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- 1. Implementation Learning Objectives By the time you have completed this chapter, you should be able to do the following: • Recognizegoodoperationalplansanddistinguishthemfromweakone s. • Appreciatethevalueoftrackingprogressonalloperationalplans. • Appreciatethevalueofface-to- facemeetingswithmiddlemanagerstodiscussnegativevariances. • Knowwhyemergentstrategiesoccurandhowtheymightaffectacomp any’scurrentstrategy. • Manage,improve,andevaluateanexistingstrategic- planningprocess. • Understandthe“strategyparadox,”showinghowacompany’sstrengt hinexecutioncanbesimultaneously itsAchilles’heel. 9 Ivelin Radkov/iStockphoto/Thinkstock CHAPTER 9Section 9.1 Plans by Organizational Unit ChapterOutline
- 2. 9.1 PlansbyOrganizationalUnit 9.2 TrackingPerformanceUsingMetrics 9.3 EmergentStrategies 9.4 ManagingtheStrategic-PlanningProcess 9.5 ImprovingtheStrategic-PlanningProcess 9.6 AssessingtheStrategic-PlanningProcess 9.7 Raynor’sStrategyParadox Implementingastrategyintherealworldisn’taleisurelyswimacross a calmpondonasunnyday, butratherlikecrossingfromonebankofaragingrivertotheother,enco unteringhiddeneddies, fog,drivingrain,lightning,andriptidesalongtheway.Whilenotimpo ssibletoreachtheother bank(thegoal),thetaskoftenbecomesdifficultandoneofovercoming obstaclesandmaking constantadjustmentswithoutlosingfocusorsightofthegoal.Eventhe mostbrilliantstrategyis worthlessifitcannotbeimplemented. Thischapterfocusesonstrategyexecutionanditsdifficulties,andpart ofitisdevotedtoassess- ing,improving,andmanagingthestrategicplanningprocessitself. 9.1 PlansbyOrganizationalUnit Whenanorganizationalunitgetsitsplansandbudgetapprovedbythel evelitreportstoandon upward,exactlywhatisitthatgetsapproved?Anoperationalplanisad ocumentthatspecifiesthe projectsortasksthatmustbeaccomplishedtoachieveparticularopera
- 4. ant,orbuildinganew plant?Cansomeoftheadditionalproductionbeoutsourced?Howman ynewmachines mustbeaddedandofwhatkind?Howmanynewpeoplemustbehiredan dtrained,and howlongmightallofthistake?Also,considerthescenariowhereawho lenewproduct linehasbeendesignedandnowhastobeproducedinadditiontoproduci ngalltheother productlines.Howcanthisbestbeaccomplished?Inbothscenarios,pr oductioncapacity hastobeincreased. • Research & Development.Technologyadvancesareaffectingthecompany’sabil itytocom- pete. This requires new initiatives to keep up with technology as well as continue with appliedresearchassociatedwithdevelopingnewproducts.Thiscould meanexpandingstaff andfacilitiesorforgingstra- tegicallianceswithparticu- lar universities that have therequisitecapabilitiesto helpthecompany.Another option might be finding a company with the needed technology and licensing it. Yet another possibility might be to start a con- versation with top man- agement about possibly acquiringasmallhigh-tech company with these capa- bilitiesandpatents.Whatis thebestwaytodothis?
- 5. • Marketing. The decision to expand from being a regionalconsumer-products company(B2C)toanational businesspresentsahostof operationalchallenges.Shouldthecompanycontinuetohandleitsow ndistributionorfinda nationaldistributor?Howmanynewretailoutletswoulditneedtofindt oreachpotentialcus- tomers?Woulditneedtoleaseadditionaldistributioncentersorwareh ouses?Whichspecific partsofthe“restofthecountry”shouldbetargetedfirst,second,andso onuntilthecom- panycoversallofitstargetedareas?Whatadvertisingmediawouldbe mostappropriate,and doesgoingnationalrequiretelevisionadvertising?Shouldmoreemph asisbeplacedononline ratherthanbrick-and- mortarsales?Howcanthissalesobjectiveberealizedmostexpedientl y? • Finance.Considertwoscenarios:Inthefirst,thecompanyhasdecided toinvestineithera newintegratedinformationsystemorasignificantdevelopmentofthe existingone.How manymoresoftwareengineersandprogrammerswillberequired?Cou ldpartofthenew systembelicensedandthencustomized?Withoutintimateknowledge ofthecompleted system,howcanbuildingitbeplannedfor?Shouldaconsultingfirmbe engagedwiththe requisiteexperience?WillITstaffneedtobehiredandtrainedfortheot herfunctions?In thesecondscenario,thecompany’scashneedsforthecomingyearexc
- 6. eedwhatitcannor- mallyaccess.Howcanitraisemorecash?Shouldreceivablesbefactor ed?Shouldalarger lineofcreditbenegotiated?Shouldpayablesbedelayed?Ifappropriat e,shouldsomecus- tomersbeaskedtoprepay?Isthereawaytomaintainnegativeworking capitaltofreeup themostcash? Semen Barkovskiy/Hemera/Thinkstock Research and development is essential to a company’s ability to compete. It requires new initiatives to keep up with technology and develop new products. CHAPTER 9Section 9.1 Plans by Organizational Unit Ideally,operatingunitswillhavebeenworkingonthesekindsofchang esoveramuchlonger period,usingtheformaloperational- planningperiodattheendofthefiscalyeartofinalizeits plansandmatchavailableresourcesbeforethenewfiscalyearbegins. Anditsplansmustbedone insomesortofnetworkedwayorusingGanttchartstoshowwhichproje ctsortaskscanbedone independentlyofothersandwhichareintegraltoaparticularsequence . AGantt chartisagraphicdepictionofaprojectschedule.Ganttchartsshowthe beginningandend datesofeachprojectcomponent.Somechartsalsoillustratethedepen dencyrelationshipsbetween componentactivities,orthedependencyofoneactivityuponthecomp
- 7. letionofanother.Ganttcharts maybeusedtoprovideup-to-dateschedulestatususingpercent- completeshadings(Figure9.1). GanttchartscanalsobecombinedwithPERTsoftwaretoproduceacrit icalpathofprojects(United NationsInstituteforTrainingandResearch(UNITAR),2004). Whenthatisdone,thetotalplansforaparticularunitshouldbesummari zedaccordingtothe reviewperiodsetbythecompany.Typicallythisiseachmonth.Therev iewcannotbeginuntilall therequisitedatahavebeencollectedandorganized,whichusuallytak esaweekaftertheendof themonth.Actualresultsarethencomparedtoplan(expectedperform anceandbudget)along thefollowingdimensions: • For each project completed during the period, data show whether the objective was achieved,currentandtotalcosts,andwhetherthedeadlinewasmet. • Foreachongoingproject,datashowprogresstowardachievingtheobj ective,currentand cumulativecosts,andaprobabilitythatthedeadli newillbemet. Theprojectleaderinitiallydoessuchareview,withcopiesgiventomid dlemanagersonupto functionalheads.Ifthedataareinputintoacomputersystem,thenthos emanagerswillallhave accesstomonthlysummaries. Task 1 Task 2
- 8. Task 3 Task 4 Task 5 Completed Remaining Start Date 8/10/2010 2/26/2011 9/14/2011 4/1/2012 10/18/2012 5/6/2013 11/22/2013 Figure 9.1: Example of a Gantt chart CHAPTER 9Section 9.2 Tracking Performance Using Metrics 9.2 TrackingPerformanceUsingMetrics Twooldadagesthatareprobablyfamiliartomostreadersunderscorew hytheuseofmetricsisso vitalinorganizations: • “Whatgetsmeasuredgetsmanaged.” • “Youcan’timprovewhatyoucan’tmeasure.” Bywayofillustration,considerthetrueexampleofanonprofitorganiz ationthatprovidededu- cationalworkshopsforhigh- schoolstudentsinanefforttoreducetheteencrimerateinthe areaaroundthecityinwhichitoperated.Thedirectorswereaskedhowt heyknewhowthe organizationwasperformingandwhatinformationwasreportedtoits
- 11. CHAPTER 9Section 9.2 Tracking Performance Using Metrics Operational objectives, discussed in Chapter 8, must be set carefully. Making good progress towardobjectivesthatweresettoolowisoflittlevalueandwon’timple mentthestrategyprop- erly.Settingthemtoohighde- motivatestheworkforceandisjustasbad.Soletusassumethat “stretch”objectives— setatjusttherightlevelbutthatdemandalittlemorefromeveryoneto achieve— havebeensetallthewaydowntheline,plansweredevisedforeveryunit thatmatched itsbudgetallocations,andthatitwastheseplansthatarenowbeingcarr iedoutbyeveryonein theorganization. Howdoestopmanagementmoni- tor whether everything is “on track”or“onplan?” Themanager’sjobistocollectand organizecurrentprojectdataforthe reviewperiod,byproject, intheir respective areas of responsibility. TheexampleshowninFigure9.1is astepintherightdirection,buthas to be summarized for the month. For example, the figure shows an almost instantaneous picture for dailymonitoring,atimeframeand levelofdetailrequiredonlybythe people actually doing the work. From such daily reports and the statusofprojectsattheendofthe
