Fundamentals of Business Planning

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Fundamentals of Business Planning

• Professor Steven E. Phelan, PhD

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AGENDA

• Review Simulation Results
• Fundamentals of Planning
• Goals
• To understand the relationship between strategy,
  plan, and execution
• To understand the components of a good plan
• To assess the strategic readiness of select plans
• To make the numbers believable
• Tomorrow Basics of Project management
• Please install OpenProj (http//openproj.org/openp
  roj)

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Tools

• Readings
• Mintzberg Fall and Rise of Strategic Planning
• Kaplan/Norton The Office of Strategy Management
• Kaplan Resource Capacity Planning
• McGrath/McMillan Discovery-Driven Planning
• MCI Case

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Mintzberg on Strategic Planning

• Observations
• Strategic planning isnt strategic thinking
• One is analysis the other is synthesis
• Real strategic changes requires inventing new
  categories, not rearranging old one
• Planning is a calculating style of management,
  not a committing style
• Planning has often been used to exercise blatant
  control over business managers

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Mintzberg

• The Fallacies of Strategic Planning
• Fallacy of Prediction
• Can planners forecast with any accuracy?
• Fallacy of Detachment
• The idea that strategy must be detached from
  operations
• A strategy can be deliberate or emergent (and
  probably has elements of both)
• Fallacy of Formalization
• Formal procedures will never be able to create
  novel strategies
• Do we think then act or act then think?
  Effectuation logic
• Should be called strategic programming

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Mintzberg

• Planning as Strategic Programming
• Codification
• Clarifying strategies in operationally relevant
  terms
• Elaboration
• Breaking down the codified strategies into
  projects and action plans (i.e. the non-routine
  aspects of organization)
• Conversion
• Restating objectives, reworking budgets,
  reconsidering policies, and standard operating
  procedures (i.e. the routine aspects of
  organization)
• Benefits
• Focus, coordination and communication
  (internal/external)

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Mintzberg

• Other roles for planners
• As strategy finders
• As analysts
• Carrying out analysis of specific issues
• The quintessential MBA?
• As catalysts
• Getting others to question conventional wisdom
  and think about the future in creative ways

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THE OFFICE OF STRATEGY MANAGEMENT

• Kaplan/Norton

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The Office of Strategy Management

• Statistics
• 67 of HR/IT department strategies dont reflect
  corporate strategy
• 90 of frontline workers not compensated for
  success of strategic priorities
• 95 of workers dont know or understand the
  strategy
• 60 of organizations dont link budgets to
  strategies
• Are you surprised?
• How big of an issue is this for your organization?

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OSM

• Shers view
• while many people believe that chief executives
  wield direct and easy influence, the reality is
  that any CEO has a difficult time influencing his
  or her organization
• I want to exert my influence indirectlyI dont
  command any parts of the organization
• Information, particularly bad news, is filtered
  before it gets to me
• we were spending way too much time debating the
  quality of information
• much of management is the search for the truth

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OSM

• What good OSMs do
• The OSM is a facilitating organization, not a
  dictating one (uhuh!)
• Roles
• Create and manage balanced scorecard
• Align the organization (cascade BSCs rare)
• Facilitate monthly strategy reviews
• Develop and communicate strategy
• Manage strategic projects/initiatives
• Integrate strategic priorities with other depts
• Budgeting, HR alignment, knowledge mgt

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MCI Communications

• Planning for the 1990s

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MCItimeline

• Evolution
• 1960s to 1980 battles with ATT and regulators
• 1984 decentralization to compete with Baby
  Bells
• 1986 crisis
• How did the strategy process evolve over this
  time?

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MCI

• 1990s globalization, new technologies,
  sophisticated customers
• How should MCI alter its strategy processes to
  cope with these growth opportunities?
• What do you think of the goals in Exhibit 5?

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Resource Capacity Planning

• Robert S. Kaplan

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Resource Capacity Planning

• MBA assessment issue
• No concrete data-driven recommendations
• Linking strategy to operations
• Typically 90 of corporate spending on routine
  operations (OpEx) vs StratEx
• Four steps
• Derive sales forecasts for strategic plan
• Translate into operating plan
• Use time-based ABC to forecast resources
• Derive budgets for operational and capital
  spending (see DA example)

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DISCOVERY DRIVEN PLANNING

• McGrath/McMillan

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Discovery-driven planning

• New ventures
• have a high ratio of assumptions to knowledge
• often deviate from plans because assumptions are
  wrong
• Traditional planning bakes in assumptions
• Companies dont have hard data but proceed as if
  assumptions were facts
• When they do get data they often dont check
  assumptions

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Discovery-driven planning

• Reverse income statement
• Start with required profits
• We want to generate 100K in additional profit
• Necessary revenues if 10 sales margin 1m
• Allowable costs with 10 sales margin 900K
• Calculate per unit figures
• Required unit sales at 100 per unit 10,000
• of market 10 of US market per year
• Allowable costs per unit 90

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Next steps

• Estimate expenses
• Cost of sales
• E.g. Unit sales / size of order no. of orders
• Sales calls per order x handling time no. of
  staff
• Cost of manufacturing
• Cost of shipping/warehousing
• Capital expenditure/depreciation
• Allows you to identify and track assumptions
• Plan to test assumptions at milestones with a
  keeper of the assumptions
• http//faculty.unlv.edu/phelan/MGT709/ShadBusiness
  PlanningModel2005.xls

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Strategic Readiness Audit

• You need to analyze your chosen plan for its
  strategic readiness
• By that I mean the ability to execute on the plan
• What makes a plan more executable?
• What ideas have influenced you the most in the
  readings?
• What things would you look for in a plan?
• What are some red flags?