Download BA460-2

Strategic Planning
Definition: Strategic Planning=
A series of goal-directed
decisions & actions
matching your skills &
resources (strengths &
weaknesses)
w/ market threats &
opportunities
Strategic Planning
EVOLVING
MARKET
OPPORTUNITIES
and/or threats
RESOURCES
&
OBJECTIVES
LONG RUN
PROFITABILITY
AND GROWTH
“If you don’t know
where you are going
any route will get you
there.”
Chris Bartlett,
Harvard Business School
Benefits of
“Strategic Planning”
 Guides entire firm
regarding -what it is
you are trying to do &
achieve
 Unifies numerous
strategy-related
decisions and
organizational efforts
objectives
Strategy
Operations
The Problem…
Only 5% of workforce aware of
“the” strategy
 Only 25% of managers have
incentives linked to strategy
 60% of organizations don't link
budgets & strategy
 85% of executive teams spend
<1 hour/ month discussing
strategy
 90% fail to execute strategy
successfully

Robert S. Kaplan and David P. Norton
The Strategy-Focused Organization,
Separation of Strategic Planning &
Marketing Implementation
Very Much
Strategic Planning
Time Spent
Strategy
Implementation
Very Little
Chief
Executive
Officer
Mid-level
Managers
•Commitment
•Understanding
•Responsibility
Customer
Contact
What makes a decision strategic?
 Multi-
functional in
scope &
consequences
 Requires choice
& trade-offs,
integration &
alignment
Forces you to make choices on what you will & won’t do
The Big Picture
Situation/SWOT
Analysis
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Growth
&
Competitive
Strategies
Functional
Integration
Marketing
R&D
Production
HR
Finance
Performance
Assessment
 Profits
 Mrkt Share
 ROA
 ROS
 ROE
 Asset T/O
 Stock
 Mrkt Cap
Situation & SWOT Analysis answers
1st of 3 Critical Questions:
Strategic Planning answers next 2 critical Q’s
1.Where are
we now?
2.Where do we
want to go?
3.How do we
get there?
Org. goals & objectives encapsulated in
Mission & Vision Statements:
Answers Question # 2:
2. Where do we
want to go?
–
–
–
–
What business(es) should
be in
Market positions to stake
out?
Consumer needs &
segments serve?
Outcomes to achieve?
Final Question answered by
Strategic Planning:
1.Where are we now?
2.Where do we want
to go?
3.How do we
get there?
*Growth, Competitive &
Functional Strategies
Growth, Competitive & Functional Strategies
Span 3 Levels of MGT
Corporate-Level : In what business should we compete?
Corporation
Business-Level : How should we compete?
Sensors Unit
Nano-Tech Unit
Cons.Elec. Unit
Functional-Level : How do we coordinate?
Finance
HR / R&D
Production
Marketing
Level 1-Corporate Strategy
In which businesses do we compete?
Corporation
Corporation
STRATEGIC
BUSINESS
UNIT #1
MARKET
COMPETITOR
A
COMPETITOR
B
STRATEGIC
BUSINESS
UNIT #3
STRATEGIC
BUSINESS
UNIT #2
COMPETITOR
C
COMPETITOR
D
COMPETITOR
E
?
MARKET
MARKET
COMPETITOR
F
COMPETITOR
G
COMPETITOR
H
COMPETITOR
I


