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 company’s
business-level strategy and competitive
advantage

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 Learning Objectives

• Describe the vital role managers play in

implementing strategies to achieve an
organization’s 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 organization’s
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 Organization’s Mission and

Goals
– Defining the organization’s 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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 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 management’s decisions pertaining to
the organization’s 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
– Division’s 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
organization’s 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 Organization’s
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 Organization’s
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 Organization’s
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 Increased competition results in lower
profits.

Potential for Entry Easy entry leads to lower prices and profits.

Power of Suppliers If there are only a few suppliers of important

items, supply costs rise.

Power of Customers If there are only a few large buyers, they can
bargain down prices.

Substitutes 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 organization’s 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 organization’s 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. Concentration on a single industry

2. Vertical integration
3. Diversification
4. 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 company’s 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 company’s
operations into a new industry in order to
produce new kinds of valuable goods or
services

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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 company’s 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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 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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