Planning and Strategy

Planning : process that managers use to identify and select suitable goals and courses of action for an organization

Organizational plan: results from the planning process and details goals of the organization and specifies how managers intend to attain them

Strategy: cluster of decisions and actions that managers take to help an organization attain its goals.

• Planning is both a goal-making and a strategy-making process.

5 Steps in the Planning Process:

1. determine vision, major goals of the org

2. conduct an environmental analysis (SWOT and Porter’s five forces analysis)

3. formulate a strategy - corporate, business, and functional levels

4. implement the strategy - assign responsibility and allocate resources

5. evaluate the strat - what measures of success will be used?

Planning and Strategy

Five-step activity:

1. Determine organization’s vision, mission and major goals

• Vision statement : broad declaration of the big picture of the organization and/or a statement of its dreams for future

• Mission statement : broad declaration of purpose that identifies the organization's products and customers and distinguishes the organization from competitors

2. Conduct analysis of current situation

3. Formulate a strategy

4. Implement a strategy

5. Evaluate the strategy

Why Planning is Important:

Direction & purpose : what goals organization is trying to achieve and strategies to achieve them

Participation : allows managers to participate in decision-making about appropriate goals and strategies

Coordination : ensures that all managers within organization all pull is same direction towards future desired state

Control : specifies who is responsible for putting the strategies into action to achieve the goals

Qualities of effective plans:

Unity: at any time only one central, guiding plan is put into operation to achieve an organizational goal

Continuity: an ongoing process in which managers build and refine previous plans

Accuracy: collect and use all available information in the planning process.

Flexibility: plans can be altered and changed if the situation changes

Levels of Planning and Types of Planning

Planning takes places at three levels:

Corporate level : top managers responsible for planning and strategy-making for organization as a whole

Business level : divisional managers responsible for planning and strategy within their particular division or unit

Department / function level : functional managers responsible for planning and strategy-making necessary to increase efficiency and effectiveness within their function (e.g. marketing or HRM)

• All levels seek information from other levels

Level of Managers and responsible for types of plans

1. top level managers - corporate level plans , long term

2. middle managers - tactical plans, business plans

3. first line managers - short term, functional procedures

Corporate level:

• Corporate level plan : top management’s decisions       concerning organization’s mission and goals, overall       trategy and structure

• Corporate-level strategy : specifies in which industries and national markets an organization intends to compete and     why

• Primary responsibility of top or corporate managers

• The corporate-level plan provides the framework within which divisional managers create their business-level plans

Business level:

Business level plan:

• Long-term divisional goals that allow division to meet corporate goals

• Division’s business-level strategy and structure necessary to achieve divisional goals

Business level strategy : specific methods a division will use to compete effectively against rivals in industry

• Created by managers of each division.

Functional level:

Functional-level plan : states goals that managers of each function will pursue to help division attain business-level goals to support achievement of corporate goals

Functional-level strategy : plan of action that managers of individual functions follow to improve the ability of each function to perform task-specific activities to:

• Add value to an organization’s goods and services

• Increases the value customers receive

Levels and Types of Planning and Strategy-Making

Time Horizons of Plans

Plans differ in their time horizon (intended duration):

Long-term : five years or more

Intermediate-term : between one and five years

Short-term : one year or less

Rolling plan : updated and amended every year to reflect changes in the external environment

Standing Plans and Single-Use Plans

Standing plans : used where programmed decision making is appropriate

Standard operating procedures (SOPs):

Written instructions describing series of actions that should be followed in specific situation

Rules and policies that standardize behaviour

Single-use plans : developed to handle non-programmed decision making in unusual situations

Examples: programs (integrated plans for achieving certain goals) and projects (specific plans to complete various aspects of a program).

Scenario Planning and Crisis Management

Scenario / contingency planning : generation of multiple forecasts of future conditions followed by an analysis of how to respond effectively to each of those conditions

Crisis management plans : formulated to deal with possible future crises

Planning: 5 Step Process

Determining the organization’s vision, mission, and goals.

Analyzing the organizational environment to determine opportunities and threats.

Formulating strategy: develop strategies to attain mission and goals

Implementing strategy. Decide how to allocate resources and responsibilities

required to implement strategies

Evaluation. Determining if the strategy was successful?

Step 1: Vision, Mission and Goals

Vision : reveals “big picture” of organization, its dream for future

Mission : defining the business:

Who are our customers?

What customer needs are being satisfied?

How are we satisfying customer needs?

