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Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives

 how to proceed through the basic steps in any planning process
 how strategic planning differs from tactical and operational planning
 why it is important to analyze both the external environment and internal resources of the firm before formulating a strategy
 the choices available for corporate strategy
 how companies can achieve competitive advantage through business strategy
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Learning Objectives (cont.)

 how core competencies provide the foundation for business strategy
 the keys to effective strategy implementation
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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An Overview Of Planning
Fundamentals

 the conscious, systematic process of making decisions about goals and activities to be pursued in the future
 importance of formal planning has grown dramatically

 Step one: situational analysis
 a process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration
 study past and current conditions, and forecast future trends
 focuses on internal forces and influences from the external environment
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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An Overview Of Planning
Fundamentals (cont.)

 Step two: alternative goals and plans
 generate alternative future goals and plans to achieve them
 goals - targets or ends the manager wants to reach
 should be specific, challenging, and realistic
 plans - the actions or means intended to achieve goals
 identify alternative actions, needed resources, and potential obstacles
 single use plans - designed to achieve goals that are unlikely to be repeated in the future
 standing plans - designed to achieve an enduring set of goals
 contingency plans - actions to be taken when initial plans fail
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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An Overview Of Planning
Fundamentals (cont.)

 Step three: goal and plan evaluation
 evaluate the advantages, disadvantages, and potential effects of each alternative goal and plan
 prioritize those goals
 consider the implications of alternative plans
 Step four: goal and plan selection
 identify the priorities and trade-offs among goals and plans
 leads to a written set of goals and plans that are appropriate and feasible within a predicted set of circumstances
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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An Overview Of Planning
Fundamentals (cont.)

 Step five: implementation
 plans are useless unless they are implemented properly
 managers must understand the plan, have the necessary resources, and be motivated to implement it
 Step six: monitor and control
 must continually monitor the actual performance in relation to the goals and plans
 develop control systems to take corrective action
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Decision-Making Stages And
Formal Planning Steps
Identifying and diagnosing the problem
Situational analysis
Generating alternative solutions
Alternative goals and plans
Evaluating alternatives
Goal and plan evaluation
Making the choice
Goal and plan selection
Implementing Implementation
Evaluation
Monitor and control
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Levels Of Planning
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 decisions of senior executives about the organization’s longterm goals and strategies
 has an external orientation
 covers major portions of the organization
 strategic goals - major targets that relate to the long-term survival, value, and growth of the organization
 strategy - pattern of actions and resource allocations designed to achieve the goals of the organization
 matches the skills and resources of the organization to the opportunities found in the external environment
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Levels Of Planning (cont.)
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 translates broad strategic goals and plans into specific goals and plans that are relevant to a definite portion of the organization
 focuses on the major actions that a unit must take to fulfill its part of the strategic plan

 identifies the specific procedures and processes required at lower levels of the organization
 plans intended for short periods of time and focus on routine tasks
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Levels Of Planning (cont.)


Starbucks’ balanced scorecard
- method for linking strategic and operational planning
 to use the scorecard for planning, it is necessary to:
 clarify the vision
 develop business unit scorecards
 review business unit scorecards
 communicate the scorecard to the entire company
 conduct annual strategy reviews
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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3 Applying The Balanced Scorecard
For Starbucks
Financial
• $1 billion company (market value)
•
$100 million annual profits
•
800% stock appreciation
• 2000+ stores
Customer
• Striving to be “3 rd place”
• Repeat business
• 30-40% annual expansion
• Only 5% of all U.S. consumption
•
Brand extension
Vision
And
Strategy
Process
• Brewing the perfect cup
•
Brewing the perfect cup at home
•
Retail skills and customer service
• Coffee knowledge
• Empowerment
People/Learning
• Commitment/trust (low turnover)
•
Training
• Beanstock program
• Opinion surveys
• Flexible schedules
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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4 Strategic planning: yesterday and today

 emphasized a top-down approach
 was the responsibility of senior executives and special planning units, and excluded line managers
 gap developed between strategic managers and tactical and operational managers

 managers from throughout the organization are involved in the strategy formulation process
 strategic management - involves strategic planning and management into a single process
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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5 The Strategic Management
Process
Analysis of internal strengths and weaknesses
Establishment of mission, vision, and goals
SWOT analysis and strategy formulation
Strategy implementation
Strategic control
Analysis of external opportunities and threats
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Strategic Management Process

 mission - basic purpose and values of the organization
 defines the scope of operations
 states the organization’s reason to exist
 written in terms of the general clients served by the organization
 strategic vision - provides a perspective on where the company is headed and what the organization can become
 moves beyond the mission statement
 strategic goals - evolve from the mission and vision of the organization
 need to be communicated to everyone who has contact with the organization
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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7 Strategic Management Process
(cont.)

