Ch 5-Slides

Chapter 5
Planning
and Strategy
Microsoft clip art photos reprinted with permission from Microsoft Corporation.

Copyright © Houghton Mifflin Company. All rights reserved. 5 | 2
Chapter Objectives
1. Define the term planning and identify four
organizational responses to uncertainty.
2. Distinguish the three types of planning, write
good objectives, and explain the 80/20 principle.
3. Explain the concept of synergy, describe
Porter’s model of competitive strategies, and
Identify at least three internet business models.

Chapter Objectives (cont’d)
4. Identify and describe the four steps in the
strategic management process, and explain
the nature and purpose of a SWOT analysis.

Coping with Uncertainty
• Planning: The process of coping with
uncertainty by formulating courses of
action to achieve specified results.
• Three Types of Uncertainty
– State uncertainty: occurs when the
environment, or a portion of the
environment, is considered unstable.
– Effect uncertainty: occurs when
impacts of environmental change are
unpredictable.
– Response uncertainty: arises when
the consequences of decisions are
unpredictable.

Coping with Uncertainty (cont’d)
• Organizational Responses to Uncertainty
– Defenders: rely on a primary technology and/or a
narrow product line to remain competitive.
– Prospectors: seek first-mover advantage by
aggressively making things happen and not waiting
for them to happen.
– Analyzers: follow the market leader and imitate what
works; thereby, avoiding expensive R&D mistakes.
– Reactors: wait for adversity (e.g., declining sales) to
occur before taking corrective action.

Figure 5.1 Planning:
The Primary Management Function

From Raymond E. Miles and Charles C. Snow, Organizational Strategy, Structure and Process, 1978,
Stanford University Press.

Balancing Planned Action and
Spontaneity in the Twenty-First Century
• Todays progressive managers:
– See plans as general guidelines
for action.
– Believe planning should involve
those who carry out the plans.
– Balance planned action with the
flexibility to take advantage of
surprise events and unexpected
opportunities.

The Essentials of Planning
• A Plan:
– Is a specific documented intention consisting of an
objective and an action statement.
– States what, when, and how something is to be done.
• Essentials of Sound Planning
– Organizational mission
– Types of planning
– Objectives
– Priorities
– The planning/control cycle

The Essentials of Planning (cont’d)
• Organizational Mission
– A clear, formally written, and publicized statement
that guides the organization by
1. defining the organization for key stakeholders.
2. creating an inspiring vision of the organization.
3. outlining how the vision will be accomplished.
4. establishing key priorities.
5. stating a common goal and foster togetherness.
6. creating a philosophical anchor for the organization.
7. generating enthusiasm and a “can do” attitude.
8. empowering organization members.

• Types of Planning
– Strategic planning: determining how to pursue
long-term goals with available resources.
– Intermediate planning: determining subunits’
contribution with allocated resources.
– Operational planning: determining how to
accomplish specific tasks with available resources.

Figure 5.2 Types of Planning

• Planning Horizon
– The elapsed time between the formulation and the
execution of a planned activity.
• Planning horizon length corresponds to the type of plan
with which it is associated, lengths shorten as the planning
process evolves from strategic to intermediate to
operational plans.

• Objectives
– An objective is a firm commitment to
achieve a measurable result within a
specified period.
• Writing Good Objectives
– Objectives should be expressed in
quantitative, measurable, and
concrete terms.
• What is to be accomplished?
• When is it to be accomplished?
• How can I express the objective
quantitatively?

• The Importance of Objectives
– Targets: Sets specific goals to achieve.
– Measuring sticks: Gages how much was achieved.
– Commitment: Encourages pursuit of the objective.
– Motivation: Provides a challenge for achievement.
– Management by Objectives (MBO): A comprehensive
management system based on measurable
participatively set objectives that leverages the
motivational power of objectives.

Figure 5.3 A Typical Means-Ends
Chain of Objectives

• The Means-Ends Chain of Objectives
– Achievement of lower-level objectives creates a
means for achieving higher-level objectives.
• Priorities
– A ranking of goals, objectives, or activities in order
of importance that guide the order and timing of
decisions that management makes regarding the
allocation of resources.

• The A-B-C Priority System
– A: “Must do” objectives critical to
successful performance.
– B: “Should do” objectives necessary
for improved performance.
– C: “Nice to do” objectives are
desirable for improved performance
but not critical to survival or improved
performance.
• The 80/20 Principle (Pareto
Analysis)
– A minority of causes, inputs, or efforts
tend to produce a majority of results,
outputs, or rewards.

• The Planning/Control Cycle
– Planning sets in motion activities to accomplish the
planned objectives.
– Control functions to direct and monitor activities for
deviations from plans (i.e., attainment of objectives).
– Planning uses feedback from controls to
improve/alter plans and implement corrective actions
where necessary.

