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Fundamentals of

Core Concepts & ApplicationsGriffinGriffinThird Edition

MANAGEMENTMANAGEMENT

PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookCopyrightCopyright 2003 Houghton Mifflin Company. All rights reserved.2003 Houghton Mifflin Company. All rights reserved.

Chapter 3

Planning and Strategic Management

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Copyright by Houghton Mifflin Company. All rights reserved. 32

Chapter OutlineChapter Outline

Planning and Organizational GoalsPurposes of Goals

Kinds of Goals

The Nature of Strategic Management

The Components of Strategy

Types of Strategic Alternatives

Using SWOT Analysis to Formulate Strategy

Evaluating an Organizations StrengthsEvaluating an Organizations Weaknesses

Evaluating an Organizations Opportunities and

Threats

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Chapter Outline (contd)Chapter Outline (contd)

Formulating Business-Level StrategiesPorters Generic Strategies

Strategies Based on the Product Life Cycle

Formulating Corporate-Level Strategies

Single-Product Strategy

Related Diversification

Unrelated Diversification

Managing Diversification Tactical Planning

Developing Tactical Plans

Executing Tactical Plans

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Chapter Outline (contd)Chapter Outline (contd)

Operational PlanningSingle-Use Plans

Standing Plans

Contingency Plans

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Learning ObjectivesLearning Objectives

After studying this chapter, you should be ableto:

Summarize planning process and describe

organizational goals.

Discuss the components of strategy and types ofstrategic alternatives.

Describe how to use SWOT analysis in formulating

strategy.

Identify and describe various alternative approachesto business-level strategy formulation.

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Learning Objectives (contd)Learning Objectives (contd)

Identify and describe various alternative approachesto corporate-level strategy formulation and describe

how corporate-level strategies are implemented.

Discuss how tactical plans are developed and

executed.Describe the basic types of operational plans used by

organizations.

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Decision Making and the Planning ProcessDecision Making and the Planning Process

The Planning Process

Strategic goals Strategic plans

Tactical goals

Operational goals Operational plans

The organizations mission

The Environmental Context

Purpose Premises Values Directions

Tactical plans

Figure 3.1

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Organizational GoalsOrganizational Goals

Purposes of GoalsProvide guidance and a unified direction for people in

the organization.

Have a strong effect on the quality of other

aspects of planning.Serve as a source of

motivation for

employees of the

organization.Provide an effective

mechanism for evaluation

and control of the organization.

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Kinds of GoalsKinds of Goals

By LevelMission statement is a statement of an organizations

fundamental purpose.

Strategic goals are goals set by and for top

management of the organization that address broad,general issues.

Tactical goals are set by and for middle managers;

their focus is on how to operationalize actions to

strategic goals.Operational goals are set by and for lower-level

managers to address issues associated with tactical

goals.

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Different Goal Setting Processes in OrganizationsDifferent Goal Setting Processes in Organizations

Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright 1992 by Houghton Mifflin Company. Used with permissions.

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Kinds of PlansKinds of Plans

Strategic PlansA general plan outlining resource allocation, priorities,

and action steps to achieve strategic goals. The plans

are set by and for top management.

Tactical PlansA plan aimed at achieving the

tactical goals set by and for

middle management.

Operational PlansPlans that have a short-term focus.

These plans are set by and for lower-level managers.

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The Nature of Strategic ManagementThe Nature of Strategic Management

StrategyA comprehensive plan for accomplishing an

organizations goals.

Strategic Management

A way of approaching business opportunities and

challengesa comprehensive and ongoing

management process aimed at formulating and

implementing effective strategies.

Effective StrategiesStrategies that promote a superior alignment between

the organization and its environment and the

achievement of its goals.

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The Components of StrategyThe Components of Strategy

Distinctive CompetenceSomething an organization does exceptionally well.

Scope

Range of markets in which an organization will

compete.

Resource Deployment

How an organization will

distribute its resources

across the areas in

which it competes.

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Types of Strategic AlternativesTypes of Strategic Alternatives

Business-level StrategyThe set of strategic alternatives that an organization

chooses from as it conducts business in a particular

industry or a particular market.

Corporate-level StrategyThe set of strategic alternatives that an

organization chooses from as it manages

its operations simultaneously

across several industriesand several markets.

