Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-1
The
Manager as a
Planner and
Strategist
7
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-2
The Planning Process
Planning is the process used by managers to
identify and select goals and courses of
action for the organization,
?The organizational plan that results from
the planning process details the goals to be
attained,
?The pattern of decisions managers take to
reach these goals is the organization’s
strategy,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-3
Three Stages of the Planning Process
Determining the Organization’s
mission and goals
(Define the business)
Strategy formulation
(Analyze current situation &
develop strategies)
Strategy Implementation
(Allocate resources & responsibilities
to achieve strategies)
Figure 7.1
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-4
Planning Process Stages
?Organizational mission,defined in the mission
statement which is a broad declaration of the
overriding purpose,
? The mission statement identifies product,customers and
how the firm differs from competitors,
?Formulating strategy,managers analyze
current situation and develop strategies
needed to achieve the mission,
?Implementing strategy,managers must decide
how to allocate resources between groups to
ensure the strategy is achieved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-5
Levels of Planning
Strategy
Implementation
Corporate
mission & goals
Divisional
goals
Functional
goals
Corporate-
level strategy
Business-
level strategy
Functional-
level strategy
Design of
Corporate
Structure
Control
Design of
Business-unit
Structure
Control
Design of
Functional
Structure
Control
Goal
Setting
Strategy
Formulation
Corporate-
level Plan
Business-
level Plan
Functional
level Plan
Figure 7.2
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-6
Planning at General Electric
Corporate
Level
CEO
Corporate Office
Business
Level GE
Aircraft
GE
Lighting
GE
Motors
GE
Plastics
NBC
Functional
Level Manufacturing
Marketing
Accounting
R & D
Figure 7.3
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-7
Planning Levels
?Corporate-level,decisions by top managers,
? Considers on which businesses or markets to be in,
? Provides a framework for all other planning,
?Business-level,details divisional long-term goals and structure,
? Identifies how this business meets corporate goals,
? Shows how the business will compete in market,
?Functional-level,actions taken by managers in departments of manufacturing,marketing,
etc,
? These plans state exactly how business-level strategies
are accomplished,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-8
Characteristics of Plans
?Time horizon,refers to how far in the future
the plan applies,
? Long-term plans are usually 5 years or more,
? Intermediate-term plans are 1 to 5 years,
?Corporate and business level plans specify long and
intermediate term,
? Short-term plans are less than 1 year,
?Functional plans focus on short to intermediate term,
?Most firms have a rolling planning cycle to
amend plans constantly,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-9
Types of Plans
?Standing plans,for programmed decisions,
? Managers develop policies,rules,and standard operating
procedures (SOP),
?Policies are general guides to action,
?Rules are a specific guide to action,
?Single-use plans,developed for a one-time,
nonprogrammed issue,Usually consist of
programs and projects,
? Programs,integrated plans achieving specific goals,
? Project,specific action plans to complete programs,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-10
Who Plans?
?Corporate level planning is done by top
managers,
? Also approve business and functional level plans,
? Top managers should seek input on corporate level issues
from all management levels,
?Business and functional planning is done by
divisional and functional managers,
? Both management levels should also seek information
from other levels,
? Responsibility for specific planning may lie at a given
level,but all managers should be involved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-11
Why Planning is Important
Planning determines where the organization
is now and where it will be in the future,
Good planning provides,
? Participation,all managers are involved in setting
future goals,
? Sense of direction & purpose,Planning sets goals and
strategies for all managers,
? Coordination,Plans provide all parts of the firm with
understanding about how their systems fit with the
whole,
? Control,Plans specify who is in charge of
accomplishing a goal,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-12
Scenario Planning
?Scenario Planning,generates several
forecasts of different future conditions and
analyzes how to effectively respond to them,
? Planning seeks to prepare for the future,but the future
is unknown,
? By generating multiple possible,futures” we can see
how our plans might work in each,
?Allows the firm to prepare for possible surprises,
? Scenario planning is a learning tool to improve
planning results,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-13
Determining Mission and Goals
?This is the first step of the planning process
and is accomplished by,
A,Define the business,seeks to identify our customer and
the needs we can and should satisfy,
?This also pinpoints competitors,
B,Establishing major goals,states who will compete in
the business,
?Should stretch the organization to new heights,
?Goals must also be realistic and have a time period in
which they are achieved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-14
Mission Statements
Company
Compaq
AT&T
Mission Statement
Compaq,along with our partners,will
deliver compelling products and services of
the highest quality that will transform
computing into an intuitive experience that
extends human capability on all planes --
communication,education,work,and play,
We are dedicated to being the world’s best at
bringing people together -- giving them easy
access to each other and to the information
and services they want and need -- anytime,
anywhere,
Figure 7.4
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-15
Strategy Formulation
?Managers analyze the current situation to
develop strategies achieving the mission,
?SWOT analysis,a planning to identify,
? Organizational Strengths and Weaknesses,
?Strengths,manufacturing ability,marketing skills,
?Weaknesses,high labor turnover,weak financials,
? Environmental Opportunities and Threats,
?Opportunities,new markets,
?Threats,economic recession,competitors
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-16
Planning & Strategy Formulation
Corporate-level strategy
develop a plan of action
maximizing long-run value
Business-level strategy
a plan of action to take
advantage of opportunities
and minimize threats
Functional-level strategy
a plan of action improving
department’s ability to
create value
SWOT analysis
identifies strengths &
weaknesses inside the
firm and opportunities
& threats in the
environment,
Figure 7.5
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-17
The Five Forces Model
Substitute
Products
Rivalry
Among
Organizations
Potential
for Entry
Power of
Supplier
Power of
Buyer
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-18
The Five Forces
1,Level of Rivalry in an industry,how intense is the
current competition with competitors?
