1. Fundamentals of Core Concepts & Applications Griffin Griffin Third Edition MANAGEMENT PowerPoint Presentation by Charlie Cook Copyright © 2003 Houghton Mifflin Company. All rights reserved. Lesson 3 Planning and Strategic Management

2. Copyright © by Houghton Mifflin Company. All rights reserved. 3–23–2 Lesson Outline Planning and Organizational Goals –Purposes 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 Organization’s Strengths –Evaluating an Organization’s Weaknesses –Evaluating an Organization’s Opportunities and Threats

3. Copyright © by Houghton Mifflin Company. All rights reserved. 3–33–3 Lesson Outline(cont’d) Formulating Business-Level Strategies –Porter’s 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

4. Copyright © by Houghton Mifflin Company. All rights reserved. 3–43–4 Chapter Outline (cont’d) Operational Planning –Single-Use Plans –Standing Plans –Contingency Plans

5. Copyright © by Houghton Mifflin Company. All rights reserved. 3–53–5 Learning Objectives After studying this chapter, you should be able to: –Summarize 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.

6. Copyright © by Houghton Mifflin Company. All rights reserved. 3–63–6 Learning Objectives (cont’d) –Identify and describe various alternative approaches to 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.

7. Copyright © by Houghton Mifflin Company. All rights reserved. 3–73–7 Decision Making and the Planning Process The Planning Process Strategic goalsStrategic plans Tactical goals Operational goalsOperational plans The organization’s mission The Environmental Context PurposePremisesValuesDirections Tactical plans Figure 3.1

8. Copyright © by Houghton Mifflin Company. All rights reserved. 3–83–8 Organizational Goals Purposes of Goals –Provide 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.

9. Copyright © by Houghton Mifflin Company. All rights reserved. 3–93–9 Kinds of Goals By Level –Mission statement is a statement of an organization’s 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.

10. Copyright © by Houghton Mifflin Company. All rights reserved. 3–10 Different 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.

11. Copyright © by Houghton Mifflin Company. All rights reserved. 3–11 Kinds of Plans Strategic Plans –A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management. Tactical Plans –A plan aimed at achieving the tactical goals set by and for middle management. Operational Plans –Plans that have a short-term focus. These plans are set by and for lower-level managers.

12. Copyright © by Houghton Mifflin Company. All rights reserved. 3–12 The Nature of Strategic Management Strategy –A comprehensive plan for accomplishing an organization’s goals. Strategic Management –A way of approaching business opportunities and challenges–a comprehensive and ongoing management process aimed at formulating and implementing effective strategies. Effective Strategies –Strategies that promote a superior alignment between the organization and its environment and the achievement of its goals.

13. Copyright © by Houghton Mifflin Company. All rights reserved. 3–13 The Components of Strategy Distinctive Competence –Something 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.

14. Copyright © by Houghton Mifflin Company. All rights reserved. 3–14 Types of Strategic Alternatives Business-level Strategy –The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market. Corporate-level Strategy –The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.

15. Copyright © by Houghton Mifflin Company. All rights reserved. 3–15 Types of Strategic Alternatives (cont’d) Strategy Formulation –The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies. Strategy Implementation –The methods by which strategies are operationalized or executed within the organization; it focuses on the processes through which strategies are achieved.

16. Copyright © by Houghton Mifflin Company. All rights reserved. 3–16 The Relationships of Strategies by Organizational Level

17. Copyright © by Houghton Mifflin Company. All rights reserved. 3–17 SWOT Analysis Strengths Weaknesses Opportunities Threats Mission An organization’s fundamental purpose Best Strategies SWOT Analysis To formulate strategies that support the mission Those that support the mission and exploit opportunities and strengths neutralize threats avoid (or correct) weaknesses Internal Analysis Strengths (distinctive competencies) WeaknessesThreats External Analysis Opportunities Figure 3.2

18. Copyright © by Houghton Mifflin Company. All rights reserved. 3–18 Using SWOT Analysis to Formulate Strategy Using SWOT Analysis to Formulate 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.

19. Copyright © by Houghton Mifflin Company. All rights reserved. 3–19 Using SWOT Analysis to Formulate Strategy (cont’d) Using SWOT Analysis to Formulate Strategy (cont’d) 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 organization’s mission so it can be accomplished with the current workforce.

