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B.1. Strategic Planning Flashcards

Understand the strategic planning process, including mission, vision, SWOT, and strategy implementation. (76 cards)

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1
Q

What is planning in general?

A

Planning is the process that provides guidance and direction regarding what an organization needs to do throughout its operations.

Planning determines the answers to the “who, what, when, where, and how” questions of a business operation.

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2
Q

Why is planning an important management function?

A

It forces management to think about where the company is and where management wants the company to be, brings about better coordination of efforts, provides performance standards, and helps anticipate and respond quickly to sudden changes in its environment.

One of the primary success factors in a company is management’s competence in planning and controlling the long-range destiny of the company through decisions that either create or seize a positive opportunity or escape a decline.

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3
Q

What is the ultimate objective for most companies in terms of performance?

A

To achieve superior performance compared to competitors, leading to increased profitability and shareholder value.

Shareholder value is increased through capital appreciation and dividends.

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4
Q

What are the two main components of the strategy-making process?

A
  • Strategy formulation
  • Strategy implementation

Strategy formulation: the process of selecting strategies

Strategy implementation: the process of putting the selected strategies into action

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5
Q

What is competitive advantage?

A

An advantage a company gains over its competitors by offering greater value than they can get from its competitors, either through lower prices or greater benefits and service, thereby justifying higher prices.

Competitive advantage leads to increased profitability and is crucial for a company’s success.

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6
Q

From what is competitive advantage derived?

A

Competitive advantage may be derived from things that enable an organization to outperform its competitors, such as access to natural resources, highly skilled personnel, a favorable geographic location, high entry barriers, and so forth.

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7
Q

What factors determine a company’s profitability and profit growth?

A
  • Success relative to other companies in the same industry
  • Overall performance of the industry compared to other industries

Both internal and external factors affect a company’s performance.

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8
Q

What is strategic planning?

A

The formulation of strategies that will give the company competitive advantage, increase its profitability, sustain its profit growth, set the company apart from its competitors, and cause it to consistently outperform them.

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9
Q

What is the purpose of strategic planning?

A

To guide the company in achieving superior performance, competitive advantage, and maximized shareholder value.

Strategic plans are typically developed for five years or longer and are updated annually.

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10
Q

What are the two opposing philosophies regarding management’s role in profit growth?

A
  • Market theory (passive role)
  • Planning and control theory (active role)

Most companies operate between these extremes, adapting to controllable and uncontrollable variables.

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11
Q

What are the three types of plans based on duration?

A
  • Long-term (strategic plans)
  • Intermediate-term (tactical plans)
  • Short-term (operational plans)

The exact duration of each classification is not established.

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12
Q

What is the role of strategic plans in an organization?

A

To set broad, general, long-term objectives based on the organization’s goals, considering both internal and external factors.

Strategic planning is directional, focusing on where the company wants to go.

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13
Q

What is the difference between tactical and operational plans?

A
  • Tactical plans implement specific parts of the strategic plan
  • Operational plans focus on achieving operational goals and include budgeted amounts

Tactical plans are developed by middle managers, and operational plans by lower-level managers.

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14
Q

What is contingency planning?

A

It is “what if?” planning, preparing different plans for different situations, especially negative ones, to enable the company to respond quickly and effectively to potential future events.

Contingency planning is expensive but can lead to greater savings than the cost of the planning itself because of being prepared for various scenarios.

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15
Q

Why are contingency plans important for companies?

A

Because they enable companies to respond quickly and in the best possible manner to negative events, reducing potential damage.

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16
Q

What are the five steps in the strategic planning process?

A
  1. Defining the company’s mission, vision, values, and goals
  2. Analyzing the organization’s external competitive environment
  3. Analyzing the internal operating environment
  4. Formulating and selecting strategies
  5. Developing and implementing the chosen strategies
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17
Q

The first step in the strategic planning process is defining the company’s mission.

What four components are included in a company’s mission statement?

A
  • A statement of the company’s mission or “reason to be”
  • Its vision or a statement of a desired future state
  • A statement of the organization’s values
  • A statement of its major goals
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18
Q

What is marketing myopia?

A

A short-sighted approach where a company defines itself by what it produces rather than by how it can best fulfill its customers’ needs as those needs change.

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19
Q

What is the difference between a company’s mission and its vision?

A

A company’s mission is what it does, whereas its vision is what it wants to achieve.

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20
Q

What role do a company’s values play in its mission statement?

A

They guide how managers and employees should behave and do business, forming the foundation of its organizational culture.

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21
Q

What characteristics define well-constructed goals?

