STRATEGIC PLANNING

THE SET OF ORGANIZATIONAL

DECISIONS AND ACTIONS THAT

GUIDE THE LONG-TERM

PERFORMANCE OF THE FIRM

PURPOSE

TO GET THE FIRM FROM WHERE

IT WANTS TO BE, AND IN THE

PROCESS DEVELOP A

SUBSTANTIAL ADVANTAGE

OVER ITS COMPETITORS

CHARACTERISTICS OF STRATEGIC MANAGEMENT

External vs. Internal Focused Proactive vs. Reactive Long vs. Short Term Planning Comprehensive vs. Functional Significant Resource Allocation Uncertainty & Risk

STRATEGIC QUESTIONS

Where is the firm now? Where should the firm be in the future? What actions must the firm take to get

there? How will the firm know that it is on

course and made the appropriate decisions?

WHERE IS THE FIRM NOW?

Mission

Managerial Values and Attitudes

Internal Analysis

External Analysis

INTERNAL ANALYSIS - COMPANY PROFILE

Management Competence Organizational Structure Culture Functional Areas - HR Resources - Financial, People, Plant &

Equipment

EXTERNAL ANALYSIS

Remote/Social Environment

Industry Environment

Operating Environment

WHERE SHOULD THE FIRM BE?

Strategy Formulation

Long Term Objectives

Choice Strategy - Corporate & Business

Competitive Advantage

Whenever a firm has an edge over rivals in attracting customers and defending against competitive forces» A high quality workforce is often required to

compete on market response, product quality, technology

WHAT ACTIONS MUST BE TAKEN?

Strategy Implementation

Annual Objectives

Functional Strategies - HR

Institutionalizing the Strategy

FUNCTIONAL LEVEL STRATEGY

Are we utilizing our resources effectively?

Focus is the maximizing of resource productivity within each functional unit to implement corporate business level strategies

HOW WILL WE KNOW WE GOT THERE?

Evaluation and Control Long-Term and Annual Objectives Strategic Controls

– Implementation Control–Strategic Surveillance–Premise Control

Operating Controls - Performance appraisal, compensation budget, compra - ratio, selection ratios

Basic Elements of the Strategic Management

Process

Evaluation and

Control

Strategy Implementation

Environmental Scanning

Strategy Formulation

Environmental Analysis

Process of monitoring the organizational environment to identify opportunities and threats that may influence the firm’s choice of direction and its ability to reach its goals

Strategic Analysis

Strategic Factors: Issues that have a high probability of

occurrence and high probability impact. These are then characterized as:

Opportunities or Threats or Constraints

Opportunities

Major favorable situation or trend in a firm’s environment

Overlooked market segment with high demand

Change in level or nature of competition Anticipated favorable change in regulations Technological advance Improvement in buyer and supplier relations

Threats

Major unfavorable situation or trend in a firm’s environment - impediments to a firm’s current or desired position

Entrance of new competitors Slowing market growth Increasing bargaining power of suppliers and/or

buyers Technological advantages Unfavorable regulatory changes

Environmental Variables

Societal Environment

Economic

Forces

Technological

Forces

Political-Legal Forces

Sociocultural Forces

Internal Environment

Structure Culture

Resoures

Shareholders

Governments

Customers

Creditors

Communities

Competitors

Employees/

Labor Unions

Suppliers

Special

Interest

Groups

Trade Associations

TaskEnvironment

(Industry)

Some Important Variables in the Societal Environment

Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment levels

Wage/price controls

Devaluation/revaluation

Energy availability and cost

Disposable and discretionary income

Technological

Total government spending for R&D

Total industry spending for R&D

Focus of technological efforts

Patent protection

New products

New developments in technology transfer from lab to marketplace

Productivity improvements through automation

Political-Legal

Antitrust regulations

Environmental protection laws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign companies

Laws on hiring and promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution of population

Regional shifts in population

Life expectancies

Birth rates

Industry Analysis Porter’s Five Forces

Nature of competition determined by five forces

Collective strength of forces determine profitability of industry

Purpose of strategy is to “cope” with competition

Forces Driving Industry Competition

Threat of New Entrants

Bargaining Power

of Suppliers

Bargaining Power

of Buyers

Relative Power

of Unions, Governments,

etc.

