Chapter 4
Chapter 4
Chapter 4
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CHAPTER
4
Planning and
Strategic
Management
CHAPTER OUTLINE
An Overview of Planning Fundamentals
The Basic Planning Process
Levels of Planning
Strategic Planning
Tactical and Operational Planning
Linking Tactical, Operational, and
Strategic Planning
Strategic Planning
Step 1: Establishment of Mission, Vision,
and Goals
Step 2: Analysis of External Opportunities
and Threats
Step 3: Analysis of Internal Strengths
and Weaknesses
Step 4: SWOT Analysis and Strategy
Formulation
Step 5: Strategy Implementation
Step 6: Strategic Control
LEARNING OBJECTIVES
After studying Chapter 4, you will know:
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roll by delivering an
exceptional entertainment and dining
experience. We are
committed to being an important, contributing
member of our community, and offering the Hard
Rock family a fun, healthy, and nurturing work
environment while ensuring our long-term success.Hard Rock seems to have succeeded
where others in the theme restaurant industry
have faltered.
To get its groove back in the niche it invented,
Hard Rock focused more on todays music than on
nostalgia. In addition, the company diversified a
bit and partnered a lot. The risk it takes with this
strategy is losing its focus on the food and restaurant business; the publisher of Restaurant Business
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Hard Rock Caf, as do other successful organizations, determined its strategy as part of
its planning process. Although few firms make their planning decisions known, a few
key ideas are fundamental to the planning process. This chapter examines, the most
important concepts and processes involved in planning and strategic management.
By learning these concepts, and reviewing the steps outlined, you will be on your way
to understanding the current approaches to the strategic management of todays
organizations.
Step 1: Situational Analysis As the contingency approach advocates, planning begins with a situational analysis. Within their time and resource
constraints, planners should gather, interpret, and summarize all information relevant to the planning issue in question. A thorough situaA process planners use, within
tional analysis studies past events, examines current conditions, and
time and resource constraints, to
attempts to forecast future trends. It focuses on the internal forces at
gather, interpret and summarize all
work in the organization or work unit and, consistent with the openinformation relevant to the planning
systems approach, examines influences from the external environment.
issue under consideration.
The outcome of this step is the identification and diagnosis of planning
assumptions, issues, and problems.
A thorough situational analysis will point toward the planning decisions you will
need to make. For example, one major medical center took 10 months to collect and
analyze historical information and other data from consumers, government agencies,
and insurance firms, among other groups. The resulting situational analysis document
was 250 pages long, but thanks to the thoroughness of this stage, what needed to be
done was clear. The remaining steps took only three months, and the centers final document was only 50 pages long.
situational analysis
Step 2: Alternative Goals and Plans Based on the situational analysis, the
planning process should generate alternative goals that may be pursued in the future
and the alternative plans that may be used to achieve those goals. This step in the
process should stress creativity and encourage managers and employees to assume a
broad perspective on their jobs. Evaluation of the merits of these alternative goals and
plans should be delayed until a range of alternatives has been developed.
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General
decision-making stages
Specific
formal planning steps
Identifying and
diagnosing the problem
Situational
analysis
Generating alternative
solutions
Alternative
goals and plans
Evaluating
alternatives
Goal and
plan evaluation
Making
the choice
Goal and
plan selection
Implementing
Implementation
Evaluation
Monitor and
control
Chapter 4
109
FIGURE 4.1
Decision-Making Stages
(Chapter 3) and Formal
Planning Steps (Chapter 4)
Goals are the targets or ends the manager wants to reach. Goals should be goal
specific, challenging, and realistic. For example, General Electrics goal of
being first or at least second in all its markets is specific and challenging. When A target or end that management
appropriate, goals also should be quantified and linked to a time frame. They desires to reach.
should be acceptable to the managers and employees charged with achieving
them, and they should be consistent both within and among work units.
Plans are the actions or means the manager intends to use to achieve plans
goals. At a minimum, this step should outline alternative actions that may
The actions or means managers
lead to the attainment of each goal, the resources required to reach the goal intend to use to achieve organizathrough those means, and the obstacles that may develop. Aramarks plan to tional goals.
become the premier provider of corporate services outlines the companys
activities designed to expand business in catering, food services, and uniform services,
as well as health and education. This plan is focused on the companys goals of 10
percent annual growth in sales and profitability.2
In this chapter we will talk about various types of plans. Some plans, called single-use
plans, are designed to achieve a set of goals that are not likely to be repeated in the future.
