Planning and Strategy Chapter 7

Formulating Plans and Strategies  Learning Goals 1.Describe the importance and core components of strategic and tactical planning 2.Discuss the effects of organizational diversification strategies on planning 3.Describe the basic levels of strategy and planning 4.State the primary tasks of the strategic business- level planning process 5.Explain the generic competitive strategies model 6.Explain the integrated strategy/model

What Is Planning? Planning involves defining the organization’s goals, establishing an overall strategy, and developing a comprehensive set of plans to integrate and coordinate organizational work informal planning - nothing is written down little or no sharing of goals general and lacking in continuity formal planning - written defines specific goals specific action programs exist to achieve goals © Prentice Hall, 2002

How Do Managers Plan? The Role of Goals and Plans in Planning goals - desired outcomes provide direction for all management decisions represent the criteria against which actual work accomplishments can be measured plans - outline how goals are going to be met Types of Goals all organizations have multiple objectives no single measure can evaluate whether an organization is successful financial goals - relate to financial performance strategic goals - relate to other areas of performance © Prentice Hall,

Comprehend the uncertainties and risks with various options Develop effective courses of action (strategies and tactics) Discover new opportunities Anticipate and avoid future problems Effective planning helps to Importance and Types of Planning: Why Is Planning Important?

Stated Objectives From Large US Companies © Prentice Hall,

What Is Strategic Planning?  The process of: 1.Diagnosing the organization’s external and internal environments 2.Deciding on a vision and mission 3.Developing overall goals 4.Creating and selecting general strategies to be pursued 5.Allocating resources to achieve the organization’s goals

What is Strategic Planning?  Contingency planning—preparation for unexpected, major, and quick changes (positive or negative) in the environment that will have a significant impact on the organization and require immediate responses 1.Plan for 3 to 5 potentially critical and unanticipated events 2.Supports orderly and speedy adaptation

Interrelated Core Components in Strategic Planning Strategic planning Vision and Mission Strategies Resource Allocation Organizational Goals

What is Strategic Planning?  Vision: Expresses an organization’s fundamental aspirations and purpose, usually by appealing to its members’ hearts and minds  eBay: To pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity

What is Strategic Planning?  Mission: The organization’s purpose or reason for existing; often answers questions such as:  eBay: To serve as the world’s online marketplace for the sale and payment of goods and services by a diverse community of individuals and businesses 1.What business are we in? 2.Who are we? 3.What are we about?

Mission Wal-Mart To give ordinary folk the chance to buy the same things as rich people. Walt Disney To make the people happy.

Microsoft’s Mission Statement Old Mission: A computer on every desk and in every home. (From 1975 to 2000) New Mission: Enable people throughout the world to realize their full potential through great software – any time, any place, and on any device. (From 2000-present) Slogan: “Unlocking your full potential - any time, any place, any device”

Wal-Mart’s Mission Statement Give people high value, low prices and a warm welcome. Company slogans: “Every day low prices” “The Customer is number one! Always!” “Service with a smile”

Starbucks’ Mission Statement To be the premier purveyor of the finest coffee in the world while maintaining uncompromising principles. Company Slogans: “Serving customers one cup at a time” “ Treating each other with respect and dignity” “Clean and friendly Green”

 Organizational goals: the results that the managers and others have selected and are committed to achieving for the long-term survival and growth of the firm 1.May be expressed qualitatively and quantitatively 2.Qualitative: simplify the sales process within six months 3.Quantitative: reduce operating costs by $1 billion within eighteen months

 Strategies: the major courses of action (choices) selected and implemented to achieve one or more goals The essence of most good strategies is the need to make many choices that are all consistent — choices about production, service, design, and so on. Companies cannot randomly make a lot of choices that all turn out to be consistent. It’s statistically impossible. That means companies need to grasp at least a part of the whole. As we study the histories of successful companies, we see that someone or some group developed insight into how a number of choices fit together… Michael Porter Harvard Business School

Dell’s Competitive Strategies: 1.Speed to Market 2.Superior Customer Service 3.Commitment to producing consistently high quality 4.Custom-made computer systems that provide the highest performance and the latest and relevant technology to customers On-line sales and customer support. Dell uses Best-Buy Strategy - cost leader, but customization, speed of delivery, responsive service, strengthen differentiation. Dell shapes industry structure towards its favor with virtual and tight integration with customer and supply chain J-I-T. Winning market share from competitors.

 Resource allocation: assigning money, people, facilities, and other resources among various current and new business opportunities  Key part: allocating money, through budgets, for various purposes

Normal time horizon of 1 to 2 years, often less How to do it What to doWho will do it What is Tactical Planning? Making decisions regarding:

 Specific courses of action  Implementing initiatives or improving current operations  Integrated with annual budgeting  Focus on first-line and middle- managers What is Tactical Planning?

Strategic vs. Tactical Planning

Diversification Strategies and Planning: Diversification  Diversification The variety of goods and/or services produced by an organization and the number of different markets it serves  Snapshot “We are always looking for companies, products, or emerging technologies that will complement and strengthen our existing businesses, lead us into new therapeutic areas to address unmet medical needs, enhance our research and development capabilities, and, ultimately, further our strategy for growth. Each acquisition is different, and in each situation, we carefully examine the best way to integrate that technology, product, or organization into our family of companies.” William C. Weldon Chairman and CEO, Johnson & Johnson

Degree of Diversification and Planning Questions that can identify potential risks and opportunities of diversification include: What can we do better than other firms if we enter a new market? What strategic resources—human, financial, and others—do we need to succeed in the new market? Will we simply be a player in the new market or will we emerge a winner? What can we learn by diversifying, and are we sufficiently organized to learn it?

