Planning..

PLANNING

By –Anjulika
Singh

Concept of Planning

 Planning is a rational action mixed with a little of forethought. It is seen everywhere.
In a business, planning is the primary of all managerial functions as it involves
deciding of future course of action. Thus, planning logically precedes the execution
of all managerial functions. Planning is the process of deciding in advance what is to
be done, where, how and by whom it is to be done.

 Thus, it is basically a process of „thinking before doing‟. All these elements speak
about the futurity of an action.

 Koontz and O’Donnell have defined planning in terms of future course of action.
They state “that Planning is the selection from among alternatives for future courses
of action for the enterprise as a whole and each department within it.

“Planning involves defining the organization‟s goals, establishing overall strategy
for achieving goals, and developing a comprehensive set of plans to integrate,
coordinate organizational work.”

Planning

 The process of establishing goals and a suitable
course of action for achieving those goals.
 It requires decision making
 The necessity of planning arises because of the fact
that business organizations have to operate, survive
and progress in a highly dynamic economy where
change is the rule, changes gives rise to the problems
and throw countless challenges

Difference between planning and decision-making

 Decision-making is the part of the planning process
 Decision-making involves choosing among the
various alternatives.
 It is the process of identifying problems and
opportunities and then resolving them.

FEATURES OF PLANNING

 Planning is goal-oriented
 Planning is primary function
 Planning is all-pervasive
 Planning is mental exercise
 Planning is continuous-process
 Planning involves decision making
 Planning is forward looking
 Planning is flexible
 Planning is an integrated process
 Planning includes efficiency and effectiveness dimension

Nature of Planning

The nature of planning can be highlighted by studying its
characteristics. They are as follows
(a) Planning is a mental activity. Planning is not a
simple process. It is an intellectual exercise and involves
thinking and forethought on the part of the manager.
(b)Planning is goal-oriented. Every plan specifies the
goals to be attained in the future and the steps necessary
to reach them. A manager cannot do any planning, unless
the goals are known.
(c) Planning is forward looking. Planning is in keeping
with the adage, “look before you leap”. Thus planning
means looking ahead. It is futuristic in nature since it is
performed to accomplish some objectives in future.

 d) Planning pervades all managerial activity.
Planning is the basic function of managers at all
levels, although the nature and scope of planning will
vary at each level.

Planning is Pervasive

•Corporation Level
•Strategic Business Unit (SBU)
Level
•Functional or Department Level
•Team or work group level
•Individual level

 (e) Planning is the primary function. Planning
logically precedes the execution of all other
managerial functions, since managerial activities in
organizing; staffing, directing and controlling are
designed to support the attainment of organizational
goals. Thus, management is a circular process
beginning with planning and returning to planning
for revision and adjustment.

 (f) Planning is based on facts. Planning is a
conscious determination and projection of a course of
action for the future. It is based on objectives, facts and
considered forecasts. Thus planning is not a guess work.
 (g) Planning is flexible. Planning is a dynamic
process capable of adjustments in accordance with the
needs and requirements of the situations. Thus planning
has to be flexible and cannot be rigid.
(h) Planning is essentially decision making.
Planning is a choice activity as the planning process
involves finding the alternatives and the selection of the
 best. Thus decision making is the cardinal part of
planning.

Importance of Planning

 According to G.R. Terry, “Planning is the
foundation of most successful actions of all
enterprises.” An enterprise can achieve its objectives
only through systematic planning on account of the
increasing complexities of modern business. The
importance and usefulness of planning can be
understood with reference to the following benefits.

 (a) Minimizes uncertainty: The future is generally
uncertain and things are likely to change with the
passage of time. Planning helps in minimizing the
uncertainties of the future as it anticipates future events.
 (b) Emphasis on objectives: The first step in
planning is to fix the objectives. When the objectives are
clearly fixed, the execution of plans will be facilitated
towards these objectives.
 (c) Promotes coordination. Planning helps to
promote the coordinated effort on account of pre-
determined goals.

(d) Facilitates control. Planning and control are
inseparable in the sense that unplanned actions cannot
be controlled. Control is nothing but making sure that
activities conform to the plans.
(e) Improves competitive strength. Planning enables
an enterprise to discover new opportunities, which give it
a competitive edge.
(f) Economical operation. Since planning involves a lot
of mental exercise, it helps in proper utilization of
resources and elimination of unnecessary activities.This,
in turn, leads to economy in operation.

 g) Encourages innovation. Planning is basically
the deciding function of management. Many new
ideas come to the mind of a manager when he is
planning. This creates an innovative and foresighted
attitude among the managers.
 (h) Tackling complexities of modern
business. With modern business becoming more
and more complex, planning helps in getting a clear
idea about what is to be done, when it is to be done,
where it is to be done and how it is tobe done.

Barriers to effective Planning

 (a) Influence of external factors: The effectiveness
of planning is sometimes limited because of the external
social, political, economical and technological factors
which are beyond the control of the planners.
 (b) Non-availability of data: Planning needs reliable
facts and figures. Planning loses its value unless reliable
information is available.
 (c) People’s resistance: Resistance to change hinders
planning. Planners often feel frustrated in instituting
new plans, because of the inability of people to accept
them.
 (d) Time and Cost: Collection of data and revision of
plans involves considerable time, effort and money.

