S trategy D esign and P lanning Chapter Outline  The strategic design approach  the strategic planning approach  The Design versus The Planning Model  A Model for strategic planning t

The strategic design approach Seven Premises  strategy formation should be a controlled, conscious process.  the CEO is “the” strategist.  strategy formation must be kept simple and informal. 51

The strategic design approach  Strategies should be unique.  strategy design should be full-blown, not incremental.  strategies should be articulated.  once the first 6 premises are completed the strategy can be implemented. 51

The Strategic Planning Approach 3 premises  strategy formation should be a controlled process.  responsibility rests with the CEO in principle, and executed by staff planners.  strategies emerge full-blown, to be explicated for implementation. 53

differences between the design and planning approaches  the design model emphasizes simplicity and informalness while the planning model uses an intricate array of procedures.  The planning model uses staff planners as major actors, while the design school uses them as minor actors in the implementation process. 53

A combination model The basic Plan Format I. mission statement a. business definition b. long-term objectives b. long-term objectives II. scan of external environment a. industry environment b. macroenvironment b. macroenvironment III. scan of internal environment a. value chain analysis a. value chain analysis b. financial analysis b. financial analysis c. assessment of strengths and weaknesses c. assessment of strengths and weaknesses iv. business strategy statement v. integrated programs The basic Plan Format I. mission statement a. business definition b. long-term objectives b. long-term objectives II. scan of external environment a. industry environment b. macroenvironment b. macroenvironment III. scan of internal environment a. value chain analysis a. value chain analysis b. financial analysis b. financial analysis c. assessment of strengths and weaknesses c. assessment of strengths and weaknesses iv. business strategy statement v. integrated programs 55

i. The mission statement 1. What business should we be in? 2. Why do we exist? 3. What is unique about our organization? 4. Who are our principal customers? 5. What are our principal products/services, present and future? 6. What are our principal market segments, present and future? 55

The mission statement 7. What are our principal outlets/distribution channels, present and future? 8. How is our business different than it was three and five years ago? 9. What is likely to be different about our business three and five years in the future? 10. What are our principal economic concerns? 11. What philosophical issues are important to our future? 12. What special considerations do we have regarding stakeholder groups? 56

Stakeholder groups  owners/ stockholders/ investors/ constituents  board of directors  parent organization  legislative bodies  employees  owners/ stockholders/ investors/ constituents  board of directors  parent organization  legislative bodies  employees  customers/ clients/ users  suppliers  general public  customers/ clients/ users  suppliers  general public 56

Stakeholder groups  owners/ stockholders/ investors/ constituents  board of directors  parent organization  legislative bodies  employees  owners/ stockholders/ investors/ constituents  board of directors  parent organization  legislative bodies  employees  customers/ clients/ users  suppliers  general public  customers/ clients/ users  suppliers  general public

ii. long-term objectives  marketing  profitability  physical and financial resources  productivity  worker performance  management development  innovation  social responsibility  stockholder responsibility  size/ growth/ diversification 57

iii. scan of internal environment and financial analysis  value chain analysis  financial analysis $leverage ratios $liquidity ratios $activity ratios $profitability ratios  value chain analysis  financial analysis $leverage ratios $liquidity ratios $activity ratios $profitability ratios 58

iii. scan of internal environment and financial analysis  value chain analysis  financial analysis $leverage ratios $liquidity ratios $activity ratios $profitability ratios  value chain analysis  financial analysis $leverage ratios $liquidity ratios $activity ratios $profitability ratios

dupont financial analysis sales minus costs 61

dupont financial analysis sales minus costs net profit sales

dupont financial analysis sales minus costs net profit sales net profit margin TIMES asset turnover sales total assets

dupont financial analysis sales minus costs net profit sales net profit margin TIMES asset turnover sales total assets total debt total assets (1-Debt Ratio) [divided by] roi roe

