Management Practice 4

Module 2: Strategic planning

Module 2: Strategic planning

• After completing this module, you will be able to: – Analyse the business strategy of an organisation

– Align a business unit with the business strategy

– Identify the factors affecting performance of the business

The strategic planning model

The organisation has to know

• Where it is going before it decides:

• What it is going to achieve and then,

• How it intends to achieve this

An organisation has to have a clear understanding of:

• Vision

• Mission

• Core values

• Organisation culture

• Strength, weaknesses, opportunities and threats

The strategic planning model

Step 1: Creating a vision for the organisation

• The vision of an organisation is: “A view of an organisation’s future direction and business makeup; a guiding concept for the the organisation is trying to do and become”

McDonald’s Corporation vision

“Our vision is to dominate the global food service industry. By ‘dominate’ we mean setting the performance standard for customer satisfaction, while increasing market share and profitability through our convenience, value and execution strategies.”

The strategic planning model

Step 2: Develop a clear Mission Statement

• The mission of an organisation differs from its vision in that it tends to focus on the question: ‘what business are we in now?

• What is our core business?

McDonalds Corporation Mission Statement

 “Our mission is to serve a limited menu of hot, tasty, food, quickly, in a clean, friendly

restaurant for good value to a broad base of customers worldwide!”

The strategic planning model

Step 3: Conduct a SWOT analysis

• Should be conducted before setting business objectives

• Business objectives will only be realistically achieved if the organisation first gains clarity on and then creates a good fit between, its internal resource capabilities (strengths & weaknesses) and its external environment (opportunities & threats).

SWOT Analysis

1. ANALYSE THE BUSINESS STRATEGY OF AN ORGANISATION

After completing this outcome, you will be able to:• Identify the business objectives of a given organisation• Discuss how the achievement of business objectives is measured• Analyse the business strategy of a specific organisation• Discuss how the strategy assists in achieving business objectives• Compare a business strategy to an organisation’s code of conduct

and identify any inconsistencies in the two documents in terms of ethics

• Communicate a business strategy to a unit or small business• Interpret communications from senior management about the

business strategy of an organisation to a business unit in role play or in an authentic situation

• Report the response of the business unit to the business strategy• Discuss the perceived problems, threats and opportunities to an

organisation.

The strategic planning model

1.1 Identifying business objectives

Activity 1

• Review what you have learnt from your own studies and, then write down a career objective that you want to achieve over the next five years

McDonald’s business objectives

• At least three of the business objectives that McDonald’s are likely to identify would be:– To improve customer satisfaction

– To increase market share

– To increase profitability

Activity 2

• Using ‘increasing profitability’ as your example, develop a clearly-worded business objective for McDonald’s that adheres to the ‘SMART’ principle

1.2 Measuring the achievement of business objectives

• At the same time as business objectives are identified, performance standards need to be set to create a foundation for measuring and evaluating the organisation’s performance against these objectives.

Activity 3

• Review the information on McDonald’s that follows. Using this data, set a new business objective to increase profitability for 2008 to 2010 explain why the objective you have set is ‘realistic’ and likely to be ‘agreed’

Activity 3

Activity 3

McDonald's Corporation: Business Performance

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5

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15

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25

2005 2006 2007

Revenue Profit

Performance standards must also adhere to certain criteria

• Adequate and relevant information must be available. It is of no value to set a Performance Standard that is apparently useful but is dependent on information that is difficult to obtain or is unreliable

• Standards must be flexible when affected by external forces

• Standards must be meaningful• Standards must answer the key questions

asked in Exhibit 2

Types of standards

1.3 Analysing the business strategy of an organisation

The strategic planning model

1.3.1 Develop a strategy

McDonald’s Europe: Environmental Impact

McDonald’s Europe: Packaging materials used

McDonald’s Europe: Types of packaging used

Activity 4• Review the types of material used by McDonald’s Europe for

packaging and then WRITE DOWN your answers to the following questions1. What is the BEST form of packaging to use i.e. what packaging

will do the LEAST HARM to the environment?2. What is the WORST form of packaging to use i.e. what will do

the MOST HARM to the environment?3. What do you think is the difference between RECYCLED

packaging and RENEWABLE packaging?4. Given your answers to the first three questions, HOW

