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Planning and Strategic Management
Terms in this set (70)
A management function that involves defining goals, establishing a strategy for achieving those goals, and developing plans to integrate and coordinate activities.
Purposes of Planning
1. Planning provides direction to managers and nonmanagers alike
2. Planning reduces uncertainty by forcing managers to look ahead, anticipate change, consider the impact of change, and develop appropriate responses
3. Planning reduces overlapping and wasteful activities
4. Planning establishes the goals or standards that are used in controlling
Planning and Performance
1. Formal planning is generally associated with higher profits, higher return on assets, and other positive financial results
2. Quality of the planning process and appropriate implementation of the plans probably contribute more to high performance than does the extent of planning
3. In the studies where formal planning did not lead to higher performance, the external environment was often the culprit
Criticisms of Planning
1. Planning may create rigidity
2. Plans cannot be developed for a dynamic environment
3. Formal plans cannot replace intuition and creativity
4. Planning focuses managers' attention on today's competition, not on tomorrow's survival
5. Formal planning reinforces success, which may lead to failure
Desired outcomes for individuals, groups, or entire organizations
Documents that outline how goals are going to be met and describe resource allocations, schedules, and other necessary actions to accomplish the goals.
Traditional Goal Setting
An approach to setting goals in which goals are set at the top of the organization and then broken into subgoals for each organizational level. (works well when organization is hierarchically structured)
Management by Objectives (MBO)
An approach to goal setting in which specific measurable goals are jointly set by employees and their managers, progress toward accomplishing those goals is periodically reviewed, and rewards are allocated on the basis of this prgress.
Consists of four elements:
2. Participative Decision Making
3. An Explicit Time Period
4. Performance Feedback
Steps in Goal Setting
1) Review the organization's vision and mission
2) Evaluate available resources
3) Determine the goals individually or with input from others
4) Write down the goals and communicate them to all who need to know
5) Review results and whether goals are being met
Vision and Mission
The purpose of an organization
Characteristics of well-designed goals
1. Written in terms of outcomes rather than actions
2. Measurable and quantifiable
3. Clear time frame
4. Challenging yet attainable
5. Feature participation and feedback from all necessary organizational members
Types of Plans
Strategic vs. Operational (described by breadth)
Short term vs. Long term (described by time frame)
Directional vs. Specific (described by specificity)
Single use vs. Standing (described by frequency of use)
Plans that apply to the entire organization, establish the organization's overall goals, and seek to position the organization in terms of its environment
Plans that specify the details of how the overall goals are to be achieved
Plans with a time frame beyond three years
Plans with a time frame of one year or less
Plans that are clearly defined and leave no room for interpretation
Plans that are flexible and that set out general guidelines
A one-time plan specifically designed to meet the needs of a unique situation
Ongoing plans that provide guidance for activities performed repeatedly
Planning Tools and Techniques
2. Contingency Planning
3. Scenario Planning
Attempting to predict the future and developing plans accordingly. 2 techniques are Expert opinions and statistical analysis
Identifying alternative plans for outcomes that are different than expected. When environmental uncertainty is high, plans should be specific, but flexible.
Predicting various future outcomes and making plans for each. Scenario planning is a type of contingency planning that involves a longer time frame.
Developing plans based on the best practices of competitors or non-competitors that lead to their superior performance. The idea is that management can improve quality by analyzing and copying methods of other leaders in various fields.
What managers do to develop the organization's strategies
The decisions and actions that determine the long run performance of an organization
A strategic design for how a company intends to profit from its strategies, work processes, and work activities
Strategic Management Process
A six-step process that encompasses strategic planning, implementation, and evaluation
6 Steps of Strategic Management Process
1. Identify the Organization's Current Vision, Mission, Goals, and Strategies
2. Do an Internal Analysis
3.Do an External Analysis
4. Formulate Strategies
5. Implement Strategies
6. Evaluate Results
The Vision of the Organization Answers the question
"What will this business be in the future?"
The Mission of the Organization Answers the question
"What is our reason for being in business?"
