1. Planning, Strategy and Competitive Advantage
Lecture 5
Planning, Strategy and Competitive Advantage

2. Planning and Strategy Planning Strategy
Identifying and selecting appropriate goals and courses of action for an organization
Strategy
A cluster of decisions about what goals to pursue, what actions to take, and how to use resources to achieve goals

3. Three Steps in Planning

4. Why Planning is Important
Planning is necessary to give the organization a sense of direction and purpose.
Planning is a useful way of getting managers to participate in decision making about the appropriate goals and strategies for an organization.

5. Why Planning is Important
A plan helps coordinate managers of the different functions and divisions of an organization to ensure that they all pull in the same direction and work to achieve its desired future state.
A plan can be used as a device for controlling managers within an organization.

6. Levels of Planning at General Electric

7. Levels and Types of Planning
Corporate-Level Plan
Top management’s decisions pertaining to the organization’s mission, overall strategy, and structure.
Corporate-Level Strategy
A plan that indicates in which industries and national markets an organization intends to compete.

8. Levels of Planning and Strategy
Business-Level Plan
Divisional managers’ decisions pertaining to divisions long-term goals overall strategy, and structure
Business-Level Strategy
outlines the specific methods a division, business unit, or organization will use to compete effectively against its rivals in an industry

9. Levels and Types of Planning
Functional-Level Plan
Functional managers’ decisions pertaining to the goals that they propose to pursue to help the division attain its business-level goals
Functional-Level Strategy
A plan of action to improve the ability of each of an organization’s functions to perform its task-specific activities in ways that add value to an organization’s goods and services.

10. Types of Plans Standing Plans Single-Use Plans
Use in programmed decision situations
Policies: general guides to action
Rules: formal written specific guides to action
Standard operating procedures (SOP): specify an exact series of actions to follow
Single-Use Plans
Developed for a one-time, non-programmed issue
Programs, budget

11. Standing versus Single-Use Plans

12. Determining the Organization’s Mission and Goals
Defining the Business
Who are our customers?
What customer needs are being satisfied?
How are we satisfying customer needs?

13. Determining the Organization’s Mission and Goals
Establishing Major Goals
Provides the organization with a sense of direction
Stretches the organization to higher levels of performance
Goals must be challenging but realistic with a definite period in which they are to be achieved
Strategic leadership
the ability of the CEO and top managers to convey a compelling vision of what they want the organization to achieve to their subordinates

14. Planning and Strategy Mission Statement
A broad declaration of an organization’s purpose that identifies the organization’s products and customers and distinguishes the organization from its competitors

15. Planning and Strategy Formulation

16. Formulating Strategy SWOT Analysis
A planning exercise in which managers identify internal organizational strengths and weaknesses, and external opportunities and threats
organizational strengths and weaknesses.
Strengths (e.g., superior marketing skills)
Weaknesses (e.g., outdated production facilities)
external opportunities and threats.
Opportunities (e.g., entry into new related markets).
Threats (increased competition)

17. SWOT Analysis for Starbucks Coffee

18. Industry and Competitive Situation Analysis
Draws out those features in a company’s environment that most directly frame its strategic window of options and opportunities.
Five Competitive Forces (Porter)
Rivalry among competing sellers in the industry
Threat of substitute products and services
Potential new entrants
Power of suppliers
Power of buyers

19. The Five Forces

20. Starbuck’s Five-Force Competitive Analysis

21. Five-Force Competitive Analysis
The bargaining power of customers
buyer concentration to firm concentration ratio
bargaining leverage
buyer volume
Buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integration
availability of existing substitute products
buyer price sensitivity
price of total purchase
The bargaining power of suppliers
supplier switching costs relative to firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
threat of forward integration by suppliers relative to the threat of backward integration by firms
cost of inputs relative to selling price of the product
importance of volume to supplier
The threat of substitute products
buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation
The threat of new entrants
the existence of barriers to entry
Economies of product differences
Brand equity
switching costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation
government policies
The intensity of competitive rivalry
number of competitors
rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity & asymmetry
brand equity
fixed cost allocation per value added
level of advertising expense

22. Business-Level Strategies
Low-cost Strategy (Cost Leadership Strategy)
The firm with the lowest total overall costs has a competitive advantage in price-sensitive markets.
Driving the organization’s total costs down below the total costs of rivals
Differentiation
Distinguishing an organization’s products from the products of competitors on dimensions such as product design, quality or after-sales service
Competing on the basis of features that distinguish one firm’s products or services from those of another.

23. Business-Level Strategies
Focus Strategy:
Concentrating competitive efforts on a particular market segment, product line, or buyer group.
1.Focused Low-cost Strategy
Serving only one segment of the overall market and trying to be the lowest-cost organization serving that segment
2. Focused Differentiation Strategy
Serving only one segment of the overall market and trying to be the most differentiated organization serving that segment

24. Corporate-Level Strategies
Growth Strategies
Concentration
Vertical Integration: Backward / forward integration
Related and Unrelated diversification
1. Concentration on a Single Industry
reinvesting a company’s profits to strengthen its competitive position in its current industry

25. Corporate-Level Strategies
2.Vertical Integration (backward/forward )
expanding a company’s operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes or sells its products.

26. Corporate-Level Strategies
3. Diversification
expanding a company’s business operations into a new industry in order to produce new kinds of valuable goods or services
Related Diversification
entering a new business or industry to create a competitive advantage in one or more of an organization’s existing divisions or businesses
Unrelated diversification
entering a new industry or buying a company in a new industry that is not related in any way to an organization’s current businesses or industries

27. Formulating Corporate-Level Strategies
International Expansion
Basic question:
To what extent do we customize products and marketing for different national conditions?
Global strategy
Selling the same standardized product and using the same basic marketing approach in each national market
Standardization provides for lower production cost.
Ignores national differences that local competitors can address to their advantage.

28. Four Ways of Expanding Internationally

29. International Expansion
Exporting
making products at home and selling them abroad
Importing
selling at home products that are made abroad

30. International Expansion
Licensing
allowing a foreign organization to take charge of manufacturing and distributing a product in its country in return for a negotiated fee
Franchising
selling to a foreign organization the rights to use a brand name and operating know-how in return for a lump-sum payment and a share of the profits

31. International Expansion
Joint venture
strategic alliance among companies that agree to jointly establish and share the ownership of a new business
Wholly Owned Foreign Subsidiary
managers invest in establishing production operations in a foreign country independent of any local direct involvement