8 Lecture Strategic Planning Material

8/9/2019 8 Lecture Strategic Planning Material

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Introduction:

we explore the four basic functions that management entails: planning,

organizing, leading, and controlling resources. And we highlight the skills

required of eective managers.

Some managers, especiall those in smaller organizations, perform all four

managerial functions. Although these functions tend to occur in a

somewhat progressive order, sometimes the occur simultaneousl, andoften the process is ongoing.

Planning defnition:Planning is the process o bridging the gap between where we are

and where we want to be in the uture.

Planning unction:

◦ !eviewing vision, mission,

◦ "e#ning goals and objectives

◦

"eciding what tpe of activities the compan will engage in

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◦ "etermining the resources needed to achieve the

organization&s goals ' ob(ectives.

)he management function is to plan for the compan&s future basedon shareholder expectations which are generall to make high

pro#ts in order to pa out high dividends.

)herefore, management needs to strategize to maximize revenues

and control costs.

)he management might also be concerned with its own purposes,

so senior executives might let pro#t making slide in favor or taking

out high salaries and fringe bene#ts for themselves.

*hat&s Strateg+

Strateg is management's overall plan and actions or

deploying whole resources taking into considerationopportunities and threats in the environment

◦ o achieve its mission, vision and goals

◦ o establish a avorable competitive position.

Strateg involves:

◦ An organization&s goals

◦ A series of related decisions ' actions

◦ )akes into account ke internal strengths ' weaknesses and

external opportunities ' threats

◦ Analsis, communication, coordination, ' action

!hat is "trategic #anagement$

ocuses on how top managers formulate and implement, and

evaluate strategies aimed at developing and maintaining

competitive advantage:

◦ the reason some frms enjoy higher levels o perormance

than their rivals or competitors.

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Strategic management is therefore concerned with overall lanning,

leading, organizing and control

our aspects that set strategic management apart:

◦ "trategic %ap

◦ &ternal analysis

◦ Internal analysis

◦ (uture scenarios forecasting

"trategic plans outline the #rm&s long/range 0often #ve to ten ears1

organizational goals and set a course of action the #rm will pursue to

reach its goals. 2ne of the most important questions at this stage is the

compan3s business model4a clear, simple outline of how the business

intends to generate revenue.

%eond the fundamental business model, a good strategic plan answers

such important questions as: *here are we going+ 5ow do we get there+

*hat is the business environment going to be like+ )he answers to these

questions involve ever aspect of the compan, including product research

and design, production, marketing and sales, distribution, #nancial

management, human resources, and all the compan3s responsibilities to

its various stakeholders.

)o de#ne the long/range plan, managers need extensive amounts ofinformation. or instance, the must formulate budgets, review production

schedules, stud industr and economic data, research customer

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preferences and competitive data, and so on. 7anagers use this

information to set a #rm&s long/term course of direction during the

strategic planning process, which consists of seven interrelated steps:

developing a clear vision, creating a mission statement, performing aS*2) analsis, developing forecasts, analzing the competition,

establishing goals and ob(ectives, and developing action plans.

7ost organizations are formed in order to realize a vision,a realistic attainable view of the future that grows out of and improves on

the present. "eveloping a clear vision is a critical task in the strategic

planning process. %ut having a vision alone is no guarantee of success8 it

must also be communicated to others, executed, and modi#ed as

conditions change.

A starting point is to write a compan mission statement,

a brief document that de#nes wh the organization exists, what it seeks to

accomplish, and the principles that the compan will adhere to as it tries

to reach its goals.

)pical components of a mission statement include the compan&s product

or service8 primar market8 fundamental concern for survival, growth, and

pro#tabilit8 managerial philosoph8 and commitment to qualit and social

responsibilit.

"!)*nalysis

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S*2) Analsis is a strategic planning method used to evaluate the

"trengths, !eaknesses, )pportunities, and hreats involved in a pro(ector in a business venture.

t involves specifing the objective of the business

dentifing the internal and eternal factors that are favorable

and unfavorable to achieving that ob(ective

"trengths: attributes of the person or compan those are helpful to

achieving the ob(ective.

!eaknesses: )he absence of certain strengths mabe considered a

weakness.

)pportunities: external conditions those are helpful to achieving the

ob(ective.

hreats: changes in the external conditions which could do damage

to the ob(ective.

%efore establishing long/term goals, ou need to have a clear

assessment of our #rm3s strengths and weaknesses compared with the

opportunities and threats it faces. Such analsis is commonl referred to

as SWOT , which stands for strengths, weaknesses, opportunities, and

threats.

+reative use o "!)

5ow can we ;se and capitalize on each Strength+

5ow can we improve each *eakness+

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5ow can we =xploit and %ene#t from each 2pportunit+

5ow can we mitigate each )hreat+

Strong brand name

>ood reputation among customers

=xclusive access to high grade natural resources

avorable access to distribution networks

are positive internal factors that contribute to a compan&s success, which

can be anthing from a team of expert emploees to #nancial resources to

unique technologies. Weaknesses are negative internal factors that inhibit

the compan&s success, such as obsolete facilities, inadequate #nancial

resources to fund the compan&s growth, or lack of managerial depth and

talent. dentifing a #rm&s internal strengths and weaknesses helps

management understand its current abilities so it can set proper goals.