20. Copyright © by Houghton Mifflin Company. All rights reserved. 3–20 Using SWOT Analysis to Formulate Strategy (cont’d) Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating Organizational Weaknesses (cont’d) –Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.

21. Copyright © by Houghton Mifflin Company. All rights reserved. 3–21 Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating an Organization’s Opportunities and Threats –Organizational opportunities are areas in the organization’s environment that may generate high performance. –Organizational threats are areas in the organization’s environment that make it difficult for the organization to achieve high performance.

22. Copyright © by Houghton Mifflin Company. All rights reserved. 3–22 Porter’s Generic Strategies Differentiation strategy –An organization seeks to distinguish itself from competitors through the quality of its products or services. Overall cost leadership strategy –An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms. Focus strategy –An organization concentrates on a specific regional market, product line, or group of buyers.

23. Copyright © by Houghton Mifflin Company. All rights reserved. 3–23 Strategies Based on Product Life Cycle The Product Life Cycle Introduction Time Stages GrowthMaturityDecline High Low Sales Volume Figure 3.3

24. Copyright © by Houghton Mifflin Company. All rights reserved. 3–24 The Adaptation Model of Business Strategy

25. Copyright © by Houghton Mifflin Company. All rights reserved. 3–25 Formulating Corporate-Level Strategies Strategic Business Units –Each business or group of businesses within an organization engaged in serving the same markets, customers, or products. Diversification –The number of businesses an organization is engaged in and the extent to which these businesses are related to one another. Single Product Strategy –A strategy in which an organization manufactures one product or service and sells it in a single geographic market.

26. Copyright © by Houghton Mifflin Company. All rights reserved. 3–26 Related Diversification –A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked. Bases of Relatedness in Implementing Related Diversification

27. Copyright © by Houghton Mifflin Company. All rights reserved. 3–27 Related Diversification (cont’d) Advantages of Related Diversification –Reduces organization’s 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.

28. Copyright © by Houghton Mifflin Company. All rights reserved. 3–28 Formulating Corporate-Level Strategies (cont’d) 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.

29. Copyright © by Houghton Mifflin Company. All rights reserved. 3–29 Formulating Corporate-Level Strategies (cont’d) Unrelated Diversification (cont’d) –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.

30. Copyright © by Houghton Mifflin Company. All rights reserved. 3–30 Managing Diversification Major Tools for Managing Diversification –Portfolio 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 corporate performance. –Two important portfolio management techniques The BCG Matrix The GE Business Screen

31. Copyright © by Houghton Mifflin Company. All rights reserved. 3–31 Managing Diversification (cont’d) BCG Matrix –A method of evaluating businesses relative to the growth rate of their market and the organization’s 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.

32. Copyright © by Houghton Mifflin Company. All rights reserved. 3–32 The BCG Matrix Relative market share Cash cowsDogs High Low HighLow Question marks Stars Market growth rate Figure 3.4 Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970.

33. Copyright © by Houghton Mifflin Company. All rights reserved. 3–33 Managing Diversification GE Business Screen –A 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.

34. Copyright © by Houghton Mifflin Company. All rights reserved. 3–34 The GE Business Screen Competitive position Low Winner Medium High Good Competitive position 1.Market share 2.Technological know-how 3.Product quality 4.Service network 5.Price competitiveness 6.Operating costs Industry attractiveness 1.Market growth 2.Market size 3.Capital requirements 4.Competitive intensity PoorMedium Winner Profit producer Winner Average business Loser Question mark Loser Industry growth rate 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.

35. Copyright © by Houghton Mifflin Company. All rights reserved. 3–35 Tactical 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

36. Copyright © by Houghton Mifflin Company. All rights reserved. 3–36 Operational Planning Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions.

37. Copyright © by Houghton Mifflin Company. All rights reserved. 3–37 Types of Operational Plans Table 3.1

38. Copyright © by Houghton Mifflin Company. All rights reserved. 3–38 Contingency Planning Contingency 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. Ongoing planning process Action point 1Action point 2Action point 3Action point 4 Develop plan, considering contingency events Implement plan and formally identify contingency events Specify indicators for the contingency events and develop contingency plans for each possible event Successfully complete plan or contingency plan Monitor contingency event indicators and implement contingency plan if necessary Figure 3.6