Chapter 7,8,9

Chapter 7 Organisational planning and goal settingKey concepts:Goal: a desired future state that the organisation attempts to realise.Plan: a blueprint specifying the resource allocations, schedules and other actions necessary goals. Planning: the management function concerned with defining goals for future organisational performance and deciding on the tasks and resource use needed to attain them.Diagram p259!!!Effectively designed organisational goals align into a hierarchy; that is, the achievement of goals at low levels permits the attainment of high-level goals. This is called a means-ends chain because low-level goals lead to accomplishment of high-level goals.● Organisational missionMission is the organisation ’s reason for existence. It describes the organisation ’s values, aspirations and reason for being. The formal missioin statement is a broadly stated definition of the organisation ’s basic business scope and operations that distinguishes it from similar types of organisations.- The content of a mission statement often focuses on the market and customers, and identifies desired fields of endeavour.- Mission statements are often short and straightforward, describing basic business activities as well as the values that guide the organisation.● Strategic goals (often called official goals)Broad statements describing where the organisation wants to be in the future. They pertain to theorganisation as a whole rather than to specific divisions or departments.- Strategic plans define the action steps by which the organisation intends to attain strategic goals. The strategic plan is the blueprint that defines the organisational activities and resource allocations. The purpose of strategic plans is to turn organisational goals into realities within that period.- Strategic goals and plans are long-term planning and may extend as far as five years into the future. - Top managers are typically responsible for establishing strategic goals and plans that reflect a commitment to both organisational efficiency and effectiveness.●Tactical goalsGoals that define the outcomes that major divisions and departments must achieve in order for the organisation to reach its overal goals.- Tactical plans are designed to help execute major strategic plans and to accomplish a specific part of the organisation’s strategy. Tactical plans typically have a shorter time horizon than strategic plans – the next year or so.- Tactical goals are intermediate-term planning and has time horizon of between one and two years. - Tactical goals and plans are the responsibility of middle managers, such as the heads of major divisions or functional units. A division manager will formulate tactical plans that focus on the major actions the division must take to fultil its part in the strategic plan set by top management.●Operational goalsSpecific, measurable results expected from departments, work groups and individuals within the organisation. They are precise and measurable.- Operational plans are developed at the lower levels of the organisation to specify action steps towards achieving operational goals and to support tactical plans.- Operational goals are short-term planning and has a time horizon of one year or less.- Operational goals identify the specific procedures or processes needed at lower levels of the organisation, such as individual departments and employees. Front-line managers and supervisors develop operational plans that focus on specific tasks and processes and that help to meet tactical and strategic goals.Conclusion: Planning at each level supports the other levels.Messages contained in goals and plans●LegitimacyAn organisation’s mission describes what the organisation stands for and its reason for existence.●Source of motivation and commitmentGoals and plans facilitate employee’s identification with the organisation and help motivate them by reducing uncertainty and clarifying what they should accomplish. Lack of a clear goal can damage employee motivation and commitment.●Resource allocationGoals help managers decide where they need to allocate resources, such as employees, money, and equipment.●Guides to actionGoals and plans provide a sense of direction. They focus attention on specific targets and direct employee s’ efforts towards important outcomes.●Rationale for decisionsThrough goal setting and planning, managers learn what the organisation is trying to accomplish. They can make decisions to ensure that internal policies, roles, performance, structure, products and expenditures will be in accordance with desired outcomes.●Standard of performanceGoals provide a standard of assessment.Criteria for effective goalsThe following characteristics pertain to organisational goals at the strategic, tactical and operational levels.●Specific and measurableWhen possible, goals should be expressed in quantitative terms. Not all goals can be expressed in numerical terms, but vague goals have little motivating power for employees.●Cover key result areasManagers should identify a few key result areas –perhaps up to four to five for any organisational department or job. Many organisations use the related concept of key performance indicators (KPIs) as important managerial controls.●Challenging but realisticGoals should be challenging, but not unreasonably difficult.●Defined periodGoals should specify the period over which they will be achieved – a deadline stating the date on which goal attainment will be measured.