UNIT II - PLANNING
Nature and purpose of planning - Planning
process - Types of plans – Objectives -
Managing by objective (MBO) Strategies -
Types of strategies - Policies – Decision
Making - Types of decision - Decision Making
Process - Rational Decision Making Process -
Decision Making under different conditions.
Definition of Planning
According to Koontz & O’Donell, “Planning is deciding in
advance what to do, how to do and who is to do it. Planning
bridges the gap between where we are to, where we want to go. It
makes possible things to occur which would not otherwise occur
The
process of setting goals, developing strategies, and
outlining
tasks and schedules to accomplish the goals.
It is concerned with ends (what is to be done) as well as with
means (how it is to be done)
Types of planning
•Informal: not written down, short-term focus; specific
to an organizational unit
•Formal: written, specific, and long-term focus,
involves shared goals for the organization
SIGNIFICANCE / PURPOSE OF PLANNING
1.Minimizes uncertainty
2.Provides direction
3.Minimizes waste and redundancy
4.Emphasis on objectives
5.Promotes coordination
6.Facilitates control
7.Improves competitive strength
8.Economical operation
9.Encourages innovation
10.Tackling complexities of modern business
Difference between strategic and tactical planning
Strategic planning Tactical planning
Decides the major goals & policies of
allocation of resources
Decides the detailed use of resources
Done at higher levels of managementLower levels of management
It is Long-term It is short-term
Based on long term forecasts about
technology, political environment etc
and is more uncertain
Based on past performances and is
less uncertain
Less detailed More detailed
Planning in the Hierarchy of Organizations
Top
Executives
Middle-Level
Managers
First-Level
Managers
Strategic
Planning
Operational
Planning
Process / Steps in Planning
FORMULATING
SUPPORTING
PLANS
CHOOSING AN
ALTERNATIVE
COMPARING
ALTERNATIVES
IN LIGHT OF
GOALS SOUGHT
NUMBERIZING
PLANS
BY MAKING
BUDGETS
IDENTIFYING
ALTERNATIVES
BEING AWARE OF
OPPORTUNITY
SETTING
OBJECTIVES
OR GOALS
CONSIDERING
PLANNING
PREMISES
Process / Steps in Planning
1. BEING AWARE
OF
OPPORTUNITY
2. SETTING
OBJECTIVES
OR GOALS
3. CONSIDERING
PLANNING
PREMISES
In the Light of,
The Market
Competition
What customers want
Our strengths
Our weaknesses
Where we want to be and
what we want to accomplish
and when
In what environment,
- Internal or external
- will our plans
operate/
4. IDENTIFYING
ALTERNATIVES
5. COMPARING
ALTERNATIVES
IN LIGHT OF
GOALS SOUGHT
6. CHOOSING AN
ALTERNATIVE
What are the most
promising alternatives
to accomplishing our
objectives
Which alternative will
give us the best
chance of meeting our
goals at the lowest
cost and highest profit
Selecting the course
of action we will
pursue
7. FORMULATING
SUPPORTING PLANS
Such as plans to :
•Buy equipment
•Buy materials
•Hire and train workers
•Develop a new product
8. NUMBERIZING
PLANS
BY MAKING
BUDGETS
Develop such budgets as :
• Volume and price of sales
• Operating expenses
necessary for plans
• Expenditure for capital
equipment
Process of MBO
Organizational Purpose
&Objectives
Superior’s Objectives
Subordinate agreed objectives
Superiors
Recommendation for
Subordinates objective
Key Result Areas (KRA)
Planning Premises
Subordinates
statement of
Objectives
Periodic Review and Appraisal
Subordinates performance
Matching
Resources
•Strategy
Strategy is a course of action through which an
organization relates itself with environment so as to
achieve its objectives
•Strategic Management
The set of managerial decisions and actions that
determines the long-run performance of an
organization
•The Strategic management Process
Identify the
organization’s
current
mission,
objectives
and
strategies
Analyze the
organization's
resource
Analyze the
environment
Reassess the
organization's
mission and
objectives
Identify
strengths
and
weakness
Identify
opportunitie
s and
threats
Formulate
strategies
Evaluate
result
Implement
strategies
1
9
8
7
6
3
5
4
2
SWOT analysis of strengths, weaknesses,
opportunities, and threats.
SS
TT
OO
WW
Strengths
• Technological skills
•Leading brands
•Distribution channels
•Customer loyalty
•Production quality
•Scale
•Management
Weaknesses
•Absence of important skills
•Weak brands
•Poor access to distribution
•Low customer retention
•Sub-scale
•Management
Opportunity
•Changing Customer
Tastes
•Technological Advances
•Change in population age
•Change in government
politics
•New distribution Channels
Threats
•Closing of geographic
markets
•Tax increases
•Change in government
politics
•New distribution Channels
INTERNAL FACTORS
EXTERNAL FACTORS
N
E
G
A
T
I
V
E
SWOT
ANALYSIS
Three levels of strategy in organizations—corporate,
business, and functional strategies.
