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FORECASTING TECHNIQUES

CORPORATE STRATEGY

Corporate strategy

The overall scope and direction of a corporation and the way in which its various business operations work together to achieve particular goals.

 Corporate strategy is often stated explicitly in a "mission statement".

Corporate Strategy

Issues include:

• Scope of Business-----What Business you are in??

Product scope. How specialized should the firm be in terms of the range of products

it supplies? Coca-Cola (soft drinks), SAB Miller (beer), Gap (fashion retailing), and

Swiss Reliance (reinsurance) are specialized companies: they are engaged in a single

industry sector. General Electric, Samsung, and Bertelsmann are diversified

companies: each spans a number of different industries.

Geographical scope. What is the optimal geographical spread of activities for the

firm? In the restaurant business, Clyde’s owns 12 restaurants in the Washington DC

areas, Popeye’s Chicken and Biscuits operates throughout the US, McDonald’s

operates in 121 different countries.

Vertical scope. What range of vertically linked activities should the firm encompass?

Walt Disney Company is a vertically integrated company: it produces its own movies,

distributes them itself to cinemas and through its own TV networks (ABC and

Disney Channel), and uses the movies’ characters in its retail stores and theme parks.

Nike is much more vertically specialized: it engages in design and marketing but

outsources many activities in its value chain, including manufacturing, distribution,

and retailing.

• Resource deployment----How you are going to use your resources??
• Competitive advantage----What are your competitive advantages??
• Coordination of Production, Marketing, Personnel etc.----

Corporate planning

Corporate planning represents a formal, structured approach to achieving objectives and to implementing the corporate strategy of an organization.

It is the process of drawing up detailed action plans to achieve an organization's goals and objectives, taking into account the resources of the organization and the environment within which it operates.

Methods of developing Corporate Strategy

1.            Boston   matrix

Market Share and Market Growth

To understand the Boston Matrix, you need to understand how market share and market growth interrelate.

Market share is the percentage of the total market that is being serviced by your company, measured either in revenue terms or unit volume terms. The higher your market share, the higher the proportion of the market you control.

 Market growth is used as a measure of a market's attractiveness. Markets experiencing high growth are ones where the total market is expanding, meaning that it’s relatively easy for businesses to grow their profits, even if their market share remains stable.

Understanding the Matrix

The Boston Matrix categorizes opportunities into four groups, shown on axes of Market Growth and Market Share:

These groups are explained below:

Dogs: Low Market Share / Low Market Growth
In these areas, your market presence is weak, so it's going to take a lot of hard work to get noticed. You won't enjoy the scale economies of the larger players, so it's going to be difficult to make a profit. And because market growth is low, it's going to take a lot of hard work to improve the situation.

Cash Cows:
High Market Share / Low Market Growth
Here, you're well-established, so it's easier to get attention and exploit new opportunities. However it's only worth expending a certain amount of effort, because the market isn't growing, and your opportunities are limited.

Stars:
High Market Share / High Market Growth
Here you're well-established, and growth is exciting! There should be some strong opportunities here, and you should work hard to realize them.

Question Marks (Problem Child):
Low Market Share / High Market Growth
These are the opportunities no one knows what to do with. They aren't generating much revenue right now because you don't have a large market share. But, they are in high growth markets so the potential to make money is there.

2.            SWOT Analysis/TOWS Matrix

The SWOT analysis allows managers to develop a strategic plan by examining organizational strengths and weaknesses in terms of the opportunities and threats presented by its environmental elements. Subsequent strategies and tactical decisions can produce a competitive advantage.

A SWOT Analysis examines the companies:

• Strengths...Internal
• Weaknesses...Internal
• Opportunites...External
• Threats...External
• 
  
  

By developing a SWOT analysis, a company can determine what its distinctive competencies are. This will help determine what the organization should be in business for, what its mission should be.

3.            Product life cycle
Four Stages to the Product Life Cycle:

1. Introduction
2. Growth
3. Maturity
4. Decline

Introduction

Failure rate for new products can range from 60%-90%, depending on the industry. A product does not have to be an entirely new product, can be a new model (car).

