1. 8Chapter PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2003. All rights reserved. The Manager as a Planner and Strategist

2. © Copyright McGraw-Hill. All rights reserved.8–28–2 Learning Objectives After studying the chapter, you should be able to:After studying the chapter, you should be able to:  Describe the three steps of the planning process.  Explain the relationship between planning and strategy.  Explain the role of planning in predicting the future and in mobilizing organizational resources to meet future resources.  Outline the main steps in SWOT analysis.  Differentiate among corporate-, business-, functional-level strategies.

3. © Copyright McGraw-Hill. All rights reserved.8–38–3 Learning Objectives (cont’d)  Describe the vital role played by strategy implementation in determining managers’ ability to achieve an organization’s mission and goals.

4. © Copyright McGraw-Hill. All rights reserved.8–48–4 Chapter Outline An Overview of the Planning ProcessAn Overview of the Planning Process  Levels of Planning  Who Plans?  Time Horizons of Plans  Standing Plans and Single-Use Plans  Why Planning Is Important  Scenario Planning Determining the Organization’s Mission and GoalsDetermining the Organization’s Mission and Goals  Defining the Business

5. © Copyright McGraw-Hill. All rights reserved.8–58–5 Chapter Outline (cont’d) Determining the Organization’s Mission and Goals (cont’d)Determining the Organization’s Mission and Goals (cont’d)  Establishing Major Goals Formulating StrategyFormulating Strategy  SWOT Analysis  The Five Forces Model Formulating Corporate Level StrategiesFormulating Corporate Level Strategies  Concentration on a Single Business  Diversification  International Expansion

6. © Copyright McGraw-Hill. All rights reserved.8–68–6 Chapter Outline (cont’d) Formulating Corporate Level Strategies (cont’d)Formulating Corporate Level Strategies (cont’d)  Vertical Integration Formulating Business-Level StrategiesFormulating Business-Level Strategies  Low-Cost Strategies  Differentiation Strategy  “Stuck in the Middle”  Focused Low-Cost and Focused Differentiation Strategies Formulating Functional-Level StrategiesFormulating Functional-Level Strategies

7. © Copyright McGraw-Hill. All rights reserved.8–78–7 Chapter Outline (cont’d) Planning and Implementing StrategyPlanning and Implementing Strategy Summary and ReviewSummary and Review

8. © Copyright McGraw-Hill. All rights reserved.8–88–8 The Planning Process PlanningPlanning  Identifying and selecting appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals.The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. StrategyStrategy  The cluster of decisions and actions that managers take to help an organization reach its goals.

9. © Copyright McGraw-Hill. All rights reserved.8–98–9 The Planning Process MissionMission  A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors.

10. © Copyright McGraw-Hill. All rights reserved.8–10 Three Steps in Planning Figure 8.1

11. © Copyright McGraw-Hill. All rights reserved.8–11 Planning Process Stages Determining the Organization’s Mission and GoalsDetermining the Organization’s Mission and Goals  Defining the organization’s overriding purpose and its goals. Formulating strategyFormulating strategy  Managers analyze current situation and develop the strategies needed to achieve the mission. Implementing strategyImplementing strategy  Managers must decide how to allocate resources between groups to ensure the strategy is achieved.

12. © Copyright McGraw-Hill. All rights reserved.8–12 Levels and Types of Planning Figure 8.2

13. © Copyright McGraw-Hill. All rights reserved.8–13 Levels of Planning at General Electric Figure 8.3

14. © Copyright McGraw-Hill. All rights reserved.8–14 Levels of Planning Corporate-Level PlanCorporate-Level Plan  Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure.  Provides a framework for all other planning. Corporate-Level StrategyCorporate-Level Strategy  A plan that indicates in which industries and national markets an organization intends to compete.

15. © Copyright McGraw-Hill. All rights reserved.8–15 Levels of Planning Business-Level Plan:Business-Level Plan:  Divisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure. Identifies how the business will meet corporate goals.Identifies how the business will meet corporate goals. Business-Level StrategyBusiness-Level Strategy  A plan that indicates how a division intends to compete against its rivals in an industry Shows how the business will compete in market.Shows how the business will compete in market.

