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MANAGEMENT
Core Concepts & Applications
Griffin
Eighth Edition
Chapter 3
Planning and Strategic Management
Chapter Outline
• Planning and Organizational Goals
–Purposes of Goals
–Kinds of Goals
• The Nature of Strategic Management
–The Components of Strategy
–Types of Strategic Alternatives
• Using SWOT Analysis to Formulate Strategy
–Evaluating an Organization’s Strengths
–Evaluating an Organization’s Weaknesses
–Evaluating an Organization’s Opportunities and
Threats
3–2
Chapter Outline (cont’d)
• Formulating Business-Level Strategies
–Porter’s Generic Strategies
–Strategies Based on the Product Life Cycle
• Formulating Corporate-Level Strategies
–Single-Product Strategy
–Related Diversification
–Unrelated Diversification
–Managing Diversification
• Tactical Planning
–Developing Tactical Plans
–Executing Tactical Plans
3–3
Chapter Outline (cont’d)
• Operational Planning
–Single-Use Plans
–Standing Plans
–Contingency Plans
3–4
Learning Objectives
• After studying this chapter, you should be able
to:
–Summarize planning process and describe
organizational goals.
–Discuss the components of strategy and types of
strategic alternatives.
–Describe how to use SWOT analysis in formulating
strategy.
–Identify and describe various alternative approaches
to business-level strategy formulation.
3–5
Learning Objectives (cont’d)
–Identify and describe various alternative approaches
to corporate-level strategy formulation and describe
how corporate-level strategies are implemented.
–Discuss how tactical plans are developed and
executed.
–Describe the basic types of operational plans used by
organizations.
3–6
Decision Making and the Planning Process
Figure 3.1
3–7
Organizational Goals
• Purposes of Goals
–Provide guidance and a unified direction for people in
the organization.
–Have a strong effect on the quality of other
aspects of planning.
–Serve as a source of
motivation for
employees of the
organization.
–Provide an effective
mechanism for evaluation
and control of the organization.
3–8
Kinds of Goals
• By Level
–Mission statement is a statement of an organization’s
fundamental purpose.
–Strategic goals are goals set by and for top
management of the organization that address broad,
general issues.
–Tactical goals are set by and for middle managers;
their focus is on how to operationalize actions to
strategic goals.
–Operational goals are set by and for lower-level
managers to address issues associated with tactical
goals.
3–9
Different Goal Setting Processes in Organizations
Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions.
3–10
Kinds of Plans
• Strategic Plans
–A general plan outlining resource allocation, priorities,
and action steps to achieve strategic goals. The plans
are set by and for top management.
• Tactical Plans
–A plan aimed at achieving the
tactical goals set by and for
middle management.
• Operational Plans
–Plans that have a short-term focus.
These plans are set by and for lower-level managers.
3–11
The Nature of Strategic Management
• Strategy
–A comprehensive plan for accomplishing an
organization’s goals.
• Strategic Management
–A way of approaching business opportunities and
challenges–a comprehensive and ongoing
management process aimed at formulating and
implementing effective strategies.
• Effective Strategies
–Strategies that promote a superior alignment between
the organization and its environment and the
achievement of its goals.
3–12
The Components of Strategy
• Distinctive Competence
–Something an organization does exceptionally well.
• Scope
–Range of markets in which an organization will
compete.
• Resource Deployment
–How an organization will
distribute its resources
across the areas in
which it competes.
3–13
Types of Strategic Alternatives
• Business-level Strategy
–The set of strategic alternatives that an organization
chooses from as it conducts business in a particular
industry or a particular market.
• Corporate-level Strategy
–The set of strategic alternatives that an
organization chooses from as it manages
its operations simultaneously
across several industries
and several markets.
3–14
Types of Strategic Alternatives (cont’d)
• Strategy Formulation
–The set of processes involved in creating or
determining the organization’s strategies; it focuses on
the content of strategies.
• Strategy Implementation
–The methods by which strategies are operationalized
or executed within the organization;
it focuses on the processes
through which strategies
are achieved.