SUCCESSFUL do you think McDonald’s have been in their EMS strategy considering that the intention is to develop a general framework for all countries in Europe? If you were the CEO of McDonald’s, would your priority be to:

a. Use less materialb. Choose less polluting materialc. Give preference to material from renewable resourcesd. Increase recyclinge. Improve product design so that packaging can be reused

Strategic process

• What MacDonald’s has done is to:– Focus on a strategic area of their business in Europe –

treating their environment in a responsible manner. – Develop a clearly-worded strategy that will ensure all

McDonald’s franchises operating in ANY European country adhere to the same EMS framework.

– Identify the factors that should be measured in terms of the EMS that, in turn, will indicate how successful the strategy is in attaining their stated vision of protecting the environment for future generations by achieving their business objectives of sustainability.

1.4 How strategy assists in achieving business objectives

• The vision and mission of an organisation define where it is going

• The business objectives are what it wants to achieve

• The strategies are how it intends to do this

Linking strategies to business objectives

Extracts from McDonald’s 2006 Annual Report

“We implemented our Plan to Win strategy (in 2003) with its strategic imperative to

be better, not just bigger. During this four-year period ended December 2006, we

reported 44 consecutive months of positive global comparable sales, delivered

double-digit increases in annual earnings per share, returned more than $ 9 billion

to shareholders, added six million more customers per day and increased average

annual restaurant sales about 20 percent. In fact, 2006 was one of the most

successful years in McDonald’s history. We achieved record annual revenues of $ 21

billion … Clearly we are remaining true to the heritage of our founder Ray Kroc.

More than half a century ago, he established the fundamentals of the McDonald’s

formula for success – quality, service, cleanliness and value. These same

fundamentals now serve as the cornerstones of our Plan to Win.

Extracts from McDonald’s 2006 Annual Report

Wherever you go in the McDonald’s System, to any of our 31, 000 restaurants

Worldwide, you will see them at work for our customers. You’ll see them in the

quality of our core menu … you’ll see them in the ambiance of our restaurant

designs … in the convenience of our extended hours of operations … in the efforts

we are making to educate our customers regarding balanced, active lifestyles … and

in the care we are taking to be a trusted, responsible company that does the right

thing for our customers and communities. Most important, you’ll see them in the

eyes of our employees, because of the training they receive and the opportunities our

System provides. The McDonald’s System spends more than $ 1 billion a year to

train and develop our people, and this is paying off in improved customer service.”

McDonald’s ‘Plan to win’ strategy

1.5 How consistent are business objectives with the

organisation’s code of conduct in terms of ethics?

What is a ‘code of conduct’?

• Prescribes the ethical standards of behaviour expected by each of their stakeholders – not just their employees

• Living document that is continuously updated and that embodies the minimum standards of behaviour expected from all employees from the CEO to the most junior team member

• Form of risk management. A recent survey conducted in South Africa indicates that as many as 80% of private sector companies have experienced ‘white collar crime’. By clearly communicating their code of conduct, the organisation ensures that everyone fully understands what acceptable behaviour is and what the risks are for all concerned if the code is not complied with

A code of conduct should:

• Review the intention of the organisation to make a contribution to society

• Include the organisation’s values

• Commit the organisation to high behaviour standards

• Be sufficiently detailed to provide guidance to all employees on expected behaviour

Old Mutual’s Code of Conduct

“As a Group we should maintain the highest ethical standards in carrying out our business activities. Our reputation is one of our most important assets. Maintaining the trust and confidence of all those whom we deal with is accordingly one of our most vital responsibilities, so in all of our operations our set of core values must be used to guide and direct the way we do business. We recognise our obligations to those with whom we have dealings – shareholders employees, customers, suppliers, competitors and the wider community. Accordingly this code sets overall principles and guidelines for practice to be adopted throughout the Group. We will monitor ethical performance regularly in order to ensure that corrupt or unethical business practices are eliminated.”

What are ethics?

• Within the context of the business organisation it means doing the right thing

Activity 5

• Read the statements about business ethics that follow and decide which are ‘true’ and which are ‘false’.

