Chapter6 Planning, Strategy, and Control

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PowerPoint Presentation by Charlie Cook© Copyright The McGraw-Hill Companies, Inc., 2004. All rights reserved.

Planning, Strategy, and Planning, Strategy, and ChangeChange

Planning, Strategy, and Planning, Strategy, and ChangeChange

Essentials ofContemporary Management

© Copyright 2004 McGraw-Hill. All rights reserved. 6–2

Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

• After studying the chapter, you should be able to:After studying the chapter, you should be able to:

Describe the Describe the three steps of the planning three steps of the planning processprocess..

Explain the relationship between Explain the relationship between planning, planning, strategy, and changestrategy, and change..

Explain the role of planning in Explain the role of planning in predicting the predicting the futurefuture and in changing the organization so it can and in changing the organization so it can meet future challenges.meet future challenges.

Outline the main steps in Outline the main steps in SWOT analysisSWOT analysis..

Differentiate among Differentiate among corporate-, business-, corporate-, business-, functional-level strategiesfunctional-level strategies..


Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)Learning Objectives (cont’d)

Describe the vital role played by Describe the vital role played by strategystrategy implementationimplementation in determining managers’ in determining managers’ ability to achieve an organization’s mission ability to achieve an organization’s mission and goals.and goals.


The Planning ProcessThe Planning ProcessThe Planning ProcessThe Planning Process

• PlanningPlanningIdentifying and selecting appropriate Identifying and selecting appropriate goalsgoals

(goal making) and (goal making) and courses of actioncourses of action (strategy-making) for an organization.(strategy-making) for an organization.

• The organizational plan that results from the planning The organizational plan that results from the planning process details the goals and specifies how process details the goals and specifies how managers will attain those goals.managers will attain those goals.

• StrategyStrategyThe cluster of The cluster of decisionsdecisions and and actionsactions that that

managers take to help an organization reach managers take to help an organization reach its goals.its goals.


Three Steps in PlanningThree Steps in PlanningThree Steps in PlanningThree Steps in Planning

Figure 6.1


The Planning ProcessThe Planning ProcessThe Planning ProcessThe Planning Process

• MissionMissionA broad declaration of an organization’s A broad declaration of an organization’s

purpose that identifies the organization’s purpose that identifies the organization’s products and customers and distinguishes products and customers and distinguishes the organization from its competitors.the organization from its competitors.


Planning Process StagesPlanning Process StagesPlanning Process StagesPlanning Process Stages

• Determining the Organization’s Mission and Determining the Organization’s Mission and GoalsGoalsDefining the organization’s overriding purpose Defining the organization’s overriding purpose

and its goals.and its goals.

• Formulating strategyFormulating strategyManagers analyze current situation and Managers analyze current situation and

develop the strategies needed to achieve the develop the strategies needed to achieve the mission.mission.

• Implementing strategyImplementing strategyManagers must decide how to allocate Managers must decide how to allocate

resources between groups to ensure the resources between groups to ensure the strategy is achieved.strategy is achieved.


Levels and Types of PlanningLevels and Types of PlanningLevels and Types of PlanningLevels and Types of Planning

Figure 6.2


Levels of Planning at General ElectricLevels of Planning at General ElectricLevels of Planning at General ElectricLevels of Planning at General Electric

Figure 6.3


Levels of PlanningLevels of PlanningLevels of PlanningLevels of Planning

• Corporate-Level PlanCorporate-Level PlanTopTop management’s decisions pertaining to management’s decisions pertaining to

the organization’s mission, overall strategy, the organization’s mission, overall strategy, and structure.and structure.

Provides a framework for all other planning.Provides a framework for all other planning.

• Corporate-Level StrategyCorporate-Level StrategyA plan that indicates in which industries and A plan that indicates in which industries and

national markets an organization intends to national markets an organization intends to compete.compete.



• Business-Level Plan:Business-Level Plan:Divisional managers’ decisions pertaining to Divisional managers’ decisions pertaining to

division’s long-term goals, overall strategy, division’s long-term goals, overall strategy, and structure.and structure.

