Management Chapter 8

Steps in determining the organization's mission and goals

1. Defining the Business 2. Establishing Major Goals 3. Strategic Leadership

Why is planning important?

1. Necessary to give the organization a sense of direction and purpose. 2. Useful way of getting managers to participate in decision making. 3. Helps coordinate managers of the different functions and divisions of an organization. 4. Can be used as a device for controlling managers.

Implementing Strategy

Managers must decide how to allocate resources between groups to ensure the strategy is achieved.

Global Strategy

Undertaking very little customization to suit the specific needs of customers in different countries. Standardization provides for lower production costs. Ignores national differences that local competitors can address to their advantage. The same everywhere. Same standardized product in each national market

Effective plans should have four qualities: Henri Fayol

Unity, Continuity, Accuracy, Flexibility

Standing Plans

Use in programmed decision situations. Policies are general guides to action. Rules are formal written specific guides to action. Standard Operating Procedures (SOP) specify an exact series of actions to follow.

Basic Question

to what extent do we customize products and marketing for different national conditions?

Long Term Plans

usually 5 years or more

Planning and Implementing Strategy

1. Allocate implementation responsibility to the appropriate individuals or groups. 2. Draft detailed action plans for implementation. 3. Establish a timetable for implementation. 4. Allocate appropriate resources. 5. Hold specific groups or individuals responsible for the attainment of corporate, divisional, and functional goals.

Three Steps in Planning

1. Determining the organization's mission and goals: Define the business and Establish major goals. 2. Formulating Strategy: Analyze current situation and develop strategies. 3. Implementing strategy: Allocate resources and responsibilities to achieve strategies.

To perform the planning task, managers?

1. Establish where an organization is at the present time. 2. Determine its desired future state. 3. Decide how to move it forward to reach that future state.

Porter's Five Forces

1. Level of Rivalry 2. Potential for Entry 3. Power of Suppliers 4. Power of Customers 5. Substitutes

Focused Differentiation

Serving only one market segment as the most differentiated organization serving that segment.

Potential for Entry

Easy entry leads to lower prices and profits

Michael Porter's Five Forces:

well known model that helps managers focus on the five most important competitive forces in the external environment.

Mission Statement

A broad declaration of an organization's overriding purpose Identifies what is unique or important about its products Seeks to distinguish or differentiate the organization from its competitors

Accuracy

managers need to make every attempt to collect and utilize all available information at their disposal

Functional Strategy

A plan of action that managers of individual functions can take to add value to an organization's goods and services. It increases the value customers receive.

Functional Level Strategies

A plan that indicates how a function intends to achieve its goals. Seeks to have each department add value to a good or service. Marketing, service, and production functions call all add value to a good or service through: Lowering the costs of providing the value in products. Adding new value to the product by differentiating. Functional strategies must fit with business level strategies.

Corporate Level Strategy

A plan that indicates in which industries and national markets an organization intends to compete. Primary responsibility of top or corporate managers.

Rolling Plan:

A plan that is updated and amended every year to take account of changing conditions in the external environment.

SWOT Analysis

A planning exercise in which managers identify: internal organizational strengths and weaknesses. external opportunities and threats

Unrelated Diversification

Firms establish divisions or buy companies in new industries that are NOT LINKED to their current business or industry. Portfolio strategy: Apportioning resources among divisions to increase returns or spread risks among different business.

Unity

At any one time only one central, guiding plan is put into operation.

Stuck in the Middle

Attempting to simultaneously pursue both a low cost strategy and a differentiation strategy. Can't do both because it lowers levels of performance. Difficult to achieve low cost with the added costs of differentiation.

Formulating Corporate level strategies

Concentration in single business, vertical integration, Diversification, International Expansion. An organization will benefit from pursuing any of these strategies only when the strategy helps further increase the value of the organization's goods and services so that more customers buy them.

Planning Across the three different levels should be

Consistent. Company operates in harmony. Increases efficiency and effectiveness.

Multi Domestic Strategy

Customizing products and marketing strategies to specific national conditions. Helps gain local market share and raises production costs. Customize products and marketing strategies to specific national conditions.

International Expansion

Decide on the appropriate way to compete internationally. Basic Question, Global Strategy, and Multi-domestic Strategy.

Determining the organization's mission and goals

Defining the organization's overriding purpose and its goals. Provide customers with goods or services they value.

Single Use Plans

Developed for a one-time, non programmed issue, for a unusual or one of a kind situation. Programs: integrated plans achieving specific goals. Project: Specific action plans to complete programs.

Differentiation

Distinguishing the organization's products from those of competitors on one or more important dimensions, Differentiation must be valued by the customer in order for a producer to charge more for a product.

