SBS FY 2023-2025

UNIT 2

Planning

FOM 101 - PGDM 2023 - Prof Sudhanshu Bhatt © Pearson Education

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Limited
Learning Outcomes
• Discuss the nature and purposes of planning.
• Explain what managers do in the strategic
management process.
• Compare and contrast approaches to goal setting
and planning.
• Discuss contemporary issues in planning.

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Discuss the nature and
purposes of planning.

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What is Planning?
• Planning is deciding on the organization’s objectives or goals
and getting the job done by establishing an overall strategy for
achieving those goals and developing a comprehensive
hierarchy of plans to integrate and coordinate activities.
• Planning can be informal or formal. Smaller businesses often
use informal planning where little is verbalized or written
down and the planning is general and lacks continuity.
• Formal planning, however, defines specific goals that are to
be met in a specific time period. They are written down and
made available to organization members. Then managers
develop specific plans that clearly define what the
organization will do to move from where it is to where it
wants to be.

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 Why Should Managers Plan ?
1. Planning establishes coordinated effort. It gives direction to
both managers and nonmanagerial employees so each knows
what he or she must contribute— individually and as a group
—to reach the organization’s goals. Planning stimulates intra-
and inter-department coordination of activities, which
fosters teamwork and cooperation.
2. Planning reduces uncertainty. It forces managers to look
ahead, anticipate change, consider the impact of change, and
develop appropriate responses. It also clarifies the
consequences of the actions managers might take in
response to change.
3. Planning reduces overlapping and wasteful activities.
Coordination before the fact is likely to uncover waste and
redundancy.
4. Finally, planning establishes the goals or standards that
facilitate managerial control to ensure that the plans are
carried out and the goals are met.
Reasons for Planning

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Criticisms of Formal Planning
• May create rigidity.
• Can’t replace intuition and creativity.
• Focuses attention on today’s success, not
tomorrow’s survival.
• Reinforces success, which may lead to failure.

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Formal Planning and Organizational
Performance
Does it pay to plan?
• First, the data generally support the position that
organizations should have formal plans and that these plans
generally translate into higher profits, higher return on
assets, and other positive financial results.

• Second, the quality of the planning process and appropriate

implementation of the plan probably contribute more to high
performance than the extent of planning does.

• Finally, in organizations in which formal planning did not lead

to higher performance, the constraints of the environment—
such as governmental regulations and unforeseen economic
challenges—reduced the impact of planning on the
organization’s performance.
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Explain what managers
do in the strategic
management process.

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Some Groundbreaking headlies
• Swedish furniture giant IKEA Group says it’s planning to set up
25 stores in India in coming years, a move made possible by a
change in Indian government policy that says some retailers
can now own 100 percent of their Indian units.

• Airbus, a unit of European Aeronautics & Space Co. plans to

build a $600 million factory in Alabama—its first in the United
States.

• In a fierce battle over tablet computers, Apple announced

that it’s building a miniature iPad to rival Amazon’s Kindle Fire,
Google’s Nexus 7, and Barnes & Noble’s Nook Color. The race
to build book-size tablets is driven by consumer desire for
greater portability.
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Why strategic management is imp?
Strategic management is important to avoid weakening one’s
position due to poor economic conditions and myriad external
and interval variables.

1. It can make a difference in how well an organization performs.

Research has found a generally positive relationship between
strategic planning and performance.
2. It prepares managers in organizations of all types and sizes to
cope with continually changing situations and to examine
relevant factors in planning future actions.
3. Each part of an organization needs to work together to
achieve the organization’s goals; strategic management helps
accomplish this.
For example, with more than 2.1 million employees worldwide working in
various departments, functional areas, and stores, Walmart uses strategic
management to help coordinate and focus employees’ efforts on what’s most
important.
Scope of Strategic Management
Strategic management isn’t just for business organizations.

Organizations such as government agencies, hospitals,

educational institutions, and social agencies also need strategic
management.

