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“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