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Study Guide to Go

Chapter 5: Planning and Strategy

Chapter Outlines Coping with Uncertainty Organizational Responses to Uncertainty Balancing Planned Action and Spontaneity in the Twenty-First Century The Essentials of Planning Organizational Mission Types of Planning Objectives Priorities The Planning/Control Cycle Thinking Strategically (Including E-Business Strategies) Synergy Porters Generic Competitive Strategies E-Business Strategies for the Internet The Strategic Management Process Formulation of a Grand Strategy Formulation of Strategic Plans Implementation of Strategic Plans Strategic Control Corrective Action Based on Evaluation and Feedback


planning coping with uncertainty by formulating courses of action to achieve specified results. plan an objective plus an action statement. strategic planning determining how to pursue long-term goals with available resources. intermediate planning determining subunits contributions using

allocated resources. operational planning determining how to accomplish specific tasks with available resources. planning horizon the elapsed time between planning and execution. objective commitment to achieve a measurable result within a specified period. management by objectives (MBO) comprehensive management system based on measurable and participatively set objectives. priorities ranking goals, objectives, or activities in order of importance. 80/20 principle a minority of causes, inputs, or effort tends to produce a majority of results, outputs, or rewards. synergy the concept that the whole is greater than the sum of its parts. differentiation buyer perceives unique and superior value in a product. strategic management seeking a competitively superior organization-environment fit. grand strategy how the organizations mission will be accomplished. situational analysis finding the organizations niche by performing a SWOT analysis. capability profile identifying the organizations strengths and weaknesses. Learning Objective Summary
Define the term planning, and identify four organizational responses to uncertainty. Planning is the process of coping with uncertainty by formulating future courses of action to achieve specified results. To cope with environmental uncertainty, organizations can respond as: - Defenders (do one thing and do it well) - Prospectors (lead the pack by being an aggressive innovator) - Analyzers (follow a me-too strategy of imitating market leaders)

- Reactors (wait for trouble before taking corrective steps)

Distinguish the three types of planning, write good objectives, and explain the 80/20 principle.
Strategic, intermediate, and operational plans are formulated by top-, middle-, and lower-level management, respectively. Objectives have been called the single most important feature of the planning process. Well-written objectives spell out in measurable terms what should be accomplished and when. Good objectives help managers by serving as targets, acting as measuring sticks, encouraging commitment, and strengthening motivation. Objective setting begins at the top of the organization and filters down, thus forming a means-ends chain. Priorities affect resource allocation by assigning relative importance to objectives. The 80/20 principle helps managers focus on the few things that have the greatest impact in terms of results and problems. Plans are formulated and executed as part of a more encompassing planning/control cycle.

Explain the concept of synergy, describe Porters model of competitive strategies, and identify at least three Internet business models.

Synergy has been called the 1 + 1 = 3 effect because it focuses on situations where the whole is greater than the sum of its parts. Managers are challenged to achieve four types of synergy: - Market synergy - Cost synergy - Technological synergy - Management synergy Porters model helps managers create a profitable organizationenvironment fit. According to Porters generic competitive strategies model, four strategies are: - Cost leadership - Differentiation - Cost focus - Focused differentiation Seven basic Internet business models are: - Commission-based - Advertising-based - Mark-up based - Production-based - Referral-based - Subscription-based - Fee-for-service-based There is no one-size-fits-all Internet strategy. E-businesses need to build customer loyalty and sticky Web sites with a trusted brand name backed by an appealing, responsive, and up-to-date Web site.

Identify and describe the four steps in the strategic management process, and explain the nature and purpose of a SWOT analysis.
The strategic management process consists of four major steps: - Formulation of grand strategy - Formulation of strategic plans - Implementation of strategic plans - Strategic control Corrective action that is based on the evaluation of progress and feedback helps keep the strategic management process on track. Strategists formulate the organizations grand strategy after conducting a SWOT analysis. The organizations key capabilities and appropriate niche in the marketplace become apparent when the organizations strengths (S) and weaknesses (W) are cross-referenced with environmental opportunities (O) and threats (T).

