Last Week 1. We looked at basic Decision-Making process 2. Understood the assumptions behind the rational approach and the role of intuition. 3. Looked at types of Decisions/Processes 4. Examined a variety of errors and biases that can occur in decision-making. 5. Compared group decision making vs individual decision making 1-1

This Week’s Objectives 1. Understand basic concepts of planning 2. Understand goals and their function 3. Review types of plans according to dimensions of breadth, time, specificity and frequency of use 4. Consider how planning can be successful in dynamic environments 5. Understand basic concepts of strategy and the strategic management process 6. Understand the levels of strategies: corporate, business and functional 7. In particular, look at corporate growth strategies and competitive forces affecting business-level strategies

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-3 Chapter 6 Foundations of Planning

The Question… What directions do Managers follow? 1-4

6-5 What Is Planning? Managerial function that involves: Defining the organization’s goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organizational work Planning is most effective in organizations when it is formal (i.e. written, specific, and long-term focus, involves shared goals for the organization)

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-6 Purposes of Planning Provides direction Reduces uncertainty Minimizes waste and redundancy Sets the standards for controlling

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-7 Elements of Planning Goals (aka objectives) Desired outcomes for individuals, groups, or entire organizations Provide direction and performance evaluation criteria Plans Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules

6-8 Establishing Organizational Goals Maintaining the Hierarchy of Goals Means-Ends Chain The integrated network of goals that results from establishing a clearly defined hierarchy of organizational goals Achievement of lower-level goals is the means by which to reach higher-level goals (ends)

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-9 Exhibit 6.1 Traditional Objective Setting Top Management’s Objective Division Manager’s Objective Department Manager’s Objective Individual Employee’s Objective ”We need to improve the company’s performance.” ”Increase profits regardless of the means.” ”I want to see a significant improvement in this division’s profits.” ”Don’t worry about quality; just work fast.”

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-10 Exhibit 6.2 Steps in a Typical MBO Program Specific objectives collaboratively set with employees Objectives allocated to divisional and departmental units Action plans implemented Give Rewards for Achieved Objectives Jointly Set Objectives Overall objectives and strategies of organization Develop Action Plans to Achieve Objectives Managers and employees work on action plans together Review Objectives and Provide Feedback

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-11 Does MBO Work? Reason for MBO Success Top management commitment and involvement Potential Problems with MBO Programs Not as effective in dynamic environments that require constant resetting of goals Overemphasis on individual accomplishment may create problems with teamwork Allowing the MBO program to become an annual paperwork shuffle

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-12 Exhibit 6.3 Characteristics of Well-Designed Goals Written in terms of outcomes rather than actions Measurable and quantifiable Clear time frame Challenging yet attainable Written down Communicated to all necessary organizational members

6-13 Steps in Goal Setting 1. Review the organization’s mission statement Do goals reflect the mission? 2. Evaluate available resources Are resources sufficient to accomplish the mission? 3. Determine goals individually or with others Are goals specific, measurable, and timely? 4. Write down the goals and communicate them Is everybody on the same page? 5. Review results and whether goals are being met What changes are needed in mission, resources, or goals? BeforeBefore AfterAfter

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-14 BREADTH Strategic Plans Apply to the entire organization Establish the organization’s overall goals Seek to position the organization in terms of its environment Cover extended periods of time Operational Plans Specify the details of how the overall goals are to be achieved Cover short time period

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-15 TIME FRAME Long-Term Plans Time frames extending beyond three years Short-Term Plans Time frames of one year or less

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-16 SPECIFICITY Specific Plans Clearly defined and leave no room for interpretation Directional Plans Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation

Chapter 6, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 6-17 FREQUENCY OF USE Single-use Plan A one-time plan specifically designed to meet the needs of a unique situation Standing Plans Ongoing plans that provide guidance for activities performed repeatedly

6-18 Effective Planning in Dynamic Environments Construct your plans to adapt to change and Change plans when conditions warrant Persistence in planning eventually pays off Build a culture of planning into your organizational

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-19 Chapter 7 Strategic Management

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-20 Strategic Management The set of managerial decisions and actions that determines the long-run performance of an organization

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-21 Why Strategic Management Is Important It results in higher organizational performance Helps you understand and adapt to the environment It helps in coordinating diverse elements of the organization Strategy is a key part of many managerial decisions

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-22 Strategic Management Process Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies Mission: the firm’s reason for being The scope of its products and services Goals: the foundation for further planning Measurable performance targets

7-23 Strategic Management Process Step 2: Conduct an External Analysis The environmental scanning of specific and general environments Focuses on identifying opportunities and threats

7-24 Strategic Management Process Step 3: Conduct an Internal Analysis Assessing organizational resources, capabilities, activities, and culture: Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.

