Strategy and Planning paper
Strategy and Planning paper
Write a 1,050- to 1,400-word paper in which you address the following:
• Explain why the 3 types of goals are important to the strategy of an organization.
• Explain why the different types of planning are important to the strategy of an organization.
• Examine the elements or factors involved in creating an effective strategy for an organization.
Cite a minimum of 2 peer-reviewed sources and include examples from one or more Fortune 500 companies to illustrate your points.
Planning, Strategy, & Strategic Management Planning, which we discuss in this chapter, is used in conjunction with strategy and strategic management, as we describe in Chapter 6. Let’s consider some definitions. Planning: Coping with Uncertainty As we’ve said (Chapter 1), planning is defined as setting goals and deciding how to achieve them. Another definition: planning is coping with uncertainty by formulating future courses of action to achieve specified results. 11 When you make a plan, you make a blueprint for action that describes what you need to do to realize your goals. Example: One important type of plan is a business plan, a document that outlines a proposed firm’s goals, the strategy for achieving them, and the standards for measuring success. Here you would describe the basic idea behind your business—the business model, which outlines the need the firm will fill, the operations of the business, its components and functions, as well as the expected revenues and expenses. It also describes the industry you’re entering, how your product will be different, how you’ll market to customers, how you’re qualified to run the business, and how you will finance your business.
images EXAMPLE Is Planning Necessary? Launching a Vending-Machine Business on $425 Brian Allman of Reno, Nevada, was 17 years old when he bought a simple vending machine at Sam’s Club for $425 and used it to start Bear Snax Vending, stocking the machine and four others he added later with Skittles, M&Ms, and Snickers to serve several small to midsize businesses, such as banks. Allman did this without apparently drawing up a business plan.12 Why Plan? Almost everyone starting a new business is advised to write a business plan. The reasons: Creating such a plan helps you get financing. (“If you want us to invest our money, show us your plan.”) It helps you think through important details. (“Don’t rush things; it’s best to get the strategy right.”) Finally, it better guarantees your firm will succeed. (A study of 396 entrepreneurs in Sweden found that a greater number of firms that failed never had a formal business plan.13) “Going with What You’ve Got.” Even so, sometimes major decisions, including starting up companies, are made without much planning. Indeed, one study found that 41% of Inc. magazine’s 1989 list of fastest-growing private firms didn’t have a business plan and 26% had only rudimentary plans, percentages essentially unchanged in 2002.14 Planning of any sort, of course, requires time, and sometimes you need to make a quick decision and “go with what you’ve got”—with or without a plan.15 YOUR CALL Nine years after founding Bear Snax Vending without a formal business plan, Brian Allman was still running it. (Allman was also working as a financial advisor for financial services firm Edward Jones.) If you had a few hundred dollars with which to launch a small business, do you think writing a business plan would help you or just be a waste of time?
Strategy: Large-Scale Action Plan A strategy is a large-scale action plan that sets the direction for an organization. It represents an “educated guess” about what must be done in the long term for the survival or the prosperity of the organization or its principal parts. We hear the word expressed in terms like “Budweiser’s ultimate strategy . . .” or “Visa’s overseas strategy . . .” or financial strategy, marketing strategy, and human resource strategy. An example of a strategy is “Find out what customers want, then provide it to them as cheaply and quickly as possible” (the strategy of Walmart). However, strategy is not something that can be decided on just once. It needs to be revisited from time to time due to ever changing business conditions. Strategic Management: Involving All Managers in Strategy In the late 1940s, most large U.S. companies were organized around a single idea or product line. By the 1970s, Fortune 500 companies were operating in more than one industry and had expanded overseas. It became apparent that to stay focused and efficient, companies had to begin taking a strategic-management approach. Strategic management is a process that involves managers from all parts of the organization in the formulation and the implementation of strategies and strategic goals. This definition doesn’t mean that managers at the top dictate ideas to be followed by people lower down. Indeed, precisely because middle managers in particular are the ones who will be asked to understand and implement the strategies, they should also help to formulate them. As we will see, strategic management is a process that involves managers from all parts of the organization—top managers, middle managers, and first-line managers—in the formulation, implementation, and execution of strategies and strategic goals to advance the purposes of the organization. Thus, planning covers not only strategic planning (done by top managers) but also tactical planning (done by middle managers) and operational planning (done by first-line managers). Planning and strategic management derive from an organization’s mission and vision about itself, as we describe in the next section. (See Figure 5.1.)
