Learning Outcomes

After studying this chapter you should be able to:

1. Summarize the planning process and describe organizational goals.

2. Discuss the components of strategy and the types of strategic
alternatives.
3. Describe how to use SWOT analysis in formulating strategy.
4. Identify and describe various alternative approaches to business-
level strategy formulation.
5. Identify and describe various alternative approaches to corporate-
level strategy formulation.
6. Discuss how tactical plans are developed and implemented.
7. Describe the basic types of operational plans used by
organizations.

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 FIGURE
FIGURE 3.1
3.1 The Planning Process

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 Organizational Goals

Purposes of Goals

Guidance and Promotion of Source of Evaluation

unified direction good planning motivation and control

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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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 Organizations Have a Purpose—
That’s Why They Need Goals

Identification

Adaptation Integration
Uses for Goals in
Organizations

Collaboration Revitalization

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 Kinds of Organizational Goals

Setting Organizational Goals

By Level By Area By Time Frame

Mission statement Operations Long-term goals
Strategic goals Marketing Intermediate goals
Tactical goals Finance Short-term goals
Operational goals Production Explicit goals
Open-ended goals

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 What Goals Do

• By Level
– Mission statement is a statement of the
organization’s fundamental purpose.
– Strategic goals, set by top management, address
broad competitive issues.
– Tactical goals, set by middle managers, that focus on
how to operationalize actions to strategic goals.
– Operational goals, set by lower-level managers,
focus on actions in support of tactical goals.

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 Planning Flow in Organizations

Strategic Plans
(upper management)

Tactical Plans
(middle management)

Operational Plans
(lower-level managers)

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 Kinds of Organizational Plans

• Strategic Plans
– Are general plans outlining resource allocation,
priorities, and action steps to achieve strategic goals.
– Are set by and for top management.
• Tactical Plans
– Are aimed at achieving the tactical goals set by and
for middle management.
• Operational Plans
– Have a short-term focus.
– Are set by and for lower-level managers.

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 Time Frames for Planning
• The Time Dimension of Planning
– Planning must provide sufficient time to fulfill the managerial
commitments involved.
1 5 10

Long-range (strategic)
plans of 5 or more years

Intermediate-range
(tactical) plans of 1–5 years

Short-range (operational)
action and contingency
plans of 1 year or less

Years

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 The Nature of Strategic Management

• Strategy
– A comprehensive plan for accomplishing an
organization’s goals.
• Strategic Management
– The comprehensive and ongoing process of
formulating and implementing strategies to approach
business opportunities and challenges.
• Effective Strategies
– Promote a superior alignment between organization
and environment and achievement of goals.

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 Basic Components of Strategy

Components of Strategy

Distinctive Competitive Resource

Competence Scope Deployment

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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 in areas in which it competes.

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 Types of Strategic Alternatives

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

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 Organizational Structure and
Strategic Alternatives

Corporate-level strategy

Market A Market B

Business-level strategy Business-level strategy

Functional-level strategy Functional-level strategy

Operations-level strategy Operations-level strategy

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 The Relationships of Strategies
by Organizational Level

Formulation Implementation
Corporate Decisions about which Competing in these markets
markets to compete in via existing operations,
strategy mergers, acquisitions, new
ventures, divestitures

Formulation Implementation
Business Decisions about how to Carrying out the strategies
strategy compete in each market chosen for each business

Formulation Implementation
Functional Decisions about how to Carrying out the strategies
strategy address each function chosen for each function
within the organization

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 Management Challenge Question

• If it is important that all employees be involved

in strategy implementation, then what are the
most important responsibilities for managers in
helping employees participate?

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 FIGURE 3.2 SWOT Analysis

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 SWOT Analysis: Evaluating Strengths

• Organizational Strengths
– Skills and abilities enabling an organization
to conceive of and implement strategies.
• Distinctive Competencies
– Strengths possessed by only a small number of
competitors that are useful for competitive advantage
and superior performance.
• Competitive Advantage
– Results from a firm exploiting its unique competencies
to attain superior performance.

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 SWOT Analysis: Evaluating Weaknesses

• Organizational Weaknesses
– Insufficiencies of skills and capabilities that limit an
organization’s choice of strategic actions in support of
its mission.
• Weaknesses can be overcome by:
– Making investments to obtain the strengths needed.
– Modifying the organization’s mission so it can be
accomplished with the current workforce.

