Planning and Strategic Management - Management Textbook PDF

Learning Outcomes After studying this chapter you should be able to: 1. Summarize the planning process and describe organizational goals. 2. Discuss the components of strategy and the types of strategic alternatives. 3. Describe how to use SWOT analysis in formulating strategy. 4. Identify and...

Learning Outcomes After studying this chapter you should be able to: 1. Summarize the planning process and describe organizational goals. 2. Discuss the components of strategy and the types of strategic alternatives. 3. Describe how to use SWOT analysis in formulating strategy. 4. Identify and describe various alternative approaches to business- level strategy formulation. 5. Identify and describe various alternative approaches to corporate- level strategy formulation. 6. Discuss how tactical plans are developed and implemented. 7. Describe the basic types of operational plans used by organizations. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–2  FIGURE 3.1 The Planning Process © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–3  Organizational Goals Purposes of Goals Guidance and Promotion of Source of Evaluation unified direction good planning motivation and control © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–4  Organizational Goals Purposes of Goals –Provide guidance and a unified direction for people in the organization. –Have a strong effect 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. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–5  Organizations Have a Purpose— That’s Why They Need Goals Identification Adaptation Integration Uses for Goals in Organizations Collaboration Revitalization © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–6  Kinds of Organizational Goals Setting Organizational Goals By Level By Area By Time Frame Mission statement Operations Long-term goals Strategic goals Marketing Intermediate goals Tactical goals Finance Short-term goals Operational goals Production Explicit goals Open-ended goals © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–7  What Goals Do By Level –Mission statement is a statement of the organization’s fundamental purpose. –Strategic goals, set by top management, address broad competitive issues. –Tactical goals, set by middle managers, that focus on how to operationalize actions to strategic goals. –Operational goals, set by lower-level managers, focus on actions in support of tactical goals. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–8  Planning Flow in Organizations Strategic Plans (upper management) Tactical Plans (middle management) Operational Plans (lower-level managers) © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–9  Kinds of Organizational Plans Strategic Plans –Are general plans outlining resource allocation, priorities, and action steps to achieve strategic goals. –Are set by and for top management. Tactical Plans –Are aimed at achieving the tactical goals set by and for middle management. Operational Plans –Have a short-term focus. –Are set by and for lower-level managers. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–10  Time Frames for Planning The Time Dimension of Planning – Planning must provide sufficient time to fulfill the managerial commitments involved. 1 5 10 Long-range (strategic) plans of 5 or more years Intermediate-range (tactical) plans of 1–5 years Short-range (operational) action and contingency plans of 1 year or less Years © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–11  The Nature of Strategic Management Strategy –A comprehensive plan for accomplishing an organization’s goals. Strategic Management –The comprehensive and ongoing process of formulating and implementing strategies to approach business opportunities and challenges. Effective Strategies –Promote a superior alignment between organization and environment and achievement of goals. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–12  Basic Components of Strategy Components of Strategy Distinctive Competitive Resource Competence Scope Deployment © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–13  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 in areas in which it competes. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–14  Types of Strategic Alternatives Business-level Strategy –The strategic alternatives that an organization chooses from as it conducts business in an industry or a particular market. Corporate-level Strategy –The strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–15  Organizational Structure and Strategic Alternatives Corporate-level strategy Market A Market B Business-level strategy Business-level strategy Functional-level strategy Functional-level strategy Operations-level strategy Operations-level strategy © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–16  The Relationships of Strategies by Organizational Level Formulation Implementation Corporate Decisions about which Competing in these markets markets to compete in via existing operations, strategy mergers, acquisitions, new ventures, divestitures Formulation Implementation Business Decisions about how to Carrying out the strategies strategy compete in each market chosen for each business Formulation Implementation Functional Decisions about how to Carrying out the strategies strategy address each function chosen for each function within the organization © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–17  Management Challenge Question If it is important that all employees be involved in strategy implementation, then what are the most important responsibilities for managers in helping employees participate? © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–18  FIGURE 3.2 SWOT Analysis © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–19  SWOT Analysis: Evaluating Strengths Organizational Strengths –Skills and abilities enabling an organization to conceive of and implement strategies. Distinctive Competencies –Strengths possessed by only a small number of competitors that are useful for competitive advantage and superior performance. Competitive Advantage –Results from a firm exploiting its unique competencies to attain superior performance. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–20  SWOT Analysis: Evaluating Weaknesses Organizational Weaknesses –Insufficiencies of skills and capabilities that limit an organization’s choice of strategic actions in support of 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. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–21  Evaluating an Organization’s Opportunities and Threats Organizational Opportunities –Areas in the organization’s environment that may generate higher performance. Organizational Threats –Areas in the organization’s environment that make it difficult for the organization to achieve high performance. