Chapter 06 – Planning, Strategy, and Competitive Advantage
6-1
Chapter 06
Planning, Strategy, and Competitive
Advantage
Learning Objectives 6-2
Key Definitions/Terms 6-2
Chapter Overview 6-4
Lecture Outline 6-4
Lecture Enhancers 6-17
Management in Action 6-18
Building Management Skills 6-20
Managing Ethically 6-21
Small Group Breakout Exercise 6-22
Be the Manager 6-23
Case in the News 6-24
Supplemental Features 6-25
Manager’s Hot Seat 6-25
Instructor’s PowerPoint Slides 6-26
CHAPTER CONTENTS
Chapter 06 – Planning, Strategy, and Competitive Advantage
6-2
LO 6-2. Differentiate between the main types of business-level strategies
and explain how they give an organization a competitive advantage
that may lead to superior performance.
LO 6-3. Differentiate between the main types of corporate-level strategies
and explain how they are used to strengthen a company’s business–
level strategy and competitive advantage.
LO 6-4. Describe the vital role managers play in implementing strategies to
achieve an organization’s mission and goals.
concentration on a single industry: Reinvesting a
company’s profits to strengthen its competitive
differentiation strategy: Distinguishing an
exporting: Making products at home and selling
them abroad.
LEARNING OBJECTIVES
KEY DEFINITIONS/TERMS
Chapter 06 – Planning, Strategy, and Competitive Advantage
6-3
franchising: Selling to a foreign organization the
rights to use a brand name and operating know-how
in return for a lump-sum payment and a share of the
ways that add value to an organization’s goods and
services.
global strategy: Selling the same standardized
product and using the same basic marketing
more companies that agree to jointly establish and
share the ownership of a new business.
licensing: Allowing a foreign organization to take
charge of manufacturing and distributing a product
multidomestic strategy: Customizing products and
marketing strategies to specific national conditions.
planning: Identifying and selecting appropriate
goals and courses of action; one of the four
related diversification: Entering a new business or
industry to create a competitive advantage in one or
resources to achieve goals.
strategic alliance: An agreement in which
managers pool or share their organization’s
resources and know–how with a foreign company,
SWOT analysis: A planning exercise in which
managers identify organizational strengths (S) and
weaknesses (W) and environmental opportunities
(O) and threats (T).
operations either backward into an industry that
produces inputs for its products or forward into an
industry that uses, distributes, or sells its products.
wholly owned foreign subsidiary: Production
operations established in a foreign country
Chapter 06 – Planning, Strategy, and Competitive Advantage
6-4
This chapter explores the manager’s role both as planner and as strategist. First, we discuss the nature and
importance of planning, the kinds of plans managers develop, and the levels at which planning takes
place. Second, we discuss the three major steps in the planning process: (1) determining an organization’s
mission and major goals, (2) choosing or formulating strategies to realize the mission and goals, and (3)
selecting the most effective ways to implement and put these strategies into action. We also examine
several techniques, such as scenario planning and SWOT analysis that can help managers improve the
quality of their planning. We discuss a range of strategies managers can use to give their companies a
competitive advantage over their rivals. By the end of this chapter, students will understand the vital role
managers carry out when they plan, develop, and implement strategies to create a high-performing
organization.
NOTE ABOUT INSTRUCTOR’S POWERPOINT
SLIDES
The Instructor PowerPoint Slides include most Student
PowerPoint slides, along with additional material that
can be used to expand the lecture. Images of the
Instructor PowerPoint slides can be found at the end of
this chapter on page 6-26.
(INSTRUCTOR’S POWERPOINT SLIDE 1)
Chapter Title
Management Snapshot (pp. 193-194 of text)
Toy Retailer Implements Turnaround Plan
How Can Identifying Corporate Strengths and Weaknesses Lead to Better Planning and Strategy?
CHAPTER OVERVIEW
LECTURE OUTLINE
Chapter 06 – Planning, Strategy, and Competitive Advantage
found that sought-after items were out of stock The company was expanding its ability to ship online
orders from stores and distribution centers in order to get the right goods into stores at the right times, and
it was increasing clearance sales to move stagnant merchandise. Finally, the company was assessing its
business structure and operations to increase efficiency and effectiveness. One year into the “TRU
Transformation” plan, Toys “R” Us saw significant progress.
