Chapter 6
Planning and Strategic
Management
© 2015 YOLO Learning Solutions
The Nature of Planning
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A plan is a set of activities intended to achieve goals,
whether for an entire organization, department, or an
individual.
At the most basic level, a plan is a road map that
answers the fundamental question, “How do we get
there from here?”
Planning does not necessarily guarantee success.
However, companies and managers who develop
specific plans have a definite head start in reaching
goals and a distinct advantage over those who do not
adequately plan.
© 2015 YOLO Learning Solutions
The Benefits of Planning
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Planning benefits organizations by forcing managers to
focus on the organization’s present status and
environment.
Planning also provides a mechanism for coordinating
the activities of groups and individuals.
Planning can help create an environment conducive to
motivating managers and employees.
The focus and coordination arising from planning can
lead to higher performance levels, as organizational
members recognize the firm’s overall goals.
© 2015 YOLO Learning Solutions
Steps in Planning
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Create the mission statement.
Assess the current situation.
State goals.
Evaluate the gap between current position and goals.
Specify assumptions about the future.
Create the plan.
Implement the plan.
Evaluate the results of the plan.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Creating the Mission Statement
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An organization’s mission defines its fundamental
purpose—what it values and how it wishes to conduct
itself.
A mission statement is a formal written declaration of
the organization’s purpose that contains all, or at least
most, of the following:
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The firm’s philosophy
Its primary products and markets
The intended geographic scope
The nature of the relationships between the firm, its
stakeholders, and society
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Assessing the Current Situation
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Before a company can make any plan, it must evaluate
the current status of the internal organization by
determining:
◦ The extent of the organization’s resources: financial assets,
employee skills, technology, and data about the work process
◦ The firm’s working relationship with its suppliers, financial
backers, and consumers
© 2015 YOLO Learning Solutions
Stating Goals
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A goal is the final result that a firm wishes to achieve and
contains several components:
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The attribute sought
The target to be achieved
An index to measure progress
A time frame
Organizations set goals for a variety of areas, including
market standing, innovation, productivity, physical or
financial resources, profitability, manager performance
and development, worker performance, and public
responsibility.
© 2015 YOLO Learning Solutions
Stating Goals (continued)
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Organizations develop three types of goals:
◦ The firm’s highest-level managers set strategic goals, which
deal with such general topics as the firm’s growth, new
markets, or new goods and services.
◦ Tactical goals, the intermediate goals of the firm, are designed
to stimulate actions necessary for achieving the strategic
goals.
◦ Operational goals are more specific and address activities that
must be performed before tactical goals can be fulfilled.
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Achieving the operational goals leads to fulfillment of
the tactical goals, which leads to fulfillment of the
strategic goals.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Stating Goals (continued)
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Setting goals can be a difficult task in an organization
because
◦ Every organization has many groups of stakeholders, both
internal and external, and each group has its own goals.
◦ The environment may change in an unforeseen manner and
make the plans impossible to carry out.
◦ Organizational rewards may reinforce a short-term
orientation.
◦ Good planning requires courage and risk taking.
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Evaluating the Gap between Current Position
and Goals
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Once the organization has assessed its present status
and set goals for the future, the next step is to
determine how much difference there is between the
current situation and organizational goals—the gap
between actual and anticipated states.
◦ Are the changes needed to close this gap major or minor?
◦ Is it necessary to develop a plan that will require a dramatic
amount of time, effort, and resources by the organization or
merely an increase in the level of current organizational
activities?
© 2015 YOLO Learning Solutions
Specifying Assumptions about the Future
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All planning involves making some assumptions about
the future of both the organization itself and the
external environment.
If the company can reliably assume that the
organization and the external environment will remain
relatively stable and similar to that of the recent past,
planning is much easier.
If the present status of the organization or its external
environment is expected to change in an unpredictable
fashion, planning obviously becomes much more
difficult and complex.
© 2015 YOLO Learning Solutions
Creating the Plan
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The plan is the document that designates methods,
time frames, alternate procedures, and who is to
implement it.
The process of creating a plan can be broken down into
four basic steps:
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Determining alternatives
Evaluating alternatives
Selecting an alternative
Specifying the steps
© 2015 YOLO Learning Solutions
Implementing the Plan
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Implementation is carrying out the steps specified in
the plan, where the organization goes from the
“thinking” mode to the “doing” mode.
Implementation requires the coordination of people,
resources, and activities.
The implementation stage is where many plans come
undone.
The implementation stage therefore requires realistic
decision making at each step of the implementation.
