Chapter 1 Chapter 8 Manager as

Manager as Planner and Strategist

Critical Thinking
Critical thinking is the key planning skill and planning is the foundation upon which any business – large or small – is built.
If you cannot think critically, you will not be an effective planner and you will not be successful in any aspect of business that involves it.

Critical Thinking and Planning
Critical thinkers are skeptical of easy, obvious assumptions. They ask many questions and look for “root” causes before picking a path, instituting a policy or attempting to solve a problem.

Planning
“ The secret of genius is an infinite capacity for taking pains .”
Frederick the Great

War Story

Overview
“ Planning is what keeps you on your feet while life continuously pulls the rug out from under you.”
Olson

Overview
How planning can help partially predict the future and provide flexibility to capture it
The steps of the planning process
The basics of SWOT analysis
The basics of PDCA
How a focus just on continually improving operational efficiency and effectiveness can contribute to failure (Examples: Dell and Wal-Mart)

Overview
The difference among corporate-, business- and functional-level strategies.
How strategy implementation can determine managers’ ability to achieve an organization’s mission and goals.
The vital importance of Core Ideology, corporate culture and BHAGs in creating sustainable competitive advantage (the ultimate goal of all business strategy)

The Root Objective of Planning
All business planning starts with three questions:
Who will buy my product or service?
What do they want in the product and the sales and service processes?
How can we give it to them in ways that will separate us from competitors, capture customer loyalty and build sustainable competitive advantage?

The Nature of the Planning Process
Planning
Identifying and selecting appropriate goals and detailed courses of action
Strategy
The cluster of decisions and actions managers make and take to help an organization reach its goals.

But First Comes Core Ideology
Core Ideology
Core Values (What do we hold most dear?)
Core Purpose (Why do we exist?)
These two comprise corporate DNA
Like a star on the horizon, corporate DNA is an unchanging guide determining direction.

Thoughts About Core Ideology
Need not be overtly stated: Nike is the Greek goddess of victory. The campus of her corporate namesake says “we live to crush competitors.”
A clear and passionate statement of corporate ideology can be useful in recruiting the best and brightest. “The best people are volunteers because they can work anywhere.” Peter Drucker
Core ideology is not incompatible with diversity. Just because people share core values doesn’t mean they look alike.

Thoughts (cont).
I believe core ideology is aimed primarily in not out. Its primary purpose is to inspire employees, not to differentiate the company from competitors.
Successful companies (J&J, GE, Toyota) often follow a stakeholder , not a shareholder , philosophy and have among their core values making a useful contribution to society.
“ Maximizing shareholder wealth” is not a core value. Most employees won’t give their hearts, souls and free time just to add 20 cents per share to the company’s bottom line.

These Concepts Follow Core Ideology
Vision (Where are we going?)
Strategy (How do we plan to get there?)
Tactics (roles, resources and responsibilities)
The above (which move from general to specific) can be adapted to a changing outside environment.

Strategy According to Michael Porter
Harvard’s ever-eloquent Michael Porter says strategy is a unique vision and a set of complementary activities combined to create sustainable competitive advantage.
Unique vision differentiates the company; interlinked, complementary activities based on inherent corporate strengths are difficult for competitors to copy – avoiding the competitive convergence resulting from benchmarking.
WHAT DO THESE FANCY WORDS MEAN?

Other Porter Thoughts On Strategy
Without a unique, controlling strategy, continuous improvement of operational effectiveness and efficiency produces competitive convergence, product commoditization, price erosion, and mutually assured destruction (unless one of the players is much better at it than the others).
Focusing only on improving operational efficiency and effectiveness drives down costs, prices and profit assuring no sustainable competitive advantage.
Customers love it, but the companies eventually starve.

The Nature of the Planning Process
Mission Statement
A broad declaration of organizational purpose identifying products and customers and distinguishing the company from competitors.
A VERBAL BANNER

Most Mission Statements are BS
Too long; all things to all people; read like they were written by a committee of lawyers
Do not:
(1) direct and motivate employees
(2) differentiate from competitors

Mission Statements
Cisco
Cisco solutions provide competitive advantage to our customers through more efficient and timely exchange of information, which in turn leads to cost savings, process efficiencies , and closer relationships with customers, prospects, business partners, suppliers and employees.

