The strategic management process involves six steps that managers use to develop an organization's strategies: 1. Identify the organization's current mission, goals, and strategies 2. Do an external analysis 3. Do an internal analysis 4. Formulate strategies 5. Implement strategies 6. Evaluate results The end result is a set of corporate, competitive, and functional strategies that allow the organization to achieve its goals.

1. Chapter 5

2. TABLE OF CONTENTS
• Summary
• What Is Planning And Why Do Managers Have To Plan?
• What Do Managers Need To Know About Strategic
Management?
• How Do Managers Set Goals And Develop Plans?
• What Contemporary Planning Issues Do Managers Face?

3. SUMMARY

4. SUMMARY
Discuss the nature and purposes of planning. As the primary
management function, planning establishes the basis for all the
other things that managers do. The planning we’re concerned
with is formal planning; that is, specific goals covering a specific
time period are defined and written down and specific plans are
developed to make sure those goals are met. There are four
reasons why managers should plan:
• it establishes coordinated efforts,
• it reduces uncertainty,
• it reduces overlapping and wasteful activities, and
• it establishes the goals or standards that are used in
controlling work. Although criticisms have been directed at
planning, the evidence generally supports the position that
organizations benefit from formal planning.

5. SUMMARY
Explain what managers do in the strategic management process.
Managers develop the organization’s strategies in the strategic
management process, which is a six-step process encompassing
strategy planning, implementation, and evaluation. The six steps are as
follows:
• Identify the organization’s current mission, goals, and strategies
• Do an external analysis
• Do an internal analysis—steps 2 and 3 together are called SWOT
analysis
• Formulate strategies
• Implement strategies and
• Evaluate results. The end result of this process is a set of corporate,
competitive, and functional strategies that allow the organization to
do what it’s in business to do and to achieve its goals.

6. SUMMARY
• Compare and contrast approaches to goal setting and
planning. Most company’s goals are classified as either
strategic or financial. We can also look at goals as either stated
or real. In traditional goal setting, goals set by top managers
flow down through the organization and become subgoals for
each organizational area. Organizations could also use
management by objectives, which is a process of setting
mutually agreed-upon goals and using those goals to evaluate
employee performance. Plans can be described in terms of
their breadth, time frame, specificity, and frequency of use.
Plans can be developed by a formal planning department or
by involving more organizational members in the process.

7. SUMMARY
• Discuss contemporary issues in planning. One contemporary
planning issue is planning in dynamic environments, which
usually means developing plans that are specific but flexible.
Also, it’s important to continue planning even when the
environment is highly uncertain. Finally, because there’s little
time in a dynamic environment for goals and plans to flow
down from the top, lower organizational levels should be
allowed to set goals and develop plans. Another
contemporary planning issue is using environmental scanning
to help do a better analysis of the external environment. One
form of environmental scanning, competitive intelligence, can
be especially helpful in finding out what competitors are
doing.

8. LEARNING OBJECTIVES
In this chapter we will address the following questions:
• Discuss the nature and purposes of planning.
• Explain what managers do in the strategic planning process.
• Compare and contrast approaches to goal setting and
planning.
• Discuss contemporary issues in planning.

9. WHAT IS PLANNING AND WHY DO MANAGERS HAVE TO PLAN?
Section 1

10. WHAT IS PLANNING AND WHY DO MANAGERS HAVE TO PLAN?
• It is the primary management
function, setting the basis for the
other functions.
• It encompasses defining the
organization’s objectives or
goals, establishing an overall
strategy, and developing a
comprehensive hierarchy of plans
to integrate and coordinate.
• Planning can be further defined
in terms of whether it is informal
or formal. In informal planning
very little, if anything, is written
down. In formal planning,
specific objectives are written
down and made available to
organization members.
Primary management
function
Defining organization’s
objectives
Formal or informal
planning

11. WHY SHOULD MANAGERS FORMALLY PLAN?
• Managers should engage in planning
for at least four reasons.
• a) Planning provides direction.
• b) It reduces the impact of change.
• c) Planning minimizes waste and
redundancy.
• d) It sets the standards to facilitate
control.
• Planning establishes coordinated
effort. Understanding where the
organization is going and what must
be contributed to reach the
objectives, helps members to
coordinate their activities and fosters
teamwork.

