Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 1 Chapter 7 Planning and Strategy

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 2 Learning Objectives Explain the importance of the planning function. Describe the core components of strategic and tactical planning. Discuss the effects of degree of diversification on planning. Describe the three basic levels of strategy and planning.

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 3 Learning Objectives (cont.) State the eight primary tasks of the planning process. Explain the generic competitive strategies model.

Planning A process whereby managers select goals, choose actions (strategies) to attain those goals, allocate responsibility for implementing actions to specific individuals or units, measure the success of actions by comparing actual results against the goals, and revise plans accordingly. So, the main steps are as: Choose Goals—Identify Actions—Allocate responsibility—Review Performance– Make adjustments. Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 4

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 5 Types of Planning Strategic Planning is 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, and 5)allocating resources to achieve the organization’s goals.  Contingency planning-it is formulated to address specific possible future events that might have a significant impact on organization. (i) Crisis Management, (ii) Scenario plans

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 6 Strategic Planning The four main aspects of strategic planning that managers can directly influence include: –Vision and Mission –Goals –Strategies –Resource Allocation

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 7 Types of Planning (cont.)  Tactical planning involves making concrete decisions regarding what to do, who will do it, and how to do it—with a normal time horizon of a year or less.  Tactical plans outline managers must adopt over the short to medium term to cope with a specific opportunity or threat that has emerged.

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 8 Degree of Diversification and Planning Diversification refers to the variety of goods and/or services produced by an organization and the number of different markets it serves. 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?

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 9 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 Johnson & Johnson General Electric

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 10 Strategic 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. –Strategic business unit (SBU) –Growth Strategies Forward integration Backward integration Horizontal integration Concentric diversification Conglomerate diversification

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 11 Strategic Levels and Planning Contd. Strategic business unit (SBU):- a strategic business unit (SBU) is a profit center within a larger corporation, or it may be a business unto itself, which focuses on product offering and market segment. Forward integration-Company expand its operation forward into an industry that uses, distributes or sell the the company’s product. Backward integration-Company expand its operation backward into an industry that produces input for the company’s product. Horizontal integration-The process of acquiring or merging with industry competitors in an effort to achieve competitive advantage. Concentric diversification-A company acquires or develops new products or services closely related to its core business

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 12 Strategic Levels and Planning Contd. Conglomerate diversification- A company enters through acquisition or merger an entirely different market that has little or no synergy with its core business.

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 13 Strategic Levels and Planning (cont.) Business-level strategy refers to 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. Three basic questions at the business level are: 1.Who will we be served? 2.What customer needs will be satisfied? 3.How will customer's need be satisfied?

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 14 Strategic Levels and Planning (cont.) Functional-level strategy refers to the actions and resource commitments established for operations, marketing, human resources, finance, legal services, accounting, and the organization’s other functional areas. –Operations strategies –Marketing strategies –Finance strategies

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 15 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

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 16 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

Copyright © 2005 by South-Western, a division of Thomson Learning All rights reserved 17 Generic Competitive Strategies Model (adapted from Figure 7.4) Focused Differentiation Strategy Cost Leadership Strategy Focused Cost Leadership Strategy Strategic Target Source of Advantage UniquenessLow Cost (price) Narrow Broad Differentiation Strategy