Planning N Strategic Management

Chapter Three
Planning and Strategic

Management
Copyright 2005 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook.
Chapter
Chapter Outline
Outline
Planning and Organizational Goals
Organizational Goals
Kinds of Plans
The Nature of Strategic Management

The Components of Strategy
Types of Strategic Alternatives
Using SWOT Analysis to Formulate Strategy

Evaluating an Organizations Strengths
Evaluating an Organizations Weaknesses
Evaluating an Organizations Opportunities and
Threats
Copyright 2005 by Houghton Mifflin
Company. All rights reserved.
32
Chapter
Chapter Outline
Outline (contd)
(contd)
Formulating Business-Level Strategies
Porters Generic Strategies
Strategies Based on the Product Life Cycle
Formulating Corporate-Level Strategies

Single-Product Strategy
Related Diversification
Unrelated Diversification
Managing Diversification
Tactical Planning
Developing Tactical Plans
Executing Tactical Plans
33
Chapter
Chapter Outline
Outline (contd)
(contd)
Operational Planning
Single-Use Plans
Standing Plans
Contingency Planning and Crisis Management

34
Learning
Learning Objectives
Objectives
After studying this chapter, you should be able
to:
Summarize the planning process and describe
organizational goals.
Discuss the components of strategy and types of
strategic alternatives.
Describe how to use SWOT analysis in formulating
strategy.
Identify and describe various alternative approaches
to business-level strategy formulation.

35
Learning
Learning Objectives
Objectives (contd)
(contd)
Identify and describe various alternative approaches
to corporate-level strategy formulation.
Discuss how tactical plans are developed and
executed.
Describe the basic types of operational plans used by
organizations.

36
Figure
Figure 3.1
3.1
Decision
Decision Making
Making and
and the
the Planning
Planning Process
Process

37
Organizational
Organizational Goals
Goals
Purposes of Goals
Provide guidance and a unified direction for people in
the organization.
Have a strong affect 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.
38
Organizations
Organizations Have
Have aa Purpose
Purpose
Thats
Thats Why
Why They
They Need
Need Goals
Goals
Identification
Identification
Adaptation
Adaptation
Organizational
Organizational
purpose
purposefor
for
goals
goals
Collaboration
Collaboration

Integration
Integration
Revitalization
Revitalization
39
Kinds
Kinds of
of Goals
Goals
By Level
Mission statement is a statement of an organizations
fundamental purpose.
Strategic goals are goals set by and for top
management of the organization that address broad,
general issues.
Tactical goals are set by and for middle managers;
their focus is on how to operationalize actions to
strategic goals.
Operational goals are set by and for lower-level
managers to address issues associated with tactical
goals.
310
Kinds
Kinds of
of Plans
Plans
Strategic Plans
A general plan outlining resource allocation, priorities,
and action steps to achieve strategic goals. The plans
are set by and for top management.
Tactical Plans
A plan aimed at achieving the
tactical goals set by and for
middle management.
Operational Plans
Plans that have a short-term focus.
These plans are set by and for lower-level managers.
311
The
The Nature
Nature of
of Strategic
Strategic Management
Management
Strategy
A comprehensive plan for accomplishing an
organizations goals.
Strategic Management
A comprehensive and ongoing management process
aimed at formulating and implementing effective
strategies. A way of approaching business
opportunities and challenges.
Effective Strategies
Strategies that promote a superior alignment between
the organization and its environment and the
achievement of its goals.
312
The
The Components
Components of
of Strategy
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
across the areas in
which it competes.
313
Types
Types of
of Strategic
Strategic Alternatives
Alternatives
Business-level Strategy
The set of strategic alternatives that an organization
chooses from as it conducts business in a particular
industry or a particular market.
Corporate-level Strategy
The set of strategic alternatives that an
organization chooses from as it manages
its operations simultaneously
across several industries
and several markets.

314
Types
Types of
of Strategic
Strategic Alternatives
Alternatives (contd)
(contd)
Strategy Formulation
The set of processes involved in creating or
determining the organizations strategies; it focuses on
the content of strategies.
Strategy Implementation
The methods by which strategies are operationalized
or executed within the organization;
it focuses on the processes
through which strategies
are achieved.

315
Figure
Figure3.2
3.2
SWOT
SWOTAnalysis
Analysis

316
Using
Using SWOT
SWOT Analysis
Analysis to
to
Formulate
Formulate Strategy
Strategy
Evaluating Organizational Strengths
Organizational strengths
Skills and abilities enabling an organization to conceive of
and implement strategies.
Distinctive competencies
Strengths possessed by a small number of competitors
Useful for competitive advantage and superior performance.
Sustained competitive advantage

Occurs when a distinctive competence cannot be easily
duplicated and is what remains after all attempts at strategic
imitations have ceased.

317
Using
Using SWOT
SWOT Analysis
Analysis to
to Formulate
Formulate
Strategy
Strategy (contd)
(contd)
Evaluating Organizational Weaknesses
Organizational weaknesses are skills and capabilities
that prevent an organization to choose and implement
strategies that support its mission.
Weaknesses can be overcome by:
making investments to obtain the strengths needed.
modifying the organizations mission so it can be
accomplished with the current workforce.

