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he return home to manage the entire store – a store that he, being an only child, will eventually inherit. The small town in which the store is located is experiencing significant population growth because of the recent completion of a nearby lake resort. As a result, the possibilities for growth and expansion of a drugstore are better now than they have been in the past.

In discussing the matter with his parents, Terry has learned that the store’s present annual sales volume is approximately $200,000. The gross margin on sales is roughly $86,000. Before his father’s retirement, Terry’s parents were drawing combined salaries of $45,000. Additional operating expenses totaled $20,000 annually, leaving a net profit before taxes of $21,000.

Mr. Corwin has proposed that to manage the store, Terry should receive $35,000 a year. He has also proposed that Terry’s share of store profits be 25 percent initially, increasing to 50 percent after three years. Since Mrs. Corwin would also retire, it would be necessary to hire someone on a part-time basis to help manage the store. The estimated cost for this person is $12,000. Complicating the picture more is a tentative offer Terry’s parents have received to sell their store. The offer of approximately $250,000 after taxes seems fair. Because the Corwins had invested wisely over the years, they wouldn’t require this capital during their requirement. As such, it is reasonable to expect that Terry would inherit most of this money.

Questions for discussion

1.Most managerial decisions fall into one or more of the following categories: personal, organizational, strategic, integrative, operational, structured, unstructured, intuitive, analytical, problem-solving and opportunistic. Use these categories to define the type of decision facing Terry Corwin. Justify your answer.

2.Analyze the problem facing Terry.

Think of some steps that could be taken to solve the problem. Seek out opportunities and accept those that are mostly suitable to Terry. Try to get rid of some prejudices, attitudes and other personal characteristics that could influence your decision. Use quantitative techniques to evaluate alternative solutions critically.

3. Following your examination of the problem, what decision do you recommend Terry reach, and why.

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IV. Fundamentals of Strategic Planning

Strategic planning is designed to assist managers in forecasting the future and to make decisions today that will lead to the future desired by the organization. Strategic planning is critical both for large and small companies.

To achieve long-term success, an organization must adapt to conditions in its environment. Environmental adaptation is a process through which a firm properly matches its resource capabilities with opportunities in the marketplace. Constraints facing a firm - including competitors’ and suppliers’ actions and policies and procedures of governmental agencies – affect the environmental adaptation process.

To adapt to a firm’s environmental conditions, managers must cope with three problems: the entrepreneurial problem, the engineering problem, and the administrative problem.

The entrepreneurial problem is concerned with determination of the products or services a firm intends to manufacture, and identification of markets in which the products or services will be sold.

The selection of a manufacturing system that will allow the firm to produce its products or services effectively and efficiently is the challenge of the engineering problem.

The administrative problem is the ability to form such internal systems and structures that allow the firm to have both the stability necessary for day-to-day functioning and the flexibility to respond to environmental changes.

Responses to the three problems associated with the environmental adaptation process should result in a sustainable competitive advantage over competitors leading to a long-range success.

Strategic planning can be best understood through its strategic components, namely: evaluating environmental opportunities and risks, assessing organizational strengths and weaknesses, identifying distinctive competence and defining the mission, establishing long-term objectives, and determining strategic options which can be accomplished through examining the firm’s opportunities, risks, strengths, distinctive competences, weaknesses, mission statement, and long-term objectives.

Consideration of strategic planning components allows managers to specify options and formulate strategies. Operational plans focus on developing specific subobjectives and tactics required to guide day-to-day activities. The implementing, monitoring, and adapting component is designed to identify deviations from actual and planned outcomes and to initiate appropriate corrective actions.

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Questions for discussion and review

1.What are the entrepreneurial, engineering and administrative problems, managers face when dealing with the environmental adaptation challenge?

2.How can you define the term sustainable competitive advantage?

3.How can a firm benefit from use of strategic planning?

4.What are the components of strategic planning? Describe each.

5.What actions can prevent managers from deviations from actual and planned outcomes in strategic planning?

Problems for Action

1. Relocation?

Your present manufacturing plant cannot cope with demand and there is no chance of expansion in the area where you are located at present.

What are the pros and cons of total relocation as opposed to getting additional facilities elsewhere? What points should you consider when choosing the new location?

2. Developing a strategic plan

Assume that you have been employed as a consultant by the owner of Pryor and Associates, a men’s clothing store. This store is located in a city with a population of approximately 100,000. The lines carried in the store are rather expensive. Two other stores appear to be Pryor and Associates’ major competitors. Mr. Pryor has asked that you assist him in developing a strategic plan.

Given your knowledge about strategic planning, what specific activities would you recommend that Mr. Pryor complete in order to develop a strategic plan for his business?

Case Study: Strategic Planning at Wingate University

Dale Keats recently assumed the presidency of Wingate University. This was not an easy decision to reach. The other members of his family were quite happy in Maryland. Moving to the Southwest would be a major adjustment, both in terms of climate and more importantly, with respect to the nature of Dale’s job.

Dale has always worked in state-supported universities. His career had been successful. In a period of 16 years, he progressed from chairman of a psychology

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department to the presidency of a major state university. Unlike his previous school, Wingate was an older, well-established private university. The school was well known throughout most of the country, but especially in the Southwest. Wingate was a comprehensive university. It had six schools: art and sciences, business administration, engineering, education, law, and medicine. The university’s endowment fund (фонд пожертвований) was growing, but at a rate lower than that experienced in the last decade.

Dale recognized that he was accepting quite a challenge in assuring the presidency of Wingate. In the last year and a half, the university had endured two major scandals.

The first one involved serious recruiting violations in the university’s football and basketball programs. Following an extended time period, the university accepted the National Collegiate Association (NCAA) sanctions. The sanctions included a reduction of 25 scholarships to be offered for each of the next three years, and the condition that the university’s teams couldn’t appear on television nor compete for the conference championship for three years.

The second scandal concerned widespread allegations (утверждения) of cheating in the business administration and law schools. Several “cheating rings” had been discovered and eliminated during the last academic year. Approximately 30 students were suspended (исключены) from the university permanently. Another 50 or so students received suspensions ranging from one semester to two years.

Both scandals had major impacts on the school’s student body, alumni (бывшие студенты; выпускники), faculty, administrators, and board members. Students currently involving in getting scientific degrees claimed that ineffective security procedures made it rather easy for students to gain copies of tests in advance. Worse, students claimed that various faculty members did not monitor exams aggressively, allowing students to scan others’ exams and even to read notes placed at their feet. Powerful alumni groups suggested that contributions to the university endowment fund would be reduced sharply if Wingate couldn’t correct the current problems and prevent others.

Representatives of the university’s influential faculty senate argued that the university’s admission standards had been reduced to an acceptable level. Resulting from this action, the faculty suggested, was enrollment of students with questionable ethics and abilities. In addition, the faculty and many administrators believed that too much emphasis had been placed on the football and basketball programs. It seemed that the only acceptable outcome was competing for the national championship in each sport every year. Added to this full set of concerns was the general feeling among upper-level administrators that Dale’s predecessor had developed an ineffective administrational structure. The university’s board of directors was quite disturbed by