Chapter 5

Chapter 5 Planning and Decision Making

MGMT3 Designed & Prepared by B-books, Ltd.

Chuck Williams

1 Copyright ©2011 by Cengage Learning. All rights reserved

Planning After reading these sections, you should be able to:

1. discuss the benefits and pitfalls of planning. 2. describe how to make a plan that works. 3. discuss how companies can use plans at all management levels, from top to bottom.

2 Copyright ©2011 by Cengage Learning. All rights reserved

Planning Planning Choosing a goal and developing a method of strategy to achieve that goal

1 3 Copyright ©2011 by Cengage Learning. All rights reserved

1

Chapter 5

Benefits of Planning Benefits Benefits of of Planning Planning

Persistence Persistence

Direction Direction

Creation Creation of of Task Task Strategies Strategies

Intensified Intensified Effort Effort 1.1

4 Copyright ©2011 by Cengage Learning. All rights reserved

Pitfalls of Planning Pitfalls Pitfalls of of Planning Planning

False FalseSense Sense of ofCertainty Certainty

Impedes ImpedesChange Change and and Adaptation Adaptation

Detachment Detachment of ofPlanners Planners

1.2 5 Copyright ©2011 by Cengage Learning. All rights reserved

How to Make a Plan That Works

Set Set Goals Goals

Develop Develop Commitment Commitment

Develop Develop Effective Effective Action Action Plans Plans

Track Track Progress Progress Toward Toward Goal Goal Achievement Achievement

Maintain Maintain Flexibility Flexibility

Revise Reviseexisting existingplan plan or or Begin Beginnew newplanning planningprocess process

2 6 Copyright ©2011 by Cengage Learning. All rights reserved

2

Chapter 5

S.M.A.R.T.

Setting Goals Specific Specific Measurable Measurable Attainable Attainable Realistic Realistic Timely Timely

2.1 7 Copyright ©2011 by Cengage Learning. All rights reserved

Examples of S.M.A.R.T. Goals? •

•

•

Walgreens: “Second is to • hire a significant number of people with disabilities in our South Carolina distribution center, scheduled to open in 2007, and achieve 20% • productivity gains there.” UPS: “65% of drivers will have access to the new technology (implemented in 2004) by the end of 2005.” and “In 2005, we will increase operating profit in each of our • 3 key businesses: domestic, int’l, supply chain.” Wrigley: “In 2005, the company will decrease the long-term rate of return assumption for the assets of its U.S. (pension) plans from 8.75 % to 8.5%.”

Halliburton: “We estimate that 74% of the backlog existing on 12/31 will be eliminated the following fiscal year.” Martha Stewart Living Omnimedia: “In 2004 we will discontinue the Catalog for Living and its online product options, and sell remaining inventory in early fiscal 2005.” Starbucks: “In fiscal 2006, we plan to open approximately 1,800 net new stores globally.”

8 Copyright ©2011 by Cengage Learning. All rights reserved

Developing Commitment to Goals The determination to achieve a goal is increased by… – – – –

setting goals collectively. making goals reasonable. making goals public. obtaining top management support.

2.2 9 Copyright ©2011 by Cengage Learning. All rights reserved

3

Chapter 5

Developing Effective Action Plans An Action Plan Lists… Specific Specific Steps Steps People People Resources Resources Time Time Period Period 2.3 10 Copyright ©2011 by Cengage Learning. All rights reserved

Tracking Progress Set… Set…

Gather Gather and and provide… provide…

Proximal Proximal Goals Goals

Performance Performance Feedback Feedback

Distal Distal Goals Goals

2.4 11 Copyright ©2011 by Cengage Learning. All rights reserved

Maintaining Flexibility Option-based planning – keep options open by making simultaneous investments • invest more in promising options • maintains slack resources

2.5 12 Copyright ©2011 by Cengage Learning. All rights reserved

4

Chapter 5

Planning or Doing?

Beyond the Book

• Planning takes many hours and much effort, time and effort that could be spent doing something. Is time spent planning time lost? No. • If planning involves predicting where an industry is going, and these predictions are merely guesses, as some managers think, what’s to be gained from planning? • Time spent planning is time spent learning. • Learning what? • To get better and faster at predicting industry outcomes and setting standards. Source: “Planning Not to Learn,” Fast Company, available online at http://www.fastcompany.com/resources/columnists/vgct/052404.html.

