Chapter6 Planning, Strategy, and Control


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Chapter6 Planning, Strategy, and Control

  1. 1. Planning, Strategy, and Change Chapter 6 PowerPoint Presentation by Charlie Cook © Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.
  2. 2. Learning Objectives <ul><li>After studying the chapter, you should be able to: </li></ul><ul><ul><li>Describe the three steps of the planning process . </li></ul></ul><ul><ul><li>Explain the relationship between planning, strategy, and change . </li></ul></ul><ul><ul><li>Explain the role of planning in predicting the future and in changing the organization so it can meet future challenges. </li></ul></ul><ul><ul><li>Outline the main steps in SWOT analysis . </li></ul></ul><ul><ul><li>Differentiate among corporate-, business-, functional-level strategies . </li></ul></ul>
  3. 3. Learning Objectives (cont’d) <ul><ul><li>Describe the vital role played by strategy implementation in determining managers’ ability to achieve an organization’s mission and goals. </li></ul></ul>
  4. 4. The Planning Process <ul><li>Planning </li></ul><ul><ul><li>Identifying and selecting appropriate goals (goal making) and courses of action (strategy-making) for an organization. </li></ul></ul><ul><ul><ul><li>The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals. </li></ul></ul></ul><ul><li>Strategy </li></ul><ul><ul><li>The cluster of decisions and actions that managers take to help an organization reach its goals. </li></ul></ul>
  5. 5. Three Steps in Planning Figure 6.1
  6. 6. The Planning Process <ul><li>Mission </li></ul><ul><ul><li>A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors. </li></ul></ul>
  7. 7. Planning Process Stages <ul><li>Determining the Organization’s Mission and Goals </li></ul><ul><ul><li>Defining the organization’s overriding purpose and its goals. </li></ul></ul><ul><li>Formulating strategy </li></ul><ul><ul><li>Managers analyze current situation and develop the strategies needed to achieve the mission. </li></ul></ul><ul><li>Implementing strategy </li></ul><ul><ul><li>Managers must decide how to allocate resources between groups to ensure the strategy is achieved. </li></ul></ul>
  8. 8. Levels and Types of Planning Figure 6.2
  9. 9. Levels of Planning at General Electric Figure 6.3
  10. 10. Levels of Planning <ul><li>Corporate-Level Plan </li></ul><ul><ul><li>Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure. </li></ul></ul><ul><ul><li>Provides a framework for all other planning. </li></ul></ul><ul><li>Corporate-Level Strategy </li></ul><ul><ul><li>A plan that indicates in which industries and national markets an organization intends to compete. </li></ul></ul>
  11. 11. Levels of Planning <ul><li>Business-Level Plan: </li></ul><ul><ul><li>Divisional managers’ decisions pertaining to division’s long-term goals, overall strategy, and structure. </li></ul></ul><ul><ul><ul><li>Identifies how the business will meet corporate goals. </li></ul></ul></ul><ul><li>Business-Level Strategy </li></ul><ul><ul><li>A plan that indicates how a division intends to compete against its rivals in an industry. </li></ul></ul><ul><ul><ul><li>Shows how the business will compete in market. </li></ul></ul></ul>
  12. 12. Levels of Planning <ul><li>Functional-Level Plan </li></ul><ul><ul><li>Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals. </li></ul></ul><ul><li>Functional Strategy </li></ul><ul><ul><li>A plan that indicates how a functional department intends to achieve its goals. </li></ul></ul>
  13. 13. Who Plans? <ul><li>Corporate-Level Plans </li></ul><ul><ul><li>Plans developed by top management who also are responsible for approving business- and functional-level plans for consistency with the corporate plan. </li></ul></ul><ul><ul><li>Top managers should seek input on corporate level issues from all management levels. </li></ul></ul><ul><li>Business-Level Plans </li></ul><ul><ul><li>Plans developed by divisional managers who also review functional plans. </li></ul></ul><ul><li>Both management levels should also seek information from other levels. </li></ul>
  14. 14. Time Horizons of Plans <ul><li>Time Horizon </li></ul><ul><ul><li>The intended duration of a plan. </li></ul></ul><ul><ul><ul><li>Long-term plans are usually 5 years or more. </li></ul></ul></ul><ul><ul><ul><li>Intermediate-term plans are 1 to 5 years. </li></ul></ul></ul><ul><ul><ul><li>Short-term plans are less than 1 year. </li></ul></ul></ul><ul><ul><li>Corporate and business-level goals and strategies require long- and intermediate-term plans. </li></ul></ul><ul><ul><li>Functional plans focus on short-to intermediate-term plans. </li></ul></ul><ul><ul><li>Most organizations have a rolling planning cycle to amend plans constantly. </li></ul></ul>
