Strategic Planning

 It is the decision making and planning process that chart an organization’s long-term course.

 It involves making decisions about the organization’s long-term goals and strategies.

 Companies engage in strategic planning as an element of strategic management.

 Strategic management is top-level management’s responsibility to define the firm’s position,

formulate strategies, and guide long-term organizational activities.

Purpose of Strategic Planning and Management

 The ultimate purpose of strategic planning and management is to help position the organization to
achieve a superior competitive fit between the organization and its environment.

 Only by being able to compete in its external environment can an organization reach its
objectives.

Elements of Strategic Planning

 Strategic planning is designed to help managers answer critical questions.

 These questions include:

 What is the organization’s position in the marketplace?

 What should the organization’s position be?

 What trends and changes are occurring in the marketplace?

 What are the best alternatives to help achieve the objectives?

 Designed to guide a company in achieving its comprehensive objectives, strategy relies upon the
four elements:

 Scope

 Resources Deployment

 Competitive Advantage

 Synergy

Scope

 It refers to the area, range, or size the firm chooses to develop or maintain within its environment.

 Included are the markets in which it elects to compete as well as the products and services it will
offer.
Resources Deployment

 It is how the company intends to allocate its resources – human, physical, and financial – to
achieve its strategic objectives.

Distinctive Competitive Advantage

 It refers to the benefits of an organization’s unique position in relation to its competitors.

Synergy

 It occurs when two forces, working together, create an effort that is greater than the sum of what
either force could produce alone.

 In the business world, two parts of one organization may create synergy by working together.

 The result may be an advantage in market share, technology, cost, or management skill.

Levels of Strategy

Corporate-Level Strategy

 The purpose of this strategy is to answer the questions, “What business are we in?” and “What
business should we be in?”

Business-Level Strategy

 This strategy answers the question, “How do we compete?”

 It focuses on how each product line or business unit within an organization competes for the
customer.

 The decisions at this level determine how much is spent on advertising, product development, and
research and development; what equipment and facilities to use; and whether to expand or
contract product lines.
Functional-Level Strategy

 The strategy for the major functional departments answers the question, “How can we support the
business-level strategy?”

 Functional-level strategy focuses on the major functions of the company: human resources,
research and development, marketing, finance, and production.

Strategy-Making Process: 6 Steps

 Evaluate Current Mission, Objectives, and Strategies

 The first step in strategic planning is to evaluate the status and effectiveness of the
organization’s current mission, objectives, and strategies.

 The step is critical because to succeed, a company must never loss focus on its purpose.

 Management must constantly re-determine if the firm’s activities are aimed at its mission
and whether that mission is still appropriate.

 Analyze the Environments

 Once the mission statement has been evaluated, the environments – external and internal
– must be assessed and analyzed.

 In completing this phase, the managers perform a situational analysis – a search for
strengths, weaknesses, opportunities, and threats (SWOT)

SWOT ANALYSIS

 Internal Strengths and Weaknesses

 An organization’s internal strengths are factors the company can build on to reach its
objectives.

 Weaknesses inhibit performance and should be either compensated for or eliminated.

 In assessing strengths and weaknesses, strategists should examine:

 Management, including management structure and manager’s abilities.

 Marketing factors, including distribution channels, market share, service

reputation, and customer satisfaction

 Production factors, including manufacturing efficiency, obsolescence of

equipment and quality control

 Research factors, including research and development capabilities, new product

development, and the prospect of technological innovation
  Human resource factors, including the quality and depth of employee talent,
degree of employee job satisfaction and morale, turnover rate, and union status

 Financial factors, including profit margin, return on investment, and debt-equity

ratio

 External Threats and Opportunities

 In an external assessment, management focuses on two areas: threats and opportunities.

 Threats are factors that can prevent the organization from achieving its objectives.

 Opportunities are the opposite – they can help the organization achieve its objectives.

 An external assessment should examine the threat and opportunity posed by:

 New competitors

 Substitute products

 Changes in the strategy of major competitors

 Potential actions and profitability of customers

 Actions of suppliers

 New and abandoned government regulations

 New technology

 Changes in the economy

Reassessing Mission and Objectives

 Analysis of internal strengths and weaknesses and external opportunities and threats urges
managers to consider one of two possible courses: to reestablish the current mission, objectives,
and strategies or to define a new mission and supporting objectives.

