Download BA460-2 - University of Alaska system

Strategic Planning
Where are we?
M A N A G E M E N T
Situation/SWOT
Analysis
S I M U LA T I ON
The Big Picture
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Growth &
Competitive
Strategies
Functional
Integration
Functional
Integration
Marketing
Performance
Assessment
 Profits
 Mrkt Share
 ROA
R&D
 ROS
Production  ROE
 Asset T/O
 Stock
HR
 Mrkt Cap
Finance
Begun-Step # 1
Situation & SWOT Analysis
Company
Consumer
Competitors
Conditions
You are finding answers re:
How the market is segmented & the
Consumers
Competitors
relevant criteria that influence
consumers use in their purchasing
decisions
The nature & magnitude of the
competition
Existing & emerging Economic &
Conditions
Technological trends that will impact
demand, pricing, product design &
positioning
Your Company’s:
Situation & SWOT
Analysis answers
1st of 3 Critical
Questions:
Where
are we
now?
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?
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
Org. goals & objectives
encapsulated in Mission & Vision
Statement answers 2nd Question:
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?
Mission or Purpose is a precise
description of what an organization does.
It should describe the business the
organization is in. It is a definition of
“why” the organization exists
A vision is a statement about what your
organization wants to become …
A compelling description of the state and
function of the organization once it has
implemented and achieved the strategic
plan…
This week’s assignments
Select w/ which of the Six Basic Strategies
you are going to compete
 Draft- your Mission & Vision statements
Determine Functional Tactics & Objectives
 Marketing



Production


R&D
HR, TQM
Financial
Writing Mission &
Vision Statements
Avoid Mission
Myopia
Short
sightedness by
firms that
define their
business too
narrowly
Marketing Myopia Examples
Myopic Description:
 Railroad company
 Electricity company
 Television network
Broad Description:
 Transportation Co.
 Power company
 Entertainment
provider
Market Oriented Vision / Missions
COMPANY
PRODUCT-ORIENTED
MARKET-ORIENTED
VISION/MISSION STATEMENTS
VISION/MISSION
STATEMENTS
Revlon
We make cosmetics.
We sell hope…we accent a
lifestyle & self expression;
Disney
We run theme parks.
We make people happy..
by providing fantastic
experiences & entertainment
Philip Morris We Sell Cigarettes
We provide “Life's Simple
Pleasures.
Key objective areas








Market standing
Innovation
Productivity
Resource levels
Profitability
Manager performance & development
Worker performance & attitude
Social responsibility
Types of objectives







Profitability
Growth
Market share
Social
responsibility
Employee welfare
Product Quality
Service






R&D
Diversification
Efficiency
Financial
stability
Resource
conservation
Mgt & labor
development
Mission Statement
We will produce outstanding
financial returns by providing
totally reliable, competitively
superior, global, air-ground
transportation of high-priority
goods and documents that
require rapid, time-certain
delivery."
“PepsiCo’s overall mission is to increase the
value of our shareholders’ investment. We do
this through sales growth, cost controls and wise
investment of resources. We believe our
commercial success depends upon offering
quality and value to our consumers and
customers; providing products that are safe,
wholesome, economically efficient and
environmentally sound; and providing a fair
return to our investors while adhering to the
highest standards of integrity.”
Valuable
Capstone: Strategies & Mission Statements
http://www.bplans.com/dp/missionstatement.cfm
>Strategy & Vision Statements
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
“If you don’t know
where you are going
any route will get you
there.”
Chris Bartlett,
Harvard Business School
3rd Q- Encompasses
3 Levels of Strategy
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
Corporate
Growth Strategy
Business Unit
Competitive Strategy
Functional Strategies
R&D
Marketing
Finance
Production
Human
Resources
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
Once decided what
businesses to
compete in –need to
decide -
what Products &
Markets to compete
w/& in=
Growth Strategy
The Big Picture
Situation/SWOT
Analysis
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Functional
Integration
Performance
Assessment
Functional
Integration
Growth
&
Competitive
Strategies
Marketing
R&D
Production
HR
Finance
 Profits
 Mrkt Share
 ROA
 ROS
 ROE
 Asset T/O
 Stock
 Mrkt Cap
Growth Strategies
PRODUCT
Present
Present
Market
Penetration
New
Product
Development
MARKET
New
Market
Development
Diversification
To
Concentrate
or
Diversify…
that is the
question…
Concentrate on your primary line of
business
look for ways to meet growth objectives thru
increasing your level of operation in your
primary business
Market
Penetration
Increase market share among
existing customers.
Market
Development
Attract new customers
to existing products
Product
Development
Create new products
for present markets
Or Diversify…
Diversification
new products…
new markets… new alliances
Or Diversify…
P R O D U C TS
Present
Present
New
Market
Penetration
Product
Development
Market
Development
Diversification
M A R K E TS
New
Related Diversification
if opportunities exist to:
Transfer expertise/ capabilities/ technology
Combine related activities into single operation & reduce costs
Leverage use of firm’s brand name reputation
Product
Similarities
Operational
Skills-Capabilities
Related
Diversification
Similar
Technology
Customer
Profile
Distribution
Channels
Examples of Related Diversification

