STRATEGIC MAGEMENT 3. Technics of strategic planning Second part Strategic planning in Hungary

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STRATEGIC MAGEMENT3. Technics of strategic
planningSecond partStrategic planning in Hungary
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Information base of planning

• There are many tools which can help the data
  collection for the planning. Of course, the
  traditional information sources, like statistics,
  accounting, internet (photo), etc. can be useful
  for it. Similar, but more sophisticated
  techniques are the Balanced Scorecard, SAP.
• Some methods serve information first of all for
  the analysis of the firms past and present
  situation. Others (e.g. extrapolation,
  brainstorming, benchmarking) can help the
  forecasting as well.

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Source www.gt2006.freeblog.hu/albumunk/mexiko -
Chichén Itza
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• Balanced Scorecard (BSC) is an information base
  which helps all processes of strategic
  management. During the planning (e.g. working out
  of the strategy) BSC adaptors create a system of
  indices which characterises the expected
  development of the company. Then they monitor
  permanently, how the goals are realised. If,
  based on the experiences, they stated the
  necessity to change the strategy, they do it.
• The main topics of indices are /1/ the financial
  aspect, /2/ the satisfaction of customers needs,
  /3/ the efficiency of business processes and /4/
  the aspects of learning and development.
• Source Kaplan-Norton

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• The financial BSC indices are traditional ones,
  they evaluate the volume of (net) income, value
  added and equity with the help of ROA, ROI etc.
• The satisfaction of the customers can be analysed
  by evaluating the products features, the
  customer relation (e.g. the execution time of
  orders) and the firms image.
• The criteria of the efficiency of business
  processes monitor the processes of production,
  services, purchasing.
• In the framework of the learning and development
  aspects, innovation, the skills of employees, the
  possibilities of firms ICT and the motivation
  system are evaluated.

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• Tasks of building a BSC system are the following
• Creation of the BSC respective the strategy.
• Firms transformation (creation of the
  organisational frameworks to the adaptation).
• Communication (information of all employees on
  BSC goals and indices, by which their performance
  is evaluated).
• Development of a business (operative) plan based
  on the fixed long-term BSC goals and indices.
• Monitoring and feedback (learning).

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• Brainstorming is a process of collecting ideas.
  The organizer brings people together and
  encourages their free and open discussion on the
  creative solution of a problem. During the
  process no idea can be rejected.
• Benchmarking is an effective tool of the
  evaluation of the situation. It compares the
  companys performance to that of the best ones
  and state the methods of best practice.

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• Delphi method is an other collective method of
  analysis (used first of all in forecasting). In
  the beginning a panel of experts is asked to form
  their views on the analysed question (e.g. make
  predictions). Then experts can compare their
  responses with that of the rest of the panel, and
  can modify their statements. The process is
  repeated and after some steps usually a consensus
  (e.g. a common forecast often with scenarios)
  emerges.

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Analyse of uncertainty

• The future being uncertain, the planners have to
  analyse the risks coming from this situation.
• Uncertainty if the manager does not know the
  coming events, the variants of his future
  (possible) actions and/or their results. In some
  cases he can estimate the probabilities of the
  probable events, in others not.
• Expected value is a mathematical estimation of
  an uncertain data, of which we know the possible
  values and the probability of their realisation.
• E S (ai pi ), where
• ai are the possible values of the forecasted
  data,
• pi are the probabilities of the future value
  of this data,
• and i are the set of possible outcomes (or
  years).

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• Exercise
• We receive an offer to buy a share. According to
  our evaluation its possible value may be 100
  euros with 30 probability, 110 euros with 50
  probability, and 120 euros with 20 probability
  . How many is the expected value of this share?
• E 0,3 100 0,5 110 0,2 120 109

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• The traditional method to mark, that a data is
  uncertain is the indication of the interval, in
  which we wait its realisation.
• In an uncertain situation EU recommends for
  planners the scenario development (description of
  the external and internal factors of the future
  with different suppositions). The more important
  scenarios can be determined by the analysis of
  the driving forces and the axes. Driving
  forces are the main factors which cause the
  uncertainties, axes can be formed by the possible
  outcomes of these factors.

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• Example
• In a company the next years revenue is uncertain
  because of the uncertain growth of sales and
  prises. Experts forecast, that the sales volume
  can stagnates but can also grows with 5 and the
  inflation can be 3, or 5.
• In this case the driving forces can be the sales
  volume and the inflation, the axes are the
  stagnation and growth of sales, and the low or
  higher inflation.
• So, planners have to analyse the four scenarios,
  in which /1/sales stagnate and the inflation is
  low or /2/ higher, and /3/ sales are growing and
  the inflation is low or /4/ higher.

