DECISION MAKING, STRATEGIC PLANNING &

MANAGEMENT(Lec:13,14,15,16)

Asst. Prof. Management Science (USA),IMRAN HUSSAIN

Objectives

Decision making process. Foundation of Planning. Strategic Management.

Decision Making Process

• Point No. 1…

Decision Making

“The process of selecting a course of action or alternative among different alternatives”.

Types of Decisions

• Programmed decisions.• Nonprogrammed decisions.

Programmed Decisions• Type of problem:

Frequent, repetitive, routine, much certainty regarding cause and effect relationship.

• Procedure:Dependence on policies, rules, and definite procedures.

• Examples:Business, University, Healthcare.

Nonprogrammed Decisions• Type of problem:

Novel, unstructured, much uncertainty regarding cause and effect relationship.

• Procedures:Necessity for creativity, intuition, tolerance for ambiguity, creative problem solving.

• Examples:Business, University, Healthcare.

Types of Decisions

Conditions of Decision-making

• Certainty.• Risk.• Uncertainty.

Barriers to Effective Decision Making

• Psychological biases:– Illusion of control– Farming effect– Discount the future

• Time pressures:– Real time information– Involve people more effectively and

efficiently• Social realities:

Decision Making Process

1. Identifying the problem.2. Identifying decision criteria.3. Allocating weights to the criteria.4. Developing alternatives.5. Analyzing alternatives.6. Selecting an alternative.7. Implementing the alternative.8. Evaluating decision effectiveness.

Decision Making Process

ProblemIdentification

“New Supplier is required”

Identification of Decision Criteria

PriceQualityMode of paymentCredibilityLocation

Allocation ofWeights to Criteria

Quality 10Price 8Mode of Pay 5Location 4Credibility 3

Development of Alternatives

AnexHaji & sonsLinkersHassan Bro.Globe Inn

Implementationof an Alternative

Hassan Bro.Evaluationof DecisionEffectiveness

Analysis ofAlternatives

AnexHaji & sonsLinkersHassan Bro.Globe Inn

Selection of anAlternative

AnexHaji & sonsLinkersHassan Bro.Globe Inn

Foundation of Planning

• Point No. 2…

Planning

“Planning is the process of establishing goals and a

suitable course of action to achieve these goals. It

requires decision making, that is, choosing future

courses of action from alternatives.”

Planning (cont.)

• Planning is concerned with bridging the gap between where the organization is now and where it wants to be in the future.

• This involves two distinct processes measuring the current "state of play" of the organization and then predicting the future in a quantifiable way or qualifiable way.

Planning (cont.)

• The plan acts as a target to aim for and a yardstick for controlling operations - deviations from the plan give feedback signals for corrective action if necessary.

• Long term planning (forecasts) are, however, increasingly used by large companies to cover any period from five to fifteen years, depending to a certain extent on the type of industry (the oil industry for example, works on very long term plans because of the length of time needed for exploration of oil-fields and the commissioning of refineries).

Mangers and Planning

1. Strategic Planning.2. Tactical Planning.3. Operational Planning.

Mangers and Planning (cont.)

Top Level Managers

Middle Level Managers

First Line Managers

Strategic Planning

Tactical Planning

Operational Planning

Strategic Planning

Planning that apply to the entire organization, establishes the organization’s overall objectives and seek to positions an organization in terms of its environment is called strategic planning. It takes place at the highest level of the organization.

Tactical Planning

It is the technique of determining how strategic objectives will be accomplished. It is usually the job of Middle level Managers.

Operational Planning

It specifies the detail how overall objectives are to be achieved. It is typically the job of First Line Managers.

Planning-Timeframe

Long-Range Planning Intermediate Planning Short-Range Planning

Tools for Planning• Brain Storming.• Forecasting.• Breakeven Analysis.• Gantt Chart.• Program Evaluation and Review Technique

(PERT).• Critical Path Method (CPM).• Delphi Technique.

Barriers to Planning• Inappropriate Goals • Improper Reward System• Complex Environment• Resistance to Change• Constraints• Information Deficiency

Long Term Plans

• A long term plan is the only way to:1. Ensure the most efficient use of existing production

facilities.2. Enable cash resources to be planned to the best

advantage.3. Assess the capital expenditure requirements over the

period.4. Assess manpower requirements (both management

and labour) for the period so that the necessary programmers can be developed.

Long Term Plans (cont.)

5. Define the kind and size of acquisitions needed to complement the existing companies or units within a group.

6. Determine which products are declining and which are expand.

7. Assess what sort of group or company it will be in five years time.

Long Term Plans (cont.)

• The essence of these plans are: 1. A soundly based plan with defined standards of

performance (i.e. not necessarily base on the organization's previous performance) in all aspects of the business.