- 12. month,amanagerwouldneedto extractandsummarizeinformationoneachmajorproject,beingcaref ultonotewhichprojects wereonscheduleandunderbudgetandwhichweren’tandbyhowmuch .Thelattercouldconsti- tuteaseparate“exception”reportofnegativevariances(discussedin moredetaillater),whichare projectsthathaveslippedtheirscheduleorareoverbudget,togetherwi thadditionalinformation onhowmuchextraitmightcosttogetallofthembacktomeetingtheirde adline. The Budget as a Control System RecallthevignetteaboutPacificaCorporationrecountedinaboxinSe ction2.9.Aspartofthe rapidchangeinitsculture,fiveoriginalmanagers,includingtheCFO, werereplaced.TheCFOwas letgowhenitwasdiscoveredhehadnoideahowtobudget.Forsixentire months,hehadfooled theCEOintobelievingthateverythingwasontrack.Wheneverhewasa skedifexpenseswere“on budget,”theCFOwouldsay“Yes,”andpeoplebelievedhim.Afterabo utsixmonths,withcosts clearlyskyrocketing,theCFOwasaskedagainifexpenseswereontrac kwiththeoriginalbudget. Therealanswerwasno:Everymonth,ascostshadoutpacedthesetbudg et,theCFOhadsimply raisedthebudgettomatchexpenses.Ratherthantakingactiontodecre asecosts,hehadconsis- tentlytoldeveryonethatthingswere“onbudget.” Thebudgetisacontrol systeminthatitallowsmanagementtocompareactualperformanceto astandard,measurethevariance,takeactiontoreducethevariance,res etorupdate,andtest
- 13. again.Anotherexampleofacontrolsystemisapackagingmachinethat automaticallyfillsboxes withapreciseweightofcereal,signalstheoperatorthemomentthefille dweightexceedsorfalls Fancy Collection / SuperStock The manager’s job is to collect and organize current project data by project. CHAPTER 9Section 9.2 Tracking Performance Using Metrics shortbyapresetsmallamount,enablingimmediateadjustmentofthem achine.Inthecaseofa budgetascontrolsystem,actionistakenonly ifexpensesexceedthebudget.Further,cumulative expensesarecomparedtocumulativebudgetssothatanoperationalun itthathasoverspentone monthcan“makeup”andspendlessthanitsbudgetinthefollowingmo nth(Figure9.2). Oneofthehallmarksofagoodcontrolsystemisthatcorrectiveactionis takenassoonasitisfound tobeneeded.Whywaituntiltheendoftheyeartodiscoverthatyouhave goneoverbudget?At theotherendofthescale,shouldyoucheckeverywee k?Thatmakesnos ense,either.Monthly checkingisaboutright,andmostinformationsystemscanprovidesuc hinformationmonthly, eitherasneededonscreenorinacustomizedmonthlyreportsenttoallo perationalmanagers. In large organizations that have federal contracts, for example, government auditors closely
- 14. examineexpensereports,timesheets,andinvoicesrelatedtoprogram s.So,forexample,when acontractorrequestsincreasedfunding,budgetcontrolsareinplaceto quicklyadviseregulators astothelegitimacyoftherequest.Inthisway,thegovernmentcandeter minewhenincreased expensesarejustified,orwhentotellitscontractorstocutcosts. Addressing Negative Variances Managersinwell- runcorporationsmakeapointofmeetingwiththeirdirectreportsregul arlyto gooverprogressanddiscussanyproblems.Onefocusofthemeetingsh ouldbevariancesandany exceptionreportsthatdetaildifferencesbetweenplansorstandardsan dactualperformance.A Cumulative expenses Over budget On budget or under budget Cumulative budget Typically a monthly cycle Actual Target Action Update cumulative budget and cumulative expenses
- 15. Update Variance Continue as planned Reduce expenses next month Figure 9.2: The budget as control system CHAPTER 9Section 9.2 Tracking Performance Using Metrics negative varianceisaninstancewhereaproject’sprogressisdelayedandcould missadeadline, orwhereitsbudgethasbeenexceeded,orwhereperformancecomesup shortofaquantitative standardorexpectation. Whatcanbeaccomplishedinsuch ameetingbetweenamanagerand adirectreport?First,themanager should learn about the particular circumstances surrounding nega- tive variances of some projects, whatmighthavecausedthedelays or budget overruns, and which otherprojectsmightbeinjeopardy asaresult.Theyshouldaskques- tions and listen carefully to the responses.Boththemanagerand
- 16. direct report should note ques- tions to which an answer could notbeprovidedbecausethedirect report didn’t have the necessary information. Second, the manager and direct report should discuss potential solutionstothenegativevariances.Someprojectscanbepulledbacko ntrackthrougheither thedirectreportgettingprojectpersonneltoacknowledgeproblemsa ndsolvethem,helping themtofindsolutions,andtryingtoremoveobstaclesthatmightbedela yingprogress.Also, ifbudgetsareoverrun,anewlowerbudgetthatcompensatesfortheove rrunmustbecom- municatedtoprojectpersonnel.Themanagershouldfocusonprojects wherethereisadirect relationshipbetweenscheduleandbudget.Thatis,wherespeedingthe mupwillcostmore, andconversely,wherereducingthebudgetresultsinunacceptabledel ays.Itisinpreciselysuch situationsthatanycritical- pathsoftwarebecomesinvaluable,becauseitletsaprojectleaderor supervisortryoutdifferentalternativesuntilbothparameters(project timeandbudget)meet expectations. Third,themanagershouldinsistthatthedirectreportfile— withinthenextcoupleofdays—a revisedplancontainingthepointsthatwerediscussedthatwillbringpr ojectsandbudgetsback inline. Finally,meetingsrepresentanopportunityforthemanagertostrength enarelationshipwiththe
- 17. directreport.Inmostcases,themeetingisjustbetweenthetwoofthem( althoughinvitingother projectmanagerswhoareinabetterpositiontoprovideexplanationsis alsocommon).Whatis thedirectreportmostworriedabout?Isthecommunicationbetweenth emas“open”asitneeds tobe?What’sreallygoingon?Takingthetimetodelvealittledeeperan dofferguidanceand counselingisoftenwellworththetime. Bemindfulofacoupleofpotentialredflags:Somemanagersdon’tlike hearingordealingwithbad newsandmighteventelltheirreportstheydon’twanttohearit.Soifasu pervisorisrepeatedly age fotostock/SuperStock Well-run corporations have their manager’s report in every month to track progress and discuss any problems that have arisen. CHAPTER 9Section 9.2 Tracking Performance Using Metrics toldthat“everythingisokay,”heorshemightwellsuspectthatit’snot. Themanagerwillhaveto digdeeperandevengotochatinformallywiththedirectreport’scollea guesandteammembers. Amanageralsoneedstobesensitivetowhetheradirectreportislosingc ontroloftheteamorhis orherresponsibilities.Iftheemployeefeelsoverwhelmedandrelativ elypowerlesstostemthe tide,arealproblemexists. Thiskindofface-to-
- 20. CHAPTER 9Section 9.3 Emergent Strategies 9.3 EmergentStrategies Thereisonetypeofstrategythatoccursonlyduringoperationalexecut ion. Emergent strate- gies,firstproposedbyHenryMintzbergofMcGillUniversity,ariseas aresultofanorganization’s response to unexpected events as a strategy is being implemented. In Mintzberg’s terms, an intendedstrategyisakintothe“best”strategythatwasdevelopedinSe ction6.4andchosenin Section7.2.Suchastrategy,whenimple mented,isthencalledadeliber ate strategy.Ifitfailsfor whateverreason,itisconsideredanunrealized strategy(Figure9.3). Asthedeliberatestrategyisexecuted,apatternmayemergethatwasno tintendedwhenthe strategywasfirstproposed.Actionsthatweretakenoneatatimetakeon acumulativeeffect andbecomeastrategy.Forexample,asupplierservingrestaurantshas anopportunitytoservea hotel,andlateranotherhotel,andsoonuntilitbecomesclearovertimet hatthecompanyhas diversifiedintotherelatedmarketofhotels.Thatisanemergentstrateg ythatwasneverapartof thestrategythecompanysetouttoimplement.Combinedwiththedelib eratestrategyofserv- ingrestaurants,itevolvesintotherealized strategyofservingthehospitalityindustry.Thisisalso sometimesreferredtoasanumbrellastrategy. Thereismuchvaliditytoviewingstrategyi nthisway,fromhowit’sfor mulatedtowhatactu-
- 21. allyhappensinpractice.Reallifeismessyandrarelydoplansactuallyh appenthewaytheyare intended.Fewstrategiesarepurelydeliberate,justasfewarepurelyem ergent;theformerallows fornolearningwhilethelattermeansnocontrol(Mintzberg,Ahlstrand ,&Lampel,1998).Reality issomecombinationofthetwo. Acceptingthenotionofemergentstrategiesallowstheorganizationto learnfromcustomersand toincreaseitscapacitytoexperimentwithnewideas.Thatisnottosayt hatlearningdoesn’t Realized Strategy Unrealized Strategy Deliberate Strategy IntendedStrategy Em erg ent Stra tegy Figure 9.3: Deliberate and emergent strategies Source: From Stanley C. Abraham, Strategic Planning: A Practical Guide for Competitive Success, p. 157.
