Chapter 05 Planning And Strategic Management PDF

Chapter 05 PLANNING AND STRATEGIC MANAGEMENT “There is no favorable wind for the one who doesn’t know where to go” SENECA  The What and Why of planning The process of determining in advance what should be done, when, by who...

Chapter 05 PLANNING AND STRATEGIC MANAGEMENT “There is no favorable wind for the one who doesn’t know where to go” SENECA  The What and Why of planning The process of determining in advance what should be done, when, by whom, how, and at what cost. Planning is the most fundamental function of management. All of the other management functions stem from planning Why planning? 1. Planning provides direction to managers. 2. Forces analytical thinking and evaluation of alternatives. 3. Planning reduces uncertainty. 4. Planning minimizes waste and redundancy. 5. Planning establishes the goals or standards used in controlling.  Types of Planning Includes a high-level overview of the Strategic entire business planning looks at long-term issues, helps setting priorities and focus resources on them. Involves breaking down a long-term Tactical strategic plan into smaller and more planning distinct short-term plans Includes specific goals, budget, resources Identifies the specific procedures and actions required at lower levels in the Operational organization. planning It is more detailed, it involves day to day operations. Setting of work schedules  Goals and plans A goal is a desired future state that the organization attempts to realize Goal A plan is a document for goal achievement which specifies the necessary resource Plan allocations, schedules, tasks, and other actions  Effective goal setting S M A R T SPECIFIC MEASURABLE ACHEIVABLE RELEVANT TIME-BOUND Consistent Have a Provides a Include a metric with a target with higher- defined time clear that indicates period description of Setting a level goals success what needs challenging and covers to be target, but key result acheived realistic areas The Strategic Management Process  Step 1: Identifying organization’s the mission and vision The vision is a road map of a company’s future. Where are we going? What do we want to achieve in the future? It does not provide specific targets but gives a visual image of what the organization is trying to produce or become. IKEA vision: To create a better everyday life for the many people NIKE Vision: Bring inspiration and innovation to every athlete in the world Disney vision: To make people happy  Step 1: Identifying organization’s the mission and vision The mission provides the organization’s reason for existence and serves to communicate purpose and direction to employees, customers, vendors…Who are we? Who do we serve? What do we do? Why do we exist? IKEA mission: to offer a wide range of well-designed, functional home furnishing products at affordable prices. NIKE Mission: Create sports innovations, make our products sustainably and make a positive impact in communities where we live and work.  Step 1: Identifying the Organization’s Mission and vision A mission statement is crafted not only to define a company’s purpose but also to inspire and connect emotionally with customers, employees, and other stakeholders. It should arise positive feelings and emotions that’s why companies generally do not link their mission to “things” but to ideas, emotions, ambience, and benefits. So if you are a manager and you try to define your company mission, :  you should not say we are selling clothes, you should say ………. You should not say we are selling shoes, you should say………….. you should say we are selling houses, you should say………. You should not say we are selling books, you should say ……….  What is strategy? Strategy – a comprehensive plan guiding resource allocation to achieve long-term organization goals.  III/ Three levels of strategy 1. Corporate Strategy 2. Business Strategy 3. Functional Strategy Three levels of strategy  3-1 Corporate strategy A corporate strategy is one that determines what businesses a company is in or wants to be in, and what it wants to do with those businesses. A key part of corporate strategy is making decisions on how many, what types, and which specific lines of business the company should be in. There is 3 types of corporate strategies: Growth, stability, renewal 3-1-1 Three types of corporate strategy Corporate strategy Growth Stability Renewal  Growth strategies: Concentration A growth strategy is when an organization expands the number of markets served or products offered. Organizations grow by using concentration, integration, or diversification. The concentration strategy involves focusing on a single industry, a specific product or a specific group of clients. It can be made in different ways: - By attracting new customers (entering new geographic zones, converting non- users to users, taking a market share from competitors…) - By persuading existing customers to increase their usage of the product. The world's leading fast-food brands like Subway, McDonald's, and Starbucks follow a concentration strategy  Growth strategies: Integration -Integration strategies allow a firm to gain control over distributors, suppliers, or competitors. - Horizontal integration occurs when two firms that are competing in the same business field are brought together. It eliminates competition and increases market share and profits. - Vertical integration occurs when the company either take up the job of the supplier (backward integration) or the distributor (forward integration)..  Growth strategies: Diversification -Diversification strategies expand firms' operations by adding new markets, products, services, or stages of production to the existing business. -Related Diversification: - adding related or similar products to existing core business, either through acquisition of competitors or through internal development of new products - Unrelated Diversification - The expansion into new lines of business with no direct connection with the existing business.  Growth strategies Growth Expanding the number of markets served or products offered, either through current business or through new businesses. Concentration Expanding operations within a single industry Integration (vertical/horizontal) Acquiring or cooperating with other companies Diversification Expanding operations outside the original (related/unrelated) activity Which Corporate Strategy Delice is following ? Which Corporate Strategy Poulina is following ? Three types of corporate strategy: Stability and Renewal strategies Continuing the current Stability activities without any significant change. Reducing the size or diversity Renewal of operations. 3-1-2 How Are Corporate Strategies Managed? Managers use corporate portfolio matrix. It provides a framework for understanding diverse businesses divisions and product lines helps managers establish priorities for allocating resources. One tool is the BCG Matrix (developed by the Boston Consulting Group)  3-1-3 BCG matrix The BCG matrix is a 2X2 matrix. The horizontal axis represents market share (low or high) The vertical axis indicates anticipated market growth (low or high). A business unit is evaluated using a SWOT analysis and placed in one of the four categories. BCG Matrix  BCG matrix The Dog: sold off or liquidated The cash cow: limit any new and use the cash generated to invest in stars and question marks. The stars: need heavy investments and will develop into cash cows as their markets mature and sales growth slows. The question marks: some will be sold off and others strategically nurtured into stars.  3-2 Business strategy The Business strategy is a strategy for how an organization will compete in its business(es). “how do we compete?” and “How do we gain (a sustainable) competitive advantage?” In order to answer these questions it is important to have a good understanding of a business and its external environment. Managers can use analysis frameworks like Porter’s Five Forces  3-2-1 The Porter’s Five Forces Model 1. Threat of new entrants: How likely is it that new competitors will come into the industry? 2. Threat of substitutes: How likely is it that other industries’ products can be substituted for our industry’s products? 3. Bargaining power of buyers: How much bargaining power do buyers (customers) have? 4. Bargaining power of suppliers: How much bargaining power do suppliers have? 5. Current rivalry: How intense is the rivalry among current industry competitors? The Porter’s Five Forces Model  3-2-2 Examples of business strategies: The Porter’s Generic Strategies Porter’s Generic Strategies model are basic strategic options available to organizations for gaining competitive advantages in all industries. Three different strategic orientations: -Cost leadership: minimizing the cost -Differentiation: being different from competitors -Focus: Concentrate on particular niche market Examples Cost leadership Differentiation Focus Rolex (Focus Walmart Primarks Emirates Airlines differenciation/ Ikea Apple Premium pricing Amazon Tesla and image) McDonald HappySocks Air Arabia (Focus Low-cost)  3-3 Functional level strategy are the strategies used by an organization’s various functional departments to support the competitive strategy. It relates to : Marketing Production Finance Human Resources Research and Development