Strategies, Policies and Planning Premises 2010

Strategies, Policies and

Planning Premises

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 Strategies, Policies and Planning Premises 2010
1. Introduction
Today most business enterprises
engage in strategic planning, although the
degree of sophistication and formality vary
considerably. Conceptual strategic planning
is deceptively simple: Analyze the current
and future situation, determine the direction
of the firm and develop the means of
achieving the mission. In reality, this is an
extremely complex process which demands
a systematic approach for identifying and analyzing the factors extensively for
the organization and matching them with the firm’s capabilities.
Planning is done in an environment of uncertainty. No one can be sure
of the external as well as the internal environment. Therefore we make
assumptions or forecast about the anticipated environment. Some of the
forecast becomes assumptions for the other plans. For example, the gross
national product forecast becomes the assumptions for the sales planning,
which in turn becomes the basis for product planning.

1.1 Strategies
The word strategy derives from
the Greek word strategos which
translates to the art of the general.
First attested in English 1810, the term
“strategy”, derived from the Greek
word strategos, means to achieve the
end points. This is often confused with
tactics, from the Greek taktike. Taktike
translates as organizing the army. In
modern usage, strategy and tactics might refer not only to warfare, but to a
variety of business practices.

Essentially, strategy is the thinking aspect of planning a change,

organizing something, or planning a war. Strategy lays out the goals that need
to be accomplished and the ideas for achieving those goals. Strategy can be
complex multi-layered plans for accomplishing objectives and may give
consideration to tactics.

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1.2 Policy

A policy is typically described as a

principle or rule to guide decisions
and achieve rational outcome(s). The
term is not normally used to denote
what is actually done; this is normally
referred to as either procedure or
protocol. Whereas a policy will
contain the 'what' and the 'why',
procedures or protocols contain the
'what', the 'how', the 'where', and the
'when'. Policies are generally adopted
by the Board of or senior governance
body within an organization where as procedures or protocols would be
developed and adopted by senior executive officers.
The term may apply to government, private sector organizations and
groups, and individuals. Presidential executive orders, corporate privacy
policies, and parliamentary rules of order are all examples of policy. Policy
differs from rules or law. While law can compel or prohibit behaviors (e.g. a
law requiring the payment of taxes on income), policy merely guides actions
toward those that are most likely to achieve a desired outcome.

Differences between Policies and Strategies

Policies Strategies

1. A plan, or method of A plan, or method of approach developed by an individual,

approach developed by an group, or organization, in an effort to successfully achieve
individual, group, or an overall goal or objective
organization, in an effort to
successfully achieve an overall
goal or objective

2. The essence of policy is It concerns the direction in which human and material
discretion resources will be applied in order to increase the chance of
achieving the selected objectives

3. It will guide our thinking It implies that the enterprise has made to commit
in decision making – if a resources in a given direction.
decision is to be made.

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Similarities between Strategies and policies

Strategies and policies are closely related.

 The key function is to unify and form the framework for the plans
 Both are the basis of the operational plans
 Both affects the areas of managing

But standing alone, can they ensure that an organization will reach its goal?

The more carefully developed and clearly understood strategies and policies are, the
more consistent and effective the ensuing plans will be.

The Need for Operational Planning: Tactics

A tactic is a conceptual action. In military usage, a military tactic is used by a

military unit of no larger than a division to implement a specific mission and
achieve a specific objective, or to advance toward a specific goal. A tactic is
implemented as one or more tasks.
The terms tactic and strategy are often confused: tactics are the actual means
used to gain an objective, while strategy is the overall campaign plan, which
may involve complex operational patterns, activity, and decision-making that
lead to tactical execution.
The United States Department of Defense Dictionary of Military Terms]
defines the tactical level as

“ ...The level of war at which battles and engagements are

planned and executed to accomplish military objectives
assigned to tactical units or task forces. Activities at this
level focus on the ordered arrangement and manoeuvre
of combat elements in relation to each other and to the
enemy to achieve combat objectives. ”

If, for example, the overall goal is to win a war against another country, one
strategy might be to undermine the other nation's ability to wage war by
preemptively annihilating their military forces. The tactics involved might
describe specific actions taken in specific locations, like surprise attacks on
military facilities, missile attacks on offensive weapon stockpiles, and the
specific techniques involved in accomplishing such objectives.

