Fundamentals of Management

Global Edition

Chapter 06
Planning and Goal
Setting

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Learning Objectives
6.1 Explain what managers do in the strategic management
process.
6.2 Compare and contrast approaches to goal setting and
planning.

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Learning Objective 6.1
• Explain what managers do in the strategic management
process.

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What Is Strategic Management?

Strategic management:
• what managers do to develop an organization’s strategies

Strategies:
• plans for how the organization will do what it’s in business
to do, how it will compete successfully, and how it will
attract its customers in order to achieve its goals

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The Importance of Strategic
Management
• It has a positive impact on organizational
performance
• It prepares managers to cope with changing
situations
• It guides managers to examine relevant factors in
planning future action

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Strategic Management Process

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Steps in the Strategic Management
Process

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Step 1: Identify Mission, Goals, and Strategies
Components of a Mission Statement (The mission is a statement of the organization’s purpose.)

e.g., To
connect the
world's
professionals
to make them
more
productive and
successful.

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External and Internal Analyses
Step 2: External Step 3: Internal Analysis
e.g., financial, physical, human, and
Analysis
• Resources intangible—that it uses to develop,
manufacture, and deliver products to
its customers.
• Competition
• Capabilities
• Components of – skills and abilities in doing the work activities
needed in its business
environment
• Core competencies
 Threats (T) and
opportunities (O)  Organizational strengths (S)
and weaknesses (W)

SWOT analysis

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An organization's resources +
Core competencies =
Competitive/strategic weapons

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Formulating, Implementing, and
Evaluating Results
Step 4: Formulate Step 5: Implement
Strategies Strategies
• Corporate
Step 6: Evaluate Results
• Business
• How effective have strategies
• Functional been?
• What adjustments are
necessary?

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What Strategies Do Managers Use?

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 What Strategies Do Managers Use?
•
1. Corporate Strategy
A corporate strategy
– Growth Strategy focuses primarily on an
organization's mission.
– Stability Strategy
– Renewal Strategy

2. Competitive Strategy

3. Functional Strategy

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1. Corporate Strategy
Growth Strategy
• An organization expands the number of markets served or products offered
– Concentration
– Vertical integration
– Horizontal integration
– Diversification

 Concentration: increases the number of products offered or markets served in its primary
business. E.g., General Mills expanding its line so that it sells several different types of
Cheerios

 Vertical integration, either backward, forward, or both.

 In backward vertical integration, the organization becomes its own supplier. E.g., A
salad dressing company that buys a large olive grove to produce olive oil

 In forward vertical integration, the organization becomes its own distributor. E.g., A
sneaker company creating its own stores where it sells only its own brand

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 In horizontal integration, a company grows by combining with
competitors. Horizontal integration may be regulated so that one
company does not monopolize the market.
 E.g., Two movie studios combining to form one larger studio

 Diversification, either related or unrelated.

 Related diversification is when a company combines with other

companies in different, but related industries. E.g., When Google
purchased YouTube, a company that featured different, but related
products.

 Unrelated diversification is when a company combines with firms in

different and unrelated industries.

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“Our ambition is to be the preferred international
financial partner for our clients”
Source:
https://www.hsbc.com/who-we-are/purpose-values-and-
Noel Quinn, Group Chief Executive strategy/our-strategy
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Stability Strategy

Organization continues to do what it’s doing

by offering the same product or service,

maintaining market share, and sustaining the
organization’s current business operations.

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Renewal Strategy
• Organization addresses declining
organizational performance
– Retrenchment
– Turnaround
 A retrenchment strategy is a short-run strategy used for minor
performance problems. This strategy helps it stabilize operations,
revitalize organizational resources and capabilities, and prepare to
compete once again.

 When an organization’s problems are more serious, they need to

use the turnaround strategy. While managers cut costs and
restructure organizational operations in either renewal strategy,
these measures are more extensive than in a retrenchment strategy.

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2. Competitive Strategy
• a strategy for how an
organization will compete in its
business.

 For a small organization in only one line of business or a large

organization with little product or market diversification, the competitive
strategy describes how the organization will compete in its primary
market.

 For organizations in multiple businesses, each business has its own

competitive strategy that defines its competitive advantage, the
products or services it will offer, the customers it wants to reach, and
so on.
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Competitive Advantage
• What sets an organization apart; its distinctive edge comes from its
core competencies and resources

Porter’s competitive strategies framework:

1. Cost leadership 2. Differentiation 4. Stuck in the
3. Focus strategy
strategy strategy middle
Having the lowest costs in Offering unique A cost advantage (cost What happens if an
its industry and aimed at products that are focus) or a differentiation organization can’t
broad market. widely valued by advantage (differentiation develop a cost or
customers and aimed focus) in a narrow segment differentiation
e.g., basic, no frills at broad market. or niche advantage—bad
place to be.
• focus on positive e.g., a software company that
brand image. makes financial products for
accountants only e.g., A company
with good products
that has no clear
competitive
advantage

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 Cost Leadership, Differentiation
Dairy Farm International Holdings
https://www.dfiretailgroup.com/company/about-dfi or Focus Strategy?

Interim Management Statement (2023)

https://www.dfiretailgroup.com/media/site
s/default/files/2023-05/a230518_2.pdf

Business Category
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3. Functional Strategy
Those strategies used by an organization’s various
functional departments to support the competitive strategy

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Learning Objective 6.2
• Compare and contrast approaches to goal setting and
planning.

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Setting Goals and Developing Plans
Planning = goals + plans

Types of
goals

Financial
Stated
versus
versus real
strategic
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Financial goals are related to the financial performance of the
organization. E.g., In 2023, ABC company makes US$2 million
more in net income than last year.

Strategic goals are related to all other areas of an organization’s

performance. E.g., for a professional baseball team: to average over 90
wins a year for the next five years
Stated goals are official statements of an organization’s goals, which
it wants its stakeholders to believe. E.g., to disclose our financial
performance more transparent

Real goals—an organization actually pursues—observe what

organizational members are doing. Actions define priorities.

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Types of Plans Flexibility ↔ Clarity

BREADTH OF USE TIME FRAME SPECIFICITY FREQUENCY OF USE

Strategic Long term Directional Single use

Tactical Short term Specific Standing

Standing plans are ongoing

specify the details of plans that provide guidance for
how the overall goals activities performed repeatedly
are to be achieved.

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Developing Plans
Exhibit 6-8 Planning and Organizational Level

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Management by Objectives (MBO)
It can increase employee performance and organizational productivity, and that
goal setting can effectively motivate employees. MBO programs have the below
four elements:

Goal specificity

Participative decision making

It gives employees a sense of ownership of goals. Goals are jointly determined by employees and
managers.

Explicit time period

Performance feedback

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 Read Textbook:
Chapter 6
Key Takeaways
Strategic Management Process
SWOT analysis
Corporate Strategies (Growth, Stability, and Renewal)
Competitive Strategies (Cost leadership, Differentiation,
and Focus)
Different types of goals and plans
The importance of MBO (Management by Objectives)

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