Chapter 05

PLANNING AND STRATEGIC

MANAGEMENT
“There is no favorable wind for the one who doesn’t
know where to go”
SENECA
 The What and Why of
planning
• The process of determining in advance what should be done,
when, by whom, how, and at what cost.

• Planning is the most fundamental function of management. All of

the other management functions stem from planning
• Why planning?
1. Planning provides direction to managers.
2. Forces analytical thinking and evaluation of alternatives.
3. Planning reduces uncertainty.
4. Planning minimizes waste and redundancy.
5. Planning establishes the goals or standards used in controlling.
 Goals and plans

G • A goal is a desired future state that the

organization attempts to realize
oa
l
• A plan is a document for goal achievement
Pl which specifies the necessary resource
allocations, schedules, tasks, and other actions
an
 Effective goal setting

S M A R T
SPECIFIC MEASURABLE ACHEIVABLE RELEVANT TIME-BOUND

Consistent Have a
Provides a Include a metric
with a target with higher- defined time
clear
that indicates Setting a level goals period
description of success
what needs challenging and covers
to be target, but
key result
acheived realistic
areas
 Hierarchy of goals

Mission / Vision

Strategic goals
Top Management

Tactical goals
Middle Management

Operational Goals
First line management &workers
 Example
• Let’s say the company’s vision is to be the “world leader in the natural foods
market.
• Strategic goal : to achieve in 2 or 5 years.

- 20% increase in revenue

• Tactical goals to achieve for the next 12 or even 24 months

-Raise the number of salespeople from 8 to 12 people;

-Reduce average customer service time from 1 hour to 45 minutes…
• Operational goals : are short term and can be measured monthly

-Number of calls made per hour by salespersons

-Number of products manufactured per hour per person
 Strategic Management

• The process of determining a firm objectives and implementing a

plan of action to achieve these objectives.

• Strategic management is what managers do formulate, implement

and evaluate organization’s strategies.

• It’s an important task involving all the basic management functions

—planning, organizing, leading, and controlling.
 The Strategic Management Process
External
Analysis
opportunities
Threats

Long-Term Generate, Implement Implement

Vision Measure &
Objectives Evaluate, Strategies: Strategies:
& Evaluate
Mission Select Marketing, Performance
Strategies Fin/Acct,
R&D, CIS

Internal
Analysis
Strengths
Weaknesses
 The strategic management process

Step 1: Identifying the Organization’s Mission and vision

• Organizational vision is a road map of a company’s future and
provides a rationale for going there. Where are we going? What
do we want to achieve in the future?

• Organizational mission – the organization’s reason for existence

and serves to communicate purpose and direction to employees,
customers, vendors…Who are we? Who do we serve? What do
we do? Why do we exist?
 The strategic management process

• IKEA vision: To create a better everyday life for the many people

• IKEA mission: to offer a wide range of well-designed, functional

home furnishing products at prices so low that as many people as
possible will be able to afford them..

• NIKE Vision: Bring inspiration and innovation to every athlete in

the world

• NIKE Mission: Create groundbreaking sports innovations, make

our products sustainably and make a positive impact in
communities where we live and work.
 The strategic management process

• Step 2: Doing a SWOT analysis

• Strengths: are any activities the organization does well or any unique

resources that it has

• Weaknesses: are activities the organization doesn’t do well or

resources it needs but doesn’t possess.

• Opportunities: are positive trends in the external environment;

• Threats: are negative trends

 The strategic management process

• Step 3: Formulating Strategies

• Step 5: Implementing Strategies

• Step 6: Evaluating Results

 What is strategy?

• Strategy

– a comprehensive plan guiding resource allocation to

achieve long-term organization goals.
 Purpose of strategy

Strategies should focus on :

• Build a competitive advantage

• Exploit Core Competencies

• Deliver Value
 2-1 Purpose of strategy

• Building a Competitive Advantage:

A competitive advantage is the set of attributes that distinguish a

firm from others and allow it to outperform its competitors (Exp:

low prices, better quality, excellent customer service, wide

distribution network, wide products offering, exclusive technology,

special expertise…).
 2-1 Purpose of strategy

• Exploit Core Competencies

A competitively important activities that the organization

performs better than other internal activities. Mc Donald’s and
KFC core competency is to provide delicious food consistently at
affordable prices with a very fast service
 2-1 Purpose of
strategy

• Deliver value:

Customers must recognize the benefits of company’s

products (utility, practicality, warranty, reliability,
prestige…)
III/ Three levels of strategy

1. Corporate Strategy

2. Business Strategy

3. Functional Strategy
Three levels of strategy
 3-1 Corporate strategy

• A corporate strategy is one that determines what businesses a

company is in or wants to be in, and what it wants to do with those
businesses.

