chapter 10 planning and strategic …pvkketcho.pbworks.com/f/chapter10.ppt.pdf · 226 chapter 10...

LE A R N I N G OB J E C T I V E S

READING STRATEGIESAs you read

● PREDICT what the section will be about.

● CONNECT what you read with your own life.

● QUESTION as you read to make sure youunderstand the content.

● RESPOND to what you read.

226 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT

CHAPTER 10CHAPTER 10PLANNING ANDSTRATEGICMANAGEMENT

When you have completed this chapter, you will be able to:

� Explain the differences between formal and functionalplans.

� Recognize the differences between strategic planningand operational planning.

� Discuss the differences among missions, goals,policies, procedures, and rules.

� Understand the role of SWOT analysis in planning andstrategic management.

� Discuss the organizational factors that need evaluationin implementing strategic plans.

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WORKPLACE CONNECTIONS

For further reading on man-agers and management go to:www.businessweek.com

“I see a future extending far longerthan the twenty-five years Starbuckshas lived so far. In annual strategicplanning sessions, our seniormanagement team has been refining[our] vision to make sure it is bothaudacious and achievable. Thecompany we envision is a great,enduring one, still zealous about itsmission of bringing great coffee toeveryone everywhere.”

—Howard Schultz, Starbucks Chairman and CEO

“MANAGEMENT TALK”

227

UnderstandingManagement

In the early 1980s, HowardSchultz predicted that consumerswould support a new type of “coffee bar,” serving specialty coffee and espresso products.Under his leadership, Starbucksgrew from a homey little coffeeshop in Seattle to a multi-milliondollar corporation. Today, Schultzstill centers the company’s growthstrategy on introducing customersto great coffee.

Analyzing Management Skills

Why do you think it is important for acompany like Starbucks to refine itsvision? What other functions might annu-al strategic planning sessions serve?

Applying Management Skills

What trends do you think will influencebusinesses in the next 10 years? If youopened a business today, what things would you do to plan for its future success?

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www.businessweek.com

WHAT IS THE PLANNING PROCESS?

➤ Why businesses usestrategic planning.

➤ The differences betweenformal and functionalplanning.

➤ How to define short-range,intermediate, and long-range plans.

➤ How to differentiatebetween operational andstrategic plans.

➤ How grand, business, andfunctional strategies workin a company.

Strategic planning develops acourse of action for the futurein spite of changing economicand social conditions.

• formal planning• operational planning• strategic planning• grand or corporate strategies• growth strategy• stability strategy• defensive or retrenchment

strategy• combination strategy• business strategies• overall cost leadership• differentiation • functional strategies


Section 10.1

� TIME MANAGEMENT Effective planning is necessary to maintain a balancebetween school and social activities. What kind of plans do you consider tobalance your workload?

Why Plan?While leaving the movies with your friends on Saturday

afternoon, everyone is talking about the big football gametomorrow. You had hoped to go, but realize that you still have toprepare for your English presentation and Calculus test on Mon-day. You can’t do the work tonight because you are baby-sitting.Now you will have to miss out on the game. Effective planningcould have avoided all of these problems.

Key executives in every company spend a considerableamount of time planning. This process is important to the suc-cess of any business. Planning is the process that businesses useto decide the company’s goals for the future and ways to achievethose goals.

WHAT YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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Planning prepares managers and businesses to meet the challengesof economic, social, technological, and political changes. Plans alsoallow businesses to prepare for the future. Without plans, companieswould not know how to handle crisis situations. They also would beunable to deal with new developments, such as changes in technologyor increased competition.

Failing to implement a business plan forced Pittsburgh’s SutersvilleLumber Inc. to shut down. The 51-year-old company was forced to closeits doors when the lumber giant, Home Depot, opened three enormousstores in the area—one just three miles away. The majority of Sutersville’sowners refused to allow the chief financial officerto finish her plan of reducing costly inventoryand complete the company’s five-store expan-sion. As a result, Sutersville ran out of cash andwas forced to file for bankruptcy.

Effective PlanningEverything that an effective manager does

involves planning. For example, managers whoattempt to hire employees without a plan findthat they waste company resources constantlyhiring and firing workers. Effective plannersencourage employees from all areas of the com-pany to participate in plan development. Thisactive participation benefits the organization inseveral ways:

• Good suggestions can come from anylevel of management.

• Employees have a better understandingof the company’s overall direction.

• Employees feel they are part of the processand become committed to the plan.

• Positive participation and pro-companyattitudes improve morale and loyalty tothe organization.

Effective planning also gives managers experience and knowledgein understanding the forces that affect a company’s operations. Theseforces range from new technologies to changes in tax laws. A manageralso must keep current with what is happening in the firm’s industryand with current law.

