Fundamentals of

MANAGEMENT
Core Concepts & Applications
Griffin
Third Edition

Chapter 3
Planning and Strategic Management

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 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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 Decision Making and the Planning Process

• The Planning Process

The Environmental Context
The organization’s mission
• Purpose • Premises • Values • Directions

Strategic goals Strategic plans

Tactical goals Tactical plans

Operational goals Operational plans

Figure 3.1
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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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 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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 The Nature of Strategic Management
• Strategy
– A comprehensive plan for accomplishing an
organization’s goals.
• Strategic Management
– A way of approaching business opportunities and
challenges–a comprehensive and ongoing management
process aimed at formulating and implementing effective
strategies.
• Effective Strategies
– Strategies that promote a superior alignment between
the organization and its environment and the
achievement of its goals.

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 The Components of Strategy
• Distinctive Competence
– Something an organization does exceptionally well.
• Scope
– Range of markets in which an organization will
compete.
• Resource Deployment
– How an organization will
distribute its resources
across the areas in
which it competes.

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 Types of Strategic Alternatives
• Business-level Strategy
– The set of strategic alternatives that an organization
chooses from as it conducts business in a particular
industry or a particular market.
• Corporate-level Strategy
– The set of strategic alternatives that an
organization chooses from as it manages
its operations simultaneously
across several industries
and several markets.

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 Types of Strategic Alternatives (cont’d)
• Strategy Formulation
– The set of processes involved in creating or
determining the organization’s strategies; it focuses on
the content of strategies.
• Strategy Implementation
– The methods by which strategies are operationalized
or executed within the organization;
it focuses on the processes
through which strategies
are achieved.

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 The
Relationships
of
Strategies
by
Organizational
Level

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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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 Porter’s Generic Strategies
• 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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 Strategies Based on Product Life Cycle
• The Product Life Cycle

High Stages
Introduction Growth Maturity Decline
Sales Volume

Low
Time

Figure 3.3
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 The Adaptation Model
of Business Strategy

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 Formulating Corporate-Level Strategies
• Strategic Business Units
– Each business or group of businesses within an
organization engaged in serving the same markets,
customers, or products.
• Diversification
– The number of businesses an organization is engaged in
and the extent to which these businesses are related to
one another.
• Single Product Strategy
– A strategy in which an organization manufactures one
product or service and sells it in a single geographic
market.

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 Related Diversification
• Related Diversification
– A strategy in which an organization operates in
several different businesses, industries, or markets
that are somehow linked.
• Bases of Relatedness in Implementing
Related Diversification
Basis of Relatedness Examples

Similar technology Phillips, Boeing, Westinghouse, Compaq

Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble

Common name brand and reputation Disney, Universal

Common customers Merck, IBM, AMF-Head

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 Related Diversification (cont’d)
• Advantages of Related Diversification
– Reduces organization’s dependence on any one of its
business activities and thus reduces economic risk.
– Reduces overhead costs associated with managing
any one business through economies of scale and
economies of scope.
– Allows an organization to exploit its strengths and
capabilities in more than one business.
– Synergy exists among a set of businesses when the
businesses’ value together is greater than their
economic value separately.

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 Formulating Corporate-Level
Strategies (cont’d)

• Unrelated Diversification
– A strategy in which an organization operates multiple
businesses that are not logically associated with one
another.
– Advantages
• Stable corporate-level performance over time due to
business cycle differences among the multiple
businesses.
• Resources can be allocated to areas with the highest
return potentials to maximize corporate performance.

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 Formulating Corporate-Level
Strategies (cont’d)
• Unrelated Diversification (cont’d)
– Disadvantages
• Strategy does not usually lead to high performance due
to the complexity of managing a diversity of businesses.
• Firms with unrelated strategies fail to exploit important
synergies, putting them at a competitive disadvantage to
firms with related diversification strategies.

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

period of time
Policy Standing plan specifying the organization’s general
response to a designated problem or situation
Standard operating procedure Standing plan outlining steps to be followed in
particular circumstances
Rules and regulations 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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