Planning and Strategy:

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Guest Lecture
Planning and Strategy The future of a firm
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What is Strategic Planning?

• Strategic planning is long-term planning that
  focuses on the organization as a whole. The
  question is what must be done in the long term to
  attain organizational goals.
• Strategy is defined as a broad and general plan
  developed to reach long-term objectives. Strategy
  is actually the end result of strategic planning.
  A strategy must be consistent with organizational
  objectives, which in turn must be consistent with
  organizational purpose.

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Strategic Process

• It is the process of ensuring that an
  organization possesses and benefits from the use
  of an appropriate organizational strategy. The
  process is generally thought to consist of five
  sequential and continuing steps
• Environmental analysis
• Establishment of an organizational direction
• Strategy formulation
• Strategy implementation
• Strategy control

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Environment Analysis

• Environmental analysis is the study of the
  organizational environment to pinpoint
  environmental factors that can significantly
  influence organizational operations.
• Managers commonly perform environmental analysis
  to help them understand what is happening both
  inside and outside their organizations. They can
  then increase the probability that the
  organizational strategies they develop will
  appropriately reflect the organizational
  environment.

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Environmental Factors

• The general environment is the level of an
  organizations external environment that contains
  components normally having broad long-term
  implications for managing the organization its
  components are economic, social, political,
  legal, and technological. Several concepts are
  important in the study of the general
  environment.
• Economics is the science that focuses on
  understanding how people of a particular
  community or nation produce, distribute and use
  various goods and services.

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• The social component is part of the general
  environment that describes the characteristics of
  the society in which the organization exists.
  Demographics are the statistical characteristics
  of a population. Social values are the relative
  degrees of worth society places on the manner in
  which it exists and functions. Over time,
  demographics and social values change.
• The political component is the part of the
  general environment related to government
  affairs. The legal component refers the
  legislation, and the existing sets of laws and
  regulations. The technology component includes
  new approaches to producing goods and services.

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• The operating environment is the level of the
  organizations external environment that contains
  components normally having relatively specific
  and immediate implications for managing the
  organization. Major components include customers,
  competition, labour, suppliers, and international
  issues. The international component is the
  operating environment segment that is composed of
  all the factors relating to the international
  implications of organizational operations.

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• The internal environment is the level of an
  organizations environment that exists inside the
  organization and normally has immediate and
  specific implications for managing the
  organization. In broad terms, the internal
  environment includes marketing, finance, and
  accounting. From a more specific management
  viewpoint, it includes planning, organizing,
  influencing, and controlling within the
  organization.

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Establishing Organizational Direction

• The organization mission is the purpose for
  which, or the reason why, an organization exists.
  Organizational mission is a very broad statement
  of organizational direction and is based upon a
  thorough analysis of information generated
  through environmental analysis. A mission
  statement is a written document developed by
  management, normally based on input by managers
  as well as non-managers, which describes and
  explains the organizations mission.
• Organizational objectives must reflect and flow
  naturally from an organizational mission.

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The Chinese University of Hong Kong

• To be acknowledged locally, nationally and
  internationally as a first-class research
  university whose bilingual and bicultural
  dimensions of student education, scholarly output
  and contribution to the community consistently
  meet standards of excellence.
• To assist in the preservation, creation,
  application and dissemination of knowledge by
  teaching, research and public service in a
  comprehensive range of disciplines, thereby
  serving the needs and enhancing the well-being of
  the citizens of Hong Kong, China as a whole, and
  the wider world community.

