1. Strategic Planning and Strategy Formulation
Mgmt 478
Strategic Planning and
Strategy Formulation
Fall 2005 1

2. Strategic Planning First step to develop strategic thinking
Allows organizations to understand its own direction and purpose and main variables that influence strategy
It provides a framework to formulate and control strategies

3. The BIG picture

4. Strategic Planning Process
 Mission
 Objectives
 Environmental Analysis
 Internal Analysis
 Strategy Formulation
 Control

5. Mission and Vision Objectives External Analysis
Provide direction to the business and includes values, culture, and relation to stakeholders
Objectives
Need to be clear, specific, and measurable
Long and short-term
External Analysis
Determine impact of external variables on firms’ strategy and performance 4

6. Internal Analysis Strategy Formulation Control
Identifies strengths and weaknesses to
determine how they can lead to sustainable
competitive advantage
Strategy Formulation
Series of fits’ determination that include
SWOT analysis to formulate strategies
Control
Prevents, compares, and corrects strategic performance according to objectives established

7. The Strategic Management Process Strategy Formulation
Chapter 3
Internal
Environment
Chapter 2
External
Strategic Intent
Strategic Mission
The Strategic
Management
Process
Strategic
Outcomes
Actions
Strategic
Inputs
Strategy Formulation
Strategy Implementation
Chapter 4
Business-Level
Strategy
Chapter 5
Competitive
Dynamics
Chapter 6
Corporate-Level
Chapter 8
International
Chapter 9
Cooperative
Strategies
Chapter 7
Acquisitions &
Restructuring
Chapter 10
Corporate
Governance
Chapter 11
Structure
& Control
Chapter 12
Strategic
Leadership
Chapter 13
Entrepreneurship
& Innovation
Strategic
Competitiveness
Above Average
Returns
Feedback 10

8. Strategic Planning Process
Vision
Mission
Objectives
SWOT
Analysis
Control
Strategic Planning Process
Feedback
External Environment

9. Mission and Vision
Inspiring statement designed to motivate firm’s stakeholders to agree with top management objectives
Indicates direction and purpose of firm, its main business, unique culture, and relation to employees, stakeholders, and community

10. Sounds Familiar ?
VISION The Iowa State University College of Business aims to become a nationally significant professional school with a nationally prominent faculty providing unique disciplinary and interdisciplinary focuses reflecting the science and technology strengths of Iowa State University, and to be recognized among the top ten Colleges of Business in land-grant universities in the United States

11. COB’s Mission
To prepare tomorrow's business leaders through educational experiences that link theory with practice and reflect the multi-disciplinary demands of a business world that is increasingly global, technologically-oriented, and diverse. These challenging educational experiences result from the discovery activities by the College’s faculty, a challenging learning environment, state-of-the-art technology, and faculty, staff, and students engaged on campus and with the business community .

12. ISU - Strategic plan
Vision:
Create, share, and apply knowledge to make Iowa and world a better place

13. Microsoft mission
To enable people and businesses throughout the world to realize their full potential
The tenets central to accomplishing our mission stem from our core company values: Broad Customer Connection, A Global, Inclusive Approach, Excellence, Trustworthy Computing, Great People with Great Values, Enabling People to Do New Things

14. Starbucks mission
Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.

15. Starbucks mission
The following six guiding principles will help us measure the appropriateness of our decisions: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success

16. Environmental mission statement
Starbucks is committed to a role of environmental leadership in all facets of our business
We fulfill this mission by a commitment to: Understanding of environmental issues and sharing information with our partners. Developing innovative and flexible solutions to bring about change. Striving to buy, sell and use environmentally friendly products. Recognizing that fiscal responsibility is essential to our environmental future. Instilling environmental responsibility as a corporate value. Measuring and monitoring our progress for each project. Encouraging all partners to share in our mission.

17. Mission
Objectives

18. Mission
Objectives
Vision

19. Objectives Need to be clear, specific, and measurable
“To be the best in the market”
To increase market share by 5%
in the following 2 years

20. Environmental Analysis
Determines impact of direct and indirect external variables that impact the institution (Threats & Opportunities)
Direct Variables: Customers, Financial Institutions, Personnel Offer, Competition
Indirect Variables: Economic, Political, Demographic, International

21. Internal Analysis
Determines firm’ s Strengths and Weaknesses and their impact on strategy
It includes analysis of resources, competencies, and competitive advantages

22. Strategy Formulation
 Generic Strategies
Cost
Differentiation
Focus

23. External and Internal Analysis-5
+ 5 
Variable
Variable 
Variable 

24. SWOT Analysis Weaknesses Strengths Threats Opportunities Strategy

25. Evaluation Strategic Measures Accounting Measures Market Share
Sales
Productivity
Quality
Turnover
Innovation !!!
Accounting Measures
Stock price
ROA
ROE
ROI
ROS
Free cash flow

26. Problems with Strategic Planning
Calendar driven
Early consensus on right answer
Adjust data to fit “right answer”
Over commitment of resources
Analysis: preferred choice-confirming analysis
Strategic choices
Array of viable alternatives
Verification assumptions
Prioritize projects allocate resources
From multiple options to analysis to choice

27. Problems with Strategic Planning
See future as linear extrapolation
Lack of focus to develop alternatives
Focus on planning versus implementation
Abandonment
Incomplete/erroneous strategy implementation
Analyze trends, contingencies
Realistic assessment of resources, simplicity
Problem-solving tracking systems
Meeting structures for frequent review
Continuous communication and reinforcement

