Strategic Planning For Managers

Strategic Planning for Managers

Contents

Five Tasks of Strategic Planning

Factors Shaping the Choice of Strategy

Three Tests of Best Strategy

Analyzing Industry Environment and Crafting Competitive Strategy

Strategy Implementation and Execution

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Five Tasks of Strategic Planning

Five Tasks of Strategic Planning Forming a strategic vision Setting objectives Crafting a strategy to achieve the desired outcomes Implementing and executing the chosen strategy Evaluating performance, monitoring new developments, and initiating corrective adjustments

Forming a Strategic Vision 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?"

Setting Objectives 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.

Improve Cost Efficiency Enhance Long-term Shareholder Value Increase Revenue Growth Enhance Brand Image Build High Performance Products Achieve Operational Excellence Develop Strategic Competencies Drive Demand through Customer Relation Management Manage Dramatic Growth through Innovation Implement Good Environmental Policy Build Learning Culture Expand Capabilities with Technology Strategic Objectives in Four Perspectives Financial Customer Internal Process Learning & Growth Expand Market Share

Crafting Strategy Crafting a strategy to achieve the desired outcomes

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.

What Does a Company's Strategy Consist Of? Crafting a strategy to achieve the desired outcomes

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

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

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

Strategy Hierarchy Corporate Strategy Business Strategies Functional Strategies (R&D, Marketing, Manufacturing, HR, Finance, etc. Operating Strategies (regions, plants, departments within functional areas) Strategy hierarchy for a diversified company

Strategy Hierarchy Business Strategies Functional Strategies (R&D, Marketing, Manufacturing, HR, Finance, etc. Operating Strategies (regions, plants, departments within functional areas) Strategy hierarchy for a single-business company

Strategy Hierarchy Corporate Strategic Vision Functional Areas Visions Operating Unit Visions Business-Level Strategic Vision Corporate Strategic Objectives Functional Areas Objectives Operating Unit Objectives Business-Level Strategic Objectives Corporate Strategic Strategy Functional Areas Strategies Operating Unit Strategies Business-Level Strategy

Factors Shaping the Choice of Strategy

Factors Shaping the Choice of Strategy Economic, societal, political, and government regulations Competitive conditions and industry attractiveness Company opportunity and threat Company strengths and weaknesses, competencies and capabilities Personal ambitions and business philosophies of key executives Shared values and company culture External Factors Internal Factors The mix of considerations that determines a company’s strategic situation

Strategic Analysis and Strategic Choices Analyzing strategically about industry and competitive conditions Analyzing strategically about a company’s own situation What strategic options does the company realistically have? What is the best strategy?

Three Tests of Best Strategy The Performance Test The Competitive Advantage Test The Goodness of Fit Test The Best Strategy

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.

Three Tests of Best Strategy The Goodness of Fit 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.

Three Tests of Best Strategy The Competitive Advantage 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.

Three Tests of Best Strategy The Performance Test

Analyzing Industry Environment and Designing Competitive Strategy

Porter’s Five Forces Rivalry Buyer Power Supplier Power Threats of Substitutes Barriers to Entry

The Intensity of Rivalry

A larger number of firms

Slow market growth

High fixed cost

High storages costs or highly perishable products

Low switching cost

Low level of product differentiation

Strategic stakes are high

High exit barriers

A diversity of rivals

Industry shakeout

The intensity of rivalry is influenced by the following industry characteristics:

Barriers to Entry Entry barriers are influenced by the following factors :

Absolute cost advantages

Proprietary learning curve

Access to inputs

Government policy

Economies of scale

Capital requirements

Brand identity

Switching costs

Access to distribution

Expected retaliation

Proprietary products

Threats of Substitutes Threats of substitutes are influenced by the following factors :

Switching costs

Buyer inclination to substitute

Price-performance trade-off of substitutes

Buyer Power Buyer power is influenced by the following factors :

Bargaining leverage

Buyer volume

Buyer information

Brand identity

Price sensitivity

Threat of backward integration

Product differentiation

Buyer concentration vs. industry

Substitutes available

Buyers' incentives

Supplier Power Supplier power is influenced by the following factors :

Supplier concentration

Importance of volume to supplier

Differentiation of inputs

Impact of inputs on cost or differentiation

Switching costs of firms in the industry

Presence of substitute inputs

Threat of forward integration

Cost relative to total purchases in industry

Sample Form for an Industry and Competitive Analysis Summary

Industry Prospects and Overall Attractiveness

Factors making the industry attractive

Factors making the industry unattractive

Special industry issues/problems

Profit outlook (favorable/unfavorable)

Industry Key Success Factors

Competitor Analysis

Strategic approaches/predicated moves of key competitors

Whom to watch, and why

Competitive Position of Major Companies/ Strategic Groups.

Those that are favorably positioned, and why

Those that are unfavorably positioned, and why

Competitive Analysis

Rivalry among competing sellers

Threat of potential entry

Competition from substitutes Power of suppliers

Power of consumers

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)

Five Generic Competitive Strategies Overall Low Cost Leadership Strategy Differentiation Strategy Focused Low Cost Strategy Focused Differentiation Strategy Low Cost Differentiation Broad Market Segment Narrow Market Segment Best Cost Strategy

Generic Strategies and Industry Forces Rivals cannot meet differentiation-focused customer needs. Brand loyalty to keep customers from rivals. Better able to compete on price. Rivalry Specialized products & core competency protect against substitutes. Customer's become attached to differentiating attributes, reducing threat of substitutes. Can use low price to defend against substitutes. Threat of Substitutes Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Better able to pass on supplier price increases to customers. Better insulated from powerful suppliers. Supplier Power Large buyers have less power to negotiate because of few alternatives. Large buyers have less power to negotiate because of few close alternatives. Ability to offer lower price to powerful buyers. Buyer Power Focusing develops core competencies that can act as an entry barrier. Customer loyalty can discourage potential entrants. Ability to cut price in retaliation deters potential entrants. Entry Barriers Focus Differentiation Cost Leadership Generic Strategies Industry Force

Strategy Implementation Building a capable organization Designing strategy-supportive reward system Creating a strategy-supportive corporate culture Exerting strategic leadership Linking budget to strategy Establishing strategy-supportive policies and procedures Instituting best practices and commitment to continuous improvement Installing information system to support strategy execution HR & Organization Development Factor System Factor Effective Strategy Execution

Building a Capable Organization Building a capable organization

Staffing the organization

Putting together a strong management team

Recruiting and retaining talented employees

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

Strategy-supportive Reward System Designing 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.

Strategy-supportive Corporate Culture Creating a 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.

Strategic Leadership Exerting 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.

Linking Budget to Strategy 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.

Strategy-supportive Policy Establishing strategy-supportive policies and procedures

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.

Continuous Improvement Instituting best practices and commitment to 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.

Information Support System Installing information system to support strategy execution

Company strategies can’t 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.