Management Chapter 8

Strategy IMplementation and Control

"How do we get there?" They then have to allocate resources to reasonable parties, measure performance, and hold people and groups accountable for achieving organizational goals. TOYS R US EXAMPLE

Time Horizon

A plan's (blank) describes its intended duration: Long term plans Intermediate Term PLans Short-Term Plans

Corporate and business level goals and strategies require long term and intermediate term plans.

Functional level goals and strategies usually require intermediate or short term plans while.....

Forward Vertical Integration

Occurs when the manufacturer sets up its own mechanism for distributing goods to the retailers, elimnating the needs for a distributor.

Establish Major goals

Once managers have defined the business, they have to committ the organizaiton to a set of primary goals. This gives org direction and purpose. Best goals are stretch goals.

Unity

Only one central plan should be in place at a time.

Synergy

Performance gains that result from the coordination of the actions of individuals and departments.

Hypercompetition

Permanent, intense, ongoing competition that results from changing customer tastes or advancing technology - makes planning and strategy formulation much more difficult.

Exporting and Importing

1. Making products at home and selling them abroad 2. Making products abroad and selling them at home. LOW PROFIT POTENTIAL

Strategic Analysis

"Where are we now?" Begins with the organization's mission statement, which identifies its customers, needs, and how the organization will satisfy those needs. Also involves the identification of the firm's direct competitors. Involves SWOT Analysis - identification of the firm's internal strengths and weaknesses, and its external opportunities and threats.

Strategic Alliances and Joint Ventures

1. Agreement in which orgs share resources or know-how with a foreign company, and the two share risks and rewards.

LICENSING AND FRANCHISING

1. Involves a foreign firm to manufacture and distribute a product in return for a negotiated fee. 2. Foreign org buys rights to a brand name and operational know how in exchange for a lump sum payment and a share of products.

Strategy Implementation 5 steps

1. Make specific individuals and groups responsible for implementation 2. Write detailed action plans for strategy implementation 3. Create an implementation time table with specific, measurable goals. 4. Allocate resources to responsible individuals or groups. 5. Hold specific individuals or groups responsible for goal attainment.

Firms in an industry earn less profit when there is high level of rivalry, when its easy for competitors to enter in an industry, large suppliers have alot of power, large customers have a lot of power, when the threat of substitute products are high. These are major threats a firm could encounter, so managers hsould be particularly aware of them.

According to porter....

Functional Level strategy

An action plan to achieve task specific activities in a way that adds value to the organization's goods and services.

Business/Division Level

Business Level Plan: establishes a particular division's long term goals, strategy, and structure. Business Level Strategy: Indicates how a particular division will compete against its rivals.

the rivalry forces amongst competitiors.

Business level strategies counter. the five forces of competition by reducing rivalry, blocking new competitors, reducing the power of suppliers or buyers, and lowering threat of substitutes.

Corporate Level:

CEO and other members of the top management team plan and set the strategy for the organization. Corporate Level Plan: Outlines entire organization's mission, goals, strategy and structure. Corporate Level Strategy: States which industries and markets the organization will compete in.

Strategic Leadership

COnveying a compelling vision for the organization. "big, hairy, audacious goals" (BHAG) to generate enthusiasm among followers.

Concentration in a single industry Vertical Integration Diversification International Expansion

Categories of corporate level strategies:

Planning should be ONGOING and implemented at all levels.

Continuity

lower level managers can create their own plans and strategies.

Corporate level plan and corporate level strategy establish a framework within which.......

Multidomestic Strategy

Customizes its products and market strategies in each national market.

Strategy Formulation

During this stage, managers answer the question, "Where do we want to be?" Begins with corporate level strategy, which is set by individuals at the top of the organization hierarchy. Lower-level managers then set business-level strategies that will achieve appropriate goals that are consistent with the corporate level strategy.

UNrelated Diversification

Entering a new business or industry not related in any way to the company's current businesses or industries.

Related Diversification

Entering a new business or industry to produce a competitive advantage in an already existing division or business.

Requires managers to FORECAST future conditions or events.

Environmental Scanning

Diversification

Expanding company's operations into new industriesl

FOrmulate organization's mission and goals. Determine the mission by defining the business Establishing major goals

First step in the planning process

Differentiation Strategy

Gaining a competitive advantage by distinguishing organization's products from those of its competitors based on superior design, quality, or after sales service. Organizations are able to charge a premium price for their goods or services. Requires tremendous amount of investment in advertising, research and development, and product design.

Low COst Strategy

Gaining a competitive advantage by driving down costs.

Short-term PLans

Have time horizon of one year or less.

Long Term Plans

Have time horizons of five years or more.

Intermediate-Term Plans

Have time horizons of one to five years.

1. Unity 2. Continuity 3. Accuracy 4. Flexibility

Henri Fayol's 4 qualities of effective plans

Business Level Strategy:

Indicates how a particular division will compete against its rivals.

