01 Nature and purposes of planning

CHAPTER 5
02 Approaches to goal setting and
planning
PLANNING AND
STRATEGIC 03 Process of strategic management

MANAGEMENT
04 Levels of strategies
05 issues
Contemporary planning
 Planning
ü Identifying and selecting
appropriate goals and courses of
action for an organization.
PLANNING AND
STRATEGY ü The organizational plan that
results from the planning process
details the goals and specifies
how managers will attain those
goals.
 Strategy
ü The cluster of decisions and
actions that managers take to
help an organization reach its
PLANNING AND
STRATEGY goals.
 Mission Statement
ü A broad declaration of an
organization’s overriding purpose
ü Identifies what is unique or
PLANNING AND
STRATEGY important about its products
ü Seeks to distinguish or
differentiate the organization
from its competitors
THREE STEPS IN PLANNING
 ü Determining the Organization’s Mission
and Goals
Defining the organization’s overriding purpose

PLANNING and its goals.

ü Formulating strategy
PROCESS Managers analyze current situation and develop

STAGES the strategies needed to achieve the mission.

ü Implementing strategy
Managers must decide how to allocate resources
between groups to ensure the strategy is
achieved.
 To perform the planning task,
managers:
THE NATURE 1. Establish where an organization is
OF THE at the present time
PLANNING 2. Determine its desired future state

PROCESS 3. Decide how to move it forward to

reach that future state
 1. Necessary to give the
organization a sense of
direction and purpose
2. Useful way of getting
WHY managers to participate in
PLANNING IS decision making
IMPORTANT? 3. Helps coordinate managers of
the different functions and
divisions of an organization
4. Can be used as a device for
controlling managers
 ü Unity - at any one time
only one central, guiding
plan is put into operation
WHY ü Continuity – planning is
PLANNING IS an ongoing process in
IMPORTANT? which managers build and
refine previous plans and
continually modify plans at
all levels
 ü Accuracy – managers
need to make every
attempt to collect and
WHY utilize all available
PLANNING IS information at their
IMPORTANT? disposal
ü Flexibility – plans can be
altered and changed if the
situation changes
LEVELS OF PLANNING AT GENERAL ELECTRIC
LEVELS AND TYPES OF PLANNING
 LEVELS OF
PLANNING
ü Division – business unit that
has its own set of managers
and departments and
competes in a distinct
industry
ü Divisional managers –
Managers who control
the various
divisions of an
organization
 Corporate-Level Plan
ü Top management’s decisions pertaining
to the organization’s mission, overall
strategy, and structure.
LEVELS OF ü Provides a framework for all other
PLANNING planning.
Corporate-Level Strategy
ü A plan that indicates in which industries
and national markets an organization
intends to compete.
 Business-Level Plan
ü Long-term divisional goals that will allow
the division to meet corporate goals
ü Division’s business-level and structure to
LEVELS OF achieve divisional goals

PLANNING Business-Level Strategy

ü Outlines the specific methods a division,
business unit, or organization will use to
compete effectively against its rivals in an
industry
 Functional-Level Plan
ü Goals that the managers of each
function will pursue to help their
division attain its business-level goals
LEVELS OF Functional Strategy
PLANNING ü A plan of action that managers of
individual functions can take to add
value to an organization’s goods and
services
 Time Horizon
Period of time over which
they are intended to apply or
TIME endure.
HORIZONS OF ü Long-term plans are
PLANS usually 5 years or more.
ü Intermediate-term plans
are 1 to 5 years.
ü Short-term plans are less
than 1 year.
 Standing Plans
Use in programmed decision situations
ü Policies are general guides to action.
ü Rules are formal written specific
TYPES OF PLANS guides to action.
ü Standard operating procedures (SOP)
specify an exact series of actions to
follow.
 Single-Use Plans
Developed for a one-time,
nonprogrammed issue.
ü Programs: integrated plans
TYPES OF PLANS
achieving specific goals.
ü Project: specific action plans to
complete programs.
 SCENARIO PLANNING
Scenario Planning (Contingency Planning)
ü The generation of multiple forecasts of future
conditions followed by an analysis of how to
effectively respond to those conditions.
 Defining the Business
üWho are our customers?
DETERMINING
THE üWhat customer needs are
ORGANIZATION’S being satisfied?
MISSION AND üHow are we satisfying
GOALS customer needs
 üStrategic leadership –
the ability of the CEO and
DETERMINING
THE top managers to convey a
ORGANIZATION’S compelling vision of what
MISSION AND they want to achieve to
GOALS their subordinates
 Strategic Formulation
Managers work to develop
the set of strategies
FORMULATING
STRATEGY (corporate, divisional, and
functional) that will allow
an organization to
accomplish its mission and
achieve its goals.
 SWOT Analysis
A planning exercise in which
managers identify:
FORMULATING ü organizational strengths and
weaknesses.
STRATEGY v Strengths (e.g., superior
marketing skills)
v Weaknesses (e.g., outdated
production facilities)
ü external opportunities and threats.
v Opportunities (e.g., entry into
new related markets).
v Threats (increased competition)
PLANNING AND STRATEGY FORMULATION
 THE FIVE FORCES
Competitive Forces
Level of Rivalry Increased competition results in lower
profits.

