Discussion 3
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Jone8e_PPT_C06_Final1-1.pptxCHAPTER 6
Planning, Strategy, and Competitive Advantage
Learning Objectives
6-1. Identify the three main steps of the planning process and explain the relationship between planning and strategy.
6-2. Differentiate between the main types of strategies and explain how they give an organization a competitive advantage that may lead to superior performance.
6-3. 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.
6-4. Describe the vital role managers play in implementing strategies to achieve an organization’s mission and goals.
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Planning and Strategy (1 of 2)
Planning
Identifying and selecting appropriate goals and courses of action for an organization
Strategy
A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals
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An organizational plan, resulting from the planning process, includes the goals of the organization and the specific strategies managers will implement to attain those goals.
Planning and Strategy (2 of 2)
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
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The mission statement also identifies what is unique or important about its products to its employees and customers and it distinguishes or differentiates the organization in some ways from its competitors.
Three Steps in Planning
Figure 6.1
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The Nature of 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.
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In order to decide what to do now, a manager must forecast into the future. A good prediction will mean effective strategies to take advantage of opportunities that arise and to counter emerging competition.
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Topics for Discussion (1 of 4)
Describe the three steps of planning. Explain how they are related. [LO 6-1]
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The first step in planning involves determining the organization’s mission and goals. The second step is formulating strategy in which managers analyze the organization’s current situation and then conceive and develop the strategies necessary to attain the organization’s mission and goals. The third step is strategy implementation, in which managers decide how to allocate the resources and responsibilities required to put those strategies into action so that change will occur within the organization. The first step, determining the organization’s mission and goals, guides the following two steps in the planning process by defining which strategies are appropriate and which are inappropriate.
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Why Planning Is Important (1 of 2)
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.
Copyright Ryan McVay/Getty Images
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Without the sense of direction and purpose that a formal plan provides, managers may interpret their own specific tasks and jobs in ways that best suit themselves. The result will be an organization that is pursuing multiple and often conflicting goals and a set of managers who do not cooperate and work well together. The text gives the example of Intel, where top managers, as part of their annual planning process, regularly request input from lower-level managers to determine what the organization’s goals and strategies should be.
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Why Planning Is Important (2 of 2)
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.
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A good plan will also specify who will bear the responsibility of implementing the strategies, as well as detailing the strategies and naming the goals.
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Levels of Planning at General Electric
Figure 6.2
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Levels and Types of Planning (1 of 4)
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
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The text cites GE when discussing corporate-level plans and strategies: One of the goals in GE’s corporate-level plan is that the company should be a leader in market share in every industry in which it competes. A division that cannot attain this goal may be sold to other companies. For example, GE sold off the majority of its GE Capital financial services arm in 2015. Another GE goal is to acquire other companies that can help a business unit build market share to reach its corporate goal of being a market leader in a particular industry.
Levels and Types of Planning (2 of 4)
Figure 6.3
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Levels and Types of Planning (3 of 4)
Business-Level Plan
Divisional managers’ decisions pertaining to a division’s 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
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The primary responsibility of top managers is corporate-level planning and. For example, the corporate-level goal of GE is to be the first or second leading company in every industry in which it competes. Jeffrey Immelt and his top management team decide which industries GE should compete in to achieve this goal. The corporate-level plan provides the framework within which divisional managers create their business-level plans.
Levels and Types of Planning (4 of 4)
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 in order to perform its task-specific activities in ways that add value to an organization’s goods and services
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Consistent with GE’s lighting division’s strategy of driving down costs, its manufacturing function might adopt the goal “To reduce production costs by 20% over the next three years,” and functional strategies to achieve this goal might include:
(1) investing in state-of-the-art European production facilities and
(2) developing an electronic global business-to-business network to reduce the costs of inputs and inventory holding.
Topics for Discussion (2 of 4)
What is the relationship among corporate-, business-, and functional-level strategies, and how do they create value for an organization? [LO 6-2, 6-3]
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A corporate-level strategy is a plan that indicates in which industries and national markets an organization intends to compete. A business-level strategy indicates how a division intends to compete against its rivals in an industry. A functional-level strategy is a plan of action that managers of individual functions can follow to improve the ability of each function to perform its task-specific activities. In a planning process, it is important that there is a consistency in planning across the three divisions. When consistency is achieved, the organization operates with increasing efficiency and effectiveness.
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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.
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Corporate and business-level goals and strategies require long- and intermediate-term plans.