2. Speedy reporting, preferably monthly, so that variations in the plan are brought out as early as possible.

3. Early remedial action to rectify as far as possible divergences from the plan.

Budgetary Plans

• Budgets (plans, forecasts) are pre-determined statements of management policy during a given period which provides a standard for comparison with the results actually achieved.

• Budgetary Control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with that budgeted and acting upon results to achieve maximum profitability.

Budgetary Plans (cont.)

1. The establishment of a plan or target of performance which co-ordinates all the activities of the business.

2. The recording of actual performance.3. The comparison of the actual performance with that

planned.4. The calculation of the difference, or variances and an

analysis of the reasons for these differences.5. The action - immediately if necessary - to remedy the

situation.

Budgetary Plans (cont.)

• The objective of budgetary Control:1. Combine the ideas of all levels of management in

the preparation of the budget.2. Co-ordinate all the activities of the business.3. Centralize control.4. Decentralized responsibility on to each manager

involved.5. Act as a guide for management decisions when

unforeseeable conditions affect the budget.

Importance of Planning

• The ability to make and carry out good plans is one of the most valuable assets a manager can have. It is the first step toward easy, smooth, and certain completion of work.It makes work easier, since the people detailed to do the jobs know in advance where they are going, how they can get there, and when they should arrive. Good planning, when properly communicated to subordinates, improves working relationships and employee morale because subordinates know the overall plan as well as their place in it.

Importance of Planning (cont.)

• Good planning helps in the accomplishment of tasks by enabling subordinates to go ahead with the minimum of direction. Having knowledge of the total plan enables them to go from one stage to the next as a matter of course. In summary, by good planning:

1. Purposeful action is more readily achieved.2. Crises are anticipated and delays avoided.3. Delegation is made-easier, with less need for

direction.

Importance of Planning (cont.)

• And, above all else, sound and competent planning gets the best out of people.Brilliant people may well obtain fair results without much planning,but with it average people can be made to produce infinitely better results.

Approach to Planning

• There is no mystery about planning. It involves turning ideas into actua1ities by a series of logical THINKING steps.

1. By defining the major objectives.2. By breaking down into minor objectives.3. By allocating priorities for minor objectives.

Application to Planning

• Having considered the steps involved in planning, we now turn our attention to the way in which they should be applied. Planning must be applied downward in any organization, but with the active co-operation of subordinate staff all down the line.

• Once minor objectives have been decided at the top, they become in effect major objectives for subordinates, which they in turn will sub-divide for their own subordinates.

Application to Planning (cont.)

• It follows that every level should understand the planning approach outlined and should be able to allocate priorities and work out precise details. Only in this way can a really major objective be broken down into the mass of detailed activities which become necessary for its accomplishment.In the end, only a proper job of planning by the entire supervisory staff of an organization will ensure unified and successful action.

Planning via Use Of Time

Involving Time and Efforts

• It is therefore hardly surprising that a great deal of work goes unplanned because managers and supervisors, particularly in the lower echelons, simply do not leave themselves sufficient time to do it properly.Planning the use of time is to an important a factor to leave to chance. Some effort devoted to finding ways of controlling its use will pay dividends. This, then, is the important aspect of supervision which we shall next discuss.

Time is Spent

1. Routine work: Routine work is that which occurs repetitively and

requires little or no skill; such as making out requisitions, duty rosters, time sheets, etc.

2. Regular Work: The major portion of every day is spent doing

things which can be classed as regular work.This includes such activities as assigning jobs, carrying out inspections, writing reports, attending meetings, etc. the daily activities that are necessary to keep departments going.

Time is Spent (cont.)

3. Special Work: These special jobs are generally of an urgent nature,

and demand the flexibility to push aside routine and regular work. Finally, there is creative work, which includes any time devoted to planning.There can be no denying that this is the most important part of supervision, because it is time spent on planning which leads to lowering costs, increasing quality, improving customer service, reducing scrap, reducing waste or the frequency of accidents, or improving some aspect of the business to make it more efficient.

Time is Spent (cont.)

4. Creative Work: Yet most supervisors are so pre-occupied with

routine, regular, and special work that they are unable to find time to do creative work. Doing creative work takes time. To find this time, the supervisor or manager must learn how to get all his assigned work done in less than a full working day.

Planned Timesaving

• Further time can be saved by orderly work habits.A time saver of first importance is the practice of grouping all the items of one type of work, and accomplishing them at one time. These may include activities such as telephone calls, correspondence, personal contacts, appointments, inspections, reports, and records.

Planned Timesaving (cont.)

