Fundamentals of
MANAGEMENT
Core Concepts & Applications
Griffin
Eighth Edition
Chapter 3
Planning and Strategic Management
Chapter 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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Chapter 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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Chapter Outline (cont’d)
• Operational Planning
–Single-Use Plans
–Standing Plans
–Contingency Plans
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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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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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Objectives, Goals, Missions & Visions
Vision – where you are heading
-It answers the question, “Where
do we aim to be?”
Mission- defines your fundamental
purpose(s)
-It answers the question, “What do we do?
What makes us different?”
Goals – specific measurable components aligned
with mission and vision statements
-Example: I want to achieve success in the field of
management research and do what no one has ever
done.
Objective –action step taken in order to meet goals
-Example : I want to complete this thesis on genetic
research by the end of this month.
Strategies: Broad activities required to achieve an objective,
control a critical success factor, or overcome a barrier
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Continue….
• Vision: A picture of the "preferred future;" a statement that describes how the future will
look if the organization achieves its ultimate aims, e.g. "The widgets of choice for a valuefocused world."
• Mission: A statement of the overall purpose of an organization. It describes what you do,
for whom you do it and the benefit, e.g. "To provide consumers with high-quality, pricecompetitive widgets to meet their personal, business and recreational needs."
• Goals: Broad, long-term aims that define accomplishment of the mission, e.g. "Grow
profitability. Maximize net income by increasing revenues and controlling costs."
• Objectives: Specific, quantifiable, realistic targets that measure the accomplishment of a
goal over a specified period of time, e.g. "Increase revenues by x% in 2004. Limit
increases in overhead costs to y%. Achieve a z% reduction in management staff through
increased automation."
• Strategies: Broad activities required to achieve an objective, control a critical success
factor, or overcome a barrier, e.g. "Establish a partnership with a foreign manufacturer to
revamp the Northeast plant. Implement a program to widely promote our success as a
quality producer."
• Tactics: Specific steps to be taken, by whom by when, and at what cost, to implement a
strategy, e.g. "Initiate discussions with PR firm on quality promotion. Week of 8/16/04."
This is where the detailed implementation tactics reside and is the portion of the plan that
provides an executional roadmap combined with goalposts for performance measurement.
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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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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.
3–10
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.
3–11
WHAT IS PLANNING?
Planning is the systematic process of establishing a need and
then working out the best way to meet the need, within a
strategic framework that enables you to identify priorities and
determines your operational principles.
Planning means thinking about the future so that you can do
something about it now.
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Managerial Function;PLANING
What is Planning?
• Planning involves in defining the organization
goal (what to be done) and establishing
strategies (how to be done) to achieve sited
goal.
• Some time it is also called primary managerial
function.
Why Planning Is Necessary ?
1 ) Provide Direction:
-What the organization want to accomplish (achieve)
and how to reach the establish /sited goals.
-By planning a clear direction comes that to be follow, in
order to reach and achieve goal.
2) Reduce Uncertainty:
Planning reduce uncertainty by look ahead to anticipate
changes
manager can estimate their consider impact of changes
and then they can develop response to these changes.
Continu..
3) Minimizes waste and redundancy (idleness):
When work activities are coordinated around
established plans redundancy can beminimized.
4) Provide ability in controlling:
Planning helps in controlling and monitoring the
work that either this works is on its right path or
not.
The Decision Making Process.
What is decision?
• Decision means “choosing among alternative”
• “Choosing among alternatives “ is done through
a proper procedure Which is called “decision
making process”.
Who make the decisions?
• Managers are responsible to makes the
decisions.
• They include all the three levels of managers:
Top level managers
Middle level managers
lower level/1st line Managers.
Contin…
• Top level manager:
Take decisions like product type,
manufacturing location etc
• Middle & lower level manager:
Decisions include quality problems pay rising
etc.
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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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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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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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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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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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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Formulating Business level strategies
• A number of frameworks have been developed
for identifying the major strategic alternatives
that organizations should consider when
choosing their business level strategies.