●Linked to rewardsThe ultimate impact of goals depends on the extent to which salary increases, promotions and awards are based on goal achievement.Planning types and modelsManagers use a number of planning approaches. Among the most popular are: 1. Management by objectives (MBO). 2. Single-use plans. 3. Standing plans. 4. Contingency (or scenario) plans.1.Management by objectives (MBO)Management by objectives (MBO) is a method whereby managers and employees define goals for every department, project and person, and use them to monitor subsequent performance. Four major activities must occur in order for MBO to be successful.●Set goalsSetting goals involves employees at all levels and looks beyond day-to-day activities to answer the question: what are we trying to accomplish? A good goal should be concrete and realistic, provide a specific target and time frame, and assign responsibility.●Develop action plansAn action plan defines the course of action needed to achieve the stated goals.●Review progressA periodic progress review is important to ensure that action plans are working.●Appraise overall performanceThe final step in MBO is to carefully evaluate whether annual goals have been achieved for bothindividuals and departments. The appraisal of departmental and overall corporate performance shapes goals for the next year.Diagram p271 !!!Benefits and problems with MBO●Benefits:1. Managers’ and employee efforts are focused on activities that will lead to goal attainment2. Performance can be improved at all company levels3. Employees are motivated4. Departmental and individual goals are aligned with company goals●Problems:1. Constant change prevents MBO from taking hold2. An environment of poor employer-employee relations reduces MBO effectiveness3. Strategic goals may be displaced by operational goals4. Mechanistic organisations and values that discourage participation can harm the MBO process5. Too much paperwork saps MBO energy2.Single-use plansSingle-use plans are developed to achieve a set of goals that are not likely to be repeated in the future. Single-use plans typically include both programs and projects.3.Standing plansStanding plans are ongoing plans that are used to provide guidance for tasks performed repeatedly within the organisation. The primary standing plans are organisational policies, rules and procedures. Standing plans generally pertain to such matters as employee illness, absences, smoking, discipline, hiring and dismissal.4.Contingency plans (planning in a turbulent environment)Contingency plans, sometimes referred to as scenarios, define organisation responses to be taken in the case of emergencies, setbacks or unexpected conditions. (uncontrollable factors such as recession, inflation, technological developments or safety accidents.) Today, contingency planning takes on a whole new urgency as increasing turbulence and uncertainty shake the business world.Chapter 8 Strategy formulation and implementationKey concepts:Strategic management: the set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organisation and its environment so as to achieve organisatinal goas.●Grand strategyThe general plan of major action by which an organisation intends to achieve its long-term goals.General strategies fall into three general categories: growth, stability and retrenchment.1.GrowthGrowth can be promoted internally, by investing in expansion, or externally, by acquiring additional business divisions.Internal growth can include development of new of changed products.External growth typically involves diversification, which means acquisition of businesses related to current product lines, or businesses that take the organisation into new areas.2.StabilityStability, sometimes called a puse strategy, means that the organisation wants to remain the same size or grow slowly and in a controlled fashion.3.RetrenchmentRetrenchment means that the organisation goes through a period of forced decline – either by shrinking current business units or by selling off or liquidating entire businesses.●Global strategyIn addition to the three alternatives – growth, stability and retrenchment – organisations may pursue a separate grand strategy as the focus of global business.1.GlobalisationThe standardisation of product design and advertising strategies throughout the world.The approach is based on the assumption that a single global market exists for most consumer and industrial products. The theory is that people everywhere want to buy the same products and live the same way.Globalisation enables marketing departments alone to save millions of dollars. (eg. Colgate toothpaste)2.Multidomestic strategyThe modification of product design and advertising strategies to suit the specific needs of individual countries. (competition in each country is handled independently - marketing, advertising and product design is modified and adapted to the specific needs of each country.) (eg. French do not drink orange juice for breakfast)3.Transnational strategyA strategy that combines global coordination to attain efficiency with flexibility to meet specific needs in various countries. (a combination of global integration and national responsiveness)Although most multinational organisations want to achieve some degree of global integration to hold costs down, even global products may require some customisation to meet government regulations in various countries or some tailoring to fit consumer preferences. (Most large multinational organisations with diverse products use a partial multidomestic strategy for some product lines and global strategies for others.)Diagram p296 !!!Purpose of strategyKey concepts:Strategy: the plan of action that prescribes resource allocation and other activities for dealing with the environment and helping the organisation attain its goals.Competitive advantage: what sets the organisation apart from others provides it with a distinctive edge for meeting customer needs in the marketplace.Core competency:a business activity that an organisation does particularly well in comparison to competitors.Synergy: the condition that exists when the organisation’s parts interact to produce a joint effect that is greater than the sum of the parts acting alone.