• Identifies how the business will meet corporate goals.Identifies how the business will meet corporate goals.

• Business-Level StrategyBusiness-Level StrategyA plan that indicates how a division intends A plan that indicates how a division intends

to compete against its to compete against its rivalsrivals in an industry. in an industry.• Shows how the business will compete in market.Shows how the business will compete in market.



• Functional-Level PlanFunctional-Level PlanFunctional managers’ decisions pertaining to Functional managers’ decisions pertaining to

the goals that they propose to pursue to help the goals that they propose to pursue to help the division attain its business-level goals.the division attain its business-level goals.

• Functional StrategyFunctional StrategyA plan that indicates how a functional A plan that indicates how a functional

department intends to achieve its goals.department intends to achieve its goals.


Who Plans?Who Plans?Who Plans?Who Plans?

• Corporate-Level PlansCorporate-Level PlansPlans developed by top management who also Plans developed by top management who also

are responsible for approving business- and are responsible for approving business- and functional-level plans for functional-level plans for consistencyconsistency with the with the corporate plan.corporate plan.

Top managers should seek input on corporate Top managers should seek input on corporate level issues from all management levels.level issues from all management levels.

• Business-Level PlansBusiness-Level PlansPlans developed by divisional managers who also Plans developed by divisional managers who also

review functional plans.review functional plans.

• Both management levels should also seek Both management levels should also seek information from other levels.information from other levels.


Time Horizons of PlansTime Horizons of PlansTime Horizons of PlansTime Horizons of Plans

• Time HorizonTime HorizonThe intended duration of a plan.The intended duration of a plan.

• Long-termLong-term plans are usually 5 years or more. plans are usually 5 years or more.

• Intermediate-termIntermediate-term plans are 1 to 5 years. plans are 1 to 5 years.

• Short-termShort-term plans are less than 1 year. plans are less than 1 year.

Corporate and business-level goals and Corporate and business-level goals and strategies require long- and intermediate-term strategies require long- and intermediate-term plans.plans.

Functional plans focus on short-to Functional plans focus on short-to intermediate-term plans.intermediate-term plans.

Most organizations have a Most organizations have a rolling planningrolling planning cycle to amend plans constantly.cycle to amend plans constantly.


Types of PlansTypes of PlansTypes of PlansTypes of Plans

• Standing PlansStanding PlansUsed in Used in programmedprogrammed decision situations. decision situations.

• Policies are general guides to action.Policies are general guides to action.

• Rules are formal written specific guides to action.Rules are formal written specific guides to action.

• Standard operating procedures (SOP) specify an Standard operating procedures (SOP) specify an exact series of actions to follow.exact series of actions to follow.

• Single-Use PlansSingle-Use PlansDeveloped for a one-time, Developed for a one-time, nonprogrammednonprogrammed

issue.issue.• Programs: integrated plans achieving specific goals.Programs: integrated plans achieving specific goals.

• Project: specific action plans to complete programs.Project: specific action plans to complete programs.


Why Planning Is ImportantWhy Planning Is ImportantWhy Planning Is ImportantWhy Planning Is Important

• Planning ascertains where the organization is Planning ascertains where the organization is nownow and deciding where it will be in the and deciding where it will be in the futurefuture..Participation: all managers are involved in Participation: all managers are involved in

setting future goals.setting future goals.Sense of direction and purpose: planning sets Sense of direction and purpose: planning sets

goals and strategies for all managers.goals and strategies for all managers.Coordination: plans provide all parts of the Coordination: plans provide all parts of the

firm with understanding about how their firm with understanding about how their systems fit with the whole.systems fit with the whole.

Control: Plans specify who is responsible for Control: Plans specify who is responsible for the accomplishment of a particular goal.the accomplishment of a particular goal.