Formulate Strategies

 Once the mission and objectives are reestablished or re-defined, strategies at the corporate,
business, and functional levels can be formulated.

Implementing Strategies

 Once strategies are formulated, they must be implemented.

Monitor and Evaluate Results

 Once the strategy is implemented, managers must monitor and evaluate the results. If necessary,
they will have to make modifications.
FORMULATING CORPORATE-LEVEL STRATEGY

 Recall that corporate-level strategy involves determining what business or businesses the firm
expects to compete in.

 For companies with a single market or a few closely related markets, developing corporate-level
strategy involves making a grand, organization-wide strategy.

Grand Strategy

 It is the overall framework, or plan of action, developed at the corporate level to achieve an
organization’s objectives.

Types of Grand Strategy

 Growth Strategy

– when an organization expands significantly in one or more areas of operations or

business units.

– Growth can be achieved internally by investment.

– Organizations achieve external growth by acquiring other business units.

 Integration Strategy

– This strategy is adopted when managers see the need (1) to stabilize supply lines and
reduce cost or (2) to consolidate competition.

– The first situation is called vertical integration – the firm gains ownership of the
resources, suppliers, or distribution systems on which it relies.

– The second situation is called horizontal integration – the firm acts to consolidate
competition by acquiring similar products or services.

 Diversification Strategy

– This strategy is adopted when managers opt to offer new types of products or enter new
markets.

– Managers usually pursue diversification by acquiring other businesses.

 Retrenchment Strategy

– This strategy is adopted when managers reduce the size or scope of a firm’s activities.

– Such strategies call for cutback in some areas or the elimination of entire businesses.

 Stability Strategy

– In this strategy, managers decides that an organization should stay the same.
 Portfolio Strategy

 Once the managers of a large diversified organization decide on a grand strategy, they develop a
portfolio strategy.

 A portfolio strategy focuses on the strategic business unit, and it involves determining the
proper mix of business units and product lines to provide maximum competitive advantage.

FORMULATING BUSINESS-LEVEL STRATEGY

 A business strategy is that which managers formulate, within each SBU (or within the firm itself
for a single-product business), to define how they choose to compete.

 The many possible approaches to business-level strategy can be grouped into:

– Adaptive Strategies

– Competitive Strategies

Adaptive Strategies

 The philosophy behind this strategy is that a firm’s strategy should suit its internal characteristics
and the external environment.

 The four types of Adaptive strategy are:

 Prospector strategy -this strategy calls for innovation, risk, the pursuit of opportunities,
and expansion.

 Defender strategy – is the reverse of the prospector strategy. It calls for retaining current
market share or even retrenching. Companies using this strategy do not seek to grow.

 Analyzer strategy – Managers who adopt this strategy seek to maintain current market
share while innovating in some markets. This strategy calls for balancing act, maintaining
position in some markets while aggressively pursuing opportunities in others.

 Reactor Strategy – an organization whose managers have adopted this type of strategy
may be said to employ no strategy at all. Rather than formulate a plan to fit a specific
environment, reactors respond to environmental threats randomly.

Competitive Strategies

 Competitive strategies are dictated by how the organization can best compete. The ability to
compete is based on internal skills, resources, and philosophy.

 The three types are:

 Differentiation strategy – this strategy attempts to set an organization’s product or

services apart from those of other companies. This can be accomplished by focusing on
customer service, product design, technology, or quality.
  Cost-Leadership Strategy – this strategy focuses on keeping costs as low as possible.
The means to low cost are efficient operations and tight controls. The company that is
successful in maintaining low costs can charge low prices. Low price becomes the
organization’s distinguishing characteristic.

 Focus Strategy – when the managers of a firm target specific market – a particular region
or group of buyers – they are applying this type of strategy. Some companies
manufacture products for certain buyers.

FORMULATING FUNCTIONAL-LEVEL STRATEGY

 This level of strategy in the organization is that developed by the major functional departments.

 These action plans support the accomplishment of the business-level strategies for marketing,
production, human resources, finance, and research and development.

 Marketing Strategy. This strategy applies to the functional level of the company’s products or
services and focuses on pricing, promotion, packaging, and distribution. The decision in each
area, taken as a whole, becomes a firm’s marketing strategy.

 Production Strategy. This involves manufacturing goods and providing services. Decisions in
this area influence how the organization will compete. Such decisions include choices about a
plant location, inventory, control methods (traditional in-plant stock or just-in-time), robotics and
automation, the commitment to quality and productivity, and the use of fabricators or
subcontractors.