For example, city planners might prepare for an upcoming sesquicentennial celebration
by putting in place a plan for parades, festivities, speeches, and the like. Other plans, called
standing plans, focus on ongoing activities designed to achieve an enduring set of goals. For
example, many companies have standing plans for their efforts to recruit minority group
members and women. Frequently, standing plans become more permanent policies and
rules for running the organization. Finally, contingency plans might be referred to as what
if plans. They include sets of actions to be taken when a companys initial plans have not
worked well or if events in the external environment require a sudden change. For example, companies worked feverishly at the end of 1999 to prevent Y2K problems. At the
same time, they made preparationscontingency plansfor how they would continue
if the systems failed. This planning paid off at the Veterans Affairs Medical Center in
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Miami, Florida. On the night of November 23, 1999, a power surge caused a short in the
hospitals main electrical panel. Power was lost to all passenger elevators in the main building, and the lights were out in most places. Meanwhile, doctors were in the middle of an
open-heart surgery procedure. Luckily, an emergency plan had been rehearsed through
months of preparation for potential Y2K-related disasters. Surgeons finished the openheart procedure using flashlights (and the patients prognosis was bright).3
Step 3: Goal and Plan Evaluation Next, decision makers must evaluate the
advantages, disadvantages, and potential effects of each alternative goal and plan. Decision makers must prioritize those goals or even eliminate some from further consideration. At the same time, the manager needs to consider the implications of alternative
plans designed to meet high-priority goals.
In some companies, special teams of managers with diverse backgrounds conduct this
evaluation. During major planning efforts at Atlantic Richfield Company (ARCO), senior executives meet with planning groups from strategic planning, public and government
affairs, operations, marketing, and other areas. Often the different perspectives and ideas
such groups generate lead to a more balanced and comprehensive review of company
goals and plans. This approach often identifies new alternatives or refines existing ones.
Step 4: Goal and Plan Selection The planner is now in a position to select the
most appropriate and feasible goals and plans. The evaluation process should identify
the priorities and trade-offs among goals and plans and leave the final choice to the
decision maker. Experienced judgment always plays an important role. The following
example of Sysco illustrates the goals set by that firm.However, as you will discover
later in the chapter, relying on judgment alone may not be the best way to proceed.
Typically, a formal planning process leads to a written set of goals and plans that are
appropriate and feasible within a predicted set of circumstances. In some organizations,
the alternative generation, evaluation, and selection steps generate planning scenarios,
as discussed in Chapter 2. A different contingency plan is attached to each scenario. The
manager pursues the goals and implements the plans associated with the
scenario
most likely scenario. However, the work unit is prepared to switch to
another set of plans if the situational contingencies change and another sceA narrative that describes a
nario becomes relevant. This approach helps a firm avoid crises and allows
particular set of future conditions.
greater flexibility and responsiveness.
Lean times arent crimping the ambitions of Houston-based Sysco, the biggest
U.S. food distributor, which plans to double sales over the next six years.The
firm, which distributes food and other items to restaurants, hospitals, schools,
and hotels, wants to more than double its total annual sales to $50 billion in
just six years.To put the goal in perspective, it took Sysco some 32 years to reach its current $23.4 billion in annual sales from the $115 million-a-year level it had when the company went public in 1970.The Chief executive officer (CEO) and chairman, Charles Cotros,
says that achieving its lofty growth target can be done by using straightforward tactics.
Indeed, Sysco is a model of consistency, having posted sales and profit increases for
26 years in a row.Its a very solid company in a not-so-solid economy, says a Standard &
Poors (S&P) equity analyst in New York.Its in a very good industry in which its the market share leader. Its going to outperform in these times. Sysco clearly is benefiting from
the trend among consumers to eat more meals in restaurants. Despite lean economic
times, the average person still eats out an average of 4.2 times every week.
Sysco also benefits whether consumers stick to the basics or splurge on a fancy meal. It
generates nearly two-thirds of its sales by acting as a grocery store to restaurants,selling them
everything from basic items such as lettuce and paper napkins to beluga caviar, Brie, and other
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upscale gourmet fare.They have the staff and the size to get the best quality at good prices.
And the thing they have that is important for customers is reliability, said another analyst.
Sysco also has plenty of room to increase its market share in that customers now get
only about one-third of what they need through Sysco.The company also is improving its
position in supplying independent restaurants. Sysco also can provide specialized services,
such as help with inventory control, to these independent outlets. Other profit boosters
include selling the companys own brands, which provide fatter margins than do third-party
ones. Sysco also is continuing to expand sales of nonfood items, partly by acquiring equipment and paper-supply companies.
Of course, there are still reasons for caution. For one thing, Cotros is set to hand over
the reins to Richard Schnieders, currently president and chief operations officer, on January 1, 2003.Though Schnieders has been with the company for two decades, theres always
the risk that the transition wont go off as easily as predicted.A recession could slow the
companys momentum, which could result in a pronounced downturn.
Cotros contends that the management change should go off without a hitch.This has
been in the planning stages for years, he notes.And even the slowing economy isnt a huge
worry, he says:We think we could certainly continue to grow even in times when things
might be slowing down.
SOURCE: Eric Wahlgren,Why Sysco Looks Appetizing, Business Week, August 15, 2002.
