PLANNING & STRATEGIC MANAGEMENTCHAPTER - 10

PlanningThe process of establishing goals & a suitable course of action for achieving those goals.It is concerned with both ends (whats to be done) & means (how its to be done).Goal The purpose that an organization strives to achieve; desired outcomesPlan Some program or method for achieving goals.Goals must be specific, measurable with realistic achievable deadlines.

Purposes of planningProvides directionReduces uncertaintyMinimizes waste & redundancyEstablish the goals/standards used in controlling.

Importance of goalsGoals provide a sense of direction.Goals focus our effortsGoals guide our plans & decisionsGoals help us evaluate our progress

The Importance of Planning at organizationsPlanning is the process of setting goals & choosing the means to achieve those goals.Without planning; Organizing, Leading & Controlling will not be effective.

The Hierarchy of Organizational PlansStrategic Plans Plans designed by high-ranking managers to meet an organizations broad goals, includes formulation of goals.Operational Plans contain details for carrying out, or implementing, those strategic plans in day-to-day activities.Strategic Plans deal with relationships between people at an organization & people acting at other organizations. Operational Plans deal with people within one organization.

h Mission statement A broad goal based on managers assumptions about the organizations purpose, competencies, & place in the world.

The Hierarchy of PlansCreated by:Founder, Board of Directors, or Top managersTop & Middle ManagersMiddle & First-Line Managers

How Strategic & Operational Plans DifferTime HorizonsScopeDegree of Detail

The Evolution of the Concept of StrategyStrategy The broad program for defining & achieving an organizations objectives; the organizations response to its environment over time.Strategy as the Grand Plan The concept of strategy is ancient. The word itself comes from the Greek Strategeia, which means the art or science of being a General.

The Rise of Strategic ManagementStrategic Management The determination of the basic long-term goals & objectives of an enterprise, & the adoption of courses of action & the allocation of resources necessary for carrying out these goals.Chandler stressed 3 key elements: Courses of action for attaining objectives The process of seeking key ideas. How strategy is formulated, not just what that strategy turns out to be.

The Strategic Management Approach Hofer & Schendel focused on key aspects of strategic management:Goal SettingStrategy FormulationAdministrationStrategic Control

The Strategic Management ProcessStrategy Planning Includes Goal Setting & Strategy Formulation.Strategy Implementation Includes Administration & Strategic Control.

Strategic Management ProcessStrategic PlanningStrategy Implementation

Levels of Strategy: Some Key DistinctionsCorporate Level StrategyBusiness Unit StrategyFunctional Level Strategy

Levels of Organizational Strategy

Hierarchy of Strategic & Operational Plans at a Multi-Business Organization

Corporate StrategyStrategy formulated by top management to oversee the interests & operations made up of more than one line of businesses.It is an organizational strategy that determines what businesses a company is in, should be in, or wants to be in, & what it wants to do with those businesses.2 types of Growth strategy in Corporate strategy: Concentration Diversification

Concentration: Strategy in which organization concentrates on its primary line of business & grows by increasing the no. of products offered or markets served in this primary business.Diversification: Strategy in which organization moves into new products or markets in new businesses2 types of Diversification strategies: Related Diversification Unrelated Diversification

Related Diversification: Strategy in which organization moves into new products or markets in new businesses but within the same industry in which the company operates. 2 types of Related Diversification:Vertical IntegrationHorizontal IntegrationVertical Integration: Vertical Integration may be:Backward IntegrationForward Integration

Backward Integration: In this the organization attempts to gain control of its inputs by becoming its own supplier.Forward Integration: In this the organization gains control of its output.Horizontal Integration: In this the company grows by combining with other organizations in the same industry i.e. its competitors.

Unrelated Diversification: Strategy in which organization moves into new products or markets in new businesses in new industry.

Business Unit StrategyStrategy formulated to meet the goals of a particular business.It is an organizational strategy focused on how the organization will compete in each of its businesses & how it can gain competitive advantage in each of its businesses.Competitive advantage What sets an organization apart, i.e., its distinctive edge which can come from its core competencies.Core Competencies: Doing something that others cannot do or doing it better than others. It can also mean having something (resources) that its competitors do not have.

4 types of Business strategy:Cost Leadership StrategyDifferentiation StrategyFocus StrategyStuck-in-the-middle Strategy

Business Unit StrategyCost Leadership Strategy: A business or Competitive strategy in which the organization competes on the basis of having the lowest costs in the industry.Differentiation Strategy: A business or Competitive strategy in which a company offers unique products that are widely valued by the customers.Sources of differentiation may be high quality, extraordinary service, innovative design, technology, positive brand image.Differentiation must justify the price premium that exceeds the cost of differentiation.

Focus Strategy: A business or Competitive strategy in which a company pursues a cost or differentiation advantage in a narrow segment or niche.Stuck in the middle Strategy: A situation in which an organization hasnt been able to develop either a low cost or a differentiation competitive advantage

Functional Level Strategy Strategy formulated by a specific functional area in an effort to carry out business unit strategy.

The Corporate Portfolio Approach: BCG MatrixIn this approach, top management evaluates each of the corporations various business units with respect to the marketplace & the corporations internal makeup.When all business units have been evaluated, an appropriate strategic role is developed for each unit with the goal of improving the overall performance of the organization.One of the best-known examples of the corporate portfolio approach is the portfolio framework advocated by the Boston Consulting Group also known as the BCG matrix.

It focuses on 3 aspects of each particular business unit: its sales, the growth of its market, & whether it absorbs or produces cash in its operation.Its goal is to develop a balance among business units that use up cash & those that supply cash.In BCG matrix business units are plotted according to their market growth rate & their relative market share.

The BCG MatrixQuestion Mark: High market growth rate & low market share.

Star: High market growth rate & high market share.

Cash Cow: Low market growth rate & high market share.

Dog: Low market growth rate & low market share.

The BCG Matrix

Five Forces Corporate StrategyAlso known as Porters Five force model help identify the sources of competition in an industry.In Porters view, an organizations ability to compete in a given market is determined by that organizations technical & economic resources, as well as by 5 environmental forces, each of which threatens the organizations venture into a new market.Through industry analysis, managers can create & sustain a competitive advantage that will give a company above-average profitability.Thus these 5 forces determine an industrys attractiveness & Profitability.

Porters 5 - Forces in the Industry Analysis

Porters 5 Force ModelThreat of New EntrantsBargaining Power of Buyers (customers)Bargaining power of suppliersThreat of substitute productsRivalry among competitors

Enterprise Strategy (E - Strategy) A statement of values & principles that explains why an organization does what it does.

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