Management Ch.6
business-level plan
details the long-term divisional goals that will allow the division to meet corporate goals and the division's business-level strategy and structure necessary to achieve divisional goals.
importing
sells products at home that are made abroad
focused differentiation strategy
serve just one or a few segments of the market and aim to make their organization the most differentiated company serving that segment.
focused low-cost strategy
serve one or a few segments of the overall market and aim to make their organization the lowest-cost company serving that segment.
Diversification
the corporate-level strategy of expanding a company's business operations into a new industry in order to produce new kinds of valuable goods or services.
time horizons
the periods of time over which they are intended to apply or endure. Managers usually distinguish among long-term plans, with a time horizon of five years or more; intermediate-term plans, with a horizon between one and five years; and short-term plans, with a horizon of one year or less. Typically corporate- and business-level goals and strategies require long- and intermediate-term plans, and functional-level goals and strategies require intermediate- and short-term plans.
wholly owned foreign subsidiary
they invest in establishing production operations in a foreign country independent of any local direct involvement.
unrelated diversification
when they establish divisions or buy companies in new industries that are not linked in any way to their current businesses or industries. One main reason for pursuing this is that sometimes managers can buy a poorly performing company, transfer their management skills to that company, turn around its business, and increase its performance, all of which create value. Another reason is that purchasing businesses in different industries lets managers engage in portfolio strategy, which is apportioning financial resources among divisions to increase financial returns or spread risks among different businesses, much as individual investors do with their own portfolios.
Strategy implementation
1) Allocating responsibility for implementation to the 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.
five forces model
1) The level of rivalry among organizations in an industry 2) The potential for entry into an industry 3) The power of large suppliers 4) The power of large customers 5) The threat of substitute products
four qualities of effective plans
1) Unity means that at any time only one central, guiding plan is put into operation to achieve an organizational goal; more than one plan to achieve a goal would cause confusion and disorder. 2) Continuity means that planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels—corporate, business, and functional—so they fit together into one broad framework. 3) Accuracy means that managers need to make every attempt to collect and use all available information in the planning process. Of course managers must recognize that uncertainty exists and that information is almost always incomplete 4) Fayol emphasized that the planning process should be flexible enough so plans can be altered and changed if the situation changes; managers must not be bound to a static plan.
defining the business
1) Who are our customers? 2) What customer needs are being satisfied? 3) How are we satisfying customer needs? Managers ask these questions to identify the customer needs that the organization satisfies and how the organization satisfies those needs. Answering these questions helps managers identify not only the customer needs they are satisfying now but also the needs they should try to satisfy in the future and who their true competitors are. All this information helps managers plan and establish appropriate goals.
corporate-level strategies that managers use to help a company grow and keep it at the top of its industry, or to help it retrench and reorganize to stop its decline
1) concentration on a single industry 2) vertical integration 3) diversification 4) international expansion
steps in the planning process
1) determining an organization's mission and major goals 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. We also examine techniques such as SWOT analysis that can help managers improve the quality of their planning; and we discuss a range of strategies managers can use to give their companies a competitive advantage over their rivals.
4 main reasons planning is important
1) necessary to give the organization a sense of direction and purpose. A plan states what goals an organization is trying to achieve and what strategies it intends to use to achieve them. 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. By stating which organizational goals and strategies are important, a plan keeps managers on track so they use the resources under their control efficiently and effectively. 2) a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization. Effective planning gives all managers the opportunity to participate in decision making. 3) 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) can be used as a device for controlling managers within an organization. A good plan specifies not only which goals and strategies the organization is committed to but also who bears the responsibility for putting the strategies into action to attain the goals. When managers know they will be held accountable for attaining a goal, they are motivated to do their best to make sure the goal is achieved.
Why Planning Is Important
Almost all managers participate in some kind of planning because they must try to predict future opportunities and threats and develop a plan and strategies that will result in a high-performing organization. Moreover, the absence of a plan often results in hesitations, false steps, and mistaken changes of direction that can hurt an organization or even lead to disaster.
concentration on a single industry
Most growing companies reinvest their profits to strengthen their competitive position in the industry in which they are currently operating; in doing so, they pursue the corporate-level strategy
franchising
a company (the franchiser) sells to a foreign organization (the franchisee) the rights to use its brand name and operating know-how in return for a lump-sum payment and share of the franchiser's profits. Advantage: franchiser does not have to bear the development costs of overseas expansion and avoids the many problems associated with setting up foreign operations. Disadvantages: the organization that grants the franchise may lose control over how the franchisee operates, and product quality may fall.
licensing
a company (the licenser) allows a foreign organization (the licensee) to take charge of both manufacturing and distributing one or more of its products in the licensee's country or world region in return for a negotiated fee. Advantage: the licenser does not have to bear the development costs associated with opening up in a foreign country Disadvantage: the company granting the license has to give its foreign partner access to its technological know-how and so risks losing control of its secrets.
