Strategic and Operational Planning Copyright © 2011 Cengage Learning. All rights reserved.

Learning Outcomes After studying this chapter, you should be able to: Describe how strategic planning differs from operational planning. Explain the reason for conducting an industry and competitive situation analysis. Explain the reason for conducting a company situation analysis. List the parts of an effective written objective. Describe the four grand strategies. Describe the three growth strategies. Describe the three adaptive strategies. State the difference between standing plans and single-use plans. Define the key terms listed at the end of the chapter. Copyright © 2011 Cengage Learning. All rights reserved.

IDEAS ON MANAGEMENT at Starbucks What are some of Starbucks’s strategic and operational plans? What are Starbucks’s corporate mission statement and its environmental mission statement? How do they fulfill their mission statements? What long-range goals has Starbucks established? What is the corporate grand strategy and primary growth strategy at Starbucks? What types of adaptive and competitive strategies does Starbucks currently employ? Which stage in the product life cycle has coffee reached in the U.S. market? What type of functional and operational plans does Starbucks have? Copyright © 2011 Cengage Learning. All rights reserved.

Planning Dimensions Planning Planning Dimensions Determining what you want to accomplish and developing approaches to achieving your objectives. Planning Dimensions Management level Type of plan Scope Time Repetitiveness Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–1 ● Planning Dimensions Copyright © 2011 Cengage Learning. All rights reserved.

Strategic versus Operational Planning Strategic Planning The process of developing a mission and long-range objectives and determining in advance how they will be accomplished. Operational Planning The process of setting short-range objectives and determining in advance how they will be accomplished. Strategy A plan for pursuing the mission and achieving objectives. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–2 ● Strategic and Operational Planning and Strategies Copyright © 2011 Cengage Learning. All rights reserved.

Strategic Planning Corporate-Level Strategy Business-Level Strategy The plan for managing multiple lines of businesses Business-Level Strategy The plan for managing one line of business Functional-Level Strategy The plan for managing one area of the business Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–3 ● The Strategic Planning Process Copyright © 2011 Cengage Learning. All rights reserved.

Industry and Competitive Situation Analysis Focuses on those features in a firm’s environment that most directly affect its options and opportunities. Five Competitive Forces (Porter) Rivalry among competing sellers in the industry Threat of substitute products and services Potential new entrants Power of suppliers Power of buyers Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–4 ● Starbucks’s Five-Force Competitive Analysis Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–5 ● Parts of a Company Situation Analysis 1. Assessment of the present strategy based on performance. 2. Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. 3. Assessment of competitive strength and identification of competitive advantage. 4. Conclusions concerning competitive position. 5. Determination of the issues and problems that need to be addressed through the strategic planning process. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–6 SWOT Analysis for Starbucks Coffee Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–7 ● Competitive Strength Assessment for Starbucks Coffee Copyright © 2011 Cengage Learning. All rights reserved.

Competitive Advantage Core Competency A functional capability (strength) that the firm does well and one that creates a competitive advantage for the firm. Benchmarking The process of comparing an organization’s products or services and processes with those of other companies. Scanning the Environment Searching the external environment for opportunities and threats. Copyright © 2011 Cengage Learning. All rights reserved.

Join the Discussion Ethics & Social Responsibility Crop Genetic Structure Do you feel eating food that has been genetically altered is safe? Is it ethical and socially responsible to genetically alter food crops? How should Monsanto try to convince people that genetically modified food is safe? Copyright © 2011 Cengage Learning. All rights reserved.

Setting Objectives Objectives Goals State what is to be accomplished in singular, specific, and measurable terms with a target date. Goals Are general targets to be accomplished that are translated into actionable objectives. Copyright © 2011 Cengage Learning. All rights reserved.

Writing Effective Objectives Max E. Douglas’s model for writing effective objectives: The word to, followed by an action verb, a statement of the single, specific, and measurable result to be achieved, and a target date. Example: To achieve a 6% overall return on fourth quarter sales. Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–8 ● Criteria That Objectives Should Meet Copyright © 2011 Cengage Learning. All rights reserved.

Management by Objectives (MBO) Step 1. Set individual objectives and plans. Step 2. Give feedback and evaluate performance. Step 3. Reward according to performance. Sources of MBO Failures Lack of top management commitment and follow-through on MBO. Employees’ negative beliefs about management’s sincerity in its efforts to include them in the decision-making process. Copyright © 2011 Cengage Learning. All rights reserved.

Corporate Strategies: Grand Strategies Growth Strategies Concentration Integration Backward and forward Diversification Related and unrelated Stability Turnaround and Retrenchment Combination Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–9 ● Grand and Growth Strategies Grand Strategy Growth (aggressively expand size) Stability (remain the same or grow slowly) Turnaround and Retrenchment (reverse a negative trend and cut back) Combination (mix of other three) Growth Strategies Concentration—expand existing line(s) of business Integration—expand forward and/or backward within line(s) of business Diversification—add related and/or unrelated products Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Common Methods for Pursuing a Growth Strategy Mergers Acquisitions Joint Ventures Takeovers Strategic Alliances Copyright © 2011 Cengage Learning. All rights reserved.

