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McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter

4 Planning andStrategic Management

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Learning Objectives

After studying Chapter 4, you will know:

how to proceed through the basic steps in any planning

process

how strategic planning integrates with tactical and operationalplanning

why it is important to analyze both the external environment

and internal resources of the firm before formulating a

strategy the choices available for corporate strategy

how companies can achieve competitive advantage through

business strategy

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Learning Objectives (cont.)

After studying Chapter 4, you will know:

how core competencies provide the foundation for business

strategy

the keys to effective strategy implementation

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5/34McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserved.

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An Overview Of Planning

Fundamentals

Planning

the conscious, systematic process of making decisions about

goals and activities to be pursued in the future

importance of formal planning has grown dramatically

Basic planning process

Step one: situational analysis

a process planners use, within time and resource constraints, to

gather, interpret, and summarize all information relevant to theplanning issue under consideration

study past and current conditions, and forecast future trends

focuses on internal forces and influences from the external

environment

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Fundamentals (cont.)

Basic planning process (cont.)

Step two: alternative goals and plans

generate alternative future goals and plans to achieve them

goals- targets or ends the manager wants to reach

should be specific, challenging, and realistic

should be acceptable to those charged with achieving them

plans- the actions or means intended to achieve goals

identify alternative actions, needed resources, and potential obstacles

single use plans- designed to achieve goals that are unlikely to berepeated in the future

standing plans- designed to achieve an enduring set of goals

conti ngency plans- actions to be taken when initial plans fail or if

events in the external environment require a sudden change

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Step three: goal and plan evaluation

evaluate the advantages, disadvantages, and potential effects of

each alternative goal and plan

prioritize those goals

consider the implications of alternative plans

Step four: goal and plan selection

identify the priorities and trade-offs among goals and plans

leads to a written set of goals and plans that are appropriate and

feasible within a predicted set of circumstances

scenario- narrative that describes a set of future conditions

a contingency plan is attached to each scenario

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Step five: implementation

plans are useless unless they are implemented properly

managers must understand the plan, have the necessary

resources, and be motivated to implement it

implementation likely to be more successful if managers and

employees have participated in the previous planning steps

the plan should be linked to other systems in the organization

Step six: moni tor and control

must continually monitor the actual performance in relation to

the goals and plans

develop control systems to take corrective action

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Identifying anddiagnosing the problem

Generating alternative

solutions

Evaluating

alternatives

Making the

choice

Implementing

Evaluation

Situationalanalysis

Alternative

goals and plans

Goal and

plan evaluation

Goal and

plan selection

Implementation

Monitor and

control

G

eneraldecisio

n-

makingstages Spe

cificformal

planningsteps

Decision-Making Stages And Formal

Planning Steps

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Levels Of Planning

Strategic planning

decisions of senior executives about the organizations long-

term goals and strategies

has an external orientation

covers major portions of the organization

strategic goals- major targets that relate to the long-term

survival, value, and growth of the organization

strategy- pattern of actions and resource allocations designedto achieve the goals of the organization

matches the skills and resources of the organization to the

opportunities found in the external environment

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Levels Of Planning (cont.)

Tactical planning translates broad strategic goals and plans into specific goals

and plans that are relevant to a definite portion of the

organization

developed for a functional area such as marketing

focuses on the major actions that a unit must take to fulfill

its part of the strategic plan

Operational planning

identifies the specific procedures and processes required at

lower levels of the organization

plans intended for short periods of time and focus on routine

tasks

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Levels Of Planning (cont.)

Strategic, tactical, and operational plans must be consistent

and mutually supportive

Starbucks balanced scorecard- method for linking strategic

and operational planning

to use the scorecard for planning, it is necessary to:

clarify the vision

develop business unit scorecards

review business unit scorecards

communicate the scorecard to the entire company

conduct annual strategy reviews

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CustomerStriving to be 3rdplace

Repeat business

30-40% annual expansion

Only 5% of all U.S. consumption

Brand extension

ProcessBrewing the perfect cup

Brewing the perfect cup at home

Retail skills and customer service

Coffee knowledge

Empowerment

Financial$1 billion company (market value)

$100 million annual profits

800% stock appreciation

2000+ stores

People/Learning

Commitment/trust (low turnover)

Training

Beanstock program

Opinion surveys

Flexible schedules

Applying The Balanced Scorecard For

Starbucks

Vision

And

Strategy

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Strategic Planning: Yesterday And

Today

Traditional strategic planning

emphasized a top-down approach

was the responsibility of senior executives and special

planning units, and excluded line managers

gap developed between strategic managers and tactical and

operational managers

Strategic planning today

managers from throughout the organization are involved inthe strategy formulation process

strategic management- integrates strategic planning and

management into a single, on-going process

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Strategy

implementation

Strategic

control

Establishment

of mission,

vision, and

goals

Analysis of

external

opportunities

and threats

Analysis of

internal

strengths and

weaknesses

SWOT analysis

and strategy

formulation

Strategic Management Process

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Strategic Management Process (cont.)

