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Chapter 5: Planning and Strategy

Chapter Outlines

Coping with Uncertainty

Organizational Responses to Uncertainty

Balancing Planned Action and Spontaneity in the Twenty-First Century

The Essentials of Planning

Organizational Mission

Types of Planning

Objectives

Priorities

The Planning/Control Cycle

Thinking Strategically (Including E-Business Strategies)

Synergy

Porters Generic Competitive Strategies

E-Business Strategies for the Internet

The Strategic Management Process

Formulation of a Grand Strategy

Formulation of Strategic Plans

Implementation of Strategic Plans

Strategic Control

Corrective Action Based on Evaluation and Feedback

Glossary

planning coping with uncertainty by formulating courses of action to achieve specified results.

plan an objective plus an action statement.

strategic planning determining how to pursue long-term goals with available resources.

intermediate planning determining subunits contributions using allocated resources.

operational planning determining how to accomplish specific tasks with available resources.

planning horizon the elapsed time between planning and execution.

objective commitment to achieve a measurable result within a specified period.

management by objectives (MBO) comprehensive management system based on measurable and participatively set objectives.

priorities ranking goals, objectives, or activities in order of importance.

80/20 principle a minority of causes, inputs, or effort tends to produce a majority of results, outputs, or rewards.

synergy the concept that the whole is greater than the sum of its parts.

differentiation buyer perceives unique and superior value in a product.

strategic management seeking a competitively superior organization-environment fit.

grand strategy how the organizations mission will be accomplished.

situational analysis finding the organizations niche by performing a SWOT analysis.

capability profile identifying the organizations strengths and weaknesses.

Learning Objective Summary

Define the term planning, and identify four organizational responses to uncertainty.

• Planning is the process of coping with uncertainty by formulating future courses of action to achieve specified results.

• To cope with environmental uncertainty, organizations can respond as:

- Defenders (do one thing and do it well)

- Prospectors (lead the pack by being an aggressive innovator)

- Analyzers (follow a “me-too” strategy of imitating market leaders)

- Reactors (wait for trouble before taking corrective steps)

Distinguish the three types of planning, write good objectives, and explain the 80/20 principle.

• Strategic, intermediate, and operational plans are formulated by top-, middle-, and lower-level management, respectively.

• Objectives have been called the single most important feature of the planning process. Well-written objectives spell out in measurable terms what should be accomplished and when.

• Good objectives help managers by serving as targets, acting as measuring sticks, encouraging commitment, and strengthening motivation.

• Objective setting begins at the top of the organization and filters down, thus forming a means-ends chain.

• Priorities affect resource allocation by assigning relative importance to objectives. The 80/20 principle helps managers focus on the few things that have the greatest impact in terms of results and problems.

• Plans are formulated and executed as part of a more encompassing planning/control cycle.

Explain the concept of synergy, describe Porter’s model of competitive strategies, and identify at least three Internet business models.

• Synergy has been called the “1 + 1 = 3 effect” because it focuses on situations where the whole is greater than the sum of its parts.

• Managers are challenged to achieve four types of synergy:

- Market synergy

- Cost synergy

- Technological synergy

- Management synergy

• Porter’s model helps managers create a profitable organization-environment “fit.” According to Porter’s generic competitive strategies model, four strategies are:

- Cost leadership

- Differentiation

- Cost focus

- Focused differentiation

• Seven basic Internet business models are:

- Commission-based

- Advertising-based

- Mark-up based

- Production-based

- Referral-based

- Subscription-based

- Fee-for-service-based

• There is no one-size-fits-all Internet strategy.

• E-businesses need to build customer loyalty and “sticky” Web sites with a trusted brand name backed by an appealing, responsive, and up-to-date Web site.

Identify and describe the four steps in the strategic management process, and explain the nature and purpose of a SWOT analysis.

• The strategic management process consists of four major steps:

- Formulation of grand strategy

- Formulation of strategic plans

- Implementation of strategic plans

- Strategic control

• Corrective action that is based on the evaluation of progress and feedback helps keep the strategic management

process on track.

• Strategists formulate the organization’s grand strategy after conducting a SWOT analysis. The organization’s key capabilities and appropriate niche in the marketplace become apparent when the organization’s strengths (S) and weaknesses (W) are cross-referenced with environmental opportunities (O) and threats (T).

Test Preppers

Test Prepper 5.1

True or False?

_____ 1. Planning is the process of avoiding uncertainty.

_____ 2. Planning is the primary management function because it affects all other management functions such as organizing.

_____ 3. As long as a defender’s primary technology remains competitive, it can be successful.

_____ 4. Analyzers represent a “me too” response to environmental uncertainty.

Multiple Choice

_____ 5. The process of coping with uncertainty by formulating future courses of action to achieve specified results refers to

a. strategy.

b. planning.

c. pareto analysis.

d. decision making.

e. controlling.

