The Nature of the Planning Process Identifying and selecting appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. Strategy The cluster of decisions and actions that managers take to help an organization reach its goals.

The Nature of the Planning Process Mission Statement A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors.

Three Steps in Planning Figure 8.1

Levels and Types of Planning Figure 8.2

Levels of Planning Division – business unit that has its own set of managers and departments and competes in a distinct industry Divisional managers – Managers who control the various divisions of an organization

Levels of Planning Corporate-Level Plan Corporate-Level Strategy Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure. Provides a framework for all other planning. Corporate-Level Strategy A plan that indicates in which industries and national markets an organization intends to compete.

Levels of Planning Business-Level Plan: Business-Level Strategy Divisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure. Identifies how the business will meet corporate goals. Business-Level Strategy A plan that indicates how a division intends to compete against its rivals in an industry Shows how the business will compete in market.

Levels of Planning Function – department or unit in which people have the same skills or use the same resources to perform their jobs

Levels of Planning Functional-Level Plan Functional Strategy Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals. Functional Strategy A plan that indicates how a function intends to achieve its goals.

Who Plans? Corporate-Level Plans Business-Level Plans Plans developed by top management who also are responsible for approving business- and functional-level plans for consistency with the corporate plan. Top managers should seek input on corporate level issues from all management levels. Business-Level Plans Plans developed by divisional managers who also review functional plans. Both management levels should also seek information from other levels.

Time Horizons of Plans Time Horizon The intended duration of a plan. Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years. Short-term plans are less than 1 year. Corporate and business-level goals and strategies require long- and intermediate-term plans. Functional plans focus on short-to intermediate-term plans Most organizations have a rolling planning cycle to amend plans constantly.

Types of Plans Standing Plans Single-Use Plans Use in programmed decision situations Policies are general guides to action. Rules are formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow. Single-Use Plans Developed for a one-time, nonprogrammed issue. Programs: integrated plans achieving specific goals. Project: specific action plans to complete programs.

Scenario Planning Scenario Planning (Contingency Planning) The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Planning seeks predict the future, but the future is unknowable. By generating multiple possible “futures,” a firm can see how its plans might work in each and prepare for the possible outcomes. Scenario planning is a learning tool to improve strategic planning results.

Determining the Organization’s Mission and Goals Defining the Business Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs Establishing Major Goals Provides the organization with a sense of direction Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.

Formulating Strategy Strategic Formulation SWOT Analysis Managers analyze the current situation to develop strategies for achieving the mission. SWOT Analysis A planning exercise in which managers identify: organizational strengths and weaknesses. Strengths (e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities) external opportunities and threats. Opportunities (e.g., entry into new related markets). Threats (increased competition)

Planning and Strategy Formulation Figure 8.5

The Five Forces

Formulating Corporate-Level Strategies Concentration in Single Business Can become a strong competitor, but can be risky. Diversification Related diversification into similar market areas to build upon existing competencies. Synergy: two divisions working together perform better than the sum of their individual performances. Unrelated diversification is entry into industries unrelated to current business. Attempts to build a portfolio of unrelated firms to reduce risk of single industry; difficulty to manage.

International Expansion Basic Question: To what extent do we customize products and marketing for different national conditions? Global strategy Selling the same standardized product and using the same basic marketing approach in all countries. Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage.

International Expansion Multi-domestic Strategy Customizing products and marketing strategies to specific national conditions. Helps gain local market share. Raises production costs.

International Expansion Exporting – making products at home and selling them abroad Importing – selling at home products that are made abroad

International Expansion Licensing – allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee Franchising – selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits

International Expansion Strategic alliance – managers pool resources with those of a foreign company Organizations agree to share risk and reward Joint venture – strategic alliance among companies that agree to jointly establish and share the ownership of a new business

International Expansion Wholly Owned Foreign Subsidiary – managers invest in establishing production operations in a foreign country independent of any local direct involvement

Vertical Integration A strategy that allows an organization to create value by producing its own inputs or distributing its own products. Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers. A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown.

Formulating Business-Level Strategies Low-Cost Strategy Driving the organization’s total costs down below the total costs of rivals. Manufacturing at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable. Differentiation Offering products different from those of competitors. Differentiation must be valued by the customer in order for a producer to charge more for a product.

Formulating Business-Level Strategies “Stuck in the Middle” Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. Difficult to achieve low cost with the added costs of differentiation.

Formulating Business-Level Strategies Focused Low-Cost Serving only one market segment and being the lowest-cost organization serving that segment. Focused Differentiation Serving only one market segment as the most differentiated organization serving that segment.

Functional-level Strategies A plan that indicates how a function intends to achieve its goals Seeks to have each department add value to a good or service. Marketing, service, and production functions can all add value to a good or service through: Lowering the costs of providing the value in products. Adding new value to the product by differentiating. Functional strategies must fit with business level strategies.

Planning and Implementing Strategy Allocate implementation responsibility to the appropriate individuals or groups. Draft detailed action plans for implementation. Establish a timetable for implementation Allocate appropriate resources Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.