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Competition strategy

• A competition strategy of a company has to
  determine the actions which protect and develop
  the market of their products.
• Firms can influence the demand of their products
  with the help of the so called marketing mix,
  especially the 4 P (product, price, place,
  promotion) first of all. So, the competition
  strategy has to determine, how the company wants
  develop its marketing mix.

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The GE Nine-Cell matrix

• Although the BCG matrix is a good tool of product
  strategy building, it has some limitations. It is
  based upon the hypothesis that business strengths
  of a product can be described by market share,
  and its market opportunities by growth but
  these relationships are debatable. In addition,
  the putting the products to four cells
  (distinction only four product groups) simplifies
  the description of the possible strategies.
• So GE offers to develop a nine-cell business
  strength-industry attractiveness matrix (grid).

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The recommendations based on the GE matrix
Source own figure based on many publications
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• The GE matrix classifies products (businesses) in
  accordance of their competitiveness and market
  attractiveness. Both criteria are measured trough
  experts evaluation. The examinations results
  are put into three - low, medium and high -
  classes.
• The main problem of developing the GE matrix is
  the subjectivity of the experts evaluation. So,
  if the variables evaluation is correct, the
  analyses can be very effective. But in case, if
  the fidelity of this evaluation can be debatable,
  it would serve better the computation of a BCG
  matrix.

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Marketing strategies

• The usual price strategy maximise the reesult of
  multiplication of the unit price and the sales
  volume of a product. Other strategy is the
  fixation of a dumping price.
• The good sales channel strategy of mass
  products sale can be the diversification, the
  creation of more channel. In case of a niche
  product often the good strategy is the sale in a
  specialised shop-chain.
• The best promotion strategy of some consumers
  consumption goods is the publicity. But in case
  of capital (investment) goods the use of the
  direct marketing can be better.

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Business plan of a small firm

• Small firms should elaborate business plan /1/
  before the foundation, /2/ at the beginning of a
  year, /3/ in case of credit application etc.
• Business plans which are developed at the time of
  foundation should describe the main planned
  processes of production or services and analyse
  their future competitiveness as well (photos).
• Business plans which are developed at the
  beginning of a year should analyse first of all
  the business opportunities (the possible
  receipts/turnover) and should review the expected
  expenses (costs).

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Source www.gt2006.freeblog.hu/albumunk/mexico -
flamingos in Rio Lagartos
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Source www.gt2006.freeblog.hu/albumunk/peru -
seals in Ballestas Islands
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Strategic planning in a large firm

• In case of a complicated decision planners can
  use the Analytic Hierarchy Process (AHP), which
  is a system (a decision tree) for the development
  of the goals, scenarios, alternative programs,
  success-criteria of a strategy. In the first step
  the main goals and scenarios are fixed. Then
  those decision-makers and their decision criteria
  are mapped, who are responsible for the details.
  The alternatives are compared pair-wise. After
  that the planner can determine the decision which
  fulfils the goals and is acceptable for all
  interested parties (see next slide).
• Source Saaty

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Structure of AHP
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• In a well organised corporation managers protect
  not only own interests, but interests of owners
  as well, and in their plans they fix indexes
  which create possibilities to control (monitor)
  the fulfilment of the goals as well.
• To create good conditions of monitoring, some
  formal recommendations on corporate governance
  were developed. Recruitment of external members
  of board, written minutes of boards meetings,
  external auditing, publication of balance sheets
  and firms policy etc. are highly recommended.

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Strategic planning in Hungary

• In Hungary the practice of strategic planning was
  analysed by researches.
• More than one third of the firms prepare
  long-range plans. The yearly (business) plans are
  almost general. Plans on investments, sales and
  liquidity are the most frequent ones. Quality and
  customers satisfaction are analysed only by one
  third of the firms.
• The arsenal of planning methods is not too rich.
  Many firms calculate financial indices, prepare
  cash-flow reports, SWOT and break-even analysis.
  Application of other tools, e.g. BSC, PERT is
  rare. (See the next slides.)

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• Proportion of firms () having the given
  behaviour

Source Barakonyi
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• Proportion of firms () adapting the given method

Source Chikán Czakó - Zoltayné
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Reward
Source www.gt2006.freeblog.hu/albumunk/mexico -
Sumidero canyon
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Thank you for your attention!