Organizational Goal Setting and Planning

Topics1. Goals and Plans and relationship between them.2. Organizational mission and its influence on goal

setting and planning.3. Goals an organization should have and why they

resemble a hierarchy.4. Characteristics of effective goals.5. Four essential steps in the MBO process.6. Difference between single-use plans and standing

plans.

Topics7. Importance of the three stages of crisis management

planning.

8. Planning in a turbulent environment anw How differs from traditional approaches to planning.

9. Components of strategic management.

10. Strategic Planning Process and SWOT analysis.

11. Business-level strategies, including Michael E. Porter’s competitive forces and strategies and partnership strategies.

Topic12. Major considerations in formulating functional strategies.

13. Organizational dimensions used for implementing strategy.

Goals and Plans

A blueprint specifying the resource allocation, schedules, and other actions necessary for attaining goals.

Plan

GoalA desired future state that the organization attempts to

realize.

Organizational Goals Purposes of Goals

Provide guidance and a unified direction for people in the organization.

Have a strong affect on the quality of other aspects of planning.

Serve as a source of motivation for employees of the organization.

Provide an effective mechanism for evaluation and control of the organization.

Planning

Defining the organization’s goals, establishing an overall strategy, and developing a hierarchy of plans to achieve goals

FOM 5.5

Reduces theReduces theImpact of ChangeImpact of Change

ProvidesProvidesDirectionDirection

Minimizes WasteMinimizes Wasteand Redundancyand Redundancy

Sets Standards toSets Standards toFacilitateFacilitateControlControl

ReasonsReasonsfor Planningfor Planning

Criticisms ofCriticisms ofFormalFormal

PlanningPlanning

May CreateMay CreateRigidityRigidity

Can’t Replace IntuitionCan’t Replace Intuitionand Creativityand Creativity

Can’t Be Done in aCan’t Be Done in aDynamic EnvironmentDynamic Environment

Focus on Today’s Focus on Today’s CompetitionCompetition

Reinforces Reinforces SuccessSuccess

Does Planning Improve Performance?

Financial results

Environmental concerns

Quality and implementation

Decision Making and the Planning Process

Ex. 5.1 Levels of Goals/Plans and Their Importance

Purposes of Goals and Plans Legitimacy/mission statement Source of motivation and commitment Rationale for decisions Guides to action Resource allocation Standard of performance

The Time Frame of Planning

Short-TermShort-Term

PlansPlansLong-TermLong-Term

PlansPlans

Goals and Plans

Strategic Goals Where the organization wants to be in the future.

Pertain to the organization as a whole.

Strategic Plans Action Steps. Blueprint that defines the organizational activities and

resource allocations.

Kinds of Goals By Level

Mission statement is a statement of an organization’s fundamental purpose.

Strategic goals are goals set by and for top management of the organization that address broad, general issues.

Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals.

Operational goals are set by and for lower-level managers to address issues associated with tactical goals.

Kinds of Plans Strategic Plans

A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management.

Tactical Plans A plan aimed at achieving the tactical goals set by and for

middle management.

Operational Plans Plans that have a short-term focus.

These plans are set by and for lower-level managers.

Tactical Goals and Plans

Tactical Goals

Goals that define the outcomes that major divisions and departments must achieve.

Tactical Plans

Plans designed to help execute major strategic plans.

ObjectivesTime Frame Scope

How Do Strategic and Tactical Plans Differ?

Operational Goals and Plans

Operational GoalsSpecific, measurable results expected from

departments, work groups, and individuals.

Operational Plans

Organization’s lower levels that specify action steps toward achieving operational goals.

Specific Plans

Directional Plans

Clear

General

Low

High

Flex

ibility

Ob

ject

ives

Characteristics of Effective Goal Setting

Goal Characteristics

Specific and measurable.

Cover key result areas.

Challenging but realistic.

Defined time period.

Linked to rewards.