13 Copyright ©2011 by Cengage Learning. All rights reserved

Planning from Top to Bottom

3

14 Copyright ©2011 by Cengage Learning. All rights reserved

Starting at the Top Strategic StrategicPlans Plans

3.1

Clarify Clarifyhow howthe thecompany companywill will serve servecustomers customersand and position position itself itselfagainst againstcompetitors competitors(2-5 (2-5 years) years)

Purpose Purpose Statement Statement

An Aninspirational inspirationalstatement statementof ofan an organization’s organization’spurpose purpose (2 sentences) (2 sentences)

Strategic Strategic Objective Objective

Overall Overallgoal goalthat thatunifies unifiesefforts, efforts,stretches stretches and andchallenges, challenges,and andpossesses possesses aafinish finish line lineand andtime timeframe. frame. Flows Flowsfrom frompurpose. purpose. 15

Copyright ©2011 by Cengage Learning. All rights reserved

5

Chapter 5

Planning Time Lines Strategic

2 Years

5 Years

Plans

6 months 2 years

Tactical

30 days Operational 6 months 0

1

2

3 Years

4

5

6 16

Copyright ©2011 by Cengage Learning. All rights reserved

Bending in the Middle Specify Specifyhow howaacompany companywill willuse use resources, budgets, and people to

resources, budgets, and people to Tactical TacticalPlans Plans accomplish goals related to its strategic accomplish goals related to its strategic objective. objective.

Management Management by by Objectives Objectives

Develop Develop and andcarry carryout outtactical tacticalplans plans

MBO MBOis isaafour-step four-stepprocess process 3.2 17 Copyright ©2011 by Cengage Learning. All rights reserved

Management by Objectives Steps to Management by Objectives: 1. Discuss possible goals 2. Select goals that are challenging, attainable and consistent with the company’s overall goals 3. Jointly develop tactical plans that lead to the accomplishment of tactical goals and objectives 4. Meet regularly to review progress

18 Copyright ©2011 by Cengage Learning. All rights reserved

6

Chapter 5

Finishing at the Bottom

Operational Operational Plans Plans

Day-to-day Day-to-dayplans plansfor forproducing producingor or delivering deliveringproducts productsand andservices servicesover over aaperiod periodof of30 30days daysto to 66months months

3.3 19 Copyright ©2011 by Cengage Learning. All rights reserved

Kinds of Operational Plans Plans Plansthat thatcover coverunique, unique, Single-Use Single-UsePlans Plans one-time-only events one-time-only events

Standing Standing Plans Plans

Budgets Budgets

Plans Plans used usedrepeatedly repeatedlyto tohandle handle frequently frequentlyrecurring recurringevents. events. Three Threekinds kindsare: are: policies, policies,procedures, procedures, and andrules rulesand andregulations. regulations. Quantitative Quantitativeplanning planningto todecide decidehow how to toallocate allocatemoney moneyto toaccomplish accomplish company companygoals goals

3.3 20 Copyright ©2011 by Cengage Learning. All rights reserved

What Is Rational Decision Making? After reading these sections, you should be able to:

4. explain the steps and limits to rational decision making. 5. explain how group decisions and group decision-making techniques can improve decision-making. 21 Copyright ©2011 by Cengage Learning. All rights reserved

7

Chapter 5

What Is Rational Decision Making? Decision Making The process of choosing a solution from available alternatives.

Rational Decision Making A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions. 4 22 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 11

Define Define the the problem problem

22

Identify Identify decision decision criteria criteria

33

Weight Weight the the criteria criteria

44

Generate Generate alternative alternative courses courses of of action action

55

Evaluate Evaluate each each alternative alternative

66

Compute Compute the the optimal optimal decision decision

4 23 Copyright ©2011 by Cengage Learning. All rights reserved

Beyond the Book

Starting From Scratch When making a decision, sometimes it’s ok to start over or change direction. Mattel was struggling financially when Bob Eckert first became CEO. They’d been paying a 36¢ per share dividend for several years, but they had started having to borrow from banks to continue the payout. Eckert and his CFO realized that given a blank slate, they wouldn’t be paying the dividend, so they decided to cut it to 5¢. The day that they announced the cut, the stock price actually went up.

Source: B. Eckert, “The Best Advice I Ever Got: Try Starting From Scratch”, Fortune, 31 August 2009. 20.

24 Copyright ©2011 by Cengage Learning. All rights reserved

8

Chapter 5

Steps to Rational Decision Making 11

4.1

Define Define the the problem problem

• A problem exists when there is a gap between a desired state and an existing state • To make decisions about problems, managers must… – be aware of the gap. – be motivated to reduce the gap. – have the knowledge, skills, abilities, and resources to fix the problem. 25 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 22

Identify Identify decision decision criteria criteria

• Standards used to guide judgments and decisions • The more criteria a potential solution meets, the better that solution should be

4.2 26 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 33

Weight Weight the the criteria criteria

• Absolute comparisons – each criterion is compared to a standard or ranked on its own merits

• Relative comparisons – each criterion is compared directly to every other criterion 4.3 27 Copyright ©2011 by Cengage Learning. All rights reserved

