Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Planning and Strategic Management Chapter 04

Learning Objectives LO1 Summarize the basic steps in any planning process LO2 Describe how strategic planning should be integrated with tactical and operational planning LO3 Identify elements of the external environment and internal resources of the firm to analyze before formulating a strategy LO4 Define core competencies and explain why they provide the foundation for business strategy 4-2

Learning Objectives LO5 Summarize the types and choices available for corporate strategy LO6 Discuss how companies can achieve competitive advantage through business strategy LO7 Describe the keys to effective strategy implementation 4-3

Decision Making Stages and Formal Planning Steps 4-4 Figure 4.1

Planning  Planning  conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future.  a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization. A Blueprint. 4-5

The Basic Planning Process Step 1 Situational Analysis Step 2 Alternative Goals and Plans Step 3 Goal and Plan Evaluation Step 4 Goal and Plan Selection Step 5 Implementation Step 6 Monitor and Control 4-6

© 2006 by South-Western, a division of Thomson Learning. All rights reserved. 5-7 Ex. 5.9 The Strategic Management Process Identify Strategic Factors Strengths Weaknesses Scan Internal Environment Core Competence Synergy Value Creation Identify Strategic: Corporate Business Functional Define New: Mission Goals Grand Strategy Evaluate Current: Mission Goals Strategies Scan External Environment National Global Opportunities Threats Identify Strategic Factors SWOT Implementing Strategy via Changes in: Structure Human resources Information & control systems

Situational Analysis  Situational analysis  A process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration. 4-8

Alternative Goals and Plans  Should stress creativity and encourage managers and employees to think in broad terms about their jobs.  Goal  A target or end that management desires to reach  Specific, measurable, attainable, relevant, time-bound - SMART 4-9

Alternative Goals and Plans  Plans  The actions or means managers intend to use to achieve organizational goals  Contingency plans  sets of actions to be taken when a company’s initial plans have not worked well or if events in the external environment require a sudden change 4-10

© 2006 by South-Western, a division of Thomson Learning. All rights reserved Purposes of Goals and Plans  Legitimacy/mission statement  Source of motivation and commitment  Rationale for decisions  Guides to action  Resource allocation  Standard of performance

Goal and Plan Evaluation  Managers will evaluate the advantages, disadvantages, and potential effects of each alternative goal and plan.  Must prioritize those goals and even eliminate some of them.  Managers must consider carefully the implications of alternative plans for meeting high priority goals. 4-12

Goal and Plan Selection  Managers will select the option that is most appropriate and feasible  The evaluation process will identify the priorities and trade-offs among the goals and plans.  Will they be effective? 4-13

Implementation  Managers and employees must understand the plan, have the resources to implement it, and be motivated to do so  Successful implementation requires a plan to be linked to other systems in the entire organization, particularly the budget reward systems and human resources. 4-14

Monitor and Control  Managers must continually monitor the actual performance of their work units against the unit’s goals and plans.  Manager’s also need to develop control systems to measure that performance and allow them to take corrective action when the plans are implemented improperly or when the situation changes.  Are you getting the desired results? When do changes need to be made? What type of controls are necessary? 4-15

Strategic Planning  Strategic planning  A set of procedures for making decisions about the organization’s long- term goals and strategies. Actions that are necessary.  Strategic goals  major targets or end results that relate to the long-term survival, value, and growth of the organization. 4-16

Strategic Planning 1.Where will we be active? 2.How will we get there? 3.How will we win in the marketplace? 4.How fast will we move and in what sequence will we make changes? 5.How will we obtain financial returns 4-17

Hierarchy of Goals and Plans 4-18 Figure 4.2

Tactical and Operational Planning  Tactical planning  A set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing. 4-19

Tactical and Operational Planning  Operational planning  The process of identifying the specific procedures and processes required at lower levels of the organization. 4-20

The Strategy Map 4-21 Figure 4.3

Strategic Planning  Strategic management  A process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies. 4-22

The Strategic Management Process 4-23 Figure 4.4

Question An organization’s __________ is the basic purpose and scope of operations. A.Mission B.Strategy C.Goal D.Policy 4-24

Establishment of Mission, Vision, and Goals  Mission  An organization’s basic purpose and scope of operations. 4-25

Environmental Analysis 4-26 Table 4.1

Analysis of External Opportunities and Threats  Stakeholders  Groups and individuals who affect and are affected by the achievement of the organization’s mission, goals, and strategies 4-27

Analysis of Internal Strengths and Weaknesses  Resources  Inputs to a system that can enhance performance  Tangible, intangible assets 4-28

Internal Resource Analysis 4-29 Table 4.2

Resources and Core Competencies 4-30 Figure 4.5

Analysis of Internal Strengths and Weaknesses  Benchmarking  process of assessing how well one company’s basic functions and skills compare with those of another company or set of companies.  goal of benchmarking is to thoroughly understand the “best practices” of other firms and to undertake actions to achieve both better performance and lower costs 4-31

SWOT Analysis and Strategy Formulation  SWOT analysis  A comparison of strengths, weaknesses, opportunities, and threats that helps executives formulate strategy. 4-32

SWOT Analysis and Strategy Formulation  Corporate strategy  The set of businesses, markets, or industries in which an organization competes and the distribution of resources among those entities  Concentration  A strategy employed for an organization that operates a single business and competes in a single industry. 4-33

SWOT Analysis and Strategy Formulation  Vertical integration  The acquisition or development of new businesses that produce parts or components of the organization’s product  Concentric diversification  A strategy used to add new businesses that produce related products or are involved in related markets and activities. 4-34

SWOT Analysis and Strategy Formulation  Low-cost strategy  A strategy an organization uses to build competitive advantage by being efficient and offering a standard, no-frills product.  Competitive strategy.  Differentiation strategy  A strategy an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions. 4-35

© 2006 by South-Western, a division of Thomson Learning. All rights reserved Porter’s Competitive Forces Potential new entrants Bargaining power of buyers Bargaining power of suppliers Threat of substitute products Rivalry among competitors Beware

Strategy Implementation 1.Define strategic risks 2.Assess organization capabilities 3.Develop an implementation agenda 4.Create an implementation plan 4-37

Strategic Control  Strategic control system  A system designed to support managers in evaluating the organization’s progress regarding its strategy and, when discrepancies exist, taking corrective action. 4-38

© 2006 by South-Western, a division of Thomson Learning. All rights reserved Ex. 5.1 Levels of Goals/Plans and Their Importance