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Formulating Plans and Strategies
MANAGING: A COMPETENCY
BASED APPROACH
11th Edition
Chapter 7—Formulating Plans and Strategies
Don Hellriegel
Susan E. Jackson
John W. Slocum, Jr.
Prepared by
Argie Butler
Texas A&M University
Formulating Plans and Strategies
Formulating Plans and Strategies
 Learning Goals
1. Describe the importance and core components of
strategic and tactical planning
2. Discuss the effects of organizational diversification
strategies on planning
3. Describe the basic levels of strategy and planning
4. State the primary tasks of the strategic businesslevel planning process
5. Explain the generic competitive strategies model
6. Explain the integrated strategy/model
Chapter 7: PowerPoint 7.1
Formulating Plans and Strategies
Importance and Types of Planning:
Why Is Planning Important?
Discover new
opportunities
Comprehend
the uncertainties
and risks with
various options
Chapter 7: PowerPoint 7.2
Anticipate and
avoid future
problems
Effective
planning
helps to
Develop
effective courses
of action (strategies
and tactics)
Formulating Plans and Strategies
What Is Strategic Planning?
 The process of:
1. Diagnosing the organization’s external
and internal environments
2. Deciding on a vision and mission
3. Developing overall goals
4. Creating and selecting general strategies
to be pursued
5. Allocating resources to achieve
the organization’s goals
Chapter 7: PowerPoint 7.3
Formulating Plans and Strategies
What is Strategic Planning?
 Contingency planning—preparation for unexpected,
major, and quick changes (positive or negative) in
the environment that will have a significant impact
on the organization and require immediate responses
1. Plan for 3 to 5 potentially critical and
unanticipated events
2. Supports orderly and speedy adaptation
Chapter 7: PowerPoint 7.4
Formulating Plans and Strategies
Interrelated Core Components
in Strategic Planning
Vision and Mission
Resource
Allocation
Strategic
planning
Strategies
Chapter 7: PowerPoint 7.5
Organizational
Goals
Formulating Plans and Strategies
What is Strategic Planning?
 Vision:
Expresses an organization’s
fundamental aspirations and purpose,
usually by appealing to its members’
hearts and minds
 eBay:
To pioneer new communities
around the world built on commerce,
sustained by trust, and inspired by
opportunity
Chapter 7: PowerPoint 7.6
Formulating Plans and Strategies
What is Strategic Planning?
 Mission: The organization’s purpose or
reason for existing; often answers
questions such as:
1. What business are we in?
2. Who are we?
3. What are we about?
 eBay: To serve as the world’s online
marketplace for the sale and payment of
goods and services by a diverse community
of individuals and businesses
Chapter 7: PowerPoint 7.7
Formulating Plans and Strategies
 Organizational goals: the results that the managers
and others have selected and are committed to
achieving for the long-term survival and growth of
the firm
1. May be expressed qualitatively and quantitatively
2. Qualitative: simplify the sales process within six
months
3. Quantitative: reduce operating costs by $1 billion
within eighteen months
Chapter 7: PowerPoint 7.8
Formulating Plans and Strategies
 Strategies: the major courses of action (choices) selected
and implemented to achieve one or more goals
The essence of most good strategies is the need to make many
choices that are all consistent—choices about production,
service, design, and so on. Companies cannot randomly
make a lot of choices that all turn out to be consistent. It’s
statistically impossible. That means companies need to grasp
at least a part of the whole. As we study the histories of
successful companies, we see that someone or some group
developed insight into how a number of choices fit together…
Michael Porter
Harvard Business School
Chapter 7: PowerPoint 7.9
Formulating Plans and Strategies
 Resource allocation: assigning money, people,
facilities, and other resources among various
current and new business opportunities
 Key part: allocating money, through budgets,
for various purposes
Chapter 7: PowerPoint 7.10
Formulating Plans and Strategies
What is Tactical Planning?
What to do
Who will do it
Making
decisions
Normal regarding:
time horizon of
1 to 2 years,
often less
Chapter 7: PowerPoint 7.11
How to do
it
Formulating Plans and Strategies
 Specific courses of
action
 Implementing
initiatives or
improving current
operations
 Integrated with
annual budgeting
 Focus on first-line
and middlemanagers
Chapter 7: PowerPoint 7.12
Formulating Plans and Strategies
Diversification Strategies and
Planning: Diversification
 Diversification
The variety of goods and/or services produced by an
organization and the number of different markets it serves
 Snapshot
“We are always looking for companies, products, or emerging
technologies that will complement and strengthen our existing
businesses, lead us into new therapeutic areas to address unmet
medical needs, enhance our research and development
capabilities, and, ultimately, further our strategy for growth.
Each acquisition is different, and in each situation, we carefully
examine the best way to integrate that technology, product, or
organization into our family of companies.”
William C. Weldon
Chairman and CEO, Johnson & Johnson
Chapter 7: PowerPoint 7.13
Formulating Plans and Strategies
1. What can we do
better than other
firms if we enter a
new market?
