6.1 The Dynamics of Strategic Planning

• Every organization needs to have a "big picture" about where it's going and how to get there. These are matters of strategy, strategic management, and strategic planning. A strategy is a large-scale action plan that sets the direction for an organization. Strategic management involves managers from all parts of the organization in the formulation and implementation of strategies and strategic goals. Strategic planning determines the organization's long-term goals and ways to achieve them.
• There are three reasons why an organization should adopt strategic management and strategic planning. They can (1) provide direction and momentum, (2) encourage new ideas, and above all (3) develop a sustainable competitive advantage. Sustainable competitive advantage occurs when an organization is able to get and stay ahead in four areas: (1) in being responsive to customers, (2) in innovating, (3) in quality, and (4) in effectiveness.

6.2 The Strategic Management Process

• The strategic management process has five steps plus a feedback loop.
• Step 1 is to establish the mission statement and the vision statement. The mission statement expresses the organization's purpose or reason for being. The vision statement describes the organization's long-term direction and strategic intent.
• Step 2 is to translate the broad mission and vision statements into a grand strategy that explains how the organization's mission is to be accomplished. Three common grand strategies are growth, stability, and defensive. (1) A growth strategy involves expansion—as in sales revenues. (2) A stability strategy involves little or no significant change. (3) A defensive strategy involves reduction in the organization's efforts. Among the strategic planning tools and techniques used are (1) SWOT analysis and (2) forecasting, as described in Section 6.3.
• Step 3 is strategy formulation, the translation of the grand strategy into more specific strategic plans, choosing among different strategies and altering them to best fit the organization's needs. Among the techniques used to formulate strategy are Porter's competitive strategies and product life cycles, as described in Section 6.4.
• Step 4 is strategy implementation—putting strategic plans into effect. Step 5 is strategic control, monitoring the execution of strategy and making adjustments.
• Corrective action constitutes a feedback loop in which a problem requires that managers return to an earlier step to rethink policies, budgets, or personnel arrangements.

6.3 Establishing the Grand Strategy

• To develop a grand strategy (Step 2 above), you need to gather data and make projections, using the tools of SWOT analysis and forecasting.
• SWOT analysis is a search for the Strengths, Weaknesses, Opportunities, and Threats affecting the organization. The SWOT analysis is divided into two parts: an analysis of internal strengths and weaknesses and an analysis of external opportunities and threats. Organizational strengths are the skills and capabilities that give the organization special competencies and competitive advantages. Organizational weaknesses are the drawbacks that hinder an organization in executing strategies. Organizational opportunities are environmental factors that the organization may exploit for competitive advantage. Organizational threats are environmental factors that hinder an organization's achieving a competitive advantage.
• Another tool for developing a grand strategy is forecasting—creating a vision or projection of the future. Two types of forecasting are (1) trend analysis, a hypothetical extension of a past series of events into the future; and (2) contingency planning, the creation of alternative hypothetical but equally likely future conditions.

6.4 Formulating Strategy

• Strategy formulation (Step 3 in the strategic-management process) makes use of several concepts, two of which are (1) Porter's four competitive strategies and (2) product life cycles.
• Porter's four competitive strategies are as follows: (1) The cost-leadership strategy is to keep the costs, and hence the prices, of a product or service below those of competitors and to target a wide market. (2) The differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors but to target a wide market. (3) The cost-focus strategy is to keep the costs and hence prices of a product or service below those of competitors and to target a narrow market. (4) The focused-differentiation strategy is to offer products or services that are of unique and superior value compared to those of competitors and to target a narrow market.
• A product life cycle is a model of the four stages a product or service goes through: (1) In the introduction stage, a new product is introduced into the marketplace and is heavy on startup costs for production, marketing, and distribution. (2) In the growth stage, customer demand increases, the product's sales grow, and later competitors may enter the market. (3) In the maturity stage, the product starts to fall out of favor and sales and profits fall off. (4) In the decline stage, the product falls out of favor, and the organization withdraws from the marketplace.

6.5 Carrying Out & Controlling Strategy

• In carrying out the grand strategy (Stage 4) and controlling the strategy (Stage 5), managers can avail themselves of two techniques: (1) the balanced scorecard, and (2) measurement management.
• The balanced scorecard gives top managers a fast but comprehensive view of the organization via four indicators. The balanced scorecard establishes (a) goals and (b) performance measures according to four "perspectives" or areas—financial, innovation and learning, customer, and internal business.
• The balanced scorecard is an example of measurement management, in which an organization uses measurable criteria to determine strategic success. Measurement-managed firms succeed because top executives agree on strategy, communication is clear, there is better focus, and the organizational culture emphasizes teamwork and allows risk taking.