Planning And Strategic Management 1233394998654877 1
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Chapter Three Planning and Strategic Management
Copyright © 2005 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook.
Chapter Outline • Planning and Organizational Goals – Organizational Goals – Kinds of Plans
• The Nature of Strategic Management – The Components of Strategy – Types of Strategic Alternatives
• Using SWOT Analysis to Formulate Strategy – Evaluating an Organization’s Strengths – Evaluating an Organization’s Weaknesses – Evaluating an Organization’s Opportunities and Threats
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–2
Chapter Outline (cont’d) • Formulating Business-Level Strategies – Porter’s Generic Strategies – Strategies Based on the Product Life Cycle
• Formulating Corporate-Level Strategies – Single-Product Strategy – Related Diversification – Unrelated Diversification – Managing Diversification
• Tactical Planning – Developing Tactical Plans – Executing Tactical Plans
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–3
Chapter Outline (cont’d) • Operational Planning – Single-Use Plans – Standing Plans – Contingency Planning and Crisis Management
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–4
Learning Objectives • After studying this chapter, you should be able to: – Summarize the planning process and describe organizational goals. – Discuss the components of strategy and types of strategic alternatives. – Describe how to use SWOT analysis in formulating strategy. – Identify and describe various alternative approaches to business-level strategy formulation.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–5
Learning Objectives (cont’d) – Identify and describe various alternative approaches to corporate-level strategy formulation. – Discuss how tactical plans are developed and executed. – Describe the basic types of operational plans used by organizations.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–6
Figure 3.1 Decision Making and the Planning Process
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–7
Organizational Goals • Purposes of Goals – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–8
Organizations Have a Purpose— That’s Why They Need Goals Identification
Adaptation
Organizational purpose for goals
Collaboration
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
Integration
Revitalization
3–9
Kinds of Goals • By Level – 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 to strategic goals. – Operational goals are set by and for lower-level managers to address issues associated with tactical goals. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–10
Kinds of Plans • Strategic Plans – A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management.
• Tactical Plans – A plan aimed at achieving the tactical goals set by and for middle management.
• Operational Plans – Plans that have a short-term focus. These plans are set by and for lower-level managers.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–11
The Nature of Strategic Management • Strategy – A comprehensive plan for accomplishing an organization’s goals.
• Strategic Management – A comprehensive and ongoing management process aimed at formulating and implementing effective strategies. A way of approaching business opportunities and challenges.
• Effective Strategies – Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–12
The Components of Strategy • Distinctive Competence – Something an organization does exceptionally well.
• Scope – Range of markets in which an organization will compete.
• Resource Deployment – How an organization will distribute its resources across the areas in which it competes.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–13
Types of Strategic Alternatives • Business-level Strategy – 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 – The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–14
Types of Strategic Alternatives (cont’d) • Strategy Formulation – The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies.
• Strategy Implementation – The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–15
Figure 3.2 SWOT Analysis
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–16
Using SWOT Analysis to Formulate Strategy • Evaluating Organizational Strengths – 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.
– Sustained competitive advantage • Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–17
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating Organizational Weaknesses – Organizational weaknesses are skills and capabilities that prevent 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–18
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating Organizational Weaknesses (cont’d) – Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–19
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating an Organization’s Opportunities and Threats – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–20
Porter’s Generic Strategies • Differentiation strategy – An organization seeks to distinguish itself from competitors through the quality of its products or services.
• Overall cost leadership strategy – An organization attempts to gain competitive advantage by reducing its overall costs below the costs of competing firms.
• Focus strategy – An organization concentrates on a specific regional market, product line, or group of buyers.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–21
Strategies Based on the Product Life Cycle • Product life cycle: 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–22
Figure 3.3 Strategies Based on Product Life Cycle
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–23
Formulating Corporate-Level Strategies • Strategic Business Units – Each business or group of businesses within an organization engaged in serving the same markets, customers, or products.
• Diversification – The number of businesses an organization is engaged in and the extent to which these businesses are related to one another.
• Single Product Strategy – A strategy in which an organization manufactures one product or service and sells it in a single geographic market.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–24
Related Diversification • Related Diversification – 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 Basis of Relatedness
Examples
Similar technology
Phillips, Boeing, Westinghouse, Compaq
Common distribution and marketing skills
RJR Nabisco, Phillip Morris, Procter & Gamble
Common name brand and reputation
Disney, Universal
Common customers
Merck, IBM, AMF-Head
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–25
Related Diversification (cont’d) • Advantages of Related Diversification – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–26
Unrelated Diversification • A strategy in which an organization operates multiple businesses that are not logically associated with one another. • Advantages – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–27
Unrelated Diversification (cont’d) • Disadvantages – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–28
Major Tools for Managing Diversification • Portfolio management techniques – 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 – The BCG (Boston Consulting Group) Matrix – The GE (General Electric) Business Screen
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–29
Managing Diversification (cont’d) • BCG Matrix – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–30
Figure 3.4 The BCG Matrix
Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–31
Managing Diversification (cont’d) • GE Business Screen – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–32
Figure 3.5 The GE Business Screen
Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–33
Table 3.1 Types of Operational Planning Kinds of Operational Planning Standing Plans:
Single-Use Plans:
2. Policies
2. Programs
3. SOPs
3. Projects
4. Rules and Regulations
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permission. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–34
Figure 3.6 Contingency Planning • Contingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–35
Copyright © 2005 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook.
