Strategic Planning

Definition: Strategic Planning= A series of goal-directed decisions & actions matching your skills & resources (strengths & weaknesses) w/ market threats & opportunities

LONG RUN PROFITABILITY AND GROWTH Strategic Planning LONG RUN PROFITABILITY AND GROWTH RESOURCES & OBJECTIVES EVOLVING MARKET OPPORTUNITIESand/or threats

“If you don’t know where you are going any route will get you there.” Chris Bartlett, Harvard Business School

Benefits of “Strategic Planning” Guides entire firm regarding -what it is you are trying to do & achieve Unifies numerous strategy-related decisions and organizational efforts objectives Strategy Operations

What makes a decision strategic? Multi-functional in scope & consequences Requires choice & trade-offs, integration & alignment entrepreneur theorizing develop a view of the world and how you fit in it Environmental Scanning 6 12 12

Forces you to make choices on what you will & won’t do

Separation of Strategic Planning & Marketing Implementation Very Much Strategic Planning Commitment Understanding Responsibility Time Spent Strategy Implementation Very Little Chief Executive Officer Mid-level Managers Customer Contact

90% fail to execute strategy successfully The Problem… Only 5% of workforce aware of “the” strategy Only 25% of managers have incentives linked to strategy 60% of organizations don't link budgets & strategy 85% of executive teams spend <1 hour/ month discussing strategy 90% fail to execute strategy successfully Robert S. Kaplan and David P. Norton The Strategy-Focused Organization,

Situation/SWOT Analysis Performance Assessment The Big Picture Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment Company Consumers Competitors Conditions PEST Marketing Growth & Competitive Strategies Profits Mrkt Share ROA ROS ROE Asset T/O Stock Mrkt Cap R&D Production HR Finance

Situation & SWOT Analysis answers 1st of 3 Critical Questions:

Strategic Planning answers next 2 critical Q’s 1.Where are we now? 2.Where do we want to go? 3.How do we get there?

2. Where do we want to go? What business should we be in? Market positions to stake out? Consumer needs & segments serve? Outcomes to achieve?

3.How do we get there? Final Question answered by Strategic Planning: 1.Where are we now? 2.Where do we want to go? 3.How do we get there? *Growth, Competitive & Functional Strategies

Growth, Competitive & Functional Strategies Span 3 Levels of MGT Corporate-Level : In what business should we compete? Corporation Business-Level : How should we compete? Sensors Unit Cons.Elec. Unit Nano-Tech Unit Functional-Level : How do we coordinate? Finance HR / R&D Production Marketing

Level 1-Corporate Strategy In which businesses do we compete? Corporation Corporation ?

DIAGEO PLC Textron Bell helicopters E-Z-GO golf cars Jacobsen turf care United Technologies Pratt & Whitney aircraft engines Cessna Aircraft Carrier Heating & AC Otis Elevators DIAGEO PLC Burger King Guinness Old El Paso Mexican food Green Giant Liquor

Once decided what businesses to compete in –need to decide - what Products & Markets to compete w/& in= Growth Strategy

Growth Strategies Present Products New Products Market Penetration- Increase share among existing customers. Product Development Create new products for present markets Present Markets Market Development Attract new customers to existing products New Markets Diversification new products… new markets… new alliances

Competitive Strategies Span Level 2 of MGT Corporate-Level : In what business should we compete? Corporation Business-Level : How should we compete? Sensors Unit Cons.Elec. Unit Nano-Tech Unit Functional-Level : How do we coordinate? Finance HR / R&D Production Marketing

Level 2: Business Unit Strategy: How do we Compete? STRATEGIC BUSINESS UNIT COMPETITOR A B C MARKET Focus? Quality? Price?

What Advantage can we create & sustain against our competitors? & w/in which Market Segments should we compete?

Strategic Thinking- the ten big ideas 6. Resource allocation models – Porter: strategic choices are set of basic generic strategies (low cost, differentiation, market focus)

Porters Generic Strategies Strategies & Mission Statements Porter “What is Strategy” Porters Generic Strategies Strategies & Mission Statements

Design, produce, market more efficiently than competitors You can Formulate Strategy based on what Competitive advantage you focus on: Cost: Design, produce, market more efficiently than competitors Differentiation: Deliver unique & superior value in terms of product quality, features, service

Business-Level Strategy:Cost Leadership Advantages A cost leader is able to charge lower prices Even at same price more efficient cost leader generates greater profitability

Generic Business-Level Strategy: Differentiation Create a product that customers perceive as distinct/unique & offer superior quality/service Advantage Customers expect & willing to pay premium prices

You can Formulate Strategy thru your Competitive Scope: Number & Nature of segments compete w/in-

