CHAPTER 3 - FOUNDATIONS OF PLANNING
CHAPTER 3 - FOUNDATIONS OF PLANNING
- 内容提要：中国经济管理大学|中国经济管理大学培训
罗宾斯《管理学原理》
CHAPTER 3 - FOUNDATIONS OF PLANNING
LEARNING OUTCOMES
After reading this chapter students should be able to:
1. Define planning.
2. Explain the potential benefits of planning.
3. Identify potential drawbacks to planning.
4. Distinguish between strategic and tactical plans.
5. Recognize when directional plans are preferred over specific plans.
6. Define management by objectives and identify its common elements.
7. Outline the steps in the strategic management process.
8. Describe the four grand strategies.
9. Explain SWOT analysis.
10. Describe how entrepreneurs identify a competitive advantage.
Opening Vignette
SUMMARY
Toyota is a good example of a company who succeeds because of strong planning efforts on the part of the company’s management. For years, Toyota has been competing very strongly in the automotive industry, and has seemingly gone in directions that are completely opposite of American automobile manufacturers. First, Toyota made fuel efficient cars while “Detroit” produced gas guzzlers. Then, when Ford and GM moved towards making more fuel efficient cars, Toyota started producing larger, more luxurious vehicles---ones that matched shifting US consumer preferences.
Now, nearly three decades later, Toyota is again going in the opposite direction. Toyota is diversifying and expanding its offerings, while Ford and GM are selling off various aspects of their businesses and are struggling to survive. Toyota is engaging in efforts that capitalize on their “technological and intellectual assets to enrich society”---and is moving into markets that appear to have little linkage to its primary business. For example, Toyota is now in the business of building prefab houses. They are also growing sweet potatoes, and are operating in health-care support services. Also, Toyota is dabbling in developing composting materials that reduce odor from manure in fertilizers. It is also gaining strong market holds in the roof garden business.
Management at Toyota will tell you that their entry into these new markets is absolutely advisable. Revenues of these non-auto-related businesses have added more than 10.3 billion to Toyota’s bottom line in the first three months of 2006 alone! That’s up nearly 16 percent from the same period in 2005 and up over 50 percent overall since 2003. In fact, Toyota was comprised solely of these non-automotive lines and they were consolidated, it would rank in the top 200 of the Standard and Poor’s top-rated companies. Toyota just may have a better plan than their American counterparts.
Teaching notes
• Discuss with students the following questions. Why was Toyota able to compete successfully with General Motors or Ford? What, if anything, set Toyota apart? Did this happen by accident? (Planning, diversifying, staying ahead of the market—it was no accident )
• What plans did Toyota implement that helped them increase their bottom line by 50 percent? (moving into seemingly unrelated markets)Do Toyota’s plans for growth sound reasonable to you? Risky? Why or why not? (Answers will vary…)
I. PLANNING DEFINEDA. Introduction (PPT 3-2)
1. It encompasses defining the organization’s objectives or goals, establishing an overall strategy, and developing a comprehensive hierarchy of plans to integrate and coordinate.
a) It is concerned with ends (what is to be done) and with means (how it is to be done).
2. Planning can be further defined in terms of whether it is informal or formal.
a) In informal planning, very little, if anything, is written down.
b) In formal planning, specific objectives are written down and made available to organization members.
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_____________________________________________________________________________________II. PLANNING IN UNCERTAIN ENVIRONMENTS
A. Introduction
1. Technological, social, political, economic, and legal changes are ever-present.
2. Contemporary managers must plan effectively to ensure an organization’s survival.
B. Why Should Managers Formally Plan?
1. Managers should engage in planning for at least four reasons.
a) Planning provides direction.
b) It reduces the impact of change.
c) Planning minimizes waste and redundancy.
d) It sets the standards to facilitate control. (See Exhibit 3-1).
2. Planning establishes coordinated effort.
a) Understanding where the organization is going and what must be contributed to reach the objectives, helps members to coordinate their activities and fosters teamwork.
3. A lack of planning can cause various organizational members or their units to work against
one another.4. Planning reduces uncertainty.
5. It clarifies the consequences of actions.
6. It is precisely what is needed when managing in a chaotic environment.
7. Planning also reduces overlapping and wasteful activities.
8. Finally, planning establishes objectives or standards that facilitate control.
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C. What Are Some Criticisms of Formal Planning? (PPT 3-3)1. Formal planning by managers makes intuitive sense.
a) An organization needs direction.
2. Planning may create rigidity.
a) Formal planning efforts lock an organization into specific goals and specific timetables.
b) The assumption may be that the environment won’t change during the time period the objectives cover.
1) If that assumption is faulty, managers who follow a plan may have trouble.
2) Forcing a course of action when the environment is fluid can be a recipe for disaster.
3. Plans can’t be developed for a dynamic environment.
a) Most organizations today face dynamic change in their environments.
1) That means a random and unpredictable business environment.2) Managing chaos and turning disasters into opportunities requires flexibility.
4. Formal plans can’t replace intuition and creativity.a) Visions have a tendency to become formalized as they evolve.
b) Formal planning efforts typically follow a methodology that reduces the vision to a
programmed routine.
1) The rapid rise of Apple Computer in the late 1970s and throughout the 1980s was
attributed, in part, to the creativity and anti-corporate attitudes of one of its
cofounders, Steven Jobs.2) Ultimately Jobs was ousted and with his departure came increased organizational
formality—the very thing he despised because it hampered creativity.5. Planning focuses managers’ attention on today’s competition, not on tomorrow’s
survival.a) Formal planning tends to focus on how to best capitalize on existing business
opportunities within the industry.b) It often does not allow for managers to consider creating or reinventing the industry.
c) Some companies have found much of their success to be the result of forging into
uncharted waters, designing and developing new industries as they go.
6. Formal planning reinforces success, which may lead to failure.
a) Success may, in fact, breed failure in an uncertain environment.b) It is hard to change or discard successful plans.
c) Successful plans may provide a false sense of security.
7. Self-Assessment # 25 “How Good Am I at Personal Planning?”
D. The Bottom Line: Does Planning Improve Organizational Performance? (PPT 3-4)
1. Contrary to the critics, the evidence generally supports having formal plans.
2. However, organizations that formally plan do not always outperform those that don’t.
3. Conclusions from studies of the relationship between planning and performance.
a) There are generally higher profits, higher return on assets with a formal planning process.
b) The quality of the process and appropriate implementation of the plans probably contribute more to high performance than does the extent of planning.
c) Finally, in those organizations in which formal planning did not lead to higher performance, the environment was typically the culprit.
