Strategic and Operational Planning

Learning Outcomes Describe how strategic planning differs from operational planning. Explain the reason for conducting an industry and competitive situation analysis. Explain the reason for conducting a company situation analysis. List the parts of an effective written objective. Describe the four grand strategies. Describe the three growth strategies. Describe the three adaptive strategies. State the difference between standing plans and single-use plans. Define the key terms listed at the end of the chapter. After studying this chapter, you should be able to:

Describe how strategic planning differs from operational planning.

Explain the reason for conducting an industry and competitive situation analysis.

Explain the reason for conducting a company situation analysis.

List the parts of an effective written objective.

Describe the four grand strategies.

Describe the three growth strategies.

Describe the three adaptive strategies.

State the difference between standing plans and single-use plans.

Define the key terms listed at the end of the chapter.

IDEAS ON MANAGEMENT at Starbucks What are some of Starbucks’s strategic and operational plans? What is Starbucks’s mission? What are its six guiding principles? What does five-force competitive analysis reveal about the growth potential of Starbucks? What long-range goals has Starbucks established? What is the corporate grand strategy and primary growth strategy at Starbucks? Name some of the company’s failed growth strategies. What types of adaptive and competitive strategies does Starbucks currently employ? Which stage in the product life cycle has coffee reached in the U.S. market? What type of functional and operational plans does Starbucks have?

What are some of Starbucks’s strategic and operational plans?

What is Starbucks’s mission? What are its six guiding principles?

What does five-force competitive analysis reveal about the growth potential of Starbucks?

What long-range goals has Starbucks established?

What is the corporate grand strategy and primary growth strategy at Starbucks? Name some of the company’s failed growth strategies.

What types of adaptive and competitive strategies does Starbucks currently employ? Which stage in the product life cycle has coffee reached in the U.S. market?

What type of functional and operational plans does Starbucks have?

Exhibit 4 – 1 ● Planning Dimensions

Strategic versus Operational Planning Strategic Planning The process of developing a mission and long-range objectives and determining in advance how they will be accomplished. Operational Planning The process of setting short-range objectives and determining in advance how they will be accomplished. Strategy A plan for pursuing the mission and achieving objectives.

Strategic Planning

The process of developing a mission and long-range objectives and determining in advance how they will be accomplished.

Operational Planning

The process of setting short-range objectives and determining in advance how they will be accomplished.

Strategy

A plan for pursuing the mission and achieving objectives.

Exhibit 4 –2 ● Strategic and Operational Planning and Strategies

Strategic Planning Strategies Corporate Strategy The plan for managing multiple lines of businesses. Business Strategy The plan for managing one line of business. Functional Strategy The plan for managing one area of a business.

Corporate Strategy

The plan for managing multiple lines of businesses.

Business Strategy

The plan for managing one line of business.

Functional Strategy

The plan for managing one area of a business.

Exhibit 4 –3 ● The Strategic Planning Process

Industry and Competitive Situation Analysis Situation Analysis Focuses on those features in a company’s environment that most directly affect its options and opportunities. Five Competitive Forces (Porter) Rivalry among competing sellers in the industry Threat of substitute products and services Potential new entrants Power of suppliers Power of buyers

Situation Analysis

Focuses on those features in a company’s environment that most directly affect its options and opportunities.

Five Competitive Forces (Porter)

Rivalry among competing sellers in the industry

Threat of substitute products and services

Potential new entrants

Power of suppliers

Power of buyers

Exhibit 4 –4 ● Starbucks’s Five-Force Competitive Analysis

Exhibit 4 –5 ● Parts of a Company Situation Analysis 1. Assessment of the present strategy based on performance. 2. Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis. 3. Assessment of competitive strength and identification of competitive advantage. 4. Conclusions concerning competitive position. 5. Determination of the issues and problems that need to be addressed through the strategic planning process.

Exhibit 4 –6 ● SWOT Analysis for Starbucks Coffee

Exhibit 4 –7 ● Competitive Strength Assessment for Starbucks Coffee

Competitive Advantage Core Competency A functional capability (strength) that the firm does well and one that creates a competitive advantage for the firm. Benchmarking The process of comparing an organization’s products or services and processes with those of other companies. Scanning the Environment Searching the external environment for opportunities and threats.

Core Competency

A functional capability (strength) that the firm does well and one that creates a competitive advantage for the firm.

Benchmarking

The process of comparing an organization’s products or services and processes with those of other companies.

Scanning the Environment

Searching the external environment for opportunities and threats.

Goals and Objectives Objectives State what is to be accomplished in singular, specific, and measurable terms with a target date. Goals Are general, broad targets to be accomplished that are translated into actionable objectives.

Objectives

State what is to be accomplished in singular, specific, and measurable terms with a target date.

