Module 7 – Strategic Planning Chapter 4

Learning Objectives LO1 LO1 Summarize the basic steps in any planning process LO2 LO2 Describe how strategic planning should be integrated with tactical and operational planning LO3 LO3 Describe how strategy is base on analysis of the external environment and the firm’s strengths and weaknesses. LO4 LO4 Discuss how companies can achieve competitive advantage through business strategy 4-2

Learning Objectives (cont.) LO5 LO5 Describe the keys to effective strategy implementation LO6 LO6 Explain how to make effective decisions as a manager. LO7 LO7 Summarize principles for group decision making. 4-3

Basic definitions Strategy – “pattern of actions and resource allocations to achieve the goals of the organization”

Basic definitions Strategic goals Strategic planning Strategic management

Basic Definitions " Strategy is the direction and scope of an organization over the long-term, and which enables the organization to achieve advantage through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations.”

Basic definitions (Stakeholders) – A person, group, or organization that has direct or indirect stake in an organization because it can affect or be affected by the organization's actions, objectives, and policies. – Employees, govt., owners, the community…..

Basic definitions

Operationa l TacticalStrategic 2 new mktsMKTG DeptAdveristingLogisiticsHRSelectionCompensation

In a nutshell Where are we now? Where do we want to go? How will we get there?

Whole bunch of nutshells….. Corporate strategy Business strategies Functional strategies Operating strategies

In another nutshell…… Resource allocations Your weaknesses Your strengths Expected reactions by competitors Expected environ- mental changes

The Strategic Management Process (SWOT) 4-14 S/W O/T

Sources of sustainable competitive advantage Valuable Rare Difficult to imitate Non-substitutable “organized” (?) Core competencies

The Strategic Management Process 4-16

SWOT example SWOT in action

Corporate strategies Concentration Vertical integration Concentric diversification Conglomerate diversification

Business strategy Porter’s 5 Forces

Potential entrants Threat of new entrants PORTER’s 5 FORCES MODEL

Barriers to entry Access to inputs Economies of scale Government policy Brand identity Switching costs Access to distribution Expected retaliation Proprietary products

Potential entrants Threat of new entrants Buyers Bargaining power of buyers PORTER’s 5 FORCES MODEL

Buyer power Buyer volume Buyer information Brand identity Product differentiation Buyer concentration vs. industry Price sensitivity

Potential entrants Threat of new entrants Buyers Bargaining power of buyers Substitute products Threat of substitutes PORTER’s 5 FORCES MODEL

Threat of substitutes Switching costs Buyer inclination to substitute Price-performance trade-off of substitutes

Potential entrants Threat of new entrants Suppliers Bargaining power of suppliers Buyers Bargaining power of buyers Substitute products Threat of substitutes PORTER’s 5 FORCES MODEL

Supplier power Supplier concentration Differentiation of inputs Cost relative to total purchases Switching costs

Industry competitors Rivalry among existing firms Potential entrants Threat of new entrants Suppliers Bargaining power of suppliers Buyers Bargaining power of buyers Substitute products Threat of substitutes PORTER’s 5 FORCES MODEL

Intensity of competitor rivalry Very high strategic stakes Large number of firms Diversity of rivals Slow market growth High fixed cost Short shelf-life Low switching costs

Target Scope Advantage Low Cost Product/Service Uniqueness Broad (Industry wide) Cost Leadership Strategy (Sam’s) Differentiation Strategy (Toyota) Narrow (Market segment) Focus Strategy (low cost) (Dollar General) Focus Strategy (differentiation) (Tiffany’s)

Strategies for Gaining Sustainable Competitive Advantage Cost leadership – Requires efficiency throughout – Same price, higher margins – Lower price, greater mkt share – All wages low? – Threat?

Strategies for Gaining Sustainable Competitive Advantage Differentiation – TREAD SOFTLY – Customer service, technological superiority – Changing the rules – Increased costs means must have higher price

Strategies for Gaining Sustainable Competitive Advantage Focus – Unique market niche – Premium price/differentiation – Great customer loyalty (why?) – Ex: Bad-credit finance companies, big & tall men’s shops, petite dress shops

Does it work???? Criticism #1 – Assumes the world will "hold still while a plan is being developed and then stay on the predicted course while that plan is being implemented." Criticism #2 – Manage by objective measures of hard data, Criticism #3 – Inflexibility – Focus on goals set, not goals that should be set Criticism #4 – Monkey see, monkey do…. – Bellbottoms and pet rocks