Mod-2

The process of establishing goals and a suitable course of action for achieving those goals. It requires decision making

Close Relationship of Planning and Controlling

Steps in Planning
1

Being aware of opportunities Establishing objectives or goals Developing premises

Determining alternative courses

Evaluating alternative courses Selecting a course Formulating derivative plans Quantifying plans by budgeting

Objectives

Objectives are the important ends toward which

organizational directed

and

individual

activities

are

An objective is verifiable (provable) when at the

end of the period one can determine whether or not the objective has been achieved

The Nature of Objectives

Hierarchy of objectives Key Results Areas: Areas in which performance is essential for success e.g. service & quality. Setting objectives and the organizational hierarchy Multiplicity of objectives

Hierarchy

Management by Objectives (MBO)

Management by Objectives (MBO): This

approach is proposed by Peter Drucker in his book The Practice of Management. MBO refers to a formal set of procedures that begins with goal setting and continues through performance review. MBO goes beyond setting annual objectives for organizational units to setting performance goals for individual employee

What Is Management by Objectives?

Organizational Objectives

Divisional Objectives
Departmental Objectives Individual Objectives

Elements of MBO system

Commitment to the Program

Top-Level goal setting

Individual goals Participation

Autonomy in implementation of plans

Performance review

Benefits of MBO
Motivate. Improve managing through results-oriented

planning. Clarify organizational roles, structures, and the delegation of authority. Encourage commitment to their personal and organizational goals.

Failures of Management by Objectives

Failure to teach the philosophy of MBO Failure to give guidelines to goal setters Overuse of quantitative goals Encourage individual rather than team efforts

 Evaluation of MBO: The success of MBO program depends upon three key concepts- Specific goal setting, feedback on performance and participation.
In

summary, MBO has been widely used for performance appraisal &employee motivation, but it is really a system of managing.

Strategies, Policies & Planning Premises

Strategy: The broad program for defining & achieving an organizations objectives; the organizations response to its environment over time.
Policies: General statements or understandings that guide managers thinking in decision making.

Strategic Management

The management process that involves an organizations engaging in strategic planning & then acting on those plans.

Strategic Management Process

Goal setting
Strategy formulation Administration (individual reactions) Strategic control( feedback)

Levels of strategy
Corporate level strategy: strategy formulated by top management to oversee the interests & operations of multiline corporations
The major questions at this level are:

1.What kind of businesses should the Company be engaged in ? 2. What are the goals and expectations for each business? 3.How should resources be allocated to reach these goals?

 Business unit strategy is formulated to meet the

goals of a particular business, also called line-ofbusiness strategy The major questions at this level are: 1.How will the business compete within its market? 2.What products/services should it offer? 3. Which customers does it seek to serve? 4. How well resources be distributed within the business?
Functional level strategies create a framework for

managers in each function-such as marketing or production to carry out business-unit strategies and corporate strategies.

The Strategic Planning Process

The Corporate Portfolio Approach

In this approach, top management evaluates

each of the corporations various business units with respect to the market place. an appropriate strategic role is developed for each unit with the goal of improving the overall performance of the Organization.

When all business units have been evaluated,

The corporate portfolio approach is rational

and analytical, is guided primarily by market opportunities, and tends to be initiated and controlled by top management only

 Portfolio framework advocated by Boston

Consulting Group known as BCG Matrix is one of the best examples of corporate portfolio approach.

The BCG

approach focuses on three aspects of each business unit: its sales, the growth of the market, and whether it absorbs or produces cash in its operations.

