Chapter four
Planning
Requirements for this chapter
 Define decision and the decision-making process.
 Discuss the assumptions of rational decision
making.
 Describe the four decision-making styles.
 Discuss the twelve decision-making biases
managers may exhibit and the way to solve.
 Define planning.
 Describe different types of plans.
Requirements for this chapter
 Explain how to establishing goals and
developing plans
 List different techniques for planning.
 Define strengths, weaknesses,
opportunities, and threats.
 Describe what strategies each level of
management is typically responsible for.
 Explain the rule of three and its significance
to strategic management.
Content of the chapter
★ Decision making
★ Foundation of planning
★ Strategic management
Decision-making
planning
controlling
organizing
leading
Decision-making
Well begun is half
done!
Planning is a very
important part of
management
Decision-making
Providing direction
Why planning is
so important?
Minimizing waste and redundancy
Establishing standards for controlling
Reducing uncertainty
Decision-making
Decision making
•Decision: Making a choice from two or more alternatives.
planning
organizing
leading
Making decision
controlling
Decision making
Management is
making decision
Nobel Prize Winner
in Economics
Herbert Alexander Simon
1916- 2001
Top management decision
Types of decision
Levels of
decision
Middle-management decision
First-line management decision
Whether decision
is repeated
Programmed decision
Nonprogrammed decision
Strategic decision
Types of
decision
Importance
of decision
Tactic decision
Certainty decision
Certainty
of decision
Risk decision
Uncertainty decision
Who to decide
Number of
decision goals
Individual decision
Group decision
Decision with
single goal
Decision with
multi-goals
Decision making
•Structured Problems
Involve goals that are clear
 Involve goals that are familiar (have occurred before)
 Involve goals that are easily and completely defined—
information about the problem is available and complete

•Unstructured Problems
Problems that are new or unusual and for which
information is ambiguous or incomplete.
 Problems that will require custom-made solutions.

Decision making
•Programmed Decision
A repetitive decision that can be handled by a
routine approach.

•Nonprogrammed Decisions
Decisions that are unique and nonrecurring.
 Decisions that generate unique responses.

Decision making
•Types of Programmed Decisions
A Procedure: A series of interrelated steps that a manager
can use to respond (applying a policy) to a structured
problem.
A Rule: An explicit statement that limits what a manager
or employee can or cannot do in carrying out the steps
involved in a procedure.
A Policy: A general guideline for making a decision about a
structured problem.
Decision making
unstructured
top
Nonprogrammed
decisions
Type of
problem
Programmed
Level
in
organi
zation
decisions
structured
lower
Decision making
Decision-Making Conditions
Certainty: A ideal situation in which a manager can make
an accurate decision because the outcome of every
alternative choice is known.
Risk: A situation in which the manager is able to estimate
the likelihood (probability) of outcomes that result from
the choice of particular alternatives.
Decision making
Uncertainty: Limited or information prevents estimation of
outcome probabilities for alternatives associated with the
problem and may force managers to rely on intuition, hunches,
and “gut feelings”.
Maximax: the optimistic manager’s choice to
maximize the maximum payoff
 Maximin: the pessimistic manager’s choice to
maximize the minimum payoff
 Minimax: the manager’s choice to minimize his
maximum regret.

The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Decision-making
Criteria
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Decision-making
Example
Criteria
Weight
1
Salary
10
2
Interest
9
3
Future development
7
4
Own conditions
5
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Decision-making
Bank managers
Researchers
Enterprise managers
Civil servants
Teachers
Entrepreneurs
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Decision-making
Salary
Bank managers
8
Researchers
6
Enterprise managers
7
Civil servants
4
Teachers
5
Entrepreneurs
10
Interest
Future
developm
ent
Own
conditions
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Decision making

