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Strategic Planning
Dr. Subhodip MitraDept. Of Hospital Administration
KMC, Manipal
Dr. Subhodip Mitra
What is a Planning?
Planning (also called forethought) is the process of thinking about and organizing the activities required to achieve a desired goal.
Dr. Subhodip Mitra
What is a strategy?
“The continuous process of making entrepreneurial (risk-taking) decisions systematically and with greatest knowledge of their futurity, organizing systematically the efforts needed to carry out these decisions, and measuring the result of these decisions against the expectations through organized systemic feedback”
- Peter Druker
Dr. Subhodip Mitra
What is strategic planning?
It is the process of deciding on objectives of the organization, on changes on these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use and disposition of these resources
Dr. Subhodip Mitra
Three important features
1. A shift in orientation from producing services
2. A statement of purpose is not the starting point of planning
3. Understanding that planning and management are concurrent
Dr. Subhodip Mitra
1) Internal environment2) External environment3) Industry analysis4) Enterprise profile5) Orientation, values & vision of execution6) Mission, major objectives and strategic intent7) Development of alternative strategies8) Evaluation of choice of strategies9) Medium and short range planning10)Consistency testing and contingency planning
Strategic Planning Approach
Dr. Subhodip Mitra
Strategic Planning Approach
1. Internal Environment Resources and Weaknesses Strengths in R&D, production, operation,
procurement, marketing, products and services
Human and financial resources Company image, organization structure and
climate Planning and control systems Relations with customers
Dr. Subhodip Mitra
Strategic Planning Approach
2. External EnvironmentThreats and opportunities Evaluation of competitive situationEconomic, social, political, legal, demographic
and geographic factorsTechnological developments and for products
and services in the market
Dr. Subhodip Mitra
3. Industry AnalysisEvaluate the attractiveness of the industryFocus on : Kind of competition in the industry, possibility
of new firms in the market, availability of substitute products or services and bargaining positions of suppliers as well as the buyers or customers
Strategic Planning Approach
Dr. Subhodip Mitra
4. Enterprise ProfileIt is the starting point of for determining
where the company is and where it should goDetermine the mission of the enterpriseClarify it’s geographic orientationAssess the competitive position of their firm
Strategic Planning Approach
Dr. Subhodip Mitra
5. Orientation, values and visions of executivesEnterprise profile is shaped by people They set the organizational climate and
determine the direction of firmCarefully examine their values, preferences
and their attitude towards risks
Strategic Planning Approach
Dr. Subhodip Mitra
6. Mission, Major objectives and strategic intent
Major objectives are the end points towards which the activities of the organization are directed
Strategic intent is the commitment to win in the competitive environment
Prof Gary Hamel and Prof C.K Prahlad analysed companies that achieved global leadership
Intent statement is stable over time and focuses on the essence of winning
Strategic Planning Approach
Dr. Subhodip Mitra
7. Development of Alternative Strategies Specialize or concentrate DiversifyInternational ExpansionJoint ventures and strategic alliances Liquidation Retrenchment
Strategic Planning Approach
Dr. Subhodip Mitra
8. Evaluation of choice of strategies Choices must be considered in light of risks
involved and failure may result in bankruptcyTiming of the strategy must be chosen
carefully Intercommunication of strategies
Strategic Planning Approach
Dr. Subhodip Mitra
9. Consistency testing and contingency planning
Last key aspect of the strategic planning process and essential during all phases
Contingency plans must be prepared as future cannot be predicted with high degree of certainty
Strategic Planning Approach
Dr. Subhodip Mitra
10. Medium and Short-Range planning Not a part of strategic planning process but
must be implemented during all phases of the process
Implementation may require organizing or reengineering the organization, staffing
Providing leadership thorough effective communication
Install controls to monitor performance
Strategic Planning Approach
Dr. Subhodip Mitra
Tools for Strategic Planning
I. TOWS Matrix
II. B.C.G. Matrix
III. Porter’s analysis
IV. SERVO analysis
Dr. Subhodip Mitra
I. TOWS Matrix
• The TOWS matrix is a conceptual framework for a systemic analysis that facilitates matching of the external threats and opportunities with the internal weakness and strengths of the organization.
• Introduced for analyzing the competitive situation of the company or even of a nation that leads to the development of four distinct sets of strategic alternatives.
Dr. Subhodip Mitra
What does TOWS stand for?
