Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 06 Planning, Strategy, and Competitive Advantage

6-2 Learning Objectives Identify the three main steps of the planning process and explain the relationship between planning and strategy Differentiate between the main types of business- level strategies and explain how they give an organization a competitive advantage that may lead to superior performance

6-3 Learning Objectives Differentiate between the main types of corporate- level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals

6-4 Different ways to compete in the soft drink business How does the Canadian Cott’s soft drinks compete with the global soft drink giants Coca Cola and Pepsi?

6-5 Different ways to compete in the soft drink business Geral Pencer High quality Low price Sell the cola as the private-label house brand of major retail stores such as Wamart and supermarket chains such as Kroger’s. No need of advertising

6-6 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 organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

6-7 Question What is a broad declaration of an organization’s purpose ? A. Company bill of rights B. Mission statement C. Business plan D. Executive summary

6-8 Figure Three Steps in Planning

6-9 The Nature of the Planning Process To perform the planning task, managers should: Establish and discover where an organization is at the present time Determine where it should be in the future, its desired future state Decide how to move it forward to reach that future state

6-10 Why Planning is Important Planning is necessary to give the organization a sense of direction and purpose Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state A plan can be used as a device for controlling managers within an organization

6-11 What are the 4 qualities of an effective plan (proposed by Henri Fayol) Unity Continuity Accuracy Flexibility

6-12 Figure Levels of Planning at General Electric

6-13 Figure Levels and Types of Planning

6-14 Corporate-level Corporate-level plan contains top management’s decision concerning the organization’s mission and goals, overall strategy, and structure. Corporate-level strategy specifies in which industries and national markets an organization intends to compete and why.

6-15 Business-level Business-level plan details (1) the long-term divisional goals that will allow the division to meet corporate goals, and (2) the division’s business-level startegy and structure necessary to achieve division goals. Corporate-level strategy outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals.

6-16 Functional-level Functional-level plan states the goals that the managers of each function will pursue to help their division attain its business-level goals and corporate goals. Functional-level strategy is a plan of action that managers of individual functions can follow to improve the ability of each function to perform its task-specific activities.

6-17 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

6-18 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)

6-19 Types of Plans Single-use plans Developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations Programs: Integrated sets of plans for achieving certain goals Projects: Specific action plans created to complete various aspects of a program

6-20 Determining the Organization’s Mission and Goals Defining the business Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs

6-21 Determining the Organization’s Mission and Goals 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 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

6-22 Figure Three Mission Statements

6-23 Formulating Strategy Development of a set of corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals SWOT analysis Planning exercise in which managers identify: Organizational strengths and weaknesses Environmental opportunities and threats

6-24 Figure Planning and Strategy Formulation

6-25 The Five Forces Model Helps managers focus on the five most important competitive forces, or potential threats, in the external environment Level of rivalry among organizations in an industry Potential for entry into an industry Power of large suppliers Power of large customers Threat of substitute products

6-26 Formulating Business-Level Strategies Low-cost strategy: Driving the organization’s total costs down below the total costs of rivals Differentiation strategy: Distinguishing an organization’s products from the competitors’ products on dimensions such as product design, quality, or after-sales service

6-27 Formulating Business-Level Strategies “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

6-28 Formulating Business-Level Strategies 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

6-29 Formulating Corporate-Level Strategies Concentration on a single industry: Reinvesting a company’s profits to strengthen its competitive position in its current industry Vertical integration: Expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products

6-30 Figure Stages in a Vertical Value Chain

6-31 Question What is expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services? A. Differentiation B. Diversification C. Synergy D. International expansion

6-32 Diversification Diversification: Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services

6-33 Diversification Related diversification Entering a new business or industry to create a competitive advantage in one or more of an organization’s 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 organization’s current businesses or industries

6-34 International Expansion Basic question What extent do organizations need to customize products and marketing for different national conditions? Global strategy: Selling the same standardized product and using the same basic marketing approach in each national market Ignoring national differences, may leave organizations vulnerable to local competitors

6-35 International Expansion Multi-domestic strategy: Customizing products and marketing strategies to specific national conditions Significant cost savings associated with not having to customize products and marketing approaches Helps gain local market share Raises production costs thereby leading to higher prices

6-36 Figure Four Ways of Expanding Internationally

6-37 Importing and exporting Exporting makes products at home and sells them abroad Importing sells products at home that are made abroad

6-38 Licensing Licensing: A company (the licenser) allows a foreign organization (the licensee) to take charge of both manufacturing and distributing one of its products in the licensee’s country. The licenser does not have to bear the developing costs Risks of losing control of its core competency.

6-39 Franchising Franchising: a company (the franchiser) sells to a foreign organization (the franchisee) the rights to use its brand name and operating know-how in return for a lump-sum payment and share of the franchiser’s profits. The franchiser does not have to bear the development costs of overseas expansion and avoids the many problems on setting up foreign operations The downside is that the organization that grants the franchise may lose control over how the franchisee operates and product quality may fall.

6-40 Strategic alliance Managers pool or share their organization’s resources and know-how with those of a foreign company, and the two organizations share the rewards or risks of starting a new venture in a foreign country. Sharing resources allows a US company to take advantages of the high-quality skills of foreign manufacturers.

6-41 Strategic alliance The specialized knowledge of foreign managers about the needs of local customers and reduce the risks involved in a venture. Joint venture: two or more companies that agree to jointly establish and share the ownership of a new business.

6-42 Wholly owned foreign subsidiaries Establishing production operations in a foreign country independent of any local direct involvement. Receiving all of the rewards Bearing all of the risks