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Strategic planning for managers
This document discusses strategic planning for managers. It outlines the five key tasks of strategic planning as forming a strategic vision, setting objectives, crafting a strategy, implementing and executing the strategy, and evaluating performance. It then discusses factors that shape strategic choices such as industry environment, company strengths/weaknesses, and management priorities. Different levels of strategy for a company are described. Methods for analyzing industry environment and competitors are provided to help design competitive strategy. Five generic competitive strategies are defined. The importance of effective strategy implementation through building organization capability, setting rewards, leadership, and systems is emphasized.
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Strategic planning for managers
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- 2. 2 www.studyMarketing.org Contents 1. Five Tasksof 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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- 4. 4 www.studyMarketing.org Five Tasks ofStrategic 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
- 5. 5 www.studyMarketing.org Forming a StrategicVision 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?"
- 6. 6 www.studyMarketing.org Setting Objectives Setting objectives • Thepurpose 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.
- 7. 7 www.studyMarketing.org Improve Cost Efficiency Enhance Long-term ShareholderValue 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
- 8. 8 www.studyMarketing.org Crafting Strategy Crafting a strategyto 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.
- 9. 9 www.studyMarketing.org What Does aCompany'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
- 10. 10 www.studyMarketing.org Strategy Implementation andExecution • 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. 11 www.studyMarketing.org Strategy Evaluation andMonitoring • 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. 12 www.studyMarketing.org 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
- 13. 13 www.studyMarketing.org 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
- 14. 14 www.studyMarketing.org Strategy Hierarchy Corporate Strategic Vision Functional AreasVisions 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
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- 16. 16 www.studyMarketing.org Factors Shaping theChoice 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
- 17. 17 www.studyMarketing.org Factors Shaping theChoice of Strategy Economic, societal, political, and government regulations • 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.
- 18. 18 www.studyMarketing.org Factors Shaping theChoice 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 play—price, product quality, performance features, service, war- ranties, and so on. Competitive conditions and industry attractiveness
- 19. 19 www.studyMarketing.org Factors Shaping theChoice 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. 20 www.studyMarketing.org Factors Shaping theChoice 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. 21 www.studyMarketing.org Factors Shaping theChoice 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. 22 www.studyMarketing.org Factors Shaping theChoice 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. 23 www.studyMarketing.org Strategic Analysis andStrategic 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?
- 24. 24 www.studyMarketing.org Strategic Analysis andStrategic Choices Analyzing strategically about industry and competitive conditions The Key Questions • What are the industry’s dominant economic features? • What is causing the industry’s 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?
- 25. 25 www.studyMarketing.org Strategic Analysis andStrategic Choices Analyzing strategically about a company’s own situation The Key Questions • How well is the company’s present strategy working? • What are the company’s strengths, weaknesses, opportunities, and threats? • Are the company’s prices and costs competitive? • How strong is the company’s competitive position? • What strategic issues does the company face?
- 26. 26 www.studyMarketing.org Three Tests ofBest Strategy The Performance Test The Competitive Advantage Test The Goodness of Fit Test The Best Strategy
- 27. 27 www.studyMarketing.org • A goodstrategy 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
- 28. 28 www.studyMarketing.org • A goodstrategy 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
- 29. 29 www.studyMarketing.org • A goodstrategy 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
- 30. 30 www.studyMarketing.org Analyzing Industry Environment andDesigning Competitive Strategy
- 31. 31 www.studyMarketing.org Porter’s Five Forces Rivalry Buyer Power Supplier Power Threatsof Substitutes Barriers to Entry
- 32. 32 www.studyMarketing.org The Intensity ofRivalry 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. 33 www.studyMarketing.org Barriers to Entry Entrybarriers are influenced by the following factors : 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
- 34. 34 www.studyMarketing.org Threats of Substitutes Threatsof substitutes are influenced by the following factors : 1. Switching costs 2. Buyer inclination to substitute 3. Price-performance trade-off of substitutes
- 35. 35 www.studyMarketing.org Buyer Power Buyer power isinfluenced by the following factors : 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
- 36. 36 www.studyMarketing.org Supplier Power Supplier power isinfluenced by the following factors : 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
- 37. 37 www.studyMarketing.org Dominant Economic Characteristicsof 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) Sample Form for an Industry and Competitive Analysis Summary
- 38. 38 www.studyMarketing.org Five Generic CompetitiveStrategies 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
- 39. 39 www.studyMarketing.org Five Generic CompetitiveStrategies Overall Low Cost Leadership Strategy Broad Differentiation Strategy Appealing to a broad spectrum of customers based on being the overall low-cost provider of product and service 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. 40 www.studyMarketing.org Five Generic CompetitiveStrategies 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
- 41. 41 www.studyMarketing.org Generic Strategies andIndustry Forces Industry Force Generic Strategies Cost Leadership Differentiation Focus Entry Barriers 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. Buyer Power 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. Supplier Power 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 of Substitutes 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.
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- 43. 43 www.studyMarketing.org Strategy Implementation Building acapable 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
- 44. 44 www.studyMarketing.org Building a CapableOrganization 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
- 45. 45 www.studyMarketing.org 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.
- 46. 46 www.studyMarketing.org Strategy-supportive Corporate Culture Creatinga 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.
- 47. 47 www.studyMarketing.org Strategic Leadership Exerting strategic leadership • Strategicleaders 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.
- 48. 48 www.studyMarketing.org Linking Budget toStrategy 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.
- 49. 49 www.studyMarketing.org 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.
- 50. 50 www.studyMarketing.org Continuous Improvement Instituting best practices and commitment tocontinuous 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.
- 51. 51 www.studyMarketing.org Information Support System Installing information systemto 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.
- 52. 52 www.studyMarketing.org Reference/Recommended Further Reading •Arthur Thompson and A.J. Strickland III, Strategic Management : Concept and Cases, McGraw-Hill. You can obtain this excellent book at this link : http://www.amazon.com/Strategic-Management-Concepts- Arthur-Thompson/dp/0072443715/ref=sr_1_3?ie=UTF8&s=books&qid=1219804406&sr=1-3
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