Chapter OutlinePlanning and Organizational GoalsOrganizational GoalsKinds of PlansThe Nature of Strategic ManagementThe Components of StrategyTypes of Strategic AlternativesUsing SWOT Analysis to Formulate StrategyEvaluating an Organizations StrengthsEvaluating an Organizations WeaknessesEvaluating an Organizations Opportunities and Threats

Chapter Outline (contd)Formulating Business-Level StrategiesPorters Generic StrategiesStrategies Based on the Product Life CycleFormulating Corporate-Level StrategiesSingle-Product StrategyRelated DiversificationUnrelated DiversificationManaging DiversificationTactical PlanningDeveloping Tactical PlansExecuting Tactical Plans

Chapter Outline (contd)Operational PlanningSingle-Use PlansStanding PlansContingency Planning and Crisis Management

Learning ObjectivesAfter studying this chapter, you should be able to:Summarize the planning process and describe organizational goals.Discuss the components of strategy and types of strategic alternatives.Describe how to use SWOT analysis in formulating strategy.Identify and describe various alternative approaches to business-level strategy formulation.

Learning Objectives (contd)Identify and describe various alternative approaches to corporate-level strategy formulation.Discuss how tactical plans are developed and executed.Describe the basic types of operational plans used by organizations.

Figure 3.1Decision Making and the Planning Process

Organizational GoalsPurposes of GoalsProvide guidance and a unified direction for people in the organization.Have a strong affect 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.

Organizations Have a PurposeThats Why They Need Goals

Kinds of GoalsBy 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.

Kinds of PlansStrategic 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.

The Nature of Strategic ManagementStrategyA comprehensive plan for accomplishing an organizations goals.Strategic ManagementA comprehensive and ongoing management process aimed at formulating and implementing effective strategies. A way of approaching business opportunities and challenges.Effective StrategiesStrategies that promote a superior alignment between the organization and its environment and the achievement of its goals.

The Components of StrategyDistinctive CompetenceSomething an organization does exceptionally well.ScopeRange of markets in which an organization will compete.Resource DeploymentHow an organization will distribute its resources across the areas in which it competes.

Types of Strategic AlternativesBusiness-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 industries and several markets.

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 strategies are achieved.

Figure 3.2SWOT Analysis

Using SWOT Analysis to Formulate StrategyEvaluating Organizational StrengthsOrganizational strengthsSkills and abilities enabling an organization to conceive of and implement strategies.Distinctive competenciesStrengths possessed by a small number of competitorsUseful for competitive advantage and superior performance.Sustained competitive advantageOccurs when a distinctive competence cannot be easily duplicated and is what remains after all attempts at strategic imitations have ceased.

Using SWOT Analysis to Formulate Strategy (contd)Evaluating Organizational WeaknessesOrganizational weaknesses are skills and capabilities that prevent an organization to choose and implement strategies that support its mission.Weaknesses can be overcome by:making investments to obtain the strengths needed.modifying the organizations mission so it can be accomplished with the current workforce.

Using SWOT Analysis to Formulate Strategy (contd)Evaluating Organizational Weaknesses (contd)Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.

Using SWOT Analysis to Formulate Strategy (contd) Evaluating an Organizations Opportunities and ThreatsOrganizational opportunitiesare areas in the organizations environment that may generate high performance.

Organizational threats are areas in the organizations environment that make it difficult for the organizationto achieve high performance.

Porters Generic StrategiesDifferentiation 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 overall costs below the costs of competing firms.Focus strategyAn organization concentrates on a specific regional market, product line, or group of buyers.

Strategies Based on the Product Life CycleProduct life cycle: a model that shows sales volume changes over the life of products.Introduction stage: demand may be very high and sometimes outpaces the firms ability to supply the product.Growth stage: more firms begin producing the product, and sales continue to grow.Mature stage: overall demand growth begins to slow down.Decline stage: demand for product decreases.

Figure 3.3Strategies Based on Product Life Cycle

Formulating Corporate-Level StrategiesStrategic 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.

Related DiversificationRelated 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

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 and economies of scope.Allows an organization to exploit its strengths and capabilities in more than one business.Synergy exists among a set of businesses when the businesses value together is greater than their economic value separately.

Unrelated DiversificationA strategy in which an organization operates multiple businesses that are not logically associated with one another.AdvantagesStable 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.

Unrelated Diversification (contd)DisadvantagesThe 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.

Major Tools for Managing DiversificationPortfolio management techniquesMethods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance.Two important portfolio management techniquesThe BCG (Boston Consulting Group) Matrix The GE (General Electric) Business Screen

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 a diversified 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.

Figure 3.4The BCG MatrixSource: Perspectives, No. 66, The Product Portfolio, Adapted by permission from The Boston Consulting Group, Inc., 1970.

Managing Diversification (contd)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 resources an organization should invest in that business.

Figure 3.5The GE Business ScreenSource: 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.

Table 3.1Types of Operational PlanningSource: Van Fleet, David D., Contemporary Management, Second Edition. Copyright 1991 by Houghton Mifflin Company. Used with permission.Kinds of Operational PlanningStanding Plans:PoliciesSOPsRules and Regulations

Single-Use Plans:ProgramsProjects

Figure 3.6Contingency PlanningContingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change.