Strategies, Policies and Planning Premises
Jan 18, 2015
Strategies, Policies and Planning Premises
Strategy A company’s strategy consists of the competitive
moves, internal operating approaches, and action plans devised by management to produce successful performance.
Strategy is management’s “game plan” for running the business.
Managers need strategies to guide HOW the organization’s business will be conducted and HOW performance targets will be achieved.
Levels of Strategy
Levels of Strategy1. Corporate-level Strategy
The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
2. Business-level StrategyHow the organization conducts business in a particular industry.
3. Functional-level StrategyStrategy developed for specific functional areassuch as marketing, finance, and so forth.
Corporate Strategy
Business Strategies
Functional Strategies
Levels of Strategy-Making
BCG Matrix*
Cash Cows
?Question Marks
Dogs
Relative Market Share
Mar
ket
Gro
wth
Rat
e
Low
High
High Low
Stars
BCG Market Share/Market Growth Matrix
What is Strategic Planning?
Strategic planning is a systematic process through which an organization agrees on and builds commitment among key stakeholders to priorities that are essential to its mission and are responsive to the environment.
Strategic Planning guides the acquisition and allocation of resources to achieve these priorities.
Strategic Planningvs. Operational Planning
Strategic Planningformulation
What, where
ends
vision
effectiveness
risk
Operational Planningimplementation
how
means
plans
efficiency
control
Three Big Strategic Questions
Where Are We Now?
Where Do we Want to Go?
How Will We Get There?
Strategic Planning Process
Developing a Vision and a Mission Assessment Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the
Situation and Initiating Corrective Action
Strategic PlanningFirst Stage of Strategic Planning may involve:
Futures ThinkingThinking about what the business might need to do 10–20 years ahead
Strategic IntentsThinking about key strategic themes that will inform decision making
Strategic PlanningThe VisionCommunicating to all staff where the organisation is going and whereit intends to be in the future
Aims and Objectives:Aims – long term targetObjectives – the way in which you are going to achieve the aim
Strategic Analysis
Constantly evaluate their position
Strategic analysis includes different methods of assessing the current position of the business in the market place
Two basic methods:Internal External
Internal AuditsProductivity
Efficiency
Costs
Other Internal Data
Labour turnover, absenteeism
Customer satisfaction surveys
Quality procedures
Cash flow statements
Sales trends
Skills audit
Strengths and weaknesses analysis
Core competencies
External AuditsGeneral business environment – Inflation, competitiveness, unemployment/employment, growth, consumer spending
Competitors
PEST factors
Political – e.g. change of government
Economic – Trends in economic growth, inflation, etc.
Social-changed outlook, age structure of population, etc.
Technological
SWOT Analysis
StrengthsWeaknessesOpportunitiesThreats
Vision & MissionAn organization’s fundamental purpose
Good Strategies
SWOT Analysis
To formulate strategies that support the mission
Those that support the mission and:
• exploit opportunities and strengths• neutralize threats• avoid weaknesses
Internal AnalysisStrengths(distinctivecompetencies)
Weaknesses Threats
External AnalysisOpportunities
Strength’s
Strength’s – Those things that you do well, the high value or performance points
Strengths can be tangible: Loyal customers, efficient distribution channels, very high quality products, excellent financial condition
Strengths can be intangible: Good leadership, strategic insights, customer intelligence, solid reputation, high skilled workforce
Weaknesses
Weaknesses – Those things that prevent you from doing what you really need to do Since weaknesses are internal, they are within your control
Weaknesses include: Bad leadership, unskilled workforce, insufficient resources, poor product quality, slow distribution and delivery channels, outdated technologies, lack of planning, . . .
Opportunities
Opportunities – Potential areas for growth and higher performance External in nature – marketplace, unhappy customers with competitor’s, better economic conditions, more open trading policies, . .
Timing may be important for capitalizing on opportunities
Threats
Threats – Challenges confronting the organization, external in nature
Threats can take a wide range – bad press coverage, shifts in consumer behavior, substitute products, new regulations, . . .
The more accurate you are in identifying threats, the better position you are for dealing with the “sudden ripples” of change
Five Forces Model of Competition
Substitute Products(of firms in
other industries)
Suppliers of Key Inputs
Buyers
PotentialNew
Entrants
RivalryAmong
CompetingSellers
Porter’s Five Competitive Forces
1. Threat of new entrants
2. Competitive rivalry
3. Threat of substitute products
4. Power of buyers
5. Power of suppliers
Gap Analysis
Vision Assessment
Gap = Basis for Long-Term Strategic Plan
Gap = Basis for Long-Term Strategic Plan
Setting Objectives
The purpose is to convert the mission into Specific Performance Targets
Yardsticks for tracking company progress and performance.