- 22. Copyright © Emerald Publishing Group Limited. Reprinted by permission. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process occurwithoutanemergentstrategy;oneoftheimportantbyproductsof thestrategicthinking andplanningprocessistoincreasestrategiclearningandtoupdateever yone’smentalmodelsin asimilarway.Theveryactofimplementingastrategyinvolvesallkind soflearning,whichbenefits thenextroundofstrategicplanning. Keepingone’seyesopenforapatternthatsignalsanemergentstrategy isanotherwayfor a company to stay agile and flexible. In times of constant and rapid change, taking advan- tageofopportunities“ontherun”aswellasformallythroughstrategict hinkingisasignofa healthycompany.Shouldtheemergentstrategybecomesopowerfula stoswampthedeliber- atestrategy,thecompanycanalwayshaveanimpromptustrate gic- planningmeetingand,with theboard’sapproval,acknowledgewhatishappeningandcapitalizeo nitwithfullbudgetary support. 9.4 ManagingtheStrategic-PlanningProcess Strategicplanningisusuallycarriedoutbyagroupofpeopleinacompa ny,andaformalprocess needstobeestablishedtogetsuchagrouptocoordinatetheireffortsand workasone.What followsisasetofguidelinesforsettingupandmanagingthestrategic-
- 23. planningprocessinacom- pany,buildingonthediscussioninpreviouschapters,whichdescribea processfordoingstrategic thinkingandstrategicplanning.Insofarastheabilitiesofdifferentco mpaniestoperformstrategic planningandimplementaformalprocessvarygreatly,suchguidelines aredifficulttowrite.Afew basicassumptionsweremadeinformulatingthem: • Mostsmall-tomedium- sizedorganizationsdonothaveagoodunderstandingofstrategic planningandthereforeeitherdonotperformitatallordosomethingthe y“think”isstra- tegicplanning. • Companiesthatdostrategicplanninganduseaformalprocesscouldbe nefitbybench- markingtheirprocesswiththeseguidelines. • Manycompaniesdostrategicplanni ngwithoutreflectingonwhetheri tisdonewellor providestheorganizationwithvalue.Thatis,theydosowithouttheben efitofanystrate- gicthinking. Beforetheprocessofstrategicplanningisbegun,itwouldbeausefulex erciseformembersoftop managementtoassessthecompany’sinventor yofneeds.Onedeviceth atcouldaccomplishthis isabriefquestionnairesuchasthefollowingstrategyquiz. Discussion Questions 1. Isitpossibleforacompanytoexperienceemergentstrategiesalltheti
- 24. me?Isthatthesameas sayingthatithasnostrategy?Explain. 2. Mintzbergandhisassociatescharacterizedeliberatestrategiesasexhi bitingcontrolbutnolearn- ing,whereasemergentstrategiesexhibittheopposite.Doyouagree? Whyorwhynot? 3. Doyoubelievethatcompaniesingeneralfinditdifficulttorealizeanin tendedstrategy?Ifso,is itbecauseofemergentstrategiescroppingupallthetimeorsimplypoor execution? CHAPTER 9Section 9.4 Managing the Strategic-Planning Process Table 9.1: Strategy Quiz: How strategic is your organization? Answer each question either with a Yes or No by checking the appropriate column next to it. Your answers will be scored based on the number of “No” responses. Questions Yes No 1.Areyourealizingthefullpotentialofyourcompanyandpeople? 2.Doyouhaveafive-yearvisionforyourcompany? 3.Ifso,doyoubelieveyourcompanycanachieveit? 4.Areyoupleasedwithyourcompany’sprofitabilityoverthepastthre
- 26. 20.Isyourcompanyculturecollaborative,innovative,andtrusting? TOTAL Source: Stan Abraham, www.futurebydesign.biz Whose Responsibility Is It? Insmallcompaniesthatperforms trategicplanning,theCEOorownert ypicallydrivesthepro- cess.OccasionallythisroleisacknowledgedastheCEO’smostvaluab lecontribution.Forexample, Livescribe,amarketleaderindigitalpens,hiredanewCEOforthespec ifictaskofstrategicplan- ning(Takahashi,2012).Sometimes,heorshemightuseaconsultantor anexecutivewithinthe organizationtoconducttheprocessandhelpthegroupdecideonthestr ategies.Mostsmallcom- paniesandnewventures,however,donostrategicplanningforthesim plereasonthatthereis onlyonestrategypossible,andthecompany’senergiesarefocusedone xecutingit.Examplesare restaurants,retailoutlets,orsmallservicebusinesses.Suchcompanie saddressstrategicplanning onlywhenfacedwithseveralchoicesorintensecompetitionand,forth efirsttime,areputina positionofnotknowingwhattodo. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process Inmidsizetolargecompanies,thejobofcontrolling theprocessistypicallydelegated.Ideally,therewould beadirectorofstrategicplanningtomanagethepro- cess.Withoutsuchaposition,responsibilitywouldgo
- 27. towhoevertheCEObelievescandoagoodjoborhas someexperiencewithstrategicplanning,suchasthe CFOorafunctionalvicepresident.Ifnoonewantsthe assignmentorfeelsabletodoit,someonefromout- sidemaybebroughtintodoit.Ifmanufacturing,R&D, anddistributioncanbeoutsourced,socanfacilitating the strategic-planning process. However, only plan- ningandconductingtheprocessandachievingitspur- posesshouldbesubcontractedtoaconsultant.The actual decisions cannot be; the CEO and managers, whoaloneareaccountableforactingonthosedeci- sions and achieving the company’s objectives, must make them. Some organizations, such as Air France (AirFrance,n.d.),formadhocorstandingcommittees to focus on strategic planning. Others, like Mitsubi- shi(MitsubishiElectric,n.d.),employavicepresident or C-level executive to direct strategic planning and relatedinitiatives. The person in charge should make sure all those involvedunderstandwhattheyhavetodoandgive themtimetodoit.Partoftheprocessiscreatingstan- dard reporting formats that everyone understands andthatfacilitatecomparisonswithlateryears.Atthe outsettheyshouldestablishaschedulefortheprocessandthenenforce itunlessacompanycrisis intervenes.Theindividualmanagingtheprocessmustrememberthatt heseplanningtasksare superimposedonpeople’sregularjobsandarelikelytoproducenegati veattitudesandreactions. Onlyifthoseinvolvedseetheactivityascrucialforthecompanyandwo rthyofbeingtakenseri- ouslybyeveryonewilltheybemotivatedtodoagoodjob. Choosing the Process
- 28. Whateverprocessthecompanyusesforstrategicplanningmustmeetc ertaincriteria.Keycom- panymanagers,particularlythepersoninchargeoftheprocess,mustu nderstandit—whatitis, whatisinvolved,whoshouldbeinvolved,whyitisneeded,andhowtor ealizethebenefitsfrom usingit.Theprocessmustbeperceivedasappropriateandfeasiblefort hecompanyintermsof sophistication,complexity,andculture.Thecompanymustbeprepar edtocommittotheprocess anditsoutcomes.Allinvolvedmustagreetotakeitseriouslyandimple mentthosestrategiesand decisionsthatresultfromtheprocess. Thepersoninchargeshouldexploreseveraldifferentapproaches,orin viteseveralconsultants whospecializeinthisareatodiscusstheirapproaches. Hiringaconsultanttohelpwithdoingstrategicplanningthefirsttimeis prudent.Cedingthis control(andworry)freesmanagersandexecutivestoparticipateinthe process.Furthermore,a consultantcancontrolthequalityofthediscussionandstrategicideast hatareproposed,aswell Kablonk/SuperStock In smaller companies, the CEO usually does the strategic planning, but in larger compa- nies the responsibility is delegated to a VP or group of individuals. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process
- 29. asensurethatrealdataandanalysesareusedasmuchaspossiblerathert hanopinionsandcon- jecture.Finally,aconsultantcanactasfacilitatortomakesurethatallv oicesareheard,notjust oneortwopeoplewhomightdominatediscussions. Aneutralfacilitato rismorelikelytoensure thatpeoplearenotjustsayingwhattheythinktheCEOwantstohear,wh ichisamajorproblemin manycompanies.Ideally,aconsultantshouldbetrustedandonewithw homtheCEOiscomfort- able— someonewhocandoagoodjobofguidingparticipantsinthestr ategic- planningprocess thatisthebestfitforthecompany.Aneffectiveconsultantshoulddeliv erbenefitstotheprocess thatoutweighthefeescharged. A Suggested Strategic-Planning Process Thefollowingprocesswouldworkwithfirmsofalmostanysize.Itisge nericandcanbetailored tofitaparticularcompany.Theprocesshas10basicsteps;someofthem couldbebrokendown intosubsteps(Figure9.4).Perhapsthemostcrucialelementinstrategi cplanningistoinvolve therightpeople,particularlythosewhowillbecalledupontoimpleme nttheplan.People— dependingupontheirexperience,background,androleinthecompan y—goingthroughthe sameprocessofstrategicplanningwillmakecompletelydifferentdec isionsandachievecom- pletelydifferentresults.Itiscrucial,therefore,toconsidercarefullyw hoisinvolvedinthepro- cess.Ashasbeendiscussed,itwouldlimittheeffectivenessoftheproc essandofimplementation tolimittheplanninggrouptojustthetopmanagement;managerstwoor
- 30. threelevelsdown shouldalsobeincluded.Ifthisyieldsanumberthatbecomesunwieldyf orsimplemeetings,it maybenecessarytolimitthenumberthatparticipateorcascadethemee tingsfromonelevelto thenexttoaccommodateeveryone.Whatiscrucialistoobtainasmany differentperspectives intheplanningprocessaspossible aswellastheinvolvementofpeo- plewhoimplementthestrategies. Thevalueofaprofessionalfacili- tator becomes more pronounced the larger the group of people involvedintheprocess. Strategicplanningisonlymeaning- fulifthecompanyfullyintendsto implement the decisions taken. A commonwasteoftimeandmoney isforacompanytobearthecostof topmanagersmeetingataretreat, sometimeswithanexpensivefacil- itator,makingimportantdecisions, onwhichnoonethenfollowsup. Theresultisbusinessasusual.One canonlyconjecturesomepossible reasonsforwhythishappens.Per- haps“goingthroughthemotions” ofstrategicplanningsoothessome executives’ consciences. Per- haps they believe that “doing the Associated Press/Douglas C. Pizac The biggest waste of a company’s time and money is to pay for
- 31. a top managers’ meeting at a rural retreat center and then have no one follow up on implementing any of the business discussed. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process planning”isallthereistoit,abeliefthatnoonehasbotheredtocorrectfo rthem.Perhapsitisthe golfgameattheresortwheretheretreatisheldthathastheirrealinterest .However,itisawaste oftimejusttogothroughthemotionssoacommitmenttotheprocessan dimplementationare requisiteelements. Thereareafewkeystrategicdecisionstobemade,oratleastrevisited.T hefirstistoconfirma commitmenttoavisiontowhichthecompanyaspires.Theoutcomeoft heprocessisdecidingon thebeststrategicbundleinthecircumstances.Thatmayevenhappento bewhatthecompanyis currentlydoing.Afterthat,overallcompanywideobjectivesareset.Fi nally,majorprogramsthat aretobeimplementedandresourceallocationsaredevelopedindetail. Followthroughwillbemuchmorelikelyiftheparticipantsseethesede cisionsasbeingthebest thatcouldbemade,thattheyarefeasibleyetchallengingtoachieve,tha tthatthereissome urgencyingettingthemimplemented,andthattheywouldresultinastr ongerandmorecompeti- tivecompany.Focusingonasmallsetofobjectivesincreas esthechanc esofthembeingattained andlessensthelikelihoodofconflictbetweenobjectivesthatmightoc
- 32. curwithalargernumber.A limitedsetofobjectiveswouldalsohelpfocusthecompany. ThefollowingdescriptionofeachstepintheprocessshowninFigure9. 4includessomepointers formakingthewholeprocesssuccessful. 1. Situation Analysis (a). Research done by various groups in the firm 2. Situation Analysis (b). Critique and elaboration of research done 3. Synthesis. Identify key strategic issues for the company 4. Create Strategic Alternative Bundles. Must meet the four criteria 7. Design Major Programs & Contingencies. 9. Final Check. Ensure that the detailed plans will
- 33. in fact achieve the strategic objectives 10. Asses the Process. Implement the Plans and Monitor Progress. 5. Choose the Best Bundle. Perform criteria-based analysis and argue for the best alternative 6. Set Companywide Objectives. Choose ones to commit to 8. Operational Planning. Prepare detailed operational objectives, plans, and budgets by organizational unit Figure 9.4: A suggested strategic-planning process Source: From Stanley C. Abraham, Strategic Planning: A Practical Guide for Competitive Success. Copyright © Emerald Group Publishing Limited. Reprinted by permission.
