Chapter 7: Managing the Business Enterprise
Setting Goals and Formulating Strategy
=> goals: objectives that a business hopes and plans to achieve.
The Purpose of Goal Setting:
- an organization functions systematically because it sets goals and plans accordingly.
- an organization functions as such because it commits its resources on all levels to achieving
- Four main purposes can be identified in organizational goal setting.
=> Goal setting provides direction, guidance, and motivation for all managers. If managers
know precisely where the company is headed, there is less potential for error in the different
units of the company.
=> Goal setting helps firms allocate resources.Areas that are expected to grow will get first
priority. The company allocates more resources to new projects with large sales potential than
it allocates to mature products with established but stagnant sales potential.
=> Goal setting helps to define corporate culture.An example can be seen in General
Electric, which strives to push its divisions to number one or two in its industry.As a result, it
encourages and maintains a competitive, often stressful environment that rewards success and
has little tolerance for failure. General Electric however maintains a top spot in each of its
respective industries, because of these work ethics.
=> Goal setting helps managers assess performance. If a company sets a goal to increase
sales by 10% in a given year, managers in units who attain and/or surpass that goal can be
reward. However the managers of units who fail to reach that goal will also be compensated
Kinds of Goals:
=> mission statement: an organization’s statement of how it will achieve its purpose in the
environment in which it conducts its business.
=> long-term goals: goals set for extended periods of time, typically five years or more into
=> intermediate goals: goals set for a period of one to five years.
=> short-term goals: goals set for the very near future, typically less than one year.
=> strategy formulation: creation of a broad program for defining and meeting an
=> strategic goals: long term goals derived directly from a mission statement.
Setting Strategic Goals:
=> SWOT analysis: identification and analysis of organizational strengths and weakness and
environmental opportunities and threats as part of a strategy formulation.
The S and W refer to the capitalization of Strengths and overcoming Weaknesses. These are
internal to the company. The O and T refer to taking advantages of environmental
Opportunity and Threats, and are more external factors.
Analysing the Organization and its Environment: => environmental analysis: the process of scanning the environment for threats and
=> organizational analysis: the process of analysing a firm’s strengths and weaknesses.
AHierarchy of Plans:
=> strategic plans: plans that reflect decisions about resources allocations, company
priorities, and steps needed to meet strategic goals.
=> tactical plans: generally, short-range plans concerned with implementing specific aspects
of a company’s strategic plans.
=> operational plans: plans setting short-term targets for daily, weekly or monthly
-identifies the various businesses that a company will be in, and how these businesses will
relate to each other.
=> concentration strategy: involves focussing the company on one product or product line.
- companies have several growth strategies, all of whom focus on internal activities that will
result in growth.
=> market penetration: boosting sales of present products by more aggressive selling in the
firm’s current markets.
=> product development: developing improved products for current markets.
=> geographic expansion: expanding operations in new geographic areas or countries.
- there are tow basic integration strategies, both of which focus on external activities.
=> horizontal integration: acquiring control of competitors in the same or similar markets
with the same or similar products.
=> vertical integration: owning or controlling the inputs to the firm’s processes and/or
channels through which the products or services are distributed.
=> diversification: expanding into related or unrelated products or market segments.
=> related diversification: means adding new but relating products or services to an existing
=> conglomerate diversification: means diversifying into products or markets that are not
related to the firm’s present businesses.
=> retrenchment: the reduction of activity or operations.
=> divestments: another investment reduction strategy involving seeing or liquidating one or
more of a firm’s businesses.
=> investment reduction: reducing the company’s investment in one or more of its lines of
Business-Level (Competitive) Strategies:
=> cost leadership: becoming the low cost leader in an industry.
=> differentiation strategy: a firm seeks to be unique in its industry along some dimension
that is valued by buyers.
=> focus strategy: selecting a market segment and serving the customers in that market
niche better than competitors.
- a functional stra