1) Government regulations and similar environmental constraints leave managers with fewer viable alternatives.
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_____________________________________________________________________________________III. TYPES OF PLANS
A. Exhibit 3-2 illustrates the relationship of types of plans. (PPT 3-5)
1. Breadth—strategic versus tactical.
2. Time frame—long term versus short.
3. Specificity—directional versus specific.
4. Frequency of use—single use versus standing.
B. How Do Strategic and Tactical Planning Differ? (PPT 3-5, 3-6, 3-7)
1. Strategic plans apply to the entire organization, establish the organization’s overall objectives, and seek to position the organization in terms of its environment.
a) These plans drive the organization’s efforts to achieve its goals.b) They serve as a basis for forming the tactical plans.
2. Tactical plans (operational plans) specify the details of how to achieve the overall objectives.
3. Strategic and tactical plans differ in three primary ways.
a) Time frame.
1) Tactical plans tend to cover shorter periods of time.
2) Strategic plans tend to cover five years or more.
b) Scope
1) They also cover a broader area and deal less with specifics.
c) Whether they include a known set of organizational objectives.
1) Strategic plans include the formulation of objectives.
2) Tactical plans assume the existence of objectives.
3) Tactical plans describe how those objectives will be attained.
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_____________________________________________________________________________________C. In What Time Frame Do Plans Exist?
1. Short term covers less than one year.
2. Any time frame beyond five years is classified as long term.
3. The difference between short- and long-term plans is important given the length of future commitments and the degree of variability organizations face.
a) Plans should extend far enough to see through those commitments that are made today.
b) The greater the uncertainty, the more plans should be of the short-term variety.
c) Shorter-term plans allow for more flexibility.
D. What Is the Difference Between Specific and Directional Plans? (PPT 3-8)
1. It appears intuitively correct that specific plans are always preferable to directional, or loosely guided, plans.
a) Specific plans have clearly defined objectives.2. Specific plans are not without drawbacks.
a) They require clarity and a predictability that often does not exist.
3. When uncertainty is high, and management must maintain flexibility in order to respond to unexpected changes, directional plans may be preferable.
a) See Exhibit 3-3.
4. Directional plans, on the other hand, identify general guidelines.
a) They provide focus but do not lock managers into specific objectives or specific courses of action.
1) A specific plan might aim to cut costs by 10 percent and increase revenues by 8 percent in the next six months.
2) A directional plan might aim at improving corporate profits between 6 and 12 percent during the next six months.
E. How Do Single-Use and Standing Plans Differ? (PPT 3-9)
1. A single-use plan is used to meet the need of a particular or unique situation.
a) Example, when Sears purchased Lands’ End, top managers used single-use plans to guide the acquisition, and “fold in” the activities from Lands’ End operations.
2. Standing plans are ongoing, providing guidance for repeatedly performed actions.
a) Example, the standing “registration” plan at your college or university. The dates have changed, but the process works in the same way semester after semester.
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_____________________________________________________________________________________IV. MANAGEMENT BY OBJECTIVES
A. What Is MBO? (PPT 3-10)
1. Management by objectives is not new. The concept goes back almost fifty years.
2. Its appeal is its emphasis on converting overall objectives into specific objectives.
3. MBO makes objectives operational by cascading them down through the organization.
a) See Exhibit 3-4.
b) MBO works from the bottom up as well as from the top down.c) The result is a hierarchy that links objectives at one level to those at the next level.
d) For the individual employee, MBO provides specific personal performance objectives.
Details on A Management Classic
Locke and Goal-Setting Theory• The value of setting objectives in organizations—known as goal-setting theory.
• Proposed 35 years ago by Edwin A. Locke.
• Claimed that setting specific employee goals increase performance.
• Suggested that difficult goals, when accepted by the employee, resulted in even higher performance than easy goals do.
• Suggested that employee performance feedback led to higher performance than when feedback was lacking.
• Research in following years have supported Locke’s claims.B. What Are the Common Elements in an MBO Program?
1. There are four ingredients common to MBO programs.
a) The objectives in MBO should be concise statements of expected accomplishments (goal specificity).
b) The manager and employee jointly choose the goals and how they will be achieved (participative decision making).
c) Each objective has a concise time period in which it is to be completed (e.g., three months, six months, or a year) (an explicit time period).
d) MBO seeks to give continuous feedback on progress toward goals both through ongoing feedback to individuals and periodic formal appraisal meetings (performance feedback).Teaching Notes _______________________________________________________________________
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_____________________________________________________________________________________C. Does MBO Work?
1. Assessing the effectiveness of MBO is a complex task.
2. When a person’s ability and acceptance of goals are held constant, more difficult goals lead to higher performance.
a) Specific hard goals produce a higher level of output than no goals or generalized goals.b) Feedback also favorably affects performance.
c) MBO implies that goals must be perceived as feasible.
3. There is little relationship between the method of setting goals and resulting performance.a) When goal difficulty is held constant, assigned goals frequently do as well as participatively determined goals.
b) It is not possible to argue for the superiority of participation.
c) One major benefit of participation, it appears to induce individuals to establish more difficult goals.
4. Studies of actual MBO programs confirm that MBO effectively increases employee performance and organizational productivity.
a) Top management commitment to MBO is critical for it to reach its potential.
D. How Do You Set Employee Objectives? (PPT 3-11)
1. Employees should have a clear understanding of what they’re attempting to accomplish.
2. Every manager can better facilitate this process by following these guidelines.
a) Identify an employee’s key job tasks.
b) Establish specific and challenging goals for each key task.
c) Allow the employee to actively participate.
d) Prioritize goals.
e) Build in feedback mechanisms to assess goal progress.
f) Link rewards to goal attainment.
E. Is There a Downside to Objectives?
1. Not everyone supports the value of setting objectives.
2. One of the most vocal critics was the late W. Edwards Deming.
a) Deming felt that employees tend to focus on the goals by which they will be judged, so they may direct their efforts toward quantity of output (what’s being measured) and away from quality.
b) Deming believed that employees tend to view objectives as ceilings rather than as floors.
3. Specific goals also encourage individual achievement rather than promote a team focus.
4. Specific goals may limit employees’ potential and discourage efforts for continuous improvement.
5. How can the criticisms of objectives be overcome?
a) Ensure that employees have multiple goals, all of which have a quality component.
b) Treat MBO as an ongoing activity.
1) Regularly review goals with employees and make changes when warranted.
c) Reward employees for setting difficult goals, even if they aren’t fully achieved.