Qualities of Effective Plans (Fayol)Qualities of Effective Plans (Fayol)Qualities of Effective Plans (Fayol)Qualities of Effective Plans (Fayol)

• UnityUnityOnly one central plan is in effect at any given Only one central plan is in effect at any given

time.time.

• ContinuityContinuityPlanning is an ongoing broad-framework process Planning is an ongoing broad-framework process

involving all managerial levels.involving all managerial levels.

• AccuracyAccuracyManagers have incorporated all available Managers have incorporated all available

information into creating the current plan.information into creating the current plan.

• FlexibilityFlexibilityManagers alter the plan as the situation changes.Managers alter the plan as the situation changes.


Determining the Organization’s Determining the Organization’s Mission and GoalsMission and Goals

Determining the Organization’s Determining the Organization’s Mission and GoalsMission and Goals

• Defining the Defining the BusinessBusinessWho are our customers?Who are our customers?What customer needs are being satisfied?What customer needs are being satisfied?How are we satisfying customer needs? How are we satisfying customer needs?

• Establishing Major Establishing Major GoalsGoalsProvides the organization with a sense of Provides the organization with a sense of

direction.direction.StretchesStretches the organization to higher levels of the organization to higher levels of

performance.performance.Goals must be challenging but Goals must be challenging but realisticrealistic with a with a

definite period in which they are to be achieved. definite period in which they are to be achieved.


Peter Drucker’s Fundamental Peter Drucker’s Fundamental QuestionsQuestions

Peter Drucker’s Fundamental Peter Drucker’s Fundamental QuestionsQuestions

• What is our business?What is our business?Who is the customer?Who is the customer?What is of value to the customer?What is of value to the customer?

• What will our business be?What will our business be?

• What should our business be?What should our business be?


Four Mission StatementsFour Mission StatementsFour Mission StatementsFour Mission Statements

Figure 6.4


Product-oriented vs. Market-oriented Product-oriented vs. Market-oriented Definitions of BusinessDefinitions of Business

Product-oriented vs. Market-oriented Product-oriented vs. Market-oriented Definitions of BusinessDefinitions of Business

• Xerox--making a copying equipment vs. Xerox--making a copying equipment vs. helping improve helping improve office productivityoffice productivity

• Columbia Pictures—making movies vs. Columbia Pictures—making movies vs. marketing marketing entertainmententertainment

• Carrier—making air conditioners vs. Carrier—making air conditioners vs. providing climate control providing climate control in the homein the home

• Pioneer—producing Audio equipments vs. Pioneer—producing Audio equipments vs. facilitating facilitating customer singingcustomer singing

• Shiseito—manufacturing cosmetics vs. Shiseito—manufacturing cosmetics vs. selling hopeselling hope

• Fuji film—selling camera film vs. Fuji film—selling camera film vs. storing memorystoring memory

• Star TV—providing satellite connection vs. Star TV—providing satellite connection vs. producing producing entertainmententertainment


Good Mission StatementsGood Mission StatementsGood Mission StatementsGood Mission Statements

Limited number of goals--Concentration

Stress major policies & values-- as stretch guidelines

Define competitive scopes--by customers groups, customer needs,or technology


Formulating StrategyFormulating StrategyFormulating StrategyFormulating Strategy

• Strategic FormulationStrategic FormulationManagers analyze the current situation to Managers analyze the current situation to

develop strategies for achieving the mission.develop strategies for achieving the mission.

• SWOT AnalysisSWOT AnalysisA planning exercise in which managers identify A planning exercise in which managers identify

organizational/organizational/internalinternal strengths and strengths and weaknesses,weaknesses,

• Strengths (e.g., superior marketing skills)Strengths (e.g., superior marketing skills)

• Weaknesses (e.g., outdated production facilities)Weaknesses (e.g., outdated production facilities)

and and externalexternal opportunities and threats. opportunities and threats.• Opportunities (e.g., entry into new related markets).Opportunities (e.g., entry into new related markets).

• Threats (increased competition).Threats (increased competition).