FIGURE 5.1 Planning and strategic management. The details of planning and strategic management are explained in Chapters 5 and 6 images
Why Planning & Strategic Management Are Important An organization should adopt planning and strategic management for three reasons: They can (1) provide direction and momentum, (2) encourage new ideas, and above all (3) develop a sustainable competitive advantage.16 Let’s consider these three matters. 1. Providing Direction & Momentum Some executives are unable even to articulate what their strategy is.17 Others are so preoccupied with day-to-day pressures that their organizations can lose momentum. But planning and strategic management can help people focus on the most critical problems, choices, and opportunities. If a broad group of employees is involved in the process, that can foster teamwork, promote learning, and build commitment across the organization. Indeed, as we describe Page 138in Chapter 8, strategy can determine the very structure of the organization—for example, a top-down hierarchy with lots of management levels, as might be appropriate for an electricity-and-gas power utility, versus a flat-organization with few management levels and flexible roles, as might suit a fast-moving social media start-up. Unless a plan is in place, managers may well focus on just whatever is in front of them, putting out fires—until they get an unpleasant jolt when a competitor moves out in front because it has been able to take a long-range view of things and act more quickly. In recent times, this surprise has been happening over and over as companies have been confronted by some digital or Internet trend that emerged as a threat—as Amazon.com was to Borders; as digital cameras were to Kodak’s film business; as Google News, blogs, and citizen media were to newspapers.18 But there are many other instances in which a big company didn’t take competitors seriously (as Sears didn’t Walmart, IBM didn’t Microsoft, and GM didn’t Toyota). “We were five years late in recognizing that [microbreweries] were going to take as much market as they did,” says August Busch III, CEO of massive brewer Anheuser-Busch, “and five years late in recognizing we should have joined them.”19 Of course, a poor plan can send an organization in the wrong direction. Bad planning usually results from faulty assumptions about the future, poor assessment of an organization’s capabilities, ineffective group dynamics, and information overload.20 And it needs to be said that while a detailed plan may be comforting, it’s not necessarily a strategy.21 2. Encouraging New Ideas Some people object that planning can foster rigidity, that it creates blinders that block out peripheral vision and reduces creative thinking and action. “Setting oneself on a predetermined course in unknown waters,” says one critic, “is the perfect way to sail straight into an iceberg.”22 Actually, far from being a straitjacket for new ideas, strategic planning can help encourage them by stressing the importance of innovation in achieving long-range success. Management scholar Gary Hamel says that companies such as Apple have been successful because they have been able to unleash the spirit of “strategy innovation.” Strategy innovation, he says, is the ability to reinvent the basis of competition within existing industries—“bold new business models that put incumbents on the defensive.”23
100 Montaditos. Characterized as a “Spanish Starbucks for sandwiches” or “the dollar store of fast-food franchises,” 100 Montaditos is a hugely successful Spanish restaurant chain that has set its sights on the United States. Named for bargain-rate traditional 5-inch sandwiches (such as those stuffed with Serrano ham or duck mousse with crispy onions for only $1), the chain’s strategy emphasizes atmosphere combined with low prices. Starting with this Miami restaurant in 2011, it aimed to open 4,000 outlets from Canada to Argentina during the next five years—a growth rate that would exceed even that of Starbucks, which took three decades to achieve the same number of U.S. stores. Some business analysts say the Spanish company’s plans are too ambitious. Is there anything wrong with a strategy built on bold dreams?
