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BBA 473
Strategic Planning and
Policy Analysis
Course Objective
• To look at an organization from the CEO’s perspective and to understand the necessity of leadership and entrepreneurship in an organization. The organizations strengths, weaknesses, opportunities and threats must be analyzed in order to formulate a strategic plan of action, goals, and controls to meet those goals.
Course Outcomes
• Develop the student’s capacity to think strategically about a company, its business position, and how it can gain sustainable competitive advantage.
• Build skills in conducting strategic analysis in a variety of industries, especially to provide the student with a stronger understanding of competitive challenges.
Course Outcomes
• Give students hands on experience in crafting business strategy, reasoning carefully about strategic options, using what-if analysis to evaluate alternatives, and making strategic decisions.
• Improve student’s ability to manage the organizational process by which strategies get formed and executed.
Course Outcomes
• Integrate the knowledge gained in earlier core courses in the business school curriculum.
• Develop powers of managerial judgment and improve ability to create results oriented action plans.
• Elevate importance of ethical principles, personal and company values.
What is Strategic Management?
“If you don’t know where you’re going, you’re liable to wind up
someplace else!”
-- Yogi Berra
“Plans are nothing;planning is everything!”
-- Dwight D. Eisenhower
What do we mean by strategy?
• Strategy is grounded in the array of competitive moves and business approaches management depends on to produce successful performance.
• Strategy is management’s game plan for strengthening the organization’s position, pleasing customers, and achieving performance targets.
Without a strategy,managers have:
No thought-out course to follow
No roadmap to manage by
No action program to produce the intended result
Good strategy andgood strategy execution
are the most trustworthy signsof good management.
Three FundamentalStrategic Questions
• Where are we currently?
• Where do we want to be in the future?
• How will we get there?
Strategic planning is a “disciplined effort to produce
fundamental decisions and actions that shape and guide
what an organization is,what it does, andwhy it does it.”
Benefits of Strategic Planning
• Increased effectiveness• Increased efficiency• Improved understanding and better learning• Better decision making• Enhanced organizational capabilities• Improved communications and public relations• Increased political support
What does a company’sstrategy consist of?
• How to satisfy customers– Broad or narrow product line?– Amount of customer service provided?
• How to grow the business– Concentrate on a single business strategy?– Diversify into related or unrelated industries?– Expand globally?
Company strategies concern:
• How to respond to changing industry and market conditions
• How best to capitalize on new opportunities
• How to manage each functional piece of the business
• How to achieve strategic and financial objectives
Sustained Competitive AdvantageSustained Competitive Advantage
Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects to Returns in excess of what an investor expects to earn from other investments with similar riskearn from other investments with similar risk
Occurs when a firm develops a strategy that Occurs when a firm develops a strategy that competitors are not simultaneously implementingcompetitors are not simultaneously implementing
Provides benefits which current and potential Provides benefits which current and potential competitors are unable to duplicatecompetitors are unable to duplicate
Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulates Achieved when a firm successfully formulates and implements a value-creating strategyand implements a value-creating strategy
which are required for firms to achieve:which are required for firms to achieve:
Above-Average ReturnsAbove-Average Returns
Strategic CompetitivenessStrategic Competitiveness
Sustained Competitive AdvantageSustained Competitive Advantage
The Strategic Management ProcessThe Strategic Management Process
Involves the full set of:Involves the full set of:
ActionsActionsCommitmentsCommitments DecisionsDecisions
Components ofStrategic Management Process
• Recognizing and evaluating external and internal environment.
• Development of strategic mission.
• Strategy Formulation
• Strategy Implementation
• Evaluation of performance
• Rapid technological changes• Rapid technological changes
• Rapid technology diffusions• Rapid technology diffusions
• Dramatic changes in information and communication technologies
• Dramatic changes in information and communication technologies
• Increasing importance of knowledge
• Increasing importance of knowledge
Fundamental nature of competition is changingFundamental nature of competition is changing
The pace of change is relentless....and increasing
The pace of change is relentless....and increasing
Traditional industry boundaries are blurring, such as...
Traditional industry boundaries are blurring, such as...
