1. Copyright © 2002 by Harcourt, Inc. All rights reserved. Topic 5 : Strategy and Strategic Planning Lecturer: Zhu Wenzhong

2. Copyright © 2002 by Harcourt, Inc. All rights reserved. Key learning goals: The major purpose of this topic is to discuss the definition of strategy, the process of strategic planning, and the contingency plans in crisis management. 1. State the definition of strategy 2. State the three major types of strategy for a business 3. State the general strategic planning process 4. State the six types of crisis in a business 5. State the contingency plans a business may develop to solve these crisis problems. LEARNING GOALS

3. Copyright © 2002 by Harcourt, Inc. All rights reserved. Strategy formerly refers to planning and managing an operation for a particular purpose such as in a war. Strategy formerly refers to planning and managing an operation for a particular purpose such as in a war. A business’s strategy is the pattern of decisions and actions that are taken by the business to achieve its goals. A business’s strategy is the pattern of decisions and actions that are taken by the business to achieve its goals. A business may have a variety of goals or objectives, but for many businesses, the major goal is to improve performance so that profits increase through designing and implementing strategies. A business may have a variety of goals or objectives, but for many businesses, the major goal is to improve performance so that profits increase through designing and implementing strategies. Strategy and Strategic Planning -What is strategy?

4. Copyright © 2002 by Harcourt, Inc. All rights reserved.  Business strategy can be classified into several types, such as: functional strategy, functional strategy, business strategy, business strategy, and corporate strategy. and corporate strategy.  Differences between these strategies can be seen as follows in the table: Strategy and Strategic Planning - Types of strategy

5. Copyright © 2002 by Harcourt, Inc. All rights reserved. Type of strategyBrief explanationsExamples of such a strategy Functional strategyStrategies of the functional level developed to improve the efficiency of a business operations. It is also called operational strategy.  Marketing strategy  HR strategy  Production strategy  R&D strategy  … Business strategyPlans a company uses to gain competitive advantage over competitors in a market. It is unlikely that a company can serve an entire market all the time. Therefore a company must decide which parts of the market to aim at and how to be different from competitors.  Cost leadership strategy  Differentiation strategy  Focus strategy  Withdrawal strategy  Market penetration strategy  New product development strategy  …. Corporate strategyStrategies aimed at the long-term development of the organization. For example, a company may consider where it will be in 10 years time and how it manages to get there.  Internal development strategy  Takeover and merger strategy  Strategic alliances  …. Table 5-1 Types of strategies

6. Copyright © 2002 by Harcourt, Inc. All rights reserved. Strategy and Strategic Planning -Strategic Panning Process Strategy of a business needs to be well planned. Well-planned strategy is key to success. How to plan a strategy is an important issue to study. Generally speaking, there are a number of common stages when a business plans a strategy, which is illustrated in the following table:

7. Copyright © 2002 by Harcourt, Inc. All rights reserved. Figure 5-1 The strategic planning process Stage One: Setting goals and objectives Stage Two: Internal and external analysis Stage Three: Selecting a proper strategy Stage Four: Implementing the strategy Stage Five: Evaluating the strategy Strategy and Strategic Planning -Strategic Panning Process

8. Copyright © 2002 by Harcourt, Inc. All rights reserved. Strategy and Strategic Planning -Strategic Panning Process  Question for your critical thinking: Refer to the above figure, could you please explain what managers need to do in each stage of the strategic planning process?

9. Copyright © 2002 by Harcourt, Inc. All rights reserved. Strategy and Strategic Planning -Elements of effective planning and strategy  To be effective, the strategic planning must have the following characteristics: 1. Focus on the clear purpose of a business. 2. Vision or commonly shared and supported view by people. 3. Satisfying the needs of customers and clients. 4. Achievable timetable for the strategy, such as longer time for a corporate strategy. 5. Flexible in plans, such as not too ‘tight’ for people to follow the strategy. 6. Suitable for the set goals to be achieved …

10. Copyright © 2002 by Harcourt, Inc. All rights reserved. Strategy and Strategic Planning -Strategic Planning for Crisis  Importance: Crisis (unexpected problems) may occur at times for a business. However, effective planning should reduce the impact of the crisis on a business. So companies often need to have some contingency plans or strategies to deal with unexpected conditions.  Types of crisis: There are at least the following crisis which may take place in a business and which are explained in the following table:

11. Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 5-3 Types of crisis and their causes Types of crises for a companyPossible causes for the crisis Financial crises  Lack of working capital to pay its debt  Lack of money to pay salary  Unable to collect large amount of money owed to the business… Production crises  Breakdown of machines  Fire damages to the stock of raw materials  Failure to deliver products or goods to the buyer on time  Inferior quality products produced … Human resources crises  Employee strike  High level of staff turnover  Poor staff motivation … Environmental crises  Waste affecting the local residents’ life  Noise affecting the people around  Operations in the factory leading to the pollution of air and water in the local area… Legal crises  Faulty or dangerous products breaking the law  A child’s toy causing harm to children  Food causing health problems … Image crises  Many of the above problems may affect the image of a business. Customers may lose their confidence for the product. And sales may be seriously affected…

12. Copyright © 2002 by Harcourt, Inc. All rights reserved. Table 5-4 Contingency plans for solving the crisis problems Types of crisesPossible contingency plans Financial crises Set aside contingency funds for liquidity problems Sell some assets to raise funds Borrow bank loans or overdraft Obtain government assistance Production crises Let some of the work done by other machines Ask other producers to help produce Rearrange the time of production, such as overnight working Use flexible workforce or production methods HR crises planning effective consultation for strikes change reward systems to motivate people use flexible workforce communicate well with employees Image crises Act quickly when faced with the problem of image Withdraw the faulty products immediately Promote the fact that the problem has been found and will be solved soon. Spend some money for improving the damaged environment or compensating those who have suffered. Strategy and Strategic Planning - Strategic Planning for Crisis