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  1. 1. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-1TheManager as aPlanner andStrategist7
  2. 2. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-2The Planning ProcessPlanning is the process used by managers toidentify and select goals and courses ofaction for the organization.The organizational plan that results fromthe planning process details the goals to beattained.The pattern of decisions managers take toreach these goals is the organization’sstrategy.
  3. 3. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-3Three Stages of the Planning ProcessDetermining the Organization’sDetermining the Organization’smission and goalsmission and goals(Define the business)(Define the business)Strategy formulationStrategy formulation(Analyze current situation &(Analyze current situation &develop strategies)develop strategies)Strategy ImplementationStrategy Implementation(Allocate resources & responsibilities(Allocate resources & responsibilitiesto achieve strategies)to achieve strategies)Figure 7.1
  4. 4. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-4Planning Process StagesOrganizational mission: defined in themission statement which is a broaddeclaration of the overriding purpose. The mission statement identifies product, customers andhow the firm differs from competitors.Formulating strategy: managers analyzecurrent situation and develop strategiesneeded to achieve the mission.Implementing strategy: managers must decidehow to allocate resources between groups toensure the strategy is achieved.
  5. 5. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-5Levels of PlanningStrategyImplementationCorporatemission & goalsDivisionalgoalsFunctionalgoalsCorporate-Corporate-level strategylevel strategyBusiness-Business-level strategylevel strategyFunctional-Functional-level strategylevel strategyDesign ofDesign ofCorporateCorporateStructureStructureControlControlDesign ofDesign ofBusiness-unitBusiness-unitStructureStructureControlControlDesign ofDesign ofFunctionalFunctionalStructureStructureControlControlGoalSettingStrategyFormulationCorporate-level PlanBusiness-level PlanFunctionallevel PlanFigure 7.2
  6. 6. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-6Planning at General ElectricCorporateLevelCorporateLevelCEOCorporate OfficeBusinessLevelBusinessLevelGEAircraftGELightingGEMotorsGEPlasticsNBCFunctionalLevelFunctionalLevel ManufacturingMarketingAccountingR & DFigure 7.3
  7. 7. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-7Planning LevelsCorporate-level: decisions by top managers. Considers on which businesses or markets to be in. Provides a framework for all other planning.Business-level: details divisional long-termgoals and structure. Identifies how this business meets corporate goals. Shows how the business will compete in market.Functional-level: actions taken by managersin departments of manufacturing, marketing,etc. These plans state exactly how business-level strategiesare accomplished.
  8. 8. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-8Characteristics of PlansTime horizon: refers to how far in the futurethe plan applies. Long-term plans are usually 5 years or more. Intermediate-term plans are 1 to 5 years.Corporate and business level plans specify long andintermediate term. Short-term plans are less than 1 year.Functional plans focus on short to intermediate term.Most firms have a rolling planning cycle toamend plans constantly.
  9. 9. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-9Types of PlansStanding plans: for programmed decisions. Managers develop policies, rules, and standard operatingprocedures (SOP).Policies are general guides to action.Rules are a specific guide to action.Single-use plans: developed for a one-time,nonprogrammed issue. Usually consist ofprograms and projects. Programs: integrated plans achieving specific goals. Project: specific action plans to complete programs.
  10. 10. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-10Who Plans?Corporate level planning is done by topmanagers. Also approve business and functional level plans. Top managers should seek input on corporate level issuesfrom all management levels.Business and functional planning is done bydivisional and functional managers. Both management levels should also seek informationfrom other levels. Responsibility for specific planning may lie at a givenlevel, but all managers should be involved.
  11. 11. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-11Why Planning is ImportantPlanning determines where the organizationis now and where it will be in the future.Good planning provides: Participation: all managers are involved in settingfuture goals. Sense of direction & purpose: Planning sets goals andstrategies for all managers. Coordination: Plans provide all parts of the firm withunderstanding about how their systems fit with thewhole. Control: Plans specify who is in charge ofaccomplishing a goal.
  12. 12. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-12Scenario PlanningScenario Planning: generates severalforecasts of different future conditions andanalyzes how to effectively respond to them. Planning seeks to prepare for the future, but the futureis unknown. By generating multiple possible “futures” we can seehow our plans might work in each.Allows the firm to prepare for possible surprises. Scenario planning is a learning tool to improveplanning results.
  13. 13. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-13Determining Mission and GoalsThis is the first step of the planning processand is accomplished by:A. Define the business: seeks to identify our customer andthe needs we can and should satisfy.This also pinpoints competitors.B. Establishing major goals: states who will compete inthe business.Should stretch the organization to new heights.Goals must also be realistic and have a time period inwhich they are achieved.