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–22  Formulating Business-Level Strategies Porter’s Generic Strategies Overall cost Differentiation Focus leadership strategy strategy strategy © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–23  Porter’s Generic Strategies Differentiation Strategy –Seeking to distinguish an organization from its competitors through the quality of its products or services. Overall Cost Leadership Strategy –Attempting to gain competitive advantage by reducing overall costs below the costs of competing firms. Focus Strategy –Concentrating on a specific regional market, product line, or group of buyers. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–24  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. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–25  FIGURE 3.3 The Product Life Cycle High Life Cycle Stages Introduction Growth Maturity Decline Sales Volume Low Time © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–26  Management Challenge Questions Which of Porter’s generic strategies are best suited for which stages of the product life cycle? Do your answers support the concept that structure must follow strategy? © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–27  The Adaptation Model of Business Strategy Environmental Complexity and Change Dynamic, growing Moderately stable Very stable environment environment environment with some with little uncertainty characterized by high uncertainty and risk and risk uncertainty and risk Prospector Analyzer Defender Stress growth, risk Stress maintenance of Stress stability, taking, innovation, and status quo with moderate conservatism, and new opportunities innovation and growth maintenance of status quo Reactor Little consideration of environment; drift with little concern for strategy © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–28  Corporate-Level Strategies Strategic Choices Single-product Related Unrelated strategy diversification diversification (simplicity) (synergy) (risk/return) © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–29  Implementing Related Diversification Bases of Diversification Relatedness Similar Common Common brand Common technology marketing and name and customers resources distribution skills reputation and markets © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–30  Related Diversification’s Advantages Competitive Advantages of Related Diversification Creation of Synergistic Reduction of economies of sharing of business and scale and strengths and economic risk scope competencies © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–31  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 –Similar technology –Common marketing and distribution skills –Common brand name and reputation –Common customers © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–32  Unrelated Diversification Unrelated Diversified 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. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–33  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. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–34  Managing Diversification Portfolio Management Techniques –Are used to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance. BCG (Boston Consulting Group) Matrix GE (General Electric) Business Screen © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–35  Portfolio Management Techniques BCG Matrix –Evaluates businesses relative to the growth rate of their markets and their individual market shares. –Classifies the types of businesses of a diversified organization’s portfolio as: Dogs having small market shares and no growth prospects. Cash cows having large shares of mature markets. Question marks having small market shares in quickly growing markets. Stars having large shares of rapidly growing markets. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–36  FIGURE 3.4 The BCG Matrix High Question Market Growth Rate Stars marks Cash Cows Dogs Low High Relative Market Share Low © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–37  Portfolio Management Techniques (cont’d) GE Business Screen –Evaluates firms in a diversified portfolio along two multi-factor dimensions: Industry attractiveness. Competitive position (strength) of portfolio firms. –Shows where a firm should invest more of its resources in competitive businesses in attractive industries. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–38  FIGURE 3.5 The GE Business Screen Question Industry Attractiveness High Winner Winner mark Average Medium Winner Loser business Profit Low Loser Loser producer Good Medium Poor Competitive Position Competitive Position Industry Attractiveness 1. Market share 1. Market growth 2. Technological know-how 2. Market size 3. Product quality 3. Capital requirements 4. Service network 4. Competitive intensity 5. Price competitiveness 6. Operation costs © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–39  Developing and Executing Tactical Plans Developing tactical plans Executing tactical plans Recognize and understand Evaluate each course of action overarching strategic plans in light of its goal and tactical goals Obtain and distribute Specify relevant resource and information and resources time issues Monitor horizontal and vertical Recognize and identify human communication and integration resource commitments of activities Monitor ongoing activities for goal achievement © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–40 Table 3.1 Types of Operational Plans Single-use Plans Developed to carry out a course of action not likely to be repeated in the future Program Single-use plan for a large set of activities Project Single-use plan of less scope and complexity than a program Standing Plans Developed for activities that recur regularly over a period of time Policy Standing plan specifying the organization’s general response to a designated problem or situation Standard operating Standing plan outlining steps to be followed in procedure particular circumstances Rules and regulations Standing plans describing exactly how specific activities are to be carried out © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–41  Contingency Planning and Crisis Management Contingency Planning –The determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. Crisis Management –The set of procedures the organization uses in the event of a disaster or other unexpected calamity. © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–42  Management Challenge Question What effects would an organization’s culture be likely to have on its contingency planning? On its management of a crisis? © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–43  FIGURE 3.6 Contingency Planning © 2016 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3–44