- 34. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process Situation Analysis (a) Certainkeycategoriesofdataneedtobecollectedinthisinitialresearc hstep.Anytimethatdata arecollecteditisbesttoobtainacopyofthesourcedocumentoratleasta completecitationofthe source.Itshouldbesel f- evidentthatitisbesttogetthemostrecentdatapossible.Ifforecastscan be obtained,thesourceshouldberecorded,becauseithasahugebearingo nthecredibilityofthefore- castitself.Finally,keypeopleinthecompanyshouldbeappointedtoac tasgatekeepersforparticular categoriesofdata,andeveryoneintheorganizationshouldknowwhot heyare.Everyonecanthen senditemsofinformationorleadsaboutaparticularcategorytotheseg atekeepers.Ifdonethrough- outtheyear,thisfirststepisnotneeded;otherwise,onemustallowsuffi cienttimetocollectand analyzethedataandprepareusefulsummaries.Everymonth,thesegat ekeepersshouldsummarize andmakesenseofthedatacollectedto- date,whichisthensenttoeveryoneontheplanningteam. Substantialpreparationshouldbedoneforeachstep.Researchanddat acollectionmustbebased onfactoranalysis,notonopinion.Wheredatacannotbeobtained,fore xample,oncompetitors thatareprivatelyheld,makeassumptionsandmoveon.Payingforcriti caldatasuchaseconomic forecastsorcompetitiveintelligencemaybeworthconsideringasitco
- 36. includerepresentativesfromdifferentfunctionalareasandlevelsofth ecompany,withverydiffer- entbusinessandindustrialbackgrounds,newermembersoftheorgani zation,andseasonedveter- ans.Startingwiththelistofstrategicalternativesandworkinginsmall groups,eachgroupshould comeupwithitsversionofalternativebundlesandchecktoseethatthe ymeetallfourcriteria. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process When the small groups have designed the proposed bundles, thesecanbeassesedanddebated bytheentireplanningassemblage. Theideaistosynthesizetheefforts of the various subgroups into a final grouping of three or four reallygoodbundlesthatmeetthe criteria.Experiencehasshownthat thisstepalwaystakeslongerthan expected to do well. One idea to forceanintelligentcritiqueofthe alternatives is to “murder-board” them.Assignasubgrouptotackle each alternative bundle, and instructthemtocomeupwithall the reasons they possibly can as towhythatalternativewould not work.Itisamazinghowthisextra step adds a humiliating dose of realitytotheprocess,canresultinimportantmodificationstothebundl einquestion,andcan
- 37. evencauseonebundlethatwasgoingtobeconsideredbythegrouptobe discarded. Choose the Best Bundle Selectasubsetoffivetosixrelevantcriteria.Evaluatethebundlesonea chcriterion.Theentire groupofparticipantsshouldreachconsensusthatwhicheverbundleis finallyselectedreallyisthe bestoneinthecircumstancesandbeabletoexplainwhy.Ultimately,ev eryoneshouldunderstand thatthisishowthecompanywillcompeteoverthenextthreetofiveyear s. Set Companywide Objectives Asdiscussedearlier,thisisathree- stepprocess.Dependingonthepreferredkeyindicator,suchas revenues,NIAT,marketshare,andD/Eratio,thecompanyneedssimpl ytoanswerthequestion, “Howfardowewanttogothisnextyearandineachofthenexttwoyearst owardimplementing thechosenstrategicbundle?”Itwilldependonthefirm’scurrentresou rcesandthoseitcould additionallyaccess,aswellasthenatureofthechosenstrategies.Inadd ition,itwilldependon whetherthecompetitiveenvironmentisbecomingmoredifficultoran yotherthreatsareloom- ing.Basedonhowthecompanyhasbeendoingintherecentpast,theobj ectivesshouldbeset atachallenginglyhighlevelwhilestillbeingachievable.Mostimport antly,thosewhomustbe accountableforachievingtheseobjectivesshouldagreetothelevelat whichtheyareset,and thatlevelshouldbechallenging. Ofcourse,themodelassumesaparticipativewayofsettingobjecti ves; someCEOsstillreserve
- 38. therighttodothisontheirown.However,awiseCEOknowsthatwhen managerschargedwith implementingastrategysettheirownobjectives,theyaremorelikelyt oachievethem. Digital Vision/Photodisc/Thinkstock After completing a situation analysis, each manager or gate- keeper should make a brief 30-minute presentation on his or her particular category. CHAPTER 9Section 9.4 Managing the Strategic-Planning Process Design Major Programs and Contingencies Someofthesemajorprogramsareincludedinthechose nbundle,while othersmayneedtobe added.Itisthislistofprogramsthatwillguidethecreationoftheoperati onalplans.“Contingen- cies”hererefertothetrigger/contingencypairsthatwerediscussedin Section7.4. Prepare Detailed Operational Objectives and Plans Thisisoneofthemorecomplexsteps intheprocess,buttherearemany ways to create operational plans. Giventhecompanywideobjectives and major programs already iden- tified, the directors of functional units (e.g., marketing, production, finance) and other support units (e.g.,materialslab,purchasing)take theseasmandatestotheirrespec-
- 39. tive staff and get them to gener- atedetailedoperationalplansthat would contribute to achieving the objectivesandchosenbundle(busi- nessmodel).Ataminimum,these plansshouldincludethefollowing: • Atimelineofspecifictaskstheunitwillundertakeduringtheyear • Aproposedbudgettoaccomplishthembytaskandmonth • Specificdetailsastowhowillbeparticipatingintheseactivitiesand,in particular,the personwhowillberesponsibleforeachactivity • Alistofadditionalresources,humanandmaterial,thatwillberequired tocompletethe proposedtasks Perform a Final Check Oncetheseplanshavebeendrafted,theyshouldbereviewedbytopman agementand/orthe director of strategic planning to check their feasibility, verify that the requested budgets do notexceedavailablefunds,andconfirmthatcompletingalltheplanne dactivitieswill,infact, achievetheoverallobjectivesforthecompany.Thismixtureoftop- downandbottom-upplanning mayhavetoendureoneormoreiterationsbeforetheoperationalplansa ndbudgetsarefinally approved.Forthisreason,besuretoallowenoughtimetocompletethis processproperlyand breakitdownintocomponentsasshowninthatfigure. Assess the Process
- 40. Thosewhoparticipatedinthestrategic- planningprocessshouldbeaskedtocompleteadetailed questionnaireabouthowwelltheprocesswentandthequalityofthede cisionsmade.Thefollow- ingsectiondiscussesmeasuresforimprovingtheprocess. Dmitriy Shironosov/iStockphoto/Thinkstock One of the more complex steps in the analysis is preparing a detailed account of your operational objectives and plans. CHAPTER 9Section 9.5 Improving the Strategic-Planning Process 9.5 ImprovingtheStrategic-PlanningProcess Strategicplanningis,atitsheart,a processforarrivingatstrategicdecisionsandachieving somepurpose.However,unlikeotherprocesses,theoutputisnotwi dg ets;itisnothingless thanthefutureofthecompany.Assumingthatimprovingtheprocessw illimprovethequal- ityofstrategicdecisionmakinginthefuture,itshouldbereviewedever yyeartoseewhere improvementsmightbemade.Suchareviewshouldincludeeveryaspe ctoftheprocess—the quality and adequacy of the data and analyses, whether enough expertise was at hand or applied,thequalityandextentofthediscussions,thedegreetowhichm entalmodelswere changedandunified,whetherthekeystrategicissueswereproperlyid entifiedandwellunder- stood,andsoon. Questions for Improving the Process
- 41. The following questions should help in assessing the strategic- planning process and making improvementsforthefollowingyear. Situation Analysis 1. Weresufficientdatacollectedforvariouspartsofthesituationanalysi s?Ifnot,which particularpartswereshortchanged? 2. Wasenoughtimeallowedfordatacollection?Wherewouldmoretime allowedhave beenbeneficial? 3. Wasenoughanalysisperformedonthedata?Ifnot,wherewouldmorea nalysishave beenbeneficial? 4. Werecrediblesourcesusedfordataandforecasts?Ifnot,forwhichkin dsofdatawere theynotcredible? 5. Forthoseanalysesthatusedsubjectiveestimates,wasthereconsensus astohowthose analysesturnedout?Whereparticularlydidthesubjectivityaffectthe credibilityoftheana- lyticfindings?Weretheopinionsofsomepeoplegivenundueweighto verthoseofothers? 6. Wouldtheuseofoutsideexpertshaveimprovedanypartofthesituatio
- 43. CHAPTER 9Section 9.5 Improving the Strategic-Planning Process Strategic Analysis 8. Wereenoughkeystrategicissuesidentified?Ifnot,whatmighthavebe enadded? 9. Inhindsight,didthekeyissuesidentifiedreallyrepresentthemostcriti calissuesfacing thecompany?Ifnot,whynot?Whichoneswereleftout?Wastheomissi onanover- sight,orweresomepeopleafraidtoarticulateit? 10.Didthestrategicissuesreflectthekindoflong- termstrategicthinkingthatparticipants imaginedshouldhaveoccurred?Ifnot,whynot? 11.Werethestrategic- alternativebundlessufficientlycreativeandrealistic? 12.Whencreatingthem,wereparticipantsundulyinfluencedbywhatt hecompanyiscur- rentlydoing,byitscurrentstrategies,orbywhatparticipantsbelievedt heCEOreally wanted?Ifso,howcouldthisbecorrectedinthefuture? 13.Dideveryonewhocouldhavecontributedusefullytotheprocessof creatingthesealter- nativebundlesactuallydoso?Ifnot,howcouldthisbecorrected? 14.Werethecriteriausedtoevaluatethealternativebundlesreasonabl eforthiscompany?
