Strategic Planning

1. McGraw-Hill/Irwin 4-1
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. 4-2

3. Learning Objectives
 L01: Basic steps in planning process.
 L02: Integration of strategic planning with
tactical and operational planning.
 L03: Define strategy after analysis of
external environment and firm’s strength’s
and weaknesses.
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4. Learning Objectives
 L04: Companies can achieve competitive
advantage through business strategy.
 L05: Keys to effective strategy
implementation.
 L06: Making effective decisions as a
manager.
 L07: Principles for group decision making.
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5. The Planning Process (see Fig 4.1)
Step 1: ANALYZE the situation
 Situational analysis:
 Gather, interpret, and summarize all
information relevant to planning issue
under consideration.
 Focuses on internal forces within
organization and the influences from
external environment.
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6. The Planning Process (see Fig 4.1)
Step 2: Generate ALTERNATIVE goals and plans
 Goals: Target or end that management
desires to reach.
 Stresses creativity
 Encourages managers and employees to think
broadly
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7. “SMART” Goals
 Specific
 Goals are precise, describing particular
behaviors and outcomes.
 Measurable
 Attainable (but challenging)
 Relevant
 Contribute to overall mission and consistent
with its values, including ethical standards.
 Time-bound
 Specify a target date for completion.
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8. Plans – “what will we do?”
 The actions or means managers intend to use
to achieve organizational goals.
 Single-use plans: designed to achieve goals not
likely to be repeated in the future.
 Standing plans: focus on ongoing activities to
achieve an enduring set of goals.
 Contingency plans: specify actions to take when
a company’s initial plans have not worked well
or events in the external environment require a
sudden change – BACK-UP PLAN
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9. The Planning Process (see Fig 4.1)
Step 3: EVALUATE goals and plans
 Evaluate advantages, disadvantages, and
potential effects of each alternative goal and
plan.
 Prioritize the goals.
 Consider costs of each initiative and likely
ROI.
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10. The Planning Process (see Fig 4.1)
Step 4: SELECT goals and plans
 Select most appropriate and feasible
alternative.
 Identifies priorities and trade-offs among
goals and plans.
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11. The Planning Process (see Fig 4.1)
Step 5: IMPLEMENT goals and plans
 Key to achieving goals
 Requires understanding, adequate resources
and motivation.
 Link plan to other systems in the
organization, such as rewards, to help ensure
successful implementation.
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12. The Planning Process (see Fig 4.1)
Step 6: Monitor and CONTROL performance
 Monitor actual performance of
employees against the goals and
plans.
 Adjust course as necessary.
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13. Levels of Planning
 Top-level managers
 Strategic (long-term, big picture)
 Middle-level managers
 Tactical (medium-term, medium detail)
 Lower-level managers
 Operational (day-to-day, lots of detail)
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14. Strategic Planning – “The HOW”
 Strategic Planning
 Procedures for making decisions about
organization’s long-term goals and strategies.
 Strategic goal
 Major targets or end results relating to
organization’s long-term survival, value and
growth.
 Strategy
 Pattern of actions and resource allocations
designed to achieve organization’s goals.
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15. Questions to ask in strategic planning
1. Where will we be active?
2. How will we get there?
3. How will we win the marketplace?
4. How fast will we move, and in what
sequence will we make prices?
5. How will we obtain financial returns?
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16. Strategic Planning Process
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17. Strategic Planning Process (see Fig. 4.3)
Step 1: ESTABLISH a mission, vision, and goals
 Mission - PURPOSE
 Organization’s basic purpose and scope of
operations.
 Strategic vision - VIEW
 Long-term direction and strategic intent
 Points to the future
 Perspective on where organization is headed
and what it can become
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18. Microsoft’s Mission Statement
“At Microsoft, our mission is to enable people and
businesses throughout the world to realize their
full potential…
We consider our mission statement a promise to
our customers. We deliver on that promise by
striving to create technology that is accessible
to everyone—including people who experience
the world in different ways because of
impairments and disabilities.”
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19. Vision Statements
 INSPIRE organization members
 Offer a WORTHWHILE TARGET to achieve.
DuPont’s Vision Statement
“To be the world’s most dynamic science
company, creating sustainable solutions
essential to a better, safer and healthier
life for people everywhere.”
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21. Strategic goals – “SMART” TARGETS
 Evolve from the organization’s mission and
vision.
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22. Strategic Planning Process (see Fig. 4.3)
Step 2: ANALYZE ETERNAL opportunities / threats
 Industry  Legislative /
 Profile regulatory activities
 Growth  Political activity
 Forces  Social issues
 Competitor  Social interest
 Profile groups
 Analysis  Labor issues
 Advantages  Macroeconomic
conditions
 Technological factors
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23. Stakeholders – “Vested Interest”
 Groups and individuals who affect and are
affected
 by the achievement of the organization’s
mission, goals, and strategies.