Test Preppers
Test Prepper 5.1

True or False? _____ 1. Planning is the process of avoiding uncertainty. _____ 2. Planning is the primary management function because it affects all other management functions such as organizing. _____ 3. As long as a defenders primary technology remains competitive, it can be successful. _____ 4. Analyzers represent a me too response to environmental uncertainty. Multiple Choice _____ 5. The process of coping with uncertainty by formulating future courses of action to achieve specified results refers to a. strategy. b. planning. c. pareto analysis. d. decision making. e. controlling. _____ 6. Planning a. deals with what, why, and how much. b. eliminates uncertainty.

c. is called the primary management function. d. helps managers avoid change. e. makes budgets obsolete. _____ 7. A good example of a(n) _____ is motorcycle maker Harley-Davidson because it successfully produces and markets a few products in a narrowly defined market. a. reactor b. prospector c. analyzer d. opportunist e. defender _____ 8. Which of these waits for adversity before taking corrective steps? a. Reactors b. Analyzers c. Creators d. Prospectors e. Defenders

Test Prepper 5.2 True or False? _____ 1. Well-written mission statements can generate enthusiasm and a can-do attitude. _____ 2. The planning horizon for operational planning is shorter than that for strategic planning. _____ 3. Objectives can serve as performance targets. _____ 4. A means-ends chain is created by the downward flow of objectives. _____ 5. Managers can use the 50/50 principle to establish priorities. _____ 6. The initial planning/control cycle begins when top management establishes strategic plans. Multiple Choice _____ 7. A well-written mission statement should do all of the following except a. define the organization for key stakeholders. b. create an inspiring vision of what the organization can be and do. c. recognize who is responsible for the vision. d. state a common goal and foster a sense of togetherness. e. establish key priorities. _____ 8. The process of determining how to pursue the organizations longterm goals with the resources expected to be available refers to _____ planning. a. intermediate

b. operational c. budgetary d. strategic e. contingency _____ 9. Objectives are both targets and a. barriers. b. measuring sticks. c. threats. d. priorities. e. flow charts. _____ 10. _____ is a term that best describes priority C objectives. a. Cant do b. Will do c. Must do d. Should do e. Nice to do

Test Prepper 5.3 True or False? _____ 1. Synergy has been called the 2 + 1 = 3 effect. _____ 2. Market synergy occurs when a gas station sells food items and lottery tickets. _____ 3. Wal-Mart is a prime example of Porters cost leadership strategy. _____ 4. Three types of Internet business models include advertising-based, markup-based, and referral-based. Multiple Choice _____ 5. When a lumber mill profitably recycles its scrap wood and sawdust, it is taking advantage of what type of synergy? a. Resource b. Material c. Technological d. Market e. Cost _____ 6. _____ are the two key variables in Porters generic competitive strategies model. a. Resources and markets b. Primary markets and secondary markets c. Time and cost d. Cost and volume

e. Competitive advantage and competitive scope _____ 7. When an upscale bakery competes on the basis of the high quality of its ingredients, it is relying on which of Porters generic strategies? a. Market segmentation b. Economies of scale c. Cost leadership d. Differentiation e. Cost focus _____ 8. All of the following are basic Internet business models except a. commission-based businesses. b. fee-for-service-based businesses. c. mark-up-based businesses. d. advertising-based businesses. e. word-of-mouth-based businesses. _____ 9. _____ means that the Web site draws the same customer back again and again. a. Hits b. Clicks c. Stickiness d. Glue e. Cannibalism

Test Prepper 5.4

True or False? _____ 1. Formulation of a grand strategy, formulation of strategic plans, implementation of strategic plans, and strategic control are the four major steps in the strategic management process. _____ 2. The O in a SWOT analysis stands for outlook. _____ 3. Strategic planning is a top-down process, as opposed to a bottom-up process. _____ 4. Strategic control tends to stifle creativity, which causes poor results. Multiple Choice _____ 5. The first step of the strategic management process is a. a clear code of ethics. b. the formulation of strategic plans. c. a statement of corporate values. d. a staffing strategy. e. formulation of a grand strategy. _____ 6. In a SWOT analysis, the W stands for

a. weaknesses. b. workers. c. willingness. d. workability. e. window of opportunity. _____ 7. _____ is the process of identifying an organizations strengths and weaknesses. a. Capability profile b. Scenario analysis c. Trend analysis d. Reengineering process e. Forecast _____ 8. Research shows that middle managers resist or derail strategies for what reason? a. To protect co-workers b. Shortsightedness c. A lack of trust in top management d. To protect their self-interests e. An inability to think strategically _____ 9. Researchers found what relationship between strategic control and creativity? a. No relationship at all b. No tradeoff c. The greater the control, the less the creativity d. Serious damage to top-management creativity e. Direct conflict at all levels

Test 2.1 1. F 2.2 1. T 2.3 1. F 2.4 1. T

Prepper Answer Key 2. T 2. T 2. T 2. F 3. T 3. T 3. T 3. T 4. T 4. T 4. T 4. F 5. b 5. F 5. e 5. e 6. c 6. T 6. e 6. a 7. e 7. c 7. d 7. a 8. e 8. d 9. c 9. b 8. a