Fundamentals of

MANAGEMENT
Core Concepts & Applications
Griffin
Eighth Edition

Chapter 3
Planning and Strategic Management
 Chapter Outline
• Planning and Organizational Goals
– Purposes of Goals
– Kinds of Goals
• The Nature of Strategic Management
– The Components of Strategy
– Types of Strategic Alternatives
• Using SWOT Analysis to Formulate Strategy
– Evaluating an Organization’s Strengths
– Evaluating an Organization’s Weaknesses
– Evaluating an Organization’s Opportunities and Threats

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 Chapter Outline (cont’d)
• Formulating Business-Level Strategies
– Porter’s Generic Strategies
– Strategies Based on the Product Life Cycle
• Formulating Corporate-Level Strategies
– Single-Product Strategy
– Related Diversification
– Unrelated Diversification
– Managing Diversification
• Tactical Planning
– Developing Tactical Plans
– Executing Tactical Plans

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 Chapter Outline (cont’d)
• Operational Planning
– Single-Use Plans
– Standing Plans
– Contingency Plans

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 Learning Objectives
• After studying this chapter, you should be able
to:
– Summarize planning process and describe
organizational goals.
– Discuss the components of strategy and types of
strategic alternatives.
– Describe how to use SWOT analysis in formulating
strategy.
– Identify and describe various alternative approaches
to business-level strategy formulation.

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 Learning Objectives (cont’d)
– Identify and describe various alternative approaches
to corporate-level strategy formulation and describe
how corporate-level strategies are implemented.
– Discuss how tactical plans are developed and
executed.
– Describe the basic types of operational plans used by
organizations.

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Objectives, Goals, Missions & Visions
Vision – where you are heading
-It answers the question, “Where
do we aim to be?”
Mission- defines your fundamental
purpose(s)
-It answers the question, “What do we do?
What makes us different?”
Goals – specific measurable components aligned
with mission and vision statements
-Example: I want to achieve success in the field of
management research and do what no one has ever
done.
Objective –action step taken in order to meet goals
-Example : I want to complete this thesis on genetic
research by the end of this month.
Strategies: Broad activities required to achieve an objective,
control a critical success factor, or overcome a barrier
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 Continue….
• Vision: A picture of the "preferred future;" a statement that describes how the future will
look if the organization achieves its ultimate aims, e.g. "The widgets of choice for a value-
focused world."
• Mission: A statement of the overall purpose of an organization. It describes what you do,
for whom you do it and the benefit, e.g. "To provide consumers with high-quality, price-
competitive widgets to meet their personal, business and recreational needs."
• Goals: Broad, long-term aims that define accomplishment of the mission, e.g. "Grow
profitability. Maximize net income by increasing revenues and controlling costs."
• Objectives: Specific, quantifiable, realistic targets that measure the accomplishment of a
goal over a specified period of time, e.g. "Increase revenues by x% in 2004. Limit increases
in overhead costs to y%. Achieve a z% reduction in management staff through increased
automation."
• Strategies: Broad activities required to achieve an objective, control a critical success
factor, or overcome a barrier, e.g. "Establish a partnership with a foreign manufacturer to
revamp the Northeast plant. Implement a program to widely promote our success as a
quality producer."
• Tactics: Specific steps to be taken, by whom by when, and at what cost, to implement a
strategy, e.g. "Initiate discussions with PR firm on quality promotion. Week of 8/16/04." This
is where the detailed implementation tactics reside and is the portion of the plan that
provides an executional roadmap combined with goalposts for performance measurement.

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 Organizational Goals
• Purposes of Goals
– Provide guidance and a unified direction for people in
the organization.
– Have a strong effect on the quality of other
aspects of planning.
– Serve as a source of
motivation for
employees of the
organization.
– Provide an effective
mechanism for evaluation
and control of the organization.

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 Kinds of Goals
• By Level
– Mission statement is a statement of an organization’s
fundamental purpose.
– Strategic goals are goals set by and for top
management of the organization that address broad,
general issues.
– Tactical goals are set by and for middle managers;
their focus is on how to operationalize actions to
strategic goals.
– Operational goals are set by and for lower-level
managers to address issues associated with tactical
goals.

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 Different Goal Setting Processes in Organizations

Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions.

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 WHAT IS PLANNING?

Planning is the systematic process of establishing a need and

then working out the best way to meet the need, within a
strategic framework that enables you to identify priorities
and determines your operational principles.

Planning means thinking about the future so that you can do

something about it now.

