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Chapter 3

Planning and Strategic Management

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter

What Is Planning?
Define planning

Differentiate between formal and informal planning


Describe the purposes of planning Explain the conclusions from studies of the relationship between planning and performance

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

How Do Managers Plan?


Define goals and plans Discuss how traditional goal setting works Describe the management by objectives (MBO) approach Describe the characteristics of well-designed goals Describe the five steps in setting goals Describe each of the different types of plans Discuss the two contingency factors that affect planning Explain the criticisms of planning and whether or not they are valid
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

Organizational Strategy
Define strategic management List the six steps in the strategic management process Describe what managers do when they do external and internal analyses Explain the role of resources, capabilities, and core competencies in the internal analysis

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

Types of Organizational Strategies


Explain the three organizational strategies

Discuss the various corporate level strategies


Discuss the various business level strategies Discuss the functional level strategies

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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LEARNING OUTLINE (contd)


Follow this Learning Outline as you read and study this chapter

Quality as a Competitive Advantage


Define quality management

List the six characteristics of quality management


Describe benchmarking, ISO 9000, and the six sigma process steps
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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What Is Planning?
Planning
Managerial function that involves:
Defining the organizations goals Establishing an overall strategy for achieving those goals Developing a comprehensive set of plans to integrate and coordinate organizational work

Types of planning
Informal: not written down, short-term focus; specific to an organizational unit Formal: written, specific, and long-term focus, involves shared goals for the organization
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Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Purposes of Planning
Provides direction Reduces uncertainty Minimizes waste and redundancy Sets the standards for controlling

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Planning and Performance


The Relationship Between Planning and Performance Formal planning is associated with:
Higher profits and returns on assets Other positive financial results The quality of planning and implementation affects performance more than the extent of planning

The external environment can reduce the impact of planning on performance Formal planning must be used for several years before planning begins to affect performance
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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How Do Managers Plan?


Elements of Planning
Goals (also objectives)
Desired outcomes for individuals, groups, or entire organizations Provide direction and performance evaluation criteria

Plans
Documents that outline how goals are to be accomplished Describe how resources are to be allocated and establish activity schedules

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Approaches to Establishing Goals


Traditional Goal Setting
Broad goals are set at the top of the organization Goals are then broken into subgoals for each organizational level Goals are intended to direct, guide, and constrain from above
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Approaches to Establishing Goals (contd)


Management By Objectives (MBO)
Specific performance goals are jointly determined by employees and managers Progress toward accomplishing goals is periodically reviewed Rewards are allocated on the basis of progress toward the goals Key elements of MBO:
Goal specificity, participative decision making, an explicit performance/evaluation period, feedback
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.1 Steps in a Typical MBO Program


Jointly Set Objectives

Develop Action Plans to Achieve Objectives

Review Objectives and Provide Feedback

Give Rewards for Achieved Objectives

Overall objectives and strategies of organization

Managers and employees work on action plans together

Objectives allocated to divisional and departmental units

Action plans implemented

Specific objectives collaboratively set with employees

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Does MBO Work?


Reason for MBO Success
Top management commitment and involvement

Potential Problems with MBO Programs


Not as effective in dynamic environments that require constant resetting of goals Overemphasis on individual accomplishment may create problems with teamwork Allowing the MBO program to become an annual paperwork shuffle
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.2 Characteristics of Well-Designed Goals


Written in terms of outcomes rather than actions Measurable and quantifiable Clear time frame Challenging yet attainable Written down Communicated to all necessary organizational members
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Steps in Goal Setting


Review the organizations mission statement
Do goals reflect the mission?

Evaluate available resources


Are resources sufficient to accomplish the mission?

Determine goals individually or with others


Are goals specific, measurable, and timely?

Write down the goals and communicate them


Is everybody on the same page?

Review results and whether goals are being met


What changes are needed in mission, resources, or goals?
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.3 Types of Plans


Types of Plans
Breadth Time Frame Specificity Frequency of Use

Strategic Should we expand into overseas markets? Should we develop new products? How large would we like the company to be in five years?

Long term

Directional

Single use

Operational Should we order new equipment to produce our number-one product more efficiently? How many extra employees should we hire for the year-end sales rush? How can we improve quality control on the production line?