Some successful innovators are companies creating new wealth in the food and restaurant industries, where Starbucks Coffee, Trader Joe’s, ConAgra, and Walmart, for example, developed entirely new grocery product categories and retailing concepts. Chili’s, the casual-dining chain, has installed table-top computer screens that take menu orders, accept payments by credit card, and let diners play videogames, changing how diners and wait staff interact.24 GrubHub Seamless, an online takeout and delivery company, serves customers armed with cell phones and delivery apps, delivering pizzas and other foods anywhere they want—at the gym, in the park, on the playground.25 Vending machines are now serving everything from salads to smoothies to caviar, and supermarkets are experimenting with personalized pricing, using complex shopping data to ascertain the unique needs of individual customers.26 3. Developing a Sustainable Competitive Advantage Strategic management provides a sustainable competitive advantage, which, you’ll recall (from Chapter 1), is the ability of an organization to produce goods or services more effectively than its competitors do, thereby outperforming them. Sustainable competitive advantage occurs when an organization is able to get and stay ahead in four areas: (1) in being responsive to customers, (2) in innovating, (3) in quality, and (4) in effectiveness. Today technology has made achieving a sustainable competitive advantage nearly impossible in many industries, so the advantage may well be fleeting.27 images
Developing Competitive Advantage: What’s the Best Strategy in an E-Commerce Age? E-commerce has completely changed retail shopping, as more Americans skip going into stores and order via their tablets and smartphones instead.28 The result has severely impacted such chains as Staples, RadioShack, and Sears, which have reduced the number of stores, and forced other big retailers, such as Walmart, to ramp up their online buying and delivery operations.29 Adjusting to Online Competition. Other stores have shifted their focus and their services:30 J. Crew has gone to a new format (J. Crew Mercantile) to appeal to discount shoppers. Abercombie & Fitch is reaching out to teens with less nudity on its clothing dummies, more black apparel, and larger sizes. Sears, Saks, and Macy’s are instructing their clerks to encourage virtual customers by picking and packing items from the stores themselves (rather than the warehouses) and ordering a same-day UPS or FedEx pickup, to avoid losing shoppers to Amazon. IKEA’S Advantage. However, 71-year-old Sweden-based IKEA, the world’s largest furniture retailer, with 345 stores in 42 countries (50 in North America), has a different strategy—add more physical stores, as well as competing online and with catalogs. “We see that Internet and e-commerce is growing,” says IKEA CEO Peter Agnefjäll, “but at the same time, when buying a new bed a lot of people want to try it first, and if you buy a sofa you may want to touch the fabric.”31 YOUR CALL For what kinds of products is a visit to a physical store a more attractive shopping experience for consumers than buying online? How realistic is the prospect of the use of holograms (which could enable consumers to try clothes on at home) and 3-D printers (which could print out three-dimensional products remotely) in the shopping experience within the next 15 years?
Page 140Fundamentals of Planning What are mission and vision statements, and what are three types of planning? THE BIG PICTURE Planning consists of translating an organization’s mission and vision into objectives. The organization’s purpose is expressed as a mission statement, and what it becomes is expressed as a vision statement. From these are derived strategic planning, then tactical planning, then operational planning. “Everyone wants a clear reason to get up in the morning,” writes journalist Dick Leider. “As humans we hunger for meaning and purpose in our lives.”32 And what is that purpose? “Life never lacks purpose,” says Leider. “Purpose is innate—but it is up to each of us individually to discover or rediscover it.” An organization has a purpose, too—a mission. And managers must have an idea of where they want the organization to go—a vision. The approach to planning can be summarized in the diagram below, which shows how an organization’s mission becomes translated into goals and action plans. (See Figure 5.2.) FIGURE 5.2 Making plans An organization’s reason for being is expressed in a mission statement. What the organization wishes to become is expressed in a vision statement. From these are derived strategic planning, then tactical planning, and finally operational planning. The purpose of each kind of planning is to specify goals and action plans that ultimately pave the way toward achieving an organization’s vision.
Mission & Vision Statements The planning process begins with two attributes: a mission statement (which answers the question “What is our reason for being?”) and a vision statement (which answers the question “What do we want to become?”). The Mission Statement—“What Is Our Reason for Being?” An organization’s mission is its purpose or reason for being. Determining the mission is the responsibility of top management and the board of directors. It is up to them to formulate a mission statement, which expresses the purpose of the organization. “Only a clear definition of the mission and purpose of the organization makes possible clear and realistic . . . objectives,” said Peter Drucker.33 Whether the organization Page 141is for-profit or nonprofit, the mission statement identifies the goods or services the organization provides and will provide. Sometimes it also gives the reasons for providing them (to make a profit or to achieve humanitarian goals, for example).
