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  1. 1. Planning andStrategic Management
  2. 2. What Is Planning?• Planning – Managerial function that involves: • Defining the organization’s goals • Establishing an overall strategy for achieving those goals • Developing a comprehensive set of plans to integrate and coordinate organizational work – Types of planning • Informal: not written down, short-term focus; specific to an organizational unit • Formal: written, specific, and long-term focus, involves shared goals for the organization 3–2
  3. 3. Purposes of Planning–Provides direction–Reduces uncertainty–Minimizes waste and redundancy–Sets the standards for controlling 3–3
  4. 4. How Do Managers Plan?• Elements of Planning – Goals (also objectives) • Desired outcomes for individuals, groups, or entire organizations • Provide direction and performance evaluation criteria – Plans • Documents that outline how goals are to be accomplished • Describe how resources are to be allocated and establish activity schedules 3–4
  5. 5. Decision Making and the Planning Process• The Planning Process The Environmental Context The organization’s mission • Purpose • Premises • Values • Directions Strategic goals Strategic plans Tactical goals Tactical plans Operational goals Operational plans Figure 3.1 3–5
  6. 6. Organizational Goals• Purposes of Goals – Provide guidance and a unified direction for people in the organization. – Have a strong effect on the quality of other aspects of planning. – Serve as a source of motivation for employees of the organization. – Provide an effective mechanism for evaluation and control of the organization. 3–6
  7. 7. Kinds of Goals• By Level – Mission statement is a statement of an organization’s fundamental purpose. – Strategic goals are goals set by and for top management of the organization that address broad, general issues. – Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals. – Operational goals are set by and for lower-level managers to address issues associated with tactical goals. 3–7
  8. 8. Different Goal Setting Processes in OrganizationsSource: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions. 3–8
  9. 9. Kinds of Plans• Strategic Plans – A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management.• Tactical Plans – A plan aimed at achieving the tactical goals set by and for middle management.• Operational Plans – Plans that have a short-term focus. These plans are set by and for lower-level managers. 3–9
  10. 10. Contd.• Long-Term Plans – Time frames extending beyond three years• Short-Term Plans – Time frames of one year or less• Specific Plans – Clearly defined and leave no room for interpretation• Directional Plans – Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation• Single-use Plan – A one-time plan specifically designed to meet the needs of a unique situation• Standing Plans – Ongoing plans that provide guidance for activities performed repeatedly 3–10
  11. 11. Strategic Management Process • The set of managerial decisions and actions that determines the long-run performance of an organization External Analysis • opportunities • threats Identify the organizations Formulate Implement Evaluatecurrent mission, goals, SWOT Analysis Strategies Strategies Results and strategies Internal Analysis • strengths • weaknesses 3–11
  12. 12. Process Contd.• Step 1: Identify the Organization’s Current Mission, Objectives, and Strategies – Mission: the firm’s reason for being • The scope of its products and services – Goals: the foundation for further planning • Measurable performance targets• Step 2: Conduct an External Analysis – The environmental scanning of specific and general environments • Focuses on identifying opportunities and threats 3–12
  13. 13. Components of a Mission Statement• Customers: Who are the organization’s customers?• Products or services: What are the organization’s major products or services?• Markets: Where does the organization compete geographically?• Technology: How technologically current is the organization?• Concern for survival growth, and profitability: Is the organization committed to growth and financial stability? 3–13
  14. 14. Components of a Mission Statement• Philosophy: What are the organization’s basic beliefs, values, aspirations, and ethical priorities?• Self-concept: What is the organization’s major competitive advantage and core competencies?• Concern for public image: How responsive is the organization to societal and environmental concerns?• Concern for employees: Does the organization consider employees a valuable asset? 3–14
  15. 15. Process Contd.• Step 3: Conduct an Internal Analysis – Assessing organizational resources, capabilities, activities, and culture: • Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm • Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage.• Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats) 3–15
  16. 16. Process Contd.• Step 4: Formulate Strategies – Develop and evaluate strategic alternatives – Select appropriate strategies for all levels in the organization that provide relative advantage over competitors – Match organizational strengths to environmental opportunities – Correct weaknesses and guard against threats 3–16
  17. 17. Process Contd.• Step 5: Implement Strategies – Implementation: effectively fitting organizational structure and activities to the environment – The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements• Step 6: Evaluate Results – How effective have strategies been? – What adjustments, if any, are necessary? 3–17
  18. 18. • The Relationships of Strategies by Organizational Level 3–18
  19. 19. SWOT Mission An organization’s fundamental purpose Analysis SWOT Analysis• Strengths To formulate strategies that support the mission• Weaknesses Internal Analysis External Analysis• Opportunities Strengths Opportunities (distinctive• Threats competencies) Weaknesses Threats Best Strategies Those that support the mission and • exploit opportunities and strengths • neutralize threats • avoid (or correct) weaknesses 3–19
