1. Chapter6Chapter6 PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved. Planning, Strategy, and Change

2. © Copyright 2004 McGraw-Hill. All rights reserved.6–2 Learning Objectives After studying the chapter, you should be able to:After studying the chapter, you should be able to:  Describe the three steps of the planning process.  Explain the relationship between planning, strategy, and change.  Explain the role of planning in predicting the future and in changing the organization so it can meet future challenges.  Outline the main steps in SWOT analysis.  Differentiate among corporate-, business-, functional-level strategies.

3. © Copyright 2004 McGraw-Hill. All rights reserved.6–3 Learning Objectives (cont’d)  Describe the vital role played by strategy implementation in determining managers’ ability to achieve an organization’s mission and goals.

4. © Copyright 2004 McGraw-Hill. All rights reserved.6–4 The Planning Process PlanningPlanning  Identifying and selecting appropriate goals (goal making) and courses of action (strategy-making) for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals.The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. StrategyStrategy  The cluster of decisions and actions that managers take to help an organization reach its goals.

5. © Copyright 2004 McGraw-Hill. All rights reserved.6–5 Three Steps in Planning Figure 6.1

6. © Copyright 2004 McGraw-Hill. All rights reserved.6–6 The Planning Process MissionMission  A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors.

7. © Copyright 2004 McGraw-Hill. All rights reserved.6–7 Planning Process Stages Determining the Organization’s Mission and GoalsDetermining the Organization’s Mission and Goals  Defining the organization’s overriding purpose and its goals. Formulating strategyFormulating strategy  Managers analyze current situation and develop the strategies needed to achieve the mission. Implementing strategyImplementing strategy  Managers must decide how to allocate resources between groups to ensure the strategy is achieved.

8. © Copyright 2004 McGraw-Hill. All rights reserved.6–8 Levels and Types of Planning Figure 6.2

9. © Copyright 2004 McGraw-Hill. All rights reserved.6–9 Levels of Planning at General Electric Figure 6.3

10. © Copyright 2004 McGraw-Hill. All rights reserved.6–10 Levels of Planning Corporate-Level PlanCorporate-Level Plan  Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure.  Provides a framework for all other planning. Corporate-Level StrategyCorporate-Level Strategy  A plan that indicates in which industries and national markets an organization intends to compete.

11. © Copyright 2004 McGraw-Hill. All rights reserved.6–11 Levels of Planning Business-Level Plan:Business-Level Plan:  Divisional managers’ decisions pertaining to division’s long-term goals overall strategy, and structure. Identifies how the business will meet corporate goals.Identifies how the business will meet corporate goals. Business-Level StrategyBusiness-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.Shows how the business will compete in market.

12. © Copyright 2004 McGraw-Hill. All rights reserved.6–12 Levels of Planning Functional-Level PlanFunctional-Level Plan  Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals. Functional StrategyFunctional Strategy  A plan that indicates how a function intends to achieve its goals.

13. © Copyright 2004 McGraw-Hill. All rights reserved.6–13 Who Plans? Corporate-Level PlansCorporate-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 PlansBusiness-Level Plans  Plans developed by divisional managers who also review functional plans. Both management levels should also seek information from other levels.Both management levels should also seek information from other levels.

14. © Copyright 2004 McGraw-Hill. All rights reserved.6–14 Time Horizons of Plans Time HorizonTime Horizon  The intended duration of a plan. Long-term plans are usually 5 years or more.Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years.Intermediate-term plans are 1 to 5 years. Short-term plans are less than 1 year.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.

15. © Copyright 2004 McGraw-Hill. All rights reserved.6–15 Types of Plans Standing PlansStanding Plans  Used in programmed decision situations. Policies are general guides to action.Policies are general guides to action. Rules are formal written specific guides to action.Rules are formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow.Standard operating procedures (SOP) specify an exact series of actions to follow. Single-Use PlansSingle-Use Plans  Developed for a one-time, nonprogrammed issue. Programs: integrated plans achieving specific goals.Programs: integrated plans achieving specific goals. Project: specific action plans to complete programs.Project: specific action plans to complete programs.

16. © Copyright 2004 McGraw-Hill. All rights reserved.6–16 Why Planning Is Important Planning ascertains where the organization is now and deciding where it will be in the future.Planning ascertains where the organization is now and deciding where it will be in the future.  Participation: all managers are involved in setting future goals.  Sense of direction and purpose: planning sets goals and strategies for all managers.  Coordination: plans provide all parts of the firm with understanding about how their systems fit with the whole.  Control: Plans specify who is responsible for the accomplishment of a particular goal.

17. © Copyright 2004 McGraw-Hill. All rights reserved.6–17 Qualities of Effective Plans (Fayol) UnityUnity  Only one central plan is in effect at any given time. ContinuityContinuity  Planning is an ongoing broad-framework process involving all managerial levels. AccuracyAccuracy  Managers have incorporated all available information into creating the current plan. FlexibilityFlexibility  Managers alter the plan as the situation changes.

