Chapter 5 ©2001 South-Western College Publishing Pamela S. Lewis Stephen H. Goodman Patricia M. Fandt Slides Prepared by Bruce R. Barringer University of Central Florida Pamela S. Lewis Stephen H. Goodman Patricia M. Fandt Slides Prepared by Bruce R. Barringer University of Central Florida Strategic Planning in a Global Environment

Transparency 5-2 © 2001 South-Western Publishing Learning Objectives Slide 1 of 2 1.Define strategic planning and describe its purpose and benefits. 2.Explain the four stages of the strategic planning process. 3.Describe strategic analysis as a part of the strategic planning process. 4.Discuss the purpose of the strategic formulation as part of the strategic planning process.

Transparency 5-3 © 2001 South-Western Publishing Learning Objectives Slide 2 of 2 5.Describe strategy in terms of grand strategy, generic strategy, and international strategy. 6.Explain the role of strategy implementation in the strategic planning process. 7.Describe strategic control systems. 8.Explain how advances in information technology have affected strategic planning. 9.Discuss how tomorrow’s manager can achieve success through strategic planning.

Transparency 5-4 © 2001 South-Western Publishing Strategic Planning Defined The process by which an organization makes decisions and takes actions that affect its long- run performance.

Transparency 5-5 © 2001 South-Western Publishing Strategic Plan A strategic plan is the output of the strategic planning process. An organization’s strategic plan provides direction by defining its strategic approach to business.

Transparency 5-6 © 2001 South-Western Publishing Benefits of Strategic Planning Slide 1 of 2 Economic –Organizations that plan strategically outperform those that do not. Behavioral –An increased likelihood of identifying organizational and environmental conditions that may create problems in the long run. –Better decisions as a result of the group decision-making process.

Transparency 5-7 © 2001 South-Western Publishing Benefits of Strategic Planning Slide 2 of 2 Behavioral –More successful implementation of the organization’s strategy because organizational members who participated in the planning process understand the plan and are more willing to change.

Transparency 5-8 © 2001 South-Western Publishing Strategic Planning as a Process Slide 1 of 3 Strategy formulation Strategy formulation Strategy implementation Strategy implementation Strategic analysis Strategic analysis Strategic control Strategic control Feedback

Transparency 5-9 © 2001 South-Western Publishing Strategic Planning as a Process Slide 2 of 3 Strategic analysis –What is the current position of the organization? Strategy formulation –Where does the organization want to be? Strategy implementation –How can the organization get to where it wants to be?

Transparency 5-10 © 2001 South-Western Publishing Strategic Planning as a Process Slide 3 of 3 Strategic control –How will the organization know when it has arrived?

Transparency 5-11 © 2001 South-Western Publishing Strategic Analysis Slide 1 of 5 The purpose of strategic analysis is to evaluate the present situation of the organization. This requires three primary activities: Internal Environmental Analysis External Environmental Analysis Assessing the Mission of the Organization

Transparency 5-12 © 2001 South-Western Publishing Assessing the Mission of an Organization –The mission of an organization reflects its fundamental reasons for existence. –Although mission statements vary greatly among firms, every mission statement should describe three primary aspects of the organization: Its primary products or services. Its primary target markets. Its overall strategy for ensuring long-term success. Strategic Analysis Slide 2 of 5

Transparency 5-13 © 2001 South-Western Publishing Conducting an Internal Analysis –Purpose is to identify assets, resources, skills, and processes that represent either strengths or weaknesses for the organization. Evaluating the External Environment –Purpose is to identify those aspects of the environment that represent either an opportunity or a threat for the organization. Strategic Analysis Slide 3 of 5

Transparency 5-14 © 2001 South-Western Publishing Strategic Analysis Slide 4 of 5 Identified by Internal Analysis –Strengths Aspects of the organization’s operations that represent potential competitive advantages or distinctive competencies. –Weaknesses Areas that are in need of improvement.

Transparency 5-15 © 2001 South-Western Publishing Strategic Analysis Slide 5 of 5 Identified by External Analysis –Opportunities Those environmental trends on which the organization can capitalize and improve its competitive position. –Threats Conditions that jeopardize the organization’s ability to prosper in the long term.

Transparency 5-16 © 2001 South-Western Publishing Areas That Should Be Evaluated in an Internal Analysis MarketingFinance Research & Development Information Technology Management Capabilities Human Resources

Transparency 5-17 © 2001 South-Western Publishing Areas That Should Be Evaluated in an External Analysis Slide 1 of 3 General Environment –Includes environmental forces that are beyond the influence of the organization and over which it has no (or little) control. Task Environment –Includes environmental forces that are within the organization’s operating environment and may be influenced to some degree.

Transparency 5-18 © 2001 South-Western Publishing Areas That Should Be Evaluated in an External Analysis Slide 2 of 3 General Environment Economic Factors Sociocultural Factors Technological Factors Political-Legal Factors

Transparency 5-19 © 2001 South-Western Publishing Areas That Should Be Evaluated in an External Analysis Slide 3 of 3 Task Environment Competition Resource Availability Customers

Transparency 5-20 © 2001 South-Western Publishing Strategy Formulation Slide 1 of 8 Strategy Formulation –Once the strategic analysis is completed and the current position of the organization has been assessed, corporate and business strategy can be formulated. –The steps in strategy formulation include: Casting the vision for the organization. Setting strategic goals. Identifying strategic alternatives. Evaluating and choosing strategy.