Darden Restaurants
–
–
–

Johnson & Johnson
–
–
–
–

Olive Garden
Red Lobster
Bahamas Breeze
Prescription drugs
Non-prescription drugs
(Tylenol, pepcid AC)
Band-aids
Baby products
PEPSICO
–
–
–
Soft drinks
Fruit Juices
Snack foods (Fritos, Lays,
Cracker Jacks)
Unrelated Diversification
Involves diversifying into businesses with
–
–
–


No strategic fit
No meaningful value chain relationships
No unifying strategic theme
Approach is to venture into “any business
in which we think we can make a profit”
Firms pursuing unrelated diversification are often
referred to as conglomerates
Examples of different levels of
Unrelated diversification

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
Diversification viaMerger & Acquisition
A popular approach to diversification- altho
only ~20% succeed --M&A activity in 2004 was worth
more than $1 trillion
Advantages


Quicker entry into target market
Easier to hurdle certain entry barriers
–
Technological inexperience
–
Gaining access to reliable suppliers
–
Being of a size to match rivals in terms of efficiency
and costs
–
Getting adequate distribution access
Diversification via-
Joint Ventures & Strategic Alliances
Good way to diversify when:
 Uneconomical/ risky to go it alone
 Pooling competencies for more
competitive strength
 Foreign partners needed to surmount
–
–
–
–
Import quotas and Tariffs
Nationalistic political interests
Cultural roadblocks
Lack of knowledge about markets in
particular countries
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?
 Competitive
Strategy is the
creation of a unique
& valuable position-
The position is based on– Performing
the
same activities as
competitors, but
differently
--or performing a
different set of
activities
• Porters Generic Strategies
•Strategies & Mission Statements
The Big Picture
Situation/SWOT
Analysis
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Functional
Integration
Performance
Assessment
Functional
Integration
Growth
&
Competitive
Strategies
Marketing
R&D
Production
HR
Finance
 Profits
 Mrkt Share
 ROA
 ROS
 ROE
 Asset T/O
 Stock
 Mrkt Cap
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
This week’s assignments
Select w/ which of the Six Basic
Strategies you are going to compete
 Draft- your Mission & Vision statements
Determine Functional Tactics & Objectives
 Marketing



Production


R&D
HR, TQM
Financial
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

Cost Leadership
Actions necessary to gain & maintain position:
1. Economies of scale thru utilization of
excess capacity.
2. Automation / utilization of robotics in
manufacturing processes.
3. Development of efficient distribution
networks.
4. Implementation of TQM (Total Quality
Management) initiatives.
Example: Dell
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
–
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
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
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
Actions necessary to gain / maintain position:
1. Developing innovative products/services
to broad range of customers.
2. Significant investments in R&D.
3. Capability to generate a series of
successful new products over time.
4. Development of flexible manufacturing
systems.
Example: Toyota
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
Differentiation:
Disadvantages
Difficulty in maintaining long-term
distinction in customers’ eyes
– Agile competitors can quickly
imitate
 Difficulty/expense of maintaining
premium pricing– requires
greater marketing costs

Broad
Niche
Differentiation Differentiation
Hi -Tech Focus
Differentiation
- PLC
Lo+Trad+Hi
match their 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.
… after divining strategy
still have task of
implementation & performance
Marketing Strategy
Organizational
Structure
Training & Reward
Programs
Human
Resources
Communicate
Implementation
Motivate
Coordinate
Marketing Performance
Climate and
Culture
The Recurring Problem…





Only 5% of workforce “on board” w/
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, 2000
Problem: 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
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
Forces you to make choices on what you will & won’t do
What makes a decision strategic?
 Multi-
functional in
scope &
consequences
 Requires choice
& trade-offs,
integration &
alignment
In order to execute & achieve selected growth &
competitive strategies--Need to coordinate decisions
across all Functional domains
Production
R&D
Marketing
Finance
HR
Examples of
Strategic Alignment
Functional Alignment: In Achieving Cost Efficiency
Functional Alignment: Implementing Differentiation Strategy
Functional Alignment: In Achieving Superior Innovation
Functional Alignment: Superior Customer Rlshps
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
Distinct Competencies
Competencies in
automation &
human
resources could
lead to a
competitive
advantage in
cost leadership.
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
Distinct Competencies
Competencies in
awareness,
accessibility &
design could
lead to a
competitive
advantage built
upon
differentiation
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!
Getting it together
Need to begin to
determine the
basic 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- your Mission & Vision statements
Determine Functional
Objectives & Tactics
 Marketing