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Types of Strategic Alternatives (contd)Types of Strategic Alternatives (contd)

Strategy FormulationThe set of processes involved in creating or

determining the organizations strategies; it focuses on

the content of strategies.

Strategy ImplementationThe methods by which strategies are operationalized

or executed within the organization;

it focuses on the processes

through which strategiesare achieved.

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TheThe

RelationshipsRelationships

ofofStrategiesStrategies

byby

OrganizationalOrganizational

LevelLevel

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SWOTSWOT

AnalysisAnalysis

Strengths

Weaknesses

Opportunities

Threats

Mission

An organizations fundamental purpose

Best Strategies

SWOT AnalysisTo formulate strategies that support the mission

Those that support the mission and exploit opportunities and strengths neutralize threats avoid (or correct) weaknesses

Internal AnalysisStrengths(distinctive

competencies)

Weaknesses Threats

External AnalysisOpportunities

Figure 3.2

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Using SWOT Analysis toUsing SWOT Analysis to

Formulate StrategyFormulate Strategy

Evaluating Organizational Strengths

Organizational strengths

Skills and abilities enabling an organization to conceive

of and implement strategies.

Distinctive competencies

Useful for competitive advantage and superior

performance.

Sustained competitive advantage

Occurs when a distinctive competence cannot be easily

duplicated and is what remains after all attempts at

strategic imitations have ceased.

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Using SWOT Analysis to FormulateUsing SWOT Analysis to Formulate

Strategy (contd)Strategy (contd)

Evaluating Organizational Weaknesses

Organizational weaknesses are skills and capabilities

that do not enable an organization to choose and

implement strategies that support its mission.

Weaknesses can be overcome by:

investments to obtain the strengths needed.

modification of the organizations mission

so it can be accomplished with the current

workforce.

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Evaluating Organizational Weaknesses (contd)

Competitive disadvantage is a situation

in which an organization fails to implement

strategies being implemented

by competitors.

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Evaluating an Organizations

Opportunities and Threats

Organizational opportunities

are areas in the organizationsenvironment that may generate

high performance.

Organizational threats are areasin the organizations environment that

make it difficult for the organization

to achieve high performance.

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Porters Generic StrategiesPorters Generic Strategies

Differentiation strategyAn organization seeks to distinguish itself from

competitors through the quality of its products or

services.

Overall cost leadership strategyAn organization attempts to gain competitive

advantage by reducing its costs below the costs of

competing firms.

Focus strategyAn organization concentrates on a specific regional

market, product line, or group of buyers.

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Strategies Based on Product Life CycleStrategies Based on Product Life Cycle

The Product Life Cycle

Introduction

Time

Stages

Growth Maturity Decline

High

Low

SalesVolume

Figure 3.3

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The Adaptation ModelThe Adaptation Model

of Business Strategyof Business Strategy

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Formulating CorporateFormulating Corporate--Level StrategiesLevel Strategies

Strategic Business UnitsEach business or group of businesses within an

organization engaged in serving the same markets,

customers, or products.

DiversificationThe number of businesses an organization is engaged

in and the extent to which these businesses are

related to one another.

Single Product StrategyA strategy in which an organization manufactures one

product or service and sells it in a single geographic

market.

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Related DiversificationRelated Diversification

Related DiversificationA strategy in which an organization operates in

several different businesses, industries, or markets

that are somehow linked.

Bases of Relatedness in ImplementingRelated Diversification

Basis of Relatedness Examples

Similar technology Phillips, Boeing, Westinghouse, Compaq

Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble

Common name brand and reputation Disney, Universal

Common customers Merck, IBM, AMF-Head

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Related Diversification (contd)Related Diversification (contd)

Advantages of Related DiversificationReduces organizations dependence on any one of its

business activities and thus reduces economic risk.

Reduces overhead costs associated with managing

any one business through economies of scale andeconomies of scope.

Allows an organization to exploit its strengths and

capabilities in more than one business.

Synergyexists among a set of businesses when thebusinesses value together is greater than their

economic value separately.

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Formulating CorporateFormulating Corporate--LevelLevel

Strategies (contd)Strategies (contd)

Unrelated Diversification

A strategy in which an organization operates multiple

businesses that are not logically associated with one

another.

Advantages

Stable corporate-level performance over time due to

business cycle differences among the multiple

businesses.

