Chapter 6 Chapter Review

1. Chapter 6 Chapter Review Planning Strategy and Competitive Advantage Coke, Pepsi or HEB Cola

2. Objectives • Identify the 3 steps of the planning process and explain relationship between planning and strategy. • 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 • 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 • Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals

3. overview • Planning: identifying and selecting appropriate goals and courses of action; one of the four principal tasks of management • Strategy: a cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals • Mission statement: a broad declaration of an organization’s purpose that identifies the organization’s purpose, the organization’s products and customers and distinguishes the organization from its competitors

4. The planning process • Establish and discover where an organization is at the present time • Determine where it should be in the future, its desired future state • Decide how to move it forward to reach that future state.

5. Why planning is important • Planning is necessary to give the organization a sense of direction and purpose. What goals it is trying to achieve and what strategies it intends to use to achieve them. • Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. • 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. • A plan can be used as a device for controlling managers within an organization. WHO is responsible for actions so they are held ACCOUNTABLE

6. Effective plans: Henri Fayol • Unity: at any time only one central guiding plan is put into operation to achieve an organizational goal versus everyone being confused • Continuity: planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels-corporate, business, and functional to they FIT TOGETHER • Flexible: so plans can be altered and changed if the situation changes, managers must not be bound to a static plan

7. Levels of planning • Takes place at : corporate, business or division, and department or functional • Corporate: executive • Divisional managers: plan for particular division, they run one of the businesses • Functions or departments: Human resources with functional managers • See p. 179, General Electric

8. Levels and types of planning, p. 180 • Corporate: 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 • Business level plan: divisional managers’ decisions pertaining to divisions’ long term goals, overall strategy, and structure • Business level strategy: a plan that indicates how a division intends to compete against its rivals in an industry • 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

9. Time horizons: the intended duration of the plan • Long term plans: 5 or more years • Intermediate plans: 1 – 5 years • Short term plans: 1 year or less • Rolling plan: extends over several years and is updated and amended every year to take account of changing conditions in the external environment

10. Other plans THAT ARE IMPORTANT • Standing plans: used in situations in which programmed decision making is appropriate. “routine” situations. • A STANDING OPERATING PLAN: written instructions describing the exact series of actions that should be followed in a specific situation • Policy: everyone must be ethical, Rule: report a gift over $50 from supplier, SOP: recipient of gift must make disclosure of gift in writing • Single use plans: handle nonprogrammed decisions making in unusual or one of a kind situations: Programs – integrated sets of plans for achieving certain goals AND Projects – specific action plans created to complete various aspects of a program • Nasa: Program to reach the moon, project: develop Lunar module

11. Organization’s Mission and Goals • Mission: the overriding reason it exists to provide customers with goods or services they value, p 183 • Define its business: who are the customers, what customer needs are being satisfied, how are we satisfying customer needs?

12. 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 • Strategy formulation: the development of a set of corporate, business, and functional strategies that allow an organization to accomplish its mission and achieve its goals

13. Formulating strategy • managers work together to develop set of strategies (Corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals

14. SWOT Analysis • A planning exercise in which managers identify organizational s,w,o, and t’s. • Internal organizational Strengths (S) and Weaknesses (W) • External environmental opportunities (O) and threats (T) • Ex: Campbell soup fell apart when we reduced salt intake, p. 187

15. The five forces model: focus on the 5 most important competitive forces or threats • the level of rivalry among organizations in an industry: the more you compete by spending money or advertising and you reduce prices, you make less profit • The potential for entry into an industry: the easier for companies to enter an industry, barriers to entry are low due to low brand loyalty • The power of large suppliers: few suppliers of product can drive up prices to companies and so companies make less of what they produce having to pay more for their input from supplier • The power of large customers: if you only have a few large customers to buy your output, then they can bargain down the price, reducing your profit • The threat of substitute products: if a substitute exists, you cannot demand higher price for your product • Hyper competition: permanent, ongoing, intense competition brought about in an industry by advancing technology or changing customer tastes

16. Formulating business level strategiesMichael Porter • Michael Porter’s five forces model to counter and reduce the threats • Choose between differentiating the product to increase its value or lowering the cost of making the product. • Choose between 4 business strategies: low cost, differentiation, focused low cost, or focused differentiation

17. 1. Low cost strategy • Driving the organization’s costs down below the costs of its rivals • Reduce production costs, R&D to develop new products to be produced cheaper, find ways to lower costs • BIC pens are cheap and don’t try and rival Cross but Cross has the “name” recognition

18. 2. Differentiation strategy • Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality, or after sales service • Sell at a premium price • Coke and Pepsi versus HEB

19. “Stuck in the middle” • Porter says you can not simultaneously pursue both a low cost strategy and a differentiation strategy • BUT Toyota has a lower production cost and still can sell a Lexus! • Would you like Campbell’s soup or HEB brand? • Asus or Apple?

20. 3. Focused low cost and focused differentiation strategies • Serving only one segment of the overall market and trying to be the lowest cost organization serving that segment. The copy cat coke

21. 4. Focused differentiated strategy • Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment • BMW: they want to appeal to rich people versus Toyota wants to appeal to everyone • Only produce something for the West Coast

22. Formulating corporate level strategies • Which industries and countries should the company invest its resources to achieve its mission and goals • Sony lost markets to Apple and Samsung • To help a company grow, retrench and reorganize to stop decline: • Concentration on a single industry • Vertical integration • Diversification • International expansion

23. 1. Concentration on a single industry • Reinvesting a company’s profits to strengthen its competitive position in its current industry • Apple keeps improving the iPhone, iPads, etc. • McDonald’s wants to be bigger burger store in the world

24. 2. 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 • P. 195

25. 3. Diversification • Diversification: Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services. PepsiCo • 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. Depts. have to share various components of business to create synergy • Synergy: performance gains that result when individuals and departments coordinate their actions. Paper towels and diapers for Proctor and Gamble by sharing some materials, etc. • 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. Portfolio strategy

26. 4. International expansion • Global strategy: selling the same standardized product and using the same basic marketing approach to each national market. Rolex, Ralph Lauren, Tommy Hilfiger • Multidomestic strategy: customizing products and marketing strategies to specific national conditions. Marketing American food in India

27. Expanding internationally • Importing and Exporting. Exporting: making products at home and selling them abroad.Importing: selling products at home that are made abroad. • Licensing and Franchising. Licensing: allowing a foreign organization to take charge of manufacturing and distributing a product in its country or world region in return for a negotiated fee (DuPont having factory in India). Franchising: selling to a foreign organization the rights to use a brand name and operating know how to return for a lump sum payment and a share of the profits (McDonald’s)

28. 3. Strategic alliances: an agreement in which managers pool or share their organization’s resources and know how with a foreign company, and the two organizations share the rewards and risks of starting a new venture. OR joint venture: a strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business.

29. My favorite Cars! • Wholly owned foreign subsidiaries: production operations established in a foreign country independent of any local direct involvement • Toyota and Honda in the USA…they employ Americans but the profits go back to Japan