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chapter eight

The Manager as a Planner and Strategist

McGraw-Hill/Irwin Contemporary Management, 5/e

Copyright 2008 The McGraw-Hill Companies, Inc. All rights reserved.

Learning Objectives
After studying the chapter, you should be able to:

Identify the three main steps of the planning process and the relationship between planning and strategy. Describe some techniques managers can use to improve the planning process so they can better predict the future and mobilize organizational resources to meet future contingencies.

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Learning Objectives
Differentiate between the main types of business-level strategy and explain how they give an organization a competitive advantage lead to superior performance. Differentiate between the main types of corporate-level strategies and explain how they are used to strengthen a companys business-level strategy and competitive advantage

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Learning Objectives
Describe the vital role managers play in implementing strategies to achieve an organizations mission and goals

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Planning and Strategy


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.

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Planning and Strategy


Strategy
The cluster of decisions and actions that managers take to help an organization reach its goals.

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Planning and Strategy


Mission Statement
A broad declaration of an organizations overriding purpose Identifies what is unique or important about its products Seeks to distinguish or differentiate the organization from its competitors

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Three Steps in Planning

Figure 8.1

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Planning Process Stages


Determining the Organizations Mission and Goals
Defining the organizations overriding purpose and its goals.

Formulating strategy
Managers analyze current situation and develop the strategies needed to achieve the mission.

Implementing strategy
Managers must decide how to allocate resources between groups to ensure the strategy is achieved.

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The Nature of the Planning Process


To perform the planning task, managers: 1. Establish where an organization is at the present time 2. Determine its desired future state 3. Decide how to move it forward to reach that future state

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Why Planning is Important


1. Necessary to give the organization a sense of direction and purpose 2. Useful way of getting managers to participate in decision making 3. Helps coordinate managers of the different functions and divisions of an organization 4. Can be used as a device for controlling managers
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Discussion Question?
Which part of planning is most important? A. Unity B. Continuity C. Accuracy D. Flexibility

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Why Planning is Important


Unity - at any one time only one central, guiding plan is put into operation Continuity planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels

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Why Planning is Important


Accuracy managers need to make every attempt to collect and utilize all available information at their disposal Flexibility plans can be altered and changed if the situation changes

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Levels of Planning at General Electric

Figure 8.3

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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:
Long-term divisional goals that will allow the division to meet corporate goals Divisions business-level and structure to achieve divisional goals

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Levels of Planning
Business-Level Strategy
Outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry

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Levels of Planning
Functional-Level Plan
Goals that the managers of each function will pursue to help their division attain its business-level goals

Functional Strategy
A plan of action that managers of individual functions can take to add value to an organizations goods and services

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Time Horizons of Plans


Time Horizon
Period of time over which they are intended to apply or endure. 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.

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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.

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Types of Plans
Single-Use Plans
Developed for a one-time, nonprogrammed 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.

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Three Mission Statements

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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

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Determining the Organizations Mission and Goals


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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Determining the Organizations Mission and Goals


Strategic leadership the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates

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Formulating Strategy
Strategic Formulation
Managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals.

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Formulating Strategy
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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The Five Forces


Hypercompetition
industries that are characterized by permanent, ongoing, intense, competition brought about by advancing technology or changing customer tastes and fads and fashions

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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.

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Formulating Business-Level Strategies


Differentiation
Distinguishing the organizations products from those of competitors on one or more important dimensions. 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.

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Formulating Business-Level Strategies


Focused Differentiation
Serving only one market segment as the most differentiated organization serving that segment.

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Principal Corporate-Level Strategies


1. 2. 3. 4. Concentration on a single industry Vertical integration Diversification International expansion

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Formulating Corporate-Level Strategies


Concentration in Single Business
Organization uses its functional skills to develop new kinds of products or expand its locations Appropriate when managers see the need to reduce the size of their organizations to increase performance

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Vertical Integration
Vertical integration
strategy that involves a company expanding its business operations either backward into a new industry that produces inputs (backward vertical integration) or forward into a new industry that uses, distributes, or sells the companys products (forward vertical integration)

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Stages in a Vertical Value Chain

Figure 8.6

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Formulating Corporate-Level Strategies


Diversification
strategy of expanding a companys operations into a new industry in order to produce new kinds of valuable goods or services

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Question?
When a firm establishes divisions in new industries that are not linked to their current business, it is called _______. A. Related diversification B. Unrelated diversification C. Dissimilar diversification D. Associated diversification

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Formulating Corporate-Level Strategies


Related Diversification
strategy of entering a new industry and establishing a new business division that is linked to a companys existing divisions because they share resources that will improve the competitive position

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Related Diversification
Synergy
Obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently

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Formulating Corporate-Level Strategies


Unrelated Diversification
Firms establish divisions or buy companies in new industries that are not linked to their current business or industry Portfolio strategy Apportioning resources among divisions to increase returns or spread risks

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International Expansion
Basic Question:
To what extent do we customize products and marketing for different national conditions?

Global strategy
Undertaking very little customization to suit the specific needs of customers in different countries. Standardization 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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Choosing a Way to Expand Internationally


Opportunities
opening new markets, reaching more customers, and gaining access to new sources of raw materials and to low-cost suppliers

Threat
encountering new competitors, and responding to new political, economic, and cultural conditions
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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

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International Expansion
Franchising
selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum 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

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

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Question?
When managers invest in establishing production operations in a foreign country independent of any local direct involvement, it is called a _________. A. Franchise B. Foreign licensee C. Wholly owned foreign subsidiary D. Contributory firm
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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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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. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation 4. Allocate appropriate resources 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.

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Movie Example: Blackhawk Down


How well did the Generals plan meet the criteria of unity, accuracy, continuity, and flexibility?

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