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PCCW

• Attract the best talent as the employer of choice
  
• Create and capture growth opportunities in the
  global New Economy
• Deliver innovative services that enhance the
  lifestyles and businesses of our customers
• Be the preferred partner to develop and propel
  focused businesses that achieve our vision
• Be the pre-eminent channel for prudent
  institutional investment

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Changes of Vision and Mission

• Julius Rosenwald acquired the control of Sears,
  Roebuck Co., in 1985. He started the regular,
  factual mail-order catalog and adopted the policy
  of satisfaction guaranteed or your money back.
  Sears became the world largest mail order plant
  at the earlier 20th century.
• By the mid 1920s, major highways were built to
  link up cities passing through rural areas.
  Farmers were no longer isolated, since
  automobiles became affordable. General Robert E.
  Wood developed the vision of quality at a good
  pricethe mass merchandiser for middle America.
• By the 1970s, new entrepreneurs recognised much
  earlier than Sears the concept of discount
  merchandising goods. Sam Waltons Wal-Mart stores
  emphasise value for customers. Sears has been
  replaced by Wal-Mart as Americas largest
  merchandiser

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Organizational Objectives

• Organisational objectives are the targets set out
  for the organization. Organisational input,
  process, and output are required to reach
  organisational objectives. Organisational
  objectives reflect the purpose (mission) of the
  organisation.
• Peter F. Drucker indicates that the very survival
  of a management system may be endangered if
  management emphasises only a profit objective.
  This single objective emphasis encourages
  managers to take action that will make money
  today with little regard for how a profit will be
  made tomorrow.

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• Peter Drunker proposed a multi-objective
  framework
• Marketing standing Market share is the ratio of
  dollar sales of an organisation in a particular
  market to the total sales of all competitive
  products and services in that market.
• Innovation Most successful companies, especially
  in the areas of technology where most engineers
  will work, are continually searching for new
  products and services. 3M, for example, requires
  of its 40-odd divisions that at least 25 of
  sales be of products introduced in the last five
  years.

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• Productivity Productivity measures an
  organisations ability to produce more goods and
  services per unit of input (labour, materials,
  and investment).
• Physical financial resource An organisation
  needs to establish goals for the resources
  (plant, equipment, inventory, and capital) it
  needs to perform effectively.
• Profitability The profitability of an
  organisation is essential to its continuation,
  and the desired level should be set explicitly as
  an objective against which to measure
  organisation success.
• Managerial performance development Since good
  management is the key to organisational success,
  effective firms plan carefully to assure that
  managers will be available in the years ahead in
  the quality and quantity needed for the
  organisation to prosper.

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• Worker performance attitude Todays more
  educated work force has much to offer the company
  that knows how to motivate it and challenge it
  effectively.
• Social responsibility Every organisation has
  responsibilities as a corporate citizen that
  extend beyond the legal and economic
  requirements. These include responsibility to
  customers, employees, suppliers, community, and
  society as a whole. The organisation that does
  not at least take responsibility for its effect
  on the environment deserves to be penalised by
  society

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Strategy Formulation Tools

• Strategy formulation is the process of
  determining appropriate courses of action for
  achieving organizational objectives and thereby
  accomplishing organizational purpose. Tools
  commonly used are
• Critical question analysis
• SWOT analysis
• Business portfolio analysis
• Porters model for industry analysis

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Critical Question Analysis

• Critical question analysis is a strategy
  development tool that consists of answering basic
  questions about the present direction and
  environment, and actions that can be taken to
  achieve organizational objectives in the future.
  Four basic questions are typically addressed
• What are the purposes and objectives of the
  organization?
• Where is the organization presently going?
• In what kind of environment does the organization
  now exist?
• What can be done to better achieve organizational
  objectives in the future?

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SWOT Analysis

• SWOT analysis is a strategy development tool that
  matches internal organizational strengths and
  weaknesses with external opportunities and
  threats.
• A strength is something a company is good at
  doing or a characteristic that gives it an
  important capability. A companys internal
  strengths usually represent competitive assets.
• A weakness is something a company lacks or does
  poorly or a condition that puts it at a
  disadvantage. A companys internal weaknesses
  usually represent competitive liabilities.

