Management Talk

• “I see a future extending far longer than the twenty-five years Starbucks has lived so far. In annual strategic planning sessions, our senior management team has been refining [our] vision to make sure it is both audacious and achievable. The company we envision is a great, enduring one, still zealous about its mission of bringing great coffee to everyone everywhere.”

– Howard Schultz, Starbucks Chairman and CEO

What is the Planning Process?

10.1

Why Plan?

• Key executives in every company spend a considerable amount of time planning– Important to the success of the company!

• Planning is the process that businesses use to decide the company’s goals for the future and ways to achieve those goals

Why Plan?

• Planning prepares managers and businesses to meet the challenges of economic, social, technological, and political changes

• Plans allow businesses to prepare for the future

Effective Planning

• Everything that an effective manager does involves planning!

• Effective planners encourage employees from all areas to participate in plan development– Good suggestions can come from any level of

management– Employees have a better understanding of the

company’s overall direction– Employees feel they are part of the process and

become committed to the plan– Positive participation and pro-company attitudes

improve morale and loyalty to the organization

Effective Planning

• Gives managers experience and knowledge in understanding the forces that affect a company’s operations– From new technologies to changes in tax laws

• The best managers use a combination of formal and informal planning– Develop plans that look five months ahead as

well as five years ahead

Formal Planning

• The systematic studying of an issue and the preparation of a written document to deal with the problem– Short-range plans cover a one-year period of

time– Long-range plans cover a three-to-five year

period of time– Intermediate plans cover the time span

between short-range and long-range• Usually one to three or one to five years

Operational vs. Strategic Plans

• Operational– Short-range planning– Focuses on forming

ideas for dealing with specific functions in the company

– Ex: production of new products

• Strategic– Long-range planning– Done by highest

management levels• President, vice-

president, chief operating officer

Grand Strategies

• Provide overall direction for the company• Deal with most important aspects of the company’s

operations– Products the company will manufacture and services it will

provide– Number of employees it has– How much money the company will spend on salaries and

benefits– How the company will market its products to consumers and

other businesses

• Developed at the highest levels of the company• Four types: growth, stability, retrenchment, combination

Grand Strategies

• Growth strategy– Plans developed when a company tries to

expand sales, products, or number of employees

• Concentration strategy• Vertical integration• Diversification

Grand Strategies

• Stability strategy– Plan to keep the company operating at the

same level that it has for several years• Used when a company is satisfied with its profits

and not seeking growth• Company growth is possible, but will be very slow• Peet’s Coffee and Tea

Grand Strategies

• Retrenchment (defensive) strategy– Plan to reverse negative trends in a company

• Such as losses in sales or to reduce its costs

– Used to overcome a crisis or problem (competition)

• Turnaround: regain success• Divestiture: company sells some part of its

business• Liquidation: entire company is sold or dissolved

Grand Strategies

• Chrysler corporation was on the verge of bankruptcy when it hired Lee Iacocca as their new CEO. He let go of a large number of employees and closed 20 plants. Remaining workers agreed to give up part of their salaries and benefits to save the company and by 1982 Chrysler began to show profit.

• What kind of strategy did Iacocca implement?

Turnaround Strategy

Grand Strategies

• Combination strategy– A plan that employs several different

strategies at once– It’s possible that all issues cannot be

addressed by implementing just one strategy– Managers must establish priorities or the

competition will gain an advantage– Coca Cola, 1989

• Divested and expanded at the same time

Business Strategies

• Plans that pertain to single departments or units within a company– Ex: a marketing issue as how to reach new

customers or how to develop a new product– Grand strategies affect the entire corporation

• Most effective when they consider the creative input of all employees

• Types: overall cost leadership, differentiation, focus strategies

Business Strategies

• Overall cost leadership– Designed to produce and

deliver a product or service for a lower cost than the competition

– Can be very effective when there are many buyers who are price-sensitive

– Wal-Mart, BIC, McDonald’s

Business Strategies

• Differentiation– Strives to make the product or service unique– Customers are willing to pay average to high

prices for unique products/services– Companies tend to emphasize quality– Can be achieved through a superior product,

a quality image, or a brand image• Gillette, Jaguar, Adidas sportswear

Business Strategies

• Focus– Directs marketing and sales

towards a small segment of the market

– Company can serve a well-defined market better than competitors that serve a broader market

– Red Lobster, Federal Express, Midas

Business Strategies

• Colgate-Palmolive has a 70 percent market share of toothpaste sold to Hispanics. This is attributed to an understanding that three-quarters of the Hispanics who watch TV or listen to the radio do so with Spanish-language stations.

• What kind of business strategy does this illustrate?

Focus Strategy

Functional Strategies

• Short-range operational plans that support business strategies by emphasizing practical implementation

• Function or use often defines plans– Sales and marketing– Production– Financial– Research and

development– Personnel

Functional Strategies

• Many functional plans are interrelated

• Personnel plan directly related to a financial and production plan– The number of employees a company hires,

and how much they are paid, depends on a company’s finances and the amount of work needed

• Boeing example