• Making ten telephone calls at one sitting uses a lot less time than making ten calls at different times during the day.Similarly, grouping interplant travel into single trips saves a lot of time. The aim should be to anticipate related items and, by grouping them together for attention, extend the working day through planned timesaving.

Establishing Time Budget

• Unless the supervisor established a time budget into which he schedules the time necessary for routine, regular, special, and creative work, he will never get round to any creative work. He will never have time for it. He will tend to postpone even regular and routine work in order to handle the special rush jobs. A useful approach is to keep a record of daily activities in order to get some idea of the time normally devoted to routine matters, to necessary regular work, and to special jobs. After a while, this shou1d settle down into a pattern sufficiently accurate for rough planning purposes. Based on this information, a time budget can be calculated in which the supervisor:

Establishing Time Budget (cont.)

1. Schedules routine work.2. Schedules regular work.3. Estimates for rush jobs and urgent special work.4. Leaves a margin for planning and creative work.• Planning in this way makes all the difference

between the supervisor running a job and his letting the job run him. It starts by planning the day in writing and using time to best advantage. It helps to find the time needed for creative work, in the end, which really makes the biggest contribution to the successful running of a company.

Strategic Management

• Point No. 3…

Strategy…?

• “Strategy is the direction and scope of the organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectations.”

Continued…

• “The determination of the long run goals and objectives of an enterprise, the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

Strategic Management…?

• “Strategic Management includes understanding the strategic position of an organization, strategic choices for the future and managing strategy in action.”

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Continued…

• The aim of strategy is to plan how the firm will achieve its future goals. This means having a very good understanding of:

1.The organization’s current capabilities & liabilities.

2.Searching for new market opportunities.3.Exploiting existing capabilities in quality, innovation and processes and so on.

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Continued…

4. Examining way of improving in-house capabilities.

5. Searching for partners and linking with other firms.

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Continued…

• New strategies often result from competitive threat. The new strategy must be made clear and be understood by employees, and must be supported by operations capabilities in order to work.

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Examples

• Examples…

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Honda• (Whittington, 1993, pp.69-70) When Honda was over taken by Yamaha as

Japan’s # 1 motorbike manufacturer, the company responded by declaring ‘Yamaha so tsubu su!’ (We will crush, squash and slaughter Yamaha!).

They followed a stream of no less then 81 new products in 18 months.

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APPLE

• (Financial Times, 12 November 1997) Mr. Jobs………… declared ‘war’ on Dell

Computers, one of Apple’s most successful competitors. ‘We are coming after you buddy, Mr. Jobs declared as he displayed a huge image of Michael Dell, Dell founder and chief executive, with a target superimposed on his face.

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General Motors

• Highly competitive automobile Industry• Market share eroding• Rebate strategy• Weakness in product offerings (8 brands)

Toyota (2 brands)• Long lead time to redesign• What is a sustainable market share?

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• Large profit margins ($8 billion 2004)• Asian manufacturers (LG Electronics and Royal

Philips, Sony and Samsung, and Matsushita)• North America’s Dell

Flat Panel TVs

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Examples Illustrated

• Shortage of employees often necessitates need to improve productivity.

• Increased competition (especially foreign competition) another reason why companies seek to improve their productivity.

• Improving productivity is often dependent on new technologies.

Levels of Strategy

• Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes.– includes decisions about diversification, vertical

integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units.

• Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals.

• Functional strategy... the detailed deployment of resources at the operational level.

The World’s Most Valuable Companies: Performance Under Different Profitability Measures

COMPANY MARKET CAP.

($BN.)

NET INCOME ($BN)

RETURN ON

SALES (%)

RETURN ON

EQUITY (%)

RETURN ON

ASSETS (%)

RETURN TO

SHARE-HOLDERS

(%)Exxon Mobil 372 36.1 19.9 34.9 17.8 11.7

General Electric 363 16.4 10.7 22.2 14.7 (1.5)

Microsoft 281 12.3 40.3 30.0 18.8 (0.9)

Citigroup 239 24.6 22.0 21.9 1.5 4.6

BP 233 22.3 9.9 27.9 10.7 10.2

Bank of America 212 16.5 27.0 14.1 1.2 2.4

Royal Dutch Shell 211 25.3 14.7 26.7 11.6 11.8

Wal-Mart 197 11.2 5.5 21.4 8.1 (10.3)

Toyota Motor 197 12.1 10.7 13.0 4.8 (22.1)

Gazprom 196 7.3 28.1 9.8 7.1 n.a.