Short term

Specific

Standing

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Types of Plans
BREADTH Strategic Plans
Apply to the entire organization Establish the organizations overall goals Seek to position the organization in terms of its environment Cover extended periods of time

Operational Plans
Specify the details of how the overall goals are to be achieved Cover short time period

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Types of Plans (contd)


TIME FRAME
Long-Term Plans Time frames extending beyond three years Short-Term Plans Time frames of one year or less SPECIFICITY Specific Plans Clearly defined and leave no room for interpretation Directional Plans Flexible plans that set out general guidelines, provide focus, yet allow discretion in implementation
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Types of Plans (contd)


FREQUENCY OF USE Single-use Plan A one-time plan specifically designed to meet the needs of a unique situation Standing Plans Ongoing plans that provide guidance for activities performed repeatedly

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.4 Specific Vs. Directional Plans

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Developing Plans
Contingency Factors in Planning
Degree of environmental uncertainty
Stable environment: specific plans Dynamic environment: specific but flexible plans

Length of future commitments


Current plans affecting future commitments must be sufficiently long-term to meet the commitments

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Criticisms of Planning
Planning may create rigidity Plans cannot be developed for dynamic environments Formal plans cannot replace intuition and creativity Planning focuses managers attention on todays competition, not tomorrows survival Formal planning reinforces todays success, which may lead to tomorrows failure

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Organizational Strategy
Strategic Management
The set of managerial decisions and actions that determines the long-run performance of an organization

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.5 The Strategic Management Process


External Analysis opportunities threats Identify the organization's current mission, goals, and strategies

SWOT Analysis

Formulate Strategies

Implement Strategies

Evaluate Results

Internal Analysis strengths weaknesses

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Strategic Management Process


Step 1: Identify the Organizations Current Mission, Objectives, and Strategies
Mission: the firms reason for being
The scope of its products and services

Goals: the foundation for further planning


Measurable performance targets

Step 2: Conduct an Internal Analysis


Assessing organizational resources, capabilities, activities, and culture:
Strengths (core competencies) create value for the customer and strengthen the competitive position of the firm Weaknesses (things done poorly or not at all) can place the firm at a competitive disadvantage
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.6 Components of a Mission Statement


Customers: Who are the organizations customers? Products or services: What are the organizations major products or services? Markets: Where does the organization compete geographically? Technology: How technologically current is the organization? Concern for survival growth, and profitability: Is the organization committed to growth and financial stability?
(continues) Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.6 Components of a Mission Statement (contd)


Philosophy: What are the organizations basic beliefs, values, aspirations, and ethical priorities? Self-concept: What is the organizations major competitive advantage and core competencies? Concern for public image: How responsive is the organization to societal and environmental concerns? Concern for employees: Does the organization consider employees a valuable asset?
Sources: Based on company websites; and F. David, Strategic Management, 8th ed. (Upper Saddle River, NJ: Prentice Hall, 2001), pp. 65-68.

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Strategic Management Process (contd)


Step 3: Conduct an External Analysis
The environmental scanning of specific and general environments
Focuses on identifying opportunities and threats

Steps 2 and 3 combined are called a SWOT analysis. (Strengths, Weaknesses, Opportunities, and Threats)

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.7 Identifying the Organizations Opportunities


Organizations Resources/Capabilities

Organizations Opportunities

Opportunities in the Environment

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Strategic Management Process (contd)


Step 4: Formulate Strategies
Develop and evaluate strategic alternatives Select appropriate strategies for all levels in the organization that provide relative advantage over competitors Match organizational strengths to environmental opportunities Correct weaknesses and guard against threats
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Strategic Management Process (contd)


Step 5: Implement Strategies
Implementation: effectively fitting organizational structure and activities to the environment The environment dictates the chosen strategy; effective strategy implementation requires an organizational structure matched to its requirements

Step 6: Evaluate Results


How effective have strategies been? What adjustments, if any, are necessary?
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Types of Organizational Strategies


Corporate-level Strategy The companys grand strategy for the entire organization and its strategic business units Types of Grand Strategies Growth: expansion into new products and markets Stability: maintenance of the status quo Retrenchment: addresses organizational weaknesses that are leading to performance declines Combination: simultaneous pursuit of two or more of the strategies above
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.8 Levels of Organizational Strategy