Mission Statement
Wal-Mart
We work for you. We think of ourselves as buyers for our customers, and we apply our considerable strengths to get the best value for you. We’ve built Wal-Mart by acting on behalf of our customers, and that concept continues to propel us. We’re working hard to make our customers’ shopping easy.

Mission Statement
AT&T
We are dedicated to being the world’s best at bringing people together – giving them easy access to each other and to the information and services they want and need – anytime, anywhere.

Mission Statements
Cisco: We build customers’ competitive edge by enabling them to share information more efficiently and effectively.
Wal-Mart: We help people live better every day by offering top value at low prices.
AT&T: The best at bringing people together.
IF YOU CAN’T SAY IT SIMPLY, DON’T BOTHER!

Planning Process Stages
Determine the organization’s mission and goals.
Look in-look out; analyze your company and the outside environment (SWOT), then formulate a strategy to achieve the mission and goals.
Implement the strategy by assigning R esponsibility, allocating R esources and demanding R esults (the three “R’s”).
Continuously improve – Plan Do Check Act (PDCA).
Occasionally stretch, inspire and energize the organization with a BHAG.
Don’t hesitate when an opportunity arises.

Carpe Cuniculus
A brief story about seizing opportunities starring my two cats – Linus and Hunter

Big Hairy Audacious Goal (BHAG)
A BHAG is a long-term (10-30 year) goal that can be achieved only if an organization looks beyond its current capabilities and builds new, stronger ones. BHAGs force management to be visionary – rather than just strategic and tactical. BHAGs also force an organization to gulp for air.

BHAG
“ I will build a motor car for the great multitude…It will be priced so low that any man making a good salary will be able to afford it…When I’m through, everybody will have one, the horse will have disappeared from our highways, the automobile will be taken for granted, and a large number of men will be employed at good wages.”
Henry Ford when he founded Ford Motor Company

BHAG
“ I want twice the fuel economy of a comparable internal-combustion-engine car.”
Toyota Chairman Hiroshi Okuda as he suddenly doubled the fuel-efficiency goal from a 50% improvement in the middle of the Prius development program. You can bet this BHAG caused the engineers to take a big gulp for air.

BHAG
“We will become the most powerful, most serviceable, most far-reaching world financial institution that has ever been.”
City Bank when it was still just a small regional company

Levels of Planning
A WATERFALL
Corporate-Level Plan
Top management’s decisions pertaining to the organization’s vision, values, mission, overall strategy, and structure. Provides a framework for all other planning.
Corporate-Level Strategy
A plan that indicates in which industries and markets and how an organization intends to compete.

Levels of Planning
Business-Level Plan:
Divisional managers’ decisions pertaining to division’s long-term goals, overall strategy, and structure (Lexus, Toyota, Scion).
Identifies how the business will meet corporate goals.
Business-Level Strategy
A plan that indicates how a division intends to compete against its rivals in an industry
Shows how the business will compete in market.

Levels of Planning
Functional-Level Plan
Functional managers’ decisions pertaining to the goals they propose to pursue to help the division attain its business-level goals.
Functional Strategy
A plan that indicates how a function intends to achieve its goals.

LINKAGE
Corporate, business and functional planning all has to be tightly linked to produce unity of focus and purpose throughout the organization (Fayol).
Everyone pulling on the same rope in the same direction.

Time Horizons of Plans
Time Horizon
The intended duration of a plan.
Long-term plans are usually 5 years or more –BHAGs can be even longer
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 cycle to amend plans frequently. Flexibility is key!

Why Planning Is Important
Planning ascertains where the organization is now and envisions where it will be in the future – Where do we want to go, when will we get there, what will we look like then?
Ownership: all managers are involved in setting future goals.
Sense of direction: planning sets goals and strategies for all managers.
Unity of Purpose: a single road map so that everyone understands the organization’s goals and their role in achieving them.