12. WHY SHOULD MANAGERS FORMALLY PLAN?
• A lack of planning can cause various
organizational members or their units
to work against one another.
• Planning reduces uncertainty.
• It clarifies the consequences of
actions.
• It is precisely what is needed when
managing in a chaotic environment.
• Planning also reduces overlapping
and wasteful activities.
• Finally, planning establishes
objectives or standards that facilitate
control.
Avoid members to
work against one
another
Reduces
uncertainty
Managing chaotic
environment
Reduces
overlapping &
wasteful activities
Establish
objectives &
standard control

13. WHAT ARE SOME CRITICISMS OF FORMAL PLANNING
AND HOW SHOULD MANAGERS RESPOND?
• Planning may create rigidity.
Formal planning efforts lock an
organization into specific goals
and specific timetables. The
assumption may be that the
environment won’t change
during the time period the
objectives cover.
• If that assumption is faulty,
managers who follow a plan may
have trouble.
• Forcing a course of action when
the environment is fluid can be a
recipe for disaster.
• Managers need to remain
flexible and not be tied to a
course of action simply because
it is the plan.

14. WHAT ARE SOME CRITICISMS OF FORMAL PLANNING
AND HOW SHOULD MANAGERS RESPOND?
• Formal plans can’t replace
intuition and creativity. Visions
have a tendency to become
formalized as they evolve.
Formal planning efforts typically
follow a methodology that
reduces the vision to a
programmed routine. Planning
should enhance and support
intuition and creativity, not
replace it.

15. WHAT ARE SOME CRITICISMS OF FORMAL PLANNING
AND HOW SHOULD MANAGERS RESPOND?
• Planning focuses managers’
attention on today’s competition,
not on tomorrow’s survival.
• Formal planning tends to focus on
how to best capitalize on existing
business opportunities within the
industry.
• It often does not allow for managers
to consider creating or reinventing
the industry.
• Some companies have found much of
their success to be the result of
forging into uncharted waters,
designing and developing new
industries as they go.

16. WHAT ARE SOME CRITICISMS OF FORMAL PLANNING
AND HOW SHOULD MANAGERS RESPOND?
• Formal planning reinforces success,
which may lead to failure.
• Success may, in fact, breed failure in
an uncertain environment.
• It is hard to change or discard
successful plans.
• Successful plans may provide a false
sense of security.
• Managers may need to face that
unknown and be open to doing
things in new ways to be even more
successful.

17. DOES FORMAL PLANNING IMPROVE ORGANIZATIONAL PERFORMANCE
• The studies of relationship
between planning and
performance stated that:-
• a) There are generally higher
profits, higher return on assets
with a formal planning process.
• b) The quality of the process and
appropriate implementation of
the plans probably contribute
more towards high performance
than does the extent of planning.
• c) Finally, in those organizations
in which formal planning did not
lead to higher performance, the
environment was typically the
culprit.

18. WHAT IS PLANNING AND WHY DO MANAGERS HAVE TO PLAN?
Formal and informalplanning-Question
• Contrast formal with informal planning.
• Discuss why planning is beneficial

19. WHAT IS PLANNING AND WHY DO MANAGERS HAVE TO PLAN?
Formal and informalplanning-Question
Contrast formal with informal planning.
• In informal planning, very little, if anything, is written down. In
formal planning, there are written plans at various levels,
people are assigned responsibilities, there is a great deal of
detail, etc. Formal planning involves specific goals to be
achieved within specific timetables.
Discuss why planning is beneficial
• Planning is beneficial because it sets the foundation for all of
the other management functions. Planning encompasses
defining the organization’s objectives or goals, establishing an
overall strategy for achieving those goals, and developing a
comprehensive hierarchy of plans to integrate and coordinate
activities. It’s concerned with ends (what is to be done) as well
as with means (how it’s to be done).