Functional plans focus on short-to intermediate-term plans
Most organizations have a rolling planning cycle to amend plans constantly.
Types of Plans
Standing Plans
Use in programmed decision situations
Single-Use Plans
Developed for a one-time, nonprogrammed issue
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When the same situations occur repeatedly, managers develop policies, rules, and standard operating procedures (SOPs) to control the way employees perform their tasks.
An example of a single-use plan: NASA is working on a major program to launch a rover in 2020 to investigate a specific environment on the surface of Mars. One project in this program is to develop the scientific instruments to bring samples back from Mars.
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
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Managers create standing and single-use plans to help achieve an organization’s specific goals.
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Single-Use Plans
Programs
Integrated plans achieving specific goals
Project
Specific action plans to complete programs
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A standing plan might lay out ethical behavior, including a policy that requires any employee who receives from a supplier or customer a gift worth more than $50 to report the gift; and an SOP that obliges the recipient of the gift to make the disclosure in writing within 30 days.
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Three Mission Statements
Figure 6.4
| COMPANY | MISSION STATEMENT |
| Our mission is simple: Connect the world’s professionals to make them more productive and successful. | |
| Our mission: To give everyone the power to create and share ideas and information instantly, without barriers. | |
| Facebook’s mission is to give people the power to share and make the world more open and connected. |
Sources: Company website, “Mission,” www.linkedin.com, accessed March 23, 2015: company website, “About,” https://about.twitter.com, accessed March 23, 2005, company website, “Our Mission,” www.facebook.com, accessed September 1, 2015.
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Determining the Organization’s Mission and Goals (1 of 3)
Defining the Business
Who are our customers?
What customer needs are being satisfied?
How are we satisfying customer needs?
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These questions are used to identify customer needs and how to satisfy those needs. The answers will provide not only the needs that are being satisfied, but guides for how to satisfy future needs, as well as identifying competitors.
Determining the Organization’s Mission and Goals (2 of 3)
Establishing Major Goals
Goals provide the organization with a sense of direction.
Goals stretch the organization to higher levels of performance.
Goals must be challenging but realistic with a definite period in which they are to be achieved.
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Organizations need goals to have a sense of direction, and top management articulates these goals. The text names GE CEO Immelt and discusses his goal of being one of the two best performers in every industry in which the company competes, a highly challenging set of goals.
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Determining the Organization’s Mission and Goals (3 of 3)
Strategic Leadership
The ability of the CEO and top managers to convey a compelling vision to their subordinates of what they want the organization to achieve
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A leader can impel employees to undertake the difficult tasks to reach a goal by instilling in them their vision and by modeling behavior.
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Formulating Strategy (1 of 2)
Figure 6.5
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Formulating Strategy (2 of 2)
SWOT Analysis
A planning exercise in which managers identify internal organizational strengths (S) and weaknesses (W) and external environmental opportunities (O) and threats (T)
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A SWOT analysis can assist managers in selecting strategies to better position the organization toward its goals and mission.
The Five Forces Model (1 of 2)
| Competitive Forces | Effects |
| Level of Rivalry | Increased competition results in lower profits. |
| Potential for Entry | Easy entry leads to lower prices and profits. |
| Power of Suppliers | If there are only a few suppliers of important items, supply costs rise. |
| Power of Customers | If there are only a few large buyers, they can bargain down prices. |
| Substitutes | More available substitutes tend to drive down prices and profits. |
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Porter identified these five factors as major threats because they affect how much profit organizations competing within the same industry can expect to make.
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The Five Forces Model (2 of 2)
Hypercompetition
Permanent, ongoing intense competition brought about in an industry by advancing technology or changing customer tastes
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The wireless mobile communication industry is an example.
Formulating Business-Level Strategies (1 of 3)
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
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A low-cost strategy requires that manufacturing managers search for new ways to reduce production costs, R&D managers focus on developing new products that can be manufactured more cheaply, and marketing managers find ways to lower the costs of attracting customers. According to Porter, companies pursuing a low-cost strategy can sell a product for less than their rivals sell it and yet still make a good profit because of their lower costs. A differentiation strategy frequently requires that managers increase spending on product design or R&D to differentiate products, and costs rise as a result.
Formulating Business-Level Strategies (2 of 3)
“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
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Organizations stuck in the middle tend to have lower levels of performance than do those that pursue a low-cost or a differentiation strategy. To avoid being stuck in the middle, top managers must instruct departmental managers to take actions that will result in either low cost or differentiation.
