Strategic
Planning and
Decision
Making
Chapter Five
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Planning
Planning
 conscious, systematic process of making
decisions about goals and activities that an
individual, group, work unit, or organization will
pursue in the future.
 a purposeful effort that is directed and controlled
by managers and often draws on the knowledge
and experience of employees throughout the
organization.
5-4
Formal Planning Steps
Step 1 Analysis the Situation
Step 2 Develop alternative Goals and Plans
Step 3 Evaluate Goals and Plan
Step 4 Select Goals and Plan
Step 5 Implementation
Step 6 Monitor and Control
5-5
Step 1-Situational Analysis
Analyze the Situation
 A process planners use, within time and resource
constraints, to gather, interpret, and summarize
all information relevant to the planning issue
under consideration.
5-6
Step 2-Generate Alternative
Goals and Plans
 Should stress creativity and encourage
managers and employees to think in broad
terms about their jobs.
 Goal
 A target or ends that management desires to
reach
 SMART goals
5-7
SMART
 Specific-When goals are precise, employees know what




they need to do to accomplish them.
Measurable-As much as possible, the goal should quantify
the desired results, so that there is no doubt whither it
has been achieved.
Attainable( but challenging)-Employees need to recognize
that they can attain their goals, so they won’t become
discouraged. However, they also should feel challenged
to work hard and be creative.
Relevant-Each goal should contribute to the organization’s
overall mission and be consistent with its values, including
ethical standards.
Time-bound-Effective goals specify a target date for
completion.
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5-8
Examples of S.M.A.R.T. Goals?



Starbucks: “In fiscal 2006,
we plan to open
approximately 1,800 net
new stores globally.”
Walgreen: “Second is to hire
a significant number of
people with disabilities in
our South Carolina
distribution center,
scheduled to open in 2007,
and achieve 20%
productivity gains there.”
UPS: “65% of drivers will
have access to the new
technology (implemented in
2004) by the end of 2005.”
and “In 2005, we will
increase operating profit in
each of our 3 key
businesses: domestic, int’l,
supply chain.”



