Chapter 6- Planning, Strategy, and Competitive Advantage

Rolling Plan

a plan that is updated and amended every year to take account of changing conditions in the external environment -enable flexibility in long term planning

Joint Venture

A strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business -investment & involvement level increases/ risk is reduced

Potential Opportunities

- New untapped markets - Falling trade barriers - Competitors failing - Diversification possibilities - Economy rebounding

Standing plans Single use plans

-help achieve specific goals Standing plans: used with programmed decision making -Standard operating procedures (SOPs) that control how employees act EX: standing plan about ethical behavior by employees Single Use plans: used with non-programmed decision making -programs: integrated sets of plans for achieving certain goals -projects: specific action plans created to complete various aspects of a program EX: Program to launch a rover on mars has project to develop scientific instruments that bring back samples from mars

Defining the Business (How to determine mission)

-helps managers identify customer needs they satisfy now/ the needs they try to satisfy in the future and who their true competitors are. - this information helps managers plan and establish appropriate goals. 1. Who are our customers? 2. What customer needs are being satisfied? 3. How are we satisfying customer needs?

Planning Process

1) establish and discover where an organization is at the present time; (2) determine where it should be in the future, its desired future state; and (3) decide how to move it forward to reach that future state. Planning: one of the four principle tasks of management -must engage in systematic planning to continually evaluate / meet customer needs 3 Steps: 1. determining an organization's mission and major goals -mission statement 2.choosing or formulating strategies to realize the mission and goals 3. selecting the most effective ways to implement and put these strategies into action Essentially: forecast what may happen in the future to decide what to do in the present. 1) establish where an organization is at in present time (2) determine its desired future state (3) decide how to move it forward to reach that future state.

Levels of Planning

1. Corporate Level: CEO, Top Management Team, and corporate support staff 2. Business or Division Level: the different business units or divisions of the company that compete in distinct industries with their own set of managers to control their particular unit 3. Functional Level: Functional Mangers within departments (manufacturing, marketing, human resources, and research and development) When consistency across 3 levels is achieved... whole company operates in harmony: - activities at one level reinforce/strengthen those at the other levels, increasing efficiency and effectiveness.

4 ways to expand internationally

1. Importing and exporting 2. Licensing and franchising 3. Strategic alliances, joint ventures 4. Wholly owned foreign subsidiary

Four Business Level Strategies

1. Low Cost Strategy 2. Differentiation 3. Focused Low Cost 4. Focused Differentiation

Functional Level Planning and Strategy

1. Plan: decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals 2. Strategy: A plan of action to improve the ability of each of an organization's functions to perform its task- specific activities in ways that add value to an organization's goods and services. EX: consistent with the 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.

Business Level Planning and Strategy

1. Plan: details A. the long-term divisional goals that allow the division to meet corporate goals B. the division's business-level strategy/ structure necessary to achieve divisional goals -provides framework for functional managers 2. Strategy: outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry -A plan of action to take advantage of favorable opportunities and find ways to counter threats in an effort to compete effectively EX: Managers at GE's lighting division develop strategies designed to help their division take over the number one spot in the industry and better contribute to GE's corporate goals. The lighting division's specific strategies might focus on ways to reduce overall costs in all departments to lower prices and so gain market share from its competitors. For example, GE has expanded its European lighting operations in Hungary, which is a low-cost location

Corporate Level Planning and Strategy

1. Plan: organization's mission, overall strategy, structure. -Provides the framework for divisional managers to create their business-level plans 2. Strategy: A plan that indicates in which industries and national markets an organization intends to compete/ why. A plan of action to manage the growth and development of an organization to maximize its long-term ability to create value EX: 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. GE sold off the majority of its GE Capital financial services arm in 2015.

Formulating Corporate-Level Strategies

1. concentration on a single industry 2. vertical integration 3. diversification 4. international expansion corporate-level strategy must help a company, or one of its divisions, either (1) lower the costs of developing and making products or (2) increase product differentiation so more customers want to buy the products even at high or premium prices.

Why is planning important?

