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Planning and Strategic Management 226-247-C10-865017 9/10/04 1:41 PM Page 226 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT LEARNING O BJECTIVES When you have completed this chapter, you will be able to: Ⅲ Explain the differences between formal and functional plans. Ⅲ Recognize the differences between strategic planning and operational planning. Ⅲ Discuss the differences among missions, goals, policies, procedures, and rules. Ⅲ Understand the role of SWOT analysis in planning and strategic management. Ⅲ Discuss the organizational factors that need evaluation in implementing strategic plans. READING STRATEGIES As you read ● PREDICT what the section will be about. ● CONNECT what you read with your own life. ● QUESTION as you read to make sure you understand the content. ● RESPOND to what you read. 226 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT 226-247-C10-865017 9/24/04 5:14 PM Page 227 MANAGEMENT TALK I see“ a future extending far longer” than“ the twenty-five years Starbucks has lived so far. In annual strategic planning sessions, our senior management team has been refining WORKPLACE [our] vision to make sure it is both CONNECTIONS audacious and achievable. The company we envision is a great, Understanding enduring one, still zealous about its Management mission of bringing great coffee to everyone everywhere.” In the early 1980s, Howard —Howard Schultz, Schultz predicted that consumers Starbucks Chairman and CEO would support a new type of “coffee bar,” serving specialty coffee and espresso products. Under his leadership, Starbucks grew from a homey little coffee shop in Seattle to a multi-million dollar corporation. Today, Schultz still centers the company’s growth strategy on introducing customers to great coffee. Analyzing Management Skills Why do you think it is important for a company like Starbucks to refine its vision? What other functions might annu- al strategic planning sessions serve? Applying Management Skills What trends do you think will influence businesses in the next 10 years? If you opened a business today, what things would you do to plan for its future success? For further reading on man- agers and management go to: www.businessweek.com 227 226-247-C10-865017 9/10/04 1:41 PM Page 228 Section 10.1 WHAT IS THE PLANNING PROCESS? WHAT YOU’LL LEARN Why Plan? ➤ Why businesses use While leaving the movies with your friends on Saturday strategic planning. afternoon, everyone is talking about the big football game ➤ The differences between formal and functional tomorrow. You had hoped to go, but realize that you still have to planning. prepare for your English presentation and Calculus test on Mon- ➤ How to define short-range, day. You can’t do the work tonight because you are baby-sitting. intermediate, and long- Now you will have to miss out on the game. Effective planning range plans. could have avoided all of these problems. ➤ How to differentiate Key executives in every company spend a considerable between operational and amount of time planning. This process is important to the suc- strategic plans. cess of any business. Planning is the process that businesses use ➤ How grand, business, and to decide the company’s goals for the future and ways to achieve functional strategies work those goals. in a company. WHY IT’S IMPORTANT Strategic planning develops a course of action for the future in spite of changing economic and social conditions. KEY TERMS • formal planning • operational planning • strategic planning • grand or corporate strategies • growth strategy • stability strategy • defensive or retrenchment strategy • combination strategy • business strategies • overall cost leadership ᮡ TIME MANAGEMENT Effective planning is necessary to maintain a balance • differentiation between school and social activities. What kind of plans do you consider to • functional strategies balance your workload? 228 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT 226-247-C10-865017 9/10/04 1:41 PM Page 229 Planning prepares managers and businesses to meet the challenges of economic, social, technological, and political changes. Plans also allow businesses to prepare for the future. Without plans, companies would not know how to handle crisis situations. They also would be unable to deal with new developments, such as changes in technology or increased competition. Failing to implement a business plan forced Pittsburgh’s Sutersville Lumber Inc. to shut down. The 51-year-old company was forced to close its doors when the lumber giant, Home Depot, opened three enormous stores in the area—one just three miles away. The majority of Sutersville’s owners refused to allow the chief financial officer to finish her plan of reducing costly inventory and complete the company’s five-store expan- sion. As a result, Sutersville ran out of cash and was forced to file for bankruptcy. Effective Planning Everything that an effective manager does involves planning. For example, managers who attempt to hire