PLACE SLIDE 2 HERE
I. Planning and Strategy
A. Planning is a process managers use to identify and
select appropriate goals and courses of action for an
organization. The organizational plan that results from
the planning process details how managers intend to
attain those goals. The cluster of managerial decisions
and actions to help an organization attain its goals is
its strategy. Planning is a three-step activity:
1. The first step is determining the organization’s
mission and goals. A mission statement is a broad
declaration of an organization’s purpose that
identifies the importance of the organization’s
products to its employees and customers and
distinguishes the organization from its
competitors.
2. The second step is formulating strategy.
3. The third step is implementing strategy.
II. The Nature of the Planning Process
A. To perform the planning task, managers:
1. establish and discover where an organization is
at the present time,
2. determine where it should be in the future, and
3. decide how to move it forward to reach that
future state.
LO 6-1: Identify the three
main steps of the
planning process
and explain the
relationship
between planning
and strategy.
POWERPOINT SLIDES 6-3 TO
6-6
6-2: Differentiate between
the main types of
business-level
strategies and explain
how they give an
organization a
competitive advantage
that may lead to
superior performance.
POWERPOINT SLIDES 6-7 TO
6-19
6-6
1. Planning is necessary to give the organization a
sense of direction and purpose.
2. Planning is a useful way of getting managers to
participate in decision making about the
appropriate goals and strategies for an
organization.
3. Planning helps coordinate managers of the
different functions and divisions of an
organization to ensure that they all pull in the same
direction and work to achieve its desired future
state.
4. Planning can be used as a device for controlling
managers within an organization.
C. Henri Fayol said that effective plans should have
four qualities:
1. Unity means that at any time only one central
plan is put into operation.
2. Continuity means that planning is an ongoing
process.
3. Accuracy means that managers should attempt
4. The planning process should have enough
flexibility so that the plans can be altered and
changed if the situation changes.
planning usually takes place at three levels of
management: corporate, business or division, and
department or functional.
1. At the corporate level are the CEO, other top
managers, and their support staff.
of the company, usually led by a divisional
manager.
Chapter 06 – Planning, Strategy, and Competitive Advantage
R&D, human resources, etc.
E. Levels and Types of Planning
1. The corporate-level plan contains top
management’s decisions pertaining to the
organization’s mission and goals, overall strategy,
and structure.
2. Corporate-level strategy indicates in which
industries and national markets an organization
intends to compete and why.
3. At the business level, the managers of each
division create a business-level plan detailing
long-term divisional goals that will allow the
division to meet corporate goals and the division’s
business-level strategy and structure.
4. Business-level strategy states the methods a
division or business intends to use to compete
against its rivals in an industry.
5. A functional-level plan states the goals that the
managers of each function will pursue to help the
division attain its business-level goals.
6. Functional-level strategy is a plan of action to
improve the ability of each of an organization’s
functions to perform its task-specific activities in
F. Time Horizons of Plans: Plans differ in their time
horizon, the periods of time over which they are
intended to apply.
or more.
2. Intermediate-term plans have a horizon
3. Short-term plans have a horizon of one year or
less.
extends over several years is typically treated as a
rolling plan, a plan that is updated and amended
every year to take account of changing conditions
Chapter 06 – Planning, Strategy, and Competitive Advantage
G. Standing Plans and Single-Use Plans
1. Standing plans are used in situations in which
programmed decision making is appropriate.
Standing plans include a policy, a rule, and a
standard operating procedure.
2. Single-use plans are developed to handle
nonprogrammed decision making. They include:
a. Programs, which are integrated sets of
plans for achieving certain goals.
b. Projects, which are specific action plans
created to complete various aspects of a
program.
