Principles of business management

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Essentials of Management 10e by Andrew J. DuBrin

CHAPTER 4

Essentials of Planning and Strategy

Three Types of Planning

Strategic planning establishes master plans that fit the destiny of the firm.

Tactical planning translates strategic plans into specific goals for organizational units.

Operational planning identifies the specific procedures and actions required at lower levels in the organization.

Both tactical planning and organizational planning support the strategic plans.

A General Framework for Planning

Strategic planning shapes the destiny of the firm.

Tactical planning translates strategic plans into specific goals and plans for organizational units.

Define the present situation (includes examining internal capabilities and external threats and opportunities).

Establish goals and objectives (a starting point for planning).

Analyze the environment to forecast aids and barriers to goals and objectives (helps predict factors that will foster or hinder attaining goals).

A General Framework for Planning, continued

Develop action plans for reaching goals and objectives (without action plans, goals may not be attained).

Develop budgets (most action plans require money, so realistic budgets have to be developed).

Implement the plans (plans are often developed then forgotten).

Control the plans (plans may not always proceed as conceived, and corrective action may be necessary).

A General Framework for Planning, concluded

Make contingency plans (develop an alternative in case the original plan cannot be implemented successfully or at all).

Contingency plans can be triggered into action in early in the planning process if deviations are detected.

Exit strategy might be part of the contingency plan.

The Development of Business Strategy

Business strategy develops from planning, leading to vision, mission, and policy.

Best strategy may emerge from organization having a grand purpose.

A vision is idealized picture of organization’s future.

A mission identifies firm’s purpose, and where it fits into the world.

Strategy can also come from inspired thinking.

Plans are sometimes developed to attain strategy.

Corporate values can influence strategy.

The Development of Business Strategy, continued

Important to get managerial workers to think strategically and wonder about firm fitting its environment and adapting to the future.

Strategically-minded worker thinks, “How does what I am doing right now support corporate strategy?”

Study with upper-level leaders found that global work experience was associated with stronger tendency to think strategically.

Self-quiz in Figure 4-3 deals with strategic thinking.

The Development of Business Strategy, continued

Several symptoms of a strategic thinker (Figure 4-3)

“I often think about the meaning and implications of news stories.”

“I think the most successful people fields are visionaries.”

“I do not like to argue with an instructor about what should be the correct answer to a multiple choice question.” ()

“I am a ‘big picture’ thinker.”

The Development of Business Strategy, continued

Three major approaches to developing strategy are presented next.

Gathering multiple inputs to formulate strategy (a wide range of parties at interest are consulted). Crowdsourcing can be useful for gathering multiple inputs.

Analyzing the realities of the business situation (strategist must make valid assumptions about the environment).

The Development of Business Strategy, continued

Performing a SWOT analysis (considers the strengths, weaknesses, opportunities, and threats in situation).

Preparing for analysis (be clear about what you are doing and why).

Conducting the analysis (good points, internal strengths, risks, internal weaknesses, opportunities, threats).

The Development of Business Strategy, concluded

Ask five strategic questions and take risks.

What business or businesses should you be in?

How do you add value to your businesses?

Who are target customers for your business?

What are you value propositions for customers?

What capabilities are essential for adding value and differentiating their value proposition?

Whatever method is used to develop strategy usually results in taking risks and facing the unknown.

Levels of Business Strategy

Corporate-level strategy concerned with total direction of enterprise and selection of businesses.

Business-level strategy focuses on how to compete in each of the businesses.

Functional-level strategy specifies actions to implement above two strategies.

Functional managers and other workers should support corporate-level and business-level strategies.

Types of Business Strategies

Strategic alliances (share resources with other company to exploit a market opportunity)

Diversification of goods and services (serves as a hedge in case the market for one group of products or services softens)

Sticking to core competencies (company must guard against spreading itself too thin)

Product differentiation (find a niche or offer a product or service perceived as different from available alternatives)

Types of Business Strategies, continued

Focus (organization concentrates on a specific regional or buyer market)

Cost leadership (provide a product or service at a low price in order to gain market share, Amazon.com, and Dollar General included)

Find and retain the best people (the way to build a great company is find and retain great people)

Strategies must be selected carefully, given a chance to work. Changing circumstances may require change in strategy.

Strategy Execution through Operating Plans, Policies, Procedures, and Rules

Plans, policies, procedures and rules convert strategic plans into action.

Operating plans enable strategic plans to alter destiny of the firm.

Policies are general guidelines to follow for making decisions and taking action.

Policies support strategic plans in every area of the organization.

Operating Plans, Policies, Procedures, and Rules, continued

Procedures establish a customary method of handling future activities. State specific manner for accomplishing an activity.

Rules are specific courses of action or conduct that must be followed. Rules should fit the strategic plan.

Policies, procedures, and rules protect company assets, guide worker actions. As such they are not simply bureaucratic busywork.

Management by Objectives: A System of Planning and Review

MBO is a systematic application of goal setting and planning to help individuals and firms become more productive.

Establish organizational goals.

Establish unit objectives.

Review group member’s proposals.

Negotiate or agree (with subordinate).

Create action plans to achieve objectives.

Review performance.