Marketing Mix(MM) considerations

Need to build channels of distribution/selective distribution
Dealers offered promotional assistance to support the product...PUSH strategy.
Develop primary demand/pioneering information, communications should stress the benefits of the product to the consumer, as opposed to the brand name of the particular product, since there will be little competition at this stage and you need to educate consumers of the product's benefits.
Price skimming...set a high price in order to recover developmental costs as soon as possible.
Price penetration...set a low price in order to avoid encouraging competitors to enter the market, also helps increase demand and therefore allows the company to take advantage of economies of scale.
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Growth

Need to encourage strong brand loyalty, competitors are entering the market place. Profits begin to decline late in the growth stage.
May need to pursue further segmentation.

MM considerations

May need to perform some type of product modification to correct weak or omitted attributes in the product.
Need to build brand loyalty (selective demand), communications should stress the brand of the product, since consumers are more aware of the products benefits and there is more competition, must differentiate your offering from your competitors.
May begin to move toward intensive distribution-the product is more accepted, therefore intermediaries are more inclined to risk accepting the product.
Price dealing/cutting or meeting competition, especially if previously adopted a price skimming strategy.

Maturity

Sales curve peaks-severe competition, consumers are now experienced specialists.

MM Considerations

A product may be rejuvenated through a change in the packaging, new models or aesthetic changes.
Advertising focuses on differentiating a brand, sales promotion aimed at customer (PULL) and reseller (PUSH).
Move to more intense distribution
Price dealing/cutting or meeting competition
Provides company with a large, loyal group of stable customers. Generally cash cows that can support other products.
Strategies during maturity include:

Decline

Sales fall off rapidly. Can be caused by new technology or a social trend.
Can justify continuing with the product as long as it contributes to profits or enhances the effectiveness of the product mix.
Need to decide to eliminate or reposition to extend its life.

MM Considerations

Some competition drop out
Need to time and execute properly the introduction, alteration and termination of a product.

decision making

Decision making

Definition

It is defined as selection based on some criteria of one behavior alternative from 2 or more possible alternatives.

Characteristics of decision making

Process of choosing a course of action from   among alternatives

It is a human process involving application of intellectual abilities.

It may be negative.

Means to an end

Significance of decision making

Decision making needed for all management functions.

Types of decisions

Programmed and Non-programmed

Major and Minor

Policy and Operating

Routine and Strategic

Organizational and Personal

Individual and Group

Departmental, interdepartmental and Enterprise

Simon’s Decision making process

Identifying the problem( Intelligence phase)

The decision-making process begins when a manager identifies the real problem.

A problem identified and defined is a problem half solved.

What is Symptom?

Symptom indicate that something is wrong with an organization, but they don't identify root causes. 

What is Diagnosis?

Diagnosis is the process of identifying a disease from its symptoms.

Here we identify the root cause or real problem from the symptoms.

TABLE 1

Symptoms and Their Real Causes

Symptoms	Underlying Problem
Low profits and/or declining sales	Poor market research
High costs	Poor design process; poorly trained employees
Low morale	Lack of communication between management and subordinates
High employee turnover	Rate of pay too low; job design not suitable
High rate of absenteeism	Employees believe that they are not valued

While  diagnosing the real problem the manager should consider causes and find out whether they are controllable or uncontrollable.

Analyzing the Problem: Design phase

After defining the problem, the next step in the decision-making process is to analyze the problem in depth. This is necessary to classify the problem in order to know

Who must take the decision and

Who must be informed about the decision taken,

What information is needed and

From  where the information is available.

Developing alternate solutions or courses of action - Design phase

Reason for Developing alternate solutions is to make the best decision.

Example : if the management wants to fill up vacancy , alternatives are

Promote from within

Recruit from outside

Appoint a relative of previous employee

Selecting the best solution- Choice Phase

Selection is based on parameters like experience, experimentation and detailed investigation.

Consider the merits and demerits of each alternative solution and costs involved in each.

Converting the decision in to effective action – Implementation phase

Implement the decision.

We need co operation of subordinates

They should be convinced that decision is correct.

Follow up the decision

A decision is said to be good if it also holds good in the same situation at another time and place.

