MGT 350 Chapter 5: Foundations of Planning - Definitions

benchmarking

the search for the best practices among competitors or non-competitors that lead to their superior performance The basic idea of benchmarking is that managers can improve quality by analyzing and then copying the methods of leaders in various fields. ^Xerox - 1st known benchmarking effort by American company (p. 129)

opportunities

positive trends in the external environment (p. 128)

tactical plans

specify the details of how the overall goals are to be achieved (p.137) lower level managers are more likely to do tactical planning p. 138

plans

documents that outline how goals are going to be met. Usually include resource allocations, budgets, schedules, and other necessary actions to accomplish the goals p. 133

specific plans

plans that are clearly defined and leave no room for interpretation (p.137)

directional plans

plans that are flexible and set general guidelines (p.137)

standing plans

plans that are ongoing and provide guidance for activities performed repeatedly p.137

long-term plans

plans with a time frame beyond 3 years (p.137)

short-term plans

plans with a time frame of 1 year or less (p.137)

4 Reasons managers should Formally Plan

(1) It establishes coordinated efforts (2) reduces uncertainty (3) reduces overlapping and wasteful activities (4) establishes goals or standards that are used in controlling work 1.) Establishes coordinated effort: ^gives direction to managers and non-managerial employees. People understand where the organization is going and what they need to do to contribute to that goal. 2) Reduces uncertainty ^ planning forces managers to look ahead, anticipate change, consider the impact of change, and develop responses. 3) Reduces overlapping and wasteful activities ^ coordinating efforts and responsibilities before the fact reduces waste and redundancy. 4). Establishes the goals or standards that facilitate control. ^When members know what they are working toward then they can know if they've achieved it. p. 123-124

Formal Planning

(1) defining specific goals covering a specific time period, (2) writing down these goals and making them available to organization members, and (3) using these goals to develop specific plans that clearly define the path the organization will take to get from where is is to where it wants to be. p. 123

Characteristics of well written goals

+ Written in terms of outcomes rather than actions + Measurable and quantifiable + Clear as to time frame + Challenging yet attainable + Written down + Communicated to all necessary organizational members p. 136

IV. Contemporary Planning Issues that Managers Face

1. ) Planning in Dynamic environments: In an uncertain environment, managers should develop plans that are specific, but flexible. Planning is an ongoing process The organizational hierarchy should be flatter to effectively plan in dynamic environments. A flatter hierarchy means lower organizational levels can set goals and develop plans. 2. ) How managers use environmental scanning, in particular competitive intelligence: Environmental scanning can help a manager analyze the external environment. ES involves screening large amounts of information to detect emerging trends. Competitive intelligence is one of the fast growing forms of environmental scanning. CI is accurate information about competitors and allows managers to anticipate competitor's actions rather than merely react to them.

3 strategies that managers use

1. Corporate 2. Competitive 3. Functional p. 130

Conclusions of Formal Planning

1. Formal planning generally means higher profits, higher return on assets, and other positive financial results 2. the quality of the planning process and the appropriate implementation of the plan likely contribute to higher performance than does the extent of planning. 3. If organizations that had formal planning did not end up with higher performance then it was likely caused by the environment - i.e., governmental regulations, unforseen economic challenges p.125

What are the 3 Main Corporate strategies?

1. Growth Strategy 2. Stability Strategy 3. Renewal strategy p. 130-131

6 Steps in the Strategic management Process

1. Identify the organization's current mission, goals, and strategies ^A mission identifies what they are in the business to do. Identifying goals and strategies give managers a basis for assessing whether they need to be changed. 2. Do an external analysis ^ Analyzing the external environment helps to know, for example, what the competition is doing, trends, supply, etc. Managers should examine all components of the environment (economic, demographic, political/legal, sociocultural, technological, and global) ^ After analyzing the environment managers need to identify opportunities and threats ^ opportunities - positive trends ^ threats - negative trends 3. Do an internal analysis ^ Provides information about an organizations specific resources and capabilities ^ Helps identify strengths and weaknesses (#2 and #3 combined are called SWOT analysis) 4. Formulate strategies ^managers typically formulate 3 types of strategies: corporate, business, and functional 5. Implement strategies 6. Evaluate results (p. 127-128)

Why is strategic management important?

1. It can make a difference in how well an organization performs. --Research has found a generally positive relationship between strategic planning and performance. 2. Managers in organizations of all types and sizes face continually changing situations. --Strategic management helps managers cope with this uncertainty to examine relevant factors in planning future actions. 3. Organizations are complex and diverse and each part needs to work together to achieve the organization's goals. (p.126)

Criticisms of Formal Planning

1. Planning may create rigidity 2. Formal plans cannot replace intuition and creativity 3. Planning focuses managers' attention on today's competition, not on tomorrow's survival 4. Formal planning reinforces success, which may lead to failure. p. 125

6 Steps Managers should follow in setting Goals

1. Review the organization's mission and employees' key job tasks 2. Evaluate available resources 3. Determine the goods individually or with input from others 4. Make sure goals are well-written and then communicate them to all who need to know 5. Build in feedback mechanisms to assess goal progress 6. Link rewards to goal attainment p. 136

What are 3 contingency factors that affect the choice of plans?

