Principles of Management

Dr. Karim Kobeissi

Islamic University of Lebanon
- 2013

Chapte
r

Planning

Strategy
A strategy is an IDEA, a
conceptualization

of

HOW a goal could be

achieved.

Strategy Vs Tactic
Atactic is an activity you take to execute the
strategy.
Different tactics may be deployed as part of a single
strategy. For example, one strategy to gain market
share would be brand building. As part of a company's
brand building strategy, they may adopt different
tactics like online advertising andcelebrity supports.

Planning
Planning is a process that managers use to identify
and select appropriate goals and courses of action
for an organization.
The organizational plan (Business Plan) that results
from the planning process details the goals of the
organization and specifies how managers intend to
attain those goals.
Thus, planning is both a goal-making and a
strategy-making process.

Why Planning Is Important

Planning determines where the organization is
now and deciding where it will be in the future.
Sense of direction and purpose: planning sets

goals and strategies for all managers.

Coordination: plans provide all parts of the firm with

understanding about how their systems fit with the

whole.
Control: Plans specify who is responsible for the

accomplishment of a particular goal.

Qualities of Effective Plans

(Fayol)
Unity
Only one central plan is in effect at any given time to achieve
an organizational coal.

Continuity
Planning is an ongoing process in which managers build and
refine previous plans continually at all levels corporate,
business and functional - so that they fit together into one
broad framework.

Accuracy
Managers have incorporated and utilized all available
information at their disposal in order to create the current
plan.

Flexibility
The plan can be alter as the situation changes.

Levels of Planning
In large organizations planning usually
takes place at three levels of
management:
1)Corporate Level.
2)Business or Division Level.
3)Department or Functional Level.

Levels of Planning at General

Electric

Levels of Planning (con)

A division is a business unit (Strategic Business Unit) that
competes in a distinct industry; GE has over 150
divisions, including GE Aircraft Engines, GE Financial
Services, GE Lighting, GE Motors, GE Plastics, and NBC.
Each division has its own set of divisional managers.
In turn, each division has its own set of functions or
departmentsmanufacturing,

marketing,

human

resource management, R&D, and so on. Thus, GE

Aircraft has its own marketing function, as do GE
Lighting, GE Motors, and NBC.

Levels of Planning (con)

Corporate-Level Plan
Top managements decisions pertaining to the
organizations mission, overall strategy, and
structure.
Provides a framework for all other planning.

Corporate-Level Strategy
A plan that indicates in which industries and
national markets an organization intends to
compete.

Levels of Planning (con)

Business-Level Plan
Divisional managers decisions pertaining to
divisions long-term goals, overall strategy, and
structure.
Identifies how the business will meet corporate goals.

Business-Level Strategy1
A plan that indicates how a division intends to
compete against its rivals in an industry.
Shows how the business will compete in market.

Levels of Planning (con)

Functional-Level Plan
Functional managers decisions pertaining to
the goals that they propose to pursue to help
the division attain its business-level goals.

Functional Strategy1
A plan that indicates how a functional
department intends to achieve its goals.

Who Plans?
Corporate-Level Plans
Plans developed by top management who also are
responsible for approving business- and functional-level
plans for consistency with the corporate plan.
Top managers should seek input on corporate level issues
from all management levels.

Business-Level Plans
Plans developed by divisional managers who also review
functional plans.

Both management levels should also seek information

from other levels.

Time Horizons of Plans

Time Horizon
The intended duration of a plan.
Long-term plans are usually 5 years or more.
Intermediate-term plans are 1 to 5 years.
Short-term plans are less than 1 year.

Corporate and business-level goals and strategies

require long- and intermediate-term plans.
Functional plans focus on short-to intermediate-term
plans.
Most organizations have a rolling planning cycle to
update long and intermediate term plans constantly.

Types of Plans
Standing Plans
Used in programmed decision situations.
Policies are general guides to action1.
Rules are formal written specific guides to action 2.
Standard operating procedures (SOP) specify an exact
series of actions to follow3.

Single-Use Plans
Developed for a one-time, nonprogrammed issue.
Programs: integrated plans achieving specific goals 4.
Project: specific action plans to complete programs 5.