20. WHAT DO MANAGERS NEED TO KNOW ABOUT STRATEGIC MANAGEMENT?
Section 2

21. WHATIS STRATEGICMANAGEMENT?
Strategic management is what managers
do to develop an organization’s
strategies.
These plans encompass:
• How the organization will do what
it’s in business to do,
• How it will compete successfully,
• How it will attract and satisfy its
customers in order to achieve its
goals.

22. WHY IS STRATEGIC MANAGEMENT IMPORTANT?
• One reason is that it can make a
difference in how well an
organization performs. Research
has found a generally positive
relationship between strategic
planning and performance. Those
that have a plan generally have
better financial performance.
• The strategic management
process helps managers in
organizations of all types and
sizes face continually changing
situations.
• Strategic management is
important because organizations
are complex and diverse.

23. WHAT ARE THE STEPS OF THE STRATEGIC MANAGEMENT PROCESS?

24. STEP1:ESTABLISHTHEVISION,MISSIONANDGOALSOFTHEORGANIZATION
• This step involves the clarification of
what the company is and who they
do business for.
• At the very basic level, it defines what
product, service or good is going to
be offered.
• The vision of the company refers to
the future of it’s existence and serves
the purpose to inspire and motivate
members to work hard to achieve this
vision.
• Establishing these 3 things helps the
company to zone in on the ultimate
goal so they know where to focus
their energies.
Vision
Mission
Goals

25. STEP2:ANALYZEOPPORTUNITIES&THREATS
• This step is to analyze outside
resources and competition.
• Through market research and
studying the industry and any
regulation requirements, the
organization will be better able to
anticipate the needs of it’s clientele.
• Studying competitors can help
companies realize potential things
that they should avoid doing or
certain strategies that they can adopt
that has worked for the other
company.
Opportunities Threats

26. STEP 3: ANALYZE THE INTERNAL STRENGTHS AND
POTENTIAL WEAKNESSES OF THE ORGANIZATION
• This step is meant for
companies to see where they
can improve within the
confines of the business itself.
• Pinpointing any ‘weak links’
or potential problems can
save the company a lot of
time and money if they can fix
the issue before it becomes a
bigger one.
• This includes an audit of
every department and can be
accomplished by performance
reviews of employees and an
audit of all assets and
resources the company has.
Potential
weaknesses
Internal
strengths

27. STEP 4: FORMULATE STRATEGIES
• This step consists of analyzing the
information that was discovered in
steps 2 & 3 in a side-by-side
comparison.
• The strengths and weaknesses of the
internal resources plus knowing the
existing opportunities and threats
that exist outside of the company
help to identify the main issues an
organization needs to deal with when
forming their strategy.
Strengths
Weaknesses
Opportunities
Threats

28. STEP 5: IMPLEMENTING THE STRATEGY
• In order to get a strategic plan to work
effectively, it must be implemented and
executed properly.
• Some of the ways that strategies tend to
fail are because of miscommunication
among different levels of the
organization and losing clarity of the
tasks at hand.
• Strategic tasks should be defined and
the abilities of the organization should
be determined.
• There should be a timetable/agenda
created that outlines the
implementation as well as a plan.
• There are many different types of
strategies but some of the main ones to
note are: corporate strategy, business
strategy, low-cost strategy,
differentiation strategy and functional
strategies.
Implementing Strategy
Implemented /
execute properly
Defined and
determined
Different
types of
strategies
Clear communication

29. STEP 6: EVALUATE RESULTS
• After the strategy has been
implemented, there needs to be a
way to make sure that it is working.
• A control system should be put in
place so that managers can evaluate
the process.
• They need to be able to identify
what’s working and what isn’t. The
faster problems can be identified, the
faster they can be resolved and
improved.
Make sure it is
working
A control
system
What’s working
& what isn’t

