Planning And Why It’s So Important

1. PlanningAnd Why It’s So Important

2. Critical Thinking • Critical thinking is the key planning skill and planning is the foundation upon which any business – large or small – is built. • If you cannot think critically, you will not be effective in any aspect of business that involves planning.

3. Critical Thinking and Planning Critical thinkers are skeptical of obvious, easy assumptions. They are conscientious and thorough. They ask many questions and ”learn the territory.” And they look for “root” causes before attempting to solve a problem.

4. Importance of Thorough Preparation and Knowing the Territory Battle of Islandahlwana (1879) • 4,000 crack British troops armed with ignorance, arrogance and rifles against 22,000 Zulu warriors armed with courage, spears and cowhide shields • Spare ammunition packed in tin-lined, steel- strapped cases requiring a special tool to open • Thousand-yard rifles against spears and shields. Who won?

5. OOPS! > Someone lost most of the tools > British couldn’t get enough ammunition quickly enough > They were outmaneuvered and slaughtered

6. Avoiding Oops • Always over - prepare • Never under - estimate • Know the territory

7. Genius “The secret of genius is an infinite capacity for taking pains.” Knute Rockne

8. Overview “Planning keeps you on your feet when life pulls the rug out from under them.” Olson

9. Overview • How planning can partially predict the future and provide flexibility to capture it • The steps of the planning process • The basics of SWOT analysis • The basics of PDCA • How a focus just on continually improving operational efficiency and effectiveness can contribute to failure (Example: Dell)

10. Overview • The difference among corporate, business and functional-level strategies • How strategy implementation can determine your ability to achieve the organization’s mission and goals • The vital importance of Core Ideology, corporate culture and BHAGs in creating sustainable competitive advantage (the ultimate goal of all business strategy)

11. The Root Objective of Planning All business planning begins with four questions: • What is my product or service? • Who will buy it? • What do they want in the product and the sales and service processes? • How can we satisfy them in ways that will separate us from competitors, capture customer loyalty, make money and build sustainable competitive advantage?

12. The Nature of the Planning Process • Planning • Identifying and selecting appropriate goals and detailed courses of action • Strategy • The cluster of decisions and actions managers make and take to help an organization reach its goals (the roadmap)

13. But First Comes Core Ideology Core Ideology • Core Values (What do we hold most dear?) • Core Purpose (Why do we exist?) These two comprise corporate DNA which, like a star on the horizon, is an unchanging guide that determines direction

14. Thoughts About Core Ideology • Need not be obvious: Nike is the Greek goddess of victory. The campus of her corporate namesake says “we live to compete” • A clear and passionate statement of corporate ideology can be useful in recruiting the best and brightest. “The best (urgent heart) people are volunteers who can work anywhere.” Peter Drucker

15. Core Ideology • Aimed primarily in not out. Its primary purpose is to inspire employees, not to differentiate the company from competitors. • Successful companies (J&J, GE, Toyota) often follow a stakeholder, not a shareholder, philosophy and have among their core values making a useful contribution to society. • For them “maximizing shareholder wealth” is not a core value.

16. These Concepts Follow Core Ideology • Vision (Where are we going?) • Strategy (How do we plan to get there?) • Tactics (roles, resources and responsibilities) The above (which move from general to specific) can and should evolve with the changing outside environment

17. Strategy According to Michael Porter Harvard’s ever-eloquent Michael Porter says strategy is a unique vision and a set of complementary activities combined to create sustainable competitive advantage. • Unique vision differentiates the company; interlinked, complementary activities based on inherent corporate strengths are difficult for competitors to copy – avoiding the competitive convergence resulting from benchmarking. • WHAT DO THESE FANCY WORDS MEAN?

18. Other Porter Thoughts On Strategy Without a unique controlling strategy, continuous improvement of operational effectiveness and efficiency produces competitive convergence, product commoditization, price erosion, and mutually assured destruction (unless one of the players is much better at it than the others) Customers love it, but the companies eventually starve.