Potential Entrants

Threat of Substitute Products or Services

Industry Competitors

Rivalry Among Existing Firms

Other Stakeholders

Buyers

Substitutes

Suppliers

Source:  Adapted/reprinted with permission of The Free Press, an imprint of Simon & Schuster, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980 by The Free Press.

Task/Operating Environment

Competitive position / Competitor profiles

Customer Profiles Suppliers Creditors Human Resources

Task/Operating Environment

Stockholders Labor Unions Governments Special Interest Groups Trade Associations

Internal Analysis

Realistic Analysis of Firm’s Capabilities

Strengths

A resource, skill or other advantage relative to competitors and the needs of the markets - a distinctive competence that gives the firm a competitive advantage in its industry» Financial Resources» Buyer/supplier relations» Market research» HR policies/competencies» Patents/production process

Weaknesses

Limitation or deficiency in resources, skills and capabilities relative to competitors and which impedes a firms effective performance.

Limited financial capacity Inappropriate image Outdated production facilities or processes Poor quality products Conservative management team

Core Competencies and Distinctive Competencies

Core Competencies

Things a corporation can do exceedingly well

Distinctive Competencies

Core competencies that are superior to those of competitors» obtain from employee skills, management

processes, and systems

Management

Organizational Structure Firm’s Image

Overall Control Systems Strategic Planning System

Management Personnel

Employee Skills and Morale Incentive Effectiveness

Employee Turnover Specialized Skills

Organizational Culture Organizational Climate

Labor Costs Industry Experience

Communication Systems HR Policies and Procedures

Finance & Accounting

Ability to Raise Short-Term/Long-Term Cash

Corporate Resources Cost of Capitol

Investor/Owner RelationsLeverage Position

Price-Earnings Ratio Working Capitol

Cost Control Financial Size

Tax Considerations Accounting Syst.

Research and Development

R&D Budget

R&D Mix - Basic, Applied, Product/Process

Internal and External R&D

Patents, Trademarks

Technology Competence

R&D Transfer

Integration of R&D with Marketing & Production

Information Systems

Timeliness of Information

Accuracy of Information

Relevance of Information to Tactical Decisions

Ability of People to Use Information

Sufficiency of Information to Manage Quality, Customer Service, Inventory.

Corporate Value Chain

4.6 Corporation Value Chain p. 87

Support Activities

Primary Activities

Profit Margin

Firm Infrastructure (general management, accounting, finance, strategic planning)

Human Resource Management (recruiting, training, development)

Technology Development (R&D, product and process improvement)

Procurement (purchasing of raw materials, machines, supplies)

Inbound Logistics (raw materials handling and warehousing)

Operations (machining, assembling, testing)

Outbound Logistics (warehousing and distribution of finished product)

Marketing and Sales (advertising, promotion, pricing, channel relations)

Service (installation, repair, parts)

Source: Adapted/reprinted with the permission of the The Free Press, an imprint of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter, p. 37. Copyright © 1985 by Michael E. Porter.

Selection of Strategies

Objective Setting Process Analyze environmental trends

Establish or revise mission

Develop objectives

Characteristics of Strategic Objectives

Long-term Specific Measurable Reachable Consistent in long and short-run Acceptable Hierarchy

Types or Areas

Profitability Productivity Resource levels Competitive position Market standing Technology Employee relations Social responsibility

Corporate Analysis

What Business should we pursue?

How do we allocate resources among those businesses

Types of Strategies

Intensive (Concentration) Strategies Market penetration

Market Development

Product Development

Innovation

Types of Strategies

Integration Strategies Forward Integration Backward Integration Horizontal Integration

Types of Strategies

Diversification Strategies Concentric Conglomerate

Types of Strategies

Defensive Strategies Retrenchment Divestiture Liquidation

Type of Strategies

Cooperative Strategies» Strategic Alliance

» Joint Ventures

Business Level Strategy

How will each business compete in its industry

Strategy and Competitive Advantage

COMPETITIVE ADVANTAGE exists when a firm’s strategy gives it an edge in» Defending against competitive forces and» Securing customers

Convince customers firm’s product / service offers SUPERIOR VALUE» Offer buyers a good product at a lower price» Use differentiation to provide a better product

buyers think is worth a premium price

Porter’s Generic Competitive Strategies

Source: Reprinted with permission of The Free Press, an imprint of Simon & Schuster, from The Competitive Advantage of Nations by Michael E. Porter, p. 39. Copyright © 1990 by Michael E. Porter.