 Human Resource Strategy. Many experts believe that human resources is the key functional
area of an organization. Human resources strategies must address such issues as staffing, internal
training and development, replacement schedules, compensation, and recruiting.

 Financial Strategy. The financial strategy of a firm involves decisions about the action to be
taken with profits. Will the organization pay dividends to stockholders or retain earnings, for
example? Other aspects of financial strategy include capital investment in the firm, how
additional funds will be raised, and how debt will be handled.

 Research and Development Strategy.

The functional-level strategy for research and development involves the invention and
development of new products and services. In the tire industry, Goodyear and Michelin have invested
hundreds of millions of dollars in research and development. Others, such as Cooper Tire and Rubber,
choose to let others take the lead and to minimize investments in R&D.

Strategy Implementation and Corporate Culture

 After the strategy is developed, the challenge facing management is implementation.

 Many experts argue that strategy implementation is the most difficult and important element of
the strategic process.
  No matter how creative and well formulated the strategy, the organization receives no benefit
unless it is implemented—and implemented correctly.

 Implementation depends mightily upon the fit between two central organizational foundations:
strategy and culture.

 The implementation of strategy may require changes in the organization’s culture.

 Leadership. When implementing the strategy, leadership involves the ability to persuade
others in the organization to adopt the behaviors needed to put the strategy into action. Top-level
managers face the challenge of convincing people in the organization to accept new values and
new ways.

 Organizational Structure. The implementation of strategy can be assisted by changes in the

structure of the organization as reflected in its organizational chart. Managers can facilitate new
strategies by changing reporting relationships, creating new departments or work units, and
providing the opportunity for independent decision making.

 Human Resources. An organization’s human resources are its people. To achieve the
company’s strategic objectives, the human resource function recruits, selects, trains, transfers,
promotes, lays off, and fires people.

 Information and Control Systems. Management must create a proper blend of reward
systems, policies, procedures, rules, incentives, information systems, and budgets to support
strategy implementation. All these elements constitute information and control systems. The
member of the organization must receive rewards for adhering to a new system and making it
successful.

One reason for the success of 1-800-FLOWERS is that Jim McCann put conside-rable effort into the
managerial function of organizing, the process of allocating and arranging human and nonhuman resour-
ces so targets can be achieved.

 Organizing is very important because it is the means to align work with resources so plans and
decisions can be made and carried out effectively.

 Organizing is a continuing management function to keep the company moving on target.

NATURE OF AN ORGANIZATIONAL STRUCTURE

 For example, you experienced running into a problem in a department store and made you want
to talk to a supervisor or next in command, but was frustrated to know that no one knew who the
supervisor was or whose job it was to handle a complain like yours.

 It is expected that existing businesses have to worked these things to survive in the long run.

 In essence, we expect organizations to have developed reasonably effective organizational

structure.
Definition of Organizational Structure

 It is the framework that defines the boundaries of the formal organization and within which the
organization operates.

 It is the formal pattern of interaction and coordination designed by management to link the tasks
of individual and groups in achieving organizational goals.

Organizational Chart

One aid of visualizing structure is the organizational chart.

 It is a line diagram that depicts the broad outline of the organization’s structure

 It indicates the way positions are grouped into specific units, the reporting relationships and the
channel of communication.

 It is the visual map of the chain of command

Chain of Command

 It is the unbroken line of authority that ultimately links each individual in the organization.

 Basic idea is that everyone should be able to identify his or her boss.

 It traces the line of authority from bottom to top

Elements of Organizational Structure

1. Job Design. The assignment of tasks and responsibilities that define the jobs of individuals and
units.

2. Departmentalization. The clustering of individual positions into units and of units into
departments and larger units to form an organizations hierarchy.

3. Vertical Coordination. Top to bottom coordination such as number of persons reporting to a

supervisor and degree of delegation of authority.

4. Horizontal Coordination. Linkages across departments, such as taskforces and interdepartmental

teams.
JOB DESIGN

 Different types of job can involve different activities

 The different activities of the buyer and the salesperson reflect work specialization.

 Work Specialization is the degree to which the work necessary to achieve organizational goal is
broken down into various jobs.

 Without some specialization, it would be difficult for most organizations to function. This is
because it is usually impossible for every organization member to have the entire range of skills
necessary to run an effective organization.

