Chapter Three

Planning and Strategic

Management

Copyright © 2005 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook.
 Chapter 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 Organization’s Strengths
– Evaluating an Organization’s Weaknesses
– Evaluating an Organization’s Opportunities and
Threats

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 Chapter Outline (cont’d)
• Formulating Business-Level Strategies
– Porter’s 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

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 Chapter Outline (cont’d)
• Operational Planning
– Single-Use Plans
– Standing Plans
– Contingency Planning and Crisis Management

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 Learning 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.

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 Learning Objectives (cont’d)
– 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.

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 Figure 3.1
Decision Making and the Planning Process

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 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.

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 Organizations Have a Purpose—
That’s Why They Need Goals

Identification

Adaptation Integration
Organizational
purpose for
goals

Collaboration Revitalization

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 Kinds of Goals
• By Level
– Mission statement is a statement of an organization’s
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.

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 Kinds of 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.

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 The Nature of Strategic Management
• Strategy
– A comprehensive plan for accomplishing an
organization’s 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.

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 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.

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 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.

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 Types of Strategic Alternatives (cont’d)
• Strategy Formulation
– The set of processes involved in creating or
determining the organization’s 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.

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 Figure 3.2
SWOT
Analysis

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 Using SWOT Analysis to
Formulate 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.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)

• 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 organization’s mission so it can be
accomplished with the current workforce.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)

• Evaluating Organizational Weaknesses (cont’d)

– Competitive disadvantage is a situation in which an
organization fails to implement strategies being
implemented by competitors.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)
• Evaluating an Organization’s
Opportunities and Threats
– Organizational opportunities
are areas in the organization’s
environment that may generate
high performance.

– Organizational threats are areas

in the organization’s environment that
make it difficult for the organization
to achieve high performance.

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 Porter’s 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.

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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 firm’s 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.

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 Figure 3.3
Strategies Based on Product Life Cycle

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 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.

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 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
Basis of Relatedness Examples

Similar technology Phillips, Boeing, Westinghouse, Compaq

Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble

Common name brand and reputation Disney, Universal

Common customers Merck, IBM, AMF-Head

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 Related Diversification (cont’d)
• Advantages of Related Diversification
– Reduces organization’s 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.

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 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.

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 Unrelated Diversification (cont’d)
• 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.

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 Major Tools 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

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 Managing Diversification (cont’d)
• BCG Matrix
– A method of evaluating businesses relative to the
growth rate of their market and the organization’s
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.

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 Figure 3.4
The BCG Matrix

Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from
The Boston Consulting Group, Inc., 1970.

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 Managing Diversification (cont’d)
• 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.

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 Figure 3.5
The GE Business 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.

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 Table 3.1
Types of Operational Planning

Kinds of Operational Planning

Standing Plans: Single-Use Plans:

2. Policies 2. Programs
3. SOPs 3. Projects
4. Rules and Regulations

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company.
Used with permission.

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 Figure 3.6
Contingency 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.

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