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OVERVIEWOVERVIEW
OF OF
STRATEGIC PLANNINGSTRATEGIC PLANNING
CONCEPTSCONCEPTS
VISION
STATEMENT ABOUT A COMPANY’S
LONG-TERM DIRECTION
Why is a Strategic Vision Important?
A managerial imperative exists to look beyond today and think strategically about– Impact of new technologies
– How customer needs and expectations are changing
– What it will take to outrun competitors
– Which promising market opportunities ought to be aggressively pursued
– External and internal factors driving what a company needs to do to prepare for the future
MISSION
DEFINES COMPANY’S BUSINESS
1. PRODUCT / MARKET
2. TERRITORY / GEOGRAPHY
VISION vs. MISSIONVISION vs. MISSION
A strategic vision concerns a firm’s future business path -- “where we are going”
–Markets to be pursued
–Future technology-product-customer focus
–Kind of company that management is trying to create
A mission statement focuses on current business activities -- “who we are and what we do”
–Current product and service offerings
–Customer needs being served
–Technological and business capabilities
"To enable people and businesses throughout the world to realize
their full potential"
MICROSOFT’S VISION/MISSION
GE is committed to achieving worldwide leadership in each of its businesses. To achieve that leadership, GE's ongoing business strategy centers on four key growth initiatives: - Technology - Services - Customer Centricity - Globalization
GE’S VISION/MISSION
Example of Vision & Mission
Our vision: Getting to a billion connected computers
worldwide, millions of servers, and trillions of dollars
of e-commerce. Intel’s core mission is being the
building block supplier to the Internet economy and
spurring efforts to make the Internet more useful.
Being connected is now at the center of people’s
computing experience. We are helping to expand the
capabilities of the PC platform and the Internet.
Intel
Wit Capital(an Internet startup company)
Our mission is to be the premier Internet investment banking firm focused on the offering
and selling of securities to a community of online individual investors.
We are in the picture business.
Eastman Kodak
Simple Mission Statements
More Mission Statements …
Otis Elevator
Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher
reliability than any similar enterprise in the world.
Our business is renting cars. Our mission is total customer satisfaction.
Avis Rent-a-Car
Setting Goals & Objectives
Converts strategic vision and mission into specific performance targets
Creates yardsticks to track performance
Pushes firm to be inventive and focused on results
Helps prevent complacency and coasting
Second Task of Strategic Management
GOALS
BROAD TARGETS
OBJECTIVES
QUANTIFIED & TIME-BASED
Financial Goals
Strive for stock price appreciation equal to or above the S&P 500 average
Maintain a positive cash flow every year
Achieve and maintain a AA bond rating
Financial Objectives
Grow earnings per share 15% annually
Boost annual return on investment (or EVA) from 15% to 20% within three years
Increase annual dividends per share to stockholders by 5% each year
Strategic Goals Increase firm’s market share Overtake key rivals on quality or customer
service or product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities
What is Strategy? A company’s strategy consists of the set of
competitive moves and business approaches that management is employing to run the company
Strategy is management’s “game plan” to
– Attract and please customers
– Stake out a market position
– Conduct operations
– Compete successfully
– Achieve organizational objectives
Relationship Between Strategy and Business Model
Strategy - Deals with a company’s competitive initiatives and business approaches
Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable
Strategy
Business
Model
Corporate Strategy
Business Strategies
Functional Strategies
Operating Strategies
Two-Way Influence
Two-Way Influence
Two-Way Influence
Corporate-Level Managers
Division Managers
Operating Mgrs
Functional Mgrs
Levels of Strategy-Making in a Diversified Company
Levels of Strategy-Making in a Single-Business Company
Business Strategy
Two-Way Influence
Two-Way Influence
Functional Strategies
Operating Strategies
Executive-Level Managers
OperatingManagers
Functional Managers
Networking of Missions,Goals/Objectives, and Strategies
Level 1
Level 2Business-LevelManagers
Level 3Functional Managers
Level 4Plant Managers,Lower-LevelSupervisors
CorporateLevel
Goals/Objs
Corporate-wideStrategic
Vision
CorporateLevel
Strategy
BusinessLevel
Goals/Objs
BusinessLevel
Mission
BusinessLevel
Strategies
FunctionalGoals/Objs
Functional Missions
FunctionalStrategies
OperatingGoals/Objs
OperatingMissions
OperatingStrategies
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence Two-Way Influence Two-Way Influence
Two-Way Influence Two-Way Influence Two-Way Influence
Corporate-Level Managers
SWOT Analysis -What to Look For
Potential Resource Strengths
Potential Resource Weaknesses
Potential Company Opportunities
Potential External Threats
• Powerful strategy
• Strong financial condition
• Strong brand name image/reputation
• Widely recognized market leader
• Proprietary technology
• Cost advantages
• Strong advertising
• Product innovation skills
• Good customer service
• Better product quality
• Alliances or JVs
• No clear strategic direction
• Obsolete facilities
• Weak balance sheet; excess debt
• Higher overall costs than rivals
• Missing some key skills/competencies
• Subpar profits
• Internal operating problems . . .