 What is included in a given job depends on job design, the specification of task activities
associated with a particular job.

 Job design is important to the organizing function for two major reasons:

 Task activities need to be grouped in logical way for workers to function effectively

 Jobs configuration or designation has an influence on employee motivation to perform.

Approaches to Job Design

 Job specialization

 breaking jobs into smaller tasks

 simple, easy-to-learn, and economical

 can lead to low job satisfaction, high absenteeism, and turnover

 Job rotation

 periodically moving workers from one job to another

 Job enlargement

 increasing the number of tasks performed by a worker

 Job enrichment

 adding more tasks and authority to a worker’s job

 A related aspect of designing jobs is creating alternative work schedule, based on adjustments
in the normal work schedule rather in the job content or activities.

 The basic objective of this approach is to increase worker’s job satisfaction and motivation by
arranging work schedules that allow a diverse work force greater flexibility in balancing both
work life ad personal life
Major Types of Alternative Work Schedules

 Flextime – it is a work schedule that specifies certain core hours when individuals are expected to
be on the job (say 8 hours/day) and allow flexibility in starting and quitting times.

 Compressed Workweek – it is a work schedule where employees work four 10-hour days or some
similar combinations rather than the usual five 8-hour days

 Job Sharing - a work practice where two or more people share a single fulltime job. One person
can work in the morning and the other in the afternoon, or alternate days.

DEPARTMENTALIZATION

 This is another important aspect of organizational structure

 It is the clustering of individuals into units and units into departments and larger units to facilitate
achieving organizational goals.

Differing overall patterns of departmentalization are often referred as organizational design

Pattern of Departmentalization

 Functional

 Product

 Customer

 Geographic

 Matrix

Functional Departmentalization

It groups positions into units on the basis of similarity of expertise, skills and work activities
Functional Departmentalization

Product Departmentalization

Groups positions into units according to similarity of products.

Customer Departmentalization

Groups positions into units on the basis of similarity of markets or customers

Geographic Departmentalization

Group positions into units on the basis of geographical location

Matrix Departmentalization

A hybrid structure in which two or more forms of departmentalization are used together

 most common forms combine product and functional

 employees report to two bosses

 increased cross-functional interaction

 significant interaction between functional and project managers required

Elements of Organizational Structure

1. Job Design. The assignment of tasks and responsibilities that define the jobs of individuals and
units.

2. Departmentalization. The clustering of individual positions into units and of units into
departments and larger units to form an organizations hierarchy.

3. Vertical Coordination. Top to bottom coordination such as number of persons reporting to a

supervisor and degree of delegation of authority.

Horizontal Coordination. Linkages across departments, such as taskforces and interdepartmental teams.
VERTICAL COORDINATION

 It is the linking of activities at the top of the organization with those at the middle and lower
levels in order to achieve organizational goals.

 Without vertical coordination, the various parts of the organization have difficulty working
effective together.

Means of Achieving Effective Vertical Coordination

 Formalization

 It is the degree to which written policies, rules, procedures, and other documents specify
what actions are (or are not) to be taken under a given set of circumstances.

 Most organizations rely on at least some means of formalization.

 Span of Management (Span of control)

 It is the number of subordinates who report directly to a specific manager

 It directly influences the number of levels of hierarchy in an organization.

 Types of Organizational Structure Based on Level of Hierarchy and Span of Control:

 Tall Structure

 It is one that has many hierarchical levels and narrow span of control.

 Flat Structure

 It is one that has few hierarchical levels and wide span of control

 If one wanted to reduce the number of hierarchical level in an organization, the only way
to do it without reducing the number of employees at the bottom would be in increase
spans of control.

 When average spans of control in an organization are narrow, the organization most
likely is a tall structure.

 Tall organizations raise administrative overhead (because more managers to be paid,

given office space, etc), slow communication and decision making (because of many
levels), difficult to pinpoint responsibility and encourage dull or routing jobs.

 Due to such problems with tall structures, many companies have recently been downsizing, the
process of significantly reducing the layers of middle management, increasing the span of control,
and shrin-king the size of the work force for purposes of improving organizational efficiency and
effectiveness.
Synonymous with downsizing is restructuring, the process of making a major change in organization
structure. It involves reducing management levels and changing some major components of the
organization

Centralization versus Decentralization

 To foster vertical coordination, managers also need to consider appropriate level of

centralization, the extent to which power and authority are retained at the top organizational
levels.