9

Chapter 5

Steps to Rational Decision Making Absolute Absolute Weighting Weighting of of Decision Decision Criteria Criteria for for aa Car Car Purchase Purchase

4.3 28 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making Relative Relative Comparison Comparison of of Home Home Characteristics Characteristics

4.3 29 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 44

Generate Generate alternative alternative courses courses of of action action

• The idea is to generate as many alternatives as possible

4.4 30 Copyright ©2011 by Cengage Learning. All rights reserved

10

Chapter 5

Buck Knives Considers Its Options

Beyond the Book

In 2004, C.J. Buck moved his company Buck Knives from its 62 year-old headquarters in San Diego, California to Post Falls, Idaho. As its clients had shifted from small specialty stores to larger accounts like Wal-Mart and JCPenney, order volumes had risen but price competition was hurting margins. Buck concluded they could move assembly to Mexico, become a marketing company and outsource all production, or move the company. To maintain the integrity of the brand and maintain quality control, Buck wanted to keep production close to the headquarters. Buck chose to move because Idaho provided a more business friendly environment. Source: B. Eckert, “The Best Advice I Ever Got: Try Starting From Scratch”, Fortune, 31 August 2009. 20.

31 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 55

Evaluate Evaluate each each alternative alternative

• This step can take much longer and be more expensive than other steps in the process

4.5 32 Copyright ©2011 by Cengage Learning. All rights reserved

Steps to Rational Decision Making 66

Compute Compute the the optimal optimal decision decision

•

Multiply the rating for each criterion by the weight for that criterion Sum the scores for each alternative course of action

•

4.6 33 Copyright ©2011 by Cengage Learning. All rights reserved

11

Chapter 5

Limits to Rational Decision Making Maximize Maximize

Satisfice Satisfice

4.7 34 Copyright ©2011 by Cengage Learning. All rights reserved

Using Groups to Improve Decision Making

Structured Structured Conflict Conflict

Nominal Nominal Group Group Technique Technique

Delphi Delphi Technique Technique

Electronic Electronic Brainstorming Brainstorming

5 35 Copyright ©2011 by Cengage Learning. All rights reserved

Group Decision Making Advantages

1. 1.View View problems problems from from multiple multipleperspectives perspectives 2. 2.Find Find and and access access more moreinformation information 3. 3.Generate Generate more morealternative alternativesolutions solutions 4. 4.More Morecommitted committed to to making makingchosen chosen solutions solutions work work

5.1 36 Copyright ©2011 by Cengage Learning. All rights reserved

12

Chapter 5

Group Decision Making Disadvantages

1. 1.Susceptible Susceptibleto to groupthink groupthink and and to toconsidering consideringaa limited limited number number of of solutions solutions 2. 2.Takes Takes considerable considerabletime time 3. 3.One One or or two twopeople peoplecan can dominate dominate group group discussion discussion 4. Members don’t feel personally accountable 4. Members don’t feel personally accountable for for decisions decisions and and actions actions 5.1 37 Copyright ©2011 by Cengage Learning. All rights reserved

Groupthink Groupthink is likely to occur when…

the thegroup groupisisinsulated insulated from fromothers otherswith with different different perspectives. perspectives.

the thegroup group leader leaderexpresses expressesaa strong strongpreference preference for foraa particular particulardecision. decision.

there thereisisno noestablished establishedprocedure procedurefor fordefining defining problems problemsand andexploring exploringalternatives. alternatives.

group group members membershave havesimilar similarbackgrounds. backgrounds. 5.1 38 Copyright ©2011 by Cengage Learning. All rights reserved

Structured Conflict C-Type C-Type Conflict Conflict

Cognitive Cognitive conflict conflict Disagreement Disagreement that that focuses focuses on on problemand problem- and issue-related issue-related differences of opinion differences of opinion

A-Type A-Type Conflict Conflict

Affective Affective conflict conflict Disagreement Disagreement that that focuses focuses on on individuals individuals or or personal personalissues issues

5.2 39 Copyright ©2011 by Cengage Learning. All rights reserved

13

Chapter 5

Devil’s Advocacy Steps to Establish a Devil’s Advocacy Program 1. 1. Generate Generateaa potential potentialsolution solution 2. Assign a devil’s 2. Assign a devil’sadvocate advocateto tocriticize criticizeand andquestion question 3. 3. Present Present the thecritique critiqueof ofthe thesolution solution to to key keydecision decision makers makers 4. 4. Gather Gatheradditional additionalinformation information 5. 5. Decide Decidewhether whetherto touse, use, change, change, or ornot notuse use the theoriginally originallyproposed proposed solution solution 5.2 40 Copyright ©2011 by Cengage Learning. All rights reserved

