MGMT

1110
Introduc/on to Management
Topic 5 Planning and Strategic Management

To learn more about this topic, read Chapters 8-9 of the textbook

MGMT 1110 course outline:

The External Environment

The Internal
Environment

Topic 2: Managing the

external environment

Topic 4:
Decision making

Topic 1: Founda/ons
and history of
management

Topic 3:
Organiza/onal
culture

The Manager
Planning

Topic 5: Planning
and strategy
Controlling

Topic 9:
Controlling

Leading

Topic 6:
Organiza/onal
design

Organizing

Topic 7: Mo/va/on
Topic 8: Leadership

Todays Class
Founda8ons of planning
What is planning? Why do managers plan?
Levels of planning
Approaches to seVng goals
Strategic management
The strategy process
Corporate and business level strategy
Case study
Zipcar, a U.S. car sharing service
4

What is Planning?
Planning involves dening the organiza/ons goals
and establishing plans for achieving those goals.
Goals: objec/ves, targets, or desired outcomes
Plans: documents that outline how goals are
going to be met

The temporal nature of planning process:
Managers determine
where the organiza/on is
at the present /me

Then, determine where the

organiza/on should be in
the future the goals

Future

Present
Finally, decide on how to move
forward to reach that desired
future state the plan

Planning is the Primary Management Func8on

Example: Scenario Planning at Shell

PAST

NOW

FUTURE

Tradi8onal planning approaches o^en extrapolate recent trends to predict

the future. This may work for short /me periods, but over longer /me
periods these trends o^en break.
Scenario planning is focused on imagining mul/ple possible futures and
8
determining how the organiza/on can be well prepared for each scenario.

Why do Managers Plan?

Reason 1. Planning provides direc/on
and purpose to all levels of managers
and non-managers in an
organiza/on.

Reason 2. Planning helps managers

from dierent func/ons and divisions
coordinate in order to reduce
overlapping and wasteful work ac/vi/es

Example: Turnaround Planning at Malaysia Airlines

10

Why do Managers Plan?

Reason 3. Planning helps to deal with
uncertainty by forcing managers to look
ahead, an/cipate change, consider the
impact of change, and develop
appropriate responses.

Reason 4. Planning sets standards

for controlling by explica/ng the
criteria to be used for evalua/ng
the eciency and eec/veness of
the organiza/ons goal abainment

11

Possible Downsides of Planning

Extensive planning can also decrease organiza/onal
performance
It takes a lot of /me, which can prevent organiza/ons from quickly
adap/ng to rapidly changing environments.
Managers may s/ck too much to the plan, being blind to see the
need for change (escala/on of commitment).
Managers tend to systema/cally underes/mate the dura/on of /me
needed to complete a certain task or project, leading to resource
constraints, pressure, and stress (planning fallacy).

12

13

3 Levels of Planning in Organiza8ons

Corporate-level

Business/division-level

Func8onal-level

What is our mission? What business

are we (the corpora/on) in?

How do we (business units)

compete against our rivals?

How do we (func/onal departments)

support the business-level strategy?

14

15

Example: General Electrics corporate-level planning

What to achieve
One of the goals stated in GEs
corporate-level plan is that GE
should be rst or second in
market share in every industry
in which it competes.

How to achieve
A division that cannot abain the
corporate goal may be sold to
another company (e.g. GE
medical systems was sold to
Thompson in France)
GE acquire other companies that
can help a division build its
market share to reach its
corporate goal of being rst or
second in an industry (e.g. GE
acquired several large nancial
services companies)
16

Example: General Electrics business-level planning

What to achieve
The goal at GEs ligh/ng
division (#2 in the global
ligh/ng industry, behind
Philips) is to take over the #1
spot and reach GEs corporate
goal

How to achieve
Managers at GEs ligh/ng division
develop strategy to reach their
divisional goal
Reduce costs in all
departments; this should help
to lower prices and thus gain
market share from Philips

17

Example: General Electrics func8onal-level planning

What to achieve
Consistent with the ligh/ng
divisions strategy of driving
down costs, its manufacturing
func/on might adopt the goal
To reduce produc/on costs by
20% over the next three years

How to achieve
Func/onal strategies to achieve this
goal might include
Inves/ng in ecient, state-of-
the-art produc/on facili/es
Moving the opera/on to
Hungary, which is a low-cost
loca/on

In the planning process, it is important to ensure consistency across

the dierent levels of management.