Mission Statements for Three Different Companies: Hilton, Amazon, & Patagonia Mission statements answer the question, “What is our reason for being?” or “Why are we here?” Here are the mission statements for three companies, drawn from their websites. The mission statement for Hilton Hotels, a large company, reads: “To fill the earth with the light and warmth of hospitality.” Amazon’s mission statement is “Use the Internet to offer products that educate, inform, and inspire. We decided to build an online store that would be customer friendly and easy to navigate and would offer the broadest possible selection. . . . We believe that a fundamental measure of our success will be the shareholder value we create over the long term.” Clothing maker Patagonia’s mission statement is to “Build the best product, cause no unnecessary harm, [and] use business to inspire and implement solutions to the environmental crisis.” YOUR CALL Do you think any of these mission statements could be adapted to different companies offering different products or services? Give an example.
The Vision Statement—“What Do We Want to Become?” A vision is a long-term goal describing “what” an organization wants to become. It is a clear sense of the future and the actions needed to get there. “[A] vision should describe what’s happening to the world you compete in and what you want to do about it,” says one Fortune article. “It should guide decisions.”34 After formulating a mission statement, top managers need to develop a vision statement, which expresses what the organization should become, where it wants to go strategically.35
Vision Statements for Three Different Companies: Hilton, Amazon, & Patagonia Vision statements answer the question, “What do we want to become?” or “Where do we want to go?” Here is Hilton Hotels’ statement: “To be the first choice of the world’s travelers, building on the rich heritage and strength of our brands by consistently delighting our customers, investing in our team members, delivering innovative products and services, expanding our family of brands, and continuously improving performance.” Amazon’s vision statement: “Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.” Patagonia’s statement: “We prefer the human scale to the corporate, vagabonding to tourism, and the quirky to the toned-down and flattened out.” YOUR CALL Do these vision statements work? Do they meet Fortune’s criterion of describing “what’s happening in the world you compete in and what you want to do about it. It should guide decisions”? The concept of a vision statement also is important for individuals. Harvard professor Clayton Christensen believes that creating a personal life vision statement is akin to developing a strategy for your life. He finds that people are happier and lead more meaningful lives when they are directed by personal vision statements.36 Do you have a vision for your future career? Is it vague or specific? The following self-assessment was created to help you evaluate the quality of your career vision and plan.
Three Types of Planning for Three Levels of Management: Strategic, Tactical, & Operational Inspiring, clearly stated mission statements and vision statements provide the focal point of the entire planning process. Then three things happen: images Strategic planning by top management. Using their mission and vision statements, top managers do strategic planning—they determine what the organization’s long-term goals should be for the next 1–5 years with the resources they expect to have available. “Strategic planning requires visionary and directional thinking,” says one authority.37 It should communicate not only general goals about growth and profits but also ways to achieve them. Today, because of the frequency with which world competition and information technology alter marketplace conditions, a company’s strategic planning may have to be done closer to every 1 or 2 years than every 5. Still, at a big company like Boeing or Ford or Amazon (see Example box below), top executives cannot lose sight of long-range, multiyear planning. images
Strategic Planning by Top Management: Amazon Manages for the Future, to the Frustration of Short-Term Investors One thing Amazon CEO Jeff Bezos is famous for is unconventional thinking (or, in that hackneyed expression, “thinking outside the box”). For instance, his early decision to allow customers to post their own book reviews, both negative as well as positive, on the Amazon website puzzled competing booksellers, who thought negative reviews would diminish sales. Bezos’s point of view—“We will sell more if we help people make purchasing decisions”—proved correct.38 (Some of his latest ideas involve same-day delivery and delivery via drones.)39 Talking Long Term. Similarly, Bezos has an unconventional opinion about profitability. With most publicly owned companies, which Amazon is (Bezos holds 18% of the stock, worth $25.4 billion; most of the rest is owned by institutional investors such as Capital World or mutual funds such as American Funds), shareholders constantly pressure management to produce profits that will boost the stock every quarter (3 months) or so.40 But back in 1997, Bezos warned stockholders that “it’s all about the long term. We may make decisions