There are several ways to plan effectively. The best managers usecombinations of formal and informal planning. They develop plansthat look months ahead, as well as those designed to meet changes fiveyears in the future.

What Is the Planning Process? Section 10.1 229

� COMMUNICATION When making changes in companypolicies or procedures, effective managers may holdmeetings with employees. Why do companies needinput from many employees to develop a plan?

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Formal Planning is the systematic studying of an issue and the

preparation of a written document to deal with the problem. Some for-mal plans are simple, but others can be very complicated. A plan togive long-time employees a gold watch is fairly simple. However, aplan to make company stock available to the public, as Amazon.comdid in the late 1990s, is complicated.

In general, larger companies must prepare more complicatedplans than smaller companies. There are three basic ranges, ortime spans, for developing business plans:

• Short-range plans cover a one-year period of time.• Long-range plans cover a three-to-five-year period of time, but

some cover as far as 20 years into the future.• Intermediate plans cover the time span between short-range and

long-range, generally from one to three or one to five years.

Operational Versus Strategic PlansPlans cover not only different time spans, but also different kinds

of tasks in the workplace. There are two basic types of business plans:operational and strategic. is short-range plan-ning. It focuses on forming ideas for dealing with specific functions inthe company, such as the production of new products.

is long-range planning done by the highest managementlevels in the company, including the president, vice president, andchief operating officer. Different types of planning are illustrated inFigure 10–1.

StrategyIn order to develop a plan, you need a course of action or strategy.

A strategy is an outline of the basic steps management is going to taketo achieve a goal. Strategies exist at three primary levels in a com-pany—grand or corporate, business, and functional.

Grand Strategiesor provide overall direction for the

company. These plans deal with the most important aspects of thecompany’s operations. These include products the company will man-ufacture and services it will provide; the number of employees it has;

corporate strategiesGrand

planningStrategic

Operational planning

Formal planning


CONNECT

Strategic and operational plansare great ways to zero in on yourgoals. How might you use theseplans to assist with your studies?

PREDICT

What do you think is the differ-ence between a grand or corpo-rate plan and a business plan?

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SUPERVISORY MANAGEMENT PLANNINGIn an organization where there are many levels of management, like Disney, decisions will be made

by many different people. While top executives maydecide what kind of restaurants will be placed in thepark, lower level managers and restaurant workers maydecide on the daily food specials and menu items.

3

Different levels of management areresponsible for different kinds of planning. No matter who does the planning, it isimportant to communicate planning decisions effectively to those implementing the plans.

MIDDLE MANAGE-MENT PLANNINGHowever, Disney’s

operational plan to put certain toys in thestores at DisneyWorldwas developed bymiddle- and lower-levelmanagers.

2

SENIOR MANAGE-MENT PLANNINGDisney’s strategic

plan to open themeparks in other countrieswas the result of ameeting attended by thecompany’s top officers.

1


FIGURE 10 –1

Implementing Planning Decisions

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how much money the company will spend on salaries and benefits;and how the company will market its products to consumers and otherbusinesses. These long-range plans are developed at the highest levelsof the company, usually the president or chief operating officer. Thereare four basic grand strategy types: growth, stability, retrenchment, andcombination.

GROWTH STRATEGY Plans developed when a company tries toexpand sales, products, or number of employees are called

. Under a growth strategy, a company can expandin the following ways:

• Concentration strategy extends the sale of current products or ser-vices to a company’s current market.

• Vertical integration moves a company into a market it previouslyserved either as a supplier or as a customer.

• Diversification moves a company into a similar kind of businesswith new or different products or services.

STABILITY STRATEGY Sometimes a company does notwant to, or cannot, expand because it lacks necessaryfinancial resources. In those cases, a company may adopta stability strategy. A is a plan to keepthe company operating at the same level that it has forseveral years. If a company is satisfied with its profits andnot seeking growth, this is a good option. Managementdoes not initiate any broad-sweeping actions that coulddramatically affect the entire company.

Stability strategies will most likely succeed in slowlychanging, work environments. Company growth is possi-ble under a stability strategy, but it will be very slow. Theowner of Peet’s Coffee and Tea, a group of coffeehouses inthe San Francisco Bay area, refused to franchise the busi-ness for many years. Owner Gerald Baldwin was con-cerned that the quality of the coffee would suffer if the

company tried to grow too quickly. Instead, Baldwin pursued a stabil-ity strategy, and the company experienced steady, but slow growth.

RETRENCHMENT STRATEGY Sometimes a company is losing moneyor wants to reduce its costs. Under these circumstances, the companywould adopt a defensive or retrenchment strategy. A or

is a plan to reverse negative trends in a com-pany, such as losses in sales. Retrenchment strategies became popularin the 1990s, when businesses sought to reverse the excesses of the1980s and focus on new directions for corporate growth.

retrenchment strategydefensive

stability strategy

growth strategies


Tips from Robert Half Ninety-six percent of execu-

tives say that communicationskills are essential to their work. Learn what it takes to put your ideas into writing, and practice speaking to largegroups of people.