Step 5: Implementation Once managers have selected the goals and plans, they
must implement the plans designed to achieve the goals. The best plans are useless
unless they are implemented properly. Managers and employees must understand the
plan, have the resources necessary to implement it, and be motivated to do so. If both
managers and employees have participated in the previous steps of the planning
process, the implementation phase probably will be more effective and efficient.
Employees usually are better informed, more committed, and more highly motivated
when a goal or plan is one that they helped develop.
Finally, successful implementation requires that the plan be linked to other systems
in the organization, particularly the budget and reward systems. If the budget does not
provide the manager with sufficient financial resources to execute the plan, the plan is
probably doomed. Similarly, goal achievement must be linked to the organizations
reward system. Many organizations use incentive programs to encourage employees to
achieve goals and to implement plans properly. Commissions, salaries, promotions,
bonuses, and other rewards are based on successful performance.
Levels of Planning
In Chapter 1 you learned about the three major types of managers: top-level (strategic
managers), middle-level (tactical managers), and frontline (operational managers).
Because planning is an important management function, managers at all three levels
use it. However, the scope and activities of the planning process at each level of the
organization often differ.
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Strategic Planning
Strategic planning involves making decisions about the organizations long-term
goals and strategies. Strategic plans have a strong external orientation and cover major
portions of the organization. Senior executives are responsible for the development
and execution of the strategic plan, although they usually do not formulate or implement the entire plan personally.
Strategic goals are major targets or end results that relate to the longstrategic planning
term survival, value, and growth of the organization. Strategic managers
top-level managersusually establish goals that reflect both effectiveness
A set of procedures for making
decisions about the organizations
(providing appropriate outputs) and efficiency (a high ratio of outputs to
long-term goals and strategies.
inputs). Typical strategic goals include various measures of return to shareholders, profitability, quantity and quality of outputs, market share,
productivity, and contribution to society.
strategic goals
A strategy is a pattern of actions and resource allocations designed to
Major targets or end results relating
achieve the goals of the organization. The strategy an organization impleto the organizations long-term
ments is an attempt to match the skills and resources of the organization to
survival, value, and growth.
the opportunities found in the external environment; that is, every organization has certain strengths and weaknesses. The actions, or strategies, the
organization implements should be directed toward building strengths in
strategy
areas that satisfy the wants and needs of consumers and other key factors in
A pattern of actions and resource
the organizations external environment. Also, some organizations may
allocations designed to achieve the
implement strategies that change or influence the external environment, as
organizations goals.
discussed in Chapter 2.
tactical planning
A set of procedures for translating
broad strategic goals and plans into
specific goals and plans that are
relevant to a distinct portion of the
organization, such as a functional
area like marketing.
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Chapter 4
plans that are relevant to a definite portion of the organization, often a functional area
like marketing or human resources, as discussed in Chapter 10. Tactical plans focus on
the major actions a unit must take to fulfill its part of the strategic plan.
Operational planning identifies the specific procedures and processes operational planning
required at lower levels of the organization. Frontline managers usually
The process of identifying the
develop plans for very short periods of time and focus on routine tasks such specific procedures and processes
as production runs, delivery schedules, and human resources requirements, as required at lower levels of the
we discuss in Chapter 16 and 17.
organization.
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Financial
$1 billion company (market value)
$100 million annual profits
800% stock appreciation
2,000+ stores
Customer
Process
Vision
and
Strategy
People/ Learning
Commitment/trust (low turnover)
Training
Bean Stock program
Opinion surveys
Flexible schedules
FIGURE 4.2
Applying the Balanced
Scorecard for Starbucks
TABLE 4.1
Using the Balanced
Scorecard for Planning
cup, customer service, etc.). These processes then lead to better customer loyalty and
growth. Growth and customer loyalty in turn lead to higher profitability and market
value. As shown in Table 4.1, the balanced scorecard can be used to develop measures
and standards for each of these operational areas. And when implemented in this way,
it helps translate strategic and tactical issues into operational criteria.4
1. Clarify the vision: Executive team and middle managers use the balanced scorecard
to translate a generic vision into a strategy that is understood and communicated.
2. Develop business unit scorecards: Each business unit develops its own scorecard
that translates strategic goals into tactical and operational goals.
3. Review business unit scorecards: The CEO and this executive team review the
business unit scorecards. This review identifies cross-business issues that are used
to revise the strategic plan.
4. Communicate the scorecard to the entire company: Managers and employees
develop individual scorecards that link strategic and tactical plans to operational
issues relevant to them. Individual objectives and rewards are linked to these
scorecards.
5. Conduct annual strategy reviews: The previous years performance is reviewed, and
strategies are updated. Each business unit is asked to develop a position on each
issue as a prelude to strategic planning.
SOURCE: Adapted from R. S. Kaplan and D. Norton, Using the Balanced Scorecard as a Strategic Management System,
Harvard Business Review, JanuaryFebruary 1996, pp. 7585.
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Strategic Planning
Strategic decision making is one of the most exciting and controversial topics in management today. In fact, many organizations currently are changing the ways they
develop and execute their strategic plans.
