Planning And Why It’s So Important

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And Why It’s So ImportantPlanning

And Why It’s So Important

8-2© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Critical ThinkingCritical Thinking

Critical thinking is the key planning skill and planning is the foundation upon which any business – large or small – is built.

If you cannot think critically, you will not be effective in any aspect of business that involves planning.


Critical Thinking and PlanningCritical Thinking and Planning

Critical thinkers are skeptical of obvious, easy assumptions. They are conscientious and thorough. They ask many questions and ”learn the territory.” And they look for “root” causes before attempting to solve a problem.


Importance of Thorough Preparation and Knowing the Territory

Importance of Thorough Preparation and Knowing the Territory

Battle of Islandahlwana (1879)4,000 crack British troops armed with

ignorance, arrogance and rifles against 22,000 Zulu warriors armed with courage, spears and cowhide shields

Spare ammunition packed in tin-lined, steel- strapped cases requiring a special tool to open

Thousand-yard rifles against spears and shields. Who won?


OOPS!OOPS!

> Someone lost most of the tools

> British couldn’t get enough ammunition quickly enough

> They were outmaneuvered and slaughtered


Avoiding OopsAvoiding Oops

Always over - prepareNever under - estimate

Know the territory


GeniusGenius

“The secret of genius is an infinite capacity for taking pains.”

Knute Rockne


OverviewOverview

“Planning keeps you on your feet when life pulls the rug out from under them.”

Olson


OverviewOverview

How planning can partially predict the future and provide flexibility to capture it

The steps of the planning processThe basics of SWOT analysisThe basics of PDCAHow a focus just on continually improving

operational efficiency and effectiveness can contribute to failure (Example: Dell)


OverviewOverview

The difference among corporate, business and functional-level strategies

How strategy implementation can determine your ability to achieve the organization’s mission and goals

The vital importance of Core Ideology, corporate culture and BHAGs in creating sustainable competitive advantage (the ultimate goal of all business strategy)


The Root Objective of PlanningThe Root Objective of Planning

All business planning begins with four questions:(1) What is my product or service?(2) Who will buy it?(3) What do they want in the product and the sales

and service processes?(4) How can we satisfy them in ways that will

separate us from competitors, capture customer loyalty, make money and build sustainable competitive advantage?


The Nature of the Planning ProcessThe Nature of the Planning Process

Planning Identifying and selecting appropriate goals

and detailed courses of actionStrategy

The cluster of decisions and actions managers make and take to help an organization reach its goals (the roadmap)


But First Comes Core IdeologyBut First Comes Core Ideology

Core Ideology1) Core Values (What do we hold most

dear?)2) Core Purpose (Why do we exist?) These two comprise corporate DNA

which, like a star on the horizon, is an unchanging guide that determines direction


Thoughts About Core IdeologyThoughts About Core Ideology

Need not be obvious: Nike is the Greek goddess of victory. The campus of her corporate namesake says “we live to compete”

A clear and passionate statement of corporate ideology can be useful in recruiting the best and brightest. “The best (urgent heart) people are volunteers who can work anywhere.” Peter Drucker


Core IdeologyCore Ideology

Aimed primarily in not out. Its primary purpose is to inspire employees, not to differentiate the company from competitors.

Successful companies (J&J, GE, Toyota) often follow a stakeholder, not a shareholder, philosophy and have among their core values making a useful contribution to society.

For them “maximizing shareholder wealth” is not a core value.


These Concepts Follow Core IdeologyThese Concepts Follow Core Ideology

Vision (Where are we going?)Strategy (How do we plan to get there?)Tactics (roles, resources and

responsibilities)

The above (which move from general to specific) can and should evolve with the changing outside environment


Strategy According to Michael PorterStrategy According to Michael Porter

Harvard’s ever-eloquent Michael Porter says strategy is a unique vision and a set of complementary activities combined to create sustainable competitive advantage.

Unique vision differentiates the company; interlinked, complementary activities based on inherent corporate strengths are difficult for competitors to copy – avoiding the competitive convergence resulting from benchmarking.

WHAT DO THESE FANCY WORDS MEAN?


Other Porter Thoughts On StrategyOther Porter Thoughts On Strategy

Without a unique controlling strategy, continuous improvement of operational effectiveness and efficiency produces competitive convergence, product commoditization, price erosion, and mutually assured destruction (unless one of the players is much better at it than the others)

Customers love it, but the companies eventually starve.


