management chapter08

The Manager as a Planner and Strategist

McGraw-Hill/IrwinContemporary Management, 5/e

chapter eight

Learning Objectives

After studying the chapter, you should be able to:

• Identify the three main steps of the planning process and the relationship between planning and strategy.

• Describe some techniques managers can use to improve the planning process so they can better predict the future and mobilize organizational resources to meet future contingencies.

Learning Objectives

• Differentiate between the main types of business-level strategy and explain how they give an organization a competitive advantage lead to superior performance.

• Differentiate between the main types of corporate-level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage

Learning Objectives

• Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals

Planning and Strategy

• Planning– Identifying and selecting appropriate goals

and courses of action for an organization.• The organizational plan that results from

the planning process details the goals and specifies how managers will attain those goals.

• Strategy– The cluster of decisions and actions that

managers take to help an organization reach its goals.

• Mission Statement– A broad declaration of an organization’s

overriding purpose – Identifies what is unique or important about

its products– Seeks to distinguish or differentiate the

organization from its competitors

Three Steps in Planning

Figure 8.1

Planning Process Stages

• Determining the Organization’s Mission and Goals– Defining the organization’s overriding purpose and

its goals.

• Formulating strategy– Managers analyze current situation and develop the

strategies needed to achieve the mission.

• Implementing strategy– Managers must decide how to allocate resources

between groups to ensure the strategy is achieved.

The Nature of the Planning Process

To perform the planning task, managers:

1. Establish where an organization is at the present time

2. Determine its desired future state

3. Decide how to move it forward to reach that future state

Why Planning is Important

1. Necessary to give the organization a sense of direction and purpose

2. Useful way of getting managers to participate in decision making

3. Helps coordinate managers of the different functions and divisions of an organization

4. Can be used as a device for controlling managers

Discussion Question?

Which part of planning is most important?

A. Unity

B. Continuity

C. Accuracy

D. Flexibility

• Unity - at any one time only one central, guiding plan is put into operation

• Continuity – planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels

• Accuracy – managers need to make every attempt to collect and utilize all available information at their disposal

• Flexibility – plans can be altered and changed if the situation changes

Levels of Planning at General Electric

Figure 8.3

Levels and Types of Planning

Figure 8.2

Levels of Planning

• Division – business unit that has its own set of managers and departments and competes in a distinct industry

• Divisional managers – Managers who control the various divisions of an organization

Levels of Planning

• Corporate-Level Plan– Top management’s decisions pertaining to

the organization’s mission, overall strategy, and structure.

– Provides a framework for all other planning.

• Corporate-Level Strategy– A plan that indicates in which industries and

national markets an organization intends to compete.

Levels of Planning

• Business-Level Plan:– Long-term divisional goals that will allow the

division to meet corporate goals– Division’s business-level and structure to

achieve divisional goals

Levels of Planning

• Business-Level Strategy– Outlines the specific methods a division,

business unit, or organization will use to compete effectively against its rivals in an industry

Levels of Planning

• Functional-Level Plan– Goals that the managers of each function

will pursue to help their division attain its business-level goals

• Functional Strategy– A plan of action that managers of individual

functions can take to add value to an organization’s goods and services

Time Horizons of Plans

Time Horizon– Period of time over which they are intended

to apply or endure.• Long-term plans are usually 5 years or

more.• Intermediate-term plans are 1 to 5 years.• Short-term plans are less than 1 year.

Types of Plans

• Standing Plans– Use in programmed decision situations

• Policies are general guides to action.• Rules are formal written specific guides to

action.• Standard operating procedures (SOP) specify an

exact series of actions to follow.

Types of Plans

• Single-Use Plans– Developed for a one-time, nonprogrammed

issue.• Programs: integrated plans achieving

specific goals.• Project: specific action plans to complete

programs.

Scenario Planning

• Scenario Planning (Contingency Planning)– The generation of multiple forecasts of

future conditions followed by an analysis of how to effectively respond to those conditions.

Three Mission Statements

Determining the Organization’s Mission and Goals

• Defining the Business– Who are our customers?– What customer needs are being satisfied?– How are we satisfying customer needs

• Establishing Major Goals– Provides the organization with a sense of

direction– Stretches the organization to higher levels

of performance.– Goals must be challenging but realistic with

a definite period in which they are to be achieved.

• Strategic leadership – the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates

Formulating Strategy

• Strategic Formulation– Managers work to develop the set of

strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals.

Formulating Strategy

• SWOT Analysis• A planning exercise in which managers identify:– organizational strengths and weaknesses.

• Strengths (e.g., superior marketing skills)• Weaknesses (e.g., outdated production facilities)

– external opportunities and threats.• Opportunities (e.g., entry into new related

markets).• Threats (increased competition)

Planning and Strategy Formulation

Figure 8.5

The Five Forces

Competitive Forces

Level of Rivalry Increased competition results in lower profits.

