planning and strategy chapter 7. formulating plans and strategies learning goals 1.describe the...
TRANSCRIPT
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.
4251
0011 0010 1010 1101 0001 0100 1011
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
4251
0011 0010 1010 1101 0001 0100 1011
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
4251
0011 0010 1010 1101 0001 0100 1011
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
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