Chapter 6: Planning Processes and Technique
Example 1: Hyperinflation in Chile
During a period of hyperinflation in Chile, the story is told that the government’s
imposition of a maximum price made it unprofitable for suppliers to sell
bread-the legal maximum was below the cost of production. ( can’t sell the bread
beyond price x)
Manufacture: shrink the loaf until the cost of a loaf fall below the legally
If Government limited the weight of the bread
Manufacture: change the package to a more weight package. AND baker sold the
raw dough in bags with water, so the minimum weight could be achieved.
Example 2: Euro Disney- case study
French government expecting the project to create 30,000 jobs and contribute 1
billion a year offered.
- land at 1971 price
- provide $750 million in loans at below market rates
- spend millions of dollars on subway and railroads connecting Europe to Disney
E.g. Brussels will be only 90 min by train
Number of people within 2-6 hours of the Paris site
- within a 2 hour drive 17 million
- within a 4 hour drive 41 million
- within a 6 hour drive 109 million
- within a 2 hour flight 310 million
*USA: 6 hours of flight access to 350 millions of people. Therefore, Paris is a huge
- 11 million European would visit Disneyland in the first year alone
- Normally 2.7 million European visit US Disney parks
- European have more vacation time (4 to 5 weeks) than American (2 to 3
Visitors Population Ration
California 12.9 250 5.20%
Florida 28.5 250 11.40%
Tokyo 16 124 13.50%
Paris ? 310 ? - Disney executives
- “my biggest fear is that we will be too successful”
- “ I don’t think it can miss. They are masters of marketing. When the place
opens it will be perfect. And they known how to make people smile- even
- To open in 1992
- $4.4 billion enterprise over 5,000 acres and will grow in next two years to an
area one-fifth of Paris itself
- six hotels with 5200 rooms
- What would you decide and why?
- Would you go ahead now?
- Shelve the Project?
- Or any other plan?
- Would you require any other data for your decision? Which ones ?
- Would you price tickets at par with Florida or lower or higher than Florida?
*more demographic around the theme park, cultural, net income info, open up
the competition on where to located the theme park among various countries.
- First year: 12 million visitors: more than the projections
- The tickets were priced higher than those in Florida
- yet, revenue projections were not met
- unlike Americans Europeans were far more frugal
- They packed their own food and shunned the Disney hotels
- Hotels were very expensive, as a result unlike Americans who on average spent
more than four days, Europeans were spending only two days at best.
- Most Europeans regard theme parks as places for day excursions. A theme park
is just not seen as a destination for an extended vacation. Why Planning Creates Value?
Learns to an increased match between the internal organizational conditions of
the firm and its external environment.
Creates awareness of problems, strengths, and weaknesses.
Improves focus and flexibility
- avoids wasting time
- takes in to account all factors and focus on critical ones
- Pareto Principle
- Allows systematic resource allocation
Minimization of affects of adverse condition
Gives advantage over competitors
Helps stakeholders to plan their future
Beware of planning Paralysis
-over planning and not enough execution
Why people avoid planning?
Time consuming and expensive
Not following the plans
Poor reward structures (people get rewarded for the result, not for the plan)
Opposition to time and expense of planning