Chapter 8 Planning & Strategy Planning & StrategyPlanning Identify appropriate goals & courses of actionStrategyThe cluster of decisions and actions that managers take to help an organization reach its goals. Three Steps of Planning Process Mission & GoalsDefining the BusinessWho are our customers?What customer needs are being satisfied?How are we satisfying customer needs Establishing Major GoalsProvides the organization with a sense of directionStretches the organization to higher levels of performance.Goals must be challenging but realistic with a definite period in which they are to be achieved. Corporate-LevelPlanTop management’s decisions pertaining to the organization’s mission, overall strategy, and structure.Provides a framework for all other planning.Strategywhich industries and national markets an organization intends to compete. Business-LevelPlanDivisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure.Identifies how the business will meet corporate goals.Strategyhow a division intends to compete against its rivals Functional-LevelPlanFunctional managers’ decisions pertaining to the goals to help the division attain its goals.Functional StrategyA plan that indicates how a function intends to achieve its goals. Time HorizonsThe 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 plansMost organizations have a rolling planning cycle Standing PlansUse in programmed decision situationsPolicies are general guides to action.Rules are formal written specific guides to action.Standard operating procedures (SOP) specify an exact series of actions to follow.Single-Use PlansDeveloped for a one-time, nonprogrammed issue.Programs, Projects Why Planning is ImportantFacilitate participation in decision makingGive organization a sense of purposeHelps coordinate different functions & divisionsServes as a control mechanism Scenario PlanningContingency plans“What if” analysesMultiple forecasts of potential scenariosPlans to respond to each scenarioNecessary because organizational environments are unpredictable. Strategy FormulationSWOT AnalysisStrengthsWeaknessesOpportunitiesThreats The Five Environmental Forces Competitive Forces Level of Rivalry Increased competition results in lower profits.Potential for Entry Easy entry leads to lower prices and profits. Power of Suppliers If there are only a few suppliers of important items, supply costs rise. Power of Customers If there are only a few large buyers, they can bargain down prices. Substitutes More available substitutes tend to drive down prices and profits. Corporate-Level StrategiesAimed at growing the company, producing more goods & services, respond to threatsThree ...

1. Chapter 8
Planning & Strategy
Planning & StrategyPlanning Identify appropriate goals &
courses of actionStrategyThe cluster of decisions and actions
that managers take to help an organization reach its goals.
Three Steps of Planning Process
Mission & GoalsDefining the BusinessWho are our
customers?What customer needs are being satisfied?How are we
satisfying customer needs Establishing Major GoalsProvides the
organization with a sense of directionStretches the organization
to higher levels of performance.Goals must be challenging but
realistic with a definite period in which they are to be achieved.
Corporate-LevelPlanTop management’s decisions pertaining to
the organization’s mission, overall strategy, and
structure.Provides a framework for all other

2. planning.Strategywhich industries and national markets an
organization intends to compete.
Business-LevelPlanDivisional managers’ decisions pertaining to
divisions long-term goals overall strategy, and
structure.Identifies how the business will meet corporate
goals.Strategyhow a division intends to compete against its
rivals
Functional-LevelPlanFunctional managers’ decisions pertaining
to the goals to help the division attain its goals.Functional
StrategyA plan that indicates how a function intends to achieve
its goals.
Time HorizonsThe 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 plansMost organizations have a rolling
planning cycle
Standing PlansUse in programmed decision situationsPolicies
are general guides to action.Rules are formal written specific
guides to action.Standard operating procedures (SOP) specify an
exact series of actions to follow.Single-Use PlansDeveloped for
a one-time, nonprogrammed issue.Programs, Projects

3. Why Planning is ImportantFacilitate participation in decision
makingGive organization a sense of purposeHelps coordinate
different functions & divisionsServes as a control mechanism
Scenario PlanningContingency plans“What if” analysesMultiple
forecasts of potential scenariosPlans to respond to each
scenarioNecessary because organizational environments are
unpredictable.
Strategy FormulationSWOT
AnalysisStrengthsWeaknessesOpportunitiesThreats
The Five Environmental Forces
Competitive Forces
Level of Rivalry
Increased competition results in lower profits.Potential for
Entry
Easy entry leads to lower prices and profits.
Power of Suppliers
If there are only a few suppliers of important items, supply
costs rise.
Power of Customers
If there are only a few large buyers, they can bargain down
prices.
Substitutes
More available substitutes tend to drive down prices and profits.

4. Corporate-Level StrategiesAimed at growing the company,
producing more goods & services, respond to threatsThree
major decisionsSingle Business vs. DiversificationInternational
ExpansionVertical Integration
Single BusinessCorporation puts all resources into one
businessAttempt to be a strong competitor in one industryMay
require layoffs & selling divisionsTypically a reaction to poor
performance
DiversificationExpanding into multiple industries &
marketsRelated diversificationEnter a business similar to the
current businessAllows for shared resources – SynergyUnrelated
diversificationAttempt to turn around companyPortfolio
strategyCurrently unpopular – difficult to manage
International ExpansionHow much do we let national markets
impact our organization?Global StrategySame product & same
marketing in all countriesLower costsMultidomestic
strategyCustomize product & marketing for each countryBetter
satisfy customer needs
International ExpansionExporting – making products at home
and selling them abroadImporting – selling at home products
that are made abroadLow risk & low investment

5. International ExpansionLicensingallowing a foreign
organization to manufacture and distribute your productFee is
paidFranchisingForeign organization uses your brand name and
service techniquesFee is paid plus share of profits
International ExpansionStrategic Alliance2 organizations start
operations in a foreign country togetherPool resources & share
riskMore control over how product is manufactured &
distributedJoint VentureA new business is formed to perform a
strategic alliance
International ExpansionWholly Owned SubsidiaryProduce your
product in a foreign country without any local involvementKeep
all rewards & risksExample: Japanese car plants
Vertical IntegrationStrategy of purchasing suppliers
(backwards) or distributors (forwards)May lower costs / create
valueMakes the organization less flexible
Porter’s Business Level StrategiesLow costDrive costs down
below competitorsCharge a cheaper price than
competitorsDifferentiationDistinguish your product from
competitorsMore expensive – charge a premium priceDon’t get
“stuck in the middle”Focused vs. whole market

6. Functional Level StrategyMust be consistent with low cost or
differentiation decision made at business level.
Competitive Forces
Level of Rivalry
Increased competition results in lower
profits.
Potential for Entry
Easy entry leads to lower prices and profits.
Power of Suppliers
If there are only a few suppliers of important
items, supply costs rise.
Power of
Customers
If there are only a few large buyers, they can
bargain down prices.
Substitutes
More available substitutes tend to drive
down prices and profits.