CH07: Managing: A Competency Based Approach, Hellriegel & Jackson

Formulating Plans and Strategies
MANAGING: A COMPETENCY
BASED APPROACH
11th Edition
Chapter 7—Formulating Plans and Strategies
Don Hellriegel
Susan E. Jackson
Prepared by
John W. Slocum, Jr.
Argie Butler
Chapter 7: PowerPoint 7.35 (Adapted from Table 7.4) Texas A&M University
 Learning Goals
1. Describe the importance and core components of

strategic and tactical planning
2. Discuss the effects of organizational diversification
strategies on planning
3. Describe the basic levels of strategy and planning
4. State the primary tasks of the strategic business-
level planning process
5. Explain the generic competitive strategies model
6. Explain the integrated strategy/model
Chapter 7: PowerPoint 7.1
Importance and Types of Planning:
Why Is Planning Important?
Discover new Anticipate and

opportunities avoid future
problems
Effective
planning
Comprehend helps to Develop
the uncertainties effective courses
and risks with of action (strategies
various options and tactics)
What Is Strategic Planning?
 The process of:

1. Diagnosing the organization’s external
and internal environments
2. Deciding on a vision and mission
3. Developing overall goals
4. Creating and selecting general strategies
to be pursued
5. Allocating resources to achieve
the organization’s goals
What is Strategic Planning?
 Contingency planning—preparation for unexpected,

major, and quick changes (positive or negative) in
the environment that will have a significant impact
on the organization and require immediate responses
1. Plan for 3 to 5 potentially critical and

unanticipated events
2. Supports orderly and speedy adaptation

Interrelated Core Components
in Strategic Planning
Vision and Mission
Resource Strategic Organizational

Allocation planning Goals
Strategies

 Vision: Expresses an organization’s

fundamental aspirations and purpose,
usually by appealing to its members’
hearts and minds
 eBay: To pioneer new communities

around the world built on commerce,
sustained by trust, and inspired by
opportunity
 Mission: The organization’s purpose or

reason for existing; often answers
questions such as:
1. What business are we in?
2. Who are we?
3. What are we about?
 eBay: To serve as the world’s online

marketplace for the sale and payment of
goods and services by a diverse community
of individuals and businesses
 Organizational goals: the results that the managers

and others have selected and are committed to
achieving for the long-term survival and growth of
the firm
• May be expressed qualitatively and quantitatively

• Qualitative: simplify the sales process within six
months
• Quantitative: reduce operating costs by $1 billion
within eighteen months

 Strategies: the major courses of action (choices) selected

and implemented to achieve one or more goals
The essence of most good strategies is the need to make many
choices that are all consistent—choices about production,
service, design, and so on. Companies cannot randomly
make a lot of choices that all turn out to be consistent. It’s
statistically impossible. That means companies need to grasp
at least a part of the whole. As we study the histories of
successful companies, we see that someone or some group
developed insight into how a number of choices fit together…
Michael Porter
Harvard Business School
 Resource allocation: assigning money, people,

facilities, and other resources among various
current and new business opportunities
 Key part: allocating money, through budgets,

for various purposes

What is Tactical Planning?
What to do Who will do it
Making
decisions
Normal regarding: How to do
time horizon of it
1 to 2 years,
often less

 Specific courses of  Implementing

action initiatives or
improving current
operations
 Integrated with  Focus on first-line

annual budgeting and middle-
managers

Diversification Strategies and
Planning: Diversification
 Diversification
The variety of goods and/or services produced by an
organization and the number of different markets it serves
 Snapshot
“We are always looking for companies, products, or emerging
technologies that will complement and strengthen our existing
businesses, lead us into new therapeutic areas to address unmet
medical needs, enhance our research and development
capabilities, and, ultimately, further our strategy for growth.
Each acquisition is different, and in each situation, we carefully
examine the best way to integrate that technology, product, or
organization into our family of companies.”
William C. Weldon
Chairman and CEO, Johnson & Johnson
1. What can we do 2. What strategic

better than other resources—human,
firms if we enter a financial, and others
new market? —do we need to
succeed in the
Questions in new market?
Considering
4. What can Diversification 3. Will we
we learn by simply be a player
diversifying, and in the new market
are we sufficiently or will we emerge
organized to learn a winner?
it?
Types of Diversification Strategies
 Single-business strategy: providing a limited number of

goods or services to one particular market
 Dominant-business strategy: serving various segments of
a market
 Related-business strategy: providing a variety of
complementary goods and/or services
 Unrelated-business strategy: providing diverse products
(goods and/or services) to many different types of
markets

