Fundamentals of
MANAGEMENT
Core Concepts & Applications
Griffin
Third Edition
Lesson 3
Planning and Strategic Management
Copyright © 2003 Houghton Mifflin Company. All rights reserved.
PowerPoint Presentation by Charlie Cook
Lesson 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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3–2
Lesson 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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3–3
Chapter Outline (cont’d)
• Operational Planning
–Single-Use Plans
–Standing Plans
–Contingency Plans
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3–4
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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3–5
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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3–6
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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3–7
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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3–8
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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3–9
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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3–10
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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3–11
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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3–12
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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3–13
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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3–14
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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3–15
The
Relationships
of
Strategies
by
Organizational
Level
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3–16
SWOT
Analysis
•
•
•
•
Strengths
Weaknesses
Opportunities
Threats
Mission
An organization’s fundamental purpose
SWOT Analysis
To formulate strategies that support the mission
Internal Analysis
Strengths
(distinctive
competencies)
External Analysis
Opportunities
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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3–17
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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3–18
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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3–19
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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3–20
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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3–21
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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3–22
Strategies Based on Product Life Cycle
• The Product Life Cycle
High
Stages
Growth
Maturity
Decline
Sales Volume
Introduction
Low
Time
Figure 3.3
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3–23
The Adaptation Model
of Business Strategy
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3–24
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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3–25
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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3–26
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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3–27
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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3–28
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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3–29
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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3–30
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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3–31
The BCG Matrix
Market growth rate
High
Stars
Question
marks
Cash cows
Dogs
Low
High
Relative market share
Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by
permission from The Boston Consulting Group, Inc., 1970.
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Low
Figure 3.4
3–32
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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3–33
Industry growth rate
The GE Business Screen
High
Winner
Winner
Question
mark
Medium
Winner
Average
business
Loser
Profit
producer
Loser
Loser
Good
Medium
Poor
Low
Competitive position
Source: From Strategy Formulation:
Analytical Concepts, by Charles W. Hofer
and Dan Schendel. Copyright 1978 West
Publishing. Used by permission of SouthWestern College Publishing, a division of
International Thomson Publishing, Inc.,
Cincinnati, Ohio, 45227.
Competitive position
Industry attractiveness
1. Market share
2. Technological know-how
3. Product quality
4. Service network
5. Price competitiveness
6. Operating costs
1. Market growth
2. Market size
3. Capital requirements
4. Competitive intensity
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Figure 3.5
3–34
Tactical Planning
• Developing and Executing Tactical Plans
Developing tactical plans
Executing tactical plans
• Recognize and understand
• Evaluate each course of action
overarching strategic plans
and tactical goals
• Specify relevant resource and
time issues
• Recognize and identify human
resource commitments
in light of its goal
• Obtain and distribute
information and resources
• Monitor horizontal and vertical
communication and integration
of activities
• Monitor ongoing activities for
goal achievement
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3–35
Operational Planning
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions.
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3–36
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
Project
Standing plan
Policy
Single-use plan for a large set of activities
Single-use plan of less scope and complexity than a
program
Developed for activities that recur regularly over a
period of time
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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3–37
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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3–38