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The Strategic Planning Process

Tows Matrix
This is a conceptual framework for a systematic analysis that facilitates matching
external threats(T) and opportunities(O) with the internal weakness (W)and
strengths(S) of organization.
It is a tool which helps in analyzing the situation.
There are four alternative strategies based on the analysis of external
environment( T & O) and internal environment( W & S):
 WT(W and T decreased)
 WO(W is decreased and O is increased)
 ST(S is maximized and T is minimized)
 SO(aim of enterprise is move to this part of matrix)

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The Tows Matrix for Strategy Formulation

Time Dimension and the TOWS Matrix

So far, the TOWS Matrix is pertained to analysis of particular point of time. External
and internal factors are dynamic. Hence, these factors change over while others
change very little.

Because of the dynamics in the environment, TOWS Matrix is designed

at different points of time

Thus, one may start with past, continue with present and focus on
different time periods of future.

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THE PORTFOLIO MATRIX

In the early 1970's, BCG Matrix first propounded by Bruce Henderson of the
Boston Consulting Group.  It is also known as BCG matrix, Boston Consulting
Group Matrix, BCG Growth-Share Matrix or Matrix Quadrants.

Using the Product Portfolio Matrix approach, a company classified all its SBUs
or Products/Markets according to Growth-Share Matrix. Therefore, it is best
describe as Portfolio planning model.

BCG Matrix
In this Matrix Quadrants, the plate is divided 4 categories named
 A. Star
 B. Cash Cow
 C. Question Mark
 D. Dog

The division is based on Market Share and Growth rate. A brief discussion follows:

A. Star: Leader [i.e. high market share] of high growth

market is called star.
These SBUs are net user of cash, because they always
require heavy investment to finance rapid growth and to

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sustain market share. When the product comes to mature stage, then the
growth slowdown and they turn to cash cow.

B. Cash Cow: Cash cows are low growth but high market share (Market
leader) businesses.
Their high earnings, coupled with their depreciation, represent high cash
inflows and they need very little in the way of reinvestment. And thus, they are
the net provider of cash. Surplus cash are used for Research and
Development and to support other SBUs that need investment.

C. Question mark: Products in a growth market with low market share are
categorized as Question Mark.
Because of growth, these SBUs require a lot
of cash to hold their market share and let
alone to increase it. If nothing is done to
increase the market share, a Question mark
will simply absorb large amount of cash in
the short run and later, as growth slowdown,
become a dog. Thus, unless something is
done to change its perspective, it becomes a
cash trap.

Management has to decide which question

marks should try to build into stars and which should be phased out.

D. Dog: Dog are low growths, low market share SBUs. They may generate
enough cash to maintain themselves, but do not promise to be large source of
cash.
Most often case, it should be liquidate and try with Question mark SBUs for
investment.
Market Growth Rate and Relative Market Share play important roll in BCG Matrix.
Market Growth Rate is the measure of industry attractiveness and Relative Market
Share is the measure of Competitive advantage. Therefore, these two are most
important factors to consider organizations profitability and strategic plan.

Limitations:

Though the Product Portfolio Matrix is well known to ease the way of portfolio
analysis,
It has several limitations also. Here some of limitations are narrate briefly:

A. High Market Share is not the only factor to measure competitive advantage.
Similarly, Market growth rate is not the only factor to measure industry
attractiveness.

B. Sometime a dog SBU used as synergy to other SBUs. i.e. a dog may help other
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SBUs to gain a competitive advantage.