  15. 15. Types of Plans <ul><li>Standing Plans </li></ul><ul><ul><li>Used in programmed decision situations. </li></ul></ul><ul><ul><ul><li>Policies are general guides to action. </li></ul></ul></ul><ul><ul><ul><li>Rules are formal written specific guides to action. </li></ul></ul></ul><ul><ul><ul><li>Standard operating procedures (SOP) specify an exact series of actions to follow. </li></ul></ul></ul><ul><li>Single-Use Plans </li></ul><ul><ul><li>Developed for a one-time, nonprogrammed issue. </li></ul></ul><ul><ul><ul><li>Programs: integrated plans achieving specific goals. </li></ul></ul></ul><ul><ul><ul><li>Project: specific action plans to complete programs. </li></ul></ul></ul>
  16. 16. Why Planning Is Important <ul><li>Planning ascertains where the organization is now and deciding where it will be in the future . </li></ul><ul><ul><li>Participation: all managers are involved in setting future goals. </li></ul></ul><ul><ul><li>Sense of direction and purpose: planning sets goals and strategies for all managers. </li></ul></ul><ul><ul><li>Coordination: plans provide all parts of the firm with understanding about how their systems fit with the whole. </li></ul></ul><ul><ul><li>Control: Plans specify who is responsible for the accomplishment of a particular goal. </li></ul></ul>
  17. 17. Qualities of Effective Plans (Fayol) <ul><li>Unity </li></ul><ul><ul><li>Only one central plan is in effect at any given time. </li></ul></ul><ul><li>Continuity </li></ul><ul><ul><li>Planning is an ongoing broad-framework process involving all managerial levels. </li></ul></ul><ul><li>Accuracy </li></ul><ul><ul><li>Managers have incorporated all available information into creating the current plan. </li></ul></ul><ul><li>Flexibility </li></ul><ul><ul><li>Managers alter the plan as the situation changes. </li></ul></ul>
  18. 18. Determining the Organization’s Mission and Goals <ul><li>Defining the Business </li></ul><ul><ul><li>Who are our customers? </li></ul></ul><ul><ul><li>What customer needs are being satisfied? </li></ul></ul><ul><ul><li>How are we satisfying customer needs? </li></ul></ul><ul><li>Establishing Major Goals </li></ul><ul><ul><li>Provides the organization with a sense of direction. </li></ul></ul><ul><ul><li>Stretches the organization to higher levels of performance. </li></ul></ul><ul><ul><li>Goals must be challenging but realistic with a definite period in which they are to be achieved. </li></ul></ul>
  19. 19. Peter Drucker’s Fundamental Questions <ul><li>What is our business? </li></ul><ul><ul><li>Who is the customer? </li></ul></ul><ul><ul><li>What is of value to the customer? </li></ul></ul><ul><li>What will our business be? </li></ul><ul><li>What should our business be? </li></ul>
  20. 20. Four Mission Statements Figure 6.4
  21. 21. Product-oriented vs. Market-oriented Definitions of Business <ul><li>Xerox--making a copying equipment vs. helping improve office productivity </li></ul><ul><li>Columbia Pictures—making movies vs. marketing entertainment </li></ul><ul><li>Carrier—making air conditioners vs. providing climate control in the home </li></ul><ul><li>Pioneer—producing Audio equipments vs. facilitating customer singing </li></ul><ul><li>Shiseito—manufacturing cosmetics vs. selling hope </li></ul><ul><li>Fuji film—selling camera film vs. storing memory </li></ul><ul><li>Star TV—providing satellite connection vs. producing entertainment </li></ul>
  22. 22. Good Mission Statements Limited number of goals --Concentration Stress major policies & values -- as stretch guidelines Define competitive scopes --by customers groups, customer needs,or technology
  23. 23. Formulating Strategy <ul><li>Strategic Formulation </li></ul><ul><ul><li>Managers analyze the current situation to develop strategies for achieving the mission. </li></ul></ul><ul><li>SWOT Analysis </li></ul><ul><ul><li>A planning exercise in which managers identify organizational/ internal strengths and weaknesses, </li></ul></ul><ul><ul><ul><li>Strengths (e.g., superior marketing skills) </li></ul></ul></ul><ul><ul><ul><li>Weaknesses (e.g., outdated production facilities) </li></ul></ul></ul><ul><ul><li>and external opportunities and threats. </li></ul></ul><ul><ul><ul><li>Opportunities (e.g., entry into new related markets). </li></ul></ul></ul><ul><ul><ul><li>Threats (increased competition). </li></ul></ul></ul>
  24. 24. Planning and Strategy Formulation Figure 6.5
  25. 25. Formulating Corporate-Level Strategies <ul><li>Concentration in Single Business </li></ul><ul><ul><li>Can become a strong competitor, but can be risky. </li></ul></ul><ul><ul><ul><li>Knowledge of current market can be a competitive advantage. (core business logics/core competence) </li></ul></ul></ul><ul><ul><ul><li>Concentration creates a large degree of business risk if the single market in which the firm competes declines. </li></ul></ul></ul><ul><ul><li>Concentration is a logical strategy if downsizing organization to increase performance by exiting under-performing businesses. </li></ul></ul>
