BS Chapter 12 - Business Planning & Functional Strategies

Role of staff appraisals: Setting up systematic approach to staff appraisals is essential to good HR management:

Appraisal = - forum for agreeing objectives for coming year to ensure individual pursues goals that are congruent with business strategy - opportunity to outline/ respond to difficulties affecting em'ee's performance - provision of feedback will motivate & develop the individual - identifies personal development needs e.g. for future roles - identifies candidates for succession & development

HR Planning: HR must balance forecast supply of HR in org with org's forecast demand for HR

Forecast internal supply: - number of people - skills/ competences - experience - age/ career status - aspirations - forecast natural wastage assessed from: - HR audits - staff appraisals - historical records of staff turnover - forecasts of economic outlooks (lose staff in boom) Forecast demand: - new skills needed - new attitudes needed - growth/ contraction in job roles - new technologies Derived from: - business strategy - technological developments - competitior behaviour - outlook for the industry

Cost of quality:

argument either way: - higher quality output = increased costs - lower quality output = lower costs but potentially higher complaints & resolution costs demand for better quality has led to view that prevention of defective products is less costly than detection in the long run most modern approaches to quality therefore try to assure quality in the production process (quality assurance) rather than just inspecting goods & services after they have been produced

Role of budgeting:

budgeting = multi-purpose activity used for - ensuring achievement of org's objectives - compel planning - communicate ideas & plans - coordinate strategies - resource allocation - authorisation - provide a framework for responsible accounting - establish a system of control - provide a means of performance evaluation - motivate employees to improve their performance

Business Planning

converts LT business strategies into actions to be taken now Business Plans also used to apply for funding & = critical document for potential investor In exam - must be able to critically appraise business plan provided by a client, recognising weaknesses & omissions & making recommendations for improvement

R&D should be closely coordinated with marketing:

customer needs as identified by marketers should be vital input to new product development R&D department might identify possible changes to product specifications so a variety or marketing mixes can be tried out

Ethical aspects of purchasing & procurement

many firms seek to fulfil own CSR commitments by demanding similar commitments from their suppliers, giving rise to ethical procurement - chapter 15

2 catagories of R&D: Product research - new product development

new product can = competitive advantage but also costly to bring to market therefore screening process needed to ensure resources focussed on projects most likely to succeed

JIT purchasing:

org needs close relationship with trusted supplier & develop arrangement with supplier to be able to purchase materials only when required for production Supplier therefore needs flexible production system to be able to respond immediately to purchase orders from the organisation

2 catagories of R&D: Process research

process research = attention to how goods/ services are produced. aspects of process research: Processes: crucial in service industries (e.g. fast food) as part of services sold Productivity: efficient processes save money & time Planning: if you know how long certain stages of a project are likely to take, you can plan the most efficient sequence Quality management: for enhanced quality

Business planning may assist with:

- Co-ordinating activities of different functions behind achievement of corproate goals for year - Putting the case for finance to funding sources (e.g. small bus will approach bank/ charitable org will approach donor orgs) - Getting approval of the board (e.g. national car dealership requires manager of each showroom to submit plan for approval) - Winning contracts where potential client needs to be convinced that firm will fully support product or service being offered - Development of annual budget

Total Quality Management: TQM: TQM = popular technique of quality assurance. Main elements are:

- Internal customers & internal suppliers: ever person & every activity affects work done by others. work done by internal supplier for internal customer will eventually affect service to external customer - Service level agreements: some org's formalise the internal supplier - internal customer relationship by requiring each internal supplier to provide a service level agreement with the terms & standards of service - Quality culture within the firm: every person in the firm has an impact on quality & it is everyone's responsibility to get quality right - Empowerment: employees themselves are often the best source of information on how to improve quality