Increased competition results in lower profits,
2,Potential for entry,how easy is it for new firms to enter
the industry?
Easy entry leads to lower prices and profits,
3,Power of Suppliers,If there are only a few suppliers of
important items,supply costs rise,
4,Power of Buyers,If there are only a few,large buyers,
they can bargain down prices,
5,Substitutes,More available substitutes tend to drive
down prices and profits,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-19
Corporate-Level Strategies
?Concentrate in single business,McDonalds
focuses in the fast food business,
? Can become very strong,but can be risky,
?Diversification,Organization moves into new
businesses and services,
Related diversification,firm diversifies in similar areas to
build upon existing divisions,
Synergy,two divisions work together to obtain more than
the sum of each separately,
Unrelated diversification,buy business in new areas,
?Build a portfolio of unrelated firms to reduce risk or
trouble in one industry,Very hard to manage,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-20
International Strategy
?To what extent do we customize products
and marketing for different national
conditions?
? Global strategy,a single,standard product and
marketing approach is used in all countries,
?Standardization provides for lower cost,
?Ignore national differences that others can address,
? Mulitdomestic strategy,products and marketing are
customized for each country of operation,
?Customization provides for higher costs,
?Embraces national differences and depends on them
for success,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-21
Vertical Integration
?When the firm is doing well,managers can
add more value by producing its own inputs
or distributing its products,
? Backward vertical integration,the firm produces its own
inputs,
?McDonalds grows its own potatoes,
?Can lower the cost of supplies,
? Backward vertical integration,the firm distributes its
outputs or products,
?McDonalds owns the final restaurant,
?Firm can lower costs and ensure final quality,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-22
Vertical Value Chain
Intermediate
Manufacturing
Raw
Materials
Assembly
Distribution Customer
Backward Forward
Figure 7.6
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-23
Business-level Strategies
Low-Cost Differentiation
Focused
Low-Cost
Focused
Differentiated
Strategy
Many
Few
Low Cost Differentiation
Num
ber
of
ma
rket
seg
ment
s
Table 7.2
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-24
Business Strategies
? Low-cost,gain a competitive advantage by driving down
organizational costs,
?Managers manufacture at lower cost,reduce waste,
?Lower costs than competition mean lower prices,
? Differentiation,gain a competitive advantage by
making your products different from competitors,
?Differentiation must be valued by the customer,
?Successful differentiation allows you to charge more
for a product,
? Stuck in the middle,It is difficult to simultaneously
become differentiated and low cost,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-25
Business Strategies
?Firms also choose to serve the entire market
or focus on a few segments,
? Focused low-cost,try to serve one segment of the market
but be the lowest cost in that segment,
?Cott Company seeks to achieve this in large retail
chains,
? Focused differentiated,Firm again seeks to focus on one
market segment but is the most differentiated in that
segment,
?BMW provides a good example,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-26
Functional-level Strategies
?Seeks to have each department add value
to a good or service,
?Marketing,service,production all add
value to a good or service,
? Value is added in two ways,
1,lower the operational costs of providing the value
in products,
2,add new value to the product by differentiating,
? Functional strategies must fit with business level
strategies,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-27
Goals for successful functional strategies,
1,Attain superior efficiency,the measure of
outputs for a given unit of input,
2,Attain superior quality,products that
reliably do the job they were designed for,
3,Attain superior innovation,new,novel
features about the product or process,
4,Attain superior responsiveness to
customers,Know the customer needs and
fill them,
7-1
The
Manager as a
Planner and
Strategist
7
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-2
The Planning Process
Planning is the process used by managers to
identify and select goals and courses of
action for the organization,
?The organizational plan that results from
the planning process details the goals to be
attained,
?The pattern of decisions managers take to
reach these goals is the organization’s
strategy,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-3
Three Stages of the Planning Process
Determining the Organization’s
mission and goals
(Define the business)
Strategy formulation
(Analyze current situation &
develop strategies)
Strategy Implementation
(Allocate resources & responsibilities
to achieve strategies)
Figure 7.1
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-4
Planning Process Stages
?Organizational mission,defined in the mission
statement which is a broad declaration of the
overriding purpose,
? The mission statement identifies product,customers and
how the firm differs from competitors,
?Formulating strategy,managers analyze
current situation and develop strategies
needed to achieve the mission,
?Implementing strategy,managers must decide
how to allocate resources between groups to
ensure the strategy is achieved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-5
Levels of Planning
Strategy
Implementation
Corporate
mission & goals
Divisional
goals
Functional
goals
Corporate-
level strategy
Business-
level strategy
