MGT Chapter 5 - Planning and Decision Making Principles of...

Unformatted text preview: Planning and Decision Making Principles of Management MGT 20200 University of Notre Dame 1 Four Purposes of Any Company • • • • Achieve a competitive advantage Maintain a competitive advantage Earn above average returns Ethically and legally 2 Transformation Triggers Crises Evolution Anticipation Revolution “The best way to predict the future is to create it.” Peter Drucker 3 Gap Analysis If we don’t know where we are going … any road will take us there We need to know Where we are now. Where we want to go. How we can get there. We need to act. We need to measure. We need to replan (change) as necessary. 4 Strategic Planning & Performance Performance & Strategic Planning The ultimate objective of planning is to improve performance. Stakeholders define performance differently. 5 Factors Which Influence the Planning Process and Content of the Strategic Plan Purpose of the Plan Industry Norms Environmental Characteristics Participants in Planning Process Used Culture of the Organization 6 One Best Way to Plan? A Plethora of Process Choices 7 Models of the Strategic Planning Models of the Strategic Planning 8 9 10 10 11 11 12 12 Models of the Strategic Models of the Strategic Planning Process Inte App rnal rais al al tern sal Ex ra i p Ap nd ts a ies in t rea Th rtuni tion za po Op rgani O ss ucce S Key ctors Fa S Res ocial pon sibil ity Stre Wea ngths an k Org nesses d aniz atio of Dis n Com tinctiv pete e ncie s Creation of Strategy Evaluation and Choice of Strategy al geri a Man lues Va Implementatio n of Strategy Figure 2-1 Core “Design School” Model of Strategy Formation 13 A Planning Model A Planning Model External External Analysis Analysis Where should we go How do we get there Values Values Mission Mission Objectives Objectives Strategy Strategy Action Action Plans Plans Current Performance Internal Internal Analysis Analysis 14 The Situation Audit Who should do it? How much analysis is enough analysis? Types of analysis: Internal Analysis ­ Audit Your Organization External Analysis ­ Audit Your Environment 15 External Environment Analysis Economic Demographic Sociocultural Competitive Environment Political/legal Global Technological Demographic Demographic Population Economic Inflation Political Regulation Socio-cultural Workforce diversity Technological Product Innovation Global Critical Global Markets 16 Internal Environment Analysis Resources – Tangible – Intangible Capabilities Competitive Advantage Core Competencies – – – – – Valuable Rare Costly to Imitate Non Substitutable Value Chain Analysis 17 Organizational Audit Analysis of Current Strategy SWOT Analysis Financial Analysis Physical Resources Technological Capabilities Human Resources Functional Area Analysis Strategic Issue Analysis 18 Tangible Resources (examples) Financial – Borrowing capacity Organizational – Firm’s reporting structure Physical – Location of firm, condition of facility/eqpt. Technological – Patents, trade secrets, intellectual property 19 Intangible Resources (examples) Human Resources – Knowledge, trust, managerial capabilities Innovation – Ideas, scientific capabilities Reputation – Brand name, perceptions of product, etc. – Reputation with suppliers 20 SWOT Analysis Develop a SWOT analysis for your organization. Strength – an internal condition that can be leveraged to gain or increase strategic competitiveness Weaknesses – an internal condition that, unless improved, may result in less strategic competitiveness. Internal Opportunity – a condition that, if exploited, will help you achieve strategic competitiveness. Threat – a condition in the environment that may hinder your efforts to achieve strategic competitiveness. SOURCE External 21 Strengths What advantages does your company have? What do you do better than anyone else? What unique or lowest­cost resources do you have access to? What do people in your market see as your strengths? 22 Strengths (cont.) What factors mean that you "get the sale"? Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome." (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!) 23 Strengths (cont.) In looking at your strengths, think about them in relation to your competitors ­ for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity? What advantages does your company have? What do you do better than anyone else? What unique or lowest­cost resources do you have access to? What do people in your market see as your strengths? 