  26. 26. Formulating Corporate-Level Strategies <ul><li>Diversification </li></ul><ul><ul><li>Related diversification into similar market areas to build upon existing competencies. </li></ul></ul><ul><ul><ul><li>Synergy : two divisions working together perform better than the sum of their individual performances (2+2=5). </li></ul></ul></ul><ul><ul><li>Unrelated diversification is entry into industries unrelated to current business. </li></ul></ul><ul><ul><ul><li>Attempts to build a portfolio of unrelated firms to reduce risk of single industry failure. </li></ul></ul></ul><ul><ul><ul><li>Unrelated firms can be more difficult to manage. </li></ul></ul></ul>
  27. 27. International Expansion <ul><li>Basic Question: </li></ul><ul><ul><li>To what extent do we customize products and marketing for different national conditions? </li></ul></ul><ul><li>Global strategy </li></ul><ul><ul><li>Selling the same standardized product and using the same basic marketing approach in all countries. </li></ul></ul><ul><ul><ul><li>Standardization provides for lower production cost. </li></ul></ul></ul><ul><ul><ul><li>Ignores national differences that local competitors can address to their advantage. </li></ul></ul></ul>
  28. 28. International Expansion (cont’d) <ul><li>Mulitdomestic Strategy </li></ul><ul><ul><li>Customizing products and marketing strategies to specific national conditions. </li></ul></ul><ul><ul><ul><li>Helps gain market entry and build local market share. </li></ul></ul></ul><ul><ul><ul><li>Raises production costs. </li></ul></ul></ul>
  29. 29. Vertical Integration <ul><li>Vertical Integration </li></ul><ul><ul><li>A strategy that allows an organization to create value by producing its own inputs or distributing its own products. </li></ul></ul><ul><ul><ul><li>Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. </li></ul></ul></ul><ul><ul><ul><li>Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers. </li></ul></ul></ul><ul><ul><li>A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown. </li></ul></ul>
  30. 30. Stages in a Vertical Value Chain
  31. 31. Porter’s Business-Level Strategies Table 6.2
  32. 32. Formulating Business-Level Strategies <ul><li>Low-Cost Strategy </li></ul><ul><ul><li>Driving the organization’s total costs down below the total costs of rivals. </li></ul></ul><ul><ul><ul><li>Manufacturing at lower costs, reducing waste. </li></ul></ul></ul><ul><ul><ul><li>Lower costs than competition means that the low cost producer can sell for less and still be profitable. </li></ul></ul></ul><ul><li>Differentiation </li></ul><ul><ul><li>Offering products different from those of competitors. </li></ul></ul><ul><ul><ul><li>Differentiation must be valued by the customer in order for a producer to charge more for a product. </li></ul></ul></ul>
  33. 33. Formulating Business-Level Strategies <ul><li>Focused Low-Cost </li></ul><ul><ul><li>Serving only one market segment and being the lowest-cost organization serving that segment. </li></ul></ul><ul><li>Focused Differentiation </li></ul><ul><ul><li>Serving only one market segment as the most differentiated organization serving that segment. </li></ul></ul>
  34. 34. Functional-level Strategies <ul><li>A plan that indicates how an organizational function intends to achieve its goals. </li></ul><ul><ul><li>Seeks to have each department add value to a good or service. </li></ul></ul><ul><ul><li>Marketing, service, and production functions can all add value to a good or service through: </li></ul></ul><ul><ul><ul><li>Lowering the costs of providing the value in products. </li></ul></ul></ul><ul><ul><ul><li>Adding new value to the product by differentiating. </li></ul></ul></ul><ul><ul><li>Functional strategies must fit with business level strategies. </li></ul></ul>
  35. 35. Goals for Successful Functional Strategies <ul><li>Attain superior efficiency as a measure of outputs for a given unit of input. </li></ul><ul><li>Attain superior quality by producing reliable products that do their intended job. </li></ul><ul><li>Attain superior innovation developing new and novel features that can be added to the product or process. </li></ul><ul><li>Attain superior responsiveness to customers by acknowledging their needs and fulfilling them. </li></ul>
  36. 36. Planning and Implementing Strategy <ul><li>Allocate implementation responsibility to the appropriate individuals or groups. (delegation) </li></ul><ul><li>Draft detailed action plans for implementation. </li></ul><ul><li>Establish a timetable for implementation. </li></ul><ul><li>Allocate appropriate resources. </li></ul><ul><li>Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals. (accountability) </li></ul>
  37. 37. Program Formulation--The McKinsey 7-S Framework Skills Shared values Staff Style Strategy Structure Systems
  38. 38. Homework 5 Decide the Boundary of firm <ul><li>Publishers of even the smallest daily newspapers usually own their own presses, but even the largest book publishers normally contract their printing jobs to independent printers. </li></ul><ul><li>What accounts for this difference in who owns the printing process? </li></ul>