QUESTION

Why would a company pursue astability strategy instead of agrowth strategy?

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This type of strategy also is used to overcome a crisis or prob-lem, such as competition that undercuts a company’s main prod-uct. The three most popular types of defensive strategies are:

• Turnaround is used to regain success. • Divestiture is when a company sells some part of its busi-

ness, often an unprofitable part or a unit that is not in thefirm’s major line of business.

• Liquidation is when the entire company is sold or dissolved.

COMBINATION STRATEGY Sometimes companies are not surewhether to pursue a growth, stability, or retrenchment strategy. Itis possible that all issues cannot be addressed by implementingjust one strategy. A company may decide to adopt what is calleda combination strategy. A is a plan thatemploys several different strategies at once.

Most multiple business companies use some type of combi-nation strategy. Coca Cola, for example, pursued a combinationstrategy in 1989 when it divested its Columbia Pictures division whileexpanding its soft drink and orange juice businesses. Companies usu-ally cannot afford to use all of the strategies that might benefit thembecause they have limited resources and talents. Managers must estab-lish priorities, or the competition will gain an advantage.

Business StrategiesWhile grand or corporate plans affect the entire corporation,

business strategies affect only one or two departments. are plans that pertain to single departments or units

within a company. For example, strategies may deal withmarketing issues such as how to reach new customers orhow to develop a new product. Business strategies aremost effective when they consider the cre-ative input of all employees. They can beclassified as overall cost leadership, differ-entiation, and focus strategies.

strategiesBusiness

combination strategy


� DEFENSIVE STRATEGIES Chrysler corporation wason the verge of bankruptcy when it hired Lee Iacoccaas their new CEO. Iacocca let go of a large number ofemployees and closed 20 plants. Remaining workersagreed to give up part of their salaries and benefitsto save the company and by 1982 Chrysler began toshow profit. What kind of strategy did Iacoccaimplement?

TAKE A BREAKEverybody wants to gethis or her chores out ofthe way quickly. Consis-tently working at topspeed leads to burnoutand errors. Allow youremployees to take thetime to refuel. Givingthem the rest that theyneed will lead to higherproductivity.

EADING THE AY

LWEADING

THE AY

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OVERALL COST LEADERSHIP An strategy isdesigned to produce and deliver a product or service for a lower costthan the competition. This strategy can be tremendously effectivewhen there are many buyers who are price-sensitive. Wal-Mart, BIC,and McDonald’s all have adopted this strategy with great success.

DIFFERENTIATION A strategy that strives to make the product or ser-vice unique is called . Customers are willing to payaverage to high prices for these particular items. Because customers areprice-insensitive, companies tend to emphasize quality. Differentiationcan be achieved through a superior product (Gillette), a quality image(Jaguar), or a brand image (Adidas sportswear).

FOCUS A focus strategy directs marketing and sales towards a smallsegment of the market. The company can serve a well-defined marketbetter than competitors that serve a broader market. Some examples ofcompanies that pursue a focus strategy include Colgate-Palmolive,Red Lobster, Federal Express, and Midas.

Functional Strategies The final primary level of strategy is a functional strategy.

are short-range operational plans that supportbusiness strategies by emphasizing practical implementation. Function

or use often defines plans. The most com-mon functional plans are:

• Sales and marketing: developing newproducts or services and selling them

• Production: producing products or ser-vices on time

• Financial: dealing with the company’sexpenses

• Research and development: developingnew products, improving on productquality, or improving manufacturingprocesses to reduce costs

• Personnel: managing human resourceneeds

Functional strategies

differentiation

overall cost leadership


RESPOND

What are some examples of prod-ucts that have become popularthrough differentiation?

� BUSINESS STRATEGIES Colgate-Palmolive has a 70percent market share of toothpaste sold to Hispanics.This is attributed to an understanding that three-quarters of Hispanics who watch TV or listen to theradio do so with Spanish-language stations. What kindof business strategy does this illustrate?

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Section 10.1 Assessment

FACTS AND IDEA REVIEW

1. What is planning and what questions doesit answer?

2. What is the difference between strategic plan-ning and operational planning? Betweenlong-range and short-range planning?

3. What is the difference between verticalintegration and diversification?

4. Under what circumstances would a busi-ness adopt a retrenchment strategy?

5. List the three classifications of businessstrategies.

CRITICAL THINKING

1. Analyzing Information: Why is it necessaryto plan? What are the benefits of planning?Give an example of how you plan at home.

2. Making Comparisons: This year a com-pany might employ a stability strategy.However, next year it might use a retrench-ment strategy. How could this happen?What would the company be like to workfor this year? Next year?