Capacity planning: various types of capacity planning may be used

- Level capacity plan: plan to maintain capacity at constant level over planning period & to ignore fluctuations in forecast demand. In manufacturing op, if demand is less than production, inventory will be produced. In service industries, management must accept resources will be under-utilised & then must ensure adequate level of service in periods of high demand, although queues may still form - Chase demand plan: aims to match capacity as closely as possible to the forecast fluctuations in demand. resources must be flexible to achieve this, e.g. staff required to work overtime or less time, ST rental agreements for equipment - Demand management planning: reduce peak demand by switching it to off peak periods e.g. by offering off-peak prices (= price discrimination chapter 7) - Mixed plans: capacity planning involves mixture of level capacity planning, chase demand & demand management planning

Capacity control: Involves reacting to actual demand & influences on actual capacity as they arise. IT/ IS applications used in manufacturing include:

- Materials Requirements Planning (MRP I): converts estimates of demand into materials requirements schedule - MRP II: Manufacturing Resource Planning: computerised system for planning & monitoring all resources of manufacturing company: manufacturing, marketing, finance, engineering - Enterprise Resource Planning (ERP) software: number of intergrated modules designed to support all key activities. includes managing key elements of supply chain e.g. product planning, purchasing, stock control, customer service, order tracking

Budgetary control: key issues:

- Responsibility accounting: mngt must have clearly defined areas of responsibility e.g. cost, profit or investment centres - Controllability: mngrs should be judged only on factors that they can control - Flexible budgets: budgets & targets should be flexed to reflect actual levels of activity before any comparisons are made - Reporting: management information systems should provide mechanism for monitoring & feedback Chapter 11 - focused on importance of linking KPIs to the CSFs of the business & industry Budgetary control focuses on efficient resource use & costs of production & service provision Should be recognised that costs are not the only CSFs & therefore budgetary control systems usually supplemented by other performance management systems, leading to balanced scorecard of performance measures

Contributions of financial management as a tool for planning & monitoring of strategy:

- ensures financial resources are available - re raising equity or loan capital. cost of strategy needs to be assessed & cash flow forecasting done - integrates strategy into budgets for revenues, operating costs, capital expenditure over period of time = budgeting process - establishes necessary performance measures for monitoring strategic objectives - establishes priorities for different parts of overall strategy if some aprts become difficult to fulfil - assists in modelling process. financial models = simplified representation of the business & easier to experiment with models to see effect of changes in variables than with the business itself

Advantages of e-procurement for the buyer:

- facilitate cost savings - easier to compare prices - faster purchase cycle - reductions in inventory - control indirect goods & services - reduces off-contract buying - data rich management information to help reduce costs & predict future trends - online catalogues - high accessibility - improved service levels - control costs by imposing limits on levels of expenditure

Features of successful succession planning

- plan should focus on future requirements - plan should be driven by top management with line manager input, should not be seen as HR responsibility - management development is as important as assessment & selection - assessment should be objective & involve more than one assessor for each manager assessed - succession planning will work best if it aims to identify & develop leadership cadre rather than merely establish a queue for top positions; a pool of talent & ability = flexible asset for org

Goals of strategic HRM:

- serve interest of management as opposed to employees - suggest strategic approach to personnel issues - link business mission to HR strategies - enable HR development to add vlaue to products & services - gain em'ees commitment to org's goals & values HR strategy must be related to the business strategy

Operations: the 4 V's - Visibility

- services highly visible to customers requires staff with good interpersonal & communication skills - often require more staff than low visibility operations therefore more expensive - high visibility means customer satisfaction with operation will be heavily influenced by their perception - customers will be dissatisfied if they have to wait - unit costs likely to be high - low visibility means there can be a time lag between production & consumption allowing operation to utilise capacity more efficiently - customer contact skills not important in low visibility operations & unit costs should be low - some ops partly visible partly invisible = 'front office/ back office'

In broad terms, operational planning includes:

- setting operational objectives based on business strategy - translating business or marketing strategy into operations strategy by identifying critical success factors - assessing relative importance of different competitive factors - assessing current operational performance compared to performance of competitors - using idea of 'clean slate' - ask managers how they would ideally design operations if they could start again from scratch. ideal design then compared to actual, important differences identified & action taken to move actual towards ideal - formulating strategy could be based on other types of gap analysis, e.g. what market wants vs what is currently offered by org - emphasise strategy selection process - continually review, refine, redevelop