The Nature of the Planning ProcessThe Nature of the Planning Process

Mission StatementA broad declaration that captures, crystallizes and communicates corporate purpose in order to energize employees and distinguish the company from competitors

A VERBAL BANNER


Most Mission Statements are BSMost Mission Statements are BS

Too long; all things to all people; read as though written by a committee of lawyers

Do not:

(1) direct and motivate employees

(2) differentiate from competitors


Mission StatementsMission Statements

Cisco

Cisco solutions provide competitive advantage to our customers through more efficient and timely exchange of information, which in turn leads to cost savings, process efficiencies, and closer relationships with customers, prospects, business partners, suppliers and employees.


Mission StatementMission Statement

Wal-Mart

We work for you. We think of ourselves as buyers for our customers, and we apply our considerable strengths to get the best value for you. We’ve built Wal-Mart by acting on behalf of our customers, and that concept continues to propel us. We’re working hard to make our customers’ shopping easy.


Mission StatementMission Statement

AT&T

We are dedicated to being the world’s best at bringing people together – giving them easy access to each other and to the information and services they want and need – anytime, anywhere.


Simplified Mission StatementsSimplified Mission Statements

(1) Cisco: We build customers’ competitive edge by equipping them to share information more efficiently and effectively.

(2) Wal-Mart: We help people live every day better by offering top value at low prices.

(3) AT&T: The best at bringing people together.

IF YOU CAN’T SAY IT SIMPLY, DON’T BOTHER!


Planning Process StagesPlanning Process StagesDetermine the organization’s mission and goals.Look in-look out; analyze your company and the

outside environment (SWOT), then formulate a strategy to achieve the mission and goals.

Implement the strategy by assigning Responsibility, allocating Resources and demanding Results (the three “R’s”).

Continuously improve – Plan Do Check Act (PDCA).Occasionally energize, stretch and grow the

organization’s capabilities with a BHAG.Don’t hesitate when an opportunity arises.


Big Hairy Audacious Goal (BHAG)Big Hairy Audacious Goal (BHAG)

A BHAG is a long-term (10-30 year) goal that can be achieved only if an organization builds new, stronger capabilities. BHAGs force management to be visionary – rather than just strategic and tactical -- and force an organization to gulp for air and run faster.


BHAGBHAG

“I will build a motor car for the great multitude…It will be priced so low that any man making a good salary will be able to afford it…When I’m through, everybody will have one, the horse will have disappeared from our highways, the automobile will be taken for granted, and a large number of men will be employed at good wages.”

Henry Ford when he founded Ford Motor Company


BHAGBHAG

“I want twice the fuel economy of a comparable internal-combustion-engine car.”

Toyota Chairman Hiroshi Okuda as he unexpectedly doubled the fuel-efficiency goal from a 50% improvement in the middle of the Prius development program. You can bet this BHAG caused the engineers to take a big gulp of air.


Levels of PlanningLevels of Planning

A WATERFALLCorporate-Level Plan

Top management’s decisions pertaining to the organization’s vision, values, mission, overall strategy, and structure. Provides a framework for all other planning.

Corporate-Level Strategy A plan that indicates in which industries and

markets and how an organization intends to compete.



Business-Level Plan: Divisional managers’ decisions pertaining to

division’s long-term goals, overall strategy, and structure (Lexus, Toyota, Scion). Identifies how the business will meet corporate goals.

Business-Level Strategy A plan that indicates how a division intends to

compete against its rivals in an industry Shows how the business will compete in market.



Functional-Level Plan Functional managers’ decisions pertaining

to the goals they propose to pursue to help the division attain its business-level goals.

Functional Strategy A plan that indicates how a department

intends to achieve its goals.


LINKAGELINKAGE

Corporate, business and functional planning all has to be tightly linked to produce unity of focus and purpose throughout the organization (Fayol).

Everyone pulling on the same rope in the same direction.


Time Horizons of PlansTime Horizons of Plans

Time Horizon 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 cycle to amend plans frequently. Flexibility is key!


Why Planning Is ImportantThe Planning Loop

Why Planning Is ImportantThe Planning Loop

Planning ascertains where the organization is now and envisions where it will be in the future – Where do we want to go, when will we get there, what will we look like then? Ownership: all managers are involved in setting

future goals. Unity of Purpose: a single road map so that

everyone understands the organization’s goals and their role in achieving them.