1. organizational level Lower level managers perform tactical (operational) planning while upper level managers perform strategic planning 2. degree of environmental uncertainty When uncertainty is high, plans should be specific, but flexible. 3. length of future commitments This is related to the time frame of plans (commitment concept) p. 137 - 138

Formal planning department

A group of planning specialists whose sole responsibility is to help write the various organizational plans p.138

management by objectives (MBO)

A process of setting mutually agreed -upon goals and using those goals to evaluate employee performance. An alternative to traditional goal setting. Ex: A manager would sit down with each member of his team and set goals and periodically review whether progress was being made toward achieving that goal. 4 elements of MBO programs 1. Goal specificity 2. Participative decision making 3. Explicit time period 4. Performance feedback **Peter Drucker - first popularized this term MBO in his 1954 book "The Practice of Management" p. 135

weaknesses

Activities that the organization does not do well or resources it needs but does not possess. (p.128)

environmental scanning

An analysis of the external environment, which involves screening large amounts of information to detect emerging trends p.140

means-ends 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 When the hierarchy of organizational goes is clearly defined an integrated network of goals, or means-end chain is formed. Higher-level goals (end) are linked to lower level goals, which serve as the means for their accomplishment. The goals achieved at lower levels become the means to reach the goals (ends) at the next level. This continues up and up through the different organizational levels. This is how traditional goal setting should work p. 135

resources

An organization's assets that it uses to develop, manufacture, and deliver products to its customers (p. 128) company's resources - having something that its competitors do not (p. 131)

capabilities

An organization's skills and abilities in doing the work activities needed in its business (p.128)

1. 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 p.130

strengths

Any activities that the organization does well or any unique resources that it has (p.128)

Growth strategy -->Ways to Grow:

Concentration Vertical Integration Horizontal Integration Diversification p. 130

goals (objectives)

Desired outcomes or targets. They guide manager's decisions and form the criteria against which work results are measured p. 133

BIG DATA as a strategic weapon

Enormous amounts of data collected about customers, partners, employees, markets, etc can be used to respond to the needs of these same stakeholders. With big data, managers can measure and know more about their business and use the knowledge to better make decision. Ex: Walmart - when hurricanes were forecasted not only did sales of batteries and flashlights increase, but so did Pop tarts. Now when a hurricane threatens they stock Pop tarts with other emergency storm supplies. p. 132

Traditional goal setting

Goals set by top managers flow down through the organization and become subgoals for each organizational area Can cause problems b/c goals can be stated in broad terms and interpreted differently as passed along to each lower level. Clarity is often lost as the goals make their way down from the top of the organization to lower levels. p. 134-135

Horizontal integration (Growth strategy - ways to grow)

Growing by combining with competitors p.130

Concentration (growth strategy - ways to grow)

Growing by focusing on primary line of business and increasing the number of products offered or markets served in this primary business. p.130

Vertical Integration (Growth strategy - ways to grow)

Growing by gaining control of inputs, outputs, or both Backward vertical integration - gain control of inputs, becomes its own supplier Forward vertical integration - gain control of outputs, becomes its own distributor p.130

Diversification (Growth strategy - ways to grow)

Growing by moving into a different industry Related diversification - different, but related industries. "strategic fit" Unrelated diversification - different and unrelated industries. "No strategic fit" p.130

2. Competitive Strategy

How an organization will compete in its business(es) (strategic business units)

2 General Types of goals: Financial Strategic

Most company goals can be classified as either strategic or financial Financial goals - related to financial performance ex: 3-5% average annual sales and revenue growth Strategic goals - related to other areas of performance ex: Match or beat performance of competitor p. 133

b) Differentiation strategy

Offering unique products that are widely valued by customers and aimed at a broad market + Product differences: exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image (p.131)

Planning

Often called the primary management function because it establishes the basis for all the other things managers do as they organize, lead, and control. Planning - involves 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. It's concerned with what is to be done, as well as how it's to be done. p. 123

Stability strategy (corporate strategy)

Organization continues - often in times of uncertainty - to do what it is currently doing; to maintain things as they are The organization does not grow, but does not fall behind, either Ex: continuing to serve the same clients by offering the same product or service, maintaining market share, and sustaining current business operations p.130

Growth strategy (corporate strategy)

Organization expands the number of markets served or products offered either through its current business or through new business p. 130

Renewal strategy (corporate strategy)