Reliance Industries
•EXPLORATION & PRODUCTION - Reliance's oil and gas
•PETROLEUM REFINING & MARKETING
•PETROCHEMICALS
•TEXTILES
•RETAIL
•COMMUNICATIONS
•INFRASTRUCTURE
•JIO - broadband and digital services
TYPES OF STRATEGIES
Grand strategies
1. GROWTH
1.Merger
2.Acquisition
2. STABILITY
3. RETRENCHMENT
Or
Defensive
4. COMBINATION
•Porter has outlined three generic strategies that
can be used to gain competitive advantage over other
firms operating in the same industry. They are cost
leadership, differentiation and focus.
Cost Leadership
1. Wal-Mart
•Wal-Mart Stores Inc. has been successful using its strategy of
everyday low prices to attract customers. The idea of everyday low
prices is to offer products at a cheaper rate than competitors on a
consistent basis, rather than relying on sales.
•Wal-Mart is able to achieve this due to its large scale and efficient
supply chain. They source products from cheap domestic suppliers
and from low-wage foreign markets. This allows the company to sell
their items at low prices and to profit off thin margins at a high
volume.
2. Reliance Industries
•has become a global leader in various business activities based on
innovationand cost by achieving more efficient production arising
from experience and economies of scale, innovationin production
methods, and differential Low-Cost Access to Productive Inputs.
Example of Companies in India applying
differentiation strategy successfully
1. Titan Watches have made available to the Indian consumer products that
have an internationallook, carry the image of premium quality and
therefore are able to set their prices higher than their
competitors in the
Indian watch market.
2. Timex Watches in India faced with the absolutely dominant position of
Titan Watches in the Indian watch market, launched a complete range of
Plastic watches that offered a refreshing product alternative to the market
particularly to the youth market ( 18 to 35 age group) and was able
to
achieve a staggering sales volume of 2 million watches in just two
years,- a figure that the market leader took more than five years to
reach
in considerably less competitive conditions
Examples of Companies in India applying focus
or strategy successfully
1. Ashok Leyland
•manufactured heavy duty vehicles almost exclusively in India
constituted a niche market segment and product group for the
company
2. Satyam Cinemas
•totally redefined the movie watching experience by focusing on
brand new infrastructure and introduced the concept of Dolby
Sound and multiplex in Tamilnadu. Satyam Cinemas are the best
theatres in Chennai for movies. They focused on movies segment
only and priced the tickets slightly higher to create a niche area
for themselves by redefining the movie experience. With cinema
halls centrally located within the city and excellent car parking
and online tickets and food booking facilities created one of
the
best environment for moviegoers
Tools used in Strategic Management
1.The TOWS Matrix
- A modern tool for analysis of the situation
2. The Portfolio Matrix (BCG Matrix)
- A tool for allocating resources
Internal
Factors
External
Factors
Internal Strengths (S)
E.g., Strengths in
Management, operations,
finance, Hr, engineering
Internal Weaknesses (W)
E.g., in areas shown in the
box of strengths
External Opportunities (O)
E.g., Current and future
economic conditions , political
and social changes, new
products, services and
technology
SO Strategy
(Maxi-Maxi)
Potentially the most
successful strategy,
utilizing the organization’s
strength to take advantage
of opportunities
WO Strategy (Mini-Maxi)
e.g., - developmental
strategy to overcome
weaknesses in order to take
advantage of opportunities
External Threats (T)
E.g., lack of energy,
competition, and areas similar to
those shown in the “
opportunities” box above
ST Strategy (maxi-mini)
e.g., use of strengths to
cope with threats or to
avoid threats
WT Strategy (Mini-Mini)
e.g., retrenchment,
liquidation, or joint venture
1. The TOWS Matrix for strategy formulation
Dynamics of the TOWS Matrix
•Strength: Internal characteristics that have the potential to
improve the organization's competitive situation. R&D,
technology, vast distribution network, geographic location. All
these, comprise of organizational strength.
• Weakness is an internal characteristic that leaves the
organization potentially vulnerable to strategic moves by its
competitors. Competition, government regulations etc. comprise
organization's weakness.
•Opportunity is an environmental condition, that offers
significant prospects for improving an organization's situation,
in relation to its competitors.
•Threat is an environmental condition that can undermine an
organization's competitive situation.
The BCG matrix approach to corporate strategy
formulation.
a. Market Growth rate : The growth of FMCG
industry
b. Market Share: The share of Nestlé India
in
FMCG Industry
Example : The top ten India FMCG brands are:
1.Hindustan Unilever Ltd.
