Chapter 7- Strategic Planning

Target Skill in this chapter is learning about:

Strategic Planning Skill: this is the ability to engage

in long-range planning that focuses on the
organization as a whole.
Learning Objectives
1. Define the term “Strategic Planning.”

2. Define the term “Strategy”

3. Describe the term “Strategic Management”

4. Explain the Five (5) steps in the Strategic Management

Process.
Famous Quote
Famous Quote
 Let’s look at a definition of
Strategic Planning & Strategy
Defining “Strategic Planning”
Strategic Planning is long-range planning that
focuses on the organization as a whole. In doing
strategic planning, managers consider the
organization as a total unit and ask themselves what
must be done in the long term to attain organizational
goals.

Long range is usually defined as a period of time

extending about three to five years into the future.
Hence, in strategic planning, managers try to
determine what their organization should do to be
successful three to five years from now.
Defining Strategic Planning Cont’d
Managers may have a problem trying to decide exactly
how far into the future they should extend their
strategic planning.

As a general rule, they should follow the commitment

principle, which states that managers should commit
funds for planning only if they can anticipate, in the
foreseeable future, a return on planning expenses as a
result of long-range planning analysis.
Defining “Strategy”
Strategy is defined as a broad and general plan
developed to reach long-term objectives.

Organizational strategy can, and generally does, focus

on many different organizational areas, such as
marketing, finance, production, research and
development, and public relations. It gives broad
direction to the organization. Strategy is actually the
end result of strategic planning.
The relationship between Organizational
objective and Strategy
For a strategy to be worthwhile, though, it must be
consistent with organizational objectives, which, in
turn, must be consistent with organizational purpose.

Table 7.1 on page 154 illustrates this relationship

between organizational objectives and strategy by
presenting sample organizational objectives and
strategies for three well-known business organizations.
The relationship between Organizational
objective and Strategy Cont’d
 Let’s look at Strategic
Management and its Steps
Defining “Strategic Management”
Strategic Management- is the process of ensuring
that an organization possesses and benefits from
the use of an appropriate organizational strategy.
In this definition, an appropriate strategy is one best
suited to the needs of an organization at a particular
time.
Steps in the Strategic Management Process
Steps in the Strategic Management
Process cont’d
The strategic management process consists of five (5)
sequential and continuing steps:
1. Environmental analysis
2. Establishment of an organizational direction
3. Strategy formulation
4. Strategy implementation
5. Strategic control
Steps in the Strategic Management
Process Cont’d
Step 1: Environmental Analysis: this is the study of the
organizational environment to pinpoint environmental
factors that can significantly influence organizational
operations.

Managers commonly perform environmental analyses to

help them understand what is happening both inside and
outside their organizations and to increase the probability
that the organizational strategies they develop will
appropriately reflect the organizational environment.
Environmental Analysis Cont’d
The environment of an organization is generally divided
into three distinct levels: General Environment,
Operating/Industry Environment, and Internal
Environment.

a. The General Environment- is the level of an

organization’s external environment that contains
components having broad, long-term implications for
managing the organization. The components normally
considered part of the general environment are:
economic, social, political, legal, and technological.
Environmental Analysis Cont’d
b. Industry/Operating Environment- is the level of an
organization’s external environment that contains
components normally having relatively specific and
immediate implications for managing the
organization.

The Five Forces Model, perhaps the best-known tool

for industry analysis, was developed by internationally
acclaimed strategic management expert Michael E.
Porter. See next slide for Porter’s Five forces
Model.
Environmental Analysis Cont’d
Environmental Analysis Cont’d
According to the model presented in the above slide,
the attractiveness of an industry is determined by five
alternative forces. First, the threat of new entrants
refers to the ability of new firms to enter an industry;
as the threat of new entrants increases, the
attractiveness of the industry decreases.
Environmental Analysis Cont’d
Second, buyer power refers to the power that
customers have over the firms operating in an
industry; as buyer power increases, the attractiveness
of the industry decreases. Third, supplier power
denotes the power that suppliers have over the firms
operating in an industry. As supplier power increases,
industry attractiveness decreases.
Environmental Analysis Cont’d
Fourth, the threat of substitute products refers to
the extent to which customers use products or services
from another industry instead of the focal industry. As
the threat of substitutes increases, which implies that
customers have more choices, the attractiveness of the
industry decreases.

Finally, intensity of rivalry refers to the intensity of

competition among the organizations in an industry.
As the intensity of rivalry increases, the attractiveness
of the industry decreases
Environmental Analysis Cont’d
c. The Internal Environment –is the level of an
organization’s environment that exists inside the
organization and normally has immediate and
specific implications for managing the
organization.