For example, the skyrocketing costs of a college education, competition from

for-profit companies offering alternative educational environments, cuts to
state budgets, and cutbacks in federal aid for students and research have led
many university administrators to assess their colleges’ aspirations and
identify a market niche in which they can survive and prosper.
The Strategic Management
Process
1. Strategy planning
2. Implementation, and
3. Evaluation

Even the best strategies fail if management

doesn’t implement or evaluate them
properly.
6 Steps of Strategic Management
Process

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Step 1: Mission, Goals & Strategies
Identifying the organization’s current mission, goals, and
strategies.

• The mission is a statement of the organization’s purpose.

• Defining the mission forces managers to identify what the
organization is in business to do.
• For instance, the mission of Avon is “To be the company that
best understands and satisfies the product, service, and self-
fulfillment needs of women on a global level.” The mission of
the National Heart Foundation of Australia is to “reduce
suffering and death from heart, stroke, and blood vessel
disease in Australia.”
Step 1: Mission, Goals & Strategies

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STEP 2: Conduct external analysis
1. Know what the competition is doing, how pending legislation
might affect the organization, and how stable the local labor
supply is in locations where it operates.
2. Examine all components of the environment—that is,
economic, demographic, political/legal, sociocultural,
technological, and global—to see the trends and changes.
3. Pinpoint opportunities that the organization can exploit and
threats that it must counteract.
STEP 3: Conduct Internal Analysis
It provides critical information about an organization’s specific
resources and capabilities.
1. An organization’s resources are its assets—financial, physical,
human, and intangible—that it uses to develop,
manufacture, and deliver products to its customers.
2. In comparison to assets, its capabilities are its skills and
abilities in doing the work activities needed in its business.
The major value-creating capabilities of the organization are
known as its core competencies.
Both resources and core competencies determine the
organization’s competitive weapons.
External and Internal Analyses
Step 2: External Step 3: Internal
Analysis Analysis
•Competition •Resources
•Components of •Capabilities
environment •Core competencies
•Threats and •Organizational
opportunities strengths and
weaknesses

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SWOT Analysis
After completing an internal analysis, managers should be able
to identify organizational strengths and weaknesses. Any
activities the organization does well or any unique resources that
it has are called strengths.
Weaknesses are activities the organization doesn’t do well or
resources it needs but doesn’t possess.
The combined external and internal analyses are called the
SWOT analysis because, together, they are an analysis of the
organization’s strengths, weaknesses, opportunities, and threats.

After completing the SWOT analysis, managers are ready to

formulate appropriate strategies that:
(1) Exploit an organization’s strengths and external
opportunities, and
(2) Buffer or protect the organization from external threats.
The Strategy Loop
• STEP 4 is formulating strategies. As managers formulate
strategies, they should consider the realities of the external
environment and their available resources and capabilities to
design strategies that will help their organization achieve its
goals. Managers typically formulate three main types of
strategies: corporate, business, and functional. We’ll describe
each shortly.
• STEP 5 involves implementing strategies. Once strategies are
formulated, they must be implemented. No matter how
effectively an organization has planned its strategies,
performance will suffer if the strategies aren’t implemented
properly.
• STEP 6 is evaluating results. This is the final step in the
strategic management process, where managers ask, “How
effective have the strategies been at helping the organization
reach its goals? What adjustments are necessary?”
Formulating, Implementing, and
Evaluating Results
Step 4: Step 6: Evaluating
Formulating Strategies Results
•Corporate •How effective have
•Business strategies been?
•Functional •What adjustments are
necessary?
Step 5:
Implementing
Strategies
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Strategies Managers Use

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Corp-level Strategies
• A corporate strategy is an organizational strategy that
specifies what businesses a company is in—or wants to be in
—and what it wants to do with those businesses.

• The second part of corporate strategy is when top managers

decide what to do with those businesses.

