Planning, Strategy and

Competitive Advantage
Planning, Strategy and Strategic Management
Determining the Organizations Mission and Goals
Planning and Strategy Formulation (Porter)
Planning and Implementing Strategy

Planning

Planning
Identifying and selecting appropriate goals (goal
making) and courses of action (strategy-making) 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.

Strategy
all actions taken in order to establish the main
organizational goals,
the courses of action employed to achieve these
goals,
the actions of allocating the necessary resources
(financial, material, human and time resources),
the priorities and the means to adapt to the
environmental changes,
with the declared purpose to achieve a competitive
advantage and to fulfil the organizations mission

Strategic Management

Set of managerial decisions and actions that determines

the long-run performance of a company
4 Phases of Strategic Management
1. Basic financial planning
2. Forecast-based planning
3. Externally-oriented planning
4. Actual strategic management

Benefits:

Clearer sense of strategic vision

Sharper focus on strategic importance
Improved understanding of changing environment

Qualities of Effective Plans (Fayol)

Unity
Continuity

Only one central plan is in effect at any given

time

Planning is an ongoing broad-framework

process involving all managerial levels

Accuracy

Managers have incorporated all available

information into creating the current plan

Flexibility

Managers alter the plan as the situation changes

Why Planning Is Important

Planning ascertains where the organization is now and

deciding where it will be in the future.
Participation: all managers are involved in setting
future goals.
Sense of direction and purpose: planning sets goals
and strategies for all managers.
Coordination: plans provide all parts of the firm
with understanding about how their systems fit with
the whole.
Control: Plans specify who is responsible for the
accomplishment of a particular goal.

Types of Plans

Standing Plans
Used 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.

Management Structures &

The Planning Process

The Planning Process

Planning Process Stages

1.

Determining the Organizations Mission and Goals

Defining the organizations overriding purpose and its
goals.
Mission - a broad declaration of an organizations purpose
that identifies the organizations products and customers
and distinguishes the organization from its competitors

2.

Formulating strategy
Managers analyze current situation and develop the
strategies needed to achieve the mission.

3.

Implementing strategy
Managers must decide how to allocate resources between
groups to ensure the strategy is achieved.

Levels and Types of Planning

Levels of Planning at General Electric

Levels of Planning

Corporate-Level Plan
Top managements decisions pertaining to the
organizations 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.

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.

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 functional department
intends to achieve its goals.

Who Plans?

Corporate-Level Plans
Plans developed by top management who also are
responsible for approving business- and functionallevel 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.
Both management levels should also seek information
from other levels.

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.

Strategic Decision-Making Process

1. Determining the Organizations

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.

Sample Mission Statements

Good Mission Statements

Limited number of goals
- Concentration

Stress major policies & values

- as stretch guidelines
Define competitive scopes
- by customers groups, customer
needs, or technology

2. Planning and Strategy Formulation

What Influences The Strategy

Formulation?
External Factors

Internal Factors

Owner

The forces in the general

environment

Top managers

Size and complexity of the

business

The forces in the task

environment especially
the 5 forces of Porters
Model of Competition:

Technology

Human resources

Information and IT

Threat of new entrants

Financial resources

Bargaining power of suppliers

Organizational culture

Bargaining power of buyers

Rivalry among existing firms

Threat of substitute products or

services

Porters Five Forces

Model Of Competition

Porters Five Forces

1.

Rivalry among existing firms

Intense rivalry is often the result of the partial or total interaction

of the following main factors :

Numerous competitors and/or of a sensibly equal force

A low rate of progress in the sector

Higher fixed or storage costs

The weak product differentiation or the lack of transfer costs

Important strategic stakes

High barriers to exit the market/industry

The rivalry analysis:

Identifying the organizations competitors

Identifying the competitors objectives and strategies

Estimating the competitors strengths and weaknesses

Anticipating the competitors counter-reactions

Selecting the competitors the organization can confront and the ones that must
be avoided.

Porters Five Forces

2.