C. Sometimes Dogs [of a huge market] can earn even more cash as Cash Cows.

Though it has some limitations, BCG matrix is a very effective tool to viewing a
corporation’s business portfolio at a glance. And also helpful to the decision making
process for allocating corporate resources.

MAJOR KINDS OF STRATEGIES AND POLICIES

GROWTH

Growth strategies enable the organization to expand, either through mergers or

acquisitions, or establishing a new plant.

FINANCE

Every business or non-business enterprises have a clear strategy for financing its
operations.

ORGANIZATIONS

This includes the type of organization pattern an enterprise would use. It answers the
practical questions as how centralized or decentralized decision making authority
should be , what kind of department pattern are more suitable and how to design
staff positions.
This structure furnishes the system of roles and role relationships that help to
accomplish objectives.

PERSONNEL

They deal with topics such as union relations, compensations, selection, hiring,
training, and appraisal as well as with special areas such as job enrichment.

PUBLIC RELATIONS

A fundamental technique used in public relations is to identify the target audience,

and to tailor every message to appeal to that audience. It can be a general,
nationwide or worldwide audience, but it is more often a segment of a population

PRODUCTS OR SERVICES

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New products or services, determines what an enterprise is or will be.

It includes the following questions

What is our business?

Who are our customers?

What do our customer wants?

How much will our customer buy and at what price?

Do we wish to be a product leader?

How do we respond to our existing and potential customer?

Do we wish to develop our own new product?

What profits can we expect?

What basic forms should our strategy take?

MARKETING

It is designed to guide managers in getting products or services to the customer and

encouraging them to buy. Marketing strategies are closely related to product
strategies; they must be interrelated and mutually supportive.

These key questions serves as a guide for establishing marketing strategies .

How does our customer buy?

How is it best for us to sell?

Do we have something to offer that competitors do not?

Do we wish to take legal steps to discourage competition?

Do we need, and can we supply, supporting services?

What is the best pricing strategy and policy for our operation?

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Porter's Competitive Strategy

Porter has outlined three generic strategies that can be used to gain competitive
advantage over other firms operating in the same industry. They are cost leadership,
differentiation and focus.

Cost leadership: It involves emphasizing organizational efficiency, so that the

overall costs of providing products and services are low. It entails developing
efficient production methods, keeping tight controls on over-head and administrative
costs and seeks saving by supplying at low prices.

Wal-mart has always kept its prices low (but maintained quality) in order to attract
customers.

Differentiation: It attempts to develop products that are unique in the industry.

Uniqueness can be in the form of service (British Airways), product (Mercedes Benz)
quality (Xerox), features (Nike shoes) etc.

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Focus: It relies on low-cost, or differentiation, or both; in order to establish a strong

position within the particular market segment or niche.

GENERIC STRATERGY Commonly required skills and

resources
Cost leadership: Capital investment

• Technical skills

• Intense supervision of labor

• Low-cost distribution system

Differentiation: Strong marketing abilities

• Product engineering

• Strong capability in research

• Technology leadership

Focus: Combination of the above policies,

directed at the particular strategic target

Effective Implementation of Strategy

Effective implementation of the strategy has eight prerequisites:

• Communicate strategies: Strategies designed by the top management must be

communicated (written) to all managers who are involved in the process of decision
making. They in turn should communicate the lower levels and ensure that the
strategies are implemented.

• Develop and communicate planning premises: This process consists of

developing the premise (assumptions about the environment in which plans operate)
and communicating the same to managers, who are involved in decision making.
Managers should provide feedback, and suggest alternatives if any, that can be
adopted.

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• Develop organization culture: An organization's culture is developed, based on
its values and beliefs. It guides the employees to accomplish organizational goals set
by the top management.

• Monitoring: Monitoring helps in ensuring that action plans are in tune with
strategies. Managers should continuously review the strategies, and incorporate
changes recommended by the Staff advisers.

• Develop contingency strategies and programs: Uncertainty and risk occur in

every business. Managers should be able to foresee such uncertainties and develop
contingency strategy.