24 Strengths (cont.) What factors mean that you "get the sale"? Consider this from an internal perspective, and from the point of view of your customers and people in your market. Be realistic: It's far too easy to fall prey to "not invented here syndrome." (If you are having any difficulty with this, try writing down a list of your characteristics. Some of these will hopefully be strengths!) In looking at your strengths, think about them in relation to your competitors ­ for example, if all your competitors provide high quality products, then a high quality production process is not a strength in the market, it is a necessity. 25 Weaknesses What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales? Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you do not see? Are your competitors doing any better than you? It is best to be realistic now, and face any unpleasant truths as soon as possible. 26 Opportunities Where are the good opportunities facing you? What are the interesting trends you are aware of? Useful opportunities can come from such things as: Changes in technology and markets on both a broad and narrow scale Changes in government policy related to your field 27 Opportunities (cont.) Changes in social patterns, population profiles, lifestyle changes, etc. Local events. A useful approach for looking at opportunities is to look at your strengths and ask yourself whether these open up any opportunities. Alternatively, look at your weaknesses and ask yourself whether you could open up opportunities by eliminating them. 28 Threats What obstacles do you face? What is your competition doing that you should be worried about? Are the required specifications for your job, products or services changing? Is changing technology threatening your position? 29 Threats (cont.) Do you have bad debt or cash­flow problems? Could any of your weaknesses seriously threaten your business? Carrying out this analysis will often be illuminating ­ both in terms of pointing out what needs to be done, and in putting problems into perspective. You can also apply SWOT Analysis to your competitors. As you do this, you'll start to see how and where you should compete against them. 30 Core Competencies Core Competencies – Valuable – Rare – Costly to Imitate – Non Substitutable 31 Core Competencies 32 Use Sustainable Growth Formula g = rp + D/E(r­i)p • • • • • r = After­tax Rate of Return p = Proportion of earnings retained as a % of total earnings. (i.e. adjust for dividends) D = Debt E = Equity i = Interest Rate After Taxes 33 Sales Growth Life Cycle Patterns Intro Slow Growth Rapid Growth Decreasing MatuGrowth ration Decline TIME 34 Value Chain Analysis 35 Five Forces Model Five Forces Model 36 Value Chain & Porter’s 5 Forces Combining these tools allows you to: − − − − − Create value for your customers Prevent new entrants Eliminate substitute products Really get to know your customer Really get to know your true competitors and their strategies 37 New Entrants and Substitute New Entrants and Substitute Product Barriers Supplier s Your Co. Customer 38 The Balanced Scorecard Customer Customer Perspective Perspective IInnovation and Learning nnovation and Learning Perspective Perspective Internal Internal Perspective Perspective Financial Financial Perspective Perspective 3.1 39 Advantages of the Balanced Scorecard 1. 2. Forces managers to set goals and measure performance in each of the four areas Minimizes the chances of suboptimization – Performance improves in one area, but at the expense of others 3.1 40 The Balanced Scorecard: Southwest Airlines 3.1 41 Stakeholder Analysis Definition – Anyone that interacts with your organization. – Anyone who has an interest in your organization. Performance requirements Needs Power 42 Exercise: Identify each of your stakeholders. Prioritize your stakeholders. Describe each stakeholder's performance criteria. 43 A Planning Model A Planning Model External External Analysis Analysis Where should we go How do we get there Values Values Mission Mission Objectives Objectives Strategy Strategy Action Action Plans Plans Current Performance Internal Internal Analysis Analysis 44 Mission Statement Embraces the purpose of the company, the basis of competition, and the competitive advantage. Defines to purpose of the company in market and product terms. Rarely mentions profit or returns. Talks to the employees and customers. Should communicate why this company is special and different. 45 Mission Statement (cont.) (cont.) Mission Declares strategic intent of the organization. Scope of its operations. Ensures unanimity of purpose within the organization. Basis and standard for resource allocation. Focal point for organizational identification. 