employees without a plan find that they waste company resources constantly hiring and firing workers. Effective planners encourage employees from all areas of the com- pany to participate in plan development. This active participation benefits the organization in several ways: • Good suggestions can come from any level of management. • Employees have a better understanding of the company’s overall direction. • Employees feel they are part of the process ᮡ COMMUNICATION When making changes in company and become committed to the plan. policies or procedures, effective managers may hold • Positive participation and pro-company meetings with employees. Why do companies need attitudes improve morale and loyalty to input from many employees to develop a plan? the organization. Effective planning also gives managers experience and knowledge in understanding the forces that affect a company’s operations. These forces range from new technologies to changes in tax laws. A manager also must keep current with what is happening in the firm’s industry and with current law. There are several ways to plan effectively. The best managers use combinations of formal and informal planning. They develop plans that look months ahead, as well as those designed to meet changes five years in the future. What Is the Planning Process? Section 10.1 229 226-247-C10-865017 9/10/04 1:41 PM Page 230 Formal Planning Formal planning is the systematic studying of an issue and the preparation of a written document to deal with the problem. Some for- mal plans are simple, but others can be very complicated. A plan to give long-time employees a gold watch is fairly simple. However, a plan to make company stock available to the public, as Amazon.com did in the late 1990s, is complicated. In general, larger companies must prepare more complicated plans than smaller companies. There are three basic ranges, or time spans, for developing business plans: • Short-range plans cover a one-year period of time. • Long-range plans cover a three-to-five-year period of time, but some cover as far as 20 years into the future. • Intermediate plans cover the time span between short-range and long-range, generally from one to three or one to five years. Operational Versus Strategic Plans CONNECT Plans cover not only different time spans, but also different kinds of tasks in the workplace. There are two basic types of business plans: Strategic and operational plans are great ways to zero in on your operational and strategic. Operational planning is short-range plan- goals. How might you use these ning. It focuses on forming ideas for dealing with specific functions in plans to assist with your studies? the company, such as the production of new products. Strategic planning is long-range planning done by the highest management levels in the company, including the president, vice president, and chief operating officer. Different types of planning are illustrated in Figure 10–1. Strategy In order to develop a plan, you need a course of action or strategy. A strategy is an outline of the basic steps management is going to take to achieve a goal. Strategies exist at three primary levels in a com- pany—grand or corporate, business, and functional. Grand Strategies PREDICT Grand or corporate strategies provide overall direction for the What do you think is the differ- company. These plans deal with the most important aspects of the ence between a grand or corpo- company’s operations. These include products the company will man- rate plan and a business plan? ufacture and services it will provide; the number of employees it has; 230 CHAPTER 10 PLANNING AND STRATEGIC MANAGEMENT 226-247-C10-865017 9/10/04 1:41 PM Page 231 FIGURE 10–1 Implementing Planning Decisions Different levels of management are responsible for different kinds of planning. No matter who does the planning, it is important to communicate planning decisions effectively to those implementing the plans. SENIOR MANAGE- 1 MENT PLANNING Disney’s strategic plan to open theme parks in other countries was the result of a meeting attended by the company’s top officers. MIDDLE MANAGE- 2 MENT PLANNING However, Disney’s operational plan to SUPERVISORY MANAGEMENT PLANNING put certain toys in the 3 In an organization where there are many levels of stores at DisneyWorld management, like Disney, decisions will be made was developed by by many different people. While top executives may middle- and lower-level decide what kind of restaurants will be placed in the managers. park, lower level managers and restaurant workers may decide on the daily food specials and menu items. What Is the Planning Process? Section 10.1 231 226-247-C10-865017 9/10/04 1:41 PM Page 232 how much money the company will spend on salaries and benefits; and how the company will market its products to consumers and other businesses. These long-range plans are developed at the highest levels of the company, usually the president or chief operating officer.
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