FAG1007 Fundamental Of Management PDF

FAG1007 FUNDAMENTAL OF MANAGEMENT  Topic 7 STRATEGIC PLANNING Learning Outcomes After studying this chapter, you should be able to: Explain the nature of strategic planning. Describe the various levels of strategic planning. Explain the strategic planning and implementation pro...

FAG1007 FUNDAMENTAL OF MANAGEMENT  Topic 7 STRATEGIC PLANNING Learning Outcomes After studying this chapter, you should be able to: Explain the nature of strategic planning. Describe the various levels of strategic planning. Explain the strategic planning and implementation process. Identify and explain the different types of situational analysis mechanism. Describe the means of formulating corporate-level strategy, business-level strategy and functional-level strategy. Explain the various dimensions of an organization that impact strategy implementation. Introduction Strategic planning Determination of overall organizational purposes and objectives, including the answer for how they are to be achieved. It involves the review of market conditions, customer needs, competitive strength and weaknesses, socio-political, legal and economic conditions, technological developments and resource availability that lead to the specific opportunities or threats facing an organization. It helps managers make decisions, minimize mistake and anticipate future events It helps organizational members understand the actions of their manager and organization. It make it easier to understand the other forms of planning and creates a connection between internal and external environment. Strategic Planning Level Corporate Level Business Level Functional Level 1) Corporate Level Corporate-level strategy Process of defining the overall character and purpose of an organization, the business will enter and leave, and how resources will be distributed among those businesses (organization as a whole) Answering the “What business(es) should the organization be in?” Responsibility of top level manager which focus on formulating strategies to accomplish the organization’s mission. Example: As corporate strategy, an organization with multiple products or services division will identify the major business areas which it intend to compete in. 2) Business Level Business-level Strategy Primarily concerned with how to compete. Answering the ”How will the organization compete for customers in this business and industry?” Includes choices about product and services mix, location and facilities and new technologies Responsibility of the middle-level management 3) Functional Level Functional-level Strategy Determining policies and procedures for narrow areas of activities such as marketing, manufacturing, finance, and research development, which are critical to the success of the organizations. Answering the “How can the organization best apply functional expertise to support the business level strategy?” Responsibility of the lower-level management Situational Analysis Play vital roles in strategic planning Aims to assess the internal features of and external forces on an organization that directly impact its strategic options and opportunities. Examples of situational analysis are: SWOT Analysis Environmental Scanning Benchmarking  SWOT Analysis It is a strategic planning tools that matches the internal organizational strengths and weaknesses with its external environmental opportunities and threats. Based on the assumption that if managers carefully review such strengths, weaknesses, opportunities and threats, an effective strategy for ensuring organizational success will become evident. SWOT Analysis STRENGTH WEAKNESSES Financial resources Competitive position Quality of product Management talent Competitive advantages Market image Product Innovation Facilities OPPORTUNITIES THREATS New market New competitors Product line Substitute products Complementary product Government policies Market growth Buyer needs  Environmental Scanning Refers to obtaining and compiling information about environmental forces that might be relevant to an organization’s strategic planners 6 key areas of organization’s environment Economics: Related to economic activity and the flow of money, goods and services. Politics: The use or allocation of political power among people (locally, nationally or internationally) Social trends and demographics: How people live Technology: The development of new or existing technology Competition: Current and potential competitors Geography: Factors which look into typography, climate and natural resources Benchmarking Process whereby an organization learns how to be the best in one or more areas by analyzing in details the practices of other organizations Guidelines in benchmarking by Dessler (1998): Focus on specific problem and define it Use employees who have to implement it Be willing to share ideas or information with others Keep information confidential Do not focus on sensitive issues Types Of Strategies Corporate level strategy Grand strategy Portfolio strategy Business level strategy Adaptive strategy typology Porter’s competitive strategies Product life cycle Functional level strategy Grand Strategy Provide basic strategic direction at the corporate level Can be classified as integration diversification retrenchment divestment a) Integration Combined the control of a number of successive or similar operations Such as merging, taking over a section of an industrial or commercial process by