Planning and Strategy FormulationPlanning and Strategy FormulationPlanning and Strategy FormulationPlanning and Strategy Formulation

Figure 6.5


Formulating Corporate-Level Formulating Corporate-Level StrategiesStrategies


• ConcentrationConcentration in Single Business in Single BusinessCan become a strong competitor, but can be Can become a strong competitor, but can be

risky.risky.• Knowledge of current market can be a competitive Knowledge of current market can be a competitive

advantage. (core business logics/core competence)advantage. (core business logics/core competence)

• Concentration creates a large degree of business risk Concentration creates a large degree of business risk if the single market in which the firm competes if the single market in which the firm competes declines.declines.

Concentration is a Concentration is a logicallogical strategy if strategy if downsizing organization to increase downsizing organization to increase performance by exiting under-performing performance by exiting under-performing businesses.businesses.




• DiversificationDiversificationRelated diversification into similar market Related diversification into similar market

areas to build upon existing competencies. areas to build upon existing competencies. • SynergySynergy: two divisions working together perform : two divisions working together perform

better than the sum of their individual performances better than the sum of their individual performances (2+2=5).(2+2=5).

Unrelated diversification is entry into Unrelated diversification is entry into industries unrelated to current business.industries unrelated to current business.

• Attempts to build a Attempts to build a portfolioportfolio of unrelated firms to of unrelated firms to reduce risk of single industry failure.reduce risk of single industry failure.

• Unrelated firms can be more difficult to manage.Unrelated firms can be more difficult to manage.


International ExpansionInternational ExpansionInternational ExpansionInternational Expansion

• Basic Question:Basic Question:To what extent do we customize products To what extent do we customize products

and marketing for different national and marketing for different national conditions?conditions?

• Global strategyGlobal strategySelling the same standardized product and Selling the same standardized product and

using the same basic marketing approach in using the same basic marketing approach in all countries.all countries.

• StandardizationStandardization provides for lower production cost. provides for lower production cost.

• Ignores national differences that local competitors Ignores national differences that local competitors can address to their advantage.can address to their advantage.


International Expansion (cont’d)International Expansion (cont’d)International Expansion (cont’d)International Expansion (cont’d)

• Mulitdomestic StrategyMulitdomestic StrategyCustomizingCustomizing products and marketing products and marketing

strategies to specific national conditions.strategies to specific national conditions.• Helps gain market entry and build local market share.Helps gain market entry and build local market share.

• Raises production costs.Raises production costs.


Vertical IntegrationVertical IntegrationVertical IntegrationVertical Integration

• Vertical IntegrationVertical IntegrationA strategy that allows an organization to A strategy that allows an organization to

create value by producing its own inputs or create value by producing its own inputs or distributing its own products.distributing its own products.

• Backward vertical integration occurs when a firm seeks Backward vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs.to reduce its input costs by producing its own inputs.

• Forward vertical integration occurs when a firm Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution distributes its outputs or products to lower distribution costs and ensure the quality service to customers.costs and ensure the quality service to customers.

A fully integrated firm faces the risk of bearing A fully integrated firm faces the risk of bearing the full costs of an industry-wide slowdown.the full costs of an industry-wide slowdown.


Stages in a Vertical Value ChainStages in a Vertical Value ChainStages in a Vertical Value ChainStages in a Vertical Value Chain


Porter’s Business-Level StrategiesPorter’s Business-Level StrategiesPorter’s Business-Level StrategiesPorter’s Business-Level Strategies

Table 6.2

Number of Market Segments Served

Strategy Many Few

Low-cost

Focused low-cost

Differentiation

Focused differentiation


Formulating Business-Level StrategiesFormulating Business-Level StrategiesFormulating Business-Level StrategiesFormulating Business-Level Strategies

• Low-Cost StrategyLow-Cost StrategyDriving the organization’s total costs down Driving the organization’s total costs down

below the total costs of rivals.below the total costs of rivals.• Manufacturing at lower costs, reducing waste.Manufacturing at lower costs, reducing waste.