Figure 5.4 The Basic
Planning/Control Cycle

Thinking Strategically
(Including E-Business Strategies)
• Synergy
– The concept that the whole is greater than the sum
of the parts.
• Types of synergy
– Market synergy: when one product or service
fortifies the sales of others.
– Cost synergy: savings from combinations of
common-base operations, resources, and facilities.
– Technological synergy: the transfer and
application of technologies to new markets.
– Management synergy: complementary skills that
make for more effective overall management.

Porter’s Generic
Competitive Strategies
• Cost Leadership Strategy
– Having the lowest overall cost in a market provides a
competitive advantage in pricing over competitors.
• Differentiation Strategy
– Providing unique and superior value for the customer
that builds brand loyalty.

Porter’s Generic
Competitive Strategies (cont’d)
• Cost Focus Strategy
– Attempting to gain a competitive edge in a narrow
(or regional) market segment by controlling
(competitively dominating) the segment.
• Focused Differentiation
– Involves achieving a
competitive edge by
delivering a superior product
and/or service to a limited
audience.

Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster from THE COMPETITIVE ADVANTAGE OF NATIONS by
Michael E. Porter. Copyright © l990 by Michael E. Porter.
Figure 5.5 Porter’s Generic
Competitive Strategies

Thinking Strategically (cont’d)
• E-Business Strategies for the Internet
– The Internet is not a fixed thing but rather a complex bundle of
emerging technologies at various stages of development.
– E-business experts predict major changes ahead for industries
such as:
• Software development
and distribution
• Real estate
• Bill payment
• Jewelry
• Wireless communication
• Advertising
– Apply what was learned earlier about synergy and Porter’s
competitive strategies in developing a winning Internet strategy.

Thinking Strategically (cont’d)
• Lessons from the Dot-com World
– Evolving Internet technologies are still emerging.
– There is no one-size-fits-all Internet strategy.
• Porter cautions against putting Internet strategies into one basket.
Rather:
Dot-coms should develop real strategies that create economic value.
Established companies should stop deploying the Internet on a stand-
alone basis and instead use it to enhance current strategies.
– There are still a lot of ways to make money on the Internet.
– Customer loyalty is built with reliable brand names and “sticky”
web sites.

The Strategic
Management Process
• Four Steps in the Strategic Management Process
1. Formulation of a grand strategy.
2. Formulation of strategic plans.
3. Implementation of strategic plans.
4. Strategic control.
• Corrective action based on evaluation and
feedback should take place throughout the entire
strategic management process.

Figure 5.6
The Strategic Management Process

Formulation of a Grand Strategy
• Grand Strategy
– A general explanation of how
the organization’s mission is to
be accomplished.
• Situational Analysis
– Finding the organization’s
niche by performing a SWOT
(Strengths, Weaknesses,
Opportunities, and Threats)
analysis to match unfolding
opportunities with resources
being acquired.
• Capability profile
– Identifying the organization’s
strengths and weaknesses.

Figure 5.7 Determining Strategic Direction
Through Situational (SWOT) Analysis

Formulation of a
Grand Strategy (cont’d)
• Situational Analysis (cont’d)
– Key capabilities for today’s companies
• Quick response to market trends.
• Rapid product development.
• Rapid production and delivery.
• Continuous cost reduction.
• Continuous improvement of processes,
human resources, and products.
• Greater flexibility of operations.

Formulation of Strategic Plans
• Criteria for Formulating Strategic Plans
– Develop clear results-oriented objectives stated in
measurable terms.
– Identify activities required to accomplish the objectives.
– Assign specific responsibilities to the appropriate
personnel.
– Estimate times to accomplish activities and their
appropriate sequencing.
– Determine resources required to accomplish the activities.
– Communicate and coordinate the above elements and
complete the action plan.

Strategic Implementation
and Control
• Implementation of Strategic Plans
– Execution is fundamental to strategy and has to
shape it.
– Developing a systematic filtering down process
(“selling the strategy”) that facilitates the translation
of strategic plans into lower-level plans requires
considering:
1. Organizational structure
2. People
3. Culture
4. Control systems

and Control (cont’d)
• Strategic Control
– A formal control system should be developed that
helps keep strategic plans on track by
• setting up and testing channels for information on
progress, problems, and the fit of strategic assumptions
to the environment.
• using software programs for real-time tracking of
production, financial, and marketing reports.

and Control (cont’d)
• Corrective Action Based on Evaluation and
Feedback
– Negative feedback should prompt corrective action
at the step immediately before the problem occurs.
– Possible corrective actions include:
• updating strategic assumptions.
• reformulating strategic plans.
• rewriting policies.
• making personnel changes.
• modifying budget allocations.

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