Chapter-04 essentials of Planning

1. Chapter-04essentials of Planning Dr. GehanShanmuganathan, (DBA)

2. Burger King Holdings

3. Burger King Holdings • Burger King CEO interviewed by Wall Street Journal • Question was on how Burger King made the growth possible during the economic depression • Answer • Value creation. E.g- $ 1 burger • Targeting the market. E.g- Female and male market

4. Chapter objectives

5. Chapter objectives • Summarize the general framework for planning and apply it to enhance your planning skills • Describe the nature of business strategy • Explain how business strategy is developed including SWOT analysis • Identify levels of business strategy, competitive forces, and types of business strategies • Explain the use of operating plans, policies, procedures, and rules • Present an overview of management by objectives (MBO)

6. A general framework for planning

7. Planning • Planning is a complex and comprehensive process involving a series of overlapping and interrelated elements or stages, including strategic, tactical, and operational

8. Planning • Planning could be reviewed from strategic as well as from a tactical point of view. • Planning is not bound by a time horizon but could be related to a continuous process

9. Planning levels

10. Planning levels • Strategic planning • Tactical planning or functional planning • Operational planning

11. Strategic planning • Firm’s overall master plan that shapes its destiny • This may involve, • Planning to set up new production plant • Starting new operation in a new location • Planning to cope with the demographic changes • Planning to cope with business environmental changes

12. Tactical planning • Planning that translates a firm’s strategic plan into specific goals by organizational unit. This plan also details how an organization competes within its business in the market • Middle or functional managers will be responsible in formulating and implementing the tactical plan • E.g- market share, net profit, new product development, market development, quality levels

13. Operational planning • The planning that requires specific procedures and actions at lower levels in an organization • Operational planning should support tactical planning • E.g- achieving day’s targets

14. A framework for planning

15. A framework for planning Define the present situation Establish goals and objectives Analyze environment in terms of aids and barriers To goals and objectives Implement the plan Develop budgets Develop action plan to reach goals and objectives Control the plan

16. Define the present situation • Need to know “where we are now? Is critical in establishing the new goals • Defining the present situation includes measuring success and examining internal capabilities and external threats • Discuss how Harley-Davidson became successful identifying the aging population (median age 35 in 1987)

17. Establish goals and objectives • The second step in planning is to establish goals and identify objectives that contribute to the attainment of goals • Goals are broader than objectives- discuss… • Discuss how Harley-Davidson set the goal to cater to gender-neutral market ( male and female)

18. Analyze the environment to forecast aids and barriers to goals and objectives • The planner needs to analyze the internal and external factors either foster or hinder the attainment of the goals • E.g- The brand equity (rebellious image) of Harley-Davidson is the main internal strength of the company to attain the set goal

19. Business Environment Internal Environment External Environment 5 M’s 7 S’s Micro Environment Macro Environment Customers, Distributors, Suppliers & Competitors PESTEEL Factors

20. Develop action plans to reach goals and objectives • Goals and objectives are only wishful thinking until action plans are drawn • Action plan the specific steps necessary to achieve a goal or an objective • E.g- advertising campaigns, sales targets, sales promotions, and so on

21. Develop budgets • Planning requires money to implement • Types of budgets • Advertising budget • HR budget • Production budget • Sales budget

22. Implementing the plan • The plan needs to be put into action

23. Control the plan • Standard setting • Objectives, goals • Performance measurements • Quality, quantity and cost • Budgets, variances • Performance diagnosis • Gap analysis through performance measurements • Taking corrective actions (if required) • Environmental changes • Internal problems

24. Contingency planning • An alternative plan to be used if the original plan cannot be implemented or a crisis developed • Planning for things might happen • Change of market structure due to competitor activity • New Product Development of competitor

25. The nature of business strategy

26. Strategy • The organization’s plan or comprehensive program, for achieving its vision, mission, and goals in its environment • It is an integrated overall concept and plan of how the organization will achieve its goals and objectives

27. Strategy involves more than operational effectiveness • Strategy leads to sustainable growth • E.g- downsizing leads to operational efficiency whereas strategy leads to sustainable growth

28. Strategy rest on unique activities • Competitive strategy means deliberately choosing a different set of activities to deliver a unique value • E.g- Southwest Airlines low cost

29. A sustainable strategic position requires trade-offs • Strategy helps to trade-off the strategic position • E.g- internet marketing trades-off traditional marketing with sales associates interactions

30. Fit drives both competitive advantage and sustainability • Strategy makes the company activities fit and support each other to form an effective system • E.g- Bic company offers low priced ball-point pens through all the distribution channels to cover whole market (retail, commercial, and promotional)

31. The development of business strategy

32. Vision- dream • An idealized picture of the future of an organization- “what do we want to be”

33. Mission- purpose • The firm’s purpose and where it fits into the world

34. Strategy development • Gathering multiple inputs to formulate strategy • Strategists need to gather inputs from all the possible sources to formulate the final strategy • Analyzing realities of the business situation • Strategists need to analyze the realities of the business situation using pragmatic and quantitative techniques

35. SWOT analysis

36. SWOT analysis • A method of considering the strengths, weaknesses, opportunities, and threats in a given situation

37. SWOT analysis

38. Levels of strategy, Competitive Forces, and Types of strategies

39. Levels of business strategies • Corporate level strategy- consider the company direction • Business level strategy- consider how to compete • Functional level strategy- considers how to support the business level strategy

40. Five competitive forces (Porter 5 force Analysis) Threat ofSubstitution Bargaining Power ofCustomers Bargaining Power ofSuppliers IndustryRivalry Threat of newEntry

41. Competitive ForcesThreat of New Entrants Threat of new entrants can be reduced based on barriers to entry. These would be Economies of scale - Product differentiation – Capital requirements – Switching Costs – Access to distribution channels –

42. Competitive Forces2. Threat of Substitute Products When organizations in an industry are faced with threats from substitute products, they are likely to find demand for their products are relatively sensitive to price

43. Competitive Forces3. Bargaining Power of Customers Whether the customers purchase a substantial proportion of the total sales of the producer Whether the customer purchase from the industry, represents a large or small proportion of the customer’s total purchases. Whether switching costs are high or low Whether the products are branded or unbranded

44. Competitive Forces4. Bargaining Power of Suppliers The number of suppliers in the industry The importance of the suppliers products to the firm Whether the supplier has a differentiated product Whether the switching cost of the customers are high

45. Competitive Forces5. Rrivalry amongst current competitors in the industry Whether there is a large number of equally balanced competitors The rate of growth in the industry – when the market growth is slow companies tends to grab share from each other intensifying competition. Whether buyers can switch easily from one supplier to another. Capacity and unit cost of each competitor

46. Types of business strategies • Corporate level strategies • Strategic alliance • Diversification • Sticking to core competencies • Business level strategies • Product differentiation • Focus or niche • Cost leadership • Functional level strategies • Find and retain best people • High speed or timely service

47. Operating plans, policies, procedures, and rules

48. Operating plans, policies, procedures, and rules • Operating plans • The means through which strategic plans alter the destiny of the firm • Policies • General guidance to follow in making decisions and taking actions • Procedures • A customary method for handling an activity. It guides action rather than thinking • Rules • A specific course of action or conduct that must be followed. It is simplest type of plan

49. Management by objectives (MBO)

50. Management by Objectives (MBO) • Management by Objectives (MBO) • A style of management which attempts to relate organizational goals to individual performance and development through the involvement of all levels of management. • The underlying basis is • Setting the objectives and targets • Participation by individual managers in agreeing unit objectives and criteria for performance • Continual review and appraisal of results