Join the Discussion Ethics & Social Responsibility Insider Trading If you were “tipped” by an insider, would you buy/sell the stock? What are the implications of using insider information? Is anyone hurt by the practice? If yes, who is hurt and how are they hurt? Without using insider information, some speculators try to predict which companies are likely to merge or be acquired and buy stock options. This is a legal way of making money, but is it ethical? Copyright © 2011 Cengage Learning. All rights reserved.

Portfolio Analysis Business Portfolio Analysis Is the corporate process of determining which lines of business the corporation will be in and how it will allocate resources among them. Strategic Business Unit (SBU) Is a distinct business having its own customers that is managed independently of other businesses within the corporation. Can be a division, a subsidiary, or a single product line. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–10 ● BCG Growth-Share Matrix for Starbucks Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–11 The Entrepreneurial Strategy Matrix (ESM) Copyright © 2011 Cengage Learning. All rights reserved.

Business-Level Strategies Adaptive Strategies Prospecting Aggressively offering new products and/or entering new markets. Defending Staying with the present product line and markets, and maintaining or increasing customers. Analyzing A midrange approach between prospecting and defending, moving cautiously into new markets. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–12 ● Adaptive Strategies Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Competitive Strategies Differentiation Strategy Competing on the basis of features that distinguish one firm’s products or services from those of another. Cost Leadership The firm with the lowest total overall costs has a competitive advantage in price-sensitive markets. Focus Concentrating competitive efforts on a particular market segment, product line, or buyer group. Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–13 ● Strategies for Starbucks over the Product Life Cycle Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Functional Strategies Marketing Strategy Responsible for determining which products to provide, how they will be packaged, how they will be advertised, where they will be sold and how they will get there, and how much they will be sold for. Operations Strategy Responsible for systems processes that convert inputs into outputs. Human Resources Strategy Responsible for working with all the other functional departments in the areas of recruiting, selecting, training, evaluating, and compensating employees. Copyright © 2011 Cengage Learning. All rights reserved.

Functional Strategies (cont’d) Finance Strategy Responsible for financing the business activities by raising money through the sale of stock or bonds or through loans, deciding on the debt-to-equity ratio, paying off the debt and dividends to shareholders, keeping records of transactions, developing budgets, and reporting financial results. Other Functional Strategies Research and development (R&D) is important to remaining competitive. Copyright © 2011 Cengage Learning. All rights reserved.

Types of Plans Standing Plans Policies, procedures, and rules developed for handling repetitive situations. Policies General guidelines to be followed when making decisions. Procedures A sequence of actions to be followed in order to achieve an objective. Rules A statement of exactly what should or should not be done. Copyright © 2011 Cengage Learning. All rights reserved.

Types of Plans (cont’d) Single-Use Plans Programs and budgets developed for handling nonrepetitive situations. Program A set of activities designed to accomplish an objective over a specified period of time. Program development Set project objectives. Break the project down into a sequence of steps. Assign responsibility for each step. Establish starting and ending times. Determine the resources needed for each step. Copyright © 2011 Cengage Learning. All rights reserved.

Types of Plans (cont’d) Single-Use Plans (cont’d) Budget Represents the funds allocated to operate a unit for a fixed period of time. Is a planning tool initially and becomes a control tool after implementation of the plan. Copyright © 2011 Cengage Learning. All rights reserved.

Types of Plans (cont’d) Contingency Plans Alternative plans to be implemented if uncontrollable events occur. Developing a contingency plan: What might go wrong? How can I prevent it from happening? If it does occur, what can I do to minimize its effect? Copyright © 2011 Cengage Learning. All rights reserved.

Exhibit 4–14 ● Standing Plans versus Single-Use Plans Copyright © 2011 Cengage Learning. All rights reserved.

Copyright © 2011 Cengage Learning. All rights reserved.

Implementing and Controlling Strategies Top and middle managers plan; lower-level functional managers and employees implement strategies. Successful implementation requires effective and efficient support systems. Controlling The process of establishing and implementing mechanisms to ensure that objectives are achieved. Measuring progress toward achievement of objectives and taking corrective action when needed. Staying within the budget when appropriate or changing it when necessary to meet changes in the environment. Copyright © 2011 Cengage Learning. All rights reserved.

KEY TERMS acquisition adaptive strategies benchmarking business portfolio analysis contingency plans functional strategies grand strategy growth strategies management by objectives (MBO) merger objectives operational planning policies procedure rules single-use plans situation analysis standing plans strategic planning strategy SWOT analysis Copyright © 2011 Cengage Learning. All rights reserved.