Step 1: Establishment of mission, vision, and goals mission- basic purpose and values of the organization

defines the scope of operations

states the organizations reason(s) to exist

written in terms of the general clients served by the organization

strategic vision- provides a perspective on where the

company is headed and what the organization can become

clarifies the companys strategic intent

strategic goals- evolve from the mission and vision of the

organization

need to be communicated to everyone who has contact with the

organization

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Step 2: Analysis of external opportunities and threats

successful strategic management depends on an accurate and

thorough evaluation of the environment

stakeholders- groups and individuals who affect and are

affected by the achievement of the organizations mission,

goals, and strategies

environmental analysis provides a map of these stakeholders

forecasting future trends is critical

must develop a clear sense of market opportunities

identify potential threats as well

difference between an opportunity and a threat may depend on

how a company positions itself strategically

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Elements Of Environmental Analysis

Social

analysisLabor

analysis

Industry and

market analysis

Environmental

Analysis

Competitor

analysis

Technological

analysis

Macroeconomic

analysisPolitical and

regulatory analysis

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Step 3: Analysis of internal strengths and weaknesses

Resources- inputs to production that can be accumulated over

time to enhance the performance of the firm

may be tangible or intangible assets

provide a competitive advantage if:

the resource is instrumental in creating customer value

the resource is rareand not equally available from other sources

resource is dif fi cult to imitate

resource is well organized

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Internal Resource Analysis

Marketing auditOperations

analysis

Financial

analysis

Internal

Resource

Analysis

Human resourcesassessment

Other internalresource analyses

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(cont.)

Core competence- something a company does especially well

relative to its competitors provides a competitive edge

usually a set of skills or expertise in some activity

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R A d C C

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Resourcesare rare

Resources

are

organized

Resources

are

inimitable

Resources

are

valuable

Resources And Core Competence

Core

competence

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S i M P ( )

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(cont.)

Benchmarking- process of assessing how well one

companys basic functions and skills compare to those of

other companies

goals are:

to thoroughly understand the best practices of other firms

to undertake actions to achieve both better performance and lower

costs

only permits imitating rather than surpassing competitors

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St t i M t P ( t )

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Step 4: SWOT analysis and strategy formulation

SWOT analysis- comparison of strengths, weaknesses,

opportunities, and threats

helps summarize the major facts and forecasts derived from

external and internal analyses

used as the basis for identifying primary and secondary strategic

issues confronting the organization

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St t i M t P ( t )

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Step 4: Strategy formulation (cont.)

Corporate strategy- identifies the set of businesses, markets,

or industries in which the organization competes and the

distribution of resources among those businesses

concentration strategy- focuses on a single business competing

in a single industry

vertical integration- expands the domain of the organization into

supply or distribution channels

concentr ic diversif ication- moving into businesses that arerelated to the companys original core business

conglomerate diversif ication- expands into unrelated businesses


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St t i M t P ( t )

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Step 4: Strategy formulation (cont.) BCG matr ix- used to analyze and communicate corporate

strategy

each business in the corporation is plotted on the growth rate of

its marketand the relative strength of its competi tive positioninthat market (market share)

question marks- require substantial investment to improve their

position

otherwise divestiture is recommended

stars- require heavy investment, but generate needed revenues

cash cows- generate revenues in excess of their investment needs

used to fund other businesses

dogs- remaining revenues are realized, and then firms are divested

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The BCG Matri

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QuestionMarks

Stars

Dogs

Relative

competitive position

Strong Weak

The BCG Matrix

Market

growth

High

Low

Cash

Cows

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Strategic Management Process (cont )

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Trends in corporate strategy

wave of mergers and acquisitions either by concentrating in one

industry or by portfolio diversification

implementing a diversified strategy depends on individual

circumstances

unrelated diversification may hurt a corporation

diversification may help competing in a slow-growth, mature, or

threatened industry organizations tend to perform better if they implement a more

concentric diversification strategy

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Step 4: Strategy formulation (cont.) Business strategy- defines the major actions used to build and

strengthen competitive position within an industry

low-cost strategy- attempt to be efficient and offer a standard, no

frills product useful for companies that are large and take advantage of economies

of scale in production or distribution

organization must be the cost leader in its industry

must offer a product that is acceptable to customers

dif ferentiation strategy- attempt to be unique in its industry or

market segment along some dimensions that customers value

position based on high product quality, excellent marketing and

distribution, or superior service


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Functional strategy- implemented by each functional area of

the organization to support the business strategy

ensures that departments operate in a manner that is consistent

with business strategies

Step 5: Strategy implementation

organizations are adopting a comprehensive view of

implementation

organizations currently are applying a participative strategic

management process to implementation

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Steps In Strategy Implementation

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Steps In Strategy Implementation

Define

strategic

tasks

Implementation

plan

Assess

organizational

capabilities

Develop

implementationagenda

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Attacking The Six Barriers To Strategy

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Attacking The Six Barriers To Strategy

Implementation

The

Silent

Killers

Poor coordination across functions,

businesses, or borders

Unclear strategy and conflicting

priorities

Poor vertical communicationTop-down or laissez-faire senior

management style

An ineffective senior management

team

Inadequate down-the-line

leadership skills and development

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Step 6: Strategic control

designed to support managers in evaluating the organizations

progress with its strategy

when discrepancies are identified, corrective action is taken

encourages efficient operations that are consistent with the

plan

typically involves budgets to monitor and control financial

expenditures

strategic budget- used to create and maintain long-term

effectiveness

operational budget- tightly monitored to achieve short-term

efficiency

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