BA460-2

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Strategic Planning
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Definition Strategic Planning

• A series of goal-directed decisions actions
• MATCHING your skills resources (strengths
  weaknesses)
• w/ market threats opportunities

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Strategic Planning
LONG RUN PROFITABILITY AND GROWTH
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Where are we- in course?
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The Big Picture
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Begun-Step 1
Situation SWOT Analysis
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Situation SWOT Analysis answers 1st of 3
Critical Questions Where are we now- as a
company?
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You are finding answers re

• How the market is segmented the relevant
  criteria that influence consumers use in their
  purchasing decisions
• The nature magnitude of the competition
• Existing emerging Economic Technological
  trends that will impact demand, pricing, product
  design positioning

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AND-Your Company
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Strategic Planning answers next 2 critical Qs

• 2.Where do we want to go?
• 3.How do we get there?

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Corp. Mission Vision

• 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?

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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
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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
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• If you dont know where you are going
• any route will get you there. Chris
  Bartlett,Harvard Business School

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3rd Q- Encompasses 3 Levels of Strategy
Corporate-Level In what business should we
compete?
Business-Level How should we compete?
Functional-Level How do we coordinate?
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Level 1-Corporate Strategy
In which businesses do we compete?
Corporation
?
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Once decided what businesses to compete in need
to decide -

• what Products Markets to compete w/ in
• Growth Strategy

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The Big Picture

• Company
• Consumers
• Competitors
• Conditions
• PEST

Functional Integration
Growth Competitive Strategies

• Profits
• Mrkt Share
• ROA
• ROS
• ROE
• Asset T/O
• Stock
• Mrkt Cap

Marketing
RD
Production
HR
Finance
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Growth Strategies
P R O D U C T
Present
New
Market Penetration
ProductDevelopment
Present
M A R K E T
Diversification
Market Development
New
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To Concentrate or Diversify that is the
question
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Concentrate on your primary line of business
look for ways to meet growth objectives thru
increasing your level of operation in your
primary business
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2nd Level of Strategy
Corporate Level
Business unit Level
Functional strategy
Research development
Information systems
Manufacturing
Finance
Marketing
Human resources
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Level 2 Business Unit Strategy How do we
Compete?
Focus?
Price?
Quality?
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What Advantage can we create sustain against
our competitors?
w/in which Market Segments should we compete?
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• 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

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The Big Picture

• Company
• Consumers
• Competitors
• Conditions
• PEST

Functional Integration
Growth Competitive Strategies

• Profits
• Mrkt Share
• ROA
• ROS
• ROE
• Asset T/O
• Stock
• Mrkt Cap

Marketing
RD
Production
HR
Finance
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You can Formulate Strategy based on what
Competitive advantage you focus on
Differentiation Deliver unique superior value
in terms of product quality, features, service
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You can Formulate Strategy thru your Competitive
Scope
Number Nature of segments compete w/in-
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Generic Strategies
Competitive Advantage
Cost
Uniqueness
Cost Leadership
Broad Differentiation
Broad target
Competitive Scope
Focused Cost Leadership
Focused Differentiation
Narrow target
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You can also Formulate Strategy by-Riding a
Products Life Cycle

• Adjust Marketing Mix according to natural Drift
  of products w/in segments-

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Put them all together

1. Cost/Quality Differentiation
2. Number nature of segments compete w/in
3. Riding the Product Life Cycle

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Competitive Strategy Matrix
Number nature of segments compete w/in
Ride Product LifeCycle
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3
Broad Market
Niche Mrkt
Evolving Mrkt
Compete on


Cost
1
Product Quality
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Competitive Strategy Matrix
Broad Mrkt
Niche Mrkt
Evolving Mrkt
Compete on
Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi
Differentiator- Differentiator Hi- End Focus Differentiator- PLC LoTradHi
Cost
Product Quality
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This weeks assignments

• Select w/ which of the Six Basic Strategies you
  are going to compete
• Draft- your Mission   Vision statements
• Determine Functional Tactics Objectives
• Marketing
• RD
• Production
• HR, TQM
• Financial

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Cost Leadership Strategic Choices

• A cost leader does not try to be industry
  innovator
• The overriding goal is- increased efficiency
  lower costs relative to rivals
• Will seek to minimize costs in marketing, RD
  production

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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
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Business-Level StrategyCost Leadership

• Advantages
• A cost leader is able to charge lower prices
• Even at same price more efficient cost leader
  generates greater profitability

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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• An overall cost leader will attempt to be
  low-cost producer in every segment of the market.

