Transcript Slide 1

Chapter 7
Planning and Strategy
Formulating Plans and Strategies
 Learning Goals
1. Describe the importance and core components of
strategic and tactical planning
2. Discuss the effects of organizational diversification
strategies on planning
3. Describe the basic levels of strategy and planning
4. State the primary tasks of the strategic businesslevel planning process
5. Explain the generic competitive strategies model
6. Explain the integrated strategy/model
What Is Planning?
• Planning
• involves defining the organization’s goals,
establishing an overall strategy, and developing
a comprehensive set of plans to integrate and
coordinate organizational work
• informal planning - nothing is written down
• little or no sharing of goals
• general and lacking in continuity
• formal planning - written
• defines specific goals
• specific action programs exist to achieve goals
© Prentice Hall, 2002
How Do Managers Plan?
• The Role of Goals and Plans in Planning
• goals - desired outcomes
• provide direction for all management decisions
• represent the criteria against which actual work
accomplishments can be measured
• plans - outline how goals are going to be met
• Types of Goals
• all organizations have multiple objectives
• no single measure can evaluate whether an organization
is successful
• financial goals - relate to financial performance
• strategic
© Prentice Hall, 2002
goals - relate to other areas of performance
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Importance and Types of Planning:
Why Is Planning Important?
Discover new
opportunities
Comprehend
the uncertainties
and risks with
various options
Anticipate and
avoid future
problems
Effective
planning
helps to
Develop
effective courses
of action (strategies
and tactics)
Stated Objectives From Large US Companies
© Prentice Hall, 2002
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What Is Strategic Planning?
 The process of:
1. Diagnosing the organization’s external
and internal environments
2. Deciding on a vision and mission
3. Developing overall goals
4. Creating and selecting general strategies
to be pursued
5. Allocating resources to achieve
the organization’s goals
What is Strategic Planning?
 Contingency planning—preparation for unexpected,
major, and quick changes (positive or negative) in
the environment that will have a significant impact
on the organization and require immediate responses
1. Plan for 3 to 5 potentially critical and
unanticipated events
2. Supports orderly and speedy adaptation
Interrelated Core Components
in Strategic Planning
Vision and Mission
Resource
Allocation
Strategic
planning
Strategies
Organizational
Goals
What is Strategic Planning?
 Vision:
Expresses an organization’s
fundamental aspirations and purpose,
usually by appealing to its members’
hearts and minds
 eBay:
To pioneer new communities
around the world built on commerce,
sustained by trust, and inspired by
opportunity
What is Strategic Planning?
 Mission: The organization’s purpose or
reason for existing; often answers
questions such as:
1. What business are we in?
2. Who are we?
3. What are we about?
 eBay: To serve as the world’s online
marketplace for the sale and payment of
goods and services by a diverse community
of individuals and businesses
Mission
Wal-Mart
To give ordinary folk the chance
to buy the same things as rich
people.
Walt Disney
To make the people happy.
Microsoft’s Mission
Statement
• Old Mission: A computer on every desk and in
every home. (From 1975 to 2000)
• New Mission: Enable people throughout the world
to realize their full potential through great
software – any time, any place, and on any device.
(From 2000-present)
• Slogan:
• “Unlocking your full potential - any time, any
place, any device”
Wal-Mart’s Mission
Statement
• Give people high value, low prices and a
warm welcome.
• Company slogans:
• “Every day low prices”
• “The Customer is number one! Always!”
• “Service with a smile”
Starbucks’ Mission
Statement
• To be the premier purveyor of the finest coffee
in the world while maintaining
uncompromising principles.
• Company Slogans:
• “Serving customers one cup at a time”
• “ Treating each other with respect and dignity”
• “Clean and friendly Green”
 Organizational goals: the results that the managers
and others have selected and are committed to
achieving for the long-term survival and growth of
the firm
1. May be expressed qualitatively and quantitatively
2. Qualitative: simplify the sales process within six
months
3. Quantitative: reduce operating costs by $1 billion
within eighteen months
 Strategies: the major courses of action (choices) selected
and implemented to achieve one or more goals
The essence of most good strategies is the need to make many
choices that are all consistent—choices about production,
service, design, and so on. Companies cannot randomly
make a lot of choices that all turn out to be consistent. It’s
statistically impossible. That means companies need to grasp
at least a part of the whole. As we study the histories of
successful companies, we see that someone or some group
developed insight into how a number of choices fit together…
Michael Porter
Harvard Business School
Dell’s Competitive
Strategies:
1.