Strategic Procurement: traditional supply chain model shows each firm as a separate entity reliant on orders from the downstream firm commencing with the ultimate customer to initiate activity. Disadvantages of this are:

- slows down fulfilment of customer order so puts the chain at competitive disadvantage - introduces possibility of communication errors delaying fulfilment and/ or leading to wrong specification products being supplied - higher costs of holding inventories on a just-in-case basis by all firms in chain - higher transaction costs due to document & payout flows between stages in model

Creating a Business Plan From bigger picture of strategic plan Frequently business plans are developed using pro forma provided by the approving body e.g. bank, govt agency Unlikely to get funding without a plan E.g. small business template plan: Elements of a Business Plan (per Small Business Administration website)

1. Cover sheet 2. Statement of Purpose 3. Table of Contents i) The Business a) Description of business b) Marketing c) Competition d) Operational procedures e) Personnel f) Business insurance g) Financial data ii) Financial Data a) Loan applications b) Capital equipment & supply list c) Balance sheet d) Breakeven analysis e) Pro-forma income projections (forecast Income Statement) - Three year summary - Detail by month, first year - Detail by quarters, second & third years - Assumptions upon which projections were based f) Pro-forma cash flow - follow guidance for letter e) iii) Supporting Documents - Tax returns of the business & its owners for last 3 years - Personal financial statement (all banks have these forms) - For franchised business - copy of franchise contract & supporting docs provided by franchisor - Copy of proposed lease/ purchase agreement for building space - Copy of licences & other legal documents - Copy of resumes of all owners & senior management - Copies of letters of intent from suppliers (small cos often request help of their a/c's in preparing this plan)

Finance department & strategic planning: 3 fold role of finance

1. Finance = a resource to deploy so that objectives are met 2. Firm's objectives often expressed in financial terms 3. Financial controls usually used to plan & control implementation of strategies & financial controllers used for detailed performance assessment

Process of corporate planning & relationship with marketing strategy is shown in following table

1. Set objectives... Corporate: for firm as whole e.g. inc profit by 5% Marketing: for products & markets e.g. inc market share 5% & inc revenue 5% 2. Internal appraisal (SW)... Corporate: review effectiveness of different aspects of org Marketing: conduct marketing audit 3. External appraisal (OT)... Corporate: Review PESTEL factors impacting whole firm Marketing: Review PESTEL factors affecting products, markets, customers 4. Gaps... Corporate: how to close any gap btw forecast & desired objectives Marketing: doing less well in particular markets that it expected. focus marketing on growth 5. Strategy... Corporate: develop strategies to fill gap e.g. diversify Marketing: marketing strategy = plan to achieve org's objectives by specifying resources to allocate to marketing & how to use those resources. In context of applying marketing concept, marketing strategy would identify targets markets & customer needs in those markets, plan products to satisfy thsoe needs, organise marketing resources to match products with customers 6. Implementation: Corporate: delegated to depts of org Marketing: plans must be put into action 7. Control: Corporate: results reviewed & planning process starts again Marketing: has firm achieved market share objectives?

Supply Sourcing Strategies: Range of strategies open to org when deciding who to purchase supplies from (Option/ Comments): Single supplier

1. Single supplier + stronger relationship + more likely to receive supplier quality assurance programme + easier communication + economies of scale + facilitates confidentiality + possible source of competitive advantage - vulnerable to disruption in supply - supplier power may increase if no alternative supplier - supplier vulnerable to shifts in order level

Supply Sourcing Strategies: Range of strategies open to org when deciding who to purchase supplies from (Option/ Comments): Multiple suppliers

2. Multiple suppliers + access to wide range of knowledge & expertise + competition among suppliers may drive price down + supply failure by one supplier will cause minimum disruption - not easy to develop an effective quality assurance programme - suppliers may display less commitment - neglecting economies of scale

Supply Sourcing Strategies: Range of strategies open to org when deciding who to purchase supplies from (Option/ Comments): Delegated

