Planning, Strategy, and Competitive Advantage

Planning, Strategy, and Competitive Advantage Chapter Six

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.

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 goals to pursue, what actions to take, and how to use resources to achieve goals based on analyses of conditions in • the external environment and • the internal organization. • Strategy is about how a company chooses to compete

Question? What is a broad declaration of an organization’s purpose ? • Company Bill of Rights • Mission Statement • Business Plan • Executive Summary

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

Three Steps in Planning Figure 6.1 • Internal and External Analysis • Strategy Formulation

Why Planning is Important • Planning is necessary to give the organization a sense of direction and purpose • Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization

Why Planning is Important • 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

Levels of Planning at General Electric Figure 6.2

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. • Mix of a companysbusinesses

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

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.

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.

Types of Plans • Standing Plans • Use in programmed decision situations • Single-Use Plans • Developed for a one-time, non-programmed issue

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

Types of Plans • Programs • integrated plans achieving specific goals. • Project • specific action plans to complete programs.

Three Mission Statements Figure 6.4

Determining the Organization’s Mission and Goals • Defining the Business • Who are our customers? • What customer needs are being satisfied? • How are we satisfying customer needs

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.

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

Planning and Strategy Formulation Figure 6.5

Formulating Strategy • SWOT Analysis • A planning exercise in which managers identify internal organizational strengths and weaknesses external opportunities and threats

The Five Forces

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

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

Formulating Business-Level Strategies • Focused low-cost strategy • Servingonly 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.

Discussion CBE Mission Statement and Profile of a CBE Graduate and QLU Mission • What is CBE’s mission? What resources does CBE have that supports its mission? • How would you describe CBE’s environment in terms of technology and government regulations? • What do you believe are the strengths and weaknesses of CBE? • What business-level strategy do you think CBE is following? • What is CBE’s competitive advantage? How does CBE add value?

Formulating Corporate-Level Strategies • Concentration on a Single Industry • reinvesting a company’s profits to strengthen its competitive position in its current industry

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

Stages in a Vertical Value Chain Figure 6.6

Question? What is expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services? • Differentiation • Diversification • Synergy • International expansion

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

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

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

International Expansion • Multi-domestic Strategy • Customizing products and marketing strategies to specific national conditions • Helps gain local market share • Raises production costs

Four Ways of Expanding Internationally Figure 6.7

International Expansion • Exporting • making products at home and selling them abroad • Importing • selling at home products that are made abroad

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

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

International Expansion • Wholly Owned Foreign Subsidiary • managers invest in establishing production operations in a foreign country independent of any local direct involvement

Planning and Implementing Strategy • Allocate implementation responsibility to the appropriate individuals or groups. • Draft detailed action plans for implementation. • Establish a timetable for implementation • Allocate appropriate resources • Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals. • Reward for strategy implementation.

Planning, Strategy, and Competitive Advantage