Principles of Management - Chapter 3

Principles of Management

Dr. Karim KobeissiIslamic University of Lebanon - 2013

3Chapter

Planning

Strategy

A strategy is an IDEA, a

conceptualization of HOW a

goal could be achieved.

Strategy Vs Tactic

• A tactic is an activity you take to execute the strategy.

• Different tactics may be deployed as part of a single strategy. For

example, one strategy to gain market share would be brand building.

As part of a company's brand building strategy, they may adopt

different tactics like online advertising and celebrity supports.

PlanningPlanning is a process that managers use to identify and select

appropriate goals and courses of action for an

organization.

The organizational plan (Business Plan) that results from the

planning process details the goals of the organization and

specifies how managers intend to attain those goals.

Thus, planning is both a goal-making and a strategy-making

process.

Why Planning Is Important

Planning determines where the organization is now and deciding where it will be in the future.

– Sense of direction and purpose: planning sets goals and

strategies for all managers.

– Coordination: plans provide all parts of the firm with

understanding about how their systems fit with the whole.

– Control: Plans specify who is responsible for the

accomplishment of a particular goal.

Qualities of Effective Plans (Fayol)

• Unity– Only one central plan is in effect at any given time to achieve an

organizational coal.

• Continuity– Planning is an ongoing process in which managers build and refine

previous plans continually at all levels –corporate, business and functional - so that they fit together into one broad framework.

• Accuracy– Managers have incorporated and utilized all available information at

their disposal in order to create the current plan.

• Flexibility– The plan can be alter as the situation changes.

Levels of Planning

In large organizations planning usually takes place at three levels of management:

1)Corporate Level.

2)Business or Division Level.

3)Department or Functional Level.

Levels of Planning at General Electric

Levels of Planning (con)

A division is a business unit (Strategic Business Unit) that

competes in a distinct industry; GE has over 150 divisions,

including GE Aircraft Engines, GE Financial Services, GE Lighting,

GE Motors, GE Plastics, and NBC. Each division has its own set

of divisional managers.

In turn, each division has its own set of functions or departments

—manufacturing, marketing, human resource management,

R&D, and so on. Thus, GE Aircraft has its own marketing

function, as do GE Lighting, GE Motors, and NBC.


• Corporate-Level Plan– Top management’s decisions pertaining to the

organization’s mission, overall strategy, and structure.– Provides a framework for all other planning.

• Corporate-Level Strategy– A plan that indicates in which industries and national

markets an organization intends to compete.


• Business-Level Plan– Divisional managers’ decisions pertaining to division’s

long-term goals, overall strategy, and structure.• Identifies how the business will meet corporate goals.

• Business-Level Strategy1

– A plan that indicates how a division intends to compete against its rivals in an industry.• Shows how the business will compete in market.


• Functional-Level Plan– Functional managers’ decisions pertaining to the

goals that they propose to pursue to help the division attain its business-level goals.

• Functional Strategy1

– A plan that indicates how a functional department intends to achieve its goals.

Who Plans?

• Corporate-Level Plans– Plans developed by top management who also are responsible for

approving business- and functional-level plans for consistency with the corporate plan.

– Top managers should seek input on corporate level issues from all management levels.

• Business-Level Plans– Plans developed by divisional managers who also review functional

plans.

• Both management levels should also seek information from other levels.

Time Horizons of Plans

• Time Horizon– The intended duration of a plan.

• Long-term plans are usually 5 years or more.• Intermediate-term plans are 1 to 5 years.• Short-term plans are less than 1 year.

– Corporate and business-level goals and strategies require long- and intermediate-term plans.

– Functional plans focus on short-to intermediate-term plans.– Most organizations have a rolling planning cycle to update long

and intermediate term plans constantly.

Types of Plans

• Standing Plans– Used in programmed decision situations.

• Policies are general guides to action1.• Rules are formal written specific guides to action2.• Standard operating procedures (SOP) specify an exact series of

actions to follow3.

• Single-Use Plans– Developed for a one-time, nonprogrammed issue.

