Strategic planning for managers


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Strategic planning for managers

  1. 1. Strategic Planning for 1
  2. 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 If you find this presentation useful, please consider telling others about our site ( 2
  3. 3. Five Tasks of Strategic 3
  4. 4. Five Tasks of Strategic Planning Crafting a Forming a Setting strategy to strategic objectives achieve the vision desired outcomes Evaluating Implementing performance, monitoring new and executing developments, the chosen and initiating strategy corrective 4
  5. 5. Forming a Strategic Vision • Very early in the strategy-making Forming a strategic process, company managers need to vision 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?" 5
  6. 6. Setting Objectives • The purpose of setting objectives is Setting objectives 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 organizations 6
  7. 7. Strategic Objectives in Four Perspectives Enhance Long-term Shareholder Value Improve Increase Revenue Growth Cost Efficiency Financial Build High Expand Enhance Performance Products Market Share Brand Image Customer Achieve Drive Demand Manage Dramatic Implement Good Operational through Customer Growth through Environmental Excellence Relation Management Innovation Policy Internal Process Learning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture 7
  8. 8. Crafting Strategy Crafting a • A companys strategy represents strategy to managements answers to such fundamental achieve the business questions as : desired • whether to concentrate on a single business or build outcomes 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 8
  9. 9. What Does a Companys Strategy Consist Of? Crafting a • Company strategies concern how: strategy to • how to grow the business achieve the • how to satisfy customers desired • how to outcompete rivals outcomes • 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 9
  10. 10. Strategy Implementation and Execution • Strategy implementation concerns the Implementing managerial exercise of putting a freshly and executing chosen strategy into place the chosen • Strategy execution deals with the managerial strategy exercise of supervising the ongoing pursuit of strategy, making it work, and showing measurable progress in achieving the targeted 10
  11. 11. Strategy Evaluation and Monitoring • It is managements duty to stay on top of Evaluating performance, the companys situation, deciding monitoring new whether things are going well internally, developments, and initiating and monitoring outside developments corrective closely. adjustments • Marginal performance or too little progress, as well as important new external circumstances, will require corrective actions and 11
  12. 12. Strategy Hierarchy Corporate Strategy Business Strategies Strategy hierarchy for Functional Strategies (R&D, a diversified Marketing, Manufacturing, HR, company Finance, etc. Operating Strategies (regions, plants, departments within functional areas) 12
  13. 13. Strategy Hierarchy Business Strategies Strategy hierarchy Functional Strategies (R&D, for Marketing, Manufacturing, HR, a single-business Finance, etc. company Operating Strategies (regions, plants, departments within functional areas) 13
  14. 14. Strategy Hierarchy Corporate Corporate Corporate Strategic Vision Strategic Objectives Strategic Strategy Business-Level Business-Level Business-Level Strategic Vision Strategic Objectives Strategy Functional Functional Functional Areas Visions Areas Objectives Areas Strategies Operating Unit Visions Operating Unit Operating Unit Objectives 14
  15. 15. Factors Shaping the Choice of 15
  16. 16. Factors Shaping the Choice of Strategy External Factors Economic, Competitive Company societal, political, conditions and opportunity and and government industry threat regulations attractiveness The mix of considerations that determines a company’s strategic situation Company strengths Personal ambitions Shared values and and weaknesses, and business company culture competencies and philosophies of key capabilities executives Internal 16
  17. 17. Factors Shaping the Choice of Strategy Economic, • What an enterprise can and cannot do societal, political, and government strategywise is always constrained by regulations 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 17
  18. 18. Factors Shaping the Choice of Strategy Competitive • An industrys competitive conditions conditions and industry and overall attractiveness are big attractiveness strategy-determining factors. • A companys strategy has to be tailored to the nature and mix of competitive factors in play—price, product quality, performance features, service, war- ranties, and so 18
  19. 19. Factors Shaping the Choice of Strategy Company • A companys strategy needs to be opportunity and deliberately aimed at capturing its best threat 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 companys well-being and fu-ture 19
  20. 20. Factors Shaping the Choice of Strategy Company • One of the most pivotal strategy-shaping strengths and weaknesses, internal considerations is whether a competencies and company has or can acquire the capabilities 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 cant develop comparable capabilities except at high cost or over an extended period of 20