Manager should introduce a system of follow up.

Effective decision

An effective decision is one which is action oriented,goal direct5ed and provides efficiency in implementation.

 **

Forecasting

What is Forecasting? Meaning

Forecasting is a process of predicting or estimating the future based on past and present data. Forecasting provides information about the potential future events and their consequences for the organization.

It increases the confidence of the management to make important decisions.

 Forecasting is the basis of premising/planning.

 Forecasting uses many statistical techniques. Therefore, it is also called as Statistical Analysis.

Features of Forecasting

1.      Forecasting in concerned with future events.

2.      It shows the probability of happening of future events.

3.      It analysis past and present data.

4.      It uses statistical tools and techniques.

5.      It uses personal observations.

Importance of Forecasting

1.      Promotion of Organization

Organization wan s to achieve objectives

How? Performing some activities

Which activities? Based on expected outcome.

Expected outcome is related to future, so forecasting is needed to achieve objectives.

So a successful promoter forecast what will happen.

2.      Key to planning

Forecasting provides relevant and reliable information about the past and present events and the likely future events. This is necessary for sound planning. It is the basis for making planning premises.

Example: A steel pipe manufacturer find that gradually PVC pipes are coming in to market , with cheaper rate and they will replace steel pipes, so they take suitable action to overcome this problem. ie. Diversify their business by going into manufacturing of PVC pipes.

3.      Success in Organization

Each organization is characterized by risks. Risk is based on future happenings ie. Uncertain / unpredictable things.

Forecasting reduce uncertainty by providing clues about what will happen in the future.

Manager acts like a navigator. He cannot control sea tides, but he can take this ship at the right path if he knows them in advance.

4.      Confidence to managers

It gives confidence to the managers for making important decisions.

Limitations of Forecasting

Time and cost factor

The collection and analysis of data about the past, present and future involves a lot of time and money. Therefore, managers have to balance the cost of forecasting with its benefits. Many small firms don't do forecasting because of the high cost.

Not absolute truth

Forecasting can only estimate the future events. It cannot guarantee that these events will take place in the future. Long-term forecasts will be less accurate as compared to short-term forecast.

Based on Assumptions

Forecasting is based on certain assumptions. If these assumptions are wrong, the forecasting will be wrong. Forecasting is based on past events. However, history may not repeat itself at all times. There are various factors which determine the occurrence of an event. The behavior of these factors may change/unpredictable.

Eg: If the government increases taxes on certain commodities, their substitutes will be in high demand. The changes in tax structure cannot be forecast in all cases.

War between two countries can change the total business situations.

Managers judgment

Forecasting requires proper judgment and skills on the part of managers. Forecasts may go wrong due to bad judgment and skills on the part of some of the managers. Therefore, forecasts are subject to human error.

Steps in Forecasting

Procedure, stages or general steps involved in forecasting are given below:-

·        Analysing and understanding the problem : The manager must first identify the real problem for which the forecast is to be made. This will help the manager to fix the scope of forecasting.

·        Developing sound foundation : The management can develop a sound foundation, for the future after considering available information, experience, type of business, and the rate of development.

·        Collecting and analyzing data : Data collection is time consuming. Only relevant data must be kept. Many statistical tools can be used to analyze the data.

·        Estimating future events : The future events are estimated by using trend analysis. Trend analysis makes provision for some errors.

·        Comparing results : The actual results are compared with the estimated results. If the actual results tally with the estimated results, there is nothing to worry. In case of any major difference between the actual and the estimates, it is necessary to find out the reasons for poor performance.

·        Follow up action : The forecasting process can be continuously improved and refined on the basis of past experience. Areas of weaknesses can be improved for the future forecasting. There must be regular feedback on past forecasting.

Methods of Planning

Types of planning/ Methods of Planning

1.    Corporate planning and Functional planning

Corporate planning

Planning at top level, which covers entire organizational activities.

Determine long term objectives of organization and generate plans to achieve these objectives.

Functional planning

            Planning for departments.

            Marketing plan for marketing department.

2.    Strategic planning and Operational planning

Strategic planning

It is the process of determination of basic long term objectives of an enterprise, the adoption of course of action and allocation of resources to achieve these goals.

