Transcript Chapter 03 PPP - College of the Canyons

Chapter 3
Planning and Strategic Management
Learning Objectives
After studying this chapter, you should be able to:
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5.
Summarize the planning process and describe
organizational goals.
Discuss the components of strategy and the types of
strategic alternatives.
Describe how to use SWOT analysis in formulating
strategy.
Identify and describe various alternative approaches to
business-level strategy formulation.
Identify and describe various alternative approaches to
corporate-level strategy formulation.
Learning Objectives (cont’d)
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7.
Discuss how tactical plans are developed and
implemented.
Describe the basic types of operational plans used
by organizations.
Chapter Outline
 Planning and Organizational Goals
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Organizational Goals
Kinds of Organizational Plans
 The Nature of Strategic Management
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The Components of Strategy
Types of Strategic Alternatives
 Using SWOT Analysis to Formulate Strategy
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Evaluating an Organization’s Strengths
Evaluating an Organization’s Weaknesses
Evaluating an Organization’s Opportunities and Threats
Chapter Outline (cont’d)
 Formulating Business-Level Strategies
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Porter’s Generic Strategies
Strategies Based on the Product Life Cycle
 Formulating Corporate-Level Strategies
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Single-Product Strategy
Related Diversification
Unrelated Diversification
Managing Diversification
 Tactical Planning
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Developing Tactical Plans
Executing Tactical Plans
Chapter Outline (cont’d)
 Operational Planning
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Single-Use Plans
Standing Plans
Contingency Planning and Crisis Management
The Planning Process
Organizational Goals
 Purposes of Goals
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Provide guidance and a unified direction for people in
the organization.
Have a strong affect on the quality of other aspects of
planning.
Serve as a source of motivation for employees of the
organization.
Provide an effective mechanism for evaluation and
control of the organization.
Kinds of Goals
 By Level
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Mission statement is a statement of an organization’s
fundamental purpose.
Strategic goals are goals set by and for top management
of the organization that address broad, general issues.
Tactical goals are set by and for middle managers; their
focus is on how to operationalize actions necessary to
achieve strategic goals.
Operational goals are set by and for lower-level
managers to address issues associated with
tactical goals.
Kinds of Plans
 Strategic Plans
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A general plan outlining resource allocation, priorities,
and action steps necessary to reach strategic goals. The
plans are set by and for top management.
 Tactical Plans
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A plan aimed at achieving the tactical goals set by and
for middle management.
 Operational Plans
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Plans that have a short-term focus. These plans are set by
and for lower-level managers.
The Nature of Strategic Management
 Strategy
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A comprehensive plan for accomplishing an
organization’s goals.
 Strategic Management
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A comprehensive and ongoing management process
aimed at formulating and implementing effective
strategies. A way of approaching business opportunities
and challenges.
 Effective Strategies
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Strategies that promote a superior alignment between the
organization and its environment and the achievement of
its goals.
The Components of Strategy
 Distinctive Competence
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Something an organization does
exceptionally well.
 Scope
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Range of markets in which an
organization will compete.
 Resource Deployment
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How an organization will
distribute its resources across
the areas in which it competes.
Types of Strategic Alternatives
 Business-level Strategy
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The set of strategic alternatives that an
organization chooses from as it conducts business
in a particular industry or a particular market.
 Corporate-level Strategy
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The set of strategic alternatives that an
organization chooses from as it manages its
operations simultaneously across several
industries and several markets.
Types of Strategic Alternatives
 Strategy Formulation
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The set of processes involved in creating or determining
the organization’s strategies; it focuses on the content of
strategies.
 Strategy Implementation
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The methods by which strategies are operationalized or
executed within the organization; it focuses on the
processes through which strategies are achieved.
SWOT Analysis
Using SWOT Analysis to
Formulate Strategy
 Evaluating an Organization’s Strengths
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Organizational strengths
 Skills and abilities enabling an organization to
conceive of and implement strategies.
Distinctive competencies
 Strengths possessed by a small number of competitors.
 Useful for competitive advantage and superior
performance.
Competitive advantage
 The result from a firm exploiting its unique
competencies to attain above normal economic
performance.
Using SWOT Analysis to Formulate
Strategy (cont’d)
 Evaluating an Organization’s Weaknesses
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Organizational weaknesses are skills and capabilities
that do not enable an organization to choose and
implement strategies that support its mission.
Weaknesses can be overcome by:
 making investments to obtain the strengths needed.
 modifying the organization’s mission so it can be
accomplished with the current workforce.
Using SWOT Analysis to Formulate
Strategy (cont’d)
 Evaluating Organization’s Weaknesses
(cont’d)
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Competitive disadvantage is a situation in which
an organization fails to implement strategies
being implemented by competitors.