Traditionally, strategic planning emphasized a top-down approachsenior executives and specialized planning units developed goals and plans for the entire
organization. Tactical and operational managers received those goals and plans, and
their own planning activities were limited to specific procedures and budgets for the
units.
Over the years, managers and consulting firms innovated a variety of analytical techniques and planning approaches, many of which have been critical for analyzing complex business situations and competitive issues. In many instances, however, senior
executives spent too much time with their planning specialists to the exclusion of line
managers in the rest of the organization. As a result, a gap often developed between
strategic managers and tactical and operational managers, and managers and employees
throughout the organization became alienated and uncommitted to the organizations
success.5
Today, however, senior executives increasingly are involving managers throughout
the organization in the strategy formation process.6 The problems just described and
the rapidly changing environment of the last 25 years have forced executives to look to
all levels of the organization for ideas and innovations to make their firms more competitive. Although the CEO and other top managers continue to furnish the strategic
direction, or vision, of the organization, tactical and even operational managers often
provide valuable inputs to the organizations strategic plan. In some cases, these managers also have substantial autonomy to formulate or change their own
plans. This increases flexibility and responsiveness, critical requirements for strategic management
success in the modern organization.
A process that involves managers
Because of this trend, a new term for the strategic planning process has from all parts of the organization in
emerged: strategic management. Strategic management involves man- the formulation and implementation
agers from all parts of the organization in the formulation and imple- of strategic goals and strategies.
mentation of strategic goals and strategies. It integrates strategic
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Analysis of
internal
strengths and
weaknesses
Establishment
of mission,
vision, and
goals
SWOT analysis
and strategy
formulation
Strategy
implementation
Strategic
control
Analysis of
external
opportunities
and threats
FIGURE 4.3
The Strategic Management
Process
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has contact with the organization. Large firms, for example, generally provide public
formal statements of their missions, visions, and goals. Here is the Washington Posts
statement of goals from its website:
To produce the best newspapers, magazines, television programs, and other
products we can.
To run an outstanding business, measured by the increase in intrinsic
shareholder value over time.
To be not just a good, but an exceptional place for people to work, and a leader
in the hiring and promotion of minorities and women.
To be a company that provides outstanding customer service.
To be creative, adaptive, flexible, and intelligent enough to adapt to the
changes in our business environment.
To be a respected part of the communities where we do business.
Barnes & Noble.com s Internet firm provides a business strategy statement on its
website:
Barnes & Noble.coms objective is to build a profitable e-commerce business by
focusing on information, entertainment, and education products and services that
can be delivered either physically or digitally. We seek to become the leading online
retailer for consumers who want to purchase books and complementary informationbased products. Central to achieving this objective, Barnes & Noble.coms operating strategy is focused on rapidly extending its brand and increasing its customer
base by:
Although neither statement is called a mission statement, each includes the firms
mission, vision, and goals.7
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TABLE 4.2
Environmental Analysis
The environmental analysis also should examine other forces in the environment,
such as macroeconomic conditions and technological factors. One critical task in
environmental analysis is forecasting future trends. As noted in Chapter 2, forecasting
techniques range from simple judgment to complex mathematical models that examine
systematic relationships among many variables. Even simple quantitative techniques
outperform the intuitive assessments of experts. Judgment is susceptible to bias, and
managers have a limited ability to process information. Managers should use subjective
judgments as inputs to quantitative models or when they confront new situations.
The following material on Toys R Us shows the power of understanding the
external environment, and correctly forecasting future trends in the industry.
The Toys R Us example illustrates how organizations must develop a clear sense
of market opportunities by analyzing the external environment. In the same way,
executives can identify potential threats as well.
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others, theres little room for mistakes.What Toys R Us has lost is their uniqueness, and
that they will not be able to recapture, says retail consultant Kurt Barnard. Eylers out to
prove the naysayers wrong. But this isnt childs play.
Source: Condensed from Nanette Byrnes,Can CEO John Eyler Fix the Chain? Business Week, December 4, 2000,
3710, no. 128, online; Diane Brady,Whats the Toy Story? Business Week, February 8, 2002; Nanette Byrnes,Toys
R Us May Be More Fun Next Year, Business Week, December 18, 2001
TABLE 4.3
Internal Resource Analysis
Financial Analysis
Examines financial strengths and weaknesses through financial statements such as a
balance sheet and an income statement and compares trends to historical and
industry figures (see Chapter 18).
Human Resources Assessment
Examines strengths and weaknesses of all levels of management and employees and
focuses on key human resources activities, including recruitment, selection, placement,
training, labor (union) relationships, compensation, promotion, appraisal, quality of work
life, and human resources planning (see Chapters 10 and 11).
Marketing Audit
Examines strengths and weaknesses of major marketing activities and identifies
markets, key market segments, and the competitive position (market share) of the
organization within key markets.