 (e) Inflexibility: Formal planning efforts can lock an
organization into specific goals to be achieved within
specific timetables. When these objectives were set, the
assumption may have been made that the environment
wouldn‟t change during the time period the objectives
cover. If that assumption is faulty, managers who follow
a plan may have trouble. Rather than remaining flexible
and possibly scrapping the plan-managers who continue
to do what is required to achieve the original objectives
may not be able to cope with the changed environment.
Forcing a course of action when the environment is fluid
can be a recipe for disaster.

Requirements of a Good Plan
 An effective and sound plan should have the following features:
(a) Clear objective: The purpose of plans and their components is to develop and
facilitate the realization of organizational objectives. The statement on objectives should
be clear, concise, definite and accurate. It should not be colored by bias resulting from
emphasis on personal objectives.
(b) Proper understanding: A good plan is one which is well understood by those who
have to execute it. It must be based on sound assumptions and sound reasoning.
(c) Flexible: The principle of flexibility states that management should be able to change
an existing plan because of change in environment without undue extra cost or delay so
that activities keep moving towards the established goals. Thus, a good plan should be
flexible to accommodate future uncertainties.
(d) Stable: The principle of stability states that the basic feature of the plan should not be
discarded or modified because of changes in external factors such as population trends,
technological developments, or unemployment.
(e) Comprehensive: A plan is said to be comprehensive when it covers each and every
aspect of business. It should integrate the various administrative plans so that the whole
organization operates at peak efficiency.
(f) Economical: A plan is said to be good, if it is as economical as possible,
depending upon the resources available with the organization.

 There are seven essential steps in operating planning process. Managers
use this process in carrying out their jobs .
 Steps in operating planning process:
 1- Setting Goals:
 Establish the targets for the short and long range future.
 For example: - 25 percent growth over last year sales in present financial
year.
 - To increase market share by 5 percent in next five years.
 2- Analyzing and evaluating the environment:
 Analyze the present position and resources available to achieve objectives.
 - Where are we now?
 - What are the limitations in the environment?
 - What resources do we have?
 - Are there any external factors that can influence the objectives and there
 accomplishment?

 3- Determining Alternatives:
 Construct a list of possible courses of action that will lead you to your goal.
 4- Evaluating the alternative:
 Listing and considering the various advantages and disadvantages of each
of your possible course of action.
 5- Selecting the Best solution:
 Selecting the course of action that has the most advantages and the fewest
 serious disadvantages.
 6- Implementing the Plan:
 Determine, who will be involved, what resources will be assigned how the
plan will be evaluated, and reporting procedures.
 7- Controlling and evaluating the Results:
 Making certain that the plan is going according to expectations and making
necessary adjustments.

TYPES OF PLANS

 Most organizations of any size offer more than one
product or services, as a result they cannot develop a
single plan to cover all organizations activities, they
must develop plans for multiple levels.
 For this purpose, there are many types of plans and
those different plans are carried out at different
levels of an organization.

TYPES OF PLANS

1) STRATEGIC PLANS
2) TACTICAL PLANS
3) OPERATIONAL PLANS
4) LONG TERM AND SHORT TERM PLANS
5) PROACTIVE PLANS AND REACTIVE PLANS
6) FORMAL AND INFORMAL PLANS
7) STANDING AND SINGLE-USE PLANS

STRATEGIC PLANS

 Strategic planning sets the long-term direction of the org in
which it wants to proceed in future.
 It focus on the broad future of the org. Incorporating both
external information gathered by analyzing the company‟s
competitive environment and the firms internal resources,
managers determine the scope of the business to achieve
the org long-term objectives.
 Strategic planning involves the analysis of various
environmental factors and the competition.
 Most strategic plans focus on how to achieve goals three to
five years into the future.

CONTD…..

 It has the potential to impact dramatically, both
positively and negatively, on the survival and success
of the organization.
 Typically 3-5 years of horizon
 Top management is involved in framing the strategic
plans.

TACTICAL PLANS

 Tactical plans translate the strategic plans into
specific goals for specific parts of the organizations.
 They are for shorter time frame and usually focused
for 1-2 years
 Instead of focusing on the entire corporation, tactical
plans typically affect a single business within an
organization.
 Although tactical plans should complement the
organizations overall strategic plan, they are often
somewhat independent of other tactical plans.

Contd….

 Tactical plans are concerned with implementation of
strategic plans by coordinating the work of different
departments in the organization.
 They try to integrate various org units and ensure the
commitment to strategic plans.

OPERATIONAL PLANS

 Operational plans translate the tactical plans into
specific goals and actions for small units of the
organization.
 They typically focus on the short term usually 12
months or less.
 These plans are least complex than strategic and
tactical plans, and rarely have a direct effect on other
plans outside of the department or unit for which the
plan was developed.

THE ORGANIZATIONAL LEVELS AT WHICH PLANS ARE
DEVELOPED

1) CORPORATE LEVEL
Most corporation of even moderate size have a
corporate headquarters. The heads of these groups are
typically part of the group of senior executives at the
corporate headquarters. Executives at the corporate
level in large firms include both those in the
headquarters and those heading up the large corporate
groups such as finance, human resources, marketing
etc.

