Convenience

Action point 1
Action point 2
Action point 3
Action point 4
Develop plan,
considering
contingency events
Implement plan and
formally identify
contingency events
Specify indicators
for the contingency
events and develop
contingency plans for
each possible event
Successfully complete
plan or contingency
plan
Monitor contingency event indicators and
implement contingency plan if necessary
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F I G U R E 3 . 6
Contingency Planning
Most organizations develop contingency plans. These plans specify alternative courses of action to be taken
if an intended plan is unexpectedly disrupted or rendered inappropriate.
88
Part 2:
Planning
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indicators or signs that suggest a contingency event is about to take place. A bank might
decide that a 2 percent drop in interest rates should be considered a contingency event.
An indicator might be two consecutive months with a drop of 0.5 percent in each
month. As indicators of contingency events are being defined, the contingency plans
themselves should also be developed. Examples of contingency plans for various situa-
tions are delaying plant construction, developing a new manufacturing process, and cut-
ting prices.
After this stage, the organization’s managers monitor the indicators identified at
action point 3. If the situation dictates, a contingency plan is implemented. Otherwise,
the primary plan of action continues in force. Finally, action point 4 marks the successful
completion of either the original or a contingency plan.
Contingency planning is becoming increasingly important for most organizations,
especially for those operating in particularly complex or dynamic environments. Few
managers have such an accurate view of the future that they can anticipate and plan
for everything. Contingency planning is a useful technique for helping managers cope
with uncertainty and change. However, crisis management, by its very nature, is more
difficult to anticipate. But organizations that have a strong culture, strong leadership,
and a capacity to deal with the unexpected stand a better chance of successfully weather-
ing a crisis than other organizations.
43
SUMMARY OF LEARNING OUTCOMES AND KEY POINTS
1.
Summarize the planning process, and describe
organizational goals.
• The planning process includes understanding
the environment, formulating a mission, and
creating goals and plans.
• Goals serve four basic purposes: They provide
guidance and direction, facilitate planning, inspire
motivation and commitment, and promote eval-
uation and control.
• With an understanding of the environmental
context, managers develop a number of differ-
ent types of goals and plans, including strategic,
tactical, and operational plans.
2.
Discuss the components of strategy and types of
strategic alternatives.
• A strategy is a comprehensive plan for accom-
plishing the organization’s goals.
• Effective strategies address three organizational
issues: distinctive competence, scope, and
resource deployment.
3.
Describe how to use SWOT analysis in formulat-
ing strategy.
• SWOT analysis considers an organization’s
strengths, weaknesses, opportunities, and
threats.
• Using SWOT analysis, an organization chooses
strategies that support its mission, exploit its
opportunities and strengths, neutralize its
threats, and avoid its weaknesses.
4.
Identify and describe various alternative
approaches to business-level strategy formulation.
• A business-level strategy is the plan an organi-
zation uses to conduct business in a particular
industry or market.
• Porter suggests that businesses may formulate a
differentiation strategy, an overall cost leader-
ship strategy, or a focus strategy.
• Business-level strategies may also take into
account the stages in its products’ life cycles.
5.
Identify and describe various alternative
approaches to corporate-level strategy
formulation.
• A corporate-level strategy is the plan an orga-
nization uses to manage its operations across
several businesses.
• A firm that does not diversify is implementing
a single-product strategy.
• An organization pursues a strategy of related
diversification when it operates a set of busi-
nesses that are somehow linked.