Focused Cost Leadership Focused Differentiation Generic Strategies Competitive Advantage Cost Uniqueness Cost Leadership Broad Differentiation Broad target Competitive Scope Five Generic Strategies Business-Level Strategy (p. 141) Firms choose from among five business-level strategies (see Figure 5.1 in the text) to establish and defend their desired strategic position against rivals: • Cost leadership • Differentiation • Focused cost leadership • Focused differentiation • Integrated cost leadership/differentiation Examples of cost leadership and differentiation strategies are discussed on later slides. Focused Cost Leadership Focused Differentiation Narrow target

& You can also Formulate Strategy by-Riding a Products Life Cycle Adjust Marketing Mix according to natural Drift of products w/in segments-

Put them all together &… Cost/Quality Differentiation Number & nature of segments compete w/in Riding the Product Life Cycle

Competitive Strategy Matrix Number & nature of segments compete w/in Ride Product LifeCycle #2 #3 Compete on: Broad Market Niche Mrkt Evolving Mrkt Cost Competitive Strategy Matrix #1 Product Quality

Competitive Strategy Matrix Broad Mrkt Niche Mrkt Evolving Mrkt Compete on: Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC Lo+Trad+Hi Differentiator- Differentiator Hi- End Focus Differentiator- PLC Cost Product Quality

Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC Lo+Trad+Hi An overall cost leader will attempt to be low-cost producer in every segment of the market.

-- seeks to dominate the price sensitive market segments. Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC Lo+Trad+Hi -- seeks to dominate the price sensitive market segments. --sets prices below all competitors — and still be profitable

Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC Lo+Trad+Hi Products will be allowed to age & change in appeal from High End, to Traditional, and eventually Low End buyers.

Competitive Strategy Matrix Broad Mrkt Niche Mrkt Evolving Mrkt Compete on: Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC Lo+Trad+Hi Differentiator- Differentiator Hi- End Focus Differentiator- PLC Cost Product Quality

Broad Differentiation Differentiation - PLC Niche Differentiation Hi -Tech Focus Differentiation - PLC Lo+Trad+Hi match customers ideal criteria for positioning, age, and reliability.

3rd Level of Strategy Functional Strategy Marketing Corporate Level Business unit Level Functional Strategy Information systems Research & development Manufacturing Finance Marketing Human resources

Level 3 Functional Strategy How do we coordinate?

Situation/SWOT Analysis Performance Assessment The Big Picture Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment Company Consumers Competitors Conditions PEST Marketing Growth & Competitive Strategies Profits Mrkt Share ROA ROS ROE Asset T/O Stock Mrkt Cap R&D Production HR Finance

INTERNAL STRATEGIC ALIGNMENT FINANCE Achieved when : All Decisions made by & within all functional areas are in sync w/ one another, As well as with the overall strategic direction of the firm PRODUCTION MARKETING

For INTERNAL STRATEGIC ALIGNMENT to occur: Marketing/R&D must be operating in a manner that is complementary to Production Which is complementary to Human Resources Which is complementary to Finance.

Examples of Strategic Alignment NOTES:

Distinctive Competencies Distinctive Competencies When all decisions made by & within all functional areas are in sync w/ one another, As well as w/ your overall strategic direction -- you achieve… Distinctive Competencies Distinctive Competencies

Distinct competencies needed to achieve selected competitive strategy Advantage* Distinctive Competencies *Achieved when you sustain profits above Industry Average

Areas in which you can develop “Distinct Competencies” MARKETING: Awareness & Accessibility R&D: Product innovation & design PRODUCTION: Plant Automation & utilization Human Resources: Worker Expertise & Training

Cost Leadership Strategic Choices A cost leader does not try to be industry innovator The overriding goal is- increased efficiency & lower costs relative to rivals Will seek to minimize costs in marketing, R&D & production

Achieving Competitive Advantage thru Cost-Focused Strategy Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments… Functional Alignment Production Automation - pursued early & aggressively Capacity improvements unlikely (may run overtime instead) Marketing Spend moderately on promotion & sales R&D Spend minimally on R&D

Differentiator Will have significant expenditures in R&D & production….Because you want/need to make high quality/highly desirable product Will have significant expenditures in marketing… Because you need to create maximum awareness & brand equity.

Differentiator Seeks to create maximum awareness & brand equity. Wants to be well known as a maker of high quality/highly desirable products Functional Alignment Production Less likely to invest in increased automation or production capacity Marketing Spend heavy on advertising & sales to create maximum awareness & accessibility Prices tend to be higher R&D High R&D spending - keep products fresh

Differentiation Advantage … as you develop greater brand equity —thru increased product quality & awareness …. You develop greater brand loyalty…. The greater the loyalty.. the less the price sensitivity

Select one of the Six Basic Strategies