other organizations There are 3 types of integration (based on organization’s objective) Forward integration: integration toward final users of an organization’s product and services. Backward integration: Taking control of any sources or inputs including new material and labor Horizontal integration: buying or taking control of competitors at the same level in a production and marketing process  Each types of integration can be used to achieve different objectives Example: Organization objective - reduce costs. Buy out supplier that earn profit producing the inputs is the best option (Backward integration) Organization objective – better control of distribution channel. Making franchise agreement with intermediate customer is the best option (Forward integration) b) Diversification Increasing the variety of products or services made or sold. There are 2 types: Conglomerate - development of business unrelated to an organization Concentric - development of business related to an organization’s current business The purpose of diversification is to reduce risk especially when the organization declining Allows organization to split their focus and resources among several products or market c) Retrenchment Reduce the size or scope of their activities. Managers avoid to use this strategy (for survival) d) Divestment Reduce their investment Selling organization’s asset.  Portfolio Strategies Provide basic direction at the corporate level of organizations. Involve process of determining how organization compete with others (competitive advantage) Example: Organization diversify an investment portfolio with some high risk shares, growth stocks and bonds. (reduce risk) Popular portfolio strategy is BCG Matrix a) BCG Matrix Develop by Boston Consulting Group (leading manufacturing organization) Help managers to develop organization strategies based on the market share and market growth in which business exits Component of BCG Matrix Question marks Stars Dogs Cash Cow BCG Matrix Star High share of a high growth market and required large amount of money to support their rapid and significant growth Generate large amount of revenue for organization which allows management to make additional investment and earn profitable return Cash Cow Large share of a market that is growing slightly. Business unit provide large amount of revenue. Since market not growing significantly, the revenue was used to cover the financial demand of the organization. Questions mark Shows the small share of a growth market share Business unit is uncertain whether to invest more money or eliminate it Manager will try to invest more as an attempt to move into star Dog Have small market share and low market growth Business unit can barely support themselves Business Level Strategy Concerned with how to compete 3 framework: Adaptive Strategy Typology Porter’s Competitive Strategies Product Life Cycle Adaptive Strategy Typology Based on Raymond Miles and Charles Snow (1978) The idea is that managers will seek to formulate strategies that will adapt to and harmonize with the external environment. 4 main strategies: Prospector Strategy: seeking out new opportunities, taking risk and expanding. Defender Strategy: seek to maintain current market share by holding on to current customer Analyser Strategy: maintain a stable business Reactor Strategy: respond to environmental threat and opportunities in an ad hoc manner Porter’s Competitive Strategies By Michael E. Porter. There are 3 main strategies Differentiation: focuses on making an organization more competitive by developing a products that customers perceive as being different from competitors. Cost Leadership: focuses on making an organization more competitive by producing its product more cheaply than its competitors Focus: focuses on making an organization more competitive by targeting a particular customer Product Life Cycle Series of stages a product/ services goes throughout the span of its marketability 4 main stages: Introduction Growth Maturity Decline PLC suggest that different strategy should be used to support product at different stages Functional Strategy Guide activities in a specific functional area of operations The functional area are: marketing, production, finance, human resources and others Example: Will organization be introducing new products that are expected to experience rapid growth during the early stages of a life cycle? Appropriate strategy for growth are recruiting additional personnel and training (HR), aggressive advertising (marketing) Strategy should support the execution of business level strategy by developing an effective mix of the major organizational functions.  Strategy Implementation There are several dimension for strategy implementation: Leadership: Manager need to influence (persuade) organizational members to adopt the behaviors needed for strategy implementation. Organizational structure: shows manager responsibilities and degree of authority, besides incorporating jobs into departments. Information and control system: includes reward system, budgets for resource allocation and others must be developed to support the implementation strategy. Focus on analysis such as environmental analysis, organizational direction, strategy formulation and others.  Human resource: balance of human resource must be developed to support strategy implementation. Technology: appropriate level of technology is crucial for proper strategy implementation. THANK YOU