Chapter four Planning

Requirements for this chapter  Define decision and the decision-making process.  Discuss the assumptions of rational decision making.  Describe the four decision-making styles.  Discuss the twelve decision-making biases managers may exhibit and the way to solve.  Define planning.  Describe different types of plans.

Requirements for this chapter  Explain how to establishing goals and developing plans  List different techniques for planning.  Define strengths, weaknesses, opportunities, and threats.  Describe what strategies each level of management is typically responsible for.  Explain the rule of three and its significance to strategic management.

Content of the chapter ★ Decision making ★ Foundation of planning ★ Strategic management

controlling leading planning organizing Decision-making

Well begun is half done! Planning is a very important part of management Decision-making

Why planning is so important? Providing direction Minimizing waste and redundancy Establishing standards for controlling Reducing uncertainty Decision-making

Decision making Decision: Making a choice from two or more alternatives. planningorganizingleadingcontrolling Making decision

Nobel Prize Winner in Economy Herbert Alexander Simon Decision making Management is making decision

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

Criteria Decision-making

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

ExampleCriteriaWeight 1Salary10 2Interest9 3Future development7 4Own conditions5 Decision-making

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

Employees of a bankEmployees of a security companyResearchersCivil servantsCollege teachersEntrepreneurs Decision-making

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

SalaryInterest Future developm ent Own conditions Employees of a bank7 Employees of a security company 6 Researchers5 Civil servants4 College teachers5 Entrepreneurs10 Decision-making

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

Decision-making Programmed decision Nonprogrammed decision Structured problem, which is straightforward, familiar and easily and completely defined Unstructured problem, which is new and unusual and for which information is ambiguous and incomplete a repetitive decision that can be handled by a routine approach decisions that are unique and nonrecurring which generate unique responses

Decision-making Managers on different management levels are faced with different types of problems and so are involved in different decisions Lower-level managers always confront familiar and repetitive problems Higher-level managers often delegate routine decisions to their subordinates and deal with more difficult issues

Decision-making Are perfectly rational, fully objective, and logical Have carefully defined the problem and identified all viable alternatives Have a clear and specific goal Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests Rationality: Managers make consistent, value- maximizing choices with specified constraints.

Decision-making Will not seek out or have knowledge of all alternatives Will satisfice—choose the first alternative encountered that satisfactorily solves the problem— rather than maximize the outcome of their decision by considering all alternatives and choosing the best Bounded Rationality : Managers make decisions rationally, but are limited (bounded) by their ability to process information

Decision-making Certainty A situation in which a decision maker can make accurate decisions because all outcomes are known Uncertainty A situation in which a decision maker has neither certainty nor reasonable probability estimates available Risk A situation in which the decision maker is able to estimate the likelihood (probability) of certain outcomes

Decision-making Intuition decision making is making decisions on the basis of experience, feeling and accumulated judgments Because intuition decision is based on one’s feeling, someone may say that the intuition decision is not scientific decision

Decision-making 1 One misunderstanding about scientific decision is that scientific decision is using quantitative method to make decision 2 Such kind of misunderstanding even becomes prevalent in 1980s 3 Later on because many companies which only depend on quantitative method to make decisions have encountered great failure, intuition decision is paid attention to

Strategic management

Setting goals Deciding what to do specifically Strategic management

As managers engage in planning, they define goals, establish strategies for achieving these goals, and develop plans to integrate and coordinate activities. Planning techniques Strategic management Decision-making Defining goals Establishing strategies Developing specific plans Strategic management

Strategic management is what managers do to develop an organization’s strategies

strategy A Applied to whole organization B Broad C Long-term E Different from specific plans D Giving direction to organization Strategic management

Types of organizational strategies Corporate strategiesBusiness strategies Functional strategies Strategic management

One determines how an organization should compete in each of its businesses One specifies what businesses a company should be in or wants to be in Corporate strategies Business strategies Strategic management

Corporate strategies Business 1Business 2 Business 3 How to compet e in the busines s Business strategy How to compet e in the busines s Business strategy How to compet e in the busines s Business strategy

Corporate strategies Business strategies SBU is strategic business unit SBU Single businesses of an organization in several different businesses that are independent and formulate their own strategies.