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Strengths and Weaknesses

• Successful strategists seek to capitalise on what
  a company does best. One of the trade secrets
  of first-rate strategic management is
  consolidating a companys technological,
  production, and marketing know-how into core
  competencies that enhance its competitiveness. A
  core competence is something a company does
  especially well in comparison to its competitors.
  Typically, a core competence relates to a set of
  skills, expertise in performing particular
  activities, or a companys scope and depth of
  technological know-how. It resides in a companys
  people, not assets.

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Examples of Strengths and Weaknesses

• Potential Internal Strengths
• Core competencies in key areas
• Adequate financial resources
• Well-thought-of by buyers
• An acknowledged market leader
• Well-conceived functional area strategies
• Access to economies of scale
• Insulated from strong competitive pressures
• Proprietary technology
• Cost advantages
• Better adverting campaigns
• Product innovation skills
• Proven management
• Ahead on experience curve
• Better manufacturing capability
• Superior technological skills
• Others?

• Potential internal weaknesses
• No clear strategic direction
• Obsolete facilities
• Lack of managerial depth and talent
• Missing some key skills or competencies
• Poor track record in implementing strategy
• Plagued with internal operating problems
• Falling behind in RD
• Too narrow a product line
• Weak market image
• Weak distribution network
• Below average marketing skills
• Unable to finance needed changes in strategy
• Higher overall unit costs relative to key
  competitors

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Opportunities

• Marketing opportunity is a big factor in shaping
  a companys strategy. Not all industry
  opportunities are relevant to a company. The
  industry opportunities most relevant to a
  particular company are those that offer important
  avenues for profitable growth, those where a
  company has the most potential for competitive
  advantage, and those which the company has the
  financial resources to pursue.

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Threats

• Threats can stem from the emergence of cheaper
  technologies, rivals introduction of new or
  better products, the entry of low-cost foreign
  competitors into a companys market stronghold,
  new regulations that are more burdensome to a
  company than to its competitors, vulnerability to
  a rise in interest rates, the potential of a
  hostile takeover, unfavourable demographic
  shifts, adverse changes in foreign exchange
  rates, etc.

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Examples of Opportunities and Threats

• Potential External Opportunities
• Ability to serve additional customer groups or
  expand into new markets or segments
• Ways to expand product line to meet broader range
  of customer needs
• Ability to transfer skills or technological
  know-how to new products or businesses
• Integrating forward or backward
• Falling trade barriers in attractive foreign
  markets
• Complacency among rival firms
• Ability to grow rapidly because of strong
  increases in market demand
• Emerging new technologies
• Others?

• Potential External Threats
• Entry of lower-cost foreign competitors
• Rising sales of substitute products
• Slower market growth
• Adverse shifts in foreign exchange rates and
  trade policies of foreign governments
• Costly regulatory requirements
• Vulnerability to recession and business cycle
• Growing bargaining power of customers or
  suppliers
• Changing buyer needs and tastes
• Adverse demographic changes
• Other?

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Business Portfolio Analysis

• Business Portfolio Analysis is the development of
  business related strategy based primarily on the
  market share of businesses and the growth of
  markets in which businesses exist. Two business
  portfolio tools are the BCG Growth-Share Matrix
  and the GE Multifactor Portfolio Matrix.
• The BCG Growth-Share Matrix The Boston
  Consulting Group (BCG) developed and popularised
  a portfolio analysis tool that helps managers
  develop organizational strategy based upon market
  share of businesses and the growth of markets in
  which businesses exist.

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• The first step is identifying the organizational
  strategic business units (SBUs). A strategic
  business unit is a significant organization
  segment that is analysed to develop
  organizational strategy aimed at generating
  future business or revenue. A SBU is a single
  business or collection of related businesses, has
  its own competitors, has a manager, and can be
  independently planned for.

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• The next step is to categorize each SBU within
  one of four matrix quadrants
• Stars have a high share of a high-growth market
  and typically need large amounts of cash to
  support their rapid and significant growth.
• Cash cows have a large share of a market that is
  growing only slightly.
• Question marks have a small share of a
  high-growth market. In this case, it is uncertain
  what management should do.
• Dogs have a relatively small share of a
  low-growth market.

