Copyright ©2011 Pearson Education

Learning Objectives Discuss the nature and purposes of planning Explain what managers do in the strategic management process Compare and contrast approaches to goal setting and planning Discuss contemporary issues in planning Copyright ©2011 Pearson Education

What Is Planning? Planning is often called the (primary management function) because it establishes the basis for all the other things managers do ( organizing, leading and controlling). It’s concerned with ends (what is to be done) as well as with means (how it’s to be done) Planning is often called the primary management function because it establishes the basis for all the other things managers do as they organize, lead, and control. What is meant by the term planning? As we said in Chapter 1, planning encompasses defining the organization’s objectives or goals, establishing an overall strategy for achieving those goals, and developing a comprehensive hierarchy of plans to integrate and coordinate activities. Copyright ©2011 Pearson Education

Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.
What is planning? Planning include: Defining the organization’s objectives and goals. Establishing an overall strategy for achieving those goals. Developing a comprehensive hierarchy to integrate and coordinate activities. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

What is planning? Planning can be defined in terms of whether it’s formal or informal planning Informal planning: Very little written down, one or few people will decide what should be accomplished, the planning is general and lacks continuity, and it is generally take place in small business. Formal planning: Specific goals covering specific and defined period of time, these goals are written down and been defined for the organization’s members, and by using these goals managers will develop a specific plans. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Why Do Managers Need to Plan?
Managers should plan for at least four reasons planning establishes coordinated effort. It gives direction to employees. planning reduces the impact of changes or uncertainty planning reduces overlapping and wasteful activities planning establishes the goals or standards that facilitate control Managers should plan for at least four reasons. (See Exhibit 4-1.) Copyright ©2011 Pearson Education

What Are Some Criticisms of Formal Planning?
Critics have challenged some of the basic assumptions of planning Planning may create rigidity ( inflexibility) Formal plans can’t replace intuition and creativity Planning focuses managers’ attention on today’s competition, not on tomorrow’s survival Formal planning reinforces success, which may lead to failure Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning Copyright ©2011 Pearson Education

What Do Managers Need to Know About Strategic Management?
What managers do to develop an organization’s strategies Strategies Plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract its customers in order to achieve its goals Strategic management is what managers do to develop an organization’s strategies. What are an organization’s strategies? They’re the plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals Copyright ©2011 Pearson Education

Why is strategic management is important?
1. It makes a difference on how well an organization performs. 2. Managers has to deal with continually changing situations. They using the strategic management process to cope with this uncertainty. 3. Organizations are complex and divers. Each part needs to work together to achieve their goals. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

The Strategic Management Process
A six-step process that encompasses strategy planning, implementation, and evaluation. STEP 1: Identifying the organization’s current mission, goals and strategies STEP 2: Doing an external analysis STEP 3: Doing an internal analysis STEP 4: Formulating the strategies STEP 5: Implementing strategies STEP 6: Evaluating results The strategic management process (see Exhibit 4-2) is a six-step process that encompasses strategy planning, implementation, and evaluation. Although the first four steps describe the planning that must take place, implementation and evaluation are just as important! Even the best strategies can fail if management doesn’t implement or evaluate them properly. Copyright ©2011 Pearson Education

Step 1:Identifying the organization’s current mission, goals and strategies Mission A statement of an organization’s purpose. Example the mission of Avon: “ To be the company that best understand and satisfies the product, service, and self-fulfillment needs of women on a global level” Every organization needs a mission—a statement of its purpose. Defining the mission forces managers to identify what it’s in business to do. For instance, the mission of Avon is “To be the company that best understands and satisfies the product, service, and self-fulfillment needs of women on a global level.” The mission of Facebook is “a social utility that connects you with the people around you.” Copyright ©2011 Pearson Education