 Examples
 Buyers, suppliers, competitors, government and
regulatory agencies, unions and employee
groups, financial community, owners and
shareholders, and trade associations.
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24. Strategic Planning Process (see Fig. 4.3)
Step 3: ANALYZE INTERNAL strengths / weaknesses
 Internal resource analysis
 Financial
 Human resources
 Marketing
 Operations
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25. Resources and capabilities
 Resources
 inputs to production that can be accumulated
over time to enhance firm’s performance.
 Resource types
 Tangible assets – real estate, production of
facilities, raw materials – “touchy-feely”
 Intangible assets- company reputation,
culture, technical knowledge, and patents,
accumulated learning and experience – “can’t
touch that!”
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26. Resources - a competitive advantage
 Rare
 not equally available to all competitors
 Inimitable
 Matchless; can’t be copied
 Valuable
 instrumental for creating customer benefits
 Organized
 efficient organization of resources
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27. Core Competence – “What We Do Best”
 A unique skill and/or knowledge an
organization possesses that gives it an EDGE
over competitors
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28. Benchmarking - “Best Practices”
 Measure company’s basic functions and skills
compare with those of another company or
set of companies.
 To undertake actions to achieve better
performance and lower costs
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29. Strategic Planning Process (see Fig. 4.3)
Step 4: SWOT Analysis
Strengths Weakness
Skilled management Lack of spare production
Positive cash flow capacity
Well-known brands Absence of reliable suppliers
Opportunities Threats
New technology Possibility of competitors
Underserved market niche entering underserved niche
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30. Corporate Strategy
Identifies
 Businesses
 Markets
 Industries
in which the organization competes
and the distribution of resources
among those businesses
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31. Four Alternative Corporate Strategies
1. Concentration
 single business / single industry focus
2. Vertical integration – “UP and DOWN”
 expanding into the organization’s supply
channels or to distributors;
 eliminates uncertainties and reduces costs
associated with suppliers or distributors
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32. Alternatives to Corporate Strategy
1. Concentric diversification – “related variety”
 Moving into new businesses related to company’s
original core business.
2. Conglomerate diversification – “unrelated
expansion”
 Enter unrelated businesses, typically to minimize
risks due to market fluctuations in one industry.
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33. BCG Matrix
?
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34. BCG Matrix (see Fig. 4)
BCG Categories of Businesses
 Question Marks - ?
 High-growth, weak-competitive position
 Require substantial investment to improve their
position
 Else divest
 Stars –
 High growth, strong competitive position
 Require heavy investment
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35. BCG Matrix (see Fig. 4)
BCG Categories of Businesses
 Cash cows –
 Low-growth, strong competitive position
 generate revenues in excess of their investment
needs
 fund other businesses
 Dogs –
 low-growth, weak-competitive-position
 divest after their remaining revenues are
realized
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36. Business Strategy
The major actions by which an organization
builds competitive advantage in a
particular industry or market.
 Low-cost strategy
 Efficiency, offering a standard, no-frills product.
 Differentiation
 unique in its industry or market segment along
one or more dimensions.
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37. Technology Leadership
Advantages Disadvantages
First-mover advantage Greater risks
Little or no competition Cost of technology
Greater efficiency development
Higher profit margins Costs of market development
Sustainable advantage and customer education
Reputation or innovation Infrastructure costs
Establishment of entry Costs of learning and
barriers eliminating defects
Occupation of best market Possible cannibalization of
niches existing products
Opportunities to learn
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38. Functional Strategy
 Implemented by each functional area
 Support the organization’s business strategy
 Developed with input of and approval from the
executives responsible for business strategy.
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39. Strategic Planning Process (see Fig. 4.3)
Step 5: IMPLEMENT the strategy
1. Define strategic tasks.
2. Assess organization capabilities.
3. Develop an implementation agenda.
4. Create an implementation plan.
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40. Strategic Planning Process (see Fig. 4.3)
Step 6: CONTROL Your Progress
 Strategic control system
 Evaluate organization’s progress with its
strategy
 When discrepancies exist, taking corrective
action
 Encourage efficient operations that are
consistent with the plan while allowing
flexibility to adapt to changing
conditions.
 Includes a budget to monitor and control major
financial expenditures.
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41. Formal Decision Making
M Identify and diagnose the problem.
e Generate alternative solutions.
a Evaluate alternatives.
a Make choice.
t Implement the decision.
a Evaluate the decision.
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42. Barriers to Good Decisions
 Psychological biases
 Illusion of control
 Framing effects
 Discounting the future
 Time Pressures
 Social Realities
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43. 4-43

44. Identifying the Problem
 Recognize there is a problem or opportunity
 Managers compare current performance
against: past performance, or current
performance of other organizations or units,
or future expected performance
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45. Diagnosing the Problem
 Decision maker must want to do
something and believe that the resources
and abilities to solve the problem exist
 Diagnostic Questions:
 Is there a difference between what is actually
happening and what should be happpening?
 How can you describe the deviation, as
specifically as possible?