Functional-
level strategy
Design of
Corporate
Structure
Control
Design of
Business-unit
Structure
Control
Design of
Functional
Structure
Control
Goal
Setting
Strategy
Formulation
Corporate-
level Plan
Business-
level Plan
Functional
level Plan
Figure 7.2
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-6
Planning at General Electric
Corporate
Level
CEO
Corporate Office
Business
Level GE
Aircraft
GE
Lighting
GE
Motors
GE
Plastics
NBC
Functional
Level Manufacturing
Marketing
Accounting
R & D
Figure 7.3
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-7
Planning Levels
?Corporate-level,decisions by top managers,
? Considers on which businesses or markets to be in,
? Provides a framework for all other planning,
?Business-level,details divisional long-term goals and structure,
? Identifies how this business meets corporate goals,
? Shows how the business will compete in market,
?Functional-level,actions taken by managers in departments of manufacturing,marketing,
etc,
? These plans state exactly how business-level strategies
are accomplished,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-8
Characteristics of Plans
?Time horizon,refers to how far in the future
the plan applies,
? Long-term plans are usually 5 years or more,
? Intermediate-term plans are 1 to 5 years,
?Corporate and business level plans specify long and
intermediate term,
? Short-term plans are less than 1 year,
?Functional plans focus on short to intermediate term,
?Most firms have a rolling planning cycle to
amend plans constantly,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-9
Types of Plans
?Standing plans,for programmed decisions,
? Managers develop policies,rules,and standard operating
procedures (SOP),
?Policies are general guides to action,
?Rules are a specific guide to action,
?Single-use plans,developed for a one-time,
nonprogrammed issue,Usually consist of
programs and projects,
? Programs,integrated plans achieving specific goals,
? Project,specific action plans to complete programs,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-10
Who Plans?
?Corporate level planning is done by top
managers,
? Also approve business and functional level plans,
? Top managers should seek input on corporate level issues
from all management levels,
?Business and functional planning is done by
divisional and functional managers,
? Both management levels should also seek information
from other levels,
? Responsibility for specific planning may lie at a given
level,but all managers should be involved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-11
Why Planning is Important
Planning determines where the organization
is now and where it will be in the future,
Good planning provides,
? Participation,all managers are involved in setting
future goals,
? Sense of direction & purpose,Planning sets goals and
strategies for all managers,
? Coordination,Plans provide all parts of the firm with
understanding about how their systems fit with the
whole,
? Control,Plans specify who is in charge of
accomplishing a goal,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-12
Scenario Planning
?Scenario Planning,generates several
forecasts of different future conditions and
analyzes how to effectively respond to them,
? Planning seeks to prepare for the future,but the future
is unknown,
? By generating multiple possible,futures” we can see
how our plans might work in each,
?Allows the firm to prepare for possible surprises,
? Scenario planning is a learning tool to improve
planning results,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-13
Determining Mission and Goals
?This is the first step of the planning process
and is accomplished by,
A,Define the business,seeks to identify our customer and
the needs we can and should satisfy,
?This also pinpoints competitors,
B,Establishing major goals,states who will compete in
the business,
?Should stretch the organization to new heights,
?Goals must also be realistic and have a time period in
which they are achieved,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-14
Mission Statements
Company
Compaq
AT&T
Mission Statement
Compaq,along with our partners,will
deliver compelling products and services of
the highest quality that will transform
computing into an intuitive experience that
extends human capability on all planes --
communication,education,work,and play,
We are dedicated to being the world’s best at
bringing people together -- giving them easy
access to each other and to the information
and services they want and need -- anytime,
anywhere,
Figure 7.4
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-15
Strategy Formulation
?Managers analyze the current situation to
develop strategies achieving the mission,
?SWOT analysis,a planning to identify,
? Organizational Strengths and Weaknesses,
?Strengths,manufacturing ability,marketing skills,
?Weaknesses,high labor turnover,weak financials,
? Environmental Opportunities and Threats,
?Opportunities,new markets,
?Threats,economic recession,competitors
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-16
Planning & Strategy Formulation
Corporate-level strategy
develop a plan of action
maximizing long-run value
Business-level strategy
a plan of action to take
advantage of opportunities
and minimize threats
Functional-level strategy
a plan of action improving
department’s ability to
create value
SWOT analysis
identifies strengths &
weaknesses inside the
firm and opportunities
& threats in the
environment,
Figure 7.5
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-17
The Five Forces Model
Substitute
Products
Rivalry
Among
Organizations
Potential
for Entry
Power of
Supplier
Power of
Buyer
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-18
The Five Forces
1,Level of Rivalry in an industry,how intense is the
current competition with competitors?
