For Meghna Ma'Am

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Strategic Planningfor Managers


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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


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Five Tasks of

Strategic Planning


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Five Tasks of Strategic Planning

Forming a

strategic

vision

Setting

objectives

Crafting a

strategy to

achieve the

desired

outcomes

Implementing

and executingthe chosen

strategy

Evaluating

performance,

monitoring new

developments,

and initiating

corrective

adjustments


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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 wewant to become, what industry

standing do we want to achieve in

five years?"


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Setting Objectives

Setting

objectives

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.



ImproveCost Efficiency

Enhance Long-termShareholder Value

Increase Revenue Growth

EnhanceBrand Image

Build HighPerformance Products

Achieve

OperationalExcellence

Develop StrategicCompetencies

Drive Demand

through CustomerRelation Management

Manage Dramatic

Growth throughInnovation

Implement Good

EnvironmentalPolicy

Build LearningCulture

Expand Capabilities withTechnology

Strategic Objectives in Four Perspectives

Financial

Customer

Internal Process

Learning & Growth

ExpandMarket 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 neededorganizational capabilities

how to achieve strategic and financial

objectives



Strategy Implementation and Execution

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



Strategy Evaluation and Monitoring

It is management's duty to stay on top of

the company's situation, deciding

whether things are going well internally,

and monitoring outside developmentsclosely.

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

BusinessStrategies

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

fora 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


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Factors Shapingthe Choice of Strategy


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Factors Shaping the Choice of Strategy

Economic,

societal, political,

and government

regulations

Competitive

conditions and

industry

attractiveness

Company

opportunity and

threat

Company strengthsand weaknesses,

competencies and

capabilities

Personal ambitions

and business

philosophies of key

executives

Shared values andcompany culture

External Factors

Internal Factors

The mix of considerations that determines

a companys strategic situation


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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 regulatoryrequirements, by what is considered

ethical, and by what is in accord with

societal expectations and the standards

of good social and community

citizenship.


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An industry's competitive conditions

and overall attractiveness are big

strategy-determining factors.

A company's strategy has to be tailoredto the nature and mix of competitive

factors in playprice, product quality,

performance features, service, war-

ranties, and so on.

Competitive

conditions and

industry

attractiveness


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A company's strategy needs to be

deliberately aimed at capturing its best

growth opportunities, especially the

ones that hold the most promise forbuilding 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


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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


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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


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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 strategicmoves.

Shared values

and company

culture


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Strategic Analysis and Strategic Choices

Analyzing

strategically

about industry

and competitive

conditions

Analyzing

strategically

about a

companys own

situation

What strategicoptions does the

company

realistically

have?

What is the best

strategy?


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Analyzing

strategicallyabout industry

and competitive

conditions

The Key Questions

What are the industrys dominant economic

features?

What is causing the industrys 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?


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Analyzing

strategicallyabout a

companys own

situation

The Key Questions

How well is the companys present

strategy working?

What are the companys strengths,

weaknesses, opportunities, and threats?

Are the companys prices and costs

competitive?

How strong is the companys competitive

position?

What strategic issues does the company

face?


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Three Tests of Best Strategy

The

Performance

Test

The

Competitive

Advantage

Test

TheGoodness of

Fit Test

The Best

Strategy


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A good strategy 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, andcompetitive capabilities.

Three Tests of Best StrategyThe

Goodness ofFit Test


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A good strategy leads to sustainable

competitive advantage.

The bigger the competitive edge that

a strategy helps build, the more

powerful and effective it is.


CompetitiveAdvantage

Test


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A good strategy 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 andlong-term market position.


PerformanceTest


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Analyzing Industry Environment

and Designing Competitive Strategy


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Porters Five Forces

Rivalry

BuyerPower

Supplier

Power

Threats of

Substitutes

Barriers toEntry


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The Intensity of Rivalry

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

industrycharacteristics:


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Barriers to Entry

Entry barriers

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


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Threats of Substitutes

Threats of

substitutes

are influenced by

the followingfactors :

1. Switching costs

2. Buyer inclination to

substitute

3. Price-performance trade-off

of substitutes


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Buyer Power

Buyer power

is influenced 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


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Supplier Power

Supplier power

is influenced 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


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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 consumersCompetitive Position of Major Companies/ Strategic Groups. Those that are favorably positioned, and why Those that are unfavorably positioned, and whyCompetitor Analysis

Strategic approaches/predicated moves of key competitors

Whom to watch, and whyIndustry 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


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Five Generic Competitive Strategies

Overall Low Cost

Leadership Strategy

Differentiation

Strategy

Focused Low Cost

Strategy

Focused

Differentiation

Strategy

Low Cost Differentiation

Broad Market

Segment

Narrow MarketSegment

Best CostStrategy


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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


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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


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Generic Strategies and Industry Forces

IndustryForce

Generic StrategiesCost Leadership Differentiation Focus

EntryBarriers

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 fewclose alternatives.

Large buyers have less power

to negotiate because of fewalternatives.

SupplierPower

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 ofSubstitutes

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.

RivalryBetter able to compete on

price.

Brand loyalty to keep

customers from rivals.

Rivals cannot meet

differentiation-focused

customer needs.


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Strategy Implementation andExecution


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Strategy Implementation

Building a capableorganization

Designing strategy-

supportive reward system

Creating a strategy-

supportive corporate

culture

Exerting strategicleadership

Linking budget to strategy

Establishing strategy-

supportive policies and

procedures

Instituting best practices and

commitment to continuous

improvement

Installing information systemto support strategy execution

HR & OrganizationDevelopment Factor

System Factor

EffectiveStrategy

Execution


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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


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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.


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Strategy-supportive Corporate Culture

Creating a

strategy-

supportive

corporate

culture

Building a strategy-supportive culture isimportant to successful strategy execution

because it produces a work climate and

organizational esprit de corps that thrive

on meeting performance targets and beingpart of a winning effort.


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Strategic Leadership

Exerting

strategic

leadership

Strategic leaders encourage people to beinnovative 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.


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Linking Budget to Strategy

Linking

budget to

strategy

Reworking the budget to make it morestrategy-supportive is a crucial part of the

implementation process because every

organization unit needs to have the

people, equipment, facilities, and otherresources to carry out its part of the

strategic plan.


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Strategy-supportive Policy

Establishing

strategy-

supportive

policies and

procedures

Prescribing new or freshly revised policiesand operating procedures aids the task of

implementation (1) by promoting

consistency in how particular strategy-

critical activities are performed ingeographically scattered operating units

and (2) by helping to create a strategy-

supportive work climate and corporate

culture.


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Continuous Improvement

Instituting

best practices

and

commitment

to continuous

improvement

Competent strategy execution entailsvisible, 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.


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Information Support System

Installing

information

system to

support

strategy

execution

Company strategies cant be implementedwell 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.


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Reference/Recommended Further Reading

Arthur Thompson and A.J. Strickland III, StrategicManagement : Concept and Cases, McGraw-Hill.

You can obtain this excellent book at this link : http://www.amazon.com/Strategic-Management-Concepts-

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