19. The Nature of the Planning Process Mission Statement A broad declaration that captures, crystallizes and communicates corporate purpose in order to energize employees and distinguish the company from competitors A VERBAL BANNER

20. Most Mission Statements are BS • Too long; all things to all people; read as though written by a committee of lawyers • Do not: (1) direct and motivate employees (2) differentiate from competitors

21. Mission Statements Cisco Cisco solutions provide competitive advantage to our customers through more efficient and timely exchange of information, which in turn leads to cost savings, process efficiencies, and closer relationships with customers, prospects, business partners, suppliers and employees.

22. Mission Statement Wal-Mart We work for you. We think of ourselves as buyers for our customers, and we apply our considerable strengths to get the best value for you. We’ve built Wal-Mart by acting on behalf of our customers, and that concept continues to propel us. We’re working hard to make our customers’ shopping easy.

23. Mission Statement AT&T We are dedicated to being the world’s best at bringing people together – giving them easy access to each other and to the information and services they want and need – anytime, anywhere.

24. Simplified Mission Statements • Cisco: We build customers’ competitive edge by equipping them to share information more efficiently and effectively. • Wal-Mart: We help people live every day better by offering top value at low prices. • AT&T:The best at bringing people together. IF YOU CAN’T SAY IT SIMPLY, DON’T BOTHER!

25. Planning Process Stages • Determine the organization’s mission and goals. • Look in-look out; analyze your company and the outside environment (SWOT), then formulate a strategy to achieve the mission and goals. • Implement the strategy by assigning Responsibility, allocating Resources and demanding Results (the three “R’s”). • Continuously improve – Plan Do Check Act (PDCA). • Occasionally energize, stretch and grow the organization’s capabilities with a BHAG. • Don’t hesitate when an opportunity arises.

26. Big Hairy Audacious Goal (BHAG) A BHAG is a long-term (10-30 year) goal that can be achieved only if an organization builds new, stronger capabilities. BHAGs force management to be visionary – rather than just strategic and tactical -- and force an organization to gulp for air and run faster.

27. BHAG “I will build a motor car for the great multitude…It will be priced so low that any man making a good salary will be able to afford it…When I’m through, everybody will have one, the horse will have disappeared from our highways, the automobile will be taken for granted, and a large number of men will be employed at good wages.” Henry Ford when he founded Ford Motor Company

28. BHAG “I want twice the fuel economy of a comparable internal-combustion-engine car.” Toyota Chairman Hiroshi Okuda as he unexpectedly doubled the fuel-efficiency goal from a 50% improvement in the middle of the Prius development program. You can bet this BHAG caused the engineers to take a big gulp of air.

29. Levels of Planning A WATERFALL • Corporate-Level Plan • Top management’s decisions pertaining to the organization’s vision, values, mission, overall strategy, and structure. Provides a framework for all other planning. • Corporate-Level Strategy • A plan that indicates in which industries and markets and how an organization intends to compete.

30. Levels of Planning • Business-Level Plan: • Divisional managers’ decisions pertaining to division’s long-term goals, overall strategy, and structure (Lexus, Toyota, Scion). • Identifies how the business will meet corporate goals. • Business-Level Strategy • A plan that indicates how a division intends to compete against its rivals in an industry • Shows how the business will compete in market.

31. Levels of Planning • Functional-Level Plan • Functional managers’ decisions pertaining to the goals they propose to pursue to help the division attain its business-level goals. • Functional Strategy • A plan that indicates how a department intends to achieve its goals.

32. LINKAGE Corporate, business and functional planning all has to be tightly linked to produce unity of focus and purpose throughout the organization (Fayol). Everyone pulling on the same rope in the same direction.

33. Time Horizons of Plans Time Horizon • Corporate and business-level goals and strategies require long- and intermediate-term plans. • Functional plans focus on short-to intermediate-term plans • Most organizations have a rolling cycle to amend plans frequently. Flexibility is key!

34. Why Planning Is ImportantThe Planning Loop Planning ascertains where the organization is now and envisions where it will be in the future – Where do we want to go, when will we get there, what will we look like then? • Ownership: all managers are involved in setting future goals. • Unity of Purpose: a single road map so that everyone understands the organization’s goals and their role in achieving them.