CONTD….

 These corporate-level executives primarily focus on
the questions such as
 What industries should we get into?
 What markets should the firm be in?
 In which business should the corporation invest
money?
 What resources should be allocated to each
business?

 BUSINESS LEVEL
At this level managers focus on determining how they
are going to compete effectively in market.
At this level, managers attempt to address questions
such as
 Who are our direct competitors?
 What are their strengths and weaknesses?
 What are our strengths and weaknesses?
 What advantages do we have over competitors?

 FUCNTIONAL LEVELS
At this level managers focus on how they can facilitate
the achievement of the competitive plan of the
business. These managers are often the heads of
departments such as finance, marketing, human
resources or product development.
Depending on the business structure this can include
managers responsible for business within a specific
geographic region or managers responsible for specific
retail stores.

 Functional managers attempt to address questions such as:
 What activities does my unit need to perform well in order
to meet customer expectations?
 What information about competitors does my unit need in
order to help the business compete effectively?
The main focus of functional managers planning activities is
on how they can support the business and corporate plans.
Functional level managers are responsible for recognizing
and ensuring effective and efficient operations.

Interrelationship between plan types and levels

Types of plans Organizational levels

Strategic plans Corporate level

Tactical plans Business level

Operational plans Functional plans

PROACTIVE AND REACTIVE PLANS

 Classification of planning into proactive and reactive
is based on the organizations response to
environmental dynamics.
 Proactive planning involves designing suitable
courses of action in anticipation of likely changes in
the relevant environment. In this approach, org do
not wait for the environment to change but take
action in advance. In India companies like reliance,
Hindustan unilever have adopted this approach for
the faster growth.

Contd…..

 In reactive planning, organizations responses come
after the environmental changes have taken place. In
such situation the org lose opportunities to those org
which adopt proactive approach.

FORMAL AND INFORMAL PLANNING

 Formal planning is in the form of well-structured process
involving different steps.
 In large organizations they undertake planning in formal
way in which they create corporate planning cell placed at
sufficiently high level in the organizations.
 Informal planning is undertaken by the smaller
organizations, the planning process is based on managers
memory of events, intuitions and gut-feeling, rather than
based on systematic evaluation of the environment.

SINGLE AND STANDING USE PLANS

 Standing plans are put to use again and again over a
long period of time. Once established they continue
to apply until they are modified or abandoned.
Standing plan help managers in dealing with routine
matters in a pre-determined and consistent manner.
 Examples of standing plans are: organizational
mission and long term objectives, strategies, policies,
procedures and rules.

SINGLE USE PLANS

 Single use plans are relevant for a specified time and after
the lapse of that time, these plans are formulated again for
the next period.
 Single use plans are non-recurring in nature and deal with
problems that probably will not be repeated in the same
form in future.
 Generally these plans are derived from the standing plans
 Examples: projects, budgets, targets.
 Org set their mission and objectives out of which the
strategic actions are determined, in order to put these
actions into operations, projects, budgets etc. are prepared
for the specific time period.

PLANS

STANDING PLANS SINGLE-USE PLAN

1) OBJECTIVES
2) POLICIES &
1)PROGRAMMES
STRATEGIES
2) PROJECTS
3) PROCEDURES
3) BUDGETS
4) METHODS
5) RULES

LONG TERM AND SHORT TERM PLANS

 Long term planning is of strategic nature and involves long
period say 3-5 yrs. The long term plans usually encompass
all the functional areas of the business and are affected
within the existing and long-term framework of economic,
social and technological factors.
 Short term planning is usually a plan made for one year.
These are aimed at sustaining organization in its
production and distribution of current products or services
to the existing markets. These plans directly affect
functional groups( production, marketing, finance)

STRATEGY

 The term „strategy‟ has been derived from Greek word
„strategos‟ which means general. The word strategy means
the art of general
 When the term strategy is used in the military sense, it
refers to action taken by opposite party.
 “ strategy is a course of action through which an
organization tries to relate itself with its environment to
develop certain advantages which help in achieving its
objectives”
 Strategy relates the firm to its environment particularly the
external environment.

VISION

 The philosophy and vision of an organization are derived
from the philosophy and vision of key decision makers.
 Vision is the long-term goal where the organization wants
to see itself.
 It is a widely descriptive image of what a company wants to
be known for
 Vision represents the imagination of the future events and
prepares the organization for the same.
 Vision of the company helps in defining the mission and the
objectives, so it has to be set clearly and has to be focused

MISSION

 Mission is the organization's purpose or fundamental
reason for existence.
 A mission statement helps the organization to link its
activities to the needs of the society and legitimize its
existence.
 Mission statements are customer-oriented ( society)
& future-oriented.
 It depicts the organization‟s business character and
does so in ways, that distinguish the organization
from other organization.

