Strategic Planning and Strategic Management Chapter 7 MANAGEMENT

Strategic Planning and Strategic Management Chapter 7 MANAGEMENT Meeting and Exceeding Customer Expectations EIGHTH EDITION Prepared by Deborah Baker Texas Christian University Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 1

learning objectives 1. Describe the nature of strategic planning and strategic management 2. Distinguish between strategy formulation and strategy implementation 3. Explain the steps involved in the strategic planning process 4. Explain the importance of assessing the Chapter 7 internal and external environments as a basis for strategic planning Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 2

learning objectives (continued) 5. Identify the sources and kinds of information required in the strategic planning process 6. Describe the factors involved in strategy implementation 7. Explain the formulation of corporate-level Chapter 7 strategy, business-level strategy, and functional -level strategy Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 3

Strategic Planning Organization’s Mission Chapter 7 Long-Term Goals and Strategies Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Resources 4

1 Strategic Management. Top management’s responsibility. Defines the firm’s position. Formulates strategies. Guides the execution of long-term organizational functions . Helps position the organization to achieve Chapter 7 a superior competitive fit Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 5

1 Strategic Planning Questions. What is the organization’s position in the marketplace? . What does the organization want its position to be? . What trends and changes are occurring in the marketplace? . What are the best alternatives to help the Chapter 7 organization achieve its goals? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 6

1 Four Elements of Strategy Scope Resource Deployment Chapter 7 Competitive Advantage Synergy Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 7

1 Scope Position or size Geographic markets Chapter 7 Products and services Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 8

Resource Deployment 1 Allocation of Resources . Material. Financial Chapter 7 . Human Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 9

1 Distinctive Competitive Advantage A unique position in relationship to competition Core Competencies Chapter 7 . what a company knows. what it does best Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 10

1 Synergy occurs when the parts of a single organization or two organizations… . interact. draw on each other’s strengths. produce a joint effort greater than the sum of the parts acting alone Chapter 7 . achieve a special advantage Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 11

1 Characteristics of Strategic Managers 1. Well informed 2. Skill at focusing their time and energy 3. Good at building consensus Chapter 7 4. Good at creating contingency plans 5. Accomplished at simplifying the process Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 12

2 Strategy Formulation vs. Strategy Implementation Strategy Formulation . assessing environments. analyzing core competencies Chapter 7 . creating goals and plans Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 13

2 Strategy Formulation vs. Strategy Implementation Chapter 7 . creating teams. adapting new technologies. focusing on processes. facilitating communications. offering incentives. making structural changes Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 14

Levels of Strategy 2 What business are we in? Corporate-Level What business Strategy should we be in? How do we compete? Business-Level Strategy Chapter 7 Functional-Level Strategy R&D How do we support business-level strategy? Finance Marketing Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Human Resources Production 15

Corporate Strategy 2 What business are we in? Questions Chapter 7 What business should we be in? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 16

2 Business-Level Strategy How do we compete? . How much will be spent on such activities as advertising and R & D? . What equipment and facilities will be needed? . Should existing product lines be expanded Chapter 7 or contracted? Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 17

2 Functional-Level Strategy Human Resource Management R&D Marketing Chapter 7 Finance Production Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 18

Chapter 7 3 Strategic Planning Process Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 19

Strategic Planning Process Chapter 7 3 Step 1 Create mission statement and goals Step 2 Analyze SWOT of internal and external environments Step 3 Reassess the organization’s mission statement, goals, and strategies Step 4 Formulate a strategic plan containing goals, strategies, and resources Step 5 Implement the strategies Step 6 Monitor and evaluate the results Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 20

4 SWOT Analysis Chapter 7 Internal Strengths Weaknesses Opportunities Threats External Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 21

5 External Sources of Information Customers Suppliers Government Reports Partners Consultants Trade Journals Chapter 7 Industry Associations Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 22

5 Internal Sources of Information Financial Statements and Analyses Employee Surveys Progress Reports on Operations Statistical Analyses of Data Chapter 7 Observation Outside Consultants Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 23

Chapter 7 5 Internal Strengths and Weaknesses Management Factors Marketing Factors Production Factors Research Factors Human Resource Factors Financial Factors Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 24

Chapter 7 5 External Strengths and Weaknesses New Competitors Substitute Products New Marketplaces Competitor Strategy Changes Customer Profitability Actions of Suppliers Government Regulations New Technology State of the Economy Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 25

Chapter 7 5 Example of a SWOT Analysis Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 26

5 Outcomes of a SWOT Analysis Reaffirm the current mission statement, goals, and strategies Chapter 7 Formulate a new mission statement, goals, and strategies Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 27

6 Leadership Criteria Idea Leadership Chapter 7 People Leadership Capability Leadership From Craig Weatherup Former CEO Pepsi Bottling Group Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 28

6 Principles to Follow When Implementing Strategy. Build a fluid, dynamic organization. Create mechanisms to respond to revolutionary change . Keep specialization to a minimum. Draft the best player. Develop from within; stimulate from without Chapter 7 . Encourage everyone to take full responsibility Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 29

7 Grand Strategies Growth Integration Diversification Chapter 7 Retrenchment Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved Stability 30

Grand Strategies 7 Growth Chapter 7 Integration Achieved internally by investing or externally by acquisition Adopted to stabilize its supply line or reduce costs, or to consolidate competition Diversification Adopted if the company wants to move into new products or markets Retrenchment Used to reduce the size or scope of a firm’s activities Stability Adopted when the organization wants to remain the same Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 31

7 Integration Strategies. Vertical Integration – Gaining ownership of resources, suppliers, or distribution systems that relate to a company’s business . Horizontal Integration Chapter 7 – A strategy to consolidate competition by acquiring similar products or services Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 32

Portfolio Strategy Chapter 7 7 Portfolio Strategy Determines the mix of business units and product lines that will provide a maximum competitive advantage Strategic Business Units Autonomous businesses with their own identities but operating within the framework of the organization Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 33

Chapter 7 7 BCG Growth-Share Matrix Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 34

7 Formulating Business-Level Strategy Chapter 7 Adaptive Strategies Competitive Strategies Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 35

Adaptive Strategies Chapter 7 7 Prospector Based on innovation, taking risks, seeing out opportunities, and expansion Defender Based on holding current market share or retrenching Analyzer Attempt to maintain current market share while innovating in some markets Reactor No strategy--responds to environmental threats as they occur and has no clear sense of direction Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 36

Chapter 7 7 Adaptive Strategies Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 37

Competitive Strategies 7 Set products or services apart from Chapter 7 Differentiation those of other companies Cost. Leadership Keep costs as low as possible through efficient operations and light controls Focus Target a specific market—a particular region or group of potential customers Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 38

7 Porter’s Generic Strategies Competitive Scope Competitive Advantage Low Cost Higher Cost Broad Overall Cost Leadership Differentiation Narrow Cost Focus Differentiation Focus Chapter 7 Source: Adapted from Michael E. Porter, The Competitive Advantage of Nations (New York: The Free Press, 1980), p. 39. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 39

Chapter 7 7 Marketing Strategy Pricing Promotion Distribution Products Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 40

7 Production Strategy Chapter 7 . Plant location. Inventory control methods. Manufacturing techniques. Quality and productivity improvement. Outside suppliers Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 41

7 Human Resources Strategy Chapter 7 . Recruiting. Training. Developing Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 42

7 Financial Strategy Chapter 7 . Distribution or retention of profits. Spending and investing funds. Raising additional funds Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 43

7 R & D Strategy . Invention and development of new technologies Chapter 7 . New applications for existing technologies Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved 44