Ba 3

Unit 3 Corporate Strategy and Planning

What is corporate planning???  Corporate planning is defined by Drucker as ‘a

continuous process of making entrepreneurial decisions systematically and with the best possible knowledge of their futurity, organizing systematically the effort needed to carry out these decisions and measuring the results against expectations through organized systematic feedback’ The reasons stated for the induction of corporate planning were:  Effective diversification  Rational allocation of resources  Improved co-ordination and anticipation of technology change  Increased profitability and rate of growth

 Corporate planning involves more than long-

range planning and should adopt a more systematic and integrated approach to all the organization’s activities.  Corporate planning is simply a formal, logical method of running a business, which is comprehensive, embracing all activities of an organization. Individual are responsible for planned results. Corporate planning is a tool of management to guide the business towards its agreed goals.

Business Strategy

Corporate Culture

Corporate Culture  The beliefs and values shared by people who work

in an organisation – – – –

How people behave with each other How people behave with customers/clients How people view their relationship with stakeholders People’s responses to energy use, community involvement, absence, work ethic, etc. – How the organisation behaves to its employees – training, professional development, etc.

Corporate Culture May be driven by: Vision – where the organisation wants to go in the future Mission Statement – summary of the beliefs of the organisation and where it is now

Corporate Culture  May be reflected in: – Attitude and behaviour of the leadership – Attitude to the role of individuals in the workplace – open plan offices, team based working, etc. – Logo of the organisation – The image it presents to the outside world – Its attitude to change

Strategic Planning

Strategic Planning The Vision – Communicating to all staff where the organisation is going and where it intends to be in the future – Allows the firm to set goals

Aims and Objectives: – Aims – long term target – Objectives – the way in which you are going to achieve the aim

Strategic Planning  Example:  Aim may be for a chocolate manufacturer to break

into new overseas market  Objectives: – – – –

Develop relationships with overseas suppliers Identify network of retail outlets Conduct market research to identify consumer needs Find location for overseas sales team HQ

Analysis

SWOT  Strengths – identifying existing organisational

strengths  Weaknesses – identifying existing organisational weaknesses  Opportunities – what market opportunities might there be for the organisation to exploit?  Threats – where might the threats to the future success come from?

PEST  Political: local, national and international political

developments – how will they affect the organisation and in what way/s?  Economic: what are the main economic issues – both nationally and internationally – that might affect the organisation?  Social: what are the developing social trends that may impact on how the organisation operates and what will they mean for future planning?  Technological: changing technology can impact on competitive advantage very quickly!

Evaluation

Evaluation  Data from sales,

profit, etc. used to evaluate the progress and success of the strategy and to inform of changes to the strategy in the light of that data Information from a wide variety of sources

can help to measure and inform the impact and direction of the strategy. Copyright: Mad7986, http://www.sxc.hu

Types of Strategy

Types of Strategy  Competitive Advantage – something which

gives the organisation some advantage over its rivals  Cost advantage – A strategy to seek out and secure a cost advantage of some kind - lower average costs, lower labour costs, etc.

Types of Strategy Market Dominance:  Achieved through: – Internal growth – Acquisitions – mergers and takeovers

New product development: to keep ahead of rivals and set the pace

Contraction/Expansion – focus on what you are good at (core competencies) or seek to expand into a range of markets?

Examples: Core Purposes

3M: to solve unsolved problems innovatively Hewlett-Packard: to make technical contributions for the advancement and welfare of humanity Mary Kay Cosmetics: opportunity to women

to

give

unlimited

Nike: to experience the emotion of competition, winning, and crushing the competition Walt Disney: to make people happy

Examples: Vivid Description Sony: We will create products that become pervasive around the world…We will be the first Japanese company to go into the U.S. market and distribute directly…We will succeed with innovations that U.S. companies have failed at - such as transistor radio…50 years from now our brand name will be as well known as any in the world…and will signify innovation and quality that rival most innovative companies anywhere…’Made in Japan’ will mean something fine, not something shoddy. 

Examples: Missions Microsoft: A computer on every desktop Saturn: The mission of Saturn is to market vehicles developed and manufactured in the United States that are world leaders in quality and customer satisfaction through the integration or people, technology, and business systems and to transfer knowledge, technology and experience throughout General Motors”. Chevrolet: Manufactirug safe and reliable economy cars, sports cars, sedans and trucks.  Electronic Data Systems: Designing & operating information systems for both public and private organisations

Culture, Leaders, Strategy These can support or hinder strategy b Culture e

a d

c

Leadership Strategy

There is a complex interaction between culture, leadership & strategy: •Culture affects how leaders will lead (a) •Leaders can have a hand in shaping culture (b) •Culture can have a direct impact on the type of strategies leaders choose now (c) •Culture can have an indirect impact on the strategies chosen through historical patterns (d) •Strategy can have a hand in shaping future culture (e)

What is forecasting???  Economic forecasting is basic to planning.