Planning

Traditional Objective Setting

WHAT ARE OBJECTIVES

 Objectives are the important ends toward which
organizational and individual activities are directed
 An objective is verifiable (provable) when at the end of
the period one can determine whether or not the objective
has been achieved
 Objectives are precise and used to specify the end results
which and org wants to achieve.
 The results can be achieved at the varying time period
 So the objective can be long term objectives which can be
supported by the short term objectives

Objectives form a hierarchy

Organizational
Objectives

Divisional
Objectives

Departmental
Objectives

Individual
Objectives

ESTABLISHING OBJECTIVES

 TRADITIONAL VIEW: In the traditional approach
for the objective or goal setting, it is set by the top
management, and then the derivate objectives are
formulated for the middle and lower levels.
 MODERN VIEW: Management by objectives

MBO

PETER DRUCKER

 IN 1954, Peter Drucker
had provided more
sophisticated approach
to goal setting in
organizations known as
“management by
objectives”

 Management by objectives (MBO) is a systematic and
organized approach that allows management to focus on
achievable goals and to attain the best possible results
from available resources. It aims to increase
organizational performance by aligning goals and
subordinate objectives throughout the organization.
 Ideally, employees together with managers get strong
input to identify their objectives, and time lines for
completion, etc. MBO includes ongoing tracking and
feedback in the process to reach objectives.

Core Concepts OF MBO

 According to Drucker, managers should "avoid the
activity trap", getting so involved in their day to day
activities that they forget their main purpose or
objective. Instead of just a few top-managers, all
managers should: participate in the strategic
planning process, in order to improve the
implementability of the plan, and Implement a range
of performance systems, designed to help the
organization stay on the right track.

Steps in MBO Program

 1. The organization‟s overall goals and strategies are
formulated my managers of all level.
 2. Major goals are allotted among divisional & department
units.
 3. Specific objectives are collaboratively set by managers and
employees.
 4. The action plans, defining how objectives are to be achieved
and specified and
 agreed upon by managers and employees.
 5. Implementation.
 6. Periodical review and feedbacks are provided.
 7. Evaluation of performance.
 8. Rewards and Recognition.

 Managerial Focus
 • MBO managers should focus on results not on the activities.
 • They should delegate the task by “negotiating a contract of
goals” with their subordinates without dictating a detail
roadmap for implementation.
 • MBO is about setting objectives and then breaking down
into more specific goals or key results.
 Main Principle
 • Everyone must have clear understanding of the aims or
objectives.
 • Everyone should be clear about their own roles and
responsibilities and achieving those aims.
 • Employees must be empowered to take actions in their own
way.

 Where to Use MBO
 The MBO style is appropriate for knowledge-based
enterprises when your staff is competent. It is
appropriate in situations where you wish to build
employees„ management and self-leadership skills
and tap their creativity, tacit knowledge and
initiative. Management by Objectives (MBO) is also
used by chief executives of multinational
corporations (MNCs) for their country managers
abroad.

BENEFITS OF MBO

 Clear goals
 Role clarity
 Periodic feedback of performance
 Participation
 Personnel satisfaction
 Better morale
 Result-oriented philosophy
 Basis for organizational change
 Feedback and appraisals

Limitations of MBO

 Initial time and cost
 Frustration
 Problems in quantifying the objectives and setting
the objectives

STRATEGY

 The term „strategy‟ has been derived from Greek word
„strategos‟ which means general. The word strategy means
the art of general
 “ strategy is a course of action through which an
organization tries to relate itself with its environment to
develop certain advantages which help in achieving its
objectives”
 Strategy relates the firm to its environment particularly the
external environment.

strategy

 Strategy includes the internal factors as well as the
external factors of the organization.
 The major difference between strategy and tactic is
that strategy determines what major plans are to be
undertaken and allocates resources to them, while
tactics, in contrast, is means by which previously
determined plans are executed.

STRATEGIC MANAGEMENT

 Looking at the importance of strategies in
organizational effectiveness, a new branch of
management known as strategic management has
been developed.
 Strategic management deals with strategy
formulation and implementation.
 It is the management process that involves an
organizations engaging in strategic planning and
then acting on those plans.

 The systems approach of management suggests
interaction of an org with its environment on
continuous basis. This interaction can be better
maintained through formulation of suitable
strategies.
 Careful strategies plays significant role in the success
of an organization.
 E.g. reliance, ITC Ltd, Hindustan Unilever, P&G are
successful because they have maintained their
suitable strategies.

 Strategic management is what managers do to develop an
organizations strategies. It involves all the basic management
functions.
 strategies are the plans for how the org will do whatever its in
business to do, how it will compete successfully and how it
will attract and satisfy its customers in order to achieve its
goals.
 Business model is a design how a company is going to make
money.
 Business model focuses on 1) whether customers will value
what the company is providing 2) whether the company can
make any money doing that.
 E.g DELL

IMPORTANCE OF STRATGEIC MANAGEMENT

 In 2000 star plus aired saas bhi kabhi bahu thi that
became one of the most popular shown in india.
Large number of viewers tuned in every evening to
watch the story unfold. Similarly ramayan, KBC, IPL
etc shows became quickly popular, it was because
they had designed the strategies aiming for success.
 Some businesses fail and some succeed even though
they are subjected to the same environmental
conditions. Its because org that use SM do have
higher level of performance.

IMPORTANCE OF SM

 Another importance of the SM is that because of the
fact that managers in org of all types and sizes face
continually changing situations. They cope with this
uncertainty by using the SM process to examine
relevant factors and decide what actions to take.
 Finally SM is important because organizations are
complex and diverse.
 E.g INDIAN POST.