Vertical integration
a corporate-level strategy in which a company expands its business operations either backward into a new industry that produces inputs for the company's products (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company's products (forward vertical integration).
functional-level strategy
a plan of action that managers of individual functions (such as manufacturing or marketing) can follow to improve the ability of each function to perform its task-specific activities in ways that add value to an organization's goods and services and thereby increase the value customers receive.
strategic leadership
ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates is important here. If subordinates buy into the vision and model their behaviors on their leaders, they develop a willingness to undertake the hard, stressful work that is necessary for creative, risk-taking strategy making.
hypercompetition
applies to industries that are characterized by permanent, ongoing, intense competition brought about by advancing technology or changing customer tastes and fads and fashions. Clearly, planning and strategy formulation are much more difficult and risky when this prevails in an industry.
corporate-level plan
contains top management's decisions concerning the organization's mission and goals, overall (corporate-level) strategy, and structure
three main levels of management
corporate level, business or divisional level, and functional level
mission statement
is a broad declaration of an organization's overriding purpose, what it is seeking to achieve from its activities; this statement also identifies what is unique or important about its products to its employees and customers; finally it distinguishes or differentiates the organization in some ways from its competitors.
strategy
is a cluster of related managerial decisions and actions to help an organization attain one of its goals. Thus planning is both a goal-making and a strategy-making process.
SWOT analysis
is a planning exercise in which managers identify internal organizational strengths (S) and weaknesses (W) and external environmental opportunities (O) and threats (T). Based on this, managers at the different levels of the organization select the corporate, business, and functional strategies to best position the organization to achieve its mission and goals
planning
is a process managers use to identify and select appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals of the organization and the specific strategies managers will implement to attain those goals.
joint venture
is a strategic alliance among two or more companies that agree to jointly establish and share the ownership of a new business.
Synergy
is obtained when the value created by two divisions cooperating is greater than the value that would be created if the two divisions operated separately and independently.
Related diversification
is the strategy of entering a new business or industry to create a competitive advantage in one or more of an organization's existing divisions or businesses.
exporting
makes products at home and sells them abroad. Few risks are associated with exporting because a company does not have to invest in developing manufacturing facilities abroad.
global strategy
managers decide that their organization should sell the same standardized product in each national market in which it competes, and use the same basic marketing approach. Advantage: significant cost savings. Disadvantage: by ignoring national differences, managers may leave themselves vulnerable to local competitors that differentiate their products to suit local tastes.
multidomestic strategy
managers decide to customize products and marketing strategies to specific national conditions. Advantage: by customizing product offerings and marketing approaches to local conditions, managers may be able to gain market share or charge higher prices for their products. Disadvantage: customization raises production costs
strategic alliance
managers pool or share their organization's resources and know-how with those of a foreign company, and the two organizations share the rewards or risks of starting a new venture in a foreign country.
differentiation strategy
managers try to gain a competitive advantage by focusing all the energies of the organization's departments or functions on distinguishing the organization's products from those of competitors on one or more important dimensions, such as product design, quality, or after-sales service and support.
low-cost strategy
managers try to gain a competitive advantage by focusing the energy of all the organization's departments or functions on driving the company's costs down below the costs of its industry rivals.
strategy formulation
managers work to develop the set of strategies (corporate, divisional, and functional) that will allow an organization to accomplish its mission and achieve its goals. begins with managers' systematically analyzing the factors or forces inside an organization and outside in the global environment that affect the organization's ability to meet its goals now and in the future. SWOT analysis and the five forces model are two handy techniques managers can use to analyze these factors.
corporate-level strategy
specifies in which industries and national markets an organization intends to compete and why. One of the goals stated in GE's corporate-level plan is that GE should be first or second in market share in every industry in which it competes. A division that cannot attain this goal may be sold to another company. Another GE goal is to acquire other companies that can help a division build its market share to reach its corporate goal of being first or second in an industry.
functional-level plan
states the goals that the managers of each function will pursue to help their division attain its business-level goals, which, in turn, will allow the entire company to achieve its corporate goals.