- 45. Some General Questions 21.Didthewholeprocesstaketoolong?Why? Wherecouldithavebeenshortened? 22.Didtheprocesssticktotheoriginalschedule? Ifnot,wherediditdeviate?Mightthesched- ulehavebeenunrealistic? 23. Iftheprocessdidnotkeeptotheoriginal schedule,werethereanyadverseeffects? Richard Hobson/iStockphoto/Thinkstock After putting together your situation analysis, you should distribute a question- naire to your employees to help you better assess the strategic-planning process. CHAPTER 9Section 9.6 Assessing the Strategic-Planning Process 24.Whatlessonswerelearnedabouttheprocessthisyearthatmightbep uttogooduse nextyear? 25.Hasthecompany’sknowledgeofstrategicplanningincreased?Ho wdoyouknow?Ifnot, whynot? 26.Waseveryonewhoparticipatedintheprocesssubstantially“onthe samepage,”ordid theprocessconcludewithanumberofpeopleinsignificantdisagreem ent?Ifthelatter,
- 46. howmightsuchdisagreementsbeaddressedmorefullyandresolved? 27.Overall,isthecompanybetteroffforhavingbeenthroughthisstrat egic-planningexer- cise?Whyorwhynot? Thepersonresponsiblefortheprocessshoulddistributeaquestionnai rewiththeprecedingques- tions(orasimilarset)toallparticipantsintheprocess.Theresponsessh ouldbeanalyzedandthe resultspresentedwithconstructivecommentaryandsuggestionsfor whatshouldbechangedthe followingyear.Theanalysisandsuggestionsforchangeshouldbedisc ussedatthemeetingand consensussoughtastowhichchangesshouldbeimplemented.Unlesss uchadebriefingtakes place,changesmadetotheprocessmightberesented;and,inaddition,i tservesaneducational purpose. 9.6 AssessingtheStrategic-PlanningProcess Benefitsdonotaccrueautomaticallyeverytimeacompanyengagesin strategicplanning;theyare morelikelytoberealizediftheyareconsciouslysought.Bot hstrategic plannersandtheconsul- tantfacilitatorsadvisingthemshouldstrivetoensurethatthesebenefit sarerealized.Theextent towhichtheyarerealized,therefore,constitutesanexcellentassessm ent. The 10 Benefits The10benefitsofeffectivestrategicplanningmayalsobeviewedascri teriaforassessingwhether acompanyisdoingstrategicplanningeffectively.The10benefitsareo rganizedtofollowtheAsso- ciationforStrategicPlanning’srubricof“Think—Plan—Act.”
- 47. Discussion Questions 1. Participatingfullyinastrategic- planningprocessisunquestionablyalearningexperience.Doyou thinkthatspecialtrainingbeforehandwouldmakeadifference?Whyo rwhynot? 2. Ifstrategic- planningparticipantsaresentmaterialsaheadoftheprocess,whatsho uldthey contain? 3. Afteracoupleofannualiterationsofimprovingtheprocess,anobser ve rmightbeforgivenfor thinkingthattheprocesswasgoodenoughnottochangeanymore.Give somereasonswhythat wouldbewrong. 4. Whyisachievingconsensusatthepost- planningdebriefingmeetingadvisable? CHAPTER 9Section 9.6 Assessing the Strategic-Planning Process 1. A Shared Understanding of External Changes Touseamilitaryanalogy,justasconflictingaccountsaboutanenemy’ sstrength,position,and deploymentmakeitdifficulttodeviseawinningstrategy,sotoodoesth eabsenceofashared understandingofexternalchangesandtheirimpactsonthecompanym akethecraftingofawin- ningstrategyextremelydifficult.Becausechangesoccurcontinuousl
- 48. y,theonlywaytokeepup withthemandevenanticipatesomeistomonitorthemyearround,andt okeepthestrategic planninggroupandboardofdirectorsinformedastokeychangesandd evelopmentsinallareas. Onepersonshouldberesponsibleforeachareaandbetrainedtocollect andsummarizedata inusefulform.Asummaryfortheyearwithemphasisonrecenttrendss houldbepreparedin advance of the annual strategic-planning meetings and be distributed to participants. To the extentthisisdonewell,thecompany’sdecisionmakingwillimprove. 2. The Ability to Anticipate Future External Changes Anumberofwell- knowntechniquesenableanorganizationtoexplore“soft”assumptio nsabout thefutureandprovideadditionaloptionsforplanning.Theseincludes cenarioplanning,forecasts, andsimulations(Section3.4).Itmaybethatthefirmwouldbeadvisedt oengageaconsultantthat specializesinoneoftheseareas,orpayattentiontoforecaststhathavee arnedagoodreputation overtime.Expressedanotherway,thebenefithereisthattheresultingi nformationcanguidethe firmtowardactionsthatenableapreferredscenariotooccur,ordevelo pacontingencyincasea hoped-forscenariodoesnotoccur. 3. The Ability to Search for a Better Strategy or Business Model Acompanynotactivelyseekingabetterstrategyisnotdoingagoodjob ofstrategicplanning, anditsstrategicdecisionswillnotbegoodones.Howelseisacompanyt ofinda“blueocean”or situationalmonopolywithnocompetition?Howelsecoulditguardag ainstbeingdisruptedbya
- 49. The 10 Benefits of Effective Strategic Planning “Think” 1. Asharedunderstandingofexternalchanges 2. Theabilitytoanticipatefutureexternalchanges 3. Theabilitytosearchforabetterstrategyorbusinessmodel “Plan” 4. Havingastrategicvision 5. Choosingthebeststrategyfromamongviablealternatives 6. Aconstantlyimprovingstrategic-planningprocess 7. Havingtheboardofdirectorsonthesamepage “Act” 8. Becomingastrongercompetitor 9. Havinganadaptive,innovativeculture 10. Havingallprogramsalignedwiththevision,strategy,andcompanyob jectives Source:Abraham,S.(2010,February23).TenBenefitsofEffectiveSt rategicPlanning—andWhyYou ShouldWantThemAll.Presentationatthe2010ASPNationalConfere nce,Pasadena,CA. CHAPTER 9Section 9.6 Assessing the Strategic-Planning Process companyoutsidetheindustryorevenplanadisruptionitselfinaproact ivemove?Howelsecould itgainacompetitiveadvantageitlacksorstrengthenoneitalreadyhas?
- 50. For every different strategy and business model contemplated, someone in the organization shouldassessitscosts,feasibility,benefits,andrisksonanongoingba sis.Theresultsofsuch assessmentsplaydirectlyintothestrategic-decision- makingprocess.Exceptwhenthefirmneeds toactimmediatelybecausethedecisionjustwon’twait,theinformatio ncanwaituntiltheannual strategic-planningprocesscomesaround. 4. Having a Strategic Vision Everyorganizationthatwantstoendures houldhaveastrategicdirecti onandstrivetobecomesome- thing.Succeedingismorelikelyifthereisaclearvisionandifeveryone knowswhatitisandismoti- vatedtohelptheorganizationgetthere.Visionsshouldberealistic(ac hievablewithinasettimeframe, 5 or 10 years is typical), concise, inspirational,andmemorable.They sometimes include a value state- ment, although listing values sepa- ratelyismorecommon(Section2.1). The real benefit of a clear vision statementistogeteveryoneinthe organizationonboardandwanting toachieveit;andthoughcumber- some,everyoneintheorganization shouldalsohavehadahandincre- ating it or at least providing feed- backbeforeitisadopted.Assoonas theorganizationisclosetoachiev- ingitsvision,itshouldbechanged, being careful to go through the sameprocessofgettingbuy-infrom
- 51. everyonebeforeadoption. 5. Choosing the Best Strategy from Among Viable Alternatives Choosingfromthebestoptionsavailableisabenefit,asitallowspeopl etotrustthedecisionthatwas madeandhavefaithinthedirectionthecompanyisheaded.Thisisbene ficialonlyifthestrategic planningprocessgenerategoodviablealternativesandadecisionproc essforselectingthebestone. Havingsaidthat,sucha“beststrategy”doesn’tguaranteesuccess.Itm ustbewellexecutedfor thefirmtosucceed.Itismucheasierto“sell”thestrategydownthelinei nacompanyandmoti- vateahighlevelofexecutionifpeopleknowwhyitisthebestfromamon gtheoptionsconsidered. 6. A Constantly Improving Strategic-Planning Process Thebenefitofimprovingtheprocessshouldbeclear:betterstrategicd ecisionmaking.Thismight entailinvolvingdifferentpeople,gettingbetterinformation,stimulat ingmorespiriteddiscussions Helder Almeida/iStockphoto/Thinkstock Your strategic vision should be realistic, achievable within a specified time frame, inspirational, concise, and memorable. CHAPTER 9Section 9.6 Assessing the Strategic-Planning Process andencouragingdiverseviews,orevenusingcomputersoftwaretoinc ludeinputsfromeveryone quickly(Warden&Russell,2001).Withoutthoughtfulannualimprov
- 52. ements,anorganizationis likelytoallowitsstrategicplanningtobecomearoteexercis ethatistak enlessseriouslyandone thatparticipants,forthoseveryreasons,resistwantingtoparticipatei n. 7. Having the Board of Directors on the Same Page Forpubliccorporationsandnonprofits — andquiteafewbutnotallprivatelyheldcompanies —it isimperativetoensurethattheboardofdirectorsapprovesofallstrateg icdecisionsbeforeany movetoimplementthemismade.Infact,thereareinstanceswherethes trategicdecisioncomes fromtheboard,asinresistingatakeoverbidordecidingtoacquireanot hercompany.Inthetypi- calcasewherestrategicplanningisdonebyatop- managementorstrategic-planningteam,there hastobesomemechanismfortheboardtobekeptapprisedoftheproces s.In2005,manage- mentconsultingfirmMcKinsey&Co.polledover1,000directorsandd iscoveredthatstrategy coordinationbetweentheCEOandtheboardwasthenumber- onecauseforthesuccessorfailure ofCEOappointments(Felton&KeenanFritz,2005).Insomecompani es,theCEOisalsochairman oftheboard,andsoautomaticallyservesasthedesiredlink. Boardsofdirectorsmayhaveastrategic- planningcommitteewhosechairwouldattendthemeet- ingsofthemanagementgroupandkeeptheboardinformed.Thebenefi t,ofcourse,isknowing thatthestrategicdecisionsmadeareinthebestinterestsofthestockhol dersinthecaseofapub- liccorporationorthesponsorsandclientsinthecaseofanonprofitorga nization.Ultimatelyitis theboardthathasresponsibilityforthestrategicdirectionoftheorgani