_____ 6. Planning

a. deals with what, why, and how much.

b. eliminates uncertainty.

c. is called the primary management function.

d. helps managers avoid change.

e. makes budgets obsolete.

_____ 7. A good example of a(n) _____ is motorcycle maker Harley-Davidson because it successfully produces and markets a few products in a narrowly defined market.

a. reactor

b. prospector

c. analyzer

d. opportunist

e. defender

_____ 8. Which of these waits for adversity before taking corrective steps?

a. Reactors

b. Analyzers

c. Creators

d. Prospectors

e. Defenders

Test Prepper 5.2

True or False?

_____ 1. Well-written mission statements can generate enthusiasm and a “can-do” attitude.

_____ 2. The planning horizon for operational planning is shorter than that for strategic planning.

_____ 3. Objectives can serve as performance targets.

_____ 4. A means-ends chain is created by the downward flow of objectives.

_____ 5. Managers can use the 50/50 principle to establish priorities.

_____ 6. The initial planning/control cycle begins when top management establishes strategic plans.

Multiple Choice

_____ 7. A well-written mission statement should do all of the following except

a. define the organization for key stakeholders.

b. create an inspiring vision of what the organization can be and do.

c. recognize who is responsible for the vision.

d. state a common goal and foster a sense of togetherness.

e. establish key priorities.

_____ 8. The process of determining how to pursue the organization’s long-term goals with the resources expected to be available refers to _____ planning.

a. intermediate

b. operational

c. budgetary

d. strategic

e. contingency

_____ 9. Objectives are both targets and

a. barriers.

b. measuring sticks.

c. threats.

d. priorities.

e. flow charts.

_____ 10. _____ is a term that best describes priority “C” objectives.

a. Can’t do

b. Will do

c. Must do

d. Should do

e. Nice to do

Test Prepper 5.3

True or False?

_____ 1. Synergy has been called the “2 + 1 = 3 effect.”

_____ 2. Market synergy occurs when a gas station sells food items and lottery tickets.

_____ 3. Wal-Mart is a prime example of Porter’s cost leadership strategy.

_____ 4. Three types of Internet business models include advertising-based, markup-based, and referral-based.

Multiple Choice

_____ 5. When a lumber mill profitably recycles its scrap wood and sawdust, it is taking advantage of what type of synergy?

a. Resource

b. Material

c. Technological

d. Market

e. Cost

_____ 6. _____ are the two key variables in Porter’s generic competitive strategies model.

a. Resources and markets

b. Primary markets and secondary markets

c. Time and cost

d. Cost and volume

e. Competitive advantage and competitive scope

_____ 7. When an upscale bakery competes on the basis of the high quality of its ingredients, it is relying on which of Porter’s generic strategies?

a. Market segmentation

b. Economies of scale

c. Cost leadership

d. Differentiation

e. Cost focus

_____ 8. All of the following are basic Internet business models except

a. commission-based businesses.

b. fee-for-service-based businesses.

c. mark-up-based businesses.

d. advertising-based businesses.

e. word-of-mouth-based businesses.

_____ 9. _____ means that the Web site draws the same customer back again and again.

a. Hits

b. Clicks

c. Stickiness

d. Glue

e. Cannibalism

Test Prepper 5.4

True or False?

_____ 1. Formulation of a grand strategy, formulation of strategic plans, implementation of strategic plans, and strategic control are the four major steps in the strategic management process.

_____ 2. The “O” in a SWOT analysis stands for “outlook.”

_____ 3. Strategic planning is a top-down process, as opposed to a bottom-up process.

_____ 4. Strategic control tends to stifle creativity, which causes poor results.

Multiple Choice

_____ 5. The first step of the strategic management process is

a. a clear code of ethics.

b. the formulation of strategic plans.

c. a statement of corporate values.

d. a staffing strategy.

e. formulation of a grand strategy.

_____ 6. In a SWOT analysis, the “W” stands for

a. weaknesses.

b. workers.

c. willingness.

d. workability.

e. window of opportunity.

_____ 7. _____ is the process of identifying an organization’s strengths and weaknesses.

a. Capability profile

b. Scenario analysis

c. Trend analysis

d. Reengineering process

e. Forecast

_____ 8. Research shows that middle managers resist or derail strategies for what reason?

a. To protect co-workers

b. Shortsightedness

c. A lack of trust in top management

d. To protect their self-interests

e. An inability to think strategically

_____ 9. Researchers found what relationship between strategic control and creativity?

a. No relationship at all

b. No tradeoff

c. The greater the control, the less the creativity

d. Serious damage to top-management creativity

e. Direct conflict at all levels

Test Prepper Answer Key

2.1

1. F 2. T 3. T 4. T 5. b 6. c 7. e 8. a

2.2

1. T 2. T 3. T 4. T 5. F 6. T 7. c

2.3

1. F 2. T 3. T 4. T 5. e 6. e 7. d 8. e 9. c

2.4

1. T 2. F 3. T 4. F 5. e 6. a 7. a 8. d 9. b

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