Types of Diversification Strategies and Planning
High
Complexity of Strategic
General
Electric
Planning
Johnson
&
Johnson
MTV
Networks
Google
Low
Single- Dominant- Related- Unrelated-
business business business business
strategy strategy strategy strategy
Diversification Strategy
Chapter 7: PowerPoint 7.16 (Figure 7.2)
Strategy Levels and Planning:
Corporate-Level Strategy
Focuses on:
 the types of businesses the firm wants to be in,
 ways to acquire or divest businesses,
 allocation of resources among the businesses, and
 ways to develop learning and synergy among those
businesses
 Corporate-level Management
 Guides and reviews performance of strategic units
 Strategic business unit (SBU): a division or subsidiary
of a firm that provides a related set of products or
services and usually has its own mission and goals
Forward Backward
integration integration
Organic:
Conglomerate Expansion of Horizontal
diversification existing integration
businesses
Related
diversification

Corporate-Level Strategy
 Executive Compensation and Corporate Growth
 Salary, bonuses, stock options, etc.

 Stock option: a contractual right granted by a
company to the employee to purchase a
defined number of shares of the company’s
stock at a fixed price within a specified period
of time
 Much criticism in recent years over the design
and monitoring of executive compensation
programs

Business-Level Strategy
The resources allocated and actions taken to achieve

desired goals in serving a specific market with a
highly interrelated set of goods and/or services
 Plans and strategies developed for
1. maintaining or gaining a competitive edge in

serving its customers,
2. determining how each functional area can best
contribute to its overall effectiveness, and
3. allocating resources for expansion and among
its functions
Business-Level Planning
 Basic Questions
3. How will customers’ needs be

satisfied?
2. What customer needs will be satisfied?
1. Who will be served?

 The actions and resource commitments

established for operations, marketing,
human resources, finance, legal services,
accounting, and the organization’s other
functional areas
 Should support business-level strategies

and plans
HR
Chapter 7: PowerPoint 7.22 Finance Other
Examples of Issues in Developing

Human Resources Strategies
What type of How should the

reward system is performance of
needed? employees be
reviewed?
What approach How is affirmative

should be used to and fair treatment
recruit qualified ensured for women,
personnel? minorities, and the
disabled?
Chapter 7: PowerPoint 7.23 (Adapted from Table 7.2)
Examples of Issues in Developing

Finance Strategies
What is the desired What portion of

mixture of profits should be
borrowed funds reinvested and what
and equity funds? portion paid out as
dividends?
What criteria should What should be the
be used in allocating criteria for issuing
financial and human credit to customers?
resources to
projects?
Business-Level Strategic Planning
Tasks and Process
Task 2: Diagnose Task 1: Develop Task 3: Diagnose

Opportunities and Vision, Mission and Strengths and
Threats Goal Weaknesses
• Industry/market • Who are we? • Competitive position
competition • What do we want to • Human skills
• Political forces become? • Technological
• Stakeholders • What are our goals? capabilities
expectations • Financial resources
• Values, culture • Organization and
• Others management
Task 4: Develop
Evaluate against Strategies Evaluate against
Chapter 7: PowerPoint 7.25 (Adapted from Figure 7.5) (continued)

Business-Level Strategic Planning
Tasks and Process (cont’d)
Task 5: Develop Strategic Plan

• Selected strategy or strategies (includes
market segments and competitive methods)
• Required human skills and competencies
• Required technological capabilities
• Required financial resources
• Required organization and management
Task 6: Prepare Tactical Plans
Task 7: Control and Diagnose Results
Task 8: Continue Planning

Chapter 7: PowerPoint 7.26 (Adapated from Figure 7.5)
Core Competencies: the strengths that make
an organization distinctive and competitive by
providing goods or services that have unique

value to its customers
“If you look at most of the corporate tragedies in the last five years,
you’ll also discover that many of them were companies moving into
other businesses they really shouldn’t have moved into, that weren’t
close to their core business and competencies, including Enron,
Kmart, and Worldcom. If you’re having problems in your core
business and think you can move to another business, it’s not going to
work. You have to have strong assets you can build on. The farther
away people got from their core business and competencies, the lower
their rate of success.”
Ted Rouse
Global Business Practice
Bain and Company
Outsourcing Strategy: Contracting with other
organizations to perform a needed service and/or
manufacture needed parts or products that had

previously been provided within the firm
 Outsourcing Drivers
1. expense reduction (including fewer employees),
2. better production quality,
3. improved reporting uniformity and regulatory
compliance,
4. more effective use of expensive talent so that
they can spend more of their time on innovating,
expanding global capabilities, and
5. more effective business process management
Market
penetration
Product Organic
development growth
Market
development