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The BPA Framework
Question Marks
Stars
High
Market Growth Rate
Dogs
Cash Cows
Low
Low
High
Relative Market Share
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Limitations of BPA

• Although this has been widely used, it suffers
  several pitfalls. The matrix does not consider
  such factors as
• various types of risk associated with product
  development,
• threats that inflation and other economic
  conditions can create in the future, and
• social, political, and ecological pressures.

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The GE Multifactor Portfolio Matrix

• This matrix helps managers develop organizational
  strategy that is based primarily on market
  attractiveness and business strengths.

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Business Strength
High
Low
Medium
1
2
3
4
5
4
High
Industry Attractiveness
Medium
3
Low
I Invest/grow S Selective Investment H
Harvest/divest
2
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• Each of the organizations businesses or SBUs is
  plotted on a matrix in two dimensions Industry
  attractiveness and business strength.
• Industry attractiveness might be determined by
  such factors as the number of competitors in an
  industry, the rate of industry growth, and the
  weakness of competitors within an industry.
• Business strengths might be determined by such
  factors as a companys financially solid
  position, its good bargaining position over
  suppliers, and its high level of technology use.

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• Circles represent a company line of business or
  SBU. In a circle, a shaded portion represents the
  proportion of the total SBU market that a company
  has captured. A company has to determine its
  strategy in each circle. Circles at the low and
  right most section of the matrix are candidate
  for divestitute.

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Michael E. Porters Competitive Model

• We show a five forces model of competition
• The rivalry among competing sellers in the
  industry
• The market attempts of companies in other
  industries to win customers over to their own
  substitute products
• The potential entry of new competitors
• The bargaining power and leverage exercisable by
  suppliers of inputs
• The bargaining power and leverage exercisable by
  buyers of the products

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Firms in other industries offering substitute
products
Competitive pressures coming form the market
attempts of outsiders to win buyers over to their
products.
RIVALRY AMONG COMPETING SELLERS Competitive
forces created by jockeying for better market
position and competitive edge
Competitive pressures growing out of ability to
exercise bargaining power and leverage.
Competitive pressures growing out of ability to
exercise bargaining power and leverage.
Buyers
Suppliers of Key Inputs
Competitive pressures coming from the threat of
entry of new rivals.
Potential New Entrants
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Rivalry

• Rivalry emerges because one or more competitors
  see an opportunity to better meet customer needs
  or is under pressure to improve its performance.
  The big complication in most industries is that
  the success of any one firms strategy hinges on
  what strategies its rivals employ and the
  resources rivals are willing and able to put
  behind their strategic efforts. Also the
  intensity and pressure of competition shift over
  time. Regardless of the industry, several common
  factors seem to influence the tempo of rivalry
  among competing sellers

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• Rivalry intensifies as the number of competitors
  increases and as competitors become more equal in
  size and capabilities.
• Rivalry is usually stronger when demand for the
  product is growing slowly.
• Rivalry is more intense when industry conditions
  tempt competitors to use price cuts or other
  competitive weapons to boost unit volume.
• Rivalry is stronger when customers costs to
  switch brands are low.

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• Rivalry is stronger when one or more competitors
  is dissatisfied with the market position and
  launches moves to bolster its standing at the
  expense of rivals.
• Rivalry increases in proportion to the size of
  the payoff from a successful strategic move.
• Rivalry tends to be more vigorous when it costs
  more to get out of a business than to stay in and
  compete.

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• Rivalry becomes more volatile and unpredictable
  the more diverse competitors are in terms of
  their strategies, personalities, corporate
  priorities, resources, and countries of origin.
• Rivalry increases when strong companies outside
  the industry acquire weak firms in the industry
  and launch aggressive, well-funded moves to
  transform their newly acquired competitors into
  major market contenders.