16. © Copyright McGraw-Hill. All rights reserved.8–16 Levels of Planning Functional-Level PlanFunctional-Level Plan  Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals. Functional StrategyFunctional Strategy  A plan that indicates how a function intends to achieve its goals.

17. © Copyright McGraw-Hill. All rights reserved.8–17 Who Plans? Corporate-Level PlansCorporate-Level Plans  Plans developed by top management who also are responsible for approving business- and functional- level plans for consistency with the corporate plan.  Top managers should seek input on corporate level issues from all management levels. Business-Level PlansBusiness-Level Plans  Plans developed by divisional managers who also review functional plans. Both management levels should also seek information from other levels.Both management levels should also seek information from other levels.

18. © Copyright McGraw-Hill. All rights reserved.8–18 Time Horizons of Plans Time HorizonTime Horizon  The intended duration of a plan. Long-term plans are usually 5 years or more.Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years.Intermediate-term plans are 1 to 5 years. Short-term plans are less than 1 year.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.

19. © Copyright McGraw-Hill. All rights reserved.8–19 Types of Plans Standing PlansStanding Plans  Use in programmed decision situations Policies are general guides to action.Policies are general guides to action. Rules are formal written specific guides to action.Rules are formal written specific guides to action. Standard operating procedures (SOP) specify an exact series of actions to follow.Standard operating procedures (SOP) specify an exact series of actions to follow. Single-Use PlansSingle-Use Plans  Developed for a one-time, nonprogrammed issue. Programs: integrated plans achieving specific goals.Programs: integrated plans achieving specific goals. Project: specific action plans to complete programs.Project: specific action plans to complete programs.

20. © Copyright McGraw-Hill. All rights reserved.8–20 Why Planning Is Important Planning ascertains where the organization is now and deciding where it will be in the future.Planning ascertains where the organization is now and deciding where it will be in the future.  Participation: all managers are involved in setting future goals.  Sense of direction and purpose: planning sets goals and strategies for all managers.  Coordination: plans provide all parts of the firm with understanding about how their systems fit with the whole.  Control: Plans specify who is responsible for the accomplishment of a particular goal.

21. © Copyright McGraw-Hill. All rights reserved.8–21 Why Planning Is Important Planning determines where the organization is now and where it will be in the future.Planning determines where the organization is now and where it will be in the future.  Participation: all managers are involved in setting future goals.  Sense of direction and purpose: planning sets goals and strategies for all managers.  Coordination: plans provide all parts of the firm with understanding about how their systems fit with the whole.  Control: Plans specify who is in charge of accomplishing a goal.

22. © Copyright McGraw-Hill. All rights reserved.8–22 Scenario Planning Scenario Planning (Contingency Planning)Scenario Planning (Contingency Planning)  The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions.  Planning seeks predict the future, but the future is unknowable. By generating multiple possible “futures,” a firm can see how its plans might work in each and prepare for the possible outcomes.By generating multiple possible “futures,” a firm can see how its plans might work in each and prepare for the possible outcomes.  Scenario planning is a learning tool to improve strategic planning results.

23. © Copyright McGraw-Hill. All rights reserved.8–23 Determining the Organization’s Mission and Goals Defining the BusinessDefining the Business  Who are our customers?  What customer needs are being satisfied?  How are we satisfying customer needs Establishing Major GoalsEstablishing 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.

24. © Copyright McGraw-Hill. All rights reserved.8–24 Three Mission Statements Figure 8.4

25. © Copyright McGraw-Hill. All rights reserved.8–25 Formulating Strategy Strategic FormulationStrategic Formulation  Managers analyze the current situation to develop strategies for achieving the mission. SWOT AnalysisSWOT Analysis  A planning exercise in which managers identify organizational strengths and weaknesses. Strengths (e.g., superior marketing skills)Strengths (e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities)Weaknesses (e.g., outdated production facilities)  and external opportunities and threats. Opportunities (e.g., entry into new related markets).Opportunities (e.g., entry into new related markets). Threats (increased competition)Threats (increased competition)

26. © Copyright McGraw-Hill. All rights reserved.8–26 Planning and Strategy Formulation Figure 8.5