18. © Copyright 2004 McGraw-Hill. All rights reserved.6–18 Determining the Organization’s Mission and Goals Defining the BusinessDefining the Business  Who are our customers?  What customer needs are being satisfied?  How are we satisfying customer needs? Establishing Major GoalsEstablishing 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.

19. © Copyright 2004 McGraw-Hill. All rights reserved.6–19 Four Mission Statements Figure 6.4

20. © Copyright 2004 McGraw-Hill. All rights reserved.6–20 Formulating Strategy Strategic FormulationStrategic Formulation  Managers analyze the current situation to develop strategies for achieving the mission. SWOT AnalysisSWOT Analysis  A planning exercise in which managers identify organizational strengths and weaknesses, Strengths (e.g., superior marketing skills)Strengths (e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities)Weaknesses (e.g., outdated production facilities)  and external opportunities and threats. Opportunities (e.g., entry into new related markets).Opportunities (e.g., entry into new related markets). Threats (increased competition).Threats (increased competition).

21. © Copyright 2004 McGraw-Hill. All rights reserved.6–21 Planning and Strategy Formulation Figure 6.5

22. © Copyright 2004 McGraw-Hill. All rights reserved.6–22 Formulating Corporate-Level Strategies Concentration in Single BusinessConcentration in Single Business  Can become a strong competitor, but can be risky. Knowledge of current market can be a competitive advantage.Knowledge of current market can be a competitive advantage. Concentration creates a large degree of business risk if the single market in which the firm competes declines.Concentration creates a large degree of business risk if the single market in which the firm competes declines.  Concentration is a logical strategy if downsizing organization to increase performance by exiting under-performing businesses.

23. © Copyright 2004 McGraw-Hill. All rights reserved.6–23 Formulating Corporate-Level Strategies DiversificationDiversification  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 (2+2=5).Synergy: two divisions working together perform better than the sum of their individual performances (2+2=5).  Unrelated diversification is entry into industries unrelated to current business. Attempts to build a portfolio of unrelated firms to reduce risk of single industry failure.Attempts to build a portfolio of unrelated firms to reduce risk of single industry failure. Unrelated firms can be more difficult to manage.Unrelated firms can be more difficult to manage.

24. © Copyright 2004 McGraw-Hill. All rights reserved.6–24 International Expansion Basic Question:Basic Question:  To what extent do we customize products and marketing for different national conditions? Global strategyGlobal strategy  Selling the same standardized product and using the same basic marketing approach in all countries. Standardization provides for lower production cost.Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage.Ignores national differences that local competitors can address to their advantage.

25. © Copyright 2004 McGraw-Hill. All rights reserved.6–25 International Expansion (cont’d) Mulitdomestic StrategyMulitdomestic Strategy  Customizing products and marketing strategies to specific national conditions. Helps gain market entry and build local market share.Helps gain market entry and build local market share. Raises production costs.Raises production costs.

26. © Copyright 2004 McGraw-Hill. All rights reserved.6–26 Vertical Integration Vertical IntegrationVertical 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.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.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.

27. © Copyright 2004 McGraw-Hill. All rights reserved.6–27 Stages in a Vertical Value Chain

28. © Copyright 2004 McGraw-Hill. All rights reserved.6–28 Porter’s Business-Level Strategies Table 6.2

29. © Copyright 2004 McGraw-Hill. All rights reserved.6–29 Formulating Business-Level Strategies Low-Cost StrategyLow-Cost Strategy  Driving the organization’s total costs down below the total costs of rivals. Manufacturing at lower costs, reducing waste.Manufacturing at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable.Lower costs than competition means that the low cost producer can sell for less and still be profitable. DifferentiationDifferentiation  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.Differentiation must be valued by the customer in order for a producer to charge more for a product.

30. © Copyright 2004 McGraw-Hill. All rights reserved.6–30 Formulating Business-Level Strategies Focused Low-CostFocused Low-Cost  Serving only one market segment and being the lowest-cost organization serving that segment. Focused DifferentiationFocused Differentiation  Serving only one market segment as the most differentiated organization serving that segment.

31. © Copyright 2004 McGraw-Hill. All rights reserved.6–31 Functional-level Strategies A plan that indicates how an organizational function intends to achieve its goals.A plan that indicates how an organizational 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.Lowering the costs of providing the value in products. Adding new value to the product by differentiating.Adding new value to the product by differentiating.  Functional strategies must fit with business level strategies.

32. © Copyright 2004 McGraw-Hill. All rights reserved.6–32 Goals for Successful Functional Strategies 1.Attain superior efficiency as a measure of outputs for a given unit of input. 2.Attain superior quality by producing reliable products that do their intended job. 3.Attain superior innovation developing new and novel features that can be added to the product or process. 4.Attain superior responsiveness to customers by acknowledging their needs and fulfilling them.

33. © Copyright 2004 McGraw-Hill. All rights reserved.6–33 Planning and Implementing Strategy 1.Allocate implementation responsibility to the appropriate individuals or groups. 2.Draft detailed action plans for implementation. 3.Establish a timetable for implementation. 4.Allocate appropriate resources. 5.Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.