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_____________________________________________________________________________________V. THE IMPORTANCE OF AN ORGANIZATIONAL STRATEGY
A. Before the Early 1970s
1. Managers generally assumed that better times lay ahead.
2. Plans for the future were merely extensions of where the organization had been in the past.
B. The 1970s and 1980s
1. However, the energy crisis, deregulation, accelerating technological change, and increasing global competition, as well as other environmental shocks undermined this approach.
2. These changes forced the development of a systematic means of analyzing the environment, assessing their organization’s strengths and weaknesses, and identifying opportunities where the organization could have a competitive advantage.
a) Thinking strategically—General Electric’s approach following the September 11, 2001 attack in the United States.
b) The GE Global Insurance Holdings company had been quite profitable until significant claims from the September 11th attack and subsequent skyrocketing insurance premiums.
c) They posted a $47 million loss in 2001 and are looking to sell off this part of their business.
C. Today
1. Those companies that plan strategically appear to have better financial measurements than those organizations that don’t.
2. Strategic planning has moved beyond the private sector to include government agencies, hospitals, and educational institutions.
VI. A STRATEGIC FRAMEWORK: CHOOSING A NICHE
A. The Strategic Management Process
1. See Exhibit 3-5.
2. A nine-step process that involves strategic planning, implementation, and evaluation.
3. Strategic planning encompasses the first seven steps.
Developing Your Business Plan Skill
Writing a Business PlanAbout the Skill
One of the first steps in starting a business is to prepare a business plan. Not only does the business plan aid you in thinking about what you’re going to do and how you’re going to do it; it provides a sound basis from which you can obtain funding and resources for your organization. In fact, a well-prepared business plan can be submitted to a financial institution in its entirety as the basis for why you should get a loan to start your business.Steps in Practicing the Skill
Review the following steps of writing the business plan:1) Describe your company’s background and purpose.
2) Identify your short- and long-term objectives.
3) Provide a thorough market analysis.
4) Describe your development and production emphasis.
5) Describe how you’ll market your product or service.
6) Establish your financial statements.
7) Provide an overview of the organization and its management.
8) Describe the legal form of the business.
9) Identify the critical risks and contingencies facing the organization.
10) Put the business plan together.
Practicing the Skill
Students have come up with a great idea for a business and need to create a business plan to present to a bank. Have them choose one of the following products or services and draft the part of your plan that describes how they’ll price and market it (see Step 5).1. Haircuts at home (they make house calls)
2. Olympic snow boarding computer game
3. Online apartment rental listing
4. Ergonomic dental chair
5. Voice-activated house alarm
6. Customized running shoes
Now have them choose a different product or service from the list and identify critical risks and contingencies (see Step 9).
Teaching Tips:
If a multiple day exercise, have students gather research for each element.Allow students to dream up their own startup business.
If a class exercise, choose one type of business and brainstorm what they already know for each category.
Close either type of exercise with student discussion of the effort involved and what they discovered they did not know about the prospective business.
B. How Does the Strategic Management Process Operate?
1. First, identify the organization’s current mission, objectives, and strategies (Step 1). (PPT 3-12)
a) Every organization has a mission statement that defines its purpose and answers the question, “What business or businesses are we in?”
b) Determining the nature of one’s business is as important for not-for-profits as it is for business firms.
c) Once its mission has been identified, the organization can begin to look outside the company to ensure that its strategy aligns well with the environment.
1) Panasonic is a major producer of home entertainment systems.
2) Beginning in the mid-1980s, technological breakthroughs in miniaturization and the trend toward smaller homes dramatically increased the demand for powerful, but very compact, sound systems.
3) The success of Panasonic’s home audio strategy depends on understanding the technological and social changes that are taking place.
2. Analyze the environment (Step 2). (PPT 3-13)
a) Organizations need an accurate grasp of the environment and important trends that might affect the organization’s operations.
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_____________________________________________________________________________________3. What Is Environmental Scanning?
a) Example—the Credit Union National Association (CUNA) recognized that organizational employees were turning to credit unions for more of their financial needs.
1) Used environmental scanning to determine membership trends, service opportunities, and strategic implications of technology to establish one-step banking environments.
b) Environmental scanning—screening large amounts of information to detect emerging trends and create a set of scenarios.
c) There is some evidence to indicate that companies that scan the environment achieve higher profits and revenue growth than companies that don’t.
d) The importance of environmental scanning was first recognized (outside of national security agencies such as the Central Intelligence Agency or National Security Agency) by firms in the life insurance industry in the late 1970s.
1) Life insurance companies found the demand for their product was declining.
2) What the insurance companies had failed to recognize was a fundamental change in family structure in the United States.
4. How is competitive intelligence useful?
a) It seeks basic information about competitors: Who are they? What are they doing? How will what they are doing affect us?
1) Accurate information about the competition can allow them to anticipate competitors’ actions rather than merely react to them.
b) Most of the competitor-related information an organization needs to make crucial strategic decisions is available and accessible to the public.
1) Competitive intelligence isn’t organizational espionage.
2) Advertisements, promotional materials, press releases, reports filed with government
agencies, annual reports, want ads, newspaper reports, information on the Internet,
industry studies, etc.3) Managers can literally tap into a wealth of competitive information by purchasing access to databases or obtained free through information contained on websites.
c) In a global business environment, these processes are more complex.
1) Many of the previously mentioned information sources may be too limited.2) Management may need to subscribe to news services that review newspapers and magazines from around the globe and provide summaries to client companies.
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_____________________________________________________________________________________C. What Are the Primary Steps in the Strategic Management Process?
1. Evaluate what it has learned in terms of opportunities (strategic) that the organization can exploit and threats that the organization faces (Step 3).
a) Opportunities are positive external environmental factors.
b) Threats are negative ones.
c) The same environment can present opportunities to one organization and pose threats to another.
1) Telecommuting technologies have enabled organizations that sell computer modems, fax machines, etc. to prosper.
2) Organizations such as the U.S. Post Office and even UPS have been adversely affected by this environmental change.
2. Step 4 involves evaluating the organization’s internal resources.
a) This involves asking specific questions and analyzing the available information.
1) What skills and abilities do the organization’s employees have?
2) What is the organization’s cash flow?
3) Has it been successful at developing new and innovative products?
4) How do customers perceive the image of the organization and the quality of its products or services?
b) Every organization is constrained in some way by available resources and skills.
c) The analysis should lead to a clear assessment of the organization’s internal resources, such as capital, worker skills, patents, and the like.
d) It should also indicate organizational departmental abilities, such as training and development, marketing, accounting, human resources, research and development, and management information systems.
