Planning, mbo, strategy & decision making by arun verma


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Planning, mbo, strategy & decision making by arun verma

  1. 1. PLANNING
  2. 2. What Is Planning? Planning Managerial function that involves: Defining the organization’s goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organizational work 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
  3. 3. Why should managers plan To offset uncertainty and change; To focus organizational activity on a set of objectives To provide a coordinated, systematic roadmap for future activities To increase economic efficiency To facilitate control by establishing a standard for later activity
  4. 4. Components of a plan Outcome/goal statement: it represents the end state –the targets and outcomes managers hope to attend Action statement: they reflect the means by which organizations move forward to attain their goals
  5. 5. Planning and Performance The Relationship Between Planning and Performance Formal planning is associated with: Higher profits Other positive financial results The quality of planning and implementation affects performance more than the extent of planning
  6. 6. How Do Managers Plan? Elements of Planning Goals (also objectives) Desired outcomes for individuals, groups, or entire organizations Provide direction and performance evaluation criteria Plans Documents that outline how goals are to be accomplished Describe how resources are to be allocated
  7. 7. Planning process 1. Developing awareness of present state 2. Establish outcome statements: •Goal planning •Domain planning •Hybrid planning 3. Premising •Forecasting •Formulating assumptions 4. Determing course of action •Identify alternatives •Evaluate alternatives •Selecting alternatives 5. Formulating supportive plans •Making changes in existing plans •Creating new supportive plans ACTION STATEMENT
  8. 8. Steps in Planning 1. Being Aware of Opportunities 2. Establishing Objectives or Goals 3. Developing Premises 4: Determining Alternative Courses 5. Evaluating Alternative Courses 6. Selecting a Course 7. Formulating Derivative Plans 8. Quantifying Plans by Budgeting
  9. 9. Types of Plans
  10. 10. Types of Plans BREADTH/hierarchical Strategic Plans Apply to the entire organization Establish the organization’s overall goals Cover extended periods of time Operational Plans Specify the details of how the overall goals are to be achieved Cover short time period
  11. 11. Types of Plans (cont’d)  TIME FRAME  Long-Term Plans Time frames extending beyond three years  Short-Term Plans Time frames of one year or less  SPECIFICITY  Specific Plans Clearly defined  Directional Plans Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation
  12. 12. Types of Plans (cont’d) FREQUENCY OF USE Single-use Plan A one-time plan specifically designed to meet the needs of a unique situation Standing Plans Ongoing plans that provide guidance for activities performed repeatedly
  13. 13. Types of Plans Plans can be classified as (1) mission or purposes, (2) objectives or goals, (3) strategies, (4) policies, (5) procedures, (6) rules, (7) programs, and (8) budgets
  14. 14. Types of Plans The mission, or purpose, identifies the basic purpose or function or tasks of an enterprise or agency or any part of it Objectives, or goals, are the ends toward which activity is aimed Strategy is the determination of the basic long-term objectives of an enterprise and the adoption of courses of action and allocation of resources necessary to achieve these goals Policies are general statements or understandings that guide or channel thinking in decision making Procedures are plans that establish a required method of handling future activities
  15. 15. Types of Plans – cont. Rules spell out specific required actions or no actions, allowing no discretion Programs are a complex of goals, policies, procedures, rules, task assignments, steps to be taken, resources to be employed, and other elements necessary to carry out a given course of action  A budget is a statement of expected results expressed in numerical terms
  16. 16. Developing Plans Contingency Factors in Planning Level in the organization Degree of environmental uncertainty Stable environment: specific plans Dynamic environment: specific but flexible plans Length of future commitments Current plans affecting future commitments must be sufficiently long-term to meet the commitments
  17. 17. Approaches to Establishing Goals Traditional Goal Setting Broad goals are set at the top of the organization Goals are then broken into sub goals for each organizational level Goals are intended to direct, guide, and constrain from above
  18. 18. Approaches to Establishing Goals (cont’d) Management By Objectives (MBO) Specific performance goals are jointly determined by employees and managers Progress toward accomplishing goals is periodically reviewed Rewards are allocated on the basis of progress toward the goals Key elements of MBO: Goal specificity, participative decision making, an explicit performance/evaluation period, feedback
  19. 19. Steps in a Typical MBO Program Jointly set objectives Overall objectives and strategies of org Action plans implemented Managers and employees working together on action plan Develop action plans to achieve objectives Review objectives and provide feedback Give rewards for achieved objectives Objectives allocated to divisions and depts. Specific objectives collaboratively set with employees
  20. 20. Benefits of Management by Objectives  manager and employee efforts are focused on activities that will lead to goal attainment Performance can be improved at all company levels Employees are motivated Departmental and individual goals are aligned with company goals
  21. 21. Criticisms of Planning Planning may create rigidity Plans cannot be developed for dynamic environments Formal plans cannot replace intuition and creativity Planning focuses managers’ attention on today’s competition, not tomorrow’s survival Formal planning reinforces today’s success, which may lead to tomorrow’s failure
  22. 22. Problems with MBO Constant change prevents MBO from taking hold An environment of poor employer –employee relations reduces MBO effectiveness Strategic goals may be displaced by operational goals Mechanistic organizations and values that discourage participation can harm the MBO process Too much paperwork saps MBO energy.