THE STRATEGIC MANAGEMENT PROCESS

1) Identifying the organizations current mission, goals
and strategies.
2) Doing an external analysis
3) Doing an internal analysis
4) Formulating strategies
5) Implementing strategies
6) Evaluating result

STEP 1: IDENTIFYING THE ORG CURRENT MISSION, GOALS
AND STRATEGIES

 Every org needs a mission- a statement of its purpose
 E.g. mission of Infosys is “ to achieve our objectives
in an environment of fairness, honesty and courtesy
towards our client, employees, vendors and society at
large”

STEP 2: DOING AN EXTERNAL ANALYSIS

 External analysis consists of analyzing opportunities
and threats to the organization. It is related to the
environment of the organization.
 One of the tools managers use to assess the business
environment is forecast. Forecast can be made about
all critical elements in the organization that are likely
to affect the org or managers area of responsibility.
 Eg. In increase in the interest rates on home loans
affect the sales of the houses.

Environmental uncertainty

 Forecasting environmental uncertainty accurately is
difficult. For e.g in IT industries new technological
developments are introduced regularly. Also large
economic changes occur.
 A key issue for managers and their planning
activities is that the greater the environmental
uncertainty, the more flexible their plans need to be.
 Contingency plans that identify key factors that
could affect the desired results and specify what
actions will be taken if key result change.

Assessing external environment

 Another popular tool for assessing the environment
is benchmarking.
 Benchmarking involves investigating the best
practices used by competitors and non-competitors,
managers compare their own practices to the best
practices available.
 Once the environment is analyzed, managers need to
identify opportunities that org can exploit and
threats that it must counteract or buffer against.
 Opportunities are the positive trends in the external
env and threats are the negative trends.

Step 3: DOING AN INTERNAL ANALYSIS

 It provides important information about an organizations
specific resources and capabilities.
 An org resources are its asset-financial, physical, human
and intangible. –that is used to develop, manufacture, and
deliver the products to its customers. ( what the
organization has)
 Organizations capabilities are its skills and abilities in
doing work activities needed in the business.( how it does
its work)
 The major value creating capabilities of the organization
are known its core competencies.

Strength and weaknesses

 After completing the internal analysis, managers
should be able to identify organizational strengths
and weaknesses.
 Any activities the org does well or any unique
resources it has, are called strengths.
 Weaknesses are the activities the org doesn‟t do well
or resources it needs but it doesn‟t posses.
 The combined external and internal analyses are
called the SWOT analysis.

STEP 4: FORMULATING STRTEGIES

 Managers should consider the realities of the
external environment and their available resources
and capabilities and design that will help the
organization achieve its goals.
 There are three main types of strategies managers
formulate: corporate, business and functional.

STEP 5: IMPLEMENTING STRATEGIES

 Once strategies are formulated they must be
implemented.

STEP 6: EVALUATING RESULTS

 The final step in the strategic management process is
evaluating results.
 How effective have the strategies been at helping the
org reach its goal?
 What adjustments are necessary?

THE CORPORATE PORTFOLIO APPROACH

 In this approach top management evaluates each of the
corporations various business units with respect to the
market place.
 When all the business units have been evaluated, an
appropriate strategic role is developed for each unit
with the goal of improving the overall performance of
the organization.
 The corporate portfolio approach is analytical and
rational, and is guided by market opportunities and
tends to be initiated and controlled by top
management only.

 Portfolio framework advocated by Boston Consulting
Group, also known as BCG Matrix.

 The BCG approach to analyzing a corporate portfolio of
business focuses on three aspects of each particular
business unit 1) its sales 2) the growth of its market 3)
whether it absorbs or produces cash in its operations

 Its goal is to develop a balance among business units
that use up cash and that supply cash

STARS: ( high relative market share in a rapidly
growing market)
 Use large amounts of cash & are leaders in the market so
they should also generate large amounts of cash.
 The rapid growth of market requires large investments to
maintain the market position.

CASH COW : ( high relative market share in a slowly
growing market)
• it is profitable and source of excess cash. The slow growth
of market does not require large investments to maintain
the market position.

QUESTION MARK : ( high growth rate of market with low
market share)
 It is the business with a relatively small market share in a rapidly
growing market.
 It can be uncertain and expensive venture
 The rapid growth of market may force it to invest heavily simply
to maintain its low share, even though the low market share is
yielding low or negative profits and cash flow consumptions.
 Increasing the question marks share of market relative to the
market leader would require larger investments.
 Opportunity: rapid growth of the market segment offers
opportunity if the proper business strategy formulated.

DOGS: ( low market share, low market growth)
 A business with low relative market share in a slowly
growing or stagnant market.
 Moderate user or supplier of cash
 Liquidate (shut down) / divest ( separate )

 A success sequence in the BCG matrix involves
 investing cash from cash cows and be more
successful dogs in a selected question marks.
 These question marks then becomes the stars by
increasing the relative market shares.
 Over the time when the rate of market growth slows,
the stars will become cash cows, generating excess
cash to invest in the next generation of promising
question marks.

MATRIX OF MARUTI SUZUKI

 STAR: The Company has long run opportunity for growth and
profitability. They have high relative market share and high
 Growth rate. SWIFT, SWIFT DESIRE AND ZEN ESTILO is the fast
growing and has potential to gain substantial profit in the market.