A
  • They are precise and measurable
  • They should be crucial and address important issues
  • They should be limited in number to maintain focus
  • They should be challenging yet realistic
  • They specify a timeline for achievement
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22
Q

What is the primary goal of most companies?

A

To maximize shareholder returns through high profitability and sustained profit growth.

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23
Q

What is the difference between goals and objectives?

A
  • Generally, a corporate goal is a broad statement of what the company wants to achieve. It is long-term, aspirational, and qualitative, providing direction for the company to achieve its mission or vision.
  • Objectives are the series of steps taken to attain the goal, the smaller targets that need to be hit if the company is to achieve the goal. They often follow the SMART framework: Specific, Measurable, Achievable, Relevant, and Time-bound.
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24
Q

What is the importance of efficiency and effectiveness in achieving goals?

A
  • Efficiency is fulfilling goals with minimum inputs, while effectiveness is the actual accomplishment of goals.
  • If goals are achieved, the effort has been effective. Effectiveness is ultimately more important than efficiency.

If a company is efficient but does not accomplish what is needed, then the efforts and resources used are wasted.

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25
In the strategic planning process, after defining the company's mission, what is the **second step** in developing a strategic plan?
**Analyzing the external environment**: the forces that shape the industry and the competition within the industry--to understand opportunities and threats.
26
In the strategic planning process, what are the **three environments** that should be examined in external analysis?
* The industry in which the company **operates** * The **national** and **international** environments * The wider **macroenvironment**
27
How do changes in **currency exchange rates** affect companies?
A **depreciating local currency** creates opportunities for increased international sales, while an **appreciating currency** decreases competitiveness because it makes the country's goods more expensive for people in other countries to buy.
28
What **macroeconomic factors** are important in planning and budgeting?
* Economic growth or recession * Interest rates * Currency exchange rates * Inflation and deflation ## Footnote Macroeconomic factors affect a company's entire industry or the overall economy.
29
What are the **five forces** in Porter's Five Forces model?
* The risk of entry by potential competitors * The intensity of rivalry among established companies in the industry * The bargaining power of buyers * The bargaining power of suppliers * The closeness of substitutes to an industry’s products ## Footnote Porter's Five Forces model helps managers analyze competitive forces in the environment to identify opportunities and threats.
30
What is the **purpose** of internal analysis, the third of the five steps in the strategic planning process?
To identify **strengths**, **weaknesses**, and **limitations** within the organization.
31
What is the **primary objective** of strategy?
To create a **sustained competitive advantage**, leading to superior profitability and profit growth. ## Footnote A sustained competitive advantage allows a company to maintain above-average profitability over several years.
32
Distinctive competencies are strengths a company has that enable it to have either a differentiation advantage or a cost advantage, or both, leading to competitive advantage. What are the **two sources** of distinctive competencies?
* **Resources**: factors that enable a company to create value for its customers. They can be financial, physical, social/human, technological, or organizational and can be tangible or intangible. * **Capabilities**: refer to the company’s ability to coordinate its resources and to put them to productive use.
33
In the context of factors that enable a company to create value for its customers, what are **tangible resources**?
**Physical assets** such as land, buildings, inventory, and cash.
34
In the context of factors that enable a company to create value for its customers, what are **intangible resources**?
**Nonphysical assets** like brand names, company reputation, intellectual property, and employees’ knowledge. ## Footnote Intangible resources are crucial for creating value and competitive advantage.
35
In the context of factors that enable a company to create value for its customers, what are **capabilities**?
They refer to a company’s **ability to coordinate its resources** and put them to productive use. ## Footnote Capabilities are a function of the company’s organizational structure, processes, and control systems.
36
What are the **four generic distinctive competencies** that determine a company's ability to achieve competitive advantage?
* Superior efficiency * Superior quality * Superior innovation * Superior customer responsiveness ## Footnote These competencies create competitive advantage by enhancing a company's ability to deliver value.
37
In the context of utility versus price, what is **consumer surplus**?
The **difference** between the **utility** (value) the customer gets from a good or service and the **price charged**. The price the company charges usually should be less than the utility that its customers place on the good or service. ## Footnote Consumer surplus indicates the value customers perceive over the price they pay.
38
The durability of a company’s competitive advantage, or how long any competitive advantage the company has will last, is an important consideration in the internal analysis step in the process of strategic planning. What **factors** contribute to the durability of a company's competitive advantage?
