Opportunity FindingOpportunity is a situation that occurs

when circumstances offer an organization chance to exceed stated goals and objectives.

A dialectical inquiry method sometimes called devil’s advocate method is useful in problem solving and opportunity finding.

A method of analysis in which a decision maker determines & negates his/ her assumptions & then creates “counter solutions” based on negative assumptions.

The nature of managerial decision making

Programmed decision makingNon

Programmed decision making

Certainty(assurance)

RiskUncertainty

Types of decision making

Programmed decisions provide solution to routine problems which is determined by rule, procedure or habit.( limits the freedom)

E.g. Tata has closed its 2 units

Non programmed decisions provide specific solutions created through an unstructured process to deal with non routine problems.

E.g. layoff in Jet Airways

Most of the significant problems a manager will face usually require non programmed decisions.

Certainty: Decision making condition in which managers have accurate, measurable, reliable information about outcome of various alternatives under consideration.

Risk: Decision making condition in which managers know the probability a given alternative will lead to desired goal or outcome.

Uncertainty: Decision making condition in which managers face unpredictable external conditions or lack of information needed to establish the probability of certain events

Probability is a statistical measure of the chance a certain event or outcome will occur.

The rational (balanced) model of decision making

The Managers who weigh their options and calculate optimal level of risk are using the rational model of decision making.

Rational model of decision making is a four step process that helps managers weigh alternatives and choose the alternative with best chance of success.

This model is useful in making non programmed decisions.

Rational Decision Making Process• Define the problem

• Diagnose the causes

• Identify the Decision objectives

• Seek creative alternatives

• Do not evaluate

• Evaluate alternatives

• Select best alternative

• Implement Plan

• Monitor and make necessary adjustments

Investigate the

situation

Develop alternativ

e

Evaluate alternatives and select the best

one available

Implement and

Monitor