 QUESTION MARK: there are also called as wild cats that are new
products with potential for success but there cash needs are high
 And cash generation is low. In auto industry of MARUTI SX4, GRAND
VITARA, ASTAR there has been improve the organization reputation
 As they want successful not only in Indian market but as well as in
global market.

 CASH COW: It has high relative market share but compete
in low growth rate as they generate cash in excess of their
needs.
 MARUTI 800, ALTO AND WAGONR have fallen to ladder
3 & 4 due to introduction of ZEN ESTALIO and A STAR.

 DOG: The dogs have no market share and do not have
potential to bring in much cash. BALENO, OMINI, VERSA
There business have liquidated and trim down thus
 The strategies adopted are that are harvest, divest and
drop.

Limitations of the BCG Matrix

Some limitations of the Boston Consulting Group Matrix include:
 High market share is not the only success factor.
 Market growth is not the only indicator for attractiveness of a market.
 Sometimes Dogs can earn even more cash as Cash Cows.
 The problems of getting data on the market share and market growth.
 There is no clear definition of what constitutes a "market".
 A high market share does not necessarily lead to profitability all the
time.
 A business with a low market share can be profitable too.

Five forces of Corporate Strategy

 This approach to corporate strategy is designed by
Michel Porter known as Porter‟s „five forces‟
model.

 In porter‟s view, an organization‟s ability to
compete in a given market is determined by the
organization‟s technical and economic resources,
as well as by five environmental forces, each of
which threatens the organization‟s venture in to
new market.

Threat of New Entrants
 New entrants to an industry can raise the level of
competition. The threat of new entrants largely depends on
the barriers to entry. High entry barriers exist in some
industries (e.g. shipbuilding) whereas other industries are
very easy to enter (e.g. estate agency, restaurants).

Key barriers to entry include
- Economies of scale ( mass production to reduce cost)
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels

Bargaining Power of Buyers

 Buyers are the people / organizations who create demand
in an industry

 The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the
industry
- The industry is not a key supplying group for buyers

Threat of Substitutes
 The presence of substitute products can lower industry
attractiveness and profitability because they limit price
levels. The threat of substitute products depends on:

- Buyers' willingness to substitute
- The relative price and performance of substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers
 The cost of items bought from suppliers (e.g. raw materials,
components) can have a significant impact on a company's
profitability. The bargaining power of suppliers will be high
when:
- There are many buyers and few dominant suppliers
- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry
(e.g. brand manufacturers threatening to set up their own
retail outlets)

Intensity of Rivalry
 The structure of competition - for example, rivalry is more intense
where there are many small or equally sized competitors; rivalry is less
when an industry has a clear market leader
 Degree of differentiation - industries where products are
commodities (e.g. steel, coal) have greater rivalry; industries where
competitors can differentiate their products have less rivalry
 Switching costs - rivalry is reduced where buyers have high switching
costs - i.e. there is a significant cost associated with the decision to buy
a product from an alternative supplier
 Exit barriers - when barriers to leaving an industry are high (e.g. the
cost of closing down factories) - then competitors tend to exhibit
greater rivalry

PLANNING PREMISES

 Managers plan their future course of action taking into
consideration the future events which are likely to happen
within the org and its external environment.
 Since the future events are not known accurately at the time
of planning, managers have to make certain assumptions ,
either based on their intuitions or analysis of the factors
responsible for such events.
 Thus manager have to identify the factors which are
relevant for planning which is called planning premise
 The methods through which through which the likely future
behavior of these factors can be predicted is called
forecasting

 “Planning premises are the anticipated environment
in which plans are expected to operate. They include
assumptions or forecast of the future and known
conditions that will affect the operation of plan”
 Types of planning premises
1) External premises
2) Internal premises
3) Controllable and uncontrollable premises.
4) Tangible and intangible premises

EXTERNAL PREMISES

 External premise create threat or opportunity to the
organization.
 As the org is an open system it is affected by the
external factors such as
1) Economic factors ( fiscal policy, budget etc)
2) Political-legal factors ( laws, political interference )
3) Technological factors ( sources of tech, new tech)
4) International factors ( subsidies, duties)
5) Competitive factors (sw, price, positioning of comp)

INTERNAL PREMISES

 Internal premises create strength or weakness for
org
 Various departments in the org like
productions/operations, marketing, finance, human
resources department if working effectively and
efficiently in coordination creates strength for org
and vice versa.

Tangible And Intangible Premises

 Tangible premises are quantifiable like labor hour,
man hours, monetary units etc
 Intangible are qualitative in nature and cannot be
translated into quantity. E.g. image of company

Controllable and uncontrollable premises

 Controllable premises are which can be controlled by
the organization. They are internal to org. like
structure, policies, procedures, strategies.
 Uncontrollable premises are which can be controlled
by the organization. They are external to the org. like
taxation policy, rate of economic growth, inflation
rate
 Semi-controllable are which can be controlled to
some extent but not wholly. like market share, labor
turnover, product price, labor efficiency.

