Exam 4: Planning and Decision Making

List the steps in effective planning.

WWYD DuPont The DuPont Corporation, founded in 1802, was a manufacturer of blasting powder in its first 100 years. In its second 100 years, it became one of the world's leading chemical companies, producing products such as Teflon, Lucite, and Kevlar. DuPont's last 25 years, however, have not been as successful. While profitable, DuPont's product and financial performance ranks just 16^th out of 19 comparison companies. During the recent world financial crisis, sales dropped by 20 percent, 6,500 employees lost their jobs, and the company's annual budget was cut by $1 billion. DuPont CEO Ellen Kullman's first step in restoring the company's prestige and performance was to focus on the company's reason for existing. DuPont's long-time vision was, "Better things for better living … through chemistry." However, Kullman focused on DuPont's scientific and engineering capability and declared that DuPont was in the "innovation and science" business. Consistent with that direction, Kullman decided to pay $6.3 billion to acquire Danisco, a Danish biotechnology company that uses industrial enzymes to make ethanol, food, animal feed, and textiles. From a market standpoint, acquiring Danisco makes DuPont the world's largest manufacturer of food additives and the second largest producer of the enzymes used to make biofuels. While CEO Ellen Kullman and her predecessor, Charles Holliday, Jr., repositioned the company from being a "chemical company" to being a "science company" to being an "innovation and science company," that change was pushed across the company. More specifically, while DuPont was now in the business of "innovation and science," it would be in that business across five "growth platforms," agriculture and nutrition (Pioneer seeds), coatings and color technologies (automobile finishes), electronic and communication technologies (solar panels), performance materials (resins and laminated glass), and safety and protection (fibers and materials used in body armor or firefighting). The set of businesses in each growth platform was then charged with achieving specific growth goals, for example, to decrease the amount of time it takes to bring new products to market in order to increase revenues from new products. Thomas Connelly, DuPont's chief innovation officer, says, "My rallying cry is launch hard and ramp fast." Nine years ago, new products accounted for just 22 percent of revenues. Progress on new product development time has been impressive, however, as roughly 40 percent of DuPont's revenues now come from products introduced in the last five years. That isn't enough for CEO Kullman who says, "We are challenging our teams over the next few years to move brand-new products into the 50 percent range." Kullman's top goal is for DuPont to increase its earnings per share by 20 percent per year. In most companies, this would be a super aggressive goal, but achieving this goal would return the company to price-earnings ratios that it was earning five years ago. So while this is an aggressive annual goal, it's also modest in the sense that it is returning DuPont to a previously achieved level of earnings. While CEO Kullman's top goal is to increase earnings per share by 20 percent per year, those goals will be translated into seven specific segments of the company: agriculture and nutrition; electronics and communications; performance coatings; performance materials; safety and protection; performance chemicals; and pharmaceuticals. Translating the overall goal into specific sections of the company avoids a key planning pitfall. For managers and employees, overall company goals, particularly in large companies like DuPont, can seem distant and unobtainable. Refer to WWYD DuPont. Translating the overall goal into specific sections of the company avoids the planning pitfall of:

List and briefly describe the three kinds of operational plans.

Both absolute comparisons and relative comparisons are methods for identifying decision criteria.

All decision making by management is rational.

The basic purpose of ____ planning is to leave commitments open by maintaining slack resources.

Krispy Kreme Krispy Kreme is a relatively small doughnut seller. It has only 792 stores while Dunkin Donuts has over 7,125 outlets in the United States and Canada. In spite of its size, Krispy Kreme has been described by many as "the hottest brand in America." The company's success in an environment which has made success difficult for many food operations is due in large part to the long-term vision of its top management and its establishment and achievement of S.M.A.R.T. goals. The company originated in Winston-Salem, North Carolina, in the mid-1930s when Vernon Rudolph bought a secret recipe for yeast doughnuts from a French pastry cook. Rudolph ran the company until he died in 1973 without naming a successor, which caused the company problems for the next decade. Refer to Krispy Kreme. Which of the following would be an example of an operational plan for Krispy Kreme?

____ are standing plans that indicate the specific steps that should be taken in response to a particular event.

The goal of a company was to reduce the expenses incurred by the sales force. A manager examining weekly expense sheets would be using which of the accepted methods for tracking progress toward goal achievement?

Explain how the rational decision-making process may help to overcome predispositions and biases that a manager has in a given decision making situation.

A strategic objective is a statement of a company's purpose or reason for existing.

Creating and executing a plan is one of the most important tasks of a manager.

When Coca-Cola discovered it had an unauthorized bottler selling Coke in the Colombian jungle, it used the rational decision making process to find a solution. What do you know about the stage in which Coke evaluated its possible courses of action?

After earning $8 billion in profit, Royal Dutch/Shell decided to strive to double its profits within the next five years. Which classical management function would be instrumental in achieving this goal?

____ are types of standing plans.

Neither Chile nor Peru has a mass-market café culture, but that fact has not stopped Starbucks from trying to determine what can be done to make its coffee houses successful in those markets. By recognizing that people in these two South American countries do not drink coffee like people in the United States and that they should change this habit, Starbucks has begun a ____ process with problem identification.

According to the text, which of the following is a pitfall of planning?

According to the S.M.A.R.T. guidelines, goals should be ____.