Organization is in trouble and needs to address declining organizational performance Retrenchment strategy -> minor performance problems. need to stabilize operations, revitalize organizational resources and capabilities, and prepare organization to compete once again. Turnaround strategy: More serious performance problems requiring more drastic action. In both renewal strategies, managers can (1) cut costs, and (2) restructure organizational operations, **but actions are more extensive in a turnaround strategy. p. 131

SOCIAL MEDIA as a strategic weapon

Successful social media strategies should: (1) help people inside and outside the organization connect. (2) reduce costs, increase revenue possibilities, or both Social media tools can also help produce productivity, collaboration, etc. p. 132

SWOT analysis

The combined external and internal analysis An analysis of the strengths, weaknesses, opportunities, and threats S-trenth W-eaknesses O-pportunites T-rends (p.128)

Commitment concept

The idea that plans should extend far enough to meet those commitments made when the plans were developed p.138

Core competencies

The major value-creating capabilities of an organization (p. 128) Doing something that others cannot do, or doing it better than others can do it. (p. 131)

real goals

Those goals an organization actually pursues as shown by what the organization's members are doing. p.134

Strategic Business Units (SBUs)

Those single businesses that are independent and formulate their own competitive strategies (p.131)

2. Functional strategy

Those strategies used in an organization's various functional departments to support the competitive strategy -research and development, manufacturing, marketing, human resources, finance/accounting, etc. p. 131

Approaches to planning

Traditional approach: Planning is done entirely by top level managers who are often assisted by a formal planning department (see def below). In this approach, plans developed by top-level managers flow down through other organizational level, much like traditional goal setting. As they flow down through the organization, the plans are tailored to the particular needs of each level. This approach does make managerial planning thorough, systematic, and coordinated, but many time the focus is on developing "the plan", a thick binder full of meaningless information. Another approach: Planning that involves more organizational members in the process. Instead of plans being handed down from one level to the next, they are developed by organizational members at the various levels and in the various work units to meet their specific needs. p. 139

Informal planning

Very little, if any is written down. What is to be accomplished is in the heads of a few people. The organization's goals are rarely verbalized. Informal planning generally describes the planning that takes place in smaller businesses. The planning is general and lacks continuity.

d) Stuck in the middle

What happens if an organization cannot develop a cost or differentiation advantage. Bad place to be p.131

strategic management

What managers do to develop an organization's strategies (p.126)

Competitive advantage

What sets an organization apart; its distinctive edge + Core competencies - doing something that others cannot do or doing it better than others can do + Company resources - having something that competitors do not (p.131)

c) Focus strategy

When an organization competes in a narrow segment or niche with either a cost focus or differentiation focus A cost advantage (cost focus) or a differentiation advantage (differentiation focus) in a narrow segment or niche (which can be based on product variety, customer type, distribution channel, or geographic location) p.131

a) Cost leadership strategy

When an organization competes on the basis of having the lowest costs in its industry and aimed at a broad market + Highly efficient + Overhead kept to minimum + Does everything possible to cut costs + Product must be perceived as comparable in quality to that offered by rivals or at least acceptable to buyers (p.131)

strategic management process

a 6-step process that encompasses strategy planning, implementation, and evaluation (p.127)

single-use plan

a one-time plan specifically designed to meet the needs of a unique situation p.137

mission

a statement of an organization's purpose (p.127)

competitive intelligence

a type of environmental scanning that gives managers accurate information about competitors p.140

What are the types of competitive strategies?

a) Cost leadership strategy b) Differentiation strategy c) Focus strategy d) Stuck in the middle

What a mission statement includes

a) Customers - who are the firm's customers? b) Markets - where does the firm compete geographically? c) Concern for survival, growth, and profitability: ^Is the firm committed to growth and financial stability? d) Philosophy: ^ What are the firm's basic beliefs, values, and ethical priorities? e) Concern for public image: ^ How responsive is the firm to societal and environmental concerns f) Products or services: ^ What are the firm's major products or services? g) Technology: ^ Is the firm technologically current? h) Self-concept: ^ What are the firm's major competitive advantages and core competencies? i) Concern for employees: ^Are employees a valuable asset of the firm? (p. 127)

6 strategic "weapons"

customer service employee skills and loyalty innovation quality social media big data (p. 128)

QUALITY as a strategic weapon

many organizations use quality practices to build a competitive advantage and attract hold a loyal customer base. p. 128-129

threats

negative trends in the external environment (p. 128)

stated goals

official statements of what an organization says, and wants its stakeholders to believe, its goals are. Can be found in a charter, annual report, public relations announcement, or public statements made by managers ****Often vague and irrevlevant to what is actually done p.133-134

strategies

plans for how the 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. (p.126)

strategic plans

those that apply to the entire organization and encompass the organization's overall goals (p.137) upper-level managers are more likely to do strategic planning p. 138