McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 6
Planning, Strategy, and
Competitive Advantage
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
1. Identify the three main steps of the planning
process and explain the relationship between
planning and strategy
2. Describe the different levels and types of
planning and how they lead to competitive
advantage
3. 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
6-3
Learning Objectives
4. Differentiate between the main types of
corporate-level strategies and explain
how they are used to strengthen a
company’s business-level strategy and
competitive advantage
6-4
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
6-5
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
6-6
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
6-7
Three Steps in Planning
Figure 6.1
6-8
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
6-9
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
6-10
Levels of Planning at General
Electric
Figure 6.2
6-11
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.
6-12
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
6-13
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
6-14
Levels and Types of Planning
Figure 6.3
6-15
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.
6-16
Discussion Question
Which type of plan is the most useful?
A. Standing Plan
B. Single-Use Plan
C. Functional Plan
D. Strategic Plan
6-17
Types of Plans
• Standing Plans
–Use in programmed decision situations
• Single-Use Plans
–Developed for a one-time, non-programmed
issue
6-18
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.
6-19
Types of Plans
• Programs
–integrated plans achieving specific goals.
• Project
–specific action plans to complete programs.
6-20
Three Mission Statements
Figure 6.4
6-21
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?
6-22
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.
6-23
Determining the Organization’s
Mission and Goals
• Strategic formulation
–the ability of the CEO and top managers to
convey a compelling vision of what they want
the organization to achieve to their
subordinates
6-24
Planning and Strategy Formulation
Figure 6.5
6-25
Formulating Strategy
• SWOT Analysis
A planning exercise in which managers identify:
– organizational strengths and weaknesses
–external opportunities and threats
6-26
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.
6-27
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
6-28
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
6-29
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
6-30
Formulating Corporate-Level
Strategies
• Concentration on a Single Industry
–reinvesting a company’s profits to strengthen
its competitive position in its current industry
6-31
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
6-32
Stages in a Vertical Value Chain
Figure 6.6
6-33
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. Differentiation
B. Diversification
C. Synergy
D. International expansion
6-34
Diversification
• Diversification
–expanding a company’s business operations
into a new industry in order to produce new
kinds of valuable goods or services
6-35
Diversification
• Related Diversification
–entering a new business or industry to create
a competitive advantage in one or more of an
organization’s existing divisions or businesses
6-36
Diversification
• Synergy
–performance gains that result when
individuals and departments coordinate their
actions
6-37
Diversification
• Unrelated diversification
–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
6-38
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
6-39
International Expansion
• Multi-domestic Strategy
–Customizing products and marketing
strategies to specific national conditions
• Helps gain local market share
• Raises production costs
6-40
Four Ways of Expanding
Internationally
Figure 6.7
6-41
International Expansion
• Exporting
–making products at home and selling them
abroad
• Importing
–selling at home products that are made
abroad
6-42
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
6-43
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
6-44
International Expansion
• Wholly Owned Foreign Subsidiary
–managers invest in establishing production
operations in a foreign country independent of
any local direct involvement
6-45
Video Case: General Motors
• Why is planning important at
American auto
manufacturing companies?
• What role will planning play
in efforts to turn these firms
around?
6-46
Movie Example: Blackhawk Down
•
•
Did the soldiers have any
feedback or disagreement
with any aspect of the
plan?
Should a manager ask for
feedback from
subordinates when
planning?
6-47