 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
 forecasting future trends is critical
 must develop a clear sense of market opportunities
 identify potential threats as well
 difference between an opportunity and threat may depend on how a company positions itself strategically
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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8 Elements Of Environmental
Analysis
Industry and market analysis
Technological analysis
Competitor analysis
Macroeconomic analysis
Environmental
Analysis
Political and regulatory analysis
Human resources analysis
Social analysis
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Resources And Core Competence
Resources are rare
Resources are inimitable
Core competencies
Resources are organized
Resources are valuable
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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0 Strategic Management Process
(cont.)

 Resources - inputs to production that can be accumulated over time to enhance the performance of the firm
 may be tangible or intangible assets
 provide a competitive advantage if:
 the resource is instrumental in creating customer value
 the resource is rare and not equally available from other sources
 resource is difficult to imitate
 resource is well organized
 Core competence - something a company does especially well relative to its competitors
 usually a set of skills or expertise in some activity
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Internal Resource Analysis
Financial analysis
Other internal resource analysis
Human resource assessment Internal
Resource
Analysis
Operations analysis
Marketing audit
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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2 Strategic Management Process
(cont.)

 Benchmarking - process of assessing how well one company’s basic functions and skills compare to those of other companies
 goal is to thoroughly understand the “best practices” of other firms
 only permits imitating rather than surpassing competitors
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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3 Strategic Management Process
(cont.)

 SWOT analysis - comparison of strengths, weaknesses, opportunities, and threats
 helps summarize the major facts and forecasts derived from external and internal analyses
 used as the basis for identifying primary and secondary strategic issues confronting the organization
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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4 Strategic Management Process
(cont.)

 Corporate strategy - identifies the set of businesses, markets, or industries in which the organization competes and the distribution of resources among those businesses
 concentration strategy - focuses on a single business competing in a single industry
 vertical integration - expands the domain of the organization into supply channels or to distributors
 concentric diversification - moving into businesses that are related to the company’s original core business
 conglomerate diversification - expands into unrelated businesses
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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5 Strategic Management Process
(cont.)

 BCG matrix - used to analyze and communicate corporate strategy
 each business in the corporation is plotted on the growth rate of its market and the relative strength of its competitive position in that market ( market share )
 question marks - require substantial investment to improve their position
 otherwise divestiture is recommended
 stars - require heavy investment, but generate needed revenues
 cash cows - generate revenues in excess of their investment needs
 used to fund other businesses
 dogs - remaining revenues are realized, and then firms are divested
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The BCG Matrix
High
Question
Marks
Stars
Market growth
Cash
Cows
Low
Dogs
Strong
Relative competitive position
Weak
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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7 Strategic Management Process
(cont.)

 Trends in corporate strategy
 wave of mergers and acquisitions either by concentrating in one industry or by portfolio diversification
 implementing a diversified strategy depends on individual circumstances
 unrelated diversification may hurt a corporation
 diversification may help competing in a slow-growth, mature, or threatened industry
 organizations tend to perform better if they implement a more concentric diversification strategy
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Summary Of Corporate Strategies
Supply chain
Vertical
Integration
Concentration
Concentric diversification
Primary Industry
Vertical
Integration
Distribution
Channels
Unrelated
Industry
Conglomerate diversification
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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9 Strategic Management Process
(cont.)

 Business strategy - defines the major actions used to build and strengthen competitive position
 low-cost strategy - attempt to be efficient and offer a standard product
 useful for companies that are large and take advantage of economies of scale in production or distribution
 organization must be the cost leader in its industry
 must offer a product that is acceptable to customers
 differentiation strategy - attempt to be unique in its industry or market segment along some dimensions that customers value
 position based on high product quality, excellent marketing and distribution, or superior service
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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0 Strategic Management Process
(cont.)

 Functional strategy - implemented by each functional area of the organization to support the business strategy
 ensures that departments operate in a manner that is consistent with business strategies

 organizations adopting a comprehensive view of implementation
 organizations applying a participative strategic management process to implementation
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Steps In Strategy Implementation
Develop implementation agenda
Develop implementation agenda
Develop implementation agenda
Develop implementation agenda
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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2 Strategic Management Process
(cont.)

 designed to support managers in evaluating the organization’s progress with its strategy
 when discrepancies are identified, corrective action is taken
 encourage efficient operations that are consistent with the plan
 typically involve budgets to monitor and control financial expenditures
 strategic budget - used to create and maintain long-term effectiveness
 operational budget - tightly monitored to achieve short-term efficiency
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.