Chapter 13

1. Chapter 13 Strategic Planning

2. Chapter outline: • Overview • Mission statement • Business analysis • Goals, objectives, strategies and tactic • Budgeting • Measuring performance

3. Overview • The importance of planning • According to Ivancevich, Lorenzi & Skinner, “ Planning enables a firm to respond quickly to changing business demands, market conditions, and customer expectation • Typical reasons to plan for the future of a business • To clarify & define the company’s mission or vision • To help set priorities • To help with financial resource allocation • To provide a yardstick to measure & evaluate success • To avoid failure

4. Type of plans • Strategic planning: • Definition • Special characteristic of strategic plan • Strategic plan is not just a plan, it is a process, how? • Business plan • Marketing plan • Human resource/ personal plan • Capital spending plan

5. Mission statement- • Definition: • a philosophical statement that explains the direction & purpose of the design practice, its values, why it exists, & who it serves. • Component of a mission statement: • External focus • Key market / Client • Purpose of the firm • Examples: • McDonalds - "To provide the fast food customer food prepared in the same high-quality manner world-wide that is tasty, reasonably-priced & delivered consistently in a low-key décor and friendly atmosphere.“ • Key Market: The fast food customer world-wide • Contribution: tasty and reasonably-priced food prepared in a high-quality manner • Distinction: delivered consistently (world-wide) in a low-key décor and friendly atmosphere. • Difference between mission and vision statement: • a mission statement focuses on a company’s present state while a vision statement focuses on a company’s future. However, some companies tend to blend these statements. • Characteristics of a mission statement: • Start with a concept of where the firm want to go • focused

6. Examples: The following are some of the top technology-based company mission statements: • Amazon: to be earth’s most customer centric company; to build a place where people can come to find and discover anything they might want to buy online. (They list this as their mission as a combination mission/vision on their site). • Apple: Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. • Dell: Dell’s mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. • Facebook: Facebook’s mission is to give people the power to share and make the world more open and connected. • Google: Google’s mission is to organize the world‘s information and make it universally accessible and useful. • Microsoft: Microsoft’s mission is to enable people and businesses throughout the world to realize their full potential. • Skype: Skype’s mission is to be the fabric of real-time communication on the web. • Twitter: Twitter lists its mission as “a work in progress” as it has yet to be fully developed. • Yahoo!: Yahoo!’s mission is to be the most essential global Internet service for consumers and businesses • YouTube: YouTube’s mission is to provide fast and easy video access and the ability to share videos frequentl

7. Business Analysis • A common component of the strategic plan is the mission statement. Drafting a mission statement at the beginning of the process is useful. • First step is the analysis of the firm’s current condition. Looking at all the forces that affect the design firm, the planning team can make better judgments for the future. • The most commonly used method of analysis is called SWOT Analysis (Strengths, Weaknesses, Opportunities & Threats).

8. Business AnalysisSWOT Analysis • Peter Drucker points out, strength analysis “shows where there is need to improve or upgrade existing strengths and Where new strengths have to be acquired.” • SWOT analysis is done by preparing statements that analyze the internal & external forces & activities of the design firm. • Internal forces: • are factors within the firm that it can control. • They are related to the strengths & weakness of the firm • They would include such things as the services the firm offers, financial resources, project management, and the way the firm markets itself. • External forces: • forces outside the firm’s control. • They are related to the opportunities for and threats to the firm. Such as government regulations, competition, technology, economic forecasts, and the firm’s customers. • Opportunities & threats are often harder to determine because they are factors that are outside the business.

9. Fig. 10.3- Examples of items that might be included in a SWOT Analysis • Strengths Our firm is well know Our firm has a strong financial position Our firm has a focused client target market • Weaknesses Our firm receives too many customer service complaints Some support staff members have a bad attitude None of our designers are NCIDQ qualified • Opportunities Angel Carpeting is offering co-opt advertising The studio will be relocating to an uptown location in order to increase our potential for high end clients • Threats Those strong competitors have moved into our market area A former employee has taken away two former repeat clients in the last 6 mos. State licensing will be required for supervision of installations.

10. This kind of formal analysis helps the design firm, how? • SWOT analysis can be started by reviewing the skills & interest of the owner and all the staff. • External analysis often involves the use of primary and secondary sources of information. • Secondary sources: • those sources of information that are already in existence or are produced by others such as government, trade associations, general business publications (Wall Street Journal), local business reports in newspapers, chamber of commerce publications and reporting services. • Primary sources: • sources of information that provide specifics from people who may have direct knowledge about the information being sought. • methods used to gather primary data are surveys or questionnaires, observation and interviews. • The most common method of gathering primary data used by design firms is a casual interview, or casual conversation. • Another easy form of primary research is observation. • Everyone should keep his or her eyes open for new construction, remodeling, or work in progress related to the interior design firm’s practice. • An expensive form of primary marketing analysis is the formal questionnaire or survey.

