Planning, Strategy, and Competitive Advantage Chapter 06 Planning, Strategy, and Competitive Advantage

Learning Objectives Identify the three main steps of the planning process and explain the relationship between planning and strategy 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

Learning Objectives 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 Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals

Planning and Strategy Planning: Identifying and selecting appropriate goals and courses of action for an organization Strategy: A cluster of decisions about what goals to pursue, what goals to pursue, what actions to take, and how to use resources to achieve goals Mission statement: Broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

Question What is a broad declaration of an organization’s purpose ? A. Company bill of rights B. Mission statement C. Business plan D. Executive summary The correct answer is “B” – Mission statement.

Figure 6.1 - Three Steps in Planning

The Nature of the Planning Process To perform the planning task, managers should: Establish and discover where an organization is at the present time Determine where it should be in the future, its desired future state Decide how to move it forward to reach that future state

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 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

Figure 6.2 - Levels of Planning at General Electric

Figure 6.3 - Levels and Types of Planning

Time Horizons of Plans Time horizon: 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- or business-level plan that extends over several years is typically treated as a rolling plan Rolling plan is updated and amended every year to take account of changing conditions in the external environment

Types of Plans Standing plans Used in situations when programmed decision making is appropriate When the same situations occur repeatedly, managers develop policies, rules, and standard operating procedures (SOPs)

Types of Plans Single-use plans Developed to handle nonprogrammed decision making in unusual or one-of-a-kind situations Programs: Integrated sets of plans for achieving certain goals Projects: Specific action plans created to complete various aspects of a program

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 Strategic leadership: Ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates

Figure 6.4 - Three Mission Statements

Formulating Strategy Development of a set of corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals SWOT analysis Planning exercise in which managers identify: Organizational strengths and weaknesses Environmental opportunities and threats

Figure 6.5 - Planning and Strategy Formulation

The Five Forces Model Helps managers focus on the five most important competitive forces, or potential threats, in the external environment Level of rivalry among organizations in an industry Potential for entry into an industry Power of large suppliers Power of large customers Threat of substitute products

Formulating Business-Level Strategies Low-cost strategy: Driving the organization’s total costs down below the total costs of rivals Differentiation strategy: Distinguishing an organization’s products from the competitors’ products 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: Serving only one segment of the overall market and trying to be the lowest cost organization serving that segment Focused differentiation: 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: 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

Figure 6.6 - Stages in a Vertical Value Chain

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

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 What extent do organizations need to 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 Ignoring national differences, may leave organizations vulnerable to local competitors

International Expansion Multi-domestic strategy: Customizing products and marketing strategies to specific national conditions Significant cost savings associated with not having to customize products and marketing approaches Helps gain local market share Raises production costs thereby leading to higher prices

Figure 6.7 - Four Ways of Expanding Internationally