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New Entrants

• New entrants to a market bring new production
  capacity, the desire to establish a secure place
  in the market, and sometimes substantial
  resources with which to compete. The degree of
  threats from new entrants depends on the nature
  of barriers of entry. There are several types of
  entry barriers
• Economies of scale Scale economies deter entry
  because they force potential competitors either
  to enter on a large scale basis or to accept a
  cost disadvantage.
• Inability to gain access to technology and
  specialised know-how.

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• The existence of learning and experience curve
  effects When lower unit costs are partly or
  mostly a result of experience in producing the
  product and other learning benefits, new entrants
  face a cost disadvantage.
• Brand preferences and customer loyalty.
• Capital requirements.
• Cost disadvantages independent of size.
• Access to distribution channels.
• Regulatory policies, Tariffs and trade
  restrictions.

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Substitute

• Firms in one industry are quite often in close
  competition with firms in another industry
  because their respective products are good
  substitutes. Competitive pressures from
  substitute products operate in several ways.
  Their price is a ceiling. Their presence allow
  customers to compare quality and performance.
  Their threats depends on switching cost.

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Suppliers

• Whether the suppliers to an industry are a weak
  or strong competitive force depends on market
  conditions in the supplier industry and the
  significance of the item they supply. Suppliers
  have market power only when supplies become tight
  and users are so anxious to secure what they
  need. Suppliers have less leverage when the
  industry they are supplying is a major customer

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Customers

• The competitive strength of buyers can range from
  strong to weak. The bigger buyers are and the
  larger the quantities they purchase, the more
  clout they have in negotiating with sellers.
  Buyers also gain power when the costs of
  switching to competing brands or substitutes are
  relatively low.

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Strategy Formulation

• Based on Porters model, three generic strategies
  may be used
• Differentiation is a strategy that focuses on
  developing a product or products that customers
  perceive as being different from products offered
  by competitors. Differentiation includes
  uniqueness in such areas as product quality,
  design, and level of after-sale service.
• Cost leadership is a strategy that focuses on
  producing products more cheaply than competitors
  can.
• Focus is a strategy that emphasizes targeting a
  particular customer. For instance, magazine
  publishers commonly use a focus strategy in
  offering their products to specific customers

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• As the result of the BCG Growth-Share Matrix, and
  the GE Multifactor Portfolio Matrix, four forms
  of strategies may arise
• Growth is a strategy to increase the amount of
  business that an SBU is currently generating. The
  growth strategy is generally applied to start
  SBUs or question mark SBUs that have the
  potential to become stars. Management generally
  invests substantial amounts of money to implement
  this strategy and may even sacrifice short-term
  profit to build long-term gain. A company may
  also pursue a growth strategy by purchasing an
  SBU from another organization.

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• Stability is a strategy to maintain or slightly
  improve the amount of business that an SBU is
  generating. This strategy is generally applied to
  cash cows, since these SBUs are already in an
  advantageous position.
• Retrenchment is a strategy to strengthen or
  protect the amount of business a strategic
  business unit is currently generating. This
  strategy is generally applied to cash cows or
  stars that are beginning to lose market share .
• Divesture is a strategy adopted to eliminate an
  SBU that is not generating a satisfactory amount
  of business and that has little hope of doing so
  in the near future. The organization may sell or
  close down the SBU in question.

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Strategy Implementation

• Strategy implementation is putting formulated
  strategies into action. The successful
  implementation requires four basic skills
  interacting skill, allocating skill, monitoring
  skill, and organizing skill.

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Strategy Control

• Strategic control consists of monitoring and
  evaluating the strategy management process as a
  whole to ensure that it is operating properly.
  Strategic control focuses on the activities
  involved in environmental analysis,
  organizational direction, strategy formulation,
  strategy implementation, and strategy control
  itself.

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Conclusion

• A procedure is only a necessary but not
  sufficient condition for success.
• Other factors are equally important
• Judgment
• Communication
• Influence
• Resources
• Timing.

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Reference

• Charles Hill and Gareth Jones, Strategic
  Management, Houghton Mifflin Company.