III. Determining the Organization’s Mission
and Goals
A. Defining the Business: To determine an
organization’s mission, managers must first define its
business by asking three questions:
1. Who are our customers?
B. Establishing Major Goals: Once the business is
defined, managers must then establish a set of primary
goals to which the organization is committed. These
goals give the organization a sense of direction or
purpose.
1. Strategic leadership, the ability of the CEO
and top managers to convey a compelling vision of
what they want the organization to achieve to their
subordinates.
2. Goals typically possess the following
characteristics:
its performance capabilities.
b. They are challenging but realistic—a goal
that is impossible to attain may prompt
POWERPOINT SLIDES 6-20
TO 6-22
Chapter 06 – Planning, Strategy, and Competitive Advantage
managers to give up.
c. The time period in which a goal is expected
to be achieved should be stated. This injects a
sense of urgency and acts as a motivator.
IV. Formulating Strategy
A. In strategy formulation, managers work to
develop the set of strategies that will allow an
organization to accomplish its mission and achieve its
goals.
1. A SWOT analysis is a planning exercise in
which managers identify internal organizational
a. The first step in SWOT analysis is to
c. On completion of the SWOT analysis,
managers can begin developing strategies that
allow the organization to attain its goals by
taking advantage of opportunities, countering
within an industry
POWERPOINT SLIDES 6-23
TO 6-26
TEXT REFERENCE
Manager as a Person:
GM’s Barra Confronts
Challenges
company had declared
bankruptcy and was still on the
Barra has taken ownership of
Barra is maintaining the
company’s strategy while not
Chapter 06 – Planning, Strategy, and Competitive Advantage
d. the power of large customers
e. the threat of substitute products.
3. The term hypercompetition applies to
industries that are characterized by permanent,
ongoing, intense competition brought about by
advancing technology or changing customer tastes,
fads and fashions.
V. Formulating Business-Level Strategies
A. Michael Porter formulated a theory of how
managers can select a business-level strategy to give
them a competitive advantage in a particular market or
industry. According to Porter, to obtain higher profits,
managers must choose between two basic ways of
increasing the value of an organization’s products:
1. Differentiating the product to increase its value
2. Lowering the costs of making the product
Porter also argues that managers must choose
between serving the whole market or serving just
one segment.
B. Low-Cost Strategy
1. With a low-cost strategy, managers try to gain
a competitive advantage by focusing the energy of
all the organization’s departments on driving the
organization’s costs down below the costs of its
industry rivals.
2. Organizations pursuing a low-cost strategy can
sell a product for less than their rivals, and still
make a good profit.
1. With a differentiation strategy, managers try
to gain a competitive advantage by focusing all the
energies of the organization’s departments on
distinguishing the organization’s products from
those of competitors.
2 As the process of making products unique and
Motors to grow globally and to
pursue technological trends,
such as fuel efficiency.
Concerning threats faced by the
company, she has noted the
costs of materials and the
competition from other brands
in Europe. The ongoing
investigation of the ignition
switch and the timing of the
recall is also a threat, but Barra
has received praise for handling
the threat well. (Box in text on
pp. 204-205)
POWERPOINT SLIDES 6-27
TO 6-29
Chapter 06 – Planning, Strategy, and Competitive Advantage
charge a premium price for their products.
D. “Stuck in the Middle”
According to Porter, a company cannot pursue a low-
cost and differentiation strategy simultaneously. He
refers to managers and organizations that have not
selected between the two as being “stuck in the
middle.”
E. Focused Low-Cost and Focused Differentiation
Strategies
1. Porter identified two other business-level
strategies used by companies aiming to serve the
needs of customers in one or a few segments of the
market.
2. A company pursuing a focused low-cost
strategy serves one or a few segments of the
market and aims to be the lowest-cost company
serving that segment.
3. A company pursuing a focused differentiation
strategy serves just one or a few segments of the
market and aims to be the most differentiated
company serving that segment.
VI. Formulating Corporate-Level Strategies
A. Corporate-level strategy is a plan of action that
determines the industries and countries an organization
should invest its resources in to achieve its mission
and goals.
B. Concentration on a Single Industry: This is a
corporate-level strategy in which a company reinvests
its profits to strengthen its competitive position in its
current industry.
