Learning Outcome 5
- 1. Chapter 5 Establishing organisational goals and plans, then developing strategy
- 2. Lecture outline The overall planning process The nature of organisational goals How goals facilitate performance Linking goals and plans Management by objectives Concept of strategic management Role of competitive analysis in forming strategy Strategy implementation and evaluation
- 3. The overall planning process Mission - The organisation’s purpose or fundamental reason for existence Goal - Future target or end result an organisation wishes to achieve Plan - Means devised for attempting to reach a goal
- 4. The overall planning process mission goals plans Goal attainment (organisational efficiency and effectiveness)
- 5. Organisational mission Essentially, planning builds on the organisation’s mission - the organisation’s purpose or fundamental reason for existence.
- 6. Organisational mission A mission statement may: be unwritten address customers, products/services, location, technology, concern for survival, philosophy, self-concept, concern for public image, concern for employees (David 1989).
- 7. The nature of organisational goals Benefits of goals Increase performance Help clarify expectations Facilitate control Increase motivation Levels of goals Operational goals (base) Tactical goals (mid) Strategic goals (top)
- 8. Levels of goals Top managers Organisational perspective Middle managers Departmental perspective 1st level managers Unit/individual perspective strategic goals strategic plans tactical goals tactical plans operational goals operational plans ↔ ↔ ↔ ↕ ↕ ↕ ↕
- 9. Major areas for strategic goals Market standing Innovation Human resources Financial resources Physical resources Productivity Social responsibility Profit requirements
- 10. How goals facilitate performance Key aspects: Goal content Goal commitment Work behaviour Other process components Potential problems with goals
- 11. How goals facilitate performance Goal content needs to be: Challenging Attainable Specific and measurable Time-limited Relevant
- 12. How goals facilitate performance Goal commitment… i nfluenced by: Supervisory authority Peer and group pressure Public display Expectations of success Incentives and rewards Participation
- 13. How goals facilitate performance Work behaviour Goals and commitment affect work behaviour via: Direction Effort Persistence Planning
- 14. How goals facilitate performance Other process components Job process components affect performance through: Job knowledge and ability Task complexity Situational constraints.
- 15. How goals facilitate performance Potential problems with goals: Excessive risk-taking Increased stress Undermined self-confidence Ignored non-goal areas Excessive short-run thinking Dishonesty and cheating
- 16. Linking goals and plans Levels of plans: Strategic Tactical Operational Plans according to extent of recurring use: Single-use Standing plans: policies, procedures, rules
- 17. Linking goals and plans Time horizons of goals and plans: Short Intermediate Long range Promoting innovation using: Mission statement Goal content and process Planning content and process
- 18. Potential obstacles to planning Domination by specialists Low levels of manager skill and knowledge Pressure of day-to-day work Manager hostility Environmental change
- 19. Reducing planning obstacles Top management commitment Need to display personal involvement and interest Use of planning staff Small group that assists managers in planning Use contingency planning Development of alternative plans Scenario planning
- 20. Management by objectives (MBO) A p rocess where specific goals are set collaboratively for the whole organisation and every unit and individual within it. The goals are then used for planning, managing organisational activities, and assessing and rewarding contributions.
- 21. Management by objectives (MBO) Steps in the MBO process: Develop organisational goals Establish specific goals for departments Formulate action plans Implement and maintain self-control Review progress periodically Appraise performance
- 22. Management by objectives (MBO) Strengths: Helps link goals and plans Clarifies priorities and expectations Facilitates organisational communication Builds employee motivation Weaknesses: Needs strong, enduring commitment Requires training of managers Can be misused (i.e. for punishment) Over-emphasis on quantitative goals
- 23. Management by objectives (MBO) Assessing MBO: Can heighten organisational performance Short-term focus of US, Australian and NZ organisations limits application 20–25% success rate? Key factor: Top management support
- 24. The concept of strategic management A process through which managers formulate and implement strategies geared to optimising strategic goal achievement, given available environmental and internal conditions.
- 25. The concept of strategic management The strategic management process Strategy formulation Strategy implementation Importance of strategic management Competitive advantage Levels of strategy Corporate level Business level Functional level Coordinating strategy levels
- 26. Grand or master strategies Stability Retrenchment Expansion Combination
- 27. Business level strategies (Porter’s generic strategies) Cost leadership strategy low per-unit costs Differentiation strategy unique products or services Focus strategy appeal to a narrow market segment Supported by functional level strategies
- 28. Competitive analysis in strategy formulation SWOT analysis: Strengths (S), Weaknesses (W), Opportunities (O), Threats (T) – relies upon: Environmental assessment Porter’s five competitive forces model Organisational assessment Organisational resources and capabilities Distinctive competencies
- 29. Porter’s five competitive forces model Rivalry Bargaining power of customers Bargaining power of suppliers Threat of new entrants Threat of substitute products or services
- 30. Strategy implementation and evaluation Carrying out strategic plans Technology Human resources Reward systems Decision processes Structure Maintaining strategic control Monitoring environment Assessing effects of actions Monitoring results
- 31. Lecture summary Overall planning process: Mission, goals and plans Benefits of goals (increased performance) and goal levels: Strategic, Tactical, Operational Goal content (challenging, etc) and goal commitment, other process components Levels of plans - matched to levels of goals. Single use or standing plans, different time horizons.