The BCG Matrix

 Stars= (high growth, high market share)

Use large amounts of cash & are leaders in the

market so they should also generate large amounts of cash. Attempt should be made to hold share, bcos the rewards will be Cash Cow if market share is kept & when growth rate declines.
Cash Cow=( low growth rate , high market share) Profits & cash generation should be high, bcos

of low growth investments needed are less, & high profit margins. Foundations of the company

 Dogs=(low growth, low market share)

Avoid & minimize the number of dogs in the

Company Neither generate nor consume large amounts of cash Liquidate (shut down) / divest ( separate )
Question Marks=(high growth rate , low market

share) Have the worst cash characteristics of all, bcos high demands & low returns due to low market share If nothing is done to change the market share, it

Limitations of the BCG Matrix

Some limitations of the Boston Consulting Group Matrix include: High market share is not the only success factor. Market growth is not the only indicator for attractiveness of a market. Sometimes Dogs can earn even more cash as Cash Cows. The problems of getting data on the market share and market growth. There is no clear definition of what constitutes a "market". A high market share does not necessarily lead to profitability all the time.

MATRIX of MARUTI SUZUKI

STAR: The Company has long run opportunity for

growth and profitability. They have high relative market share and high Growth rate. SWIFT, SWIFT DESIRE AND ZEN ESTILO is the fast growing and has potential to gain substantial profit in the market.
QUESTION MARK: there are also called as wild cats

that are new products with potential for success but there cash needs are high And cash generation is low. In auto industry of MARUTI SX4, GRAND VITARA, ASTAR there has been improve the organization reputation As they want successful not only in Indian market but as well as in global market.

 CASH COW: It has high relative market share but

compete in low growth rate as they generate cash in excess of their needs. MARUTI 800, ALTO AND WAGONR have fallen to ladder 3 & 4 due to introduction of ZEN ESTALIO and A STAR.

DOG: The dogs have no market share and do not

have potential to bring in much cash. BALENO, OMINI, VERSA There business have liquidated and trim down thus The strategies adopted are that are harvest, divest and drop.

Five forces of Corporate Strategy

Five forces of Corporate Strategy:
This

approach to corporate strategy is designed by Michel Porter known as Porters five forces model.

In porters view, an organizations ability to

compete in a given market is determined by the organizations technical and economic resources, as well as by five environmental forces, each of which threatens the organizations venture in to new market.

Porters 5 force model

 Porter explains that there are five forces that

determine industry attractiveness and longrun industry profitability. These five "competitive forces" are - The threat of entry of new competitors (new entrants) - The threat of substitutes - The bargaining power of buyers - The bargaining power of suppliers - The degree of rivalry between existing competitors

Threat of New Entrants New entrants to an industry can raise the level of competition. The threat of new entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very easy to enter (e.g. estate agency, restaurants). Key barriers to entry include - Economies of scale ( mass production to reduce cost) - Capital / investment requirements - Customer switching costs - Access to industry distribution channels

Easy to Enter if there is:

Difficult to Enter if there is:

Common technology
Little brand franchise Access to distribution channels Easy to Exit if there are: Saleable assets Low exit costs Independent businesses

Patented or proprietary know-how

Difficulty in brand switching Restricted distribution channels Difficult to Exit if there are: Specialized assets High exit costs Interrelated businesses

Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. The threat of substitute products depends on: - Buyers' willingness to substitute - The relative price and performance of substitutes

Bargaining Power of Suppliers

Suppliers are involved in the businesses that

supply materials & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company's profitability. The bargaining power of suppliers will be high when: - There are many buyers and few dominant suppliers - There are undifferentiated, highly valued products - Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers threatening to set up their own retail outlets)

Bargaining Power of Buyers

Buyers are the people / organizations who

create demand in an industry

The bargaining power of buyers is greater

when - There are few dominant buyers and many sellers in the industry - The industry is not a key supplying group for buyers

Intensity of Rivalry
The intensity of rivalry between competitors in an

industry will depend on: The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader Degree of differentiation - industries where products are commodities (e.g. steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is a significant cost associated with the decision to buy a product from an alternative supplier Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing down factories) - then competitors tend to exhibit greater rivalry

Determining A Generic Strategies Business-Level Strategy

Cost Leadership

Differentiation

Focus

Industry Force

Generic Strategies

Cost Leadership
Ability to cut price in retaliation deters potential entrants.