46 Task and Method Task and Method Create the Mission Statement U.S. Railroads called themselves Railroads … not transportation companies – The WELLPOINT companies provide health security by offering a choice of quality branded health and related financial services designed to meet the changing expectations of individuals, families, and their sponsors throughout a lifelong relationship. To Produce superior financial returns for our shareholders as we serve the customers with the highest quality transportation, logistics, and e-commerce. Federal Express To improve the quality of homelife by designing, building, marketing, and servicing the best appliances in the world. Maytag We shall build good ships here –at a profit if we can – at a loss if we must – but always good ships. Newport News Shipbuilding. Unchanged since 1886 47 47 A Planning Model A Planning Model External External Analysis Analysis Where should we go How do we get there Values Values Mission Mission Objectives Objectives Strategy Strategy Action Action Plans Plans Current Performance Internal Internal Analysis Analysis 48 Objectives Specific Measurable Appropriate Realistic The end result of planned activities Timely 49 Objective Target Areas Profitable (net profits) Efficiency (low costs, etc.) Growth (increase in total assets, sales, etc.) Shareholder wealth (dividends +) Reputation Contributions to employees Market Leadership Quality (ISO, TS) Survival 50 A Planning Model A Planning Model External External Analysis Analysis Where should we go How do we get there Values Values Mission Mission Objectives Objectives Strategy Strategy Action Action Plans Plans Current Performance Internal Internal Analysis Analysis 51 Strategy… Set of commitments and actions Designed Integrated and coordinated – To exploit core competencies – Gain (sustain) a competitive advantage Hitt, Ireland, Hoskisson 52 Strategy (cont.) … How to position your company relative to your market The choices you make Those things you will do and those you will not do How to achieve, what 53 Task and Methods Setting Objectives Set Objectives for your organization. Objectives often reflect vision. Pick 3­5 areas. Objectives may determine incentives and staffing – people issues. 54 Action Plans 1. 2. 3. Actions plans specify the actions needed to address each of the top organizational issues and to reach each of the associated goals, who will complete each action and according to what timeline. Develop an overall, top­level action plan that depicts how each strategic goal will be reached. Develop an action plan for each major function in the organization, e.g., marketing, development, finance, personnel, and for each program/service, etc. These plans, in total, should depict how the overall action plan will be implemented. In each action plan, specify the relationship of the action plan to the organization's overall, top­level action plan. 55 Action Plans (cont.) 4. 5. Ensure each manager (and, ideally each employee) has an action plan that contributes to the overall. These plans, in total, should depict how the action plans of the major functions will be implemented. Again, specify the relationship of these action plan to the organization's overall, top­level action plan. The format of the action plan depends on the nature and needs of the organization. The plan for the organization, each major function, each manager and each employee, might specify: a) The goal(s) that are to be accomplished. b) How each goal contributes to the organization's overall strategic goals. c) What specific results (or objectives) much be accomplished that, in total, reach the goal of the organization. d) How those results will be achieved. e) When the results will be achieved (or timelines for each 56 objective). Consider the Following Example Format for Your Action Plan. Objective Strategy Action Responsibility 57 Action Plans (cont.) Timeline – When will it get done – When did it get done Cost Benefit Analysis – What will it cost and can we afford it? – Capital Budgeting – Pro Forma 1. (Goal #1)1.1 (first strategy to reach Goal #1)1.1.1 (first objective to reach while implementing Strategy #1.1)(who’s going to accomplish that objective) when the implementer is going to be accomplish that objective) 58 Writing The Plan Implementation Resource requirements – This section describes the resources necessary to implement the strategies. – Previous performance is described with discussion of significant items. – An operating budget is proposed. – Investment scenarios are described. – A summary statement of sources and uses of resources for the entire package of strategies is written. Time line 59 Barriers to Strategic Implementation Vision Barrier Only 5% of the workforce understands the strategy. Only 25% of managers have incentives linked to strategy. People Barrier Resource Barrier 60% of organizations do not link budget to strategy. 85% of executive teams spend less than one hour/month discussing strategy. Management Barrier Balanced Scorecard Collaborative 60 ...
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