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Chapter

4
Planning and Strategic Management

McGraw-Hill/Irwin Management, 7/e

Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives
After studying Chapter 4, you will know: How to proceed through the basic steps in any planning

process How strategic planning integrates with tactical and operational planning Why I is important to analyze both the external environment and the internal resources of the firm before formulation a strategy The choices available for corporate strategy How companies can achieve competitive advantage through business strategy How core competencies provide the foundation for business strategy The keys to effective strategy implementation

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Overview of Planning Fundamentals

Planning is the conscious, systematic process of

making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future Planning is a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization Planning provides individuals and work units with a clear map to follow in their future activities

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The Basic Planning Process

Planning is a decision process (youre

deciding what to do and how to go about doing it) Steps in the planning process are is similar to the decision making process Planning is a cyclical process because plans are evaluated and revised if necessary

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Comparing Decision Making and Planning

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The Basic Planning Process

The basic planning process includes the

following
Situational Analysis Alternative Goals and Plans

Goal and Plan Evaluation

Goal and Plan Selection Implementation

Monitor and Control

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Levels of Planning
Strategic Planning

Tactical Planning
Operational Planning

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Levels of Planning

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Strategic Planning: Defined

A set of procedures for making decisions

about the organizations long-term goals and strategies Strategic goals are major targets or end results relating to the organizations longterm survival, value, and growth Strategy is a pattern of actions and resource allocations designed to achieve the organizations goals

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Strategic Planning
How does one of the worlds most respected news sources, The New York Times, continue to succeed after a year (2004) of journalistic scandal, a quick-as lightening and dynamic media world, and weak earnings?

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Tactical and Operational Planning

Tactical Plans are a set of procedures for

translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing Operational Planning is the process of identifying the specific procedures and processes required at lower levels of the organization.

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Aligning Tactical, Operational, and Strategic Planning

To be fully effective, the organizations

strategic, tactical, and operational goals and plans must be aligned Consistent Mutually supportive Focused on achieving the common purpose and direction

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Strategic Map

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Strategic Planning
Historically strategic planning emphasized a

top-down approachsenior executives and specialized planning units developed goals and plans for the entire organization Today senior executives increasingly are involving managers throughout the organization in the strategy formation process

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Strategic Planning
Strategic management is the new term that

has emerged for the strategic planning process Strategic Management is a process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies

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Strategic Management Process

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Strategic Management: Step 1

Establishment of mission, vision, and goals

Mission is an organizations basic purpose and

scope of operations Strategic vision is the long-term direction and strategic intent of a company Strategic goals evolve from the mission and vision of the organization

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Strategic Management: Step 2

Analysis of External Opportunities and

Threats Successful strategic management depends on an accurate and thorough evaluation of the environment Begins with an examination of the industry Stakeholders are examined next Managers should also examine other forces in the environment, such as macroeconomic conditions and technological factors One critical task is forecasting future trends

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Analysis of External Opportunities and Threats

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Strategic Management: Step 3

Analysis of Internal Strengths and Weaknesses

This kind of internal analysis provides strategic

decision makers with an inventory of the organizations existing functions, skills, and resources as well as its overall performance level This step will also include looking at the firms resources and core competencies A final area may include benchmarking with other firms

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Analysis of Strengths and Weaknesses

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Strategic Management: Step 3

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Strategic Management: Step 4

SWOT Analysis and Strategy Formulation

By completing steps 2 and 3 managers will be

able to analyze the companies strengths, weaknesses, opportunities and threats (SWOT) Once the SWOT has been completed management will be able to begin to formulate a strategy

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Corporate Strategy
Corporate Strategy The set of businesses, markets, or

industries in which an organization competes and the distribution of resources among those entities Concentration A strategy employed for an organization that operates a single business and competes in a single industry Concentric Diversification A strategy used to add new businesses that produce related products or are involved in related markets and activities Vertical Integration The acquisition or development of new businesses that produce parts or components of the organizations product

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Summary of Corporate Strategies

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Boston Consulting Group

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Business Strategy
Business Strategy is the major actions by which a

business competes in a particular industry or market. Low-Cost Strategy is a strategy that an organization uses to build competitive advantage by being efficient and offering a standard, no frills product. Differentiation Strategy is a strategy that an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions. Functional Strategies are strategies implemented by each functional area of the organization to support the organizations business strategy.

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Strategic Management: Step 5 Implementation

There are two major trends related to

implementation Organizations are adopting a more comprehensive view of implementation Managers at all levels of the organization are being involved with the implementation process Implementation generally involves four related steps Define strategic tasks Assess organization capabilities Develop an implementation agenda Create an implementation plan

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Barriers to Implementation

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Strategic Management: Step 6

Strategic Control A system designed to support managers in evaluating the organizations progress regarding its strategy and, when discrepancies exist, taking corrective action The organization must develop performance indicators, an information system, and specific mechanisms to monitor progress Normally includes a budget

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Looking Ahead
Chapter 5 Ethics and Corporate Responsibility How different ethical perspective s guide decision

making How companies influence the ethics environment A process for making ethical decisions The important issues surrounding corporate social responsibility The importance to business of our natural environment Action managers can take to manage with the environment in mind

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Situational Analysis
A process planners use, within time and

resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration

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Alternative Goals and Plans

Based on the situational analysis, the

planning process should generate alternative goals that may be pursued in the future and the alternative plans that may be used to achieve those goals Goals are a target or end that management desires to reach Plans are the actions or means managers intend to use to achieve organizational goals
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Goal and Plan Evaluation

This step is made up of

two activities

Managers will evaluate

the advantages, disadvantages, and potential effects of each alternative goal and plan. They will prioritize those goals and even eliminate some of them from consideration.

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Goal and Plan Selection

Managers will select the goal and plan that is most

appropriate and feasible once they have assessed all of the various goals and plans Some organizations will generate planning scenarios to aid in the evaluation and selection process Scenario a narrative that describes a particular set of future conditions This approach helps the firm avoid crises and allows greater flexibility and responsiveness

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Implementation
Managers and employees must: Understand the plan Have the resources necessary to implement

the plan Be motivated to implement the plan The implementation phase probably will be more effective and efficient If both managers and employees have participated in the planning process

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Monitor and Control

This step is essential in a formal planning

process Managers will need to develop control systems that measure thee plans performance Managers should take corrective action when the plans implemented improperly or when the situation changes

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Stakeholders
Groups and individuals who affect and are

affected by the achievement of the organizations mission, goals, and strategies.

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Resources and Core Competencies

Resources are inputs to a system that can enhance

performance Tangible assets such as real estate, production facilities, raw materials and so on Intangible assets such as company reputation, culture, technical knowledge, patents, and accumulated learning and experience Resources can create a competitive advantage if: They are instrumental for creating customer value They are rare and not equally available to all competitors They are difficult to imitate Finally they must be well organized
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Core Competencies
Core competencies are the unique skills

and/or knowledge an organization possesses that give it an edge over competitors. Generally it refers to a set of skills or expertise in some activity, rather than physical or financial assets.

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