Goals

Are general, broad targets to be accomplished that are translated into actionable objectives.

Writing Effective Objectives Max E. Douglas’s Model for Writing Effective Objectives: The word to followed by an action verb; a statement of the single, specific, and measurable result to be achieved; and a target date. Example: To achieve a 6% overall return on fourth quarter sales.

Max E. Douglas’s Model for Writing Effective Objectives:

The word to followed by

an action verb;

a statement of the single, specific, and measurable result to be achieved; and

a target date.

Example:

To achieve a 6% overall return on fourth quarter sales.

Exhibit 4 –8 ● Criteria That Objectives Should Meet

Management by Objectives (MBO) Three Steps: Step 1. Set individual objectives and plans. Step 2. Give feedback and evaluate performance. Step 3. Reward according to performance. Sources of MBO Failures Lack of top management commitment and follow-through on MBO. Employees’ negative beliefs about management’s sincerity in its efforts to include them in the decision-making process.

Three Steps:

Step 1. Set individual objectives and plans.

Step 2. Give feedback and evaluate performance.

Step 3. Reward according to performance.

Sources of MBO Failures

Lack of top management commitment and follow-through on MBO.

Employees’ negative beliefs about management’s sincerity in its efforts to include them in the decision-making process.

Corporate Strategies Grand Strategies Growth The company makes aggressive attempts to increase its size through increased sales. Stability The company attempts to hold and maintain its present size or to grow slowly. Turnaround and retrenchment An attempt to reverse a declining business as quickly as possible. The divestiture or liquidation of assets. Combination A corporation may pursue growth, stability, and turnaround and retrenchment for its different lines of business or areas of operations.

Grand Strategies

Growth

The company makes aggressive attempts to increase its size through increased sales.

Stability

The company attempts to hold and maintain its present size or to grow slowly.

Turnaround and retrenchment

An attempt to reverse a declining business as quickly as possible.

The divestiture or liquidation of assets.

Combination

A corporation may pursue growth, stability, and turnaround and retrenchment for its different lines of business or areas of operations.

Corporate Strategies (cont’d) Growth Strategies Concentration The organization grows aggressively in its existing line(s) of business. Integration The organization enters a new line or lines of business related to its existing one(s). Diversification The organization goes into a related ( concentric diversification ) or unrelated ( conglomerate diversification ) line of products.

Growth Strategies

Concentration

The organization grows aggressively in its existing line(s) of business.

Integration

The organization enters a new line or lines of business related to its existing one(s).

Diversification

The organization goes into a related ( concentric diversification ) or unrelated ( conglomerate diversification ) line of products.

Exhibit 4 –9 ● Grand and Growth Strategies Grand Strategy Growth (aggressively expand size) Stability (remain the same or grow slowly) Turnaround and Retrenchment (reverse a negative trend and cut back)) Combination (mix of other three) Growth Strategies Concentration—expand existing line(s) of business Integration—expand forward and/or backward within line(s) of business Diversification—add related and/or unrelated products

Common Methods for Pursuing a Growth Strategy Mergers Acquisitions Joint Ventures Takeovers Strategic Alliances

Exhibit 4 – 10 ● BCG Growth-Share Matrix

Exhibit 4 – 11 ● The Entrepreneurial Strategy Matrix (ESM) Source : Reprinted from Business Horizons, Volume 40 (3), Matthew C. Sonfield and Robert N. Lussier, “The Entrepreneurial Strategy Matrix. A Model for New and Ongoing Ventures,” Copyright ©1997, with permission from Elsevier..

Business Strategies Adaptive Strategies Prospecting Aggressively offering new products and/or entering new markets. Defending Staying with the present product line and markets and maintaining or increasing customers. Analyzing A midrange approach between prospecting and defending, moving cautiously into new markets.

Adaptive Strategies

Prospecting

Aggressively offering new products and/or entering new markets.

Defending

Staying with the present product line and markets and maintaining or increasing customers.

Analyzing

A midrange approach between prospecting and defending, moving cautiously into new markets.

Exhibit 4 – 12 ● Adaptive Strategies

Business Strategies (cont’d) Competitive Strategies Differentiation Competing on the basis of features that distinguish one firm’s products or services from those of another. Cost Leadership The firm with the lowest total overall costs has a competitive advantage in price-sensitive markets. Focus Concentrating competitive efforts on a specific regional market, product line, or buyer group.

Competitive Strategies

Differentiation

Competing on the basis of features that distinguish one firm’s products or services from those of another.

Cost Leadership

The firm with the lowest total overall costs has a competitive advantage in price-sensitive markets.

Focus

Concentrating competitive efforts on a specific regional market, product line, or buyer group.