• Falling behind in R&D
• Too narrow product line
• Weak marketing skills
• Serving additional customer groups
• Expanding to new geographic areas
• Expanding product line
• Transferring skills to new products
• Vertical integration
• Take market share from rivals
• Acquisition of rivals
• Alliances or JVs to expand coverage
• Openings to exploit new technologies
• Openings to extend brand name/image
• Entry of potent new competitors
• Loss of sales to substitutes
• Slowing market growth
• Adverse shifts in exchange rates & trade policies
• Costly new regulations
• Vulnerability to business cycle
• Growing leverage of customers or suppliers
• Reduced buyer needs for product
• Demographic changes
The Three Stepsof SWOT Analysis
Core Competencies -- AValuable Company Resource
A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability
Often, a core competence results from collaboration among different parts of a company
Typically, core competencies reside in a company’s people, not in assets on the balance sheet
A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset
Examples: Core Competencies
Expertise in integrating multiple technologies to create families of new products
Know-how in creating operating systems for cost efficient supply chain management
Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product System to fill customer orders accurately and
swiftly
Distinctive Competence -- ACompetitively Superior Resource
# 1
A distinctive competence is a competitively significant activity that a company performs better than its competitors
A distinctive competence Represents a competitively
valuable capability rivals do not have
Presents attractive potential for being a cornerstone of strategy
Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength
Examples: Distinctive Competencies
Sharp Corporation– Expertise in flat-panel display technology
Toyota, Honda, Nissan– Low-cost, high-quality manufacturing
capability and short design-to-market cycles Intel
– Ability to design and manufactureever more powerful microprocessors for PCs
Starbucks– Store ambience and innovative coffee
drinks
Determining the CompetitiveValue of a Company Resource
To qualify as the basis for sustainable competitive advantage, a “resource” is measured by 4 tests
1. Is the resource hard to copy ?
2. Does the resource have staying power -- is it durable ?
3. Is the resource really competitively superior ?
4. Can the resource be trumped by the different capabilities of rivals ?
Are the Company’sPrices and Costs Competitive?
Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis
Key analytical tools
– Value chain analysis
– Benchmarking
The Concept of aCompany Value Chain
A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service
A company’s value chain consists of a linked set of value-creating activities performed internally
The value chain contains two types of activities– Primary activities -- where most of the value
for customers is created– Support activities -- facilitate performance of the
primary activities
Characteristics of Value Chain Analysis
Combined costs of all activities in a company’s value chain define the company’s internal cost structure
Compares a firm’s costs activityby activity against costs of key rivals– From raw materials purchase to
– Price paid by ultimate customer
Pinpoints which internal activities are a source of cost advantage or disadvantage
RepresentativeCompany Value Chain
Representative Value Chain for an Entire Industry
The Value Chain Systemfor an Entire Industry
Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain
Suppliers’ value chains are relevant because– Costs, quality, and performance of inputs provided by
suppliers influence a firm’s own costs and product performance
Forward channel allies’ value chains are relevant because – Forward channel allies’ costs and margins are part of
price paid by ultimate end-user– Activities performed affect end-user satisfaction
Example: Key Value Chain Activities
Timber farming
Logging
Pulp mills
Papermaking
Pulp & Paper Industry
Parts and components manufacture
Assembly
Wholesale distribution
Retail sales
Home Appliance Industry
Example: Key Value Chain Activities
Processing of basic ingredients
Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
RetailingAlbertson’s
Soft-Drink Industry
Example: Key Value Chain Activities
Programming
Disk loading
Marketing
Distribution
Computer Software Industry
Example: Key Value Chain Activities
Activity-Based Costing: A KeyTool in Analyzing Costs
Determining whether a company’s costs are in line with those of rivals requires– Measuring how a company’s costs compare with those
of rivals activity-by-activity