Operational planning/ Tactical planning

It is the process of deciding the most effective use of resources allocated and to develop a control mechanism to assure effective implementation of the actions so that organizational objectives are achieved.

3.      Long term planning and Short term planning

               Short term planning

It involves deciding what your goals are for the short term (usually within the next year). These short term goals may include restructuring, hiring or short term profit targets. 

Long Term Planning

It  may involve an outlook for the future (in the next 5 to 10 years). This may involve a capital funding goal or company expansion goals. 

4.      Proactive planning and Reactive planning

Proactive planning

It involves designing suitable courses of action in anticipation of likely changes in the relevant environment. Use broad planning approaches, broad environmental scanning, reserve some resources to be used for the future.

They do not wait for environment to change, but take actions in advance of change.

Reliance industries and Hindustan Liver adopted this approach and their growth rate has been much faster than others.

Reactive planning

Organizations response comes after the environmental changes have taken place.

After changes takes place organization starts planning.

Organization looses opportunities to those who adopt proactive approach

5.      Formal and Informal Planning

               Formal Planning

               Well structured

               Large organizations create separate corporate planning cell with MBAs, Engineers etc

               Continuously monitor external environment.

               Informal planning

               Not well structured

               Smaller organizations , no separate cell, part of managers activities.

               No systematic evaluation of external environment.

planning updated

Planning

The process of setting goals, developing strategies, and outlining tasks and schedules to accomplish the goals.
Planning is the process of deciding in advance what is to be done, where, how and by whom it is to be done. Planning as a process involves anticipation of future course of events and deciding the best course of action. Thus, it is basically a process of ‘thinking before doing’.

Nature Of Planning

The nature of planning can be highlighted by studying its characteristics.

They are as follows:

a)     Planning is a mental activity(use ur mind)

Planning is not a simple process. It is an intellectual exercise and involves thinking and forethought (anticipate) on the part of the manager.

(b)Planning is goal-oriented

Every plan specifies the goals to be attained in the future and the steps necessary to reach them.

 A  manager cannot do any planning, unless the goals are known.

(c) Planning is forward looking

 It is futuristic in nature since it is performed to accomplish some objectives in future.

      (d) Planning pervade(sets up) all managerial activity

Planning is the basic function of managers at all levels.

(e) Planning is the primary function

Planning logically precedes the execution of all other managerial functions.

(f) Planning is based on facts

             It is based on objectives, facts(data) and considered forecasts. Thus planning is not a guess work.

(g)Planning is flexible

Planning is a dynamic process capable of adjustments in accordance with the needs and requirements of the situations. Thus planning has to be flexible and cannot be rigid.

(i)               Planning is essentially decision making

 Planning is a choice activity as the planning process involves finding the alternatives and the selection of the best. Thus decision making is the cardinal part of planning.

Significance of Planning

The importance and usefulness of planning can be understood with reference to the following benefits.

(a)Minimizes uncertainty.

The future is generally uncertain and things are likely to change with the passage of time.

Planning helps in minimizing the uncertainties of the future as it anticipates future events.

(b)Emphasis on objectives

The first step in planning is to fix the objectives. When the objectives are clearly fixed, the execution of plans will be facilitated towards these objectives.

(c)Promotes coordination.

 Planning helps to promote the coordinated effort on account of pre-determined goals.

(d)Facilitates control.

 Planning and control are inseparable in the sense that unplanned actions cannot be controlled. Control is nothing but making sure that activities conform to the plans.

(e)Improves competitive strength.

Planning enables an enterprise to discover new opportunities, which give it a competitive edge.

(f)Economical operation. Since planning involves a lot of mental exercise, it helps in proper utilization of resources and elimination of unnecessary activities. This, in turn, leads to economy (saving)in operation.

(g)Encourages innovation.

 Planning is basically the deciding function of management. Many new ideas come to the mind of a manager when he is planning. This creates an innovative and foresighted attitude among the managers.

(h)Tackling complexities of modern business.

With modern business becoming more and more complex, planning helps in getting a clear idea about what is to be done, when it is to be done, where it is to be done and how it is to be done.