Chapter 5 Planning and Decision Making

1. MGMT 2008 Chuck Williams Chapter 5Planning and Decision Making Designed & Prepared byB-books, Ltd.

2. Planning After reading these sections, you should be able to: • discuss the benefits and pitfalls of planning. • describe how to make a plan that works. • discuss how companies can use plans at allmanagement levels, from top to bottom.

3. Planning Planning Choosing a goal and developing amethod of strategy to achieve that goal 1

4. Benefits of Planning Persistence Direction IntensifiedEffort Creationof Task Strategies Benefits of Planning 1.1

5. Pitfalls of Planning False Senseof Certainty Impedes Changeand Adaptation Detachmentof Planners Pitfalls of Planning 1.2

6. Set Goals DevelopCommitment DevelopEffective Action Plans TrackProgress Toward Goal Achievement MaintainFlexibility Revise existing planorBegin new planning process How to Make a Plan That Works 2

7. Specific S.M.A.R.T. • Measurable • Attainable • Realistic • Timely Setting Goals 2.1

8. 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.” Examples of S.M.A.R.T. Goals?

9. Developing Commitment to Goals The determination to achieve a goal is increased by… • setting goals participatively. • making goals reasonable. • making goals public. • obtaining top management support. 2.2

10. Specific Steps People Resources Time Period Developing Effective Action Plans An Action Plan Lists… 2.3

11. Beyond the Book Yahoo Plans for Independent Life • Yahoo, Inc. plans to remain an independent, globally viable company, able to compete against Google, Inc. and startups. • To accomplish this goal, CEO Jerry Yang refused Microsoft Corp.’s offer to buy Yahoo. • Yang will expand Yahoo’s technology group, give responsibility for product development to a single group, and restructure its advertising unit. Source: J. E. Vascellaro, “Yahoo Unveils Restructuring,” The Wall Street Journal, 26 June 2008.

12. Tracking Progress Set… Gather and provide… Performance Feedback Proximal Goals Distal Goals 2.4

13. Maintaining Flexibility Option-based planning • keep options open by making simultaneous investments • invest more in promising options • maintains slack resources Learning-based planning • plans need to be continuously adjusted 2.5

14. Beyond the Book Planning or Doing? • 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.

15. Planning from Top to Bottom Top Managers Middle First-Level Managers 3

16. Strategic Plans Clarify how the company will serve customers and position itself against competitors (2-5 years) Vision An inspirational statement of anorganization’s purpose (2 sentences) Mission Overall goal that unifies efforts towardits vision, stretches and challenges,and possesses a finish line andtime frame. Flows from vision. Starting at the Top 3.1

17. Beyond the Book 5 Years 2 Years Strategic 6 months 2 years Plans Tactical 30 days Operational 6 months 0 1 2 3 4 5 6 Years Planning Time Lines

18. Tactical Plans Specify how a company will use resources, budgets, and people toaccomplish goals within its mission. (6 months to 2 years) ManagementbyObjectives Develop and carry out tactical plans MBO is a four-step process Bending in the Middle 3.2

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

20. Finishing at the Bottom Operational Plans Day-to-day plans for producing or delivering products and services overa 30-day to six-month period 3.3

21. Single-Use Plans Plans that cover unique, one-time-only events Standing Plans Plans used repeatedly to handle frequently recurring events. Three kinds are: policies, procedures,and rules and regulations. Budgets Quantitative planning to decide howto allocate money to accomplish company goals Kinds of Operational Plans 3.3

22. What Is Rational Decision Making? After reading these sections, you should be able to: • explain the steps and limits to rational decision making. • explain how group decisions and groupdecision-making techniques can improvedecision-making.

23. Decision Making The process of choosing a solution fromavailable alternatives. Rational Decision Making A systematic process of defining problems, evaluating alternatives, and choosing optimal solutions. What Is Rational Decision Making? 4

24. 1 Define the problem 2 Identify decision criteria 3 Weight the criteria 4 Generate alternative courses of action 5 Evaluate each alternative 6 Compute the optimal decision Steps to Rational Decision Making 4

25. Steps to Rational Decision Making 1 Define the 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. 4.1

26. Beyond the Book Defining the Problem • Cisco Systems, Inc. makes the switches and routers that create the infrastructure for the Internet. • But Cisco wants to make a broader impact on Internet communication, especially in the business world. • The company will stretch its resources to develop instant messaging and Web conferencing as well as online video. Source: “The 50 Women to Watch 2008,” The Wall Street Journal, 10 November 2008, R6.