Many functional plans are interrelated. A personnel plan is directlytied to a financial and production plan. The number of employees acompany hires, and how much they are paid, depends on company’sfinances and the amount of work needed. A production schedule willaccount for deadlines and seasonal needs, for example, more snowshovels in the winter months.

Boeing is an example of a company that learned from past func-tional planning mistakes. The airline manufacturer was experiencingmassive interruptions with its production, human resource, and mar-keting functions in the manufacture and delivery of its 747-400 air-plane. When designing its new 777 airplane, Boeing used a differentapproach. The company used teams of marketing, engineering, man-ufacturing, finance, and service representatives so that each func-tional area knew what the other was doing. The success of this projectdepended on the interrelationship of functional plans and strategies.


ASSESSING SOCIAL STUDIES SKILLS

Go to the school library and find a recent mag-azine article that focuses on strategic planning.Write a two-page summary of the article. Includeyour comments and personal reaction. Exchangepapers with your classmates and discuss.

CASE ANALYSIS

You are the president of a major sportswearcompany. Sales have bottomed-out in yourfootwear line, but your brand new headband isselling like crazy. You have more orders forheadbands than you can fill from your inven-tory. You also hear about a company up for salethat manufactures sports watches. Your boardof directors would like to discuss what plan-ning options are under consideration.

Apply: Discuss what options are availableto you. Include a thorough discussion of thedifferent strategies discussed in this section.

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STRATEGIC MANAGEMENT PROCESS

➤ What steps are taken inthe strategic manage-ment process.

➤ The objectives of acompany’s missionstatement.

➤ The differencesbetween missions and goals.

➤ How to differentiateamong policies, proce-dures, and rules.

➤ How a SWOT analysisworks.

➤ What organizationalfactors need to be eval-uated in implementinga strategic plan.

To keep a company com-petitive and profitable,managers must imple-ment the strategic goalsthat are set by top-levelmanagement.

• strategic management • formulating strategy • mission statement • goals• SWOT analysis • implementing strategy • evaluating strategy


Section 10.2

� SHARING RESPONSIBILITY Top-level managers often ask middle- and lower-level managers for their input when making top-level plans. Why would thepresident of the company do this?

What Is Strategic Management?Business changes so rapidly today that it is difficult for managers

to maintain current plans. It is the responsibility of upper manage-ment to develop corporate plans for the future and to engage instrategic management. is the applicationof the basic planning process at the highest levels of the company.Through the strategic management process, top management setsgoals for the performance of the company. This is done by carefullyformulating, implementing, and evaluating plans and strategies.

The most important part of strategic management is developingstrategic plans. These plans must remain current as changes occurwithin and outside of the company. It is possible for a plan to becomeoutdated because of changes occurring inside a company (a new line ofproducts), or outside of the company (new government regulations).

Strategic management

WHAT YOU’LL LEARN

WHY IT’S IMPORTANT

KEY TERMS

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Practicing strategic managementdoesn’t guarantee that a com-pany will successfully meet allchanges, but it does increase thechances of that happening.

Successful strategic manage-ment involves many levels ofmanagement. Top-level man-agement formally develops basicplans. But once top-level plansare finalized, different depart-ments of the company may beasked to develop plans for theirown areas. A solid strategic man-agement process guarantees thatplans are coordinated and aresupported by everyone at thecompany.

Strategic Management Approach Although different companies use different approaches to the

strategic management process, most companies use an approach that ismade up of these three phases:

• Formulation, or developing the strategic plan • Implementation, or putting the formulated plan to work • Evaluation, or continuously evaluating and updating the

strategic plan

Each of these phases is critical to the success of the strategic man-agement process. If any phase breaks down, it can cause the entireprocess to fail.

Formulating Strategy All strategic management begins with the development of the

strategic plan or formulating strategy. is devel-oping the grand- and business-level strategies to be used by the com-pany. The company’s internal strengths and weaknesses, as well asthreats and opportunities outside of the company, shape the strategies.

The first part of the formulation phase is to obtain a clear under-standing of the current position of the company. This includes identi-fying the mission, identifying past and present strategies, diagnosingthe company’s past and present performance, and setting objectives forthe company’s operation.

Formulating strategy

Strategic Management Process Section 10.2 237

International Management

SWEDEN

In Sweden, work does not interfere with private life. Man-agers can expect all tasks to be completed within workinghours and need to schedule all meetings and specialprojects accordingly. They do not expect late hours andworking on weekends.

