Fundamentals of

MANAGEMENT
Core Concepts & Applications

Griffin
Third Edition

Chapter 3

Planning and Strategic Management

Copyright 2003 Houghton Mifflin Company. All rights reserved. PowerPoint Presentation by Charlie Cook

Chapter Outline
Planning and Organizational Goals
Purposes of Goals Kinds of Goals

The Nature of Strategic Management

The Components of Strategy Types of Strategic Alternatives

Using SWOT Analysis to Formulate Strategy

Evaluating an Organizations Strengths Evaluating an Organizations Weaknesses Evaluating an Organizations Opportunities and Threats
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Chapter Outline (contd)

Formulating Business-Level Strategies
Porters 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 (contd)

Operational Planning
Single-Use Plans Standing Plans Contingency Plans

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Learning Objectives
After studying this chapter, you should be able to:
Summarize 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 (contd)

Identify and describe various alternative approaches to corporate-level strategy formulation and describe how corporate-level strategies are implemented. Discuss how tactical plans are developed and executed. Describe the basic types of operational plans used by organizations.

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Decision Making and the Planning Process

The Planning Process
The Environmental Context
The organizations mission Purpose Premises Values Directions

Strategic goals

Strategic plans

Tactical goals

Tactical plans

Operational goals

Operational plans

Figure 3.1
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Organizational Goals
Purposes of Goals
Provide guidance and a unified direction for people in the organization. Have a strong effect 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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Kinds of Goals
By Level
Mission statement is a statement of an organizations 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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Different Goal Setting Processes in Organizations

Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright 1992 by Houghton Mifflin Company. Used with permissions. Copyright by Houghton Mifflin Company. All rights reserved. 310

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 organizations goals.

Strategic Management
A way of approaching business opportunities and challengesa comprehensive and ongoing management process aimed at formulating and implementing effective strategies.

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 (contd)

Strategy Formulation
The set of processes involved in creating or determining the organizations 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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The Relationships of Strategies by Organizational Level

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SWOT Analysis
Strengths Weaknesses Opportunities Threats

Mission
An organizations fundamental purpose

SWOT Analysis
To formulate strategies that support the mission

Internal Analysis Strengths (distinctive competencies)

Weaknesses

External Analysis Opportunities

Threats

Best Strategies
Those that support the mission and exploit opportunities and strengths neutralize threats avoid (or correct) weaknesses

Figure 3.2
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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 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 (contd)

Evaluating Organizational Weaknesses
Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. Weaknesses can be overcome by: investments to obtain the strengths needed. modification of the organizations mission so it can be accomplished with the current workforce.

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Using SWOT Analysis to Formulate Strategy (contd)

Evaluating Organizational Weaknesses (contd)
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 (contd)

Evaluating an Organizations Opportunities and Threats
Organizational opportunities are areas in the organizations environment that may generate high performance. Organizational threats are areas in the organizations environment that make it difficult for the organization to achieve high performance.
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Porters 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 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 Product Life Cycle

The Product Life Cycle
High Introduction Sales Volume Growth Stages Maturity Decline

Low

Time
Figure 3.3

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The Adaptation Model of Business Strategy

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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 Similar technology Common distribution and marketing skills Common name brand and reputation Common customers Examples Phillips, Boeing, Westinghouse, Compaq RJR Nabisco, Phillip Morris, Procter & Gamble Disney, Universal Merck, IBM, AMF-Head

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Related Diversification (contd)

Advantages of Related Diversification
Reduces organizations 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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Formulating Corporate-Level Strategies (contd)

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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Formulating Corporate-Level Strategies (contd)

Unrelated Diversification (contd)
Disadvantages 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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Managing Diversification
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 Matrix The GE Business Screen

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Managing Diversification (contd)

BCG Matrix
A method of evaluating businesses relative to the growth rate of their market and the organizations 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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The BCG Matrix

High
Market growth rate

Stars

Question marks

Cash cows

Dogs

Low

High

Relative market share

Low

Source: Perspectives, No. 66, The Product Portfolio, Adapted by permission from The Boston Consulting Group, Inc., 1970. Copyright by Houghton Mifflin Company. All rights reserved.

Figure 3.4
332

Managing Diversification
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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The GE Business Screen

Industry growth rate

High

Winner

Winner

Question mark

Medium

Winner

Average business

Loser

Low

Profit producer Good

Loser

Loser

Medium Competitive position

Poor

Competitive position
1. Market share 2. Technological know-how 3. Product quality 4. Service network 5. Price competitiveness 6. Operating costs

Industry attractiveness
1. Market growth 2. Market size 3. Capital requirements 4. Competitive intensity Figure 3.5
334

Source: From Strategy Formulation: Analytical Concepts, by Charles W. Hofer and Dan Schendel. Copyright 1978 West Publishing. Used by permission of SouthWestern College Publishing, a division of International Thomson Publishing, Inc., Cincinnati, Ohio, 45227.

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Tactical Planning
Developing and Executing Tactical Plans
Developing tactical plans
Recognize and understand overarching strategic plans

Executing tactical plans

Evaluate each course of action in light of its goal

and tactical goals Specify relevant resource and time issues Recognize and identify human
resource commitments

Obtain and distribute information and resources Monitor horizontal and vertical communication and integration
of activities Monitor ongoing activities for goal achievement

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Operational Planning

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright 1991 by Houghton Mifflin Company. Used with permissions. Copyright by Houghton Mifflin Company. All rights reserved. 336

Types of Operational Plans

Plan
Single-use plan Program Project

Description
Developed to carry out a course of action not likely to be repeated in the future Single-use plan for a large set of activities Single-use plan of less scope and complexity than a program Developed for activities that recur regularly over a period of time Standing plan specifying the organizations general response to a designated problem or situation Standing plan outlining steps to be followed in particular circumstances Standing plans describing exactly how specific activities are to be carried out

Standing plan Policy Standard operating procedure Rules and regulations

Table 3.1
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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.
Ongoing planning process
Action point 1
Develop plan, considering contingency events

Action point 2
Implement plan and formally identify contingency events

Action point 3
Specify indicators for the contingency events and develop contingency plans for each possible event

Action point 4
Successfully complete plan or contingency plan

Monitor contingency event indicators and implement contingency plan if necessary

Figure 3.6
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