• Programs: integrated plans achieving specific goals4.• Project: specific action plans to complete programs5.

The Planning Process

Planning is a three-step activity: 1) Determining the organization’s mission and goals.2) Formulating Strategy- Managers analyze the

organization’s current situation and then conceive and develop the strategies necessary to attain the organization’s mission and goals.

3) Implementing Strategy- Managers decide how to allocate the resources and responsibilities required to implement those strategies between people and groups within the organization.

The Three Steps Of The Planning Process

The Three Steps Of The Planning Process

I- Determining the Organization’s Mission and Goals

• Defining the organization’s overriding purpose and its goals.

II- Formulating Strategy

• Managers analyze current situation and develop the strategies

needed to achieve the mission.

III- Implementing Strategy

• Managers must decide how to allocate resources between

groups to ensure the strategy is achieved.

I- Determining the Organization’s Mission and Goals

• Mission Statement

- A mission statement is a statement of the company’s purpose. A

mission statement is useful for putting the spotlight on what

business a company is presently in and the customer needs it is

presently trying to serve. A mission statement deals with the

present and answers the question “What is our business and what

are we trying to accomplish on behalf of our customers?” (Thomas

Strickland, p.4, 28).

Exemples of Mission Statements

Determining the Organization’s Mission and Goals (con)

- To determine an organization’s mission, managers must first define its business by asking three questions:

• Who are our customers?• What customer needs are being satisfied?• How are we satisfying customer needs?

- Once the business is defined, managers must then establish a set of primary goals to which the organization is committed. These goals give the company a sense of direction and commitment.

Levels of Planning


Goals should be SMART:

• Specific - are your objectives stated in a way that is precise about what you are hoping to achieve?

EXAMPLE: A general goal would be, “Get in shape.” But a specific goal would say, “Join a health club and workout 3 days a week.

• Measurable - Can you quantify each objective, i.e. can you use a unit of measure such as market share in percentage or currency ($) or other to provide a way to check your level of success?

To determine if your goal is measurable, ask questions such as……How much? How many?


• Attainable - Far too often, small businesses can set goals beyond reach. No one has ever built a billion dollar business overnight. Venture capitalists and angel investors discard countless business plans of companies with outlandish goals. Dream big and aim for the stars but keep one foot firmly based in reality. Check with your industry association to get a handle on realistic growth in your industry to set smart goals.

• Relevant - Achievable business goals are based on the current conditions and realities of the business climate. You may desire to have your best year in business or increase revenue by 50%, but if a recession is looming and 3 new competitors opened in your market, then your goals aren’t relevant to the realities of the market.

• Time specific - When are you hoping to achieve these objectives, you need to define a timing plan with target timing for each specific objective?

II- Formulating Strategy

- Managers analyze the current situation to develop strategies for achieving the mission.

• SWOT Analysis– A planning exercise in which managers identify

organizational/internal strengths and weaknesses,• Strengths (e.g., superior marketing skills)• Weaknesses (e.g., outdated production facilities)

– and external opportunities and threats.• Opportunities (e.g., entry into new related markets).• Threats (increased competition).

Formulating Strategy (con)

• Porter’s Model Porter’s Model is a framework for industry analysis and business strategy development

formed by Michael E. Porter. It determine the strength of competitive forces within

an industry and therefore attractiveness of a market. Three of Porter's five forces

refer to competition from external sources. The remaining two are internal threats.

Depending on their combination, the competition can be cut-throat and thus result in

poor profits or it may be moderate and result in higher profits. Firms can monitor the

alignment of the five forces to match their strengths and weaknesses to the markets

structure, to anticipate market changes, to identify diversification opportunities, to

reconfigure the rules of competition, and to ensure that their dominant position

remains undiminished.

Formulating Strategy (con)

When Porter’s Model and/or SWOT Analysis are applied, managers can begin

developing strategies. These strategies should allow the organization to attain its

goals by taking advantage of opportunities, countering threats, building

strengths, and correcting organizational weaknesses.

Formulating Corporate-Level Strategies

Corporate-level strategy is a plan of action that determines

the industries and countries an organization should

invest its resources in to achieve its mission and goals.