●Develop and exploit core competencyA core competency represents a competitive advantage because the roganisation acquires expertise that competitors do not have.●Build synergyWhen properly managed, synergy can create additional value with existing resources, providing a big boost to the bottom line.Eg. Rupert Murdoch’s News Corp –founded in Australia and is now a global communications and media company – is trying to develop synergy between publishing and the film and television business.●Value creationExploiting core competencies and attaining synergy help organisations create value for their customers. Value can be defined as the combination of benefits received and costs paid by the customer. Delivering value to the customer should be at the heart of strategy.Levels of strategyStrategic managers normally think in terms of three levels of strategy –corporate, business and functional.●Corporate-level strategyThe level of strategy concerned with the question: “What business are we in?”It relates to the organisation as a whole and the combination of business units and product lines that make it up. Strategic actions at this level usually relate to the acquisition of new businesses; additions or divestments of business units, plants or product lines; and joint ventures with other organisations in new areas.●Business-level strategyThe level of strategy concerned with the question: “How do we compete?” It relates to each business unit or product line within the organisation. It focuses on the way the business unit competes within its industry for customers.Strategic decisions at the business level concern the amount of advertising, direction and extent of research and development, product changes, new product development, equipment and facilities, and expansion or contraction of product lines.●Functional-level strategyThe level of strategy concerned with the question: “How do we support the business-level strategy?” It relates to all of the organisation’s major departments.Functional strategies involve all of the major functions, including finance, research and development, marketing and manufacturing.The strategic management processThe overall strategic management process begins when executives evaluate their current position with respect to mission, goals, and strategies. They then scan the organision’s internal and external environements and idendify strategic factors that might require change. Internal and external events might indicate a need to redefine the mission or goals or to formulate a new strategy at either the corporate, business, or functional level. The final stage in the strategic management process is implementation of the new strategy.Diagram p305 !!!Situation analysisAnalysis of the strengths, weakness, opportunities and threats (SWOT) that affect organisational performance.Strengths:positive internal characteristics that the organisation can exploit to achieve its strategic performance goals.Weakness: internal characteristics that may inhibit or restrict the organisation’s performance. Threats: characteristics of the external environment that may prevent the organisation from achieving its strategic goals.Opportunities: characteristics of the external environment that have the potential to help organisation achieve or exceed its strategic goals.Strategy formulation VS implementationStrategy formulation: The stage of strategic management that involves the planning and decision making that lead to the establishment of the organisation’s goals and of a specific strategic plan. Strategy implementation: The stage of strategic management that involves the use of managerial and organisational tools to direct resources towards achieving strategic outcomes.Formulating corporate-level strategyKey concepts:Portfolio strategy: a type of corporate-level strategy that relates to the organisation’s mix of strategic business unit and product lines that fit together in a logical way to provide synergy and competitive advantage forStrategic business units (SBUs): a division of the organisation that has a unique business mission, product line, competitors and markets relative to other SBUs in the same organisation.One useful way to think about portfolio strategy is the BCG matrix.The BCG matrix- A concept developed by the Boston Consulting Group that evaluate strategic business units with respect to the dimensions of business growth rate and market share. (Business growth rate relates to how rapidly the entire industry is increasing. Market share defines whether a business unit has a larger or smaller share than competitors.)-Four categories for a corporate portfolio:●The star: has a large market share in a rapidly growing industry.It is important because it has additional growth potential, and profits should be ploughed into this business as investment for future growth and profits. The star is visible and attractive and will generate profits and a positive cash flow even as the industry matures and market growth slows.