Potential for Entry Easy entry leads to lower prices and profits.

Power of Suppliers If there are only a few suppliers of important

items, supply costs rise.

Power of Customers If there are only a few large buyers, they can
bargain down prices.

Substitutes More available substitutes tend to drive

down prices and profits.
THE FIVE FORCES
Hypercompetition
ü industries that are
characterized by
permanent, ongoing,
intense, competition
brought about by
advancing technology or
changing customer
tastes and fads and
fashions
 Low-Cost Strategy
v Driving the organization’s total
costs down below the total costs of
FORMULATING rivals.
BUSINESS- v Manufacturing at lower costs,

LEVEL reducing waste.

STRATEGIES v Lower costs than competition

means that the low cost producer
can sell for less and still be
profitable.
 Focused Low-Cost
v Serving only one market segment

FORMULATING and being the lowest-cost

BUSINESS- organization serving that segment.

Focused Differentiation
LEVEL
v Serving only one market segment
STRATEGIES
as the most differentiated
organization serving that segment.
 Concentration in Single
Business
ü Organization uses its
FORMULATING functional skills to develop
CORPORATE- new kinds of products or
LEVEL expand its locations
STRATEGIES ü Appropriate when managers
see the need to reduce the
size of their organizations to
increase performance
 Vertical integration
ü strategy that involves a
company expanding its business
FORMULATING operations either backward into
a new industry that produces
CORPORATE- inputs (backward vertical
LEVEL integration) or forward into a
STRATEGIES new industry that uses,
distributes, or sells the
company’s products (forward
vertical integration)
STAGES IN A VERTICAL VALUE CHAIN
 Diversification
ü strategy of expanding a
FORMULATING company’s operations
CORPORATE- into a new industry in
LEVEL order to produce new
STRATEGIES kinds of valuable goods
or services
 Related Diversification
ü strategy of entering a new
industry and establishing
FORMULATING
a new business division
CORPORATE-
that is linked to a
LEVEL company’s existing
STRATEGIES divisions because they
share resources that will
improve the competitive
position
RELATED
DIVERSIFICATION
Synergy
ü Obtained when the value
created by two divisions
cooperating is greater
than the value that
would be created if the
two divisions operated
separately and
independently
 Unrelated Diversification
ü Firms establish divisions or
buy companies in new
FORMULATING industries that are not
CORPORATE- linked to their current
LEVEL business or industry
ü Portfolio strategy –
STRATEGIES
Apportioning resources
among divisions to increase
returns or spread risks
 International Expansion
v Basic Question:
To what extent do we customize
products and marketing for different
FORMULATING national conditions?
v Global strategy
CORPORATE- Undertaking very little customization
LEVEL to suit the specific needs of
customers in different countries.
STRATEGIES ü Standardization provides for lower
production cost.
ü Ignores national differences that local
competitors can address to their
advantage.
 Multi-domestic Strategy
ü Customizing products and
marketing strategies to
INTERNATIONAL
specific national conditions.
EXPANSION
ü Helps gain local market share.
ü Raises production costs.
 Opportunities
opening new markets, reaching more
customers, and gaining access to
new sources of raw materials and to
CHOOSING A WAY low-cost suppliers

TO EXPAND
Threats
INTERNATIONALLY
encountering new competitors, and
responding to new political,
economic, and cultural conditions
 Exporting
ü making products at home and
INTERNATIONAL selling them abroad
EXPANSION Importing
ü selling at home products that
are made abroad
 Licensing
ü allowing a foreign organization to take
charge of manufacturing and distributing
a product in its country in return for a

INTERNATIONAL negotiated fee

EXPANSION Franchising
ü selling to a foreign organization the rights
to use a brand name and operating
know-how in return for a lump-sum
payment and a share of the profits
 Strategic alliance
ü managers pool resources with those of
a foreign company
ü Organizations agree to share risk and
INTERNATIONAL
reward
EXPANSION
Joint venture
ü strategic alliance among companies
that agree to jointly establish and
share the ownership of a new business
 Wholly Owned Foreign
Subsidiary
INTERNATIONAL ü managers invest in establishing
EXPANSION production operations in a
foreign country independent of
any local direct involvement
 A plan that indicates how a function
intends to achieve its goals
v Seeks to have each department add
value to a good or service.
Marketing, service, and production
FUNCTIONAL- functions can all add value to a good
LEVEL or service through:
ü Lowering the costs of providing
STRATEGIES the value in products.
ü Adding new value to the
product by differentiating.
v Functional strategies must fit with
business level strategies.
 1. Allocate implementation responsibility to
the appropriate individuals or groups.
2. Draft detailed action plans for

PLANNING AND implementation.

3. Establish a timetable for implementation
IMPLEMENTING 4. Allocate appropriate resources
STRATEGY 5. Hold specific groups or individuals
responsible for the attainment of
corporate, divisional, and functional
goals.