Differentiation

Bro

ad

Ta

rge

tN

arr

ow

Ta

rge

t

Competitive Advantage

Cost Leadership Differentiation

Cost Focus Focused Differentiation

Co

mp

eti

tiv

e S

co

pe

Lower Cost

Porter’s Generic Strategies Defined

Cost Leadership: A strategy aimed at producing standardized products at low per-unit cost for consumers who are price-sensitive

Differentiation: A strategy aimed at producing products and services considered unique industry-wide and directed at consumers who are relatively price-insensitive

Focus: A strategy aimed at producing products and services that fulfill the needs of small groups of customers

Characteristics of aLow-Cost Provider

Cost conscious corporate culture Employee participation in cost-control efforts Ongoing efforts to benchmark costs Intensive scrutiny of budget requests Programs promoting continuous cost improvement

Low-cost producers championFRUGALITY while aggressivelyINVESTING in cost-saving improvements!

Differentiation Strategies

Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals

Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals

Not spending more to achieve differentiation than the price premium that can be charged

Types of Differentiation Themes

Unique taste -- Dr. Pepper Special features -- America Online Superior service -- FedEx, Ritz-Carlton Spare parts availability -- Caterpillar Engineering design and performance -- Mercedes Prestige -- Rolex Quality manufacture -- Honda , Toyota Technological leadership -- 3M Corporation, Intel Top-of-the-line image -- Ralph Lauren, Chanel

Functional Strategies

Marketing Finance Research & Development Operations Human Resources Information Systems

Marketing

ProductPlacePromotionPriceDistribution

Marketing

Develop competing product (product overlap)

Customized productsPricing and service mixCompetitive promotion

Research & Development: Technology

Upgrade

Retain

Subcontract

Operations: Quality & Productivity

Teams

Superautomate

Human Resources: Recruitment & Selection

Internal vs external recruitmentManagement development

systemsLink career path to strategyEstablish specific job skill

training

Human Resources: Appraisal & Compensation

Link pay and benefits to strategy

Link performance appraisal to strategy

Strategy Implementation

Organizational Structure» Network Organizations

Tasks and Task Design Selection, Training and Development of

Human Resources Reward Systems Types of Information and Information

Systems

People

Staffing Requirements Growth - impact on recruitment/selection Retrenchment - downsizing Mergers - redundant employees

Knowledge & Skill Requirements Role Behavior Requirements Leadership Requirements

Matching Chief Executive “Types” with Strategy

Average

Hig

hL

ow

Business Strength/Competitive Position

Strong

Growth—Concentration

Dynamic Industry Expert

Stabiltiy

Cautious Profit Planner

Retrenchment—Close Company

Professional Liquidator

Retrenchment—Save Company

Turnaround Specialist

Ind

us

try

Att

rac

tiv

en

es

s

Source: Thomas L. Wheelen and J. David Hunger, “Matching Proposed Chief Executive ‘Types’ with Corporate Strategy.” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.

Me

diu

m

Weak

Growth—Diversification

Analytical Portfolio Manager

Strategic Control

Environmental Premises Implementation

Strategic thrusts Milestone Reviews (Annual Objectives)

Strategic Surveillance Objectives

HR Contribution to Strategy

Strategy FormulationStrategy Implementation

HR Role

Environmental Scanning» Demographics, corporate intelligence

Feasibility of Strategic Options Implementation of Resource Allocation

Decisions Lead Time for Dealing with Labor

Shortages and Surpluses

Factors Affecting HR Integration

Environmental Factors» technology, industry competition

Degree of Diversification Status of HR Executive Degree Compensation Linked to Firm

Performance Changing Skill Demands Changing Composition of Work Force Mergers Acquisitions

Role Behaviors and Practices

Innovation Strategies Require: creative behavior, longer-term focus, cooperation, moderate concern for quality, equal concern for process and results, risk taking, high tolerance of ambiguity

Quality Enhancement Strategies Require: repetitive and predictable behaviors, long or immediate-term focus, modest amount of cooperation, high concern for quality, modest concern for quantity, high concern for process, low risk taking

Cost Reduction Strategies:repetitive behaviors, short-term focus, autonomous activity, modest concern for quality, high concern for quantity, primary concern for results, low risk-taking, comfort with stability