 What is/are the cause(s) of the deviation?
 What specific goals should be met?
 Which of the these goals are absolutely critical
to the success of the decision?
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46. Generate Alternative Solutions
 Based on the diagnosis, alternative courses of
action aimed at solving the problem are
developed.
 Ready-made solutions: ideas that have been
or tried before.
 Custom-made solutions: new, creative
solutions designed specifically for the problem.
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47. Evaluate Alternatives
 Determine the value or adequacy of the
alternatives that were generated.
 Predict the consequences that will occur if
the various options are put into effect.
 Original goals must be taken into account
 Consider the potential consequences of
several different scenarios.
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48. Making the Choice
 Maximizing: achieving the best possible
outcome, the one that realizes the greatest
positive consequences and the fewest
negative consequences.
 Satisficing: choosing the first option that
is minimally acceptable or adequate; the
choice appears to meet a targeted goal or
criterion.
 Optimizing: achieving the best possible
balance among several goals.
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49. Implement the Decision
1. Determine how things will look when the
decision is fully operational.
2. Chronologically order, perhaps with a flow
diagram, the steps necessary to achieve a
fully operational decision.
3. List the resources and activities required to
implement each step.
4. Estimate the time needed for each step.
5. Assign responsibility for each step to
specific individuals.
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50. Evaluate the Decision
 Collect information on how well the decision is
working.
 Gather objective data for accurately
determining the decision’s success or failure.
 Feedback provides information on the success
or failure of the decision.
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51. Managerial Decision Making
Programmed Decisions Nonprogrammed Decisions
Problem is frequent, Problem is novel,
repetitive, routine, with unstructured, with much
much certainty regarding uncertainty regarding cause-
cause-and-effect and-effect relationships
relationships Decision procedure needs
Decision procedure depends creativity, intuition,
on policies, rules, tolerance for ambiguity,
definite procedures creative problem solving.
Examples: periodic reorders Examples: diversification into
of inventory; procedure for new products and markets;
admitting patients purchase of experimental
equipment; reorganization of
departments.
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52. Psychological Barriers
 Illusion of control
 belief that one can influence events despite no
one having control.
 Framing effects
 phrasing / presenting problems or decision
alternatives in a way that subjective influences
override objective facts.
 Discounting the future
 weighing short-term costs and benefits more
heavily than longer-term costs and benefits.
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53. Time Pressures
Tactics for decision-making under time
pressure:
 Instead of relying on old data, long-range
planning, and futuristic forecasts, focus on
real-time information.
 Involve people more effectively and
efficiently in the decision-making process.
 Take a realistic view of conflict.
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54. Advantages of Group Decision Making
 More information available.
 Greater number of perspectives;
different approaches to problem-solving.
 Opportunity for intellectual stimulation.
 More likely to understand why decision
was made.
 Higher level of commitment
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55. Disadvantages of Group Decision Making
 One group member may dominate
discussion.
 Satisficing may occur.
 Groupthink – the pressure to avoid
disagreement can lead to a phenomenon.
 Goal displacement – decision-making group
loses sight of its original goal and a new,
less important goal emerges.
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56. Effective Management of Group Decision Makers
 Appropriate leadership style
 Constructive use of disagreement and
conflict.
 Enhancement of creativity
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57.  Remaining slides are review.
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58. YOU should be able to
 L01: Summarize the basic steps in any
planning process.
 L02: Discuss how strategic planning should be
integrated with tactical and operational
planning.
 L03: Describe how strategy is based on
analysis of the external environment and the
firm’s strength’s and weaknesses.
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59. YOU should be able to
(cont’d)
 L04: Discuss how companies can achieve
competitive advantage through business
strategy.
 L05: Identify the keys to effective strategy
implementation.
 L06: Explain how to make effective decisions
as a manager.
 L07: Summarize principles for group decision
making.
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60. Test Your Knowledge
 Describe the basic steps in any planning
process.
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61. Test Your Knowledge
Identify the keys to effective strategy
implementation
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62. Test Your Knowledge
The manager of the Gallery Restaurant noted that
the restaurant had experienced a decreased
number of evening customers. The manager
promptly ordered the chef to rewrite the evening
menu. Customer feedback later indicated that
the problem had not been the menu but poor
service from the wait staff. The manager's
decision to have the menu revised suggests that
she failed to:
A) identify the problem.
B) evaluate the alternatives and consequences.
C) properly diagnose the cause of the problem.
D) evaluate the decision and its consequences.
E) identify a solution. 4-62

63. Test Your Knowledge
Discuss the principles for group decision
making.
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64. Triton Logging
 Read the Triton story on page 84.
 Classify and describe what you believe Triton
Logging’s corporate strategy to be. How does
this strategy reflect Chris Godsall’s vision?
 Triton Logging practices a business strategy of
differentiation, setting itself apart from other
logging firms by finding new technology to
harvest timber in an ecofriendly way. What are
the potential advantages and disadvantages of
this type of leadership?
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