C. Vertical Integration: It is the corporate-level
strategy that involves a company expanding its
business operations either backward into a new
industry that produces inputs for the company’s
products (backward vertical integration) or forward
into a new industry that uses, distributes, or sells the
1. Managers pursue vertical integration because
it allows them to either add value to their
2. Although vertical integration can increase an
organization’s performance, it can also reduce an
organization’s flexibility to respond to changing
environmental conditions.
3. Vertical integration may sometimes reduce a
company’s ability to create value when the
environment changes. Therefore, many companies
divest themselves of units that draw attention and
resources away from an organization’s primary
purpose.
D. Diversification: It is the strategy of expanding
operations into a new business or industry in order to
produce new goods or services There are two main
types of diversification: related and unrelated.
1. Related Diversification: It is the strategy of
entering a new business or industry to create a
competitive advantage in one or more of an
organization’s existing divisions or businesses.
a. Synergy is obtained when the value created
by two divisions cooperating is greater than
the value that would be created if the two
divisions operated separately.
a. By pursuing unrelated diversification,
managers can buy a poorly performing
advantage.
Chapter 06 – Planning, Strategy, and Competitive Advantage
E. International Expansion: Corporate-level
managers must decide on the appropriate way to
compete internationally.
1. If an organization needs to sell its products
abroad or compete in more than one national
market, managers must ask themselves to what
extent should their company customize its
product’s features and marketing campaign to suit
different national conditions.
2. Global strategy is selling the same
standardized product and using the same basic
marketing approach in each national market.
3. If managers decide to customize products and
marketing strategies to specific national
conditions, they adopt a multidomestic strategy.
4. The major advantage of global strategy is the
significant cost savings associated with not having
to customize products and marketing approaches.
The major disadvantage is that by ignoring
market approaches, managers are able to gain
importing sells products at home that are made
abroad (products it makes itself or buys from other
TEXT REFERENCE
MANAGEMENT INSIGHT:
Revised Strategy Puts Crocs on
Sound Footing
Croc makes shoes from
Croslite, a trademarked resin
that makes their shoes
comfortable, soft, and
lightweight. Founded in 2002,
Croc hit a popularity peak in
2007, when it sold 50 million
pairs.
Yet by 2009, the company was
struggling. Sales were hurt by
the recession and by knockoff
shoes that cut into sales of
Crocs and helped saturate the
market. Also, there was a
backlash from consumers.
include more fashionable—but
Chapter 06 – Planning, Strategy, and Competitive Advantage
manufacturing and distributing one or more of
its products in the licensee’s country or region
of the world in return for a negotiated fee.
b. In franchising, a company sells to a foreign
organization the rights to use its brand name
and operating know-how in return for a lump
sum payment and a share of the franchiser’s
profits.
3. Strategic Alliances: In a strategic alliance,
managers pool or share their organization’s
resources and know-how with those of a foreign
company, and the two organizations share the
rewards or risks of starting a new venture in a
foreign company.
a. A joint venture is a strategic alliance
among two or more companies that agree to
also offers high potential returns.
VII. Planning and Implementing Strategy
TEXT REFERENCE
Management Insight:
Would You Like Some
Fritos with That Diet Pepsi?
The history of PepsiCo tells a
tale of related and unrelated
diversification. Best known for
the soda from which it gets its
name, it merged with Frito-Lay,
Inc., in 1965 to become
PepsiCo.
Along the way, it has
would like to see PepsiCo split
its beverage and food units
apart. He argues that the two
units would be stronger apart
beverage and food units
Chapter 06 – Planning, Strategy, and Competitive Advantage
6-15
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4. Allocating appropriate resources to the
responsible individuals or groups.
5. Holding specific individuals or groups
responsible for the attainment of corporate,
divisional, and functional goals.
together.(pp. 214-215)
Chapter 06 – Planning, Strategy, and Competitive Advantage
6-16
LO 6-4: Describe the vital
role managers
play in
implementing
strategies to
achieve an
organization’s
mission and
goals
POWERPOINT SLIDES 6-44
TO 6-45