=xcelling in man areas at once is unrealistic for most #rms, so managers

frequentl choose to focus on developing a small number of strengths,

known as core competencies. A core competence is a bundle of skills,

technologies, and other resources that enable a compan to provide a

particular bene#t to customers. t sets the compan apart from its

competitors and is di?cult for competitors to duplicate.

A weak brand name

oor reputation among customers

5igh cost structure

@ack of access to best natural resources

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An unful#lled customer need

Arrival of new technologies

@oosening of regulations

!emoval of international trade barriers

Shift in consumer tastes awa from the #rm&s products

=mergence of substitute products

Bew regulations

ncreased trade barriers

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") Strategies: ursue opportunities that are a good compan&s #t

to the compan&s strengths

!) Strategies: 2vercome weaknesses to pursue opportunities

" Strategies: dentif was to use strengths to reduce

vulnerabilit to external threats

! Strategies: =stablish a defensive plan to prevent the #rm&s

weaknesses from making it highl susceptible to external threats

"trategy (ormulation and Planning

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)o develop forecasts, managers must make a number of educated

assumptions about future trends and events and modif those

assumptions once new information becomes available.

7anagerial forecasts fall under two broad categories: quantitative

orecasts, which are tpicall based on historical data or tests and whichinvolve complex statistical computations8 and qualitative orecasts, which

are based on intuitive (udgments or consumer research. Statisticall

analzing the ccles of economic growth and recession over several

decades to predict when the econom will take a downward turn is an

example of quantitative forecasting. 7aking predictions about sales of a

new product on the basis of experience and consumer responses to a

surve is an example of qualitative forecasting. Beither method is

foolproof, but both are valuable tools, enabling managers to #ll in the

unknown variables that inevitabl crop up in the planning process.

!egardless of the tpe of forecast or the variables being predicted, reliable

inputs are ke. orecasters collect pertinent data and information in a wide

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"evelop orecasts


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variet of was, such as reviewing internal data, conducting surves and

other research, purchasing industr forecasts from research companies

that specialize in particular industries, and reviewing pro(ections from the

man periodicals, industr organizations, and government agencies thatpublish forecasts on business and economic issues.

reviewing internal data, conducting surves and other research,

purchasing industr forecasts from research companies that specialize in

particular industries, and reviewing pro(ections from the man periodicals,

industr organizations, and government agencies that publish forecasts on

business and economic issues.

7anagers begin the competitive analsis process b identifing existing

and potential competitors. Bext the determine the competencies,strengths, and weaknesses of their ma(or competitors. Armed with

competitive information, the look for was to capitalize on a competitor&s

weaknesses or match or surpass their strengths to gain a competitive

edge.

A compan can gain a competitive edge through at least one of three

strategies:

Dierentiation A compan using dierentiation develops a level ofservice, a product image, unique product features, or new technologies

that distinguish its product from competitors& products.

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Cost leadership %usinesses that pursue this strateg aim to becomethe low/cost leader in an industr b producing or selling products more

e?cientl and economicall than competitors.

Focus *hen using a focus strateg, companies concentrate on aspeci#c regional market or consumer group, such as the Southwest ;nited

States or drivers of econom cars.

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orters8 )he ive Gompetitive orces

!hat is it$

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orters #ve forces is a tool developed b 7ichael orter to analse the

forces that might work against an organisation being successful. t is used

to identif potential threats that might arise and to assess the balance of

power in an industr. t is useful therefore in strategic decision making, asan aid to consider where best to strengthen position and identifing gaps

in market.

-ow do I use it$

;nder each of the Hforces& on the diagram, consider which threaten or

aect our organisation. Iuestions to think about are on the next slide.

hreat o new entrants / 5ow loal are our customers+ Gould the be

persuaded b a new organisation+ *hat is the likelihood of a new business

entering the market+ *hat are the costs involved for them+ Are theirdi?culties to entering the market+ *hat might potentiall deter new

entrants+

uyer Power / 5ow powerful are buer groups+ Gould the combine

resources and force prices down+ 5ow man alternatives are there for the

product or service+ 5ow eas is it for customers to switch+

hreat o substitution / 5ow man dierent tpes of this product or

service are there+ 5ow important are the substitutes considered to be+

5ow eas is it to develop a substitute to our product or service+

"upplier Power J 5ow man suppliers are there+ 5ow large are the

supplier organisations+ 5ow unique is the product or service+ *hat is the

cost of changing supplier+

+ompetitive /ivalry / 5ow man competitors are there+ *hat is the

dierence in qualit+ *hat other dierences are there+ *hat is the cost of

leaving the market+ 5ow loal are customers+

Set goals and ob(ectives:

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As mentioned earlier, establishing goals and ob(ectives is the ke task in

the planning process. Although these terms are often usedinterchangeabl, a goal is a broad, long/range accomplishment that the

organization wishes to attain in tpicall #ve or more ears, whereas an

objective is a speci#c, short/range target designed to help reach that

goal.