Strategic alliance

managers pool resources with those of a foreign country. Organizations agree to share risk and reward. Separate identities.

Low-Cost Strategy

Driving the organization's total costs down below the total costs of rivals. Manufacturing at lower costs, reducing wastes. Lower costs than competition means that the low cost producer can sell for less and still be profitable

Most organizations have a:

rolling planning cycle to amend plans constantly.

Functional Level Plan

Goals that the managers of each function will pursue to help their division attain its business level goals. This allows the entire company to achieve its corporate goals.

Planning

Identifying and selecting appropriate goals and courses of action for an organization. The organizational plan that results from the planning process details the goals and specifies how managers will attain those goals.

Power of Suppliers

If there are only a few suppliers of important items, supply costs rise.

Level of Rivalry

Increased competition results in lower profits

Business Level Plan:

Long-term divisional goals that will allow the division to meet corporate goals. Division's business level and structure to achieve divisional goals. Provides the framework within which functional managers divise their plans.

Formulating Business Level Strategies

Low Cost, Differentiation, Stuck in the middle, Focused Low cost, and Focused differentiation

Formulating Strategy

Managers analyze current situation and develop the strategies needed to achieve the mission

Divisional managers

Managers who control the various divisions of an organization.

Focused Low Cost

Serving only one market segment and being the lowest cost organization serving that segment.

Substitutes

More available substitutes tend to drive down prices and profits

Choosing a way to expand internationally

Opportunities: opening new markets, reaching more customers, and gaining access to new sources of raw materials and to low-cost suppliers. Threat: encountering new competitors, and responding to new political, economic, and cultural conditions.

Concentration in Single Business

Organization uses its functional skills to develop new kinds of products or expand its locations. Reinvesting a company's profits to strengthen its competitive position in its current industry. Appropriate when managers see the need to reduce the size of their organizations to increase performance.

Business Level Strategy

Outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry.

Time Horizon

Period of time over which they are intended to apply or endure. They have: long term, intermediate and short term plans.

Types of Plans

Standing Plans, Single-use Plans, and Scenario (Contingency Plans)

Steps in Formulating Strategy

Strategic 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. SWOT Analysis

Strategy

The cluster of decisions and actions that managers take to help an organization reach its goals

Scenario Planning (Contingency Planning)

The generation of multiple forecasts of future conditions followed by an analysis of how to effectively respond to those conditions. Helps managers to think about the future - to think strategically.

Corporate-Level Plan

Top management's decisions pertaining to the organization's mission, overall strategy, and structure. Provides the framework within which divisional managers create their business level plans.

Defining the Business

Who are our customers? What customer needs are being satisfied? How are we satisfying customer needs? What kind of value customers are receiving?

Licensing

allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee.

Intermediate Term Plans

are 1 to 5 years

Short term Plans

are less than 1 year.

Division

business unit that has its own set of managers and departments and competes in a distinct industry

In large organizations, planning usually takes place at three levels of management:

corporate, business or division, and department or functional.

Power of Customers

if there are only a few large buyers, they can bargain down prices.

Hypercompetition

industries that are characterized by permanent, ongoing, intense, competition brought about by advancing technology or changing customer tastes and fads and fashions.

Corporate & Business level goals and strategies require:

long and intermediate plans.

Exporting

making products at home and selling them abroad.

Wholly Owned Foreign Subsidiary

managers invest in establishing production operations in a foreign country independent of any local direct involvement.

Synergy

performance gains that result when individuals and departments coordinate their actions. 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.

Continuity

planning is an ongoing process in which managers build and refine previous plans and continually modify plans at all levels

Flexibility

plans can be altered and changed if the situation changes

Importing

selling at home products that are made abroad

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.

Establishing Major Goals

set of primary goals to which the organization is committed, Gives sense of direction or purpose. 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.

Functional level goals and strategies focus on:

short to intermediate term plans

Joint venture

strategic alliance among companies that agree to jointly establish and share the ownership of a new business. Signing contracts.

Related Diversification

strategy of entering a new industry and establishing a new business division that is LINKED to a company's existing divisions because they share resources that will improve the competitive position.

Diversification

strategy of expanding a company's operations into a new industry in order to produce new kinds of valuable goods or services. Two kinds: related and unrelated.

Vertical Integration

strategy that involves a company expanding its business operations either backward into a new industry that produces inputs (backward vertical integration) or forward into a new industry that uses, distributes, or sells the company's products (forward vertical integration).

Strategic Leadership

the ability of the CEO and top managers to convey a compelling vision of what they want to achieve to their subordinates.