Pre Reading Comment – Pages 136- 144

Book has a brief discussion of strategy topics.  The discussion of purposes of goal setting does miss the critical issue of helping the organization respond to changes in the environment.  We will discuss that in class.



Lecture Notes


Lecture Summary

The key components of this lecture are:

  • How strategic planning helps businesses to coordinate their activities to achieve a common objective
  • How businesses evaluate their operating environment
  • How businesses use strategy to proactively respond to the business environment



Strategic Planning As A Coordinating Function


Organizations need to have direction, a common focus that the organization’s resources are focused on achieving.  Without this, organizations find themselves working at cross purposes, feeling adrift without direction.


It can be argued that for-profit organizations are in the business on generating as much profit as possible.  However organizations need more detail than “make money” and there are often other objectives as well.  Strategy needs to answer other questions:

  • How will the organization continue to position itself in order to be competitive?
  • Are there value or ethical constraints on profit maximization?



While many terms can be used to define the levels of strategy in an organization, debate over the “right” terms to use is often non-productive.  What is essential is that organizations have a coordinated set of plans that starts with the highest level objectives of the organization and works its way down to provide direction throughout the organization.


These plans vary both in the their duration (long versus short run) and in their breadth (affecting the entire organization versus being focused on the activities of only a part of the organization)


A typical set of strategy components would include:


Mission Statement – the ongoing purpose of the organization

            (Apple Computer – to bring the best personal; computing products and

support to students, educators, designers, scientists, engineers, business persons and consumers in over 140 countries around the world.)



Vision Statement Or Strategic Objective – where the organization wants to be in

            the future

            (Citigroup – To attain 1 billion customers worldwide)

            (Coke – To put a Coke within reach of every person on the planet)

            (UW Oshkosh College of Business – To be a world renowned educator of

                        business professionals)



Activity1: Develop a draft mission and vision statement for your business plan



Strategic Goals Or Strategies – Long-term goals that are derived from the

organization’s mission/vision statements and that take into account the organizational and operating environment

            (Significantly expand our marketing by internet)


Operational Plans – the details of how resources will be allocated to achieve the

            strategic goals


Performance Appraisal – how individual performance will be evaluated to some

            extent based on achievement of strategic plans


Values Statements - identification of ethical beliefs that are important to the

organization and that provide boundaries on acceptable ways to achieve strategic objectives.  While the previous items can be viewed as a hierarchy – moving to increasing levels of specificity, the value statement is outside this hierarchy – it is a constraint on how everything is done. 


For example: Walden Papers – a local manufacture of wall coverings for the pre-manufactured homes industry – “We will do what we say we will do.”

What does that mean – how would it influence the behavior of those in the organization?


For example J.M. Smucker Company has the following value statement regarding how it will treat its people.  “We will be fair with our employees and maintain an environment that encourages personal responsibility within the company and the community.  In return we expect our employees to be responsible for not only their individual jobs but for the company as a whole.”


The key is that each level of strategic planning should support the level above it.  In the end result, it is decisions about how to, and how not to, allocate resources that need to be coordinated to achieve a common objective.


Activity 2:  In your groups think back to group projects that you have worked on. 

These group projects could be anything from a school project to a sports team, work or family activity.  Have any of the group members engaged in behavior that you concerned to be ethically fuzzy or frustrating to you?  Generate a set of 3 to 5 value statement for your group that will guide the way your team interacts


Environmental And Organizational Analysis


Organizations do not operate, and they can not plan in a vacuum.  They need to be aware of the external environment they operate in and how their internal dynamics influence the choice of strategic directions.  A common approach to an analysis of these factors is SWOT analysis.


SWOT Analysis – Identification of the strengths weaknesses, opportunities and threats that face an organization.


            Strengths – factors internal to the organization that will help the

                        organization achieve strategic objectives


            Weaknesses - factors internal to the organization that will impede the

                        organization achieve strategic objectives


            Opportunities - factors external to the organization that will help the

                        organization achieve strategic objectives


            Threats - factors external to the organization that will impede the

                        organization achieve strategic objectives



This type of analysis helps an organization to evaluate what strategic objectives it is well situated to achieve.   For example: having a highly trained creative yet expensive labor force would indicate the organization is better positioned to be a high quality provider.  Being a low cost provider would be more of a struggle.


Be careful in performing and utilizing a SWOT analysis – it is not enough for a group of individuals to gather and speculate regarding the SWOT.  It is usually necessary to engage in data collection and research in order to get well grounded information.


Overconfidence – we know that we tend to be over confident in those areas where we lack expertise.  So if you get managers together to speculate on environmental threats – when they lack good information on these threats they will “guess” that they know more than they do.


Activity 3: Perform a SWOT analysis for your company.  How confident are you that you fully understand all the strengths, weaknesses, opportunities and threats your company faces?  What more could you do to be sure of these factors?


Porter’s Five Forces


Harvard Business professor Michael Porter describes five forces that determine the competitiveness – and therefore the potential to make “economic profit” – for a company.  Companies try to avoid focusing on industries with lower potential for economic profit.


  1. Rivalry among competitors in the market - how quick are competitors to engage in behaviors (price cutting) that reduces industry profit levels?


  1. New competitors and possible barriers to entry – how easy is it for a new competitor to get into the market?


  1. Substitute products – what options do customers have to purchase an alternative product.  Instead of buying fish for dinner, I will buy chicken, or, instead of buying gas for my car I will ride my bike the 30 miles to work.


  1. Supplier power – to what extent do those that sell goods and services into the industry have more control of the market.  If this industry needs to use natural gas to dry our product who is in control of the price negotiations -- the gas company or the purchaser of the gas?


  1. Consumer power – are the people you sell to more dependent on you, or are you more dependent on them?


Activity 4: Apply Porter’s five forces to operating a pizza delivery business.  Is there much opportunity for economic profit in this industry? Why? Identify an industry that would seem to be in a good position regarding Porter’s five forces


Strategy Formulation


Based on an assessment of the organizational and operating environment the company can develop its strategic strategies


There are many generic competitive strategies


  1. Overall Low Cost Provider – have the cheapest products


  1. Differentiation – Your product is different in some way than the competition, so consumers are attracted to you and willing to pay more. (Minivans with “stow and go” seating)


  1. Best Cost Provider – your production processes are so good that you can produce a product for less than the competition and still make a profit (McDonalds)


  1. Innovator – being the first into a new market  (3M with sticky notes et al)


  1. Niche marketer – product a specialize product not available from other sources


  1. Growth – grow so fast that the competition is squeezed out (Walmart and Starbucks)


  1. Partnership – partner with another company to be special – (e.g. gas stations that also have fast food restaurants)


  1. Customer focus – have some service so special that customers come back, even though other options are available (e.g. friendly wait staff, good return policies)



As conditions change the desirability of a particular strategy are likely to change.  For example: the development of quality digital cameras made Kodak’s strategy of being a producer of high quality, best cost, producer of camera film a untenable strategy.


In order to thrive in the long run organizations need to be regularly scanning their environment and adjusting their strategy to fit the changes.


Activity 5:  What is the strategy of your company?  What is the strategy of your main competitors?  Why do you think your strategy will be successful?  Assume you will have to get a loan or take on a partner to finance this business.  How can you convince these people that your strategy will be successful?



Summary of Beyond the Book – expectations for the final


You should understand:


  • How strategic planning provides a coordinating function within organizations
  • How organizational and environmental assessments influences the selection of strategic direction
  • The broad strategic options that are available to organizations