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Strategic Planning for Managers

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Title: Strategic Planning for Managers


1
Strategic Planning for Managers
2
Contents
  1. Five Tasks of Strategic Planning
  2. Factors Shaping the Choice of Strategy
  3. Three Tests of Best Strategy
  4. Analyzing Industry Environment and Crafting
    Competitive Strategy
  5. Strategy Implementation and Execution

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3
Five Tasks of Strategic Planning
4
Five Tasks of Strategic Planning
Crafting a strategy to achieve the desired
outcomes
Forming a strategic vision
Setting objectives
Evaluating performance, monitoring new
developments, and initiating corrective
adjustments
Implementing and executing the chosen strategy
5
Forming a Strategic Vision
  • Very early in the strategy-making process,
    company managers need to pose a set of questions
  • "What is our vision for the company where
    should the company be headed, what should its
    future technology-product-customer focus be, what
    kind of enterprise do we want to become, what
    industry standing do we want to achieve in five
    years?"

Forming a strategic vision
6
Setting Objectives
  • The purpose of setting objectives is to convert
    managerial statements of strategic vision and
    business mission into specific performance
    targets results and outcomes the organization
    wants to achieve.
  • Setting objectives and then measuring whether
    they are achieved or not help managers track an
    organization's progress.

Setting objectives
7
Strategic Objectives in Four Perspectives
Enhance Long-term Shareholder Value
Improve Cost Efficiency
Increase Revenue Growth
Financial
Enhance Brand Image
Build High Performance Products
Expand Market Share
Customer
Achieve Operational Excellence
Drive Demand through Customer Relation Management
Implement Good Environmental Policy
Manage Dramatic Growth through Innovation
Internal Process
Learning Growth
Develop Strategic Competencies
Build Learning Culture
Expand Capabilities with Technology
8
Crafting Strategy
  • A company's strategy represents management's
    answers to such fundamental business questions as
  • whether to concentrate on a single business or
    build a diversified group of businesses
  • whether to cater to a broad range of customers or
    focus on a particular market niche
  • whether to develop a wide or narrow product line
  • how to respond to changing buyer preferences
  • how big a geographic market to try to cover
  • how to react to newly emerging market and
    competitive conditions
  • how to grow the enterprise over the long term.

Crafting a strategy to achieve the desired
outcomes
9
What Does a Company's Strategy Consist Of?
  • Company strategies concern how
  • how to grow the business
  • how to satisfy customers
  • how to outcompete rivals
  • how to respond to changing market conditions
  • how to manage each functional piece of the
    business and develop needed organizational
    capabilities
  • how to achieve strategic and financial objectives

Crafting a strategy to achieve the desired
outcomes
10
Strategy Implementation and Execution
  • Strategy implementation concerns the managerial
    exercise of putting a freshly chosen strategy
    into place
  • Strategy execution deals with the managerial
    exercise of supervising the ongoing pursuit of
    strategy, making it work, and showing measurable
    progress in achieving the targeted results.

Implementing and executing the chosen strategy
11
Strategy Evaluation and Monitoring
  • It is management's duty to stay on top of the
    company's situation, deciding whether things are
    going well internally, and monitoring outside
    developments closely.
  • Marginal performance or too little progress, as
    well as important new external circumstances,
    will require corrective actions and adjustments.

Evaluating performance, monitoring new
developments, and initiating corrective
adjustments
12
Strategy Hierarchy
Corporate Strategy
Business Strategies
Strategy hierarchy for a diversified company
Functional Strategies (RD, Marketing,
Manufacturing, HR, Finance, etc.
Operating Strategies (regions, plants,
departments within functional areas)
13
Strategy Hierarchy
Business Strategies
Strategy hierarchy for a single-business company
Functional Strategies (RD, Marketing,
Manufacturing, HR, Finance, etc.
Operating Strategies (regions, plants,
departments within functional areas)
14
Strategy Hierarchy
Corporate Strategic Vision
Corporate Strategic Objectives
Corporate Strategic Strategy
Business-Level Strategic Vision
Business-Level Strategic Objectives
Business-Level Strategy
Functional Areas Visions
Functional Areas Objectives
Functional Areas Strategies
Operating Unit Visions
Operating Unit Objectives
Operating Unit Strategies
15
Factors Shaping the Choice of Strategy
16
Factors Shaping the Choice of Strategy
External Factors
Competitive conditions and industry attractiveness
Company opportunity and threat
Economic, societal, political, and government
regulations
The mix of considerations that determines a
companys strategic situation
Personal ambitions and business philosophies of
key executives
Company strengths and weaknesses, competencies
and capabilities
Shared values and company culture
Internal Factors
17
Factors Shaping the Choice of Strategy
  • What an enterprise can and cannot do strategywise
    is always constrained by what is legal, by what
    complies with government policies and regulatory
    requirements, by what is considered ethical, and
    by what is in accord with societal expectations
    and the standards of good social and community
    citizenship.