• The three main types of corporate strategies are growth,

stability, and renewal.
Concentration
• Tesla: Tesla has focused on concentrating its efforts on the
electric vehicle market. It has invested heavily in research and
development, and it has built its own factories to produce its
vehicles. This concentration strategy has helped Tesla to
become the leading electric vehicle company in the world.
• Amazon: Amazon has focused on concentrating its efforts on
the online retail market. It has expanded its product selection
and its geographic reach. It has also invested heavily in
logistics and fulfillment. This concentration strategy has
helped Amazon to become the largest online retailer in the
world.
Vertical integration (Backward,
Forward)
• Apple: Apple has integrated vertically both backwards and
forwards. It designs and develops its own hardware and
software, and it operates its own retail stores. This vertical
integration has given Apple a high degree of control over its
supply chain and its customer experience.
• Walmart: Walmart has integrated vertically backwards into
the grocery supply chain. It owns and operates its own farms
and food processing facilities. This vertical integration has
helped Walmart to reduce its costs and to improve the quality
of its fresh food products.
Horizontal integration
• Facebook: Facebook has acquired a number of its
competitors, including WhatsApp and Instagram. This
horizontal integration has given Facebook a dominant position
in the social media market.
• ExxonMobil: ExxonMobil was formed by the merger of Exxon
and Mobil in 1999. This horizontal integration created one of
the largest oil and gas companies in the world.
Diversification (Related,
Unrelated)
• Related diversification: Amazon has diversified into related
businesses, such as cloud computing, streaming video, and
advertising. This related diversification has helped Amazon to
grow its revenue and to reach new customers.
• Unrelated diversification: Berkshire Hathaway is a
conglomerate that owns a wide range of businesses, including
insurance, railroads, and manufacturing. This unrelated
diversification has given Berkshire Hathaway a high degree of
diversification and has helped it to reduce its risk.
Stability and Renewal Strategies
Stability strategy: Renewal strategy:
Organization continues Organization addresses
to do what it’s doing declining organizational
performance
• Retrenchment
• Turnaround

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Strategies Managers Use

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Competitive Strategy
• A competitive strategy is a strategy for how an organization
will compete in its business especially in its primary market.
• For organizations in multiple businesses, each business has its
own competitive strategy that defines its competitive
advantage, the products or services it will offer, the customers
it wants to reach, and so on.
• When an organization engages in several different businesses,
those single businesses that are independent and formulate
their own competitive strategies are often called strategic
business units (SBUs).

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Competitive Advantage
What sets an organization apart; its distinctive
edge that comes from its core competencies and
resources.

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Competitive Strategy
Developing an effective competitive strategy requires an
understanding of the organization’s competitive advantage,
which is whatever sets it apart from the competition. That
distinctive edge comes from the organization’s core
competencies. Competitive advantage also can come from the
company’s resources—something that the organization has that
its competitors don’t.

1. Cost leadership strategy

2. Differentiation strategy.
3. Focus strategy—(Niche)
4. Stuck in the middle

Use strategic management to get a sustainable competitive

advantage.
Cost leadership strategy
• Walmart is known for its cost leadership strategy. It offers its
customers low prices on a wide range of products. Walmart
achieves its cost leadership by negotiating low prices with
suppliers, by operating efficiently, and by passing on savings
to its customers.
• Ryanair is a low-cost airline that uses a cost leadership
strategy. It offers its customers low fares by keeping its costs
low. Ryanair does this by flying to smaller airports, by charging
for checked bags, and by offering a limited range of services.
Differentiation strategy
• Apple is known for its differentiation strategy. It offers its
customers innovative products and services that are difficult
to replicate. Apple achieves its differentiation strategy by
investing heavily in research and development, and by
designing its products to be user-friendly and aesthetically
pleasing.
• Tesla is another company that uses a differentiation strategy.
It offers its customers electric vehicles that are more
advanced and stylish than those offered by its competitors.
Tesla achieves its differentiation strategy by investing heavily
in research and development, and by designing its vehicles to
be both high-performance and environmentally friendly.
Focus strategy—(Niche)
• Costco is a warehouse club that uses a cost focus strategy. It
offers its members low prices on a wide range of products.
Costco achieves its cost focus strategy by operating efficiently,
by buying in bulk, and by passing on savings to its members.
• Dollar Tree is a discount store that uses a cost focus strategy.
It offers its customers a wide range of products for $1 or less.
Dollar Tree achieves its cost focus strategy by sourcing
products from low-cost suppliers, and by operating efficiently.
Stuck in the middle
Companies that are stuck in the middle are those that do not
have a clear cost leadership or differentiation strategy. They
often find themselves struggling to compete with companies
that have a clear competitive advantage.

