The Nature of the Planning Process

Planning

Identifying and selecting appropriate goals and courses of action for an organization.
The

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

Strategy

The cluster of decisions and actions that managers take to help an organization reach its goals.
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The Nature of the Planning Process

Mission Statement

A broad declaration of an organizations purpose that identifies the organizations products and customers and distinguishes the organization from its competitors.

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Three Steps in Planning

Figure 8.1

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Levels and Types of Planning

Figure 8.2

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Levels of Planning
Division

business unit that has its own set of managers and departments and competes in a distinct industry Divisional managers Managers who control the various divisions of an organization
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Levels of Planning
Corporate-Level

Plan

Top managements decisions pertaining to the organizations mission, overall strategy, and structure. Provides a framework for all other planning.

Corporate-Level

Strategy

A plan that indicates in which industries and national markets an organization intends to compete.
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Levels of Planning
Business-Level

Plan:

Divisional managers decisions pertaining to divisions long-term goals overall strategy, and structure.
Identifies

how the business will meet corporate goals.

Business-Level

Strategy

A plan that indicates how a division intends to compete against its rivals in an industry
Shows

how the business will compete in market.

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Levels of Planning
Function department or unit in which people have the same skills or use the same resources to perform their jobs

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Levels of Planning
Functional-Level

Plan

Functional managers decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals.

Functional

Strategy

A plan that indicates how a function intends to achieve its goals.

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Who Plans?
Corporate-Level

Plans

Plans developed by top management who also are responsible for approving business- and functionallevel plans for consistency with the corporate plan. Top managers should seek input on corporate level issues from all management levels.

Business-Level

Plans

Plans developed by divisional managers who also review functional plans.

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Both

management levels should also seek information from other levels.

Time Horizons of Plans

Time Horizon

The 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 plans Most organizations have a rolling planning cycle to amend plans constantly.
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Types of Plans
Standing

Plans

Use in programmed decision situations

Policies

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

Plans

Developed for a one-time, non programmed issue.

Programs:

integrated plans achieving specific goals. Project: specific action plans to complete programs.
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Scenario Planning
Scenario Planning (Contingency Planning)

The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Planning seeks predict the future, but the future is unknowable.
By

generating multiple possible futures, a firm can see how its plans might work in each and prepare for the possible outcomes.

Scenario planning is a learning tool to improve strategic planning results.

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Determining the Organizations Mission and Goals

Defining

the Business

Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs

Establishing

Major Goals

Provides the organization with a sense of direction Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.
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Formulating Strategy
Strategic

Formulation

Managers analyze the current situation to develop strategies for achieving the mission.

SWOT

Analysis

A planning exercise in which managers identify: organizational strengths and weaknesses.

Strengths

(e.g., superior marketing skills) Weaknesses (e.g., outdated production facilities)

external opportunities and threats.

Opportunities

(e.g., entry into new related markets). Threats (increased competition)

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Planning and Strategy Formulation

Figure 8.5

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The Five Forces

Competitive Forces
Level of Rivalry Potential for Entry Power of Suppliers Power of Customers Substitutes Increased competition results in lower profits. Easy entry leads to lower prices and profits. If there are only a few suppliers of important items, supply costs rise. If there are only a few large buyers, they can bargain down prices. More available substitutes tend to drive down prices and profits.

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Formulating Corporate-Level Strategies

Concentration

in Single Business

Can become a strong competitor, but can be risky. Related diversification into similar market areas to build upon existing competencies.
Synergy:

Diversification

two divisions working together perform better than the sum of their individual performances.

Unrelated diversification is entry into industries unrelated to current business.

Attempts

to build a portfolio of unrelated firms to reduce risk of single industry; difficulty to manage.
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International Expansion
Basic

Question: strategy

To what extent do we customize products and marketing for different national conditions? Selling the same standardized product and using the same basic marketing approach in all countries.
Standardization

Global

provides for lower production cost. Ignores national differences that local competitors can address to their advantage.

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International Expansion
Multi-domestic

Strategy

Customizing products and marketing strategies to specific national conditions.

Helps

gain local market share. Raises production costs.

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International Expansion
Exporting

making products at home and selling them abroad Importing selling at home products that are made abroad

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International Expansion
Licensing

allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee Franchising selling to a foreign organization the rights to use a brand name and operating know-how in return for a lumpsum payment and a share of the profits
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International Expansion
Strategic

alliance managers pool resources with those of a foreign company

Organizations agree to share risk and reward

Joint

venture strategic alliance among companies that agree to jointly establish and share the ownership of a new business
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International Expansion
Wholly

Owned Foreign Subsidiary managers invest in establishing production operations in a foreign country independent of any local direct involvement

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Vertical Integration
A strategy that allows an organization to create value by producing its own inputs or distributing its own products.
Backward

vertical integration occurs when a firm seeks to reduce its input costs by producing its own inputs. Forward vertical integration occurs when a firm distributes its outputs or products to lower distribution costs and ensure the quality service to customers.

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

Low-Cost

Strategy

Driving the organizations total costs down below the total costs of rivals.
Manufacturing

at lower costs, reducing waste. Lower costs than competition means that the low cost producer can sell for less and still be profitable.
Differentiation

Offering products different from those of competitors.

Differentiation

must be valued by the customer in order for a producer to charge more for a product.
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Formulating Business-Level Strategies

Stuck in the Middle

Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. Difficult to achieve low cost with the added costs of differentiation.
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Formulating Business-Level Strategies

Focused

Low-Cost

Serving only one market segment and being the lowest-cost organization serving that segment.

Focused

Differentiation

Serving only one market segment as the most differentiated organization serving that segment.
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Functional-level Strategies
A plan that indicates how a function intends to achieve its goals

Seeks to have each department add value to a good or service. Marketing, service, and production functions can all add value to a good or service through:
Lowering

the costs of providing the value in products. Adding new value to the product by differentiating.

Functional strategies must fit with business level strategies.

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Planning and Implementing Strategy

1.

2.

3. 4. 5.

Allocate implementation responsibility to the appropriate individuals or groups. Draft detailed action plans for implementation. Establish a timetable for implementation Allocate appropriate resources Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.
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