  23. 23. QUERIES
  24. 24. Strategic Management The set of managerial decisions and actions that determines the long-run performance of an organization Business Model A strategic design for how a company intends to profit from its strategies, work processes, and work activities. 1.Creating customer value 2.Generating profits Organizational Strategy
  25. 25. The Strategic Management Process Identify the organization's current mission, goals, and strategies •opportunities • threats Formulate Strategies Implement Strategies Evaluate Results Internal Analysis •STRENGTHS •WEAKNESSES External Analysis •OPPORTUNITIE S •THREATS
  26. 26. Strategic Management Process Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies Mission: the firm’s reason for being The scope of its products and services Goals: the foundation for further planning Measurable performance targets Step 2: Conduct an Internal Analysis Assessing organizational resources, capabilities, activities, and culture: Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage
  27. 27. Strategic Management Process (cont’d) Step 3: Conduct an External Analysis The environmental scanning of specific and general environments Focuses on identifying opportunities and threats Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)
  28. 28. Strategic Management Process (cont’d) Step 4: Formulate Strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats
  29. 29. Strategic Management Process (cont’d) Step 5: Implement Strategies Implementation: effectively fitting organizational structure and activities to the environment The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements Step 6: Evaluate Results How effective have strategies been? What adjustments, if any, are necessary?
  30. 30. Levels of Organizational Strategy Research and Development Manufacturing Marketing Human Resources Finance Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 Multibusiness Corporation Functional Level Business Level Corporate Level
  31. 31. Types of Organizational Strategies Corporate-level Strategy The company’s grand strategy for the entire organization and its strategic business units Types of Grand Strategies Growth: expansion into new products and markets (concentration, vertical integration, horizontal integration, diversification) Stability: maintenance of the status quo Renewal: addresses organizational weaknesses that are leading to performance declines (retrenchment, turnarounds) Combination: simultaneous pursuit of two or more of the strategies above
  33. 33. Cash cows Low growth, High market share Businesses in this category generate large amount of cash, but their prospects of future growth are limited Stars High growth and high market share Hold dominancy in faster growing markets Question mark High growth but low market shares Attractive industries; more investment beneficial Dogs Low growth, low market share Do not produce/consume much cash Hold no promise for improved performance
  34. 34. TOWS MATRIX SWOT analysis is somewhat static by nature No mention of inter relation between one’s strength, weaknesses, opportunities and threats TOWS matrix facilitates matching the external threats and opportunities with the internal weaknesses and strengths of the organization
  35. 35. EXTERNAL OPPORTUNITIES e.g. current and future economic conditions, political and social changes, new products, services and technologies EXTERNAL OPPORTUNITIES e.g. current and future economic conditions, political and social changes, new products, services and technologies INTERNAL STRENGTHS (S) e.g. strengths in mgmt, operations, finance, marketing, R&D, engineering INTERNAL STRENGTHS (S) e.g. strengths in mgmt, operations, finance, marketing, R&D, engineering SO strategy: MAXI-MAXI Potentially the most successful strategy, utilizing the organization's strength to take advantage of opportunities SO strategy: MAXI-MAXI Potentially the most successful strategy, utilizing the organization's strength to take advantage of opportunities ST strategy: MAXI-MINI E.G. use of strengths to cope with threats or to avoid threats 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 to minimize both weaknesses and threats WT strategy: MINI-MINI e.g. retrenchment, liquidation, or joint venture to minimize both weaknesses and threats WO strategy: MINI-MAXI e.g. developmental strategy to overcome weaknesses in order to take advantage of opportunities WO strategy: MINI-MAXI e.g. developmental strategy to overcome weaknesses in order to take advantage of opportunities INTERNAL WEEKNESSES (W) e.g. weaknesses in areas shown in “strengths” box INTERNAL WEEKNESSES (W) e.g. weaknesses in areas shown in “strengths” box EXTERNAL THREATS (T) e.g. energy shortage, competition, and areas similar to those shown in “opportunities” box above EXTERNAL THREATS (T) e.g. energy shortage, competition, and areas similar to those shown in “opportunities” box above INTERNAL FACTORS EXTERNAL FACTORS TOWS MATRIX