2.
3.
4.
•
•
•
Speed to Market
Superior Customer Service
Commitment to producing consistently high quality
Custom-made computer systems that provide the highest
performance and the latest and relevant technology to
customers
On-line sales and customer support.
Dell uses Best-Buy Strategy - cost leader, but
customization, speed of delivery, responsive service,
strengthen differentiation.
Dell shapes industry structure towards its favor with
virtual and tight integration with customer and supply
chain J-I-T. Winning market share from competitors.
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 Resource allocation: assigning money, people,
facilities, and other resources among various
current and new business opportunities
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2
 Key part: allocating money, through budgets,
for various purposes
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What is Tactical Planning?
What to do
Who will do it
Making
decisions
Normal regarding:
time horizon of
How to do
1 to 2 years,
it
often less
What is Tactical Planning?
 Specific courses of
action
 Implementing
initiatives or
improving current
operations
 Integrated with
annual budgeting
 Focus on first-line
and middlemanagers
Strategic vs. Tactical Planning
Diversification Strategies and
Planning: Diversification
 Diversification
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variety
of goods
and/or services produced by an
organization and the number of different markets it serves
 Snapshot
“We are always looking for companies, products, or emerging
technologies that will complement and strengthen our existing
businesses, lead us into new therapeutic areas to address unmet
medical needs, enhance our research and development
capabilities, and, ultimately, further our strategy for growth.
Each acquisition is different, and in each situation, we carefully
examine the best way to integrate that technology, product, or
organization into our family of companies.”
William C. Weldon
Chairman and CEO, Johnson & Johnson
1
2
4
Degree of Diversification and
Planning
• Questions that can identify potential risks
and opportunities of diversification include:
• What can we do better than other firms if we
enter a new market?
• What strategic resources—human, financial,
and others—do we need to succeed in the
new market?
• Will we simply be a player in the new market
or will we emerge a winner?
• What can we learn by diversifying, and are we
sufficiently organized to learn it?
Types of Diversification Strategies
 Single-business strategy: providing a limited number of
goods or services to one particular market
 Dominant-business strategy: serving various segments of
a market
 Related-business strategy: providing a variety
complementary goods and/or services
of
 Unrelated-business strategy: providing diverse products
(goods and/or services) to many different types of
markets
Degree of Diversification and
Planning (adapted from Figure 7.1)
High
Complexity of
Strategic Planning
General
Electric
Johnson &
Johnson
CEMEX
MTV
Google
Low
Low
Singlebusiness
firm
Dominantbusiness
firm
Relatedbusiness
firm
Unrelatedbusiness
firm
Degree of Diversification
High
Strategy Levels and Planning:
Corporate-Level Strategy
Focuses on:




the types of businesses the firm wants to be in,
ways to acquire or divest businesses,
allocation of resources among the businesses, and
ways to develop learning and synergy among those
businesses
 Corporate-level Management
 Guides and reviews performance of strategic units
 Strategic business unit (SBU): a division or subsidiary
of a firm that provides a related set of products or
services and usually has its own mission and goals

Forward
integration
Backward
integration
Organic:
Conglomerate Expansion of
existing
diversification
businesses
Related
diversification
Horizontal
integration
Business-Level Strategy
The resources allocated and actions taken to achieve
desired goals in serving a specific market with a
highly interrelated set of goods and/or services
 Plans and strategies developed for
1. maintaining or gaining a competitive edge in
serving its customers,
2. determining how each functional area can best
contribute to its overall effectiveness, and
3. allocating resources for expansion and among
its functions
Time Warner: America Online, HBO, Warner
Brother Studios.
Business-Level Planning
 Basic Questions
3. How will customers’ needs be
satisfied?
2. What customer needs will be satisfied?
1. Who will be served?
 The actions and resource commitments
established for operations, marketing,
human resources, finance, legal services,
accounting, and the organization’s other
functional areas
 Should support business-level strategies
and plans
HR
Finance
Other
Examples of Issues in Developing
Human Resources Strategies
What type of
reward system is
needed?
What approach
should be used to
recruit qualified
personnel?
How should the
performance of
employees be
reviewed?