18

Example: Planning in Ocean Park

19

Ocean Parks mission statement

Ocean Park provides all guests with memorable experiences that
combine entertainment and educa/on, while inspiring life long
learning and conserva/on advocacy. Our aim is to maintain a
healthy nancial status, while striving to deliver the highest
standards of safety, animal care, products and guest service.
What are the corporate goals for Ocean Park?

What can be done to achieve those

goals?

20

Recent new abrac/ons:

Amazing Asian Animals

21

Polar Adventure
22

Rainforest

23

Old Hong Kong

24

25

What can the lower-level managers do ?

Animal management department
____________________________________________
Acquire new animals
____________________________________________
Train sta on animal medical care and breeding
____________________________________________
Train animal ambassadors to educate visitors
Marke@ng department
Develop local promo@ons
_______________________________________
Set up oversea representa@ve oces
_______________________________________

26

Approaches to SeUng Goals

Goals provide the direc/on for ac/ons and form the criterion against which
actual accomplishments are measured.
In organiza/ons, goals can be set either through a tradi/onal process or by
using management by objec/ves

Tradi8onal
goal seUng
a top-down
approach

Management
by objec8ves
a boYom-up
approach

27

Tradi8onal Goal SeUng

Broad strategic goals are set at the top of the organiza/on,
then broken into sub-goals for each organiza/onal level
Assumes that top managers know whats the best because
they can see the big picture.
Weakness #1: Top management may not understand the
constraints of lower level managers/workers
Weakness #2: The broad terms (e.g. increasing market
leadership) have to be made more specic as they ow
down. In the process, goals might lose clarity and unity,
because managers at each level apply their own
interpreta/ons in dening the goals for their areas of
responsibility.
28

29

Management By Objec8ves (MBO)

Steps in a typical MBO program:
1. Objec/ves (corporate-level, business-level, func/onal,
individual goals) are determined jointly by managers and
their subordinates.
2. Ac/on plans, dening how objec/ves are to be achieved,
are specied and agreed upon by managers and their
subordinates.
3. The ac/on plans are implemented.
4. Progress toward objec/ves is periodically reviewed, and
feedback is provided.
5. Successful achievement of objec/ves is reinforced by
performance-based rewards.

30

How does MBO dier from tradi8onal goal seUng?

What are the benet of MBO?
decision making
1. _Par@cipa@ve
________________________
Enables managers to understand
the constraints faced by employees
Strengthens employees
understanding of and commitment
to the goals
feedback (and reward)
2. _Periodical
________________________
Mo/vates employees

31

SeUng SMART goals for subordinates

Specic: Goals should be specic rather than

in vague terms
e.g. As many planes as possible should
arrive on /me too general
90% of planes should arrive within 15
minutes of the scheduled arrival /me
specic goal!
Measurable: Goals should be measurable
e.g. Improve service quality how to measure?
Improve the service quality ra/ng from 3 to
5
32

SeUng SMART goals for subordinates (cont.)

Abainable: Goals should be challenging but achievable.
e.g. Half of ights should arrive on /me too easy
All ights must arrive on /me, regardless of weather impossible
benchmarking with compe/tors
Relevant : Goals should support the organiza/ons mission
Time-bound: Goals should specify target dates or deadline,
i.e. when goals are to be aMained.
e.g. By August 1, 2015, xxx.

33

Todays Class
Founda8ons of planning
What is planning? Why do managers plan?
Levels of planning
Approaches to seVng goals
Strategic management
The strategy process
Corporate and business level strategy
Case study
Zipcar, a U.S. car sharing service
34

Strategic Management
Strategic management is the formula/on of goals and plans that
will provide an organiza/on advantages over its compe/tors

The Strategic Management Process:

35

SWOT analysis
Internal analysis (iden/fy Strengths and Weaknesses)
Assessing organiza/onal resources (nancial, physical, human, and
intangible assets) and capabili@es (skill and abili/es in opera/onal
ac/vi/es)

External analysis (iden/fy Opportuni/es and Threats)

Assessing an organiza/ons external environment by examining new trends
and development in its task/general environment
How can SWOT help me
establish my strategy???

