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Unformatted text preview: Chapter 4 Strategic Planning MGT 300 Organization and Management Leadership February 9, 2011 The Importance of Strategic Plans Why is this chapter so important? TBFIL 2 3 Learning Objectives
LO1 Summarize the basic steps in any planning process LO2 Describe how strategic planning should be integrated with tactical and operational planning LO3 Describe how strategy is base on analysis of the external environment and the firm’s strengths and weaknesses. LO4 Discuss how companies can achieve competitive advantage through business strategy
2 4 Learning Objectives (cont.)
LO5 Describe the keys to effective strategy implementation LO6 Explain how to make effective decisions as a manager. LO7 Summarize principles for group decision making. 2 5 Planning
Planning is… a conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future. a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization. 2 6 The Basic Planning Process
Step 1 Situational Analysis Step 2 Alternative Goals and Plans Step 3 Goal and Plan Evaluation Step 4 Goal and Plan Selection Step 5 Implementation Step 6 Monitor and Control 2 7 Situational Analysis Situational analysis is a process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration. 2 8 Generating Alternative Goals and Plans Should stress creativity and encourage managers and employees to think in broad terms about their job Goal is a target or end that management desires to reach Specific Measurable, Attainable, Relevant, and TimeBound 2 9 S.M.A.R.T. Goals at 3M
remove Generate 30% of revenue from products introduced in the past five years. How to innovate at such a pace? 3M lets it engineers/researches have one day a week to pursue their own ideas. 3M tolerates and even celebrates failures 3M is not about inventing the Next Big Thing, it’s about inventing hundreds and thousands of Next Small Things, year after year 3M’s core technology of adhesives glues all of this together 210 Alternative Goals and Plans Plans: the actions or means managers intend to use to achieve organizational goals
Contingency Plans: sets of actions to be taken when a company’s initial plans have not worked well or if events in the external environment require a sudden change 211 Strategic Planning
Strategic Planning: a set of procedures for making decisions about the organization’s longterm goals and strategies Strategic Goals: major targets or end results that relate to the longterm survival, value, and growth of the organization. 212 Strategic Planning Strategy: a pattern of actions and resource allocations designed to achieve the organization’s goals A commitment of resources 213 Hierarchy of Goals and Plans Figure 4.2
214 Tactical and Operational Planning Tactical Planning: a set of procedures for translating broad strategic goals and plans into specific goals and plans that are relevant to a distinct portion of the organization, such as a functional area like marketing. Operational Planning: the process of identifying the specific procedures and processes requited at lower levels of the organization. 215 Strategic Planning Strategic Management: a process that involves managers from all parts of the organization in the formulation and implementation of strategic goals and strategies. 216 The Strategic Management Process Figure 4.3 217 Establishment of Mission, Vision, and Goals Mission: an organization’s basic purpose and scope of operations Examples: McDonald’s: “To be our customers’ favorite place and way to eat.” Microsoft: “We work to help people and businesses throughout the world to realize their full potential.” 218 Establishment of Mission, Vision, and Goals The mission describes the organization as it currently operates. The Strategic Vision points to the future, it provides a perspective on where the organization is headed and what it can become. The most effective vision statements inspire DuPont: “To be the world’s most dynamic science company, creating sustainable solutions essential toward a better, safer and healthier life for people everywhere.” City of Redmond Washington: “Together we create a community of good neighbors.” 219 Analysis of External Opportunities and Threats Stakeholders are groups and individuals who affect and are affected by the activities of the organizations. Look for congruence and conflict between the organization and its stakeholders regarding Mission, Goals, and Strategies. 220 Analysis of Internal Strengths and Weaknesses Resources Inputs to a system that can enhance performance
Tangible and Intangible Benchmarking Process of assessing how well one company’s basic functions and skills compare with those of another company or set of companies. Goal of benchmarking is to thoroughly understand the “best practices” of other firms and to undertake actions to achieve both better performance and lower costs. 221 Firm Resources and Sustainable Competitive Advantage
Is the resource or Implications capability…? Valuable Rare Difficult to Imitate Difficult to Substitute Neutralize threats and exploit opportunities Not many firms possess Physically unique Path dependency, Causal ambiguity, or Social complexity No equivalent strategic resources or capabilities Criteria for Sustainable Competitive Advantage and Strategic Implications S.W.O.T Analysis and Strategy Formulation SWOT Analysis is a comparison of SWOT analysis leads to trying to map the best fit of internal resources onto the environment in order to maximize fit (i.e., competitive advantage) Strengths and Weaknesses (internal) and Opportunities and Threats (external, in the environment) 224 SWOT Analysis and Strategy Formulation Concentration (businesslevel strategy) Corporate strategy A strategy employed for an organization that operates a single business and competes in a single industry. The set of businesses, markets, or industries in which an organization competes and the distribution of resources among those entities 225 SWOT Analysis and Strategy Formulation
The 2 generic businesslevel strategies Lowcost strategy Differentiation strategy A strategy an organization uses to build competitive advantage by being efficient and offering a standard, no frills product A strategy an organization uses to build competitive advantage by being unique in its industry or market segment along one or more dimensions 226 SWOT Analysis and Strategy Formulation