Why Plan?
“Chance favors the prepared mind.”
Louis Pasteur

Scenario Planning
Scenario Planning
Bracketing or the “what-if” game
Multiple forecasts of future conditions followed by an analysis of how to effectively respond to each potential set of conditions.
Planning tries to predict the unknowable future. By generating multiple possible “futures,” a firm can see how its plans might work in each and prepare for the possible outcomes.
Best-case, likely-case, worst-case is common approach – used by Toyota

Key Toyota Planning and Operational Procedures
Infect everyone with the corporate DNA (vision and values).
Determine, define, refine Mission, Goals and Strategy (MGS) based on SWOT analysis fully grounded in the marketplace (genchi-genbutsu).
Communicate MGS to organization (top-down)
Require organization to respond with comments on MGS and suggested tactics, timetables and resource estimates in order to harvest best ideas and build ownership (bottom-up).

Toyota Procedures…
Bracket (best, likely, worst-case scenarios) to provide on-the-shelf capability for dealing with rapid change; worst-case scenario should be the perfect storm; never over-extend by implementing the best-case scenario.
Finalize and implement by assigning R esponsibility , allocating Resources , and demanding Results (the three Rs) .
Establish KPIs (Key Performance Indicators) to track performance.

Toyota Procedures…
Recognize and reward good results (you get what you reward).
Compare results with targets, improve the process and re-implement (use PDCA to achieve continuous improvement); learn from mistakes.
Use zero-based budgeting to harvest cost savings to re-invest in plant, product and process.
Occasionally use a BHAG to stretch the organization and build new competitive capabilities.

Mike Porter’s Five Forces (Who can give me a wedgie?)

Formulating Corporate-Level Strategies
Concentration in a Single Business
Can become a strong competitor, but can be risky.
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.
Unrelated diversification is entry into industries unrelated to current business.
Attempts to build a portfolio of unrelated firms to reduce risk of single industry (GE); difficult to manage.

International Expansion
Basic Question:
How much do we customize products and marketing for different national conditions? Customization eats up product-development funds, decreases economy of scale and drives up costs.
Global strategy
Selling the same standard product and using the same basic marketing approach in all countries.
Lowers production cost.
But ignores national differences local competitors can use to take your customers.

Multi-domestic Strategy
Customize products and marketing strategies to specific national conditions.
Helps gain local market share.
Raises production costs.
Toyota does this to a
degree.

How To Grow
Q. How do you grow into a multi- domestic, then an international and finally a global company?
A. By balancing investment against risk and opportunity.

Exporting – making products at home and selling them abroad
Importing – selling at home products made abroad

Licensing – allowing a foreign organization to manufacture and distribute your product in its country in return for a negotiated fee – puts your technology at risk
Franchising – selling a foreign organization the right to use your brand name and operating know-how in return for a lump-sum payment and a share of future profits – puts your reputation at risk

Strategic alliance – managers pool resources with those of a foreign company – GM/Toyota technology sharing
Joint venture – strategic alliance between companies that agree to jointly establish and share the ownership of a new business -- NUMMI

Wholly Owned Foreign Subsidiary – managers invest in establishing production operations in a foreign country independent of any local direct involvement
Example: Toyota’s North American operations

Vertical Integration
A strategy that allows an organization to create value by producing its inputs or distributing its outputs.
Backward vertical integration: buy suppliers
Forward vertical integration: buy distributors.
A fully integrated firm faces risks bearing the full costs of an industry-wide slowdown.

Formulating Business-Level Strategies
Low-Cost Strategy (Cheaper – start here)
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.
Differentiation (Better – finish here)
Offering products different from those of competitors.
Differentiation must be valued by the customer in order for a producer to charge more for a product.

Formulating Business-Level Strategies
“ Stuck in the Middle”
Attempting to simultaneously pursue both a low-cost strategy and a differentiation strategy.
Difficult to achieve low-cost with the added costs of differentiation.
But Toyota does, using savings to feed differentiation – Lexus, Scion, hybrids, etc.

Sustainable Competitive Advantage
The ultimate goal of all business planning: long-term high performance from an internal set of skills others cannot copy
Produced by climbing an endless range of mountains (BHAGs) chasing a star (core ideology) you never reach.
Example:
“ The endless and passionate pursuit of perfection”
Lexus

Chapter 1 Chapter 8 Manager as

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