Strategies, Policies and Planning Premises

Strategy

A companys strategy consists of the competitive moves, internal operating approaches, and action plans devised by management to produce successful performance.

Strategy is managements game plan for running the business. Managers need strategies to guide HOW the organizations business will be conducted and HOW performance targets will be achieved.
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Levels of Strategy

Levels of Strategy
1.

Corporate-level Strategy
The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.

2. Business-level Strategy
How the organization conducts business in a particular industry.
3.

Functional-level Strategy
Strategy developed for specific functional areas such as marketing, finance, and so forth.
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Levels of Strategy-Making
Corporate Strategy

Business Strategies

Functional Strategies
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BCG Matrix*
High

Market Growth Rate

Stars

Question Marks

?
Dogs

Cash Cows

Low High Relative Market Share Low

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BCG Market Share/Market Growth Matrix

What is Strategic Planning?

Strategic planning is a systematic process through which an organization agrees on and builds commitment among key stakeholders to priorities that are essential to its mission and are responsive to the environment. Strategic Planning guides the acquisition and allocation of resources to achieve these priorities.
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Strategic Planning vs. Operational Planning

Strategic Planning
formulation What, where ends vision effectiveness risk

Operational Planning
implementation how means plans efficiency control

Three Big Strategic Questions

Where Are We Now?

Where Do we Want to Go? How Will We Get There?
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Strategic Planning Process

Developing a Vision and a Mission Assessment Setting Objectives Crafting a Strategy Implementing and Executing Strategy Evaluating Performance, Reviewing the Situation and Initiating Corrective Action

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Strategic Planning

First Stage of Strategic Planning may involve: Futures Thinking

Thinking about what the business might need to do 1020 years ahead

Strategic Intents
Thinking about key strategic themes that will inform decision making

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Strategic Planning

The Vision
Communicating to all staff where the organisation is going and where it intends to be in the future

Aims and Objectives:

Aims long term target Objectives the way in which you are going to achieve the aim
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Strategic Analysis

Constantly evaluate their position

Strategic analysis includes different methods of assessing the current position of the business in the market place Two basic methods:
Internal External
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Internal Audits

Productivity Efficiency Costs Other Internal Data Labour turnover, absenteeism Customer satisfaction surveys Quality procedures Cash flow statements Sales trends Skills audit Strengths and weaknesses analysis Core competencies
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External Audits

General business environment Inflation, competitiveness, unemployment/employment, growth, consumer spending Competitors

PEST factors Political e.g. change of government Economic Trends in economic growth, inflation, etc. Social-changed outlook, age structure of population, etc. Technological
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SWOT Analysis
Strengths Weaknesses Opportunities Threats

Vision & Mission

An organizations fundamental purpose

SWOT Analysis
To formulate strategies that support the mission
Internal Analysis Strengths (distinctive competencies) Weaknesses External Analysis Opportunities

Threats

Good Strategies
Those that support the mission and: exploit opportunities and strengths neutralize threats avoid weaknesses

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Strengths
Strengths Those things that you do well, the

high value or performance points

Strengths can be tangible: Loyal customers, efficient distribution channels, very high quality products, excellent financial condition
Strengths can be intangible: Good leadership, strategic insights, customer intelligence, solid reputation, high skilled workforce
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Weaknesses
Weaknesses Those things that prevent you from

doing what you really need to do

Since

weaknesses are internal, they are within your control

Weaknesses include: Bad leadership, unskilled workforce, insufficient resources, poor product quality, slow distribution and delivery channels, outdated technologies, lack of planning, . . .
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Opportunities
Opportunities Potential areas for growth and

higher performance
External

in nature marketplace, unhappy customers with competitors, better economic conditions, more open trading policies, . . may be important for capitalizing on opportunities
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Timing

Threats
Threats Challenges confronting the

organization, external in nature

Threats can take a wide range bad press coverage, shifts in consumer behavior, substitute products, new regulations, . . . more accurate you are in identifying threats, the better position you are for dealing with the sudden ripples of change
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The

Five Forces Model of Competition

Substitute Products
(of firms in other industries)

Suppliers of Key Inputs

Rivalry Among Competing Sellers

Buyers

Potential New Entrants

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Porters Five Competitive Forces

1. Threat of new entrants
2. Competitive rivalry

3. Threat of substitute products 4. Power of buyers

5. Power of suppliers
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Gap Analysis
Vision Assessment

Gap = Basis for LongTerm Strategic Plan

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Setting Objectives

The purpose is to convert the mission into Specific Performance Targets Yardsticks for tracking company progress and performance.