FORECASTING

 Forecasting is the process of estimating the events about
future, based on the analysis of their past and present
behavior.
 It refers to the statistical analysis, and gives clues about the
future pattern
 It involves the estimation of the future events and facilitates
planning process.
 It takes place at the middle or the lower level of mgmt.
 Planning involves decision making but forecasting helps in
decision making
 It is key to planning

Following are the characteristics of forecasting:

 It is concerned with future events.
 It is made on the basis of data collected from within and
outside the organization.
 • The quality of forecasts depends on the reliability of
information.
 • It can be done by analyzing the past and present events
related to particular
 function of the organization.
 • It may be long-term or short-term.
 • Forecasts can be of several types: Economic forecasts, sales
forecasts, and
 Technological forecasts etc.

Importance of Forecasting

 1- Key to Planning: It provides vital facts and pertinent
information for effective planning.
 2- Means of Coordination: People at different levels
participate in the process of forecasting.
 3- Basis for Control: It provides relevant information for
exercising control.
 4- Executive Development: Forecasting requires
executives to look ahead,
 think through the future and improve their mental faculties.
 5- Facing Environmental Challenges: By predicting
future environmental situation based on the analysis of past
and present facts one can face the environmental challenges
in a better manner.

Steps in Process of Forecasting

 1- Developing the Ground Work: Defined the purpose of
forecasting. Past performance and events must be analyzed
and compared with present events. A thorough investigation
and analysis of various factors that can affect the
organization‟s performance should be done. Base must be
prepared on which the forecasting will be done.
 2- Estimating Future Trends: Based on intelligent guess
the probable future trends are estimated.
 3- Comparing Actual with Estimated: The actual results
are periodically compared with estimates to reveal any
deviation.
 4- Refining the forecast: Since forecasting is an on going
process and with experience the refinement in the process is
made.

DECISION MAKING

 “ The process of identifying and selecting a course of
action to solve a specific problem”
 It connects to the organizations present circumstances
to actions that will take the organization into future.
 It plays important role in selecting among the choices
available to the manager.
 Decision making deals with problems and
opportunities. A problem may be an opportunity in
disguise.
 Problem is the situation that occurs when an actual
state differs from the desired state.

Problem Finding Process

1
• A deviation from past experience

2
• A deviation from a set plan

3
• Other people

4
• The performance of competitors

 The Decision making Process:
 1. Define the Problem:
 Defining the problem is the critical step. If the problem
is inaccurately defined, every other step in the decision-
making process will be based on that incorrect point.
 A manager needs to focus on the problem, not the
symptoms.
 This is accomplished by asking the right questions and
developing a sound questioning process.
 In the process of asking questions the manager should
gather relevant and timely information. Information
gathered from people in the work environment is the
most relevant and accurate in nature.

 2. Identify the Limiting or Critical Factors:
 Limiting factor are those constraints that rule out
certain alternative solutions. Resources – Personnel,
money, facilities, and equipment – are the most
common limiting or critical factors that narrow down
the range of possible alternatives.
 3. Develop Potential Alternatives:
 At this point it is necessary to look for, develop, and
list as many possible alternatives – potential
solutions to the problem – as you can.

 While building this list of alternatives, it is wise to avoid
being critical or judgmental about any alternative.
 Sources of alternatives include: experience, the practice
of successful managers, group opinions through use task
forces and committees, and the use of out side
consultancy services.
 4. Analyze the Alternatives:
 The purpose of this step is to decide the relative merits
of each of the alternatives. What are the positives and
negatives (the advantages and disadvantages) of each
alternative?

 5. Select the Best Alternative:
 In trying to select an alternative or combination of alternatives, you
must, reasonably enough, find a solution that appears to offer the
fewest serious disadvantages and the most advantages.
 6. Implement the Solution:
 The selected alternative needs effective implementation to yield the
desired results.
 People involved, must be convinced about the importance of their
roles and must know exactly what they must do and why.
 7. Establish Control and Evaluation System:
 Ongoing actions need to be monitored. This system should provide
feedback on how well the decisions are implemented, what the
results are – positive or negative – and what adjustments are
necessary to get the results that were wanted when the solution was
chosen.

Decisions in the Management
Functions

TYPES OF DECISIONS

 STRUCTURED PROBLEMS & PROGRAMMED
DECISIONS
 Some problems are straight forward, the problem is
familiar and information about the problem is easily
defined and complete
 The decision which manager takes for the structured
problem is called the programmed decision.
 Programmed decision is repetitive and routine and are
undertaken within a framework of organizational
policies and rules, the time frame is short.
 Information is readily available.

 UNSTRUCTURED PROBLEMS & NONPROGRAMMED
DECISIONS
 Many organizational situation involve unstructured
problems that are new or unusual and for which
information is incomplete.
 When problems are unstructured managers can rely on
the non programmed decisions. They are unique and
nonrecurring and involve custom-made solutions.
 Time frame is long and it is gen. taken by top
management
 Solution relies on judgement and creativity.

STRATEGIC AND TACTICAL DECISIONS

 Strategic choice is the major choice of actions concerning
allocation of resources and contribution to the achievement
of the organizational objective
 It affects the whole or major part of the organization.
 It is normally non-programmed decision
 Tactical or the operational decisions is derived out of
strategic decisions. It related to day-to-day working of org
and is made in the context of the policies and procedures.
E.g purchase of the raw material
 It is the programmed decisions. It affects the narrow part if
the org. The authority to take tactical decisions can be
delegated to the lower-level managers.