3. Delegated = A supplier is given responsibility for delivery of a complete sub-assembly e.g. rather than dealing with several suppliers a 'first-tier' supplier will be appointed to deliver a complete sub-assembly (e.g. PC manufacturer may delegate production of keyboards) + allows utilisation of specialist external expertise + frees up internal staff for other tasks + purchasing entity may be able to negotiate economies of scale - first tier supplier in powerful position - competitors may use same supplier so unlikely to gain competitive advantage

HR planning: HRM Human Resource Management

= a strategic & coherent approach to management of an org's most valued assets: the people working there who individually & collectively contribute to the achievement of its objectives for sustainable competitive advantage = the process of identifying org's HR needs, finding people to fill those needs & getting the best work from each employee by providing the right incentives & job environment - with the overall aim of helping to achieve organisational goals requires planning resource needs to the future & succession planning for existing staff staff appraisals are vital part of this process

Purchasing:

= acquisition of material resources & business services for use by the organisation

Just In Time Systems: Just-In-Time:

= approach to planning & control based on idea that goods/ services should be produced only when ordered or needed, aka lean manufacturing

Quality Management: Quality Control:

= concerned with checking & reviewing work that has been done. therefore narrower focus than quality assurance

Formulating Operations Strategy: Operations management

= designs, implementation & control of the processes in an organisation that transform inputs (materials labour other resources information & customers) into input products & services

Quality Management: Quality Assurance:

= focuses on way product/ service is produced. Procedures & standards are devised with the aim of ensuring defects are eliminated (or at least minimised) during development & production process

The Marketing Audit

= wide ranging review of all activities associated with marketing in order to exercise proper strategic control the audit should satisy 4 requirements: - take a comprehensive look at every product, market, distribution channel, marketing mix - not be restricted to areas of apparent uneffectiveness e.g. unprofitable product, difficult distribution lines, low effiiecny on selling - carried out according to predetermined procedures - conducted regularly

Budgets & Budgetary Control:

Budget = plan expressed in financial terms ST budgets attempt to provide ST targets within the framework of LT strategic plans. This is generally done in the form of a budget, e.g. annual profit milestones taken as the starting point for each new year

6 items that should be incorporated into organisation's operational strategy:

Capability required - what does org want to produce? Range & location of operations - how big can it/ does it want to be? what locations & how many sites Investment in technology - how will processes & production be performed Strategic buyer/ supplier relationships - who will be key? New product/ services - what are expected product life cycles Structure of operations - how will staff be organised or managed?

Corporate strategy & marketing strategies

Corporate strategic plans aim to guide the overall development of an org Marketing planning is subordinate to corporate planning but makes significant contribition to it & is concerned with many of same issues: - strategic component of marketing planning focuses on direction of org re specific market or sets of markets in order to achieve specified set of objectives - marketing planning also requires operational component that defines tasks & activities to be undertaken in order to achieve the strategy. marketing plan is concerned uniquely with products & markets

Purchasing: Cost, Quality, Strategy

Cost: Raw materials & subcomponent purchases = major cost for many firms Quality: quality of input resources affects quality of outputs & efficiency of production process Strategy: In retailing, buying goods for resale = one of most important activities of the business

Strategic Procurement is:

Development of a true partnership between company & supplier of strategic value Usually LT arrangement, single-source in nature & addresses not only buying of parts/ products/ services but product design & supplier capacity Orgs are increasingly recognising need for & benefits of establishing close links with co's in supply chain, leading to INTEGRATED SUPPLY CHAIN MODEL & concept that it is the whole supply chain that competes, not just the individual firms Integrated supply chain model - order from the ultimate customer is shared between all the stage in the chain and that firms overlap operations by having integrated activities as business partners. = consistent with the idea of a VALUE SYSTEM & concept of SUPPLY CHAIN NETWORKS per chapter 5

Benefits of succession planning:

Development of managers at all levels likely to improve if it takes place in context of succession plan Continuity of leadersihp more likely - fewer dislocating changes of approach & policy Assessment of managerial talent improved by establishment of relevant criteria

