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Chapter 6
Planning, Strategy, and
Competitive Advantage

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 Learning Objectives
1. Identify the three main steps of the planning process and
explain the relationship between planning and strategy.
2. Differentiate among the main types of strategies and
explain how they give an organization a competitive
advantage that may lead to superior performance.
3. Differentiate among the main types of corporate–level
strategies and explain how they are used to strengthen a
company’s business–level strategy and competitive
advantage.
4. Describe the vital role managers play in implementing
strategies to achieve an organization’s mission and goals.

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 Planning and Strategy 1

Planning: Strategy:
• Identifying and selecting • A cluster of decisions
appropriate goals and about what goals to
courses of action for an pursue, what actions to
organization. take, and how to use
resources to achieve
goals.

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 Planning and Strategy 2

Mission Statement:
• A broad declaration of an organization’s purpose that
identifies the organization’s products and customers and
distinguishes the organization from its competitors.

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 Three Steps in Planning
Figure 6.1

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 The Nature of the Planning Process
1. Establish and discover where an organization is at the
present time.
2. Determine where it should be in the future, its desired
future state.
3. Decide how to move it forward to reach that future state.

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 Topics for Discussion: Planning
Describe the three steps of planning. Explain how they are
related. [LO 6–1]

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 Why Planning Is Important 1

1. Planning is necessary to give the organization a sense of

direction and purpose.
2. Planning is a useful way of getting managers to
participate in decision making about the appropriate goals
and strategies for an organization.

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 Why Planning Is Important 2

3. A plan helps coordinate managers of the different

functions and divisions of an organization to ensure that
they all pull in the same direction and work to achieve its
desired future state.
4. A plan can be used as a device for controlling managers
within an organization.

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 Levels of Planning at General Electric
Figure 6.2

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 Levels and Types of Planning
Corporate–Level Plan:
• Top management’s
decisions pertaining to the
organization’s mission,
overall strategy, and
structure.
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Corporate–Level Strategy:
• A plan that indicates in
which industries and
national markets an
organization intends to
compete.
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 Levels and Types of Planning 2

Figure 6.3 Levels and Types of Planning.

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 Levels and Types of Planning
Business–Level Plan:
• Divisional managers’
decisions pertaining to a
division’s long–term goals,
overall strategy, and
structure.
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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 and Types 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.
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Functional–Level Strategy:
• A plan of action to improve
the ability of each of an
organization’s functions in
order to perform its task–
specific activities in ways
that add value to an
organization’s goods and
services.
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 Topics for Discussion: Strategies
What is the relationship among corporate–, business–, and
functional–level strategies, and how do they create value for
an organization? [LO 6–2, 6–3]

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 Time Horizons of Plans
Time Horizon is 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.

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 Types of Plans
Standing Plans: Single–Use Plans:
• Use in programmed • Developed for a one–time,
decision situations. nonprogrammed issue.

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 Standing Plans
Policies:
• General guides to action.

Rules:
• Formal written specific guides to action.

Standard Operating Procedures (SOP):

• Specify an exact series of actions to follow.

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 Single–Use Plans
Programs:
• Integrated plans achieving specific goals.

Project:
• Specific action plans to complete programs.

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 Determining the Organization’s Mission and
Goals 1

Defining the Business:

1. Who are our customers?
2. What customer needs are being satisfied?
3. How are we satisfying customer needs?

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 Three Mission Statements
Company Mission Statement
Google ”To organize the world’s information and make it universally
accessible and useful.”
Twitter “To give everyone the power to create and share ideas and
information instantly, without barriers.”
Facebook “To give people the power to build community and bring the
world closer together.”

Figure 6.4

Sources: Google’s mission statement: https://www.google.com; Twitter’s mission statement: https://investor.twitterinc.com;

Facebook’s mission statement: https://missionstatement.com/facebook, all accessed February 24, 2022.

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 Determining the Organization’s Mission and
Goals 2

Establishing Major Goals:

• Goals provide the organization with a sense of direction.
• Goals stretch 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 3

Strategic Leadership:
• The ability of the chief operating officer and top managers
to convey a compelling vision to their subordinates of what
they want the organization to achieve.

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 Formulating Strategy 1

Figure 6.5

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 Formulating Strategy 2

SWOT Analysis:
• A planning exercise in which managers identify internal
organizational strengths (S) and weaknesses (W) and
external environmental opportunities (O) and threats (T).