Dialectical Inquiry

Beyond the Book

Steps to Establish a Dialectical Inquiry Process 1. 1. Generate Generate aapotential potentialsolution solution 2. Identify the assumptions 2. Identify the assumptionsunderlying underlyingthe the potential potentialsolution solution 3. 3. Generate Generate aaconflicting conflictingcounterproposal counterproposalbased based on on opposite oppositeassumptions assumptions 4. 4. Have Haveadvocates advocates of ofeach each position positionpresent presenttheir their arguments arguments and andengage engagein in aadebate debatein in front front of of decision decisionmakers makers 5. 5. Decide Decidewhether whetherto touse, use,change, change,or or not not use use the the originally originallyproposed proposedsolution solution 41 Copyright ©2011 by Cengage Learning. All rights reserved

Nominal Group Technique Steps to Establish Nominal Group Technique 1. 1. During Duringaa quiet quiettime, time, group group members memberswrite writedown down as asmany manyproblems problemsand and solutions solutionsas aspossible. possible. 2. 2. Each Each member membershares sharesone oneidea ideaat ataatime. time. 3. 3. Ideas Ideasare areposted posted on on flipcharts flipchartsuntil untilall allideas ideasare areshared. shared. 4. 4. Group Group discusses discussesadvantages/disadvantages. advantages/disadvantages.

5.3

5. 5. Ideas Ideasare areranked rankedduring duringaa second secondquiet quiet time. time. 6. 6. Members Membersread read rankings rankingsaloud, aloud,and andthe theidea idea with with the the highest highestaverage averagerank rankisisselected. selected. 42 Copyright ©2011 by Cengage Learning. All rights reserved

14

Chapter 5

Delphi Technique Steps to Establish Delphi Technique 1. 1. Assemble Assembleaa panel panelof ofexperts. experts. 2. 2. Create Createaaquestionnaire questionnaireof ofopen-ended open-endedquestions. questions. 3. 3. Summarize Summarizethe theresponses responsesand andfeed feed back backto tothe thepanel panel until untilthe themembers membersreach reach agreement. agreement. 4. 4. Create Createaabrief briefreport report and and send sendto tothe thepanel panelmembers membersfor for agreement/disagreement. agreement/disagreement. 5. 5. Continue Continuethe thefeedback feedbackprocess processuntil untilpanel panelreaches reaches agreement. agreement. 5.4 43 Copyright ©2011 by Cengage Learning. All rights reserved

Stepladder Technique Member 4 Joins Group

Beyond the Book

Members 1, 2, & 3 Share previous thoughts, ideas, recommendations

Discussion is Held and Tentative Group Decision is Made

Member 3 Joins Group Shares thoughts, ideas,

Members 1 & 2 Share previous thoughts, ideas, recommendations

Discussion is Held and Tentative Group Decision is Made

Member 1 Shares thoughts, ideas,

Member 2 Shares thoughts, ideas, recommendations

Discussion is Held and Tentative Group Decision is Made

Step 3 Shares thoughts, ideas, recommendations

Step 2 recommendations

Step 1 recommendations

44 Copyright ©2011 by Cengage Learning. All rights reserved

Brainstorming Four Rules of Brainstorming 1. 1. The Themore moreideas, ideas,the thebetter. better. 2. All ideas are acceptable, 2. All ideas are acceptable, no nomatter matter how howwild wild or orcrazy. crazy. 3. 3. Other Othergroup group members’ members’ideas ideasshould shouldbe beused used to tocome comeup upwith with even even more moreideas. ideas. 4. 4. Criticism Criticismor orevaluation evaluation of ofideas ideasisisnot notallowed. allowed. 5.5 45 Copyright ©2011 by Cengage Learning. All rights reserved

15

Chapter 5

Electronic Brainstorming Advantages of Electronic Brainstorming

 Overcomes production blocking • technology allows everyone to record their ideas as they are created • no ideas lost while waiting your turn to speak  Overcomes evaluation apprehension • anonymity creates free expression

5.5 46 Copyright ©2011 by Cengage Learning. All rights reserved

Electronic Brainstorming Disadvantages of Electronic Brainstorming

• Greater expense • No automatic acceptance of ideas because of one’s position • Some find it difficult to express themselves in writing • Lack of typing skills can frustrate participants 5.5 47 Copyright ©2011 by Cengage Learning. All rights reserved

Beyond the Book Brainstorming: Up-close and Personal • Some organizations are trying some radical methods for generating new ideas. • In 2008, Best Buy took four groups of younger sales people and asked them to live together for 10 weeks. • Their goal for the period was to brainstorm and develop new businesses that could be launched quickly and cheaply. • Their efforts produced Best Buy Studio, a service providing Web-design consulting for small businesses. Source: R. Jana, “Real Life Imitates Real World”, Business Week, 23 & 30 March 2009. 42.

48 Copyright ©2011 by Cengage Learning. All rights reserved

16