3–15
The
Relationships
of
Strategies
by
Organizational
Level
3–16
SWOT Mission
An organization’s fundamental purpose
Analysis
SWOT Analysis
• Strengths To formulate strategies that support the mission
• Weaknesses
Internal Analysis External Analysis
• Opportunities Strengths Opportunities
(distinctive
• Threats competencies)
Weaknesses Threats
Best Strategies
Those that support the mission and
• exploit opportunities and strengths
• neutralize threats
• avoid (or correct) weaknesses
Figure 3.2
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Using SWOT Analysis to
Formulate Strategy
3–19
Using SWOT Analysis to Formulate
Strategy (cont’d)
3–20
Using SWOT Analysis to Formulate
Strategy (cont’d)
• Evaluating an Organization’s
Opportunities and Threats
–Organizational opportunities
are areas in the organization’s
environment that may generate
high performance.
3–21
Porter’s Generic Strategies
• Differentiation strategy
–An organization seeks to distinguish itself from
competitors through the quality of its products or
services.
• Overall cost leadership strategy
–An organization attempts to gain competitive
advantage by reducing its costs below the costs of
competing firms.
• Focus strategy
–An organization concentrates on a specific regional
market, product line, or group of buyers.
3–22
Strategies Based on Product Life Cycle
• The Product Life Cycle
High Stages
Introduction Growth Maturity Decline
Sales Volume
Low
Time
Figure 3.3
3–23
The Adaptation Model
of Business Strategy
3–24
Formulating Corporate-Level Strategies
• Strategic Business Units
–Each business or group of businesses within an
organization engaged in serving the same markets,
customers, or products.
• Diversification
–The number of businesses an organization is engaged
in and the extent to which these businesses are
related to one another.
• Single Product Strategy
–A strategy in which an organization manufactures one
product or service and sells it in a single geographic
market.
3–25
Related Diversification
• Related Diversification
–A strategy in which an organization operates in
several different businesses, industries, or markets
that are somehow linked.
• Bases of Relatedness in Implementing
Related Diversification
Basis of Relatedness Examples
Common distribution and marketing skills RJR Nabisco, Phillip Morris, Procter & Gamble
3–26
Related Diversification (cont’d)
• Advantages of Related Diversification
–Reduces organization’s dependence on any one of its
business activities and thus reduces economic risk.
–Reduces overhead costs associated with managing
any one business through economies of scale and
economies of scope.
–Allows an organization to exploit its strengths and
capabilities in more than one business.
–Synergy exists among a set of businesses when the
businesses’ value together is greater than their
economic value separately.
3–27
Formulating Corporate-Level
Strategies (cont’d)
• Unrelated Diversification
–A strategy in which an organization operates multiple
businesses that are not logically associated with one
another.
–Advantages
• Stable corporate-level performance over time due to
business cycle differences among the multiple
businesses.
• Resources can be allocated to areas with the highest
return potentials to maximize corporate performance.
3–28
Formulating Corporate-Level
Strategies (cont’d)
• Unrelated Diversification (cont’d)
–Disadvantages
• Strategy does not usually lead to high performance due
to the complexity of managing a diversity of businesses.
• Firms with unrelated strategies fail to exploit important
synergies, putting them at a competitive disadvantage to
firms with related diversification strategies.
3–29
Managing Diversification
• Major Tools for Managing Diversification
–Portfolio management techniques
• Methods that diversified organizations use to make
decisions about what businesses to engage in and how to
manage these multiple businesses to maximize corporate
performance.
–Two important portfolio management techniques
• The BCG Matrix
• The GE Business Screen
3–30
Managing Diversification (cont’d)
• BCG Matrix
–A method of evaluating businesses relative to the
growth rate of their market and the organization’s
share of the market.
–The matrix classifies the types of businesses that a
diversified organization can engage as:
• “Dogs” have small market shares and no growth
prospects.
• “Cash cows” have large shares of mature markets.
• “Question marks” have small market shares in quickly
growing markets.
• “Stars” have large shares of rapidly growing markets.
3–31
The BCG Matrix
High
Question
Market growth rate
Stars
marks
Low
High Relative market share Low
3–33
The GE Business Screen
Question
High Winner Winner
Industry growth rate
mark
Average
Medium Winner Loser
business
Profit
Low Loser Loser
producer
Competitive position
3–35
Operational Planning
Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright © 1991 by Houghton Mifflin Company. Used with permissions.
3–36
Types of Operational Plans
Plan Description
Single-use plan Developed to carry out a course of action not likely to
be repeated in the future
Program Single-use plan for a large set of activities
Project Single-use plan of less scope and complexity than a
program
Table 3.1
3–37
Contingency Planning
• Contingency is the determination of alternative courses of action to
be taken if an intended plan is unexpectedly disrupted or rendered
inappropriate. These plans help managers to cope with uncertainty
and change.
Figure 3.6
3–38