Should be set at levels that require stretch and disciplined effort.
Crafting a Strategy
Generic StrategiesPorter’s Generic Strategies1. Differentiation strategyAn organization seeks to distinguish itself from competitors
through the quality of its products or services. Developing an image perceived as unique
1. Overall cost leadership strategyAn organization attempts to gain competitive advantage by
reducing its costs below the costs of competing firms.1. Focus strategyAn organization concentrates on a specific regional market,
product line, or group of buyers.
Types of StrategyMarket Dominance
Achieved through:
Internal growth
Acquisitions – mergers and takeovers
New product development: to keep ahead of rivals and set the pace
Contraction/Expansion – focus on what you are good at (core competencies) or seek to expand into a range of markets?
Global – seeking to expand Global operations
Strategy Implementation
Technology Human Resource Reward System Decision Process
Characteristic of the Good Strategy Implementation
An ongoing exercise Proper Communication Contingency Plan Emphasis on Organisation Culture Regular Review Importance of Planning
DECISION-MAKING
What is Decision-Making?
Decision making
–The process of choosing a course of
action for dealing with a problem or
opportunity.
Types of Decisions
–Programmed decisions.
»Involve routine problems that arise regularly
and can be addressed through standard
responses.
–Nonprogrammed decisions.
»Involve nonroutine problems that require
solutions specifically tailored to the situation at
hand
Decision environments
–Certain environments.
–Risk environments.
–Uncertain environments.
Certain environments.
–Exist when information is sufficient to
predict the results of each alternative in
advance of implementation.
–Certainty is the ideal problem solving
and decision making environment.
Risk environments–Exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence.
–Probabilities can be assigned through objective statistical procedures or personal intuition.
Uncertain environments.–Exist when managers have so little information that they cannot even assign probabilities
.–Uncertainty forces decision makers to rely on individual and group creativity to succeed in problem solving.
–Also characterized by rapidly changing:»External conditions.»Information technology requirements.
Classical Vs. Behavioral Decision Theory
Classical decision theory.–Views the decision maker as acting in a world of complete certainty.
Behavioral decision theory.–Accepts a world with bounded rationality and views the decision maker as acting only in terms of what he/she perceives about a given situation.
Classical decision theory
–The classical decision maker:»Faces a clearly defined problem.»Knows all possible action alternatives and their consequences.»Chooses the optimum alternative.
–Is often used as a model of how managers should make decisions.
Rationality
Problem is clear and unambiguous.
Single goal.
All alternatives are known.
Clear and constant preferences.
Maximum payoff.
The decision is in the best interest of the organization—not the manager.
Behavioral decision theory
–Recognizes that human beings operate with:»Cognitive limitations.»Bounded rationality.
–The behavioral decision maker:»Faces a problem that is not clearly defined.»Has limited knowledge of possible action alternatives and their consequences.»Chooses a satisfactory alternative.
Bounded Rationality
Behavior that is rational within the parameters of a simplified model that captures the essential features of the problem.
Making a decision that is “good enough.” (Satisficing Model)
Bounded Rationality
LimitedSearch
InadequateInformationand Control
DecisionsSatisficing
Other decision making models
The garbage can model–A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the “garbage can” of the organization.
Incremental Model
Intuitive Decision Making
An unconscious process of making decisions on the basis of experience and accumulated judgment.
Making decisions on the basis of gut feeling
It does play an important role in managerial decision making.
Too Slow Too Quick
• Procrastination
• Indecision
• “Analysis paralysis”
• “Ready, fire, aim”
• Impulsive, compulsive
• Arbitrary
Range of decision makingRange of decision making
Cultural and Social Influences
Decision-Making Process
MOTI VATION
Perception
Learning and Memory
Attitudes
AFFECT
Problem Recognition Search Evaluation Choice Outcomes
Ethnicity, Race, and Religion
Household and ref. groups
Socio-Econ: income,educ.
Demographic:Gender, Age
Psychographics: Lifestyle, Person.
Basic Psychological Processes
Group Decision-Making
Forms of Group Decision Making
Interacting groups
Delphi Methods
Nominal groups
Decision-Making Techniques
Marginal Analysis Financial Analysis Break-Even Analysis Ratio Analysis OR Technique
Linear Programming Queuing Method Game Theory Simulation Decision Tree