1. gives organization a sense of direction and purpose: by stating which organizational goals and strategies are important, avoid self-interested & conflicting interpretations of tasks/jobs 2. Gives managers the opportunity to participate in decision making 3. A plan helps coordinate managers of different functions to ensure they all work to achieve the desired future state 4. A plan can be used as a device for controlling managers -specifies who bears responsibility

Mission Statement

A broad declaration of an organization's purpose that clarifies... 1. what it is seeking to achieve from its activities 2. what is unique or important about its products to its employees and customers 3. distinguishes or differentiates the organization in some ways from its competitors. EX: Google's mission is to organize the world's information and make it universally accessible and useful.

strategy

A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals.

SWOT analysis

A planning exercise in which managers identify organizational : 1. strengths: 2.weaknesses and environmental: 3. opportunities 4.threats -resulting strategies enable org to attain its goals by taking advantage

strategic alliance (strategic partnership)

An agreement in which managers pool or share their organization's resources and know- how with a foreign company, and the two organizations share the rewards and risks of starting a new venture. -avoids loss of control problems associated with exporting, licensing, and franchising Can result in: -sharing resources -Joint venture EX: Sharing resources allows a U.S. company to: - take advantage of the high-quality skills of foreign manufacturers/specialized knowledge of foreign managers (about the needs of local customers) - reduce the risks involved in a venture. -the terms of the alliance give the U.S. company more control over how the good/ service is produced/ sold in the foreign country than it would have as a franchiser or licenser.

Potential Threats

Attacks on core business(es)? Increase in domestic competition? Increase in foreign competition? Outdated technology? Change in consumer tastes? Fall in barriers to entry? Rise in new or substitute products? Increase in industry rivalry? New forms of competition? Potential for takeover? Changes in demographic factors? Changes in economic factors? Downturn in economy? Rising labor costs? Slower market growth?

Business Level Strategy Porter Theory

Business Level Strategy: 1. creates competitive advantage: org can counter/reduce the threat of the five industry forces 2. Successful b-level strategies: reduce the power of buyers/supploers, lower the threat of substitutes (raising prices/profits) 3. To obtain higher profits, A. managers must choose between two ways of increasing product value: -Differentiating the product -Lowering the costs B. Choose between serving the whole market/ or a segment

Industry value chains (vertical value chains)

Depicts the transformation of raw materials into finished goods and services. 1. Raw Materials 2. Intermediate manufacturing 3. Assembly 4. Distribution A division at one stage/ industry receives the product produced by the division in the previous stage or industry, transforms it in some way—adding value—and then transfers the output at a higher price to the division at the next stage in the chain.

differentiation strategy

Distinguishing an organization's products from the products of competitors on dimensions such as product design, quality, or after-sales service. Managers: increase spending in product design/advertising to create a unique image for products -expensive! Successful pursuit: company can charge at a premium price/ higher profit (lets org recoup higher costs) Creates barriers to entry b/c new companies have no brand recognition/ don't perceive other products to be close substitutes EX: Toyota pursues a differentiation strategy and produces cars that appeal to consumers in almost all segments of the car market

related diversification strategy

Entering a new business or industry to create a competitive advantage in one or more of an organization's existing divisions or businesses. -cost savings source bc investing fewer resources in shared activities Adds value through- Synergy: performance gains that result when managers find ways for various business units to share valuable skills/ resources Pursuit- use existing skills/resources to search for new business to create synergies, add value to new products, and improve competitive position

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 Reasons: -turnaround management (see struggling companies and use skills to add value) -portfolio strategy (careful: too much diversification can lead managers to lose control of core business)

Vertical Integration

Expanding a company's operations either ... Backward: into an industry that produces inputs for its products EX: A steel company that buys iron ore mines and enters the raw materials industry to supply the ore needed to make steel or Forward: into an industry that uses, distributes, or sells its products. EX:A PC maker that decides to enter the retail industry and open a chain of company-owned retail outlets to sell its PCs -allows them either to add value to their products by making them special or unique or to lower the costs of making and selling them. -strengthens organization competitive advantage /increase performance -reduce flexibility to respond to changing conditions: divest units that draw resources away from org purpose

Importing and Exporting

Exporting: Making products at home and selling them abroad/ allow local org in a foreign country to distribute its products Importing: sells products at home that are made abroad (products it makes itself or buys from other companies) -low risk/ investment

Wholly Owned Subsidiary

Invest in establishing production operations of a foreign country independent of any local direct involvement -100% owned by organization -high investment/high risk -Pro: high potential returns (doesn't have to share profits) , risk level is reduced bc managers have full control over operation -Con: very expensive -large well known companies with extensive resources EX: Many Japanese car component companies have established their own operations in the United States to supply U.S.-based Japanese carmakers such as Toyota and Honda with high-quality car components.