Comparing business objectives with the code of conduct

McDonald’s code of conduct

Activity 6

• Review the extract from the McDonald’s 2006 Annual Report on their “Plan to Win’ strategy as well as exhibits 8 and 9, and then write down your answers to the following questions:1. What are the three “P’s” that are common to their

values and to the strategy?2. What code of conduct relates to both responsible

purchasing and to the philosophy of “learning for life”?

3. Is it ethical to sell ‘fast foods’ to children? Explain your answer

4. Do you believe that McDonald’s have become more responsible in the way they do business over the past 2-3 years? Give reasons for your answer

1.6 Communicating a business strategy to business units

• McDonald’s operate in over 100 different countries• These countries are split into four global operating

regions – USA; Canada & Latin America; Europe; Asia, Pacific, Middle East & Africa

• They also have corporate development, finance, marketing and human resource divisions as well as their core operations (including franchising)

• They have in excess of 30 000 restaurants• 70% of these restaurants are owned by independent

franchise holders

McDonald’s global market

How do they communicate strategy?

• Created a company-wide portal to enhance internal communications and collaboration among its corporate employees and franchisees

• Integration of all communication processes, including LANs, WANs, and the EDI (electronic data interchange) between the company and all its business partners.

• Set up official internal blogs to communicate within the company

Communicating a business strategy to business unit

Employees must understand:

• What the business strategy is for the whole organisation

• What is required from their own business unit to ensure it succeeds and,

• What is their own role in implementing the strategy

1.7 Interpreting communications from senior

management about the business strategy to business units and then

reporting back on the response of the unit

Activity 7Cyril Meyer is a McDonald’s franchise owner who has owned his restaurant for 5 years. His business has been successful because he works hard and rigorously follows the required McDonald’s systems and procedures that he has been extensively trained on by the company.He has 3 shift supervisors who report directly to him, each of whom has a team of crew members working for them. (McDonald’s use the term ‘crew member’ to refer to their staff. This includes cooks, customer service and delivery employees). Although sales volumes have not been increasing much due to tough economic times and there is more competition for customers, the restaurant is still very busy. This is because customers are ordering less expensive meals at a time but ordering more frequently.

Required: 1.Place yourself in the position of Cyril Meyer2.Interpret the ‘Plan to Win’ strategy into “SMART” objectives and standards for the restaurant crew using the matrix that follows according to each strategy element i.e. fit each objective where it belongs and then fit each standard to a specific objective.

Linking business unit objectives to company strategy

Reporting back on a strategy in phases

1.8 Discussing the perceived problems and threats to the organisation and opportunities

for the organisation

• Part of the response of the business unit to the strategy will be informed by – The realities of the internal problems faced by

the business unit

– The threats posed by competitors, and

– The opportunities in their chosen operating environment

Activity 8

• Think of any ‘fast food’ restaurant that you visit regularly. (It doesn’t have to be McDonald’s) and list the internal problems that you think can cause you to become unhappy with their service. Be sure to try and identify the real problem e.g. if the person serving you is unfriendly and unhelpful, the problem is not a “bad attitude”, it is more likely to be poor staff selection or poor training.

• Make a list of at least 6 problems inside the restaurant that can lead to poor customer service.

Threats and opportunities

• What are threats?– Factors outside of the organisation ability to

control

– Can you think of some examples?

• What are opportunities?– Can you think of some examples?

Activity 9• McDonald’s are not the only people who offer ‘burgers

and fries’ in a variety of combinations as well as side dishes and a range of drinks.

• Tasks: 1. Draw up a list of THREE COMPETITORS who pose a

threat to McDonald’s in South Africa2. Why do they pose a threat?3. What opportunities do these threats create for McDonald’s?

For example, should they open new stores to compete more aggressively, or should they consider buying these competitors? Provide reasons for your answers.