• A key part of corporate strategy is making decisions on how many,

what types, and which specific lines of business the company
should be in.
3-1-1 Three types of corporate
strategy

Corporate
strategy

Growth Stability Renewal

 Growth strategies:

• The concentration strategy involves focusing on a single industry, a specific

product or a specific group of clients. The world's leading fast-food brands like
Subway, McDonald's, and Starbucks follow a concentration strategy

• Concentration strategy can be made in different ways:

- By attracting new customers (entering new geographic zones, converting non-

users to users, taking a market share from competitors…)

- By persuading existing customers to increase their usage of the product.

 Growth strategies:

-Integration strategies allow a firm to gain control over distributors,

suppliers, or competitors.
- Vertical integration occurs when the company either take up the job of
the supplier (backward integration) or the distributor (forward integration). .
- Horizontal integration occurs when two firms that are competing in the
same business field are brought together. If they combine, it is known as
“joint venture”, whereas if the larger one absorbs the smaller one it is
“absorption” or “merger”.
 Growth strategies:

-Diversification strategies expand firms' operations by adding new markets,

products, services, or stages of production to the existing business.
-Related Diversification:
- adding related or similar products to existing core business, either
through acquisition of competitors or through internal development
of new products
- Unrelated Diversification
- The expansion into new lines of business with no direct connection
with the existing business.
 Growth strategies

Growt Expanding the number of markets served or products

offered, either through current business or through new

h businesses.

Concentration Expanding operations within a single industry

Integration
(vertical/ Acquiring or cooperating with other companies
horizontal)

Diversification Expanding operations outside the original

(related/unrelated) activity
Related Diversification
 Unrelated Diversification:
The expansion into new lines of business with no
direct connection with the existing business.
Three types of corporate
strategy:
Stability and Renewal strategies

• Continuing the current

Stabilit
activities without any
y
significant change.

Renewa • Reducing the size or

l diversity of operations.
3-1-2 How Are Corporate
Strategies Managed?

• Managers use corporate portfolio matrix.

• It provides a framework for understanding diverse

businesses divisions and product lines

• helps managers establish priorities for allocating resources.

• One tool is the BCG Matrix (developed by the Boston Consulting

Group)
 3-1-3 BCG matrix

• The BCG matrix is a 2X2 matrix.

• The horizontal axis represents market share (low or

high)

• The vertical axis indicates anticipated market

growth (low or high).

• A business unit is evaluated using a SWOT analysis

and placed in one of the four categories.
BCG Matrix
 BCG matrix

• The Dog: sold off or liquidated

• The cash cow: limit any new and use the cash generated to

invest in stars and question marks.

• The stars: need heavy investments and will develop into

cash cows as their markets mature and sales growth slows.

• The question marks: some will be sold off and others

strategically nurtured into stars.

 3-2 Business strategy

• The Business strategy is a strategy for how an organization will

compete in its business(es).

• “how do we compete?” and “How do we gain (a sustainable)

competitive advantage?”

• In order to answer these questions it is important to have a

good understanding of a business and its external environment.

• Managers can use analysis frameworks like Porter’s Five Forces

 3-2-1 The Porter’s Five Forces
Model

1. Threat of new entrants: How likely is it that new competitors will

come into the industry?

2. Threat of substitutes: How likely is it that other industries’ products

can be substituted for our industry’s products?

3. Bargaining power of buyers: How much bargaining power do buyers

(customers) have?

4. Bargaining power of suppliers: How much bargaining power do

suppliers have?

5. Current rivalry: How intense is the rivalry among current industry

competitors?
The Porter’s Five Forces Model
 3-2-2 Examples of business
strategies:
The Porter’s Generic Strategies

• Porter’s Generic Strategies model are basic strategic options

available to organizations for gaining competitive advantages in all
industries.

• Three different strategic orientations:

-Cost leadership: minimizing the cost

-Differentiation: being different from competitors

-Focus: Concentrate on particular niche market

Examples

Cost Differentiation Focus

leadership
Rolex (Focus
Walmart Emirates Airlines differenciation/
Primarks Apple Premium
Ikea Tesla pricing and
Amazon HappySocks image)
McDonald Air Arabia
(Focus Low-
cost)
 3-3 Functional level strategy

• are the strategies used by an organization’s various

functional departments to support the competitive
strategy.
• It relates to :
• Marketing
• Production
• Finance
• Human Resources
• Research and Development
Current Trends in Strategic
Management

• The complexity of business growth leads to more collaboration

and strategic partnerships with other organizations.
• Increasing adoption of new technologies.

• Innovation and creativity to challenge the complex business

environment.
• Strategic leadership to anticipate, envision, maintain flexibility,
think strategically, and work with others.