Licensing and Franchising

Licensing: Allowing a foreign organization to take charge of manufacturing and distributing a product in its country or world region in return for a negotiated fee. -Pro: licenser does not have to bear development costs of opening up in a foreign country -Con: gives partner access to tech know-how;risks losing control of secrets -manufacturing companies EX:Chemical maker DuPont licenses a local factory in India to produce nylon or Teflon. Franchising: Selling to a foreign organization (franchisee) the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits. -Pro:franchiser doesnt bear development costs of expansion/avoids many problems associated with setting up foreign operations -Con: could lose control of how it operates, product quality may fall (reputation) -service companies EX: Hilton Hotels might sell a franchise to a local company in Chile to operate hotels under the Hilton name in return for a franchise payment.

Time Horizons of Plans

Long term plans (rolling plan): 5 years+ -corporate/ business level Intermediate term plans: 1-5 years -corporate/ business level -functional level Short term plans: 1 year or less -functional level

focused low-cost strategy

Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment.

Establishing Major Goals

Strategic Leadership: the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates goals are.. -ambitious: stretch the org to work to improve company performance -challenging but realistic -have time constraints

Concentration on a Single Industry

The strategy a company adopts when it focuses its resources/capabilities on competing successfully within a particular product market Goal: reinvest profits to strengthen competitive position in industry -develop new kinds of products -expand # of operating locations -common for growing companies EX: Apple continuously introduces improved mobile wireless digital devices such as the iPhone and iPad

International Expansion Strategy

To what extent should the organization customize features of its products and marketing campaign to different national conditions? 1. Global strategy: managers decide to sell the same standardized product/ use the same basic marketing approach in each national market it competes -Pro: significant cost savings -Con: ignores national differences, loose competitors to local differentiated products EX: TVs, camcorders 2. Multidomestic strategy: customizing products and marketing strategies to specific national conditions -gain market share/ charge higher prices for products -raises costs, have to charge higher prices than competitors EX:food/household products

Potential Strengths

Well-developed strategy? Strong product lines? Broad market coverage? Manufacturing competence? Good marketing skills? Good materials management systems? R&D skills and leadership? Human resource competencies? Brand-name reputation? Cost of differentiation advantage? Appropriate management style? Appropriate organizational structure? Appropriate control systems? Ability to manage strategic change?

portfolio strategy

a corporate-level strategy that minimizes risk/ increases returns by diversifying investment among various businesses or product lines

Diversification

expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services. EX: 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. 2 types: Related and Unrelated

low-cost strategy

gain competitve advantage by driving the organization's costs down below the costs of its rivals Managers: find new ways to reduce production/ manufacturing costs Creates barriers to entry b/c it is expensive for new companies to enter an industry

Hypercompetition

permanent, ongoing, intense competition brought about in an industry by advancing technology or changing customer tastes EX: cars, soup, computers

focused differentiation strategy

serving only one segment of the overall market and trying to be the most differentiated organization serving that segment EX: BMW pursues a focused differentiation strategy, producing cars exclusively for higher-income customers.

Focused Strategies

target a niche or unique market with either cost leadership or differentiation -smaller companies find it easier to pursue a focused strategy and compete successfully against large, powerful, low-cost and differentiated companies because of advances in technology that lower costs and enable them to reach and attract customers.

The Five Forces Model

when managers analyze opportunities and threats, they should pay particular attention to these five forces because they are the major threats an organization will encounter. 1. level of rivalry among organizations in an industry: more competition b/t companies for customers= low level of industry profits (low prices=less profit) 2. potential for entry into an industry: if barriers to entry are low= profits are low 3.Power of large suppliers: few large suppliers of an important input= expensive inputs=lower profit 4. Power of large customers: few large customers=bargain prices are low=lower profits 5. Threat of substitute products: existing substitute (ex Water for Coke)= high prices leads customers to switch to the substitute= constraint keeps profits low