Three important classification schemes are:
–1. Porter’s generic strategies
–2. Miles and Snow typology
–3. Strategies based on the product life cycle.
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Porter’s Generic Strategies
According to Michael Porter, organizations may pursue a
differentiation, overall cost leadership, or focus strategy
at the business level.
• 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.
3–26
Porter’s Generic Strategies cont.
Strategy type
Definition
Examples
Differentiation
Distinguish products or
services
Rolex (Watches)
Dukatti (Motorbike)
Arong product
Overall cost leadership
Reduce manufacturing
and other costs
Timex (watches)
Hero honda (Motorbike)
XXX garments
Focus
Concentrate on specific
regional market, product
market, or group of
buyers
Dry fish
Vodka
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The Miles and Snow Typology
• A second classification of strategic options was
developed by Raymond Miles and Charles
Snow.
Strategy
Type
Definition
Example
Prospector
Is innovation and growth oriented, searches for
new markets and new growth opportunities,
encourages risk taking.
1.Amazon.co
m
Defender
Protects current markets, maintains stable
growth, serves current customers.
1.eBay.com
Analyzer
Maintains current markets and current
customer satisfaction with moderate emphasis
on innovation
1.IBM
2.Yahoo
Reactor
No clear strategy, reacts to changes in the
environment, drifts with events.
1.Internation
al Harvester
3–28
Strategies Based on Product Life Cycle
• The product life-cycle theory is an economic theory that was developed
by Raymond Vernon
High
Stages
Growth
Maturity
Decline
Sales Volume
Introduction
Low
Time
Figure 3.3
3–29
The four main stages of a product's life cycle and the
accompanying characteristics are:
Stage
Characteristics
1.costs are very high
2.slow sales volumes to start
3.little or no competition
1. Market
4.demand has to be created
introduction stage
5.customers have to be prompted to try the
product
6.makes no money at this stage
1.costs reduced due to economies of scale
2.sales volume increases significantly
3.profitability begins to rise
2. Growth stage
4.public awareness increases
5.competition begins to increase with a few new
players in establishing market
6.increased competition leads to price decreases
3–30
3. Maturity stage
1.costs are lowered as a result of production volumes
increasing and experience curve effects
2.sales volume peaks and market saturation is reached
3.increase in competitors entering the market
4.prices tend to drop due to the proliferation of
competing products
5.brand differentiation and feature diversification is
emphasized to maintain or increase market share
6.Industrial profits go down
4. Saturation and
decline stage
1.costs become counter-optimal
2.sales volume decline
3.prices, profitability diminish
4.profit becomes more a challenge of
production/distribution efficiency than increased sales
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Managing Diversification
• However an organization implements diversification- whether
through internal development vertical integration or mergers and
acquisitions – It must monitor and manages its strategies. Two
major tools for managing diversifications are
• 1. Organization structure
• 2. Portfolio management techniques
• 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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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.
3–33
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.
Low
Figure 3.4
3–34
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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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
Figure 3.5
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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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Operational Planning
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions.
3–38
Types of Operational Plans
P la n
D e s c rip tio n
S in g le -u s e p la n
D e ve lop e d to ca rry o u t a co u rse o f a ction n o t likely to
b e re p ea te d in th e fu tu re
P ro g ra m
S in gle -u se pla n fo r a la rg e se t o f a ctivitie s
P ro je ct
S in gle -u se pla n o f le ss scop e a n d co m p le xity th a n a
p ro g ra m
S ta n d in g p la n
D e ve lop e d for a ctivitie s th a t re cu r re g ularly o ve r a
p e rio d o f tim e
P o licy
S ta n d ing pla n sp e cifyin g the o rg a niz a tio n ’s g en e ral
re sp o n se to a de sig n a ted p roble m o r situ a tion
S ta n d a rd op e ra tin g p ro c e d ure
S ta n d ing pla n o u tlinin g ste p s to be follo w e d in
p a rtic ula r circu m sta n ce s
R u le s an d re g ula tio n s
S ta n d ing pla n s d e scribin g e xa ctly ho w sp e cific
a ctivitie s a re to b e carrie d o u t
Table 3.1
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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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