Strategies, Policies and Planning Premises

Strategies, Policies and Planning Premises 2010

Strategies, Policies and Planning Premises

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1. IntroductionToday most business enterprises

engage in strategic planning, although the degree of sophistication and formality vary considerably. Conceptual strategic planning is deceptively simple: Analyze the current and future situation, determine the direction of the firm and develop the means of achieving the mission. In reality, this is an extremely complex process which demands

a systematic approach for identifying and analyzing the factors extensively for the organization and matching them with the firm’s capabilities.

Planning is done in an environment of uncertainty. No one can be sure of the external as well as the internal environment. Therefore we make assumptions or forecast about the anticipated environment. Some of the forecast becomes assumptions for the other plans. For example, the gross national product forecast becomes the assumptions for the sales planning, which in turn becomes the basis for product planning.

1.1 StrategiesThe word strategy derives from

the Greek word strategos which translates to the art of the general. First attested in English 1810, the term “strategy”, derived from the Greek word strategos, means to achieve the end points. This is often confused with tactics, from the Greek taktike. Taktike

translates as organizing the army. In modern usage, strategy and tactics might refer not only to warfare, but to a variety of business practices.

Essentially, strategy is the thinking aspect of planning a change, organizing something, or planning a war. Strategy lays out the goals that need to be accomplished and the ideas for achieving those goals. Strategy can be complex multi-layered plans for accomplishing objectives and may give consideration to tactics.

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1.2 Policy

A policy is typically described as a principle or rule to guide decisions and achieve rational outcome(s). The term is not normally used to denote what is actually done; this is normally referred to as either procedure or protocol. Whereas a policy will contain the 'what' and the 'why', procedures or protocols contain the 'what', the 'how', the 'where', and the 'when'. Policies are generally adopted

by the Board of or senior governance body within an organization where as procedures or protocols would be developed and adopted by senior executive officers.

The term may apply to government, private sector organizations and groups, and individuals. Presidential executive orders, corporate privacy policies, and parliamentary rules of order are all examples of policy. Policy differs from rules or law. While law can compel or prohibit behaviors (e.g. a law requiring the payment of taxes on income), policy merely guides actions toward those that are most likely to achieve a desired outcome.

Differences between Policies and Strategies

Policies Strategies

1. A plan, or method of approach developed by an individual, group, or organization, in an effort to successfully achieve an overall goal or objective

A plan, or method of approach developed by an individual, group, or organization, in an effort to successfully achieve an overall goal or objective

2. The essence of policy is discretion

It concerns the direction in which human and material resources will be applied in order to increase the chance of achieving the selected

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objectives

3. It will guide our thinking in decision making – if a decision is to be made.

It implies that the enterprise has made to commit resources in a given direction.

Similarities between Strategies and policies

Strategies and policies are closely related.

The key function is to unify and form the framework for the plans Both are the basis of the operational plans Both affects the areas of managing

But standing alone, can they ensure that an organization will reach its goal?

The more carefully developed and clearly understood strategies and policies are, the more consistent and effective the ensuing plans will be.

The Need for Operational Planning: Tactics

A tactic is a conceptual action. In military usage, a military tactic is used by a military unit of no larger than a division to implement a specific mission and achieve a specific objective, or to advance toward a specific goal. A tactic is implemented as one or more tasks.The terms tactic and strategy are often confused: tactics are the actual means used to gain an objective, while strategy is the overall campaign plan, which may involve complex operational patterns, activity, and decision-making that lead to tactical execution.The United States Department of Defense Dictionary of Military Terms] defines the tactical level as

“ ...The level of war at which battles and engagements are planned and executed to accomplish military objectives assigned to tactical units or task forces. Activities at this level focus on the ordered arrangement and manoeuvre of combat elements in relation to each other and to the enemy to achieve combat objectives. ”

If, for example, the overall goal is to win a war against another country, one strategy might be to undermine the other nation's ability to wage war by

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preemptively annihilating their military forces. The tactics involved might describe specific actions taken in specific locations, like surprise attacks on military facilities, missile attacks on offensive weapon stockpiles, and the specific techniques involved in accomplishing such objectives.

The Strategic Planning Process

Tows Matrix

This is a conceptual framework for a systematic analysis that facilitates matching external threats(T) and opportunities(O) with the internal weakness (W)and strengths(S) of organization.

It is a tool which helps in analyzing the situation.

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There are four alternative strategies based on the analysis of external environment( T & O) and internal environment( W & S):

WT(W and T decreased)

WO(W is decreased and O is increased)

ST(S is maximized and T is minimized)

SO(aim of enterprise is move to this part of matrix)

The Tows Matrix for Strategy Formulation

Time Dimension and the TOWS Matrix

So far, the TOWS Matrix is pertained to analysis of particular point of time. External and internal factors are dynamic. Hence, these factors change over while others change very little.

