Fundamentals of

MANAGEMENT

Core Concepts & Applications

Griffin

Eighth Edition

Chapter 3

Planning and Strategic Management

Chapter Outline
Planning and Organizational Goals
Purposes of Goals
Kinds of Goals

The Nature of Strategic Management

The Components of Strategy
Types of Strategic Alternatives

Using SWOT Analysis to Formulate Strategy

Evaluating an Organizations Strengths
Evaluating an Organizations Weaknesses
Evaluating an Organizations Opportunities and Threats

32

Chapter Outline (contd)

Formulating Business-Level Strategies
Porters Generic Strategies
Strategies Based on the Product Life Cycle

Formulating Corporate-Level Strategies

Single-Product Strategy
Related Diversification
Unrelated Diversification
Managing Diversification

Tactical Planning
Developing Tactical Plans
Executing Tactical Plans
33

Chapter Outline (contd)

Operational Planning
Single-Use Plans
Standing Plans
Contingency Plans

34

Learning Objectives
After studying this chapter, you should be able
to:
Summarize planning process and describe
organizational goals.
Discuss the components of strategy and types of
strategic alternatives.
Describe how to use SWOT analysis in formulating
strategy.
Identify and describe various alternative approaches
to business-level strategy formulation.

35

Learning Objectives (contd)

Identify and describe various alternative approaches
to corporate-level strategy formulation and describe
how corporate-level strategies are implemented.
Discuss how tactical plans are developed and
executed.
Describe the basic types of operational plans used by
organizations.

36

Objectives, Goals, Missions & Visions

Vision where you are heading
-It answers the question, Where
do we aim to be?
Mission- defines your fundamental
purpose(s)
-It answers the question, What do we do?
What makes us different?
Goals specific measurable components aligned
with mission and vision statements
-Example: I want to achieve success in the field of
management research and do what no one has ever
done.
Objective action step taken in order to meet goals
-Example : I want to complete this thesis on genetic
research by the end of this month.
Strategies: Broad activities required to achieve an objective,
control a critical success factor, or overcome a barrier
37

Continue.
Vision: A picture of the "preferred future;" a statement that describes how the future will
look if the organization achieves its ultimate aims, e.g. "The widgets of choice for a valuefocused world."
Mission: A statement of the overall purpose of an organization. It describes what you do,
for whom you do it and the benefit, e.g. "To provide consumers with high-quality, pricecompetitive widgets to meet their personal, business and recreational needs."
Goals: Broad, long-term aims that define accomplishment of the mission, e.g. "Grow
profitability. Maximize net income by increasing revenues and controlling costs."
Objectives: Specific, quantifiable, realistic targets that measure the accomplishment of a
goal over a specified period of time, e.g. "Increase revenues by x% in 2004. Limit increases
in overhead costs to y%. Achieve a z% reduction in management staff through increased
automation."
Strategies: Broad activities required to achieve an objective, control a critical success
factor, or overcome a barrier, e.g. "Establish a partnership with a foreign manufacturer to
revamp the Northeast plant. Implement a program to widely promote our success as a
quality producer."
Tactics: Specific steps to be taken, by whom by when, and at what cost, to implement a
strategy, e.g. "Initiate discussions with PR firm on quality promotion. Week of 8/16/04." This
is where the detailed implementation tactics reside and is the portion of the plan that
provides an executional roadmap combined with goalposts for performance measurement.

38

Organizational Goals
Purposes of Goals
Provide guidance and a unified direction for people in
the organization.
Have a strong effect on the quality of other
aspects of planning.
Serve as a source of
motivation for
employees of the
organization.
Provide an effective
mechanism for evaluation
and control of the organization.
39

Kinds of Goals
By Level
Mission statement is a statement of an organizations
fundamental purpose.
Strategic goals are goals set by and for top
management of the organization that address broad,
general issues.
Tactical goals are set by and for middle managers;
their focus is on how to operationalize actions to
strategic goals.
Operational goals are set by and for lower-level
managers to address issues associated with tactical
goals.
310

Different Goal Setting Processes in Organizations

Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright 1992 by Houghton Mifflin Company. Used with permissions.
311

WHAT IS PLANNING?
Planning is the systematic process of establishing a need and
then working out the best way to meet the need, within a
strategic framework that enables you to identify priorities
and determines your operational principles.
Planning means thinking about the future so that you can do
something about it now.

312

Managerial Function;PLANING
What is Planning?
Planning involves in defining the organization
goal (what to be done) and establishing
strategies (how to be done) to achieve sited
goal.
Some time it is also called primary managerial
function.

Why Planning Is Necessary ?

1 ) Provide Direction:
-What the organization want to accomplish (achieve)
and how to reach the establish /sited goals.
-By planning a clear direction comes that to be follow, in
order to reach and achieve goal.
2) Reduce Uncertainty:
Planning reduce uncertainty by look ahead to anticipate
changes
manager can estimate their consider impact of changes
and then they can develop response to these changes.

