Essentials of Contemporary Management

Chapter

Planning, Strategy, and Change

Learning Objectives
After studying the chapter, you should be able to:
Describe the three steps of the planning process.
Explain the relationship between planning, strategy, and change.

Explain the role of planning in predicting the future and in changing the organization so it can meet future challenges.
Outline the main steps in SWOT analysis. Differentiate among corporate-, business-, functional-level strategies.
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Learning Objectives (contd)

Describe the vital role played by strategy implementation in determining managers ability to achieve an organizations mission and goals.

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The Planning Process

Planning
Identifying and selecting appropriate goals (goal making) and courses of action (strategy-making) for an organization.
The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals.

Strategy

The cluster of decisions and actions that managers take to help an organization reach its goals.
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The Planning Process

Mission
A broad declaration of an organizations purpose that identifies the organizations products and customers and distinguishes the organization from its competitors.

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Planning Process Stages

Determining the Organizations Mission and Goals
Defining the organizations overriding purpose and its goals.

Formulating strategy
Managers analyze current situation and develop the strategies needed to achieve the mission.

Implementing strategy
Managers must decide how to allocate resources between groups to ensure the strategy is achieved.
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Three Steps in Planning

Figure 6.1

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Levels of Planning
Corporate-Level Plan
Top managements decisions pertaining to the organizations mission, overall strategy, and structure. Provides a framework for all other planning.

Corporate-Level Strategy
A plan that indicates in which industries and national markets an organization intends to compete.

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Levels of Planning
Business-Level Plan:
Divisional managers decisions pertaining to divisions long-term goals overall strategy, and structure.
Identifies how the business will meet corporate goals.

Business-Level Strategy
A plan that indicates how a division intends to compete against its rivals in an industry.
Shows how the business will compete in market.

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Levels of Planning
Functional-Level Plan
Functional managers decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals.

Functional Strategy
A plan that indicates how a function intends to achieve its goals.

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Levels and Types of Planning

Figure 6.2

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Levels of Planning at General Electric

Figure 6.3

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Who Plans?
Corporate-Level Plans
Plans developed by top management who also are responsible for approving business- and functional-level plans for consistency with the corporate plan. Top managers should seek input on corporate level issues from all management levels.

Business-Level Plans
Plans developed by divisional managers who also review functional plans.

Both management levels should also seek information from other levels.

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Time Horizons of Plans

Time Horizon
The 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 and business-level goals and strategies require long- and intermediate-term plans. Functional plans focus on short-to intermediate-term plans. Most organizations have a rolling planning cycle to amend plans constantly.
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Types of Plans
Standing Plans
Used in programmed decision situations.
Policies are general guides to action. Rules are formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow.

Single-Use Plans
Developed for a one-time, nonprogrammed issue.
Programs: integrated plans achieving specific goals.
Project: specific action plans to complete programs.

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Why Planning Is Important

Planning ascertains where the organization is now and deciding where it will be in the future.
Participation: all managers are involved in setting future goals. Sense of direction and purpose: planning sets goals and strategies for all managers. Coordination: plans provide all parts of the firm with understanding about how their systems fit with the whole. Control: Plans specify who is responsible for the accomplishment of a particular goal.
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Qualities of Effective Plans (Henri Fayol)

Unity
Only one central plan is in effect at any given time.

Continuity
Planning is an ongoing broad-framework process involving all managerial levels.

Accuracy
Managers have incorporated all available information into creating the current plan.

Flexibility
Managers alter the plan as the situation changes.
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Determining the Organizations Mission and Goals

Defining the Business
Who are our customers?
What customer needs are being satisfied? How are we satisfying customer needs?

Establishing Major Goals

Provides the organization with a sense of direction. Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.
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Four Mission Statements

Figure 6.4

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Formulating Strategy
Strategic Formulation
Managers analyze the current situation to develop strategies for achieving the mission.

SWOT Analysis
A planning exercise in which managers identify organizational strengths and weaknesses,
Strengths (e.g., superior marketing skills)

Weaknesses (e.g., outdated production facilities)

and external opportunities and threats.

Opportunities (e.g., entry into new related markets).

Threats (increased competition).

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Planning and Strategy Formulation

Figure 6.5

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Formulating Corporate-Level Strategies

Concentration in Single Business Diversification International Expansion

Vertical Integration

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Formulating Corporate-Level Strategies

Concentration in Single Business
Can become a strong competitor, but can be risky.
Knowledge of current market can be a competitive advantage. Concentration creates a large degree of business risk if the single market in which the firm competes declines.

Concentration is a logical strategy if downsizing organization to increase performance by exiting under-performing businesses.

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Formulating Corporate-Level Strategies

Diversification
Related diversification into similar market areas to build upon existing competencies.
Synergy: two divisions working together perform better than the sum of their individual performances (2+2=5).

Unrelated diversification is entry into industries unrelated to current business.

Attempts to build a portfolio of unrelated firms to reduce risk of single industry failure. Unrelated firms can be more difficult to manage.

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Formulating Corporate-Level Strategies

International Expansion
Basic Question:
To what extent do we customize products and marketing for different national conditions?

Global strategy
Selling the same standardized product and using the same basic marketing approach in all countries.
Standardization provides for lower production cost.

Ignores national differences that local competitors can address to their advantage.

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Formulating Corporate-Level Strategies

International Expansion
Mulitdomestic Strategy
Customizing products and marketing strategies to specific national conditions.
Helps gain market entry and build local market share.

Raises production costs.

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Formulating Corporate-Level Strategies

Vertical Integration
A strategy that allows an organization to create value by producing its own inputs or distributing its own products.
Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers.

A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown.
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Stages in a Vertical Value Chain

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Porters Business-Level Strategies

Number of Market Segments Served Strategy
Low-cost Focused low-cost Differentiation Focused differentiation

Many

Few

Table 6.2

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Formulating Business-Level Strategies

Low-Cost Strategy
Driving the organizations total costs down below the total costs of rivals.
Manufacturing at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable.

Differentiation
Offering products different from those of competitors.
Differentiation must be valued by the customer in order for a producer to charge more for a product.
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Formulating Business-Level Strategies

Focused Low-Cost
Serving only one market segment and being the lowest-cost organization serving that segment.

Focused Differentiation
Serving only one market segment as the most differentiated organization serving that segment.

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Functional-level Strategies
A plan that indicates how an organizational function intends to achieve its goals.
Seeks to have each department add value to a good or service. Marketing, service, and production functions can all add value to a good or service through:
Lowering the costs of providing the value in products. Adding new value to the product by differentiating.

Functional strategies must fit with business level strategies.

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Goals for Successful Functional Strategies

1. Attain superior efficiency as a measure of outputs for a given unit of input. 2. Attain superior quality by producing reliable products that do their intended job. 3. Attain superior innovation developing new and novel features that can be added to the product or process. 4. Attain superior responsiveness to customers by acknowledging their needs and fulfilling them.
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Planning and Implementing Strategy

1. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation. 4. Allocate appropriate resources. 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.
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