Forecasting precedes the preparation of a budget and is concerned with probable events. A newer development is econometric forecasting

Predicting current and future market trends

using existing data and facts. Analysts rely on technical and fundamental statistics to predict the directions of the economy, stock market and individual securities.

LEARNING OBJECTIVES The process of forecasting helps an organization make decisions; it is necessary for determining information about future markets. This chapter should help you understand:

 The importance of forecasting in a firm’s marketing decision support system.  The uses and different categories of sales forecasts.  The two forecasting methods – survey and mathematical – and their different uses.  That the responsibility for approving the final forecast rests at the top management level.  The need for knowledge of computers, because they are used

USES OF SALES FORECASTS A sales forecast is the estimated dollar or unit sales for a specific future time period based on a proposed marketing plan and an assumed market environment.

A sales forecast is important for at least five reasons: 1. A sales forecast becomes a basis for setting and maintaining a production schedule – manufacturing. 2. It determines the quantity and timing of needs for labor, equipment, tools, parts, and raw materials – purchasing, personnel. 3. It influences the amount of borrowed capital needed to finance the production and the necessary cash flow to operate the business – controller. 4. It provides a basis for sales quota assignments to various segments of the sales force – sales management. 5. It is the overall base that determines the company’s business and marketing plans, which are further broken down into specific goals – marketing officer.

FIGURE 5.1 PLANNING/FORECASTING/BUDGETING SEQUENCE

M a r k e tin g P la n

S a le s F o r e c a s ts

S a le s F o r c e B u d g e t

FIGURE 5.2 THE FORECASTING PROCESS

F o r eca s t O b j ect i v e

D e t er m i n e D e p en d e n t a n d I n d e p en d e n t V a r i a b l es

D ev el o p F o r eca s t P r o ced u r e

S el ect F o r eca s t A n a l y s i s M et h o d

E v a l u a t e R es u l t s v er s u s F o r eca s t

M a k e a n d F in a liz e F o r eca s t

T o t a l F o r eca s t P r o ced u r e P r es en t A s s u m p t i o n s a b ou t D a ta

G a t h er a n d A n a l y z e D a ta

FIGURE 5.3 BASIC STEPS IN BREAKDOWN METHOD OF FORECASTING SALES

G e n e r a l E n v ir o n m e n t F o r e c a s t I n d u str y S ales F o r ec ast C o m p a n y S a le s P o te n tia l C o m p a n y S a le s F o r e c a s t P r o d u c t L in e s I n d iv id u a l P r o d u c ts C u s t o m e r s - T e r r i t o r i e s - R e g i o n s - D i v i s i o n s - U .S .A .- W o r l d

fo r

SALES FORECASTING METHODS Two categories of sales forecasting methods exist: • Survey methods are qualitative and include executive opinion, sales force composite, and customer’s intention surveys. • Mathematical methods are test markets, market factors, naïve models, trend analysis, and correlation analysis.

FIGURE 5.4 THE MORE POPULAR OF MANY FORECASTING METHODS

S u r v e y M e th o d s

E x e c u tiv e O p in io n

U s e r ’s E x p e c ta tio n

S ale s F o r c e C o m p o s ite

M a th e m a tic al M e th o d s

T est M ark et

B u ild - to O rd er

N a iv e M o v in g A v erag e

R e g r e ssio n T ren d E x p o n e n tial S m o o th in g

SURVEY FORECASTING METHODS Four basic survey methods are • Executive Opinion • Sales Force Composite • User’s Expectations • Build-to-Order

Executive Opinion Executive forecasting is done in two ways: 1. By one seasoned individual (usually in a small company). 2. By a group of individuals, sometimes called a “jury of executive opinion.”

The group approach uses two methods: 1. Key executives submit the independent estimates without discussion, and these are averaged into one forecast by the chief executive. 2. The group meets, each person presents separate estimates, differences are resolved, and a consensus is reached.

Delphi Method Administering a series of questionnaires to panels of experts. Delphi technique is a procedure for arriving at a consensus of opinion among a group of experts, who are given a detailed questionnaire about a problem. They give written options. Everyone reads the opinions of others and can revise their own ideas.

MATHEMATICAL FORECASTING METHODS Test markets are a popular method of measuring consumer acceptance of new products.

