Planning and Strategic Management



4 Planning and Strategic Management

Manage your destiny, or someone else will. Jack Welch , former CEO , General Electric


After studying Chapter 4, you will be

able to:

1 Summarize the basic steps in any planning process. p. 126

2 Describe how strategic planning should be integrated with tactical and operational planning. p. 130

3 Identify elements of the external environment and internal resources of the firm to analyze before formulating a strategy. p. 137

4 Define core competencies and explain how they provide the foundation for business strategy. p. 140

5 Summarize the types of choices available for corporate strategy. p. 145

6 Discuss how companies can achieve competitive advantage through business strategy. p. 148

7 Describe the keys to effective strategy implementation. p. 150









An Overview of Planning Fundamentals

The Basic Planning Process

Levels of Planning

Strategic Planning Tactical and Operational Planning Aligning 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

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when it comes to smart phones in North America, both Apples iPhone and Research in Motions BlackBerry models eclipse Nokia. Nokias strong overall position may more than offset its lesser market share in the United States and Canada, but in the wireless world no

manufacturer can afford to be off its game.

Industry observers regarded Nokias 2006 decision not to produce folding clamshell hand- sets as a strategic error. Then in 2007 Apple made a splash with the iPhones alphabetic touch screena feature not available in Nokia phones.

When Google announced advancements in software that would bring Internet capability to cell phones, Nokia reacted coolly at first. How would the resulting buzz about convergencethe marriage of cell phone mobility and Internet capabilityinfluence the way Nokia plans for the future? 1


Nokia CEO Olli-Pekka Kallasvuo should have plenty of reasons to be happy these days. More than a billion rea- sons, you might say. Finland-based Nokia is the worlds leading cell phone maker, and more than 1 billion peo- ple use its phones. Nokia leads the market in Europe, Asia, the Middle East, and Africa, selling more than its top three competitors combined. In addition, the company regu- larly wins praise from Green- peace and Fortune magazine for its environmentally responsible practices.

However, Nokia doesnt have bragging rights in North America. Although it posted worldwide sales of $74 billion in a recent year, Nokia has yet to capture the hearts and wallets of U.S. and Canadian consumers. Nokias high-end models with satellite mapping features do well in Europe and Asia, and in developing countries its low-end phones have been wildly successful. But

Wireless communication and the Internet have transformed how the world communicates, and new technologies are emerging almost daily. As you read this chapter, consider how Olli-Pekka Kallasvuo needs to bring a different kind of discipline to the planning at Nokia.

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126 Part Two Planning: Delivering Strategic Value

To imagine cell phone giant Nokiaor any organizationdealing with the significant challenges it faces without developing a plan beforehand is almost impossible. Plan- ning is a formal expression of managerial intent. It describes what managers decide to do and how they will do it. It provides the framework, focus, and direction required for a meaningful effort. Without planning, any improvements in an organizations innovation, speed, quality, service, and cost will be accidental, if they occur at all. 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 man- agement of todays organizations.

An Overview of Planning Fundamentals The importance of formal planning in organizations has grown dramatically. Until the mid-1900s, most planning was unstructured and fragmented, and formal plan- ning was restricted to a few large corporations. Although management pioneers such as Alfred Sloan of General Motors instituted formal planning processes, planning became a widespread management function only during the last few decades. Initially, larger organizations adopted formal planning, but today even small firms operated by aggressive, opportunistic entrepreneurs engage in formal planning. 2

Planning is the conscious, systematic process of making decisions about goals and activities that an individual, group, work unit, or organization will pursue in the future. Planning is not an informal or haphazard response to a crisis; it is a purposeful effort that is directed and controlled by managers and often draws on the knowledge and experience of employees throughout the organization. Planning provides individuals and work units with a clear map to follow in their future activities; at the same time this map may be flexible enough to allow for individual circumstances and changing conditions.

The Basic Planning Process Because planning is a decision processyoure deciding what to do and how to go about doing itthe important steps followed during formal planning are similar to the basic decision-making steps we discussed in Chapter 3. Figure 4.1 summarizes the similarities between decision making and planningincluding the fact that both move not just in one direction but in a cycle. The outcomes of decisions and plans are evaluated, and if necessary, they are revised.

We now describe the basic planning process in more detail. Later in this chapter, we will discuss how managerial decisions and plans fit into the larger purposes of the organizationits ultimate strategy, mission, vision, and goals.

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 situational analysis studies past events, examines current con- ditions, and attempts to forecast future trends. It focuses on the internal forces at work in the organization or work unit and, consistent with the open-systems approach (see Chapter 2), examines influences from the external environment. The outcome of this step is the identification and diagnosis of planning assumptions, issues, and problems.

A thorough situational analysis will provide information about the planning deci- sions you need to make. For example, if you are a manager in a magazine company considering the launch of a sports publication for the teen market, your analysis will include such factors as the number of teens who subscribe to magazines, the appeal of the teen market to advertisers, your firms ability to serve this market effectively,

LO 1

situational analysis

A process planners use, within time and resource constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration.

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Planning and Strategic Management Chapter 4 127

current economic conditions, the level of teen interest in sports, and any sports maga- zines already serving this market and their current sales. Such a detailed analysis will help you decide whether to proceed with the next step in your magazine launch.

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 pro- cess should stress creativity and encourage managers and employees to think in broad terms about their jobs. Once a range of alternatives has been developed, the merits of these different plans and goals will be evaluated. Continuing with our magazine pub- lishing example, the alternatives you might want to consider could include whether the magazine should be targeted at young men, young women, or both groups, and whether it should be sold mainly online, through subscriptions, or on newsstands.

Goals are the targets or ends the manager wants to reach. To be effective, goals should have certain qualities, which are easy to remember with the acronym SMART:

Specific When goals are precise, describing particular behaviors and outcomes, employees can more easily determine whether they are working toward the goals.

Measurable As much as possible, the goal should quantify the desired results, so that there is no doubt whether it has been achieved.

Attainable (but challenging) Employees need to recognize that they can attain the goals they are responsible for, or else they are likely to become discouraged. However, they also should feel challenged to work hard and be creative.

Relevant Each goal should contribute to the organizations overall mission (discussed later in this chapter), while being consistent with its values, including


A target or end that management desires to reach.

General decision-making stages

Specific formal planning steps

Identifying and diagnosing the problem

Generating alternative solutions

Evaluating alternatives

Making the choice



Situational analysis

Alternative goals and plans

Goal and plan evaluation

Goal and plan selection


Monitor and control

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