© 2015 YOLO Learning Solutions
Evaluating the Results of the Plan
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A well-done assessment of the outcomes that resulted
from the plan provides valuable feedback.
The company learns which goals are possible and
which may not be, as well as which steps can be
implemented easily and which cannot be.
© 2015 YOLO Learning Solutions
Levels of Planning
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There are three main levels of plans:
◦ Strategic plans focus on reaching the general, long-term
strategic goals of the organization and usually address the
organization’s relationship to its environment.
◦ Tactical plans describe how the strategic plans may be
implemented and are developed for each part of the
organization.
◦ Operational plans are specific descriptions of actions that
must be taken by a work group to carry out the tactical plans.
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The three levels of plans all address the same topics
and are all related to attaining the organization’s
strategic goals.
© 2015 YOLO Learning Solutions
Strategic Management
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Strategic management consists of the processes an
organization undertakes to develop and implement its
strategic plan.
Central to strategic planning and strategic
management is the development of a strategy, a
course of action for implementing strategic plans and
achieving strategic goals.
A strategy must have four components: scope,
resource deployment, synergy, and distinctive
competence.
© 2015 YOLO Learning Solutions
The Strategic Management Process
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First, the organization should identify its mission and
strategic goals.
Second, the organization should conduct a SWOT
analysis—identify the strengths, weaknesses,
opportunities, and threats it faces.
Third, the organization should formulate a strategy to
capitalize on its greatest strengths and to keep its
organizational weaknesses from being exploited by
competitors and other factors in the environment.
The final steps are implementing, evaluating, and
controlling the strategic plan.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Levels of Strategy
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Strategic planning can be discussed at a number of
levels:
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Ethics and compliance
Corporate
Business
Functional
The different levels of strategies overlap, as do the
managers usually associated with the various levels.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Corporate Strategy
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Corporate strategy is concerned with the organization
as a whole, particularly which business or set of
businesses the organization should be in.
If the company operates many businesses, corporatelevel strategy should account for the relationship
among these.
Three general corporate-level strategies are:
◦ Diversification
◦ Joint ventures
◦ Divestment
© 2015 YOLO Learning Solutions
Corporate Strategy (continued)
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A major tool of corporate strategic planning is portfolio
analysis, including the following techniques:
◦ The Boston Consulting Group’s Growth/Share Matrix, a fourgrid matrix that identifies strategic business units (SBUs) as
stars, question marks, cash cows, and dogs, relative to the
business’s market growth rate and relative market share
◦ The GE matrix, which places SBUs into one of nine cells of a
matrix, depending on their industry attractiveness and
business strength
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These tools allow an organization to categorize its
businesses and to look at the relative performance and
strength of each.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Business-Level Strategy
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Business-level strategy refers to the actions that an
individual strategic business unit should undertake to
meet corporate strategy.
The major general business strategies are:
◦ Cost leadership (attempting to achieve the overall lowest cost
structure in an industry)
◦ Differentiation (offering a unique good or service to a
customer at a premium price)
◦ Focus (concentrating on meeting the demands of one part or
segment of the market)
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The proper business strategy is determined, in part, by
the product life cycle.
© 2015 YOLO Learning Solutions
© 2015 YOLO Learning Solutions
Implementing Strategy
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Factors to keep in mind during the implementation
phase:
◦ Structure—The firm’s hierarchy or pattern of the organization
◦ Systems—The procedures or guidelines that firms use in the
course of doing business
◦ Skills—Organization members’ knowledge of the technical
aspects of the business’s goods or services and how to apply
this knowledge, as well as general work abilities
◦ Staffing—Finding and placing employees in jobs for which
they have the appropriate skills
◦ Shared values
© 2015 YOLO Learning Solutions
Strategic Management Pros and
Cons
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Some critics argue that strategic management is often
all about planning, with little emphasis placed on
implementation.
Strategic management can be costly and time
consuming for the organizational members involved.
Many charge that strategic management’s
preoccupation with a long-term time frame is
unrealistic, given the short-term expectations of
stockholders and other financial stakeholders.
© 2015 YOLO Learning Solutions
Effective Planning
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To facilitate planning, goals and plans should be
communicated to all members of the organization so
that they have an accurate idea of what the organization
is attempting to accomplish.
Contingency plans—alternatives to the original plan
that allow the organization to continue to function
effectively in the face of change—should be developed.
Involving many employees in planning is effective in
achieving involvement throughout the organization.
© 2015 YOLO Learning Solutions