and weigh trade-offs differently than some companies.”41 Most top managers do strategic planning on a one- to three-year time line. Says Bezos, “If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year horizon, you’re now competing against a fraction of those people, because very few people are willing to do that.” Actually, Bezos is very long term, operating on a 10- to 20-year time line. Ambitions for the Future. The large time window and freedom from having to deliver immediate profits allow Amazon to pursue the powerful long-range strategy it has planned.42 It is spending money to open new airplane hangar–size storage and shipping facilities, bringing them to an expected 94 Page 143by the end of 2013.43 It continues to cut prices on its merchandise, which will undercut its retail competitors (Borders is gone; Barnes & Noble and Best Buy are struggling).44 It is realizing Walmart-like economies of scale, achieving enormous savings from buying supplies in huge quantities. It has been slashing prices on its Kindle e-book reader and its Fire tablet to get more units into more buyers’ hands, developing a future customer base for its e-books, apps, media, and other digital products.45 Profits? “Profits will come down the road,” says business writer James Stewart, “when Kindle [and Fire] users buy content through Amazon.”46 Says Bezos, “We’re willing to plant seeds, let them grow—and we’re very stubborn.” YOUR CALL If Amazon’s strategy hurts short-run profits, should your parents or grandparents invest in Amazon? Should you? What if Amazon’s strategic plan is wrong?
Tactical planning by middle management. The strategic priorities and policies are then passed down to middle managers, who must do tactical planning—that is, they determine what contributions their departments or similar work units can make with their given resources during the next 6–24 months. images Operational planning by first-line management. Middle managers then pass these plans along to first-line managers to do operational planning—that is, they determine how to accomplish specific tasks with available resources within the next 1–52 weeks
Three Types of Goals: Strategic, Tactical, & Operational A goal, also known as an objective, is a specific commitment to achieve a measurable result within a stated period of time. As with planning, goals are of the same three types—strategic, tactical, and operational. Also, like planning, goals are arranged in a hierarchy known as a means-end chain because in the chain of management (operational, tactical, strategic) the accomplishment of low-level goals is the means leading to the accomplishment of high-level goals or ends. images Strategic goals are set by and for top management and focus on objectives for the organization as a whole. images Tactical goals are set by and for middle managers and focus on the actions needed to achieve strategic goals. images Operational goals are set by and for first-line managers and are concerned with short-term matters associated with realizing tactical goals. As we will see later in Section 5.4, goals should be SMART—specific, measurable, attainable, results-oriented, and with target dates.
The Action Plan & the Operating Plan The goal should be followed by an action plan, which defines the course of action needed to achieve the stated goal, such as a marketing plan or sales plan. The operating plan, which is typically designed for a one-year period, defines how you will conduct your business based on the action plan; it identifies clear targets such as revenues, cash flow, and market share.
Standing Plans: Policies, Procedures, & Rules Standing plans are plans developed for activities that occur repeatedly over a period of time. Standing plans consist of policies, procedures, and rules. images A policy is a standing plan that outlines the general response to a designated problem or situation. Example: “This workplace does not condone swearing.” This policy is a broad statement that gives managers a general idea about what is allowable for employees who use bad language, but gives no specifics. images A procedure (or standard operating procedure) is a standing plan that outlines the response to particular problems or circumstances. Example: McDonald’s specifies exactly how a hamburger should be dressed, including the order in which the mustard, ketchup, and pickles are applied. images A rule is a standing plan that designates specific required action. Example: “No smoking is allowed anywhere in the building.” This allows no room for interpretation. Single-Use Plans: Programs & Projects Single-use plans are plans developed for activities that are not likely to be repeated in the future. Such plans can be programs or projects. images A program is a single-use plan encompassing a range of projects or activities. Example: The U.S. government space program has had several projects, including the Challenger project, the Hubble Telescope project, and the space shuttle project. images A project is a single-use plan of less scope and complexity than a program. Example: The space shuttle project, one of several projects in the government’s space program, consisted of three shuttles: Discovery, Endeavour, and Atlantis. images
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