3. Strengths (strategic) are internal resources or things that the organization does well (Step 5).
a) Core competencies are any of those strengths that represent unique skills or resources that can determine the organization’s competitive edge.
b) When an organization lacks certain resources or identifies activities the firm does not do well, these are called weaknesses.
c) Strong and weak cultures have different effects on strategy and the content of a culture has a major effect on the content of the strategy.
1) In a strong culture, almost all employees will have a clear understanding of what the organization is about.
2) In a strong culture, it should be easy for management to convey to new employees the organization’s core competency.
3) The negative side of a strong culture, of course, is that it is difficult to change.
4) A strong culture may act as a significant barrier to acceptance of a change in the organization’s strategies.
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_____________________________________________________________________________________D. What Is SWOT Analysis? (PPT 3-14)
1. A merging of the externalities (Steps 2 and 3) with the internalities (Steps 4 and 5) results in an assessment of the organization’s opportunities.
a) See Exhibit 3-6.
2. This merging is called SWOT analysis because it brings together the organization’s Strengths, Weaknesses, Opportunities, and Threats in order to identify a strategic niche that can be exploited.
3. Having completed the SWOT analysis, the organization reassesses its mission and objectives.
a) Exhibit 3-5, Step 6.
b) If changes are needed in the organization’s overall direction, this is where they are likely to originate.
c) If no changes are necessary, management is ready to begin the actual formulation of strategies.
E. How Do You Formulate Strategies?
1. Strategies need to be set for all levels in the organization (Step 7).
a) Develop and evaluate alternative strategies.
b) Select a set that is compatible at each level and will allow the organization to best capitalize on its resources and the opportunities available in the environment.
2. Four primary strategies or grand strategies are available: growth, stability, retrenchment, and combination.
3. The growth strategy .
a) Bigger is better.
b) An organization attempts to increase the level of the organization’s operations.
c) Growth through more sales revenues, more employees, or more market share.
1) Through direct expansion, new product development, quality improvement or by diversifying—merging with or acquiring other firms.
(a) Growth through direct expansion involves increasing company size,
revenues, operations, or work force.(b) Ace Hardware—by franchising to entrepreneurs
(c) This effort is internally focused and does not involve other firms.
(d) Growth from creating businesses within the organization.
(e) Wal-Mart expanded its operations to include food distribution in super-centers.
2) Merging with other companies or acquiring similar firms.
(a) A merger occurs when two companies—usually of similar size—combine
their resources to form a new company.(b) Example, Lockheed and Martin-Marietta Corporation merged to form
Lockheed-Martin.(c) An acquisition, which is similar to a merger, usually happens when a larger
company “buys” a smaller one--for a set amount of money or stocks, or
both—and incorporates the acquired company’s operations into its own.4. The stability strategy
a) Best known for what it is not.
b) It is characterized by an absence of significant changes.
c) It is most appropriate when several conditions exist: a stable and unchanging environment, satisfactory organizational performance, an absence of valuable strengths and critical weaknesses, and only insignificant opportunities and threats.
d) There are organizations that are successfully employing a stability strategy.
1) Kellogg’s uses the stability strategy very well.
5. The retrenchment strategy
a) Because of technological advancements, global competition, other environmental changes, and mergers and acquisitions, growth and stability strategies may no longer be viable for some companies.
b) This strategy is characteristic of an organization that is reducing its size or selling off less profitable product lines.
1) Example, Sears, AT&T, General Motors, the U.S. Army, and Apple Computer.
6. The combination strategy
a) The simultaneous pursuit of two or more strategies described above.
b) One part of the organization may be pursuing a growth strategy while another is retrenching.
1) Example, Procter & Gamble sold off its Jif and Crisco brands in 2002; simultaneously it concentrated on its growth strategy of consumer brands market.
7. Determining a competitive strategy
a) The selection of a grand strategy sets the stage for the entire organization.
b) Each unit within the organization has to translate this strategy into a set of strategies that
will give the organization a competitive advantage.c) To fulfill the grand strategy, managers will seek to position their units so that they can gain a relative advantage over the company’s rivals.
d) This positioning requires a careful evaluation of the competitive forces.
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_____________________________________________________________________________________8. Michael Porter of Harvard’s Graduate School of Business.
a) His competitive strategies framework has generic competitive strategies.
b) No firm can successfully perform at an above-average profitability level by trying to be all things to all people.
c) Management must select a competitive strategy that will give it a distinct advantage by capitalizing on the strengths of the organization and the industry it is in.
d) These three strategies are: cost-leadership, differentiation, and focus.
9. The low-cost producer in its industry is following a cost-leadership strategy.
a) Success requires that the organization be the cost leader; the product or service being offered must be perceived as comparable to rivals, or at least acceptable to buyers.
b) A firm typically gains a cost advantage by efficiency of operations, economies of scale, technological innovation, low-cost labor, or preferential access to raw materials.
1) Examples, Wal-Mart, Texas Instrument, E & J Gallo Winery, and Southwest Airlines.
10. A differentiation strategy is followed when a firm seeks to be unique in its industry in ways that are widely valued by buyers.
a) It might emphasize high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image.
b) The key is that the attribute chosen must be different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiating.
1) Examples, Intel (technology), Maytag (reliability), Mary Kay Cosmetics (distribution), and L.L. Bean (service).
11. The first two strategies sought a competitive advantage in a broad range of industry segments.
12. The focus strategy aims at a cost advantage (cost focus) or differentiation advantage (differentiation focus) in a narrow segment.
a) Select a segment or group of segments in an industry (such as product variety, type of end buyer, distribution channel, or geographical location of buyers) and tailor the strategy to serve them to the exclusion of others.
b) The goal is to exploit a narrow segment of a market.
c) Feasibility depends on the size of a segment and whether it can support the additional cost of focusing.
1) Example, Stouffer’s used a cost focus strategy in its Lean Cuisine line to reach calorie-conscious consumers seeking both high quality products and convenience.
13. Strategy choice depends on the organization’s strengths and its competitors’ weaknesses.
a) The organization should put its strength where the competition isn’t.
b) Success depends on selecting the strategy that fits the complete picture of the organization and its industry.
14. What if an organization cannot use one of these three strategies to develop a competitive advantage?
a) Porter uses the term “stuck in the middle” to describe that situation.b) Organizations that are stuck in the middle find it difficult to achieve long-term success.
15. Sustaining a competitive advantage (PPT 3-15)
a) Long-term success requires that the advantage be sustainable.
b) It must withstand both the actions of competitors and evolutionary changes within the industry.
c) Managers need to create barriers that make imitation by competitors difficult.
