CHAPTER 4

FOUNDATIONS OF PLANNING
 What Is Planning?
• Planning - a primary managerial activity that
involves:
– Defining the organization’s goals
– Establishing an overall strategy for achieving
those goals
– Developing plans for organizational work
activities
 Formal Planning
• Formal planning
– Specific goals covering a specific time period
– Written and shared with organizational members
 Why Do Managers Plan?
• Purposes of Planning
– Provides direction
– Reduces uncertainty
– Minimizes waste and redundancy
– Sets the standards for controlling
 Planning and Performance
• Formal planning is associated with:
– Higher profits and returns on assets
– Positive financial results
– The quality of planning and implementation
affects performance more than the extent of
planning
– The external environment can reduce the impact
of planning on performance
 Elements of Planning
• Goals (also Objectives)
– Desired outcomes for individuals, groups, or entire
organizations
– Provide direction and evaluation performance criteria
• Plans
– Documents that outline how goals are to be accomplished
– Describe how resources are to be allocated and establish
activity schedules
 Types of Goals
• Financial Goals - related to the expected
internal financial performance of the
organization.
• Strategic Goals - related to the performance
of the firm relative to factors in its external
environment (e.g., competitors).
 Types of Plans
• Strategic Plans
– Establish the organization’s overall goals
– Seek to position the organization in terms of its
environment
– Cover extended periods of time
• Operational Plans
– Specify the details of how the overall goals are to
be achieved
– Cover a short time period
Levels of Planning
 Types of Plans
• Long-Term Plans
– Time frames extending beyond three years.
• Short-Term Plans (Tactical)
– Time frames of one year or less.
 Types of Plans
• Specific Plans
– Plans that are clearly defined and leave no room
for interpretation.
• Directional Plans
– Flexible plans that set out general guidelines and
provide focus, yet allow discretion in
implementation.
 Types of Plans
• Single-Use Plan
– A one-time plan specifically designed to meet the
need of a unique situation.
• Standing Plans
– Ongoing plans that provide guidance for activities
performed repeatedly.
 CONTINGENCY PLANS
• Contingency plans are plans formulated to
address specific future events that might have
significant impact on the organisation.
– Crisis management planning – prevention,
preparation, containment.
– Scenario planning
The Strategic Planning
Process
 CREATING THE CONTEXT OF
PLANNING
• Mission – describes the purpose of an organisation
– Customer – oriented mission statements are preferable to
product oriented statements.
• Vision – the vision of an organisation articulates a
desired future state; it describes what the management
of an organisation would like to achieve.
• Values – the philosophical priorities to which managers
are committed.
• Goals – it is a desired future state that an organisation
attempts to realise; it specifies exactly what must be
done so the company can attain its mission and vision
– Goals must be precise and measurable, address important
issues, challenging but realistic, specify a time period.
 EXTERNAL AND INTERNAL ANALYSIS

• Managers must analyse the organisation's external

environment – including the industry environment and
the general environment for opportunities and
threats.
• Managers must analyse the organisation's internal
environment – and identify its strengths and
weaknesses.
• Any if the strengths that represent unique skills or
resources that can determine the organisation’s
competitive edge are its core competencies
• Competitive intelligence is a growing trend that seeks
basic information regarding competitors
 FIVE COMPETITIVE FORCES
• Threat of New Entrants
• Threat of Substitutes
• Bargaining Power of Buyers
• Bargaining Power of Suppliers
• Current Rivalry
 SWOT ANALYSIS
• SWOT analysis is utilised to formulate
strategies at the corporate, business and
operating levels that build on organisation’s
strengths, correct weaknesses, use strengths
to exploit opportunities in the environment,
and block threats so the organisation can
execute its mission, realise its vision, meet its
major goals, and do so in a manner consistent
with its values.
 STRATEGY
• Competitive advantage - An organization’s
distinctive competitive edge that is sourced
and sustained in its core competencies
• Distinctive competency
• Sustainable competitive advantage
• Barriers to imitation
– Patents, trademarks and copyrights
– Culture
– Legacy constraints
Types of Organizational Strategies
CORPORATE LEVEL GRAND STRATEGIES
 The company’s grand strategy for the entire organization
and its strategic business units
 Growth strategy
– Concentration
– Vertical integration
– Horizontal integration
– Diversification
 Stability strategy
 Renewal strategy
– Retrenchment strategy
– Turn around strategy
 BUSINESS LEVEL -COMPETITIVE
STRATEGIES
• Business-Level Strategy - A strategy that seeks to
determine how an organization should compete in each
unit within the organization to create a competitive
advantage
• Competitive advantage - An organization’s distinctive
competitive edge that is sourced and sustained in its core
competencies
• Cost leadership strategy
• Differentiation strategy
• Focus strategy
• Long term success requires that these strategies be
sustainable
PORTER’S COMPETITIVE STRATEGIES

• Cost Leadership Strategy - Seeking to attain the lowest

total overall costs relative to other industry competitors
• Differentiation Strategy - Attempting to create a unique
and distinctive product or service for which customers will
pay a premium
• Focus Strategy - Using a cost or differentiation advantage
to exploit a particular market segment rather than a larger
market
• Stuck in the Middle - Organizations that are unable to
develop a cost or differentiation advantage
The Low-Cost Value Cycle
Options for Exploiting Differentiation
GENERIC STRATEGIES

TATA STEEL, RELIANCE

APPLE
INDUSTRIES

GINGER HOTELS MERCEDES - BENZ

Generic strategies and 5 forces
 FUNCTIONAL LEVEL STRATEGIES
• Functional-level strategies support the
business-level strategy
– i.e., Marketing, human resources, research and
development, and finance all support the
business-level strategy
– Problems occur when employees or customers
don’t understand a company’s strategy
 ACTION PLANS
• Action plans specify exactly how corporate-
level, business-level, and operating strategies
will be put into effect.
• Action pans should include sub goals,
responsibilities, time lines, and financial
budgets.
IMPLEMENTATION & REVIEW

• Strategy implementation consists of putting action

plans into effect.
• Strategy implementation requires the organisation
to have right kind of organisation structure,
incentives, control systems, and culture, as well as
right mix of people.
• If parts of an organisation (or the entire
organisation) do not reach the goals outlined in the
plan, review of the causes of variance needs to be
done followed by corrective actions.
Countering the Pitfalls
of Planning