Establishing major goals : desired future outcome within specified timeframe

Strategic leadership: the ability of top management to convey a compelling vision of what they want to achieve to subordinates

Qualities of Good Goal Formulation

Make them SMART + C:

Step 2: Analyzing the Environment

Strategy formulation : analysis of an organization’s current situation followed by the development of strategies to accomplish the mission and achieve goals

Utilizes several techniques:

SWOT analysis : identifies organizational strengths (S), weaknesses (W), opportunities (O) and threats (T)

Porter’s Five Forces model : used to analyze potential profitability of entering and competing within a particular industry

Environmental Assessment and Strategy Formulation

Porter’s Five Forces Competitive Analysis Summary:

1. level of rivalry

2. potential for entry

3. power of suppliers

4. power of customrs

5. substitutes

level of rivalry: increased competition results in lower profits

potential for entry: easy entry leads to lower prices and profits

power of suppliers: if there are only a few suppliers of important items -- supply costs rise

power of customers: if there are only a few large buyers, they can bargain down prices

substitutes: more available substitutes tend to drive prices and profits lower

Step 3: Developing Strategy

Corporate-level strategy : plan of action concerning which industries and countries an organization should invest its resources in

• How should growth and development be managed to create value for customers over long run?

Common strategies include:

• Concentration on a single business

• Diversification

• Vertical integration

• International expansion

Step 3: Developing Strategy

Business-level strategy : plan to gain a competitive advantage in particular market or industry

Decisions relating to the organization’s mission, strategy, and structure

Increase the value to customers and other stakeholders by either (1) lowering the costs or (2) increasing product differentiation so that more customers want to buy the products even at higher or premium prices.

Step 3: Developing Strategy

Four business-level strategies:

1. Cost-leadership

2. Differentiation

3. Focused low-cost

4. Focused differentiation

Porter’s Business-Level Strategies

Cost-Leadership Strategy

Cost leadership : managers gain a competitive advantage by driving down organizational costs

Below the cost of rival firms

Managers focus on:

Reducing production costs

Manufacturing more cheaply

Lowering costs of attracting new customers

Profitable because more customers attracted to lower prices

Differentiation Strategy

Differentiation : managers gain a competitive advantage by distinguishing an organization’s products from competitors in dimensions such as:

Product design

Quality

After-sales service and support

Companies pursuing differentiation will:

Charge premium pricing

Spend enormous amounts on advertising to differentiate

“Stuck in the Middle”

According to Porter, managers cannot simultaneously pursue both cost-leadership and differentiation strategies

Organizations stuck in the middle have lower levels of performance

Exceptions to rule – in some organizations, managers drive down costs while differentiating their products

Southwest Airlines : dedicated “to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.” combined with lower ticket prices

Focused Low-Cost and Focused Differentiation Strategies

Firms must also choose to serve the entire market or focus on a few segments:

Focused low-cost : serving only one segment of the market and being the lowest-cost organization in that segment

Focused differentiated : serving only one segment of the market and trying to be the most differentiated organization serving that segment

Functional-Level Strategies

Plan of action to improve ability of each department to create value consistent with corporate- and business-level strategies

Value is added in two ways:

Lowering the costs of creating value so that organization can attract customers by keeping prices lower than competitors

Adding value to product by finding ways to differentiate it from other companies

Examples of Functional-Level Strategies

Post-Pandemic Strategy

Successful companies have innovated their business models and strategies in one of two concrete ways:

Narrowed their focus to serving a highly profitable market segment either by adding value or reducing the cost of serving that market.

Using differentiation or cost-leadership (or both) is the to adapt to market changes.

Transitioning from serving a broader-based market to a specific targeted or focused segment.

Step 4: Strategy implementation

Five-step process:

Allocating responsibility for implementation

Drafting detailed action plans that specify implementation

Establishing a timetable (with goals) for implementation

- Gantt chart : graphic bar chart used to schedule tasks,    responsibilities and timelines

Allocating appropriate resources

Holding specific individuals or groups responsible for reaching corporate, divisional, and functional goals

Step 5: Evaluating strategy

How do managers know when they are successful?

Managers must:

• Monitor progress

• Evaluate performance levels

• Make corrective adjustments as necessary

Strategy Evaluation Framework

Balanced Scorecard (BSC)

The balanced scorecard (BSC): a way to track and measure progress toward goals from a number of perspectives:

• financial metrics

• customer perspective

• internal operations perspectives.