1. JCPenney is a department store that has been struggling to

compete with Walmart on price and with Macy's on fashion.
2. Sears is another department store that has been struggling
to compete. It has been closing stores and selling off assets in
an attempt to turn around its business.

Companies that are stuck in the middle can try to move out of
this position by developing a clear cost leadership or
differentiation strategy.
Strategies Managers Use

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Functional Strategy
Those strategies used by an organization’s various
functional departments to support the
competitive strategy.

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6 Strategic Weapons
1. Customer service
2. Employee skills & loyalty
3. Innovation
4. Quality
5. Social media
6. Big data

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Strategic Weapons (cont.)
5. Social Media 6. Big Data
•Help people connect Translate business
•Reduce costs and/or knowledge into
increase revenue. improved decision
making and
performance.

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Compare and contrast
approaches to goal
setting and planning.

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Management by Objectives
• Instead of using traditional goal setting, many organizations
use management by objectives (MBO), a process of setting
mutually agreed-upon goals and using those goals to evaluate
employee performance.
• A manager using this approach would sit down with each
member of his or her team to set goals and periodically
review whether progress is being made toward achieving
those goals.

1. Goal specificity
2. Participative decision making
3. Explicit time period
4. Performance feedback
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Well-Written Goals

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6 Steps in Goal-Setting
1. Review the organization’s mission and
employees’ key job tasks.
2. Evaluate available resources.
3. Determine the goals individually or with input
from others.
4. Make sure goals are well-written and
communicate to all who need to know.
5. Build in feedback mechanisms to assess goal
progress.
6. Link rewards to goal attainment.
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Plans and its 4 types
Managers need plans to help them clarify and specify how
goals will be met.

1. Breadth involves strategic plans, which are those that apply

to an entire organization and encompass the organization’s
overall goals, versus tactical plans (also referred to as
operational plans), which specify the details of how the
overall goals are to be achieved.
2. Time frame refers to the number of months or years used to
define short-term and long-term plans.
Plans and its 4 types
3. Specificity refers to whether a plan is specific or more general.
Due to current environmental uncertainty, managers must be
flexible in responding to unexpected changes, so they’re more
likely to use directional plans that set general guidelines.
Managers who engages in planning must weigh the flexibility of
directional plans against the clarity that specific plans offer.
4. Frequency of use describes whether plans are ongoing or
used only once. Standing plans are ongoing plans that provide
guidance for activities performed repeatedly, whereas single-use
plans are one-time plans specifically designed to meet the needs
of a unique situation.
Types of Plans

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Contingency factors affecting Plan
Development
1. Organizational level
2. Degree of environmental uncertainty, and
3. Length of future commitments.

• For the most part, lower-level managers do operational (or

tactical) planning while upper-level managers do strategic
planning.
• The second contingency factor is environmental uncertainty.
When uncertainty is high, plans should be specific but flexible.
Managers must be prepared to change or amend plans as
they’re implemented.
• The third contingency factor relates to the time frame of plans.
The commitment concept says that plans should extend far
enough to meet commitments made when the plans were
developed. But planning for too long or too short a time period
is inefficient and ineffective.
Developing Plans

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