CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT

1 LEARNINGOBJECTIVESREADING STRATEGIESAs you read PREDICT what the section will be about. CONNECT what you read with your own life. QUESTIONas you read to make sure youunderstand the content. RESPONDto what you 10 PLANNING AND STRATEGIC MANAGEMENTCHAPTER 10 CHAPTER 10 PLANNING ANDSTRATEGICMANAGEMENTWhen you have completed this CHAPTER , you will be able to: Explain the differences between formal and functionalplans. Recognize the differences between STRATEGIC planningand operational PLANNING . Discuss the differences among missions, goals,policies, procedures, and rules. Understand the role of SWOT analysis in PLANNING andstrategic MANAGEMENT . Discuss the organizational factors that need evaluationin implementing STRATEGIC 9/10/04 1:41 PM Page 226 WORKPLACE CONNECTIONSFor further reading on man-agers and MANAGEMENT go I see a future extending far longerthan the twenty-five years Starbuckshas lived so far. In annual strategicplanning sessions, our seniormanagement team has been refining[our] vision to make sure it is bothaudacious and achievable.

2 Thecompany we envision is a great,enduring one, still zealous about itsmission of bringing great coffee toeveryone everywhere. Howard Schultz, Starbucks Chairman and CEO MANAGEMENT TALK 227 UnderstandingManagementIn the early 1980s, HowardSchultz predicted that consumerswould support a new type of coffee bar, serving specialty coffee and espresso his leadership, Starbucksgrew from a homey little coffeeshop in Seattle to a multi-milliondollar corporation. Today, Schultzstill centers the company s growthstrategy on introducing customersto great MANAGEMENT SkillsWhy do you think it is important for acompany like Starbucks to refine itsvision? What other functions might annu-al STRATEGIC PLANNING sessions serve?Applying MANAGEMENT SkillsWhat trends do you think will influencebusinesses in the next 10 years? If youopened a business today, what things would you do to plan for its future success?226-247-C10-865017 9/24/04 5:14 PM Page 227 WHAT IS THE PLANNING PROCESS?

3 Why businesses usestrategic PLANNING . The differences betweenformal and functionalplanning. How to define short-range,intermediate, and long-range plans. How to differentiatebetween operational andstrategic plans. How grand , business , andfunctional strategies workin a company. STRATEGIC PLANNING develops acourse of action for the futurein spite of changing economicand social conditions. formal PLANNING operational PLANNING STRATEGIC PLANNING grand or corporate strategies growth strategy stability strategy defensive or retrenchmentstrategy combination strategy business strategies overall cost leadership differentiation functional strategies228 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENTS ection TIME MANAGEMENT Effective PLANNING is necessary to maintain a balancebetween school and social activities. What kind of plans do you consider tobalance your workload?Why Plan?While leaving the movies with your friends on Saturdayafternoon, everyone is talking about the big football gametomorrow.

4 You had hoped to go, but realize that you still have toprepare for your English presentation and Calculus test on Mon-day. You can t do the work tonight because you are you will have to miss out on the game. Effective planningcould have avoided all of these executives in every company spend a considerableamount of time PLANNING . This process is important to the suc-cess of any business . PLANNING is the process that businesses useto decide the company s goals for the future and ways to achievethose YOU LL LEARNWHY IT S IMPORTANTKEY TERMS226-247-C10-865017 9/10/04 1:41 PM Page 228 PLANNING prepares managers and businesses to meet the challengesof economic, social, technological, and political changes. Plans alsoallow businesses to prepare for the future. Without plans, companieswould not know how to handle crisis situations. They also would beunable to deal with new developments, such as changes in technologyor increased to implement a business plan forced Pittsburgh s SutersvilleLumber Inc.

5 To shut down. The 51-year-old company was forced to closeits doors when the lumber giant, Home Depot, opened three enormousstores in the area one just three miles away. The majority of Sutersville sowners refused to allow the chief financial officerto finish her plan of reducing costly inventoryand complete the company s five-store expan-sion. As a result, Sutersville ran out of cash andwas forced to file for bankruptcy. Effective PlanningEverything that an effective manager doesinvolves PLANNING . For example, managers whoattempt to hire employees without a plan findthat they waste company resources constantlyhiring and firing workers. Effective plannersencourage employees from all areas of the com-pany to participate in plan development. Thisactive participation benefits the organization inseveral ways: Good suggestions can come from anylevel of MANAGEMENT . Employees have a better understandingof the company s overall direction.