Model of the MBO ProcessStep 1: Setting Goals Step 2: Developing Action Plans

Step 3: Reviewing Progress

Corporate Strategic Goals Departmental Goals Individual Goals

Step 4: Appraising Overall Performance

Appraise Performance

Take Corrective Action

Review Progress

Action Plans

MBO Benefits and ProblemsBenefits

Manager and employee efforts are focused on activities that will lead to goal attainment.

Performance can be improved at all company levels. Employees are motivated. Departmental and individual goals are aligned with

company goals.

MBO Benefits and Problems (contd.)

Problems Constant change prevents MBO from taking hold. An environment of poor employer-employee

relations reduces MBO effectiveness. Strategic goals may be displaced by operational

goals. Mechanistic organizations and values that

discourage participation can harm the MBO process. Too much paperwork saps MBO energy.

Single-Use vs. Standing Plans

Unique

Situations

Ongoing

Operations

Types of Operational Planning

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permission.

Kinds of Operational PlanningKinds of Operational PlanningKinds of Operational PlanningKinds of Operational Planning

Standing Plans:Standing Plans:

1.1. PoliciesPolicies

2.2. SOPsSOPs

3.3. Rules and RegulationsRules and Regulations

Standing Plans:Standing Plans:

1.1. PoliciesPolicies

2.2. SOPsSOPs

3.3. Rules and RegulationsRules and Regulations

Single-Use Plans:Single-Use Plans:

1.1. ProgramsPrograms

2.2. ProjectsProjects

Single-Use Plans:Single-Use Plans:

1.1. ProgramsPrograms

2.2. ProjectsProjects

Plans

Contingency Crisis Management

Three Stages

Prevention Preparation Containment

Contingency Planning

Contingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change.

Strategic Management

Set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

Set of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment so as to achieve organizational goals

The Strategic Management Process

Identify Strategic Factors•Strengths

•Weaknesses

Scan Internal Environment

•Core Competence

•Synergy

•Value Creation

Identify

Strategic:•Corporate

•Business

•Functional

Define New:•Mission

•Goals

•Grand Strategy

Evaluate Current:•Mission

•Goals

•Strategies

Scan External Environment•National

•Global

•Opportunities

•Threats

Identify Strategic Factors

SWOT

Implementing Strategy via Changes in:•Structure

•Human resources

•Information & control systems

Porter’s Competitive Forces

Potential new entrants

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products

Rivalry among competitors

Beware

The Five Forces Affecting Industry Competition

SOURCES: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980); and Michael E. Porter, “Strategy and the Internet,” Harvard Business Review (March, 2001), 63-78.

Competitive Strategies

1. Differentiation

2. Cost Leadership

3. Focus

A Continuum of Partnership Strategies

High

Low

Organizational

Combination

Strategic

Alliance

Degree of Collaboration

Preferred Supplier Arrangements

Strategic Business Partnering

Joint Ventures

Mergers

Acquisitions

Source: Adapted from Roberta Maynard. “Striking the Right March,” Nation’s Business (May 1996), 18-28.

Tools for Putting Strategy into Action

SOURCE: Adapted from Jay R. Galbraith and Robert K. Kazanjian, Strategy Implementation: Structure, Systems, and Process, 2d ed. (St. Paul, Minn.: West, 1986), 115. Used with permission.

The Nature of Strategic Management Strategy

A comprehensive plan for accomplishing an organization’s goals.

Strategic Management A comprehensive and ongoing management process aimed

at formulating and implementing effective strategies. A way of approaching business opportunities and challenges.

Effective Strategies Strategies that promote a superior alignment between the

organization and its environment and the achievement of its goals.

The Components of Strategy Distinctive Competence

Something an organization does exceptionally well. Scope

Range of markets in which an organization will compete.

Resource Deployment How an organization will distribute its resources

across the areas in which it competes.

Types of Strategic Alternatives Business-level Strategy

The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market.

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.