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 Managerial Function;PLANING

What is Planning?
• Planning involves in defining the organization
goal (what to be done) and establishing
strategies (how to be done) to achieve sited
goal.
• Some time it is also called primary managerial
function.
 Why Planning Is Necessary ?
1 ) Provide Direction:
-What the organization want to accomplish (achieve)
and how to reach the establish /sited goals.
-By planning a clear direction comes that to be follow, in
order to reach and achieve goal.
2) Reduce Uncertainty:
Planning reduce uncertainty by look ahead to anticipate
changes
manager can estimate their consider impact of changes
and then they can develop response to these changes.
 Continu..
3) Minimizes waste and redundancy (idleness):
When work activities are coordinated around
established plans redundancy can beminimized.
4) Provide ability in controlling:
Planning helps in controlling and monitoring the
work that either this works is on its right path or
not.
 The Decision Making Process.
What is decision?
• Decision means “choosing among alternative”
• “Choosing among alternatives “ is done through
a proper procedure Which is called “decision
making process”.
 Who make the decisions?
• Managers are responsible to makes the
decisions.
• They include all the three levels of managers:
Top level managers
Middle level managers
lower level/1st line Managers.
 Contin…
• Top level manager:
Take decisions like product type,
manufacturing location etc
• Middle & lower level manager:
Decisions include quality problems pay rising
etc.
 Kinds of Plans
• Strategic Plans
– A general plan outlining resource allocation, priorities,
and action steps to achieve strategic goals. The plans
are set by and for top management.
• Tactical Plans
– A plan aimed at achieving the
tactical goals set by and for
middle management.
• Operational Plans
– Plans that have a short-term focus.
These plans are set by and for lower-level managers.

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 SWOT Mission
An organization’s fundamental purpose
Analysis

SWOT Analysis
• Strengths To formulate strategies that support the mission
• Weaknesses
Internal Analysis External Analysis
• Opportunities Strengths Opportunities
(distinctive
• Threats competencies)

Weaknesses Threats

Best Strategies
Those that support the mission and
• exploit opportunities and strengths
• neutralize threats
• avoid (or correct) weaknesses

Figure 3.2
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 Using SWOT Analysis to
Formulate Strategy
• Evaluating Organizational Strengths
– Organizational strengths
• Skills and abilities enabling an organization to conceive of
and implement strategies.
– Distinctive competencies
• Useful for competitive advantage and superior performance.
– Sustained competitive advantage
• Occurs when a distinctive competence cannot be easily
duplicated and is what remains after all attempts at strategic
imitations have ceased.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)

• Evaluating Organizational Weaknesses

– Organizational weaknesses are skills and capabilities
that do not enable an organization to choose and
implement strategies that support its mission.
– Weaknesses can be overcome by:
• investments to obtain the strengths needed.
• modification of the organization’s mission
so it can be accomplished with the current
workforce.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)

• Evaluating Organizational Weaknesses (cont’d)

– Competitive disadvantage is a situation
in which an organization fails to implement
strategies being implemented
by competitors.

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 Using SWOT Analysis to Formulate
Strategy (cont’d)
• Evaluating an Organization’s
Opportunities and Threats
– Organizational opportunities
are areas in the organization’s
environment that may generate
high performance.

– Organizational threats are areas

in the organization’s environment that
make it difficult for the organization
to achieve high performance.

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 Formulating Business level strategies
• A number of frameworks have been developed
for identifying the major strategic alternatives
that organizations should consider when
choosing their business level strategies.
Three important classification schemes are:
– 1. Porter’s generic strategies
– 2. Miles and Snow typology
– 3. Strategies based on the product life cycle.

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 Porter’s Generic Strategies
According to Michael Porter, organizations may pursue a
differentiation, overall cost leadership, or focus strategy
at the business level.
• Differentiation strategy
– An organization seeks to distinguish itself from competitors
through the quality of its products or services.
• Overall cost leadership strategy
– An organization attempts to gain competitive advantage by
reducing its costs below the costs of competing firms.
• Focus strategy
– An organization concentrates on a specific regional market,
product line, or group of buyers.

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 Porter’s Generic Strategies cont.
Strategy type Definition Examples
Differentiation Distinguish products or Rolex (Watches)
services Dukatti (Motorbike)
Arong product
Overall cost leadership Reduce manufacturing Timex (watches)
and other costs Hero honda (Motorbike)
XXX garments
Focus Concentrate on specific Dry fish
regional market, product Vodka
market, or group of
buyers

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 The Miles and Snow Typology
• A second classification of strategic options was
developed by Raymond Miles and Charles
Snow.
Strategy Definition Example
Type
Prospector Is innovation and growth oriented, searches for 1.Amazon.co
new markets and new growth opportunities, m
encourages risk taking.
Defender Protects current markets, maintains stable 1.eBay.com
growth, serves current customers.
Analyzer Maintains current markets and current customer 1.IBM
satisfaction with moderate emphasis on 2.Yahoo
innovation
Reactor No clear strategy, reacts to changes in the 1.Internation
environment, drifts with events. al Harvester
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 Strategies Based on Product Life Cycle
• The product life-cycle theory is an economic theory that was developed
by Raymond Vernon