Wrigley: “In 2005, the
company will decrease the
long-term rate of return
assumption for the assets
of its U.S. (pension) plans
from 8.75 % to 8.5%.”
Halliburton: “We estimate
that 74% of the backlog
existing on 12/31 will be
eliminated the following
fiscal year.”
Martha Stewart Living
Omnimedia: “In 2004 we will
discontinue the Catalog for
Living and its online
product options, and sell
remaining inventory in early
fiscal 2005.”
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5-9
Step 2-Generate Alternative
Goals and Plans
Plans
 The actions or means
managers intend to
use to achieve
organizational goals
 Contingency plans
 sets of actions to be
taken when a
company’s initial
plans have not
worked well or if
events in the external
environment require
a sudden change
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Step 3-Evaluate Goals and Plans
 Managers will evaluate the advantages,
disadvantages, and potential effects of each
alternative goal and plan.
 Must prioritize those goals and even eliminate
some of them.
 Managers must consider carefully the
implications of alternative plans for meeting
high priority goals.
5-12
Step 4-Select Goals and Plans
 Managers will select the option that is most
appropriate and feasible
 The evaluation process will identify the
priorities and trade-offs among the goals and
plans
 Scenario
 A narrative that describes a particular set of
future conditions.
5-13
Step 5-Implement the Goals and
Plans
 Managers and employees must understand
the plan, have the resources to implement it,
and be motivated to do so
 Successful implementation requires a plan to
be linked to other systems in the
organization, particularly the budget and
reward systems
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Step 6-Monitor and Control
Performance
 Managers must continually monitor the
actual performance of their work units
against the unit’s goals and plans.
 Manager’s also need to develop control
systems to measure that performance and
allow them to take corrective action when
the plans are implemented improperly or
when the situation changes
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Hierarchy of Goals and Plans
Exhibit 5.2
5-16
Levels of Planning
Strategic planning
 A set of procedures
for making decisions
about the
organization’s longterm goals and
strategies
Strategic goals
 major targets or end
results that relate to
the long-term
survival, value, and
growth of the
organization.
5-17
Strategic Planning
Strategy
 A pattern of actions
and resource
allocations designed
to achieve the
organization’s goals
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Strategic Planning
1.
2.
3.
4.
Where will we be active?
How will we get there?
How will we win in the marketplace?
How fast will we move and in what
sequence will we make changes?
5. How will we obtain financial returns?
5-19
Tactical and Operational Planning
Tactical planning
 A set of procedures for translating broad strategic
goals and plans into specific goals and plans that
are relevant to a distinct portion of the
organization, such as a functional area like
marketing.
Specify how a company will use resources,
budgets, and people to accomplish goals
within its mission.
(6 months to 2 years)
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Management by Objectives
Steps to Management by Objectives:
1. Discuss possible goals
2. Select goals that are challenging,
attainable and consistent with the
company’s overall goals
3. Jointly develop tactical plans that lead to
the accomplishment of tactical goals and
objectives
4. Meet regularly to review progress
21
5-21
Tactical and Operational Planning
Operational planning
 The process of identifying the specific procedures
and processes required at lower levels of the
organization.
 Day-to-day plans for producing or
delivering products and
services over a 30-day
to six-month period
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Planning
All levels of planning should be aligned
• To be effective, tactical, operational, and strategic goals
must be consistent, mutually supportive, and focused
on achieving a common purpose and direction.
• Companies frequently use strategic maps to align
strategic and operational goals.
– Strategy maps show the relationship between a firm’s
practices and its long-term success. They include:
» financial goals
» learning and growth goals
» internal goals
» customer goals
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5-23
Strategic Planning Process
Strategic management
 A process that involves managers from all parts of
the organization in the formulation and
implementation of strategic goals and strategies.
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The Strategic Management Process
Exhibit 5.3
5-25
Step 1-Establish a Mission, Vision,
and Goals
Mission
 An organization’s basic
purpose and scope of
operations.
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Mission Statements
Advanced Auto Parts
 It is the Mission of Advance Auto Parts to provide personal vehicle