Formulating Business-Level Strategies (3 of 3)
Focused Low-Cost Strategy
Serving only 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
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The text gives the example of BMW and Toyota: BMW pursues a focused differentiation strategy, producing cars exclusively for higher-income customers. By contrast, Toyota pursues a differentiation strategy and produces cars that appeal to consumers in almost all segments of the car market, from basic transportation (Toyota Corolla) through the middle of the market (Toyota Camry) to the high-income end of the market (Lexus).
Topics for Discussion (3 of 4)
Pick an industry and identify four companies in the industry that pursue one of the four main business-level strategies (low-cost, focused low-cost, etc.). [LO 6-1, 6-2]
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Within the commercial airline industry, American Airlines attempts to differentiate itself by maintaining a reputation of providing superior service on a national level. Jet Blue pursues a focused differentiation strategy, since it also attempts to distinguish itself by providing superior service but only in secondary hubs. Southwest has successfully executed a low cost strategy for many years. Sprint Airlines is also pursuing a low cost strategy, but like Jet Blue, is restricted to servicing only secondary hubs.
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Formulating Corporate-Level Strategies
Concentration on a Single Industry
Reinvesting a company’s profits to strengthen its competitive position in its current industry
Copyright Bloomberg via Getty Images
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The text gives two examples of companies that concentrated on a single industry—Apple and McDonald’s. Apple continuously introduces improved mobile wireless digital devices such as the iPhone and iPad, whereas McDonald’s, which began as one restaurant in California, focused all its efforts on using its resources to quickly expand across the globe to become the biggest and most profitable U.S. fast-food company.
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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
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The text gives Tesla Motors as an example of vertical integration: The company began to build it’s own batteries to supply their cars in their pursuit of mass-producing an electric car for $35,000.00. They now expect that battery company, Gigafactory, to lower the cost of car batteries.
Stages in a Vertical Value Chain
Figure 6.6
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Diversification (1 of 3)
Diversification
Expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services
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Examples include PepsiCo’s diversification into the snack food business with the purchase of Frito Lay, and Cisco’s diversification into consumer electronics when it purchased Linksys.
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Diversification (2 of 3)
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
Synergy
Performance gains that result when individuals and departments coordinate their actions
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Related diversification can add value to an organization’s products if managers can find ways for its various divisions or business units to share their valuable skills or resources so that synergy is created. For example, suppose two or more divisions of a diversified company can use the same manufacturing facilities, distribution channels, or advertising campaigns—that is, share functional activities. Each division has to invest fewer resources in a shared functional activity than it would have to invest if it performed the functional activity by itself.
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Diversification (3 of 3)
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
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In pursuing unrelated diversification, management can obtain a company that is doing poorly or failing, and then transfer their management skills to the new company. Hopefully, this produces a turnaround and increased performance.
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Topics for Discussion (4 of 4)
What is the difference between vertical integration and related diversification? [LO 6-3]
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Related diversification is a strategy that entails entering a new business or industry with the intention of creating a competitive advantage by capitalizing on a current strength or core competency. Related diversification adds values to the company when managers can find ways for its various divisions or business units to share their valuable skills or resources so that synergy is created.
Vertical integration is a strategy that entails entering a new business that either produces inputs for the company’s products (backward vertical integration) or assists in the distribution or selling of the company’s products (forward vertical integration).
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International Expansion (1 of 6)
Global Strategy
Selling the same standardized product and using the same basic marketing approach in each national market
Cost savings
Vulnerable to local competitors
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A basic question confronts the managers of any organization that needs to sell its products abroad and compete in more than one national market: To what extent should the organization customize features of its products and marketing campaign to different national conditions?
International Expansion (2 of 6)
Multi-Domestic Strategy
Customizing products and marketing strategies to specific national conditions
Helps gain local market share
Raises production costs
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The text discusses Unilever, the European food and household products company and its multidomestic strategy. They employ a different marketing approach in Germany than they do in the United States.
Four Ways of Expanding Internationally
Figure 6.7
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International Expansion (3 of 6)
Exporting
Making products domestically and selling them abroad
Importing
Selling at home products that are made abroad
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Because a company does not need to invest in manufacturing facilities in another country, they experience fewer risks. If they can have a local company in that new country distribute the product, their investment is reduced.
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International Expansion (4 of 6)
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
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The text mentions Hilton Hotels franchising in Chile. Of course, there are many more examples of international franchising. One of the advantages of franchising is that the company does not have to expend development costs for the expansion.