The Planning Process

Planning is a three-step activity:
1)Determining the organizations mission and goals.
2)Formulating Strategy- Managers analyze the
organizations current situation and then conceive
and develop the strategies necessary to attain
the organizations mission and goals.
3)Implementing Strategy- Managers decide how to
allocate the resources and responsibilities
required to implement those strategies between
people and groups within the organization.

The Three Steps Of The Planning

Process

The Three Steps Of The Planning Process

I- Determining the Organizations Mission and Goals
Defining the organizations overriding purpose and its

goals.

II- Formulating Strategy

Managers analyze current situation and develop the

strategies needed to achieve the mission.

III- Implementing Strategy

Managers must decide how to allocate resources

between groups to ensure the strategy is achieved.

I- Determining the Organizations

Mission and Goals
Mission Statement

A mission statement is a statement of the companys

purpose. A mission statement is useful for putting the
spotlight on what business a company is presently in and
the customer needs it is presently trying to serve. A
mission statement deals with the present and answers
the question What is our business and what are we
trying to accomplish on behalf of our customers?
(Thomas Strickland, p.4, 28).

Exemples of Mission
Statements

Determining the Organizations Mission and

Goals (con)
- To determine an organizations mission, managers
must first define its business by asking three
questions:
Who are our customers?
What customer needs are being satisfied?
How are we satisfying customer needs?
- Once the business is defined, managers must then
establish a set of primary goals to which the
organization is committed. These goals give the
company a sense of direction and commitment.

Levels of Planning

Determining the Organizations Mission and

Goals (con)
Goals should be SMART:

Specific - are your objectives stated in a way that is precise

about what you are hoping to achieve?
EXAMPLE: A general goal would be, Get in shape. But a specific
goal would say, Join a health club and workout 3 days a week.

Measurable - Can you quantify each objective, i.e. can you

use a unit of measure such as market share in percentage
or currency ($) or other to provide a way to check your
level of success?
To determine if your goal is measurable, ask questions such as
How much?
How many?

Determining the Organizations Mission and

Goals (con)

Attainable - Far too often, small businesses can set goals beyond
reach. No one has ever built a billion dollar business overnight.
Venture capitalists and angel investors discard countless business
plans of companies with outlandish goals. Dream big and aim for the
stars but keep one foot firmly based in reality. Check with your
industry association to get a handle on realistic growth in your
industry to set smart goals.

Relevant - Achievable business goals are based on the current

conditions and realities of the business climate. You may desire to
have your best year in business or increase revenue by 50%, but if a
recession is looming and 3 new competitors opened in your market,
then your goals arent relevant to the realities of the market.
Time specific - When are you hoping to achieve these objectives,
you need to define a timing plan with target timing for each specific
objective?

II- Formulating Strategy

- Managers analyze the current situation to
develop strategies for achieving the mission.

SWOT Analysis
A planning exercise in which managers identify
organizational/internal
strengths
and
weaknesses,
Strengths (e.g., superior marketing skills)
Weaknesses (e.g., outdated production facilities)

and external opportunities and threats.

Opportunities (e.g., entry into new related markets).
Threats (increased competition).

Formulating Strategy (con)

Porters Model
Porters Modelis a framework for industry analysis and business strategy
development formed byMichael E. Porter. It determine the strength of
competitive forces within an industry and therefore attractiveness of
amarket. Three of Porter's five forces refer to competition from external
sources. The remaining two are internal threats. Depending on their
combination, the competition can be cut-throat and thus result in poor
profits or it may be moderate and result in higher profits. Firms can monitor
the alignment of the five forces to match their strengths and weaknesses to
the

markets

structure,

to

anticipate

market

changes,

to

identify

diversification opportunities, to reconfigure the rules of competition, and to

ensure that their dominant position remains undiminished.

Formulating Strategy (con)

When Porters Model and/or SWOT Analysis are applied, managers
can begin developing strategies. These strategies should allow
the organization to attain its goals by taking advantage of
opportunities,

countering

threats,

correcting organizational weaknesses.

building

strengths,

and

Formulating Corporate-Level
Strategies
Corporate-level strategy is a plan of action

that

determines the industries and countries an

organization should invest its resources in to
achieve its mission and goals.
The

principal

corporate-level

strategies

that

managers use are: 1) Concentration on a Single

Industry,

2)

Diversification

3)

Vertical

Integration, and 4) International Expansion.

