1. MANAGING: A COMPETENCY BASED APPROACH
11th Edition
Chapter 7—Formulating Plans and Strategies
Don Hellriegel
Susan E. Jackson
Prepared by
Argie Butler
Texas A&M University
John W. Slocum, Jr.

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
Chapter 7: PowerPoint 7.1

3. 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)
Chapter 7: PowerPoint 7.2

4. 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
Chapter 7: PowerPoint 7.3

5. 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
Chapter 7: PowerPoint 7.4

6. Interrelated Core Components
in Strategic Planning
Vision and Mission
Strategic planning
Resource
Allocation
Organizational
Goals
Strategies
Chapter 7: PowerPoint 7.5

7. 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
Chapter 7: PowerPoint 7.6

8. 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
Chapter 7: PowerPoint 7.7

9. 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
Chapter 7: PowerPoint 7.8

10. 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
Chapter 7: PowerPoint 7.9

11. 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
Chapter 7: PowerPoint 7.10

12. 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
Chapter 7: PowerPoint 7.11

13. 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
Chapter 7: PowerPoint 7.12

14. 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
Chapter 7: PowerPoint 7.13

15. Diversification
What can we do better than other firms if we enter a new market?
2. What strategic resources—human, financial, and others—do we need to succeed in the new market?
Questions in Considering Diversification
4. What can we learn by diversifying, and are we sufficiently organized to learn it?
3. Will we simply be a player in the new market or will we emerge a winner?
Chapter 7: PowerPoint 7.14

16. 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
Chapter 7: PowerPoint 7.15

17. Types of Diversification Strategies and Planning
High 
General Electric
Complexity of Strategic Planning 
Johnson &
Johnson 
MTV Networks 
Google
Low
Single- business strategy
Dominant- business strategy
Related- business strategy
Unrelated- business strategy
Diversification Strategy
Chapter 7: PowerPoint 7.16 (Figure 7.2)

18. 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
Chapter 7: PowerPoint 7.17

19. Corporate-Level Strategy
Common Corporate Growth Strategies
Forward integration
Backward integration
Organic: Expansion of existing businesses
Conglomerate diversification
Horizontal integration
Related diversification
Chapter 7: PowerPoint 7.18 (Figure 7.4)

20. Corporate-Level Strategy
Executive Compensation and Corporate Growth
Salary, bonuses, stock options, etc.
Stock option: a contractual right granted by a company to the employee to purchase a defined number of shares of the company’s stock at a fixed price within a specified period of time
Much criticism in recent years over the design and monitoring of executive compensation programs
Chapter 7: PowerPoint 7.19

21. 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
Chapter 7: PowerPoint 7.20

22. Business-Level Planning
Basic Questions
3. How will customers’ needs be satisfied?
2. What customer needs will be satisfied?
Who will be served?
Chapter 7: PowerPoint 7.21

23. 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
Chapter 7: PowerPoint 7.22

24. 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?
Chapter 7: PowerPoint 7.23 (Adapted from Table 7.2)

25. 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?
Chapter 7: PowerPoint 7.24 (Adapted from Table 7.2)

26. 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
Chapter 7: PowerPoint 7.25 (Adapted from Figure 7.5)
(continued)

27. 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
Chapter 7: PowerPoint 7.26 (Adapated from Figure 7.5)

28. Core Competencies: the strengths that make an organization distinctive and competitive by providing goods or services that have unique value to its customers
“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
Chapter 7: PowerPoint 7.27

29. 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
Chapter 7: PowerPoint 7.28

30. Organic Growth Strategies in Business Level Planning
Market penetration
Organic growth
Product development
Market development
Chapter 7: PowerPoint 7.29 (Figure 7.6)

31. Generic Competitive Strategies Model
Broad
Differentiation
Strategy
Cost Leadership
Strategy
Strategic Target
Focused
Differentiation
Strategy
Focused
Cost Leadership
Strategy
Narrow
Uniqueness
Low Cost (price)
Sources of Advantage
Chapter 7: PowerPoint 7.30 (Adapted from Figure 7.7)

32. 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
Chapter 7: PowerPoint 7.31

33. Integrated Strategy Model How will the firm obtain profits?
Arenas
Where will the firm be active?
Staging
What will be the firm’s speed and sequence of moves?
Economic Logic
How will the firm obtain profits?
Vehicles
How will the firm get there?
Adapted from
D.C. Hambrick
and J.W. Fredrickson.
Are you sure you have a strategy: Reprinted in Academy of Management Executive, 2005, 15(4), 54.
Differentiation
How will the firm excel?
Chapter 7: PowerPoint 7.32 (Figure 7.8)

34. Criteria for Evaluating the Quality of a Firm’s Integrated Strategy
Does the strategy fit with what’s going on in the environment?
Is there healthy profit potential where the firm’s headed?
Does the strategy align with the key success factors of the chosen environment?
Does the strategy exploit the firm’s key resources?
With the firm’s particular mix of resources, does this strategy give it a good head start on competitors?
Can this strategy be pursued more economically than competitors?
Chapter 7: PowerPoint 7.33 (Adapted from Table 7.4)

35. Will the differentiators be sustainable?
Criteria for Evaluating the Quality of a Firm’s Integrated Strategy (cont’d)
Will the differentiators be sustainable?
Will competitors have difficulty matching the firm?
If not, does the strategy call for innovation and opportunity creation?
Are the elements of the strategy internally consistent?
Have the leaders made choices of arenas, vehicles, differentiators, staging, and economic logic?
Do they all fit and mutually reinforce each other?
Chapter 7: PowerPoint 7.34 (Adapted from Table 7.4)

36. Are there enough resources to pursue this strategy?
Criteria for Evaluating the Quality of a Firm’s Integrated Strategy (cont’d)
Are there enough resources to pursue this strategy?
Does the firm have the money, managerial competencies, and other capabilities to implement the strategy?
Are the leaders sure that they are not spreading the firm’s resources too thinly, only to be left with a collection of positions?
Chapter 7: PowerPoint 7.35 (Adapted from Table 7.4)

37. Is the strategy implementable?
Criteria for Evaluating the Quality of a Firm’s Integrated Strategy (cont’d)
Is the strategy implementable?
Will the key stakeholders allow the firm to pursue this strategy?
Can the organization make it through the transition?
Is management team able and willing to lead the required changes?
Adapted from D.C. Hambrick and J.W. Fredrickson. Are you sure you have a strategy? Reprinted in Academy of Management Executive, 2005, 19(4), 61.
Chapter 7: PowerPoint 7.36 (Adapted from Table 7.4)