Operations Analysis
Examines the strengths and weaknesses of the manufacturing, production, or service
delivery activities of the organization (see Chapters 9, 16, and 17).
Other Internal Resource Analyses
Examine, as necessary and appropriate, the strengths and weaknesses of other
organizational activities, such as research and development (product and process),
management information systems, engineering, and purchasing.
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With systems such as the Real-Time Quality program, AT & Ts resources enhance
the firms competitive advantage.12
As shown in Figure 4.4, when resources are valuable, rare, inimitable, and organized, they can be viewed as a companys core competencies. Simply stated,
a core competence is something a company does especially well relative core competencies
to its competitors. Honda, for example, has a core competence in small
The unique skills and/or knowledge
engine design and manufacturing; Sony has a core competence in minia- an organization possesses that give
turization; Federal Express has a core competence in logistics and cus- it an edge over competitors.
tomer service. Typically, a core competence refers to a set of skills or
expertise in some activity, rather than physical or financial assets. For example,
among U.S. automobile manufacturers, General Motors has traditionally been
viewed as having a core competence in marketing, while Ford has established quality as its number one strength. Recently Chrysler redefined its core competence
around design and engineering.
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Resources
are rare
Resources
are
inimitable
Core
competence
Resources
are
organized
Resources
are
valuable
FIGURE 4.4
Resources and Core
Competence
corporate strategy
The set of businesses, markets, or
industries in which an organization
competes and the distribution of
resources among those entities.
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Supply
chain
Vertical
integration
Vertical
integration
Concentration
123
Chapter 4
Distribution
channels
Concentric diversification
Primary industry
Unrelated industry
Conglomerate
diversification
FIGURE 4.5
Summary of Corporate
tion strategies to gain entry into an industry, when industry growth is good, or when Strategies
the company has a narrow range of competencies.
A vertical integration strategy involves expanding the domain of the organization into supply channels or to distributors. At one time, Henry Ford had fully
integrated his company from the ore mines needed to make steel all the way to the
showrooms where his cars were sold. Vertical integration generally is used to
eliminate uncertainties and reduce costs associated with suppliers or distributors. A
strategy of concentric diversification involves moving into new businesses that are related to the companys original core business. William
vertical integration
Marriott expanded his original restaurant business outside Washington,
D.C., by moving into airline catering, hotels, and fast food. Each of these The acquisition or development of
businesses within the hospitality industry is related in terms of the serv- new businesses that produce parts
ices it provides, the skills necessary for success, and the customers it at- or components of the organizations
tracts. Often companies such as Marriott pursue a strategy of concentric product.
diversification to take advantage of their strengths in one business to gain
advantage in another. Because the businesses are related, the products, concentric diversification
markets, technologies, or capabilities used in one business can be transA strategy used to add new
ferred to another.
In contrast to concentric diversification, conglomerate diversifica- businesses that produce related
products or are involved in related
tion is a corporate strategy that involves expansion into unrelated busimarkets and activities.
nesses. Union Pacific Corporation has diversified from its original base in
railroads to such wide-ranging industries as oil and gas exploration, mining, microwave and fiber-optic systems, hazardous waste disposal, trucking, and real
estate. Typically, companies pursue a conglomerate diversification strategy to minimize risks due to market fluctuations in one industry. The corporate strategy of an
organization is sometimes called its business portfolio. One of the most popular
techniques for analyzing and communicating corporate strategy has been the BCG
matrix.
conglomerate diversification
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Question marks
Cash cows
Dogs
High
Market
growth
Low
FIGURE 4.6
Resources and Core
Competence.
Strong
Weak
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In contrast, the diversification efforts of an organization competing in a slowgrowth, mature, or threatened industry often are applauded. Many recent bank
mergers, such as the creation of Citigroup from Travelers and Citicorp, were
designed to yield greater efficiencies and increased market share in the banking
industry.
Although the merits of diversification are an issue for continued study, most
observers agree that organizations usually perform better if they implement a more
concentric diversification strategy in which businesses are somehow related or similar
to one another. Disney, for example, spent $19 billion to merge with ABC/Cap Cities.
While the two companies are somewhat different, their businesses are complementary.
Disneys success in movies and videos is matched by ABCs network TV as well as its
production capabilities in Cap Cities. Though Disney has a cable channel (the Disney
Channel), its ability to reach millions of viewers has been enhanced by
ABCs presence in network television.15
business strategy
Business Strategy After the top management team and board make
the corporate strategic decisions, executives must determine how they will business competes in a particular
compete in each business area. Business strategy defines the major actions industry or market.
by which an organization builds and strengthens its competitive position in
the marketplace. A competitive advantage typically results from one of two generic
business strategies introduced here and elaborated in Chapter 7.16
First, organizations such as Wal-Mart and Southwest Airlines (mentioned earlier)
pursue competitive advantage through low-cost strategies. Businesses using a lowcost strategy attempt to be efficient and offer a standard, no-frills product. They often
are large and try to take advantage of economies of scale in production or distribution.