WWYD DuPont The DuPont Corporation, founded in 1802, was a manufacturer of blasting powder in its first 100 years. In its second 100 years, it became one of the world's leading chemical companies, producing products such as Teflon, Lucite, and Kevlar. DuPont's last 25 years, however, have not been as successful. While profitable, DuPont's product and financial performance ranks just 16^th out of 19 comparison companies. During the recent world financial crisis, sales dropped by 20 percent, 6,500 employees lost their jobs, and the company's annual budget was cut by $1 billion. DuPont CEO Ellen Kullman's first step in restoring the company's prestige and performance was to focus on the company's reason for existing. DuPont's long-time vision was, "Better things for better living … through chemistry." However, Kullman focused on DuPont's scientific and engineering capability and declared that DuPont was in the "innovation and science" business. Consistent with that direction, Kullman decided to pay $6.3 billion to acquire Danisco, a Danish biotechnology company that uses industrial enzymes to make ethanol, food, animal feed, and textiles. From a market standpoint, acquiring Danisco makes DuPont the world's largest manufacturer of food additives and the second largest producer of the enzymes used to make biofuels. While CEO Ellen Kullman and her predecessor, Charles Holliday, Jr., repositioned the company from being a "chemical company" to being a "science company" to being an "innovation and science company," that change was pushed across the company. More specifically, while DuPont was now in the business of "innovation and science," it would be in that business across five "growth platforms," agriculture and nutrition (Pioneer seeds), coatings and color technologies (automobile finishes), electronic and communication technologies (solar panels), performance materials (resins and laminated glass), and safety and protection (fibers and materials used in body armor or firefighting). The set of businesses in each growth platform was then charged with achieving specific growth goals, for example, to decrease the amount of time it takes to bring new products to market in order to increase revenues from new products. Thomas Connelly, DuPont's chief innovation officer, says, "My rallying cry is launch hard and ramp fast." Nine years ago, new products accounted for just 22 percent of revenues. Progress on new product development time has been impressive, however, as roughly 40 percent of DuPont's revenues now come from products introduced in the last five years. That isn't enough for CEO Kullman who says, "We are challenging our teams over the next few years to move brand-new products into the 50 percent range." Kullman's top goal is for DuPont to increase its earnings per share by 20 percent per year. In most companies, this would be a super aggressive goal, but achieving this goal would return the company to price-earnings ratios that it was earning five years ago. So while this is an aggressive annual goal, it's also modest in the sense that it is returning DuPont to a previously achieved level of earnings. While CEO Kullman's top goal is to increase earnings per share by 20 percent per year, those goals will be translated into seven specific segments of the company: agriculture and nutrition; electronics and communications; performance coatings; performance materials; safety and protection; performance chemicals; and pharmaceuticals. Translating the overall goal into specific sections of the company avoids a key planning pitfall. For managers and employees, overall company goals, particularly in large companies like DuPont, can seem distant and unobtainable. Refer to WWYD DuPont. Kullman's goal to increase earnings per share by 20 percent per year most lacks:

D.G. Yuengling & Son With beer sales dropping around the world, you should be ecstatic that sales of Yuengling (pronounced Ying-Ling)beer are up 225 percent in the last six years. But as you walk through the caves and tunnels of Yuengling's Eagle Brewery, carved into Sharp Mountain in 1831 to maintain a perfect 50-degree temperature for storing beer, you see not only the history of America's oldest brewery everywhere you turn, but also chipped paint, rusting pipes, and an aging plant that can't keep up with the growing demand for Yuengling beer. So far, thanks to hard work, dedicated workers, and some luck, you've doubled your production capacity from 250,000 to 500,000 barrels of beer a year, but if you push for more, the old brewery will break. Yet with sales up so dramatically, the company faces a problem. Says CEO and owner Dick Yuengling, "We are sold out of beer. We run the risk of losing our customer base because we don't have any product on the shelves." Shortages are so bad that the advertising budget has been cut from $3 to $2 a barrel. Yuengling explains, "You can't fuel the fire when we can't get them beer anyway." With production stuck at 500,000 barrels a year, Yuengling beer has become harder to find even as it has become more popular. Sales representative Diane Adams said, "It was a little hairy. People were up in arms." So, rather than sacrifice sales in its home market of Pennsylvania, where Yuengling has its largest market share (10 percent), the company has temporarily stopped shipping beer to distributors in Maine, Massachusetts, and Rhode Island. Since that strategy won't help Yuengling grow outside Pennsylvania, you still face the question of how to permanently increase beer production to meet the growing demand. You've identified five options. The first is to add new storage and finishing tanks to Eagle Brewery to increase production capacity by 10 percent to 550,000 barrels a year. Though doable, this is only a short-term solution. Second, you could outsource production to another company. This would be more cost-effective, but would Yuengling beer produced in non-Yuengling factories taste different? For a specialty beer, this could be a substantial risk. Still, outsourcing would be affordable, and Yuengling has done it before, outsourcing production of its Black and Tan beer to Pabst Blue Ribbon's brewery in Lehigh, Pennsylvania, until Pabst closed that facility four years ago. The third option is to buy another brewery, but there aren't many for sale and those that are would be expensive and require significant upgrades. For example, it would cost $13 million to buy and $5 million to fix Stroh's 1.5 million-barrel brewery in Tampa, Florida, which is far from Yuengling's northeastern markets. A fourth option is to build a new factory capable of producing 1.2 million barrels per year, but that would cost $50 million and take three years. The fifth and final option is simply to do nothing. The company is already very profitable, has low overhead costs, and is very efficient. In other words, by doing nothing the company could still make a lot of money without incurring the risks inherent in the other options. And risk is a real consideration because everyone in the company remembers that Yuengling was losing money just a few years ago. Refer to Yuengling. Yuengling's objective to pay off its loan for a new $50 million brewery within five years was an example of a ____ goal.