Generic Competitive Strategies Model
Broad
Differentiation Cost Leadership
Strategic Target
Strategy Strategy
Focused Focused
Differentiation Cost Leadership
Strategy Strategy
Narrow
Uniqueness Low Cost (price)
Sources of Advantage
Chapter 7: PowerPoint 7.30 (Adapted from Figure 7.7)
 Snapshot
“The best strategy for a smaller

business is to divide demand into manageable
market niches. Small operations can then offer
specialized goods and services attractive to a
specific group of prospective buyers…Try to find
the right configuration of products, services,
quality and price that will ensure the least direct
competition.”
Ron Consolino
Management Counselor
Counselors to America’s Small Business
Integrated Strategy Model
Arenas
Where will the firm
be active?
Staging Economic Vehicles

What will be the firm’s Logic How will the firm
speed and sequence How will the firm get there?
of moves? obtain
Adapted from profits?
D.C. Hambrick
and J.W. Fredrickson. Differentiation
Are you sure you have a How will the firm
strategy: Reprinted in excel?
Academy of Management
Executive, 2005, 15(4), 54.
Criteria for Evaluating the Quality of a Firm’s
Integrated Strategy
 Does the strategy fit with what’s going on in the environment?

1. Is there healthy profit potential where the firm’s
headed?
2. Does the strategy align with the key success factors of
the chosen environment?
 Does the strategy exploit the firm’s key resources?
1. With the firm’s particular mix of resources, does
this strategy give it a good head start on
competitors?
2. Can this strategy be pursued more economically
than competitors?
Integrated Strategy (cont’d)
 Will the differentiators be sustainable?

1. Will competitors have difficulty matching the firm?
2. If not, does the strategy call for innovation and
opportunity creation?
 Are the elements of the strategy internally consistent?

1. Have the leaders made choices of arenas, vehicles,
differentiators, staging, and economic logic?
2. Do they all fit and mutually reinforce each other?

 Are there enough resources to pursue this strategy?

1. Does the firm have the money, managerial competencies,
and other capabilities to implement the strategy?
2. Are the leaders sure that they are not spreading the
firm’s resources too thinly, only to be left with a
collection of positions?

 Is the strategy implementable?

1. Will the key stakeholders allow the firm to pursue this
strategy?
2. Can the organization make it through the transition?
3. Is management team able and willing to lead the
required changes?
Adapted from D.C. Hambrick and J.W. Fredrickson. Are you sure you
have a strategy? Reprinted in Academy of Management Executive, 2005,
19(4), 61.

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Formulating Plans and Strategies

1. Describe the importance and core components of

Discover new Anticipate and

 The process of:

 Contingency planning—preparation for unexpected,

1. Plan for 3 to 5 potentially critical and

Chapter 7: PowerPoint 7.4

Vision and Mission

Resource Strategic Organizational

Chapter 7: PowerPoint 7.5

 Vision: Expresses an organization’s

 eBay: To pioneer new communities

 Mission: The organization’s purpose or

 eBay: To serve as the world’s online

 Organizational goals: the results that the managers

• May be expressed qualitatively and quantitatively

Chapter 7: PowerPoint 7.8

 Strategies: the major courses of action (choices) selected

 Resource allocation: assigning money, people,

 Key part: allocating money, through budgets,

Chapter 7: PowerPoint 7.10

What to do Who will do it

Chapter 7: PowerPoint 7.11

 Specific courses of  Implementing

 Integrated with  Focus on first-line

Chapter 7: PowerPoint 7.12

1. What can we do 2. What strategic

 Single-business strategy: providing a limited number of

Chapter 7: PowerPoint 7.15

Chapter 7: PowerPoint 7.18 (Figure 7.4)

 Executive Compensation and Corporate Growth

 Salary, bonuses, stock options, etc.

Chapter 7: PowerPoint 7.19

The resources allocated and actions taken to achieve

 Plans and strategies developed for

1. maintaining or gaining a competitive edge in

3. How will customers’ needs be

2. What customer needs will be satisfied?

1. Who will be served?

Chapter 7: PowerPoint 7.21

 The actions and resource commitments

 Should support business-level strategies

Examples of Issues in Developing

What type of How should the

What approach How is affirmative

Examples of Issues in Developing

What is the desired What portion of

Task 2: Diagnose Task 1: Develop Task 3: Diagnose

Chapter 7: PowerPoint 7.25 (Adapted from Figure 7.5) (continued)

Task 5: Develop Strategic Plan

Task 6: Prepare Tactical Plans

Task 7: Control and Diagnose Results

Task 8: Continue Planning

providing goods or services that have unique

manufacture needed parts or products that had

Chapter 7: PowerPoint 7.29 (Figure 7.6)

“The best strategy for a smaller

Staging Economic Vehicles

 Does the strategy fit with what’s going on in the environment?

Integrated Strategy (cont’d)

 Will the differentiators be sustainable?

 Are the elements of the strategy internally consistent?