27. © Copyright McGraw-Hill. All rights reserved.8–27 The Five Forces Model The Threat of Substitute Products The Power of Suppliers The Level of Rivalry Among Organizations in an Industry The Power of Customers The Potential for Entry into an Industry

28. © Copyright McGraw-Hill. All rights reserved.8–28 The Five Forces

29. © Copyright McGraw-Hill. All rights reserved.8–29 Formulating Corporate-Level Strategies Concentration in Single BusinessConcentration in Single Business  Can become a strong competitor, but can be risky. DiversificationDiversification  Related diversification into similar market areas to build upon existing competencies. Synergy: two divisions working together perform better than the sum of their individual performances.Synergy: two divisions working together perform better than the sum of their individual performances.  Unrelated diversification is entry into industries unrelated to current business. Attempts to build a portfolio of unrelated firms to reduce risk of single industry; difficulty to manage.Attempts to build a portfolio of unrelated firms to reduce risk of single industry; difficulty to manage.

30. © Copyright McGraw-Hill. All rights reserved.8–30 International Expansion Basic Question:Basic Question:  To what extent do we customize products and marketing for different national conditions? Global strategyGlobal strategy  Selling the same standardized product and using the same basic marketing approach in all countries. Standardization provides for lower production cost.Standardization provides for lower production cost. Ignores national differences that local competitors can address to their advantage.Ignores national differences that local competitors can address to their advantage.

31. © Copyright McGraw-Hill. All rights reserved.8–31 International Expansion (cont’d) Mulitdomestic StrategyMulitdomestic Strategy  Customizing products and marketing strategies to specific national conditions. Helps gain local market share.Helps gain local market share. Raises production costs.Raises production costs.

32. © Copyright McGraw-Hill. All rights reserved.8–32 Vertical Integration Vertical IntegrationVertical 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.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.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.

33. © Copyright McGraw-Hill. All rights reserved.8–33 Stages in a Vertical Value Chain Figure 8.6

34. © Copyright McGraw-Hill. All rights reserved.8–34 Porter’s Business-Level Strategies Table 8.2

35. © Copyright McGraw-Hill. All rights reserved.8–35 Formulating Business-Level Strategies Low-Cost StrategyLow-Cost Strategy  Driving the organization’s total costs down below the total costs of rivals. Manufacturing at lower costs, reducing waste.Manufacturing at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable.Lower costs than competition means that the low cost producer can sell for less and still be profitable. DifferentiationDifferentiation  Offering products different from those of competitors. Differentiation must be valued by the customer in order for a producer to charge more for a product.Differentiation must be valued by the customer in order for a producer to charge more for a product.

36. © Copyright McGraw-Hill. All rights reserved.8–36 Formulating Business-Level Strategies “Stuck in the Middle”“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. Focused Low-CostFocused Low-Cost  Serving only one market segment and being the lowest-cost organization serving that segment. Focused DifferentiationFocused Differentiation  Serving only one market segment as the most differentiated organization serving that segment.

37. © Copyright McGraw-Hill. All rights reserved.8–37 Functional-level Strategies A plan that indicates how a function intends to achieve its goalsA plan that indicates how a function intends to achieve its goals  Seeks to have each department add value to a good or service. Marketing, service, and production functions can all add value to a good or service through: Lowering the costs of providing the value in products.Lowering the costs of providing the value in products. Adding new value to the product by differentiating.Adding new value to the product by differentiating.  Functional strategies must fit with business level strategies.

38. © Copyright McGraw-Hill. All rights reserved.8–38 Goals for Successful Functional Strategies 1.Attain superior efficiency as a measure of outputs for a given unit of input. 2.Attain superior quality by producing reliable products that do their intended job. 3.Attain superior innovation developing new and novel features that can be added to the product or process. 4.Attain superior responsiveness to customers by acknowledging their needs and fulfilling them.

39. © Copyright McGraw-Hill. All rights reserved.8–39 Planning and Implementing Strategy 1.Allocate implementation responsibility to the appropriate individuals or groups. 2.Draft detailed action plans for implementation. 3.Establish a timetable for implementation 4.Allocate appropriate resources 5.Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.