1) The use of patents, copyrights, or trademarks may assist in this effort.
d) When there are strong efficiencies from economies of scale, reducing price to gain volume is a useful tactic.
e) “Tie up” suppliers with exclusive contracts.f) Encourage and lobby for government policies that impose import tariffs designed to limit foreign competition.
g) The one thing that management cannot do is become complacent.
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_____________________________________________________________________________________F. What Happens After Strategies Are Formulated?
1. The next-to-last step in the strategic management process is implementation (Step 8).
a) A strategic plan cannot succeed if it is not implemented properly.
b) Top management leadership is a necessary ingredient in a successful strategy along with a motivated group of middle and lower-level managers to carry out senior management’s specific plans.
2. Finally, results must be evaluated (Step 9).
a) How effective have the strategies been?
b) What adjustments, if any, are necessary?
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_____________________________________________________________________________________VII. QUALITY AS A STRATEGIC WEAPON (PPT 3-16)
A. Introduction
1. To the degree that an organization can satisfy a customer’s need for quality, it can differentiate itself from the competition and attract and hold a loyal customer base.
2. Constant improvement in the quality and reliability of an organization’s products or services can result in a competitive advantage others cannot steal.
a) Product innovations are not sustainable because they can be quickly copied by rivals.
3. Incremental improvement is something that becomes an integrated part of an organization’s operations and can develop into a considerable cumulative advantage.
B. How Can Benchmarking Help Promote Quality? (PPT 3-16)
1. Benchmarking involves the search for the best practices that lead to superior performance.
2. Management can improve quality by analyzing and then copying the methods of the leaders.
a) It is a very specific form of environmental scanning.
3. In 1979, Xerox undertook the first benchmarking effort in the United States.
a) Until then, the Japanese had been aggressively copying the successes of others.
b) Xerox’s head of manufacturing took a team to Japan to make a detailed study of its competition’s costs and processes at its own joint venture, Fuji-Xerox.
1) Its Japanese rivals were light-years ahead of Xerox in efficiency.
2) Benchmarking those efficiencies marked the beginning of Xerox’s recovery.
4. Illustrating benchmarking’s use in practice, Ford Motor Company.
a) Ford used benchmarking in early 2000 in developing its highly promising Range Rover line.Teaching Notes _______________________________________________________________________
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_____________________________________________________________________________________C. What Is the ISO 9000 Series? (PPT 3-16)
1. The 1980s saw an increasing push among global corporations to improve their quality.
2. 1987 saw the formation of the ISO 9000 series, designed by the International Organization for Standardization, based in Geneva, Switzerland.
a) The ISO standards reflect a process whereby independent auditors attest that a company’s factory, laboratory, or office has met quality management requirements.
3. These standards assure customers that a company:
a) uses specific steps to test the products it sells.
b) continuously trains its employees to ensure they have up-to-date skills, knowledge, and abilities.
c) maintains satisfactory records of its operations.
d) corrects problems when they occur.
4. Examples of the multinational and transnational companies that have met these standards include Texas Petrochemical, British Airways, Shanghai Foxboro Company, Ltd., Braas Company, Betz Laboratories, Hong Kong Mass Transit Railway Corporation, BP Chemicals International Ltd., Cincinnati Milacron’s Electronic Systems Division, Borg Warner Automotive, Standard Aero Alliance, Taiwan Synthetic Rubber Corporation, and Weyerhaeuser.
5. A company that obtains an ISO certification can boast that it has met stringent international quality standards and is one of a select group of companies worldwide.
6. Certification also permits entry into some markets not otherwise accessible.
a) 93 nations have adopted the ISO standards.
b) More than 408,000 companies worldwide have ISO certification.
c) Uncertified organizations may be unable to successfully compete against certified companies.
d) In 1997, ISO 14000 went into effect.
1) Companies achieving this certification will have demonstrated that they are
environmentally responsible.7. Most organizations that want certification spend nearly one year and incur several hundreds of thousands of dollars in costs to achieve that goal.
a) Obtaining such certification is quickly becoming a necessity to export goods to any organization in the nations that support the ISO 9000 series standards.
b) Example, Fris Office Outfitters in Holland, Michigan was told by their biggest customer they would have to be ISO 9000 certified or Fris Office Outfitters would no longer be a supplier.
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_____________________________________________________________________________________D. How Can Attaining Six Sigma Signify Quality? (PPT 3-17)
1. Six sigma is a philosophy and measurement process developed in the 1980s at Motorola.
a) The premise is to design, measure, analyze, and control the input side of a production process to achieve the goal of no more than 3.4 defects per million parts or procedures.
b) Six sigma attempts to design in quality as the product is being made.
1) See Exhibit 3-7.
c) It is a process that uses statistical models, coupled with specific quality tools, high levels of rigor, and know-how when improving processes.
2. Effectiveness of six sigma at ensuring quality.
a) It is designed to decrease defects to fewer than 3.4 per million items produced.
b) 99.9 percent effectiveness would mean:
1) 12 babies would be given to the wrong parents each day;
2) 22,000 checks would be deducted from incorrect checking accounts each hour;
3) two planes a day would fail to land safely at Chicago O’Hare International Airport.
c) Just 15 years ago, three sigma was a fairly standard objective by most Americans but that results in more than 66,000 defects per million.
3. Six sigma applications can also be useful on the service side of the business—especially in identifying cost savings.
a) Example, GE is spending more than $125 million to find more than $2.5 billion in cost-cuttings savings.
1) Cost cuttings savings will come from reduced personnel, reduced inventories, and
increased procurement and sales activities.b) GE is sharing its six sigma expertise with customers—Wal-Mart and Dell Computer—in an effort to eliminate more than $1 billion in inefficiencies in the two organizations.
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_____________________________________________________________________________________VIII. REVISITING ENTREPRENEURSHIP: HOW DOES THE ENTREPRENEUR IDENTIFY
A COMPETITIVE ADVANTAGE?A. Introduction
1. The first thing that entrepreneurs must do is to identify opportunities and possible competitive advantages.
2. Then they’re ready to start the venture by researching its feasibility and planning for its launch.
B. Identifying Environmental Opportunities and Competitive Advantage
1. In 1994 Jeff Bezos saw that Internet usage was increasing by 2,300 percent a month.
2. He quit his successful career as a stock market researcher and hedge fund manager on Wall Street to pursue his vision for online retailing, now the Amazon.com Web site.
3. Opportunities are positive trends in external environmental factors and provide unique and distinct possibilities for innovating and creating value.
