1. Planning, Strategy, and Competitive Advantage
Chapter 06
Planning, Strategy, and Competitive Advantage

2. Learning Objectives
Identify the three main steps of the planning process and explain the relationship between planning and strategy
Differentiate between the main types of business- level strategies and explain how they give an organization a competitive advantage that may lead to superior performance

3. Learning Objectives
Differentiate between the main types of corporate- level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage
Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals

4. Planning and Strategy
Planning: Identifying and selecting appropriate goals and courses of action for an organization
Strategy: A cluster of decisions about what goals to pursue, what goals to pursue, what actions to take, and how to use resources to achieve goals
Mission statement: Broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

5. Question What is a broad declaration of an organization’s purpose ?
A. Company bill of rights
B. Mission statement
C. Business plan
D. Executive summary
The correct answer is “B” – Mission statement.

6. Figure 6.1 - Three Steps in Planning

7. The Nature of the Planning Process
To perform the planning task, managers should:
Establish and discover where an organization is at the present time
Determine where it should be in the future, its desired future state
Decide how to move it forward to reach that future state

8. Why Planning is Important
Planning is necessary to give the organization a sense of direction and purpose
Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization
A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state
A plan can be used as a device for controlling managers within an organization

9. Figure 6.2 - Levels of Planning at General Electric

10. Figure 6.3 - Levels and Types of Planning

11. Time Horizons of Plans Time horizon: 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- or business-level plan that extends over several years is typically treated as a rolling plan
Rolling plan is updated and amended every year to take account of changing conditions in the external environment

12. Types of Plans Standing plans
Used in situations when programmed decision making is appropriate
When the same situations occur repeatedly, managers develop policies, rules, and standard operating procedures (SOPs)

13. Types of Plans Single-use plans
Developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations
Programs: Integrated sets of plans for achieving certain goals
Projects: Specific action plans created to complete various aspects of a program

14. 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

15. Determining the Organization’s Mission and Goals
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
Strategic leadership: Ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates

16. Figure 6.4 - Three Mission Statements

17. Formulating Strategy
Development of a set of corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals
SWOT analysis
Planning exercise in which managers identify:
Organizational strengths and weaknesses
Environmental opportunities and threats

18. Figure 6.5 - Planning and Strategy Formulation

19. The Five Forces Model
Helps managers focus on the five most important competitive forces, or potential threats, in the external environment
Level of rivalry among organizations in an industry
Potential for entry into an industry
Power of large suppliers
Power of large customers
Threat of substitute products

20. Formulating Business-Level Strategies
Low-cost strategy: Driving the organization’s total costs down below the total costs of rivals
Differentiation strategy: Distinguishing an organization’s products from the competitors’ products on dimensions such as product design, quality, or after-sales service

21. 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

22. Formulating Business-Level Strategies
Focused low-cost: Serving only one segment of the overall market and trying to be the lowest cost organization serving that segment
Focused differentiation: Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment

23. Formulating Corporate-Level Strategies
Concentration on a single industry: Reinvesting a company’s profits to strengthen its competitive position in its current industry
Vertical integration: Expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products

24. Figure 6.6 - Stages in a Vertical Value Chain

25. Question
What is expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services?
A. Differentiation
B. Diversification
C. Synergy
D. International expansion
The correct answer is “B” – diversification.

26. Diversification
Diversification: Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services

27. Diversification Related diversification Unrelated diversification
Entering a new business or industry to create a competitive advantage in one or more of an organization’s existing divisions or businesses
Unrelated diversification
Entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries

28. International Expansion
Basic question
What extent do organizations need to customize products and marketing for different national conditions?
Global strategy: Selling the same standardized product and using the same basic marketing approach in each national market
Ignoring national differences, may leave organizations vulnerable to local competitors

29. International Expansion
Multi-domestic strategy: Customizing products and marketing strategies to specific national conditions
Significant cost savings associated with not having to customize products and marketing approaches
Helps gain local market share
Raises production costs thereby leading to higher prices

30. Figure 6.7 - Four Ways of Expanding Internationally