27. Steps to Rational Decision Making 2 Identify decision criteria • Standards used to guide judgments and decisions • The more criteria a potential solution meets, the better that solution should be 4.2

28. Steps to Rational Decision Making 3 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 4.3

29. Steps to Rational Decision Making Absolute Weighting of Decision Criteria 4.3

30. Steps to Rational Decision Making Relative Weighting of Decision Criteria 4.3

31. Steps to Rational Decision Making 4 Generate alternative courses of action • The idea is to generate as many alternatives as possible 4.4

32. Steps to Rational Decision Making 5 Evaluate each alternative • This step can take much longer and be more expensive than other steps in the process 4.5

33. Steps to Rational Decision Making 6 Compute the optimal decision • Multiply the rating for each criterion by the weight for that criterion • Sum the scores for each alternative course of action 4.6

34. Bounded Rationality • A decision-making process restricted in the real world by: • limited resources • incomplete and imperfect information • managers’ limited decision-making capabilities Limits to Rational Decision Making 4.7

35. Maximize Satisfice Limits to Rational Decision Making 4.7

36. StructuredConflict NominalGroupTechnique DelphiTechnique Stepladder Technique ElectronicBrainstorming Using Groups to Improve Decision Making 5

37. Group Decision Making Advantages • View problems from multiple perspectives • Find and access more information • Generate more alternative solutions • More committed to making chosen solutions work 5.1

38. Disadvantages • Susceptible to groupthink and to considering a limited number of solutions • Takes considerable time • One or two people can dominate group discussion • Members don’t feel personally accountable for decisions and actions Group Decision Making 5.1

39. Beyond the Book A Chair for Group Brainstorming • What makes an environment conducive to group decision making? • Comfort and the ability to see and interact with other group members. • Steelcase designed a chair just for collaboration. • You can sit on it forwards, backwards, or sideways, enabling you to move toward any other group member, yet still be comfortable in the chair. Source: “Don’t Just Sit There—Squirm,” BusinessWeek, 28 July, 2008, 17.

40. Groupthink is likely to occur when… • the group is insulated from others with different perspectives. • the group leader expresses a strong preference for a particular decision. • there is no established procedure for defining problems and exploring alternatives. • group members have similar backgrounds. Groupthink 5.1

41. Structured Conflict C-Type Conflict Cognitive conflictDisagreement that focuses onproblem- and issue-related differences of opinion A-Type Conflict Affective conflict Disagreement that focuses onindividuals or personal issues 5.2

42. Steps to Establish a Devil’s Advocacy Program • Generate a potential solution • Assign a devil’s advocate to criticize and question • Present the critique of the solution to key decision makers • Gather additional information • Decide whether to use, change, or not usethe originally proposed solution Devil’s Advocacy 5.2

43. Beyond the Book Steps to Establish a Dialectical Inquiry Process • Generate a potential solution • Identify the assumptions underlying thepotential solution • Generate a conflicting counterproposal basedon opposite assumptions • Have advocates of each position present theirarguments and engage in a debate in front ofdecision makers • Decide whether to use, change, or not usethe originally proposed solution Dialectical Inquiry

44. Steps to Establish Nominal Group Technique • During a quiet time, group members write down as many problems and solutions as possible. • Each member shares one idea at a time. • Ideas are posted on flipcharts until all ideas are shared. • Group discusses advantages/disadvantages. • Ideas are ranked during a second quiet time. • Members read rankings aloud, and the idea with thehighest average rank is selected. Nominal Group Technique 5.3

45. Steps to Establish Delphi Technique • Assemble a panel of experts. • Create a questionnaire of open-ended questions. • Summarize the responses and feed back to the panel until the members reach agreement. • Create a brief report and send to the panel members for agreement/disagreement. • Continue the feedback process until panel reaches agreement. Delphi Technique 5.4

46. Beyond the Book Member 4 JoinsGroup Shares thoughts, ideas, recommendations Members 1, 2, & 3 Share previous thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 3 Member 3 JoinsGroup Shares thoughts, ideas, recommendations Members 1 & 2 Share previous thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 2 Member 1 Shares thoughts, ideas, recommendations Member 2 Shares thoughts, ideas, recommendations Discussion is Held and Tentative Group Decision is Made Step 1 Stepladder Technique

47. Four Rules of Brainstorming • The more ideas, the better. • All ideas are acceptable, no matter how wild or crazy. • Other group members’ ideas should be usedto come up with even more ideas. • Criticism or evaluation of ideas is not allowed. Brainstorming 5.5

48. Advantages of Electronic Brainstorming 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

49. Disadvantages of Electronic Brainstorming 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