Using SWOT Analysis
to Formulate Strategy (cont’d)
 Evaluating an Organization’s Opportunities and
Threats
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Organizational opportunities are areas in the
organization’s environment that may generate high
performance.
Organizational threats are areas in the organization’s
environment that make it difficult for the organization to
achieve high performance.
Porter’s Generic Strategies
 Differentiation Strategy
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An organization seeks to distinguish itself from
competitors through the quality of its products or
services.
 Overall Cost Leadership Strategy
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An organization attempts to gain competitive advantage
by reducing its overall costs below the costs of
competing firms.
 Focus Strategy
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An organization concentrates on a specific regional
market, product line, or group of buyers.
Strategies Based on
the Product Life Cycle
 Product Life Cycle
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A model that shows sales volume changes over the life
of products.
 Introduction stage: demand may be very high and
sometimes outpaces the firm’s ability to supply the
product.
 Growth stage: more firms begin producing the
product, and sales continue to grow.
 Mature stage: overall demand growth begins to
slow down.
 Decline stage: demand for product decreases.
The Product Life Cycle
Formulating Corporate-Level
Strategies
 Strategic Business Units
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Each business or group of businesses within an
organization engaged in serving the same markets,
customers, or products.
 Diversification
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The number of businesses an organization is engaged in
and the extent to which these businesses are related to
one another.
 Single Product Strategy
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A strategy in which an organization manufactures one
product or service and sells it in a single geographic
market.
Related Diversification
 Related Diversification
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A strategy in which an organization operates in several
different businesses, industries, or markets that are
somehow linked.
 Bases of Relatedness in Implementing
Related Diversification
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Similar technology
Common marketing and distribution skills
Common brand name and reputation
Common customers
Related Diversification (cont’d)
 Advantages of Related Diversification
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Reduces organization’s dependence on any one
of its business activities and thus reduces
economic risk.
Reduces overhead costs associated with managing any
one business through economies of scale and economies
of scope.
Allows an organization to exploit its strengths and
capabilities in more than one business.
Synergy exists among a set of businesses when the
businesses’ value together is greater than their economic
value separately.
Unrelated Diversification
 Unrelated Diversification
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A strategy in which an organization operates multiple
businesses that are not logically associated with one
another.
 Advantages
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Stable corporate-level performance over time due to
business cycle differences among the multiple
businesses.
Resources can be allocated to areas with the highest
return potentials to maximize corporate performance.
Unrelated Diversification (cont’d)
 Disadvantages
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The strategy does not usually lead to high
performance due to the complexity of managing
a diversity of businesses.
Firms with unrelated strategies fail to exploit
important synergies, putting them at a
competitive disadvantage to firms with related
diversification strategies.
Managing Diversification
 Portfolio Management Techniques
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Methods that diversified organizations use to make
decisions about what businesses to engage in and how to
manage these multiple businesses to maximize corporate
performance.
 Two important portfolio management techniques
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The BCG (Boston Consulting Group) Matrix
The GE (General Electric) Business Screen
Managing Diversification (cont’d)
 BCG Matrix
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A method of evaluating businesses relative to the growth
rate of their market and the organization’s share of the
market.
The matrix classifies the types of businesses that a
diversified organization can engage as:
 Dogs have small market shares and no growth
prospects.
 Cash cows have large shares of mature markets.
 Question marks have small market shares in quickly
growing markets.
 Stars have large shares of rapidly growing markets.
The BCG Matrix
Managing Diversification (cont’d)
 GE Business Screen
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A method of evaluating business in a diversified
portfolio along two dimensions, each of which contains
multiple factors:
 Industry attractiveness.
 Competitive position (strength) of each firm in
the portfolio.
In general, the more attractive the industry and the more
competitive a business is, the more resources an
organization should invest in that business.
The GE Business Screen
Types of Operational Plans
Single-use Plans
Developed to carry out a course of action not
likely to be repeated in the future
Program
Single-use plan for a large set of activities
Project
Single-use plan of less scope and complexity than
a program
Standing Plans
Developed for activities that recur regularly over
a period of time
Policy
Standing plan specifying the organization’s
general response to a designated problem or
situation
Standard operating
procedure
Standing plan outlining steps to be followed in
particular circumstances
Rules and regulations
Standing plans describing exactly how specific
Contingency Planning
and Crisis Management
 Contingency Planning
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The determination of alternative courses of action to be
taken if an intended plan is unexpectedly disrupted or
rendered inappropriate in helping managers to cope with
uncertainty and change.
 Crisis Management
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The set of procedures the organization uses in the event
of a disaster or other unexpected calamity.
Contingency Planning