Suppliers & e-procurement

E-procurement involves using technology to to conduct B2B purchasing over the internet Huge savings to be had, especially for large corporate businesses with vast levels of procurement

3 key elements of JIT philosophy

Elimination of waste: waste defined as any activity that doesn't add value - overproduction - wasted time - transport - waste in process - inventory - simplification of work - defective goods Involvement of all staff in the operation Continuous improvements

Marketing planning: Concepts & tools of marketing discussed in chapter 7 Implementation & control of marketing might take form of marketing plan:

Executive summary - summary of plan Situation analysis - SWOT analysis & forecasts Objectives & goals - what hopes to achieve/ needs to achieve e.g. market share/ net profit Marketing strategy - selection of target markets, expenditure level, marketing mix Strategic marketing plan - 3-5 years long; defines scope of product & market activities; aims to match activities of firm to its core competences Tactical marketing plan - one year time horizon; generally based on existing products & markets; concerned with marketing mix issues Action plan - how strategies are to be achieved; marketing mix strategy should cover the 7Ps per chapter 7; mix strategy may vary for each segment Budgets - developed from the action programme Controls - set up to monitor progress of plan & budget

JIT & service operations

JIT philosophy can be applied to service operations. where manufacturing JIT systems aims to reduce inventories, service orgs aim to avoid queues for customers, which are wasteful because: - waste customers' time - require space for customers to wait in & this space is not adding value - queuing lowers customers' perception of quality of service Application of JIT to service operation calls for removal of specialisation of tasks so workforce can be used more flexibly in response to demand

Planning as an activity concerned with implementation of strategy

LT corporate plan = LT framework for org as a whole but for operational purposes - need to convert corporate plan into series of ST plans relating to sections, functions, or departments e.g. covering 1 year each

Contorlling marketing activities

Once implemented marketing strategies, need control & performance measures in place to support purpose of plan Marketing strategies developed to satisfy corporate objectives & reflect results of marketing audit Marketing control process can be broken down into 4 stages: - Development of objectives & strategies (discussion) - Establishment of standards of performance - Evaluation of performance (against standards) - Corrective action (may incluse adjusting objectives & strategies) Typical quantitative performance levels might be: market share, e.g. compared to major competitor operational targets, e.g. have right products available customer satisfaction (if regularly monitored) Performance is monitored by comparing actual with target & action taken where gap exists

Operations Planning & Management

Operations management - concerned with transformation of inputs into outputs that meet the needs of the customer Characterised by the 4 V's of Volume, Variety, Variation in Demand & Visibility Capacity planning & some modern IT/ IS applications supporting them are reviewed Quality assurance & TQM are essential components of many modern manufacturing approaches

Functional strategies & competitive advantage

Per chapters 5 & 6, competitive advantages can be gained & sustained by businesses by the value chain, using cost drivers or value drivers. The business's choice of competitive strategy determines whether the focus of the chain should be cost (cost leadership) or value (differentiation). This has implications for the org when it is implementing its functional strategies. The rest of this chapter discusses functional strategies for: - Marketing - HR - R&D - Operations/ Products - Purchasing

Strategic role of R&D: despite evident costs & uncertainties of R&D expenditure its strategic importance can be understood by ref to some of the strategic models discussed earlier:

Porter's Generic Strategy - product innovation could be a source of differentiation. Process innovation may enable differentiation or cost leadership Porter's Value Chain - R&D is included within support activities of technology developments. It can be harnessed in the service of lower costs or improved differentiation Ansoff's Matrix - R&D support all 4 strategic quadrants. Strategies of Market Penetration & Market Development can be served by product refinement. Product Development & Diversification will require more significant innovations to products Industry & Product Lifecycles - obsolescence of existing products can be accelerated by product R&D & so R&D is required to provide firm with replacements

Purchasing Mix: Purchasing manager has to obtain best purchasing mix: Quantity, Quality, Price, Delivery