Time Series Projections Time series methods use chronologically ordered raw data.

Classical approach to time series analysis: • The trend component. • The seasonal component. • The cyclical component. • The erratic component.

Naïve Method

Next Year’s Sales = This Year’s Sales X

This Year’s Sales Last Year’s Sales

Moving Average Moving averages are used to allow for marketplace factors changing at different rates and at different times.

Exponential Smoothing Exponential smoothing is similar to the movingaverage forecasting method. It allows consideration of all past data, but less weight is placed on data as it ages. Next Year’s Sales = a (This Year’s Sales) + (1-a) (This Year’s Forecast)

Regression Analysis Regression analysis is a statistical method used to incorporate independent factors that are thought to influence sales into the forecasting procedure.

Forecasting methods  Time series analysis

It is a procedure which identifies information which forms patterns over a period of time. A projection is made by extrapolating form past experience. Trends for the past years are noted and projected into the future.  Qualitative methods This technique may be used when past data are not reliable, or perhaps non-existent. Qualitative methods used to forecast technology are: Brainstorming usually involves conducting a group on a problem, and any idea is welcomed, however strange. This technique is used more frequently in developing creative ideas for new products and solutions to complex problems. Scenario construction is a method used to make long-range forecasts. It is a logical description of events.

BUDGETS SHOULD BE FLEXIBLE Sales, costs, prices, or the competition’s marketing efforts are some factors that may be higher or lower than expected.

Quantitative and Qualitative Factors in Decision Making

Quantitative Factors

Qualitative Factors

Qualitative Factors Qualitative factors look to take account of

these other issues that may influence the outcome of a decision Can be wide ranging and especially need to consider the impact on human resources and their response to decisions

Decision Making  Eventual decision may rest on the balance

between the perceived effects of quantitative and qualitative  If the long term effect on the workforce for example was to reduce productivity or increase absence because of the impact on motivation and morale, the fact that a decision makes financial sense may be shelved!  Qualitative by its nature, therefore, is very subjective

Types of decisions::::::

 Drucker

distinguishes

between

‘tactical’

and

‘strategic’

decisions.  ‘Tactical’ decisions are routine, usually contain few alternatives and relate to the economic use of resources.  ‘Strategic’ decisions are made by management and involve ‘either finding out what the situation is, or changing it; either finding out what the resources are, or what they should be’.  Other classifications include a division between organizational and personal decisions:  Organizational decisions are those made in the role of an official of the company and reflect company policy.  Personal decisions refer to those made by a manager as an individual and cannot be delegated.  Another classification is between basic and routine decisions:  Basic decisions are long-range in scope, e.g. the location of factory in a Development Area, or deciding what product to make. Wrong decisions on these matters can be costly  Routine decisions are those which are made repetitively a need

The process of decision making: Define the problem to be solved Find alternative solutions Analyze and compare these alternatives Select the plan to be followed nothing

relevant factors Make the decision effective-by taking action to put the decision into effect

Primary and secondary data  Primary data is collected by or on behalf of persons who hope to make use of it.  Secondary data is derived from the processing or publicizing of primary data. This is why it is important to know how data has been collected and processed, how far it is a summary and how accurate it is, before one can appreciate its reliability and full meaning.

Charts and graphs  Charts and graphs are a pictorial way of presenting data. Computer software packages enable these to be produced very easily. They can be grouped under four headings:  Pictorial charts, e.g. pie charts and pictograms  Block charts, e.g. bar charts, histograms or Gantt charts  Graphs, e.g. line graphs and cumulative percentage frequency curves  Distribution graphs, e.g. those plotted with the frequency of occurrence of data on the vertical axis.

Pictorial charts

These are helpful in presenting technical data to managers and others.

Pictograms

These show information in a picture form by representing fixed groups of units by a symbol. Symbol of the same size represents specific amounts.

Pie charts

These show the breakdown of total into its component parts. The components are shown as percentage ‘parts’ or ‘slices of a circle. This is very effective methods of dealing with information concerned with one period of time.

Decision tree This is a procedure for ensuring that alternatives are considered at every stage of an operation, as they may otherwise be overlooked.

Management information system (MIS)  Deconstructing the term MIS enable us to define

each word in a business context:  Management-being managed or people managing a business.  Information- knowledge made available to people within an organization  System-sets of connected things or parts within an organization which tie the planning and control by managers to the various operators

 The use of an MIS in planning allows us o

obtain: – Evaluation of alternatives, long-term and short-term planning – Financial projections, decision making – Preparation of reports, analysis



An effective MIS integrates all sub-system so that managers are provided with better information for decision making