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 Questions for SWOT Analysis

Potential Potential Potential Potential Threats

Strengths Opportunities Weaknesses
Well-developed Expand core Poorly developed Attacks on core
strategy? business(es)? strategy? business(es)?
Strong product Exploit new market Obsolete product Increase in domestic
lines? segments? lines? competition?
Broad market Widen product Rising Increase in foreign
coverage? range? manufacturing competition?
costs?

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 The Five Forces Model 1

Competitive Forces Effects

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 Model 2

Hypercompetition:
• Permanent, ongoing intense competition brought about in
an industry by advancing technology or changing customer
tastes.

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 Formulating Business–Level Strategies 1

Porter: to obtain higher profits, managers must choose

between differentiating the product and lowering the costs.
Serve the whole market or one share?
Choose one of four business–level strategies:
• Low cost.
• Differentiation.
• Focused low cost.
• Focused differentiation.

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 Formulating Business–Level Strategies 2

Low–Cost Strategy: Differentiation:

• Driving the organization’s • Distinguishing an
total costs down below the organization’s products
total costs of rivals. from the products of
competitors on
dimensions, such as
product design, quality, or
after–sales service.

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 Formulating Business–Level Strategies 3

Focused Low–Cost Focused Differentiation

Strategy: Strategy:
• Serving only one segment • Serving only one segment
of the overall market and of the overall market and
trying to be the lowest– trying to be the most
cost organization serving differentiated organization
that segment. serving that segment.

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 Topics for Discussion: Business–level strategies

Pick an industry and identify four companies in the industry

that pursue one of the four main business–level strategies
(low–cost, focused low–cost, etc.) [LO 6–1, 6–2]

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 Formulating Corporate–Level Strategies
Concentration on a Single Industry:
• Reinvesting a company’s profits to strengthen its
competitive position in its current industry.

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 Vertical Integration
Expanding a company’s operations either backward into an
industry that produces inputs for its products or forward into
an industry that uses, distributes, or sells its products.

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 Stages in a Vertical Value Chain
Figure 6.6

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 Diversification 1

Expanding a company’s business operations into a new

industry in order to produce new kinds of valuable goods or
services.

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 Diversification 2

Related Diversification:
• Entering a new business or industry to create a competitive
advantage in one or more of an organization’s existing
divisions or businesses.
Synergy:
• Performance gains that result when individuals and
departments coordinate their actions.

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 Diversification 3

Unrelated Diversification:
• Entering a new industry or buying a company in a new
industry that is not related in any way to an organization’s
current businesses or industries.

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 Topics for Discussion: Diversification and
integration
What is the difference between vertical integration and
related diversification? [LO 6–3]

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 International Expansion 1

Global Strategy:
• Selling the same standardized product and using the same
basic marketing approach in each national market.
• Cost savings.
• Vulnerable to local competitors.

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 International Expansion 2

Multidomestic Strategy:
• Customizing products and marketing strategies to specific
national conditions.
• Helps gain local market share.
• Raises production costs.

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 Four Ways of Expanding Internationally
Figure 6.7

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 International Expansion 3

Exporting: Importing:
• Making products • Selling at home products
domestically and selling that are made abroad.
them 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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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 5

Strategic Alliance: Joint Venture:

• Managers pool their • Strategic alliance among
organization’s resources two or more companies
and know–how with a that agree to jointly
foreign company. establish and share the
• Organizations agree to ownership of a new
share risk and reward. business.

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 International Expansion 6

Wholly Owned Foreign Subsidiary:

• Managers invest in establishing production operations in a
foreign country independent of any local direct
involvement.

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 Planning and Implementing Strategy 1

1. Allocate responsibility for implementation to appropriate

individuals or groups.
2. Draft detailed action plans that specify how a strategy is to
be implemented.
3. Establish a timetable for implementation that includes
precise, measurable goals linked to the attainment of the
action plan.

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 Planning and Implementing Strategy 2

4. Allocate appropriate resources to the responsible

individuals or groups.
5. Hold specific individuals or groups responsible for the
attainment of corporate, divisional, and functional goals.

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 Be The Manager
List the supermarket chains in your city and identify their
strengths and weaknesses.

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