Strategic Planning

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

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

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

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,

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

What makes a decision strategic? Multi- functional in scope & consequences Requires choice & trade-offs, integration & alignment

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

The Big Picture C ompanyC ompany C onsumersC onsumers C ompetitorsC ompetitors C onditionsC onditions PEST PEST Growth & Competitive Strategies Finance Production R&D Marketing  Profits  Mrkt Share  ROA  ROS  ROE  Asset T/O  Stock  Mrkt Cap Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment HR

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

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

Org. goals & objectives encapsulated in Mission & Vision Statements: Answers Question # 2: 2. Where do we want to go? – What business(es) should be in – Market positions to stake out? – Consumer needs & segments serve? – Outcomes to achieve ?

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

G rowth, C ompetitive & F unctional Strategies Span 3 Levels of MGT In what business should we compete? Corporate-Level : In what business should we compete? Corporation How should we compete? Business-Level : How should we compete? Sensors Unit Nano-Tech Unit Cons.Elec. Unit How do we coordinate? Functional-Level : How do we coordinate? Finance HR / R&D ProductionMarketing

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

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

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

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

2 nd Level of Strategy Business unit Level Business unit Level Corporate Level Corporate Level Research & development Information systems FinanceMarketing Manufacturing Human resources Functional strategy

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

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

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

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

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

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

Generic Strategies Competitive Advantage Competitive Scope CostUniqueness Broad target Narrow target Cost Leadership BroadDifferentiation Focused Cost Leadership Focused Differentiation

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

1. Cost/Quality Differentiation 2. Number & nature of segments 2. Number & nature of segments compete w/in 3. Riding the Product Life Cycle Put them all together &…

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

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

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

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

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

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

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

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

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

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

Level 3 Functional Strategy How do we coordinate?

The Big Picture C ompanyC ompany C onsumersC onsumers C ompetitorsC ompetitors C onditionsC onditions PEST PEST Growth & Competitive Strategies Finance Production R&D Marketing  Profits  Mrkt Share  ROA  ROS  ROE  Asset T/O  Stock  Mrkt Cap Situation/SWOT Analysis Strategic Planning Functional Integration Performance Assessment HR

INTERNAL STRATEGIC ALIGNMENT MARKETING PRODUCTION FINANC E 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 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

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

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… 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

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

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 MARKETING: Awareness & Accessibility R&D: Product innovation & design PRODUCTION: Plant Automation & utilization Human Resources: Worker Expertise & Training

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 Seeks to create maximum awareness & brand equity. Wants to be well known as a maker of high quality/highly desirable products Seeks to create maximum awareness & brand equity. Wants to be well known as a maker of high quality/highly desirable products 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 Functional Alignment

Virtually all tactical mistakes that are made when implementing strategy are a consequence of the lack of synchronization of decisions made in at least two functional areas

R&D and Production breakdown You develop a new product but forget to buy plant & equipment for it…the year before it is to be launched…

Marketing, Production & Finance out of sync The company takes an emergency loan because inventory levels increase…

Marketing, R&D, and Production out of sync You reposition a product from the High End to the Traditional segment, but do not address their material & labor costs…

Everybody is out of sync! Financial decisions are made before knowing the budget demands of all R&D, Marketing and Production decisions…

Need to begin to determine the overall objectives & specific tactical decisions… that need to be made within & across each management domain …in order to successfully implement your growth & competitive strategies Need to begin to determine the overall objectives & specific tactical decisions… that need to be made within & across each management domain …in order to successfully implement your growth & competitive strategies

Select w/ which of the Six Basic Strategies you are going to competeSix Basic Strategies Draft- Marketing R&D Objectives & TacticsMarketing R&D Production & HR Objectives & Tactics Production & HR This week’s assignments:

Diff Strategies Play into Different Success Measures ProfitMSSP & MC ROE pf/e ROS pf/s AT s/a ROA pf/a BCL L=2-3 XXXX Cost- Niche & PLC XXX B-Diff L=1.5-2 XXXX Niche- PLCDiff XXXX Cost Strategy = higher leverage/more investment/ more assets/more debt/ less equity Differentiation Strategy =lower leverage/less investment/ less assets All Segments= more sales & thus enable greater Cum. profit & overall market share Focused Strategies should operate more effectively & have overall less sales