1.6 Organizational 1.6 Organizational Planning ToolsPlanning Tools

ReviewReview

Business PlanComponents:

Executive SummaryOverview of new business

Description of Business OpportunityWhat will be sold, why, and to whom

Marketing & Sales StrategyWhy will customers buy, how will sell

Management Team & PersonnelSkills of entrepreneur and themanagement team

OperationsWhere are production facilities, ITsystems

Financial ForecastsSales projections, cash flow, profits

Review

Decision Making

Intuitive decision-making◦ Using your gut instincts to make choices

Is this ever useful?

Scientific decision-making◦ Basing choices on data analysis and formal decision

making frameworks

Is this ever useful?

Review

Formal Decision Making Framework

Set ObjectivesAssess the problemGather data to analyze problemIdeas and options to considerDecision-making tools to decideActionControl & Review against companies

objectives

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Internal vs External Constraints

Internal: Your organizations structure Financial considerations Labor Attitudes of workforce – resistant or acceptance of change

External: The current business cycle (prosperity, recession, recovery

or depression) Changes in legislation

Higher Level

Planning Tools

Fishbone Diagram◦Also known as cause and effect diagram◦Also known as the Ishikawa diagram

May include the 6 M’sMethodsMachinesManpowerMaterialsMeasurementMother Nature

Higher Level

Decision Tree

Used to outline options connected with financial outcomes or economic returns

Squares indicate decisions on the tree

Circles indicates a range of outcomes from the decision

Limitations: Only as good as the accuracy of data

1.7 Growth and 1.7 Growth and EvolutionEvolution

Review

Economies of Scale◦ Purchasing economies

“bulk buying” – discounts for large orders

◦ Technical economiesProduction lines – produce products at a reduced cost because of efficiencyComputer systems – afforded by large firmsthat can absorb greater fixed costs

◦ Financial economiesBanks show preference to large corporationsLarge firms can “go public” with their stock

◦ Marketing economiesAdvertising costs for large companies can be spread over a large product line

◦ Managerial EconomiesLarge firms can higher specialists

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Diseconomies of Scale

◦Communication Problems

◦Alienation of Workforce

◦Poor Coordination and slow decision making

◦Large Scale production costs

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GrowthInternal Growth

Companies expand by creating new offices, opening new stores, growing existing business

External GrowthMerging with other firms, or acquiring other firms through purchase

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MergerWhen companies agree to combine and

operate under one board of directors with shareholders in both businesses owning the newly merged company.

TakeoverWhen a company buys over 50% of the

shares of stock to gain controlling interest

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Franchise

A business that uses the name, logo, and marketing methods of the franchiser.

Example: McDonald’s, Dairy Queen, Wendy’s, Subway

NOT: Walmart, Target, Harris Teeter

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Joint Venture

Two or more businesses agree to work closely together to further a common interest.

Costs are sharedDifferent companies have different strengthsDifferent market shares that could be combined

Example: DowCorning (Dow Chemical with Corning Glass Works)Dow Chemical combined their silicone based products with Corning Glass Works glass products.

Review

Ansoff’s Matrix

A model used to show risk with the four growth strategies

Market Penetration – higher market shares in existing market with existing products

Market Development – selling existing products in new markets

Product Development – sales of new or improved products in existing markets

Diversification – selling different or unrelated products in new markets

Higher Level

Porter’s Generic Strategies2 Categories of Strength

1 – Cost AdvantageBeing the lowest cost producer in yourindustry

2 – Product Uniqueness or DifferentiationYour product or service is uniquewhich allows you to charge a premium

FOCUS StrategyNarrow or Broad

Narrow – a small market segmentBroad – industry wide