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_____________________________________________________________________________________4. Peter Drucker identified seven potential sources of opportunity that entrepreneurs might look for in the external context.
a) The unexpected—unanticipated situations and events can provide opportunities.
1) The well-publicized 2000 U.S. presidential vote count and recounts led savvy entrepreneurs to fashion jewelry, t-shirts, and other products using the chad image.
2) Publicity surrounding the accidental skiing deaths of two well-known individuals (Sonny Bono and Michael Kennedy) proved to be a bonanza for ski helmet manufacturers.
b) The incongruous—when inconsistencies and incompatibilities exist in the way something appears, there are opportunities to capture.
1) Entrepreneurs who are willing to “think outside the box” may find pockets of
potential profitability.2) Sigi Rabinowicz, CEO of Tefron, an Israeli firm, has spent over a decade adapting a circular hosiery knitting machine to make women’s underwear that is nearly seamless.
3) Fred Smith, founder of FedEx, challenged the accepted doctrine that overnight delivery was impossible and built a multi-billion dollar corporation.
c) The process need—happens when technology doesn’t immediately come up with the “big discovery” to fundamentally change the very nature of some product or service.
1) Opportunities abound in tiny steps.
2) Example, medical products industry—while researchers haven’t yet discovered a cure for cancer, there have been many successful entrepreneurial biotechnology ventures created as knowledge about a possible cure continues to grow.
d) Industry and market structures—changes in technology can change the structure of an industry and market, making existing firms obsolete if they’re not attuned to the changes or are unwilling to change.
1) Changes in social values and consumer tastes can shift structures of industries and markets.
2) Example, Internet experience caused existing industries and markets to be changed by upstart entrepreneurial ventures.
3) eBay has prospered as an online middleman for buyers and sellers.
4) Computer giant Sun Microsystem sells up to 150 items per day on eBay, including its servers that sell for around $15,000.
5) Disney uses eBay to auction off authentic props from its movies.
e) Demographics—characteristics of the world population are changing.
1) These changes influence industries and markets by altering the types and quantity of
products and services desired.2) Example, Thay Thida is one of three individuals in Khmer Internet Development Services who saw the opportunities in bringing the Internet to Phnom Penh, Cambodia.
3) She and her co-founders profited from their entrepreneurial venture.
f) Changes in perception—perception is one’s reality.
1) When changes in perception take place, facts do not vary, but their meaning does.
2) Think about your perception of healthy foods—our perceptions of whether or not certain groups are good for us has changed.
(a) John Mackey started Whole Foods Market in Texas, as a place for customers to purchase food and other items free of pesticides, preservatives, sweeteners, and animal cruelty.
(b) Mackey’s entrepreneurial venture now consists of about 130 stores in more than 23 states, Washington, DC, and Canada.
g) New knowledge—a significant source of entrepreneurial opportunity.
1) French scientists are using new knowledge about textiles to develop a wide array of innovative products that keep wearers healthy and smelling good.
(a) Neyret, the Parisian lingerie maker, innovated lingerie products woven with
tiny perfume micro-capsules that stay in the fabric through about 10 laundry
cycles.(b) Francital, developed a fabric that is treated with chemicals to absorb perspiration and odors.
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_____________________________________________________________________________________Review, Comprehension, Application
Chapter Summary1. Planning is the process of determining objectives and assessing the way those objectives can best be
achieved.2. Planning gives direction, reduces the impact of change, minimizes waste and redundancy, and sets
the standards to facilitate controlling.3. Planning is not without its critics. Some of the more noted criticisms of planning are: It may create
rigidity; plans cannot be developed for a dynamic environment; formal plans cannot replace intuition
and creativity; planning focuses managers’ attention on today’s competition, not on tomorrow’s
survival; and because formal planning reinforces success, it may lead to failure.4. Strategic plans cover an extensive time period (usually five or more years), encompass broad issues,
and include the formulation of objectives. Tactical plans cover shorter periods of time, focus on
specifics, and assume that objectives are already known.5. Directional plans are preferred over specific plans when managers face uncertainty in their
environments and desire to maintain flexibility in order to respond to any unexpected changes.6. Management by objectives (MBO) is a system in which specific performance objectives are jointly
determined by employees and their bosses; progress toward objectives is periodically reviewed, and
rewards are allocated on the basis of the progress. The four ingredients common to MBO programs
are goal specificity, participative decision making, explicit time periods, and performance feedback.7. The strategic management process is made up of nine steps: (1) identify the organization’s current
mission, objectives, and strategies, (2) analyze the environment, (3) identify opportunities and threats
in the environment, (4) analyze the organization’s resources, (5) identify the organization’s strengths
and weaknesses, (6) reassess the organization’s mission and objectives on the basis of its strengths,
weaknesses, opportunities, and threats, (7) formulate strategies, (8) implement strategies, and (9)
evaluate results.8. The four grand strategies are (1) growth (increasing the level of the organization’s operations), (2)
stability (making no significant change in the organization), (3) retrenchment (reducing the size or
variety of operations), and (4) combination (using two or more grand strategies simultaneously).9. SWOT analysis refers to analyzing the organization’s internal strengths and weaknesses as well as external opportunities and threats in order to identify a niche that the organization can exploit.
10. Opportunities are positive trends in external environmental factors. These trends provide unique and distinct possibilities for innovating and creating value. Entrepreneurs need to be able to pinpoint these pockets of opportunities that a changing context provides. Seven potential sources of opportunity that entrepreneurs might look for in the external context include: (1) the unexpected, (2) the incongruous, (3) the process need, (4) industry and market structures, (5) demographics, (6) changes in perception, and (7) new knowledge.
Companion Website
We invite you to visit the Robbins/DeCenzo Companion Website at www.prenhall.com/robbins for the chapter quiz and student PowerPoints. Diversity Perspectives: Communication and Interpersonal Skills, by Carol Harvey and June Allard Diversity
1. What perceptions of the bureau could the states have that would lead them to resist cooperating in the environmental scan (i.e., providing information)?
Education is the province of each state and states could perceive the scan process as federal control and interference. States tend to be leery of any effort to control2. What perceptions of the bureau could the states have that would lead them to resist in accepting federal funding for educating teachers of the disabled?