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International Expansion (5 of 6)
Strategic Alliance
Managers pool their organization’s resources and know-how with a foreign company.
Organizations agree to share risk and reward.
Joint Venture
Strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business
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The text discusses CPW (Cereal Partners Worldwide) and their joint venture with General Mills and Nestlé. General Mills also has a joint venture with Häagen-Dazs Japan. A Japanese ice cream business, operating through a network of Häagen-Dazs shops.
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International Expansion (6 of 6)
Wholly Owned Foreign Subsidiary
Managers invest in establishing production operations in a foreign country independent of any local direct involvement.
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When a company goes it alone in expanding to a foreign market, they not only garner the rewards, but bear all the risks. It can be more expensive and laden with more risks.
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Planning and Implementing Strategy (1 of 2)
Allocate responsibility for implementation to appropriate individuals or groups.
Draft detailed action plans that specify how a strategy is to be implemented.
Establish a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plan.
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The planning process goes beyond just identifying effective strategies; it also includes plans to ensure that these strategies are put into action.
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Planning and Implementing Strategy (2 of 2)
Allocate appropriate resources to the responsible individuals or groups.
Hold specific individuals or groups responsible for the attainment of corporate, divisional, and functional goals.
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Normally the plan for implementing a new strategy requires the development of new functional strategies, the redesign of an organization’s structure, and the development of new control systems; it might also require a new program to change an organization’s culture.
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BE THE MANAGER
List the supermarket chains in your city, and identify their strengths and weaknesses.
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Answers to this question will vary, depending upon the area of the country in which the students reside and the size of the local shopping area. You could recommend using a SWOT approach to compare the various each of the competitors in your specific area. This industry has many different types of competitors, ranging from mass merchandisers such as Meijers and Kmart to small mom-and-pop grocers and farmers' markets. After identifying all of the competitors, students can begin analysis of each using the planning tools presented in the chapter.
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APPENDICES
Long descriptions of images
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Appendix 1: The Three Steps in Planning
The graphic shows the three steps in planning.
Determining the organization's mission and goals, includes defining the business and establishing major goals.
Formulating the strategy means to analyze the current situation and develop strategies.
Implementing the strategy is to allocate resources and responsibilities to achieve the strategies.
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Appendix 2: Levels of Planning at General Electric
The graphic shows the levels of planning at General Electric, including the corporate level, the business or division level, and the functional level.
At the corporate level are the C E O and the corporate office.
At the business or division level are global growth and operations, aviation, energy management, oil and gas, power and water, healthcare, lighting (other division sold), transportation, and capital.
At the functional level are manufacturing, marketing, accounting, and research and development.
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Appendix 3: Levels and Types of Planning
The graphic shows levels and types of planning.
Corporate mission and goals are under the corporate-level plan and at the goal-setting level. Under the business-level plan at the goal-setting level are divisional goals. The functional-level plan at the goal-setting level are the functional goals.
At the strategy formulation level, are corporate-level strategy, business-level strategy, and functional-level strategy.
At the strategy implementation level are the design of corporate structure control, the design of business-unit structure control, and the design of functional structure control.
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Appendix 4: Formulating Strategy
The graphic describes the three main strategies involved with a S W O T Analysis: corporate-level strategy, business-level strategy, and functional-level strategy.
S W O T Analysis is a planning exercise to identify strengths and weaknesses inside an organization and opportunities and threats in the environment.
Corporate-level strategy is a plan of action to manage the growth and development of an organization so as to maximize its long-run ability to create value.
Business-level strategy is a plan of action to take advantage of favorable opportunities and find ways to counter threats so as to compete effectively in an industry.
Functional-level strategy is a plan of action to improve the ability of an organization's departments to create value.
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Appendix 5: Stages in a Vertical Value Chain
The flow chart shows the stages in a vertical value chain from backward to forward for two types of companies. The first value chain consists of raw materials to intermediate manufacturing to assembly to distribution to customer. The second value chain consists of raw materials to concentrate producers to bottlers to retailers to customer. The following example is given: G.D Searle to Coca-Cola to local bottler to supermarket chains to customer.
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Appendix 6: Four Ways of Expanding Internationally
The graphic shows the four ways of expanding internationally.
From low to high: importing and exporting, licensing and franchising, strategic alliances and or joint ventures, and wholly owned foreign subsidiary at the high end.
The level of foreign involvement and investment and degree of risk is lowest with importing and exporting and continues to get higher continuing up to wholly owned foreign subsidiary.
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