2. What strategic
resources—human,
financial, and
others—do we need to
succeed in the
new market?
Questions in
Considering
Diversification
4. What can
we learn by
diversifying, and
are we sufficiently
organized to learn
it?
Chapter 7: PowerPoint 7.14
3. Will we
simply be a player
in the new market
or will we emerge
a winner?
Formulating Plans and Strategies
Types of Diversification Strategies
 Single-business strategy: providing a limited number of
goods or services to one particular market
 Dominant-business strategy: serving various segments of
a market
 Related-business strategy: providing
complementary goods and/or services
a
variety
of
 Unrelated-business strategy: providing diverse products
(goods and/or services) to many different types of
markets
Chapter 7: PowerPoint 7.15
High
Complexity of Strategic
Planning
Formulating Plans and Strategies
Types of Diversification Strategies and Planning
 General
Electric
Johnson
&
Johnson
 MTV
Networks
Google
Low
Singlebusiness
strategy
DominantRelatedbusiness
business
strategy
strategy
Diversification Strategy
Chapter 7: PowerPoint 7.16 (Figure 7.2)
Unrelatedbusiness
strategy
Formulating Plans and Strategies
Strategy Levels and Planning:
Corporate-Level Strategy
Focuses on:




the types of businesses the firm wants to be in,
ways to acquire or divest businesses,
allocation of resources among the businesses, and
ways to develop learning and synergy among those
businesses
 Corporate-level Management
 Guides and reviews performance of strategic units
 Strategic business unit (SBU): a division or subsidiary
of a firm that provides a related set of products or
services and usually has its own mission and goals
Chapter 7: PowerPoint 7.17
Formulating Plans and Strategies

Forward
integration
Backward
integration
Organic:
Conglomerate Expansion of
existing
diversification
businesses
Related
diversification
Chapter 7: PowerPoint 7.18 (Figure 7.4)
Horizontal
integration
Formulating Plans and Strategies
Corporate-Level Strategy
 Executive Compensation and Corporate Growth
 Salary, bonuses, stock options, etc.
 Stock option: a contractual right granted by a
company to the employee to purchase a
defined number of shares of the company’s
stock at a fixed price within a specified period
of time
 Much criticism in recent years over the design
and monitoring of executive compensation
programs
Chapter 7: PowerPoint 7.19
Formulating Plans and Strategies
Business-Level Strategy
The resources allocated and actions taken to achieve
desired goals in serving a specific market with a
highly interrelated set of goods and/or services
 Plans and strategies developed for
1. maintaining or gaining a competitive edge in
serving its customers,
2. determining how each functional area can best
contribute to its overall effectiveness, and
3. allocating resources for expansion and among
its functions
Chapter 7: PowerPoint 7.20
Formulating Plans and Strategies
Business-Level Planning
 Basic Questions
3. How will customers’ needs be
satisfied?
2. What customer needs will be satisfied?
1. Who will be served?
Chapter 7: PowerPoint 7.21
Formulating Plans and Strategies
 The actions and resource commitments
established for operations, marketing,
human resources, finance, legal services,
accounting, and the organization’s other
functional areas
 Should support business-level strategies
and plans
HR
Chapter 7: PowerPoint 7.22
Finance
Other
Formulating Plans and Strategies
Examples of Issues in Developing
Human Resources Strategies
What type of
reward system is
needed?
What approach
should be used to
recruit qualified
personnel?
How should the
performance of
employees be
reviewed?
How is affirmative
and fair treatment
ensured for women,
minorities, and the
disabled?
Chapter 7: PowerPoint 7.23 (Adapted from Table 7.2)
Formulating Plans and Strategies
Examples of Issues in Developing
Finance Strategies
What is the desired
mixture of
borrowed funds
and equity funds?
What portion of
profits should be
reinvested and what
portion paid out as
dividends?
What criteria should
be used in allocating
financial and human
resources to
projects?
What should be the
criteria for issuing
credit to customers?
Chapter 7: PowerPoint 7.24 (Adapted from Table 7.2)
Formulating Plans and Strategies
Business-Level Strategic Planning
Tasks and Process
Task 2: Diagnose
Opportunities and
Threats
• Industry/market
competition
• Political forces
• Stakeholders
expectations
• Values, culture
• Others
Evaluate against
Task 1: Develop
Vision, Mission and
Goal
Task 3: Diagnose
Strengths and
Weaknesses
• Who are we?
• What do we want to
become?
• What are our goals?