Continu..
3) Minimizes waste and redundancy (idleness):
When work activities are coordinated around
established plans redundancy can beminimized.
4) Provide ability in controlling:
Planning helps in controlling and monitoring the
work that either this works is on its right path or
not.

The Decision Making Process.

What is decision?
Decision means choosing among alternative
Choosing among alternatives is done through
a proper procedure Which is called decision
making process.

Who make the decisions?

Managers are responsible to makes the
decisions.
They include all the three levels of managers:
Top level managers
Middle level managers
lower level/1st line Managers.

Contin
Top level manager:
Take decisions like product type, manufacturing
location etc
Middle & lower level manager:
Decisions include quality problems pay rising
etc.

Kinds of Plans
Strategic Plans
A general plan outlining resource allocation, priorities,
and action steps to achieve strategic goals. The plans
are set by and for top management.

Tactical Plans
A plan aimed at achieving the
tactical goals set by and for
middle management.

Operational Plans
Plans that have a short-term focus.
These plans are set by and for lower-level managers.
319

SWOT
Analysis

Strengths
Weaknesses
Opportunities
Threats

Mission
An organizations fundamental purpose

SWOT Analysis
To formulate strategies that support the mission

Internal Analysis
Strengths
(distinctive
competencies)

External Analysis
Opportunities

Weaknesses

Threats

Best Strategies
Those that support the mission and
exploit opportunities and strengths
neutralize threats
avoid (or correct) weaknesses

Figure 3.2
320

Using SWOT Analysis to

Formulate Strategy
Evaluating Organizational Strengths
Organizational strengths
Skills and abilities enabling an organization to conceive of
and implement strategies.
Distinctive competencies
Useful for competitive advantage and superior performance.
Sustained competitive advantage
Occurs when a distinctive competence cannot be easily
duplicated and is what remains after all attempts at strategic
imitations have ceased.

321

Using SWOT Analysis to Formulate

Strategy (contd)
Evaluating Organizational Weaknesses
Organizational weaknesses are skills and capabilities
that do not enable an organization to choose and
implement strategies that support its mission.
Weaknesses can be overcome by:
investments to obtain the strengths needed.
modification of the organizations mission
so it can be accomplished with the current
workforce.

322

Using SWOT Analysis to Formulate

Strategy (contd)
Evaluating Organizational Weaknesses (contd)
Competitive disadvantage is a situation
in which an organization fails to implement
strategies being implemented
by competitors.

323

Using SWOT Analysis to Formulate

Strategy (contd)
Evaluating an Organizations
Opportunities and Threats
Organizational opportunities
are areas in the organizations
environment that may generate
high performance.
Organizational threats are areas
in the organizations environment that
make it difficult for the organization
to achieve high performance.
324

Formulating Business level strategies

A number of frameworks have been developed
for identifying the major strategic alternatives
that organizations should consider when
choosing their business level strategies.
Three important classification schemes are:
1. Porters generic strategies
2. Miles and Snow typology
3. Strategies based on the product life cycle.

325

Porters Generic Strategies

According to Michael Porter, organizations may pursue a
differentiation, overall cost leadership, or focus strategy
at the business level.
Differentiation strategy
An organization seeks to distinguish itself from competitors
through the quality of its products or services.

Overall cost leadership strategy

An organization attempts to gain competitive advantage by
reducing its costs below the costs of competing firms.

Focus strategy
An organization concentrates on a specific regional market,
product line, or group of buyers.

326

Porters Generic Strategies cont.

Strategy type

Definition

Examples

Differentiation

Distinguish products or
services

Rolex (Watches)
Dukatti (Motorbike)
Arong product

Overall cost leadership

Reduce manufacturing
and other costs

Timex (watches)
Hero honda (Motorbike)
XXX garments

Focus

Concentrate on specific
regional market, product
market, or group of
buyers

Dry fish
Vodka

327

The Miles and Snow Typology

A second classification of strategic options was
developed by Raymond Miles and Charles
Snow.
Strategy Type Definition

Example

Prospector

Is innovation and growth oriented, searches for

new markets and new growth opportunities,
encourages risk taking.

1.Amazon.co
m

Defender

Protects current markets, maintains stable

growth, serves current customers.

1.eBay.com

Analyzer

Maintains current markets and current customer 1.IBM

satisfaction with moderate emphasis on
2.Yahoo
innovation

Reactor

No clear strategy, reacts to changes in the

environment, drifts with events.