Integrating the communication process within the organisation

• Effective communication requires:– Clear communication of the strategy to all

business units– Accurate interpretation of senior

management’s strategy message by business unit managers to their staff in the unit

– Reporting back on the response of the business unit to top management, wherein all perceived problems, threats and opportunities are clarified

Activity 10

• Place yourself in the position of Cyril Meyer, the McDonald’s franchise owner we ‘met’ in Activity 7 who has already interpreted the ‘Plan to Win’ strategy into “SMART” objectives and standards for his restaurant crew.

• Read through the information that follows and use the various meeting tools to help you conduct a Strategy Communication Meeting to explain how you understand the ‘Plan to Win’ strategy and what it requires in terms of their performance.

• Use the meeting to get their response to the strategy.

Meeting tool #1: Planning checklist for managers

• A checklist is an invaluable aid to ensuring that no time is wasted at the meeting due to poor planning. It is useful to divide the checklist up into: – Tasks to do well in advance of the meeting (symbol

= W)– Tasks to do the day before the meeting (symbol = B)– Tasks to do on the day of the meeting (symbol = O)– Tasks to do during the meeting (symbol = D) – Tasks to do after the meeting (symbol = A)

Venue planning checklist

Participant panning checklist

Meeting tool #2: The meeting agenda

• Before investing time and effort in a meeting, it is essential that the manager draws up an Agenda that will assist in planning and controlling the meeting

Meeting agenda template

Meeting tool #3: Meeting rules

• To conduct an effective meeting, the manager of the business unit needs to adhere to the following golden rules:– Be punctual – discipline latecomers– Stick to the agenda– Be concise and clear– Ensure another team member records

everything– Stay clear of personal issues (e.g. keep for

another specific meeting)

Meeting tool #4: The Action Plan

• The most important output of a meeting will always be the ACTION PLAN. This is not a complicated document - but must comply with certain principles:– It must support achieving key results

– All points must be WRITTEN DOWN

– Individuals responsible for action must be specified

– “By when" dates must be specified

2. ALIGN A BUSINESS UNIT WITH THE BUSINESS STRATEGY

•After completing this outcome, you will be able to:• Explain the role of a business unit in supporting the business

strategy and achieving the organisation’s objectives

• Discuss the consequences for the organisation if the business unit fails to deliver

• Identify the factors that could prevent a business unit from assisting the business in realising the objectives of the business strategy

• Discuss the steps that could be taken to minimize the negative impact

• Identify resources required by a business unit in order to align the unit to the business strategy

• Present an estimation of the financial implications of providing resources to align a business unit to the business strategy

2.1 The role of business units in supporting the business strategy

• The ‘golden rule’ of customer service:

• “If you aren’t directly serving the paying customers, then you’d better be serving someone who is!”

Case study: Lionel’s cost-saving objective

Lionel, the Production Manager of a factory in Gauteng, was participating a Leadership Development Programme at the company’s KwaZulu-Natal depot just outside Durban.

Just before the morning tea-break, the Regional Sales Manager for KwaZulu-Natal burst into the training room and asked to speak to Lionel urgently. The depot had run out of stock of their most important product (responsible for over 50% of their sales on its own). This product was produced at the Gauteng factory where Lionel was the Production Manager. Two weeks ago there had been a problem with raw materials, but this had been rectified.

If the factory had worked overtime, the company would not have run out of stock in KwaZulu-Natal. An analysis of the issue showed that if the factory had worked overtime it would have cost an extra R 5000. However, the profit lost by not being able to supply their customers amounted to R 710 000!

The problem was that Lionel’s performance within his business unit (Gauteng Region) was measured against how well he controlled the costs in production. Therefore it made sense not to pay overtime. If, however, he and his boss had focused on the interests of their internal customer – the KwaZulu-Natal region and their external paying customers, the company as a whole would have not have lost nearly R ¾ million in profit!

2.2 The consequences for the organisation if the business unit

fails to deliver• What are the consequences?– Loss of sales

– Loss of market share

– Damage to the brand

Activity 11

• Draw up a list of further consequences for an organisation if one or more of their business units fail to perform their part in implementing a business strategy

Factors that prevent a business unit from assisting the business in realising strategy objectives

Strategy factor What could prevent the business unit from achieving the strategy?