SWOT analysis helps managers at dierent

levels of the organiza/ons to formulate
strategies that
(1) Exploit an organiza/on's strengths and
external opportuni/es
(2) Protect the organiza/on from external
threats, and correct cri/cal weaknesses
36

SWOT analysis
Strengths
Resources and capabili/es that
produce higher organiza/onal
performance because of
advantages rela/ve to compe/tors

Opportuni8es
Environmental factors that are
favorable to an organiza/ons
current or future situa/on

Weaknesses
Deciencies in resources and
capabili/es that prevent beber
organiza/onal performance or
lower organiza/onal performance

Threats
Environmental factors that are
unfavorable to an organiza/ons
current or future situa/on

37

Examples of factors to be considered in SWOT analysis

Strengths
highly talented managers and
workforce
high quality materials
strong nancial base
popular brand names
patent
appropriate organiza/onal
culture

Weaknesses
inexperienced managers and

workforce

outdated machinery
inecient produc/on
process

undieren/ated
products
poor brand name

high conict and
poli/cs

Opportuni/es
technology advancements
emerging market (e.g. China,
internet)
loosening of regula/ons
removal of interna/onal trade
barriers
good economy
(fortunate to have) weak rivals
Threats
a declining number of customers
a powerful new compe/tor in
the market
new technology that outdates
the organiza/ons exis/ng
technology
unfavorable new legisla/on
shortage of labor supply
38

Example: Campbells SWOT analysis and strategies in 2000s

Sales dropped a lot between 1998 to 2004
Threats:
Customers switched from high-salt processed soups to
healthy low-fat, low-salt varie/es
Compe/tors (e.g. Progresso soup) oer healthy products
that abract customers away from Campbell

Source: Essen/als of Contemporary Management 5th ed., pp.187-189

39

Opportuni/es:
Growing markets for health and sports
drinks (in which Campbell has V8),
quality bread and cookies (in which
Campbell has Pepperidge Farm), and
luxury chocolate products (in which
Campbell has Godiva)

40

Weaknesses:
Stang levels were too high rela/ve to its
compe/tors
High costs associated with manufacturing its
soup because of the use of outdated machinery
Conserva/ve culture in which people were
afraid to take risks
Strengths:
Huge economies of scale because of the large
quan/ty of food products that Campbell
makes
First-rate research and development (R&D)
division capable of developing exci/ng new
food products
41

Strategy formula/on:
More healthy recipes for its soups, V8 drinks,
and Pepperidge Farm snacks
Decentralize authority to managers at lower
levels and make them responsible for
developing new products that meet customers
changing needs
Expand market share for its core product:
- Stress convenience with microwaveable
soups and cans that open with a pull
- New food outlets, e.g. corporate cafeterias,
college dining halls, and 7-11; relying less on
supermarkets
By 2007, sales of soup had recovered, and other
divisions were doing well
42

Another round of SWOT and strategy formula/on:

In 2007, Campbell decided to make its food
products more nutri/ous and appealing to health-
conscious customers
Godiva chocolate brand became a weakness
because of mis-t with the new corporate goal;
Godiva was sold for US$850M
Proceeds of this sale were used to build new
company strengths such as R&D skills needed to
cater needs of Chinese and Indian customers

Source: Campbell Soup sells Godiva for $850 million, The New York Times, Dec 20, 2007

43

Corporate strategy
Corporate strategy determines what businesses a company is in.

Concentra/on
Growth
Diversica/on
Stability

Renewal

Horizontal integra/on
Ver/cal integra/on

Related
Unrelated
Backward
Forward

44

In growth strategy, an organiza/on expands the number of

markets served or products oered

v Concentra/on
What is it?

Why adopt this strategy?

Focus on an organiza/ons
one primary line of business;
increase the number of
products oered or markets
served in that business

Exploit the organiza/ons core

competency
Stay focused to avoid spreading
the organiza/on too thin
But can be problema/c if the
market for that business is
shrinking

45

v Diversica/on
What is it?

Why adopt this strategy?

Expand a companys business

opera/ons into a new (related
or unrelated) industry
Related diversica/on
E.g. McDonald (Fast-food &
McCafe)
Unrelated diversica/on
E.g. Tata group (power, IT,
beverages, hospitality, etc.),
Hutchison Whampoa (port
service, proper/es & hotel,
retail, telecommunica/on, etc.)

Related diversica@on:
To create economies of scope
(or synergy)
Synergy: performance gains
result from sharing
resources common to
dierent products
Unrelated diversica@on:
To spread risks among
dierent businesses

46

Example: Tea and juice stores by Starbucks

If you deliver high-quality products in experien/al environments, served up
by knowledgeable and passionate sta members, customers not only will
support your growth through that product line but are also likely to explore
other oerings you innovate in the context of those core competencies.
For Starbucks leadership,
this has meant a growth
plan that includes caf
environments serving
other high-quality
beverages.

