Strategic Planning Process Meaning of Strategic Planning It is the process of deciding on the programs that the organization will undertake on the appropriate amount of resources that will be allocated to each program over the next several years. The document that describes how the strategic decision is to be implemented is the strategic plan.
Reviewing & Deciding onUpdating from assumptions & last year guidelines First Iteration Analysis of the new Strategic Plan SecondIteration of the Final review new Strategic and approval Plan
Reviewing and Updating the Strategic Plan During the year, whenever there is a need management takes decisions that change the strategic plan. Actual experience is reflected in accounting reports for first few months of current year, and these are extrapolated further for current year as a whole. If computer program is sufficiently flexible, it can extend the impact beyond the current year and if not, rough estimates are made manually.
Cont… The implication of new program decisions on revenues, expenses, capital expenditure & cash flow are incorporated. Planning staff usually makes this update and management may be involved if there are uncertainties or ambiguities.
Deciding on Assumptions and Guidelines The updated strategic plan incorporates broad assumptions such as growth in Gross Domestic Product, cyclical movements, labor rates, prices of important raw materials, interest rates, selling prices. Market conditions such as competitors and impact of government legislation. These assumptions are reexamined and if necessary, are changed to incorporate the latest information. Updated strategic plan contains financial information for new plants, existing plants and closing plants.
Cont… A rough approximation is adequate as a basis for senior management decisions about objectives and key guidelines are to be observed in planning to attain these objectives. Objectives are stated separately for each product line expressed as sales revenue, profit percentage and return on capital employed. Guidelines are assumptions about wage and salary increases, new or discounted product lines and selling prices.
First Iteration of the Strategic Plan Using the assumptions, objectives and guidelines, business units and other operating units prepare their “first cut” of the strategic plan which includes changes made compared to current plan, these are supported by reasons. Business unit staffs do much of the analytical work, but managers make the final judgments. The completed strategic plan consists of income statements and quantitative information about sales and production in detail.
Analysis When headquarters receives the business unit plans, they aggregate them into an overall corporate strategic plan. Headquarters examine the business unit plans for consistency also. Sometimes individual plans does not add up to attainment of the corporate objectives, which is known as planning gap.
Cont... There are three ways to close a planning gap: find opportunities for improvements in the business unit plans make acquisitions review the corporate objectives.
Second Iteration of the Strategic Plan Analysis of first submission may require a revision plans of only certain business units, but it may lead to changes that affect all business units. Technically, revision is simpler to prepare than the original submission but organizationally, it is difficult because it requires difficult decisions. Some companies do not require a formal revision, they negotiate changes informally and enter the results into plan at headquarters.
Final Review and Approval A meeting of senior corporate officials usually discusses the revised plan at length. The plan also may be presented at meeting of board of directors. The chief executive officer gives final approval. The approval should come prior to the beginning of the budget preparation process, because strategic plan is an important input to that process.
Objectives of case To construct Value Chain Analysis To use value chain as a power tool To implement strategic plans in accordance with the value chain
Dairy Pak is Ohio based international company. Dairy Pak began their operations in 1947 as one of theoriginal license of the Pure-Pak Technology. They focused on producing polyethylene coated papercarton for milk and orange juice. Due to growing demand, it expanded its operations andbuilt converting plants in different states. During the early 1960s through 1988 Champion steadilyproduced 2,50,000 tons of polyethylene coated boardsannually.
During this period, the paper board industry was threatened by the intrusion of plastic containers but Champion did not falter and continued with its existing operations without changes in strategy or equipment. At this point, the company decided to have the harvest strategy. Incidentally, the paper carton did not die, and since there were no major changes in Champion its infrastructure got old and technologically outdated.
In the early 1980s the sudden increase of the juice market created opportunities which Champion did not expect. In 1988 however, Champion successfully managed to retain its share in the declining market while losing almost half of its share in the fastest-growing segment, the branded juices. Champion strategy was to be the low cost producer in commodity dairy segment.
In 1988, the Vice President of the Dairy-Pak Division of Champion International has to make some tough choices. He is facing: Declining market share in the growing “Branded Juice” segment of domestic paperboard carton segment Their manufacturing system is old Limited output capability which had not grown in 10 years. Rapidly expanding international market which the corporation had seen as fraught with some problems than competitors.
The Competitors International Paper It was the industry leader & considered to be low cost producer. It is also the most technologically advanced company. Champion was currently a strong number 2, with more domestic volume. Potlatch, Westvaco, and Weyerhaeuser all ranked in a third tier of competition facing difficulties related to quality and inefficient scale.
The Pure-Pak Customers Domestic Dairies- The diary’s product was usually a commodity that achieve price premium for brand name. Differentiated Juicers- This was the fastest growing segment in liquid packing in 1988. Special Uses- This market had grown slowly, volume per customer was very low it was 4% of Champion’s volume. Export Market- The fourth group of customers for the Pure-Pak carton was the export market.
PulpProcess Flow Paper Mill Extruder Conversion Regional Orange Minute Diary Juice Maid Processor Processor Processor Super Markets & Distributors Customer
For the purpose of competition and to invest, Earle Bensing’s first proposal was to renovate paperboard machine. Second proposal was to add a third extruder at the Waynesville, North Carolina plant. Third was to add roll wrapping equipment at the Waynesville location. Fourth potential area for investment was adding rotogravure printing.
Buyer Power AnalysisBase Commodity Branded OJ Products DairiesBuyer Concentration (No of 1000 3buyer)Size of Buyer as a Relatively small Same size as paper boardcorporation manufacturesBuyer Switching Cost Low, but High, but differentiated board commodity boardAbility to backward integrate Nil Nilinto paperboardSubstitutes (Products) Plastic, other? Plastic, glass, other?Cost of Carton/ Total Cost 0.08/0.95 =8.42% 0.06/1.17 = 5.13%Buyers Margin 0.09/1.04 = 8.65% 0.25/1.42= 17.6%Champion’s ROI 9.3% 1.75%