Fundamentals of Management, 8th ed

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.