People Lack of training Poor selection of employees

Products Product quality Meeting customer needs

Places Location Décor

Prices Profit margins Managing costs

Promotion Advertising Merchandising

2.4 Steps taken to minimise negative impact

• Steps taken to minimise negative impact should primarily focus on internal performance issues– Step # 1: identify the key competencies required for each position in the restaurant and

only select individuals who either posses these competencies or have the potential to develop them.

– Step # 2: ensure all new employees are fully inducted into the business and then are put through proper training where their skills are assessed in terms of required standards.

– Step # 3: ensure that all employees understand that non-adherence to product and service quality standards will result in disciplinary action.

– Step # 4: require all suppliers to adhere to agreed quality and service standards.– Step # 5: conduct continuous customer surveys to identify issues requiring attention and

needs that create new opportunities to attract more customers.– Step # 6: identify a location that has substantial pedestrian ‘traffic’ such as a popular

shopping mall.– Step # 7: put systems in place to ensure that inventories and operating expenses are

strictly controlled and all waste reduced. – Step # 8: make sure to keep customers tempted by offering value deals that keep them

coming back.– Step # 9: advertise at any opportunity and make sure that the restaurant is able to

‘deliver’ on the advertisement ‘promise’– Step # 10: ensure that EVERY EMPLOYEE is an enthusiastic ‘ambassador’ for the

BRAND!

Activity 12

1. Review the categories of resources listed below2. On a sheet of A4 paper, list the main categories on the

left-hand side and then why they are required on the right-hand side– Financial resources e.g.

• a specific budget for the strategy• authority to allocate the budget according to local needs

– Information resources e.g.• comprehensive explanation of strategy by head office• fast and integrated IT systems

– Physical resources e.g.• appropriate store location• new or well-maintained equipment

– Human resources e.g.• experienced and well-trained staff• specific skills related to new products/services

2.6 The financial implications of providing resources to align a business

unit to the business strategy• There needs to be a budget to cater for the

extra costs likely to be incurred in this process. These costs will include: – Recruitment of individuals with scarce skills– Training of existing employees in customer service – sufficiently powerful IT systems (for stock control,

payments etc.)– Upgrading of facilities (in the case of McDonald’s

this includes furniture, fittings, kitchen equipment etc.)

– Extra advertising expenses to promote the strategy

3. IDENTIFY THE FACTORS AFFECTING THE PERFORMANCE OF THE BUSINESS

After completing this outcome, you will be able to:• Analyse the strengths, weaknesses, opportunities and threats (SWOT) of a

business

• Report on the SWOT Analysis of a business or department, in writing

• Analyse the social, technical, economic, environmental and political factors affecting a specific business

• Present the analysis of the social, technical, economic, environmental and political factors affecting a specific business in the form of a specific report

3.1 Analysing the strengths, weaknesses, opportunities and threats (SWOT) of a

business

• Internal strengths are those things that an organisation is very good at and will provide competitive advantage.

• Internal weaknesses are things an organisation lacks or does poorly and puts it at a disadvantage.

• External opportunities offer avenues to utilise the core capabilities of an organisation.

• External threats arise due to technology, consumer patterns & socio-political

SWOT Analysis

The formal SWOT analysis process

Examples of factors emerging from this process

• Visionary leadership• High levels of inventory• High unit costs• Expanding key brands to new geographic areas• Good locations• Competent & motivated employees • Adverse shifts in trade policies • Excellent brands• Limited new product development• Expanding the product range to meet new customer needs• Vertical integration with selected suppliers• Acquisition of competitors serving niche markets• Old plant & equipment• Strong financial systems• Competitors developing substitute products• Recession in key geographic markets• New restrictive legislation• Technological skills & expertise

3.2 Report on the SWOT Analysis of a business in writing

Activity 13

1. Review the SWOT Matrix example that follows.2. Divide a sheet of A4 paper into four quarters and

write in the headings (Strengths, Weaknesses, Opportunities, Threats) in each of the quadrants.

3. Complete a Personal SWOT Analysis for yourself

• Tip: Try asking close friends to tell you what they think are your best attributes (your strengths) and what things you need to improve on (your weaknesses).

Present the analysis of the social, technical, economic,

environmental and political factors affecting a specific business in the form of a report