Teavana Tea store by Starbucks

in New York City
Source: Michelli, J. The Starbucks way: How the coee maker used its marke/ng prowess to push
into juice and tea. hbp://seablebusinessmag.com, December, 2013

47

Tazo Tea stores by Starbucks

While the 1,700-square-foot store will
s/ll sell tradi/onal behind-the-counter
drinks such as iced tea and tea labes, its
blending sta/on will be its dieren/a/ng
factor.
Customers, with the help of employees,
will be able to create personalized tea
blends at the sta/on that they can either
take home or brew in the store.
This store is really a tea playground with a
more interac/ve and engaging
community.

Source: Blessing, K., Starbucks to open Tazo Tea store, www.bloomberg.com, June 20, 2012

48

Unrelated Diversica8on
Example: Apple Car

49

v Horizontal integra/on
What is it?

Why adopt this strategy?

Organiza/on grows by merging

with or acquiring other
organiza/ons in the same industry

Increase market share, thus gain

bargaining power and achieve
economies of scale

E.g. French cosme/cs giant LOreal

acquired The Body Shop

Might be problema/c if the

organiza/ons do not integrate well
(E.g. clash of core values among
LOreal and The Body Shop)

50

v Ver/cal integra/on
What is it?

Why adopt this strategy?

Backward integra/on
organiza/on grows by becoming its
own supplier

Backward integra@on:
To ensure more reliable and/or
lower cost inputs

E.g. Ajisen Ramen buys pig farms in

Mainland to deal with rising costs
and ensure stable supply of pork
and pork ribs

Forward integra@on:
To reduce reliance on distributors
and maintain direct connec/on to
customer

Forward integra/on organiza/on

becomes its own distributor;
replaces trade intermediaries and
sells directly to customers
E.g. Apple has retail stores
worldwide to distribute its products

51

In stability strategy, an
organiza/on con/nues to do
what it is currently doing;
No signicant changes

In renewal strategy, an organiza/on

addresses declining performance,
usually by cuVng cost and
restructuring opera/ons

E.g. Sony divests its unprotable PC

unit (Vaio computers)

Source: Warning of losses, Sony retools again: Vaio PC unit

to be sold and 5,000 jobs cut in latest restructuring eort
The New York Times, February 7, 2014
52

BCG Matrix
When an organiza/on operates in a number of businesses, managers
can manage this por}olio (i.e. collec/on) of businesses using a tool
called the BCG Matrix.
Developed by the Boston Consul/ng Group
Its major focus is balancing the cash requirement and cash ow
among dierent businesses
Goal: To build a set of businesses whose cash posi/on can
complement each other so that greater overall return can be
achieved

53

BCG Matrix
High

Market Share:
Rela/ve strength of the organiza/ons
business compe//ve posi/on in the market

Low

High

Industry Growth
Rate:
How fast the en/re
industry is growing

Low

Stars

Ques/on Marks

Cash Cows

Dogs
54

Stars (high-growth industry, high market share)

Cash genera/on depends on the amount of
resources needed for expansion
Stars will eventually become cash cows once the
business becomes mature and slow-growing

Cash cow (low-growth industry, high market share)
These businesses generate posi/ve cash ow and
could therefore fund other kinds of businesses
(i.e. stars and ques/on marks)

55

Ques8on marks (high-growth industry, low

market share)
These businesses are new ventures; high risk
and substan/al investments
Some will become stars (if market share
increases) but some will be sold

Dogs (low-growth industry, low market share)
These businesses do not make much prot and
should be divested if turnaround is not
possible

56

Example: Googles por}olio

Googles mission is to organize the worlds informa/on and make it
universally accessible and useful.
Google, unlike many companies, can aord its broad mission and
collec/on of innova/ons simply because its search-based adver8sing
is a fantas8cally protable product that provides cover for many
unprotable ones.

Source: Reverse Engineering Googles innova/on machine, Harvard Business Review, April 1, 2008

57

Business-level (compe//ve) strategy

Business-level strategy (also called compe//ve strategy) describes how
a business will compete against its compe/tors
It is about developing compe@@ve advantage the ability of an
organiza/on that enables it to outperform others
For example
Walmarts state-of-the-art informa/on system allows it to monitor
inventories more eciently than its compe/tors, which Walmart has
turned into a cost advantage
Ritz Carlton hotels have a unique ability to deliver personalized
customer service
Coca-cola has created the worlds best and most powerful brand using
specialized marke/ng capabili/es
58

Porters business strategy:

Cost leadership strategy
Seeking to abain the lowest costs (expenses, not
price) rela/ve to compe/tors while maintaining a
comparable quality
A cost leader is highly ecient
Dieren/a/on strategy
Abemp/ng to create unique products
Customers do not perceive other products as
comparable, hence, will pay a premium price

Firms that are unable to develop either a cost or dieren@a@on

advantage lack prospects for long-term success
59

Todays Class
Founda8ons of planning
What is planning? Why do managers plan?
Levels of planning
Approaches to seVng goals
Strategic management
The strategy process
Corporate and business level strategy
Case study
Zipcar, a U.S. car sharing service
60

Assess Robin Chases Planning Eorts

61

RECAP: Why do Managers Plan?