iv. the strategy statement Answers the five questions of:  What should be our future driving force?  How does this differ from our current driving force?  What changes will be needed to meet the future driving force?  How is this compatible with the mission?  How is this compatible with the conclusions from our strategic analysis? Answers the five questions of:  What should be our future driving force?  How does this differ from our current driving force?  What changes will be needed to meet the future driving force?  How is this compatible with the mission?  How is this compatible with the conclusions from our strategic analysis? 61

v. integrated programs The seven Steps  Identify results needed to accomplish each long-term objective.  select 5 to 10 most critical results required to achieve the long-term objective.  reach agreement on each integrated program. 63

integrated programs  Reach agreement on what is needed concerning results, timetable, resource, accountability, and feedback mechanism.  invite review and comment from management levels.  Complete final documentation.  Implement and evaluate.

strategic choice Links strategy formulation to strategy implementation. Choice

strategic choice Links strategy formulation to strategy implementation. Choice

Formulation and Implementation Corporate Strategy : Pattern of purposes and policies defining the company and its business. Formulation (Deciding what to do) Implementation (Achieving Results) 1. opportunity and Risk. 2. material, technical, financial, and managerial resources. 3. personal values and aspirations. 4. Acknowledgment of noneconomic responsibility to society. 1. Organization structure and relationships. 2. Organization processes and behaviors. 3. top leadership Figure 1 68

relating opportunities to resources Matching opportunity and competence. 68

relating opportunities to resources Matching opportunity and competence.

Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Schematic development of economic strategy Figure 2 73

Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Schematic development of economic strategy Figure 2

Environmental Conditions and Trends Economic Technical Physical Social Community Nation World opportunities and risks Identification inquiry assessment of risk Schematic development of economic strategy Figure 2

Environmental Conditions and Trends opportunities and risks Distinctive CompetenceCapability Financial Managerial Functional organizational reputation history Schematic development of economic strategy Figure 2

Environmental Conditions and Trends opportunities and risks Distinctive Competence Corporate resources as extending or constraining opportunity identification of strengths and weaknesses programs for increasing capability Schematic development of economic strategy Figure 2

Environmental Conditions and Trends opportunities and risks Distinctive Competence Corporate resources Consideration of all Combinations Figure 2 Schematic development of economic strategy

Distinctive Competence Corporate resources Consideration of all Combinations Evaluation to determine best match of opportunity and resources Figure 2 Schematic development of economic strategy Environmental Conditions and Trends opportunities and risks

Distinctive Competence Corporate resources Consideration of all Combinations Evaluation to determine best match of opportunity and resources choice of products and markets Schematic development of economic strategy Figure 2 Environmental Conditions and Trends opportunities and risks

Schematic development of economic strategy Environmental Conditions and Trends opportunities and risks Distinctive CompetenceCapability Financial Managerial Functional organizational reputation history Corporate resources as extending or constraining opportunity identification of strengths and weaknesses programs for increasing capability evaluation to determine best match of opportunity and resources Consideration of all Combinations choice of products and markets economic strategy Identification inquiry assessment of risk Economic Technical Physical Social Community Nation World Figure 2 16

Generic versus competitive strategy G eneric Competitive Measure of success Sales growthMarket share Return to the firm Value addedReturn on investment Function Provision of value Maintaining a defensible to the customer position to the customer position Basic strategic tasks Adapting to changeCreating barriers and and innovation deterring rivals and innovation deterring rivals Method of expressing Product/market Policies leading to strategy terms defensible position strategy terms defensible position Basic approach to Study a group of Comparison across rivals analysis businesses over at a given time time time G eneric Competitive Measure of success Sales growthMarket share Return to the firm Value addedReturn on investment Function Provision of value Maintaining a defensible to the customer position to the customer position Basic strategic tasks Adapting to changeCreating barriers and and innovation deterring rivals and innovation deterring rivals Method of expressing Product/market Policies leading to strategy terms defensible position strategy terms defensible position Basic approach to Study a group of Comparison across rivals analysis businesses over at a given time time time Table 1 76

Questions ?