Chapter-04 essentials of Planning

CHAPTER-04

ESSENTIALS OF PLANNING

Dr. Gehan Shanmuganathan, (DBA)1

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BURGER KING HOLDINGS

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BURGER KING HOLDINGS Burger King CEO interviewed by Wall Street

Journal Question was on how Burger King made the

growth possible during the economic depression

Answer Value creation. E.g- $ 1 burger Targeting the market. E.g- Female and male

market

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CHAPTER OBJECTIVES

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CHAPTER OBJECTIVES Summarize the general framework for planning and

apply it to enhance your planning skills Describe the nature of business strategy Explain how business strategy is developed including

SWOT analysis Identify levels of business strategy, competitive forces,

and types of business strategies Explain the use of operating plans, policies, procedures,

and rules Present an overview of management by objectives (MBO)

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A GENERAL FRAMEWORK FOR PLANNING

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PLANNING Planning is a complex and comprehensive

process involving a series of overlapping

and interrelated elements or stages,

including strategic, tactical, and

operational

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PLANNING

Planning could be reviewed from strategic

as well as from a tactical point of view.

Planning is not bound by a time horizon

but could be related to a continuous

process

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PLANNING LEVELS

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PLANNING LEVELS

Strategic planning

Tactical planning or functional planning

Operational planning

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STRATEGIC PLANNING Firm’s overall master plan that shapes

its destiny This may involve,

Planning to set up new production plant Starting new operation in a new location Planning to cope with the demographic changes Planning to cope with business environmental

changes

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TACTICAL PLANNING Planning that translates a firm’s strategic plan into

specific goals by organizational unit. This plan also details how an organization competes within its business in the market

Middle or functional managers will be responsible in formulating and implementing the tactical plan

E.g- market share, net profit, new product development, market development, quality levels

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OPERATIONAL PLANNING

The planning that requires specific

procedures and actions at lower levels in an

organization

Operational planning should support tactical

planning

E.g- achieving day’s targets

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A FRAMEWORK FOR PLANNING

A FRAMEWORK FOR PLANNING Define the present situation

Establish goals and objectives

Analyze environment in terms of aids and barriers To goals and objectives

Implement the plan

Develop budgets

Develop action plan to reach goals and objectives

Control the plan

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DEFINE THE PRESENT SITUATION Need to know “where we are now? Is critical in

establishing the new goals Defining the present situation includes

measuring success and examining internal capabilities and external threats

Discuss how Harley-Davidson became successful identifying the aging population (median age 35 in 1987)

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ESTABLISH GOALS AND OBJECTIVES The second step in planning is to establish goals

and identify objectives that contribute to the attainment of goals

Goals are broader than objectives- discuss…

Discuss how Harley-Davidson set the goal to cater to gender-neutral market ( male and female)

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ANALYZE THE ENVIRONMENT TO FORECAST AIDS AND BARRIERS TO GOALS AND OBJECTIVES

The planner needs to analyze the internal and external factors either foster or hinder the attainment of the goals

E.g- The brand equity (rebellious image) of Harley-Davidson is the main internal strength of the company to attain the set goal

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Business Environment

Internal Environment External Environment

Micro Environment

Macro Environment

Customers, Distributors, Suppliers & Competitors

PESTEEL Factors

5 M’s 7 S’s

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DEVELOP ACTION PLANS TO REACH GOALS AND OBJECTIVES Goals and objectives are only wishful

thinking until action plans are drawn Action plan the specific steps necessary to

achieve a goal or an objective

E.g- advertising campaigns, sales targets, sales promotions, and so on

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DEVELOP BUDGETS Planning requires money to implement

Types of budgets Advertising budget HR budget Production budget Sales budget

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IMPLEMENTING THE PLAN The plan needs to be put into action

CONTROL THE PLAN Standard setting

Objectives, goals Performance measurements

Quality, quantity and cost Budgets, variances

Performance diagnosis Gap analysis through performance measurements

Taking corrective actions (if required) Environmental changes Internal problems

CONTINGENCY PLANNING An alternative plan to be used if the

original plan cannot be implemented or a crisis developed

Planning for things might happen Change of market structure due to competitor

activity New Product Development of competitor

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THE NATURE OF BUSINESS STRATEGY

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STRATEGY

The organization’s plan or comprehensive program, for achieving its vision, mission, and goals in its environment

It is an integrated overall concept and plan of how the organization will achieve its goals and objectives

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STRATEGY INVOLVES MORE THAN OPERATIONAL EFFECTIVENESS

Strategy leads to sustainable growth

E.g- downsizing leads to operational efficiency whereas strategy leads to sustainable growth

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STRATEGY REST ON UNIQUE ACTIVITIES

Competitive strategy means deliberately

choosing a different set of activities to deliver

a unique value

E.g- Southwest Airlines low cost

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A SUSTAINABLE STRATEGIC POSITION REQUIRES TRADE-OFFS Strategy helps to trade-off the strategic

position

E.g- internet marketing trades-off traditional marketing with sales associates interactions