owners and enthusiasts with the vehicle related products and
knowledge that fulfill their wants and needs at the right price. Our
friendly, knowledgeable and professional staff will help inspire,
educate and problem-solve for our customers.
Aflac
 To combine aggressive strategic marketing with quality products and
Ford
services at competitive prices to provide the best insurance value for
consumers.
 We are a global family with a proud heritage passionately committed
to providing personal mobility for people around the world.
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Establish a Mission, Vision,
and Goals
Strategic vision
 the long-term direction and strategic intent of a
company
 provides a perspective on where the organization
is headed and what it can become
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Vision Statements
Alcoa
 At Alcoa, our vision is to be the best company in the
world--in the eyes of our customers, shareholders,
communities and people. We expect and demand the
best we have to offer by always keeping Alcoa's values top
of mind.
Anheuser-Busch
 Be the world's beer company. Through all of our products,
services and relationships, we will add to life's enjoyment.
Ford
 To become the world's leading Consumer Company for
automotive products and services.
30
5-30
Step 2-Analyze External
Opportunities and Threats
 Successful strategic
management depends
on an accurate and
thorough evaluation of
the environment.
 Stakeholders
 Groups and individuals
who affect and are
affected by the
achievement of the
organization’s mission,
goals, and strategies
5-31
Analyze External
Opportunities and Threats
Industry profile
Industry growth
Industry forces
Competitor
profile
Competitor
analysis
Competitor
advantages
Legislation
Political activity
Social issues
Labor issues
Macroeconomic
conditions
Technological
factors
5-32
Step 3-Analyze Internal Strengths
and Weaknesses
Resources
 Inputs to a system that can enhance performance
 Resources fall into two broad categories:
• Tangible assets such as real estate, production facilities,
raw materials, etc
• Intangible assets such as company reputation, culture,
technical knowledge, patents, as well as accumulated
learning and experience.
5-33
Step 3-Analyze Internal Strengths
and Weaknesses
Financial analysis
Human resource assessment
Marketing audit
Operations analysis
Other internal resource analyses
5-34
Step 3-Analyze Internal Strengths
and Weaknesses
Effective internal analysis provides a clearer
understanding of how a company can compete
through its resources.
Resources are a source of competitive advantage
only under the following circumstances:
 Create customer value-they increase the benefits
customers derive from a good or service relative to
the costs they incur.
 Rare-not equally available to all competitors
 Difficult to imitate -resources are harder to imitate if
they are complex, with many independent variables
and no obvious link between behaviors and desired
outcomes.
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 Well organized
5-35
Step 4-Formulate Strategy
SWOT analysis
 A comparison of strengths, weaknesses,
opportunities, and threats that helps executives
formulate strategy.
5-36
Step 3-Analyze Internal Strengths
and Weaknesses
Core capabilities
 the less visible, internal decision-making routines, problem-solving
processes, and organization cultures that determine how efficiently
inputs can be turned into outputs.
Distinctive competence
 is something that a company can make, do, or perform better than its
competitors.
Benchmarking
 process of assessing how well one company’s basic functions and
skills compare with those of another company or set of companies.
 goal of benchmarking is to thoroughly understand the “best
practices” of other firms and to undertake actions to achieve both
better performance and lower costs
5-37
Formulate Strategy
Corporate strategy
 The set of businesses, markets, or industries in
which an organization competes and the
distribution of resources among those entities
• Concentration
– A strategy employed for an organization that operates a single
business and competes in a single industry.
• Vertical integration
– The acquisition or development of new businesses that
produce parts or components of the organization’s product
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Conduct a SWOT Analysis
and Formulate Strategy
• Related diversification
– A strategy used to add new businesses that produce related
products or are involved in related markets and activities
• Unrelated diversification
– A strategy used to add new businesses that produce unrelated
products or are involved in unrelated markets and activities
5-39
BCG Matrix
Exhibit 5.5
5-40
BCG Matrix
3.1
Stars
companies with a large share
of a fast-growing market
Question
Marks
companies with a small share
of a fast-growing market
Cash
Cows
companies with a large share
of a slow-growing market
Dogs
companies with a small share
of a slow-growing market
41
5-41
BCG Matrix
Market Growth
Company A
High