Because of the dynamics in the environment, TOWS Matrix is designed at different points of time

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Thus, one may start with past, continue with present and focus on different time periods of future.

THE PORTFOLIO MATRIX

In the early 1970's, BCG Matrix first propounded by Bruce Henderson of the Boston Consulting Group. It is also known as BCG matrix, Boston Consulting Group Matrix, BCG Growth-Share Matrix or Matrix Quadrants.

Using the Product Portfolio Matrix approach, a company classified all its SBUs or Products/Markets according to Growth-Share Matrix. Therefore, it is best describe as Portfolio planning model.

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BCG MatrixIn this Matrix Quadrants, the plate is divided 4 categories named A. Star B. Cash Cow C. Question Mark D. Dog

The division is based on Market Share and Growth rate. A brief discussion follows:

A. Star: Leader [i.e. high market share] of high growth market is called star.These SBUs are net user of cash, because they always require heavy investment to finance rapid growth and to sustain market share. When the product comes to mature stage, then the growth slowdown and they turn to cash cow.

B. Cash Cow: Cash cows are low growth but high market share (Market leader) businesses.Their high earnings, coupled with their depreciation, represent high cash inflows and they need very little in the way of reinvestment. And thus, they are the net provider of cash. Surplus cash are used for Research and Development and to support other SBUs that need investment.

C. Question mark: Products in a growth market with low market share are categorized as Question Mark.

Because of growth, these SBUs require a lot of cash to hold their market share and let alone to increase it. If nothing is done to increase the market share, a Question mark will simply absorb large amount of cash in the short run and later, as growth slowdown, become a dog. Thus, unless something is done to change its perspective, it becomes a cash trap.

Management has to decide which question marks should try to build into stars and which should be phased out.

D. Dog: Dog are low growths, low market share SBUs. They may generate enough cash to maintain themselves, but do not promise to be large source of cash.Most often case, it should be liquidate and try with Question mark SBUs for investment.

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Market Growth Rate and Relative Market Share play important roll in BCG Matrix. Market Growth Rate is the measure of industry attractiveness and Relative Market Share is the measure of Competitive advantage. Therefore, these two are most important factors to consider organizations profitability and strategic plan.

Limitations:

Though the Product Portfolio Matrix is well known to ease the way of portfolio analysis,It has several limitations also. Here some of limitations are narrate briefly:

A. High Market Share is not the only factor to measure competitive advantage. Similarly, Market growth rate is not the only factor to measure industry attractiveness.

B. Sometime a dog SBU used as synergy to other SBUs. i.e. a dog may help other SBUs to gain a competitive advantage.

C. Sometimes Dogs [of a huge market] can earn even more cash as Cash Cows.

Though it has some limitations, BCG matrix is a very effective tool to viewing a corporation’s business portfolio at a glance. And also helpful to the decision making process for allocating corporate resources.

MAJOR KINDS OF STRATEGIES AND POLICIES

GROWTH

Growth strategies enable the organization to expand, either through mergers or acquisitions, or establishing a new plant.

FINANCE

Every business or non-business enterprises have a clear strategy for financing its operations.

ORGANIZATIONS

This includes the type of organization pattern an enterprise would use. It answers the practical questions as how centralized or decentralized decision making authority should be , what kind of department pattern are more suitable and how to design staff positions.

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This structure furnishes the system of roles and role relationships that help to accomplish objectives.

PERSONNEL

They deal with topics such as union relations, compensations, selection, hiring, training, and appraisal as well as with special areas such as job enrichment.

PUBLIC RELATIONS

A fundamental technique used in public relations is to identify the target audience, and to tailor every message to appeal to that audience. It can be a general, nationwide or worldwide audience, but it is more often a segment of a population

PRODUCTS OR SERVICES

New products or services, determines what an enterprise is or will be.

It includes the following questions

What is our business?

Who are our customers?

What do our customer wants?

How much will our customer buy and at what price?

Do we wish to be a product leader?

How do we respond to our existing and potential customer?

Do we wish to develop our own new product?

What profits can we expect?

What basic forms should our strategy take?

MARKETING

It is designed to guide managers in getting products or services to the customer and encouraging them to buy. Marketing strategies are closely related to product strategies; they must be interrelated and mutually supportive.

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These key questions serves as a guide for establishing marketing strategies .

How does our customer buy?

How is it best for us to sell?

Do we have something to offer that competitors do not?

Do we wish to take legal steps to discourage competition?

Do we need, and can we supply, supporting services?

What is the best pricing strategy and policy for our operation?

Porter's Competitive Strategy

Porter has outlined three generic strategies that can be used to gain competitive advantage over other firms operating in the same industry. They are cost leadership, differentiation and focus.