 The opposite of centralization is decentralization, the extent to which power and authority are
delegated to lower levels.

 Centralization and decentralization form a continuum, with many possible degrees of delegation
of power and authority in between. The extent of centralization affects vertical coordination by
influencing the amount of decision making at the upper and lower levels.

 Centralization has several positive aspects. If all major decisions are made at the top levels, it
can be easier to coordinate the activities of various units and individuals. It can also promotes
strong leadership in an organization because much of the power remains at the top.

 Decentralization has also major advantages. Encouraging decision making at lower levels tends
to ease the heavy workloads of executives, leaving them more time to focus on major issues. It
also enriches the jobs of lower level employees by offering workers the challenge associated with
making significant decisions that affect their work.

Delegation

 Another means of vertical coordination that is closely related to the centralization-

decentralization issue is delegation.

 Delegation involves moving decision making authority and responsibility from one level of the
organization to the next lower level.

 Delegation is important to vertical coordination because it allows the hierarchy to be both more
efficient and more effective by enabling work to be done at the lowest level possible.

How to Be a More Effective Delegator

1. Trust your staff to do a good job

2. Avoid seeking perfection

3. Give effective instructions

4. Know your true interests

5. Follow up on progress
6. Praise the efforts of your staff

7. Don’t wait until the last minute to delegate

8. Ask questions, expect answers and assist employees

9. Provide sufficient resources

10. Delegate to the lowest possible level

Line and Staff Positions

 Another issue related to vertical coordination is the configuration of line and staff positions. A
line position is a position that has authority and responsibility for achieving the major goals of
the organization. A staff position is a position whose primary purpose is providing specialized
expertise and assistance to line positions (e.g., administrative assistant to a division head).

 The position and related departments that are considered either line or staff vary with the type of
organizations.

 The usefulness of the distinction between line and staff departments becomes more clear when
one considers the differences between line authority and staff authority.

 Line departments have line authority, which is the authority that follows the chain of command
established by formal hierarchy.

 Staff departments have functional authority, which is the authority over the others in the
organization in matters related directly to their respective function.

METHODS OF HORIZONTAL COORDINATION

 Horizontal coordination provides an additional means of processing information in organizations.

It was argued that the more organizations need to process information in the course of producing
their products or services, the more method of horizontal coordination they need to use.

 Organizations typically need to process more information when they face complex and/or
changing technology, environmental uncertainty, and growing size.
  Because horizontal coordination facilitates processing information across the organization, it also
helps promote innovations. There are three reasons for this:

 New ideas are more likely to emerge when a diversity of views are shared.

 Awareness of problems and opportunities across areas can spark creative ideas.

 Involving other in the development of ideas often positively influences their willingness to help
implement new ideas.

Useful means in promoting Horizontal Coordination are:

Slack Resources

 One interesting means of supporting horizontal coordination is the use of slack resources, a
cushion of resources that facilitates adaptation to internal and external pressures, as well as
initiation of changes.

Information System

 Another important and growing means of horizontal coordination is the use of information
systems, particularly computerized ones, to coordinate various parts of organizations.

Lateral Relations

 Another approach to horizontal coordination that is increasingly being used is lateral relations. It
is the coordination of efforts through communicating and problem solving with peers in other
departments or units, rather than referring most issues up the hierarchy for consideration.

Major means of Lateral Relations:

 Direct Contact – communication between two or more persons at similar levels in different work
units for purposes of coordinating work and solving problems.

 Liaison Roles – is a role to which specific individual is appointed to facilitate communication and
resolution of issues between two or more departments.

 Task Forces and Teams

 Task Force – is a temporary interdepartmental group usually formed to make recommendations

on a specific issue.

 Teams – are either temporary or ongoing groups that are expected to solve the problems and
implement solution related to a particular issue or area.
Major means of Lateral Relations:

 Direct Contact – communication between two or more persons at similar levels in different work
units for purposes of coordinating work and solving problems.

 Liaison Roles – is a role to which specific individual is appointed to facilitate communication and
resolution of issues between two or more departments.

 Task Forces and Teams

 Task Force – is a temporary interdepartmental group usually formed to make recommendations

on a specific issue.

 Teams – are either temporary or ongoing groups that are expected to solve the problems and
implement solution related to a particular issue or area.