Chapter 3

Planning and Strategic Management

 Learning Objectives

After studying this chapter, you should be able to:

1. Summarize the planning process and describe organizational
goals.
2. Discuss the components of strategy and the types of strategic
alternatives.
3. Describe how to use SWOT analysis in formulating strategy.
4. Identify and describe various alternative approaches to
business-level strategy formulation.
5. Identify and describe various alternative approaches to
corporate-level strategy formulation.
 Learning Objectives (contd)

6. Discuss how tactical plans are developed and

implemented.
7. Describe the basic types of operational plans used
by organizations.
 Chapter Outline

Planning and Organizational Goals

Organizational Goals
Kinds of Organizational 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
 Chapter Outline (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
 Chapter Outline (contd)

Operational Planning
Single-Use Plans
Standing Plans
Contingency Planning and Crisis Management
The Planning Process
 Organizational 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.
 Kinds of 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 necessary to
achieve strategic goals.
Operational goals are set by and for lower-level managers
to address issues associated with
tactical goals.
 Kinds of Plans

Strategic Plans
A general plan outlining resource allocation, priorities, and
action steps necessary to reach 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.
 The Nature of Strategic 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.
 The Components of 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.
 Types of Strategic 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.
 Types of Strategic Alternatives

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.
SWOT Analysis
 Using SWOT Analysis to
Formulate Strategy
Evaluating an Organizations 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.
Competitive advantage
The result from a firm exploiting its unique competencies

to attain above normal economic performance.

 Using SWOT Analysis to Formulate
Strategy (contd)
Evaluating an Organizations Weaknesses
Organizational weaknesses are skills and capabilities that
do not enable 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.

 Using SWOT Analysis to Formulate
Strategy (contd)
Evaluating Organizations Weaknesses
(contd)
Competitive disadvantage is a situation in which
an organization fails to implement strategies
being implemented by competitors.
 Using SWOT Analysis
to Formulate Strategy (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.
 Porters Generic 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.
 Strategies Based on
the Product Life 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.
The Product Life Cycle
 Formulating Corporate-Level
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.
 Related Diversification

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
Related Diversification
Similar technology
Common marketing and distribution skills
Common brand name and reputation
Common customers
 Related Diversification (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.
 Unrelated Diversification

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.
 Unrelated Diversification (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.
 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
 Managing Diversification (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.
The BCG Matrix
 Managing Diversification (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.
The GE Business Screen
 Types of Operational Plans
Single-use Plans Developed to carry out a course of action not
likely to be repeated in the future
Program Single-use plan for a large set of activities
Project Single-use plan of less scope and complexity than
a program

Standing Plans Developed for activities that recur regularly over

a period of time
Policy Standing plan specifying the organizations
general response to a designated problem or
situation
Standard operating Standing plan outlining steps to be followed in
procedure particular circumstances
Rules and regulations Standing plans describing exactly how specific
activities are to be carried out
 Contingency Planning
and Crisis Management
Contingency Planning
The determination of alternative courses of action to be
taken if an intended plan is unexpectedly disrupted or
rendered inappropriate in helping managers to cope with
uncertainty and change.
Crisis Management
The set of procedures the organization uses in the event
of a disaster or other unexpected calamity.
Contingency Planning