How is affirmative
and fair treatment
ensured for women,
minorities, and the
disabled?
Examples of Issues in Developing
Finance Strategies
What is the desired
mixture of
borrowed funds
and equity funds?
What portion of
profits should be
reinvested and what
portion paid out as
dividends?
What criteria should
be used in allocating
financial and human
resources to
projects?
What should be the
criteria for issuing
credit to customers?
General Electric’s Strategy and Planning
Levels (adapted from Figure 7.2)
Corporate
Level
Business
Level *
Functional
Level
Four senior executive officers, 8 senior corporate officers,
And 33 corporate staff officers
Focus: Assessing new businesses, allocating resources to businesslevel companies, coordinating businesses, resolving legal
issues, assessing key executives, and other activities
GE
Consumer
Finance
GE
Plastics
GE
Transportation
Systems
Plus 10 other
primary
business units
Marketing
Marketing
Marketing
Human
Resources
Human
Resources
Human
Resources
Finance/
Accounting
Finance/
Accounting
Finance/
Accounting
Functional
Units
in each
line of
Business
Other
Other
Other
* Each of the 13 primary units has its own business functions
The Planning Process
(adapted from Figure 7.3)
Task 1:
Develop vision,
mission
and Goals
Task 2:
Diagnose
opportunities
and threats
Task 4:
Develop
strategies
Task 5:
Prepare strategic
plan
Task 3:
Diagnose strengths
and weakness
Task 8:
Continue
planning
Task 7:
Control and
diagnose results
Task 6:
Prepare tactical
plans
Business-Level Strategic Planning
Tasks and Process
Task 2: Diagnose
Opportunities and
Threats
• Industry/market
competition
• Political forces
• Stakeholders
expectations
• Values, culture
• Others
Evaluate against
Task 1: Develop
Vision, Mission and
Goal
Task 3: Diagnose
Strengths and
Weaknesses
• Who are we?
• What do we want to
become?
• What are our goals?
• Competitive position
• Human skills
• Technological
capabilities
• Financial resources
• Organization and
management
Task 4: Develop
Strategies
Evaluate against
(continued)
Business-Level Strategic Planning
Tasks and Process (cont’d)
Task 5: Develop Strategic Plan
• Selected strategy or strategies (includes
market segments and competitive methods)
• Required human skills and competencies
• Required technological capabilities
• Required financial resources
• Required organization and management
Task 6: Prepare Tactical Plans
Task 7: Control and Diagnose Results
Task 8: Continue Planning
Core Competencies: the strengths that make an
organization distinctive and competitive by providing
goods or services that have unique value to its customers.
Three Broad Groups: Superior Technological know-how,
reliable processes, Close relationships with external
stakeholders
“If you look at most of the corporate tragedies in the last five years,
you’ll also discover that many of them were companies moving into
other businesses they really shouldn’t have moved into, that weren’t
close to their core business and competencies, including Enron,
Kmart, and Worldcom. If you’re having problems in your core
business and think you can move to another business, it’s not going to
work. You have to have strong assets you can build on. The farther
away people got from their core business and competencies, the lower
their rate of success.”
Ted Rouse
Global Business Practice, Bain and Company
Outsourcing Strategy: Contracting with other
organizations to perform a needed service and/or
manufacture needed parts or products that had
previously been provided within the firm
 Outsourcing Drivers
1. expense reduction (including fewer employees),
2. better production quality,
3. improved reporting uniformity and regulatory
compliance,
4. more effective use of expensive talent so that
they can spend more of their time on innovating,
expanding global capabilities, and
5. more effective business process management
Task 4: Develop Strategies
Market
penetration
Organic
Product
development growth
Market
development
Generic Competitive Strategies Model
(adapted from Figure 7.4)
Strategic Target
Broad
Differentiation
Strategy
Cost Leadership
Strategy
Focused
Differentiation
Strategy
Focused
Cost Leadership
Strategy
Narrow
Uniqueness
Low Cost (price)
Source of Advantage
 Snapshot
“The best strategy for a smaller
business is to divide demand into manageable
market niches. Small operations can then offer
specialized goods and services attractive to a
specific group of prospective buyers…Try to find
the right configuration of products, services,
quality and price that will ensure the least direct
competition.”
Ron Consolino
Management Counselor
Counselors to America’s Small Business
Planning and Levels of Management