Why Plan?Why Plan?

“Chance favors only the prepared mind.”

Louis Pasteur


Scenario PlanningScenario Planning

Bracketing or the “What-if” game Multiple forecasts of potential future

situations followed by analysis of how to effectively respond to each.

Trying to predict the unknowable with multiple possible “futures”.

Best-case, likely-case, worst-case.


Key Toyota Planning and Operational Procedures

Key Toyota Planning and Operational Procedures

1. Infect everyone with the corporate DNA (vision and values).

2. Determine, define, refine Mission, Goals and Strategy (MGS) based on SWOT analysis fully grounded in the marketplace (genchi-genbutsu).

3. Communicate MGS to organization (top-down)4. Require organization to respond with comments

on MGS and suggested tactics, timetables and resource estimates in order to harvest best ideas and build ownership (bottom-up).


Toyota Procedures…Toyota Procedures…

5. Bracket (best, likely, worst-case scenarios) to provide on-the-shelf capability for dealing with rapid change; worst-case scenario should be the perfect storm; never over-extend by implementing the best-case scenario.

6. Finalize and implement by assigning Responsibility, allocating Resources, and demanding Results (the three Rs).

7. Establish KPIs (Key Performance Indicators) to monitor and measure performance.


Toyota Procedures…Toyota Procedures…

8. Recognize and reward good results (you get what you reward).

9. Compare results with targets, improve the process and re-implement (use PDCA to achieve continuous improvement); learn from mistakes.

10. Use zero-based budgeting to harvest cost savings to re-invest in plant, product and process.

11. Occasionally use a BHAG to stretch the organization and build new competitive capabilities.


Formulating Corporate-Level Strategies

Formulating Corporate-Level Strategies

Concentration in a Single Business Can become a strong competitor, but can be risky.

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. Unrelated diversification is entry into industries

unrelated to current business. Attempts to build a portfolio of unrelated firms to reduce

risk of single industry (GE); difficult to manage.


International ExpansionInternational Expansion

Basic Question: How much do we customize products and

marketing for different national conditions? Customization eats up product-development funds, decreases economy of scale and drives up costs.

Global strategy Selling the same standard product and using the

same basic marketing approach in all countries. Lowers production cost. But ignores national differences local competitors can use

to take your customers.



Multi-domestic Strategy Customize products and marketing

strategies to specific national conditions.Helps gain local market share.Raises production costs.Toyota does this to a

degree.


How To GrowHow To Grow

Q. How do you grow into a multi-national, then an international and finally a global company?

A. By balancing cost against control, risk and opportunity.



Exporting – making products at home and selling them abroad

Importing – selling products made abroad at home



Licensing – allowing a foreign organization to manufacture and distribute your product in its country in return for a negotiated fee – can put your technology at risk (China)

Franchising – selling a foreign organization the right to use your brand name and operating know-how in return for a lump-sum payment and a share of future profits – can put your reputation at risk



Strategic alliance – managers pool resources with those of a foreign company – GM/Toyota technology sharing

Joint venture – strategic alliance between companies that agree to jointly establish and share the ownership of a new business -- NUMMI



Wholly Owned Foreign Subsidiary – managers invest in establishing production operations in a foreign country independent of any local direct involvement

Example: Toyota’s North American operations


Vertical IntegrationVertical Integration

A strategy that allows an organization to create value by producing its inputs or distributing its outputs: buy suppliers and/or distributors.

A fully integrated firm risks bearing the full costs of an industry-wide slowdown.


Formulating Business-Level Strategies


Low-Cost Strategy (Cheaper – start here) Driving the organization’s total costs below

the total costs of rivals can allow you to sell for less and still be profitable

Differentiation (Better – finish here) Offering products different and better-

equipped than those of competitors can allow you to charge more.




“Stuck in the Middle” Attempting to simultaneously pursue both a

low-cost strategy and a differentiation strategy.

Difficult to achieve low-cost with the added costs of differentiation.

But Toyota does, using savings to feed differentiation – Lexus, Scion, hybrids, etc.


Sustainable Competitive AdvantageSustainable Competitive Advantage

The ultimate goal of all business planning: long-term high performance from an internal set of skills competitors find difficult to copy

Produced by climbing an endless range of mountains (BHAGs) chasing a star (CORE IDEOLOGY) you never reach.

Example:

“The endless pursuit of perfection” Lexus

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Planning And Why It’s So Important