MGM3101 Chapter 6 - Planning, Strategy & Competitive Advantage PDF

Planning, Strategy, and Competitive Advantage CHAPTER 6  Learning Objectives Identify the three main steps of the planning process and explain the relationship between planning and strategy. Differentiate among the main types of strategies and explain how they give an organization a compet...

Planning, Strategy, and Competitive Advantage CHAPTER 6  Learning Objectives Identify the three main steps of the planning process and explain the relationship between planning and strategy. Differentiate among the main types of strategies and explain how they give an organization a competitive advantage that may lead to superior performance. Differentiate among the main types of corporate–level strategies and explain how they are used to strengthen a company’s business–level strategy and competitive advantage. Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals.  Planning and Strategy Planning: Strategy Identifying and selecting A cluster of decisions appropriate goals and about what goals to courses of action for an pursue, what actions to organization. take, and how to use resources to achieve goals. Planning and Strategy Three Steps in Planning  The Nature of the Planning Process 1.Establish and discover where an organization is at the present time. 2.Determine where it should be in the future, its desired future state. 3.Decide how to move it forward to reach that future state.  Why Planning Is Important 1.Planning is necessary to give the organization a sense of direction and purpose. 2.Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. 3.A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state. 4.A plan can be used as a device for controlling managers within an organization. Levels of Planning at General Electric Access the text alternative for these images Levels and Types of Planning Access the text alternative for these images  Levels and Types of Planning Corporate–Level Corporate–Level Plan Top management’s Strategy A plan that indicates in decisions pertaining to which industries and the organization’s national markets an mission, overall strategy, organization intends to and structure. compete.  Levels and Types of Planning Business–Level Plan Business–Level Divisional managers’ Strategy Outlines the specific decisions pertaining to a methods a division, division’s long–term business unit, or goals, overall strategy, organization will use to and structure. compete effectively against its rivals in an industry.  Levels and Types of Planning Functional–Level Plan Functional–Level Functional managers’ A plan of Strategy action to improve decisions pertaining to the ability of each of an the goals that they organization’s functions in order to perform its task– propose to pursue to specific activities in ways help the division attain that add value to an its business–level goals. organization’s goods and services.  Time Horizons of Plans Time Horizon is the intended duration of a plan. 1.Long–term plans are usually 5 years or more. 2.Intermediate–term plans are 1 to 5 years. 3.Short–term plans are less than 1 year.  Types of Plans Standing Plans Single–Use Plans Use in programmed decision Developed for a one–time, situations. nonprogrammed issue. Policies: General guides to Programs: Integrated plans action. achieving specific goals. Rules: Formal written specific Project: Specific action guides to action. plans to complete programs. Standard Operating Procedures (S O P): Specify an exact series of actions to follow. Determining the Organization’s Mission and Goals Defining the Business: 1.Who are our customers? 2.What customer needs are being satisfied? 3.How are we satisfying customer needs? Determining the Organization’s Mission and Goals Company Mission Statement ”To organize the world’s information and make it Google universally accessible and useful.” “To give everyone the power to create and share ideas Twitter and information instantly, without barriers.” “To give people the power to build community and Facebook bring the world closer together.” Determining the Organization’s Mission and Goals Establishing Major Goals: Goals provide the organization with a sense of direction. Goals stretch the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved. Determining the Organization’s Mission and Goals Strategic Leadership: The ability of the chief operating officer and top managers to convey a compelling vision to their subordinates of what they want the organization to achieve. Formulating Strategy Access the text alternative for these images  Formulating Strategy S W O T Analysis: A planning exercise in which managers identify internal organizational strengths (S) and weaknesses (W) and external environmental opportunities (O) and threats (T). Questions for S W O T Analysis Potential Potential Potential Weaknesses Potential Th Strengths Opportunities Well-developed Expand core business(es)? Poorly developed strategy? Attacks on core strategy? Exploit new market Increase in dom Strong product lines? Obsolete product lines? segments? competition? Broad market Increase in fore Widen product range? Rising manufacturing costs? coverage? competition?  The Five Forces Model Competitive Effects Forces Level of Rivalry. Increased competition results in lower profits. Potential for Entry. Easy entry leads to lower prices and profits. If there are only a few suppliers of important Power of Suppliers. items, supply costs rise. Power of If there are only a few large buyers, they can Customers. bargain down prices. More available substitutes tend to drive down Substitutes. prices and profits.  The Five Forces Model Hypercompetition: Permanent, ongoing intense competition brought about in an industry by advancing technology or changing customer tastes.  The Five Forces Model Hypercompetition: Permanent, ongoing intense competition brought about in an industry by advancing technology or changing customer tastes.  Formulating Business–Level Strategies Porter: to obtain higher profits, managers must choose between differentiating the product and lowering the costs. Serve the whole market or one share? Choose one of four business–level strategies: Low cost. Differentiation. Focused low cost. Focused differentiation.  Formulating Business–Level Strategies Low–Cost Strategy Differentiation Driving the Distinguishing an organization’s total costs organization’s products down below the total from the products of competitors on dimensions, costs of rivals. such as product design, quality, or after–sales service.  Formulating Business–Level Strategies Focused Low–Cost Focused Differentiation Strategy Strategy Serving only one segment of Serving only one segment the overall market and of the overall market and trying to be the lowest–cost trying to be the most organization serving that differentiated organization segment. serving that segment.  