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FIT DRIVES BOTH COMPETITIVE ADVANTAGE AND SUSTAINABILITY Strategy makes the company activities fit

and support each other to form an effective system

E.g- Bic company offers low priced ball-point pens through all the distribution channels to cover whole market (retail, commercial, and promotional)

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THE DEVELOPMENT OF BUSINESS STRATEGY

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VISION- DREAM

An idealized picture of the future of an organization- “what do we want to be”

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MISSION- PURPOSE The firm’s purpose and where it fits into the

world

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STRATEGY DEVELOPMENT

Gathering multiple inputs to formulate strategy

Strategists need to gather inputs from all the

possible sources to formulate the final strategy

Analyzing realities of the business situation Strategists need to analyze the realities of the

business situation using pragmatic and quantitative

techniques

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SWOT ANALYSIS

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SWOT ANALYSIS

A method of considering the strengths,

weaknesses, opportunities, and threats in a

given situation

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SWOT ANALYSIS

Strengths Weaknesses

Opportunities Threats

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LEVELS OF STRATEGY, COMPETITIVE FORCES, AND TYPES OF STRATEGIES

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LEVELS OF BUSINESS STRATEGIES

Corporate level strategy- consider the

company direction

Business level strategy- consider how to

compete

Functional level strategy- considers how

to support the business level strategy

FIVE COMPETITIVE FORCES (PORTER 5 FORCE ANALYSIS)

Bargaining Power ofSuppliers

Bargaining Power of

Customers

Threat ofSubstitution

Threat of newEntry

IndustryRivalry

Threat of new entrants can be reduced based on barriers to entry. These would be

Economies of scale - Product differentiation –

Capital requirements – Switching Costs – Access to distribution channels –

COMPETITIVE FORCES THREAT OF NEW ENTRANTS

When organizations in an industry are faced with threats from substitute products, they are likely to find demand for their products are relatively sensitive to price

COMPETITIVE FORCES2. THREAT OF SUBSTITUTE PRODUCTS

Whether the customers purchase a substantial proportion of the total sales of the producer

Whether the customer purchase from the industry, represents a large or small proportion of the customer’s total purchases.

Whether switching costs are high or low

Whether the products are branded or unbranded

COMPETITIVE FORCES3. BARGAINING POWER OF CUSTOMERS

The number of suppliers in the industry

The importance of the suppliers products to the firm

Whether the supplier has a differentiated product

Whether the switching cost of the customers are high

COMPETITIVE FORCES4. BARGAINING POWER OF SUPPLIERS

Whether there is a large number of equally balanced competitors

The rate of growth in the industry – when the market growth is slow companies tends to grab share from each other intensifying competition.

Whether buyers can switch easily from one supplier to another.

Capacity and unit cost of each competitor

COMPETITIVE FORCES5. RRIVALRY AMONGST CURRENT COMPETITORS IN THE INDUSTRY

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TYPES OF BUSINESS STRATEGIES Corporate level strategies

Strategic alliance Diversification Sticking to core competencies

Business level strategies Product differentiation Focus or niche Cost leadership

Functional level strategies Find and retain best people High speed or timely service

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OPERATING PLANS, POLICIES, PROCEDURES, AND RULES

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OPERATING PLANS, POLICIES, PROCEDURES, AND RULES Operating plans

The means through which strategic plans alter the destiny of the firm

Policies General guidance to follow in making decisions and

taking actions Procedures

A customary method for handling an activity. It guides action rather than thinking

Rules A specific course of action or conduct that must be

followed. It is simplest type of plan

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MANAGEMENT BY OBJECTIVES (MBO)

MANAGEMENT BY OBJECTIVES (MBO) Management by Objectives (MBO)

A style of management which attempts to relate organizational goals to individual performance and development through the involvement of all levels of management.

The underlying basis is Setting the objectives and targets Participation by individual managers in agreeing

unit objectives and criteria for performance Continual review and appraisal of results

MANAGEMENT BY OBJECTIVES (MBO) Evaluation of MBO

Identifies problem areas in hindering the goals Improves management control information and

performance Leads to a sound organization structure Identifies where changes are needed, seeks

continual improvement of results Identifies training needs Improves Appraisal systems Improves communication and interpersonal

relationships Encourages motivation to improve individual

performance. Limitations ?

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WRITE FIVE KEY THINGS (AREAS) THAT YOU CAN CRITICALLY REMEMBER IN TODAY’S DISCUSSION

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WHAT WE DISCUSSED TODAY?

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WHAT WE DISCUSSED TODAY…….. Summarize the general framework for planning and

apply it to enhance your planning skills Describe the nature of business strategy Explain how business strategy is developed including

SWOT analysis Identify levels of business strategy, competitive forces,

and types of business strategies Explain the use of operating plans, policies, procedures,

and rules Present an overview of management by objectives (MBO)

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QUESTIONS……. SHARE ACTUALLY MARKETING PLAN…..

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WEEKLY ASSIGNMENT- 04

“How can you use the information

in this chapter to help you achieve

your career and personal goals”.

Discuss.