- 32. Lecture summary (cont’d) Management by Objectives (MBO) as a management technique - steps in the MBO process, MBO strengths and weaknesses Strategic Management - formulation, implementation, evaluation (Corporate level) Porter’s competitive strategies (Business level) SWOT analysis to help in devising effective strategies, Competitive analysis through Porter’s five forces model.
Editor's Notes
- #2: Pages 132-168. Along with the previous Chapter on Managerial Decision Making, this Chapter completes Part 2 of the text, covering the management function of planning.
- #3: The Chapter 5 outline is given in slightly more detail on Page 132. Learning objectives are on Page 133. Students could again be reminded that the learning objectives form excellent models (and are sometimes used) for examination and test questions. They can usually be expanded to longer, essay -type questions by adding “Give examples from some organisation with which you are familiar”. Chapter 5 starts with a CEO Forum interview with Ralph Norris, CEO of the Commonwealth Bank, relating to efforts to improve customer service as a strategic priority. Students will have their own experiences and perceptions about service in the Australian banking industry which could be discussed. Does service influence their choice of bank?
- #4: The management function of planning forms the basis for the other major functions of organising, leading and controlling, as it sets the direction. For this reason, texts generally treat it first. It is important to an organisation’s success to have a good idea of its overall mission, as well as more specific, written goals and carefully developed plans. Further discussion can be found on Pages 137-138. The relationship between the mission, goals and plans is set out graphically for more discussion in the next slide.
- #5: This is a slightly modified version of Figure 5.1 at the bottom of Page 137. It provides a further opportunity to discuss the key management concepts (see Page 10, Chapter 1) of efficiency (making best use of resources, reducing unit costs) and effectiveness (choosing the right goals and achieving them). This shows the movement from “big picture” (mission) to specific and detailed plans. Each of these concepts is dealt with in further detail in the slides which follow.
- #6: An organisation’s mission exists whether or not it has been crystallised and made explicit in a mission statement. There will be some fundamental purpose for the organisation’s existence, even if un-stated. A mission statement is a broad statement distinguishing the organisation from others of its type by its unique purpose and scope of operations (see next slide). Further discussion can be found on Page 137.
- #7: For managers, the mission statement is a benchmark to evaluate success. For employees, a mission statement defines common purpose, nurtures organisational loyalty, and fosters a sense of community. The mission statement can be used internally to unite organisational members, and externally to inform the community or market the organisation to potential clients. Further discussion can be found on Pages 137-138. This includes more detail on the 9 potential components of mission statements identified by David (based on a survey of 75 leading companies). We would now probably find that environmental concerns and ethical and governance issues receive high emphasis in recently-written mission statements.
- #8: The benefits of goals are explained in more detail on Page 139 -140 without goals, organisational members can lack direction. The text also mentions one of the key studies of goal setting (Latham and Locke 1979) which demonstrated how performance improves with appropriate goal-setting. The different levels of goals (and how they link with different level plans) are dealt with on Page 140 and in the next slide.
- #9: Page 140. This is a modified version of Figure 5.2 which shows how first-level management is responsible for operational goals (a unit level or individual perspective), middle managers are responsible for tactical goals (a departmental or divisional perspective) and top or senior management are responsible for strategic goals (the organisation-wide perspective). How the three levels of goals form a hierarchy (a means and ends chain) is discussed briefly on Page 141. The 8 major areas for strategic goals (identified by Drucker, 1974) are set out in Table 5.2 on Page 141 - see the next slide. Note: the three levels of plans are discussed in more detail later in the lecture.
- #10: These 8 major elements identified by Drucker (1974) are set out in more detail in Table 5.2 on Page 141. Again, today, we would probably expect environmental issues to be of more explicit concern in the goals of leading organisations.
- #11: To use goals effectively, managers must understand how performance can be facilitated by goals (see Figure 5.3 on Page 142 for the major elements in enhancing performance). This slide is effectively a “table of contents” for what follows in the next few slides where these headings will be dealt with separately in more detail. Further discussion can be found in Pages 141-144, but more details are in the following slides.
- #12: In channelling effort to achievement at strategic, tactical and operational levels, effective goals have the five major attributes shown in this slide. Research shows that goals that are challenging and difficult are more likely to lead to improved performance than goals that are very easy to reach. Just asking people to “do their best” will not lead to performance as high as if they are given specific goals. More detailed discussion on each of these issues can be found on Pages 141-142.
- #13: A critical element in effective use of goals is getting individuals and/or work groups to be committed to the goals they must carry out. Goal commitment is one’s attachment to, or determination to reach, a goal. These 5 major factors influencing goal commitment are discussed in slightly greater detail on Pages 142-143.
- #14: The above 4 factors which affect a person’s work behaviour are discussed on Pages 143-144.
