formulating plans and strategies managing: a competency based approach 11 th edition chapter...

Chapter 7: PowerPoint 7.35 (Adapted from Table 7.4)

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MANAGING: A COMPETENCY BASED APPROACH

11th Edition

Chapter 7—Formulating Plans and Strategies

Prepared by

Argie ButlerTexas A&M University

Don Hellriegel

John W. Slocum, Jr.

Susan E. Jackson

Chapter 7: PowerPoint 7.1

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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 business-level planning process

5. Explain the generic competitive strategies model

6. Explain the integrated strategy/model


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Comprehendthe uncertainties

and risks with various options

Developeffective courses

of action (strategies and tactics)

Discover new opportunities

Anticipate and avoid future

problemsEffectiveplanninghelps to

Importance and Types of Planning:Why Is Planning Important?


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s 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 achievethe organization’s goals


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s 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


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s Interrelated Core Componentsin Strategic Planning

Strategicplanning

Vision and Mission

Strategies

ResourceAllocation

OrganizationalGoals


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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


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Mission: The organization’s purpose or reason for existing; often answers questions such as:

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

1. What business are we in?2. Who are we?3. What are we about?


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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


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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 PorterHarvard Business School


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Resource allocation: assigning money, people, facilities, and other resources among various current and new business opportunities

Key part: allocating money, through budgets, for various purposes


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Normaltime horizon of

1 to 2 years, often less

How to do it

What to do Who will do it

What is Tactical Planning?

Makingdecisions

regarding:


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Specific courses of action

Implementing initiatives or improving current operations

Integrated with annual budgeting

Focus on first-line and middle-managers


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Diversification Strategies andPlanning: Diversification

DiversificationThe 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. WeldonChairman and CEO, Johnson & Johnson


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1. What can we do better than other firms if we enter a

new market?

2. What strategic resources—human, financial, and others

—do we need to succeed in the new market?Questions in

ConsideringDiversification 3. Will we

simply be a playerin the new marketor will we emerge

a winner?

4. What canwe learn by

diversifying, and are we sufficiently organized to learn

it?


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s 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 of complementary goods and/or services

Unrelated-business strategy: providing diverse products (goods and/or services) to many different types of markets

Chapter 7: PowerPoint 7.16 (Figure 7.2)

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Types of Diversification Strategies and Planning

High

Low

Com

ple

xity

of

Str

ateg

ic

Pla

nn

ing

Single-businessstrategy

Dominant-businessstrategy

Related-businessstrategy

Unrelated-businessstrategy

Google

MTVNetworks

Johnson&

Johnson

GeneralElectric

Diversification Strategy


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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


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Forwardintegration

Backwardintegration

Horizontalintegration

Relateddiversification

Conglomeratediversification

Organic:Expansion of

existingbusinesses


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s Corporate-Level Strategy

Executive Compensation and Corporate Growth

Salary, bonuses, stock options, etc.

Stock option: a contractual right granted by a company to the employee to purchase a defined number of shares of the company’s stock at a fixed price within a specified period of time

Much criticism in recent years over the design and monitoring of executive compensation programs


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s 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


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s Business-Level Planning

Basic Questions

1. Who will be served?

2. What customer needs will be satisfied?

3. How will customers’ needs be satisfied?


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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

FinanceHR

Other


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Examples of Issues in Developing Human Resources Strategies

What approach should be used to recruit qualified

personnel?

How is affirmative and fair treatment

ensured for women, minorities, and the disabled?

What type of reward system is

needed?

How should the performance of employees be

reviewed?


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Examples of Issues in Developing Finance Strategies

What criteria should be used in allocating financial and human

resources to projects?

What should be the criteria for issuing

credit to customers?

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?

Chapter 7: PowerPoint 7.25 (Adapted from Figure 7.5)

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Business-Level Strategic Planning Tasks and Process

Task 2: Diagnose Opportunities and

Threats

Task 1: Develop Vision, Mission and

Goal

Task 3: Diagnose Strengths and Weaknesses

• Industry/market competition

• Political forces• Stakeholders

expectations• Values, culture• Others

• Who are we?• What do we want to

become?• What are our goals?

• Competitive position• Human skills• Technological

capabilities• Financial resources• Organization and

management

Evaluate against Evaluate against

(continued)

Task 4: DevelopStrategies

Chapter 7: PowerPoint 7.26 (Adapated from Figure 7.5)

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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


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Core Competencies: the strengths that make an organization distinctive and competitive by providing goods or services that have unique value to its customers

Ted RouseGlobal Business PracticeBain and Company

“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.”


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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


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Organicgrowth

Marketpenetration

Productdevelopment

Marketdevelopment

Chapter 7: PowerPoint 7.30 (Adapted from Figure 7.7)

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s Generic Competitive Strategies Model

DifferentiationStrategy

Cost LeadershipStrategy

FocusedDifferentiation

Strategy

FocusedCost Leadership

Strategy

Sources of Advantage

Str

ateg

ic T

arge

t

Broad

Narrow

Uniqueness Low Cost (price)


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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 ConsolinoManagement CounselorCounselors to America’s Small Business


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Integrated Strategy Model

Adapted from D.C. Hambrick

and J.W. Fredrickson. Are you sure you have a strategy: Reprinted in

Academy of Management Executive, 2005, 15(4), 54.

Arenas

Where will the firmbe active?

Staging

What will be the firm’sspeed and sequence

of moves?

Vehicles

How will the firmget there?

Differentiation

How will the firmexcel?

EconomicLogic

How will the firmobtain

profits?


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s Criteria for Evaluating the Quality of a Firm’s Integrated Strategy

Does the strategy fit with what’s going on in the environment?

1. Is there healthy profit potential where the firm’s headed?

2. Does the strategy align with the key success factors of the chosen environment?

Does the strategy exploit the firm’s key resources?1. With the firm’s particular mix of resources, does

this strategy give it a good head start on competitors?

2. Can this strategy be pursued more economically than competitors?


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s Criteria for Evaluating the Quality of a Firm’s Integrated Strategy (cont’d)

Will the differentiators be sustainable?

1. Will competitors have difficulty matching the firm?

2. If not, does the strategy call for innovation and opportunity creation?

Are the elements of the strategy internally consistent?

1. Have the leaders made choices of arenas, vehicles, differentiators, staging, and economic logic?

2. Do they all fit and mutually reinforce each other?


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Are there enough resources to pursue this strategy?

1. Does the firm have the money, managerial competencies, and other capabilities to implement the strategy?

2. Are the leaders sure that they are not spreading the firm’s resources too thinly, only to be left with a collection of positions?


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Is the strategy implementable?

1. Will the key stakeholders allow the firm to pursue this strategy?

2. Can the organization make it through the transition?

3. Is management team able and willing to lead the required changes?

Adapted from D.C. Hambrick and J.W. Fredrickson. Are you sure you have a strategy? Reprinted in Academy of Management Executive, 2005, 19(4), 61.

formulating plans and strategies managing: a competency based approach 11 th edition chapter...

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