28. Problems with Strategic Planning
Lack of motivation to implement
Misalignment personal & organizational goals
Misalignment competencies & strategy
Unique focus on strategy, overlooking fit
Inertia
Paralysis because outcome is a plan
Alignment personal and organizational goals
Tie incentives to performance
Invest in employee learning & development
Fit strategy-structure-processes-culture
A priori establishment of accountabilities
Produce a direction and an agenda

29. Strategic Planning can also be applied to individuals
Personal Example

30. My Mission
I want to be happy, wealthy, and successful in every endeavor I undertake in my whole life

31. Developing a Personal Mission
Values
Love, Equity, Kaizen
Culture
Respect, Solidarity, Enjoyment

32. Defining values Successful Wealthy To pay Graduate School for my two
Children “anywhere”
To have $ 1 M for retirement
Stable and joyful family
Publications in Top Journals
Be in top 10 percent among College teachers

33. External Analysis - 5 + 5 US Competition  Complexity   
Standards  
Internationalization  
Latin America 

34. Internal Analysis Ideas Analysis Review Data Writing Submit cc cc
Core Competencies

35. Using Functional Analysis
Operations
Marketing
Finance
Personnel
Defects rate
Complains
Market share
Image
ROA
Stock Price
Turnover
Training
Physical
Professional
Financial
Spiritual
Workout
Dietary
Position/Degree
Promotion
Salary
Savings
Religion
Meditation

36. Internal Analysis Idea generation Working habits Writing Analysis + 5
- 5
Idea generation 
Literature Review  
Working habits
Writing 
Analysis 

37. SWOT Analysis Weaknesses Strengths Threats Opportunities
Writing / Analysis
Strengths
Generation Ideas
Threats
US Competition/ Complexity
Learn to write
Joint Ventures
Outsource Data
Collection
Copy Editor
Apply new ideas
in Latin America
Opportunities
Internationalization
Research & Teach
in Latin America

38. Strategic Management and Strategic Competitiveness
Mgmt 478
Strategic Management and Strategic Competitiveness
Chapter I 1

39. The Challenge
Firms achieve strategic competitiveness when they develop and learn how to implement a value-creating strategy
Firms satisfy all of its stakeholders obtaining returns in excess of what investors expect to earn from other investments with similar levels of risk

40. 21st Century Landscape Globalization Technology
Free movement of factors in one huge, single market
Spread of economic innovations
Result is increased competition
Shorter product cycles because of increasing rates of technological changes and diffusion
Different forms of competition because of changes in IT
Knowledge prevails

41. Knowledge
A firm’s survival depends on the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the company

42. Alternative Models of Superior Returns Industrial Organization Model
Resource-Based Model
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior Returns
Resources
Capability
Competitive Advantage
An Attractive Industry
Strategy Implementation
Superior Returns 31

43. I/O Model of Superior Returns
The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.
This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm. 33

44. I/O Model of Above-Average Returns
Underlying Assumptions
Environment determines strategies
Firms control similar resources
Resources are mobile across firms
Rational managers
Five forces Model

45. Alternative Models of Superior Returns Industrial Organization Model
Actions required
The External Environment
An Attractive Industry
Strategy Formulation
Assets and Skills
Strategy Implementation
Superior Returns
Analysis
Profitable industry
Fit industry-strategy
Develop or acquire
Use firm’s strengths
Maintain strategy 31

46. Resource-Based Model of Superior Returns
The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.
This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate. 41

47. Internal environment more influential
Underlying Assumptions
Resource-based model
Internal environment more influential
Firms acquire different resources and unique capabilities
Resources not highly mobile
Combination / integration resources form Competitive Advantages
Resources integratively perform tasks to develop capabilities

48. Alternative Models of Superior Returns
Resource-Based Model
Actions required
Resources
Capabilities
Competitive Advantage
An Attractive Industry
Strategy Implementation
Superior Returns
Relative to rivals
That outperform
How to create
Locate industry
Exploits resources
Maintain strategy 31

49. Competitive Advantage
Resources and capabilities have the potential to be the basis for competitive advantage when they are valuable, rare, costly to imitate, and nonsubstitutable. When these criteria are met, resources and capabilities become core competencies

50. Strategic Intent
Strategic intent suggests how resources, capabilities, and core competencies will be leveraged to achieve desired outcomes in the competitive environment.

51. Strategic Mission
Strategic mission specifies the product markets and customers a firm intends to serve through the leveraging of its resources, capabilities, and competencies

52. Stakeholders
Strategists need to find ways to insulate the organizations from the demands of stakeholders controlling critical resources

53. Stakeholders:
Groups who are affected by a firm’s performance and who have claims on its wealth
The firm must maintain performance at an adequate level in order to maintain the participation of key stakeholders
Capital Market
Stock market/Investors
Debt suppliers/Banks
Firm
Product Market
Primary Customers
Suppliers
Organizational
Employees
Managers
Non-Managers 59

54. Stakeholder Involvement
Each of the key stakeholders wants a piece of the same pie 1
How do you divide the pie in order to keep all of the stakeholders involved? 2
How do you increase the size of the pie so that there is more to go around? 62

55. Organizational Strategists
Final responsibility for design and execution of strategic management process, ( from a single strategist in a small company to a cadre of top managers in large corporations).
Top managers make decisions about resources, prices, information flow, strategies, scope of operations, and must frequently choose among similarly attractive alternatives

56. Evolution of Strategic Management
Origins
Planning
SWOT
BCG
Objectives
Name changes
External
International IO
Internal
RBV CC
SCA’s
Technology
Innovation
Globalization
Flexibility
knowledge
Strg Mgmt
Industry
Firm