The Nature of the Planning Process

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

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The Nature of the Planning Process
Mission Statement
 A broad declaration of an organization’s
purpose that identifies the organization’s
products and customers and distinguishes
the organization from its competitors.

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 Three Steps in Planning

Figure 8.1
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 Levels and Types of Planning

Figure 8.2 8-4

control the various

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 Levels of Planning
 Corporate-Level Plan
 Top management’s decisions pertaining to
the organization’s mission, overall strategy,
and structure.
 Provides a framework for all other planning.
 Corporate-Level Strategy
 A plan that indicates in which industries
and national markets an organization
intends to compete.
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 Levels of Planning
 Business-Level Plan:
 Divisional managers’ decisions pertaining to
divisions long-term goals overall strategy, and
structure.
 Identifies how the business will meet corporate goals.
 Business-Level Strategy
 A plan that indicates how a division intends to
compete against its rivals in an industry
 Shows how the business will compete in market.

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 Levels of Planning
Function –
department or unit
in which people
have the same skills
or use the same
resources to
perform their jobs

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 Levels of Planning
 Functional-Level Plan
 Functional managers’ decisions pertaining
to the goals that they propose to pursue to
help the division attain its business-level
goals.
 Functional Strategy
 A plan that indicates how a function intends
to achieve its goals.
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 Who Plans?
 Corporate-Level Plans
 Plans developed by top management who also are
responsible for approving business- and functional-level
plans for consistency with the corporate plan.
 Top managers should seek input on corporate level
issues from all management levels.
 Business-Level Plans
 Plans developed by divisional managers who also
review functional plans.
 Bothmanagement levels should also seek
information from other levels.
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 Time Horizons of Plans
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.
 Corporate and business-level goals and strategies
require long- and intermediate-term plans.
 Functional plans focus on short-to intermediate-term
plans
 Most organizations have a rolling planning cycle to
amend plans constantly.
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 Types of Plans
 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.
 Single-Use Plans
 Developed for a one-time, nonprogrammed issue.
 Programs: integrated plans achieving specific goals.
 Project: specific action plans to complete programs.

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 Scenario Planning
Scenario Planning (Contingency Planning)
 The generation of multiple forecasts of future
conditions followed by an analysis of how to
effectively respond to those conditions.
 Planning seeks predict the future, but the future is
unknowable.
 By generating multiple possible “futures,” a firm can see
how its plans might work in each and prepare for the
possible outcomes.
 Scenario planning is a learning tool to improve
strategic planning results.
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 Determining the Organization’s
Mission and Goals
 Defining the Business
 Who are our customers?
 What customer needs are being satisfied?
 How are we satisfying customer needs
 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.
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 Formulating Strategy
 Strategic Formulation
 Managers analyze the current situation to develop
strategies for achieving the mission.
 SWOT Analysis
 A planning exercise in which managers identify:
 organizational strengths and weaknesses.
 Strengths (e.g., superior marketing skills)
 Weaknesses (e.g., outdated production facilities)
 external opportunities and threats.
 Opportunities (e.g., entry into new related markets).
 Threats (increased competition)
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 Planning and Strategy Formulation

Figure 8.5 8-16

Potential for Entry Easy entry leads to lower prices and profits.

Power of Suppliers If there are only a few suppliers of important

Power of Customers If there are only a few large buyers, they can
bargain down prices.

Substitutes More available substitutes tend to drive

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 Formulating Corporate-Level
Strategies
 Concentration in Single Business
 Can become a strong competitor, but can be risky.
 Diversification
 Related diversification into similar market areas to
build upon existing competencies.
 Synergy: two divisions working together perform better
than the sum of their individual performances.
 Unrelated diversification is entry into industries
unrelated to current business.
 Attempts to build a portfolio of unrelated firms to reduce
risk of single industry; difficulty to manage.
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 International Expansion
 Basic Question:
 To what extent do we customize products and
marketing for different national conditions?
 Global strategy
 Selling the same standardized product and using
the same basic marketing approach in all
countries.
 Standardization provides for lower production cost.
 Ignores national differences that local competitors can
address to their advantage.

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 International Expansion
 Multi-domestic Strategy
 Customizing products and marketing
strategies to specific national conditions.
 Helps gain local market share.
 Raises production costs.

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 International Expansion
 Exporting – making products at home
and selling them abroad
 Importing – selling at home products

that are made abroad

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 International Expansion
 Licensing – allowing a foreign organization
to take charge of manufacturing and
distributing a product in its country in return
for a negotiated fee
 Franchising – selling to a foreign

organization the rights to use a brand name

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 International Expansion
 Strategic
alliance – managers pool
resources with those of a foreign
company
 Organizations agree to share risk and
reward
 Joint
venture – strategic alliance among
companies that agree to jointly establish
and share the ownership of a new
business
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 International Expansion
 WhollyOwned Foreign Subsidiary –
managers invest in establishing
production operations in a foreign
country independent of any local direct
involvement

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 Vertical Integration
A strategy that allows an organization to create
value by producing its own inputs or
distributing its own products.
 Backward vertical integration occurs when a firm seeks to
reduce its input costs by producing its own inputs.
 Forward vertical integration occurs when a firm distributes
its outputs or products to lower distribution costs and
ensure the quality service to customers.
 A fully integrated firm faces the risk of bearing the
full costs of an industry-wide slowdown.
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 Formulating Business-Level
Strategies
 Low-Cost Strategy
 Driving the organization’s total costs down below
the total costs of rivals.
 Manufacturing at lower costs, reducing waste.
 Lower costs than competition means that the low cost
producer can sell for less and still be profitable.
 Differentiation
 Offering products different from those of
competitors.
 Differentiation must be valued by the customer in order for
a producer to charge more for a product.
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 Formulating Business-Level
Strategies
“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.

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 Formulating Business-Level
Strategies
 Focused Low-Cost
 Serving only one market segment and
being the lowest-cost organization
serving that segment.
 Focused Differentiation
 Serving only one market segment as
the most differentiated organization
serving that segment.
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 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 can 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.
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 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.
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