30. WHAT STRATEGIC WEAPONS DO MANAGERS HAVE?
• To the degree that an organization can
satisfy a customer’s need for quality, it
can differentiate itself from the
competition and attract and hold a loyal
customer base.
• Constant improvement in the quality
and reliability of an organization’s
products or services can result in a
competitive advantage others cannot
steal.
• Product innovations are not sustainable
because they can be quickly copied by
rivals.
• Incremental improvement is something
that becomes an integrated part of an
organization’s operations and can
develop into a considerable cumulative
advantage.
Customer’s
need for quality
Constant
improvement
Product
innovations
Incremental
improvement

31. WHAT STRATEGIC WEAPONS DO MANAGERS HAVE?
• Benchmarking can help promote
quality because it involves the
search for the best practices
among competitors and non-
competitors that lead to superior
performance.
• Social media has become a tool
organizations can use to as a
strategic weapon.
• Data can also be used as a
strategic weapon. Collecting data
about customers, partners,
employees, markets and other
quantifiable areas can be used to
respond to the needs of these
same stakeholders.
Benchmarking
Social media
Collecting
data

32. WHAT STRATEGIES DO MANAGERS USE?

33. LEVEL OF STRATEGIES
• Three levels of strategy are
available: corporate,
competitive and functional Corporate
Competitive
Functional

34. A CORPORATE STRATEGY
• The first level of strategy in the
business world is corporate strategy,
which sits at the ‘top of the heap’.
• Before diving into deeper, more
specific strategy, manager needs to
outline a general strategy that is
going to oversee everything else that
he/she does.
• At a most basic level, corporate
strategy will outline exactly what
businesses are going to engage in,
and how manager plans to enter and
win in those markets.

35. A COMPETITIVE/ BUSINESS STRATEGY
• Companies will seek a position,
so that they can gain a distinct
edge over the company’s rivals.
Units that are independent and
formulate their own competitive
strategies are called strategic
business units (SBUs).
• This positioning requires a
careful evaluation of the
competitive forces.
• The competitive advantage
comes from the organization’s
core competencies by doing
something that others cannot do
or doing it better than others can
do it.

36. CHOOSING A COMPETITIVE STRATEGY

37. CHOOSING A COMPETITIVE STRATEGY
• Michael Porter of Harvard’s
Graduate School of Business is a
leading researcher in this area.
His competitive strategies
framework has generic
competitive strategies.
• No firm can successfully perform
at an above-average profitability
level by trying to be all things to
all people.
• Management must select a
competitive strategy that will
give it a distinct advantage by
capitalizing on the strengths of
the organization and the industry
it is in.
• These three strategies are: cost-
leadership, differentiation, and
focus.
Cost leadership
FocusDifferentiation

38. COST LEADERSHIP STRATEGY
• In cost leadership, a firm sets out
to become the low cost producer
in its industry.
• The sources of cost advantage
are varied and depend on the
structure of the industry. They
may include the pursuit of
economies of scale, proprietary
technology, preferential access to
raw materials and other factors.
• A low cost producer must find
and exploit all sources of cost
advantage. if a firm can achieve
and sustain overall cost
leadership, then it will be an
above average performer in its
industry, provided it can
command prices at or near the
industry average

39. DIFFERENTIATION STRATEGY
• In a differentiation strategy a firm
seeks to be unique in its industry
along some dimensions that are
widely valued by buyers.
• It selects one or more attributes that
many buyers in an industry perceive
as important, and uniquely positions
itself to meet those needs.
• It is rewarded for its uniqueness with
a premium price.
•