Resources can be allocated to areas with the highest

return potentials to maximize corporate performance.

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Formulating CorporateFormulating Corporate--LevelLevel

Strategies (contd)Strategies (contd)

Unrelated Diversification (contd)

Disadvantages

Strategy does not usually lead to high performance due

to the complexity of managing a diversity of businesses.

Firms with unrelated strategies fail to exploit important

synergies, putting them at a competitive disadvantage to

firms with related diversification strategies.

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Managing DiversificationManaging Diversification

Major Tools for Managing DiversificationPortfolio management techniques

Methods that diversified organizations use to make

decisions about what businesses to engage in and how to

manage these multiple businesses to maximize corporateperformance.

Two important portfolio management techniques

The BCG Matrix

The GE Business Screen

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Managing Diversification (contd)Managing Diversification (contd)

BCG MatrixA method of evaluating businesses relative to the

growth rate of their market and the organizations

share of the market.

The matrix classifies the types of businesses that adiversified organization can engage as:

Dogs have small market shares and no growth

prospects.

Cash cows have large shares of mature markets. Question marks have small market shares in quickly

growing markets.

Stars have large shares of rapidly growing markets.

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The BCG MatrixThe BCG Matrix

Relative market share

Cash cows Dogs

High

Low

High Low

Questionmarks

Stars

Marketgrowthrate

Figure 3.4Source:Perspectives, No. 66, The Product Portfolio, Adapted by

permission from The Boston Consulting Group, Inc., 1970.

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Managing DiversificationManaging Diversification

GE Business ScreenA method of evaluating business in a diversified

portfolio along two dimensions, each of which contains

multiple factors:

Industry attractiveness. Competitive position (strength) of each firm in the

portfolio.

In general, the more attractive the industry and the

more competitive a business is, the more resourcesan organization should invest in that business.

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The GE Business ScreenThe GE Business Screen

Competitive position

Low

Winner

Medium

High

Good

Competitive position1. Market share

2. Technological know-how

3. Product quality

4. Service network

5. Price competitiveness

6. Operating costs

Industry attractiveness1. Market growth

2. Market size

3.Capital requirements

4.Competitive intensity

PoorMedium

Winner

Profit

producer

Winner

Average

business

Loser

Question

mark

Loser

LoserIndustrygrowthrate

Figure 3.5

Source: From Strategy Formulation:

Analytical Concepts, by Charles W. Hofer

and Dan Schendel. Copyright 1978 West

Publishing. Used by permission of South-

Western College Publishing, a division of

International Thomson Publishing, Inc.,

Cincinnati, Ohio, 45227.

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Tactical PlanningTactical Planning

Developing and Executing Tactical Plans

Developing tactical plans

Recognize and understand

overarching strategic plans

and tactical goals

Specify relevant resource and

time issues

Recognize and identify human

resource commitments

Executing tactical plans

Evaluate each course of action

in light of its goal

Obtain and distribute

information and resources

Monitor horizontal and vertical

communication and integration

of activities Monitor ongoing activities for

goal achievement

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Operational PlanningOperational Planning

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright 1991 by Houghton Mifflin Company. Used with permissions.

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Types of Operational PlansTypes of Operational Plans

Plan Description

Single-use plan Developed to carry out a course of action not likely tobe repeated in the future

Program Single-use plan for a large set of activities

Project Single-use plan of less scope and complexity than aprogram

Standing plan Developed for activities that recur regularly over aperiod of time

Policy Standing plan specifying the organizations generalresponse to a designated problem or situation

Standard operating procedure Standing plan outlining steps to be followed inparticular circumstances

Rules and regulations Standing plans describing exactly how specificactivities are to be carried out

Table 3.1

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Contingency PlanningContingency Planning

Contingency is the determination of alternative courses of action tobe taken if an intended plan is unexpectedly disrupted or rendered

inappropriate. These plans help managers to cope with uncertainty

and change.

Ongoing planning process

Action point 1 Action point 2 Action point 3 Action point 4

Develop plan,

considering

contingency events

Implement plan and

formally identify

contingency events

Specify indicators

for the contingency

events and develop

contingency plans foreach possible event

Successfully complete

plan or contingency

plan

Monitor contingency event indicators and

implement contingency plan if necessary

Figure 3.6

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