• T : Threats • O : Opportunity • W: Weakness • S : Strength
Dr. Subhodip Mitra
Dr. Subhodip Mitra
WT Strategy (Min-Min)
• Aims to minimize both weaknesses and threats and called min-min (minimize-minimize)
• Ex: May require the company to liquidate or it retrenches
Dr. Subhodip Mitra
WO Strategy (Min-Max)
• Minimises the weakness and maximises the opportunities
• A company with a weakness in a certain area may develop those areas or acquire needed competencies to strengthen it
Dr. Subhodip Mitra
ST Strategy (Max-Min)
• Organization uses it’s strengths to deal with threats in the environment
• Use of technological, financial, managerial or marketing strengths to cope with threat
Dr. Subhodip Mitra
SO Strategy (Max-Max)• Most desirable, capitalizes on company’s strengths to
take advantage of opportunities• Aim of all enterprises would be to move from other
positions in the matrix to this one
Dr. Subhodip Mitra
Disadvantages of TOWS matrix
• Certain combinations like SW or OT are not considered
• It only gives the possible strategies that can be implemented, not the best strategy to use
• Does not show interrelationship between the external and the internal factors
Dr. Subhodip Mitra
II. B.C.G. Matrix
• Also called as Boston consultancy group matrix, growth share matrix or product portfolio
• Developed in the early 70’s by the Boston Consultancy Group
• It is the most well known portfolio management tool
• Based on product life cycle theory
Dr. Subhodip Mitra
Relevance of the BCG Matrix
The BCG matrix has two dimensions:
i. Relative position (market share)
ii. Business (or market) growth rate
Dr. Subhodip Mitra
What is the basic idea of the BCG Matrix?
If a product has a bigger market share or if the product’s market grows faster, it is better for the company
Dr. Subhodip Mitra
BCG Matrix contents?
1) Question Mark2)Star3)Cash Cow4)Dog
Dr. Subhodip Mitra
Dr. Subhodip Mitra
Disadvantages of BCG matrix
i. Critics contend that it is too simplisticii. Growth rate criterion has been considered
insufficient for the evaluation of an industry’s attractiveness
iii. The market share as a yardstick for estimating the competitive position may be inadequate
Dr. Subhodip Mitra
III. Porter’s Analysis
• Introduced by Prof. Michael Porter• He suggested four “generic” business strategies
that could be followed in order to gain competitive advantage
• The i)Differentiation leadership and ii)Cost Leadership strategies seek competitive advantage in a broad range of market
• iii)Differentiation focus and iv)Cost Focus strategies are best used in a narrow market or industry
Dr. Subhodip Mitra
Dr. Subhodip Mitra
i) Cost Leadership
• Lowest-cost producer in the industry• Production on a large scale which enables the
targets a boarder market• The firm can compete on the price with every
other industries and earn higher unit profits• Successful if the firm is the cost leader and is
unchallenged in this position• Beneficial when customers are price sensitive
Dr. Subhodip Mitra
ii) Differentiation Leadership
• The business targets much larger markets and aims to achieve competitive advantage across the whole of the industry
• Involves selecting one or more criteria by buyers and positioning the business uniquely to meet those criteria
• It is about giving customers clear reasons to choose their product over others
Dr. Subhodip Mitra
Ways to achieve differentiation leadership?
1. Superior product quality
2. Branding
3. Industry-wide distribution across major channels
4. Consistent promotional support
Dr. Subhodip Mitra
iii) Cost Focus
• Here a firm seeks a lower-cost advantage in just one or small number of market segments
• These firms often enjoys a high degree of customer loyalty and this entrenched loyalty often discourages other firms from competing directly
• They may charge higher cost to their customers since close substitute products do not exist
Dr. Subhodip Mitra
iv) Differentiation Focus
• A firm aims to differentiate within just one or a small number of target market segments
• Market segmentation clearly identifies customer needs and wants and it meets the need of the segment
• It provides the highest quality product with specialist expertise
• It maintains exclusiveness of the product
Dr. Subhodip Mitra
IV. SERVO Analysis
• The SERVO (Strategy, Environment, Resources, Values, Organization) analysis framework model is a diagnostic management tool used to build and test a firm’s strategic decisions and initiatives.
• The interactions and relationships among these five elements are examined
• Helps in strategy formulation and implementation
Dr. Subhodip Mitra
Contd.....
• SERVO allows for broad, integrative, in-depth analysis
• Emphasizes the relationships among actions or decisions.
• Balance between both internal and external dimensions impacting strategy.• ‘Fit’ is critical in the application of this model.