40. FOCUS STRATEGY
• The generic strategy of focus a narrow
competitive scope within an industry.
The focuser selects a segment or group
of segments in the industry and tailors
its strategy to serving them to the
exclusion of others.
• The focus strategy has two variants.
• (a) In cost focus a firm seeks a cost
advantage in its target segment,
• (b) differentiation focus a firm seeks
differentiation in its target segment.
• The target segments must either have
buyers with unusual needs or else the
production and delivery system that
best serves the target segment must
differ from that of other industry
segments.
• Cost focus exploits differences in cost
behaviour in some segments, while
differentiation focus exploits the
special needs of buyers in certain
segments.
Cost focus
Differentiation
focus

41. WHAT DO MANAGERS NEED TO KNOW ABOUT STRATEGIC MANAGEMENT?
VideoTime–“TheFiveCompetitiveForcesThatShapeStrategy”
 “An Interview with Michael E. Porter,
Professor, Harvard University. Porter's
five competitive forces is the basis for
much of modern business strategy.
Understand the framework and how to
put it into practice”
 Michael Porter is the founder of the
modern strategy field and one of the
world’s most influential thinkers on
management and competitiveness. The
author of 19 books and over 130 articles,
he is the Bishop William Lawrence
University Professor at Harvard Business
School and the director of the school’s
Institute for Strategy and
Competitiveness, which was founded in
2001 to further his work and research
 https://www.youtube.com/watch?v=mY
F2_FBCvXw

42. HOW DO MANAGERS SET GOALS AND DEVELOP PLANS?
Section 3

43. WHAT TYPES OF GOALS DO ORGANIZATIONS HAVE
AND HOW DO THEY SET THOSE GOALS
Types of Goals
• a) Stated goals - official statements
of what an organization says, and
what it wants its stakeholders to
believe, found in public documents.
• b) Real goals - those goals an
organization actually pursues -
observe what organizational
members are doing.
Real and stated goals may be different.

44. SETTING GOALS
Setting goals - goals provide the direction
for all management decisions and actions
and form the criterion against which actual
accomplishments are measured.
• Traditional goal-setting - goals set by
top managers that flow down through
the organization and become sub-goals
for each organizational area.
• Top-down goals may not translate easily
into departmental, team or individual
goals.
• Ambiguous goals have to be made more
specific.
• Means-ends chain is when higher-level
goals (or ends) are linked to lower-level
goals, or goals achieved at lower levels
become the means to reach the goals
(ends) at the next level.
Traditional goal-
setting
Top-down goals
Ambiguous
goals
Means-ends
chain

45. MANAGEMENT BY OBJECTIVES (MBO)
Many organizations use management by
objectives (MBO), instead of traditional
ways.
There are four ingredients common to
MBO programs.
• The objectives in MBO should be
concise statements of expected
accomplishments (goal specificity).
• The manager and employee jointly
choose the goals and how they will be
achieved (participative decision
making).
• Each objective has a concise time
period in which it is to be completed.
• MBO seeks to give continuous feedback
on progress toward goals both through
ongoing feedback to individuals and
periodic formal appraisal meetings
(performance feedback).

47. SIX STEPS IN GOAL-SETTING
• Review the organization’s mission and
employee’s key job tasks.
• Evaluate available resources.
• Determine the goals individually or
with input from others
• Make sure goals are well-written and
then communicate them to all who
need to know.
• Build in feedback mechanisms to
assess goal progress.
• Link rewards to goal attainment.
Org. mission and job
tasks
Available resources
Determine the goals
Goals are well-written
and communicate
Build in feedback
Link rewards

48. WHAT TYPES OF PLANS DO MANAGERS USE AND HOW
DO THEY DEVELOP THOSE PLANS?

49. BREADTH PLAN
• Strategic plans apply to the entire
organization, establish the
organization’s overall objectives, and
seek to position the organization in
terms of its environment.
• These plans drive the organization’s
efforts to achieve its goals.
• They serve as a basis for forming the
tactical plans.
• Tactical plans (operational plans)
specify the details of how to achieve
the overall objectives.
Apply to
entire org.
Org. efforts
and goals
Forming
tactical plans

50. TIMEFRAME PLAN
• Short term covers less than one
year.
• Any time frame beyond three
years is classified as long term.

