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Bateman
Snell
Management
Competing
in the
New Era
5th
Edition
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Part Two
Chapter 4 - Planning and Strategic Management
Chapter Outline
An Overview of Planning Fundamentals
Levels of Planning
Strategic Planning: Yesterday and Today
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives
After
studying Chapter 4, you will know:
 how
to proceed through the basic steps in any planning
process
 how strategic planning differs from tactical and operational
planning
 why it is important to analyze both the external environment
and internal resources of the firm before formulating a
strategy
 the choices available for corporate strategy
 how companies can achieve competitive advantage through
business strategy
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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Learning Objectives (cont.)
After
studying Chapter 4, you will know:
 how
core competencies provide the foundation for business
strategy
 the keys to effective strategy implementation
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An Overview Of Planning
Fundamentals
Planning
 the
conscious, systematic process of making decisions about
goals and activities to be pursued in the future
 importance of formal planning has grown dramatically
Basic
planning process
 Step
one: situational analysis
a
process planners use, within time and resource constraints, to
gather, interpret, and summarize all information relevant to the
planning issue under consideration
study past and current conditions, and forecast future trends
focuses on internal forces and influences from the external
environment
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An Overview Of Planning
Fundamentals (cont.)
Basic
planning process (cont.)
 Step
two: alternative goals and plans
generate
alternative future goals and plans to achieve them
goals - targets or ends the manager wants to reach

should be specific, challenging, and realistic
plans
- the actions or means intended to achieve goals
identify alternative actions, needed resources, and potential
obstacles
 single use plans - designed to achieve goals that are unlikely to be
repeated in the future
 standing plans - designed to achieve an enduring set of goals
 contingency plans - actions to be taken when initial plans fail

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An Overview Of Planning
Fundamentals (cont.)
Basic
planning process (cont.)
 Step
three: goal and plan evaluation
evaluate
the advantages, disadvantages, and potential effects of
each alternative goal and plan
prioritize those goals
consider the implications of alternative plans
 Step
four: goal and plan selection
identify
the priorities and trade-offs among goals and plans
leads to a written set of goals and plans that are appropriate and
feasible within a predicted set of circumstances
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
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An Overview Of Planning
Fundamentals (cont.)
Basic
planning process (cont.)
 Step
five: implementation
plans
are useless unless they are implemented properly
managers must understand the plan, have the necessary
resources, and be motivated to implement it
 Step
six: monitor and control
must
continually monitor the actual performance in relation to
the goals and plans
develop control systems to take corrective action
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Decision-Making Stages And
Formal Planning Steps
Identifying and
diagnosing the problem
Situational
analysis
Generating alternative
solutions
Alternative
goals and plans
Evaluating
alternatives
Goal and
plan evaluation
Making the
choice
Goal and
plan selection
Implementing
Implementation
Evaluation
Monitor and
control
Specific formal
planning steps
General decisionmaking stages
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Levels Of Planning
Strategic
planning
 decisions
of senior executives about the organization’s longterm goals and strategies
 has an external orientation
 covers major portions of the organization
 strategic goals - major targets that relate to the long-term
survival, value, and growth of the organization
 strategy - pattern of actions and resource allocations
designed to achieve the goals of the organization
matches
the skills and resources of the organization to the
opportunities found in the external environment
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Levels Of Planning (cont.)
Tactical
planning
 translates
broad strategic goals and plans into specific goals
and plans that are relevant to a definite portion of the
organization
 focuses on the major actions that a unit must take to fulfill its
part of the strategic plan
Operational
planning
 identifies
the specific procedures and processes required at
lower levels of the organization
 plans intended for short periods of time and focus on routine
tasks
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Levels Of Planning (cont.)
Strategic,
tactical, and operational plans must be
consistent and mutually supportive
 Starbucks’ balanced
scorecard - method for linking strategic
and operational planning
to
use the scorecard for planning, it is necessary to:
clarify the vision
 develop business unit scorecards
 review business unit scorecards
 communicate the scorecard to the entire company
 conduct annual strategy reviews

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Applying The Balanced Scorecard
For Starbucks
Financial
• $1 billion company (market value)
• $100 million annual profits
• 800% stock appreciation
• 2000+ stores
Customer
“3rd
Process
• Striving to be
place”
• Repeat business
• 30-40% annual expansion
• Only 5% of all U.S. consumption
• Brand extension
Vision
And
Strategy
• Brewing the perfect cup
• Brewing the perfect cup at home
• Retail skills and customer service
• Coffee knowledge
• Empowerment
People/Learning
• Commitment/trust (low turnover)
• Training
• Beanstock program
• Opinion surveys
• Flexible schedules
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Strategic planning: yesterday and
today
Traditional
strategic planning
 emphasized
a top-down approach
 was the responsibility of senior executives and special
planning units, and excluded line managers
 gap developed between strategic managers and tactical and
operational managers
Strategic
planning today
 managers
from throughout the organization are involved in
the strategy formulation process
 strategic management - involves strategic planning and
management into a single process
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The Strategic Management
Process
Analysis of
internal
strengths and
weaknesses
Establishment
of mission,
vision, and
goals
SWOT analysis
and strategy
formulation
Strategy
implementation
Strategic
control
Analysis of
external
opportunities
and threats
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Strategic Management Process
Step
1: establishment of mission, vision, and goals
 mission
- basic purpose and values of the organization
defines
the scope of operations
states the organization’s reason to exist
written in terms of the general clients served by the organization
 strategic
vision - provides a perspective on where the
company is headed and what the organization can become
moves
beyond the mission statement
 strategic
goals - evolve from the mission and vision of the
organization
need
to be communicated to everyone who has contact with the
organization
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Strategic Management Process
(cont.)
Step
2: analysis of external opportunities and threats
 successful
strategic management depends on an accurate and
thorough evaluation of the environment
 stakeholders - groups and individuals who affect and are
affected by the achievement of the organization’s mission,
goals, and strategies
 forecasting future trends is critical
 must develop a clear sense of market opportunities
identify
potential threats as well
difference between an opportunity and threat may depend on
how a company positions itself strategically
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Elements Of Environmental
Analysis
Industry and
market analysis
Technological
analysis
Macroeconomic
analysis
Competitor
analysis
Environmental
Analysis
Human resources
analysis
Political and
regulatory analysis
Social
analysis
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Resources And Core Competence
Resources
are rare
Resources
are
inimitable
Core
competencies
Resources
are
organized
Resources
are
valuable
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Strategic Management Process
(cont.)
Step
3: analysis of internal strengths and weaknesses
 Resources
- inputs to production that can be accumulated
over time to enhance the performance of the firm
may
be tangible or intangible assets
provide a competitive advantage if:
the resource is instrumental in creating customer value
 the resource is rare and not equally available from other sources
 resource is difficult to imitate
 resource is well organized