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 Evaluating an Organization’s
Opportunities and Threats
• Organizational Opportunities
– Areas in the organization’s environment that may
generate higher performance.
• Organizational Threats
– 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

Porter’s Generic
Strategies

Overall cost
Differentiation Focus
leadership
strategy strategy
strategy

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 Porter’s Generic Strategies

• Differentiation Strategy
– Seeking to distinguish an organization from its
competitors through the quality of its products or
services.
• Overall Cost Leadership Strategy
– Attempting to gain competitive advantage by reducing
overall costs below the costs of competing firms.
• Focus Strategy
– Concentrating on a specific regional market, product
line, or group of buyers.

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 Strategies Based on the Product Life Cycle

• Product Life Cycle

– A model that shows sales volume changes over the
life of products.
• Introduction stage: demand may be very high and
sometimes outpaces the firm’s ability to supply the
product.
• Growth stage: more firms begin producing the
product, and sales continue to grow.
• Mature stage: overall demand growth begins to
slow down.
• Decline stage: demand for product decreases.

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 FIGURE 3.3 The Product Life Cycle

High Life Cycle Stages

Introduction Growth Maturity Decline

Sales Volume

Low
Time

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 Management Challenge Questions

• Which of Porter’s generic strategies are best

suited for which stages of the product life cycle?
• Do your answers support the concept that
structure must follow strategy?

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 The Adaptation Model
of Business Strategy
Environmental Complexity and Change

Dynamic, growing
Moderately stable Very stable environment
environment
environment with some with little uncertainty
characterized by high
uncertainty and risk and risk
uncertainty and risk

Prospector Analyzer Defender

Stress growth, risk Stress maintenance of Stress stability,
taking, innovation, and status quo with moderate conservatism, and
new opportunities innovation and growth maintenance of status
quo

Reactor
Little consideration of environment; drift with little concern for strategy

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 Corporate-Level Strategies

Strategic Choices

Single-product Related Unrelated

strategy diversification diversification
(simplicity) (synergy) (risk/return)

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 Implementing Related Diversification

Bases of Diversification Relatedness

Similar Common Common brand Common

technology marketing and name and customers
resources distribution skills reputation and markets

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 Related Diversification’s Advantages

Competitive Advantages
of Related Diversification

Creation of Synergistic
Reduction of
economies of sharing of
business and
scale and strengths and
economic risk
scope competencies

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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
– Similar technology
– Common marketing and distribution skills
– Common brand name and reputation
– Common customers

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 Unrelated Diversification

• Unrelated Diversified 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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 Unrelated Diversification (cont’d)

• Disadvantages
– The 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

• Portfolio Management Techniques

– Are used to make decisions about what businesses to
engage in and how to manage these multiple
businesses to maximize corporate performance.
• BCG (Boston Consulting Group) Matrix
• GE (General Electric) Business Screen

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 Portfolio Management Techniques
• BCG Matrix
– Evaluates businesses relative to the growth rate of their
markets and their individual market shares.
– Classifies the types of businesses of a diversified
organization’s portfolio as:
• Dogs having small market shares and no growth
prospects.
• Cash cows having large shares of mature markets.
• Question marks having small market shares in
quickly growing markets.
• Stars having large shares of rapidly growing markets.

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 FIGURE 3.4 The BCG Matrix

High

Question
Market Growth Rate
Stars
marks

Cash Cows Dogs

Low

High Relative Market Share Low

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 Portfolio Management Techniques (cont’d)

• GE Business Screen
– Evaluates firms in a diversified portfolio along two
multi-factor dimensions:
• Industry attractiveness.
• Competitive position (strength) of portfolio firms.
– Shows where a firm should invest more of its
resources in competitive businesses in attractive
industries.

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 FIGURE 3.5 The GE Business Screen

Question
Industry Attractiveness High Winner Winner
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
3. Product quality 3. Capital requirements
4. Service network 4. Competitive intensity
5. Price competitiveness
6. Operation costs

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 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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Table 3.1 Types of Operational Plans

Single-use Plans 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 Plans 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 Standing plan outlining steps to be followed in
procedure particular circumstances
Rules and regulations Standing plans describing exactly how specific
activities are to be carried out

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 Contingency Planning and
Crisis Management
• Contingency Planning
– The determination of alternative courses of action to
be taken if an intended plan is unexpectedly disrupted
or rendered inappropriate.
• Crisis Management
– The set of procedures the organization uses in the
event of a disaster or other unexpected calamity.

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 Management Challenge Question

• What effects would an organization’s culture be

likely to have on its contingency planning?
• On its management of a crisis?

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 FIGURE 3.6 Contingency Planning

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