Economic, societal, political, and government
regulations
18
Factors Shaping the Choice of Strategy
  • An industry's competitive conditions and overall
    attractiveness are big strategy-determining
    factors.
  • A company's strategy has to be tailored to the
    nature and mix of competitive factors in
    playprice, product quality, performance
    features, service, warranties, and so on.

Competitive conditions and industry attractiveness
19
Factors Shaping the Choice of Strategy
  • A company's strategy needs to be deliberately
    aimed at capturing its best growth opportunities,
    especially the ones that hold the most promise
    for building sustainable competitive advantage
    and enhancing profitability.
  • Strategy should also provide a defense against
    external threats to the company's well-being and
    future performance.

Company opportunity and threat
20
Factors Shaping the Choice of Strategy
  • One of the most pivotal strategy-shaping internal
    considerations is whether a company has or can
    acquire the resources, competencies, and
    capabilities needed to execute a strategy
    proficiently.
  • The best path to competitive advantage is found
    where a firm has competitively valuable resources
    and competencies, where rivals can't develop
    comparable capabilities except at high cost or
    over an extended period of time.

Company strengths and weaknesses, competencies
and capabilities
21
Factors Shaping the Choice of Strategy
  • Managers do not dispassionately assess what
    strategic course to steer.
  • Their choices are typically influenced by their
    own vision of how to compete and how to position
    the enterprise and by what image and standing
    they want the company to have.

Personal ambitions and business philosophies of
key executives
22
Factors Shaping the Choice of Strategy
  • An organization's policies, practices,
    traditions, philosophical beliefs, and ways of
    doing things combine to create a distinctive
    culture.
  • The stronger a company's culture, the more that
    culture is likely to shape the company's
    strategic actions, sometimes even dominating the
    choice of strategic moves.

Shared values and company culture
23
Strategic Analysis and Strategic Choices
Analyzing strategically about industry and
competitive conditions
What strategic options does the company
realistically have?
What is the best strategy?
Analyzing strategically about a companys own
situation
24
Strategic Analysis and Strategic Choices
  • The Key Questions
  • What are the industrys dominant economic
    features?
  • What is causing the industrys competitive
    structure and business environment to change?
  • Which companies are in the strongest/weakest
    positions?
  • What strategic moves are rivals likely to make
    next?
  • What are the key factors for competitive success?
  • Is the industry attractive and what are the
    prospects for above-average profitability?

Analyzing strategically about industry and
competitive conditions
25
Strategic Analysis and Strategic Choices
  • The Key Questions
  • How well is the companys present strategy
    working?
  • What are the companys strengths, weaknesses,
    opportunities, and threats?
  • Are the companys prices and costs competitive?
  • How strong is the companys competitive position?
  • What strategic issues does the company face?

Analyzing strategically about a companys own
situation
26
Three Tests of Best Strategy
The Goodness of Fit Test
The Competitive Advantage Test
The Best Strategy
The Performance Test
27
Three Tests of Best Strategy
The Goodness of Fit Test
  • A good strategy has to be well matched to
    industry and competitive conditions, market
    opportunities and threats, and other aspects of
    the enterprise's external environment.
  • At the same time, it has to be tailored to the
    company's resource strengths and weaknesses,
    competencies, and competitive capabilities.

28
Three Tests of Best Strategy
The Competitive Advantage Test
  • A good strategy leads to sustainable competitive
    advantage.
  • The bigger the competitive edge that a strategy
    helps build, the more powerful and effective it
    is.