Setting appropriate goals has man bene#ts: t increases emploee

motivation, establishes standards for measuring individual and group

performance, guides emploee activit, and clari#es management&s

expectations. % establishing organizational goals, managers set the stage

for the actions needed to achieve those goals. f actions aren&t planned,

the chances of reaching compan goals are slim.

Develop action plan:

2nce managers have established a #rm&s long/term strategic goals and

ob(ectives, it must then develop a plan of execution. actical plans la

out the actions and the allocation of resources necessar to achieve

speci#c, short/term ob(ectives that support the compan&s broader

strategic plan. )actical plans tpicall focus on departmental goals andcover a period of one to three ears. )heir limited scope permits them to

be changed more easil than strategic plans.

)perational plans designate the actions and resources required to

achieve the ob(ectives of tactical plans. 2perational plans usuall de#ne

actions for less than one ear and focus on accomplishing a #rm&s speci#c

ob(ectives, such as developing a strategic partnership with another

campaign.

Planning is the process of bridging the gap between where we are and wherewe want to be in the future. In other words, planning is “looking ahead,relating today’s events with tomorrow’s possibilities.” It is the process of

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deciding in advance what to do, how to do, when to do it, and who does what.Proper planning minimizes risk and ensures that resources are efficiently andeffectively utilized.

Planning and controlling are inseparable. Planning involves determiningorganizational obectives and developing strategies to achieve the obectives,

while controlling involves establishing standards of performance andcomparing actual results with the planned results. !ontrolling without

planning is meaningless. "nless one knows where to go, one cannot tellwhether one is going in the right direction or not. Planning gives an

organization the re#uired focus and direction. $hus planning is a prere#uisiteof the control function.

In simple words, planning is deciding in advance what action to take, how andwhen to take a particular action, and who are the people to be involved in it. It

involves anticipating the future and consciously choosing the future course of action.

%ccording to Peter &rucker, “Planning is a continuous process of makingpresent entrepreneurial decisions 'risk taking( systematically and with bestpossible knowledge of their futurity, organizing systematically the effortsneeded to carry out these decisions and measuring the result of thosedecisions against the e)pectations through an organized systematic feedback.”

In the words of *eorge +. $erry, “Planning is the selecting and relating of factsand the making and using of assumptions regarding the future in thevisualization and formulation of proposed activities believed necessary to

achieve desired results.” $hus, while planning, a manager makes use of factsand reasonable premises and also considers the relevant constraints. $he

manager then decides what activities are needed, how they are to be carriedout and how they would contribute to the achievement of the desired results.

&alton . -carland’s definition of planning takes into account the dynamicnature of the environment. /e defines planning as follows0

“Planning is a concept of e)ecutive function that embodies the skills of anticipating, influencing and controlling the nature and direction of change.”

%ccording to /einz 1eihrich and /arold 2oontz, “Planning involves selectingmission and obectives and the actions to achieve them3 it re#uires decision4

making that is, choosing from alternative future courses of action.” $hus,planning involves determining organizational obectives and deciding how bestto achieve them. It involves looking ahead and relating today’s events with

tomorrow’s possibilities.

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Tactical plans

$hey aim at achieving tactical or short4term goals. $hese plans help support

the implementation of strategic plans. $actical plans essentially indicate theactions that maor departments and sub4units should take to e)ecute astrategic plan. 5uch plans are more concerned more with actually getting

things done than with deciding what to do. $hey are thus essential for thesuccess of strategic plans.

$actical plans are developed by middle4level managers, who may consultlower4level managers before finalizing the plan and communicating it to top4level management. !ompared to strategic plans, tactical plans cover a shortertime frame 'usually 6 to 7 years(. % middle4level manager acting as a tactical

planner deals with much less uncertainty and risk than the strategic planner.$he information that he re#uires is also less and most of it can be derived from

internal sources.

Operational plans

8perational plans are developed to determine the steps necessary for

achieving tactical goals. $hey are stated in specific, #uantitative terms andserve as the department manager’s guide to day4to4day operations.8perational plans are developed by lower4level managers. $hese plans

generally consider time frames of less than a year, such as a few months,weeks, or even a few days. $hey spell out specifically what must be

accomplished over short time periods in order to achieve operational goals.9ower4level managers who develop operational plans work in an environmentof relative certainty. /ence, the amount of risk involved in making operationalplans is lesser than that involved in making tactical plans. $he informationneeded for operational planning can be obtained almost completely from withinthe organization. "nless operational goals are achieved, tactical and strategic

goals will not be achieved. $herefore operational plans are necessary for thesuccess of tactical and strategic plans.

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he relationship between management andplanning:

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8 Lecture Strategic Planning Material

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