- 53. zation. 8. Becoming a Stronger Competitor If strategic planning is done well and the strategy properly executed, then the company will becomeastrongercompetitor.This,ofcourse,istheprincipalbenefitf ordoingstrategicplanning inthefirstplace.Manythingshavetocontributeforthisbenefittoberea lized.Forexample: • Knowinghowyourindustryandmarketsarechanging • Anticipatingandmeetingcustomers’needs • Gettingmorecustomerstobuyyourproductorservice • Creatingorimprovingacorecompetence • Knowingwhatyourcompetitorsareuptoandoutdoingthem • Defendingone’spositionagainstattackfromcompetitors • Lookingfor“blueoceans”ormonopolieswith nocompetitors • Lookingforopportunitiestodisrupttheindustrybeforesomeoneelse does • Cultivatingastrongbrandandstayingtruetoit Managementknowsthatthecompanyisastrongercompetitorifitachi evesgainsinrevenuesand marketshare,andmaintainshighbrandequity,orachievesotherestabl ishedmeasuresofsuccess thecompanyholdsdear. 9. Having an Adaptive and Innovative Culture Whenacompanyhasbeenfollowingthesamestrategyforsometime,th ecultureadaptsto thatstrategyandgetsittowork.However,ifsomemajorchangeisdeem ednecessary,suchas
- 54. CHAPTER 9Section 9.6 Assessing the Strategic-Planning Process pursuinganewstrategyoradoptinganewtec hnologyormanufacturin gprocess,andtheculture remainswhatitalwayswas,thenthechangewillnotsucceed.Amismat chedcultureisoneof theprincipalreasonswhychangesandnewstrategiesfail,anditiswide lyacknowledgedthatit isdifficulttochangeaculture.Thereasonthatitisdifficul tisthatchang eimposedfromabove resultsinalotofresistance.Manycompaniesinthispredicamentresor ttowholesalechangesin personneltochangetheculture. Withanadaptiveculture,thatdra- conian measure is not necessary. An adaptive culture is one that is willing to change if the reason for doingsomakessense.Itisaculture that values open communication, education, teamwork, and individ- ual initiative.Companiesthathave adaptive cultures make the neces- sarychangesovertimeandsucceed. Aninnovativeculturedoesnotsim- ply encourage innovation and new ideas and look for the next “big thing.” It also puts a high value on learning from mistakes and giving peoplepermissiontomakemistakes. Innovative cultures encourage the sharingofexperiencesanddevelop- ingideasnomattertheirsource.Two of the best examples of innovative
- 55. culturesareAppleInc.andGoogle. Itwouldbedifficulttomakestrategicdecisionsandimplementthemift heculturewerenotadap- tiveandinnovative.Theconverse,ofcourse,isalsotrue.Makinggood strategicdecisionsthat callforchangeandsmoothexecutionwillforcetheculturetobeadaptiv eandinnovative.Hiring peoplewithsimilartraitswillensurethatthisdesirablecultureendure s. 10. Having All Programs Aligned with the Vision, Strategy, and Company Objectives Theimportanceofaligningeverythingthecompan ydoeswithitsvisio n,strategy,andcompany- wideobjectiveswasdiscussedinthecontextofoperationalandbudget planning(Chapter8). Thebenefitistheassuranceofknowingthatcompletingallprograms,p rojects,andactivitiesas plannedwillresultinthestrategybeingimplementedandthevisionan dcompany-wideobjectives beingfullyrealized(barringunforeseencircumstances). Intoomanycompanies,whatemployeesinthedifferentfunctionalare asandoperationalunits actuallydohaslittletodowiththestrategythat’sinplace,becauselittle ornoeffortwasexpended tomakesurethatthetwowerealigned.Asaresult,thestrategyfailsor“b usinessasusual”tri- umphs.Whenoperationalplanningisdone,criticalelementsincludep erformancemeasures(to trackprogress),appropriatetraining,andrewardandincentivesyste ms. Miguel Medina/Stringer/AFP/Getty Images
- 56. Apple Computer’s culture encourages innovation and new ideas to look for the “next big thing.” Apple values learning from mistakes, sharing experiences, and developing ideas, no matter what the source. CHAPTER 9Section 9.7 Raynor’s Strategy Paradox 9.7 Raynor’sStrategyParadox AccordingtoMichaelE.Raynor,sometraditionalstrategic- analysistoolsthathavebeentaughtfor yearsandareinwidespreaduse(includingsomediscussedinearlierch apters)arepasséandcould evenbecounterproductive.HespecificallyidentifiesMichaelPorter’ sfindingthatacommitment tocompetitivestrategyisthesinglemostimportantingredientofanypl an(Porter,1980),and GaryHamelandC.K.Prahalad’s(1994)revelationofthepowerofacor ecompetence. Thesemanagementtoolsare,infact,powerfulonlyifonecanpredictaf uturediscontinuitywith somecertainty,whichnoonecan,especiallyinanunstableeconomiccl imateorinanenviron- mentofconstantchangeandtechnologicalinnovation.Forexample,c onsideracompanysuchas Mozilla,whichreliesonopen- sourcedevelopmentforitsflagshipproduct,theFirefoxbrowser. Oldermodelsofforecastingthefutureandstrategicallyplanningwitht hoseforecastsinmind simplywon’tworkforanorganizationalmodelsuchasthis. Theargumentisthatthecommitmentittakesinfinancialresourcesand organizationaladaptation
- 58. Microsoft,ontheotherhand,hasthebud gettopursuemyriadstrategic options,whichitcanthen exercise(developandquicklytrytobecometheleader)orabandonasa ppropriate.Forinstance, Discussion Questions 1. Ofthe10benefitsdiscussedinthissection,whichofthem,inyouropini on,aremostoftenunre- alizedandwhy? 2. Whichofthesebenefits,againinyouropinion,aremostdifficulttoreal izeandwhy? 3. Doyoubelievethatthereareanybenefitsthatcompaniesarelessintere stedinrealizingand therefore,probablywon’t? 4. Inwhatwaysarethese10benefitsdifferentfromtheannualimproveme ntcyclerecommended inSection9.5? CHAPTER 9Section 9.7 Raynor’s Strategy Paradox althoughitmaynothavehappenedsoonenoughforearlyadoptersofMi crosoft’smuch-criticized Vistaoperatingsystem,thecompanyhadtheresourcestoputinplaceW indows7asameans ofrespondingtothewidespreadproblemswithVista.Callithedgingo ne’sbetsifyouwill,but Raynorcallsitmanaginguncertainty.
- 59. How, then, is this uncertainty managed, and who should do it? Here, Raynor drew on the pioneeringworkdonebyElliottJacques,developerofthe‘’requisiteo rganization’’concept. Jacquesinvestigatedwhypeople’spayatdifferentorganizationallev elsdiffered,andwhatwas considered‘’fairpay.’’Hisresearchshowedthatpeoplewhohadtoma kedecisionsbasedona longertimehorizonwereappropriatelyperceivedasdeservinghigher pay.Thus,forthisreason alone,peopleathigherlevelsinanorganizationwerepaidmorethanpe opleatlowerlevels. Raynorpiggybackedonthisconceptanddevelopedamodel of requisite uncertainty.Figure9.5 summarizesthekeylevelsinanorganizationandthetimehorizonover whichtheytendtomake decisions.Raynorisnotconcerned,here,withcompensation.Instead, theexhibitshowsthat thedecisionsmadewithlongtimehorizons(about20years)inmindad dressthegreateststra- tegicuncertaintyand,hesays,theboardofdirectorsshouldberesponsi bleformakingthem. Thenextleveldown,corporatemanagement(5-to10- yearhorizon),exploresnewmarkets, technologies,andbusinessmodels;theirjobisnottodecidehowtosuc ceed,butratherthat thecompanybepositionedtosucceedregardlessofwhatthefuturehol ds.Divisionmanage- ment(two-tofive- yearhorizon)choosesthestrategyandhowthe yshouldbeimplemente d. Finally,lineandfunctionalmanagers(withatimehorizonrestrictedin rangetolessthanone year)focusonimplementationofstrategiesalreadydecidedon.Notic ethatfromtoptobot-
- 60. tomoftheexhibit,themanagementimperativeshiftsfrom‘’uncertaint y’’to‘’commitment.’’A companymustnotonlyimplementstrategiesalreadyinplaybutalso,b ymanaginguncertainty, always keep itself in position to change to another strategy should changing circumstances warrant. Board of Directors Absolute Organizational Level Relative Time Horizon (years) Strategic Balance Corporate SBU/ Divisional Line/ Functional Uncertainty Commitment 10 – ∞
- 61. 5 – 10 2 – 5 0.25 – 1 20 10 5 1 Figure 9.5: Raynor’s model of requisite uncertainty Source: From Stanley Abraham, “At ASP, Raynor on managing uncertainty, plus some highlights of lessons from practice,” Strategy and Leadership, Vol. 35 No. 4, 2007, Exhibit 2, 46. Copyright © Emerald Group Publishing Limited. Reprinted by permission. CHAPTER 9Summary Summary Someorganizationsdon’tcreateoperationalplansastheywouldconsi stofjustdoingwhatever thecompanyisalreadydoing.Formostcompanies,however,changeis constantandthepushto becomeastrongercompetitorandreducecostsisneverending.Creatin goperationalplansalso involvesdifficultchoices;theplanmus tgetthejobdone,bewithinthec ompany’stechnicaland
- 65. mademight,ifconditionsabruptlychange,alsobeacompany’sAchill es’heel.Suchacompany wouldfinditverydifficulttochangeasquickly,likealargeoiltankertr yingtomakeaquickturn. ThisisRaynor’sstrategyparadox.Hissolutionistomanageuncertaint ybetter,meaningtonot onlykeepexecutingitssuccessfulstrategybutalsospendmoretimelo okingfurtherahead(10–20 years)inanefforttogetasmuchleadtimeaspossibletoallowtheorgani zationtochangeaccord- ingly.PlanningattheCEOandboardlevels,acc ordingtoRaynor’s“m odelofrequisiteuncertainty,” shouldexclusivelybeconcernedwithfiguringoutwhatthecompanys houldbedoing5-20years intothefuture. Key Terms control system Comparingactualperformance toastandard,measuringthevariance,tak- ingactiontoreducethevariance,resetting orupdating,andtestingagain.Corrective actionshouldbetakenassoonasitisfound necessary. deliberate strategy Theintendedstrategy, operationalizedandexecuted. emergent strategies Strategiesacompanypur- suesduringimplementationthatwerenevera partoftheintendedstrategy. Gantt chart Agraphicdepictionofaproject schedule.Ganttchartsshowthebeginningand enddatesofeachprojectcomponent.Some chartsalsoillustratethedependencyrelation-
- 66. shipsbetweencomponentactivities,orthe dependencyofoneactivityuponthecomple- tionofanother. negative variance Aninstancewhereaproj- ect’sprogressisdelayedandcouldmiss adeadline,orwhereitsbudgethasbeen exceeded,orwhereperformancecomes upshortofaquantitativestandardor expectation. Raynor’s model of requisite uncertainty The decisionsmadewithlongtimehorizons(about 20years)inmindaddressthegreateststra- tegicuncertainty.Acompanymustnotonly implementstrategiesalreadyinplaybutalso, bymanaginguncertainty,alwayskeepitselfin positiontochangetoanotherstrategyshould changingcircumstanceswarrant(withthe boardandtopmanagementworryingabout CHAPTER 9Summary howtocopewithchangesthatmightoccur overthelongerterm). Raynor’s strategy paradox Whentheworld inevitablychanges,thetypicalorganization cannotadaptquickly;theverystrategiesthat atonetimewereresponsibleforacompany’s successthenseeditsdestruction.Thatisthe strategyparadox.