• Lower costs than competition means that the low cost Lower costs than competition means that the low cost producer can sell for less and still be profitable.producer can sell for less and still be profitable.

• DifferentiationDifferentiationOffering products different from those of Offering products different from those of

competitors.competitors.• Differentiation must be valued by the customer in Differentiation must be valued by the customer in

order for a producer to charge more for a product.order for a producer to charge more for a product.


Formulating Business-Level StrategiesFormulating Business-Level StrategiesFormulating Business-Level StrategiesFormulating Business-Level Strategies

• Focused Low-CostFocused Low-CostServing only one market segment and being Serving only one market segment and being

the lowest-cost organization serving that the lowest-cost organization serving that segment.segment.

• Focused DifferentiationFocused DifferentiationServing only one market segment as the Serving only one market segment as the

most differentiated organization serving that most differentiated organization serving that segment.segment.


Functional-level StrategiesFunctional-level StrategiesFunctional-level StrategiesFunctional-level Strategies

• A plan that indicates how an organizational A plan that indicates how an organizational function intends to achieve its goals.function intends to achieve its goals.Seeks to have each Seeks to have each departmentdepartment add value add value

to a good or service. to a good or service. Marketing, service, and production functions Marketing, service, and production functions

can all add value to a good or service can all add value to a good or service through:through:

• Lowering the costs of providing the value in products.Lowering the costs of providing the value in products.

• Adding new value to the product by differentiating.Adding new value to the product by differentiating.

Functional strategies must fit with business Functional strategies must fit with business level strategies. level strategies.


Goals for Successful Functional Goals for Successful Functional StrategiesStrategies

Goals for Successful Functional Goals for Successful Functional StrategiesStrategies

1.1. Attain superior Attain superior efficiencyefficiency as a measure of as a measure of outputs for a given unit of input.outputs for a given unit of input.

2.2. Attain superior Attain superior qualityquality by producing reliable by producing reliable products that do their intended job.products that do their intended job.

3.3. Attain superior Attain superior innovationinnovation developing new developing new and novel features that can be added to the and novel features that can be added to the product or process.product or process.

4.4. Attain superior Attain superior responsivenessresponsiveness to to customers by acknowledging their needs and customers by acknowledging their needs and fulfilling them.fulfilling them.


Planning and Implementing StrategyPlanning and Implementing StrategyPlanning and Implementing StrategyPlanning and Implementing Strategy

1.1. Allocate implementation responsibility to the Allocate implementation responsibility to the appropriate individuals or groups. appropriate individuals or groups. (delegation)(delegation)

2.2. Draft Draft detaileddetailed action plansaction plans for for implementation.implementation.

3.3. Establish a Establish a timetabletimetable for implementation. for implementation.

4.4. Allocate appropriate resources.Allocate appropriate resources.

5.5. Hold specific groups or individuals Hold specific groups or individuals responsible for the attainment of corporate, responsible for the attainment of corporate, divisional, and functional goals. divisional, and functional goals. (accountability)(accountability)


Program Formulation--The McKinsey 7-S Program Formulation--The McKinsey 7-S FrameworkFramework

Program Formulation--The McKinsey 7-S Program Formulation--The McKinsey 7-S FrameworkFramework

SkillsSkills

Sharedvalues

Sharedvalues

StaffStaff

StyleStyle

StrategyStrategy

StructureStructure

SystemsSystems


Homework 5 Decide the Boundary of firmHomework 5 Decide the Boundary of firmHomework 5 Decide the Boundary of firmHomework 5 Decide the Boundary of firm

• Publishers of even the smallest daily Publishers of even the smallest daily newspapers usually own their own presses, newspapers usually own their own presses, but even the largest book publishers normally but even the largest book publishers normally contract their printing jobs to independent contract their printing jobs to independent printers.printers.

• What accounts for this difference in who owns What accounts for this difference in who owns the printing process?the printing process?

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Chapter6 Planning, Strategy, and Control