Requires having accounting data that measures the cost of each value chain activity
Activity-based accounting systemsprovide data for determining costsfor each relevant value chain activity
Benchmarking Costs ofKey Value Chain Activities
Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities– Purchase of materials– Payment of suppliers– Management of inventories– Getting new products to market– Performance of quality control– Filling and shipping of customer orders – Training of employees– Processing of payrolls
Objectives of Benchmarking Determine whether a company is performing
particular value chain activities efficiently by studying practices and procedures used by other companies
Understand the best practices in performingan activity -- learn what is the “best” wayto do a particular activity from thosedemonstrating they are “best-in-world”
Assess if company’s costs in performing particular value chain activities are in line with competitors
Learn how other firms achieve lower costs
Take action to improve company’s cost competitiveness
INDUSTRY ANALYSIS
Environmental Components
Industry’s Dominant Economic Traits
Market size and growth rate
Position in life cycle Number of rivals Buyer needs and
requirements Production capacity Pace of technological
change Prevalence of vertical
integration
Product innovation
Degree of product differentiation
Scope of competitive rivalry
Economies of scale
Experience and learning-curve effects
Industry profitability
5 Forces Model of Competition
Industry Driving Forces
Internet and e-commerce opportunities Increasing globalization of industry Changes in long-term industry growth rate Changes in who buys the product and how
they use it Product innovation Technological change/process innovation Marketing innovation
Entry or exit of major firms Diffusion of technical knowledge Changes in cost and efficiency Market shift from standardized to differentiated
products (or vice versa) Changes in degree of uncertainty and risk Regulatory policies / government legislation Changing societal concerns, attitudes, and
lifestyles
Industry Driving ForcesIndustry Driving ForcesIndustry Driving ForcesIndustry Driving Forces
What Are the Key Factors for Competitive Success?
Competitive factors most affecting every industry member’s ability to prosper – Specific strategy elements– Product attributes– Resources– Competencies– Competitive capabilities
KSFs spell the difference between– Profit and loss– Competitive success or failure
Example: KSFs for Beer Industry Full utilization of brewing capacity -- to
keep manufacturing costs low Strong network of wholesale distributors --
to gain access to retail outlets Clever advertising -- to induce beer
drinkers to buy a particular brand
Example: KSFs for Apparel Manufacturing Industry
Appealing designs and color combinations -- to create buyer appeal
Low-cost manufacturing efficiency -- to keep selling prices competitive
COMPETITOR ANALYSIS
What Are the Market Positions of Industry Rivals?
One technique for revealing the different competitive positions of industry rivals is strategic group mapping
A strategic group consists of those rivals with similar competitive approachesin an industry
Strategic Group Mapping Firms in same strategic group have two or more
competitive characteristics in common– Have comparable product line breadth– Sell in same price/quality range– Emphasize same distribution channels– Use same product attributes to appeal to similar types
of buyers– Use identical technological approaches– Offer buyers similar services– Cover same geographic areas
Example: Strategic Group Mapof Selected Retail Chains
Assessing a Company’s Competitive Strength vs. Key Rivals
1. List industry key success factors and other relevant measures of competitive strength
2. Rate firm and key rivals on each factor using rating scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong)
3. Decide whether to use a weighted or unweighted rating system (a weighted system is usually superior because the chosen strength measures are unlikely to be equally important)
4. Sum individual ratings to get an overall measure of competitive strength for each rival
5. Based on the overall strength ratings, determine overall competitive position of firm
Strategy and Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in– Attracting customers and– Defending against competitive forces
Convince customers firm’s product / service offers superior value– A good product at a low price– A superior product worth paying more for– A best-value product
Key to Gaining a Competitive Advantage
5 Generic Competitive Strategies
Menu of Strategy Optionsfor Winning in the Marketplace