Planning, mbo, strategy & decision making by arun verma

PLANNING

What Is Planning?

PlanningManagerial function that involves:

Defining the organization’s goalsEstablishing an overall strategy for achieving those

goalsDeveloping a comprehensive set of plans to

integrate and coordinate organizational workTypes of planning

Informal: not written down, short-term focus; specific to an organizational unit

Formal: written, specific, and long-term focus, involves shared goals for the organization

Why should managers plan

To offset uncertainty and change;To focus organizational activity on a

set of objectivesTo provide a coordinated, systematic

roadmap for future activitiesTo increase economic efficiencyTo facilitate control by establishing a

standard for later activity

Components of a planOutcome/goal statement: it represents the

end state –the targets and outcomes managers hope to attend

Action statement: they reflect the means by which organizations move forward to attain their goals

Planning and PerformanceThe Relationship Between Planning and

PerformanceFormal planning is associated with:

Higher profits Other positive financial results

The quality of planning and implementation affects performance more than the extent of planning

How Do Managers Plan?Elements of Planning

Goals (also objectives)Desired outcomes for individuals, groups, or entire

organizationsProvide direction and performance evaluation

criteriaPlans

Documents that outline how goals are to be accomplished

Describe how resources are to be allocated

Planning process

1. Developin

g awarenes

s of present

state

2. Establish outcome

statements:

•Goal planning•Domain planning•Hybrid planning

3. Premising

•Forecasting

•Formulating

assumptions

4. Determing course of action

•Identify alternatives•Evaluate alternatives•Selecting alternatives

5. Formulating supportive

plans•Making changes in existing plans•Creating new supportive plans

ACTION STATEMENT

Steps in Planning

1. Being Aware of Opportunities 2. Establishing Objectives or Goals3. Developing Premises 4: Determining Alternative Courses 5. Evaluating Alternative Courses 6. Selecting a Course 7. Formulating Derivative Plans8. Quantifying Plans by Budgeting

Types of Plans

Types of Plans

BREADTH/hierarchicalStrategic Plans

Apply to the entire organizationEstablish the organization’s overall goalsCover extended periods of time

Operational PlansSpecify the details of how the overall goals are to

be achievedCover short time period

Types of Plans (cont’d)

TIME FRAME Long-Term Plans

Time frames extending beyond three years Short-Term Plans

Time frames of one year or less

SPECIFICITY Specific Plans

Clearly defined Directional Plans

Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation

Types of Plans (cont’d)FREQUENCY OF USE

Single-use PlanA one-time plan specifically designed to

meet the needs of a unique situationStanding Plans

Ongoing plans that provide guidance for activities performed repeatedly

Types of PlansPlans can be classified as (1) mission or purposes, (2) objectives or goals, (3) strategies, (4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets

Types of Plans

The mission, or purpose, identifies the basic purpose or function or tasks of an enterprise or agency or any part of it

Objectives, or goals, are the ends toward which activity is aimed

Strategy is the determination of the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals

Policies are general statements or understandings that guide or channel thinking in decision making

Procedures are plans that establish a required method of handling future activities

Types of Plans – cont. Rules spell out specific required actions or no

actions, allowing no discretionPrograms are a complex of goals, policies,

procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action

A budget is a statement of expected results expressed in numerical terms

Developing Plans

Contingency Factors in PlanningLevel in the organizationDegree of environmental uncertainty

Stable environment: specific plansDynamic environment: specific but flexible

plansLength of future commitments

Current plans affecting future commitments must be sufficiently long-term to meet the commitments

Approaches to Establishing Goals

Traditional Goal SettingBroad goals are set at the top of the organization

Goals are then broken into sub goals for each organizational level

Goals are intended to direct, guide, and constrain from above

Approaches to Establishing Goals (cont’d)

Management By Objectives (MBO)Specific performance goals are jointly

determined by employees and managersProgress toward accomplishing goals is

periodically reviewedRewards are allocated on the basis of

progress toward the goalsKey elements of MBO:

Goal specificity, participative decision making, an explicit performance/evaluation period, feedback

Steps in a Typical MBO Program

Jointly set objectives

Overall objectives and strategies of

org

Action plans implemente

d

Managers and

employees working

together on action plan

Develop action plans to achieve objectives

Review objectives

and provide feedback

Give rewards for achieved objectives

Objectives allocated to

divisions and depts.

Specific objectives collaboratively set with employees

Benefits of Management by Objectives

manager and employee efforts are focused on activities that will lead to goal attainment

Performance can be improved at all company levels

Employees are motivatedDepartmental and individual goals are

aligned with company goals

Criticisms of PlanningPlanning may create rigidityPlans cannot be developed for dynamic

environmentsFormal plans cannot replace intuition and

creativityPlanning focuses managers’ attention on

today’s competition, not tomorrow’s survivalFormal planning reinforces today’s success,

which may lead to tomorrow’s failure

Problems with MBOConstant change prevents MBO from taking

holdAn environment of poor employer –

employee relations reduces MBO effectiveness

Strategic goals may be displaced by operational goals

Mechanistic organizations and values that discourage participation can harm the MBO process

Too much paperwork saps MBO energy.