For further reading aboutInternational Management go to: www.businessweek.com

Karlskrona

Kiruna

Lulea

Umea

OstersundOrnskoldsvik

Harnosand

Hudiksvall

FalunGavle

VasterasUppsala

KarlstadOrebro

Stockholm

VanersborgMariestad

Linkoping

Nykoping

Goteborg Jonkoping

Visby

HalmstadVaxjo

Kalmar

Malmo

Kristianstad

Aland

NorwegianSea

NorthSea

BalticSea

Gulf ofBothnia

Skagerrak

Kattegat

Gulf of Finland

Storsjon

Siljan

Vanern

Vattern

NORWAY

DENMARK

FINLAND

RUSSIA

LITHUANIA

ESTONIA

LATVIA

Norrbotten

Vasterbotten

Jamtland

Vasternorrland

GavleborgKopparberg

Varmland

Goteborgoch Bohus

Skaraborg

Alvsborg

Ostergotland

Gotland

Halland

Kronoberg

Blekinge

Vastman-land

Sodermanland

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IDENTIFYING THE MISSION STATEMENT A company always has amission, or reason for being, when it is created. A outlines why the company exists. It describes the company’s basicproducts and/or services and defines markets and sources of revenue. Itis designed to accomplish several goals and ensures a common purposewithin the company (see Figure 10–2).

Every company’s mission statement will be a little different, butmost are short and refer to lofty corporate goals (See Figure 10–3).

mission statement


EXAMPLES OF MISSIONSTATEMENTSFigure 10–3

There are many different kinds of mission statements that acompany might choose to employ. Based on these missionstatements, can you identify some elements of a goodmission statement?

Harley-Davidson’s Mission Statement

We fulfill dreams through the experienceof motorcycling, by providing to motor-cyclists and to the general public anexpanding line of motorcycles andbranded products and services in selectedmarket segments.

Pfizer Inc.’s Mission Statement

Over the next five years we will achieveand sustain our place as the world’s premier research-based health care company. Our continuing success as abusiness will benefit patients and ourcustomers, our shareholders, our fami-lies, and the communities in which weoperate around the world.

AT&T’s Mission Statement

We are dedicated to being the world’sbest at bringing people together—givingthem easy access to each other and tothe information and services they want—anytime, anywhere.

OBJECTIVES OF THECOMPANY MISSIONFigure 10–2

Companies work hard to develop a mission statement thatdefines the purpose of the company. What are some othergoals of a mission statement?

A mission statement is designed toaccomplish the following objectives:

• To ensure a common purpose within thecompany.

• To provide a basis for motivating the useof the company’s resources.

• To develop a standard for allocating thecompany’s resources.

• To establish a general tone or companyclimate.

• To serve as a focal point for those whocan identify with the company’s purposeand direction and to deter those whocannot do so from participating further inits activities.

• To facilitate the translation of goals intoa work structure involving the assignmentof tasks to responsible elements withinthe company.

• To specify company purposes and thetransfer of those purposes into goals insuch a way that cost, time, and perfor-mance can be assessed and controlled.

Adapted from King and Cleland, Strategic Planning and Policy (New York: VanNostrand Reinhold 1978).

CONNECT

Imagine that you are starting abusiness selling software to teachethics to junior high school stu-dents. What would you include ina mission statement for yourbusiness?

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Management Careers in Focus

Hospital Administrator

� Salary RangeHospital administrators earn about $190,500

or more, depending on responsibilities, experi-ence, location, and the type and size of thehospital.

CRITICAL THINKINGIn what situations might hospital adminis-trators have to weigh the financial needs ofthe hospital against the health care needs ofthe community? Why is it important tohave a balanced understanding of businessknowledge and new medical developments?What kinds of challenges do you think hos-pital administrators face?

INDUSTRY OUTLOOKHospital administrators

must understand health-care information technolo-gies. The market for IT inhealthcare could reach $56 billion by 2004, andU.S. hospitals and clinics could spend up to$748 million on electronic medical record systems, up more than 40 percent from 2000.

� Nature of the WorkHospital administrators plan, organize,

coordinate, supervise the delivery of healthcare, and set the direction of the hospital. Inaddition, they are involved in marketing,human resources, and finance. They determinethe hospital’s need for services, staff, facilities,and equipment. They see that the hospitalcomplies with government regulations.

Administrators often speak to communitygroups and encourage people to participate inhealth programs. They must keep up with avariety of developments in medicine as well asin business and management.

� Working ConditionsHospital administrators work in comfort-

able surroundings. However, hours are oftenlong and the work is stressful. They may becalled in at any time to solve problems.

� Training, Other Qualifications, and AdvancementTo become a hospital administrator, you

need a master’s degree or Ph.D in health ser-vices administration, nursing administration,public health, or business administration. Thejob also requires leadership ability, analyticalskills, and the ability to understand and inter-pret complex data. Hospital administrators areresponsible for millions of dollars of facilitiesand equipment, and hundreds of employees.

