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.
Decision Making and the Planning Process
i:r

Behaviori,
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|\
Decision making is the cornerstone of planning. Decision making is
the catalyst that drives the planning process. An organization's goals
follow from decisions made by various managers. Likewise, deciding
on the best plan for achieving particular goals also reflects a decision
to adopt one course of action as opposed to others. Our focus here
is on the planning process itself. As keep in mind that decision
making underlies everv asoect of settins goals and formulatins
plans.

The planning process itself can best be thought of as a eeneric The mission outlines the organizations purpose, premises, values,
activitv. All orsanizations engage in plannins activities, but no two and directions. Flowing from the mission are oarallel streams of
organizations plan in exactlv the same fashion. Figure 7.1 is a general goals and plans, Directlv following the mission are strategic goals.
representation of the planning process the many organizations
attempt to follow. But, althoueh most firms follow this eeneral
framework, each also has its own nuances and variations
As Figure 7.1 I shows, all olannins occurs within an environmental
context. lf manasers do not understand this context. thev wiil be
unable to. develop effective plans. Thus, understandins the
Lovironment is essentiallv the first step in plannins

irt
*i
J --
 Figure 7 .1 The Environmental Context
Oreanizational Goals
Goals are critical to organizational effectiveness and they serve a
number of purposes in the planning process.
Purposes of Goals: Goals serve four imoortant purposes. First, they
provide suidance and a unified direction for people in the
organizatioh. The goal set for Starbucks of opening one hundred
stores per year helps everyone in the firm recognize the strong
emphasis on growth and expansion that is driving the firm. Second,
goal-setting practices stronglv affect other aspects of planning. The
success of Starbucks demonstrates how setting goals and developing
plans to reach them are complementary activities.
These goals and the mission help detqrmine strategic plan!,
Strlteqic aoals and plans are primorv inputs for developirY tactica!
aoqls. Tqcticot qools ond the orioinot strateaic- plons help shaps
tocticol plans. Toctical plans. in turn combine with the tacticol aools
to shope operotional qools. These ooals and the oppropriote tocticol
plons determine operational plons. Finollv OOOIs ond plons ot each
level con also be used os inout for future actlvities at all levels.
Third, aools can serve as o sourced of motivation to emplovees of
the organization. Goals that are specific and moderatelv difficult
can motivate people to work harder, especiallv if attaintins the
goal is likelv to result in rewards. Managers at Starbucks see the
firm's growth goals as a hurdle to reach, but, based on recent
experience, are likely to see this hurdle as something they can
surpass. Finallv, goals provide an effective mechanism for
evaluation and control. this means that performance in the future
can be assessed in terms of how successfullv todav's qoals are
accomplished. Thus, if mangers at Starbucks do not meet their
growth goals, attention can be focused on how to meet them in
the future.
EIIllF!*

Kinds of Goals:
Organizations establish many different kinds of goals. ln general, these
poals varv bv level, area. and time frame. Figure 7.2 provides examples of
each type of goal for a fast-food chain.
Level: Goals are set for and by different levels within an organization. As
we noted earlier, the four bosic levels of ooals are the mission qnd
stroteqic. tdctical, and ooerational aools. An oreanizations mission is a
statement of its 'fundamental. unique purpose that sets a business apart
from other firms of its tvpe and identifies the scope of the business,s !*'.a d.@nh'6!48 rrrnrd rEs hnkhd!!.!n6Edrqnn
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operations in product and market terms," For instance, Starbuck, mission
r&a.e a...n .u6.r $i! , dh r.dr sb .tu& mr ,roEed

statement is to be "the premier purveyor of the finest coffee in the world

while maintaining our uncompromising principles while we grow." The
principles referred to in the mission statement include the following:
.tov.br.d d.le...0p& sidh d.y.,

Area Organizations also set eoals for different areas. The restaurant
chain shown in Figure 7.2 has goals for operations, marketing, and
finance. Hewlett-Packard (HP) routinely sets production goals. for
quality, productivity, and so forth. By keeping activities focused on these
important areas, HP has managed to remain competitive agai
organizations from around the world. Human resource goals might
set for employee turnover and absenteeism. 3M and Rubbermaid set
goals for product innovation. Similarly, Bath & Body Works has a goal
that 30 percent of the products sold in its retail outlets each year will be
new. ln addition to its profit growth goals, Starbucks also has financial
goals related to return on investment and return on assets, human
resource goals related to employee retention, and marketing goals
related to market share and market penetration.
Time Frame Organizations also set goals across different time
frames. ln Figure 7.2 three goals are listed at the strategic, tactical,
and operational levels. The first is a long,term qoal; second an
intermediate-term soal, and the third a short-term qoal. Some goals
have an exolicit time frame (ooen 150 new restaurants during the
next ten vears), and others have an open-ended time horizon
(maintain 10 percent annual growth). Finallv, we should also note
that the meanins of different time frames varies bv level. For
example. ot the strateoic level, lona term often meons ten veors or
lonqer. intermediote term around five veors or so. ond short term
oround on vear But two or three vears mov be lonq term ot the