- #15: These additional “process components” which affect job performance are discussed on Page 143. Even with strong commitment to goals, an individual’s knowledge and ability will affect their performance. Studies show that the effects of goals can be reduced or “diluted” if jobs are very complex. Situational constraints refer to thins like having the right resources, tools, equipment and materials to be able to achieve goals. The text also how feedback - knowledge of results - is extremely important as to whether goals are effective or not.
- #16: Although goal use in organisations can yield many positive results, pitfalls exist. These problems and their solutions are summarised in Table 5.3 (on Page 145) based on Locke and Latham 1984.
- #17: Goals and plans are closely related - goals are the desired ends and plans are the means to achieve them. As has already been seen, both goal and plans operate at three organisational levels. Lower level plans support the higher level plans. Strategic plans are longer term, tactical plans are medium term (one to three years), and operational plans are shorter term. Pages 144-146 for further details. Single use plans, for specific one-time goals, generally apply to programs or projects. Standing plans are for recurring or continuous activities. Pages 146-147.
- #18: The different time horizons for goals and plans are set out graphically in Figure 5.5 on Page 147: short term (up to a year), intermediate or medium term (about 1-5 years) and long range (5 years plus). Pages 147-148 detail how planning can help innovation. The importance of innovation to a particular organisation needs to be signaled through CEO and senior staff commitment, and through the mission, goals and plans.
- #19: The ability to develop effective plans has several potential obstacles. These may originate in either (or both) the external and internal environment of the organisation. These obstacles are discussed in greater detail on Page 148 .
- #20: Measures to reduce the obstacles to planning identified in the previous slide are discussed on Page 148.
- #21: Organisations use the Management By Objectives (MBO) process as a means to help link goals with plans. MBO has been used by many firms to aid coordination of goal-setting and planning processes at all levels so that members’ collective efforts ultimately support organisational goals. MBO usually involves regular meetings (say, twice a year) between managers and those they supervise to discuss goal setting and achievement. See Pages 148-149.
- #22: Discussed in significantly greater detail on Pages 149-150. The basic idea of MBO is that when goals have been set and action plans laid out, individuals should be left to reach their objectives with considerable latitude and autonomy. Supervisors are not seen as necessary for day to day control. The performance appraisal process can lead to rewards, bonuses and salary increases (or identification of weaknesses or training needs), and can then lead into the next MBO cycle.
- #23: Pages 150-151. The strengths and weaknesses of MBP are set out (similarly to the above slide) in Table 5.4 on Page 151.
- #24: By one estimate, almost half the Fortune 500 companies have used MBO, but it was only successful for about 20-25%. (Note: this study, Muczyk 1979, is now somewhat old). MBO system failures seem to stem from a lack of top-management support and poor goal-setting and communication skills among managers. Hence, how managers implement MBO impacts its effectiveness. Further discussion can be found on Pages 150-151
- #25: Strategies are broadly the large scale action plans for interacting with the environment, of which tactics and lower level plans are sub-sets. Strategic management is important because it helps management develop a competitive advantage, directs organisation members where to put their efforts, and shows the need for innovation. Well run organisations generally develop and follow particular strategies or large-scale action plans. Further discussion can be found on Page 151.
- #26: The strategic management process: Strategy formulation - identifying mission and strategic goals Strategy implementation and evaluation Importance of strategic management: To develop sources of competitive advantage - a significant edge over competitors. Levels of strategy: Corporate level, Business level, Functional level Coordinating strategy levels - requires organisational efforts. Pages 151-155.
- #27: Grand strategies provide basic strategic direction at corporate level. Page 153 gives more detail.
- #28: Pages 154-155. Professor Michael Porter’s well-known and popular generic strategies are outlined on Page 154, while the need for functional level strategies applying to particular functional areas of the organisation, in support of the generic or business-unit strategies, is summarised on page 155.
- #29: Before an effective strategy for getting a competitive edge can be devised, managers must analyse a firm’s competitive situation. This means assessing environmental and organisational factors influencing ability to compete. This assessment can be done through SWOT analysis. The internal analysis covers S and W, while external environmental assessment covers O and T. In considering the external assessment, students need to recall the mega or general, and the task or specific, environments and their components dealt with in Chapter 2. Further discussion can be found on Pages 155-158. Note: Porter’s five competitive forces model appears in the next slide.
- #30: The five forces model for competitive analysis is covered in significant detail on Page 156-157. It is also set out graphically on Figure 5.9 on Page 156, and in an explanatory table (Table 5.5, Page 156).
- #31: While strategy formulation is important to strategic management, strategies will not have the intended impact unless implementation is effective. Strategy implementation involves management activities to put the strategy in place, set up strategic controls to monitor progress, and ultimately achieve organisational goals (see Figure 5.10 on Page 159). Further discussion of the 5 interconnected factors (above) which need to be synchronised for effective implementation can be found on Page 159-160. Maintaining strategic control involves ongoing monitoring and feedback, so that adjustments to strategic plans can be made if necessary (Page 160).
- #32: The detailed Chapter summary is on Pages 160-161. Continues in the final slide.
- #33: Final section of Chapter summary - Page 161.