One used by various functional departments to support the business strategy One determines how an organization should compete in each of its businesses One specifies what businesses a company should be in or wants to be in Corporate strategies Business strategies Functional strategies Strategic management

Corporatestrategies Renewalstrategies Stability strategies strategies Grow strategies Strategic management

Concentration Vertical integration Horizontal integration Diversification Grow strategy strategyGrow expanding the number of markets or products either through its current business or through new businesses Strategic management

Concentration focusing on a primary line of business and increasing the number of products offered or markets served Strategic management

Diversification Related Diversification Unrelated Diversification (expanding by merging with or acquiring firms in different, but related industries that are “strategic fits”) (growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible)

Vertical integration Backward vertical integration Forward vertical integration Distribution channels Producers Suppliers Strategic management

Horizontal integration Combining operations with another competitor in the same industry to increase competitive advantages and lower competition among industry rivals Strategic management

Stability strategy strategy 1 environment is drastically changing and the future is uncertain 2 the industry is facing slow or no-growth opportunities 3 owners think the status quo is good enough continuing to do what it is currently doing Strategic management

Retrenchment strategy a short-run renewal strategy when performance problems are not serious Renewal strategy Turnaround strategy a renewal strategy for situations in which the organization’s performance problems are more serious declining performance! Strategic management

what sets an organization apart or its distinct edge enabling the organizations to keep its edge despite competitors’ actions Competitive advantage Sustainable competitive advantage Business strategy Strategic management

Father of strategic management （ Michael E. Porter ， 1947— ） Strategic management

Forces in the industry analysis Intensity of rivalry among current competitors Suppliers Bargaining power of suppliers Substitutes Buyers New entrants Threat of substitutes Bargaining power of buyers Threat of new entrants

Cost leadership strategy seeking to attain the lowest total overall costs in its industry Strategic management

exceptionally high quality extraordinary service innovative design technological capability unusually positive brand image Differentiatio n strategy a strategy attempting to create a unique and distinctive product or service for its customers

Strategic management Segments can be based on Geographicallocation Type of end buyer Product variety Distributionchannel Focus strategy is about using a cost or differentiation advantage to exploit a particular market segment rather a larger market

Strategic management Strategic Management Process Identify the organization’s current mission, goals, and strategies

Strategic management Mission is a statement of the company’s purpose  What business the company is in?  Who are the customers?  What are its values to the customers?

Strategic management Mission of Avon: to be the company that best understands and satisfies the product, service and self- fulfillment needs of women on a global level

The decision-making process Identification of a problem Identification of decision criteria Allocation of weights to criteria Development of alternatives Analysis of alternatives Selection of an alternative Implementation of the alternative Evaluation of decision effectiveness

Strategic management Strategic Management Process Identify the organization’s current mission, goals, and strategies External analysis opportunities threats Internal analysis strengths weaknesses  Opportunities are the positive trends in external environmental factors  Threats are the negative trends in external environmental factors  Strengths are any activities the organization does well or any unique resources that it has  Weaknesses are the activities the organization does not do well or resources it needs but does not possess SWOT analysis

Strategic management Strategic Management Process Identify the organization’s current mission, goals, and strategies Formulate strategies External analysis opportunities threats SWOT analysis Internal analysis strengths weaknesses  take the advantage of the organization’s strengths  exploit environmental opportunities  correct the organization’s weaknesses  buffer against threats

Strategic management Strategic Management Process Formulate strategies Implement strategies Evaluate results Identify the organization’s current mission, goals, and strategies External analysis opportunities threats SWOT analysis Internal analysis strengths weaknesses