Types of Strategic Alternatives (cont’d) Strategy Formulation

The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies.

Strategy Implementation The methods by which strategies are

operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.

SWOT Analysis

Using SWOT Analysis to Formulate Strategy Evaluating Organizational Strengths

Organizational strengths Skills and abilities enabling an organization to conceive of and

implement strategies.

Distinctive competencies Strengths possessed by a small number of competitors Useful for competitive advantage and superior performance.

Sustained competitive advantage Occurs when a distinctive competence cannot be easily duplicated and

is what remains after all attempts at strategic imitations have ceased.

Using SWOT Analysis to Formulate Strategy (cont’d)

Evaluating Organizational Weaknesses Organizational weaknesses are skills and

capabilities that prevent an organization to choose and implement strategies that support its mission.

Weaknesses can be overcome by: making investments to obtain the strengths needed. modifying the organization’s mission so it can be

accomplished with the current workforce.

Using SWOT Analysis to Formulate Strategy (cont’d)

Evaluating Organizational Weaknesses (cont’d) Competitive disadvantage is a situation in which

an organization fails to implement strategies being implemented by competitors.

Using SWOT Analysis to Formulate Strategy (cont’d)

Evaluating an Organization’s Opportunities and Threats Organizational opportunities

are areas in the organization’s environment that may generate high performance.

Organizational threats are areas in the organization’s environment that make it

difficult for the organizationto achieve high performance.

Porter’s Generic Strategies Differentiation strategy

An organization seeks to distinguish itself from competitors through the quality of its products or services.

Overall cost leadership strategy An organization attempts to gain competitive advantage by

reducing its overall costs below the costs of competing firms.

Focus strategy An organization concentrates on a specific regional market,

product line, or group of buyers.

Strategies Based on the Product Life Cycle Product life cycle: a model that shows sales volume

changes over the life of products. Introduction stage: demand may be very high and

sometimes outpaces the firm’s ability to supply the product.

Growth stage: more firms begin producing the product, and sales continue to grow.

Mature stage: overall demand growth begins to slow down.

Decline stage: demand for product decreases.

Strategies Based on Product Life Cycle

Formulating Corporate-Level Strategies Strategic Business Units

Each business or group of businesses within an organization engaged in serving the same markets, customers, or products.

Diversification The number of businesses an organization is engaged in and

the extent to which these businesses are related to one another.

Single Product Strategy A strategy in which an organization manufactures one

product or service and sells it in a single geographic market.

Related Diversification Related Diversification

A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked.

Bases of Relatedness in ImplementingRelated Diversification

Related Diversification (cont’d)

Advantages of Related Diversification Reduces organization’s dependence on any one of its

business activities and thus reduces economic risk.

Reduces overhead costs associated with managing any one business through economies of scale and economies of scope.

Allows an organization to exploit its strengths and capabilities in more than one business.

Synergy exists among a set of businesses when the businesses’ value together is greater than their economic value separately.

Related Diversification (cont’d)

Advantages of Related Diversification. Synergy exists among a set of businesses when the

businesses’ value together is greater than their economic value separately.

Unrelated Diversification A strategy in which an 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.

Major Tools for Managing Diversification Portfolio management techniques

Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.

Two important portfolio management techniques The BCG (Boston Consulting Group) Matrix

The GE (General Electric) Business Screen

Managing Diversification (cont’d) BCG Matrix

A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market.

Managing Diversification (cont’d) BCG Matrix

The matrix classifies the types of businesses that a diversified organization can engage as: Dogs have small market shares and no growth

prospects.

Cash cows have large shares of mature markets.

Question marks have small market shares in quickly growing markets.

Stars have large shares of rapidly growing markets.

The BCG Matrix

Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.

Managing Diversification (cont’d) GE Business Screen

A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors: Industry attractiveness.

Competitive position (strength) of each firm in the portfolio.

In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business.

Figure 3.5The GE Business Screen

Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of

International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.