Planning, Strategy, and Competitive Advantage Chapter Six

Learning Objectives LO6-1 Identify the three main steps of the planning process and explain the relationship between planning and strategy LO6-2 Differentiate between the main types of business-level strategies and explain how they give an organization a competitive advantage that may lead to superior performance LO6-3 Differentiate between the main types of corporate-level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage LO6-4 Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals.

Planning and Strategy Planning Strategy Identifying and selecting appropriate goals and courses of action for an organization Strategy A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals

Question? What is a broad declaration of an organization’s purpose ? Company Bill of Rights Mission Statement Business Plan Executive Summary The correct answer is “B” – Mission statement. See slide 6-5

Planning and Strategy Mission Statement A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

Three Steps in Planning Figure 6.1

Why Planning is Important Planning is necessary to give the organization a sense of direction and purpose Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization

Why Planning is Important A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state A plan can be used as a device for controlling managers within an organization

Levels of Planning at General Electric Figure 6.2

Levels and Types of Planning Corporate-Level Plan Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure. Corporate-Level Strategy A plan that indicates in which industries and national markets an organization intends to compete.

Levels and Types of Planning Business-Level Plan Divisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure Business-Level Strategy outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry

Levels and Types of Planning Functional-Level Plan Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals Functional-level strategy A plan of action to improve the ability of each of an organization’s functions to perform its task-specific activities in ways that add value to an organization’s goods and services.

Time Horizons of Plans Time Horizon The intended duration of a plan. Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years. Short-term plans are less than 1 year. Corporate and business-level goals and strategies require long- and intermediate-term plans. Functional plans focus on short-to intermediate-term plans Most organizations have a rolling planning cycle to amend plans constantly.

Types of Plans Standing Plans Single-Use Plans Use in programmed decision situations Single-Use Plans Developed for a one-time, non-programmed issue

Standing Plans Policies Rules Standard operating procedures (SOP) general guides to action. Rules formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow

Types of Plans Programs Project integrated plans achieving specific goals. Project specific action plans to complete programs.

Three Mission Statements Figure 6.4

Determining the Organization’s Mission and Goals Defining the Business Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs

Determining the Organization’s Mission and Goals Establishing Major Goals Provides the organization with a sense of direction Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.

Determining the Organization’s Mission and Goals Strategic leadership the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates

Planning and Strategy Formulation Figure 6.5

Formulating Strategy SWOT Analysis A planning exercise in which managers identify internal organizational strengths and weaknesses external opportunities and threats organizational strengths and weaknesses. Strengths (e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities) external opportunities and threats. Opportunities (e.g., entry into new related markets). Threats (increased competition)

The Five Forces

Formulating Business-Level Strategies Low-Cost Strategy Driving the organization’s total costs down below the total costs of rivals Differentiation Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality, or after-sales service

Formulating Business-Level Strategies “Stuck in the Middle” Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy Difficult to achieve low cost with the added costs of differentiation

Formulating Business-Level Strategies Focused low-cost strategy Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment. Focused differentiation strategy Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment.

Formulating Corporate-Level Strategies Concentration on a Single Industry reinvesting a company’s profits to strengthen its competitive position in its current industry

Vertical Integration Vertical Integration expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products Vertical Integration - A strategy that allows an organization to create value by producing its own inputs or distributing its own products. Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers. A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown.

Stages in a Vertical Value Chain Figure 6.6

Question? What is expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services? Differentiation Diversification Synergy International expansion The correct answer is “B” – diversification. See next slide.

Diversification Diversification expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services

Diversification Related Diversification Unrelated diversification entering a new business or industry to create a competitive advantage in one or more of an organization’s existing divisions or businesses Unrelated diversification entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries

International Expansion Basic Question To what extent do we customize products and marketing for different national conditions? Global strategy Selling the same standardized product and using the same basic marketing approach in each national market Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage.

International Expansion Multi-domestic Strategy Customizing products and marketing strategies to specific national conditions Helps gain local market share Raises production costs

Four Ways of Expanding Internationally Figure 6.7

International Expansion Exporting making products at home and selling them abroad Importing selling at home products that are made abroad

International Expansion Licensing allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee Franchising 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

International Expansion Strategic alliance managers pool resources with those of a foreign company Organizations agree to share risk and reward Joint venture strategic alliance among companies that agree to jointly establish and share the ownership of a new business

International Expansion Wholly Owned Foreign Subsidiary managers invest in establishing production operations in a foreign country independent of any local direct involvement

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