In many cases, the large size allows them to sell their products and services
at a lower price, which leads to higher market share, volume, and, ulti- low-cost strategy
mately, profits. To succeed, an organization using this strategy often must A strategy an organization uses to
be the cost leader in its industry or market segment. However, even a cost build competitive advantage by
leader must offer a product that is acceptable to customers compared to being efficient and offering a
competitors products. As Gordon Bethune, CEO of Continental Airlines, standard, no-frills product.
has said, You can make a pizza so cheap that no-one will buy it. In the end,
organizations need to use a cost strategy to increase value to customers, rather than
take it away.17
Second, an organization may pursue a differentiation strategy. With a
differentiation strategy, a company attempts to be unique in its industry or market
segment along some dimensions that customers value. This unique or differentiated position within the industry often is based on high product qual- differentiation strategy
ity, excellent marketing and distribution, or superior service. Nordstroms
commitment to quality and customer service in the retail apparel industry is A strategy an organization uses to
an excellent example of a differentiation strategy. While it perhaps is not as build competitive advantage by
fancy as competitors such as Saks Fifth Avenue and Neiman Marcus, Nord- being unique in its industry or
market segment along one or more
strom focuses on providing a full assortment of clothing and accessories to
dimensions.
customers and ensuring that they get personal attention. The companys personal shopper program has become a hit in all of the companys 83 full-line
stores. Customers can come in and enjoy a refreshing beverage in a private room while
a tireless assistant brings them endless wardrobe options. Nordstroms personal shoppers reinforce efficiency, speed, and individual service. Better still for the customer,
there is absolutely no charge for the service. In an otherwise impersonal and
at times overwhelming department store, Nordstroms differentiates itself by functional strategies
returning to the days when service was more genteel and individualized.18
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Nordstrom differentiates
itself from its competitors
with superior customer
service and selection of
fashion.
business strategy. The typical functional areas include production, human resources,
marketing, research and development, finance, and distribution. For example, Cirque
du Soleils expansion plan includes focusing on functional strategies, including training and other activities related to the creative process.
Functional strategies typically are put together by functional area executives with the
input and approval of the executives responsible for business strategy. Senior strategic
decision makers review the functional strategies to ensure that each major department
is operating in a manner consistent with the business strategies of the organization.
In a huge, hangar-style training studio at the circus companys Montreal headquarters, gymnast Cletus Okpoh is perched on a trapeze some 45 feet off the
ground.A coach yells instructions at him, and Okpoh, clad only in Lycra shorts,
periodically drops from the trapeze and plunges toward the floor.After bungee
cords catch him and send him flying back up, he tries to grab the bar, usually misses, and
ends up bouncing up and down on the elastic cords.Focus is the key, the coach yells at
one point.And dont forget to squeeze your bum together.
Heres hoping that executives at Cirque dont miss the bar when they embark on an
ambitious expansion plan that the company hopes will one day make it nearly as ubiquitous and multifaceted as Disney.Already, Cirque du Soleil is a fascinating company. In addition to five unique traveling big-top shows, it now has three that are performed in
permanent arenas: one at Walt Disney World in Orlando, Florida, and two in Las Vegas, at
the Bellagio and Treasure Island hotels.All told, the Cirque employs 2,400 people and will
have revenues of an astonishing $500 million Canadian (about $325 million U.S.) in 2001,
90 percent of it generated by its whimsical circus shows.
The group was founded by a troupe of street performers 18 years ago, and its guiding
genius is CEO Guy Lalibert, age 42, a one time fire-eater and street musician who ran away
from home as a teenager. Early on he charmed the Quebec government into giving the
troupe more than $1 million to buy equipment. In 2000 Lalibert bought out the companys
cofounder, who had wanted to take Cirque public.
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Cirque du Soleils top execs have laid out a new five-year plan.The companys strategy will
continue to be different from that of Disney, MGM, and other entertainment rivals. Cirque
du Soleil styles itself as a pure content provider whose main business is harnessing the creativity of performers,producers,and other artists,not owning and operating hotels and other
properties. Instead, it focuses its attention and finances on training and other activities related to the creative process. For instance, Cirque makes all its own costumes, and to ensure
that its artists are well fed, it hires gourmet chefs to accompany the traveling shows.
Daniel Lamarre, president of shows and new ventures, predicts that Cirque du Soleil will
expand at a rate of about 25 percent annually over the next five years, which would boost
its annual revenues to roughly $1 billion (U.S.) by 2007. In mid-June it announced plans to
open two more permanent productions in Las Vegas in partnership with MGM Mirage, and
the companies are exploring other joint ventures around the world. Meanwhile, Cirque is
talking with potential partners about opening new permanent shows in other cities,
including London,Tokyo, and New York.