Cost leadership: It involves emphasizing organizational efficiency, so that the overall costs of providing products and services are low. It entails developing efficient production methods, keeping tight controls on over-head and administrative costs and seeks saving by supplying at low prices.

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Wal-mart has always kept its prices low (but maintained quality) in order to attractcustomers.

Differentiation: It attempts to develop products that are unique in the industry. Uniqueness can be in the form of service (British Airways), product (Mercedes Benz) quality (Xerox), features (Nike shoes) etc.

Focus: It relies on low-cost, or differentiation, or both; in order to establish a strong position within the particular market segment or niche.

GENERIC STRATERGY Commonly required skills and resources

Cost leadership: Capital investment

• Technical skills

• Intense supervision of labor

• Low-cost distribution system

Differentiation: Strong marketing abilities

• Product engineering

• Strong capability in research

• Technology leadership

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Focus: Combination of the above policies, directed at the particular strategic target

Effective Implementation of Strategy

Effective implementation of the strategy has eight prerequisites:

• Communicate strategies: Strategies designed by the top management must be communicated (written) to all managers who are involved in the process of decision making. They in turn should communicate the lower levels and ensure that the strategies are implemented.

• Develop and communicate planning premises: This process consists of developing the premise (assumptions about the environment in which plans operate) and communicating the same to managers, who are involved in decision making. Managers should provide feedback, and suggest alternatives if any, that can be adopted.

• Develop organization culture: An organization's culture is developed, based on its values and beliefs. It guides the employees to accomplish organizational goals set by the top management.

• Monitoring: Monitoring helps in ensuring that action plans are in tune with strategies. Managers should continuously review the strategies, and incorporate changes recommended by the Staff advisers.

• Develop contingency strategies and programs: Uncertainty and risk occur in every business. Managers should be able to foresee such uncertainties and develop contingency strategy.

• Emphasize on planning and implementation: Strategies become obsolete, if they are not upgraded. Managers must ensure that necessary elements in the system are upgraded.

• Create proper organizational climate: Organizational climate (internal environment existing within the organization – commitment, dedication etc.) enables the implementation of strategy, in tune with the organizational objectives.

Effective Planning Premises

Anticipation about the environment (both external and internal) is referred to as planning premises.Following are the pre-requisites for effective planning.

• Selection of premises: Top management should select the premise based on the

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environmental factors, which influence their course of action.

• Develop alternative plans: As the future is uncertain, alternative plans must be developed.

• Verify premises: Verification ensures that the premises are consistent with each other.

• Communicate premises: A Planning premise can be effective, if it is communicated to employees.

Environmental Forecasting: If the future could be

forecast with accuracy, planning would be relatively

simple. Managers would need only to take into account

their human and material resources and their

opportunities and threats, compute the optimum method

of reaching their objective and proceed with a relatively

high degree of certainty toward it .in practice however forecasting is much more

complicated than that.

Values and areas of forecasting:

The making of forecasts and their review by managers compel thinking

ahead, looking to the future and providing for it second, preparation of the forecast

may disclose areas where necessary control is lacking .third forecasting especially

when there is participation throughout the organization helps to unify and coordinate

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plans by focusing attention on the future it assists in bringing a singleness of purpose

to planning

Delphi forecasting is a non-quantitative technique for forecasting.

It draws its name from the Oracles of Delphi, which in Greek Antiquity

advised people based on intuition and common sense. Unlike many other methods

that use so-called objective predictions involving quantitative analysis, the Delphi

method is based on expert opinions. It has been demonstrated that predictions

obtained this way can be at least as accurate as other procedures. The essence of

the procedure is to use the assessment of opinions and predictions by a number of

experts over a number of rounds in carefully managed sequences.

One of the most important factors in Delphi forecasting is the selection of experts.

The persons invited to participate must be knowledgeable about the issue, and

represent a variety of backgrounds. The number must not be too small to make the

assessment too narrowly based, nor too large to be difficult to coordinate. It is widely

considered that 10 to 15 experts can provide a good base for the forecast.

Procedure The procedure begins with

the planner/researcher preparing a

questionnaire about the issue at hand,

its character, causes and future shape.

These are distributed to the

respondents separately who are asked

to rate and respond. The results are then tabulated and the issues raised are

identified.

The results are then returned to the experts in a second round. They are asked to

rank or assess the factors, and justify why they made they their choices. During a

third or subsequent rounds their ratings along with the group averages, and lists of

comments are provided, and the experts are asked to re-evaluate the factors. The

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rounds would continue until an agreed level of consensus is reached. The literature

suggests that by the third round a sufficient consensus is usually obtained.