7-25 SWOT Analysis The Internal Analysis and External Analysis together are called a SWOT analysis: Strengths, Weaknesses, Opportunities & Threats Opportunities in the Environment Organization’s Opportunities Organization’s Resources/Capabilities

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-26 Strategic Management Process Step 4: Formulate Strategies Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats

7-27 Strategic Management Process Step 5: Implement Strategies Implementation: effectively fitting organizational structure and activities to the environment The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements

7-28 Strategic Management Process Step 6: Evaluate Results How effective have strategies been? What adjustments, if any, are necessary?

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-29 Exhibit 7.5 Levels of Organizational Strategy Research and Development ManufacturingMarketing Human Resources Finance Strategic Business Unit 1 Strategic Business Unit 2 Strategic Business Unit 3 Multibusiness Corporation Functional Level Business Level Corporate Level

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-30 Corporate-level Strategies Top management’s overall plan for the entire organization and its strategic business units Types of Corporate Strategies Growth: expansion into new products and markets Stability: maintenance of the status quo Retrenchment: addresses organizational weaknesses that are leading to performance declines Corporate portfolio analysis: involves a number of businesses; guides resource allocation

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-31 Growth Strategy Seeking to increase the organization’s business by expansion into new products and markets Types of Growth Strategies Concentration Vertical integration Horizontal integration Diversification

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-32 Growth Strategies Concentration Focusing on a primary line of business and increasing the number of products offered or markets served Vertical Integration Backward vertical integration: attempting to gain control of inputs (become a self-supplier) Forward vertical integration: attempting to gain control of output through control of the distribution channel and/or provide customer service activities (eliminating intermediaries)

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-33 Growth Strategies Horizontal Integration Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals Diversification Related Diversification Expanding by merging with or acquiring firms in different, but related industries that are “strategic fits” Unrelated Diversification Growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-34 Corporate-Level Strategies Stability Strategy A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-35 Corporate-Level Strategies Retrenchment Strategy Reduces the company’s activities or operations Retrenchment strategies include: Cost reductions Layoffs Closing underperforming units Closing entire product lines or services

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-36 Corporate Portfolio Analysis - The BCG Matrix Stars Heavily invest Question Marks Sell off or turn into stars Cash Cows Milk for cash Dogs Sell off or liquidate HighLow Market Share High Low Anticipated Growth Rate

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-37 Business-Level Strategy A strategy that seeks to determine how an organization should compete in each of its SBUs (strategic business units) It’s all about understanding your competitive advantage

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-38 The Role of Competitive Advantage An organization’s distinctive competitive edge that is sourced and sustained in its core competencies Example: Quality as a Competitive Advantage Differentiates the firm from its competitors Can create a sustainable competitive advantage Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-39 Exhibit 7.7 Forces in an Industry Analysis Source: Based on M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980). Substitutes Buyers Bargaining Power of Buyers Threat of Substitutes Suppliers Bargaining Power of Suppliers New Entrants Threat of New Entrants Intensity of Rivalry Among Current Competitors

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-40 Five Competitive Forces 1. Threat of New Entrants The ease or difficulty with which new competitors can enter an industry 2. Threat of Substitutes The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services 3. Bargaining Power of Buyers The degree to which buyers have the market strength to hold sway over and influence competitors in an industry

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-41 Five Competitive Forces 4. Bargaining Power of Suppliers The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship 5. Current Rivalry Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-42 Competitive Strategies Cost Leadership Strategy Seeking to attain the lowest total overall costs relative to other industry competitors Differentiation Strategy Attempting to create a unique and distinctive product or service for which customers will pay a premium Focus Strategy Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market Stuck in the Middle Organizations that are unable to develop a cost or differentiation advantage

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-43 Strategies in Today’s Environment: Applying E-Business Techniques Cost Leadership Online activities: bidding, order processing, inventory control, recruitment, and hiring Differentiation Internet-based knowledge systems, online ordering, and customer support Focus Chat rooms and discussion boards, targeted web sites

Chapter 7, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada 7-44 Functional Level Strategies Functional-level strategies support the business-level strategy i.e., Marketing, human resources, research and development, and finance all support the business-level strategy Problems occur when employees or customers don’t understand a company’s strategy

This Week’s Summary 1. Looked at concepts of planning and goals 2. Reviewed types of plans according to dimensions of breadth, time, specificity and frequency of use 3. Looked at basic concepts of strategy and the strategic management process 4. Examined the levels of strategies: corporate, business and functional 1-45