• Competitive position
• Human skills
• Technological
capabilities
• Financial resources
• Organization and
management
Task 4: Develop
Strategies
Chapter 7: PowerPoint 7.25 (Adapted from Figure 7.5)
Evaluate against
(continued)
Formulating Plans and Strategies
Business-Level Strategic Planning
Tasks and Process (cont’d)
Task 5: Develop Strategic Plan
• Selected strategy or strategies (includes
market segments and competitive methods)
• Required human skills and competencies
• Required technological capabilities
• Required financial resources
• Required organization and management
Task 6: Prepare Tactical Plans
Task 7: Control and Diagnose Results
Task 8: Continue Planning
Chapter 7: PowerPoint 7.26 (Adapated from Figure 7.5)
Formulating Plans and Strategies
Core Competencies: the strengths that make
an organization distinctive and competitive by
providing goods or services that have unique
value to its customers
“If you look at most of the corporate tragedies in the last five years,
you’ll also discover that many of them were companies moving into
other businesses they really shouldn’t have moved into, that weren’t
close to their core business and competencies, including Enron,
Kmart, and Worldcom. If you’re having problems in your core
business and think you can move to another business, it’s not going to
work. You have to have strong assets you can build on. The farther
away people got from their core business and competencies, the lower
their rate of success.”
Ted Rouse
Global Business Practice
Bain and Company
Chapter 7: PowerPoint 7.27
Formulating Plans and Strategies
Outsourcing Strategy: Contracting with other
organizations to perform a needed service and/or
manufacture needed parts or products that had
previously been provided within the firm
 Outsourcing Drivers
1. expense reduction (including fewer employees),
2. better production quality,
3. improved reporting uniformity and regulatory
compliance,
4. more effective use of expensive talent so that
they can spend more of their time on innovating,
expanding global capabilities, and
5. more effective business process management
Chapter 7: PowerPoint 7.28
Formulating Plans and Strategies
Market
penetration
Organic
Product
development growth
Market
development
Chapter 7: PowerPoint 7.29 (Figure 7.6)
Broad
Strategic Target
Formulating Plans and Strategies
Generic Competitive Strategies Model
Narrow
Differentiation
Strategy
Cost Leadership
Strategy
Focused
Differentiation
Strategy
Focused
Cost Leadership
Strategy
Uniqueness
Low Cost (price)
Sources of Advantage
Chapter 7: PowerPoint 7.30 (Adapted from Figure 7.7)
Formulating Plans and Strategies
 Snapshot
“The best strategy for a smaller
business is to divide demand into manageable
market niches. Small operations can then offer
specialized goods and services attractive to a
specific group of prospective buyers…Try to find
the right configuration of products, services,
quality and price that will ensure the least direct
competition.”
Ron Consolino
Management Counselor
Counselors to America’s Small Business
Chapter 7: PowerPoint 7.31
Formulating Plans and Strategies
Integrated Strategy Model
Arenas
Where will the firm
be active?
Economic
Staging
Logic
What will be the firm’s
speed and sequence How will the firm
obtain
of moves?
profits?
Adapted from
D.C. Hambrick
and J.W. Fredrickson.
Differentiation
Are you sure you have a
How will the firm
strategy: Reprinted in
excel?
Academy of Management
Executive, 2005, 15(4), 54.
Chapter 7: PowerPoint 7.32 (Figure 7.8)
Vehicles
How will the firm
get there?
Formulating Plans and Strategies
Criteria for Evaluating the Quality of a Firm’s
Integrated Strategy
 Does the strategy fit with what’s going on in the environment?
1. Is there healthy profit potential where the firm’s
headed?
2. Does the strategy align with the key success factors of
the chosen environment?
 Does the strategy exploit the firm’s key resources?
1. With the firm’s particular mix of resources, does
this strategy give it a good head start on
competitors?
2. Can this strategy be pursued more economically
than competitors?
Chapter 7: PowerPoint 7.33 (Adapted from Table 7.4)
Formulating Plans and Strategies
Criteria for Evaluating the Quality of a Firm’s
Integrated Strategy (cont’d)
 Will the differentiators be sustainable?
1. Will competitors have difficulty matching the firm?
2. If not, does the strategy call for innovation and
opportunity creation?
 Are the elements of the strategy internally consistent?
1. Have the leaders made choices of arenas, vehicles,
differentiators, staging, and economic logic?
2. Do they all fit and mutually reinforce each other?
Chapter 7: PowerPoint 7.34 (Adapted from Table 7.4)
Formulating Plans and Strategies
Criteria for Evaluating the Quality of a Firm’s
Integrated Strategy (cont’d)
 Are there enough resources to pursue this strategy?
1. Does the firm have the money, managerial competencies,
and other capabilities to implement the strategy?
2. Are the leaders sure that they are not spreading the
firm’s resources too thinly, only to be left with a collection
of positions?
Chapter 7: PowerPoint 7.35 (Adapted from Table 7.4)
Formulating Plans and Strategies
Criteria for Evaluating the Quality of a Firm’s
Integrated Strategy (cont’d)
 Is the strategy implementable?
1. Will the key stakeholders allow the firm to pursue this
strategy?
2. Can the organization make it through the transition?
3. Is management team able and willing to lead the
required changes?
Adapted from D.C. Hambrick and J.W. Fredrickson. Are you sure you
have a strategy? Reprinted in Academy of Management Executive, 2005,
19(4), 61.
Chapter 7: PowerPoint 7.36 (Adapted from Table 7.4)