Vertical Integration

Involves expanding operations either backward (into an input industry) or forward (into an industry that uses, distributes, or sells the product). lowers costs or add value to differentiated products. Raw Materials Provider Manufacturer Distributor Retailer

SWOT Analysis

Involves identification of internal strengths and weaknesses as well as external opportunities and threats. Strengths and weaknesses = within org threats and opportunities = org environment

Concentration in a single industry

Involves reinvesting company profits to strengthen its position in its current industry.

Focused differentiation strategy

Involves serving only one segment of the market by offering differentiated products to that narrow market segment. IT has allowed firms to compete against larger companies.

Focused Low cost strategy

Involves serving only one segment of the market by trying to be the lowest cost provider in that segment.

Portfolio Strategy

Managers acquire firms in unrelated industries as part of (this) in which it reduces risks and maximizes returns by spreading its resources across many industries. Too much diversification can distract company from main core business.

in some cases it can make the org less flexible to adapt to changing enviornmental conditions.

Managers should be careful when using a vertical integration strategy because.....

Flexibility

Managers should be willing to change plans when situations change.

Accuracy

Managers should use all available information in the planning process.

corporate and business level plans are often rolling plans that are updated annually to take into account changes in the environment. This gives managers the flexibility to make corrections when enviornmental conditions change.

Most organizations use a planning cycle linked to the financial budget, so

Planning

Process in which managers identify and select appropriate goals and courses of action. Organizations plan dictates its strategy - cluster of decisions about the goals the organization will pursue, the actions it will take, and how it will use resources to achieve those goals. Planning involves setting goals and making strategies to achieve them.

Wholly owned Foreign Subsidiary

Production operation established in a foreign country without any involvement of a local firm. Company receives all rewards and risks.

involves generating MULTIPLE FORECASTS and ANALYZING how to respond in each of those conditions. i.e. oil company might develop strategic plan based on different possible future prices for oil. Useful because it requires managers to think strategically about how to best respond in multiple situations.

Scenario Planning (Contingency Planning)

Strategy formulation

Second step in the planning process Involves development of corporate, business, and functional level strategies that will allow the org to achieve its goals and accomplish its mission. Requires managers to assess forces inside the organization and within its enviornment that may impact its ability to achieve goals. SWOT Analysis and POrter's Five Forces Model

Global Strategy

Sells the same basic product anywhere, using the same basic marketing approach. Easier to implement than a multidomestic strategy. May put firm at a competitive disadvantage compared with the local firms that cater to the specific tastes of the national market.

Joint Venture

Specific kind of strategic alliance in which two or more companies agree to share ownership of a new business. Way of company to share risks of international expansion.

mission statement

The planning process begins with the establishment of a .......... Broad declaration of the organization's purpose and how the organization will be distinguishable from its competitors.

Corporate level, Business/Division Level, Functional Level.

Three levels of planning in a large organization:

Strategic Anlalysis Strategy Formulation Strategy implementation and control

Three steps in strategic planning

Determing the mission by defining the business

To determine the organization's mission - it's reason for existing - managers must first define the business by identifying (1) customers (2) their needs (3)how org satisfies those needs

Low Cost Strategy and Differentiation Strategy

Two basic categories of business level strategies

Standing plans and Single Use Plans

Two categories of plans:

Single Use Plans

Used for nonprogrammed decisions, in situations that occur infrequently and thus require one-of-a-kind actions. I.e. programs (integrated plans for achieving goals) and projects (specific plans to accomplish certain aspects of a program).

Standing Plans

Used for programmed decisions, in situations that occur repeatedly. Policies, rules, and standing operating procedures are types of standing plans. i.e. policy against sexual harrassment.

Exporting and Importing Licensing and Franchising Strategic Alliances and Joint Ventures Wholly Owned Subsidiaries

Ways companies can expand internationally (least to most risk)

International Expansion

When managers decide to sell products abroad, they must decide an appropriate level of standardization

Backward Vertical Integration

When manufacturer acquires raw materials needed to make its own goods, thus eliminating the need to buy raw materials from the raw materials provider.

1. Gives the organization direction and purpose. 2. It allows managers to participate in decision making about the firm's future. 3. Coordinates the activities of managers in different divisions and functional groupings. 4. It can be used as a control mechanism, because it establishes standards and benchmarks to be achieved.

Why is planning important?

Functional Level Plan:

establishes goals that functional level managers will pursue to achieve business-level goals.

Business Level Plan:

establishes a particular division's long term goals, strategy, and structure.

Functional Level

functional managers set and plan the strategy for the particular business function (marketing, R&D, manufacturing).

Porter's five forces model

identifies five forces that determine the level of competition in an industry and thus level of profits that members of an industry can expect to make Level of rivalry among firms in an industry. Potential for entry into the industry Power of large suppliers Power of large customers Threat of substitute products

Stretch Goals

those that are attainable but ambitious.