Chapter 1:

The Manager as a
Planner and a Strategist
 The Nature of the Planning
Process
• 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.
• Strategy
– The cluster of decisions and actions that managers
take to help an organization reach its goals.

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 The Nature of the Planning
Process
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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 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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 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:
– Divisional managers’ decisions pertaining to divisions
long-term goals overall strategy, and structure.
• Identifies how the business will meet corporate goals.
• Business-Level Strategy
– A plan that indicates how a division intends to compete
against its rivals in an industry
• Shows how the business will compete in market.

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 Levels of Planning
• Function – department or unit in which
people have the same skills or use the
same resources to perform their jobs

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 Levels 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.
• Functional Strategy
– A plan that indicates how a function intends to
achieve its goals.

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 Who Plans?
• Corporate-Level Plans
– Plans developed by top management who also are
responsible for approving business- and functional-level
plans for consistency with the corporate plan.
– Top managers should seek input on corporate level
issues from all management levels.
• Business-Level Plans
– Plans developed by divisional managers who also
review functional plans.
• Both management levels should also seek
information from other levels.
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 Time Horizons of Plans
• Time Horizon
– 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.
– Corporate and business-level goals and strategies
require long- and intermediate-term plans.
– Functional plans focus on short-to intermediate-term
plans
– Most organizations have a rolling planning cycle to
amend plans constantly.

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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.
• 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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 Why Planning Is Important
• Planning ascertains where the organization
is now and decides where it will be in the
future.
– Participation: all managers are involved in
setting future goals.
– Sense of direction and purpose: planning sets
goals and strategies for all managers.

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 Why Planning Is Important
• Coordination:
– Plans provide all parts of the firm with
understanding about how their systems fit with
the whole.
• Control:
– Plans specify who is responsible for the
accomplishment of a particular goal.

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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.
– Planning seeks predict the future, but the future is
unknowable.
• By generating multiple possible “futures,” a firm can see
how its plans might work in each and prepare for the
possible outcomes.
– Scenario planning is a learning tool to improve strategic
planning results.
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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
• 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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 Formulating Strategy
• Strategic Formulation
– Managers analyze the current situation to develop
strategies for achieving the mission.
• 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

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Figure 8.5
 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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 Formulating Corporate-Level
Strategies
• Concentration in Single Business
– Can become a strong competitor, but can be risky.
• Diversification
– Related diversification into similar market areas to build
upon existing competencies.
• Synergy: two divisions working together perform better
than the sum of their individual performances.
– Unrelated diversification is entry into industries
unrelated to current business.
• Attempts to build a portfolio of unrelated firms to reduce
risk of single industry; difficulty to manage.

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 International Expansion
• Basic Question:
– To what extent do we customize products and
marketing for different national conditions?
• Global strategy
– Selling the same standardized product and using the
same basic marketing approach in all 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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 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
• 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
• 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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 Vertical Integration
A strategy that allows an organization to create value
by producing its own inputs or distributing its own
products.
• Backward vertical integration occurs when a firm seeks to
reduce its input costs by producing its own inputs.
• Forward vertical integration occurs when a firm distributes
its outputs or products to lower distribution costs and
ensure the quality service to customers.
– A fully integrated firm faces the risk of bearing the full
costs of an industry-wide slowdown.

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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.
• Differentiation
– Offering products different from those of competitors.
• 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.
• Focused Differentiation
– Serving only one market segment as the
most differentiated organization serving that
segment.

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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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