●The cash cow: exists in a mature, slow-growth industry but is a dominant business in the industry,with a large market share.Because heavy investments in advertising and plant expansion are no longer required, the company earns a positive cash flow. It can milk the cash cow to invest in other, riskier business.●The question mark: exists in a new, rapidly growing industry but has only a smaller market share.The question mark business is risky: it could become a star, or it could fail.The compnay can invest the cash earned from cash cows in question marks with the goal of nurturing them into future stars.●The dog: a poor performer.It has only a small share of a slow-growth market. The dog provides little profit for the company and may be targeted for divestment or liquidation if turnaround is not possible.Formulating business-level strategyPorter’s competitive forces and strategiesMichael E. Porter studied a number of business organisations and proposed that business-level strategies are the result of five competitive forces in the company’s environment.●Potential new entrantsCapital requirements and economies of scale are examples of two potential barriers to entry that can keep out new competitors.●Bargaining power of buyersInformed customers become empowered customers. As advertising and buyer information educates customers about the full range of price and product options available in the marketplace, their influence on an organisation increases.●Bargaining power of suppliersThe concentratioin of suppliers and the availability of substitute suppliers are significant factors in determining supplier power.●Threat of substitute productsThe power of alternatives and substitutes for an organisation’s product may be affected by cost changes or trends such as increased health consciousness that will deflect buyer loyalty to organisations.●Rivalry among competitorsDiagram p310!!!Three strategies to find competitive edgeIn finding its competitive edge within these five forces, Porter suggests that an organisaition can adopt one of three strategies: differentiation, cost leadership or focus.1.Differentiation- A type of competitive strategy with which the organisation seeks to distinguish its products or services from those of its competitors.- The organisation may use advertising, distinctive product features, exceptional service or new technology to achieve a product perceived as unique.- Organisations that pursue a differentiation strategy typically need strong marketing abilities, a creative flair and a reputation for leadership. A differential strategy can reduce rivalry with competitors if buyers are loyal to an organisation’s brand.Eg. Harley-Davidson motorcycles, Mercedes-Benz automobiles2. Cost leadership- A type of competitive strategy with which the organisation aggressively seeks efficient facilities, cuts costs and employs tight cost controls to be more efficient than competitors.- A low-cost position means that the organisation can undercut competitor’s prices and still offer comparable quality and earn a reasonable profit. The low price acts as a barrier against new entrants and substitute products.Eg. Dell Computer declared a price war just as the PC industry entered its worst slump ever.3. Focus- A type of competitive strategy that emphasises concentration on a specific regional market or buyer group.- The organisation will use either a differentiation or low-cost approach, but only for a narrow target market.Eg. Rent-A-Car in the USA focus on a market that the major companies such as Hertz and Avis do not play in – the low-budget insurance replacement market.Conclusion: Without a strategic advantage, business earned below-average profits compared with those that used differentiation, cost leadership or focus strategies.An alternative approach to strategy – collaborationPartnerships and cooperative strategiesIn some situations, organisations can achieve competitive advantages by cooperating with other firms rather than competing.A continuum of cooperative strategies:1. Preferred supplier arrangements2. Strategic business partnering3. Joint ventures4. Mergers5. AcquisitionsFormulating functioinal-level strategyMajor organisational functions include marketing, production, finance, human resources, and research and development.Putting strategy into action: controlling implementationThe final step in the strategic management process is implementation, which is the way strategy is put into action. Once a new strategy is selected, it is implemented through changes in: 1. leadership. 2.structure. 3. information and control systems. 4. human resources.1.LeadershipThe primary key to successful strategy implementation is leadership. Leadership is the ability to influcence people to adopt the new behaviours needed for strategy implementation. An important part of implementing strategy is building consensus. People throughout the organisation must believe in the new strategy and have a strong commitment to achieving the vision and goals.2.Structural designStructural design typically begins with the organisation chart. It relates to managers’ reponsibilities, their degree of authority and the consolidation of facilities, departments and divisions. Structure also relates to the degree of decentralisation, task design and production technology.rmation and control systemsInformation and control systems include reward systems, pay incentives, budgets for allocating resources, information sytems, and the organisation’s rules, policies and procedures. Changes in these systems represent major tools for putting strategy into action.4.Human resourcesThe human resource function recruits, selects, trains, transfers, promotes and lays off employees to achieve strategic goals.Chapter 9 Managerial decision makingKey concepts:Decision: a choice made from available alternatives.Decision making: the process of identifying problems and opportunities and then resolving them.Two types of decisions:●Programmed decisionsA decision made in response to a situation that has occurred often enough to enable decision rules to be developed and applied in the future.