1. Chapter 7
Planning and Strategy

2. Formulating Plans and Strategies
Learning Goals
Describe the importance and core components of strategic and tactical planning
Discuss the effects of organizational diversification strategies on planning
Describe the basic levels of strategy and planning
State the primary tasks of the strategic business-level planning process
Explain the generic competitive strategies model
Explain the integrated strategy/model

3. What Is Planning? Planning
involves defining the organization’s goals, establishing an overall strategy, and developing a comprehensive set of plans to integrate and coordinate organizational work
informal planning - nothing is written down
little or no sharing of goals
general and lacking in continuity
formal planning - written
defines specific goals
specific action programs exist to achieve goals
© Prentice Hall, 2002

4. How Do Managers Plan? The Role of Goals and Plans in Planning
goals - desired outcomes
provide direction for all management decisions
represent the criteria against which actual work accomplishments can be measured
plans - outline how goals are going to be met
Types of Goals
all organizations have multiple objectives
no single measure can evaluate whether an organization is successful
financial goals - relate to financial performance
strategic goals - relate to other areas of performance
© Prentice Hall, 2002
7-4

5. Importance and Types of Planning: Why Is Planning Important?
Discover new opportunities
Anticipate and avoid future problems
Effective planning helps to
Comprehend the uncertainties and risks with various options
Develop effective courses of action (strategies and tactics)

6. Stated Objectives From Large US Companies
© Prentice Hall, 2002
7-6

7. What Is Strategic Planning?
The process of:
Diagnosing the organization’s external and internal environments
Deciding on a vision and mission
Developing overall goals
Creating and selecting general strategies to be pursued
Allocating resources to achieve the organization’s goals

8. What is Strategic Planning?
Contingency planning—preparation for unexpected, major, and quick changes (positive or negative) in the environment that will have a significant impact on the organization and require immediate responses
Plan for 3 to 5 potentially critical and unanticipated events
Supports orderly and speedy adaptation

9. Interrelated Core Components
in Strategic Planning
Vision and Mission
Strategic planning
Resource
Allocation
Organizational
Goals
Strategies

10. What is Strategic Planning?
Vision: Expresses an organization’s fundamental aspirations and purpose, usually by appealing to its members’ hearts and minds
eBay: To pioneer new communities around the world built on commerce, sustained by trust, and inspired by opportunity

11. What is Strategic Planning?
Mission: The organization’s purpose or reason for existing; often answers questions such as:
What business are we in?
Who are we?
What are we about?
eBay: To serve as the world’s online marketplace for the sale and payment of goods and services by a diverse community of individuals and businesses

12. To make the people happy.
Mission
Wal-Mart
To give ordinary folk the chance to buy the same things as rich people.
Walt Disney
To make the people happy.

13. Microsoft’s Mission Statement
Old Mission: A computer on every desk and in every home. (From 1975 to 2000)
New Mission: Enable people throughout the world to realize their full potential through great software – any time, any place, and on any device. (From 2000-present)
Slogan:
“Unlocking your full potential - any time, any place, any device”
Motivational?

14. Wal-Mart’s Mission Statement
Give people high value, low prices and a warm welcome.
Company slogans:
“Every day low prices”
“The Customer is number one! Always!”
“Service with a smile”
Motivational?

15. Starbucks’ Mission Statement
To be the premier purveyor of the finest coffee in the world while maintaining uncompromising principles.
Company Slogans:
“Serving customers one cup at a time”
“ Treating each other with respect and dignity”
“Clean and friendly Green”
Motivational?

16. What is Strategic Planning?
Organizational goals: the results that the managers and others have selected and are committed to achieving for the long-term survival and growth of the firm
May be expressed qualitatively and quantitatively
Qualitative: simplify the sales process within six months
Quantitative: reduce operating costs by $1 billion within eighteen months

17. What is Strategic Planning?
Strategies: the major courses of action (choices) selected and implemented to achieve one or more goals
The essence of most good strategies is the need to make many choices that are all consistent—choices about production, service, design, and so on. Companies cannot randomly make a lot of choices that all turn out to be consistent. It’s statistically impossible. That means companies need to grasp at least a part of the whole. As we study the histories of successful companies, we see that someone or some group developed insight into how a number of choices fit together…
Michael Porter
Harvard Business School

18. Dell’s Competitive Strategies:
Speed to Market
Superior Customer Service
Commitment to producing consistently high quality
Custom-made computer systems that provide the highest performance and the latest and relevant technology to customers
On-line sales and customer support.
Dell uses Best-Buy Strategy - cost leader, but customization, speed of delivery, responsive service, strengthen differentiation.
Dell shapes industry structure towards its favor with virtual and tight integration with customer and supply chain J-I-T. Winning market share from competitors.

20. What is Strategic Planning?
Resource allocation: assigning money, people, facilities, and other resources among various current and new business opportunities
Key part: allocating money, through budgets, for various purposes

22. What is Tactical Planning?
What to do
Who will do it
Making decisions regarding:
Normal time horizon of 1 to 2 years, often less
How to do it

23. What is Tactical Planning?
Specific courses of action
Implementing initiatives or improving current operations
Integrated with annual budgeting
Focus on first-line and middle-managers

24. Strategic vs. Tactical Planning

25. Diversification Strategies and Planning: Diversification
The variety of goods and/or services produced by an organization and the number of different markets it serves
Snapshot
“We are always looking for companies, products, or emerging technologies that will complement and strengthen our existing businesses, lead us into new therapeutic areas to address unmet medical needs, enhance our research and development capabilities, and, ultimately, further our strategy for growth. Each acquisition is different, and in each situation, we carefully examine the best way to integrate that technology, product, or organization into our family of companies.”
William C. Weldon
Chairman and CEO, Johnson & Johnson