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 purpose' Kinds of Plans
Mission: A statement of an organization's fundamental general
Ocr"i.rti"* establish many different kinds of plans' At q
ffi"i. eorlr: Goals set by and for top management of the plans'
leg-al, these include strategic, tactical, and operational
organization.
ialiical eoats: Goals set by and for middle managers of the Strategic Plans:

organization. of resource allocation oriotiti"s. and ,ction

oo'erational Goals: Goals set by and for lower-level
managers of the iliiiffi-fEirioni p/ons ore ser bv the
iteps necessarv to reach stratesic soals' Ihese
organization.
boord of directors and top manoqement' aenerallv hove
on

ddrd tir" horiron. ond oddr"tt ,u"ttiont of t'oo"' r"ou"e

6G*L *^r"titiu" oduonto'" o'd t'n"'ou' we discuss

strategic plans in the next major section'

Time Frames for Planning

Long-Range Plans: A plan that covers many
years' perhaps'even
ractical Plans: A tactical pla!. aim.ed ;at 1!!i!Yi!t;l1ctF:];;f;a5:i: for five years or more'
d"."d"t; ."rmon long-range plans are
lntermediate olan: A plan that generally covers from one to five
years.
year
ihort-nange plans: A plan that generally covers a span of one
ffiilftilgr;d" tnrn *ith d".idine *hrt t9 do. we describe tactical of less.
pt"nnittg the discussion of strategic planning' -a,--, Action Plan: A plan used to operationalize any other kind of
plan'
"tt",Plans: An operational plan focus.eF on carrving qut ^^
bperat'ronal
taclical
D.r.lored bvriddl. ord lrv..l
ffi. or"r.fifr eoals. lowe.r
Reaction Plan: A plan developed ts react to on unforeseen
ffi o thort-t".r^ forrt ond or" r"lotiv"lu
circumstance.
;;;;;;;;e. Eoch one d;ots with o foirtv s-moll set of octivities' we
d',r."t plans in the last section of this chapter'
"p*rtional

Contingencv planning: The determination of alternative courses of
action to be tdken if an intended plan is unexoectedlv disrupted or
rendered inappropriate.
Crisis Management: The set of procedures the organization uses in
the event of a disaster or other unexpected calamity
Responsibilities for Plannine
Planning Staff, Planning Task Force, Board of Directors, Chief
Executive Officer, Executive Committee and Line Management.
The Limited, a large clothing chain, stresses its distinctive
competence of speed in moving inventory. lt tracks consumer
preferences daily with point-of-sale computers, electronically
transmits orders to suppliers in Hong Kong, charters 747s to fly
products to the United States, and has products in stores forty-
eight hours later. Since other retailers take weeks or sometimes
months to accomplish the same things. The Limited relies on this
distincti,ve competence to stay ahead of its competition. The
i scope of .a strategy specifies the range of markets in which an
organization will compete.
The Nature of Strategic Management
A strateRv is a comprehensive plan for accomplishins an
organization's goals. Strateaic manaoement, in turn, is o wav of
approochinq business opportunities and challenoes-it is a
comorehensive and onqoinq monooement process oimed at
formulotinq ond implementina effective strateoies.
The Components of Stratesy
ln general, a well:conceived strategy addresses three areas:
distinctive competence. scope. and resource deplovment. A
distinctive competence is something the orAanization does
exceptionallv well.
The scooe of a strateqv specifies the ranse of markets in which an
oreanization will comoete
Herchey Foods has essentially restricted its scope to the confectionery
business, with a few related activities in other food processing areas such
as pasta, ln contrast. its biggest competitor, Mars. has adopted.a broader
scope bv competins in the pet-food business and the electronics industry
among others. Some orqanizations. called conslomemtes, compete in
dozens or even hundreds of markets. A strategv should also include an
outline of the orqanization's proiected resource deplovment-how it
will distribute its resources across the areas in which it competes.
Disney, for example, is currently using some of the profits it
generates form successful movies and theme park operations to fund
new start-up businesses in book publishing and music recording.
20
Tvoes of Strateeic Alternatives: Most businesses today
also

a"rr.fop ttotegies at two distinct levels' These levels

provide a rich Dellberate Stratesv: A plan of action that. an o?ganization
The two .hoot"t and implements to support specific g::'t'
combination of strategic alternatives for organizations' '
general levels are business-level strategies and corporate-level
Emersent stratesv: A pattern of action that develops over time
in
strategies.
on *f-i.rtion in the absence of mission and goals or despite
* Business-level strategv: The set of strate8ic alternatives from mission and goals.
*fri.t * organization chooses as it conducts business in a
particular industrY or market
.3.coroorate-level strateev: The set of strategic alternatives from
*fri.f, * organization chooses as it manages its operations
simultaneously across several industries and several markets'