29
Three Tests of Best Strategy
The Performance Test
  • A good strategy boosts company performance.
  • Two kinds of performance improvements are the
    most telling of a strategy's caliber gains in
    profitability and gains in the company's
    competitive strength and long-term market
    position.

30
Analyzing Industry Environment and Designing
Competitive Strategy
31
Porters Five Forces
Buyer Power
Barriers to Entry
Rivalry
Threats of Substitutes
Supplier Power
32
The Intensity of Rivalry
  1. A larger number of firms
  2. Slow market growth
  3. High fixed cost
  4. High storages costs or highly perishable products
  5. Low switching cost
  6. Low level of product differentiation
  7. Strategic stakes are high
  8. High exit barriers
  9. A diversity of rivals
  10. Industry shakeout

The intensity of rivalry is influenced by the
following industry characteristics
33
Barriers to Entry
  1. Absolute cost advantages
  2. Proprietary learning curve
  3. Access to inputs
  4. Government policy
  5. Economies of scale
  6. Capital requirements
  7. Brand identity
  8. Switching costs
  9. Access to distribution
  10. Expected retaliation
  11. Proprietary products

Entry barriers are influenced by the following
factors
34
Threats of Substitutes
  1. Switching costs
  2. Buyer inclination to substitute
  3. Price-performance trade-off of substitutes

Threats of substitutes are influenced by the
following factors
35
Buyer Power
  1. Bargaining leverage
  2. Buyer volume
  3. Buyer information
  4. Brand identity
  5. Price sensitivity
  6. Threat of backward integration
  7. Product differentiation
  8. Buyer concentration vs. industry
  9. Substitutes available
  10. Buyers' incentives

Buyer power is influenced by the following
factors
36
Supplier Power
  1. Supplier concentration
  2. Importance of volume to supplier
  3. Differentiation of inputs
  4. Impact of inputs on cost or differentiation
  5. Switching costs of firms in the industry
  6. Presence of substitute inputs
  7. Threat of forward integration
  8. Cost relative to total purchases in industry

Supplier power is influenced by the following
factors
37
Sample Form for an Industry and Competitive
Analysis Summary
Dominant Economic Characteristics of the Industry Environment (market size and growth rate, geographic scope, number and sizes of buyers and sellers, pace of technological change and innovation, scale economies, experience curve effects, capital requirements, and so on)
Competitive Analysis Rivalry among competing sellers Threat of potential entry Competition from substitutes Power of suppliers Power of consumers
Competitive Position of Major Companies/ Strategic Groups. Those that are favorably positioned, and why Those that are unfavorably positioned, and why
Competitor Analysis Strategic approaches/predicated moves of key competitors Whom to watch, and why
Industry Key Success Factors
Industry Prospects and Overall Attractiveness Factors making the industry attractive Factors making the industry unattractive Special industry issues/problems Profit outlook (favorable/unfavorable)
38
Five Generic Competitive Strategies
Low Cost
Differentiation
Overall Low Cost Leadership Strategy
Differentiation Strategy
Broad Market Segment
Best Cost Strategy
Focused Low Cost Strategy
Focused Differentiation Strategy
Narrow Market Segment
39
Five Generic Competitive Strategies
Overall Low Cost Leadership Strategy
Appealing to a broad spectrum of customers based
on being the overall low-cost provider of product
and service
Broad Differentiation Strategy
A differentiation strategy calls for the
development of a product or service that offers
unique attributes that are valued by customers
and that customers perceive to be better than or
different from the products of the competition
40
Five Generic Competitive Strategies
Overall Low Cost Leadership Strategy
Appealing to a broad spectrum of customers based
on being the overall low-cost provider of product
and service
Broad Differentiation Strategy
A differentiation strategy calls for the
development of a product or service that offers
unique attributes that are valued by customers
and that customers perceive to be better than or
different from the products of the competition
41
Five Generic Competitive Strategies
Best Cost Strategy
  • Giving customers more value for the money by
    incorporating good-to-excellent product
    attributes at a lower cost than rivals
  • The target is to have the lowest (best) costs and
    prices compared to rivals offering products with
    comparable upscale attributes