• Computers• Telecommunications• Computers• Telecommunications
21st Century Competitive Landscape21st Century Competitive Landscape
The global economy is changingThe global economy is changing
• People, goods, services and ideas move freely across geographic boundaries
• New opportunities emerge in multiple global markets
• Markets and industries become more internationalized
• People, goods, services and ideas move freely across geographic boundaries
• New opportunities emerge in multiple global markets
• Markets and industries become more internationalized
Traditional sources of competitive advantage no longer guarantee success
Traditional sources of competitive advantage no longer guarantee success
New keys to success include:New keys to success include:
• Flexibility• Innovation• Speed• Integration
• Flexibility• Innovation• Speed• Integration
21st Century Competitive Landscape21st Century Competitive Landscape
Stakeholders:Stakeholders: Groups who are affected by a firm’s Groups who are affected by a firm’s performance and who have claims on its performance and who have claims on its wealthwealth
The firm must maintain The firm must maintain performance at an adequate level in performance at an adequate level in order to maintain the participation order to maintain the participation of key stakeholdersof key stakeholders
OrganizationalOrganizationalOrganizationalOrganizational
EmployeesEmployeesManagersManagersNon-ManagersNon-Managers
EmployeesEmployeesManagersManagersNon-ManagersNon-Managers
FirmFirmFirmFirm
Capital MarketCapital MarketCapital MarketCapital Market
Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/Investors
Debt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks
Product MarketProduct MarketProduct MarketProduct Market
Primary Customers Primary Customers SuppliersSuppliersPrimary Customers Primary Customers SuppliersSuppliers
Stakeholder Involvement
Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm
How do you divide the How do you divide the returns to keep returns to keep stakeholders involved?stakeholders involved?
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Capital Capital MarketMarket
Product Product MarketMarket
OrganizationalOrganizational
Stakeholder Involvement
Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm
How do you increase the How do you increase the returns so everyone has returns so everyone has more to share?more to share?
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Capital Capital MarketMarket
Product Product MarketMarket
OrganizationalOrganizational
Political/Legal
Political/Legal
EconomicEconomic
TechnologicalTechnological
GlobalGlobal
DemographicDemographicSocioculturalSociocultural
CompetitiveCompetitiveEnvironmentEnvironment
Industry Environment
Industry Environment
Components of the General EnvironmentComponents of the General Environment
General Environment• Demographic SegmentDemographic Segment
Population sizePopulation size Age structureAge structure Geographic Geographic
distributiondistribution Ethnic mixEthnic mix Income distributionIncome distribution
• Economic segmentEconomic segmentGeneral Environment
Inflation ratesInflation rates Interest ratesInterest rates Trade deficits or surplusesTrade deficits or surpluses Budget deficits or surplusesBudget deficits or surpluses Personal savings ratePersonal savings rate Business savings ratesBusiness savings rates Gross domestic productGross domestic product
General Environment
• Political/Legal SegmentPolitical/Legal Segment Antitrust lawsAntitrust laws Taxation lawsTaxation laws Deregulation philosophiesDeregulation philosophies Labor training lawsLabor training laws Educational philosophies and policiesEducational philosophies and policies
General Environment
• Sociocultural segmentSociocultural segment
Women in the workplaceWomen in the workplace Workforce diversityWorkforce diversity Attitudes about quality of worklifeAttitudes about quality of worklife Concerns about environmentConcerns about environment Shifts in work and career preferencesShifts in work and career preferences Shifts in product and service preferencesShifts in product and service preferences
General Environment• Technological SegmentTechnological Segment
Product innovationsProduct innovations Applications of knowledgeApplications of knowledge Focus of private and government-supported Focus of private and government-supported
R&D expendituresR&D expenditures New communication technologiesNew communication technologies
General Environment
• Global SegmentGlobal Segment
Important political eventsImportant political events Critical global marketsCritical global markets Newly industrialize countriesNewly industrialize countries Different cultural and institutional attributesDifferent cultural and institutional attributes
External Environmental AnalysisA continuous process which includesA continuous process which includes
Scanning: Identifying early signals of environmental changes and trends
Monitoring: Detecting meaning through ongoing observations of environmental changes and trends
Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends
Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
Industry Environment• A set of factors that directly influences a A set of factors that directly influences a
company and its competitive actions and company and its competitive actions and responses.responses.