The internal environment includes marketing,

finance, accounting and other functional areas of
the organization. From a more specific management
viewpoint, it includes planning, organizing,
influencing, and controlling within the organization.
Environmental Analysis Cont’d
Figure 7.2 on the next slide, depicts the
organization, the levels of its environment and
the components of those levels.
Environmental Analysis Cont’d
Steps in the Strategic Management Process
Cont’d
Step 2: Establishing Organizational Direction-
through an interpretation of information gathered
during environmental analysis, managers can
determine the direction in which the organization
should move. Two important ingredients of
organizational direction are organizational mission
and organizational objectives.
Establishing Organizational Direction Cont’d
A mission statement is a written document
developed by management, normally based on input
by managers as well as non-managers, that describes
and explains the mission/purpose of the organization.
An example of ECAB’s Mission Statement’s is: To
create value for all stakeholders

The mission is expressed in writing to ensure that all

organization members have easy access to it and
thoroughly understand exactly what the organization
is trying to accomplish.
The importance of an Organizational Mission
The Importance of an Organizational Mission:
 Helps increase the probability an organization will
succeed
 Having a mission directs the efforts of the human
resources within the organization
 Having a mission makes explicit the targets and goals the
organization is working toward attaining
 Having a mission keeps management focused on what
the organization is attempting to accomplish and
therefore the efforts are focused on the mission
The Relationship Between Mission and
Objectives
1. The organization’s objectives and goals should flow
naturally from the organization’s mission

2. The organization’s mission should flow naturally from

the information obtained in the environmental analysis
Steps in the Strategic Management Process
Cont’d
Step 3: Strategy Formulation- this is the process of
determining appropriate courses of action for
achieving organizational objectives and thereby
accomplishing the organizational purpose.

Special tools they can use to assist them in formulating

strategies include the following:
a. Critical question analysis
b. SWOT analysis
c. Business portfolio analysis
Strategy Formulation Cont’d
Managers should use the tool or combination of the tools
that is most appropriate for them and their organizations.

One of the tools managers can use to formulate an

appropriate organizational strategy is a process called
Critical Question Analysis. This process involves
asking the following four questions:
1. What are the purposes and objectives of the
organization? The answer to this question will tell
management where the organization should be going.
As indicated earlier, an appropriate strategy reflects both
organizational purpose and organizational objectives.
Strategy Formulation Cont’d
2. Where is the organization presently going? The
answer to this question can tell managers whether the
organization is achieving its goals and, if it is, whether
the level of progress is satisfactory.

Whereas the first question focuses on where the

organization should be going, this one focuses on
where the organization is actually going.
Strategy Formulation Cont’d
3. In what kind of environment does the
organization now exist? Both internal and external
environments—factors inside and outside the
organization—are included in this question. For
example, assume that a poorly trained middle-
management team and a sudden influx of competitors
in a market are respective factors in the internal and
external environments of an organization. Any
strategy formulated, if it is to be appropriate, must
deal with these factors.
Strategy Formulation Cont’d
4. What can be done to better achieve
organizational objectives in the future? The
answer to this question will result in the strategy of the
organization. The question should be answered,
however, only after managers have had an adequate
opportunity to reflect on the answers to the previous
three questions.
Strategy Formulation Cont’d
Managers cannot develop an appropriate
organizational strategy unless they have a clear
understanding of where the organization wants to
go, where it is going, and in what environment it
exists. This understanding is typically achieved
through discussion, negotiation, and compromise
Strategy Formulation Cont’d
Another tool managers can use to formulate an
appropriate organizational strategy is known as a:
SWOT analysis - this is a strategic development tool
that matches internal organizational strengths and
weaknesses with external opportunities and
threats. (SWOT is an acronym for a firm’s Strengths
and Weaknesses and its environmental Opportunities
and Threats.)
Strategy Formulation Cont’d
It is important to note that when using SWOT
analysis, “strengths” and “weaknesses” are those of
the manager’s firm, and “opportunities” and
“threats” exist in the firm’s external environment.

