Download BA460-2 - University of Alaska system

“If you don’t know
where you are going
any road will get you
there.”
Lewis Carroll,
between Alice & the Cheshire Cat -- Chapter 6, Alice in Wonderland
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
Strategic Planning
Forces you to make choices on what you will & won’t do
Definition: Strategic Planning=
A series of goal-directed
decisions & actions
matching your skills &
resources (strengths &
weaknesses)
w/ market threats &
opportunities
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
The Big Picture
Situation/SWOT
Analysis
Strategic
Planning
•Company
•Consumers
•Competitors
•Conditions
• PEST
Growth &
Competitive
Strategies
Functional
Integration
Performance
Assessment
Functional
Integration
 Profits
Marketing  Mrkt Share
 ROA
R&D
 ROS
Production  ROE
 Asset T/O
 Stock
HR
 Mrkt Cap
Finance
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?
Sensors Unit
Corporation
Nano-Tech Unit
STRATEGIC
STRATEGIC
BUSINESS
BUSINESS
UNIT #1
#1
UNIT
COMPETITOR
COMPETITOR
B
B
STRATEGIC
BUSINESS
UNIT #3
STRATEGIC
BUSINESS
UNIT #2
MARKET
COMPETITOR
COMPETITOR
A
A
Consumer
Security Services
COMPETITOR
COMPETITOR
C
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
Select one of the
Six
Basic Strategies
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
–
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
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
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?
What makes a decision strategic?
 Multi-
functional in
scope &
consequences
 Requires choice
& trade-offs,
integration &
alignment
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
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
M A RKETING
M G T.
S I M U LA T I ON
M A RKETING
M G T.
Moving Product
S I M U LA T I ON
Media Expenditure
& Vehicle selection
 Composition &
Brand Weighting in
Distribution Channels
 Optimal Pricing &
Credit Terms
M A RKETING
M G T.
S I M U LA T I ON
Advertising Budget Drives
Awareness
$3M buys
49%
New products are newsworthy events. The buzz creates 25% awareness at no cost.
M A RKETING
M G T.
Sales Budget Drives Access
S I M U LA T I ON
$3M buys ~31% (w/1 product)
33% (w/ 2+ products)
M A RKETING
M G T.
S I M U LA T I ON
Fine tuning
your Promo,
Sales &
Pricing…
M A RKETING
M G T.
S I M U LA T I ON
Promo Budget
M A RKETING
M G T.
Sales Budget & Time
Allocations
S I M U LA T I ON
Decide on how many F2F
salespersons, Webstirs, Customer
support & Distributors…will have:
How much effort will be
focused on Individual
Brands w/in channels:
• OUTSIDE sales-meet face-to-face (cost $120K/each)
• INSIDE sales-works leads & operates website & customer
support systems (cost $50K/each)
• Distributors: push product (cost $100K/each)
M A RKETING
M G T.
Pricing / Credit terms
S I M U LA T I ON
A/R Lag: (in days) is the time between
customers receiving products & when they
are expected to pay for ‘em
• No credit - demand falls to~ 65% of normal.
• At 30 days - demand is 92%.
• At 60 days - demand is 98.5%
• At 120 days - demand is 100%.
The longer the lag, the more your cash is
tied up in receivables.
M A RKETING
M G T.
S I M U LA T I ON