INDIVIDUAL AND GROUP DECISIONS

 Individual decisions are taken where the problem is of
routine nature.
 Important and strategic decisions are taken by group.
 There are two methods involved in group decision making
 Dialectical inquiry method. In this method the group
determines all the assumptions and solution, then
considers the opposite of all the assumptions, then they
develop the counter solution based on all the negative
solutions.
 Devils advocacy involves assigning someone the role of
critic.

Nominal group tech and Delphi tech

 In nominal group tech the member silently writes
down the ideas on problem, then present their ideas,
on black board without discussion, then all the
recorded ideas are discussed, and finally each
member silently gives rating about the various ideas
 In delphi tech a questionnaire is sent to the members
of groups who are physically dispersed and they give
their feedback, again the second questionnaire is
sent probing more deeply into the ideas to the first
ques.‟ then finally the summary of both the first and
second quess is developed.

DECISION MAKING PROCESS

STEP 1: RECOGNISING THE PROBLEM
STEP 2: DECIDING PRIORITIES AMONG PROBLEM
STEP 3: DIAGNOSING & STATING THE PROBLEM
STEP 4: DEVELOP THE ALTERNATIVES
STEP 5: EVALUATE THE ALTERNATIVES
STEP 6: SELECT THE BEST ALTERNATIVE
STEP 7: IMPLEMENT THE ALTERNATIVE
STEP 8: EVALUATING THE DECISION EFFECTIVENESS

RATIONAL DECISION MAKING

 A type of decision making in which choices are logical
and consistent and maximize value.
 Assumptions of rationality: a rational decision maker
would be fully objective and logical. He will have a
clear and specific goal and know all the possible
alternatives and consequences.
 Making decisions rationally would consistently lead to
selecting the alternative that maximizes the likelihood
of achieving that goal.
 Decisions are made in the best interest of the
organization.

BOUNDED RATIONILITY

 It is more realistic approach
 Managers make decisions rationally but are bounded
by their ability to process information. Because they
cant possibly analyse all information on all
alternatives, manager satisfice rather than maximize.
i.e. they accept the solutions that are good enough.
 They are being rational within the limits of their
ability to process information.

INTUTION BASED DECISION MAKING

 Making decisions on the basis of experience, feelings
and judgment.
 It can be cognitive-based , experience-based, value or
ethics based, or subconscious mental processing

DECISION-MAKING CONDITIONS

1) CERTAINTY: it is the ideal situation to make
decision. The outcome of every alternative is
known.
2) RISK: a situation in which the decision maker is
able to estimate the likelihood of certain outcomes.
3) UNCERTAINTY: A situation in which a decision
maker has neither certainty nor reasonable
probability estimates available.

DECISION MAKING STYLES

 LINEAR & NON-LINEAR THINKING STYLES
 Linear thinking style is characterized by a person‟s
preference for using external data and facts and
processing this information through rational, logical
thinking to guide decisions and actions
 Non-linear thinking style is characterized by a
person‟s preference for using the internal sources of
information ( feeling and intutions) and processing
this information with the internal insights, feelings
and hunches to guide decisions and actions.

DECISION MAKING ERRORS AND BIASES

1) Immediate gratification: it describes the decision
makers who tend to want immediate rewards and to
avoid immediate costs. For this individuals, decision
choices that provides quick payoffs are more appealing
than those that may provide payoffs in the future.
2) Anchoring effect: it describes the situation when
decision makers fixate on initial information as a
starting point and once then set, fail to adequately
adjust for subsequent information. First impressions,
ideas, prices and estimates carry unwanted weight
relative to the information received later.

3. Selective perception bias: when decision makers
selectively organize and interpret events based on
their biased perception, they are using selective
perception bias. This influences the information they
pay attention to , they problems they identify and the
alternatives they develop.
4. Confirmation bias: decision makers that seek out the
information that reaffirms their past choices and
discount information that contradict the past
judgments is the confirmation bias. This people
ignore the critical information that challenges their
preconceived ideas.

5. Framing bias: decision makers select and highlights
certain aspects of a situation while excluding others. By
drawing attention to specific aspects of a situation and
highlighting them, while at the same time omitting
other aspects, they distort what they see and create
incorrect reference points.
6. Availability bias: it causes decision makers to tend to
remember events that are the most recent and vivid in
their memory. The bias distorts their ability to recall
events in an objective manner and results in distorted
judgments and probability estimates.

7) Representation bias: when decision maker assess
the likelihood of an event based on how closely it
resembles other events. Managers see identical
situation where they don‟t exist.
8) Randomness: it occurs when decision makers try to
create meaning out of random events.
9) Sunk cost errors: decision makers forget that
current choices cant correct the past. They
incorrectly fixate on past expenditures of time,
money or effort in assessing their chocie.

10. self-serving bias: decision makers who are quick to
take credit for their success and to blame failure on
outside factors exhibit this bias.
11. Hindsight bias: it is the tendency for decision
makers to falsely believe, after that outcome is
actually know, that they could have accurately
predicted the outcome of the event.

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