Differentiation

Focus
Focusing develops core competencies that can act as an entry barrier.

Entry Barriers

Customer loyalty can discourage potential entrants.

Buyer Power

Ability to offer lower price to powerful buyers.

Large buyers have less power to negotiate because of few close alternatives.

Large buyers have less power to negotiate because of few alternatives. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Specialized products & core competency protect against substitutes.

Supplier Power

Better insulated from powerful suppliers. Can use low price to defend against substitutes.

Better able to pass on supplier price increases to customers.

Threat of Substitutes

Customer's become attached to differentiating attributes ( quality), reducing threat of substitutes.

Rivalry

Better able to compete on price.

Brand loyalty to keep customers from rivals.

Rivals cannot meet Differentiation - focused customer needs.

SWOT Analysis

SWOT Analysis

Decision Making Process

Definition:
The process of identifying and selecting a course of action to solve a specific problem.

Factors that go in to decision making:

Time and human relationships are crucial elements in

the process of decision-making. Decision making connects the organizations present circumstances in to actions that will take organization in to future.

 Decision making also draws on the past, past

experiences-positive and negative- play a big part in determining choices managers see as feasible or desirable. A manager does not make decisions in isolation. Decision making is a process that managers conduct in relationship with other decision makers.

Some thoughts on decision-making:

1.Decision-making deals with problem. 2.Problem is a situation that occurs when an actual state of affairs differs from a desired state of affairs. 3. In many cases, a problem may be an opportunity in disguise. 4. Problem-finding process is often informal and intuitive.

Problem Finding Process

1 2 3 4

A deviation from past experience A deviation from a set plan

Other people
The performance of competitors

 Problem finding is not always straightforward.

Common errors managers are making in sensing

problems are:
> False association of events.( main frame computers) > False expectation of events. > False Self perceptions. > Social image.

It is not always clear whether a situation faced by a

manager presents a problem or an opportunity. Problem is something that endangers organizations ability to reach its objectives.

the

Opportunity Finding
Opportunity is a situation that occurs when circumstances offer an organization chance to exceed stated goals and objectives. A dialectical inquiry method sometimes called devils advocate method is useful in problem solving and opportunity finding. A method of analysis in which a decision maker determines & negates his/ her assumptions & then creates counter solutions based on negative assumptions.

The nature of managerial decision making

Programmed decision making Non Programmed decision making
Certainty(assurance)

Types of decision making

Risk

Uncertainty

 Programmed decisions provide solution to routine

problems which is determined by rule, procedure or habit.( limits the freedom) E.g. Tata has closed its 2 units
Non

programmed decisions provide specific solutions created through an unstructured process to deal with non routine problems. E.g. layoff in Jet Airways
Most of the significant problems a manager will

face usually require non programmed decisions.

 Certainty: Decision making condition in which

managers have accurate, measurable, reliable information about outcome of various alternatives under consideration.

Risk: Decision making condition in which managers

know the probability a given alternative will lead to desired goal or outcome.

Uncertainty: Decision making condition in which

managers face unpredictable external conditions or lack of information needed to establish the probability of certain events
Probability is a statistical measure of the chance a

certain event or outcome will occur.

The rational (balanced) model of decision making

The Managers who weigh their options and

calculate optimal level of risk are using the rational model of decision making.
Rational model of decision making is a four step

process that helps managers weigh alternatives and choose the alternative with best chance of success.
This model is useful in making non programmed

decisions.

Rational Decision Making Process

Define the problem Diagnose the causes Identify the Decision objectives

Investigat e the situation

Develop alternativ e
Evaluate alternatives and select the best one available

Seek creative alternativ es Do not evaluate

Implement Plan Monitor and make necessary adjustments

Impleme nt and Monitor

Evaluate alternativ es Select best alternativ