Effective Planning and Decision Making for Cost Reduction and Employee Retention

1. Chapter 4 Planning and Decision Making

2. What Would You Do? • Mercedes has lost market share • Costs must be reduced • Will employees have to be laid off? • Are there creative alternatives?

3. Learning ObjectivesPlanning After discussing this section you should be able to: • discuss the costs and benefits of planning, • describe how to make a plan that works. • discuss how companies can use plans at all management levels, from top to bottom.

4. Costs and Benefits of Planning • The Benefits • The Pitfalls of Planning

5. Intensified Effort Persistence Direction The Benefits Creation of Task Strategies It Works!

6. Planning Pitfalls Impede Change & Prevent Adaptation Create a False Sense of Certainty Detachment of Planners

7. How to Make a Plan that Works Maintain Flexibility in Planning Set Goals Develop Commitment to Goals Develop Effective Action Plans Track Progress Toward Goal Achievement Adapted from Figure 4.1

8. Setting Goals Specific Measurable Attainable Realistic Timely

9. Goal Commitment • The determination to achieve a goal • Increased by: • Setting goals through participation • Goals are reasonable • Making goals public • Obtain top management support

10. Developing Effective Action Plans • For accomplishing a goal, these list the: • specific steps • people • resources • time period

11. Tracking Progress • One method, setting: • proximal goals - short-term • distal goals. - long-term • Second method: • gather and provide performance feedback • make adjustments in: • effort • direction • strategies

12. Maintaining Flexibility • Option-based planning • keep options open through simultaneous investment • invest more in promising options • Learning-based planning • plans need to be continuously adjusted • encourages frequent reassessment and revision of goals

13. Planning from Top to Bottom Single-Use Plans Management by Objectives Operational Plans Mission Vision Tactical Plans Standing Plans Adapted from Figure 4.3

14. Vision Mission Tactical Plans Management by Objectives Operational Plans Standing Plans Single-Use Plans Planning from Top to Bottom (cont’d) Top Managers Middle Managers First-Level Managers Adapted from Figure 4.3

15. Starting at the Top • Vision • statement of purpose • enduring, inspirational, clear, and consistent with company beliefs and values • Mission • flows from vision • more specific goal statements

16. Bending in the Middle • Tactical Plans • specify how a company will use resources, budgets, and people to accomplish goals • Management by Objectives • develop and carry out tactical plans • four steps • discuss goals • participatively select goals • jointly develop tactical plans • meet to review performance

17. Finishing at the Bottom • Operational plans • day-to-day plans • Single-use plans • cover one-time-only events • Standing plans • plans for recurring events • three kinds • policies • procedures • rules & regulations • Budgeting

18. Learning ObjectivesDecision Making • explain the steps to rational decision making. • explain how group decisions and group decision making techniques can improve decision making. After discussing this section you, should be able to:

19. Steps to Rational Decision Making 1 Define the Problem 2 Identify Decision Criteria 3 Weight the Criteria 4 Generate Alternative Course of Action 5 Evaluate Each Alternative 6 Compute the Optimal Decision Adapted from Figure 4.6

20. Define the Problem • Problem exists when there is a gap between a desired state and an existing state • To make decisions about problems, managers must: • aware of the gap • motivated to reduce the gap • have the knowledge, skills, abilities, and resources to fix the problem

21. Weight the 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

22. Adapted from Table 4.1

23. Adapted from 4.2

24. Criteria Ratings Used to Evaluate the Best Locations for Insurance Companies Source: K. Galloway, “America's Best Insurance Cities,”Best's Review/Property‑Casualty Insurance Edition, 1 November 1994, 38 Adapted From Table 4.3

25. Cities Ranked by Optimal Value and Average Ratings Source: K. Galloway, “America's Best Insurance Cities,”Best's Review/Property‑Casualty Insurance Edition, 1 November 1994, 38 Adapted From Table 4.4

26. Bounded Rationality • Managers try to be rational • they are restricted by real-world constraints • cannot be completely rational

27. Choosing Solutions • Maximizing decisions • choosing the optimal solution • requires fully rational decision conditions • Satisficing decisions • choosing the “good enough” solution • maximization is not possible due to constraints • fits with bounded rationality

28. Using Groups to Improve Decision Making Structured Conflict Advantages and Pitfalls Nominal Group Technique Electronic Brainstorming Delphi Technique

29. Advantages of Group Decision Making • Improved problem definition • view problems from multiple perspectives • find the cause of the problem • Generate more alternative solutions • have access to greater information than individuals • involvement leads to greater decision commitment

30. Pitfalls of Group Decision Making • Groupthink • It takes more time • One or two people dominate discussions

31. Groupthink • Internal pressures prevent the group from openly evaluating all alternatives • Most likely: • the group is insulated from different ideas • the group leader stifles discussions • there is no established procedure for defining and exploring alternatives • group members have similar backgrounds and experiences

32. Structured Conflict • C-type conflict • cognitive conflict • focuses on problem-related differences of opinion • A-type conflict • affective conflict • emotional reactions to disagreements

33. Devil’s Advocacy - 5 Steps Generate a potential solution Assign a devil’s advocate to criticize and question the solution Present the critique of the potential solution to key decision makers Gather additional relevant information Decide whether to use, change or not use the original proposed solution

34. Dialectical Inquiry Identify the assumptions underlying the potential solution Generate a potential solution Generate a conflicting counterproposal based on the opposite assumptions Have advocates of each position present their arguments and debate them Decide whether to use, change or not use the original proposed solution

35. What Really Works? Devil’s Advocacy & Dialectical Inquiry Devil’s Advocacy 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 58% Dialectical Inquiry 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Probability of success 55%

36. Nominal Group Technique • Decreases negative group behaviors by having group members work individually • begin with “quiet time” • members write out ideas • Ideas are then posted to the group • Advantages/disadvantages are discussed • Members individually reflect on discussion • Ideas are then ranked by the group

37. Delphi Technique Select a panel of experts Create a questionnaire of open-ended questions Compile and summarize expert responses into written report Experts list their reasons agreeing/disagreeing with report Repeat steps 3 & 4 until consensus is reached

38. Electronic Brainstorming • Four brainstorming rules: • the more ideas, the better • all ideas are acceptable • use others’ ideas to create more ideas • criticism or evaluation of ideas is not allowed • A modification of traditional brainstorming • use computers to manage the process

39. Advantages of Electronic Brainstorming • Overcomes production blocking • technology allows everyone to record their ideas as they are created • no ideas lost “waiting your turn” to speak • Overcomes evaluation apprehension • anonymity creates free expression

40. 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 type skills can frustrate participants

41. What Really Happened? • They defined the problem as low revenues caused by poor customer service • Employees reengineered the work • Their “unique” process led to innovation