SWOT analysis is based on the assumption that if

managers carefully review such strengths, weaknesses,
opportunities, and threats, a useful strategy for
ensuring organizational success will become evident to
them.
Strategy Formulation Cont’d
Business Portfolio Analysis is another strategy
development tool that has gained wide acceptance.
Business portfolio analysis -is an organizational
strategy formulation technique that is based on the
philosophy that organizations should develop strategy
much as they handle investment portfolios.
Strategy Formulation Cont’d
That suggests that, just as sound financial investments
should be supported and unsound ones discarded,
sound organizational activities should be emphasized
and unsound ones deemphasized. Two business
portfolio tools are: the BCG Growth-Share Matrix
and the GE Multifactor Portfolio Matrix.
Strategy Formulation Cont’d
Understanding the forces that determine
competitiveness within an industry should help
managers develop strategies that will make their
companies more competitive within the industry.
Porter has developed three generic strategies to
illustrate the kinds of strategies managers might
develop to make their organizations more competitive.
These three generic strategies can be referred to as:
Differentiation, Cost Leadership and Focus
Strategy Formulation Cont’d
a. Differentiation- this is the first of Porter’s
strategies, which focuses on making an organization
more competitive by developing a product or products
that customers perceive as being different from
products offered by competitors. Differentiation
includes uniqueness in such areas as product quality,
design, and level of after-sales service.
Strategy Formulation Cont’d
Examples of products that customers commonly
purchase because they perceive them as being
different are Nike’s Air Jordan shoes (because of their
high-technology “air” construction) and Honda
automobiles (because of their high reliability).
Strategy Formulation Cont’d
b. Cost Leadership- is a strategy that focuses on
making an organization more competitive by its
producing products more cheaply than competitors
can.

According to the logic behind this strategy, by

producing products more cheaply than its
competitors, an organization will then be able to offer
products to customers at lower prices than competitors
can and will thereby increase its market share.
Strategy Formulation Cont’d
Examples of tactics managers might use to gain cost
leadership are obtaining lower prices on product parts
purchased from suppliers and using technology such
as robots to increase organizational productivity.
Strategy Formulation Cont’d
c. Focus- is a strategy that emphasizes making an
organization more competitive by targeting a
particular customer. Magazine publishers commonly
use a focus strategy in offering their products to
specific customers.

Working Woman and Ebony are examples of

magazines that are aimed, respectively, at the target
markets of employed women and African Americans.
Steps in the Strategic Management
Process Cont’d
Step 4: Strategy Implementation- the fourth step of
the strategic management process, involves putting
formulated strategies into action. Without successful
implementation, valuable strategies developed by
managers are virtually worthless. The successful
implementation of strategy requires the following four
basic skills: Interacting Skills, Allocating Skills,
Monitoring Skills and Organizing Skills
Strategy Implementation Cont’d
a. Interacting Skill- is the ability to manage people
during implementation. Managers who are able to
understand the fears and frustrations others feel
during the implementation of a new strategy tend to
be the best implementers. These managers empathize
with organization members and bargain for the best
way to put a strategy into action.
Strategy Implementation Cont’d
b. Allocating Skill- is the ability to provide the
organizational resources necessary to implement a
strategy. Successful implementers are talented at
scheduling jobs, budgeting time and money, and
allocating other resources that are critical for
implementation.
Strategy Implementation Cont’d
c. Monitoring Skill- is the ability to use information
to determine whether a problem has arisen that is
blocking strategy implementation. Good strategy
implementers set up feedback systems that continually
tell them about the status of strategy implementation.
Strategy Implementation Cont’d
d. Organizing Skill- is the ability to create
throughout the organization a network of people who
can help solve implementation problems as they occur.

Good implementers customize this network to include

individuals who can handle the special types of
problems anticipated in the implementation of a
particular strategy.
Strategic Control
Step 5: Strategic Control- the last step of the
strategic management process, consists of monitoring
and evaluating the strategic management process as a
whole to ensure that it is operating properly.

Strategic control focuses on the activities involved in

environmental analysis, organizational direction,
strategy formulation, strategy implementation, and
strategic control itself—checking that all steps of the
strategic management process are appropriate,
compatible, and functioning properly.
End of Chapter Questions
1. Define the term “Strategic Planning.”

2. Define the “term Strategy”

3. Describe the term “Strategic Management”

4. Describe the Five (5) steps in the Strategic Management Process.

5. Identify three (3) components of the General Environment.

[Link] the acronym “SWOT”

7. Identify two questions that are asked when using the Critical Question
Analysis tool.

8. Describe the following three (3) types of Strategies: Differentiation,

Cost Leadership and Focus.
End of Chapter Exercise
Read the Challenge Case on Facebook positions
itself to stay relevant on page 153, then attempt
questions 7.3 & 7.4 on page 171.
 Reference
Certo, S.C & Certo, S. T. (2016). Modern
Management: Concepts and Skills (14th Ed.). USA:
pter 7- Strategic
Pearson

Planning
rget Skill in this
apter is learning
about: