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