- 67. realized strategy Acombinationofdeliberate andemergentstrategies.Alsoknownasan umbrellastrategy. unrealized strategy Afailedstrategy. Operational and Budget Planning Learning Objectives By the time you have completed this chapter, you should be able to do the following: • Understandthedifferencesbetweenoperationalandbudgetplanning. • Learnwhatdoingsuchplanningentailsandwhyitmustbedone. • Appreciatebroaderoperationalissuessuchassystemsandsystemsthi nking,informationsystems,building consensus,andtheroleofpolicies. • Understandwhoisinvolvedinoperationalplanningandissuesinvolv edingettingitdonebeforethestart ofthenewfiscalyear. 8 Fuse/Thinkstock CHAPTER 8Section 8.1 Some Broad Operational Issues
- 68. ChapterOutline 8.1 SomeBroadOperationalIssues 8.2 OperationalPlanning 8.3 BudgetPlanning 8.4 ParticipationinOperationalPlanning 8.5 GettingItDoneinTime Nostrategyisusefulunlessitcanbeimplemented,andnostrate gycanb eimplementedwithany degreeofsuccesswithoutdoingoperationalandbudgetplanning.This chapterexplainshowto dosuchplanning,whyit’simportant,andotherimportantprocessissu es. 8.1 SomeBroadOperationalIssues Someaspectsofoperationalplanningaremoreencompassingthanjust planningprograms,projects, andtasksforpeopletodo.Theseincludesystemsandsystemsthinking, management-information systems, ensuring participation in the operational- planningprocess,andtheneedforconsensusindeci- sionmaking.Notonlyaretheymoreencompassingbut alsoaredeterminantsofeffectivestrategyexecution andshouldthereforebetakenintoaccount. Systems and Systems Thinking Almosteverythingintheworldandevenbeyondisa system—fromthegalacticsolarsystemofwhichweare aparttothehumanbody,whichhasmanysubsystems
- 69. ofitsown,suchastheimmune,reproductive,digestive, andcardiovascularsystems,tonameafew.Asystem isasetofinteractingorinterdependentcomponents forming an integrated whole. Corporations are com- plexsocialsystems,consistingofindividualsandunits thatworktogether(ornot)toproduceproductsorser- vicesfortheircustomersthatinturnensuretheirsur- vival.Complexsystemsareself-regulatingsystems;that is,theyareself-correctingthroughfeedback.Inother words,systemsmustberesponsivetofeedbacksuchas thecompany’ssalesfigures,turnover,andothermetrics inordertoensuretheircompetitiveedgeandsurvival. Moreover, the systems approach to understanding organizationsaddressestherelationshipbetweenthe operationanditsenvironment.Itdoessobyexamining © SOMOS / SuperStock The world is made up of systems. A system is a set of interacting or independent com- ponents forming an integrated whole. Cor- porations are complex social systems. CHAPTER 8Section 8.1 Some Broad Operational Issues thenatureoftheboundariesbetweentheorganizationandtheoutsidew orld.Themoreperme- ableareanorganization’sboundaries,themoretheorganizationisabl etoplaceitsfingeronthe pulseofthecompetition,themarketplace,andindustrytrends.Bound ariesmaybecreated,for instance,byemployerapathytowardemployeedevelopmentandsmal ltravelbudgets;anorgani-
- 72. unterintuitive. CHAPTER 8Section 8.1 Some Broad Operational Issues Management-Information Systems (MIS) Everyday,ateverylevelintheorganization,decisionsgetmade.Earli erchaptersfocusedonstrategic decisions,whilethischapterandthenextfocusonoperationaldecisio ns.Simpledecisionsrequire aperson’sknowledgeandexperienceor,insomeorganizations,anest ablishedpolicymaygovern decisionsinroutinesituations.Startupfirmsoperatewiththeentrepre neurmakingallthedecisions seemingly“offthecuff,”asspeedisoftheessenceandtheentrepreneur knowswhatheorsheisdoing. Themorecomplexdecisionsbecome,thelessonepersonorevenagrou pisabletoactindepen- dently.ShouldspecialpromotionsintheSouthernUnitedStatesbecon tinuedforanothermonth? Thatwoulddependonhoweffectivethepromotionshadbeeninincreas ingsales,andwithout thosedatatherightdecisioncouldnotbemade.Canproductionthroug hputbeincreasedby20% nextyear?Withoutknowingtheplantcapacity,productioncosts,ands alesforecasts,thatques- tionalsocouldn’tbeanswered.Andtheseareoperationaldecisions.W ealreadyknowthatstra- tegicdecisionsneedalotofdatatobeanalyzedandprocessedbeforethe yaremade,andeven thennoonewillknowiftherightdecisionwasmadeuntilacoupleofyea rslaterwhenonecan seehowthecompanyperformed.
- 73. Withtheexceptionofstartups,nocompanycanaffordtobewithoutam anagement-informa- tion system (MIS).Bydefinition,itmustsupplythebasicinformationneededbym anagersfor makingdecisions.Theextenttowhichitsucceedsin doingthisdeterminesthequalityofdecisionsmade (Mason&Hofflander,1972).Evenbeforetheadvent ofcomputers,therewereinformationsystems,usuall y intheformofreamsofpaperandinformationstored inpeople’sminds. A management information system is more than a streamofunprocesseddatathatpeoplecanaccess.If itisjustthis,itisadatabank,notanMIS.Anaccount- ing system is an example of a databank. Likewise, financial statements display data—the user deter- mineswhatmeaningtheyhave. Amanagement-informationsystemmustbetailored totheneedsofthedecision-makersitserves.Cloud computing has made management-information sys- temseasytocreateandmaintain.Thesenetworked platformsmaketheMISmobile,anddataaccessible fromlaptops,smartphones,andtablets.Theuseful- nessoftheinformationdependsonitsquality,timeli- ness,completeness,andrelevance(Jones&George, 2007). What data are needed? In what form? Col- lected how often? Can anyone input data into the system?Canitbetrusted?Cananyoneusethesys- tem?Infact,itcannotbedesignedproperlywithout firstdefiningthekindsofdecisionspeoplemakeand theinformationthatwouldbestservethosedecision- makers.Unfortunately,thereverseisoftenthecase, Goodshoot/Thinkstock
- 74. An information management system must be tailored to the needs of the decision makers it serves. The usefulness of the data depends on its timeliness, quality, completeness, and relevance. CHAPTER 8Section 8.1 Some Broad Operational Issues wheretheMISisbuiltondatathatcanbeeasilycollectedandstoredthat peoplethinkwillbe usefulforvariousdecision-makers(Mason&Hofflander,1972). Predictive information systems permit decision-makers to draw inferences and make pre- dictions from the data. Asking the system “what if” questions given certain assumptions getsaresponseintheveinof“ifthatweredone,thenthisiswhatcanbeex pectedtooccur.” The system cannot evaluate the outcome, just provide the information. A financial-plan- ning-simulation model is a good example; other examples are not even computer-based but nonetheless function as a predictive information system, like a market-research group that analyzes data and answers decision-makers’ questions (Mason & Hofflander, 1972). Amoreadvancedtypeofinformationsystemisadecision-making system,whichembodiesthe organization’scriteriaforchoiceandactuallymakesdecisionsonwhi chtheorganizationcanrely andact.Alinear- programmodelforoptimizingdistributionroutestominimizecostsan
- 75. duseavail- abletrucksisagoodexample.So-called“action” information systemsautomaticallymakethe correctdecisionsthatareacteduponimmediately,likeprocess- controlapplications(Mason& Hofflander,1972).Oneexampleismeasuringtheflowofafluidandreg ulatingavalvetomaintain theflowatapredeterminedlevel —anautomaticcontrolsystem. Fromthisbriefoverview, it’seasytoseewhymanagement- informationsystemsareeasierto developforoperationaldecisionsthanforstrategicdecisionmaking. However,integratedsystems arefoundinmanycompaniestodaythatsupportoperations,suchas manufacturing resource planning II (MRPII)anditssuccessor,enterprise resource planning (ERP) systems. MRPIIsystems,usedinmanufacturingcompaniesevolvedfromtheea rliermaterialrequirements planning(MRP),whichusesforecastsfromsalesandmarketingtodete rminedemandforraw Plant Operating Efficiency Reliable Lead Times Inventory Management Information Management Customer
- 76. Service Manufacturing Performance MRP II Implementation Figure 8.1: Overview of MRP II Source: Adapted from Gunasekaran et al. (2000). CHAPTER 8Section 8.1 Some Broad Operational Issues materials (Figure 8.1). MRP and MRPII systems draw on a master- production schedule, which is a breakdown of specific plans for each product on a line. While MRP coordinates the purchase of raw-materials, MRPII generates a comprehensive production sched- ule that takes into consideration machine and labor capacity and coordinates production runs with the arrival of materials. An MRPII outputisafinallaborandmachine schedule(Monk&Wagner,2006). ERPisaprocessthataimstocon- solidateacompany’sdepartments andoperationsintoonecomputer system that serves each depart- ment’s individual needs (see Fig-
- 77. ure8.2).ThegoalofERPistocreateonesoftwaresolutionthatservesto integratethevarious movingpartsofacompanyintoaunifiedwhole,throughwhichinforma tioncanbeshared, actedupon,andreviewedonacompany- widebasis.ERPismainlyusedinlargeorganizations thatcanaffordtheconsiderableinitialcost.Anoft- citedexampleofanERPsoftwareiscus- tomer- orderinganddelivery.Acustomer’sordertransitionsseamlesslyfro msales,theorigin pointofthedeal,toinventoryandwarehousing,wherethedealispacka gedanddelivered,to finance,whereinvoicing,billing,andpaymentsarehandled,andonto manufacturing,where thepurchasedproductcanbereplacedifnecessary.Mostoftheseopera tions,however,involve recordingandupdatingdata,notmakingdecisionsinvolvingjudgmen torprediction. In companies with such integrated information systems, operational planning can be facili- tatedusingdatafromthesystemandupdatedinrealtimeasconditionsc hange.Forexam- ple,integratedsystemsinsupermarketstypicallyincludesupply- chain,inventory,andfinance/ accountingmanagementbasedonFigure8.2,butnothuman- resourcemanagement(HRM)or customer- relationshipmanagement(CRM)systems.Theemphasisissquarelyo ncost-control, whichincludesnotstockingitemsi nsmalldemandandnotbeingstock edoutofanyitemin demand.Usedforthatlimitedbutimportantpurpose,thesystemisusef ulsincemarginsare
