Chapter 6 Management
Four Ways of Expanding Internationally
-importing and exporting -licensing and franchising -strategic alliances, joint ventures -wholly owned foreign subsidiary
Standing Plans
Use in programmed decision situations
Multi-Domestic Strategy
customizing products and marketing strategies to specific national conditions helps gain local market share raise production costs
Wholly Owned Foreign Subsidiary
managers invest in establishing production operations in a foreign country independent of any local direct involvement
Formulating Strategy
Analyze current Situation and Develop Strategies
Single-Use Plans
Developed for a one-time, non-programmed issue
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
Rules
Formal written specific guides to action
Policies
General guide to action
Programs
Integrates plans achieving specific goals
Five Forces Model
Level of Rivalry Potential for Entry Power of Suppliers Power of Customers Substitutes
Exporting
Making products domestically and selling them abroad
Level of Rivalry
Increased competition results in lower profits
Substitutes
More available substitutes tend to drive down prices and profits.
Power of Suppliers
if there are only a few suppliers of important items, supply costs rise
Synergy
performance gains that result when individuals and departments coordinate their actions
Concentration on a Single Industry
reinvesting a company's profits to strengthen its competitive position in its current industry
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
Focused Differentiation Strategy
serving only one segment of the overall market and trying to be the most differentiated organization serving that segment
Strategic Leadership
the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates
Implementing Strategy
Allocate resources and responsibilities to achieve strategies
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.
Basic Question
To what extent should an organization customize products and marketing for different national conditions?
Joint Venture
a strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business
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
Potential for Entry
easy entry leads to lower prices and profits
Planning and Implementing Strategy
1. Allocating responsibility for implementation to appropriate individuals or groups 2. Drafting detailed action plans that specify how a strategy is to be implemented 3. Establishing a timetable for implementation that includes precise, measurable goals linked to the attainment of the action plan 4. Allocating appropriate resources to the responsible individuals or groups 5. Holding specific individuals or groups responsible for the attainment of corporate, divisional, and functional goals
The Nature of the 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 3. Decide how to move it forward to reach that future state
Why Planning is Important?
1. Planning is necessary to give the organization a sense of direction and purpose 2. Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization 3. 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 4. A plan can be used as a device for controlling managers within an organization
Defining the Business
1. Who are our customers? 2. What customer needs are being satisfied? 3. How are we satisfying customer needs?
Three Steps in Planning
1. determining the organization's mission and goals 2. formulating strategy 3. implementing strategy
Mission Statement
A broad declaration of an organization's purpose that identifies the organization's products and customers and distinguishes the organization from its competitos
Strategy
A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals
What is the relationship among corporate-business, and functional-level strategies, and how do they create value for an organization?
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.
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.
Corporate-Level Strategy
A plan that indicates in which industries and national markets an organization intends to compete
SWOT Analysis
A planning exercise in which managers identify organizational strengths (S) and weaknesses (W) and environmental opportunities (O) and threats (T).
Focused Low-Cost Strategy
Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment.
"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
Determining the Organization's Mission and Goals
Define the business and Establish major goals
Differentiation
Distinguishing an organization's products from the products of competitors on dimensions, such as product design, quality or after-sales service.
Business-Level Plan
Divisional managers' decisions pertaining to a division's long-term goals, overall strategy, and structure
Low-Cost Strategy
Driving the organization's costs down below the total costs of its rivals.
Diversification
Expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services
Functional-Level Plan
Functional managers' decisions pertaining to the goals that they purpose to pursue to help the division attain its business-level goals
Planning
Identifying and selecting appropriate goals and courses of action for an organization
Power of Customers
If there are only a few large buyers, they can bargain down prices.
Strategic Alliance
Managers pool their organization's resources and know-how with a foreign company
Business-Level Strategy
Outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry
Establishing Major Goals
Provides the organization with a sense of direction Stretches the organization to higher levels of performance. Goals must be challenging but realistic with a definite period in which they are to be achieved.
What is the difference between vertical integration and related diversification?
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).
Importing
Selling at home products that are made abroad
Global Strategy
Selling the same standardized product and using the same basic marketing approach in each national market Cost Savings Vulnerable to local competitors
Project
Specific action plans to complete programs
Standard Operating Procedures
Specify an exact series of actions to follow
Describe the three steps of planning. Explain how they are related.
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.
Corporate-Level Plan
Top management's decisions pertaining to the organization's mission, overall strategy and structure
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).
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.
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
Vertical Intergration
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
Hypercompetition
permanent, ongoing, intense competition brought about in an industry by advancing technology or changing customer tastes