For more information on management careers, go to: busmanagement.glencoe.com

BUSINESS MANAGEMENT


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busmanagement.glencoe.com

IDENTIFYING PAST AND PRESENT STRATEGIES To plan for the future,companies need to understand and appreciate their corporate history.Before a strategic change can be developed and implemented, the pastand present strategies must be clarified. Strategic managers should askthese general questions:

• Has past strategy been developed?• If not, can past history of the company be analyzed to identify

the strategy that has evolved?• If yes, has the strategy been recorded in writing?

DIAGNOSING PAST AND PRESENT PERFORMANCE To evaluate howpast strategies have worked and to determine if strategic changes areneeded, a corporate planner must examine the company’s perfor-mance record, asking these questions:

• How is the company currently performing?• How has it performed during the past few years?• Is the performance trend moving up or down?

Good managers must address all of these questions before attempt-ing to develop any type of future strategy. Once management has anaccurate picture of the current status of the company, the next step isto establish goals.


Profitability Measures the degree to which the company is reaching an acceptablelevel of profits

Markets Reflects the company’s position in its marketplace

Productivity Measures the efficiency of internal operations

Products Describes the introduction or elimination of products or services

Financial resources Reflects goals relating to the funding needs of the company

Physical facilities Describes the physical facilities of the company

Research and innovation Reflects the research, development, and/or innovation objectives

Organization structure Describes objectives relating to changes in the company’s structureand related activities

Human resources Describes the human resource assets of the company

Social responsibility Refers to the commitments of the firm regarding society and theenvironment

AREAS FOR ESTABLISHING GOALS IN MOST COMPANIESFigure 10–4

In addition to financial performance, goals are established in many other areas of a company, includingmarketing and human resources. What are some goals that these two departments might establish?

WORKING WITHCHARTS

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SETTING GOALS are concise statements that provide direc-tion for employees and set standards for achieving the company’sstrategic plan. Often goals are set in terms of financial performance,but goals are established in many other areas of the company (see Fig-ure 10–4). To be effective, goals must be reevaluated as the environ-ment and opportunities change. Long-range goals look beyond thecurrent year, while short-range goals come from an in-depth evalua-tion of these long-range goals.

Normally, multiple goals are used to reflect the desired performance.A problem with giving only one goal is that it is often achieved at theexpense of other desired goals. For example, if production isthe only goal, quality may suffer in attempts to realize max-imum production.

POLICIES, PROCEDURES, AND RULES To help in thegoal-setting and strategy-formulation processes, the man-ager can rely on company policies and procedures. Policiesare broad general guides to action that establish boundarieswithin which employees must operate. For example, a pol-icy of “answering all written customer complaints in writ-ing within 10 days” does not tell a manager exactly how torespond, but it does say it must be done within 10 days.

Procedures and rules may be thought of as low-levelpolicies. A procedure is a detailed series of related steps ortasks written to implement a policy. Procedures definethe methods through which policies are achieved. Forexample, a company’s procedure on handling customer

Goals


� STANDARDS AND RULESCompanies depend on rules toset standards and implementstrategy within an organiza-tion. What are some ways thatrules are used in your school?

All About

A T T I T U D ETHE TOUGH KEEP GOINGYou will accomplish great things if you possess a strongdetermination to succeed.Seemingly impossible tasks can be overcome in advance ifyou understand that the road to your goal can be bumpy.Forge ahead, know that whatyou are attempting is not easy,and don’t give up!

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complaints might state that “the customer service representativemust note the complaint on Form 622 and forward the yellow copy ofthe form to the customer complaint supervisor within six hours afterreceipt of the complaint.”

Because procedures do not tell employees what to do in every sit-uation, companies develop rules. Rules detail specific and definite cor-porate actions that employees must follow. Rules leave little doubtabout what is to be done. They permit no flexibility or deviation. Forexample, “no smoking in the conference room” is a rule.

SWOT ANALYSIS Companies must develop a process that allowsthem to evaluate overall health. The most utilized process for deter-mining a company’s overall health is called . SWOT isan acronym for strengths, weaknesses, opportunities, and threats. ASWOT analysis is a technique that evaluates a company’s internalstrengths and weaknesses and its external opportunities and threats.

An internal analysis of the company can identify strengths andweaknesses. Assessing the external environment can identify threatsand opportunities. This stresses the fact that companies do not operateall by themselves—they are affected by their surroundings.

St. Anthony Publishing in Reston, Virginia was having problemswith one of its newsletters. The company was losing money becausesubscribers were not renewing subscriptions at the same rate they hadin the previous 5 years. St. Anthony Publishing conducted a SWOTanalysis. As a result, the company determined that the newsletter wasnot reporting on technological changes in the industry.

SWOT analysis


� SWOT ANALYSIS Companies conduct SWOT analyses to revise their strategic plans.Why are these analyses important?

RESPOND

How might you benefit from aSWOT analysis of your preparationfor the job market?

