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?"
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
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 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
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
Economies of scale
Access to distribution
Threats of Substitutes Threats of substitutes are influenced by the following factors :
Buyer inclination to substitute
Price-performance trade-off of substitutes
Buyer Power Buyer power is influenced by the following factors :
Threat of backward integration
Buyer concentration vs. industry
Supplier Power Supplier power is influenced by the following factors :
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
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
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)
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 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.