Unit 2: Planning, strategy and decision-making

Planning is deciding in advance what to do, how to do it, when to do it and who is to do it (Koontz and O'Donnell).

Nature

• Primary function — precedes all others.
• Goal-oriented, pervasive, continuous, futuristic, involves choice, mental exercise.

Types of plans

• By time: strategic (long term), tactical (medium), operational (short term).

Business forecasting is estimating future business conditions (sales, demand, prices, costs) based on analysis of past and present data. Forecasts form the premises of planning.

• Qualitative techniques: jury of executive opinion, Delphi technique (anonymous rounds of expert opinion), sales force composite, consumer surveys.
• Quantitative techniques: time-series analysis (trend, moving averages), regression and correlation, econometric models, index numbers.
• Limitations: future is uncertain, depends on assumptions, time-consuming and costly.

MBO, popularised by Peter Drucker (The Practice of Management, 1954), is a process in which superiors and subordinates jointly set goals, define each person's area of responsibility in terms of expected results, and use these measures to guide operations and assess contributions.

• Benefits: clarity of goals, better planning, motivation through participation, objective appraisal, improved communication.
• Limitations: time-consuming, difficulty in setting measurable goals, emphasis on short-term goals, more paperwork, resistance.

Strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary to carry out these goals (Alfred Chandler). Strategic management is the set of managerial decisions and actions that determine the long-run performance of an organisation (Wheelen and Hunger).

Nature

• Long-term and future-oriented.
• Holistic: concerns the whole organisation, not one function.
• Environment-linked: responds to opportunities and threats.
• Involves top management and major resource commitments.
• Continuous and dynamic — revised as conditions change.
• Seeks competitive advantage.

• Mintzberg's 5 Ps of strategy: plan, ploy, pattern, position, perspective.
• Deliberate vs emergent strategy: intended strategies that are realised vs strategies that emerge from patterns of action.

• The process is a feedback loop — evaluation results feed back into intent and formulation.

• All seven elements are interdependent — a change in strategy needs matching changes in structure, systems, skills and culture; used for organisational diagnosis, mergers and change management.

Decision-making is selecting the best course of action among alternatives.

• Types: programmed vs non-programmed; strategic vs tactical vs operational; individual vs group; under certainty, risk and uncertainty.
• Bounded rationality (Herbert Simon): managers "satisfice" — choose a satisfactory rather than the optimal solution due to limited information and time.
• Techniques: cost-benefit analysis, decision trees, brainstorming, Delphi, operations research models.

Approaches to decision-making

• Rational (classical) model: complete information, all alternatives, optimal choice.
• Bounded rationality (Simon): satisficing under limited information and time.
• Intuitive approach: experience-based judgement in uncertain, fast-moving situations.
• Group decision-making: brainstorming, nominal group technique, Delphi; risk of groupthink.

A decision tree shows decisions (squares), chance events (circles) and outcomes in sequence; solved by roll-back — compute EMV at chance nodes and choose the best branch at decision nodes.

• Useful for multi-stage decisions (test market first, then launch).