USING SWOT ANALYSIS TO FORMULATE STRATEGY

Stratecv Formulation and lmolementation: Stratesv formulation'

is

the set of processes involved in creatins or determinine the

IEesG gf the orsanization. whereas stratesv implementation is

ry
ffi strategies are tpetati.nilized or execrted

S.od SE ql..
fro* lh.t.uppofr lh mitdonnd
1.
2.
Ev.lu.te.nd erploit oppodonltier.nd smnllha
il.dr.liu. Src.B.
* Oreanizational Strenqths: Skills and capabilities that enable
an organization to conceive and implement its strategies-
Formulation Business-Level StrateEies
* Oreanizatlonal weaknesses: Skills and capabilities that do
not enable an organization to choose and implement strategies A number of frameworks have'been developed for identifying
that support its mission. the major strategic alternatives that organizations should
consider when choosing their business-level strategies. Two
* Orsanizational opoortunities: Areas in the environment important classification schemes are Porter's generic
that, if exploited, may generate high performance. strategies, and strategies based on the product life cycle.
.3. Oreanizational threat: An area in the environment that
increases the difficulty of an organization's achieving high
performance.

Porter's Generic Strateeies

.3. Differentiation Strateev: The strategy pursued by
organization that seeks to distinguish itself from competitors
through the quality of its products or services.
.!. Overall cost leadership: The strategy implemented by an
organization that attempts to gain a competitive advantage by
reducing its costs below the costs of competing firms.
{. Focus strateev: The strategv pursued bv an organization that
concentrates on a specific reqional market, product line, or group
The Miles and Snow Tvpology
an
Defender Strategv:A strategy in which the firm focuses on
lowering costs and improving the performance of current
products.
Analvzer Strategv: A strategy in which the firm attempts to
maintain its current businesses and to be somewhat innovative
in new businesses.
Reactor Strategv: A strategy in which a firm has no consistent
approach to strategy.

.:-l
 ptggggtllgg:!9 ffiulatine Corporate-level Strateeies
strrt"gi"t Based on the
Strategic Business Unit(SBU): A single business or
portrovs bow soles volume for * set of
ffi;a;Ghot businesses within a larger organization' . '
products chanaes over the life of products: n

.E lntroduction stage: The stage in the product life cycle in which .3.Diversification: Refers to the number of different businesses
in which an organization is engaged and the extent to
which
that product. these businesses are related to one another'
cYcle in which more
* Ciowth stage: The stage in the produce life
€.Related Diversification: The strategy pursued by an
; M"t.r* .t"g"ftt" ,t.F-in tft" product life cycle in which overall that
to slow down and the number of new firms organization that operates in several businesses are
demand erowth beeins
the product begins to decline' somehow linked with one another'
producing
.:. Oectine stage: The stagle in the product life cycle in which demond
decreoses, the number of organizations producing the product
and total sales droP.

.!.Unrelated diversification: Strategy pursued by an organization that

to one another'
operates several businesses that are not related Manaeine Diversifi cation
H"*"*t * organization implements diversification' it must
Sinele-Product Stratew just one
ffiy an organization that manufactures
proar., or seirice and sells it in a single geographic market'
.S.Synergy: Exists among a set of businesses when their economic
separatelv'
value to;;ther is greater than their economic value

8
 BCG Matrix: The BCG (for Boston Consultins
Froup) matrix Dividing market growth and market share into two categories (low
provides a framework for evaluatine the relative perfoimance and high) creates the simple matrix shown in Figure below:
of businessee in which a diversified oreanization operates. !!
also prescribes the preferred distribution of cash and other
resources among these businesses. The BCG matrix uses two Stars Question marks
factors to evaluate an organization's set of business: !@
growth rate of a particular market and the oreanization's share
of that market. The matrix suggests that fast-growing markets Cash cows Dogs
in which an organization has the highest market share are
more attractive business opportunities than slow-growing
markets in which an organization has small market share.

The matrix classifies the types of businesses that a diversified
organization can engage in as dogs, cash cows, question marks
and stars. Dogs are businesses that have a verv small share of a
market that is not expected to grow. Since these businesses do
not hold much economic promise, the BCG matrix suggests
that organizations either should not invest in them or should
consider selline them as soon as possible. Cash cows are
businesses that have a large of a market that is not expected to
grow substantiallv. These businesses characteristicallv seneiate
high profits that the orsanization should use to support
- question marks and stars.
(Cash cows are "milked" for cash to support businesses in markets that
have greater growth potential.) Question marks are businesses that have
onlv a small share of a quicklv growing market. The future performance
of these businesses is uncertain. A question mark that is able to capture
increasing amounts of this erowing market mav be verv profitable. On
the other hand. a question mark unable to keep up with market srowth
is likelv to have low profits. The BCG matrix suggests that orsanizations
should carefullv invest in question marks. lf their performance does not
live up to expectations, question marks should be reclassified as dogs
and divested. Stars are businesses that have the larsest share of a
rapidlv srowine market.' Cash eenerated bv cash cows should be
invested in sta6 to ensure their pre-eminent position.
 \,

Any Questions!!

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