1.Internation
al Harvester
328

Strategies Based on Product Life Cycle

The product life-cycle theory is an economic theory that was developed
by Raymond Vernon
High

Stages
Growth

Maturity

Decline

Sales Volume

Introduction

Low

Time
Figure 3.3
329

The four main stages of a product's life cycle and the

accompanying characteristics are:
Stage

Characteristics

1.costs are very high

2.slow sales volumes to start
3.little or no competition
1. Market
4.demand has to be created
introduction stage
5.customers have to be prompted to try the
product
6.makes no money at this stage

2. Growth stage

1.costs reduced due to economies of scale

2.sales volume increases significantly
3.profitability begins to rise
4.public awareness increases
5.competition begins to increase with a few new
players in establishing market
6.increased competition leads to price decreases
330

3. Maturity stage

1.costs are lowered as a result of production volumes

increasing and experience curve effects
2.sales volume peaks and market saturation is reached
3.increase in competitors entering the market
4.prices tend to drop due to the proliferation of
competing products
5.brand differentiation and feature diversification is
emphasized to maintain or increase market share
6.Industrial profits go down

4. Saturation and
decline stage

1.costs become counter-optimal

2.sales volume decline
3.prices, profitability diminish
4.profit becomes more a challenge of
production/distribution efficiency than increased sales

331

Managing Diversification
However an organization implements diversification- whether through
internal development vertical integration or mergers and acquisitions
It must monitor and manages its strategies. Two major tools for
managing diversifications are
1. Organization structure
2. Portfolio management techniques

Major Tools for Managing Diversification

Portfolio management techniques
Methods that diversified organizations use to make decisions about
what businesses to engage in and how to manage these multiple
businesses to maximize corporate performance.
Two important portfolio management techniques
The BCG Matrix
The GE Business Screen
332

Managing Diversification (contd)

BCG Matrix
A method of evaluating businesses relative to the
growth rate of their market and the organizations share
of the market.
The matrix classifies the types of businesses that a
diversified organization can engage as:
Dogs have small market shares and no growth
prospects.
Cash cows have large shares of mature markets.
Question marks have small market shares in quickly
growing markets.
Stars have large shares of rapidly growing markets.
333

The BCG Matrix

Market growth rate

High

Stars

Question
marks

Cash cows

Dogs

Low
High

Relative market share

Source: Perspectives, No. 66, The Product Portfolio, Adapted by

permission from The Boston Consulting Group, Inc., 1970.

Low

Figure 3.4
334

Managing Diversification
GE Business Screen
A method of evaluating business in a diversified
portfolio along two dimensions, each of which contains
multiple factors:
Industry attractiveness.
Competitive position (strength) of each firm in the
portfolio.
In general, the more attractive the industry and the
more competitive a business is, the more resources
an organization should invest in that business.

335

Industry growth rate

The GE Business Screen

High

Winner

Winner

Question
mark

Medium

Winner

Average
business

Loser

Profit
producer

Loser

Loser

Good

Medium

Poor

Low

Competitive position

Competitive position
Source: From Strategy Formulation:
Analytical Concepts, by Charles W. Hofer
and Dan Schendel. Copyright 1978 West
Publishing. Used by permission of SouthWestern College Publishing, a division of
International Thomson Publishing, Inc.,
Cincinnati, Ohio, 45227.

1. Market share
2. Technological know-how
3. Product quality
4. Service network
5. Price competitiveness
6. Operating costs

Industry attractiveness
1. Market growth
2. Market size
3. Capital requirements
4. Competitive intensity

Figure 3.5
336

Tactical Planning
Developing and Executing Tactical Plans
Developing tactical plans

Executing tactical plans

Recognize and understand

Evaluate each course of action

overarching strategic plans

and tactical goals
Specify relevant resource and
time issues
Recognize and identify human
resource commitments

in light of its goal

Obtain and distribute
information and resources
Monitor horizontal and vertical
communication and integration
of activities
Monitor ongoing activities for
goal achievement

337

Operational Planning

Source: Van Fleet, David D., Contemporary Management, Second Edition. Copyright 1991 by Houghton Mifflin Company. Used with permissions.
338

Types of Operational Plans

Plan

Description

Single-use plan

Developed to carry out a course of action not likely to

be repeated in the future

Program

Single-use plan for a large set of activities

Project

Single-use plan of less scope and complexity than a

program

Standing plan

Developed for activities that recur regularly over a

period of time

Policy

Standing plan specifying the organizations general

response to a designated problem or situation

Standard operating procedure

Standing plan outlining steps to be followed in

particular circumstances

Rules and regulations

Standing plans describing exactly how specific

activities are to be carried out

Table 3.1
339

Contingency Planning
Contingency is the determination of alternative courses of action to
be taken if an intended plan is unexpectedly disrupted or rendered
inappropriate. These plans help managers to cope with uncertainty
and change.
Ongoing planning process
Action point 1

Action point 2

Action point 3

Action point 4

Develop plan,

Implement plan and

Specify indicators

Successfully complete

considering

formally identify

for the contingency

plan or contingency

contingency events

contingency events

events and develop

plan

contingency plans for

each possible event

Monitor contingency event indicators and

implement contingency plan if necessary

Figure 3.6
340