The procedure may take place in many ways. The first step is usually undertaken by

mail. After the initial results are obtained the subsequent round could be undertaken

at a meeting of experts, assuming it would be possible to bring them together

physically. Or, the subsequent rounds could be conducted again by mail. E-Mail has

greatly facilitated the procedure. The basic steps are as follows:

1. Identification of the problem. Researcher identifies the problem for which

some predictions are required, e.g. what is the traffic of port x likely to be in 10

years time. Researcher prepares documentation regarding past and present

traffic activity. Questionnaire is formulated concerning future traffic estimates

and factors that might influence such developments. A level of agreement

between the responses is selected, i.e. if 80% of the experts can agree on a

particular traffic prediction.

2. Selection of experts. In the case of a port scenario this might include

terminal managers, shipping line representatives, land transport company

representatives, intermediaries such as freight forwarders, and academics. It

is important to have a balance, so that no one group is overly represented.

3. Administration of questionnaire. Experts are provided with background

documentation and questionnaire. Responses are submitted to researcher

within a narrow time frame.

4. Researcher summarizes responses. Actual traffic predictions are tabulated

and means and standard deviations calculated for each category of cargo as

in the case of a port traffic prediction exercise. Key factors suggested by

experts are compiled and listed.

5. Feedback. The tabulations are returned to the experts, either by mail or in a

meeting convened to discuss first round results. The advantage of a meeting

is that participants can confront each other to debate areas of disagreement

over actual traffic predictions or of key factors identified. The drawback is that

a few individuals might exert personal influence over the discussion and

thereby sway outcomes, a trend that the researcher must be alert to and seek

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to mitigate. Experts are invited to review their original estimates and choices

of key factors in light of the results presented, and submit a new round of

predictions.

6. These new predictions are tabulated and returned to the experts either by

mail or immediately to the meeting, if the level of agreement does not meet

the pre-determined level of acceptance. The specific areas of disagreement

are highlighted, and the experts are again requested to consider their

predictions in light of the panel’s overall views.

7. The process is continued until the level of agreement has reached the pre-

determined value. If agreement is not possible after several rounds, the

researcher must terminate the process and try to pinpoint where the

disagreements occur, and utilize the results to indicate specific problems in

the traffic prediction process in this case. This method could be applied in a

classroom setting, with students serving as ‘experts’ for a particular case

study. The traffic at the local airport or port might be an appropriate example.

On the basis of careful examination of traffic trends and factors influencing

business activity, the class could be consulted to come up with predictions

that could then be compared with those of some alternate method such as

trend extrapolation.

THE SALES FORECAST: KEY PLAN AND PREMISE

Nature and use of the sales forecast:

The sales forecast is a prediction of expected sales, by product and price number of

months or years .the sales forecast is the key to internal planning strategies and

policies are made for the purpose of maximizing profits

Methods of sales forecasting: as follows

1. Jury of executive opinion method

Perhaps it is the oldest and simplest

method in most cases the final estimate is

an opinion of the president based upon a

consideration of the opinions of other

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officers, in other cases poll of opinion leads to a rough kind of average

estimate.

Serious drawback is forecasts may be based on the opinion rather than facts

2. The Sales Force Composite Method

One of the commonly used methods of forecasting is to

obtain from the sales people and sales managers their

combined view as to expected sales

This method is based on the belief that those closest to

the sales picture have the best knowledge of the

markets

The primary disadvantage is sales people even the sales managers are apt to

be poor for any period of except the immediate future since they tend to give

primary weight to present conditions.

3. The Users Expectation Method

If a company can obtain adequate and

reliable information sample of what

customers will buy though actual orders

are not in hand, it will be a good basis upon

which we develop a forecast this would be

advantageous where the company cannot make a system forecast on its

own ,in such small companies with limited resources of forecasting.

4. Statistical methods

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These statistical methods may be divided into two types:

1. Trends and cycles:

The analyst summarises the pertinent series of data, on the basis of this data.

The forecast is projected .this analysis on the assumption that what is past is

prolonged and that trend will continue unless something happens to it.

2. Correlation Analysis:

Most widely used technique is correlation analysis, the

measurement of relationship between company sales one

or more other factors as national index gross national

product, national income the disadvantage is that there is a

danger that managers could heavily rely in statistical data and the results implied

and there by miss significant changes which intelligent judgement would have

apprised

5. Deductive Methods

No forecast should overlook the opportunity to apply judgement and draw intelligent

deductions from facts and relationships. Generally what is involved is to find out what

the present situation is, where the sales are, and why and then to analyse

deductively, by resort to both objective factors, and subjective judgement

Sales forecasting in practice:

Assumptions about future:

The basic assumptions for the future are arrived by staff and the managers after

consideration of forecast of gross economic conditions, series of meetings are held

with sales and company personnel to make sure that are factors are considered

properly and then approved

Sales people:

In other typical cases the initial forecast is by sales people in the field.

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In some cases three sets of sales forecast is prepare done by industry specialists,

other by commercial research department, and other one by sales people and then

the differences are reconciled and approved.

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Strategies, Policies and Planning Premises