  36. 36. Business-Level Strategy Business-Level Strategy A strategy that seeks to determine how an organization should compete in each unit within the organization to create a competitive advantage Competitive advantage An organization’s distinctive competitive edge that is sourced and sustained in its core competencies
  37. 37. Functional-Level Strategy Functional-level strategies support the business-level strategy i.e., Marketing, human resources, research and development, and finance all support the business-level strategy Problems occur when employees or customers don’t understand a company’s strategy
  38. 38. QUERIES
  39. 39. Premising and forecasting Premises are assumptions about the environment in which the plan is to be carried out. Anticipated environment in which plans have to be carried out The more thoroughly individuals charged with planning understand and agree to utilize consistent planning premises, the more coordinated enterprise planning will be – PRINCIPLE OF PLANNING Forecast of the future effects may become premises of the other plans
  41. 41. Forecasting Technique used to assess the environment Determine prediction of the outcomes Forecasting techniques: Quantitative forecasting: applying set of mathematical rules to a series of past data to predict outcomes; used when precise data is available Qualitative forecasting: uses judgment and opinions of knowledgeable individuals to predict outcomes; used when precise data is limited or hard to obtain.
  42. 42. Quantitative: Time series analysis Regression models Econometric models Economic indicators Substitution effect Qualitative Jury of opinion Sales force composition Customer evaluation
  43. 43. Forecasting effectiveness Most successful in suitable and stable environment Ineffective in predictive too dynamic environments like recession, unusual occurrences, discontinued operations, reactions of competitors “no change forecast”: effective for almost half the time planned  rolling forecast (12-18 months advance only); best suited for dynamic situations and observing trends Don’t rely on a single forecast system
  44. 44. QUERIES
  45. 45. Decision Making Decision making is defined as the selection of a course of action from among alternatives
  46. 46. Decision Making Process 1. Identification of problem 2. Identification of decision Criteria 3. Allocation of weights to criteria 4. Development of alternatives 5. Analysis of alternatives 6. Selection of an alternative 7. Implementation of the Alternative 8. Evaluation of decision effectiveness
  47. 47. E.g.: Purchase of raw material Quantity, Quality, Time of delivery & mode of delivery Allocate the weights Search for various suppliers Analyze all Select one supplier Place a order
  48. 48. Rationality
  49. 49. Limited, or "Bounded," Rationality Limitations of information, time, and certainty limit rationality, even though a manager tries earnestly to be completely rational Satisficing is picking a course of action that is satisfactory or good enough under the circumstances
  50. 50. Programmed And Nonprogrammed Decisions Structured problems &Programmed decisions Unstructured Problems & Non programmed decisions
  51. 51. Types of decisions at various levels in the organization Non Programmed Decisions Programmed Decisions Unstructured Structured Top level Lower Level
  52. 52. Simon’s model of decision making  Contribution of Herbert Simon  The decision making process can be broken into series of three sequential steps: 1. Intelligent activity 2. Design activity 3. Choice activity
  53. 53. Intelligent activity refers to the initial phase of searching the environment for conditions calling for decisions. Design activity refers to the phase of inventing, developing, and analyzing possible course of action to take place. Choice activity refers to the final phase of actual choice selecting a particular course of action from those available.
  54. 54. Creativity and Innovation Creativity refers to the ability and power to develop new ideas Conditions necessary for Creativity: Expertise, Creative thinking skills, Internal Motivation, Environmental need, Tension & Encouragement from others Innovation means the use of new ideas
  55. 55. Forecasting It is the process of estimating the relevant events of future, based on the analysis of their past and present behavior Acc to Neter & Wasserman: Business forecasting refers to the statistical analysis of the past & current movement in the given time series so as to obtain clues about the future pattern of those movements
  56. 56. Features of forecasting It relates to future events Defines the probability of happening of future events Analyzing the past & present relevant events Use of some statistical tools & techniques
  57. 57. Planning & Forecasting Planning is more comprehensive and forecasting involves the estimation of future events & provides parameters to planning
  58. 58. Importance of Forecasting Promotion of organization Key to planning Coordination & control Success in organization