PlanningPlanning and and StrategyStrategy

Chapter 7

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

What Is Planning?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?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 goals - relate to other areas of performance © Prentice Hall, 2002 7-7-44

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?

Stated Objectives From Large US CompaniesStated Objectives From Large US Companies

© Prentice Hall, 2002 7-7-66

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

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 Componentsin Strategic Planning

Strategicplanning

Vision and Mission

Strategies

ResourceAllocation

OrganizationalGoals

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:

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?

MissionMission

Wal-MartTo 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 PorterHarvard Business School

Dell’s Competitive Strategies:1. Speed to Market2. Superior Customer Service3. Commitment to producing consistently high quality4. 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

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:

Specific courses of action

Implementing initiatives or improving current operations

Integrated with annual budgeting

Focus on first-line and middle-managers

What is Tactical Planning?

Strategic vs. Tactical PlanningStrategic vs. Tactical Planning

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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

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 of complementary goods and/or services

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)

Com

ple

xity

of

Str

ateg

ic P

lan

nin

g

Degree of Diversification

Low

Low High

High

Single-business

firm

Dominant-business

firm

Related-business

firm

Unrelated-business

firm

Google

CEMEXMTV

Johnson &Johnson

GeneralElectric

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

Forwardintegration

Backwardintegration

Horizontalintegration

Relateddiversification

Conglomeratediversification

Organic:Expansion of

existingbusinesses

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

1. Who will be served?

2. What customer needs will be satisfied?

3. How will customers’ needs be satisfied?

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

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?

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?

General Electric’s Strategy and Planning Levels (adapted from Figure 7.2)

Four senior executive officers, 8 senior corporate officers,And 33 corporate staff officers

Focus: Assessing new businesses, allocating resources to business- level companies, coordinating businesses, resolving legal issues, assessing key executives, and other activities

Four senior executive officers, 8 senior corporate officers,And 33 corporate staff officers

Focus: Assessing new businesses, allocating resources to business- level companies, coordinating businesses, resolving legal issues, assessing key executives, and other activities

GEConsumerFinance

GEConsumerFinance

GETransportation

Systems

GETransportation

Systems

Plus 10 otherprimary

business units

Plus 10 otherprimary

business units

GEPlastics

GEPlastics

Marketing

HumanResources

Finance/Accounting

Other

Marketing

HumanResources

Finance/Accounting

Other

Marketing

HumanResources

Finance/Accounting

Other

Marketing

HumanResources

Finance/Accounting

Other

FunctionalUnits

in eachline of

Business

FunctionalUnits

in eachline of

Business

Marketing

HumanResources

Finance/Accounting

Other

Marketing

HumanResources

Finance/Accounting

Other

* Each of the 13 primary units has its own business functions

CorporateLevel

BusinessLevel *

FunctionalLevel

The Planning Process(adapted from Figure 7.3)

Task 1:Develop vision,

missionand Goals

Task 5:Prepare strategic

plan

Task 4:Develop strategies

Task 2:Diagnose

opportunitiesand threats

Task 3:Diagnose strengths

and weakness

Task 6:Prepare tactical

plans

Task 7:Control and

diagnose results

Task 8:Continueplanning

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

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

Ted RouseGlobal Business Practice, Bain 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.”

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

Organicgrowth

Marketpenetration

Productdevelopment

Marketdevelopment

Task 4: Develop StrategiesTask 4: Develop Strategies

Generic Competitive Strategies Model Generic Competitive Strategies Model (adapted from Figure 7.4)(adapted from Figure 7.4)

FocusedFocusedDifferentiationDifferentiation

StrategyStrategy

Cost LeadershipCost LeadershipStrategyStrategy

FocusedFocusedCost LeadershipCost Leadership

StrategyStrategy

Str

ateg

ic T

arge

t

Source of AdvantageUniqueness Low Cost (price)

Narrow

Broad

DifferentiationDifferentiationStrategyStrategy

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

Planning and Levels of Management