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Planning, Strategy, and Competitive Advantage

Chapter Six

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Learning Objectives

LO6-1 Identify the three main steps of the planning process and explain the relationship between planning and strategy

LO6-2 Differentiate between the main types of business-level strategies and explain how they give an organization a competitive advantage that may lead to superior performance

LO6-3 Differentiate between the main types of corporate-level strategies and explain how they are used to strengthen a company’s business-level strategy and competitive advantage

LO6-4 Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals.

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Planning and Strategy

Planning

Identifying and selecting appropriate goals and courses of action for an organization

Strategy

A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals

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Question?

What is a broad declaration of an organization’s purpose ?

A. Company Bill of Rights

B. Mission Statement

C. Business Plan

D. Executive Summary

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Planning and Strategy

Mission Statement

A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

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Three Steps in Planning

Figure 6.1

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Why Planning is Important

1. Planning is necessary to give the organization a sense of direction and purpose

2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization

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Why Planning is Important

3. A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state

4. A plan can be used as a device for controllingmanagers within an organization

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Levels of Planning at General Electric

Figure 6.2

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Levels and Types of Planning

Corporate-Level Plan

Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure.

Corporate-Level Strategy

A plan that indicates in which industries and national markets an organization intends to compete.

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Levels and Types of Planning

Business-Level Plan

Divisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure

Business-Level Strategy

outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry

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Levels and Types of Planning

Functional-Level Plan

Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals

Functional-level strategy

A plan of action to improve the ability of each of an organization’s functions to perform its task-specific activities in ways that add value to an organization’s goods and services.

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Time Horizons of Plans

Time Horizon

The intended duration of a plan.

• Long-term plans are usually 5 years or more.

• Intermediate-term plans are 1 to 5 years.

• Short-term plans are less than 1 year.

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Types of Plans

Standing Plans

Use in programmed decision situations

Single-Use Plans

Developed for a one-time, non-programmed issue

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Standing Plans

Policies

general guides to action.

Rules

formal written specific guides to action.

Standard operating procedures (SOP)

specify an exact series of actions to follow

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Types of Plans

Programs

integrated plans achieving specific goals.

Project

specific action plans to complete programs.

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Three Mission Statements

Figure 6.4

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Determining the Organization’s Mission and Goals

Defining the Business

1. Who are our customers?

2. What customer needs are being satisfied?

3. How are we satisfying customer needs

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Determining the Organization’s Mission and Goals

Establishing Major Goals

Provides the organization with a sense of direction

Stretches the organization to higher levels of performance.

Goals must be challenging but realistic with a definite period in which they are to be achieved.

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Determining the Organization’s Mission and Goals

Strategic leadership

the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates

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Planning and Strategy Formulation

Figure 6.5

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Formulating Strategy

SWOT Analysis

A planning exercise in which managers identify internal organizational strengths and weaknesses external opportunities and threats

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The Five Forces

Competitive Forces

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 down prices and profits.

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Formulating Business-Level Strategies

Low-Cost Strategy

Driving the organization’s total costs down below the total costs of rivals

Differentiation

Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality, or after-sales service

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Formulating Business-Level Strategies

“Stuck in the Middle”

Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy

Difficult to achieve low cost with the added costs of differentiation

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Formulating Business-Level Strategies

Focused low-cost strategy

Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment.

Focused differentiation strategy

Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment.

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Formulating Corporate-Level Strategies

Concentration on a Single Industry

reinvesting a company’s profits to strengthen its competitive position in its current industry

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Vertical Integration

Vertical Integration

expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products

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Stages in a Vertical Value Chain

Figure 6.6

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Question?

What is expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services?

A. Differentiation

B. Diversification

C. Synergy

D. International expansion

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Diversification

Diversification

expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services

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Diversification

Related Diversification

entering a new business or industry to create a competitive advantage in one or more of an organization’s existing divisions or businesses

Unrelated diversification

entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries

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International Expansion

Basic Question

To what extent do we customize products and marketing for different national conditions?

Global strategy

Selling the same standardized product and using the same basic marketing approach in each national market

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International Expansion

Multi-domestic Strategy

Customizing products and marketing strategies to specific national conditions

Helps gain local market share

Raises production costs

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Four Ways of Expanding Internationally

Figure 6.7

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International Expansion

Exporting

making products at home and selling them abroad

Importing

selling at home products that are made abroad

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International Expansion

Licensing

allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee

Franchising

selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits

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International Expansion

Strategic alliance

managers pool resources with those of a foreign company

Organizations agree to share risk and reward

Joint venture

strategic alliance among companies that agree to jointly establish and share the ownership of a new business

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International Expansion

Wholly Owned Foreign Subsidiary

managers invest in establishing production operations in a foreign country independent of any local direct involvement

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