• Interaction among these factors determine an Interaction among these factors determine an industry’s profit potential.industry’s profit potential.
Threat of new entrantsThreat of new entrants Power of suppliersPower of suppliers Power of buyersPower of buyers Product substitutesProduct substitutes Intensity of rivalryIntensity of rivalry
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition
Rivalry Among Existing CompetitorsRivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:
Jockeying for strategic positionJockeying for strategic position
Using price competitionUsing price competition
Staging advertising battlesStaging advertising battles
Making new product introductionsMaking new product introductions
Increasing consumer warranties or serviceIncreasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but Advertising battles may increase total industry demand, but may be costly to smaller competitorsmay be costly to smaller competitors
CutthroatCutthroat competitioncompetition is more likely to occur when: is more likely to occur when:
Rivalry Among Existing CompetitorsRivalry Among Existing Competitors
Numerous or equally balanced competitorsNumerous or equally balanced competitors
Slow growth industrySlow growth industry
High fixed costsHigh fixed costs
Lack of differentiation or switching costsLack of differentiation or switching costs
High storage costsHigh storage costs
Capacity added in large incrementsCapacity added in large increments
High strategic stakesHigh strategic stakes
High exit barriersHigh exit barriers
Diverse competitorsDiverse competitors
Competitor AnalysisCompetitor Analysis
The follow-up to Industry Analysis is The follow-up to Industry Analysis is effective analysis of a firm’s effective analysis of a firm’s CompetitorsCompetitors
CompetitiveCompetitiveEnvironmentEnvironment
Industry Environment
Industry Environment
Competitor AnalysisCompetitor Analysis
AssumptionsAssumptionsWhat assumptions do our competitors hold about the future of industry and themselves?
Current StrategyCurrent StrategyDoes our current strategy support changes in the competitive environment?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
CapabilitiesCapabilitiesHow do our capabilities compare to our competitors?
ResponseResponseWhat will our competitors do in the future?
What will our competitors do in the future?
Where do we have a competitive advantage?
Where do we have a competitive advantage?
How will this change our relationship with our competition?
How will this change our relationship with our competition?
Chapter 2Chapter 2External EnvironmentExternal EnvironmentWhat the Firm Might DoWhat the Firm Might Do
Chapter 3Chapter 3Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
Challenge of Internal Analysis• How do we effectively manage current core How do we effectively manage current core
competencies while simultaneously developing new competencies while simultaneously developing new ones?ones?
• How do we assemble bundles of resources, How do we assemble bundles of resources, capabilities and core competencies to create value capabilities and core competencies to create value for customers?for customers?
• How do we learn to change rapidly?How do we learn to change rapidly?
Tangible ResourcesTangible ResourcesFinancialFinancial**
PhysicalPhysical**
Human ResourcesHuman Resources**
OrganizationalOrganizational**
What a firm Has...
What a firm has to work with:
its assets, including its people and the value of its brand name
Resources represent inputs into a firm’s production process...
such as capital equipment, skills of employees, brand names, finances and talented managers
Intangible ResourcesIntangible Resources
TechnologicalTechnological**
InnovationInnovation**
ReputationReputation**
“Some genius invented the Oreo. We’re just living off the inheritance.”
F. Ross Johnson,Former President & CEO, RJR Nabisco
ResourcesResources
What a firm Does...
Capabilities represent:the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.
Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.
Capabilities become important when they are combined Capabilities become important when they are combined in in unique combinations unique combinations which create core competencies which create core competencies which havewhich have strategic value strategic value and can lead toand can lead to competitive competitive advantageadvantage..
CapabilitiesCapabilities
For a strategic capability to be a For a strategic capability to be a Core Competency, it must be:Core Competency, it must be:
Core CompetenciesCore Competencies
ValuableValuable
RareRare
Costly to ImitateCostly to Imitate
NonsubstitutableNonsubstitutable
What a firm Does...that is Strategically
Valuable
Core Competencies must be:
NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships
What a firm Does...that is Strategically
Valuable
Core CompetenciesCore Competencies
ValuableValuable
RareRare
Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity
Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment
Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment