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Strategic Management (Foundations of Planning)

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1 Strategic Management (Foundations of Planning)
Professor: Zvi Aronson

2 What Is Planning? Planning is often called the primary management function It’s concerned with ends (what is to be done) as well as with means (how it’s to be done) Planning is often called the primary management function because it establishes the basis for all the other things managers do as they organize, lead, and control. What is meant by the term planning? As we said in Chapter 1, planning encompasses defining the organization’s objectives or goals, establishing an overall strategy for achieving those goals, and developing a comprehensive hierarchy of plans to integrate and coordinate activities.

3 Strategic Decision Making
Strategic decisions involve a significant amount of resources and are expected to have a long-term affect on the organization. All decisions related to major corporate and competitive strategy can be considered strategic decisions. Since strategic decisions are made by people, they are subject to the same process and biases we discussed in the decision making chapter. Upper echelon theory looks at the links between the personal characteristics of managers and the decisions they make.

4 Why Do Managers Need to Plan?
Reduce the impact of change Minimize overlapping and waste Set standards to facilitate control Provide Direction Managers should plan for at least four reasons. (See Exhibit 4-1.)

5 What Are Some Criticisms of Formal Planning?
Formal planning can’t replace intuition and creativity… May create rigidity… Although it makes sense for an organization to establish goals and direction, critics have challenged some of the basic assumptions of planning Managers often loose sight of the future…

6 Strategic Management Strategic Management Strategies
What managers do to develop an organization’s strategies (importance) Strategies The action plan for achieving an organization’s goals (e.g., how it will compete successfully; how it will attract its customers; Buckle; B & H) Strategic Management Process A six-step process that encompasses strategy planning, implementation, and evaluation Strategic management is what managers do to develop an organization’s strategies. What are an organization’s strategies? They’re the plans for how the organization will do what it’s in business to do, how it will compete successfully, and how it will attract and satisfy its customers in order to achieve its goals

7 The Strategic Management Process
STEP 1: Identifying the organization’s current mission, goals and strategies STEP 2: Doing an external analysis STEP 3: Doing an internal analysis STEP 4: Formulating the strategies STEP 5: Implementing strategies STEP 6: Evaluating results The Strategic Management Process Identify mission, goals and strategies SWOT External Analysis Internal Analysis Formulate Strategies The strategic management process (see Exhibit 5-2) is a six-step process that encompasses strategy planning, implementation, and evaluation. Although the first four steps describe the planning that must take place, implementation and evaluation are just as important! Even the best strategies can fail if management doesn’t implement or evaluate them properly. Implement Strategies Evaluate Results

8 What is a SWOT Analysis? The combined external and internal analyses are called the SWOT analysis because it’s an analysis of the organization’s strengths, weaknesses, opportunities, and threats.

9 What Are Various Types of Strategies?
Corporate Strategy An organizational strategy that addresses the question “What business(es) should we be in?” This leads to issues related to entering new businesses and exiting businesses. It does NOT address how the businesses will compete and be successful (Pepsico). Corp SBU A corporate strategy is an organizational strategy that specifies what businesses a company is in or wants to be in and what it wants to do with those businesses. It’s based on the mission and goals of the organization and the roles that each business unit of the organization will play

10 Growth Strategy Growth Strategy Some growth strategies include
A corporate strategy in which an organization expands the number of markets served or products offered either through its current business(es) or through new business(es). Some growth strategies include Vertical Integration (Backward and Forward Integration; distributor) Related Diversification(Horizontal Diversification) Unrelated Diversification A growth strategy is when an organization expands the number of markets served or products offered, either through its current business(es) or through new business(es). Because of its growth strategy, an organization may increase revenues, number of employees, or market share. Organizations grow by using concentration, vertical integration, horizontal integration, or diversification

11 Growth Strategies Means for Pursuing Growth Strategies
Strategic Alliances Acquisitions Internal Development

12 Corporate Strategy Examples
Forms Vertical Integration Related Diversification Unrelated Diversification AOL bought stock of Time Warner in what was described as a merger of equals but ended up being unsuccessful.. Daimler-Benz merged with Chrysler in what was a very difficult marriage. Phillip Morris bought Miller Brewing to diversify out of the cigarette business. ACQUISITIONS Cetus,a leading firm in the biotechnology field, teamed up with larger corporations which provide needed capital. Dow Chemical and Corning Glass created a joint venture, more profitable than either parent. Means Pfizer and Genentech formed an alliance to market Genentech’s new drug STRATEGIC ALLIANCES Humana developed a full line of health care services, vertically integrating across businesses. Amazon diversified into cloud computing. INTERNAL DEVELOPMENT

13 Other Corporate Strategies
In addition to growth strategies, organizations pursue other corporate strategies such as: Stability Strategy A corporate strategy in which an organization continues to do what it is currently doing Renewal Strategy A corporate strategy that addresses declining organizational performance This is a stability strategy, which is a corporate strategy in which an organization continues to do what it is currently doing. Managers need strategies that address declining performance. These strategies are called renewal strategies, of which there are two main types. A retrenchment strategy is a short-run renewal strategy used for minor performance problems

14 Competitive Strategy Competitive Strategy
An organizational strategy for how an organization will compete in its business(es) Competitive Advantage The distinctive attribute(s) of an organization that enables it to outperform its competitors. (SWA; WM). Strategic Business units (SBUs) An organization’s single businesses that are independent and formulate their own competitive strategy (GE) A competitive strategy is a strategy for how an organization will compete in its business(es). For a small organization in only one line of business or a large organization that has not diversified into different products or markets, its competitive strategy describes how it will compete in its primary or main market. For organizations in multiple businesses, however, each business will have its own competitive strategy that defines its competitive advantage, the products or services it will offer, the customers it wants to reach, and the like

15 Types of Competitive Strategies
Cost Leadership Strategy Competing on the basis of having the lowest costs in the industry Differentiation Strategy Competing on the basis of having unique products that are widely valued by customers Focus Strategy Competing in a narrow segment or niche with either a cost focus or a differentiation focus (BO Audio; Recreation) One of the leading researchers in strategy formulation is Michael Porter of Harvard’s Graduate School of Business. He proposed that managers must choose a competitive strategy that will give it a distinct advantage by capitalizing on the strengths of the organization and the industry it is in. His three competitive strategies are cost leadership, differentiation, and focus.

16 Case in groups Was Flip a good acquisition for Cisco?
Evaluate Cisco’s consumer marketing efforts: Why might it be difficult for a company selling to businesses to sell products to the consumer Could Cisco have done anything else to build up its consumer products including Flip? What were flip’s Strengths? External Threats (SWOT Analysis) Why do you think Cisco decided to shut down Flip rather than to sell it? What type of strategies do you see described in the case? What role would have goal setting and planning played in: A. Flip’s founding; B. Cisco’s acquisition of Flip; C. Cisco’s managing of Flip business unit. D. Cisco’s decision to shut down Flip.

17 Porters Generic Strategies – Plot The Gap, Inc. Stores

18 Porter’s Generic Strategies – The Gap, Inc. Plot

19 Functional Strategy Functional Strategies
The strategies used in an organization’s various functional departments to support the competitive strategy The final type of strategies managers use are the functional strategies, which are the strategies used by an organization’s various functional departments to support the competitive strategy

20 For Thursday In teams, find an example of a strategic decision from industry. Present your example to the class and answer the following: Is it an example of corporate or competitive strategies (or both)? Can you see any evidence of the decision making process that was followed to arrive at that decision? Or the decision biases they may have experienced?

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