Management Presentation Chapter 3

Management Presentation Chapter 3 Management Presentation Chapter 3Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3 Management Presentation Chapter 3

Organizational Goals Purposes of Goals Guidance and unified direction • • • • Promotion of good planning Source of motivation Evaluation and control Provide guidance and a unified direction for people in the organization (e.g GE -> #1) Have a strong effect on the quality of other aspects of planning (e.g setting a financing goal) Serve as a source of motivation for employees of the organization (e.g each worker has a goal for how long it should take to perform his or her job) Provide an effective mechanism for evaluation and control of the organization (e.g mid-year check) Kinds of Organizational Goals Setting Organizational Goals By Level By Area By Time Frame Mission statement Strategic goals Tactical goals Operational goals Operations Marketing Finance Production Long-term goals Intermediate goals Short-term goals Explicit goals Open-ended goals FIGURE 3.1 The Planning Process The planning process takes place within an environmental context Managers must develop a complete and thorough understanding of this context to determine the organization’s mission and to develop its strategic, tactical, and operational goals and plans What Goals Do • By Level – Mission statement is a statement of the organization’s fundamental purpose – Strategic goals, set by top management, address broad competitive issues – Tactical goals, set by middle managers, that focus on how to operationalize actions to strategic goals – Operational goals, set by lower-level managers, focus on actions in support of tactical goals Kinds of Goals • For Example, Starbucks • Mission: To inspire and nurture the human spirit – one person, one cup and one neighborhood at a time • Strategic Goals: Increase its per-store profitability by 25% over the next years • Tactical Goals: Create tactical goals for the company-owned vs licensed stores in different countries • Operational Goals: Boost the profitability of some certain number of stores in the next years Kinds of Organizational Plans – Strategic Plans are developed to achieve strategic goals It is set by the board of directors and top management, generally address questions of scope, resource deployment, competitive advantage, and synergy – Tactical goals are developed to implement parts of a strategic plan Typically, tactical plans involve upper and middle managers and have a shorter time frame than the strategic plan – Operational goals focus on carrying out the tactical plans to achieve operational goals They are developed by middle and lower-level managers and have a shortterm focus Planning Flow in Organizations Strategic Plans (upper management) Tactical Plans (middle management) Operational Plans (lower-level managers) Time Frames for Planning • The Time Dimension of Planning – Planning must provide sufficient time to fulfill the managerial commitments involved 10 Long-range (strategic) plans of or more years Intermediate-range (tactical) plans of 1–5 years Short-range (operational) action and contingency plans of year or less Years The Nature of Strategic Management • Strategy – A comprehensive plan for accomplishing an organization’s goals • Strategic Management – The comprehensive and ongoing process of formulating and implementing strategies to approach business opportunities and challenges • Effective Strategies – Promote a superior alignment between the organization and its environment and the achievement of its goals Single-Product Strategy • A single-product strategy manufactures just one product or service and sells it in a single geographic market – One major strength: Concentrating all efforts on one product and market – One major weakness: If the product is not accepted by the market or is replaced by a new product, the firm will suffer – Example: Wrigley’s single product strategy – chewing gums However, new generation purchases less gum so they had to sell their business to Mars Related Diversification • Related Diversification – A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked Competitive Advantages of Related Diversification Reduction of business and economic risk Creation of economies of scale and scope For Example: Disney: Theme park, movies, DVD, Toys, etc McDonald and McCafe premium coffee Synergistic sharing of strengths and competencies Implementing Related Diversification Bases of Diversification Relatedness Similar technology resources Common marketing and distribution skills Common brand name and reputation Common customers and markets Related Diversification • Related Diversification – A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked • It reduces a firm’s dependence on single business and thus reduce economic risk • It reduces the overhead costs associated with managing any one business • It creates synergies – the total businesses’ economic value > single line business economic value – For Example: » Disney: Theme park, movies, DVD, Toys, etc » McDonald and McCafe premium coffee Unrelated Diversification • Unrelated Diversified Organization – Operates multiple businesses that are not logically associated with one another • Advantages – Stable corporate-level performance over time due to business cycle differences among the multiple businesses – Resources can be allocated to areas with the highest return potentials to maximize corporate performance Unrelated Diversification (cont’d) • Disadvantages – The strategy does not usually lead to high performance due to the complexity of managing a diversity of businesses – Firms with unrelated strategies fail to exploit important synergies, putting them at a competitive disadvantage to firms with related diversification strategies • It is tough but there are still successful examples – GE owns hundreds of different businesses, including aircraft engines, appliances, insurance, plastics, and others They operate these businesses to 20 strategic business unit (SBUs) http://www.ge.com/products Managing Diversification • Portfolio Management Techniques – Are used to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance • BCG (Boston Consulting Group) Matrix • GE (General Electric) Business Screen Portfolio Management Techniques • BCG Matrix – Evaluates businesses relative to the growth rate of their markets and their individual market shares – Classifies businesses as one of the types: • Dogs having small market shares and no growth prospects (Suggest not to invest) • Cash cows having large shares of mature markets (Cash cows are milk for cash to support business that have a great potential to grow) • Question marks having small market shares in quickly growing markets (Suggest to invest carefully) • Stars having large shares of rapidly growing markets (Cash generated in cash cows should invest in stars) FIGURE 3.4 The BCG Matrix Market Growth Rate High Stars Question marks Cash Cows Dogs Low High Relative Market Share Low Portfolio Management Techniques (cont’d) • GE Business Screen – Evaluates firms in a diversified portfolio along two multi-factor dimensions: • Industry attractiveness • Competitive position (strength) of portfolio firms – Shows where a firm should invest more of its resources in competitive businesses in attractive industries Industry Attractiveness FIGURE 3.5 The GE Business Screen High Winner Winner Question mark Medium Winner Average business Loser Profit producer Loser Loser Low Good Medium Poor Competitive Position Competitive Position Industry Attractiveness Market share Market growth Technological know-how Market size Product quality Capital requirements Service network Competitive intensity Price competitiveness Operation costs The more attractive the industry and the more competitive the position, the more an organization should invest in a business Tactical Planning & Operational Planning • Tactical plans: A plan aimed at achieving tactical goals and developed to implement parts of a strategic plan; an organized sequence of steps designed to execute strategic plans – Have mid-range time horizons – Involve middle managers • Operational Planning: A detailed series of specific actions designed to execute tactical plans – Have Short time horizons – Involve lower-level managers Question: Which kind of plan should be developed first? Why? Table 3.1 Types of Operational Plans Single-use Plans Developed to carry out a course of action not likely to be repeated in the future Program Single-use plan for a large set of activities Project Single-use plan of less scope and complexity than a program Standing Plans Developed for activities that recur regularly over a period of time Policy Standing plan specifying the organization’s general response to a designated problem or situation Standard operating procedure (SOP) Standing plan outlining steps to be followed in particular circumstances Rules and regulations Standing plans describing exactly how specific activities are to be carried out Contingency Planning and Crisis Management • Contingency Planning – The determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate • Crisis Management – The set of procedures the organization uses in the event of a disaster or other unexpected calamity FIGURE 3.6 Contingency Planning