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When Terry S. Semel walkedinto the Sunnyvale (Calif.)

headquarters of Yahoo! Inc. forhis first day as chief executiveon May 1, 2001, he faced anunenviable task. Ad sales at theInternet icon were plummeting,and the new CEO was replacingthe well-liked Timothy Koogle,who had been pushed aside bythe company’s board. Worse,leery employees quickly sawthat Semel, a retired Hollywoodexec, didn’t know Internet tech-nology and looked stiffly out ofplace at Yahoo’s playful, egali-tarian headquarters.

Two years after taking con-trol as chairman and CEO,Semel has silenced the doubters.By imposing his buttoned-down management approachon Yahoo, the 60-year-old hasengineered one of the mostremarkable revivals of a belea-guered dot-com.

Semel has done nothingless than remake the culture ofthe quintessential Internetcompany. The new Yahoo isgrounded by a host of OldEconomy principles that Semellugged up the coast from LosAngeles. The contrast withYahoo’s go-go days is stark. At

Terry Semel’s Yahoo, spontaneityis out. Order is in. New initiativesused to roll ahead following free-form brainstorming and agut check. Now, they wind theirway through a rugged gauntletof tests and analysis.

Semel’s not kidding aboutthe homework. In the old days,Yahoo execs would brainstormfor hours, often followinghunches with new initiatives.Those days are long gone.Under Semel, managers mustprepare exhaustively beforebringing up a new idea if it’s tohave a chance to survive.

It’s a Darwinian drama thattakes place in near-weekly meet-ings of a group called the Prod-uct Council. Dreamed up by acouple of vice-presidents andchampioned by Semel and his

Yahoo! Act Twochief operating officer, DanielRosensweig, a former presidentof CNET Networks Inc., thegroup typically includes ninemanagers from all corners ofthe company. The group sizesup business plans to make sureall new projects bring benefitsto Yahoo’s existing businesses.

It’s all part of the growingbuzz at Yahoo. Using his mixof discipline, sales, and deal-making, Terry Semel has pulledoff a stunning revival. But canhe pull off Act Two and buildYahoo into the digital themepark of his dreams? The factthat Yahoo shares are bangingon the ceiling and not thefloor is a vivid sign thatSemel’s turnaround may bejust getting started.

Excerpted with permission fromBusinessWeek, June 2, 2003

CRITICAL THINKINGWhat are some differencesbetween the old and newmanagement styles at Yahoo?

DECISION MAKINGWhat are the advantagesand disadvantages ofSemel’s management style?Which style do you prefer?

Management Model

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As a result, St. Anthony Publishing developed a strategic plan toincrease coverage of technological developments in that newsletter aswell as other newsletters the company published. The most importantresult of a SWOT analysis is the ability to draw conclusions about theattractiveness of the company’s situation and the need for strategicaction.

Implementing Strategy Once a company has formulated a strategy, it turns to the imple-

mentation phase of strategic management. isthe action stage of strategic management. Managers need to determineand implement the most appropriate company structure, motivate

employees, develop short-range goals,and establish functional strategies. Thiscan be the most difficult stage of strategicmanagement.

Not only does a company have astrategic history, but it also has existingstructures, policies, and systems. Althougheach of these factors can change, eachmust be dealt with as part of the imple-mentation process. Structure can bechanged, but the costs may be very high.For example, reorganization may result insubstantial hiring and training costs fornewly structured jobs. A company’s cur-rent structure places certain restrictions onstrategy implementation.

The strategy must fit with currentcompany policies, or the conflicting poli-cies must be changed. Sometimes past

company policies heavily influence the extent to which future policiescan be changed. For example, A.T. Cross Company, the manufacturerof world-class pens and pencils, has a policy of unconditionally guar-anteeing its products for life. Because customers have come to expectthis policy, Cross would find this policy difficult to discontinue.

Evaluating and Controlling the Strategic PlanAfter the company’s strategic plan is put into action, the next chal-

lenge is to evaluate strategy. is the process ofcontinuously monitoring the company’s progress toward its long-range goals and mission. Managers should ask:

• Does the grand strategy need revising?• Where are problems likely to occur?

Evaluating strategy

Implementing strategy


� STRATEGY EVALUATION Managers must continuouslyevaluate and monitor the company’s strategic plan. Why is it necessary to evaluate the strategic plan?

QUESTION

Why is implementing strategyoften considered one of the mostdifficult phases of strategicmanagement?

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Section 10.2 Assessment

FACT AND IDEA REVIEW

1. What is the most important part of strategicmanagement?

2. What are the three phases of the strategicmanagement approach?

3. What is the difference between a policy, aprocedure and a rule?

4. What are the four components of a SWOTanalysis?

5. What are three basic evaluation activities?

CRITICAL THINKING

1. Evaluating Information: Give an exampleof a company policy, procedure and rule.

2. Drawing Conclusions: Comment on thefollowing statement, “Most companiessucceed or fail based on their ability toreact to environmental changes.” Whatdoes this statement have to do with strate-gic management?

