Strategic Management (Foundations of Planning) Professor: Zvi Aronson, Ph.D.

What Is Planning? Planning is often called the primary management function It’s concerned with ends (what is to be done) as well as with means (how it’s to be done)

Strategic Decision Making Strategic decisions involve a significant amount of resources and are expected to have a long-term affect on the organization. All decisions related to major corporate and competitive strategy can be considered strategic decisions. Since strategic decisions are made by people, they are subject to the same process and biases we discussed in the decision making chapter. Upper echelon theory looks at the links between the personal characteristics of managers and the decisions they make.

Why Do Managers Need to Plan? Reduce the impact of change Minimize overlapping and waste Set standards to facilitate control Provide Direction

What Are Some Criticisms of Formal Planning? Formal planning can’t replace intuition and creativity… Managers often loose sight of the future… May create rigidity…

Strategic Management What managers do to develop an organization’s strategies Strategies The action plan for achieving an organization’s goals (e.g, how it will compete successfully; how it will attract its customers) Strategic Management Process A six-step process that encompasses strategy planning, implementation, and evaluation

The Strategic Management Process STEP 1: Identifying the organization’s current mission, goals and strategies STEP 2: Doing an external analysis STEP 3: Doing an internal analysis STEP 4: Formulating the strategies STEP 5: Implementing strategies STEP 6: Evaluating results Identify mission, goals and strategies External AnalysisInternal Analysis Formulate Strategies Implement Strategies Evaluate Results SWOT

What is a SWOT Analysis?

What Are Various Types of Strategies? Corporate Strategy An organizational strategy that addresses the question “What business(es) should we be in?” This leads to issues related to entering new businesses and exiting businesses. It does NOT address how the businesses will compete and be successful. Corp SBU

Growth Strategy A corporate strategy in which an organization expands the number of markets served or products offered either through its current business(es) or through new business(es). Some growth strategies include Vertical Integration (Backward and Forward Integration) Related Diversification(Horizontal Diversification) Unrelated Diversification

Growth Strategies Means for Pursuing Growth Strategies Strategic Alliances Acquisitions Internal Development

Corporate Strategy Examples ACQUISITIONS Cetus,a leading firm in the biotechnology field, teamed up with larger corporations which provide needed capital. Humana developed a full line of health care services, vertically integrating across businesses. STRATEGIC ALLIANCES INTERNAL DEVELOPMENT Phillip Morris bought Miller Brewing to diversify out of the cigarette business. Dow Chemical and Corning Glass created a joint venture, more profitable than either parent. Amazon diversified into cloud computing. Vertical Integration Related Diversification Unrelated Diversification Forms Means Pfizer and Genentech formed an alliance to market Genentech ’ s new drug AOL bought stock of Time Warner in what was described as a merger of equals but ended up being unsuccessful.. Daimler-Benz merged with Chrysler in what was a very difficult marriage.

Other Corporate Strategies In addition to growth strategies, organizations pursue other corporate strategies such as: Stability Strategy A corporate strategy in which an organization continues to do what it is currently doing Renewal Strategy A corporate strategy that addresses declining organizational performance

Competitive Strategy An organizational strategy for how an organization will compete in its business(es) Competitive Advantage The distinctive attribute(s) of an organization that enables it to outperform its competitors. Strategic Business units (SBUs) An organization’s single businesses that are independent and formulate their own competitive strategy

Types of Competitive Strategies Cost Leadership Strategy Competing on the basis of having the lowest costs in the industry Differentiation Strategy Competing on the basis of having unique products that are widely valued by customers Focus Strategy Competing in a narrow segment or niche with either a cost focus or a differentiation focus

Porters Generic Strategies – Plot The Gap, Inc. Stores 16

Porter ’ s Generic Strategies – The Gap, Inc. Plot 17

Functional Strategy Functional Strategies The strategies used in an organization’s various functional departments to support the competitive strategy

For Thursday In teams, find an example of a strategic decision from industry. Present your example to the class and answer the following: 1.Is it an example of corporate or competitive strategies (or both)? 2.Can you see any evidence of the decision making process that was followed to arrive at that decision? Or the decision biases they may have experienced?