1. Strategic Planning

2. Where are we?

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

4. Situation & SWOT Analysis C onsumer C ompany C ompetitors C onditions Begun-Step # 1

5. 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

6. Your Company’s:

7. Situation & SWOT Analysis answers 1 st of 3 Critical Questions: Where are we now?

8. 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

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

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

11. Org. goals & objectives encapsulated in Mission & Vision Statement answers 2 nd Question: 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 ?

12. 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…

13. Select w/ which of the Six Basic Strategies you are going to competeSix Basic Strategies Draft- your Mission & Vision statementsMission Vision Determine Functional Tactics & Objectives Marketing R&D Production HR, TQM Financial This week’s assignments

14. Writing Mission & Vision Statements

15. Avoid Mission Myopia Short sightedness by firms that define their business too narrowly

16. Marketing Myopia Examples Myopic Description : Railroad company Railroad company Electricity company Electricity company Television network Television network Broad Description : Transportation Co. Transportation Co. Power company Power company Entertainment provider Entertainment provider

17. Market Oriented Vision / Missions COMPANY PRODUCT-ORIENTED VISION/MISSION STATEMENTS MARKET-ORIENTED VISION/MISSION STATEMENTS Revlon We make cosmetics. Disney We run theme parks. Philip Morris We Sell Cigarettes We sell hope…we accent a lifestyle & self expression; We make people happy.. by providing fantastic experiences & entertainment We provide “Life's Simple Pleasures.

18. Key objective areas Market standing Innovation Productivity Resource levels Profitability Manager performance & development Worker performance & attitude Social responsibility

20. Types of objectives Profitability Growth Market share Social responsibility Employee welfare Product Quality Service R&D Diversification Efficiency Financial stability Resource conservation Mgt & labor development

22. Mission Statement 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."

23. “PepsiCo’s overall mission is to increase the value of our shareholders’ investment. We do this through sales growth, cost controls and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity.”

24. >Strategy & Vision StatementsStrategy & Vision Statements >Strategy & Vision StatementsStrategy & Vision Statements Valuable http://www.bplans.com/dp/missionstatement.cfm Capstone: Strategies & Mission StatementsStrategies & Mission Statements

25. 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

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

27. 3 rd Q- Encompasses 3 Levels of Strategy 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

28. Business Unit Competitive Strategy Corporate Growth Strategy Corporate Growth Strategy MarketingR&D Finance Production Human Resources Functional Strategies

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

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

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

32. 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

33. To Concentrate or Diversify… that is the question…

34. 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

35. new products… new markets… new alliances Diversification Or Diversify…

36. Market Penetration Product Development Market Development PresentNew P R O D U C TS New M A R K E TS Present Or Diversify … n Diversification

37. Related Diversification Operational Skills-Capabilities Distribution Channels Customer Profile Similar Technology Product Similarities Related Diversification if opportunities exist to: Transfer expertise/ capabilities/ technology Combine related activities into single operation & reduce costs Leverage use of firm’s brand name reputation Related Diversification if opportunities exist to: Transfer expertise/ capabilities/ technology Combine related activities into single operation & reduce costs Leverage use of firm’s brand name reputation

38. Examples of Related Diversification Darden Restaurants – Olive Garden – Red Lobster – Bahamas Breeze Johnson & Johnson – Prescription drugs – Non-prescription drugs (Tylenol, pepcid AC) – Band-aids – Baby products PEPSICO – Soft drinks – Fruit Juices – Snack foods (Fritos, Lays, Cracker Jacks)

39. Involves diversifying into businesses with – No strategic fit – No meaningful value chain relationships – No unifying strategic theme Approach is to venture into “ any business in which we think we can make a profit” Firms pursuing unrelated diversification are often referred to as conglomerates Involves diversifying into businesses with – No strategic fit – No meaningful value chain relationships – No unifying strategic theme Approach is to venture into “ any business in which we think we can make a profit” Firms pursuing unrelated diversification are often referred to as conglomerates Unrelated Diversification

