Download STRATEGIC MAGEMENT 2. Models of strategic planning

STRATEGIC MAGEMENT
2. Strategic planning
Central European competitiveness
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Introduction 1.
The economic „planning” has long traditions (see
the story of Egyptian 7 good and bad years from
the Bible).
After the II. world war the planning’s theory
developed very quickly. In the course of the
successive progress the main stream US concepts
are financial planning, long range planning,
strategic planning, strategic management.
In the centre of the two latter concepts is the
market strategy.
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Introduction 2.
A firm’s (strategic) plan is a document which defines its
goals and the way of their fulfilment.
Obviously the main criteria of the strategic decision
making is the profit maximisation (or the firm’s
value). But the interests of the owners (the dividend
or company shares value maximisation) and the
management (career, profit maximization), further,
the social aspects of decisions are important as well.
M. Porter: The main goal of a firm is to get, save or
improve competitiveness.
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Introduction 3.
Competitiveness is an ability to get, preserve and
improve market position/power.
A market can be competitive, oligopolistic and
monopolistic. Main characteristics of a
competitive market are: great number of
suppliers and buyers, their limited market power
and the limited role of the state in the market.
Economic competition is basically relevant inside
the different branches of industry.
(An industry is a group of competitors producing products that
compete with each other.)
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Introduction 4.
In the modern economy the competition can be
different among large and small companies.
Among big oligopols the competition is always
heavy. In the SMEs sector however the main
competitors are not firms, but value chains
(groups of cooperating enterprises). In a valuechain firms co-operate (do not compete).
Today small firms are often more effective than
great ones. „Small is beautiful” became the
motto of this view (photos of a profitable
business).
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Source:
www.gt2006.freeblog.hu/
albumunk/bolivia - halálút (death-road)
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Source: www.gt2006.freeblog.hu/albumunk/bolivia
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The growing effectiveness in the SME sphere was
caused by a great change in the world economy.
At the beginning of the XX. century the economy of
scale and mass production were the main factors of
profitability. Large firms were most successful.
But, because of the rapid technical development,
in the middle of the century the adaptability
became more important. Firms’ strategies
adapted to the mentioned changes too. The
creation of flexible production and just in time
became frequent goals.
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Main factors of business success
Market success requires a lot of efforts from companies. On
the base of some case studies the main factors can be
listed as follows:
1. A bias for action, active decision making 'getting on with it'.
2. Close to the customer - learning from the people
served by the business.
3. Autonomy and entrepreneurship - fostering
innovation and nurturing 'champions'.
4. Productivity through people - treating rank and
file employees as a source of quality.
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5. Hands-on, value-driven - management
philosophy that guides everyday practice management showing its commitment.
6. Stick to the knitting - stay with the business
that you know.
7. Simple form, lean staff - some of the best
companies have minimal HQ staff.
8. Simultaneous loose-tight properties autonomy in shop-floor activities plus
centralised values.
Source: Peters, T.J. – Waterman, R.H.
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SWOT analysis
To develop plans (goals and tools) of a company it is very
important to analyse its situation (figure).
A good technique for the evaluation of a firms’
situation is the SWOT analysis.
SWOT is an acronym for the internal Strengths and Weaknesses and
the environmental Opportunities and Threats of a firm.
A strength is a resource, skill, or other advantage relative
to the competitors, a weakness is a limitation or
deficiency in resources, skills and capabilities. An
opportunity is a major favourable situation, a threat is a
major unfavourable situation in a firm’s future
environment.
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Exercise
There are two food-shops in a block of houses.
Mr. A’s new shop is always open and shining. He
always welcome his customers (with an
accent). His portfolio (of products) is abundant.
Ms B’s shop is old and sometimes closed – but
well-known by all inhabitants of the block long
ago. The products on the stands are oldfashioned as well.
Develop the SWOT analysis of Mr A’s business!
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The SWOT analysis of Mr A’s business:
Strengths
Experiences in
entrepreneurship
Well found with capital
Well supplied with labour
Opportunities
Developing a modern
shop for all inhabitants
of the block
Weaknesses
Weak connections with
customers
Negligence of the
traditional demand
Threats
Rise of nationalism
Completions of SWOT
The M. Porter’s basic completion: during the
development of a strategies the analysis of
managerial and social interests is important as
well.
“Factors” (types of competitors) according to M.
Porter: The possible competitors can be not only
competitors of the given industry, but suppliers,
buyers, new entrants and producers of
substitute products as well.
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Main tasks of strategy development
A recommendation for the system of tasks in
strategy making:
Source: M. Porter
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Some types of strategic actions
Enterprise’s foundation, market entry of a
product, harvest, liquidation.
Product and technology development,
strengthening of market positions.
Rationalisation. Application of modern
management methods (IT, marketing, HR).