Textron
– Bell helicopters
– E-Z-GO golf cars
– Jacobsen turf
care

United
Technologies
– Pratt & Whitney
aircraft engines
– Cessna Aircraft
– Carrier Heating &
AC
– Otis Elevators
DIAGEO PLC
–
–
–
–
–
Burger King
Guinness
Old El Paso Mexican
food
Green Giant
Liquor
Once decided what
businesses to
compete in –need to
decide -
what Products &
Markets to compete
w/& in=
Growth Strategy
Growth Strategies
Present
Products
Present
Markets
New
Markets
New
Products
Market
Penetration-
Product
Development
Increase share
among existing
customers.
Create new
products for
present markets
Market
Development
Diversification
Attract new
customers
to existing
products
new products…
new markets…
new alliances
nd
2
Level of Strategy
Corporate Level
Business unit Level
Functional strategy
Information
systems
Research &
development
Finance
Manufacturing
Marketing
Human
resources
Level 2: Business Unit Strategy: How do we Compete?
Focus?
Quality?
Price?
STRATEGIC
BUSINESS
UNIT
MARKET
COMPETITOR
A
COMPETITOR
B
COMPETITOR
C
What Advantage
can we create &
sustain against
our competitors?
& w/in which
Market Segments
should we compete?
Strategic Thinking- the ten big ideas
6. Resource allocation
models –
• Porter: strategic choices are
set of basic generic strategies
• (low cost, differentiation,
market focus)
•
Porter “What is Strategy”
• Porters Generic Strategies
• Strategies & Mission
Statements
You can Formulate Strategy based on
what Competitive advantage you
focus on:
Cost:
Design, produce,
market more
efficiently than
competitors
Differentiation:
Deliver unique &
superior value in
terms of product
quality, features,
service
You can Formulate Strategy thru your
Competitive Scope:
Number & Nature of segments compete w/in-
Generic Strategies
Broad
target
Narrow
target
Competitive Scope
Competitive Advantage
Cost
Uniqueness
Cost
Leadership
Broad
Differentiation
Focused
Cost
Leadership
Focused
Differentiation
& You can also Formulate Strategy
by-Riding a Products Life Cycle

Adjust
Marketing Mix
according to
natural Drift of
products w/in
segments-
Put them all together &…
1.
2.
3.
Cost/Quality
Differentiation
Number & nature of
segments compete
w/in
Riding the Product
Life Cycle
Number & nature of
segments compete
w/in #2
Compete Broad Market
on:
Cost
#1
Product
Quality
Niche Mrkt
Ride Product
LifeCycle
#3
Evolving Mrkt
Competitive Strategy
Matrix
Competitive Strategy Matrix
Broad Mrkt
Compete
on:
Cost
Product
Quality
Niche Mrkt
Evolving Mrkt
Overall Cost Cost LeaderLo -Tech
Leader
Cost Leader -
Differentiator- Differentiator
Differentiator-
Focus
Hi- End Focus
PLC
Lo+Trad+Hi
PLC
Lo+Trad+Hi
Overall Cost Cost LeaderLo -Tech
Leader
Cost Leader -
Focus

An overall cost leader will
attempt to be low-cost
producer in every segment
of the market.
PLC
Lo+Trad+Hi
Overall Cost Cost LeaderLo -Tech
Leader
Focus

Cost Leader -
PLC
Lo+Trad+Hi
-- seeks to dominate the price
sensitive market segments.
 --sets prices below all
competitors — and still be
profitable
Overall Cost Cost LeaderLo -Tech
Leader
Focus

Products will
be allowed to
age & change
in appeal from
High End, to
Traditional,
and eventually
Low End
buyers.
Cost Leader -
PLC
Lo+Trad+Hi
Cost Leadership
Strategic Choices
A cost leader does not
try to be industry
innovator
 The overriding goal isincreased efficiency &
lower costs relative to
rivals
 Will seek to minimize
costs in marketing, R&D
& production

Business-Level
Strategy:Cost Leadership
 Advantages
A cost leader is able
to charge lower
prices
– Even at same price
more efficient cost
leader generates
greater profitability
–
Generic Business-Level Strategy:
Differentiation
Create a product that
customers perceive as
distinct/unique & offer
superior quality/service
Advantage
Customers expect & willing to
pay premium prices
Differentiator

Will have significant
expenditures in R&D &
production….Because you
want/need to make high
quality/highly desirable
product

