Study Guide for Planning, Control, and Strategic Management 1. Decision Making Concepts Different Types of Decisions Decision-making in management can be divided into three main types: programmed, non-programmed, and crisis decisions. Programmed decisions are used for routine and repetitive issues where solutions are already established based on past experiences. For example, a manager deciding how to handle a common customer complaint or scheduling employee shifts would use programmed decision-making. Non-programmed decisions address unique or unexpected problems that require creative and judgment-based solutions. Examples include determining whether to expand into a new market or developing a new product line. Crisis decisions, on the other hand, are made under high-pressure circumstances when immediate action is required to prevent severe consequences. For instance, managing public relations after a company scandal or addressing a sudden supply chain disruption are crisis decisions. Problem Solving Styles Managers approach problem-solving in three ways: as problem avoiders, problem solvers, or problem seekers. Problem avoiders ignore issues and hope they resolve themselves without intervention. In contrast, problem solvers react to problems after they occur, identifying and addressing them only when they are evident. Problem seekers are proactive, anticipating potential issues and working to prevent them before they arise, which is the most strategic approach. Heuristic-Based Decision Making Heuristics are mental shortcuts that managers use to simplify decision-making. The availability heuristic involves making decisions based on information that is most readily available, even if it is not the most relevant. For example, avoiding a new product because a similar one failed previously reflects this heuristic. The representativeness heuristic involves assessing situations based on their similarity to established stereotypes or patterns. An example is hiring someone solely because they attended a prestigious university. The anchoring heuristic occurs when decisions are heavily influenced by initial information, such as setting an employee’s salary increase based only on their current pay rather than their performance. Escalating Commitment Prevention Escalating commitment refers to continuing to invest in a failing strategy because of the resources already committed. To avoid this, managers should set clear limits before starting a project, reassess decisions at regular intervals, and carefully evaluate costs versus benefits at each stage. 2. SWOT and PEST Analysis SWOT Analysis SWOT analysis is a strategic tool used to evaluate an organization’s internal and external factors. Strengths and weaknesses represent internal factors. Strengths include anything that gives a competitive advantage, such as strong branding, advanced technology, or a highly skilled workforce. Weaknesses are internal challenges that hinder success, like outdated equipment, poor management, or low employee morale. Opportunities and threats are external factors. Opportunities arise from external trends or changes that a company can leverage, such as new market demands or relaxed regulations. Threats include external risks that could harm the organization, such as increased competition, changing consumer preferences, or stricter government policies. PEST Analysis PEST analysis examines four categories of external factors: political, economic, social, and technological. Political factors include government policies, tax laws, and trade restrictions. For instance, new labor laws can significantly impact operational costs. Economic factors relate to trends like inflation, interest rates, and currency exchange rates, which affect profitability and expansion plans. Social factors include cultural trends, demographics, and consumer behavior, such as the growing demand for eco-friendly products. Lastly, technological factors focus on innovations and advancements that can improve efficiency, such as automation or AI. SWOT and PEST analysis are interconnected; external factors identified in PEST analysis often inform the opportunities and threats in SWOT analysis. 3. Strategic Planning Mission Statement A mission statement defines an organization’s purpose, values, and vision. It serves to inspire employees and guide strategic decisions. For example, McDonald’s mission is “to make delicious feel-good moments easy for everyone.” A strong mission statement should align with the company’s culture and long-term goals. Competitive Advantage Achieving competitive advantage means developing strengths that allow a company to outperform rivals. A sustainable competitive advantage is difficult for competitors to replicate, such as patented technology or a strong brand identity. In contrast, non-sustainable advantages, like lower pricing, are easier for competitors to match. Levels of Strategy Strategic planning occurs at three levels: corporate, business, and functional. Corporate strategy involves long-term decisions about the organization as a whole, such as diversifying into new industries or downsizing operations. Business strategy focuses on competing effectively within specific markets, using tactics like price differentiation or innovation. Functional strategy addresses departmental goals, ensuring that functions like marketing, operations, and finance align with broader organizational strategies. 4. Planning and Controlling The Planning Process Planning involves five key steps: defining objectives, assessing the current position, developing premises about future conditions, analyzing alternatives, and implementing and evaluating the chosen plan. Defining objectives involves setting clear and measurable goals. Assessing the current position requires evaluating strengths, weaknesses, and past performance. Developing premises involves anticipating future scenarios, such as economic shifts or new regulations. Analyzing alternatives means evaluating potential strategies to determine the most viable option. Finally, implementation and evaluation involve executing the plan and monitoring progress to ensure success. Types of Control Control mechanisms ensure that organizational objectives are met. Feedback control takes place after tasks are completed, such as reviewing financial reports. Concurrent control monitors activities during the process, like quality checks on a production line. Feedforward control occurs before a task begins, ensuring that resources and systems are in place to prevent issues. The Control Process The control process includes four steps: setting performance standards, measuring actual performance, comparing results to standards, and taking corrective actions. For example, if sales targets are not met, managers may need to adjust marketing strategies or improve training programs. 5. Porter’s Five Forces Porter’s Five Forces is a framework for analyzing industry competition. The threat of new entrants is high when barriers to entry are low, such as in web design, and low when barriers are high, such as in the aerospace industry. The threat of substitutes is high when alternative products or services are abundant, such as in the food industry, and low when they are scarce, like in pharmaceuticals. Supplier power is high when there are few suppliers, allowing them to dictate terms, as in the precious gems market. Buyer power is high when customers can easily switch providers, such as in retail, and low when switching costs are significant. Finally, industry rivalry is intense when competitors are numerous and equally matched, such as in the sportswear industry. 6. Recommendations Strategic recommendations should address findings from SWOT, PEST, and Porter’s Five Forces analyses. For example, if an organization identifies a growing demand for sustainable products, it could invest in R&D to create eco-friendly offerings. Similarly, if industry rivalry is high, the company could focus on differentiation by offering unique features or reducing operational costs.