11. Goals, objectives, strategies and tactic Organization’s goals: • broad statements of what the firm wishes to achieve, without regard to any time limit. • Example, “ to become the premier residential design firm in the city” • Strategies: • specific statements that describe how the firm plans to achieve a goal. • Example: “During the next year, we will refine our resource library to obtain materials on the highest quality merchandise”. “The owner will begin submitting articles on interior design to a local shelter magazine to gain publicity”. • To further ensure successful accomplishment of these goals and objectives, more specific tactics must be established. • Tactics: • are highly specific actions that are needed to accomplish the strategies. • Example, “During the next three months, the owner will schedule meetings with the editors of 3 local magazines concerning a column on design”. • All the goals, strategies, and tactics of the strategic plan must relate back to the firm’s mission statement

12. Budgeting • It is defined as: • Budgeting is a part of the management function, involves creating annual managerial goals that can be expressed in specific, quantitative monetary terms. • It is defined as a predetermined amount of resources linked to an activity.

13. Budgeting • Budgeting encourages the owner and manager to plan for the financial needs of the company in a thoughtful and organized way. • Formal budgeting permits the discovery of potential problem areas and provides the opportunity to determine a course of action prior to their occurrence. • Budgeting focuses the efforts of the whole organization toward the firm’s annual goals by coordinating all the various individuals’ and groups’ efforts. • It is more common for budgeting to be done when the goals, strategies, and tactics are determined and prioritized. This timing makes it easier for the owner and manager to estimate the financial and even human resources necessary to accomplish important, agreed upon goals and if necessary, make adjustments to them.

14. Budgeting • By reviewing figures of prior years, owners and managers can begin to forecast what will likely happen in the coming year. • Budgeting should not be done by merely adding a modest percentage of increase or decrease from month to month and year to year, it does not provide an accurate budget for expanded activities like marketing in a new geographic market • When totally new tactics are called as part of the plan, the firm, will have to do some research through appropriate consultants to determine budget figures. Example, if the plan includes developing a web site, it will be necessary to check with web site designers to establish a budget for the design of the web site as well as the ongoing costs of a web master and provider fees. • Some firms use the zero based budgeting method as their starting point. Zero budgeting assumes that each year the managers of the firm start with zero budget level and must justify all costs, as if the department or activity were starting new. This means that no costs are considered as ongoing from year to year.

15. It also means that the firm must accurately forecast revenues to cover and to exceed the amount of the expenses. Design Department Proposed Budget 200x Revenue From fees 420,000 500,000 Cost of Sales Direct Labor 271,875 290,000 Supplies 8,500 7,000 Reproduction Expense 9,350 7,500 Telephone 3,700 4,800 Total Cost of Sales 293,425309,300 Gross Margin 126,575190,700 Total Cost of Sales293,425309,300

16. Measuring Performance • Performance evaluation not only is part of measuring success but also relates to all other planning. Such things as whether the job descriptions were actually written and ere adhered to during hiring, whether the newly purchased truck was cost effective, and whether projects were obtained from the hospital market are all part of performance evaluation portion of the planning process. • One measure of performance is variance analysis. • Another measure can be accomplished by doing post project reviews at the conclusion of all significant project. • It does not matter if one is monitoring a marketing plan, a personnel plan, a strategic plan, or any other type of plan. Stopping to review progress is essential to good business practice. • A large firm may not do a review until a full year has gone by if there are plenty of staff members who are keeping track of what is happening in the company. • A small design firm needs to look at the big picture pointed by the plan a little more often- at least twice a year. Scheduling a half-day to review progress or the lack thereof is just as important as developing the plan in the first place.

17. Operating Expenses for Design Department Salaries 61,990 84.000 Payroll Taxes 16,000 24,000 Group Insurance l.750 1,700 Promotion 2,750 2,000 Travel Reimbursement 6,800 7,000 Supplies & Postage 6,300 6,000 Professional Dues 3,000 2,500 Printing & Reproduction 8,400 10,000 Technical consultants 12,900 5,000 Total Operating Exp. 119,890 142,200 Net income 6,685 48,500 Profit to Sales 2% 10%