  21. 21. Factors Shaping the Choice of Strategy Personal • Managers do not dispassionately assess ambitions and business what strategic course to steer. philosophies of • Their choices are typically influenced by key executives their own vision of how to compete and how to position the enterprise and by what image and standing they want the company to 21
  22. 22. Factors Shaping the Choice of Strategy • An organizations policies, practices, Shared values and company traditions, philosophical beliefs, and ways culture of doing things combine to create a distinctive culture. • The stronger a companys culture, the more that culture is likely to shape the companys strategic actions, sometimes even dominating the choice of strategic 22
  23. 23. Strategic Analysis and Strategic Choices Analyzing strategically about industry and competitive conditions What strategic options does the What is the best company strategy? Analyzing realistically strategically have? about a company’s own 23
  24. 24. Strategic Analysis and Strategic Choices The Key Questions • What are the industry’s dominant economic features? Analyzing • What is causing the industry’s competitive strategically structure and business environment to change? about industry • Which companies are in the strongest/weakest and competitive positions? conditions • 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? 24
  25. 25. Strategic Analysis and Strategic Choices The Key Questions • How well is the company’s present strategy working? Analyzing • What are the company’s strengths, strategically weaknesses, opportunities, and threats? about a • Are the company’s prices and costs company’s own competitive? situation • How strong is the company’s competitive position? • What strategic issues does the company face? 25
  26. 26. Three Tests of Best Strategy The Goodness of Fit Test The The Best Competitive Strategy Advantage Test The Performance 26
  27. 27. Three Tests of Best Strategy The Goodness of • A good strategy has to be well matched Fit Test to industry and competitive conditions, market opportunities and threats, and other aspects of the enterprises external environment. • At the same time, it has to be tailored to the companys resource strengths and weaknesses, competencies, and competitive 27
  28. 28. Three Tests of Best Strategy The Competitive • A good strategy leads to sustainable Advantage Test competi-tive advantage. • The bigger the competitive edge that a strategy helps build, the more powerful and effective it 28
  29. 29. Three Tests of Best Strategy The Performance • A good strategy boosts company Test performance. • Two kinds of performance improvements are the most telling of a strategys caliber: gains in profitability and gains in the companys competitive strength and long-term mar-ket 29
  30. 30. Analyzing Industry Environment and Designing Competitive 30
  31. 31. Porter’s Five Forces Barriers to Buyer Entry Power Rivalry Threats of Supplier Substitutes 31
  32. 32. The Intensity of Rivalry 1. A larger number of firms The intensity of 2. Slow market growth rivalry is influenced 3. High fixed cost by the following 4. High storages costs or highly industry perishable products characteristics: 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 32
  33. 33. Barriers to Entry 1. Absolute cost advantages Entry barriers 2. Proprietary learning curve are influenced by 3. Access to inputs the following 4. Government policy factors : 5. Economies of scale 6. Capital requirements 7. Brand identity 8. Switching costs 9. Access to distribution 10. Expected retaliation 11. Proprietary 33
  34. 34. Threats of Substitutes 1. Switching costs Threats of substitutes 2. Buyer inclination to are influenced by substitute the following 3. Price-performance trade-off factors : of 34
  35. 35. Buyer Power 1. Bargaining leverage Buyer power 2. Buyer volume is influenced by 3. Buyer information the following 4. Brand identity factors : 5. Price sensitivity 6. Threat of backward integration 7. Product differentiation 8. Buyer concentration vs. industry 9. Substitutes available 10. Buyers 35
  36. 36. Supplier Power 1. Supplier concentration Supplier power 2. Importance of volume to supplier is influenced by 3. Differentiation of inputs the following 4. Impact of inputs on cost or factors : 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 36
  37. 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) 37
  38. 38. Five Generic Competitive Strategies Low Cost Low Cost Differentiation Differentiation Overall Low Cost Overall Low Cost Differentiation Differentiation Broad Market Leadership Strategy Leadership Strategy Strategy Strategy Segment Best Cost Strategy Focused Low Cost Focused Low Cost Focused Focused Narrow Market Strategy Strategy Differentiation Differentiation Segment Strategy 38
  39. 39. Five Generic Competitive Strategies Overall Low Cost Overall Low Cost Appealing to a broad spectrum of customers Leadership Leadership based on being the overall low-cost provider Strategy Strategy of product and service Broad Broad A differentiation strategy calls for the Differentiation Differentiation development of a product or service that Strategy Strategy offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the 39
  40. 40. Five Generic Competitive Strategies Overall Low Cost Overall Low Cost Appealing to a broad spectrum of customers Leadership Leadership based on being the overall low-cost provider Strategy Strategy of product and service Broad Broad A differentiation strategy calls for the Differentiation Differentiation development of a product or service that Strategy Strategy offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the 40