  20. 20. Types of Strategic Alternatives• Corporate-level Strategy – The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets. 3–20
  21. 21. Types of Corporate Strategies• William. F. Glueck: Scheme of Grand Strategy –Growth: expansion into new products and markets –Stability: maintenance of the status quo –Retrenchment: addresses organizational weaknesses that are leading to performance declines –Combination Strategy: Corporate portfolio analysis: involves a number of businesses; guides resource allocation 3–21
  22. 22. Growth Strategies• Growth Strategy – Seeking to increase the organization’s business by expansion into new products and markets• Types of Growth Strategies – Concentration: Product or Market – Vertical integration: Backward or Forward – Horizontal integration – Diversification: Related or Unrelated 3–22
  23. 23. Stability Strategy• Stability Strategy – A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons 3–23
  24. 24. Retrenchment Strategy• Retrenchment Strategy – Reduces the company’s activities or operations – Retrenchment strategies include: • Cost reductions • Layoffs • Closing underperforming units • Closing entire product lines or services 3–24
  25. 25. Corporate Portfolio Analysis• Used when an organization’s corporate strategy involves a number of businesses• BCG Matrix – Considers market share and industry growth rate – Classifies firms as: • Cash cows: low growth rate, high market share • Stars: high growth rate, high market share • Question marks: high growth rate, low market share • Dogs: low growth rate, low market share 3–25
  26. 26. BCG Matrix High LowHigh Market Share Question Stars Marks Heavily invest Sell off or turn into starsAnticipatedGrowth Rate Cash Dogs Cows Sell off or Milk for cash liquidateLow 3–26
  27. 27. Managing Diversification• GE Business Screen – A method of evaluating business in a diversified portfolio along two dimensions, each of which contains multiple factors: • Industry attractiveness. • Competitive position (strength) of each firm in the portfolio. – In general, the more attractive the industry and the more competitive a business is, the more resources an organization should invest in that business. 3–27
  28. 28. Cincinnati, Ohio, 45227. Source: From Strategy Formulation: International Thomson Publishing, Inc., Question and Dan Schendel. Copyright 1978 West Western College Publishing, a division of Publishing. Used by permission of South- Analytical Concepts, by Charles W. Hofer High Winner Winner mark AverageMedium Winner Loser business Profit Low Loser Loser producer Good Medium Poor Competitive position Competitive position Industry attractiveness 1. Market share 1. Market growth 2. Technological know-how 2. Market size GE Business Screen 3. Product quality 3. Capital requirements 4. Service network 4. Competitive intensity 5. Price competitiveness 6. Operating costs3–28
  29. 29. Business-Level Strategy• Business-Level Strategy – A strategy that seeks to determine how an organization should compete in each of its SBUs (strategic business units – The Role of Competitive Advantage• Competitive Advantage – An organization’s distinctive competitive edge that is sourced and sustained in its core competencies• Quality as a Competitive Advantage – Differentiates the firm from its competitors – Can create a sustainable competitive advantage – Represents the company’s focus on quality management to achieve continuous improvement and meet customers’ demand for quality 3–29
  30. 30. Porter’s Generic Strategies• Differentiation strategy – An organization seeks to distinguish itself from competitors through the quality of its products or services.• Overall cost leadership strategy – An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms.• Focus strategy – An organization concentrates on a specific regional market, product line, or group of buyers using cost or differentiation advantage. 3–30
  31. 31. Pursuing Porter’s Competitive Strategies 3–31
  32. 32. Functional-Level Strategy• Functional-level strategies support the business- level strategy – i.e., Marketing, human resources, research and development, and finance all support the business- level strategy 3–32
  33. 33. Tactical Planning• Developing and Executing Tactical Plans Developing tactical plans Executing tactical plans • Recognize and understand • Evaluate each course of action overarching strategic plans in light of its goal and tactical goals • Obtain and distribute • Specify relevant resource and information and resources time issues • Monitor horizontal and vertical • Recognize and identify human communication and integration resource commitments of activities • Monitor ongoing activities for goal achievement 3–33
  34. 34. Operational PlanningSource: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions. 3–34
  35. 35. Types of Operational PlansPlan DescriptionSingle-use plan Developed to carry out a course of action not likely to be repeated in the future Program Single-use plan for a large set of activities Project Single-use plan of less scope and complexity than a programStanding plan Developed for activities that recur regularly over a period of time Policy Standing plan specifying the organization’s general response to a designated problem or situation Standard operating procedure Standing plan outlining steps to be followed in particular circumstances Rules and regulations Standing plans describing exactly how specific activities are to be carried out Table 3.1 3–35
  36. 36. Contingency Planning • Contingency is the determination of alternative courses of action to be taken if an intended plan is unexpectedly disrupted or rendered inappropriate. These plans help managers to cope with uncertainty and change. Ongoing planning process Action point 1 Action point 2 Action point 3 Action point 4 Develop plan, Implement plan and Specify indicators Successfully complete considering formally identify for the contingency plan or contingency contingency events contingency events events and develop plan contingency plans for each possible event Monitor contingency event indicators and implement contingency plan if necessaryFigure 3.6 3–36