The threat of new entrants:

The entry barrier on a certain market/industry - the

supplementary costs that the new entrant on the market
will have to pay in order to enter the respective market:
the transfer costs;

the experience effect;

the access to the distribution network;
the existence of some reserves of production capacity;
the capital needs;

the government policies and the existent regulations

The reaction expected by the new entrant from the

existing competitors

Porters Five Forces

3.

The threat of substitute products or services

products similar to the existing products, but with a better

performance/price ratio
completely different products, but able to satisfy the same
needs
must the organization engage to a fight against the
substitution products?

Porters Five Forces

4.

The bargaining power of

suppliers higher when:

5.

The bargaining power

of buyers higher when:

The suppliers are more

concentrated than the buyers

There are no (or very few/only

partially) substitute products

The seller depends on the sale

for a large portion of its
turnover

The respective industry is not an

important buyer for the supplier

The buy is a big part of the total

value of the buyers purchases

The products are either

standardized or hardly
differentiated

The suppliers product is very

important for the buyer

The products cannot be stored

The products supplied are highly

differentiated

The transfer costs when

changing suppliers are low

Buyers are backward integrated

The transfer costs are high

The demand exceeds the supply

The product purchased doesnt

influence the quality of the
buyers products

The supply exceeds the demand

Competitive Advantage

A competitive advantage is an advantage over

competitors gained by offering consumers greater
value, either by means of lower prices or by providing
greater benefits and service that justifies higher prices.
It has to be sustainable:

Unique
Difficult to replicate
Superior to the competition
Relatively easy to maintain
Applicable to multiple situations

Competitive Advantage

Formulating Strategies
CorporateLevel

BusinessLevel

FunctionalLevel

Concentration

Low-Cost

Diversification

Differentiation

Lowering the
costs of
providing the
value in products

International
Expansion

Focused LowCost

Vertical
Integration

Focused
Differentiation

Adding new value

to the product
by differentiating

Formulating Corporate-Level Strategies

1. Concentration in Single Business

Can become a strong competitor, but can be risky.

Knowledge of current market can be a competitive advantage.
(core competence)
Concentration creates a large degree of business risk if the
single market in which the firm competes declines.

Concentration is a logical strategy if downsizing

organization to increase performance by exiting underperforming businesses.

Formulating Corporate-Level Strategies

2. 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 (2+2=5).

Unrelated diversification is entry into industries unrelated

to current business.
Attempts to build a portfolio of unrelated firms to reduce risk of
single industry failure.
Unrelated firms can be more difficult to manage.

Formulating Corporate-Level Strategies

3. 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.

Multidomestic Strategy - Customizing products and

marketing strategies to specific national conditions.
Helps gain market entry and build local market share.
Raises production costs.

Formulating Corporate-Level Strategies

4.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.
There is also the possibility of horizontal integration
purchasing/merging with one or several competitive
companies

Stages in a Vertical Value Chain

Formulating Business-Level Strategies

Porters Business-Level Strategies:
Number of Market Segments Served
Strategy

Many

Low-cost

Focused low-cost
Differentiation
Focused differentiation

Few

Formulating Business-Level Strategies

1.

Low-Cost Strategy
Driving the organizations 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.

2.

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.

Formulating Business-Level Strategies

3.

4.

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.

Functional-Level Strategies
A plan that indicates how an organizational 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.

Goals for Successful Functional Strategies

1.

2.
3.
4.

Attain superior efficiency

as a measure of outputs for a given
unit of input.
Attain superior quality by
producing reliable products that do their intended job.
Attain superior innovation developing new and novel
features that can be added to the product or process.
Attain superior responsiveness to customers by
acknowledging their needs and fulfilling them.

3. Planning and Implementing Strategy

1.
2.

3.
4.
5.

Allocate implementation responsibility to the

appropriate individuals or groups. (delegation)
Draft detailed action plans for implementation.
Establish a timetable for implementation.
Allocate appropriate resources.
Hold specific groups or individuals responsible for the
attainment of corporate, divisional, and functional
goals. (accountability)