 Core
competence - something a company does especially
well relative to its competitors
usually
a set of skills or expertise in some activity
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Internal Resource Analysis
Financial
analysis
Other internal
resource analysis
Operations
analysis
Internal
Resource
Analysis
Human resource
assessment
Marketing audit
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Strategic Management Process
(cont.)
Step
3: internal strengths and weaknesses (cont.)
 Benchmarking
- process of assessing how well one
company’s basic functions and skills compare to those of
other companies
goal
is to thoroughly understand the “best practices” of other
firms
only permits imitating rather than surpassing competitors
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Strategic Management Process
(cont.)
Step
4: SWOT analysis and strategy formulation
 SWOT
analysis - comparison of strengths, weaknesses,
opportunities, and threats
helps
summarize the major facts and forecasts derived from
external and internal analyses
used as the basis for identifying primary and secondary strategic
issues confronting the organization
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Strategic Management Process
(cont.)
Step
4: strategy formulation (cont.)
 Corporate
strategy - identifies the set of businesses, markets,
or industries in which the organization competes and the
distribution of resources among those businesses
concentration
strategy - focuses on a single business competing
in a single industry
vertical integration - expands the domain of the organization
into supply channels or to distributors
concentric diversification - moving into businesses that are
related to the company’s original core business
conglomerate diversification - expands into unrelated
businesses
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Strategic Management Process
(cont.)
Step
4: strategy formulation (cont.)
 BCG
matrix - used to analyze and communicate corporate
strategy
each
business in the corporation is plotted on the growth rate of
its market and the relative strength of its competitive position in
that market (market share)
question marks - require substantial investment to improve their
position
 otherwise divestiture is recommended
 stars - require heavy investment, but generate needed revenues
 cash cows - generate revenues in excess of their investment needs
 used to fund other businesses
 dogs - remaining revenues are realized, and then firms are divested

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The BCG Matrix
Question
Marks
High
Market
growth
Stars
Cash
Cows
Dogs
Low
Strong
Relative
competitive position
Weak
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Strategic Management Process
(cont.)
Step
4: strategy formulation (cont.)
 Trends
in corporate strategy
wave
of mergers and acquisitions either by concentrating in one
industry or by portfolio diversification
implementing a diversified strategy depends on individual
circumstances
unrelated diversification may hurt a corporation
 diversification may help competing in a slow-growth, mature, or
threatened industry

organizations
tend to perform better if they implement a more
concentric diversification strategy
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Summary Of Corporate Strategies
Supply
chain
Concentration
Vertical
Integration
Concentric
diversification
Vertical
Integration
Distribution
Channels
Primary Industry
Unrelated
Industry
Conglomerate
diversification
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Strategic Management Process
(cont.)
Step
4: strategy formulation (cont.)
 Business
strategy - defines the major actions used to build
and strengthen competitive position
low-cost
strategy - attempt to be efficient and offer a standard
product
useful for companies that are large and take advantage of
economies of scale in production or distribution
 organization must be the cost leader in its industry
 must offer a product that is acceptable to customers

differentiation
strategy - attempt to be unique in its industry or
market segment along some dimensions that customers value

position based on high product quality, excellent marketing and
distribution, or superior service
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Strategic Management Process
(cont.)
Step
4: strategy formulation (cont.)
 Functional
strategy - implemented by each functional area
of the organization to support the business strategy
ensures
that departments operate in a manner that is consistent
with business strategies
Step
5: strategy implementation
 organizations
adopting a comprehensive view of
implementation
 organizations applying a participative strategic management
process to implementation
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Steps In Strategy Implementation
Develop
implementation
agenda
Develop
implementation
agenda
Develop
implementation
agenda
Develop
implementation
agenda
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Strategic Management Process
(cont.)
Step
6: strategic control
 designed
to support managers in evaluating the
organization’s progress with its strategy
 when discrepancies are identified, corrective action is taken
 encourage efficient operations that are consistent with the
plan
 typically involve budgets to monitor and control financial
expenditures
strategic
budget - used to create and maintain long-term
effectiveness
operational budget - tightly monitored to achieve short-term
efficiency
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.