Better • “fit“ leads to better performance
Dr. Subhodip Mitra
Illustration of the ‘fit’ concept
The reality of most organizational situations is that some inconsistencies will exist between the elements over time
Resources and Capabilities Strategy Environment
Dr. Subhodip Mitra
Dr. Subhodip Mitra
Strategy
• Strategy is the set of competitive decisions and actions made in response to the firm’s environment.
• Should identify the firm’s goals and objectives, the product/service and market, the business activities, the value it will offer to customers, and how it will provide superior offerings.
• Strategy within the SERVO model is composed of four elements:
–Goals –Scope –Competitive basis/premise –Business Model
Dr. Subhodip Mitra
Environment – External includes things ‘outside’ the legal boundaries of
the firm. – Internal environment includes stakeholders, forces and
conditions ‘inside’ the firm. • Environment can also be segmented into components in
proximity to the business. –Internal
–Task–Industry–Macro-environment
Dr. Subhodip Mitra
Resources
• Resources:– Assets and capabilities used to generate outputs.
• Includes:– Financial– Human– Physical– Intangible
Dr. Subhodip Mitra
Values
– Analyst must capture the human & social sides of the firm’s leading decision makers.– Values are reflected in the posture and managerial style of the decision maker.– Shared values represent the collective value system that drives a firm’s organizational culture.
• Go beyond the firm’s mission statement by encompassing strategic intent, beliefs, mental mindsets, and future direction.
• Can be the fundamental building block of an organization
Dr. Subhodip Mitra
Organization
– Culture : beliefs, history, modus operandi, stories, traditions, and values. – Leadership: actions & behaviours of top decision makers. – Staffing : attraction, development, motivation, retention, and training of individuals. –Structure : allocation of responsibilities & reporting relationships within a firm. –Systems: flow of primary and secondary activities that are important for daily functioning.
Dr. Subhodip Mitra
Strength of fit:1. Tight (T) – Highest level of performance2. Loose (L) – Lowest level of performance3. Medium (M) – Some decisions in elements support each other, some do not Temporal fit:4. Early (e) - Firm has a new pattern of it between it’s SERVO elements5. Delayed (d) – Firm is slow competitor 6. Normal (n) – Changes at the same time as a “typical” firm
Dr. Subhodip Mitra
Interpretation
The SERVO model is an analytical framework that addresses what is important to strategic thinking.• The analyst will need to consider the key factors associated with the firm, its strategy, and the environment in terms of the five elements.• A strategic problem is present when the fit among the elements is loose, fragile, or broken. • The analyst’s objective is to generate recommendations to decision making clients that will tighten the fit among the loose relating elements.
Dr. Subhodip Mitra
Advantages
– Balances between internal and external factors.– Model departs from ‘structure follows strategy’ and broadens scope.– Recognizes that change requires management of the relationships among ALL five elements of strategic fit.– Inclusive and holistic.
Dr. Subhodip Mitra
Disadvantages
• Model is abstract, not precise.• Can assist with both formulation &
implementation tasks, but does not provide guidance for either.
• Model is difficult to apply. – Inter-relationships between elements are
hard to discern.• Model tends to be static.
Dr. Subhodip Mitra
Applicability of Strategic Planning?
Strategic planning appears to be most effective in panning for growth and for diversification
Dr. Subhodip Mitra
Growth
Extending the area of service by creating or adding a new facility
Provide a new service in the hospital which expands the role of the hospital
Create community awareness by publicizing special services, hoping it will increase the use of hospital facilities
Dr. Subhodip Mitra
Diversification
• May become necessary for:i. Generating capital from non-operating sources of
revenue for financing replacement, expansion or enhancement of technology
ii. Surviving competition iii. Improving hospital’s long term ability to survive
Dr. Subhodip Mitra
Areas of diversification
Related Diversification : Increasing services or enlarging product line. e.g., Outpatient surgery unit, birth centres, commercial lab, emergency centre, ambulance service, hospice day care, sports medicine, etc,.
Unrelated diversification : Investment of finds and capital management of land and property.
Dr. Subhodip Mitra
References
• Essentials of Management by Harold Koontz and Heinz Weihrich (9the)
• Principles and Practice of Management by L.M. Prasad (7the)
• Business and competitive analysis by Craig S. Fleisher and B.E. Bensoussan (1ste)
• Principles of Hospital Administration & Planning by B.M. Sakharkar (2nde)
Dr. Subhodip Mitra