QUERIES

Strategic ManagementThe set of managerial decisions and

actions that determines the long-run performance of an organization

Business Model A strategic design for how a company

intends to profit from its strategies, work processes, and work activities.1.Creating customer value2.Generating profits

Organizational Strategy

The Strategic Management Process

Identify the

organization's

current mission, goals,

and strategies

• opportunities• threats

FormulateStrategies

ImplementStrategies

EvaluateResults

Internal Analysis

•STRENGTHS•WEAKNESSE

S

External Analysis

•OPPORTUNITIES

•THREATS

Strategic Management Process

Step 1: Identify the Organization’s Current Mission, Objectives, and StrategiesMission: the firm’s reason for being

The scope of its products and servicesGoals: the foundation for further planning

Measurable performance targetsStep 2: Conduct an Internal Analysis

Assessing organizational resources, capabilities, activities, and culture:Strengths (core competencies) create value for the

customer and strengthen the competitive position of the firm

Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage

Strategic Management Process (cont’d)

Step 3: Conduct an External AnalysisThe environmental scanning of

specific and general environmentsFocuses on identifying opportunities

and threats

Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

Strategic Management Process (cont’d)

Step 4: Formulate StrategiesDevelop and evaluate strategic

alternativesSelect appropriate strategies for all

levels in the organization that provide relative advantage over competitors

Match organizational strengths to environmental opportunities

Correct weaknesses and guard against threats

Strategic Management Process (cont’d)

Step 5: Implement StrategiesImplementation: effectively fitting

organizational structure and activities to the environment

The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements

Step 6: Evaluate ResultsHow effective have strategies been?What adjustments, if any, are necessary?

Levels of Organizational Strategy

Research and

DevelopmentManufacturing Marketing

Human

ResourcesFinance

Strategic

Business Unit 1

Strategic

Business Unit 2

Strategic

Business Unit 3

Multibusiness

Corporation

Functional

Level

Business

Level

Corporate

Level

Types of Organizational Strategies

Corporate-level StrategyThe company’s grand strategy for the entire

organization and its strategic business unitsTypes of Grand Strategies

Growth: expansion into new products and markets (concentration, vertical integration, horizontal integration, diversification)

Stability: maintenance of the status quoRenewal: addresses organizational

weaknesses that are leading to performance declines (retrenchment, turnarounds)

Combination: simultaneous pursuit of two or more of the strategies above

STARSSTARS

DOGSDOGS

QUESTION MARKS

QUESTION MARKS

CASH

COWSCASH

COWS

MARKET SHAREHighHigh

Low

Low

THE BCG MATRIX

Cash cowsLow growth, High market shareBusinesses in this category generate large

amount of cash, but their prospects of future growth are limited

StarsHigh growth and high market shareHold dominancy in faster growing markets

Question markHigh growth but low market sharesAttractive industries; more investment beneficial

DogsLow growth, low market shareDo not produce/consume much cashHold no promise for improved performance

TOWS MATRIXSWOT analysis is somewhat static by

natureNo mention of inter relation between one’s

strength, weaknesses, opportunities and threats

TOWS matrix facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization

EXTERNAL OPPORTUNITIES

e.g. current and future economic conditions,

political and social changes, new

products, services and technologies

EXTERNAL OPPORTUNITIES

e.g. current and future economic conditions,

political and social changes, new

products, services and technologies

INTERNAL STRENGTHS (S)

e.g. strengths in mgmt, operations, finance, marketing, R&D, engineering

INTERNAL STRENGTHS (S)

e.g. strengths in mgmt, operations, finance, marketing, R&D, engineeringSO strategy: MAXI-

MAXIPotentially the most successful strategy,

utilizing the organization's

strength to take advantage of opportunities

SO strategy: MAXI-MAXI

Potentially the most successful strategy,

utilizing the organization's

strength to take advantage of opportunities

ST strategy: MAXI-MINIE.G. use of strengths

to cope with threats or to avoid threats

ST strategy: MAXI-MINIE.G. use of strengths

to cope with threats or to avoid threats

WT strategy: MINI-MINIe.g. retrenchment, liquidation, or joint

venture to minimize both weaknesses and

threats

WT strategy: MINI-MINIe.g. retrenchment, liquidation, or joint

venture to minimize both weaknesses and

threats

WO strategy: MINI-MAXI

e.g. developmental strategy to overcome weaknesses in order to take advantage of

opportunities

WO strategy: MINI-MAXI

e.g. developmental strategy to overcome weaknesses in order to take advantage of

opportunities

INTERNAL WEEKNESSES (W)e.g. weaknesses in

areas shown in “strengths” box

INTERNAL WEEKNESSES (W)e.g. weaknesses in

areas shown in “strengths” box

EXTERNAL THREATS (T)