26. Degree of Diversification and Planning
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?

27. Types of Diversification Strategies
Single-business strategy: providing a limited number of goods or services to one particular market
Dominant-business strategy: serving various segments of a market
Related-business strategy: providing a variety of complementary goods and/or services
Unrelated-business strategy: providing diverse products (goods and/or services) to many different types of markets

28. Degree of Diversification and Planning (adapted from Figure 7.1)
High
General
Electric
Johnson &
Johnson
Strategic Planning
Complexity of
CEMEX
MTV
Google
Low
Low
Single-
business
firm
Dominant-
business
firm
Related-
business
firm
Unrelated-
business
firm
High
Degree of Diversification

29. Strategy 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
Corporate-level Management
Guides and reviews performance of strategic units
Strategic business unit (SBU): a division or subsidiary of a firm that provides a related set of products or services and usually has its own mission and goals

30. Corporate-Level Strategy
Common Corporate Growth Strategies
Forward integration
Backward integration
Organic: Expansion of existing businesses
Conglomerate diversification
Horizontal integration
Related diversification

31. Business-Level Strategy
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
Plans and strategies developed for
maintaining or gaining a competitive edge in serving its customers,
determining how each functional area can best contribute to its overall effectiveness, and
allocating resources for expansion and among its functions
Time Warner: America Online, HBO, Warner Brother Studios.

32. Business-Level Planning
Basic Questions
3. How will customers’ needs be satisfied?
2. What customer needs will be satisfied?
Who will be served?

33. Functional-Level Strategy
The actions and resource commitments established for operations, marketing, human resources, finance, legal services, accounting, and the organization’s other functional areas
Should support business-level strategies and plans
Finance HR
Other

34. Functional-Level Strategy
Examples of Issues in Developing Human Resources Strategies
What type of reward system is needed?
How should the performance of employees be reviewed?
What approach should be used to recruit qualified personnel?
How is affirmative and fair treatment ensured for women, minorities, and the disabled?

35. Functional-Level Strategy
Examples of Issues in Developing Finance Strategies
What is the desired mixture of borrowed funds and equity funds?
What portion of profits should be reinvested and what portion paid out as dividends?
What criteria should be used in allocating financial and human resources to projects?
What should be the criteria for issuing credit to customers?

36. General Electric’s Strategy and Planning Levels (adapted from Figure 7
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
Corporate
Level
Business
Level * GE
Consumer
Finance GE
Plastics GE
Transportation
Systems
Plus 10 other
primary
business units
Marketing
Human
Resources
Finance/
Accounting
Other
Marketing
Human
Resources
Finance/
Accounting
Other
Marketing
Human
Resources
Finance/
Accounting
Other
Functional
Units
in each
line of
Business
Functional
Level
* Each of the 13 primary units has its own business functions

37. The Planning Process (adapted from Figure 7.3)
Task 2:
Diagnose
opportunities
and threats
Task 1:
Develop vision,
mission
and Goals
Task 4:
Develop
strategies
Task 5:
Prepare strategic
plan
Task 8:
Continue
planning
Task 3:
Diagnose strengths
and weakness
Task 6:
Prepare tactical
plans
Task 7:
Control and
diagnose results

38. Business-Level Strategic Planning Tasks and Process
Task 2: Diagnose Opportunities and Threats
Task 1: Develop Vision, Mission and Goal
Task 3: Diagnose Strengths and Weaknesses
Industry/market competition
Political forces
Stakeholders expectations
Values, culture
Others
Who are we?
What do we want to become?
What are our goals?
Competitive position
Human skills
Technological capabilities
Financial resources
Organization and management
Task 4: Develop
Strategies
Evaluate against
Evaluate against
(continued)

39. Business-Level Strategic Planning Tasks and Process (cont’d)
Task 5: Develop Strategic Plan
Selected strategy or strategies (includes market segments and competitive methods)
Required human skills and competencies
Required technological capabilities
Required financial resources
Required organization and management
Task 6: Prepare Tactical Plans
Task 7: Control and Diagnose Results
Task 8: Continue Planning

40. Core Competencies: the strengths that make an organization distinctive and competitive by providing goods or services that have unique value to its customers.
Three Broad Groups: Superior Technological know-how, reliable processes, Close relationships with external stakeholders
“If you look at most of the corporate tragedies in the last five years, you’ll also discover that many of them were companies moving into other businesses they really shouldn’t have moved into, that weren’t close to their core business and competencies, including Enron, Kmart, and Worldcom. If you’re having problems in your core business and think you can move to another business, it’s not going to work. You have to have strong assets you can build on. The farther away people got from their core business and competencies, the lower their rate of success.”
Ted Rouse
Global Business Practice, Bain and Company

41. Outsourcing Strategy: Contracting with other organizations to perform a needed service and/or manufacture needed parts or products that had previously been provided within the firm
Outsourcing Drivers
expense reduction (including fewer employees),
better production quality,
improved reporting uniformity and regulatory compliance,
more effective use of expensive talent so that they can spend more of their time on innovating, expanding global capabilities, and
more effective business process management

42. Task 4: Develop Strategies
Market penetration
Organic growth
Product development
Market development

43. Generic Competitive Strategies Model (adapted from Figure 7.4)
Broad
Cost Leadership
Strategy
Differentiation
Strategy
Strategic Target
Focused
Differentiation
Strategy
Focused
Cost Leadership
Strategy
Narrow
Uniqueness
Low Cost (price)
Source of Advantage

44. Snapshot
“The best strategy for a smaller business is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers…Try to find the right configuration of products, services, quality and price that will ensure the least direct competition.”
Ron Consolino
Management Counselor
Counselors to America’s Small Business

45. Planning and Levels of Management