  41. 41. Five Generic Competitive Strategies Best Cost Strategy 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 41
  42. 42. Generic Strategies and Industry Forces Generic Strategies Industry Force Cost Leadership Differentiation Focus Ability to cut price in Focusing develops core Entry Customer loyalty can Barriers retaliation deters potential competencies that can act as discourage potential entrants. entrants. an entry barrier. Large buyers have less power Large buyers have less power Buyer Ability to offer lower price to Power to negotiate because of few to negotiate because of few powerful buyers. close alternatives. alternatives. Suppliers have power because of low volumes, but a Supplier Better insulated from Better able to pass on supplier Power differentiation-focused firm is powerful suppliers. price increases to customers. better able to pass on supplier price increases. Customers become attached Specialized products & core Threat of Can use low price to Substitutes to differentiating attributes, competency protect against defend against substitutes. reducing threat of substitutes. substitutes. Rivals cannot meet Better able to compete on Brand loyalty to keep Rivalry differentiation-focused price. customers from rivals. customer 42
  43. 43. Strategy Implementation and 43
  44. 44. Strategy Implementation Building a capable Linking budget to strategy organization Designing strategy- Establishing strategy- supportive reward system supportive policies and Effective procedures Creating a strategy- Strategy Instituting best practices and supportive corporate Execution commitment to continuous culture improvement Exerting strategic Installing information system leadership to support strategy execution HR & Organization System Factor Development 44
  45. 45. Building a Capable Organization Staffing the organization Staffing the organization •• Putting together a strong management team Putting together a strong management team •• Recruiting and retaining talented employees Recruiting and retaining talented employees Building a Building Core Competencies and Capabilities Building Core Competencies and Capabilities capable •• Developing competence/capability portfolio Developing competence/capability portfolio suited to current strategy organization suited to current strategy •• Updating and reshaping the portfolio as external Updating and reshaping the portfolio as external conditions and strategy change conditions and strategy change Structuring the Organization and Work Effort Structuring the Organization and Work Effort •• Organizing business function and processes, Organizing business function and processes, value chain activities, and decision making value chain activities, and decision 45
  46. 46. Strategy-supportive Reward System Designing • Strategy-supportive motivational practices and reward systems are powerful strategy- management tools for gaining employee supportive buy-in and commitment. reward • The key to creating a reward system that system 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 46
  47. 47. Strategy-supportive Corporate Culture • Building a strategy-supportive culture is Creating a important to successful strategy execution strategy- because it produces a work climate and supportive organizational esprit de corps that thrive corporate on meeting performance targets and culture being part of a winning 47
  48. 48. Strategic Leadership • Strategic leaders encourage people to be Exerting innovative in order to keep the strategic organization responsive to changing leadership 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 48
  49. 49. Linking Budget to Strategy • Reworking the budget to make it more Linking strategy-supportive is a crucial part of the budget to implementation process because every strategy organization unit needs to have the people, equipment, facilities, and other resources to carry out its part of the strategic 49
  50. 50. Strategy-supportive Policy • Prescribing new or freshly revised policies Establishing and operating procedures aids the task of strategy- implementation (1) by promoting supportive consistency in how particular strategy- policies and critical activities are performed in procedures geographically scattered operating units and (2) by helping to create a strategy- supportive work climate and corporate 50
  51. 51. Continuous Improvement • Competent strategy execution entails Instituting visible, unyielding managerial commitment best practices to best practices and continuous and improvement. commitment • Benchmarking, the discovery and to continuous adoption of best practices, and six sigma improvement initiatives all aim at improved efficiency, better product, and greater customer 51
  52. 52. Information Support System • Company strategies can’t be implemented Installing well without a number of support system information to carry on business operations. system to • Well-conceived, state-of-the-art support support system not only facilitate better strategy strategy execution but can also strengthen execution organizational capabilities enough to provide a competitive edge over 52
  53. 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 53
  54. 54. End of 54