Chapter Outline • Planning and Organizational Goals – Organizational Goals – Kinds of Plans
• The Nature of Strategic Management – The Components of Strategy – Types of Strategic Alternatives
• Using SWOT Analysis to Formulate Strategy – Evaluating an Organization’s Strengths – Evaluating an Organization’s Weaknesses – Evaluating an Organization’s Opportunities and Threats
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–2
Chapter Outline (cont’d) • Formulating Business-Level Strategies – Porter’s Generic Strategies – Strategies Based on the Product Life Cycle
• Formulating Corporate-Level Strategies – Single-Product Strategy – Related Diversification – Unrelated Diversification – Managing Diversification
• Tactical Planning – Developing Tactical Plans – Executing Tactical Plans
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–3
Chapter Outline (cont’d) • Operational Planning – Single-Use Plans – Standing Plans – Contingency Planning and Crisis Management
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–4
Learning Objectives • After studying this chapter, you should be able to: – Summarize the planning process and describe organizational goals. – Discuss the components of strategy and types of strategic alternatives. – Describe how to use SWOT analysis in formulating strategy. – Identify and describe various alternative approaches to business-level strategy formulation.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–5
Learning Objectives (cont’d) – Identify and describe various alternative approaches to corporate-level strategy formulation. – Discuss how tactical plans are developed and executed. – Describe the basic types of operational plans used by organizations.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–6
Figure 3.1 Decision Making and the Planning Process
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–7
Organizational Goals • Purposes of Goals – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–8
Organizations Have a Purpose— That’s Why They Need Goals Identification
Adaptation
Organizational purpose for goals
Collaboration
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
Integration
Revitalization
3–9
Kinds of Goals • By Level – 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 to strategic goals. – Operational goals are set by and for lower-level managers to address issues associated with tactical goals. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–10
Kinds of Plans • Strategic Plans – A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management.
• Tactical Plans – A plan aimed at achieving the tactical goals set by and for middle management.
• Operational Plans – Plans that have a short-term focus. These plans are set by and for lower-level managers.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–11
The Nature of Strategic Management • Strategy – A comprehensive plan for accomplishing an organization’s goals.
• Strategic Management – A comprehensive and ongoing management process aimed at formulating and implementing effective strategies. A way of approaching business opportunities and challenges.
• Effective Strategies – Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–12
The Components of Strategy • Distinctive Competence – Something an organization does exceptionally well.
• Scope – Range of markets in which an organization will compete.
• Resource Deployment – How an organization will distribute its resources across the areas in which it competes.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–13
Types of Strategic Alternatives • Business-level Strategy – 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 – The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–14
Types of Strategic Alternatives (cont’d) • Strategy Formulation – The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies.
• Strategy Implementation – The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–15
Figure 3.2 SWOT Analysis
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–16
Using SWOT Analysis to Formulate Strategy • Evaluating Organizational Strengths – 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.
– Sustained competitive advantage • Occurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–17
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating Organizational Weaknesses – Organizational weaknesses are skills and capabilities that prevent 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–18
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating Organizational Weaknesses (cont’d) – Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–19
Using SWOT Analysis to Formulate Strategy (cont’d) • Evaluating an Organization’s Opportunities and Threats – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–20
Porter’s Generic Strategies • Differentiation strategy – An organization seeks to distinguish itself from competitors through the quality of its products or services.
• Overall cost leadership strategy – An organization attempts to gain competitive advantage by reducing its overall costs below the costs of competing firms.
• Focus strategy – An organization concentrates on a specific regional market, product line, or group of buyers.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–21
Strategies Based on the Product Life Cycle • Product life cycle: 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–22
Figure 3.3 Strategies Based on Product Life Cycle
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–23
Formulating Corporate-Level Strategies • Strategic Business Units – Each business or group of businesses within an organization engaged in serving the same markets, customers, or products.
• Diversification – The number of businesses an organization is engaged in and the extent to which these businesses are related to one another.
• Single Product Strategy – A strategy in which an organization manufactures one product or service and sells it in a single geographic market.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–24
Related Diversification • Related Diversification – 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 Basis of Relatedness
Examples
Similar technology
Phillips, Boeing, Westinghouse, Compaq
Common distribution and marketing skills
RJR Nabisco, Phillip Morris, Procter & Gamble
Common name brand and reputation
Disney, Universal
Common customers
Merck, IBM, AMF-Head
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–25
Related Diversification (cont’d) • Advantages of Related Diversification – 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. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–26
Unrelated Diversification • A strategy in which an organization operates multiple businesses that are not logically associated with one another. • Advantages – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–27
Unrelated Diversification (cont’d) • Disadvantages – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–28
Major Tools for Managing Diversification • Portfolio management techniques – 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 – The BCG (Boston Consulting Group) Matrix – The GE (General Electric) Business Screen
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–29
Managing Diversification (cont’d) • BCG Matrix – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–30
Figure 3.4 The BCG Matrix
Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–31
Managing Diversification (cont’d) • GE Business Screen – 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.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–32
Figure 3.5 The GE Business Screen
Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–33
Table 3.1 Types of Operational Planning Kinds of Operational Planning Standing Plans:
Single-Use Plans:
2. Policies
2. Programs
3. SOPs
3. Projects
4. Rules and Regulations
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permission. Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–34
Figure 3.6 Contingency Planning • Contingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change.
Copyright © 2005 by Houghton Mifflin Company. All rights reserved.
3–35
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