Around 2005 it expects to also start generating substantial growth from a panoply of
new initiatives, including Cirque du Soleil hotel/spas with a circus ambience.The facilities
also will be heavily multimedia, which might mean everything from airing films of Cirque
performances to having computer-generated virtual characters strolling the halls.As early
as 2005, Cirque du Soleil hopes to have finished a prototype hotel/spa in Montreal that will
be used as a laboratory to develop and try out its ideas.
Meanwhile,Cirque du Soleil is rapidly expanding its film,television,and recording operations.
It already has deals with a number of big partners, including the major Canadian TV networks,
Bravo in the United States, Fuji in Japan, and Televisa in Mexico. An example of the kind of
programming it hopes to do is a 13-part TV series (to be aired by Canadian networks and in
the United States by Bravo) that will follow some of its performers as they prepare for a show.
Cirque also has plans to shoot a new TV variety series, is working on an animated childrens
television show, and has hired experienced record producers to expand its music operation.
Unlike most circuses, Cirque du Soleil has a target audience that consists of adults, not children,with tickets going for around $100 per person.The company believes each individual show
can be kept going for up to 15 years before it has to be retired. It has grown so rapidly because
its productionswhich combine circus acrobatics with the narrative of theaterfill a deep human need to gather together and experience something marvelous.Its refreshing to see a company succeed so well by betting everything on its ability to astonish and amaze its customers.
SOURCE:Thane Peterson,Cirque du Soleils Expanding Big Top, Business Week, June 25, 2002.
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Top-down or laissez-faire
senior management style
An ineffective senior
management team
FIGURE 4.7
Attacking the Six Barriers
to Strategy Implementation
SOURCE: Reprinted from M. Beer and R. A Eisenstat, The Silent Killers of Strategy Implementation and Learning, MIT Sloan
Management Review (Summer 2000), 4 (4), pp, 2940, by permission of the publisher. Copyright 2000 by MIT. All rights reserved.
but they place much greater responsibility and authority in the hands of others in the
organization. In general, strategy implementation involves four related steps:
Step 1: Define strategic tasks. Articulate in simple language what must be done in
a particular business to create or sustain a competitive advantage. Define strategic
tasks to help employees understand how they contribute to the organization.
This also can redefine relationships among the parts of the organization.
Step 2: Assess organization capabilities. Evaluate the organizations ability to
implement the strategic tasks. A task force (typically) interviews employees and
managers to identify specific issues that help or hinder effective
implementation. Results are summarized for top management.
Step 3: Develop implementation agenda: Management decides how it will change its
management pattern, how critical interdependencies will be managed, what skills
and individuals are needed in key roles, and what structures, measures, information, and rewards might ultimately support specified behavior. A philosophy statement, communicated in value terms, is the natural outcome of this process.
Step 4: Implementation plan: The top management team, the employee task
force, and others develop the implementation plan. The top management team
monitors progress. The employee task force is charged with providing feedback
about how others in the organization are responding to the changes.
This process, though straightforward, does not always go smoothly. Figure 4.7 shows
six different barriers to strategy implementation and provides a description of some key
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principles for overcoming these silent killers. By paying closer attention to the
processes by which strategies are implemented, executives, managers, and employees can
play an important role in making sure that strategic plans are actually carried out.19
KEY TERMS
Business strategy, p. 125
Concentration, p. 122
Mission, p. 116
Plans, p. 109
Resources, p. 121
Strategy, p. 112
Scenario, p. 110
Stakeholders, p. 117
Goal, p. 109
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organization. Operational planning identifies the specific shortterm procedures and processes required at lower levels of the
organization.
DISCUSSION QUESTIONS
1.
2.
CONCLUDING CASE
3.
4.
In your opinion, what are the core competencies of companies in the auto industry such as General Motors, Ford, and
Chrysler? How do these competencies help them compete
against foreign competitors such as Honda, Toyota, Nissan,
Mercedes Benz, BMW, and others?
5.
PREDICTION 1: LABOR
Forecast: If youre waiting for a rising unemployment rate to ease
your labor woes,youll be waiting a long time.Youve got a few more
years of a tight labor supply, predicts Roger E. Herman, a futurist
who looks at the workplace.And dont get your hopes up too high
after that, cautions Edie Weiner, president of Weiner, Edrich, Brown,
Inc., in Manhattan. Entry-level talent will become more plentiful in
the next few years with the maturing of Generation Y, but the
shortage of senior managers wont let up for years.There are 76
million baby boomers moving through the labor market, but only
44 million Gen-Xers, the first of whom will turn 40 in 2004.
Implications: Recruitment and retention efforts will become
more important than ever,particularly with senior managers.If you
dont have a stable workforce, you are at a competitive disadvantage, warns Herman.You might take some comfort in the fact that
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PREDICTION 5:TECHNOLOGY
Forecast: The next 50 years will see the evolution of what David
Smith of Technology Futures, Inc., calls the Age of Bio. Biological
science will be applied to manufacturing, information processing,
and other fields.As computing power surpasses the abilities of the
human mind by 2040, artificial intelligence will become a reality.