Step 2:Doing An external analysis
Managers should examine both specific and general environment to see the trends and changes. Managers needs also to point the opportunities and the threads of the organization. Opportunities Positive trends in the external environment Threats Negative trends in the external environment Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Step 3: Doing an internal analysis
Resources: ( what org has) An organization’s assets that it uses to develop, manufacture and deliver product to its customers. Capabilities: ( how it does its work) An organization’s skills and abilities in doing the work activities needed in its business Core Competencies The major value-creating capabilities of an organization. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Step 3: Doing an internal analysis
SWOT Analysis The combined external and internal analyses Strengths Any activities the organization does well or any unique resources that it has Weaknesses Activities the organization doesn’t do well or resources it needs but doesn’t possess The combined external and internal analyses are called the SWOT analysis because it’s an analysis of the organization’s strengths, weaknesses, opportunities, and threats. Copyright ©2011 Pearson Education

SWOT Analysis (cont.) After completing SWOT analysis managers are ready to formulate appropriate strategies that: 1. exploit an organization’s strengths and external opportunities. 2. Protect the organization from external threads. 3. correct critical weaknesses. After completing the SWOT analysis, managers are ready to formulate appropriate strategies is, strategies that (1) exploit an organization’s strengths and external opportunities, (2) buffer or protect the organization from external threats, or (3) correct critical weaknesses Copyright ©2011 Pearson Education

What Are Various Types of Strategies?
Strategies need to be formulated for all levels in the org: corporate, competitive, and functional. A corporate strategy is an organizational strategy that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses. It’s based on the mission and goals of the organization and the roles that each business unit of the organization will play Copyright ©2011 Pearson Education

Corporate strategy Corporate Strategy An organizational strategy that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses. It based on the mission and goals of the organization and the roles of each business unit of the organization will play. The three main types of corporate strategies are growth, stability, and renewal Copyright ©2011 Pearson Education

1. Growth Strategy A corporate strategy in which an organization expands the number of markets served or products offered either through its current business(es) or through new business(es). Some growth strategies include Concentration( focus on its primary line of bus by increasing the number of products offered or markets served) Vertical Integration( backward by being its own supplier or forward by becoming its own distributor) Horizontal Integration (Company grow by combining with competitors in the same industry) Diversification( combining with competitors n related or unrelated industries A growth strategy is when an organization expands the number of markets served or products offered, either through its current business(es) or through new business(es). Because of its growth strategy, an organization may increase revenues, number of employees, or market share. Organizations grow by using concentration, vertical integration, horizontal integration, or diversification Copyright ©2011 Pearson Education

2. Stability Strategy A corporate strategy in which an organization continues to do what it is currently doing. - ex continuing to serve the same costumers by offering the same product or service, therefore, the org does not grow. This is a stability strategy, which is a corporate strategy in which an organization continues to do what it is currently doing. Managers need strategies that address declining performance. These strategies are called renewal strategies, of which there are two main types. A retrenchment strategy is a short-run renewal strategy used for minor performance problems Copyright ©2011 Pearson Education

3. Renewal Strategy A corporate strategy that addresses declining organizational performance. There are two main types of the renewal strategy: Retrenchment strategy: Short run renewal strategy used for minor (small) performance problems. Turnaround strategy: When the organization problem are more serious. - Managers in both renewal strategies cut costs and restructure organizational operation. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Competitive Strategy Competitive Strategy An organizational strategy for how an organization will compete in its business(es). Small Business + large org that has not diversified into different products or market >>> competitive strategy is to compete in the main or primary market. Organization with multiple business >>> each business has its own competitive strategy. Strategic Business units (SBUs) An organization’s single businesses that are independent and formulate their own competitive strategy ( when the org is n different industries ) A competitive strategy is a strategy for how an organization will compete in its business(es). For a small organization in only one line of business or a large organization that has not diversified into different products or markets, its competitive strategy describes how it will compete in its primary or main market. For organizations in multiple businesses, however, each business will have its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like Copyright ©2011 Pearson Education

Competitive Strategy Competitive Advantage: What sets an organization apart; its distinctive edge. Competitive advantage come from: Core competencies>> doing something others can’t do or better than them. The company’s resources >> has something that competitors don’t have. One of the leading researchers in strategy formulation is Michael Porter of Harvard’s Graduate School of Business. He proposed that managers must choose a competitive strategy that will give it a distinct advantage by capitalizing on the strengths of the organization and the industry it is in. His three competitive strategies are cost leadership, differentiation, and focus. Copyright ©2011 Pearson Education