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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• -- seeks to dominate the price sensitive market
  segments.
• --sets prices below all competitors and still
  be profitable

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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• Products will be allowed to age change in
  appeal from High End, to Traditional, and
  eventually Low End buyers.

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Competitive Strategy Matrix
Broad Mrkt
Niche Mrkt
Evolving Mrkt
Compete on
Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi
Differentiator- Differentiator Hi- End Focus Differentiator- PLC LoTradHi
Cost
Product Quality
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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

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Differentiator

• Will have significant expenditures in RD
  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.

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Differentiation
Actions necessary to gain / maintain
position 1. Developing innovative
products/services to broad range of customers. 2.
Significant investments in RD. 3. Capability
to generate a series of successful new products
over time. 4. Development of flexible
manufacturing systems. Example Toyota
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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

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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

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Broad Differentiation Niche Differentiation Hi -Tech Focus Differentiation - PLC LoTradHi
match their ideal criteria for positioning, age,
and reliability.
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3rd Level of Strategy
Corporate Level
Business unit Level
Functional Strategy
Research development
Information systems
Manufacturing
Finance
Marketing
Human resources
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Level 3 Functional Strategy
How do we coordinate?
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The Big Picture

• Company
• Consumers
• Competitors
• Conditions
• PEST

Marketing
Growth Competitive Strategies

• Profits
• Mrkt Share
• ROA
• ROS
• ROE
• Asset T/O
• Stock
• Mrkt Cap

RD
Production
HR
Finance
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INTERNAL STRATEGIC ALIGNMENT
FINANCE
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
PRODUCTION
MARKETING
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For INTERNAL STRATEGIC ALIGNMENT to occur

• Marketing/RD must be operating in a manner that
  is complementary to Production
• Which is complementary to Human Resources
• Which is complementary to Finance.

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after divining strategy still have task of
implementation performance
Marketing Strategy
Organizational Structure
Human Resources
Marketing Performance
Communicate Motivate Coordinate
Climate and Culture
Training Reward Programs
Implementation
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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 lt1 hour/ month
  discussing strategy
• 90 fail to execute strategy successfully

Robert S. Kaplan and David P. Norton The
Strategy-Focused Organization, 2000
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Problem Separation of Strategic Planning
Marketing Implementation
Very Much
Strategic Planning

• Commitment
• Understanding
• Responsibility

Time Spent
Strategy Implementation
Very Little
Chief Executive Officer
Mid-level Managers
Customer Contact
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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
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Forces you to make choices on what you will
wont do
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What makes a decision strategic?

• Multi-functional in scope consequences
• Requires choice trade-offs, integration
  alignment

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In order to execute achieve selected growth
competitive strategies--Need to coordinate
decisions across all Functional domains
Production
RD
Marketing
HR
Finance
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Examples of Strategic Alignment
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Functional Alignment In Achieving Cost
Efficiency
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Functional Alignment Implementing
Differentiation Strategy
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Functional Alignment In Achieving Superior
Innovation
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Functional Alignment Superior Customer Rlshps
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• 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 Competencies
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Distinct competencies needed to achieve selected
competitive strategy
Competitive Advantage
Distinctive Competencies
Achieved when you sustain profits above
Industry Average
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Areas in which you can develop Distinct
Competencies

• MARKETING Awareness Accessibility
• RD Product innovation design
• PRODUCTION Plant Automation utilization
• Human Resources Worker Expertise Training

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Distinct Competencies
Competencies in automation human resources
could lead to a competitive advantage in cost
leadership.
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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
Production Automation - pursued early aggressively Capacity improvements unlikely (may run overtime instead)
Marketing Spend moderately on promotion sales
RD Spend minimally on RD
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Distinct Competencies
Competencies in awareness, accessibility design
could lead to a competitive advantage built upon
differentiation
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Differentiator

• Seeks to create maximum awareness brand equity.
  
