Strategic Management

Chapter 9

Planning Tools and Techniques

Techniques for assessing the environment

Environmental scanning

Managers in both small and large organisations use environmental scanning

o Environmental scanning = the screening of large amounts of information to anticipate and interpret changes in the environment

Reveals issues in that affect an organisation’s current or planned activities

Competitor Intelligence

Competitor intelligence = environmental scanning activity that seeks to identify who an organisation’s competitors are, what they are doing and how their activities will affect the organisation.

80% of what managers need to know about competitors can be found out from their own employees, suppliers and customers

Reverse engineering – purchasing competitor products and having engineers study them

Global scanning

The value of global scanning is dependant on the extent of the organisation’s global activities

Managers need to globalise their perspectives and information sources.o E.g. use electronic sources that provide information in global areas

of interest

Forecasting

Forecasts= predictions of outcomes

Forecasting techniques

2 categories: o Quantitative forecasting= forecasting that applies a set of

mathematical rules to a series of past data to predict outcomes Time-series analysis – fits a trend line to a mathematical

equation and projects into the future by means of this equation

Regression models – predicts one variable on the basis of known other variables

Econometric models – uses a set of regression equations to simulate segments of the economy

Economic indicators – uses one or more economic indicators to predict future state of the economy

Substitution effect - uses a mathematical formula to predict how, when and under what circumstances a new product or technology will replace and existing one

o Qualitative forecasting = forecasting that uses the judgement and opinions of knowledgeable individuals to predict outcomes

(Used when precise data are limited or hard to obtain)

Jury of opinion – combines and averages the opinions of others

Sales-force composition – combines estimates from field sales personnel of customers’ expected purchases

Customer evaluation – combines estimates from established purchases

Forecasting effectiveness

The goal of forecasting is to provide managers with information that will facilitate decision making

There is mixed success with forecasting as it is not always accurate They are most accurate when the environment is not rapidly changing Improving forecasting effectiveness

o Use simple forecasting methodso Compare every forecast with ‘no change’ forecast (which is

accurate approx. half the time)o Use rolling forecasts to look 12-18 months ahead rather than static

forecastso Do not rely on a single forecasting methodo Do not assume that turning points in a trend have been accurately

identifiedo Shorten the length of forecasts to improve accuracy

Benchmarking

Benchmarking = the search for the best practices among competitors or non-competitors that led to their superior performance

Managers can improve quality by analysing and copying the methods of market leaders

Four steps to benchmarking:1. Form a benchmark planning team – what is to be benchmarked,

identify comparative organisations, determine data collection methods

2. Gather internal and external data3. Analyse data to identify performance gaps – determine the cause

of difference4. Prepare and implement action plan

Getting information from other organisations Use network of customers, suppliers and employees Trade associations and industry experts Use the internet Developing partnerships with other organisations Swap because you have complimentary needs

Improving benchmarking efforts…

Techniques for allocating resources

Before managers can organise and lead they must have resources Resources = the assets of the organisation, including financial, physical,

human, intangible and structural/cultural factors Four techniques:

o Budgetingo Schedulingo Breakeven analysiso Linear Programming

Budgeting

Budget = a numerical plan for allocating resources to specific activities Applicable to a wide variety of organisations and work activities within

organisations Forces financial discipline and structure throughout the organisation Improving budgeting

o Be flexibleo Goals should drive budgetso Coordinate budgeting throughout the organisationo Use budgeting/planning software where appropriateo Remember that budgets are toolso Remember that profits result from smart management not because

you budgeted for them

Scheduling

Scheduling = detailing the activities that have to be done, the order in which they are completed, who is to each one and when they are to be completed

Scheduling devices:o Gantt Chartso Load chartso PERT network analysis

Gantt charts = a scheduling chart developed by Henry Gantt that show actual and planned output over a period of time

o A bar graph on which the horizontal bars show planned and actual output over time

o Allows you to see deviations from the plan

Load charts – a modified Gantt chart that schedules capacity by entire department or specific resource

PERT Network Analysis

Used for planning a large project such as departmental reorganisation, the implementation of cost-reduction program, or the development of a new product

PERT Network = a flow-chart-like diagram showing the sequence of activities needed to complete a project, and the time or costs associated with each.

Must think about- What has to be done- Determine which events depend on one another- Identify potential trouble spots

Makes it easy to compare the effects that alternative actions might have on scheduling and costs

Any delays along the critical path may delay the completion of the whole project

Constructing a PERT Analysis- Events = end points that represent the completion of major

activities in a PERT network- Activities – the time resources needed to progress from one event

to another in a PERT network- Slack time = the amount of time an individual activity can be

delayed without delaying the whole project- Critical path = the longest sequence of events and activities in a

PERT network Steps in developing a PERT network

1. Identify every significant activity that must be achieved for a project to be completed – accomplishment of activity results in events or outcomes

2. Determine the order in which these events must be completed

3. Diagram the flow of activities from start to finish, identifying each activity and its relationship to all other activities – use circles to indicate events and arrows to represent activities

4. Calculate a time estimate for completing each activity –

5. Determine a schedule for the start and finish dates of each activity and the entire project

Breakeven Analysis

Breakeven analysis = a technique for identifying the point at which total revenue is sufficient to cover total costs

A simple calculation- (P) = unit price of product- (VC) = variable cost per unit- (TFC) = Total Fixed costs

Linear Programming

Linear programming = a mathematical technique that solves resource allocation problems

For linear programming to be used there must be:- Limited resources- The goal must be outcome optimisation- Must be alternative ways of combining resources to produce a

number of output mixes- There must be a linear relationship between the variables

Problems that can be solved by linear programming- Selecting transportation routes that minimise shipping costs- Making the optimal assignment of people to projects- Determining the production of products with limited resources

Contemporary Planning Techniques

Planning in a dynamic and complex environment requires 3 techniques- Project management- Scenario planning- Environmental impact assessment

Project Management

Project = a one-time-only set of activities that has a definite beginning and ending point in time

Project management = the task of getting the project’s activities done on time, within budget and according to specification

Fits well with the need for flexibility Project Management Process

1. Define objectives2. Identify activities and resources3. Establish sequences – Gantt, load, PERT4. Estimate time for activities5. Determine project completion date6. Compare with objectives7. Determine additional resource requirements

The role of project manager- The temporary nature of projects means that it has to be done in

one-shot- Managing people who are still inked to their permanent work

areas- Only real influence can have is persuasive and communication

skills- Have to compete with other projects for worker’s attention

Scenario Planning

Scenario = a consistent view of what the future is likely to be Can also be described as contingency planning Not to predict the future, but reduce uncertainty by playing out potential

situations under different specified conditions It is difficult to forecast random events Preparing for unexpected events

- Identify potential unexpected events- Determine if any of these events would have early indicators- Set up an information-gathering system to identify early indicators- Have appropriate responses (plans) in place in these unexpected

events occur

Environmental Impact Assessment

Environmental Impact Statement (EIS) – a document prepared to assess the potential adverse and beneficial environmental, economic and social impacts of a project

Usually required by the government to measure the side effects on the environment

- Carbon footprint = a measure of the impact human activities have on the environment in terms of the amount of greenhouse gases produced, measured in units of carbon dioxide

The purpose of an EIA:

If a company uses a lot of travel could undertake carbon offset activities- Carbon offset = a activity that mitigates – ‘offsets’ – greenhouse gas

emissions, usually by paying for other activities that absorb CO2 or replace greenhouse gas-emitting activities

May also be required to trade in carbon credits- Carbon credits = part of a tradable permit scheme. They provide a

way to reduce greenhouse gas emissions by giving them monetary value