HSBC 190 15.9 23.0 16.3 1.0 (11.8)

Procter & Gamble 190 8.7 17.3 13.7 6.4 7.2

Above Normal Profits (in Excess of the Competitive Level)

AvoidCompetitors

Be Better ThanCompetition

AttractiveIndustry

AttractiveNiche Cost

AdvantageDifferentiationAdvantage

AttractiveStrategic Group

Entry Barriers

Mobility Barriers

Isolating Mechanisms

Sources of Superior Performance

• Art & science of formulating, implementing, and evaluating, cross-functional decisions that enable an organization to achieve its objectives.

Strategic Management –Defined

Purpose of Strategic Management

To exploit and create new and different opportunities for tomorrow.

Strategic Management

In essence, the strategic plan is a company’s game plan.

Stages of Strategic Management

Stages of the Strategic Management Process

1. Strategy Formulation.2. Strategy Implementation.3. Strategy Evaluation.

Vision & Mission

1-Strategy Formulation

External Opportunities & Threats

Internal Strengths & Weaknesses

Long-Term Objectives

Alternative Strategies

Strategy Selection

Issues in Strategy Formulation

Businesses to enter Businesses to abandonAllocation of resourcesExpansion or diversificationInternational marketsMergers or joint venturesAvoidance of hostile takeover

2-Strategy Implementation

Annual Objectives

Policies

Employee Motivation

Resource Allocation

Strategy Implementation Steps

• Developing a strategy-supportive culture.• Creating an effective organizational structure.• Redirecting marketing efforts.• Preparing budgets.• Developing and utilizing information systems.• Linking employee compensation to

organizational performance.

Issues in Strategy Implementation

Action Stage of Strategic Management

Mobilization of employees & managers

Most difficult stage

Interpersonal skills critical

3-Strategy Evaluation

Internal Review

External Review

Performance Measurement

Corrective Action

Peter Drucker: Think through the overall mission of a business. Ask the key question:

“What is our Business?”

Prime Task of Strategic Management

The strategic management process attempts to organize quantitative and qualitative information under conditions of uncertainty.

Integrating Intuition & Analysis

Intuition is based on:– Past experiences– Judgment– Feelings

Continued…

Intuition is useful for decision making in conditions of: Great uncertainty Little precedent Highly interrelated variables Several plausible alternatives

Involve management at all levels

Intuition & Judgment

Influence all analyses

Continued…

Organizations should continually monitor internal and external events and trends so that timely changes can be made as needed.

Adapting to Change

Strategic Management

• Communication is a key to successful strategic management.

Benefits and Pitfalls of Strategic Management

Benefits of Strategic Management

Continued…

• Nonfinancial Benefits– Enhanced awareness of threats– Improved understanding of competitors’ strategies– Increased employee productivity– Reduced resistance to change– Clearer understanding of performance-reward

relationship– Enhanced problem-prevention capabilities

Why Some Firms Do No Strategic Planning

• Lack of knowledge of strategic planning• Poor reward structures• Fire fighting• Waste of time• Too expensive• Laziness• Content with success

Continued…

• Fear of failure• Overconfidence• Prior bad experience• Self-interest• Fear of the unknown• Honest difference of opinion• Suspicion

Pitfalls in Strategic Planning

Strategic planning is an involved, intricate, and complex process that takes an organization into uncharted territory.

Effective Strategic Planning is:

• A people process more than a paper process.• A learning process.• Words supported by numbers.• Simple and no routine.• Varying assignments, team membership,

meeting formats, and planning calendars.• Challenging assumptions underlying corporate

strategy.

Continued…

• Welcomes bad news.• Requires open-mindedness and a spirit of

inquiry.• Is not a bureaucratic mechanism.• Is not ritualistic or stilted.• Is not too formal, predictable, or rigid.• Does not contain jargon or arcane language.

Continued…

• Is not a formal system for control.• Does not disregard qualitative information.• Is not controlled by “technicians”.• Does not pursue too many strategies at once.• Continually strengthens the “good ethics is

good business” policy.

Comparing Business and Military Strategy

• Strategic planning started in the military.• Similarity:

– Both business and military organizations must adapt to change and constantly improve.

• Difference: – Business strategy assumes competition.– Military strategy assumes conflict.

Important Strategic Problems

Important Strategic Problems

• Decreasing profitability and low return on investment.

• Decreasing market share.• Decreasing stockholder wealth.• Deteriorating financial position.• Rising overall costs.• Growing debt and week balance sheet.

Continued…

• Deterriorating of competitive advantages.• Decreasing quality, and the loyalty of main

customers.• The growth rate lower than the industry

avarage.• Obsolate facilities and technical infrastructure.

Continued…

• Decreasing innovativity, slow product innovation

• Weakening the brand image• Lots of underutilised plant capacity• Entry a new strong competitor, or increasing

competition within the industry• Costly new regulatory requirements• Long-term shift in buyer needs

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