40. Examples of different levels of Unrelated diversification 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

41. Diversification via- Merger & Acquisition A popular approach to diversification- altho only ~20% succeed -- M&A activity in 2004 was worth more than $1 trillion Advantages Quicker entry into target market Easier to hurdle certain entry barriers – Technological inexperience – Gaining access to reliable suppliers – Being of a size to match rivals in terms of efficiency and costs – Getting adequate distribution access A popular approach to diversification- altho only ~20% succeed -- M&A activity in 2004 was worth more than $1 trillion Advantages Quicker entry into target market Easier to hurdle certain entry barriers – Technological inexperience – Gaining access to reliable suppliers – Being of a size to match rivals in terms of efficiency and costs – Getting adequate distribution access

42. Diversification via- Joint Ventures & Strategic Alliances Good way to diversify when: Uneconomical/ risky to go it alone Pooling competencies for more competitive strength Foreign partners needed to surmount – Import quotas and Tariffs – Nationalistic political interests – Cultural roadblocks – Lack of knowledge about markets in particular countries

43. 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

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

45. 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?

46. 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

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

48. 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

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

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

51. & 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-

52. 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 &…

53. 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

54. 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:

55. Select w/ which of the Six Basic Strategies you are going to competeSix Basic Strategies Draft- your Mission & Vision statementsMission Vision Determine Functional Tactics & Objectives Marketing R&D Production HR, TQM Financial This week’s assignments

56. 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

57. Cost Leadership Actions necessary to gain & maintain position: 1. Economies of scale thru utilization of excess capacity. 2. Automation / utilization of robotics in manufacturing processes. 3. Development of efficient distribution networks. 4. Implementation of TQM (Total Quality Management) initiatives. Example: Dell

58. 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

59. 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

60. -- 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

61. 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

62. 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:

63. 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

64. 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.

65. Differentiation Actions necessary to gain / maintain position : 1. Developing innovative products/services to broad range of customers. 2. Significant investments in R&D. 3. Capability to generate a series of successful new products over time. 4. Development of flexible manufacturing systems. Example: Toyota

66. 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

67. Differentiation: Disadvantages Difficulty in maintaining long-term distinction in customers’ eyes – Agile competitors can quickly imitate Difficulty/expense of maintaining premium pricing– requires greater marketing costs

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

69. 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

70. Level 3 Functional Strategy How do we coordinate?

71. The Big Picture C ompanyC ompany C onsumersC onsumers C ompetitorsC ompetitors C onditionsC onditions PEST PEST Growth & Competitive Strategies Finance HR 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

72. 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

73. 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.

74. … after divining strategy still have task of implementation & performance Marketing Strategy Marketing Performance Implementation Climate and Culture Training & Reward Programs Organizational Structure Human Resources Communicate Motivate Coordinate

75. The Recurring Problem… Only 5% of workforce “on board” w/ 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, 2000

76. Problem : 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

77. 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

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

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

80. In order to execute & achieve selected growth & competitive strategies--Need to coordinate decisions across all Functional domains Marketing Production Finance R&D HR

81. Examples of Strategic Alignment

82. Functional Alignment: In Achieving Cost Efficiency

83. Functional Alignment: Implementing Differentiation Strategy

84. Functional Alignment: In Achieving Superior Innovation

85. Functional Alignment: Superior Customer Rlshps

87. 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

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

89. 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

90. Distinct Competencies Competencies in automation & human resources could lead to a competitive advantage in cost leadership.

91. 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

92. Distinct Competencies Competencies in awareness, accessibility & design could lead to a competitive advantage built upon differentiation

93. 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

94. 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

95. 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…

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

97. 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…

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

99. Getting it together

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

101. Select w/ which of the Six Basic Strategies you are going to competeSix Basic Strategies Draft- your Mission & Vision statementsMission Vision Determine Functional Objectives & Tactics Marketing R&D Production HR, TQM Financial This week’s assignments