ASSESSING SOCIAL STUDIES SKILLS

Use the Internet or the telephone directory tofind a local company that does interestingstrategic planning. Either visit or invite theowner to class, and ask the following questions:1. What type of strategic planning does your

company use? 2. Who is involved?3. Do you have a mission statement?4. Is there a downside to strategic planning?

CASE ANALYSIS

You are the head of human resources at a bank.Last year, you created a strategy that gave everyemployee one additional week of paid vacationto retain more employees. Your boss asks you toevaluate the effectiveness of that strategy.

Apply: Write a memo explaining how youwill evaluate the success of the strategy.

The three basic strategy evaluation activities are:

• Reviewing external and internal factors that are the bases for cur-rent strategies

• Measuring performance• Taking corrective action

The emphasis on evaluating strategy is on making the company’smanagers aware of the problems that are likely to occur and of theactions to take if they do arise. Continuously evaluating and respond-ing to internal and environmental changes is what strategic manage-ment is all about. This allows companies to plan ahead and avoiddisaster.

Sometimes companies forget the importance of strategic planningand strategic evaluation. Those companies often find they have losttheir “competitive edge.” Strategic planning and evaluation should bedone not just on a predetermined schedule, but as frequently as nec-essary, as determined by both internal and environmental factors.


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REVIEWING VOCABULARY

Give a definition and example for each of the following:

formal planningoperational planningstrategic planninggrand or corporate

strategiesgrowth strategystability strategydefensive or

retrenchment strategycombination strategybusiness strategies overall cost leadershipdifferentiation

RECALLING KEY CONCEPTS

1. How does strategic planning differ from opera-tional planning?

2. Define strategic management and explain thestrategic management process.

3. What organizational factors need to be evaluatedin implementing a strategic plan?

4. Explain the purpose of SWOT analysis. Whyshould it precede strategy selection?

5. What are the three retrenchment strategies?

THINKING CRITICALLY

1. Are mission statements necessary, or have theybecome obsolete?

2. How could you conduct a SWOT analysis in yourpersonal life?

functionalstrategies

strategicmanagement

formulatingstrategy

mission statementgoalsSWOT analysis implementing

strategy evaluating strategy

CHAPTER SUMMARY

Section 10.1

� Planning defines future objectives.

� Strategic planning is long range,while operational planning is shortrange.

� Grand strategies provide direction.

� Business strategies concentrate onhow to compete in a given industry.

� Functional strategies deal with theactivities of the different functionalareas of the business.

Section 10.2

� Strategic management determines acompany’s direction and performance.

� Mission statements define purpose.

� Objectives or goals are statementsthat outline desired achievements.

� Policies are general guides to actionthat establish boundaries. Proce-dures are a series of related steps fora specific purpose. Rules are inflex-ible guidelines for employees.

� A SWOT analysis is a technique forevaluating a company’s internalstrengths and weaknesses andexternal opportunities and threats.

CHAPTER 10 ASSESSMENTCHAPTER 10 ASSESSMENT


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Assessment CHAPTER 10 247

PREPARING FOR COMPETITIVE EVENTS

Indicate whether the following statementsare true or false.

a. A SWOT analysis looks mostly at acompany’s strengths.

b. Strategic planning islong range andincludes the formula-tion of goals.

c. Rules are flexible guide-lines for employees.

CHAPTER 10 ASSESSMENTCHAPTER 10 ASSESSMENT

ASSESSING ACADEMIC SKILLS

SOCIAL STUDIES Using the Internet, find acompany that is strong in social responsibility.Make a list of what the company has done forthe local community. Think of a local com-pany that has made similar commitments tothe community.

APPLYING MANAGEMENT PRINCIPLES

SOLVE THE PROBLEM You work in theadmissions office at a local university. The pres-ident of the school is developing a missionstatement. She has asked you to research themission statements of two other schools andevaluate them. Then she would like for you topresent the material and discuss what youthink needs to be addressed in the new missionstatement.

Public Speaking Select two universi-ties/colleges that have a written mission state-ment. Evaluate the mission statement basedon length, explanation of academic opportuni-ties, and discussion of student life.

What should you highlight in your school’smission statement? How can you distinguishyour school from other colleges and universi-ties? Prepare an oral report by clearly presentingyour new ideas based on your findings.

In this chapter you read the Busi-nessWeek Management Model aboutYahoo. For more information, go toBusinessWeek online at:www.businessweek.com

Using the Internet, find a currentarticle on companies like Yahoo, suchas Excite, Infoseek, or Lycos. Whatbusiness strategies do these compa-nies use? Write a two-page summary ofthe article and share it with the class.

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