35. Why Plan? “Chance favors only the prepared mind.” Louis Pasteur

36. Scenario Planning Bracketing or the “What-if” game • Multiple forecasts of potential future situations followed by analysis of how to effectively respond to each. • Trying to predict the unknowable with multiple possible “futures”. • Best-case, likely-case, worst-case.

37. Key Toyota Planning and Operational Procedures • Infect everyone with the corporate DNA (vision and values). • Determine, define, refine Mission, Goals and Strategy (MGS) based on SWOT analysis fully grounded in the marketplace (genchi-genbutsu). • Communicate MGS to organization (top-down) • Require organization to respond with comments on MGS and suggested tactics, timetables and resource estimates in order to harvest best ideas and build ownership (bottom-up).

38. Toyota Procedures… • Bracket (best, likely, worst-case scenarios) to provide on-the-shelf capability for dealing with rapid change; worst-case scenario should be the perfect storm; never over-extend by implementing the best-case scenario. • Finalize and implement by assigning Responsibility, allocating Resources, and demanding Results (the three Rs). • Establish KPIs (Key Performance Indicators) to monitor and measure performance.

39. Toyota Procedures… • Recognize and reward good results (you get what you reward). • Compare results with targets, improve the process and re-implement (use PDCA to achieve continuous improvement); learn from mistakes. • Use zero-based budgeting to harvest cost savings to re-invest in plant, product and process. • Occasionally use a BHAG to stretch the organization and build new competitive capabilities.

40. Formulating Corporate-Level Strategies • Concentration in a Single Business • Can become a strong competitor, but can be risky. • Diversification • Related diversification into similar market areas to build upon existing competencies. • Synergy: two divisions working together perform better than the sum of their individual performances. • Unrelated diversification is entry into industries unrelated to current business. • Attempts to build a portfolio of unrelated firms to reduce risk of single industry (GE); difficult to manage.

41. International Expansion • Basic Question: • How much do we customize products and marketing for different national conditions? Customization eats up product-development funds, decreases economy of scale and drives up costs. • Global strategy • Selling the same standard product and using the same basic marketing approach in all countries. • Lowers production cost. • But ignores national differences local competitors can use to take your customers.

42. International Expansion • Multi-domestic Strategy • Customize products and marketing strategies to specific national conditions. • Helps gain local market share. • Raises production costs. • Toyota does this to a degree.

43. How To Grow Q. How do you grow into a multi- national, then an international and finally a global company? A. By balancing cost against control, risk and opportunity.

44. International Expansion • Exporting – making products at home and selling them abroad • Importing – selling products made abroad at home

45. International Expansion • Licensing – allowing a foreign organization to manufacture and distribute your product in its country in return for a negotiated fee – canput your technology at risk (China) • Franchising – selling a foreign organization the right to use your brand name and operating know-how in return for a lump-sum payment and a share of future profits – canput your reputation at risk

46. International Expansion • Strategic alliance – managers pool resources with those of a foreign company – GM/Toyota technology sharing • Joint venture – strategic alliance between companies that agree to jointly establish and share the ownership of a new business -- NUMMI

47. International Expansion • Wholly Owned Foreign Subsidiary – managers invest in establishing production operations in a foreign country independent of any local direct involvement Example: Toyota’s North American operations

48. Vertical Integration • A strategy that allows an organization to create value by producing its inputs or distributing its outputs: buy suppliers and/or distributors. • A fully integrated firm risks bearing the full costs of an industry-wide slowdown.

49. Formulating Business-Level Strategies • Low-Cost Strategy (Cheaper – start here) • Driving the organization’s total costs below the total costs of rivals can allow you to sell for less and still be profitable • Differentiation (Better – finish here) • Offering products different and better-equipped than those of competitors can allow you to charge more.

50. Formulating Business-Level Strategies “Stuck in the Middle” • Attempting to simultaneously pursue both a low-cost strategy and a differentiation strategy. • Difficult to achieve low-cost with the added costs of differentiation. • But Toyota does, using savings to feed differentiation – Lexus, Scion, hybrids, etc.