Funding is always welcome, but federal funding usually comes with strings attached. For example, some of the strings could be increased work such as preparing application and reporting forms, and some may be requirements and rules (e.g., specification of types of educational experiences for teachers and students, competency exams, etc.)Assignments
1. Help the bureau plan by conducting a SWOT analysis of this situation.
The SWOT analysis is conducted by considering the four categories below. Among the entries in the categories that students might suggest are:
Strengths
• Money is available to create a forecasting system
• Money is available to make improvements in education
Weaknesses
Lack of knowledge of:
• Numbers and locations of disabled children
• Numbers and locations of teachers of disabled children
• Trends in disabilities incidence
• Specialized facilities
• Forecasting techniques
Opportunities
• Increase and/or educate enough teachers of the disabled
• Get states to use forecasting to improve their teacher training
Threats
• Reduction in budgets
• Failure of states to provide information for environmental scan
2. Help the bureau plan by specifying what information an environmental scan could provide.
An environmental scan would center on surveying state boards of education for current and previous numbers of children with each disability and also for data on current and previous numbers of teachers of these children. It would seek out information on existing specialized facilities and on current educational techniques and teacher training. The bureau must also search out some expertise on forecasting techniques.Reading for Comprehension
1. Contrast formal with informal planning.
Answer – In informal planning, very little, if anything, is written down. In formal planning, there are written plans at various levels, people are assigned responsibilities, there is a great deal of detail, etc. Formal planning involves specific goals to be achieved within specific timetables.2. Under what circumstances are short-term plans preferred? Under what circumstances are specific plans preferred?
Answer – Short term covers less than one year. Plans should extend far enough to see through those
commitments that are made today. The greater the uncertainty, the more plans should be of the short-
term variety. Shorter-term plans allow for better accommodation of changes by providing more
flexibility.It appears intuitively correct that specific plans are always preferable to directional, or loosely guided, plans. Specific plans have clearly defined objectives. When certainty is high, and management can operate on some unchanging assumptions.
3. Compare an organization’s mission with its objectives.
Answer – Every organization has a mission that defines its purpose and answers the question, “What business or businesses are we in?” In essence the mission is a directional plan. The mission applies to the entire organization, establishes the organization’s overall objectives, and seeks to position the organization in terms of its environment. Objectives are tactical or specific “plans” that are quantified for achieving specific goals. They can apply to individuals, work units, or the organization. The mission cannot be accomplished without the accomplishment of objectives. Objectives need a mission for them to be clear and coordinated.4. Describe the nine-step strategic management process.
Answer – See Exhibit 3-5. A nine-step process that involves strategic planning, implementation, and evaluation. Strategic planning encompasses the first seven steps.5. What is a SWOT analysis?
Answer – A merging of the externalities (Steps 2 and 3) with the internalities (Steps 4 and 5) results in an assessment of the organization’s opportunities. See Exhibit 3-6. This merging is frequently called SWOT analysis because it brings together the organization's Strengths, Weaknesses, Opportunities, and Threats in order to identify a strategic niche that the organization can exploit. Having completed the SWOT analysis, the organization reassesses its mission and objectives.6. How can quality provide a competitive advantage? Give an example.
Answer – Students’ responses may vary but they most likely will indicate that quality is one of the specific tactics of a differentiation strategy where an organization seeks to be unique in its industry in ways that are widely valued by buyers. The key is that the attribute chosen must be different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiating.To the degree that an organization can satisfy a customer’s need for quality, it can differentiate itself from the competition and attract and hold a loyal customer base. Constant improvement in the quality and reliability of an organization’s products or services can result in a competitive advantage others cannot steal. Product innovations are not sustainable because they can be quickly copied by rivals. Incremental improvement is something that becomes an integrated part of an organization’s operations and can develop into a considerable cumulative advantage.
7. What differentiates entrepreneurs from traditional managers in terms of developing strategy? Explain your answer.
Answer – Entrepreneurs are trying to identify opportunities and possible competitive advantages. They may be more willing to take risks, to try something that hasn’t been done before. Entrepreneurs are likely to have an internal vision or strategy that may not be written down or even completely shared verbally with the other employees. Traditional managers are more likely to have a formal strategy, in writing, and be more inflexible about changing that strategy even when the environment and customer needs may change.Linking Concepts to Practice
1. Organizations that fail to plan are planning to fail. Do you agree or disagree with the statement? Explain your position.
Answer – Students may agree or disagree. If they agree, they may argue that the discipline of planning provides a framework for thinking through decisions and the future. Whether students like or criticize planning, it does provide direction, measurements of progress, and a framework for judging the success or failure of a venture.2. Under what circumstances do you believe MBO/goal setting would be most useful? Discuss.
Answer – MBO is of value for converting overall objectives into specific objectives for organizational units and individual members. MBO makes objectives operational by cascading them down through the organization. See Exhibit 3-4. Because lower-unit managers jointly participate in setting their own goals, MBO works from the bottom up as well as from the top down. The result is a hierarchy that links objectives at one level to those at the next level. For the individual employee, MBO provides specific personal performance objectives.The circumstances where employee commitment is important, where concrete goals help a company direct its efforts, when there is a need coordination and communication in a company, etc.
3. Using Michael Porter’s generic strategies, describe the strategy used by each of the following companies to develop a competitive advantage in its industry: Wal-Mart, Home Depot, Nieman Marcus, Southwest Airlines. Provide specific examples.
Answer – Students’ responses should consider the following facts. No firm can successfully perform at an above-average profitability level by trying to be all things to all people.The cost-leadership strategy requires that the organization be the cost leader, the product or service being offered must be perceived as comparable to rivals, or at least acceptable to buyers.
A differentiation strategy seeks to be unique in its industry in ways that are widely valued by buyers is following. It might emphasize high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image. The key is that the attribute chosen must be different from those offered by rivals and significant enough to justify a price premium that exceeds the cost of differentiating.
The focus strategy aims at a cost advantage (cost focus) or differentiation advantage (differentiation focus) in a narrow segment. Select a segment or group of segments in an industry (such as product variety, type of end buyer, distribution channel, or geographical location of buyers) and tailor the strategy to serve them to the exclusion of others. Feasible depends on the size of a segment and whether it can support the additional cost of focusing.
4. “The primary means of sustaining a competitive advantage is to adjust faster to the environment than your competitors do.” Do you agree or disagree with the statement? Explain your position.
Answer – Key to this answer is the following facts. Long-term success requires that the advantage be sustainable. It must withstand both the actions of competitors and the evolutionary changes. Managers need to create barriers that make imitation by competitors difficult or reduce the competitive opportunities.5. “Benchmarking, six sigma, ISO 9000 series all have the effect of assisting a company develop a competitive advantage.” Do you agree? Why or why not. Cite specific examples.