Will have significant
expenditures in marketing…
Because you need to create
maximum awareness & brand
equity.
Differentiation
Advantage
… as you develop greater
brand equity —thru
increased product quality
& awareness ….
You develop greater brand
loyalty….
The greater the loyalty.. the
less the price sensitivity
Competitive Strategy Matrix
Broad Mrkt
Compete
on:
Cost
Product
Quality
Niche Mrkt
Evolving Mrkt
Overall Cost Cost LeaderLo -Tech
Leader
Cost Leader -
Differentiator- Differentiator
Differentiator-
Focus
Hi- End Focus
PLC
Lo+Trad+Hi
PLC
Lo+Trad+Hi
Broad
Niche
Differentiation Differentiation
Hi -Tech Focus
Differentiation
- PLC
Lo+Trad+Hi
match customers ideal criteria for positioning, age, and reliability.
rd
3
Level of Strategy
Corporate Level
Business unit Level
Functional Strategy
Information
systems
Research &
development
Finance
Manufacturing
Marketing
Human
resources
Level 3
Functional Strategy
STRATEGIC BUSINESS UNIT
FINANCE
R&D
PRODUCTION
INVENTORY
MARKETING
/SALES
PURCHASING
How do we coordinate?
The Big Picture
Situation/SWOT
Analysis
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Growth
&
Competitive
Strategies
Functional
Integration
Marketing
R&D
Production
HR
Finance
Performance
Assessment
 Profits
 Mrkt Share
 ROA
 ROS
 ROE
 Asset T/O
 Stock
 Mrkt Cap
INTERNAL STRATEGIC
ALIGNMENT
Achieved when :
All Decisions made by &
within all functional
areas are in sync w/
one another,
As well as with the
overall strategic
direction of the firm
FINANCE
PRODUCTION
MARKETING
For INTERNAL
STRATEGIC ALIGNMENT
to occur:
 Marketing/R&D
must be
operating in a manner that is
complementary to Production
 Which is complementary to
Human Resources
 Which is complementary to
Finance.
Examples of
Strategic Alignment
When all decisions made by &
within all functional areas are
in sync w/ one another,
As well as w/ your overall strategic
direction -- you achieve…
Distinctive
Distinctive
Competencies
Competencies
Distinct competencies needed to
achieve selected competitive
strategy
Distinctive
Competencies
Competitive
Advantage*
*Achieved when you sustain
profits above Industry
Average
Areas in which you can develop
“Distinct Competencies”




MARKETING: Awareness &
Accessibility
R&D: Product innovation & design
PRODUCTION: Plant Automation &
utilization
Human Resources: Worker Expertise
& Training
Achieving Competitive Advantage thru
Cost-Focused Strategy

Allows for good profit margins
on sales while keeping prices
low especially in price-sensitive
segments…
Functional Alignment
Automation - pursued early &
aggressively
Production Capacity improvements unlikely (may
run overtime instead)
Spend moderately on promotion & sales
Marketing
R&D
Spend minimally on R&D
Differentiator


Seeks to create maximum awareness & brand
equity.
Wants to be well known as a maker of high
quality/highly desirable products
Production
Functional Alignment
Less likely to invest in increased automation or
production capacity
Marketing
Spend heavy on advertising & sales to create
maximum awareness & accessibility
Prices tend to be higher
R&D
High R&D spending - keep products fresh
Virtually all tactical
mistakes that are made
when implementing
strategy
are a consequence of the
lack of synchronization of
decisions made in at least
two functional areas

You develop a
new product
but forget to
buy plant &
equipment for
it…the year
before it is to
be launched…
R&D and
Production
breakdown

The
company
takes an
emergency
loan
because
inventory
levels
increase…
Marketing,
Production &
Finance out of
sync

You reposition
a product from
the High End to
the Traditional
segment, but
do not address
their material &
labor costs…
Marketing,
R&D, and
Production
out of sync

Financial
decisions are
made before
knowing the
budget demands
of all R&D,
Marketing and
Production
decisions…
Everybody
is out of
sync!
 Need to begin to
determine the overall
objectives & specific
tactical decisions…
 that need to be
made within & across
each management
domain
…in order to
successfully implement
your growth &
competitive strategies
This week’s assignments:
Select w/ which of the Six Basic
Strategies you are going to
compete
 Draft- Marketing R&D
Objectives & Tactics
 Production & HR Objectives &
Tactics

Diff Strategies Play into
Different Success Measures
Profit
BCL
X
L=2-3
MS
X
SP &
MC
ROE
pf/e
X
CostAll Segments= more sales & thus enable
Niche &
greater
PLC
X
L=1.5-2
NichePLCDiff
X
X
AT
s/a
X
X
X
X
ROA
pf/a
X
Cum. profit & overall market share
B-Diff
ROS
pf/s
X
X
X
X