Exhibit 4 – 13 ● Strategies for Starbucks over the Product Life Cycle

Functional Strategies Marketing Strategy Responsible for determining which products to provide, how they will be packaged, how they will be advertised, where they will be sold and how they will get there, and how much they will be sold for. Operations Strategy Responsible for systems processes that convert inputs into outputs. Human Resources Strategy Responsible for working with all the other functional departments in the areas of recruiting, selecting, training, evaluating, and compensating employees.

Marketing Strategy

Responsible for determining which products to provide, how they will be packaged, how they will be advertised, where they will be sold and how they will get there, and how much they will be sold for.

Operations Strategy

Responsible for systems processes that convert inputs into outputs.

Human Resources Strategy

Responsible for working with all the other functional departments in the areas of recruiting, selecting, training, evaluating, and compensating employees.

Functional Strategies (cont’d) Finance Strategy Responsible for financing the business activities by raising money through the sale of stock or bonds or through loans, deciding on the debt-to-equity ratio, paying off the debt and dividends to shareholders, keeping records of transactions, developing budgets, and reporting financial results. Other Functional Strategies Research and development (R&D) is important to remaining competitive.

Finance Strategy

Responsible for financing the business activities by raising money through the sale of stock or bonds or through loans, deciding on the debt-to-equity ratio, paying off the debt and dividends to shareholders, keeping records of transactions, developing budgets, and reporting financial results.

Other Functional Strategies

Research and development (R&D) is important to remaining competitive.

Exhibit 4 – 14 ● Standing Plans versus Single-Use Plans

Types of Plans Standing Plans Policies, procedures, and rules developed for handling repetitive situations. Policies General guidelines to be followed when making decisions. Procedures A sequence of actions to be followed in order to achieve an objective. Rules A statement of exactly what should or should not be done.

Standing Plans

Policies, procedures, and rules developed for handling repetitive situations.

Policies

General guidelines to be followed when making decisions.

Procedures

A sequence of actions to be followed in order to achieve an objective.

Rules

A statement of exactly what should or should not be done.

Types of Plans (cont’d) Single-Use Plans Programs and budgets developed for handling nonrepetitive situations. Program A set of activities designed to accomplish an objective over a specified period of time. Program development: Set project objectives. Break the project down into a sequence of steps. Assign responsibility for each step. Establish starting and ending times for each step. Determine the resources needed for each step.

Single-Use Plans

Programs and budgets developed for handling nonrepetitive situations.

Program

A set of activities designed to accomplish an objective over a specified period of time.

Program development:

Set project objectives.

Break the project down into a sequence of steps.

Assign responsibility for each step.

Establish starting and ending times for each step.

Determine the resources needed for each step.

Types of Plans (cont’d) Single-Use Plans (cont’d) Budget Represents the funds allocated to operate a unit for a fixed period of time. Is a planning tool initially and becomes a control tool after implementation of the plan.

Single-Use Plans (cont’d)

Budget

Represents the funds allocated to operate a unit for a fixed period of time.

Is a planning tool initially and becomes a control tool after implementation of the plan.

Types of Plans (cont’d) Contingency Plans Alternative plans to be implemented if uncontrollable events occur. Three questions to answer for developing a contingency plan: What might go wrong? How can I prevent it from happening? If it does occur, what can I do to minimize its effect?

Contingency Plans

Alternative plans to be implemented if uncontrollable events occur.

Three questions to answer for developing a contingency plan:

What might go wrong?

How can I prevent it from happening?

If it does occur, what can I do to minimize its effect?

Implementing and Controlling Strategies Implementing Top and middle managers plan, whereas lower-level functional managers and employees implement strategies. Successful implementation requires effective and efficient support systems. Controlling The process of establishing and implementing mechanisms to ensure that objectives are achieved. Measuring progress toward the achievement of objectives and taking corrective action when needed. Staying within the budget when appropriate or changing it when necessary to meet changes in the environment.

Implementing

Top and middle managers plan, whereas lower-level functional managers and employees implement strategies.

Successful implementation requires effective and efficient support systems.

Controlling

The process of establishing and implementing mechanisms to ensure that objectives are achieved.

Measuring progress toward the achievement of objectives and taking corrective action when needed.

Staying within the budget when appropriate or changing it when necessary to meet changes in the environment.

KEY TERMS strategic planning operational planning strategy situation analysis SWOT analysis benchmarking objectives management by objectives (MBO) grand strategy growth strategies merger acquisition business portfolio analysis adaptive strategies functional strategies standing plans policies procedure rules single-use plans contingency plans

strategic planning

operational planning

strategy

situation analysis

SWOT analysis

benchmarking

objectives

management by objectives (MBO)

grand strategy

growth strategies

merger

acquisition

business portfolio analysis

adaptive strategies

functional strategies

standing plans

policies

procedure

rules

single-use plans

contingency plans