Should be set at levels that require stretch and disciplined effort.

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Crafting a Strategy

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Generic Strategies

Porters Generic Strategies

1. Differentiation strategy
An organization seeks to distinguish itself from competitors through the quality of its products or services. Developing an image perceived as unique

2. Overall cost leadership strategy

An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms.

3. Focus strategy
An organization concentrates on a specific regional market, product line, or group of buyers.
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Types of Strategy

Market Dominance Achieved through: Internal growth Acquisitions mergers and takeovers

New product development: to keep ahead of rivals and set the pace
Contraction/Expansion focus on what you are good at (core competencies) or seek to expand into a range of markets?

Global seeking to expand Global operations

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Strategy Implementation
Technology Human Resource Reward System Decision Process

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Characteristic of the Good Strategy Implementation

An ongoing exercise Proper Communication Contingency Plan Emphasis on Organisation Culture Regular Review Importance of Planning

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DECISION-MAKING

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What is Decision-Making?
Decision making
The process of choosing a course of

action for dealing with a problem or opportunity.

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Types of Decisions
Programmed decisions.
Involve routine problems that arise regularly

and can be addressed through standard responses.

Nonprogrammed decisions.
Involve nonroutine problems that require

solutions specifically tailored to the situation at hand

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Decision environments
Certain environments.
Risk environments.

Uncertain environments.

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Certain environments.
Exist when information is sufficient to

predict the results of each alternative in advance of implementation.

Certainty is the ideal problem solving and

decision making environment.

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Risk environments
Exist when decision makers lack complete

certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence.
Probabilities can be assigned through

objective statistical procedures or personal intuition.

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 Exist when managers have so little information

Uncertain environments.

that they cannot even assign probabilities .

Uncertainty forces decision makers to rely on

individual and group creativity to succeed in problem solving.

Also characterized by rapidly changing: External conditions. Information technology requirements.
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Classical Vs. Behavioral Decision Theory

Classical decision theory. Views the decision maker as acting in a world of complete certainty. Behavioral decision theory. Accepts a world with bounded rationality and views the decision maker as acting only in terms of what he/she perceives about a given situation.
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Classical decision theory

The classical decision maker: Faces a clearly defined problem. Knows all possible action alternatives and their consequences. Chooses the optimum alternative.
Is often used as a model of how

managers should make decisions.

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Rationality
Problem is clear and unambiguous. Single goal. All alternatives are known. Clear and constant preferences. Maximum payoff. The decision is in the best interest of the organizationnot the manager.

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Behavioral decision theory

Recognizes that human beings operate

with:
Cognitive limitations. Bounded rationality.

The behavioral decision maker: Faces a problem that is not clearly defined. Has limited knowledge of possible action alternatives and their consequences. Chooses a satisfactory alternative.
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Bounded Rationality

Behavior that is rational within the parameters of a simplified model that captures the essential features of the problem.

Making a decision that is good enough. (Satisficing Model)

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Bounded Rationality

Satisficing

Limited Search

Inadequate Information and Control

Decisions

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Other decision making models

The garbage can model A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the garbage can of the organization. Incremental Model
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Intuitive Decision Making

An unconscious process of making decisions on the basis of experience and accumulated judgment.
Making decisions on the basis of gut feeling It does play an important role in managerial decision making.

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Range of decision making

Too Slow Too Quick

Procrastination Indecision
Analysis paralysis

Ready, fire, aim Impulsive, compulsive

Arbitrary

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Cultural and Social Influences

Ethnicity, Race, and Religion Household and ref. groups Psychographics: Lifestyle, Person. Socio-Econ: income,educ. Demographic: Gender, Age

Perception
M O T I V A T I O N

Basic Psychological Processes

Learning and Memory

A F F E C T

Attitudes

Decision-Making Process
Problem Recognition

Search

Evaluation

Choice

Outcomes 47

Group Decision-Making

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Forms of Group Decision Making

Interacting groups
Delphi Methods Nominal groups

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Decision-Making Techniques

Marginal Analysis Financial Analysis Break-Even Analysis Ratio Analysis OR Technique

Linear Programming Queuing Method Game Theory Simulation Decision Tree
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