Corporate Level Business Level Functional Level Research and Development Strategic Business Unit 1 Multibusiness Corporation Strategic Business Unit 2 Strategic Business Unit 3 Human Resources

Manufacturing

Marketing

Finance

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Corporate-Level Strategies
Growth Strategy
Seeking to increase the organizations business by expansion into new products and markets

Types of Growth Strategies


Concentration Vertical integration Horizontal integration Diversification
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Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Growth Strategies
Concentration Focusing on a primary line of business and increasing the number of products offered or markets served Vertical Integration Backward vertical integration: attempting to gain control of inputs (become a self-supplier) Forward vertical integration: attempting to gain control of output through control of the distribution channel and/or provide customer service activities (eliminating intermediaries)
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Growth Strategies (contd)


Horizontal Integration Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals Diversification Related Diversification
Expanding by merging with or acquiring firms in different, but related industries that are strategic fits

Unrelated Diversification
Growing by merging with or acquiring firms in unrelated industries where higher financial returns are possible
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Corporate-Level Strategies (contd)


Stability Strategy
A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Corporate-Level Strategies (contd)


Retrenchment Strategy
Reduces the companys activities or operations Retrenchment strategies include:
Cost reductions Layoffs Closing underperforming units Closing entire product lines or services

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Corporate-Level Strategies (contd)


Combination Strategy
Simultaneous pursuit by the organization of two or more of growth, stability, and retrenchment strategies

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Business-Level Strategy
Business-Level Strategy
A strategy that seeks to determine how an organization should compete in each unit within the organization to create a competitive advantage Competitive advantage
An organizations distinctive competitive edge that is sourced and sustained in its core competencies
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Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Exhibit 3.9 Forces in an Industry Analysis


New Entrants

Threat of New Entrants


Bargaining Power of Buyers Buyers

Suppliers Bargaining Power of Suppliers

Intensity of Rivalry Among Current Competitors

Threat of Substitutes Substitutes

Source: Based on M. E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980).

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Five Competitive Forces


Threat of New Entrants The ease or difficulty with which new competitors can enter an industry Threat of Substitutes The extent to which switching costs and brand loyalty affect the likelihood of customers adopting substitute products and services Bargaining Power of Buyers The degree to which buyers have the market strength to hold sway over and influence competitors in an industry
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Five Competitive Forces (contd)


Bargaining Power of Suppliers
The relative number of buyers to suppliers and threats from substitutes and new entrants affect the buyer-supplier relationship

Current Rivalry
Intensity among rivals increases when industry growth rates slow, demand falls, and product prices descend
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.10 Pursuing Porters Competitive Strategies


Source: Reprinted from M. E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), pp. 40-41. Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Competitive Strategies
Cost Leadership Strategy Seeking to attain the lowest total overall costs relative to other industry competitors Differentiation Strategy Attempting to create a unique and distinctive product or service for which customers will pay a premium Focus Strategy Using a cost or differentiation advantage to exploit a particular market segment rather than a larger market Stuck in the Middle Organizations that are unable to develop a cost or differentiation advantage
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Functional-Level Strategy
Functional-level strategies support the business-level strategy
i.e., Marketing, human resources, research and development, and finance all support the business-level strategy Problems occur when employees or customers dont understand a companys strategy
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Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

Quality as a Competitive Advantage


Quality management
A philosophy of management driven by continual improvement and responding to customer needs and expectations

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Exhibit 3.11 Characteristics of Quality Management


1. 2. 3. 4. Intense focus on the customer Concern for continual improvement Attention to the work process Improvement in the quality of everything the organization does 5. Accurate measurement of all critical variables in the organizations operations 6. Empowered employees
Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Benchmarking
The search for the best practices among competitors and noncompetitors that lead to their superior performance

By analyzing and copying these practices, firms can improve their performance

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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ISO 9000 Series


ISO 9000
The ISO standard sets uniform guidelines for processes to ensure that products conform to customer requirements

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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Six Sigma
Six Sigma
Is a philosophy and measurement process developed in the 1980s at Motorola that establishes a goal of no more than 3.4 defects per million parts or procedures

Chapter 3, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Fundamentals of Management, Fifth Canadian Edition Copyright 2008 Pearson Education Canada

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