Potential for Entry Easy entry leads to lower prices and profits.

Power of Suppliers If there are only a few suppliers of important items, supply costs rise.

Power of Customers If there are only a few large buyers, they can bargain down prices.

Substitutes More available substitutes tend to drive down prices and profits.

The Five Forces

• Hypercompetition – industries that are characterized by

permanent, ongoing, intense, competition brought about by advancing technology or changing customer tastes and fads and fashions

Formulating Business-Level Strategies

• Low-Cost Strategy– Driving the organization’s total costs down

below the total costs of rivals.• Manufacturing at lower costs, reducing

waste.• Lower costs than competition means that

the low cost producer can sell for less and still be profitable.

• Differentiation– Distinguishing the organization’s products

from those of competitors on one or more important dimensions.• Differentiation must be valued by the

customer in order for a producer to charge more for a product.

• “Stuck in the Middle”– Attempting to simultaneously pursue both a

low cost strategy and a differentiation strategy.

– Difficult to achieve low cost with the added costs of differentiation.

• Focused Low-Cost– Serving only one market segment and

being the lowest-cost organization serving that segment.

• Focused Differentiation– Serving only one market segment as the

most differentiated organization serving that segment.

Principal Corporate-Level Strategies

1. Concentration on a single industry

2. Vertical integration

3. Diversification

4. International expansion

Formulating Corporate-Level Strategies

• Concentration in Single Business– Organization uses its functional skills to

develop new kinds of products or expand its locations

– Appropriate when managers see the need to reduce the size of their organizations to increase performance

Vertical Integration

• Vertical integration – strategy that involves a company expanding

its business operations either backward into a new industry that produces inputs (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company’s products (forward vertical integration)

Stages in a Vertical Value Chain

Figure 8.6

• Diversification – strategy of expanding a company’s

operations into a new industry in order to produce new kinds of valuable goods or services

Question?

When a firm establishes divisions in new industries that are not linked to their current business, it is called _______.

A. Related diversification

B. Unrelated diversification

C. Dissimilar diversification

D. Associated diversification

• Related Diversification – strategy of entering a new industry and

establishing a new business division that is linked to a company’s existing divisions because they share resources that will improve the competitive position

Related Diversification

• Synergy– Obtained when the value created by two

divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently

• Unrelated Diversification– Firms establish divisions or buy companies

in new industries that are not linked to their current business or industry

– Portfolio strategy• Apportioning resources among divisions

to increase returns or spread risks

International Expansion

• Basic Question:– To what extent do we customize products and

marketing for different national conditions?

• Global strategy– Undertaking very little customization to suit the

specific needs of customers in different countries.• Standardization provides for lower production

cost.• Ignores national differences that local

competitors can address to their advantage.

• Multi-domestic Strategy– Customizing products and marketing

strategies to specific national conditions.• Helps gain local market share.• Raises production costs.

Choosing a Way to Expand Internationally

• Opportunities – opening new markets, reaching more

customers, and gaining access to new sources of raw materials and to low-cost suppliers

• Threat – encountering new competitors, and

responding to new political, economic, and cultural conditions

• Exporting

– making products at home and selling them abroad

• Importing

– selling at home products that are made abroad

• Licensing – allowing a foreign organization to take

charge of manufacturing and distributing a product in its country in return for a negotiated fee

• Franchising – selling to a foreign organization the rights to

use a brand name and operating know-how in return for a lump-sum payment and a share of the profits

• Strategic alliance – managers pool resources with those of a

foreign company– Organizations agree to share risk and reward

• Joint venture

– strategic alliance among companies that agree to jointly establish and share the ownership of a new business

Question?

When managers invest in establishing production operations in a foreign country independent of any local direct involvement, it is called a _________.

A. Franchise

B. Foreign licensee

C. Wholly owned foreign subsidiary

D. Contributory firm

• Wholly Owned Foreign Subsidiary – managers invest in establishing production

operations in a foreign country independent of any local direct involvement

Functional-level Strategies

A plan that indicates how a function intends to achieve its goals– Seeks to have each department add value to a good

or service. Marketing, service, and production functions can all add value to a good or service through:

• Lowering the costs of providing the value in products.

• Adding new value to the product by differentiating.– Functional strategies must fit with business level

strategies.

Planning and Implementing Strategy

1. Allocate implementation responsibility to the appropriate individuals or groups.

2. Draft detailed action plans for implementation.

3. Establish a timetable for implementation4. Allocate appropriate resources5. Hold specific groups or individuals

responsible for the attainment of corporate, divisional, and functional goals.

Movie Example: Blackhawk Down

How well did the General’s plan meet the criteria of unity, accuracy, continuity, and flexibility?

management chapter08

strategy planning

types of planning

strategy strategy

planning task

planning process stages

formulating strategy

corporatelevel strategy

operation continuity

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