Types of Competitive Strategy
Cost Leadership Strategy Competing on the basis of having the lowest costs in the industry. Differentiation Strategy Competing on the basis of having unique products that are widely valued by customers ex Coach, Apple Focus Strategy Competing in a narrow segment or niche with either a cost focus or a differentiation focus Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Functional Strategy Functional Strategies The strategies used in an organization’s various functional departments to support the competitive strategy ex starbucks The final type of strategies managers use are the functional strategies, which are the strategies used by an organization’s various functional departments to support the competitive strategy Copyright ©2011 Pearson Education

Quality as a Strategic Weapon
Many organizations are employing quality practices to build competitive advantage and attract and hold a loyal customer base Benchmarking The search for the best practices among competitors or noncompetitors that lead to their superior performance through analyzing and copying the method of the leaders in different field. The basic idea of benchmarking is that managers can improve quality by analyzing and then copying the methods of the leaders in various fields Copyright ©2011 Pearson Education

How Do Managers Set Goals and Develop Plans?
Goals (objectives) Desired outcomes or targets Plans Documents that outline how goals are going to be met Planning involves two important aspects: goals and plans. Goals (objectives) are desired outcomes or targets. They guide managers’ decisions and form the criteria against which work results are measured. Plans are documents that outline how goals are going to be met. They usually include resource allocations, budgets, schedules, and other necessary actions to accomplish the goals Copyright ©2011 Pearson Education

Types of Goals Stated Goals Official statements of what an organization says, and wants its stakeholders to believe, its goals are. Could be found in the annual report. Real Goals Those goals an organization actually pursues (observe) as shown by what the organization’s members are doing Stated goals are official statements of what an organization says, and what it wants its stakeholders to believe, its goals are. However, stated goals are often conflicting and influenced by what various stakeholders think organizations should do Copyright ©2011 Pearson Education

Setting Goals Traditional Goal Setting Goals set by top managers flow down through the organization and become sub-goals for each organizational area. The assumption is that top managers know what best and see “the big picture”, so the goals are passed to the down level of the ogr and written to reflect the responsibilities of this level However, this doesn’t happened in the reality, managers will define the organization goals in broad terms and these ambiguous goals should be more specific as they flow down through the org. Stated goals are official statements of what an organization says, and what it wants its stakeholders to believe, its goals are. However, stated goals are often conflicting and influenced by what various stakeholders think organizations should do Copyright ©2011 Pearson Education

Traditional Goal Setting
But when the hierarchy of organizational goals is clearly defined, it forms Means-End Chain: An integrated network of goals in which higher level goals are linked to lower-level goals, which serve as the means for their accomplishment. The goals achieved at lower level become (means) to reach the goal (ends) to the next level. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Goal Setting (cont.) Management By Objectives (MBO) A process of setting mutually agreed-upon goals and using those goals to evaluate employee performance MBO program has four elements: ( performance feed back, goal specify, participative decision making and specific time period ). Instead of using goals to make sure that employees are doing what they are supposed to do, MBO uses goals to motivate them as well. When the hierarchy of organizational goals is clearly defined, it forms an integrated network of goals, or a means-ends chain. Higher-level goals (or ends) are linked to lower-level goals, which serve as the means for their accomplishment. In other words, the goals achieved at lower levels become the means to reach the goals (ends) at the next level. And the accomplishment of goals at that level becomes the means to achieve the goals (ends) at the next level and on up through the different organizational levels. That’s how traditional goal setting is supposed to work. Instead of using traditional goal setting, many organizations use management by objectives (MBO), a process of setting mutually agreed-upon goals and using those goals to evaluate employee performance Copyright ©2011 Pearson Education

