1. Planning, Strategy, and Competitive Advantage
Chapter Six

2. 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.

3. 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

4. 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

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

6. Three Steps in Planning
Figure 6.1

7. 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

8. 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

9. Levels of Planning at General Electric
Figure 6.2

10. 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.

11. 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

12. 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.

13. 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.

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

15. 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

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

17. Three Mission Statements
Figure 6.4

18. 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

19. 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.

20. 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

21. Planning and Strategy Formulation
Figure 6.5

22. 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)

23. The Five Forces

24. 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

25. 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

26. 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.

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

28. 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.

29. Stages in a Vertical Value Chain
Figure 6.6

30. 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.

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

32. 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

33. 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.

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

35. Four Ways of Expanding Internationally
Figure 6.7

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

37. 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

38. 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

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

40. Video: Free for All How does “free” work as a business model?
How does Google leverage its ownership of YouTube?