Some corporatelevel strategic choices Vertical integration Concentric / horizontal diversification The acquisition or development of new businesses that produce parts or components of the organization’s product (upstream or backward integration) The acquisition of your buyers/distributers (downstream or forward integration) A strategy used to add new businesses that produce related products or are involved in related markets and activities. 227 BCG Matrix BCG Matrix Portfolio Management
Each circle represents one of the firm’s business units Size of circle represents the relative size of the business unit in terms of revenue Stages of the Industry Life Cycle Lack of Structure Programmed decisions Nonprogrammed decisions Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations. New, novel, complex decisions having no proven answers. 231 Stages of Decision Making (general and strategic) Figure 4.5 Identifying and Diagnosing the Problem Such discrepancies may be detected by comparing current performance against 1. 2. 3. past performance, the current performance of other organizations or units, or future expected performance as determined by plans and forecasts. 233 Generating Alternative Solutions Readymade solutions Custommade solutions Ideas that have been seen or tried before New, creative solutions designed specifically for the problem 234 Evaluating Alternatives Evaluating alternatives Involves determining the value or adequacy of the alternatives that were generated Which solution will be the best? Maximizing A decision realizing the best possible outcome Satisficing Optimizing Choosing an option that is acceptable, although not necessarily the best or perfect Achieving the best possible balance among several goals 235 Implementing the Decision
1. 2. 3. 4. 5. Determine how things will look when the decision is fully operational. Chronologically order the steps necessary to achieve a fully operational decision. List the resources and activities required to implement each step. Estimate the time needed for each step. Assign responsibility for each step to specific individuals. 236 Evaluating the Decision Feedback that suggests the decision is working implies that the decision should be continued and applied elsewhere in the organization. Negative feedback means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was a bad one 237 Stages of Decision Making (general and strategic) Figure 4.5 Psychological Biases Illusion of control Framing effects People’s belief that they can influence events, even when they have no control over what will happen A decision bias influenced by the way in which a problem or decision alternative is phrased or presented. Discounting the future A bias weighting shortterm costs and benefits more heavily than longerterm costs and benefits. 239 Potential Problems of Using a Group Groupthink Goal displacement A phenomenon that occurs in decision making when group members avoid disagreement as they strive for consensus A condition that occurs when a decision making group loses sight of its original goal and a new, less important goal emerges. 240 Constructive Conflict Dialectic Devil’s advocate A structured debate comparing two conflicting courses of action. A person who has the job of criticizing ideas to ensure that their downsides are fully explored. 241 Elements of Strategic Planning as seen in The Princess Bride 242 243 244 Porter’s Five Forces Model of Industry Competition Example
Porter’s Five Forces Model: BMW Threat of new entrants Threat of substitutes Very low Medium Medium Medium Power of suppliers Power of buyers Rivalry among existing firms Very High 246 The Threat of New Entrants
Profits of established firms in the industry may be eroded by new competitors High entry barriers lead to low threat of new entries Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale 247 Question If you are considering opening a new pizza restaurant in your community, what would be the threat of new entrants? How would you evaluate Porter’s other forces for this industry? Explain. 248 The Bargaining Power of Buyers Buyers threaten an industry Force down prices Bargain for higher quality or more services Play competitors against each other 249 The Bargaining Power of Buyers A buyer group is powerful when It is concentrated or purchases large volumes relative to seller sales The products it purchases from the industry are standard or undifferentiated The buyer faces few switching costs It earns low profits The buyers pose a credible threat of backward integration The industry’s product is unimportant to the quality of the buyer’s products or services 250 The Bargaining Power of Suppliers Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services A supplier group will be powerful when The supplier group is dominated by a few companies and is more concentrated than the industry it sells to The supplier group is not obliged to contend with substitute products for sale to the industry The industry is not an important customer of the supplier group 251 The Bargaining Power of Suppliers A supplier group will be powerful when (cont.) The supplier’s product is an important input to the buyer’s business The supplier group’s products are differentiated or it has built up switching costs for the buyer The supplier group poses a credible threat of forward integration 252 The Threat of Substitute Products and Services Substitutes limit the potential returns of an industry
Ceiling on the prices that firms in that industry can profitably charge Price/performance ratio Substitutes are not competitors Ford, Toyota, Nissan are competitors in the new car industry Mass transit, bicycles, Nikes and used cars are substitutes for what the new car industry sells 253 The Intensity of Rivalry among Competitors in an Industry
Jockeying for position Price competition Advertising battles Product introductions Increased customer service or warranties Interacting factors lead to intense rivalry Numerous or equally balanced competitors Slow industry growth High fixed or shortage costs Lack of differentiation or switching costs Capacity augmented in large increments High exit barriers 254 ...
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This note was uploaded on 03/06/2011 for the course MGT 300 taught by Professor Moorhead during the Spring '08 term at ASU.
- Spring '08