Implications: The field of bioinformatics will explode. Someday you may trade in your computer monitor for a retinal display or use a DNA computer. Instead of having to dig in the
ground for specialty chemicals well be able to grow them, says
Smith. These changes will breed new business opportunities. All
this new technology will require more energy resources. But rising prices for oil and diminishing natural resources will trigger the
growth of so-called green industries that use alternative energy,
says Jarratt. Running your business could get easier, too.Artificial
intelligence might let you turn over to computers an ever-growing
array of tasks, says Smith. But since computers still dont have feelings, more consultants will be needed to handle the human issues
that arise in the workplace.
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fear.There is a danger that America could scare itself into stagnation, retreating so much that economic growth stalls.
This time around, a retreat of investors from risk taking could
have a broader impact.Start with infrastructure.Cut off from access
to capital,phone and cable companies are being forced to scale back
the deployment of broadband communications networks,which potentially could have enormous payoffs. Many new products will
never get their shot at success as companies struggle to find the capital necessary to roll them out on a large scale.An aversion to risk
taking could force companies to skimp on research and development, delaying the introduction of as-yet-unimagined products in a
variety of fields ranging from software,to biotechnology,to fuel cells.
Its not just about money. Innovative companies are having a
harder time getting and retaining workers. Three years ago we
had people standing in line wanting to go to early-stage companies because they thought there would be a windfall, says Steve
Maxwell, an executive recruiter in Boston for Russell Reynolds
Associates. Now seasoned managers would rather sit tight.
There is more risk aversion than at any time during the past several years, says James W. Breyer, managing partner of venture
capitalist Accel Partners in Palo Alto, California.
One of the less recognized advances of the boom years was
financial innovation, and now thats under assault. Investment
4.1
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banks had engineered new ways for companies to hedge or speculate. Today, understandably, many CEOs dont want the words
creative and finance to appear within five miles of each other. But
clamping down on the legitimate use of financial tools could make
companies less efficient and more unstable.
It would be especially troubling if risk became a dirty word.The
trick is to have a clear-eyed view of the trade-offs between risks
and rewards. A sensible level of confidenceneither the euphoria of the 1990s nor the fear of the 2000swould benefit just
about everyone.
SOURCE: Alison Stein Wellner, What Comes Next, Business Week, December 4, 2000, 3710, p. F24; Peter Coy, When Business Is Scared Stagnant, Business Week, August 26, 2002.
QUESTIONS
1. How would these forecasts affect the planning process in
organizations?
2. Is the impact different for small firms versus large firms?
3. What other forecasts might you have made if you had had a
crystal ball and could have predicted September 11?
Strategic Planning
OBJECTIVE
INSTRUCTIONS
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3. What key strengths and weaknesses of the firm influenced the selection of the new strategy?
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
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____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
4. What specific objectives has the firm set in conjunction with the new strategy?
____________________________________________________________________________________________________________
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SOURCE: R. R. McGrath, Jr., Exercises in Management Fundamentals, p. 15. Copyright 1984. Reprinted by permission of Pearson Education, Inc., Upper
Saddle River, NJ.
4.2
OBJECTIVES
1. To illustrate the complex interrelationships central to the formulation of business strategy.
2. To demonstrate the use of SWOT (strengths, weaknesses,
opportunities, and threats) analysis in a business situation.
INSTRUCTIONS
1. Your instructor will divide the class into small groups and
assign each group a well-known organization for analysis.
2. Each group will
a. Study the SWOT Introduction and the SWOT Worksheet
to understand the work needed to complete the assignment.
b. Obtain the needed information about the organization
under study through library research, interviews, and
so on.
c. Complete the SWOT Worksheet.
d. Prepare group responses to the discussion questions
3. After the class reconvenes, group spokespersons will present
group findings.
DISCUSSION QUESTIONS
1. Why would most organizations not develop strategies for
matches between opportunities and strengths?
SWOT INTRODUCTION
One of the more commonly used strategy tools is SWOT
(strengths, weaknesses, opportunities, and threats) analysis, which
is accomplished in four steps:
Step 1: Analyze the organizations internal environment,
identifying its strengths and weaknesses.
Step 2: Analyze the organizations external environment,
identifying its opportunities and threats.
Step 3: Match (1) strengths with opportunities,
(2) weaknesses with threats, (3) strengths with threats,
and (4) weaknesses with opportunities.
Step 4: Develop strategies for those matches which appear
to be of greatest importance to the organization. Most
organizations give top priority to strategies that involve
the matching of strengths with opportunities and second
priority to strategies that involve the matching of weaknesses with threats.The key is to exploit opportunities in
areas where the organization has a strength and to defend
against threats in areas where the organization has a
weakness.
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SWOT Worksheet
Organization being analyzed: ______________________________________________________________________________
Internal Analysis
External Analysis
Strengths
Opportunities
Weaknesses
Threats
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