  14. 14. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-14Mission StatementsCompanyCompaqCompaqAT&TAT&TMission StatementCompaq, along with our partners, willCompaq, along with our partners, willdeliver compelling products and services ofdeliver compelling products and services ofthe highest quality that will transformthe highest quality that will transformcomputing into an intuitive experience thatcomputing into an intuitive experience thatextends human capability on all planes --extends human capability on all planes --communication, education, work, and play.communication, education, work, and play.We are dedicated to being the world’s best atWe are dedicated to being the world’s best atbringing people together -- giving them easybringing people together -- giving them easyaccess to each other and to the informationaccess to each other and to the informationand services they want and need -- anytime,and services they want and need -- anytime,anywhere.anywhere.Figure 7.4
  15. 15. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-15Strategy FormulationManagers analyze the current situation todevelop strategies achieving the mission.SWOT analysis: a planning to identify: Organizational Strengths and Weaknesses.Strengths: manufacturing ability, marketing skills.Weaknesses: high labor turnover, weak financials. Environmental Opportunities and Threats.Opportunities: new markets.Threats: economic recession, competitors
  16. 16. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-16Planning & Strategy FormulationCorporate-level strategydevelop a plan of actionmaximizing long-run valueBusiness-level strategya plan of action to takeadvantage of opportunitiesand minimize threatsFunctional-level strategya plan of action improvingdepartment’s ability tocreate valueSWOT analysisidentifies strengths &weaknesses inside thefirm and opportunities& threats in theenvironment.Figure 7.5
  17. 17. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-17The Five Forces ModelSubstituteSubstituteProductsProductsSubstituteSubstituteProductsProductsRivalryAmongOrganizationsPotentialPotentialfor Entryfor EntryPotentialPotentialfor Entryfor EntryPower ofPower ofSupplierSupplierPower ofPower ofSupplierSupplierPower ofPower ofBuyerBuyerPower ofPower ofBuyerBuyer
  18. 18. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-18The Five Forces1. Level of Rivalry in an industry: how intense is thecurrent competition with competitors?Increased competition results in lower profits.2. Potential for entry: how easy is it for new firms to enterthe industry?Easy entry leads to lower prices and profits.3. Power of Suppliers: If there are only a few suppliers ofimportant items, supply costs rise.4. Power of Buyers: If there are only a few, large buyers,they can bargain down prices.5. Substitutes: More available substitutes tend to drivedown prices and profits.
  19. 19. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-19Corporate-Level StrategiesConcentrate in single business: McDonaldsfocuses in the fast food business. Can become very strong, but can be risky.Diversification: Organization moves into newbusinesses and services.Related diversification: firm diversifies in similar areas tobuild upon existing divisions.Synergy: two divisions work together to obtain more thanthe sum of each separately.Unrelated diversification: buy business in new areas.Build a portfolio of unrelated firms to reduce risk ortrouble in one industry. Very hard to manage.
  20. 20. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-20International StrategyTo what extent do we customize productsand marketing for different nationalconditions? Global strategy: a single, standard product andmarketing approach is used in all countries.Standardization provides for lower cost.Ignore national differences that others can address. Mulitdomestic strategy: products and marketing arecustomized for each country of operation.Customization provides for higher costs.Embraces national differences and depends on themfor success.
  21. 21. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-21Vertical IntegrationWhen the firm is doing well, managers canadd more value by producing its own inputsor distributing its products. Backward vertical integration: the firm produces itsown inputs.McDonalds grows its own potatoes.Can lower the cost of supplies. Backward vertical integration: the firm distributes itsoutputs or products.McDonalds owns the final restaurant.Firm can lower costs and ensure final quality.
  22. 22. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-22Vertical Value ChainIntermediateIntermediateManufacturingManufacturingIntermediateIntermediateManufacturingManufacturingRawRawMaterialsMaterialsRawRawMaterialsMaterialsAssemblyAssemblyAssemblyAssemblyDistributionDistributionDistributionDistribution CustomerBackward ForwardFigure 7.6
  23. 23. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-23Business-level StrategiesLow-CostLow-Cost DifferentiationDifferentiationFocusedLow-CostFocusedFocusedDifferentiatedDifferentiatedStrategyManyFewLow Cost DifferentiationNumberofmarketsegmentsTable 7.2
  24. 24. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-24Business Strategies Low-cost: gain a competitive advantage by drivingdown organizational costs.Managers manufacture at lower cost, reduce waste.Lower costs than competition mean lower prices. Differentiation: gain a competitive advantage bymaking your products different from competitors.Differentiation must be valued by the customer.Successful differentiation allows you to charge more fora product. Stuck in the middle: It is difficult to simultaneouslybecome differentiated and low cost.
  25. 25. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-25Business StrategiesFirms also choose to serve the entire marketor focus on a few segments. Focused low-cost: try to serve one segment of themarket but be the lowest cost in that segment.Cott Company seeks to achieve this in large retailchains. Focused differentiated: Firm again seeks to focus on onemarket segment but is the most differentiated in thatsegment.BMW provides a good example.
  26. 26. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-26Functional-level StrategiesSeeks to have each department add valueto a good or service.Marketing, service, production all addvalue to a good or service. Value is added in two ways:1. lower the operational costs of providing the valuein products.2. add new value to the product by differentiating. Functional strategies must fit with business levelstrategies.
  27. 27. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20007-27Goals for successful functional strategies:1. Attain superior efficiency: the measure ofoutputs for a given unit of input.2. Attain superior quality: products thatreliably do the job they were designed for.3. Attain superior innovation: new, novelfeatures about the product or process.4. Attain superior responsiveness tocustomers: Know the customer needs and fillthem.