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Chapter
4
Planning and
Strategic Management
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Learning Objectives
After studying Chapter 4, you will know:
how to proceed through the basic steps in any planning
process
how strategic planning integrates with tactical and operational
planning
why it is important to analyze both the external environment
and internal resources of the firm before formulating a
strategy
the choices available for corporate strategy
how companies can achieve competitive advantage through
business strategy
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Learning Objectives (cont.)
After studying Chapter 4, you will know:
how core competencies provide the foundation for business
strategy
the keys to effective strategy implementation
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An Overview Of Planning
Fundamentals
Planning
the conscious, systematic process of making decisions about
goals and activities to be pursued in the future
importance of formal planning has grown dramatically
Basic planning process
Step one: situational analysis
a process planners use, within time and resource constraints, to
gather, interpret, and summarize all information relevant to the
planning issue under consideration
study past and current conditions, and forecast future trends
focuses on internal forces and influences from the external
environment
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An Overview Of Planning
Fundamentals (cont.)
Basic planning process (cont.)
Step two: alternative goals and plans
generate alternative future goals and plans to achieve them
goals - targets or ends the manager wants to reach
should be specific, challenging, and realistic
should be acceptable to those charged with achieving them
plans - the actions or means intended to achieve goals
identify alternative actions, needed resources, and potential obstacles
single use plans - designed to achieve goals that are unlikely to be
repeated in the future
standing plans - designed to achieve an enduring set of goals
contingency plans - actions to be taken when initial plans fail or if
events in the external environment require a sudden change
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An Overview Of Planning
Fundamentals (cont.)
Basic planning process (cont.)
Step three: goal and plan evaluation
evaluate the advantages, disadvantages, and potential effects of
each alternative goal and plan
prioritize those goals
consider the implications of alternative plans
Step four: goal and plan selection
identify the priorities and trade-offs among goals and plans
leads to a written set of goals and plans that are appropriate and
feasible within a predicted set of circumstances
scenario - narrative that describes a set of future conditions
a contingency plan is attached to each scenario
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An Overview Of Planning
Fundamentals (cont.)
Basic planning process (cont.)
Step five: implementation
plans are useless unless they are implemented properly
managers must understand the plan, have the necessary
resources, and be motivated to implement it
implementation likely to be more successful if managers and
employees have participated in the previous planning steps
the plan should be linked to other systems in the organization
Step six: monitor and control
must continually monitor the actual performance in relation to
the goals and plans
develop control systems to take corrective action
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Identifying and
diagnosing the problem
Generating alternative
solutions
Evaluating
alternatives
Making the
choice
Implementing
Evaluation
Situational
analysis
Alternative
goals and plans
Goal and
plan evaluation
Goal and
plan selection
Implementation
Monitor and
control
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Decision-Making Stages And Formal
Planning Steps
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Levels Of Planning
Strategic planning
decisions of senior executives about the organizations long-
term goals and strategies
has an external orientation
covers major portions of the organization
strategic goals - major targets that relate to the long-term
survival, value, and growth of the organization
strategy - pattern of actions and resource allocations designed
to achieve the goals of the organization
matches the skills and resources of the organization to the
opportunities found in the external environment
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Levels Of Planning (cont.)
Tactical planning
translates broad strategic goals and plans into specific goals
and plans that are relevant to a definite portion of the
organization
developed for a functional area such as marketing
focuses on the major actions that a unit must take to fulfill
its part of the strategic plan
Operational planning
identifies the specific procedures and processes required at
lower levels of the organization
plans intended for short periods of time and focus on routine
tasks
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Levels Of Planning (cont.)
Strategic, tactical, and operational plans must be consistent
and mutually supportive
Starbucks balanced scorecard - method for linking strategic
and operational planning
to use the scorecard for planning, it is necessary to:
clarify the vision
develop business unit scorecards
review business unit scorecards
communicate the scorecard to the entire company
conduct annual strategy reviews
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Customer
Striving to be 3
rd
place
Repeat business
30-40% annual expansion
Only 5% of all U.S. consumption
Brand extension
Process
Brewing the perfect cup
Brewing the perfect cup at home
Retail skills and customer service
Coffee knowledge
Empowerment
Financial
$1 billion company (market value)
$100 million annual profits
800% stock appreciation
2000+ stores
People/Learning
Commitment/trust (low turnover)
Training
Beanstock program
Opinion surveys
Flexible schedules
Applying The Balanced Scorecard For
Starbucks
Vision
And
Strategy
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Strategic Planning: Yesterday And
Today
Traditional strategic planning
emphasized a top-down approach
was the responsibility of senior executives and special
planning units, and excluded line managers
gap developed between strategic managers and tactical and
operational managers
Strategic planning today
managers from throughout the organization are involved in
the strategy formulation process
strategic management - integrates strategic planning and
management into a single, on-going process
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Strategy
implementation
Strategic
control
Establishment
of mission,
vision, and
goals
Analysis of
external
opportunities
and threats
Analysis of
internal
strengths and
weaknesses
SWOT analysis
and strategy
formulation
Strategic Management Process
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Strategic Management Process (cont.)
Step 1: Establishment of mission, vision, and goals
mission - basic purpose and values of the organization
defines the scope of operations
states the organizations reason(s) to exist
written in terms of the general clients served by the organization
strategic vision - provides a perspective on where the
company is headed and what the organization can become
clarifies the companys strategic intent
strategic goals - evolve from the mission and vision of the
organization
need to be communicated to everyone who has contact with the
organization
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Strategic Management Process (cont.)