Characteristics of Well- Written Goals
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TYPES OF PLANS The most popular ways to describe plans are in terms of their Breadth scope (strategic versus tactical) time frame (long term versus short term), specificity (directional versus specific), and frequency of use (single use versus standing). Copyright ©2011 Pearson Education

Breadth Strategic Plans Plans that apply to the entire organization and encompass (cover) the organization’s overall goals. Tactical Plans ( Operational Plans) Plans that specify the details of how the overall goals are to be achieved. Ex: opening a new branch ( strategic planning) Deciding when, where and how to operate the business branch is a result of tactical plans. Strategic plans are those that apply to an entire organization and encompass the organization’s overall goals. Tactical plans (sometimes referred to as operational plans) specify the details of how the overall goals are to be achieved Copyright ©2011 Pearson Education

Time Frame Long-term Plans Plans with a time frame beyond three years Short-term Plans Plans with a time frame of one year or less Long-term plans are now defined as plans with a time frame beyond three years. Short-term plans cover one year or less Copyright ©2011 Pearson Education

Specificity Specific Plans Plans that are clearly defined and leave no room for interpretation Directional Plans Plans that are flexible and set general guidelines The flexibility of the directional plans is better than the lack of clarity that you can get from specific plans. Intuitively, it would seem that specific plans would be preferable to directional, or loosely guided, plans. Specific plans are plans that are clearly defined and leave no room for interpretation. However, when uncertainty is high and managers must be flexible in order to respond to unexpected changes, they’d likely use directional plans, flexible plans that set general guidelines Copyright ©2011 Pearson Education

Plans By Frequency of Use
Single-use Plan A one-time plan specifically designed to meet the needs of a unique situation Standing Plans Plans that are ongoing and provide guidance for activities performed repeatedly Some plans that managers develop are ongoing, while others are used only once. A single-use plan is a one-time plan specifically designed to meet the needs of a unique situation. In contrast, standing plans are ongoing plans that provide guidance for activities performed repeatedly. Copyright ©2011 Pearson Education

Developing Plans Developing Plans is influenced by three contingency factors and the planning approach followed. Contingency factors in planning: 1. Organizational level: top level managers do strategic planning while lower level manager do the tactical or operational plans. 2. Environmental Uncertainty: when uncertainty is high, managers should be prepared by specific plan but flexible as well. 3. Commitment Concept: The idea that plans should extend far enough to meet those goals made when the plans were developed. Org is committed to the future expenses that been generated by that plan Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

The Traditional Approach to Planning
Formal Planning department A group of planning specialists whose sole responsibility is to help write the various organizational plans. Under this approach, plans developed by top level managers and flow down through other organizational levels ( like traditional goal setting) In the traditional approach, planning is done entirely by top-level managers who often are assisted by a formal planning department, a group of planning specialists whose sole responsibility is to help write the various organizational plans. Under this approach, plans developed by top level managers flow down through other organizational levels, much like the traditional approach to goal setting. Copyright ©2011 Pearson Education

The Traditional Approach to Planning
The second approach Involving more org members in the process: the plans are developed by the organizational members at the various levels and in the various work units to meet their specific needs. In the traditional approach, planning is done entirely by top-level managers who often are assisted by a formal planning department, a group of planning specialists whose sole responsibility is to help write the various organizational plans. Under this approach, plans developed by top level managers flow down through other organizational levels, much like the traditional approach to goal setting. Copyright ©2011 Pearson Education

How Can Managers Use Environmental Scanning( planning n changing environment Environmental Scanning An analysis of the external environment that involves screening large amounts of information to detect emerging trends Competitive Intelligence (seeking basic info about competitors) A type of environmental scanning that gives managers accurate information about competitors It allows managers to anticipate the action of competitors rather than just react to them. A manager’s analysis of the external environment may be improved by environmental scanning, which involves screening large amounts of information to detect emerging trends. One of the fastest-growing forms of environmental scanning is competitive intelligence, which is accurate information about competitors that allows managers to anticipate competitors’ actions rather than merely react to them Copyright ©2011 Pearson Education