102. Competitive Strategy:ND Strategic Objectives Marketing Spend aggressively in promotion & sales in Hitech segments…. make our products easy for customers to find... price at a premium. In the low tech segments we”ll exit gracefully, … as they exit the Low End R&D We will keep our existing HiTech products (HI, PRF, & SIZE), phase out TRAD and LO, and introduce a new brand in the High End segment. Our goal is to offer technology oriented customers products that match their ideal criteria for positioning, age, and reliability Production Grow capacity to meet demand … avoid overtime After products well positioned, investigate modest increases in automation levels to improve margins, but keep ability to reposition products HR Spend aggressively on recruitment, training; minimize labor T/O w/ +wage & benefit packages; Focus TQM & Process initiatives on reducing labor & material costs, R&D time and enhancing effectiveness of promo & sales budgets… Finance We”ll finance investments primarily thru stock issues, retained earnings, supplement w/ bond offerings as needed.. When our cash position allows- issue dividends & retire stock.-We are adverse to debt & prefer to avoid interest payments. We’ll keep assets/equity (leverage) betw. 1.5 - 2.0. We measure performance w/ ROS, Asset T/O,& ROA.

103. Competitive Strategy:ND Tactics Year 1 Marketing TRAD – increase price, make modest cuts in promotion and sales budget. Forecast a modest reduction in unit sales compared to last year. Example: price $28.50, promotion budget $600, sales budget $600, and sales forecast 1000. LO – increase price, make modest cuts in promotion and sales budget. Forecast a modest reduction in unit sales compared to last year. Example: $23.50, promotion budget $600, sales $800, and sales forecast 1400. HI – increase price, promotion budget and sales budget. Forecast flat unit sales. Example: $39.50, promotion budget $1900, sales $1900, sales forecast 400. PRF – increase price, promotion budget and sales budget. Forecast flat unit sales. Example: $34.50, promotion budget $1900, sales $1900, sales forecast 440. SIZ –increase price, promotion budget and sales budget. Forecast flat unit sales. Example: $34.50, promotion budget $1700, sales $1700, sales forecast 390. New HI – no action required because the product will not emerge from R&D until next year.

104. Competitive Strategy:ND Tactics Year 1 R&D TRAD – tweak positioning to reduce age. Reduce reliability to reduce material cost. Example: Increase Performance by 0.1 and reduce MTBF by 1000 hours. LO – leave positioning alone, allowing the product to age further. Reduce reliability to reduce material cost. Example: reduce MTBF by 1000 hours.. HI – improve positioning and reduce age. Hold reliability (MTBF) steady. Example: reduce Size by 1.2, and increase Performance by 1.2. PRF – improve positioning and reduce age. Improve reliability to enhance demand. Example: Increase Performance by 1.4, reduce Size by 0.5, and increase MTBF by 1000 hours. SIZE – improve positioning and reduce age. Hold reliability (MTBF) steady. Example: Reduce Size by 1.4, and increase Performance by 0.5. New HI – Launch a new High End product, with a project length of 20 to 23 months (no later than December of next year.) Example: positioned at leading edge of High End segment, -- Performance 10.2, Size 9.8. Set MTBF in the middle of the High End reliability range: MTBF 23,000.

105. TACTICS -Example: decision matrix- to add a new High End product… R&D What= A New product- Size coordinate = 10. Performance coordinate = 11. MTBF = 25,000 hours. When Due out in 2009 MARKETING What= Competitively Price @ $35. Promo :target 68% Awareness (50% @intro +18% will cost=$2M) vehicle-allocation= web, email & Trade Shows. maintain hi-level Distribution w/ Sales budget = $1.4M When 2009. PRODUCTION Purchase capacity in 2008 What Produce 75,000 units at automation level of 3. When Ready by second month of 2009. How Purchase capacity in 2008. HR What make appropo investments in recruiting & training and TQM FINANCE What Finance $11M. When NOW. How Issue long term debt.

106. Poor tactics undermine a good strategy Poor tactics undermine a good strategy Good tactics can overcome a “losing” strategy Good tactics can overcome a “losing” strategy Poor tactics undermine a good strategy Poor tactics undermine a good strategy Good tactics can overcome a “losing” strategy Good tactics can overcome a “losing” strategy - No "magic bullet " guaranteed winning strategy. Each simulation has a unique competitive dynamic. Successful contingent on planning, strategic alignment, teamwork, competitor analysis, & tactical adjustments.