CHAPTER - 10

PLANNING &
STRATEGIC
MANAGEMENT

Planning
The process of establishing goals & a suitable

course of action for achieving those goals.

It is concerned with both ends (whats to be
done) & means (how its to be done).
Goal The purpose that an organization
strives to achieve; desired outcomes
Plan Some program or method for
achieving goals.
Goals must be specific, measurable with
realistic achievable deadlines.

Purposes of planning
1) Provides direction
2) Reduces uncertainty
3) Minimizes waste & redundancy
4) Establish the goals/standards used in

controlling.

Importance of goals
1) Goals provide a sense of direction.
2) Goals focus our efforts
3) Goals guide our plans & decisions
4) Goals help us evaluate our progress

The Importance of Planning

at organizations
Planning is the process of setting goals &

choosing the means to achieve those goals.

Without planning; Organizing, Leading &
Controlling will not be effective.

The Hierarchy of
Organizational Plans
Strategic Plans Plans designed by high-

ranking managers to meet an organizations

broad goals, includes formulation of goals.
Operational Plans contain details for
carrying out, or implementing, those
strategic plans in day-to-day activities.
Strategic Plans deal with relationships
between people at an organization & people
acting at other organizations. Operational
Plans deal with people within one
organization.

h
Mission statement A broad goal based
on managers assumptions about the
organizations purpose, competencies, &
place in the world.

The Hierarchy of Plans

Created by:
Founder, Board of
Directors, or Top
managers

Top & Middle

Managers

Middle & FirstLine Managers

How Strategic & Operational

Plans Differ
1) Time Horizons
2) Scope
3) Degree of Detail

The Evolution of the Concept

of Strategy
Strategy The broad program for defining

& achieving an organizations objectives;

the organizations response to its
environment over time.
Strategy as the Grand Plan The
concept of strategy is ancient. The word
itself comes from the Greek Strategeia,
which means the art or science of being a
General.

The Rise of Strategic

Management
Strategic Management The

determination of the basic long-term goals &

objectives of an enterprise, & the adoption of
courses of action & the allocation of resources
necessary for carrying out these goals.
Chandler stressed 3 key elements:
Courses of action for attaining objectives
The process of seeking key ideas.
How strategy is formulated, not just what
that strategy turns out to be.

The Strategic Management

Approach
Hofer & Schendel focused on key aspects
of strategic management:
Goal Setting
Strategy Formulation
Administration
Strategic Control

The Strategic Management

Process
Strategy Planning Includes Goal Setting

& Strategy Formulation.

Strategy Implementation Includes
Administration & Strategic Control.

Strategic Management
Process
Strategic
Planning

Strategy
Implementation

Levels of Strategy: Some Key

Distinctions
1) Corporate Level Strategy
2) Business Unit Strategy
3) Functional Level Strategy

Levels of Organizational Strategy

Hierarchy of Strategic &

Operational Plans at a MultiBusiness Organization

Corporate Strategy
Strategy formulated by top management to

oversee the interests & operations made up

of more than one line of businesses.
It is an organizational strategy that
determines what businesses a company is in,
should be in, or wants to be in, & what it
wants to do with those businesses.
2 types of Growth strategy in Corporate
strategy:
1) Concentration
2) Diversification

Concentration: Strategy in which

organization concentrates on its primary line

of business & grows by increasing the no. of
products offered or markets served in this
primary business.
Diversification: Strategy in which
organization moves into new products or
markets in new businesses
2 types of Diversification strategies:
1) Related Diversification
2) Unrelated Diversification

Related Diversification: Strategy in which

organization moves into new products or

markets in new businesses but within the same
industry in which the company operates.
2 types of Related Diversification:
1)Vertical Integration
2)Horizontal Integration
Vertical Integration: Vertical Integration may
be:
1)Backward Integration
2)Forward Integration

 Backward Integration: In this the

organization attempts to gain control of

its inputs by becoming its own supplier.
Forward Integration: In this the
organization gains control of its output.
Horizontal Integration: In this the
company grows by combining with other
organizations in the same industry i.e.
its competitors.

Unrelated Diversification: Strategy in

which organization moves into new

products or markets in new businesses in
new industry.

Business Unit Strategy

Strategy formulated to meet the goals of a particular

business.
It is an organizational strategy focused on how the
organization will compete in each of its businesses &
how it can gain competitive advantage in each of its
businesses.
Competitive advantage What sets an
organization apart, i.e., its distinctive edge which can
come from its core competencies.
Core Competencies: Doing something that others
cannot do or doing it better than others. It can also
mean having something (resources) that its
competitors do not have.

4 types of Business strategy:

1)Cost Leadership Strategy
2)Differentiation Strategy
3)Focus Strategy
4)Stuck-in-the-middle Strategy

Business Unit Strategy

1) Cost Leadership Strategy: A business or

Competitive strategy in which the organization

competes on the basis of having the lowest costs in
the industry.
2) Differentiation Strategy: A business or
Competitive strategy in which a company offers
unique products that are widely valued by the
customers.
Sources of differentiation may be high quality,
extraordinary service, innovative design,
technology, positive brand image.
Differentiation must justify the price premium that
exceeds the cost of differentiation.

3) Focus Strategy: A business or

Competitive strategy in which a company

pursues a cost or differentiation
advantage in a narrow segment or niche.
4) Stuck in the middle Strategy: A
situation in which an organization hasnt
been able to develop either a low cost or
a differentiation competitive advantage

Functional Level Strategy

Strategy formulated by a specific
functional area in an effort to carry out
business unit strategy.

The Corporate Portfolio

Approach: BCG Matrix
In this approach, top management evaluates

each of the corporations various business units

with respect to the marketplace & the
corporations internal makeup.
When all business units have been evaluated, an
appropriate strategic role is developed for each
unit with the goal of improving the overall
performance of the organization.
One of the best-known examples of the
corporate portfolio approach is the portfolio
framework advocated by the Boston Consulting
Group also known as the BCG matrix.

It focuses on 3 aspects of each particular

business unit: its sales, the growth of its

market, & whether it absorbs or produces
cash in its operation.
Its goal is to develop a balance among
business units that use up cash & those
that supply cash.
In BCG matrix business units are plotted
according to their market growth rate &
their relative market share.

The BCG Matrix

Question Mark: High market growth rate &

low market share.

Star: High market growth rate & high market

share.
Cash Cow: Low market growth rate & high

market share.
Dog: Low market growth rate & low market

share.

The BCG Matrix

Five Forces Corporate

Strategy

Also known as Porters Five force model help identify

the sources of competition in an industry.

In Porters view, an organizations ability to compete
in a given market is determined by that
organizations technical & economic resources, as
well as by 5 environmental forces, each of which
threatens the organizations venture into a new
market.
Through industry analysis, managers can create &
sustain a competitive advantage that will give a
company above-average profitability.
Thus these 5 forces determine an industrys
attractiveness & Profitability.

Porters 5 - Forces in the Industry Analysis

Porters 5 Force Model

1) Threat of New Entrants
2) Bargaining Power of Buyers (customers)
3) Bargaining power of suppliers
4) Threat of substitute products
5) Rivalry among competitors

Enterprise Strategy (E Strategy)

A statement of values & principles that
explains why an organization does what it
does.