• Emphasize on planning and implementation: Strategies become obsolete, if

they are not upgraded. Managers must ensure that necessary elements in the
system are upgraded.

• Create proper organizational climate: Organizational climate (internal

environment existing within the organization – commitment, dedication etc.) enables
the implementation of strategy, in tune with the organizational objectives.

Effective Planning Premises

Anticipation about the environment (both external and internal) is referred to as

planning premises.
Following are the pre-requisites for effective planning.

• Selection of premises: Top management should select the premise based on the
environmental factors, which influence their course of action.

• Develop alternative plans: As the future is uncertain, alternative plans must be

developed.

• Verify premises: Verification ensures that the premises are consistent with each
other.

• Communicate premises: A Planning premise can be effective, if it is

communicated to employees.

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Environmental Forecasting: If the future could be

forecast with accuracy, planning would be relatively
simple. Managers would need only to take into account
their human and material resources and their
opportunities and threats, compute the optimum method
of reaching their objective and proceed with a relatively
high degree of certainty toward it .in practice however forecasting is much more
complicated than that.

Values and areas of forecasting:

The making of forecasts and their review by managers compel thinking

ahead, looking to the future and providing for it second, preparation of the forecast
may disclose areas where necessary control is lacking .third forecasting especially
when there is participation throughout the organization helps to unify and coordinate
plans by focusing attention on the future it assists in bringing a singleness of purpose
to planning

Delphi forecasting is a non-quantitative technique for forecasting.

It draws its name from the Oracles of Delphi, which in Greek Antiquity
advised people based on intuition and common sense. Unlike many other methods
that use so-called objective predictions involving quantitative analysis, the Delphi
method is based on expert opinions. It has been demonstrated that predictions
obtained this way can be at least as accurate as other procedures. The essence of
the procedure is to use the assessment of opinions and predictions by a number of
experts over a number of rounds in carefully managed sequences.

One of the most important factors in Delphi forecasting is the selection of experts.
The persons invited to participate must be knowledgeable about the issue, and
represent a variety of backgrounds. The number must not be too small to make the

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assessment too narrowly based, nor too large to be difficult to coordinate. It is widely
considered that 10 to 15 experts can provide a good base for the forecast.

Procedure The procedure begins with

the planner/researcher preparing a
questionnaire about the issue at hand,
its character, causes and future shape.
These are distributed to the
respondents separately who are asked
to rate and respond. The results are
then tabulated and the issues raised are identified.

The results are then returned to the experts in a second round. They are asked to
rank or assess the factors, and justify why they made they their choices. During a
third or subsequent rounds their ratings along with the group averages, and lists of
comments are provided, and the experts are asked to re-evaluate the factors. The
rounds would continue until an agreed level of consensus is reached. The literature
suggests that by the third round a sufficient consensus is usually obtained.

The procedure may take place in many ways. The first step is usually undertaken by
mail. After the initial results are obtained the subsequent round could be undertaken
at a meeting of experts, assuming it would be possible to bring them together
physically. Or, the subsequent rounds could be conducted again by mail. E-Mail has
greatly facilitated the procedure. The basic steps are as follows:

1. Identification of the problem. Researcher identifies the problem for which

some predictions are required, e.g. what is the traffic of port x likely to be in 10
years time. Researcher prepares documentation regarding past and present
traffic activity. Questionnaire is formulated concerning future traffic estimates
and factors that might influence such developments. A level of agreement
between the responses is selected, i.e. if 80% of the experts can agree on a
particular traffic prediction.

