Planning and Strategic Management

Chapter 6

What Is Planning?
Planning is often called the primary management function because it
establishes the basis for all the other things managers do
Its concerned with ends (what is to be done) as well as with means (how its
to be done)
Planning Defined
The formal process of choosing an organizational mission and overall goals
for both the short run and long run; devising divisional, departmental and
even individual goals based on the organizational goals; formulating
strategies and tactics to achieve those goals; and allocating resources to
achieve the various goals, strategies and tactics.
The process a manager uses to establish objectives and select suitable
courses of action BEFORE taking action.
Planning and Strategy
Planning: Identifying and selecting appropriate goals and courses of action
for an organization
Strategy: A cluster of decisions about what goals to pursue, what actions to
take, and how to use resources to achieve goals
Mission statement: Broad declaration of an organizations purpose that
identifies the organizations products and customers and distinguishes the
organization from its competitors
Time Horizons of Plans
Time horizon: Intended duration of a plan
Long-term plans are usually 5 years or more
Intermediate-term plans are 1 to 5 years
Short-term plans are less than 1 year
Corporate- or business-level plan that extends over several years is typically
treated as a rolling plan
Rolling plan is updated and amended every year to take account of changing
conditions in the external environment
Types of Plans
Standing plans
Used in situations when programmed decision making is appropriate
When the same situations occur repeatedly, managers develop policies,
rules, and standard operating procedures (SOPs)
Types of Plans
Single-use plans
Developed to handle nonprogrammed decision making in unusual or one-ofa-kind situations

Programs: Integrated sets of plans for achieving certain goals

Projects: Specific action plans created to complete various aspects of a
program
Strategic leadership: Ability of the CEO and top managers to convey a compelling
vision of what they want the organization to achieve to their subordinates
SWOT analysis
Planning exercise in which managers identify:
Organizational strengths and weaknesses
Environmental opportunities and threats
The Five Forces Model
Helps managers focus on the five most important competitive forces, or potential
threats, in the external environment
1. Level of rivalry among organizations in an industry
2. Potential for entry into an industry
3. Power of large suppliers
4. Power of large customers
5. Threat of substitute products
Formulating Business-Level Strategies
Low-cost strategy: Driving the organizations total costs down below the total
costs of rivals
Differentiation strategy: Distinguishing an organizations products from the
competitors products on dimensions such as product design, quality, or after-sales
service
Stuck in the middle
Attempting to simultaneously pursue both a low cost strategy and a differentiation
strategy
Difficult to achieve low cost with the added costs of differentiation
Focused low-cost: Serving only one segment of the overall market and trying to be
the lowest cost organization serving that segment
Focused differentiation: Serving only one segment of the overall market and
trying to be the most differentiated organization serving that segment
Concentration on a single industry: Reinvesting a companys profits to
strengthen its competitive position in its current industry
Vertical integration: Expanding a companys operations either backward into an
industry that produces inputs for its products or forward into an industry that uses,
distributes, or sells its products

Diversification
Diversification: Expanding a companys business operations into a new
industry in order to produce new kinds of valuable goods or services
Related diversification: Entering a new business or industry to create a
competitive advantage in one or more of an organizations existing divisions
or businesses
Unrelated diversification: Entering a new industry or buying a company in
a new industry that is not related in any way to an organizations current
businesses or industries

Four Ways to Create a Competitive Advantage

1. Achieve superior efficiency
2. Achieve superior quality
3. Achieve superior innovation, speed, and flexibility
4. Attain superior responsiveness to customers
The outcome is a competitive advantage resulting from
Lower costs
Differentiation
The Value Chain and Value Chain Management
A Value Chain is the coordinated series or sequence of functional activities
necessary to transform inputs into the finished goods or services customers value
and want to buy.
Each functional activity along the chain adds value to the product or service
when it lowers cost or gives the product differentiated qualities that increase
the price a company can charge for it.
Value Chain Management is the development of a set of functional-level
strategies that support a companies business-level strategy and strengthen an
organizations competitive advantage.
The better the fit between functional and business-level strategies, the greater will
be the organizations competitive advantage, and the better able the organization is
to achieve its mission and goal of maximizing the amount of value it gives
customers.