* **Barriers to imitation**: factors that make it difficult for a competitor to imitate the company’s distinctive competencies, such as patents * **Capability of competitors** to imitate the company’s competitive advantage * **Dynamism of the industry environment**: how rapidly the industry is changing. ## Footnote When an industry is changing rapidly, a company with competitive advantage produced by innovation may quickly find its market position overtaken by a competitor with a newer innovation. These factors determine how long a company can maintain its competitive advantage.
39
One of the factors thought to contribute to **failure** of a company is the *Icarus paradox*. What is the **Icarus paradox**?
* The Icarus paradox occurs when companies become too **dazzled by their own success**. They believe the way to attain future success is to follow the same strategies that made them successful in the past. * They can become so specialized and inner directed that they **lose sight of reality** and of what is needed to maintain their competitive advantage. ## Footnote The Icarus paradox is named after a Greek myth where Icarus flew too close to the sun, causing his downfall.
40
What is the role of a company's **business model** in strategic planning?
A company's business model is its managers' idea of how its strategies and capital investments fit together to **generate above-average profitability** and profit growth. ## Footnote A well-defined business model is crucial for aligning strategic objectives with operational execution.
41
What is the purpose of **SWOT analysis** in strategic planning?
To **optimize the organization’s strengths** and correct for or **minimize its weaknesses** in order to take advantage of external opportunities while countering external threats. ## Footnote SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
42
In SWOT analysis, management selects a set of strategies that will create and sustain a competitive advantage for the company. What are the **three classifications** of strategies considered in SWOT analysis?
* Functional-level strategy * Business-level strategy * Corporate-level strategy ## Footnote **Functional-level strategy**: for improving operations inside the company. **Business-level strategy**: involves determining the position of the business in the marketplace as well as different positioning strategies that could be used. **Corporate-level strategy**: considering what business or businesses the company should be in to maximize its long-run profitability and profit growth.
43
What does **superior quality** consist of?
* reliability * excellence ## Footnote Higher quality creates more utility in the eyes of the customers and gives the company more options with respect to pricing. Furthermore, eliminating defects from the production process lowers the costs for the company and thus increases its profitability.
44
What is **Six Sigma**?
An approach to quality that strives to **virtually eliminate defects**, aiming for no more than 3.4 defects per million opportunities.
45
What is the role of **functional-level strategies** in strategic planning?
They are developed to **improve the effectiveness** of a company’s operations, enhancing efficiency, quality, innovation, and customer responsiveness.
46
What is the **main goal** of business-level strategy in strategic planning?
To **define the business's position** in the market and create competitive advantage.
47
What are the **four generic competitive** strategies?
* Cost leadership * Focused cost leadership * Differentiation * Focused differentiation ## Footnote **Cost leadership**: having a lower cost structure than the company's competitors **Focused cost leadership**: competing within a narrow market segment using the strategy of cost leadership. **Differentiation**: using superior innovation, quality, or responsiveness to customer needs to provide a product that is different or unique. **Focused differentiation**: specializing in serving the needs of just one or two market segments, providing superior responsiveness to those customers.
48
What is **cost leadership**?
It is having a **lower cost structure** than a company's competitors, allowing the company to charge lower prices and attract more business.
49
What are the **dangers** in a cost leadership strategy?
One danger is that competitors may find ways to **lower their cost structures** too, eliminating the company’s competitive advantage. Or managers might cut costs excessively, causing quality or service to suffer, leading to lower sales and decreased profitability.
50
In the context of strategic planning, what is the role of **corporate-level strategy**?
It is considering what business or businesses the company should be in to **maximize its long-run profitability** and profit growth. ## Footnote It is used to redefine and reposition the company’s business model as needed to achieve and maintain its position in the changing environment through taking advantage of opportunities and defending against threats.
51
What does **superior innovation** provide to a company?
* It can result in new products, **improvements** to existing products, and in finding ways to reduce costs. * It provides a major competitive advantage by allowing a company to **differentiate its products** and charge a **premium price** or lower its costs below those of its competitors.
52
What does **superior responsiveness** to customers involve?
It involves **giving customers what they want**, when they want it, at a price they are willing to pay, and doing it profitably.
53
What is **focused cost leadership**?
It involves **competing within a narrow market segment** using the strategy of cost leadership. ## Footnote A focused cost leader may have a cost advantage in specific markets due to local sourcing and lack of economies of scale for competitors.
54
How does differentiation achieve **competitive advantage**?
By providing a product that is **different or unique** in some important way. ## Footnote Differentiation can be achieved through superior innovation, excellent quality, or superior responsiveness to customer needs.
55
What is the **risk** of a differentiation strategy?
Competitors may **imitate** successful differentiation, eliminating the advantage.
56
What is **focused differentiation**?
A business model that specializes in **serving the needs** of just **one or two** market segments or niches.
57
What is **horizontal integration**?
A corporate-level strategy involving **acquiring or merging with competitors** to achieve competitive advantages such as economies of scale.
