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Strategy Design and Planning Chapter Outline The strategic design approach the strategic planning approach The Design versus The Planning Model A Model for strategic planning The strategic design approach Seven Premises strategy formation should be a controlled, conscious process. the CEO is “the” strategist. strategy formation must be kept simple and informal. 51 The strategic design approach Strategies should be unique. strategy design should be full-blown, not incremental. strategies should be articulated. once the first 6 premises are completed the strategy can be implemented. 51 The Strategic Planning Approach 3 premises strategy formation should be a controlled process. responsibility rests with the CEO in principle, and executed by staff planners. strategies emerge full-blown, to be explicated for implementation. 53 differences between the design and planning approaches the design model emphasizes simplicity and informalness while the planning model uses an intricate array of procedures. The planning model uses staff planners as major actors, while the design school uses them as minor actors in the implementation process. 53 A combination model The basic Plan Format I. mission statement a. business definition b. long-term objectives II. scan of external environment a. industry environment b. macroenvironment III. scan of internal environment a. value chain analysis b. financial analysis c. assessment of strengths and weaknesses iv. business strategy statement v. integrated programs 55 i. The mission statement 1. 2. 3. 4. 5. What business should we be in? Why do we exist? What is unique about our organization? Who are our principal customers? What are our principal products/services, present and future? 6. What are our principal market segments, present and future? 55 The mission statement 7. What are our principal outlets/distribution channels, present and future? 8. How is our business different than it was three and five years ago? 9. What is likely to be different about our business three and five years in the future? 10. What are our principal economic concerns? 11. What philosophical issues are important to our future? 12. What special considerations do we have regarding stakeholder groups? 56 Stakeholder groups owners/ stockholders/ investors/ constituents board of directors parent organization legislative bodies employees customers/ clients/ users suppliers general public 56 Stakeholder groups owners/ stockholders/ investors/ constituents board of directors parent organization legislative bodies employees customers/ clients/ users suppliers general public ii. long-term objectives marketing profitability physical and financial resources productivity worker performance management development innovation social responsibility stockholder responsibility size/ growth/ diversification 57 iii. scan of internal environment and financial analysis value chain analysis financial analysis $ leverage ratios $ liquidity ratios $ activity ratios $ profitability ratios 58 iii. scan of internal environment and financial analysis value chain analysis financial analysis $ leverage ratios $ liquidity ratios $ activity ratios $ profitability ratios dupont financial analysis sales minus costs 61 dupont financial analysis sales minus costs net profit sales dupont financial analysis sales minus costs net profit sales net profit margin TIMES asset turnover sales total assets dupont financial analysis sales minus costs net profit sales net profit margin TIMES roi asset turnover [divided by] sales total assets total debt total assets (1-Debt Ratio) roe iv. the strategy statement Answers the five questions of: 1 What should be our future driving force? 2 How does this differ from our current driving force? 3 What changes will be needed to meet the future driving force? 4 How is this compatible with the mission? 5 How is this compatible with the conclusions from our strategic analysis? 61 v. integrated programs The seven Steps Identify results needed to accomplish each long-term objective. select 5 to 10 most critical results required to achieve the long-term objective. reach agreement on each integrated program. 63 integrated programs Reach agreement on what is needed concerning results, timetable, resource, accountability, and feedback mechanism. invite review and comment from management levels. Complete final documentation. Implement and evaluate. strategic choice Links strategy formulation to strategy implementation. strategic choice Links strategy formulation to strategy implementation. Formulation and Implementation Implementation (Achieving Results) Formulation (Deciding what to do) 1. opportunity and Risk. 2. material, technical, financial, and managerial resources. 3. personal values and aspirations. 4. Acknowledgment of noneconomic responsibility to society. Corporate Strategy: Pattern of purposes and policies defining the company and its business. 1. Organization structure and relationships. 2. Organization processes and behaviors. 3. top leadership Figure 1 68 relating opportunities to resources Matching opportunity and competence. 68 relating opportunities to resources Matching opportunity and competence. Schematic development of economic strategy Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Figure 2 73 Schematic development of economic strategy Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Figure 2 Schematic development of economic strategy Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Figure 2 opportunities and risks Identification inquiry assessment of risk Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence Capability Financial Managerial Functional organizational opportunities and risks Figure 2 reputation history Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence Corporate resources as extending or constraining opportunity opportunities and risks identification of strengths and weaknesses programs for increasing capability Figure 2 Environmental Conditions and Trends opportunities and risks Figure 2 Schematic development of economic strategy Consideration of all Combinations Distinctive Competence Corporate resources Environmental Conditions and Trends opportunities and risks Schematic development of economic strategy Consideration of all Combinations Evaluation to determine best match of opportunity and resources Figure 2 Distinctive Competence Corporate resources Environmental Conditions and Trends opportunities and risks Schematic development of economic strategy Distinctive Competence Consideration of all Combinations Evaluation to determine best match of opportunity and resources Figure 2 choice of products and markets Corporate resources Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence Capability Financial Managerial Functional organizational Economic Technical Physical Social Community Nation World opportunities and risks Identification inquiry assessment of risk 16 Figure 2 reputation history Consideration of all Combinations evaluation to determine best match of opportunity and resources choice of products and markets economic strategy Corporate resources as extending or constraining opportunity identification of strengths and weaknesses programs for increasing capability Generic versus competitive strategy Generic Measure of success Return to the firm Function Competitive Sales growth Value added Provision of value to the customer Basic strategic tasks Adapting to change and innovation Method of expressing Product/market strategy terms Basic approach to Study a group of analysis businesses over time Table 1 Market share Return on investment Maintaining a defensible position Creating barriers and deterring rivals Policies leading to defensible position Comparison across rivals at a given time 76 Questions ?