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M360

Planning and Decision making


The Planning Process

Task 2:
Diagnose
opportunities
and threats
Task 1:
Task 4: Task 5:
Develop vision,
Develop Prepare strategic
mission
strategies plan
and Goals
Task 3:
Diagnose strengths
and weakness

Task 8: Task 7: Task 6:


Continue Control and Prepare tactical
planning diagnose results plans

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Types of Planning
Strategic Planning is the process of
1) diagnosing the organizations external
and internal environments,
2) deciding on a vision and mission, S
T
3) developing overall goals, R
A
4) creating and selecting general T
strategies to be pursued, and E
G
5) allocating resources to achieve the I
organizations goals. C

) Contingency planning

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Types of Planning (cont.)
Tactical planning involves making
concrete decisions regarding what
to do, who will do it, and how to do
itwith a normal time horizon of a
year or less.

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Degree of Diversification and
Planning
(adapted from Figure 7.1)
High

General
Strategic Planning

Electric
Complexity of

Johnson &
Johnson

CEMEX

Google

Low
Single- Dominant- Related- Unrelated-
Low business High
business business business
firm firm firm firm
Degree of Diversification
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Strategic Levels and
Planning
Corporate-level strategy focuses on the
types of businesses the firm wants to be in,
ways to acquire or divest businesses,
allocation of resources among the
businesses, and ways to develop learning
and synergy among those businesses.
Strategic business unit (SBU)
Growth Strategies
Forward integration
Backward integration
Horizontal integration
Concentric diversification
Conglomerate diversification

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Strategic Levels and Planning
(cont.)
Business-level strategy refers to the
resources allocated and actions taken to
achieve desired goals in serving a specific
market with a highly interrelated set of
goods and/or services.
Three basic questions at the business level
are:
1.Who will we be served?
2.What customer needs will be satisfied?
3.How will customer's need be satisfied?

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Strategic Levels and Planning
(cont.)
Functional-level strategy refers to the
actions and resource commitments
established for operations, marketing,
human resources, finance, legal
services, accounting, and the
organizations other functional areas.
Operations strategies
Marketing strategies
Finance strategies

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General Electrics Strategy and Planning Levels
Four senior executive officers, 8 senior corporate officers,
Corporate And 33 corporate staff officers
Level
Focus: Assessing new businesses, allocating resources to business-
level companies, coordinating businesses, resolving legal
issues, assessing key executives, and other activities

Business
GE GE Plus 10 other
Level * Consumer
GE
Transportation primary
Plastics
Finance Systems business units

Functional Marketing Marketing Marketing Functional


Level Human Human Human Units
Resources Resources Resources in each
line of
Finance/ Finance/ Finance/ Business
Accounting Accounting Accounting
Other Other Other
* Each of the 13 primary units has its own business functions

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Decision making includes defining
problems,
gathering information,
generating alternatives,
and choosing a course of action.

13
Conditions Under Which Decisions are
Made
(adapted from Figure 8.1)

Certainty Uncertainty

Objective Subjective
probabilities Risk probabilities

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Framework for Decision Making
(adapted from Figure 8.2)

Unusual and
Innovative Uncertainty

e
ambiguous Decisions

ad
m
e
ar
s
on
Adaptive

si
Problem Types

i
Decisions

ec
d
h
Risk

ic
h
w
Routine

er
Decisions
nd
u
sn
io
it
d
on
C

Certainty

Known and Untried and


well defined ambiguous
Solution Types
(Alternative Solutions)
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Models of Decision Making
The rational model prescribes a set
of phases that individuals or teams
should follow to increase the
likelihood that their decisions will be
logical and optimal.

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Rational Decision-Making Model
(adapted from Figure 8.3)

Environmental forces
1 2 3
Define and Set Search for
diagnose goals alternative
problem solutions

4
Compare and
evaluate
alternative solutions

7 6 5
Follow-up Implement Choose among
and control the solution alternative
results selected solutions
Environmental forces

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A Simple Hierarchy of Goals
(adapted from Figure 8.4)

Organizational Increase profits per share of common stock


Corporation goals [based on millions shares by 8% in 2006.

Manufacturing Divisional Reduce manufacturing costs by average $0.50


Division goals per unit on volume of 1 million units in 2006.
Total savings targeted at $500,000.
Plant Engineering Reduce internal and contract maintenance by $75,000 in 2
Departmental
Department without more that 3% equipment downtime
goals

Maintenance Sectional Reduce overtime for preventive


Section goals maintenance inspections by 200 labor
hours during 2006 without decreasing
frequency of inspections. Total overtime
savings estimated at $6,000.
Purchase and install microcomputer software
Mechanical Individual
system for monitoring bearing wear in 10
Engineer goals
machines, reducing overtime by 600 hours
for production employees. 2006 overtime of
$15,000. Purchase price estimated at $6,000.
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Models of Decision Making
(cont.)
The bounded rationality model
contends that the capacity of the
human mind for formulating and
solving complex problems is small,
compared with what is needed for
objectively rational behavior.

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Bounded Rationality Model
(adapted from Figure 8.5)

Decision Biases

Inadequate Problem Description

Limited Search for Alternatives


Limited Information

Satisficing

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Osborns Creativity Model
Osborns creativity model is a three-
phase decision-making process that
involves:
fact finding,
idea finding,
and solution finding
Brainstorming is an unrestrained flow
of ideas in a group with all critical
judgments suspended.
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Balanced Scorecard Model
(adapted from Figure 9.4)

Outcomes Activities

Financial Internal
Perspective Perspective

Goals Measures Goals Measures

Balance

Customer Innovation/Learni
Perspective ng
Perspective
Goals Measures Goals Measures
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South-Western, a division
23
of Thomson Learning