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2. Selection of experts. In the case of a port scenario this might include
terminal managers, shipping line representatives, land transport company
representatives, intermediaries such as freight forwarders, and academics. It
is important to have a balance, so that no one group is overly represented.
3. Administration of questionnaire. Experts are provided with background
documentation and questionnaire. Responses are submitted to researcher
within a narrow time frame.
4. Researcher summarizes responses. Actual traffic predictions are tabulated
and means and standard deviations calculated for each category of cargo as
in the case of a port traffic prediction exercise. Key factors suggested by
experts are compiled and listed.
5. Feedback. The tabulations are returned to the experts, either by mail or in a
meeting convened to discuss first round results. The advantage of a meeting
is that participants can confront each other to debate areas of disagreement
over actual traffic predictions or of key factors identified. The drawback is that
a few individuals might exert personal influence over the discussion and
thereby sway outcomes, a trend that the researcher must be alert to and seek
to mitigate. Experts are invited to review their original estimates and choices
of key factors in light of the results presented, and submit a new round of
predictions.
6. These new predictions are tabulated and returned to the experts either by
mail or immediately to the meeting, if the level of agreement does not meet
the pre-determined level of acceptance. The specific areas of disagreement
are highlighted, and the experts are again requested to consider their
predictions in light of the panel’s overall views.
7. The process is continued until the level of agreement has reached the pre-
determined value. If agreement is not possible after several rounds, the
researcher must terminate the process and try to pinpoint where the
disagreements occur, and utilize the results to indicate specific problems in
the traffic prediction process in this case. This method could be applied in a
classroom setting, with students serving as ‘experts’ for a particular case
study. The traffic at the local airport or port might be an appropriate example.
On the basis of careful examination of traffic trends and factors influencing

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business activity, the class could be consulted to come up with predictions
that could then be compared with those of some alternate method such as
trend extrapolation.

THE SALES FORECAST: KEY PLAN AND PREMISE

Nature and use of the sales forecast:

The sales forecast is a prediction of expected sales, by product and price number of
months or years .the sales forecast is the key to internal planning strategies and
policies are made for the purpose of maximizing profits

Methods of sales forecasting: as follows

1. Jury of executive opinion method

Perhaps it is the oldest and simplest
method in most cases the final estimate is
an opinion of the president based upon a
consideration of the opinions of other
officers, in other cases poll of opinion
leads to a rough kind of average estimate.

Serious drawback is forecasts may be based on the opinion rather than facts

2. The Sales Force Composite Method

One of the commonly used methods of forecasting is to

obtain from the sales people and sales managers their
combined view as to expected sales

This method is based on the belief that those closest to

the sales picture have the best knowledge of the
markets

The primary disadvantage is sales people even

the sales managers are apt to be poor for any period of except the immediate
future since they tend to give primary weight to present conditions.

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3. The Users Expectation Method

If a company can obtain adequate and

reliable information sample of what
customers will buy though actual orders
are not in hand, it will be a good basis upon
which we develop a forecast this would be
advantageous where the company cannot
make a system forecast on its own ,in such small companies with limited
resources of forecasting.

4. Statistical methods

These statistical methods may be divided into two

types:

1. Trends and cycles:

The analyst summarises the pertinent series of data,

on the basis of this data.

The forecast is projected .this analysis on the assumption that what is past is
prolonged and that trend will continue unless something happens to it.

2. Correlation Analysis:

Most widely used technique is correlation analysis, the

measurement of relationship between company sales one
or more other factors as national index gross national
product, national income the disadvantage is that there is a
danger that managers could heavily rely in statistical data

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and the results implied and there by miss significant changes which intelligent
judgement would have apprised

5. Deductive Methods

No forecast should overlook the opportunity to apply judgement and draw intelligent
deductions from facts and relationships. Generally what is involved is to find out what
the present situation is, where the sales are, and why and then to analyse
deductively, by resort to both objective factors, and subjective judgement

Sales forecasting in practice:

Assumptions about future:

The basic assumptions for the future are arrived by staff and the managers after
consideration of forecast of gross economic conditions, series of meetings are held
with sales and company personnel to make sure that are factors are considered
properly and then approved

Sales people:

In other typical cases the initial forecast is by sales people in the field.

In some cases three sets of sales forecast is prepare done by industry specialists,
other by commercial research department, and other one by sales people and then
the differences are reconciled and approved.

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