R&D
Production


HR, TQM
Financial
Competitive
Strategy:ND
Strategic Objectives
Marketing Spend aggressively in promotion & sales in Hitech segments…. make our
products easy for customers to find. .. price at a premium. In the low tech
segments we”ll exit gracefully, … as they exit the Low End
R&D
We will keep our existing HiTech products (HI, PRF, & SIZE), phase out TRAD
and LO, and introduce a new brand in the High End segment. Our goal is to offer
technology oriented customers products that match their ideal criteria for
positioning, age, and reliability
Production Grow capacity to meet demand … avoid overtime After products well positioned,
investigate modest increases in automation levels to improve margins, but keep
ability to reposition products
HR
Spend aggressively on recruitment, training; minimize labor T/O w/ +wage &
benefit packages; Focus TQM & Process initiatives on reducing labor & material
costs, R&D time and enhancing effectiveness of promo & sales budgets…
Finance
We”ll finance investments primarily thru stock issues, retained earnings,
supplement w/ bond offerings as needed .. When our cash position allows- issue
dividends & retire stock.-We are adverse to debt & prefer to avoid interest
payments. We’ll keep assets/equity (leverage) betw. 1.5 - 2.0. We measure
performance w/ ROS, Asset T/O,& ROA.
Competitive
Strategy:ND
Marketing
Tactics Year 1
TRAD – increase price, make modest cuts in promotion and sales budget.
Forecast a modest reduction in unit sales compared to last year.
Example: price $28.50, promotion budget $600, sales budget $600, and
sales forecast 1000.
LO – increase price, make modest cuts in promotion and sales budget.
Forecast a modest reduction in unit sales compared to last year.
Example: $23.50, promotion budget $600, sales $800, and sales
forecast 1400.
HI – increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $39.50, promotion budget $1900, sales $1900, sales
forecast 400.
PRF – increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $34.50, promotion budget $1900, sales $1900, sales
forecast 440.
SIZ –increase price, promotion budget and sales budget. Forecast flat unit
sales. Example: $34.50, promotion budget $1700, sales $1700, sales
forecast 390.
New HI – no action required because the product will not emerge from R&D
until next year.
Competitive
Strategy:ND
R&D
Tactics Year 1
TRAD – tweak positioning to reduce age. Reduce reliability to reduce
material cost. Example: Increase Performance by 0.1 and reduce
MTBF by 1000 hours.
LO – leave positioning alone, allowing the product to age further. Reduce
reliability to reduce material cost. Example: reduce MTBF by 1000
hours..
HI– improve positioning and reduce age. Hold reliability (MTBF) steady.
Example: reduce Size by 1.2, and increase Performance by 1.2.
PRF – improve positioning and reduce age. Improve reliability to enhance
demand. Example: Increase Performance by 1.4, reduce Size by 0.5,
and increase MTBF by 1000 hours.
SIZE – improve positioning and reduce age. Hold reliability (MTBF) steady.
Example: Reduce Size by 1.4, and increase Performance by 0.5.
New HI – Launch a new High End product, with a project length of 20 to 23
months (no later than December of next year.) Example: positioned
at leading edge of High End segment, -- Performance 10.2, Size 9.8.
Set MTBF in the middle of the High End reliability range: MTBF
23,000.
TACTICS -Example: decision matrix- to
add a new High End product…
What= A New product- Size coordinate = 10.
Performance coordinate = 11. MTBF = 25,000
R&D
hours. When Due out in 2009
What= Competitively Price @ $35. Promo :target
68% Awareness (50% @intro +18% will cost=$2M)
MARKETING vehicle-allocation= web, email & Trade Shows.
maintain hi-level Distribution w/ Sales budget =
$1.4M
When 2009.
What Produce 75,000 units at automation level of 3.
PRODUCTION When Ready by second month of 2009. How
Purchase capacity in 2008.
What make appropo investments in recruiting &
training and TQM
HR
FINANCE
What Finance $11M. When NOW. How Issue long
term debt.
- No "magic bullet " guaranteed winning strategy. Each
simulation has a unique competitive dynamic.
Successful contingent on
planning, strategic alignment,
teamwork, competitor
analysis, & tactical
adjustments.
• Poor tactics undermine a good strategy
• Good tactics can overcome a “losing” strategy