Unit 4

Foundations of
Planning
 Learning Outcomes
• Define planning
• Explain the potential benefits of planning
• Define management by objectives and identify its
common elements
• Outline the steps in the strategic management
process
• Explain SWOT analysis
 Planning
Defining the organization’s goals, establishing an
overall strategy, and developing a hierarchy of
plans to achieve goals
Sets Standards to
Provides
Facilitate
Direction
Control

Reasons
for Planning

Minimizes Waste Reduces the

and Redundancy Impact of Change
 THE STRATEGIC-MANAGEMENT
Feedback
MODEL

Perform
External
Audit

Generate, Establish Measure

Develop Establish
Policies and Allocate and
Mission Long-term Evaluate, Evaluate
Annual Resources
Statement Objective and Select Performance
Objectives
Strategies

Perform
Internal
Audit

Strategy Formulation Strategy Implementation Strategy Evaluation

 Most Integrative
Fewest in Number

Vision

Mission

Goals

Objectives

Targets

Strategies
Most
Specific Tactics Greatest
Plans in
Number
Policies, Procedures, and Rules

Figure 3.2: Levels of Planning

THE BUSINESS MISSION

• The mission statement answers the question

“What is our business?”
• The vision statement answers the question “What
do we want to become?”
THE EXTERNAL
ASSESSMENT
Key External Forces.

Competitors
Suppliers
Distributors
Creditors
Customers
Economic forces
Employees
Social, cultural, demographic, Communities
and environmental forces Managers
Stockholders AN
Political, legal, and governmental Labor unions ORGANIZATION’S
forces Governments OPPORTUNITIES
Trade associations AND THREATS
Technological forces Special interest
groups
Competitive forces Products
Services
Markets
Natural
environment

8
 COMPETITIVE FORCES

COMPETITIVE ANALYSIS : PORTER’S FIVE-FORCES

MODEL

Potential development of substitute products

Rivalry among
Bargaining power of suppliers Bargaining power of consumers
competing firms

Potential entry of new competitors

9
 THE INTERNAL ASSESSMENT
 
 
   
 
 
   
    Finance R&D
   
     
   
   
 
    Senior
  Marketing Managers Sales
 
 
 
 
 
 
  Accounting Production
 

10
 Strengths

SWOT
Opportunities Threats
Analysis

Weaknesses
Grand Strategies
• Growth
1. Intensive (market penetration, market development, product
development)
2. Vertical integration (forward, backward, horizontal),
3. Diversification (related and unrelated)

FOM 5.12
Growth strategy
• A corporate strategy that’s used when an organization wants to
expand the number of markets served or products offered, either
through its current business(es) or through new business(es)
 1. INTEGRATION STRATEGIES

COMPANY
COMPANY
MARKETING
SUPPLIERS
SUPPLIERS
MARKETING
INTERMEDIARIES
INTERMEDIARIES
CUSTOMERS
CUSTOMERS
COMPETITORS
COMPETITORS

PUBLICS
PUBLICS

2. INTENSIVE STRATEGIES
Existing New
products products
Existing 1.Market 3.Product
markets penetration development

2.Market 4.Diversification
New development
markets

3
Intensive strategies
• Market Penetration strategy seeks to increase market share for
present products or services in present markets through greater
marketing efforts.
• Market development involves introducing present products or
services into new geographic areas.
• Product development is a strategy that seeks increased sales by
improving or modifying present products or services.
Vertical integration
• Forward integration, backward integration, and horizontal integration
are sometimes collectively referred to as vertical integration
strategies.
• Vertical integration strategies allow a firm to gain control over
distributors, suppliers, and/or competitors.
Diversification strategies
• Related diversification strategy adds new, but related products or
services.
• Unrelated diversification strategy adds new, unrelated products or
services.
International strategies
1. Licensing
2. Franchising
3. Strategic Alliance
4. Joint venture occurs when two or more companies form a
temporary partnership for the purpose of capitalizing on some
opportunity
 Determining A
Business-Level Strategy

Cost
Differentiation
Leadership

Focus

FOM 5.19
Michael Porter’s Competitive Strategy
According to Porter, strategies allow organizations to gain
competitive advantage from three different bases: cost
leadership, differentiation, and focus.
• Cost leadership emphasizes producing standardized
products at a very low per-unit cost for consumers who are
price-sensitive
• Differentiation, a strategy aimed at producing
products and services considered unique industrywide and
directed at consumers who are relatively price-insensitive.
• Focus means producing products and services that
fulfill the needs of small groups of consumers.
The Time Frame of Planning

Short-Term Long-Term
Plans Plans
Plans differ based on the time frame that the plan covers.
• Short-term plans typically cover less than one year
• Long-term plans are five years or more.
 Clear Specific Plans Low

Objectives

Flexibility
General Directional Plans High
• Specific plans have clearly defined objectives and leave no room for
misinterpretation.
• Directional plans are flexible plans that provide general guidelines
 Single-Use
vs. Standing Plans

Unique Ongoing
Situations Operations
Some plans are meant to be used only once while others are used
repeatedly.
• A single-use plan is used to meet the needs for a particular or unique
situation.
• A standing plan is ongoing and guides for actions that are performed
repeatedly in an organization.
What Is Management by Objectives?

Organizational
Objectives

Divisional
Objectives

Departmental
Objectives

Individual
Objectives
Common Elements of MBO
• Goal specificity
• Participative decision making
• Set time period
• Performance feedback