51. SPECIFICITY PLAN
• It appears intuitively correct that
specific plans are always preferable to
directional, or loosely guided, plans.
• Specific plans have clearly defined
objectives.
• Specific plans require clarity and a
predictability that often does not exist.
• When uncertainty is high, and
management must maintain flexibility in
order to respond to unexpected
changes, directional plans may be
preferable.
• Directional plans, on the other hand,
identify general guidelines.
• They provide focus but do not lock
managers into specific objectives or
specific courses of action.

52. FREQUENCY OF USE PLAN
• A single-use plan is used to meet the need of a particular or unique
situation.
• Standing plans are ongoing, providing guidance for repeatedly performed
actions.

53. DEVELOPING PLANS
• Contingency factors affect the choice of plans: organizational level, degree of
environmental uncertainty, and length of future commitments.

54. PLANNING AND ORGANIZATIONAL LEVEL
Show the relationship
between a manager’s level
in the organization and
the type of planning done.
For the most part, lower-
level managers do
operational (or tactical)
planning while upper-level
managers do strategic
planning.

55. TWOAPPROACHESTO PLANNING
• A formal planning department is a
group of planning specialists whose
sole responsibility is to help write the
various organizational plans.
• Under this approach, plans developed
by top-level managers flow down
through other organizational levels.
• In a survey of managers about formal
top-down organizational planning
processes, over 75 percent said that
their company’s planning approach
was unsatisfactory.
A formal
planning
department
Planning by
organizational
members

56. TWOAPPROACHESTO PLANNING
Planning by organizational members
• In this approach, plans aren’t handed
down from one level to the next, but
instead are developed by
organizational members at the
various levels and in the various work
units to meet their specific needs.
• When organizational members are
more actively involved in planning,
they see that the plans are used in
directing and coordinating work.
A formal
planning
department
Planning by
organizational
members

57. HOW DO MANAGERS SET GOALS AND DEVELOP PLANS?
VideoTime–“Fourkeysforsettingandachievinggoals”
 “In this inspirational talk, he shares his
own journey in building one of the
nation’s largest home improvement
companies and the four keys that led to
his success”.
 William Barr co-founded Universal
Windows Direct (UWD) in 2002 in
Cleveland, Ohio. Under his leadership,
UWD quickly grew into one of the
nation’s leading home remodeling
companies with franchises across the
country; it was recently named one of
Cleveland’s most friendly organizations
to work for.
 https://www.youtube.com/watch?v=13
MYY8qMWQg

58. WHAT CONTEMPORARY PLANNING ISSUES DO MANAGERS FACE?
Section 4

59. HOW CAN MANAGERS PLAN EFFECTIVELY IN
DYNAMIC ENVIRONMENTS?
• Managers should develop plans
that are specific, but flexible.
• Managers need to stay alert to
environmental changes that
may impact implementation
and respond.
• A flatter organizational
hierarchy helps to effectively
plan in dynamic environments
Specific plans
Alert of
environmental
changes
Flatter org.-
effectively plan

60. HOW CAN MANAGERS USE ENVIRONMENTAL SCANNING?
• Environmental scanning-
screening large amounts
of information to detect
emerging trends and
create a set of scenarios.
• Competitive intelligence
is accurate information
about competitors that
allows manager to
anticipate competitors’
actions rather than
merely react to them.
Environmental
scanning
Competitive
intelligence

61. HOW IS COMPETITIVE INTELLIGENCE USEFUL?
• It seeks basic information about
competitors: Who are they? What are
they doing? How will what they are
doing affect us?
• Most of the competitor-related
information an organization needs to
make crucial strategic decisions is
available and accessible to the public.
• Competitive intelligence isn’t
organizational espionage.
• Competitive intelligence becomes illegal
corporate spying when it involves the
theft of proprietary materials or trade
secrets by any means.
• The Economic Espionage Act makes it a
crime in the United States to engage in
economic espionage or to steal a trade
secret.