6 Employees feel they are part of the processand become committed to the plan. Positive participation and pro-companyattitudes improve morale and loyalty tothe PLANNING also gives managers experience and knowledgein understanding the forces that affect a company s operations. Theseforces range from new technologies to changes in tax laws. A manageralso must keep current with what is happening in the firm s industryand with current law. There are several ways to plan effectively. The best managers usecombinations of formal and informal PLANNING . They develop plansthat look months ahead, as well as those designed to meet changes fiveyears in the Is the PLANNING Process?Section COMMUNICATION When making changes in companypolicies or procedures, effective managers may holdmeetings with employees. Why do companies needinput from many employees to develop a plan?226-247-C10-865017 9/10/04 1:41 PM Page 229 Formal PLANNING is the systematic studying of an issue and thepreparation of a written document to deal with the problem.

7 Some for-mal plans are simple, but others can be very complicated. A plan togive long-time employees a gold watch is fairly simple. However, aplan to make company stock available to the public, as in the late 1990s, is general, larger companies must prepare more complicatedplans than smaller companies. There are three basic ranges, ortime spans, for developing business plans: Short-range planscover a one-year period of time. Long-range planscover a three-to-five-year period of time, butsome cover as far as 20 years into the future. Intermediate planscover the time span between short-range andlong-range, generally from one to three or one to five Versus STRATEGIC PlansPlans cover not only different time spans, but also different kindsof tasks in the workplace. There are two basic types of business plans:operational and STRATEGIC . is short-range plan-ning. It focuses on forming ideas for dealing with specific functions inthe company, such as the production of new products.

8 Is long-range PLANNING done by the highest managementlevels in the company, including the president, vice president, andchief operating officer. Different types of PLANNING are illustrated inFigure 10 order to develop a plan, you need a course of action or strategyis an outline of the basic steps MANAGEMENT is going to taketo achieve a goal. strategies exist at three primary levels in a com-pany grand or corporate, business , and Strategiesor provide overall direction for thecompany. These plans deal with the most important aspects of thecompany s operations. These include products the company will man-ufacture and services it will provide; the number of employees it has;corporate strategiesGrand planningStrategic Operational planningFormal planning230 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENTCONNECTS trategic and operational plansare great ways to zero in on yourgoals.

9 How might you use theseplans to assist with your studies?PREDICTWhat do you think is the differ-ence between a grand or corpo-rate plan and a business plan?226-247-C10-865017 9/10/04 1:41 PM Page 230 SUPERVISORY MANAGEMENT PLANNINGIn an organization where there are many levels of MANAGEMENT , like Disney, decisions will be madeby many different people. While top executives maydecide what kind of restaurants will be placed in thepark, lower level managers and restaurant workers maydecide on the daily food specials and menu levels of MANAGEMENT areresponsible for different kinds of PLANNING . No matter who does the PLANNING , it isimportant to communicate PLANNING decisions effectively to those implementing the MANAGE-MENT PLANNINGH owever, Disney soperational plan to put certain toys in thestores at DisneyWorldwas developed bymiddle- and MANAGE-MENT PLANNINGD isney s STRATEGIC plan to open themeparks in other countrieswas the result of ameeting attended by thecompany s top Is the PLANNING Process?

10 Section 10 1 Implementing PLANNING Decisions226-247-C10-865017 9/10/04 1:41 PM Page 231how much money the company will spend on salaries and benefits;and how the company will market its products to consumers and otherbusinesses. These long-range plans are developed at the highest levelsof the company, usually the president or chief operating officer. Thereare four basic grand strategy types: growth, stability, retrenchment, STRATEGYP lans developed when a company tries toexpand sales, products, or number of employees are called. Under a growth strategy, a company can expandin the following ways: Concentration strategyextends the sale of current products or ser-vices to a company s current market. Vertical integrationmoves a company into a market it previouslyserved either as a supplier or as a customer. Diversificationmoves a company into a similar kind of businesswith new or different products or services.