Reason 3. Planning helps to deal with
uncertainty by forcing managers to look
ahead, an/cipate change, consider the
impact of change, and develop
appropriate responses.

Reason 4. Planning sets standards

for controlling by explica/ng the
criteria to be used for evalua/ng
the eciency and eec/veness of
the organiza/ons goal abainment

62

Progress Made So Far

Sizeable membership (239), car deployment (19), and
revenues (over $20,000)
Patent applica/on led, but technology pla}orm not
yet fully developed
Parking deals not ready
Team underdeveloped
$375,000 funding raised so far, but more needed
Business model assumptions still need to be confirmed
63

Planning Using Fishbone Technique

Lets imagine Lady Gaga is planning to forecast
her revenues and expenses for the next year.
How to do this systema/cally?
The shbone technique enables managers
to forecast revenues and costs in a more
systema/c way.
The technique also allows managers to
compare the actual outcomes with the
predicted outcomes in order to know which
forecasts were wrong and why.
64

Planning Using Fishbone Technique

Total
Revenue

65

Planning Using Fishbone Technique

Total
Revenue

Concert
Revenue

Merchandise
Revenue

Recording
Revenue

66

Planning Using Fishbone Technique

# Concerts
Concert
Revenue

?
Revenue /
Concert
?
# Concerts

Total
Revenue

Merchandise
Revenue

?
Revenue /
Concert
# A lbums
Recorded

Recording
Revenue

?
Revenue /
Album
?

67

Planning Using Fishbone Technique

# Concerts
Concert
Revenue

# Tickets
Revenue /
Concert
# Concerts

Total
Revenue

Merchandise
Revenue

Price /
Ticket
# A ttendees

Revenue /
Concert
# A lbums
Recorded
Recording
Revenue

Revenues /
Attendee
# A lbums Sold

Revenue /
Album
Revenue /
Album

68

Group Exercise
Each team creates a shbone diagram represen/ng
the Zipcar business model
Include both revenues and variable costs
Do not input any numbers yet

Goal of the exercise

Iden/fy the core drivers of the business model
Compare the predicted outcomes with actual outcomes:
should Robin Chase change anything??
69

70

Key Changes

71

Key Changes

Exhibit 5, p.15
Var. costs/car
(divide by 12)
Bottom p.5
Exhibit 5, line 1-3

Exhibit 5, p.15
Revenues (divide by 12)

Exhibit 5, line 5

72
Case, p.11
(divide by 12)

Business Model Analysis

73

Business Model Analysis

Exhibit 8b:
Total trips taken /
(member days/30)

74

Business Model Analysis

Exhibit 8b:
Total hours used/ total
trips taken

75

Business Model Analysis

Exhibit 8b:
Total hourly revenue/
total hours used

76

Business Model Analysis

Exhibit 8b:
Total miles driven/ total
trips taken

77

Business Model Analysis

Exhibit 8b:
Total mileage revenue/
total miles driven

78

Business Model Analysis

# Uses * Hours/Use

79

Business Model Analysis

Exhibit 8b:
Total hours used / (439
car days * 24hours)

80

Business Model Analysis

Exhibit 8b:
720 hrs * 30.6% / 19

81

Business Model Analysis

Insights
Zipcars u/liza/on rate is far lower than was
predicted
Customers take much fewer but longer trips

What to do?
Change pricing structure; e.g. increase maximum daily
rate and/or hourly rate
Reduce number of cars

82

Intended learning outcomes

for Topic 5
By now, you should be able to:
Discuss the nature and purposes of planning
Discuss the rela/onship among dierent levels of planning
Compare and contrast tradi/onal goal seVng and
management by objec/ves (MBO)
Perform a SWOT analysis and formulate appropriate
corporate-level and business-level strategies for an
organiza/on
Use the shbone technique to test whether planning
assump/ons are supported by data on actual outcomes

83