Question Marks

Company G
Dogs
Company H
Stars
Company C
Company B
Low
Company D


Company E
Cash Cows
Company F

3.1
Small
Large
Adapted from Exhibit 6.3
Relative Market Share
42
5-42
Porter’s
Positioning
Strategies
The aim of positioning strategies is to minimize the effects of industry
competition and build a sustainable competitive advantage
Cost Leadership
Differentiation
Focus Strategy
4.2
43
Business strategy
Business strategy – defines the major actions
by which an organization builds and
strengthens its competitive position in the
marketplace.
• Low-cost strategy is a strategy an organization uses to
build competitive advantage by being efficient and
offering a standard, no-frills product.
• Differentiation strategy is a strategy an organization
uses to build competitive advantage by being unique in
its industry or market segment along one or more
dimensions.
• Each functional area of the organization implements
functional strategies to support the business strategy.5-44
5-44
Firm-Level Strategies
Market commonality
 the degree to which two companies have
overlapping products, services, or customers in
multiple markets. The more markets in which
there is product, service, or customer overlap, the
more intense the direct competition between the
two companies.
Resource similarity
 the extent to which a competitor has similar
amounts and kinds of resources, that is, similar
assets, capabilities, processes, information, and
knowledge used to create and sustain an
advantage over competitors.
45
5-45
Strategic Moves of Direct Competition
Attack
A competitive move designed to reduce a
rival’s market share or profits.
Response
A competitive countermove, prompted by
a rival’s attack, to defend or improve a
company’s market share or profit.
5.2
46
Market Commonality
Direct Competition
5.1
McDonald’s
Wendy’s McDonald’s
Burger
King
High
McDonald’s
II
I
III
IV
McDonald’s
Low
Subway
Luby’s Cafeteria
Low
High
Resource Similarity
47
Step 5-Strategy Implementation
Managers must ensure that new strategies
are implemented effectively and efficiently in
addition to formulation of the appropriate
strategies.
 Steps in Strategy Implementation
•
•
•
•
Define strategic risks
Assess organization capabilities
Develop an implementation agenda
Create an implementation plan
5-48
Strategic Control
Strategic control system
 A system designed to support managers in
evaluating the organization’s progress regarding
its strategy and, when discrepancies exist, taking
corrective action.
 Strategic control systems typically include
budgets
• strategic - creates and maintains long-term
effectiveness (a flexible budget)
• operational - tightly monitored to achieve efficiency
5-49
Managerial decision making
Lack of structure is the usual state of affairs in
managerial decision-making.
 Programmed decisions are decisions
encountered and made before having objectively
correct answers, and solvable by using simple
rules policies, or numerical computations.
 Non-programmed decisions are new, novel,
complex decisions having no proven answers.
5-50
5-50
Managerial Decision Making
5-51
Uncertainty and Risk
Certainty exists when decision-makers have
accurate and comprehensive information.
Uncertainty means the manager has
insufficient information to know the
consequences of different actions.
Risk exists when the probability of an action
being successful is less than 100 percent.
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5-52
Stages of Decision Making
Exhibit 5.6
5-53
Formal Decision Making
1. Identifying and diagnosing the problem
• The first stage in the decision-making process is to recognize
that a problem exists and must be solved.
• Questions to ask and answer in this stage include:
a. Is there a difference between what is
actually happening and what should be happening?
b. How can you describe the deviation, as
specifically as possible?
c. What is/are the cause(s) of the deviation?
d. What specific goals should be met?
e. Which of these goals are absolutely critical
to the success of the decisions?
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5-54
Generating alternative solutions
The second stage, problem diagnosis is linked
to the development of alternative courses of
action aimed at solving the problem.
 Ready-made solutions are ideas that have been
seen or tried before, of follow the advice of
others who have faced similar problems.
 Custom-made solutions must be designed for
specific problems and are the combination of
ideas into new, creative solutions.
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5-55
Evaluating alternatives
The third stage involves determining the value or
adequacy of the alternatives that were
generated. Which solution will be the best?
 Key questions to ask:
• a. Is our information about alternatives complete and
current? If not, can we get more and better information?
• b. Does the alternative meet out primary objectives?
• c. What problems could we have if we implement the
alternative?
– Ready-made solutions are ideas that have been seen or tried
before.
– Custom-made solutions are new, creative solutions designed
specifically for the problem.
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5-56
Making the choice
To maximize is to make the best possible
decision, the greatest positive consequences
and the fewest negative consequences.
To satisfice is to choose the first option that
is minimally acceptable or adequate: the
choice appears to meet a targeted goal or
criterion.
Optimizing means that you achieve the best
possible balance among several goals.
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5-57
Implementing the decision
The decision-making process does not end once a
choice is made.
Decision-makers must understand the choice and why
it was made.
They must be committed to its successful
implementation.
They must plan implementation carefully.
• Determine how things will look when the decision is fully
operational.
• Chronologically order the steps necessary to achieve a fully
operational decision.
• List the resources and activities required implementing each step.
• Estimate the time needed for each step.
5-58
• Assign responsibility for each step to specific individuals.
5-58
Implementing the decision
Decision-makers should assume that things
will not go smoothly during implementation.
Useful question to ask are:
 What problems could this action cause?
 What can we do to prevent the problems?
 What unintended benefits or opportunities could
arise?
 How can we make sure they happen?
 How can we be ready to act when the
opportunities come?
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5-59
Evaluating the decision
The final stage in the decision-making
process is evaluating the decision.
Collect information on how well the decision
is working.
Decision evaluation is useful whether the
feedback is positive or negative.
If the decision appears inappropriate, it’s
back to the drawing board.
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5-60
Human nature erects barriers to
good decisions
Psychological biases
• Illusion of control is a belief that one can influence
events, even when one has no control over what will
happen.
• Framing effects refer to how problems or decision
alternatives are phrased or presented, and how these
subjective influences can override objective facts.
• Discounting the future is a bias weighing short-term
costs and benefits more heavily than longer-term costs
and benefits.
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5-61
Human nature erects barriers to
good decisions
Time pressures
• Instead of relying on long-range planning and futuristic
forecasts, focus on real-time information.
• Involve people more effectively and efficiently.
Social realities
• Interpersonal factors decrease decision-making
effectiveness.
• Many decisions are the result of intensive social
interactions, bargaining, and politicking
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5-62
Groups make many decisions
Groups can help
 More information is available when several people
are making the decision.
 There are a greater number of perspectives on the
issues, or different approaches to solving the
problem.
 An opportunity for intellectual stimulation is
achieved.
 People are more likely to understand why the
decision was made.
 Groups lead to a higher level of commitment to the
decision.
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5-63
Groups can hurt
 Sometimes one group member dominates the
discussion.
 Satisficing is more likely with groups.
 Pressure to avoid disagreement can lead to a
phenomenon called groupthink.
 Groupthink occurs when people choose not to
disagree or raise objections because they don’t want
to break up a positive team spirit.
 Goal displacement often occurs in groups.
• Goal displacement is a condition that occurs when a
decision-making group loses sight of its original goal and a
new, possibly less important goal emerges.
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5-64
Groups must be well led
 Appropriate leadership style.
• The leader of a decision-making body must attempt to
minimize process-related problems.
• The leader should avoid dominating the discussion.
• Don’t lose sight of the problem.
• Make a decision!
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5-65
Constructive Use of Disagreement
and Conflict
The most constructive type of conflict is
cognitive conflict, or differences in perspectives
or judgments about issues.
 Affective conflict is emotional and directed at other
people.
 A devil’s advocate has the job of criticizing ideas.
 The dialectic goes a step beyond devil’s advocacy by
requiring a structured debate between two
conflicting courses of action.
 Enhancement of Creativity
 Brainstorming-group members generate as many
ideas as they can.
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5-66
Assignment
Get in your groups
Do a SWOT analysis on Texas Tech University
 What are its strengths?
 What are its weaknesses?
 What are the opportunities?
 What are the threats?
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5-67
Video: Free for All
 How does “free” work as a business model?
 How does Google leverage its ownership of
YouTube?
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