- 78. quitethinoverall. Largercompaniesfindtheycannotoperatewithoutsomesortofsophis ticatedinformationsys- tem.FederalExpress(FedEx)hascommunicationsystemsthatallowi ttocoordinatenearly60,000 vehicleshandlinganaverageof5.2millionpackagesaday.Itsowncont rollerscanoverridethe flightplansofover650aircraftshouldbadweatherorotheremergenci esarise.Itsseriesofe-busi- nesstoolsallowscustomerstoshipandtr ackpackagesonlineeitheront heirownorthecom- pany’swebsite,createaddressbooks,generatecustomreports,reduce internalwarehousingand inventory- managementcosts,purchasegoodsfromsuppliers,andrespondquick lytocustomer demands(Thompson,Gamble,&Strickland,2004). Informationsystemsoftenextendbeyondthecompanytosuppliers,al so.Walmartisunrivaledin termsofmanagingitssupplychain.Forexample,itscomputerstransm itdailysalestoWrangler, JB Reed/Bloomberg via Getty Images Federal Express uses a communication system that allows i t to coordinate handling an average of 5.2 million packages and delivering them with nearly 60,000 vehicles. CHAPTER 8Section 8.1 Some Broad Operational Issues asupplierofbluejeans.Fromtheinformationtransmittedand“marrie d”toWrangler’sownsys-
- 79. tems,theclothingmanufacturercanshipspecificquantitiesofspecifi csizesandcolorstospecific storesfromspecificwarehouses — loweringlogisticsandinventorycostsforbothsupplierandcus- tomerandleadingtofewerstockouts(Thompson,Gamble,&Stricklan d,2004). Building Consensus Operationalplanningis,inessence,astringofdecisionsthathavetobe madequicklyatwhatever levelthatplanningisdone.Unlessthereisconsensus,thatis,complete agreement,onadecision byagroupofpeople,majorityruletakesover.There’snothingintrinsic allywrongwiththat,except thatitintroducesthepossibilitythataminorityisnotcommittedtothed ecision.Sohowcancon- sensusbebuiltwhenthereisadifferenceofopinion? Iftimeallows,itpaystogetmoredataonthealternativestoaidinthedec ision-makingprocess; however,thatisnotalwayspossible.Itmaybethatthelackofconsensus isduenotjusttodifferent opinions,butalsotodifferentpositionsandpoliticalploys.Itisfreque ntlyeasiertogetmanagers andpeopletoagreefirstthatconsensusisdesirable(aswellaspossible) thanitistoobtainit(Ackoff, 1986).Theadditionaltimeandeffortittakes toachieveconsensusism orethancompensatedforby thesurgeinmotivationafteragreementhasbeenreached. Manufacturing Resource Planning Human Resource
- 80. Management Customer Relationship Management Supply Chain Management Financial Management ERP System Figure 8.2: Overview of ERP Source: Enterprise Resource Planning, from SoftWeb Solution s. Reprinted by permission. CHAPTER 8Section 8.1 Some Broad Operational Issues Spotlight on Group Decision Support Systems
- 84. anretrievetheideaslater. Insummary,researchindicatesthattheimplementationofonlineGDS Sdecreasesnegativeinterpersonal communicationdynamicsandenhancestheefficacyandqualityofdec isionmakingandinformation gathering.GDSShasapplicationsforawiderangeoforganizationalde cision-makingtasks,butcanplaya criticalroleinaccurateandefficientstrategicandoperationalplannin gwhereconsensusisimportant. Questions for Critical Thinki ng and Engagement 1. YoumayalreadyhaveexperiencewithGDSS;eventheclicker- basedresponsesystemsusedin someclassroomsrepresentaformofthistypeoftechnology.Ifyouhav eexperiencewithsome typeofGDSS,whatisyourreactiontoit?Describehowthetechnology wasutilizedbyyour group,andwithwhatoutcomes. CHAPTER 8Section 8.1 Some Broad Operational Issues
- 85. The Role of Policies Apolicyisacompanydirectivedesignedtoguidethe thinking,decisions,andactionsofmanagersandtheir subordinates(Pearce&Robinson,2005).Policiesplay severalrolesandserveseveralpurposes.First,itsaves highermanagementfromwastingtimemakingdeci- sionsthatcouldbeaswellhandledlowerdownthe hierarchy. Second, it empowers people lower in the organization to make those decisions, often where theyshouldbemade.Third,theyaddressissuesthat cropupfrequently,sotheamountoftimesavediscon- siderable.Finally,thedecisionsthemselvescouldsave thecompanymoneyby,forexample,limitingthekinds ofservicesoffered(“Sorry,sir,ourpolicyisto. . .”). Inaddition,policies • establish indirect control over independent actionimmediately; • promoteuniformhandlingofsimilaractivities; • ensurequickerdecisionsthroughusingstan- dardizedanswers; • institutionalizebasicaspectsoforganizational
- 86. behavior; • clarifywhatisexpectedandfacilitatesmooth executionofstrategy; • provide predetermined answers to routine problems(Pearce&Robinson,2005). ExamplesofpoliciesincludeWendy’spurchasingpolicythatallowsl ocalstoremanagerstobuy freshmeatandproducelocallyratherthanfromcompany- ownedsources.IBMhasastrictmar- ketingpolicyofnotgivingfreeIBMPCstoanypersonororganization. Packaging-materialsgiant Crown,Cork,&Seal’sR&Dpolicyisnottodoanybasicresearch.Polar oidCorporationhaslong- standingfinancialpoliciesofnevertakingonanydebtandnevermakin ganacquisition.Electronic DataSystems(EDS)formanyyearshadacustomer- servicepolicyofempoweringanyemployeeto dropwhateverthatpersonwasdoingtoansweracustomer’scallandtak ecareoftheproblem,at leastbypassingittoamorequalifiedpersonforhelp(Pearce&Robinso n,2005).
- 87. Policiesshouldbedevelopedinwrittenform,widelydistributedthrou ghoutthecompany,and discussedatallmeetingsoncefinalized.Inwrittenform,employeesca nconstantlyrefertothem Associated Press/Terry Gilliam Wendy’s Hamburgers’ purchasing policy allows managers to buy locally produced fresh meat and produce from local producers rather than from company-owned sources. 2. Describeagroupdecision- makingexperienceyouhavehadwhichmighthavebeenenhancedby theuseofGDSS.Describethechallengesyourgroupencountered,and explainhowGDSSmight havemitigatedorpreventedthem. 3. AlthoughtherearemanybenefitstoGDSSimplementation,thesetech nologiesarenotapana- cea.Whatbarrierstotheirusemightexist?Whatunintendedproblems mighttheyintroduce intothegroupdecision-makingprocess?
- 88. CHAPTER 8Section 8.2 Operational Planning asanauthoritativesourceuntiltheybecomesecondnature.Finally,po liciesareasusefulforwhat theydon’tcoverasforwhattheydo.Forinstance,manybankshavepoli ciesthatstatethataloan willnotbegiventoacustomerwhoisalreadyoverextended. 8.2 OperationalPlanning Operational planninginvolvespreparingdetailedorganizationalplansforthecom ingfiscalyear.It includesprograms,projects,andactivitiesthatthecompanyisalready doingaswellasnewones requiredbyanychangeinstrategy.Detailedplansbyorganizationalun itarepartofoperational plans.Finally,itincludescoordinatingalltheseactivitiestomakesure theysupportstatedstrategies. Theiterativenatureoftheoperational- planningprocessmeansthat,inpractice,draftversionsof planscouldgoupanddownthehierarchicalchainmorethantwice(Fig
- 92. sticktothepolicyandrisklosingacustomerormakeanexception? CHAPTER 8Section 8.2 Operational Planning marketresearch.Productionobjec- tivescouldbebuiltaroundissuesof throughput,quality,cost-reduction, andevenoutsourcing. Thedirectivesthengototheactual operating units that must meet those objectives—the sales super- visors or actual sales force for a smaller company, the advertising department,marketresearch,pro- ductionorplantoperations,quality control,andsoon.Theirchallenge istodecidewhatmustbedoneto meetthatobjectivebytheendof thefiscalyear.Thismaymeancon- tinuingtodowhattheyhavealready been doing, changing what they havebeendoing,orevenchanging
- 94. ciallyoneswithlotsofsmallertasksthatmustbedonebothsequentiall yandinparallel.Project © Belinda Images/SuperStock Operational planning concerns detailed organizational plans for the upcoming year, including programs, activities, and projects the company is already doing or will start to do in the future. CEO and Board Managers and Employees Functional VP Level Approve chosen strategic bundle and company-wide objectives, programs, and contingencies Set functional
- 95. objectives Review functional plans and adjustments made to match available resources Set unit objectives, activities, budgets, and accountabilities Negotiate adjustments to plans to match allocated budget Consolidate functional plans and budgets Final approval
- 96. Final approval Figure 8.3: Operational-planning process Source: From Stanley C. Abraham, Strategic Planning: A Practical Guide for Competitive Success, p. 162. Copyright © Emerald Group Publishing Limited. Reprinted by permission. CHAPTER 8Section 8.2 Operational Planning Evaluation and Review Technique (PERT)hasbeenaroundforalongtime,andisanoperational toolusefulinplanning,scheduling,costing,coordinating,andcontrol lingcomplexprojectssuchas constructingbuildings,assemblingamachine,andR&Dprojects(Sie gel,Shim,&Hartman,1992). Itsmostvaluableuseishelpingprojectmanagersdeterminewhenapro jectwillbefinishedand thelikelihoodthatitwillbecompletedontime.Eachtaskismappedona networkdiagramclari- fyingwhichtasksmustbecompletedbeforeitcanbecompleted,andwh