Lecture 03: Strategic Planning

Planning

The process used by managers to identify and select goals and courses of action for the organization

Organizational Plan

A result of the planning process that details the goals to be attained

Strategy

The pattern of decisions managers take to reach the goals

1. Determining the Organization’s missions and goals

2. Strategy formulation

3. Strategy implementation

Three Stages of a Planning Process

Organizational Mission

Defined in the mission statement which is a broad declaration of the overriding purpose

Mission Statement

Identifies product, customers, and how the firm differs from competitors

Formulating Strategy

Managers analyze the 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

Levels of Planning

Planning at General Electric

Corporate-Level

A planning level that provides a framework for all other planning and involves decisions by top managers, such as consideration on which businesses or markets to be in

Business-Level

A planning level that details divisional long-term goals and structure by identifying how the business meets the corporate goals and showing how the business will compete in the market

Functional-Level

A planning level composed of actions taken by managers in departments that state exactly how business-level strategies are accomplished

Time Horizon

Refers to how far in the future the plan applies

Long-Term Plans

Plans that are usually 5 years or more

Intermediate-Term Plans

Plans that last between 1 to 5 years

Short-Term Plans

Plans that are less than 1 year

Standing Plans

Plans that are intended for programmed decisions

Policies

A general guide to action developed by managers as part of standing plans

Rules

A specific guide to action developed by managers as part of standing plans

Single-Use Plans

Plans that are developed for a one-time, nonprogrammed issue

Programs

Integrated plans that achieve specific goals developed by managers as part of single-use plans

Project

Specific action plans intended to complete programs developed by managers as part of single-use plans

Top Managers

Performs corporate level planning, approval of business and functional level plans, and seeking of input on corporate-level issues from all management levels

Divisional and Functional Managers

Performs business and functional level planning and seeking of information from other levels

Planning

Determines where the organization is now and where it will be in the future

Participation

Provided by good planning wherein all managers are involved in setting future goals

Sense of direction & purpose

Provided by good planning wherein goals and strategies are set for all managers

Coordination

Provided by good planning wherein all parts of the firm have an understanding about how their systems fit with the whole

Control

Provided by good planning wherein plans specify who is in charge of accomplishing a goal

Scenario Planning

A learning tool to improve planning results, it generates several forecasts of different future conditions and analyzes how to effectively respond to them

Define the Business

Seeks to identify our customer and the needs we can and should satisfy while simultaneously pinpointing competitors

Establishing Major Goals

States who will compete in the business and should stretch the organization to new heights while having realistic goals within a given time period

SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

Identifies strengths and weaknesses inside the firm, and opportunities and threats in the environment

1. Manufacturing stability

2. Marketing skills

Strengths

1. High labor turnover

2. Weak financials

Weaknesses

1, New markets

Oppotunities

1. Economic recessions

2. Competitors

Threats

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 a department’s ability to create value

1. Rivalry Among Organizations

2. Potential for Entry

3. Power of Suppliers

4. Power of Buyers

5. Substitute Products

The Five Forces Model

Level of Rivalry in an Industry

The intensity of current competition with competitors, wherein increased competition results in lower profits

Potential for Entry

How easy it is for new firms to enter the industry, leading to lower prices and profits

Power of Suppliers

Few suppliers of important items results in the rise of supply costs

Power of Buyers

Few, large buyers can bargain down prices

Substitute Products

More available substitutes tend to drive down prices and profit

Concentrate in a Single Business

A corporate-level strategy that can become very strong but can be risky

Diversification

A corporate-level strategy wherein the organization moves into new businesses and services

Related Diversification

A type of diversification where the firm diversifies in similar areas to build upon existing divisions

Synergy

The concept of two divisions working together to obtain more than the sum of each separately

Unrelated Diversification

A type of diversification where the firm buys business in new areas in order to build a portfolio of unrelated firms to reduce risk of trouble in one industry, but it can be very hard to manage

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

A type of vertical integration wherein the firm produces its own inputs to lower the cost of supplies

Forward Vertical Integration

A type of vertical integration wherein the firm distributes its own outputs or products to lower the cost and ensure final quality

Low-Cost

A business-level strategy of gaining a competitive advantage by driving down organizational costs by reducing waste in order to lower prices compared to competitors

Differentiation

A business-level strategy of gaining a competitive advantage by making your products different from competitors that are valued by the customers, allowing you to charge more for a product

Stuck in the Middle

It is difficult to simultaneously become differentiated and low-cost

Focused Low-Cost

A business-level strategy of trying to serve one segment of the market but be the lowest cost in that segment

Focused Differentiated

A business-level strategy wherein the firm seeks to focus on one market segment but it is the most differentiated in that segment

Functional-Level Strategies

Strategies that must fit with business-level strategies and seeks to have each department add value to a good or service

1. Lower the operational costs by providing the value in products

2. Add new value to the product by differentiating

Ways to add value (Functional-Level Strategies)

Attain superior efficiency

A goal of functional-level strategies that involves the measure of outputs for a given unit of input

Attain superior quality

A goal of functional-level strategies that involves making products that reliably do the job they were designed for

Attain superior innovation

A goal of functional-level strategies that involves new, novel features about the product or process

Attain superior responsiveness to customers

A goal of functional-level strategies that involves knowing the customer needs and filling them