The principal corporate-level strategies that managers use

are: 1) Concentration on a Single Industry, 2)

Diversification 3) Vertical Integration, and 4)

International Expansion.


1. Concentration in Single Industry– Can become a strong competitor, but can be risky.• Knowledge of current market can be a competitive

advantage. (core business logics/core competence)• Concentration creates a large degree of business risk if the

single market in which the firm competes declines.

– Concentration is a logical strategy if downsizing organization to increase performance by exiting under-performing businesses.


2. Diversification– Related diversification into similar market areas to

build upon existing competencies. • Synergy: two divisions working together perform better than

the sum of their individual performances (2+2=5).

– Unrelated diversification is entry into industries unrelated to current business.• Attempts to build a portfolio of unrelated firms to reduce

risk of single industry failure.• Unrelated firms can be more difficult to manage.


3. Vertical Integration– A strategy that allows an organization to create value

by producing its own inputs or distributing its own products.• Backward vertical integration occurs when a firm seeks to

reduce its input costs by producing its own inputs.• Forward vertical integration occurs when a firm distributes

its outputs or products to lower distribution costs and ensure the quality service to customers.

– A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown.

Stages in a Vertical Value Chain


4. International Expansion• Global strategy– Selling the same standardized product and using the same basic

marketing approach in all countries.• Standardization provides for lower production cost.• Ignores national differences that local competitors can address to their

advantage.

• Mulitdomestic Strategy– Customizing products and marketing strategies to specific

national conditions.• Helps gain market entry and build local market share.• Raises production costs

Formulating Business-Level Strategies

- Porter’s Business-Level Strategies• Michael Porter formulated a theory of how managers can

select a business-level strategy to give them a competitive advantage in a particular market or industry. – According to Porter, managers must choose between two basic

ways of increasing the value of an organization’s products: • Differentiating the product to add value or • Lowering the costs of value creation.

• Porter also argues that managers must choose between serving the whole market or serving just one segment.


Based upon those choices, one of the four following

strategies must be selected:

1) Overall Low-Cost Strategy.

Driving the organization’s total costs down below the total costs

of rivals.

• Manufacturing at lower costs, reducing waste.

• Lower costs than competition means that the low cost producer can sell

for less and still be profitable.


2) Overall Differentiation StrategyOffering products different from those of competitors.• Differentiation must be valued by the customer in order for

a producer to charge more for a product.

3) Focused Low-Cost StrategyServing only one market segment and being the

lowest-cost organization serving that segment.


4) Focused Differentiation Strategy

Serving only one market segment as the most differentiated

organization serving that segment.

Porter’s Business-Level Strategies

Formulating Functional-level Strategies

- A functional level strategy is a plan that indicates how an organizational function intends to achieve its goals.Seeks to have each department add value to a good or

service. Marketing, service, and production functions can all

add value to a good or service through:• Lowering the costs of providing the value in products.• Adding new value to the product by differentiating.

Functional strategies must fit with business level strategies.

Goals for Successful Functional-level Strategies

1. Attain superior efficiency as a measure of outputs for a given unit of input.

2. Attain superior quality by producing reliable products that do their intended job.

3. Attain superior innovation developing new and novel features that can be added to the product or process.

4. Attain superior responsiveness to customers by acknowledging their needs and fulfilling them.

III- Implementing Strategy

After identifying appropriate strategies, managers confront the challenge of putting

those strategies into action for the purpose of changing the organization. Strategy

implementation is a five-step process:

1) Allocating responsibility for implementation to the appropriate individuals or groups.

2) Drafting detailed action plans that specify how a strategy is to be implemented.

3) Establishing a timetable for implementation that includes precise, measurable goals linked

to the attainment of the action plan.

4) Allocating appropriate resources to the responsible individuals or groups responsible for

the attainment of corporate divisional, and functional goals.

5) Holding specific individuals or groups responsible for the attainment of corporate,

divisional, and functional goals.

Principles of Management - Chapter 3

Documents

Transcript of Principles of Management - Chapter 3