Formulating Corporate-Level
Strategies
1. Concentration in Single Industry
Can become a strong competitor, but can be
risky.
Knowledge of current market can be a competitive
advantage. (core business logics/core competence)
Concentration creates a large degree of business risk
if the single market in which the firm competes
declines.

Concentration is a logical strategy if downsizing

organization to increase performance by exiting
under-performing businesses.

Formulating Corporate-Level
Strategies
2. Diversification
Related diversification into similar market
areas to build upon existing competencies.
Synergy: two divisions working together
perform better than the sum of their individual
performances (2+2=5).

Unrelated diversification is entry into

industries unrelated to current business.
Attempts to build a portfolio of unrelated firms to
reduce risk of single industry failure.
Unrelated firms can be more difficult to manage.

Formulating
Corporate-Level
3. Vertical Integration
A strategy that allows an organization to create
Strategies

value by producing its own inputs or distributing

its own products.
Backward vertical integration occurs when a firm
seeks to reduce its input costs by producing its own
inputs.
Forward vertical integration occurs when a firm
distributes its outputs or products to lower distribution
costs and ensure the quality service to customers.

A fully integrated firm faces the risk of bearing

the full costs of an industry-wide slowdown.

Stages in a Vertical Value Chain

Formulating
Corporate-Level
4. International Expansion
Strategies
Global strategy
Selling the same standardized product and using the
same basic marketing approach in all countries.
Standardization provides for lower production cost.
Ignores national differences that local competitors can
address to their advantage.

Mulitdomestic Strategy
Customizing products and marketing strategies to
specific national conditions.
Helps gain market entry and build local market share.
Raises production costs

Formulating Business-Level
Strategies
- Porters Business-Level Strategies
Michael Porter formulated a theory of how managers can
select a business-level strategy to give them a
competitive advantage in a particular market or industry.

According to Porter, managers must choose between two basic

ways of increasing the value of an organizations products:

Differentiating the product to add value or

Lowering the costs of value creation.

Porter also argues that managers must choose between

serving the whole market or serving just one segment.

Formulating Business-Level
Strategies
Based upon those choices, one of the

four

following strategies must be selected:

1)Overall Low-Cost Strategy.
Driving the organizations total costs down below
the total costs of rivals.
Manufacturing at lower costs, reducing waste.
Lower costs than competition means that the low cost
producer can sell for less and still be profitable.

Formulating Business-Level
Strategies
2) Overall Differentiation Strategy
Offering products different from those of
competitors.
Differentiation must be valued by the customer in
order for a producer to charge more for a product.
3) Focused Low-Cost Strategy

Serving only one market segment and being

the lowest-cost organization serving that
segment.

Formulating Business-Level
Strategies
4) Focused Differentiation Strategy
Serving only one market segment as the most
differentiated organization serving that segment.

Porters Business-Level Strategies

Formulating Functional-level
Strategies
- A functional level strategy is a plan that indicates
how an organizational function intends to achieve
its goals.
Seeks to have each department add value to a
good or service.
Marketing, service, and production functions
can all add value to a good or service through:
Lowering the costs of providing the value in products.
Adding new value to the product by differentiating.

Functional strategies must fit with business

level strategies.

Goals for Successful Functional-level

Strategies

1.Attain superior efficiency as a measure of

outputs for a given unit of input.
2.Attain superior quality by producing
reliable products that do their intended job.
3.Attain superior innovation developing new
and novel features that can be added to the
product or process.
4.Attain
superior
responsiveness
to
customers by acknowledging their needs
and fulfilling them.

III- Implementing Strategy

After identifying appropriate strategies, managers confront the challenge of
putting those strategies into action for the purpose of changing the
organization. Strategy implementation is a five-step process:
1) Allocating responsibility for implementation to the appropriate individuals or groups.
2) Drafting detailed action plans that specify how a strategy is to be implemented.
3) Establishing a timetable for implementation that includes precise, measurable goals

linked to the attainment of the action plan.

4) Allocating appropriate resources to the responsible individuals or groups responsible

for the attainment of corporate divisional, and functional goals.

5) Holding specific individuals or groups responsible for the attainment of corporate,

divisional, and functional goals.