An organization's assets- financial, physical, human, intangible - that are used to develop, manufacture, and deliver products or services to customers
An organization's skills and abilities in doing the work activities needed in its business
An organization's major value-creating skills, capabilities, and resources that determine its competitive weapons
A philosophy of management driven by continual improvement and responding to customer needs and expectations
Any activities the organization does well or any unique resources that it has
Activities the organization does not do well or resources it needs but does not posess
Positive trends in external environmental factors
Negative trends in external environmental factors
An analysis of the organization's strengths, weaknesses, opportunities, and threats
A way for a company to align its strategy with the external environment by analyzing six contextual factors that shape the external environment: Political, Economic, Socio-Cultural, Technological, Environmental, and Legal
3 Types of Organizational Strategy
An organizational strategy that evaluates what businesses a company is in, should be in, or wants to be in, and what it wants to do with those businesses. The corporate strategy is based on the mission and goals of the organization and the roles that each business unit of the organization will play.
A corporate strategy used when an organization wants to grow and does so by expanding the number of products offered or markets served, either through its current business(es), or through new bussiness(es).
Growth through concentration is achieved when an organization concentrates on its primary line of business and increases the number of products offered or markets served in this primary business
A company's attempt to gain control of inputs (backward vertical integration), or outputs (forward vertical integration), or both.
A company's attempt to grow by combining with other organizations in the same industry. Means that a company combines operations with competitors.
Organization can grow either through related diversification or unrelated diversification
A company grows by merging with or acquiring firms in different, but related, industries.
A company grows by merging with or acquiring firms in different and unrelated industries.
A corporate strategy characterized by an absence of significant change in what the organization is currently doing. Examples of this strategy include offering the same products or service to the same clients, maintaining market share, and sustaining the organization's business operations. The organization doesn't grow, but it doesn't fall behind either
When might managers decide that a stability strategy is the most appropriate choice?
1. One situation might be that the industry is in a period/state of rapid upheaval with external forces drastically changing and making the future uncertain.
2. Another situation is if the industry is facing slow or no growth opportunities.
3. Owners and managers of small businesses may choose to follow a stability strategy because they may feel that their business is successful enough as it is, that it adequately meets their personal goals and that they don't want the hassles of a growing business.
Corporate strategies designed to address organizational weaknesses that are leading to performance decliens
2 main types of Renewal Strategies
1. Retrenchment Strategy
2. Turnaround Strategy
A short term renewal strategy that reduces the organization's activities or operations. This includes: cost reductions, layoffs, closure of under-performing units, or closure of entire product lines or services. The retrenchment strategy helps stabilize operations when organization is facing minor performance setbacks
A renewal strategy for situations in which the organization's performance problems are more serious.
The selection of a corporate strategy sets the direction for the entire organization. Subsequently, each unit within the organization has to translate this corporate strategy into a set of business strategies that will give the organization a competitive advantage
What sets an organization apart; its distinct edge
Six Competitive Forces used in assessing the industry's attractiveness and profitability
1. Threat of new entrants
2. Threat of substitutes
3. Bargaining power of suppliers
4. Current competitor rivalry
5. Power of complementors
Threat of new entrants
Factors such as economies of scale, brand loyalty, and capital requirements determine how easy or hard it is for new competitors to enter an industry
Threat of substitutes
Factors such as switching costs and buyer loyalty determine the degree to which customers are likely to buy a substitute product
Bargaining of power of suppliers
Factors such as the degree of supplier concentration and availability of substitute inputs determine the amount of power that suppliers have over firms in the industry
Current competitor rivalry
Factors such as industry growth rate, increasing or falling demand, and product differences determine how intense the competitive rivalry will be among firms currently in the industry
Power of complementors
A complementor is another industry whose product tends to increase the sales of a product in another industry. Companies in the computer and electronics industries sell products that must be used together.
Cost Leadership Strategy
A business strategy in which the organization sets out to be the lowest cost producer in its industry
A business strategy in which a company seeks to offer unique products that are widely valued by customers. Sources of differentiation might be exceptionally high quality, extraordinary service, innovative design, technological capability, or an unusually positive brand image.
A business strategy in which a company pursues a cost advantage (cost leadership focus) or differentiation advantage (differentiation focus) in a narrow industry segment.
Stuck in the Middle
A situation in which an organization is unable to develop a competitive advantage through cost or differentiation.
A strategy used by a functional department to support the business strategy of the organization
Recommended textbook explanations
Principles of Economics
N. Gregory Mankiw
Principles of Microeconomics
N. Gregory Mankiw
Principles of Economics
David Shapiro, Steven Greenlaw
Paul Krugman, Robin Wells
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