• Wants to be well known as a maker of high
  quality/highly desirable products

Functional Alignment
Production 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
RD High RD spending - keep products fresh
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• 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

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RD and Production breakdown

• You develop a new product but forget to buy plant
  equipment for itthe year before it is to be
  launched

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Marketing, Production Finance out of sync

• The company takes an emergency loan because
  inventory levels increase

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Marketing, RD, and Production out of sync

• You reposition a product from the High End to the
  Traditional segment, but do not address their
  material labor costs

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Everybody is out of sync!

• Financial decisions are made before knowing the
  budget demands of all RD, Marketing and
  Production decisions

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This weeks assignments

• Select w/ which of the Six Basic Strategies you
  are going to compete
• Draft- your Mission   Vision statements
• Determine Functional Tactics Objectives
• Marketing
• RD
• Production
• HR, TQM
• Financial

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Writing Mission Vision Statements
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Avoid Mission Myopia
Short sightedness by firms that define their
business too narrowly
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Marketing Myopia Examples

• Broad Description
• Transportation Co.
• Power company
• Entertainment provider

• Myopic Description
• Railroad company
• Electricity company
• Television network

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Market Oriented Vision / Missions
PRODUCT-ORIENTED VISION/MISSION STATEMENTS
MARKET-ORIENTED VISION/MISSION STATEMENTS
COMPANY
Revlon We make cosmetics. Disney We run theme
parks. Philip Morris We Sell Cigarettes
We sell hopewe accent a lifestyle self
expression
We make people happy.. by providing fantastic
experiences entertainment
We provide Life's Simple Pleasures
Altria
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Types of objectives

• RD
• Diversification
• Efficiency
• Financial stability
• Resource conservation
• Mgt labor development

• Profitability
• Growth
• Market share
• Social responsibility
• Employee welfare
• Product Quality
• Service

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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."
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PepsiCos 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.
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Valuable
Capstone Strategies Mission Statements
http//www.bplans.com/dp/missionstatement.cfm

• gtStrategy Vision Statements

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Getting it together
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• 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

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This weeks assignments

• Select w/ which of the Six Basic Strategies you
  are going to compete
• Draft- your Mission   Vision statements
• Determine Functional
• Objectives Tactics
• Marketing
• RD
• Production
• HR, TQM
• Financial

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Competitive StrategyND 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 well exit gracefully, as they exit the Low End
RD 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, RD time and enhancing effectiveness of promo sales budgets
Finance Well 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. Well keep assets/equity (leverage) betw. 1.5 - 2.0. We measure performance w/ ROS, Asset T/O, ROA.
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Competitive StrategyND Tactics Year 1
Marketing 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 RD until next year.
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Competitive StrategyND Tactics Year 1
RD 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.
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TACTICS -Example decision matrix- to add a new
High End product
RD What A New product- Size coordinate 10. Performance coordinate 11. MTBF 25,000 hours. When Due out in 2009
MARKETING What Competitively Price _at_ 35. Promo target 68 Awareness (50 _at_intro 18 will cost2M) vehicle-allocation web, email Trade Shows. maintain hi-level Distribution w/ Sales budget 1.4M When 2009.
PRODUCTION What Produce 75,000 units at automation level of 3. When Ready by second month of 2009. How Purchase capacity in 2008.
HR What make appropo investments in recruiting training and TQM
FINANCE What Finance 11M. When NOW. How Issue long term debt.
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- No "magic bullet " guaranteed winning
strategy. Each simulation has a unique
competitive dynamic.
Successful contingent on planning, strategic
alignment, teamwork, competitor analysis,
tactical adjustments.