The manager as decision maker
Making decisions: rationality, bounded rationality,
and intuition
Rationality: Managers make consistent, valuemaximizing choices with specified constraints.
Assumptions are that decision makers:
 Are perfectly rational, fully objective, and logical.
 Have carefully defined the problem and identified all viable
alternatives.
 Have a clear and specific goal
 Will select the alternative that maximizes outcomes in the
organization’s interests rather than in their personal
interests.
Decision making
Bounded Rationality: Managers make decisions rationally,
but are limited (bounded) by their ability to process
information.
Assumptions are that decision makers:
 Will not seek out or have knowledge of all alternatives
 Will satisfice—choose the first alternative encountered that
satisfactorily solves the problem—rather than maximize the
outcome of their decision by considering all alternatives and
choosing the best.
Decision making
•The Role of Intuition
 Escalation of Commitment: Increasing or continuing
a commitment to previous decision despite mounting
evidence that the decision may have been wrong.
 Intuitive decision making: Making decisions on the
basis of experience, feelings, and accumulated
judgment.
Strategic management
Strategic management
Setting
goals
Deciding
what to do
specifically
Strategic management
As managers engage in planning, they define goals,
establish strategies for achieving these goals, and
develop plans to integrate and coordinate activities.
Decision-making
Defining goals
Strategic management
Establishing strategies
Planning techniques
Developing specific plans
Strategic management
Strategic management is what managers do to develop
an organization’s strategies
Strategic management
Broad
B
Applied to
whole
organization
A
C
Long-term
strategy
Different from
specific plans
E
D
Giving
direction to
organization
Strategic management
Types of organizational strategies
Corporate strategies
Business strategies
Functional strategies
Strategic management
Corporate
strategies
Business
strategies
One specifies what
businesses a company should
be in or wants to be in
One determines how an
organization should compete
in each of its businesses
Corporate strategies
Business 1
Business 2
How to
compete
in the
business
How to
compete
in the
business
Business strategy
Business strategy
Business 3
How to
compete
in the
business
Business strategy
Corporate strategies
SBU
SBU
SBU
Business strategies
SBU is strategic business unit
Single businesses of an organization in several different businesses that are independent
and formulate their own strategies.
Strategic management
Corporate strategies
Business strategies
Functional strategies
One specifies what businesses a
company should be in or wants to
be in
One determines how an
organization should compete in
each of its businesses
One used by various functional
departments to support the
business strategy
Strategic management
Renewal
strategies
Stability
strategies
Corporate
strategies
Grow strategies
Strategic management
Grow
strategy
expanding the
number of markets
or products either
through its current
business or through
new businesses
Concentration
Vertical integration
Horizontal integration
Diversification
Strategic management
Concentration
focusing on a
primary line of
business and
increasing the
number of
products offered
or markets served
Diversification
Related Diversification
Unrelated Diversification
(expanding by merging with or acquiring
firms in different, but related industries
that are “strategic fits”)
(growing by merging with or acquiring
firms in unrelated industries where
higher financial returns are possible)
Strategic management
Backward
vertical
integration
Vertical
integration
Suppliers
Producers
Forward
vertical
integration
Distribution channels
Strategic management
Combining operations with
another competitor in the
same industry to increase
competitive advantages and
lower competition among
industry rivals
Horizontal integration
Strategic management
1
Stability
strategy
continuing to
do what it is
currently
doing
environment is drastically changing
and the future is uncertain
2
3
the industry is facing slow or no-growth
opportunities
owners think the status quo is good
enough
Strategic management
declining
performance!
Renewal strategy
Retrenchment
strategy
Turnaround
strategy
a short-run renewal
strategy when
performance
problems are not
serious
a renewal strategy
for situations in
which the
organization’s
performance
problems are more
serious
Strategic management
Business strategy
Competitive
advantage
Sustainable
competitive
advantage
what sets an
organization
apart or its
distinct edge
enabling the
organizations to
keep its edge
despite
competitors’
actions
Strategic management
Father of strategic management
（Michael E. Porter，1947—）
Strategic management
Forces in the industry analysis
New
entrants
Bargaining
power of
suppliers
Suppliers
Threat of
substitutes
Intensity of
rivalry among
current
competitors
Threat of
new
entrants
Buyers
Bargaining
power of
buyers
Substitutes
Strategic management
seeking to attain the
lowest total overall
costs in its industry
Cost leadership strategy
exceptionally high quality
Differentiation
strategy
a strategy
attempting to
create a unique and
distinctive product
or service for its
customers
extraordinary service
innovative design
technological capability
unusually positive brand image
Strategic management

Strategic Management Process
Identify the organization’s
current mission, goals,
and strategies
Strategic management
Mission is a statement of the company’s purpose
 What business the company is in?
 Who are the customers?
 What are its values to the customers?
Strategic management
Mission of Avon:
to be the company that best understands
and satisfies the product, service and selffulfillment needs of women on a global
level
The decision-making process
Identification of a problem
Identification of decision criteria
Allocation of weights to criteria
Development of alternatives
Analysis of alternatives
Selection of an alternative
Implementation of the alternative
Evaluation of decision effectiveness
Strategic management

Strategic Management Process
External analysis
 opportunities
 threats
Identify the
organization’s
current mission,
goals, and
strategies
 Opportunities are the positive trends
in external environmental factors
 Threats are the negative trends in
external environmental factors
SWOT
analysis
Internal analysis
 strengths
 weaknesses
 Strengths are any activities the
organization does well or any
unique resources that it has
 Weaknesses are the activities the
organization does not do well or
resources it needs but does not posses
Strategic management

Strategic Management Process
External analysis
 opportunities
 threats
Identify the
organization’s
current mission,
goals, and
strategies
SWOT
analysis
Internal analysis
 strengths
 weaknesses
 take the advantage of the
organization’s strengths
Formulate
strategies
 exploit environmental
opportunities
 correct the organization’s
weaknesses
 buffer against threats
Strategic management

Strategic Management Process
External analysis
 opportunities
 threats
Identify the
organization’s
current mission,
goals, and
strategies
SWOT
analysis
Internal analysis
 strengths
 weaknesses
Formulate
strategies
Implement
strategies
Evaluate
results