Outsourcing, strategic allience.
Integration: buy-out, merger, strategic alliance,
common enterprise.
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M. Porter’s types of product strategies:
Overall cost leadership involves trying to keep
costs as low as possible.
Differentiation is the process of setting the
firm’s product (his quality, style or services)
apart from those of other companies.
Targeting (niche strategy) occurs when a firm
attempts to focus on a highly specialized
market.
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BCG’s growth-share matrix
The product life-cycle refers to how sales volume
for a product changes during the purchase of this
product.
The stages of the life-cycle are the development
(market entry), growth, maturity and decline.
In most cases the product life-cycle has two
summits.
If a firm has more products (or businesses), it can
analyse its product „portfolio” (structure of its
offer) and the possible product strategies by the
help of a BCG matrix (figure).
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The form of a Boston Consulting Group’s
growth-share matrix is the following:
Market growth rate
Question marks
Dogs
0
Stars
Cash cows
Market share
The market-share of a firm (product, business) is the
proportion of its sales volume to the total sales on
the given market.
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The recommendations of the BCG analysis are based upon the
hypothesis that business strengths of a product can be described
by market share, and its market opportunities by growth.
In general new products are question marks. Their
market entry needs development and marketing
efforts (and the success is uncertain).
If development of a question mark is successful,
the product will be star. Continuous increase of
its sales often needs investments.
Products in the maturity are cash cows because of
their great profit.
Dogs are products in the stage of decline.
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The rational corporate strategy try to find new
question marks, develop stars from them, cash
cows from stars, and liquidate dogs.
It is important to have enough products in the first
mentioned three quadrants of the matrix.
The product development and investments can be financed only
from the profits of cash cows. Sooner or later the decline of cashcows’ sales being unavoidable, so, it is always important to
develop stars – and, for having stars, find question marks.
The analyse of the development possibilities of
cash-cow products (so, the search of a possible
new summit of the product life cycle) can be
useful as well.
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Exercise
A firm has 5 product groups: A, B, C, D, E. The
following data characterise their turnover:
Indexes
Firm’s turnover 2000
2004
Total turnover 2004
Data (1000 euros) of the product
A
B
C
D
E
100
200
80
500
50
130
200
96
540
60
260 1000 960 1350 240
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The calculation and the matrix are the following:
Growth rate, % (2/1)
Market share, % (2/3)
A
30
50
B
0
20
C
20
10
D
8
40
E
20
25
Growth rate
40
20
A
C
E
D
0
B
25
50
Market share
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Central European competitiveness
Economic growth is a statistical data about the
yearly change of the real GDP.
Development is a complex process, which can be
characterised by a system of indicators. Such a
system is the UN Human Development Report,
which contain data on the life expectancy at
birth, the number of illiterates etc.
Competitiveness of Central Europe is influenced
equally by some special human strengths and
weaknesses of development (photos).
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Fortified Saxon church, Bazna – Felsőbajom Source: own photo
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Source: own photo
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Strengths and weaknesses
GKI analysed influencing factors of countries’
competitiveness by factor analysis.
In the database was collected data of 40 countries
about 100 economic characteristics from World
Competitiveness Yearbook.
The basic formula of computations was the
following:
GDP/capita =
= GDP/working hours * working hours/capita
(productivity * working time of one employed in a year)
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Main statements of the analyse are as follows:
One third of the development level can be
explained by the average of the yearly working
hours (firs of all by the activity rate, table) , two
third by the productivity.
Activity rate: the total number of employed and unemployed (that is economically
active) persons as a percentage of the total population between the age of 15
and 74. Employed person: who worked one hour or more for pay during the
reference week (or had job to be temporarily absent from). Unemployed
person: who were not employed and had been looking for work actively in the
four weeks before the survey week.
The level of the productivity can be explained by the
culture of manpower (figure), the innovation
performance and the economic environment (first of all:
regulation - figures).
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Activity rate (%)
Male
Female
15-24
25-54
55-64
15-24
25-54
55-64
USA
63,6
90,5
68,7
58,7
75,3
56,3
EU-15
51,8
92,4
55,2
44,4
75,5
34,5
Hungary
26,3
80,5
36,4
24,3
71,0
25,8
Czech Republic
40,0
94,6
60,1
31,5
80,8
31,3
Poland
37,7
88,0
41,3
29,9
76,4
23,3
Slovak Republic
43,1
93,7
51,9
35,6
84,0
14,8
Source: OECD Employment Outlook, 2005
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Percentage of graduates in the 24-35 years old
population
Változás 2000-2005
(%pont)
Source: OECD: Education At a Glance 2006.
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Average percentage of taxes in wages, 2006
Source: OECD: Taxing Wages 2007.
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Administrative costs
Source: EC: Administrative Costs 2008.
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Thank you for your attention!