In this section:

1. In this section: Strategic planning is one of the functions of management. This section discusses: • Why Plan? • Strategy

2. What You’ll Learn • Why businesses use strategic planning. • The difference between formal and functional planning. • How to define short-range, intermediate, and long-range plans. • How to differentiate between operational and strategic plans. • How grand, business, and functional strategies work in a company.

3. Why It’s Important Strategic planning develops a course of action for the future in spite of changing economic and social conditions.

4. Key Terms • formal planning • defensive or retrenchment strategy • operational planning • combination strategy • strategic planning • business strategies • grand or corporate strategies • overall cost leadership • growth strategy • differentiation • stability strategy• functional strategies

5. Why Plan? • Planning is the process that businesses use to decide the company’s goals for the future and ways to achieve those goals. • Planning prepares managers and businesses to meet the challenges of economic, social, technological and political changes. • Without plans, companies would not know how to handle crisis situations. • They would also be unable to deal with new developments, such as changes in technology or increased competition.

6. Formal Planning Formal planning is the systematic studying of an issue and preparation of a written document to deal with the problem. There are three basic time spans for developing business plans: • 1. Short-range plans cover one year. • 2. Long-range plans cover three to five years, but some cover as far as 20 years. • 3. Intermediate plans cover the time span between short- and long-range plans, usually from one to three or one to five years.

7. Operational and Strategic Plans • Operational planning is short-range planning that focuses on forming ideas for dealing with specific functions in the company. • Strategic planning is long-range planning done by the highest management levels in the company.

8. Strategy Strategy is a course of actions. Strategies exist at three primary levels in a company: • Grand (or Corporate) Strategies • Business Strategies • Functional Strategies

9. Fig 2-1 • Grand Strategies Grand strategies provide overall direction for the company. They deal with the most important aspects of the company’s operation. • Growth strategy • Stability strategy • Retrenchment strategy • Combination strategy

10. Business Strategies Business strategies affect only one or two departments and can be classified as: • Overall cost leadership strategy • Differentiation strategy • Focus strategy

11. Functional strategies • Functional Strategies Functional strategies are short-range operational plans that support business strategies by emphasizing practical implementation. The most common functional plans are: • Sales and marketing • Production • Finance • Research and development • Personnel

12. Fact and Idea Review 1. What is planning, and what questions does it answer? 2. What is the difference between strategic planning and operational planning? Between long-range and short-range planning? 3. What is the difference between vertical integration and diversification? 4. Under what circumstances would a business adopt a retrenchment strategy. 5. List the three classifications of business strategies.

13. In this section: Business changes so rapidly today that it is difficult for managers to maintain current plans. It is the responsibility of upper management to develop corporate plans for the future and to engage in strategic management. This section discusses: • What Is Strategic Management? • Strategic Management Approach

14. What You’ll Learn • What steps are taken in the strategic management process. • The objectives of a company’s mission statement. • The differences between missions and goals. • How to differentiate among policies, procedures, and rules. • How a SWOT analysis works. • What organizational factors need to be evaluated in implementing a strategic plan..

15. Why It’s Important To keep a company competitive and profitable, managers must implement the strategic goals that are set by top-level management.

16. Key Terms • strategic management • SWOT analysis • formulating strategy • implementing strategy • mission statement • evaluating strategy • goals

17. Strategic Management Approach Most companies use a strategic management approach made up of these three phases. Each is critical to the success of the strategic management process. • Formulation—developing the strategic plan. • Implementation—putting the formulated plan to work. • Evaluation—continuously evaluating and updating the strategic plan.

18. Formulating Strategy Formulating strategy is developing the grand- and business-level strategies to be used by the company. This strategy includes: • Identifying the mission statement. • Identifying past and present strategies. • Diagnosing past and present performance. • Setting goals. • Policies, procedures, and rules. • SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis.

21. Fact and Idea Review • 1. What is the most important part of strategic management? • 2. What are the three phases of the strategic management approach? • 3. What is the difference between a policy, a procedure, and a rule? • 4. What are the four components of a SWOT analysis? • 5. What are three basic evaluation activities?