Answer – Students’ answers will vary. Most may argue that it is true, because almost any competitive advantage, other than one determined by regulation or patent, can be overcome in time. Only those companies that are continually innovating will maintain their advantage.Integrative Chapter Skills
Location, Location, Location
Purpose: The general purpose of this group case is to introduce students to decisions that organizations must often make as they grow. Ask students to please consider the following information and make a consensus decision on where they will locate your next production facility.
You are part of a top management team for an automotive tooling company that has been in existence for 7 years. Over the course of this time you have developed close relationships with 2 major automotive companies in your general area. Your company has built a reputation for producing solid products and is thought to be among the more reliable suppliers. Last year you held an important meeting regarding the need for growth. Your existing plant was running well beyond capacity and your group felt that within 2 years you would not be able to handle the demand. The current decision is where to locate your next facility.
There are three potential locations that your corporate real estate agents have come up with. You can only choose one site and based on the contract you have just signed for additional components, you will not have the ability to change your mind once the decision is made. Each site has certain strengths and weaknesses. The following are the main considerations found in the information packet of each site and your task is to discuss the alternatives and reach a consensus.
Site 1 (inner city enterprise zone)
Pro site 1: The mayor of the large city has been pushing for you to consider locating the new facility in the central district of the large city. He has promised you tax incentives for the next 7 years wherein your company will not have to pay any city tax. There are also potential benefits through the state that your real estate agents are now looking into. The local services are acceptable and the location is quite convenient for a large number of workers since it is centrally located and there are many expressways nearby. You have located an old abandoned factory in the heart of the area that could be refitted quickly to allow you to increase productive capacity. This alternative is cheap and convenient compared to the other two locations. You have also investigated the ability to hire the requisite workers and it seems as though you will be able to fill the positions quickly.
Con site 1: However, there are several concerns that you have with this alternative. First, the value of the real estate has been steadily decreasing over the past 4 years. A quick survey of the area reveals that several large companies have relocated from this area and 2 elementary schools within a couple blocks of the factory have shut down. The neighborhood is quite run down. You are relatively comfortable with this mayor but he is facing a very difficult election next year, you have worries that the tax incentives could be repealed. Further, although it seems that you will not have major difficulties in hiring workers for this location, many of the top managers have balked at the idea of working at the proposed enterprise zone. The senior managers know that a substantial number would have to relocate to this factory and you have heard many derogatory references to this place at the water cooler and in emails. A couple of key managers have flat out told you that if they are transferred to this location they will resign.
Site 2 (the suburbs)
Pro site 2: North of the city is a booming suburb that was one of the fastest growing counties in America several years ago. The real estate agents have found a potential site that is convenient to manufacture the components. County taxes are quite high here because of several large highway construction and expansion projects that have been undertaken in the past few years. The availability of real estate has been diminishing and the area is currently thought to be an attractive place to locate. The agents all agree that this is an excellent time to buy in this area as the real estate should continue to become more valuable over time. They also mention the prestige this location would give the company and the potential to attract new potential customers as much activity is occurring here. This is especially true once the new highway is completed in 2-3 years. There are a couple of larger companies already eyeing this property and you would have to move quickly in order to secure the deal. Many of your senior managers already live nearby and most would like to live in this area because the schools are known to be excellent.
Con site 2: A problem you see is that it might be difficult to hire the same number of workers at anywhere near the cost that you could get at the enterprise zone site. In fact, the finance department suggests that the labor costs could be up to 25% higher for this location. The senior accountant is even more concerned when she combines the labor and the location costs. In fact, she mentions that the current cost structure would leave this plant with only a marginal profit per component that is 70% lower than the current site. She reminds you that last year there were rumblings that 2 of the major customers were going to begin to squeeze their suppliers to lower the cost because they were experiencing stiffer price competition from overseas manufacturers. If the customers do demand lower unit costs, the factory could very well be running in the red for a period of time and drain valuable resources from the organization.
Site 3 (In the sticks)
Pro site 3: Two real estate agents working with one of your general managers have uncovered a third potential site. Your largest customer is planning to build a major factory about 3 hours west of the city in a rural and comparatively underdeveloped county. The general manager was privy to the information because he is close friends with senior executives in the customer’s firm. If your company develops their next factory near the customer’s new facility this would give you a major advantage in securing future contracts. The cost of the land would be much cheaper than in the suburban location, and the area is thought to be a potentially attractive place to live. There are several large parks, lakes and walking trails nearby and a growing small city to the south only about a 30-45 minute drive away. The labor costs and area taxes are even better than the proposed enterprise zone, but you expect these to increase rapidly over the next 5 to 7 years as the area becomes developed.
Con site 3: The major problem your engineers bring up is that the factory would have to be built from scratch and that there will be more coordination problems based on the distance involved. In this regard, unlike the first two locations there will be substantial delays in ramping up production capabilities. The personnel department mentions that there is an ample labor supply in the area, but they astutely note that your company would actually begin to compete with the major customer for workers as both factories go online. This could cause problems and friction if the labor force does not meet predicted growth trends. If you secure several of the contracts you are currently pursuing, then you will have to outsource the production to many different companies and locations. Your senior production manager is absolutely against this alternative as she mentions that the quality of your product is one of the best selling points and she would rather not have this jeopardized.Instruction to group
Your job is to discuss the merits of the 3 different potential locations and come up with a single choice on where to locate your next production facility. In order to reach a group decision, you must:
1. Discuss the merits and concerns with each of the 3 sites.
2. Develop a metric to help guide on what dimensions you will make your choice. For example, what is the most critical dimension for this decision?
3. Develop a method for how your group will decide among the alternatives. That is, are you going to try to reach group consensus? Majority rules?
4. Once you have made your decision, how will you justify your decision to someone who might have preferred another choice?
Teaching Tips
This exercise can be easily mapped back into the material from the chapter once students have worked through the scenario. In particular, this can be accomplished using any of the questions below.
• Ask the students to consider whether this location decision is a strategic planning decision, or a tactical one. Answer: Students could go both ways on this—urge them to consider the three primary ways that strategic and tactical plans differ: time frame, scope, and whether they include a known set of organizational objectives. In terms of time frame, purchasing a building could be viewed as long term rather than a short term plan. Scope---a location is a rather specific decision. Finally, the set of organizational objectives is known---the objective is growth, and the move is just how to accomplish that (tactical).
• Which of the options most facilitates a competitive strategy of cost leadership? Least? Answer: Option 2 definitely will not allow the organization to pursue a cost-leadership strategy, and Option 1 appears to be the lowest cost.
• Which of the options would be most detrimental to a quality strategy? Answer: Option 3 because of the human capital issues associated with it.
• Have the students map the pros and cons of the locations into a SWOT analysis.
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