[slide 2 – The Planning Process – Begin with the End]

We’ve all engaged in informal planning. For instance, you might have decided you want to travel to a friend’s wedding next summer, and you are currently thinking through how you will get there, how you will get time off work or school to attend, and what type of clothes you will need to wear. Ironically, good planning begins with the end in mind. Where is it you want to go, or what is it you what to attain? Then the question becomes, “How do you best get there?”
Dorothy knew exactly where she wanted to go…the Emerald City. Luckily, the road to that destination was very well marked…she simply had to follow the Yellow Brick Road. Unfortunately, the road to most end destinations are not always so clearly indicated.

Planning is important to organizations as well, and every effective organization will engage in formal planning. Failure to do so often means a firm spends much of its resources and energies engaged in unprofitable, and unfruitful activities….random roads, in other words, without any definite destination.

[slide 3 – Formal Planning: should you or shouldn’t you]
The planning process takes time and energy. So it is natural to ask, why bother? While there are potential drawbacks to formal plans, it is generally accepted that the benefits to formal planning far outweigh these drawbacks. In Chapter 2 you discovered the many ways in which the managerial environment has changed. Formal planning can help firms anticipate and respond quickly to these changes. It establishes a coordinated effort where all employees are on the same page, minimizing wasted and redundant effort. However, it is wise to be aware of the potential risks we are exposed to when engaged in formal planning and not let plans remain in place when they no longer fit the environmental demands.

[slide 4 – types of plans]

As your text notes, there are a variety of types of plans in use by organizations at all times. Most typically, top level managers are engaged in strategic plans – long range plans that provide overall direction as to where the organization should head. For instance, Starbucks Corporation top mangers are currently planning how to expand their enterprise into new foreign countries or what new products or services they should add to their current businesses. Lower level management is more involved with tactical or operational planning…plans which are more specific and have a shorter time frame, typically less than one year.

[slide 5 – cascade of objectives]
Let’s suppose you are the owner of a small coffee shop in your hometown. You probably have a good idea of what your overall goal for your shop might be (to become the #1 coffee shop in town, for instance) and some overall plan to accomplish this (for instance provide only the highest quality service and products). However, both this plan and goal are too general, too vague, too non-specific to be of much help to the worker behind the counter whom you need to help realize your company goal. We need to translate this more strategic, directional and long-term plan into a more specific operational plan. Accordingly, plans AND goals need to be broken down into a series of highly inter-related but increasingly more specific goals that each level of the organization can address. Management-by-Objectives (MBO) is a widely used approach to accomplish this cascading of goals or objectives. Here you can see each level has specific goals which provide greater direction and clarity to the individual unit or employee but which support the overall organization’s goal.

[slide 6&7]
Here are a couple of examples of how this hierarchy of objectives might work at Starbucks and Hewlett-Packard.

[slide 8 –MBO]
Understanding the basic steps in a good Management-by-Objectives (MBO)program is important for any manager to be very familiar with. An effective MBP program allows an opportunity for employee participation in the goal-setting process, it provides specific goals for an employee to accomplish within an agreed upon timeframe, and it provides the employee to obtain periodic feedback in terms of his/her progress towards these goals. All of these factors are part of sound employee management. It also provides a systematic way to link individual performance goals to those of department and organization.

[slide 9 – The strategic management process]
As previously noted, one of the major duties of top management is to determine the long term strategy (or direction) for an organization. This strategy is best determined through the formal strategic management process, which is depicted in this slide. Each of these steps are important for successful organizational management. Let’s take a look more closely at a few of these steps.

[slide 10 – SWOT]
As noted in the strategic management process model, a firm must first be very clear about what its mission and current objectives are (keeping in mind these may get modified or changed entirely depending on its environmental analysis, the next step in the process). This first step also helps clarify in the organization’s mind what industry it competes in and thus, which environmental sectors are especially important for it to monitor. As you can see from the environmental model here, there are many different sectors to the environment…some of which will be more salient to an organization than others. A firm must identify which segment is most relevant to its mission, and keep close watch on what changes and issues are arising in those sectors.

[slide 11 – strategic process model] Steps 2-4 in the model are what are typically known as conducting a SWOT analysis (Strength – Weaknesses, being an examination of a firm’s internal capabilities – what is it we are good at, in what areas are we less strong; Opportunities-Threats, being an examination of the external environment in which the organization exists). A SWOT analysis, which you may have been exposed to in other courses, is a fundamental part of proper strategic management. It prevents an organization from planning in a vacuum, or to plan based solely on the whim of managers. After a SWOT analysis, a firm may realize it needs to reassess its strategy and goals – sometimes even its overall mission. The idea is to find the overlap between what a firm is capable of and finding opportunities it can exploit (or threats it can head-off) in its environment.

[slide 12 – general strategies] The remainder of this chapter discusses general strategies that a firm can adopt. Grand strategies, or what are sometimes called Master level strategies are fairly general. A firm can choose to grow, to maintain status quo, to retrench or shrink level of operations, or some combination of these three. Let’s look a bit more at the growth strategy.

[slide 13 - growth strategy] Let’s assume you are the owner of a pet store that sells to families in the suburbs. You wish it to grow. What are things you could do?

[slide 14 - Concentration strategy] Probably most of the suggestions you had for growth of your small firm centered around a concentration strategy. A concentration strategy is doing basically the same thing you’ve always done, just more OF it. For instance, you could pursue what is referred to as market penetration: just selling more of your product to your same customers. We could achieve this through things like advertising, sales, promotions, etc. Or we could decide to expand our market, and begin to open stores in areas that would attract a different segment other than suburban families, our traditional customer base. This would be an example of market development. Finally, we could decide to keep focused on our traditional customer, suburban families, but tweak our product offerings a bit to increase sales; this would be an example of a product development strategy.

[slide 15 – Some of you may have thought of an even more extreme way to grow….of offering entirely new products or services which may attract new market segments. This is the rationale behind a diversification strategy. Firms commonly engage in diversification as a way to increase sales revenue and grow. For our pet store, we could expand into veteran Ian or grooming services, for example. This would be considered “related diversification” as it is a service fairly closely related to our core business. An example of unrelated diversification would be if we were to decide to open a coffee stand or laundry next door as part of our pet store. It may not be too surprising to learn that firms that engage in unrelated diversification tend to perform less well than those who pursue more related diversification, offering new products and services with close overlap and synergies to their core business.

[Slide 16- vertical integration] Lastly, some firms choose to grow through expanding the domain of the organization into supply channels or distributors. At one time, Henry Ford had fully integrated his company from the ore mines needed to make the steel all the way to the showrooms where his cars were sold. This strategy was very popular in the 1960’s and 1970’s, but as we will discuss in a future chapter, the trend today is moving away from this type of growth strategy; there is more vertical dis-integration occurring for many firms today.

[slide 17 – generic strategies] An organizational unit must translate the grand strategy into a set of strategies that gives it a competitive advantage. Using Michael Porter’s framework, management can select a strategy that gives its organization a competitive advantage.
If an organization cannot use any one of these three strategies to develop a competitive advantage, then it is stuck in the middle unless it is competing in a highly favorable market or all of its competitors are also stuck in the middle. A good example of a firm “stuck in the middle” might be K-Mart. K-Mart is in the discount retail industry and its main competitors are Wal-Mart, which was successfully pursing a cost leadership strategy, and Target Corporation, which is effectively choosing a differentiation strategy. K-Mart is stuck in the middle, having been unable to effectively compete with either strategy.