Transparency 5-21 © 2001 South-Western Publishing Strategy Formulation Slide 2 of 8 Casting the Vision for the Organization –Central to any strategic plan is the development of a vision for the organization. –While a mission statement describes the products, services, and target markets for an organization, a vision statement describes what the organization aspires to be in the long run.

Transparency 5-22 © 2001 South-Western Publishing Strategy Formulation Slide 3 of 8 Setting Strategic Goals –Very broad statements of the results that an organization wishes to achieve in the long run. –Relate to the mission and vision of the organization and specify the level of performance that the organization wants to achieve.

Transparency 5-23 © 2001 South-Western Publishing Strategy Formulation Slide 4 of 8 Identifying Strategic Alternatives –Developed in light of the mission of the organization, its strengths, weaknesses, opportunities, and threats, and its vision and strategic goals. –Three ways of defining strategic alternatives: Grand strategy Generic strategy International strategy

Transparency 5-24 © 2001 South-Western Publishing Strategy Formulation Slide 5 of 8 Grand Strategy –A comprehensive, general approach for achieving the strategic goals of an organization. –Grand strategies fall into three broad categories: Stability strategies - intended to ensure continuity in the operations and performance of the organization. Growth strategies - designed to increase the sales and profits of the organization. Retrenchment strategies - designed to reverse negative sales and profitability trends.

Transparency 5-25 © 2001 South-Western Publishing Strategy Formulation Slide 6 of 8 Generic Strategy –Reflect the primary way in which an organization competes in its markets. –Generic strategies are commonly referred to as: Cost leadership - designed to compete on the basis of price. Differentiation - designed to compete by offering products or services that are differentiated from those of competitors in some way. Focus - designed to avoid competing in broad markets by targeting a narrow market segment.

Transparency 5-26 © 2001 South-Western Publishing Strategy Formulation Slide 7 of 8 International Strategy –Organizations choose to engage in international business activity for a variety of reasons. –An organization that pursues an international strategy must make decisions about both its mode of entry into international markets and the focus of it strategy.

Transparency 5-27 © 2001 South-Western Publishing Strategy Formulation Slide 8 of 8 International Strategy Issues –Mode of Entry Ways of entering an international market. Potential modes of entry include exporting, contractual relationships, joint ventures, strategic alliances, and direct investment. –Multidomestic vs. Global Strategic Focus Multidomestic - development of an independent strategy for each market. Global - development of a common strategy across foreign markets.

Transparency 5-28 © 2001 South-Western Publishing Strategy Implementation Slide 1 of 4 The importance of strategy implementation should never be underestimated, for the best- formulated strategy is worthless if it cannot be implemented effectively.

Transparency 5-29 © 2001 South-Western Publishing Strategy Implementation Slide 2 of 4 Formulating Functional Strategy –Functional strategies provide action plans for strategy implementation and put corporate and business strategy into operation by defining the activities needed for implementation. –The most significant challenge lies in coordinating the activities of the various work groups that must work together to implement the strategy.

Transparency 5-30 © 2001 South-Western Publishing Institutionalizing Strategy –While functional strategies are essential to the strategy implementation process, it is also important that the strategy be institutionalized within the organization. –Institutionalizing a strategy means that every member, work group, department, and division of the organization subscribes to and supports the organization’s strategy with its plans and actions. Strategy Implementation Slide 3 of 4

Transparency 5-31 © 2001 South-Western Publishing Strategy Implementation Slide 4 of 4 Organizational Attributes that Should Facilitate the Implementation of a Firm’s Strategy –Organizational structure –Organizational culture –Organizational leadership

Transparency 5-32 © 2001 South-Western Publishing Strategic Control Slide 1 of 2 Strategic Control –The last stage of the strategic planning process is strategic control. –Strategic control involves monitoring the implementation of the strategic plan and ensuring quality and effectiveness in terms of organizational performance.

Transparency 5-33 © 2001 South-Western Publishing Strategic Control Slide 2 of 2 Feedforward Controls –Designed to identify changes in the external environment or the internal operations of the organization that may affect its ability to fulfill its mission and meet its strategic goals. Feedback Controls –Compare the actual performance of the organization to its planned performance.

Transparency 5-34 © 2001 South-Western Publishing Information Technology and Strategic Planning The increasing availability of information technology has had a tremendous impact on the ability of organizations to develop effective strategic plans.

Transparency 5-35 © 2001 South-Western Publishing Tips for Effective Strategic Planning Slide 1 of 3 Use a participatory approach to planning where possible. Recognize the importance of thorough and accurate assessment of the current situation of the organization. A plan will be only as good as the analysis on which it is based. Make sure the mission statement is a working document that provides direction for the members of the organization.

Transparency 5-36 © 2001 South-Western Publishing Tips for Effective Strategic Planning Slide 2 of 3 Strategic goals serve as targets for achievement. Make sure they are measurable, specific, and realistic. Strategy should be designed to provide the organization with a distinctive competitive advantage in the long term. Never lose sight of that imperative.

Transparency 5-37 © 2001 South-Western Publishing Tips for Effective Strategic Planning Slide 3 of 3 Strategy is meaningless if it is not implemented well. Ensure that you plan for successful implementation all along the way. Never underestimate the importance of strategic control. It is the only means of ensuring that the company is on track.