Increased competition results in lower profits,
2,Potential for entry,how easy is it for new firms to enter
the industry?
Easy entry leads to lower prices and profits,
3,Power of Suppliers,If there are only a few suppliers of
important items,supply costs rise,
4,Power of Buyers,If there are only a few,large buyers,
they can bargain down prices,
5,Substitutes,More available substitutes tend to drive
down prices and profits,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-19
Corporate-Level Strategies
?Concentrate in single business,McDonalds
focuses in the fast food business,
? Can become very strong,but can be risky,
?Diversification,Organization moves into new
businesses and services,
Related diversification,firm diversifies in similar areas to
build upon existing divisions,
Synergy,two divisions work together to obtain more than
the sum of each separately,
Unrelated diversification,buy business in new areas,
?Build a portfolio of unrelated firms to reduce risk or
trouble in one industry,Very hard to manage,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-20
International Strategy
?To what extent do we customize products
and marketing for different national
conditions?
? Global strategy,a single,standard product and
marketing approach is used in all countries,
?Standardization provides for lower cost,
?Ignore national differences that others can address,
? Mulitdomestic strategy,products and marketing are
customized for each country of operation,
?Customization provides for higher costs,
?Embraces national differences and depends on them
for success,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-21
Vertical Integration
?When the firm is doing well,managers can
add more value by producing its own inputs
or distributing its products,
? Backward vertical integration,the firm produces its own
inputs,
?McDonalds grows its own potatoes,
?Can lower the cost of supplies,
? Backward vertical integration,the firm distributes its
outputs or products,
?McDonalds owns the final restaurant,
?Firm can lower costs and ensure final quality,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-22
Vertical Value Chain
Intermediate
Manufacturing
Raw
Materials
Assembly
Distribution Customer
Backward Forward
Figure 7.6
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-23
Business-level Strategies
Low-Cost Differentiation
Focused
Low-Cost
Focused
Differentiated
Strategy
Many
Few
Low Cost Differentiation
Num
ber
of
ma
rket
seg
ment
s
Table 7.2
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-24
Business Strategies
? Low-cost,gain a competitive advantage by driving down
organizational costs,
?Managers manufacture at lower cost,reduce waste,
?Lower costs than competition mean lower prices,
? Differentiation,gain a competitive advantage by
making your products different from competitors,
?Differentiation must be valued by the customer,
?Successful differentiation allows you to charge more
for a product,
? Stuck in the middle,It is difficult to simultaneously
become differentiated and low cost,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-25
Business Strategies
?Firms also choose to serve the entire market
or focus on a few segments,
? Focused low-cost,try to serve one segment of the market
but be the lowest cost in that segment,
?Cott Company seeks to achieve this in large retail
chains,
? Focused differentiated,Firm again seeks to focus on one
market segment but is the most differentiated in that
segment,
?BMW provides a good example,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-26
Functional-level Strategies
?Seeks to have each department add value
to a good or service,
?Marketing,service,production all add
value to a good or service,
? Value is added in two ways,
1,lower the operational costs of providing the value
in products,
2,add new value to the product by differentiating,
? Functional strategies must fit with business level
strategies,
Irwin/McGraw-Hill ?The McGraw-Hill Companies,Inc.,2000
7-27
Goals for successful functional strategies,
1,Attain superior efficiency,the measure of
outputs for a given unit of input,
2,Attain superior quality,products that
reliably do the job they were designed for,
3,Attain superior innovation,new,novel
features about the product or process,
4,Attain superior responsiveness to
customers,Know the customer needs and
fill them,