Quantity: size & timing or PO dictated by: - delays in production caused by insufficient inventories - cost of holding inventories: tied up capital, storage space, deterioration, insurance, risk of theft System of inventory control will set optimum reorder levels (therefore orders arrive in time to meet demand) to ensure that Economic Order Quantities (EOQs) are met for individual inventory items Quality: production department need input into quality of goods required for manufacturing process & marketing depart re quality acceptable to customers Price: favourable ST trends in prices may influence buying but should have eye to best value over time - quality, delivery, urgency of order, inventory-holding requirements etc Delivery: lead time between placing order & delivery = crucial in inventory control & production planning. reliability of supplier's deliveries must be assessed

Closing the gap between supply & demand: the HR plan HR plan developed on basis on personnel requirements & the implications for productivity & costs HR plan breaks down into subsidiary plans:

Recruitment plan - numbers, types of people, when required, recruitment programme Training plan - number of traineed required, existing training needs, training programme Redevelopment plan - programmes for transferring/ retaining staff Productivity plan - programmes for improving productivity, reducing manpower costs, setting productivity targets Redundancy plan - where & when to take place, policies for selection & declaration, re-training, re-location of redundant em'ees, union consultation, policy on payments Retention plan - actions to reduce avoidable labour wastage Plans should include budgets, targets & standards Should allocate responsibility for implementation and control

Research & development planning: = essential for product & process improvement Need to ensure R&D has commercial application forms link between R&D & other areas of org e.g. Marketing, Operations, Finance: Product & Process Research:

Research may be intended to improve products or processes. R&D should support org's strategy, be properly planned & be closely coordinated with marketing Many orgs employ specialist staff to conduct R&D May be organised as separate functional dept of their own or within each department if org run on project division basis

HR Cycle: Devanna's HR cycle = simple model providing framework for explaining naturue & significance of HRM

Selection - Performance - Appraisal - Rewards & Training/ Development Selection: ensure obtain people with skills needed Appraisal: enables setting of targets to contribute to overall objective of organisation. identifies skills & performance gaps & provides info relevant to reward levels Training & Development: keep skills up to date, relevant, comparable to best in industry Reward System: motivate & ensure valued staff are maintained Performance: depends on each of the 4 components & how they are coordinated

Succession Planning:

Should be integral part of HR plan Should support org strategy & be compatible with any forseeable changes to operations

Implementing strategy: Implementation requires corporate strategy to be broken down into finctional strategies & operational plans Business's choice of competitive strategy (cost leadership or differentiation) has implications for its functional strategies Existence of an annual budgeting process compels planning & enables to establishment of a control system by comparing budgeted & actual results

To implement corporate strategy, business's competitive, investment & financial strategies need to be broken down further into functional strategies & operational plans Operational plans set out what is expected of each function of the business & how actions will be taken to meet those expectations Finally detailed budgets are prepared which set out teh plan for a defined period

E-procurement from supplier's perspective

Traditionally, supplying business has been about branding, marketing, business relationships. In expanding the e-procurement world the dynamics of supplying are changing & expectations of companies implementing e-procurement systems for cost-savings, suppliers are expecting to feel profit erosions due to the e-procurement mechanism Nevertheless, advantages to suppliers include: - faster order acquisition - immediate payment systems - lower operating costs - non-ambiguous ordering - data rich management information - lock in of buyers to the market - automate manufacturing demands

Operations: the 4 V's - Variation in demand

Variation in demand - high variation in demand an operation will have problem with capacity utilisation - op will try to anticipate changes in demand & plan capacity accordingly e.g. tourist industry - Christmas & summer holidays - costs will probably be higher - low variation in demand means it should be possible for operation to achieve high level of capacity utilisation - costs will therefore be lower

Operations: the 4 V's - Variety

Variety - high variety means operation needs to be flexible & capable of adapting to individual customer needs - work may therefore be complex & unit costs high - low variety means operation should be well-defined with standardisation - regular operational routines - low unit costs

Operations: the 4 V's - Volume

Volume - high volume operation lends itself to capital-intensive operation, specialisation of work & well-established systems - unit costs should be low - low volume operations mean each member of staff has to perform more than one task so specialisation is not achievable - less systemisation - unit costs of output will be higher than with high volume operation