Formulating Corporate–Level Corporate Strategy: Strategies Concentration on a Single Industry Vertical Integration Diversification International Expansion Concentration on a Single Industry: Reinvesting a company’s profits to strengthen its competitive position in its current industry.  Formulating Corporate–Level Vertical Integration Strategies Expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products. Access the text alternative for these images  Diversification Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services. Related Diversification: Entering a new business or industry to create a competitive advantage in one or more of an organization’s existing divisions or businesses. Synergy: Performance gains that result when individuals and departments coordinate their actions. Unrelated Diversification: Entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or  International Expansion Global Strategy: Selling the same standardized product and using the same basic marketing approach in each national market. Cost savings. Vulnerable to local competitors. Multidomestic Strategy: Customizing products and marketing strategies to specific national conditions. Helps gain local market share. Raises production costs. Four Ways of Expanding Internationally Access the text alternative for these images  Four Ways of Expanding Internationally Exporting Importing Making products Selling at home products domestically and selling that are made abroad. them abroad.  Four Ways of Expanding Internationally Licensing Franchising Allowing a foreign Selling to a foreign organization to take charge organization the rights to of manufacturing and use a brand name and distributing a product in its operating know–how in country in return for a return for a lump–sum negotiated fee. payment and a share of the profits.  Four Ways of Expanding Internationally Strategic Alliance Joint Venture Managers pool their Strategic alliance among organization’s resources two or more companies and know–how with a that agree to jointly foreign company. establish and share the Organizations agree to ownership of a new share risk and reward. business.  Four Ways of Expanding Internationally Wholly Owned Foreign Subsidiary Managers invest in establishing production operations in a foreign country independent of any local direct involvement.  Planning and Implementing Strategy Allocate responsibility for implementation to appropriate individuals or groups. Draft detailed action plans that specify how a strategy is to be implemented. Establish a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plan. Allocate appropriate resources to the responsible individuals or groups. Hold specific individuals or groups responsible for the attainment of corporate, divisional, and functional goals. THANK YOU Accessibility Content: Text Alternatives for Images The Three Steps in Planning The graphic shows the three steps in planning. Determining the organization's mission and goals, includes defining the business and establishing major goals. Formulating the strategy means to analyze the current situation and develop strategies. Implementing the strategy is to allocate resources and responsibilities to achieve the strategies. Return to parent-slide containing images. Levels of Planning at General Electric The flow chart shows the Levels of Planning at General Electric. In the corporate level, the C E O level leads to the corporate office. In the second level, the business or division level, the corporate office leads to the following: North America retail; Europe & Australia; Asia and Latin America; convenience stores & foodservice; pet. In the third level, the functional level, Europe &Australia leads to the following: manufacturing; marketing; human resources; R & D. Return to parent-slide containing images. Levels and Types of Planning The graphic shows levels and types of planning. There are bi-directional arrows between Corporate mission and goals, divisional goals and functional goals. There are bi-directional arrows between corporate-level strategy, business-level strategy, and functional-level strategy. There are bi-directional arrows between the design of corporate structure control, the design of business-unit structure control, and the design of functional structure control. There are vertical downward arrows between each level from goal setting to strategy formulation and strategy implementation.. Corporate mission and goals are under the corporate-level plan and at the goal- setting level. Under the business-level plan at the goal-setting level are divisional goals. The functional-level plan at the goal-setting level are the functional goals. At the strategy formulation level, are corporate-level strategy, business-level strategy, and functional-level strategy. At the strategy implementation level are the design of corporate structure control, the design of business-unit structure control, and the design of functional structure control. Return to parent-slide containing images. 54 Formulating Strategy The graphic describes the three main strategies involved with a S W O T Analysis: corporate-level strategy, business-level strategy, and functional-level strategy. S W O T Analysis is a planning exercise to identify strengths and weaknesses inside an organization and opportunities and threats in the environment. Corporate-level strategy is a plan of action to manage the growth and development of an organization so as to maximize its long-run ability to create value. Business-level strategy is a plan of action to take advantage of favorable opportunities and find ways to counter threats so as to compete effectively in an industry. Functional-level strategy is a plan of action to improve the ability of an organization's departments to create value. Return to parent-slide containing images. Stages in a Vertical Value Chain The flow chart shows the stages in a vertical value chain from backward to forward for two types of companies. The first value chain consists of raw materials to intermediate manufacturing to assembly to distribution to customer. The second value chain consists of raw materials to concentrate producers to bottlers to retailers to customer. The following example is given: Sweetener suppliers to Coca-Cola to local bottler to supermarket chains to customer. Return to parent-slide containing images. Four Ways of Expanding Internationally - Text Alternative The graphic shows the four ways of expanding internationally. From low to high: importing and exporting, licensing and franchising, strategic alliances and/or joint ventures, and wholly owned foreign subsidiary at the high end. The level of foreign involvement and investment and degree of risk is lowest with importing and exporting and continues to get higher continuing up to wholly owned foreign subsidiary. Return to parent-slide containing images.