Week #2: Strategic Planning

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

Problems derive from not knowing : What Strategy is… Nor how to implement it..

What’s the problem? Only 5% of workforce gets the strategy Only 25% of managers have incentives linked to strategy 60% of organizations don't link budgets to strategy 85% of executive teams spend less than 1hour/ month discussing strategy 90% fail to execute strategy successfully Robert S. Kaplan and David P. Norton The Strategy-Focused Organization, 2000

What is Strategy?  A process  A plan  A Set of Goals & Objectives  A Vision  A Coordinating effort  A Management tool  A Set of relationships  A Lecture in BA694

One definition of Strategy:  Stake out a market position  Conduct operations  Attract & satisfy customers  Achieve organizational objectives  Stake out a market position  Conduct operations  Attract & satisfy customers  Achieve organizational objectives Management’s “game plan ”- to

Another Definition… Strategy isthe managerial process of Strategy is the managerial process of: developing & maintaining a strategic fit between the organization's objectives & resources… …..and its changing market opportunities Strategy isthe managerial process of Strategy is the managerial process of: developing & maintaining a strategic fit between the organization's objectives & resources… …..and its changing market opportunities Objectives Resources Strategic Fit

Strategy Involves: Strategic thinking planning & management within & across all levels of the organization

Strategic Thinking : The Big-3 Questions: 1.Where do we want to go? – What business(es) should be in – Market positions to stake out? – Consumer needs & segments serve? – Outcomes to achieve? 2.Where are we now? 3.How do we get there?

Consumers Company Competitors Conditions You have begun … Situation & SWOT Analysis External Opportunities & Threats Internal Strengths & Weaknesses

You are finding answers re:  How the market is segmented & the relevant criteria that influence consumers use in their purchasing decisions  The nature & magnitude of the competition  Existing & emerging Economic & Technological trends that will impact demand, pricing, product design & positioning Consumers Competitors Conditions

thinking After- situation & SWOT analysis … the next & most critical step … oddly enough is – thinking –about the way things have been/ are now… AND- the way things could/should be…

Need to start thinking abt: Where you want to go? * Your Mission & Vision We will produce outstanding financial returns by providing totally reliable, competitively superior, global, air- ground transportation of high-priority goods and documents that require rapid, time- certain delivery."

M ission or Purpose is a precise description of what an organization does. It should describe the business the organization is in. It is a definition of “why” the organization exists A vision is a statement about what your organization wants to become … A compelling description of the state and function of the organization once it has implemented and achieved the strategic plan… A vision is a statement about what your organization wants to become … A compelling description of the state and function of the organization once it has implemented and achieved the strategic plan…

>Strategy & Vision StatementsStrategy & Vision Statements >Strategy & Vision StatementsStrategy & Vision Statements Valuable Strategies & Mission Statements

Then decide-- How you will get there? *Growth, Competitive & Functional Strategies

3 Levels of Strategy In what business do we compete? Corporate-Level : In what business do we compete? Corporation How do we compete? Business-Level : How do 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

Business Unit Competitive Strategy Corporate Growth Strategy Corporate Growth Strategy Marketing Positioning R&D Finance Production Human Resources Functional Strategies

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

Growth Strategy Deciding on what Products & Markets to compete with & in…

Market Penetration Product Development Market Development PresentNew P R O D U C T New M A R K E T Present Growth Strategies Diversification

Increase market share among existing customers. Market Penetration Create new products for present markets Product Development Product Development Concentrate on your primary line of business & look for ways to meet growth objectives thru increasing your level of operation in your primary business Attract new customers to existing products Market Development

Level 2: Business Unit Strategy How do we compete ? Price?Quality? Focus?

Competitive Strategy is the creation of a unique & valuable position- Competitive Strategy is the creation of a unique & valuable position- The position is based on- – Performing the same activities as competitors, but differently or performing a different set of activities Porters Generic Strategies Strategies & Mission Statements

You can also Formulate Strategy by what dimension you compete on: Differentiation: Deliver u nique & superior value in terms of product quality, features, service Cost: Design, produce, market more efficiently than competitors

 Your Competitive Advantage can be: Cost Advantage- Thru Cost Advantage- Offer same benefit as competitor but produced at a lower cost Differential Advantage- Thru Differential Advantage- Offer greater benefits than competitors  Your Competitive Advantage can be: Cost Advantage- Thru Cost Advantage- Offer same benefit as competitor but produced at a lower cost Differential Advantage- Thru Differential Advantage- Offer greater benefits than competitors

You can Formulate Strategy by The number & nature of segments The number & nature of segments compete w/in- All segments Select Segments Evolving Segments

& You can 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 Putting options all together

Competitive Strategies

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

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:

Cost Leadership Strategic Choices A cost leader does not try to be industry innovator A cost leader positions products to appeal to mainstream customers The overriding goal is- increased efficiency & lower costs relative to rivals

Generic Business-Level Strategy:Cost Leadership Advantages – If rivals charge similar prices, a cost leader achieves superior profitability – A cost leader is able to charge a lower price than competitors

An overall cost leader will attempt to be low-cost producer in every segment of the market. will have good profit margins on all sales while keeping prices low for price-sensitive customers. An overall cost leader will attempt to be low-cost producer in every segment of the market. will have good profit margins on all sales while keeping prices low for price-sensitive customers. 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

-- Will seek to minimize costs in marketing & production Products will be allowed to age & change in appeal from High End, to Traditional, and eventually Low End buyers. -- Will seek to minimize costs in marketing & production 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

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:

Generic Business-Level Strategy : Differentiation Create a product that customers perceive as different or distinct in an important way Advantages – Premium price – Increased revenues = superior profitability

Differentiator A differentiator will seek to create maximum awareness & brand equity. Wants to be well known as maker of high quality/highly desirable products A differentiator will seek to create maximum awareness & brand equity. Wants to be well known as maker of high quality/highly desirable products

Differentiation Advantages Customers develop brand loyalty : The greater the loyalty.. The less the price sensitivity… Differentiators can pass price increases on to customers Differentiation and brand loyalty are barriers to entry

Differentiation: Disadvantages Difficulty in maintaining long-term distinction in customers’ eyes – Agile competitors can quickly imitate – Patents & first-mover advantages are limited Difficulty/expense of maintaining premium pricing– requires greater marketing costs

DIFFERENTIATOR w/ HIGH-TECH FOCUS A high-tech differentiator seeks to be top producer of best performing leading-edge products

Competitive Strategies; Focused Differentiation: Focus on particular group or geographic market – Seek differentiation in targeted market segment – Serve special needs of narrow target market

DIFFERENTIATOR w/ PRODUCT LIFE-CYCLE FOCUS A product life-cycle differentiator seeks to be well-known as a top producer of good performing products in each of the targeted segments.

How do we coordinate? Next Week— Level 3- Functional Strategy

M A R K E T I N G M A N A G E M E N T TODAY’S 1.Finish Situation Analysis 2.Draft Mission & Vision Statements 3.Select Growth & Competitive Strategies 1.Finish Situation Analysis 2.Draft Mission & Vision Statements 3.Select Growth & Competitive Strategies

To compete on cost or differentiation… that is the question

Begin writing your initial Business Plan:  Capstone-Developing a Business PlanCapstone-Developing a Business Plan  SBA-Writing a Business PlanSBA-Writing a Business Plan  Business Plan Software, Samples, and StrategyBusiness Plan Software, Samples, and Strategy  Center for Business Planning Center for Business Planning

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