42
Generic Strategies and Industry Forces
IndustryForce Generic Strategies Generic Strategies Generic Strategies
IndustryForce Cost Leadership Differentiation Focus
EntryBarriers Ability to cut price in retaliation deters potential entrants. Customer loyalty can discourage potential entrants. Focusing develops core competencies that can act as an entry barrier.
BuyerPower Ability to offer lower price to powerful buyers. Large buyers have less power to negotiate because of few close alternatives. Large buyers have less power to negotiate because of few alternatives.
SupplierPower Better insulated from powerful suppliers. Better able to pass on supplier price increases to customers. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.
Threat ofSubstitutes Can use low price to defend against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Specialized products core competency protect against substitutes.
Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs.
43
Strategy Implementation and Execution
44
Strategy Implementation
Building a capable organization
Linking budget to strategy
Designing strategy-supportive reward system
Establishing strategy-supportive policies and
procedures
Effective Strategy Execution
Instituting best practices and commitment to
continuous improvement
Creating a strategy-supportive corporate culture
Exerting strategic leadership
Installing information system to support strategy
execution
HR Organization Development Factor
System Factor
45
Building a Capable Organization
  • Staffing the organization
  • Putting together a strong management team
  • Recruiting and retaining talented employees

Building a capable organization
  • Building Core Competencies and Capabilities
  • Developing competence/capability portfolio suited
    to current strategy
  • Updating and reshaping the portfolio as external
    conditions and strategy change
  • Structuring the Organization and Work Effort
  • Organizing business function and processes, value
    chain activities, and decision making

46
Strategy-supportive Reward System
  • Strategy-supportive motivational practices and
    reward systems are powerful management tools for
    gaining employee buy-in and commitment.
  • The key to creating a reward system that promotes
    good strategy execution is to make strategically
    relevant measures of performance the dominating
    basis for designing incentives, evaluating
    individual and group efforts, and handing out
    rewards.

Designing strategy-supportive reward system
47
Strategy-supportive Corporate Culture
  • Building a strategy-supportive culture is
    important to successful strategy execution
    because it produces a work climate and
    organizational esprit de corps that thrive on
    meeting performance targets and being part of a
    winning effort.

Creating a strategy-supportive corporate culture
48
Strategic Leadership
  • Strategic leaders encourage people to be
    innovative in order to keep the organization
    responsive to changing conditions, alert to new
    opportunities, and anxious to pursue fresh
    initiatives.
  • Strategic leaders also actively push corrective
    actions to improve strategy execution and overall
    strategic performance.

Exerting strategic leadership
49
Linking Budget to Strategy
  • Reworking the budget to make it more
    strategy-supportive is a crucial part of the
    implementation process because every organization
    unit needs to have the people, equipment,
    facilities, and other resources to carry out its
    part of the strategic plan.

Linking budget to strategy
50
Strategy-supportive Policy
  • Prescribing new or freshly revised policies and
    operating procedures aids the task of
    implementation (1) by promoting consistency in
    how particular strategy-critical activities are
    performed in geographically scattered operating
    units and (2) by helping to create a
    strategy-supportive work climate and corporate
    culture.

Establishing strategy-supportive policies and
procedures
51
Continuous Improvement
  • Competent strategy execution entails visible,
    unyielding managerial commitment to best
    practices and continuous improvement.
  • Benchmarking, the discovery and adoption of best
    practices, and six sigma initiatives all aim at
    improved efficiency, better product, and greater
    customer satisfaction.

Instituting best practices and commitment to
continuous improvement
52
Information Support System
  • Company strategies cant be implemented well
    without a number of support system to carry on
    business operations.
  • Well-conceived, state-of-the-art support system
    not only facilitate better strategy execution but
    can also strengthen organizational capabilities
    enough to provide a competitive edge over rivals.

Installing information system to support strategy
execution
53
Recommended Further Readings
  1. Arthur Thompson and A.J. Strickland III,
    Strategic Management Concept and Cases,
    McGraw-Hill
  2. Michael Porter, Competitive Strategy Techniques
    for Analyzing Industries and Competitors, Free
    Press

54
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