Types of Diversification Strategies  Single-business strategy: providing a limited number of goods or services to one particular market  Dominant-business strategy: serving various segments of a market  Related-business strategy: providing a variety of complementary goods and/or services  Unrelated-business strategy: providing diverse products (goods and/or services) to many different types of markets

Degree of Diversification and Planning (adapted from Figure 7.1) Complexity of Strategic Planning Degree of Diversification Low High Single- business firm Dominant- business firm Related- business firm Unrelated- business firm Google CEMEX MTV Johnson & Johnson General Electric

Strategy Levels and Planning: Corporate-Level Strategy Focuses on:  the types of businesses the firm wants to be in,  ways to acquire or divest businesses,  allocation of resources among the businesses, and  ways to develop learning and synergy among those businesses  Corporate-level Management  Guides and reviews performance of strategic units  Strategic business unit (SBU): a division or subsidiary of a firm that provides a related set of products or services and usually has its own mission and goals

Forward integration Backward integration Horizontal integration Related diversification Conglomerate diversification Organic: Expansion of existing businesses 

Business-Level Strategy The resources allocated and actions taken to achieve desired goals in serving a specific market with a highly interrelated set of goods and/or services  Plans and strategies developed for 1.maintaining or gaining a competitive edge in serving its customers, 2.determining how each functional area can best contribute to its overall effectiveness, and 3.allocating resources for expansion and among its functions Time Warner: America Online, HBO, Warner Brother Studios.

Business-Level Planning  Basic Questions 1.Who will be served? 2.What customer needs will be satisfied? 3.How will customers’ needs be satisfied?

 The actions and resource commitments established for operations, marketing, human resources, finance, legal services, accounting, and the organization’s other functional areas  Should support business-level strategies and plans Finance HR Other

Examples of Issues in Developing Human Resources Strategies What approach should be used to recruit qualified personnel? How is affirmative and fair treatment ensured for women, minorities, and the disabled? What type of reward system is needed? How should the performance of employees be reviewed?

Examples of Issues in Developing Finance Strategies What criteria should be used in allocating financial and human resources to projects? What should be the criteria for issuing credit to customers? What is the desired mixture of borrowed funds and equity funds? What portion of profits should be reinvested and what portion paid out as dividends?

General Electric’s Strategy and Planning Levels (adapted from Figure 7.2) Four senior executive officers, 8 senior corporate officers, And 33 corporate staff officers Focus:Assessing new businesses, allocating resources to business- level companies, coordinating businesses, resolving legal issues, assessing key executives, and other activities GE Consumer Finance GE Transportation Systems Plus 10 other primary business units GE Plastics Marketing Human Resources Finance/ Accounting Other Marketing Human Resources Finance/ Accounting Other Functional Units in each line of Business Marketing Human Resources Finance/ Accounting Other * Each of the 13 primary units has its own business functions Corporate Level Business Level * Functional Level

The Planning Process (adapted from Figure 7.3) Task 1: Develop vision, mission and Goals Task 5: Prepare strategic plan Task 4: Develop strategies Task 2: Diagnose opportunities and threats Task 3: Diagnose strengths and weakness Task 6: Prepare tactical plans Task 7: Control and diagnose results Task 8: Continue planning

Business-Level Strategic Planning Tasks and Process Task 2: Diagnose Opportunities and Threats Task 1: Develop Vision, Mission and Goal Task 3: Diagnose Strengths and Weaknesses Industry/market competition Political forces Stakeholders expectations Values, culture Others Who are we? What do we want to become? What are our goals? Competitive position Human skills Technological capabilities Financial resources Organization and management Evaluate against (continued) Task 4: Develop Strategies

Business-Level Strategic Planning Tasks and Process (cont’d) Task 5: Develop Strategic Plan Selected strategy or strategies (includes market segments and competitive methods) Required human skills and competencies Required technological capabilities Required financial resources Required organization and management Task 6: Prepare Tactical Plans Task 7: Control and Diagnose Results Task 8: Continue Planning

Core Competencies: the strengths that make an organization distinctive and competitive by providing goods or services that have unique value to its customers. Three Broad Groups: Superior Technological know-how, reliable processes, Close relationships with external stakeholders Ted Rouse Global Business Practice, Bain and Company “If you look at most of the corporate tragedies in the last five years, you’ll also discover that many of them were companies moving into other businesses they really shouldn’t have moved into, that weren’t close to their core business and competencies, including Enron, Kmart, and Worldcom. If you’re having problems in your core business and think you can move to another business, it’s not going to work. You have to have strong assets you can build on. The farther away people got from their core business and competencies, the lower their rate of success.”

Outsourcing Strategy: Contracting with other organizations to perform a needed service and/or manufacture needed parts or products that had previously been provided within the firm  Outsourcing Drivers 1.expense reduction (including fewer employees), 2.better production quality, 3.improved reporting uniformity and regulatory compliance, 4.more effective use of expensive talent so that they can spend more of their time on innovating, expanding global capabilities, and 5.more effective business process management

Organic growth Market penetration Product development Market development Task 4: Develop Strategies

Generic Competitive Strategies Model (adapted from Figure 7.4) FocusedDifferentiationStrategy Cost Leadership Strategy Focused Strategy Strategic Target Source of Advantage UniquenessLow Cost (price) Narrow Broad DifferentiationStrategy

 Snapshot “The best strategy for a smaller business is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers…Try to find the right configuration of products, services, quality and price that will ensure the least direct competition.” Ron Consolino Management Counselor Counselors to America’s Small Business

Planning and Levels of Management