High Stages
Introduction Growth Maturity Decline
Sales Volume

Low
Time

Figure 3.3
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 The four main stages of a product's life cycle and the
accompanying characteristics are:

Stage Characteristics
1.costs are very high
2.slow sales volumes to start
3.little or no competition
1. Market
4.demand has to be created
introduction stage
5.customers have to be prompted to try the
product
6.makes no money at this stage
1.costs reduced due to economies of scale
2.sales volume increases significantly
3.profitability begins to rise
2. Growth stage 4.public awareness increases
5.competition begins to increase with a few new
players in establishing market
6.increased competition leads to price decreases
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 1.costs are lowered as a result of production volumes
increasing and experience curve effects
2.sales volume peaks and market saturation is reached
3.increase in competitors entering the market
3. Maturity stage 4.prices tend to drop due to the proliferation of
competing products
5.brand differentiation and feature diversification is
emphasized to maintain or increase market share
6.Industrial profits go down

1.costs become counter-optimal

2.sales volume decline
4. Saturation and
3.prices, profitability diminish
decline stage
4.profit becomes more a challenge of
production/distribution efficiency than increased sales

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 Managing Diversification
• However an organization implements diversification- whether through
internal development vertical integration or mergers and acquisitions
– It must monitor and manages its strategies. Two major tools for
managing diversifications are
• 1. Organization structure
• 2. Portfolio management techniques
• Major Tools for Managing Diversification
– Portfolio management techniques
• Methods that diversified organizations use to make decisions about
what businesses to engage in and how to manage these multiple
businesses to maximize corporate performance.
– Two important portfolio management techniques
• The BCG Matrix
• The GE Business Screen

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 Managing Diversification (cont’d)
• BCG Matrix
– A method of evaluating businesses relative to the
growth rate of their market and the organization’s share
of the market.
– The matrix classifies the types of businesses that a
diversified organization can engage as:
• “Dogs” have small market shares and no growth prospects.
• “Cash cows” have large shares of mature markets.
• “Question marks” have small market shares in quickly
growing markets.
• “Stars” have large shares of rapidly growing markets.

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 The BCG Matrix
High

Question
Market growth rate

Stars
marks

Cash cows Dogs

Low
High Relative market share Low

Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by

permission from The Boston Consulting Group, Inc., 1970. Figure 3.4
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 Managing Diversification
• GE Business Screen
– A method of evaluating business in a diversified
portfolio along two dimensions, each of which contains
multiple factors:
• Industry attractiveness.
• Competitive position (strength) of each firm in the
portfolio.
– In general, the more attractive the industry and the
more competitive a business is, the more resources
an organization should invest in that business.

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 The GE Business Screen

Question
High Winner Winner
Industry growth rate

mark

Average
Medium Winner Loser
business

Profit
Low Loser Loser
producer

Good Medium Poor

Competitive position

Competitive position Industry attractiveness

1. Market share 1. Market growth
2. Technological know-how 2. Market size
Source: From Strategy Formulation: 3. Product quality 3. Capital requirements
Analytical Concepts, by Charles W. Hofer
and Dan Schendel. Copyright 1978 West 4. Service network 4. Competitive intensity
Publishing. Used by permission of South- 5. Price competitiveness
Western College Publishing, a division of
International Thomson Publishing, Inc., 6. Operating costs
Cincinnati, Ohio, 45227. Figure 3.5
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 Tactical Planning
• Developing and Executing Tactical Plans

Developing tactical plans Executing tactical plans

• Recognize and understand
overarching strategic plans
and tactical goals
• Specify relevant resource and
time issues
• Recognize and identify human
resource commitments
• Evaluate each course of action
in light of its goal
• Obtain and distribute
information and resources
• Monitor horizontal and vertical
communication and integration
of activities
• Monitor ongoing activities for
goal achievement

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 Operational Planning

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions.

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 Types of Operational Plans

Plan Description
Single-use plan Developed to carry out a course of action not likely to
be repeated in the future
Program Single-use plan for a large set of activities
Project Single-use plan of less scope and complexity than a
program

Standing plan Developed for activities that recur regularly over a

Policy
Standard operating procedure
Rules and regulations
period of time
Standing plan specifying the organization’s general
response to a designated problem or situation
Standing plan outlining steps to be followed in
particular circumstances
Standing plans describing exactly how specific
activities are to be carried out

Table 3.1
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 Contingency Planning
• Contingency is the determination of alternative courses of action to
be taken if an intended plan is unexpectedly disrupted or rendered
inappropriate. These plans help managers to cope with uncertainty
and change.

Ongoing planning process

Action point 1 Action point 2 Action point 3 Action point 4

Develop plan, Implement plan and Specify indicators Successfully complete
considering formally identify for the contingency plan or contingency
contingency events contingency events events and develop plan
contingency plans for
each possible event

Monitor contingency event indicators and

implement contingency plan if necessary

Figure 3.6
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