318
Using
Using SWOT
SWOT Analysis
Analysis to
to Formulate
Formulate
Strategy
Strategy (contd)
(contd)
Evaluating Organizational Weaknesses (contd)
Competitive disadvantage is a situation in which an
organization fails to implement strategies being
implemented by competitors.

319
Using
Using SWOT
SWOT Analysis
Analysis to
to Formulate
Formulate
Strategy
Strategy (contd)
(contd)
Evaluating an Organizations
Opportunities and Threats
Organizational opportunities
are areas in the organizations
environment that may generate
high performance.
Organizational threats are areas
in the organizations environment that make
it difficult for the organization
to achieve high performance.

320
Porters
Porters Generic
Generic Strategies
Strategies
Differentiation strategy
An organization seeks to distinguish itself from
competitors through the quality of its products or
services.
Overall cost leadership strategy

An organization attempts to gain competitive
advantage by reducing its overall costs below the
costs of competing firms.
Focus strategy
An organization concentrates on a specific regional
market, product line, or group of buyers.
321
Strategies
Strategies Based
Based on
on the
the Product
Product Life
Life Cycle
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 firms 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.

322
Figure
Figure 3.3
3.3
Strategies
Strategies Based
Based on
on Product
Product Life
Life Cycle
Cycle

323
Formulating
Formulating Corporate-Level
Corporate-Level Strategies
Strategies
Strategic Business Units
Each business or group of businesses within an
organization engaged in serving the same markets,
customers, or products.
Diversification
The number of businesses an organization is engaged
in and the extent to which these businesses are
related to one another.
Single Product Strategy

A strategy in which an organization manufactures one
product or service and sells it in a single geographic
market.
324
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


325
Related
Diversification (contd)
(contd)
Advantages of Related Diversification
Reduces organizations dependence on any one of its
business activities and thus reduces economic risk.
Reduces overhead costs associated with managing
any one business through economies of scale and
economies of scope.
Allows an organization to exploit its strengths and
capabilities in more than one business.
Synergy exists among a set of businesses when the
businesses value together is greater than their
economic value separately.
326
Unrelated
Diversification
A strategy in which an 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.

327
Unrelated
(contd)
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.

328
Major
Major Tools
Tools for
for Managing
Diversification
Portfolio management techniques
Methods that diversified organizations use to make
decisions about what businesses to engage in and
how to manage these multiple businesses to
maximize corporate performance.
Two important portfolio management techniques

The BCG (Boston Consulting Group) Matrix
The GE (General Electric) Business Screen

329
Managing
(contd)
BCG Matrix
A method of evaluating businesses relative to the
growth rate of their market and the organizations
share of the market.
The matrix classifies the types of businesses that a
diversified organization can engage as:
Dogs have small market shares and no growth prospects.
Cash cows have large shares of mature markets.
Question marks have small market shares in quickly growing
markets.
Stars have large shares of rapidly growing markets.

330
Figure
Figure 3.4
3.4
The
The BCG
BCG Matrix
Matrix
Source: Perspectives, No. 66, The Product Portfolio, Adapted by permission from
Copyright 2005
by Houghton
Mifflin
The Boston Consulting
Group, Inc., 1970.
331
Managing
(contd)
GE Business Screen
A method of evaluating business in a diversified
portfolio along two dimensions, each of which contains
multiple factors:
Industry attractiveness.
Competitive position (strength) of each firm in the portfolio.
In general, the more attractive the industry and the

more competitive a business is, the more resources
an organization should invest in that business.

332
Figure
Figure 3.5
3.5
The
The GE
GE Business
Business Screen
Screen

Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel.
Copyright 1978 West Publishing. Used by permission of South-Western College Publishing, a division of
International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.
333
Table
Table 3.1
3.1
Types
Types of
of Operational
Planning
Kinds
Kinds of
of Operational
Planning
Standing
StandingPlans:
Plans:
Single-Use
Single-UsePlans:
Plans:
1.
1. Policies
Policies
2.
2. SOPs
SOPs
1.
1. Programs
Programs
2.
2. Projects
Projects
3.
3. Rules
Rulesand
andRegulations
Regulations
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright 1991 by Houghton Mifflin Company.
Copyright
2005 by Houghton
Mifflin
Used with permission.
334
Figure
Figure 3.6
3.6
Contingency
Contingency Planning
Planning
Contingency is the determination of alternative courses
of action to be taken if an intended plan is unexpectedly
disrupted or rendered inappropriate. These plans help
managers to cope with uncertainty and change.

335

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Chapter Three

Planning and Strategic

The Nature of Strategic Management

Using SWOT Analysis to Formulate Strategy

Formulating Corporate-Level Strategies

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Sustained competitive advantage

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Overall cost leadership strategy

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Single Product Strategy

Bases of Relatedness in Implementing

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Two important portfolio management techniques

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

In general, the more attractive the industry and the

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

Copyright 2005 by Houghton Mifflin

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