Step 2: Analysis of external opportunities and threats
successful strategic management depends on an accurate and
thorough evaluation of the environment
stakeholders - groups and individuals who affect and are
affected by the achievement of the organizations mission,
goals, and strategies
environmental analysis provides a map of these stakeholders
forecasting future trends is critical
must develop a clear sense of market opportunities
identify potential threats as well
difference between an opportunity and a threat may depend on
how a company positions itself strategically
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Elements Of Environmental Analysis
Social
analysis
Labor
analysis
Industry and
market analysis
Environmental
Analysis
Competitor
analysis
Technological
analysis
Macroeconomic
analysis
Political and
regulatory analysis
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Strategic Management Process (cont.)
Step 3: Analysis of internal strengths and weaknesses
Resources - inputs to production that can be accumulated over
time to enhance the performance of the firm
may be tangible or intangible assets
provide a competitive advantage if:
the resource is instrumental in creating customer value
the resource is rare and not equally available from other sources
resource is difficult to imitate
resource is well organized
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Internal Resource Analysis
Marketing audit
Operations
analysis
Financial
analysis
Internal
Resource
Analysis
Human resources
assessment
Other internal
resource analyses
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Strategic Management Process (cont.)
Step 3: Analysis of internal strengths and weaknesses
(cont.)
Core competence - something a company does especially well
relative to its competitors
provides a competitive edge
usually a set of skills or expertise in some activity


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Resources
are rare
Resources
are
organized
Resources
are
inimitable
Resources
are
valuable
Resources And Core Competence
Core
competence
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Strategic Management Process (cont.)
Step 3: Analysis of internal strengths and weaknesses
(cont.)
Benchmarking - process of assessing how well one
companys basic functions and skills compare to those of
other companies
goals are:
to thoroughly understand the best practices of other firms
to undertake actions to achieve both better performance and lower
costs
only permits imitating rather than surpassing competitors
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Strategic Management Process (cont.)
Step 4: SWOT analysis and strategy formulation
SWOT analysis - comparison of strengths, weaknesses,
opportunities, and threats
helps summarize the major facts and forecasts derived from
external and internal analyses
used as the basis for identifying primary and secondary strategic
issues confronting the organization
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Step 4: Strategy formulation (cont.)
Corporate strategy - identifies the set of businesses, markets,
or industries in which the organization competes and the
distribution of resources among those businesses
concentration strategy - focuses on a single business competing
in a single industry
vertical integration - expands the domain of the organization into
supply or distribution channels
concentric diversification - moving into businesses that are
related to the companys original core business
conglomerate diversification - expands into unrelated businesses
Strategic Management Process (cont.)
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Primary Industry
Concentric
diversification
Concentration
Supply
chain
Distribution
channels
Vertical
Integration
Vertical
Integration
Unrelated
Industry Conglomerate
diversification
Summary Of Corporate Strategies
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Strategic Management Process (cont.)
Step 4: Strategy formulation (cont.)
BCG matrix - used to analyze and communicate corporate
strategy
each business in the corporation is plotted on the growth rate of
its market and the relative strength of its competitive position in
that market (market share)
question marks - require substantial investment to improve their
position
otherwise divestiture is recommended
stars - require heavy investment, but generate needed revenues
cash cows - generate revenues in excess of their investment needs
used to fund other businesses
dogs - remaining revenues are realized, and then firms are divested
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Question
Marks
Stars
Dogs
Relative
competitive position
Strong Weak
The BCG Matrix
Market
growth
High
Low
Cash
Cows
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Strategic Management Process (cont.)
Step 4: Strategy formulation (cont.)
Trends in corporate strategy
wave of mergers and acquisitions either by concentrating in one
industry or by portfolio diversification
implementing a diversified strategy depends on individual
circumstances
unrelated diversification may hurt a corporation
diversification may help competing in a slow-growth, mature, or
threatened industry
organizations tend to perform better if they implement a more
concentric diversification strategy
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Step 4: Strategy formulation (cont.)
Business strategy - defines the major actions used to build and
strengthen competitive position within an industry
low-cost strategy - attempt to be efficient and offer a standard, no
frills product
useful for companies that are large and take advantage of economies
of scale in production or distribution
organization must be the cost leader in its industry
must offer a product that is acceptable to customers
differentiation strategy - attempt to be unique in its industry or
market segment along some dimensions that customers value
position based on high product quality, excellent marketing and
distribution, or superior service
Strategic Management Process (cont.)
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Strategic Management Process (cont.)
Step 4: Strategy formulation (cont.)
Functional strategy - implemented by each functional area of
the organization to support the business strategy
ensures that departments operate in a manner that is consistent
with business strategies
Step 5: Strategy implementation
organizations are adopting a comprehensive view of
implementation
organizations currently are applying a participative strategic
management process to implementation
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Steps In Strategy Implementation
Define
strategic
tasks
Implementation
plan
Assess
organizational
capabilities
Develop
implementation
agenda
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Attacking The Six Barriers To Strategy
Implementation
The
Silent
Killers
Poor coordination across functions,
businesses, or borders
Unclear strategy and conflicting
priorities
Poor vertical communication
Top-down or laissez-faire senior
management style
An ineffective senior management
team
Inadequate down-the-line
leadership skills and development
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Strategic Management Process (cont.)
Step 6: Strategic control
designed to support managers in evaluating the organizations
progress with its strategy
when discrepancies are identified, corrective action is taken
encourages efficient operations that are consistent with the
plan
typically involves budgets to monitor and control financial
expenditures
strategic budget - used to create and maintain long-term
effectiveness
operational budget - tightly monitored to achieve short-term
efficiency

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