What is Entrepreneurship?
The process of starting new businesses, generally in response to opportunities Entrepreneurial Ventures Organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals Entrepreneurship is the process of starting new businesses, generally in response to opportunities. Entrepreneurs create entrepreneurial ventures organizations that pursue opportunities, are characterized by innovative practices, and have growth and profitability as their main goals Copyright ©2011 Pearson Education

What is a Small Business?
In contrast to entrepreneurial ventures: Small Business An independent business having fewer than 500 employees that doesn’t necessarily engage in any new or innovative practices and that has relatively little impact on its industry On the other hand, a small business is an independent business having fewer than 500 employees that doesn’t necessarily engage in any new or innovative practices and that has relatively little impact on its industry. A small business isn’t necessarily entrepreneurial because it’s small. To be entrepreneurial means that the business is innovative and seeking out new opportunities Copyright ©2011 Pearson Education

The Difference Between Entrepreneurial and Small Business
Entrepreneurial Venture Organization is seeking for new opportunities. 2. The business is innovative. 3. Although entrepreneurial venture start small, it pursue growth. Small Business Independent business with fewer than 500 employees. Doesn’t necessary to engage innovative practices. However, some small businesses may grow, but many remain small. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

What Planning Do Entrepreneurs Need to Do?
The most important thing that an entrepreneur does in planning the venture is developing business plan. Business Plan A written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be exploited. The most important thing that an entrepreneur does in planning the venture is developing a business plan—a written document that summarizes a business opportunity and defines and articulates how the identified opportunity is to be seized and exploited. A written business plan can range from basic to thorough Copyright ©2011 Pearson Education

What’s in a Full Business Plan?
A good Business Plan cover six major areas: Executive Summary Summarizes the key points that the entrepreneur wants to make about the proposed entrepreneurial venture. It could include: mission, primary goals, the history of venture, product and service description, competitors and competitive advantage and financial information. The executive summary summarizes the key points that the entrepreneur wants to make about the proposed entrepreneurial venture. These might include a brief mission statement; primary goals; brief history of the entrepreneurial venture, maybe in the form of a timeline; key people involved in the venture; nature of the business; concise product or service descriptions; brief explanations of market niche, competitors, and competitive advantage; proposed strategies; and selected key financial information. Copyright ©2011 Pearson Education

Business Plan (cont.) Analysis of Opportunity Focusing on the opportunities in a specific industry or market. Sizes up the market by describing the demographics of the target market Describes and evaluates industry trends Identifies and evaluates competitors Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

Business Plan (cont.) Analysis of the Context Describes the broad external changes and trends taking place in the economic, political-legal, technological, and global environments. Description of the Business Describes how the entrepreneurial venture is going to be organized, launched, and managed. Include: organizational culture, marketing plans, product development plans, operational plans, human resource plans, and overall schedule. Whereas the opportunity analysis focuses on the opportunity in a specific industry and market, the context analysis takes a much broader perspective. Here, the entrepreneur describes the broad external changes and trends taking place in the economic, political-legal, technological, and global environments. Every effective business plan contains financial data and projections. Although the calculations and interpretation may be difficult, they are absolutely critical. No business plan is complete without financial information. Financial plans should cover at least three years Copyright ©2011 Pearson Education

Business Plan (cont.) Financial Data and Projections Cover at least three years and contain projected income statements ,cash flow analysis, balance sheets, breakeven analysis, and cost controls. Supporting Documentation The entrepreneurs should back up their description with charts, graphs, tables, and photographs. Copyright ©2009 Pearson Education, Inc. Publishing as Prentice Hall.

What Type of Personality Do Entrepreneurs Have?
Proactive Personality A personality trait (characteristic) describing those individuals who are more prone to take actions to influence their environment One list of personality characteristics included the following: high level of motivation, abundance of self-confidence, ability to be involved for the long term, high energy level, persistent problem solver, high degree of initiative, ability to set goals, and moderate risk-taker. Another list of characteristics of “successful” entrepreneurs included high energy level, great persistence, resourcefulness, the desire and ability to be self-directed, and relatively high need for autonomy Copyright ©2011 Pearson Education

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