Planning,
Strategy, and
Competitive
Advantage
Chapter Six
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
LO1 Identify the three main steps of the planning process
and explain the relationship between planning and
strategy
LO2 Differentiate between the main types of business-level
strategies and explain how they give an organization a
competitive advantage that may lead to superior
performance
LO3 Differentiate between the main types of corporatelevel strategies and explain how they are used to
strengthen a company’s business-level strategy and
competitive advantage
LO4 Describe the vital role managers play in implementing
strategies to achieve an organization’s mission and
goals.
6-2
Planning and Strategy
• Planning
– Identifying and
selecting appropriate
goals and courses of
action for an
organization
• Strategy
– A cluster of decisions
about what goals to
pursue, what goals to
pursue, what actions
to take, and how to
use resources to
achieve goals
6-3
Question?
What is a broad declaration of an organization’s
purpose ?
A. Company Bill of Rights
B. Mission Statement
C. Business Plan
D. Executive Summary
6-4
Planning and Strategy
• 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
6-5
Three Steps in Planning
Figure 6.1
6-6
Why Planning is Important
• Planning is necessary to give the organization
a sense of direction and purpose
• Planning is a useful way of getting managers
to participate in decision making about the
appropriate goals and strategies for an
organization
6-7
Why Planning is Important
• 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
• A plan can be used as a device for controlling
managers within an organization
6-8
Levels of Planning at General Electric
Figure 6.2
6-9
Levels and Types 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.
6-10
Levels and Types of Planning
• Business-Level Plan
– Divisional managers’ decisions pertaining to
divisions long-term goals overall strategy, and
structure
• Business-Level Strategy
– A plan that indicates how a division intends to
compete against its rivals in an industry
6-11
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
• Functional Strategy
– A plan that indicates how functional managers
intend to increase the value of the organization’s
goods and services
6-12
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.
6-13
Types of Plans
• Standing Plans
– Use in programmed decision situations
• Single-Use Plans
– Developed for a one-time, non-programmed issue
6-14
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
6-15
Types of Plans
• Programs
– integrated plans
achieving specific
goals.
• Project
– specific action plans
to complete
programs.
6-16
Three Mission Statements
Figure 6.4
6-17
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
6-18
Determining the Organization’s
Mission and Goals
• 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.
6-19
Determining the Organization’s
Mission and Goals
• Strategic leadership
– the ability of the CEO and top managers to convey
a compelling vision of what they want the
organization to achieve to their subordinates
6-20
Planning and Strategy Formulation
Figure 6.5
6-21
Formulating Strategy
• SWOT Analysis
– A planning exercise in which managers identify:
• organizational strengths and weaknesses
• external opportunities and threats
6-22
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.
6-23
Formulating Business-Level Strategies
• Low-Cost Strategy
– Driving the organization’s total costs down below
the total costs of rivals
• Differentiation
– Distinguishing an organization’s products from the
products of competitors on dimensions such as
product design, quality, or after-sales service
6-24
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
6-25
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
6-26
Formulating Corporate-Level Strategies
• Concentration on a
Single Industry
– reinvesting a
company’s profits to
strengthen its
competitive position
in its current industry
6-27
Vertical Integration
• 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
6-28
Stages in a Vertical Value Chain
Figure 6.6
6-29
Question?
What is expanding a company’s business
operations into a new industry in order to
produce new kinds of valuable goods or
services?
A.
B.
C.
D.
Differentiation
Diversification
Synergy
International expansion
6-30
Diversification
• Diversification
– expanding a company’s business operations into a
new industry in order to produce new kinds of
valuable goods or services
6-31
Diversification
• Related Diversification
• Unrelated
diversification
– entering a new business
or industry to create a
competitive advantage
in one or more of an
organization’s existing
divisions or businesses
– 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
6-32
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 each
national market
6-33
International Expansion
• Multi-domestic Strategy
– Customizing products and marketing strategies to
specific national conditions
• Helps gain local market share
• Raises production costs
6-34
Four Ways of Expanding Internationally
Figure 6.7
6-35
International Expansion
• Exporting
– making products at home and selling them abroad
• Importing
– selling at home products that are made abroad
6-36
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
6-37
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
6-38
International Expansion
• Wholly Owned Foreign Subsidiary
– managers invest in establishing production
operations in a foreign country independent of
any local direct involvement
6-39
Video Case: State Farm Bank
• Why is planning important for organizations
like State Farm?
• What kind of diversification took place when
State Farm entered the banking field?
• How does State Farm differentiate its banking
services from those of its competitors?
6-40