●Non-programmed decisionsA decision made in response to a situation that is unique, is poorly defined and laregly structured, and has important consequences for the organisaition.Eg. decisions to build a new factory, develop a new product or service, enter a new geographical market or relocate headquarters to another city.The primary difference between programmed and non-programmed decisions relates to the degree of certainty or uncertainty managers deal with in making the decisions.Four types of situations of decision making●CertaintyAll the information the decision maker needs is fully avialable.Managers have information on operating, conditions, resource costs or constraints, and each course of action and possible outcome.●RiskA decision has clear-cut goals and that good information is available, but the future outcomes associated with each alternative are subject to chance.Enough information is available to allow the probability of a successful outcome for each alternative to be estimated.●UncertaintyManagers know what goal they wish to achieve, but information about alternatives and future events is incomplete.Managers do not have enough information to be clear about alternatives or to estimate their risk. Factors that may affect a decision, such as price, production costs, volume or future interest rates, are difficult to analyse and predict.●AmbiguityThe goals to be achieved or the problems to be solved are unclear, alternatives are difficult to define, and information about outcomes is unavailable. This is by far the most difficult decision situation.Decision-making modelsThe approach managers use to make decisions usually falls into one of three types –the classical model, the administrative model or the political model.●Classical model- A decision-making model based on the assumption that managers should make logical decisions that will be in the organisation’s best economic interests.- The classical model of decision making is considered to be normative, which means it defines how a decision maker should make decisions. It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organisation.- The value of the classical model has been its ability to help deicsion makers be more rational.- Programmed decisions are characterised by certainty or risk, because relevant information is available and probabilities can be calculated.●Administrative model- A decision-making model that describes how managers actually make decisions in situations characterised by non-programmed decisions, uncertainty and ambiguity.- Managers are unable to make economically rational decisions even if they want to.- The administrative model is considered to be descriptive, meaning that it describes how managers actually make decisions in complex sitations rather than dictating how they should make decisions according to a theoretical ideal.- Two aspects of administrative decision making model:1. Bounded rationality and satisficingThe administrative model of decision making is based on the work of Herbert A. Simon. Simon proposed two concepts that were instrumental in shaping the administrative model: bounded rationality and satisficing.Bounded rationality: the concept that people have the time and cognitive ability to process only a limited amount of information on which to base decisions. (The organisation is incredibly complex, and managers have the time and ability to process only a limited amount of information with which to make decisions.)Satisficing: to choose the first solution alternative that satisfies minimal decision criteria. (Rather than pursuing all alternatives to identify the single solution that will maximise economic returns, managers will opt for the first solution that appears to solve the problem, even if better solutions are presumed to exist.)2.IntuitionIntuition represents a quick apprehension of a decision situation based on past experience but without conscious thought. Intuitive decision making is not arbitrary or irrational, because it is based on years of practice and hands-on experience that enable managers to quickly identify solutions without going through painsatking calculations.●Political model-Political model is useful for making non-programmed decisions when conditions are uncertain, information is limited and there is disagreement among managers about what goals to pursue or whoat course of action to take.-Managers often engage in coalition-building for making complex organisational decisions.(Coalition: an informal alliance among managers who support a specific goal.) The ability to build coalitions often makes it possible for managers to see their decisions successfully or fully implemented.Characteristics of three decision making modelsClassical model:-Clear-cut problem and goals-Condition of certainty-Full informatioin about alternatives and their outcomes-Rational choice by individual for maximising outcomesAdministrative model:-Vague problem and goals-Condition of uncertainty-Limited information about alternatives and their outcomes-Satisficing choice for resolving problem using intuitionPolitical model:-Pluralistic; conflicting goals-Condition of uncertainty / ambiguity-Inconsistent viewpoints; ambiguous information。