BCG Matrix
•Developed by the Boston Consulting Group
•Considers market share and industry growth rate
•It is a widely used portfolio management method for
evaluating the performance of business units.
•There are four quadrants in a BCG matrix: question
marks, stars, cash cows and dogs.
•On the X axis, market growth is measured, which
indicates the level of market attractiveness
•On the Y axis, market share is measured, that serves as a
measure of the company's strength in the market
•Question marks: Question marks, are low-share business
units, in a high-growth market. They require a lot of cash,
for maintaining the market share. Any business has to think
between building a question mark into stars or whether they
have to be phased out.
•Stars: Stars are high-growth, high-share businesses. Very
often, they need heavy investment for financing their rapid
growth. Eventually, their growth slows down and they turn
into cash cows.
•Cash cows: Cash cows are low-growth and high-share
businesses. Such established and successful SBU's, require
less investment to maintain their market share. They generate
a lot of surplus that a company can use to pay its bills, or
invest in other businesses.
•Dogs: Dogs are low-growth and low-share businesses. They
may generate enough surplus to maintain themselves, but do
not hold out the promise to be a large source of cash.
Defensive strategy
Defensive strategy focuses on the desire or need to
reduce organizational operations, usually through cost
reductions (cutting on non-essential expenditure) and
asset reduction (disposing off equipment, selling land
etc.).
The most common forms of defensive strategies are harvest,
turnaround, divestiture, and bankruptcy.
• Harvest strategy: Harvest strategy entails minimum amount
of investment with maximum short-term profits.
• Turnaround strategy: Turnaround strategy is designed to
reverse the negative state of business.
• Divestiture strategy: If the company is not doing well, it can
sell or divest its business.
• Bankruptcy: A situation where the company is unable to pay
its debts, and seeks legal support. After it regains its
financial position, it can repay its debts.
Forces in an Industry Analysis
Substitutes
Buyers
Bargaining
Power of
Buyers
Threat of
Substitutes
Suppliers
Bargaining
Power of
Suppliers
New
Entrants
Threat of
New Entrants
Intensity of
Rivalry Among
Current
Competitors
Five Competitive Forces
•Threat of New Entrants
–The ease or difficulty with which new competitors can
enter an industry
•Threat of Substitutes
–The extent to which switching costs and brand loyalty
affect the likelihood of customers adopting substitute
products and services
•Bargaining Power of Buyers
–The degree to which buyers have the market strength to
hold sway over and influence competitors in an industry
Five Competitive Forces
•Bargaining Power of Suppliers
–The relative number of buyers to suppliers and
threats from substitutes and new entrants affect
the buyer-supplier relationship
•Current Rivalry
–Intensity among rivals increases when industry
growth rates slow, demand falls, and product
prices descend
POLICIES
A policy is general guideline for decision-making.
In the words of George. R. Terry, “Policy is a verbal, written or
implied overall guide, setting up boundaries that supply the
general limits and direction in which managerial action will
take place.”
TYPES OF POLICIES
Classification on the basis of sources
–Originated policies: These are policies which are usually
established formally and deliberately by top mangers for
the purpose of guiding the actions of their subordinates and
also their own.
–Appealed Policies: Appealed policies are those which arise
from the appeal made by a subordinate to his supervisor
regarding the manner of handling a given situation.
–Implied Policies: these are also policies which are stated
neither in writing nor verbally.
–Externally imposed policies: Policies are sometimes
imposed on the business by external agencies such as
government, trade associations and trade unions.
The Decision-Making Process
1.Problem - tired of renting an apartment and want To Buy a house
2. Decision criteria
a. You can only afford $600.00 a month for a mortgage payment.
b. You do not own a car and have to take the bus to work, so the house needs to be near a bus station.
c. You need three bedrooms and two bathrooms.
3. we could review the following potential alternatives:
a.If the house you really like is more money than you can afford, you can cut back on other expenses or
get a roommate to help pay the monthly mortgage.
b.You could purchase a bike and ride to the bus stop if it's not close enough and take your bike to work
with you if you find a home you like and can afford that is not near a bus stop.
c. Reduce your desire to only two bedrooms with the thought that a smaller home will be less money.
Rational decision Making process
The Problem
Is Clear and
Unambiguous
A Single
Well-defined
Goal is to
Be achieved
All alternatives
And
Consequences
Are known
Preferences
Are
clear
Preferences
Are constant
And stable
No time or
Cost
Constraints
exist
Final
Choice
Will
Maximize
Economic
payoff
Lead To
Rational Decision Making
•Nature of problems and decision making in the
organization
Unstructured
Structured
Highest Level
Lowest Level
O
rg
a
n
iz
a
tio
n
a
l h
ie
ra
rc
h
y
Programmed
Decisions
Non-
Programmed
Decisions
Organizational
Levels
Nature of
Problems
Nature of
Decision Making