58
What is **vertical integration**?
**Expanding operations** either backward into an industry producing inputs to the company's operations or forward into an industry that uses the company's products.
59
What are **strategic alliances**?
Long-term cooperative relationships between companies to **develop a new product** that benefits all parties.
60
What is **strategic outsourcing**?
The performance of one or more of a company’s **value-chain activities** by an independent specialist company.
61
What is **diversification** in corporate strategy?
Entering **one or more new industries** to take advantage of the company’s distinctive competencies and business model.
62
Strategy implementation takes place in the context of the organization’s organizational design. **Organizational design** involves determining how a company should create, combine, and use three elements to pursue its business model successfully. What are those **three elements**?
* Organizational structure * Control systems * Organizational culture ## Footnote **Organizational structure**: who should do what, how it should be done, and how the various people and groups should work together. **Control systems**: motivate employees and provide feedback to managers on how well the company and its employees are succeeding in increasing the building blocks of competitive advantage--efficiency, quality, innovation, and responsiveness to customers. **Organizational culture**: the norms, values, beliefs, and attitudes that people in an organization share and the company’s way of doing things.
63
What is **PEST analysis** in the context of strategic planning?
PEST stands for **Political**, **Economic**, **Social**, and **Technological** factors that are examined in the process of doing **strategic planning for an organization**.
64
What is **situational analysis** in strategic planning?
The **systematic collection and evaluation** of external and internal forces that can affect the organization’s performance and choice of strategies and assessing the organization’s current and future strengths, weaknesses, opportunities, and threats.
65
What is **competitive analysis** in strategic planning?
Analyzing the competitive environment to determine **competitors' strengths and weaknesses**, **market needs**, and **strategies** to improve the company's position.
66
What are **external contingencies** in the context of strategic planning?
Factors that are not within the control of the organization but that influence the strategic planning process, including: * Changes in the competitive environment * Changing government regulations * Political issues * Changing demographic trends * Advances in technology * Changes in the physical environment
67
What is the **BCG Growth-Share Matrix** used for in strategic planning?
Analyzing a company's portfolio of products to determine where each product is in its **life cycle** in order to make better decisions about **resource allocation** in planning.
68
What are the **four categories** of products in the BCG Growth-Share Matrix?
* Star * Question Mark * Cash Cow * Dog
69
What characterizes a **"Star"** in the BCG Growth-Share Matrix?
A product with a **high market share** in an industry with a **high market growth rate**, requiring high levels of cash for investment but capable of generating substantial revenue.
70
What characterizes a **"Question Mark"** in the BCG Growth-Share Matrix?
A product in a **high market growth rate** industry but with a **low market share**. Consumes a great deal of cash for investment and the cash generated by the product is low because of its low market share. ## Footnote A question mark has potential to gain market share and become a star but for the present, it is problematic because it generates negative net cash flow.
71
What characterizes a **"Cash Cow"** in the BCG Growth-Share Matrix?
**High market share** in a mature industry that has a **low market growth rate**. Generates more cash than it consumes. ## Footnote They should be “milked” to extract maximum profits while making minimal investments in them because the slow growth of the market causes return on investment to be minimal.
72
What characterizes a **"Dog"** in the BCG Growth-Share Matrix?
**Low market share** in a mature industry with a **low market growth rate**. Neither consumes many resources nor does it generate much cash. Dogs should be sold off.
73
What is the **natural life cycle** for a business unit or a product according to the BCG Growth-Share Matrix?
Question Mark, then Star, then Cash Cow, and finally Dog.
74
What are **characteristics** of successful strategic plans?
* Strategic planning should be an ongoing process * Integrated throughout the organization * Based on a clear understanding of the current direction of the business environment * Flexible to adapt to changes * Inclusive of input from all levels * Clearly communicated ## Footnote The planning process should be viewed as an opportunity to develop a shared vision, increase the sense of joint ownership among staff, and build a leadership team focused on moving the business in the right direction.
75
What are the **benefits** of planning?
* Focuses employees’ attention on the company’s stated **goals and objectives** and facilitates coordination of efforts. * Employees may be more **motivated** to take part in carrying out plans when those plans are communicated properly. * **Minimization of risk and uncertainty**, because decisions can be made in a disciplined manner rather than spontaneously. * **Improved competitive advantage** because the company can plan ahead, find the best resource prices, and then use those resources more effectively, leading to higher profitability. * **Efficient** change implementation. * Control is **facilitated**, because objectives are provided against which performance can be measured.
76
What are the **limitations** of planning?
* Time-consuming and costly. * Potential rigidity, causing the business to be unable to take advantage of opportunities or adapt to new threats. * Excessive reliance on a plan in the face of obviously changed circumstances can cause severe problems.
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