e.g. energy shortage, competition, and

areas similar to those shown in

“opportunities” box above

EXTERNAL THREATS (T)

e.g. energy shortage, competition, and

areas similar to those shown in

“opportunities” box above

INTERNAL FACTORS

EXTERNAL FACTORS

TOWS MATRIX

Business-Level StrategyBusiness-Level Strategy

A strategy that seeks to determine how an organization should compete in each unit within the organization to create a competitive advantage

Competitive advantageAn organization’s distinctive competitive edge that

is sourced and sustained in its core competencies

Functional-Level StrategyFunctional-level strategies support

the business-level strategyi.e., Marketing, human resources,

research and development, and finance all support the business-level strategy

Problems occur when employees or customers don’t understand a company’s strategy

QUERIES

Premising and forecastingPremises are assumptions about the

environment in which the plan is to be carried out.

Anticipated environment in which plans have to be carried out

The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be – PRINCIPLE OF PLANNING

Forecast of the future effects may become premises of the other plans

DOMAIN OF PREMISING

KIND OG MARKET WHAT

PRODUCTS

VOLUMES OF SALES

WHAT TECHNOLOGICA

L DEVELOPMENTS WHAT

POLITICAL AND SOCIAL ENVIRONME

NT?

WAGE RATES?

WHAT TAX RATES AND

POLICIES

WHAT PLANTS?

WHAT PRICES ?

WHAT EXPANSION

?

Forecasting Technique used to assess the environmentDetermine prediction of the outcomesForecasting techniques:

Quantitative forecasting: applying set of mathematical rules to a series of past data to predict outcomes; used when precise data is available

Qualitative forecasting: uses judgment and opinions of knowledgeable individuals to predict outcomes; used when precise data is limited or hard to obtain.

Quantitative:Time series analysisRegression modelsEconometric modelsEconomic indicatorsSubstitution effect

QualitativeJury of opinionSales force compositionCustomer evaluation

Forecasting effectivenessMost successful in suitable and stable

environmentIneffective in predictive too dynamic

environments like recession, unusual occurrences, discontinued operations, reactions of competitors

“no change forecast”: effective for almost half the time planned

rolling forecast (12-18 months advance only); best suited for dynamic situations and observing trends

Don’t rely on a single forecast system

QUERIES

Decision MakingDecision making is defined as the

selection of a course of action from among alternatives

Decision Making Process1. Identification of problem2. Identification of decision Criteria3. Allocation of weights to criteria 4. Development of alternatives5. Analysis of alternatives 6. Selection of an alternative 7. Implementation of the Alternative8. Evaluation of decision effectiveness

E.g.:Purchase of raw materialQuantity, Quality, Time of delivery & mode

of deliveryAllocate the weightsSearch for various suppliersAnalyze allSelect one supplierPlace a order

Rationality

Limited, or "Bounded," Rationality Limitations of information, time, and

certainty limit rationality, even though a manager tries earnestly to be completely rational

Satisficing is picking a course of action that is satisfactory or good enough under the circumstances

Programmed And Nonprogrammed Decisions

Structured problems &Programmed decisions

Unstructured Problems & Non programmed decisions

Types of decisions at various levels in the organization

Non Programmed Decisions

Programmed Decisions

Unstructured

Structured

Top level

Lower Level

Simon’s model of decision making Contribution of Herbert Simon The decision making process can be

broken into series of three sequential steps:

1. Intelligent activity2. Design activity3. Choice activity

Intelligent activity refers to the initial phase of searching the environment for conditions calling for decisions.

Design activity refers to the phase of inventing, developing, and analyzing possible course of action to take place.

Choice activity refers to the final phase of actual choice selecting a particular course of action from those available.

Creativity and Innovation Creativity refers to the ability and power

to develop new ideasConditions necessary for Creativity: Expertise, Creative thinking skills, Internal

Motivation, Environmental need, Tension & Encouragement from others

Innovation means the use of new ideas

ForecastingIt is the process of estimating the relevant

events of future, based on the analysis of their past and present behavior

Acc to Neter & Wasserman: Business forecasting refers to the statistical analysis of the past & current movement in the given time series so as to obtain clues about the future pattern of those movements

Features of forecastingIt relates to future eventsDefines the probability of happening of

future eventsAnalyzing the past & present relevant

eventsUse of some statistical tools & techniques

Planning & ForecastingPlanning is more comprehensive and

forecasting involves the estimation of future events & provides parameters to planning

Importance of ForecastingPromotion of organizationKey to planningCoordination & controlSuccess in organization