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Why Strategic Planning?
Why Strategy?
“The best way to predict the future is to create it”
--Peter Drucker
Why Strategic Planning
Strategic planning is the process of thinking systematically about the future to competitively position the firm
Objectives of Strategic Planning1. Build Prepared Minds to Create Real Time Strategic Thinking
2. Increase Strategic Innovation via experiments and initiatives
3. Build consensus around a strategy including long term and short term objectives
Strategic Planning Process
Planning and Logistics
Research
Strategic Intent
Mission
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Preparatory Work
Strategic Vision
Implementation and
Communication
Corporate Values
Strategic Analysis
Industry Analysis
Competitor Analysis
Company Analysis
Selling Proposition
Economic Engine
Customer Segmentation
Core Competencies
Competitive Advantage
Elevator Pitch
Output of Session
What is Strategy?
What is Strategy?
“Strategy is about being different”
--Michael Porter
What is Strategy?
Elements of Strategy:• Mission:
Who the Firm wants to be
• Strategic Intent:
What the Firm wants to achieve
• Competitive Advantage:
How the Firm can achieve its strategic intent
Strategic Vision
Planning and Logistics
Research
Strategic Intent
Mission
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Preparatory Work
Strategic Vision
Implementation and
Communication
Corporate Values
Strategic Analysis
Industry Analysis
Competitor Analysis
Company Analysis
Selling Proposition
Economic Engine
Customer Segmentation
Core Competencies
Competitive Advantage
Elevator Pitch
Output of Session
Strategic Vision: Mission
Mission defines WHO the firm wants to be• Defines purpose• Timeless and visionary
Strategic Vision: Mission Examples
Whole Foods, Whole People, Whole Planet
Nike brings inspiration and innovation to every athlete* in the world
*If you have a body, you are an athlete
Meritage delivers superior investment returns by combining equity and expertise to build successful communications businesses
Strategic Vision: Strategic Intent
Strategic Intent: WHAT the firm wants to achieve
Strategic Vision: Strategic Intent
THE APOLLO PROGRAM:
“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to Earth.”
--President John F. Kennedy, 1962
Why did the Country get so excited?
Strategic Intent Characteristics
• Defines the “what” not the “how”
• Very Long Term
• Captures the essence of winning
• Implies “stretch” not “fit”
• Motivational and directional
• Tool for empowerment, not a tool for centralization
• Think the unthinkable
Strategic Intent Examples
Six Hondas in a two-car garage
Maru-C (translation: Encircle Caterpillar)
1975: A computer on every desk and in every home 1999: Empowering people through great software anytime, anyplace, and on any device
To put a Coke within ‘arm’s reach’ of every consumer in the world
Strategic Analysis
Planning and Logistics
Research
Strategic Intent
Mission
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Preparatory Work
Strategic Vision
Implementation and
Communication
Corporate Values
Strategic Analysis
Industry Analysis
Competitor Analysis
Company Analysis
Selling Proposition
Economic Engine
Customer Segmentation
Core Competencies
Competitive Advantage
Elevator Pitch
Output of Session
Industry Analysis – Five Forces
Michael Porter’s Five Forces framework analyzes an industry’s attractiveness based upon five elements
Enables a company to devise appropriate plan of action• Position the company to provide the best defense against the most threatening competitive force(s)• Influence the balance of forces through strategic moves• Anticipate changes in underlying forces and choose strategy before others recognize change
Competitor Analysis – Five Forces
THREAT OF ENTRY
POWER OF SUPPLIERS
POWER OF BUYERS
SUBSTITUTES
COMPETITIVE RIVALRY
Supplier group powerful if:
•Dominated by a few companies
•More concentrated than industry it sells to
•Limited competition in supplier products
•Credible threat of forward integration
•Industry is not important to supplier group
Buyer group is powerful if:
•Concentrated or purchases in volume
•Purchases standard/non-differentiated products
•Earns low profits
•Industry’s product unimportant to quality of buyer’s product/service
•Credible threat of backward integration
•Economies of Scale
•Product differentiation
•Capital requirements
•Cost disadvantages independent of size’
•Access to distribution channels
•Government policy
Products that a buyer can choose in place of your offering
Sources of Barrier to Entry•Numerous competitors with equal size/power
•Slow industry growth
•Lack product differentiation
•Low switching costs
•High exit barriers
•Rivals are diverse in strategies, origins and personalities
Intense Rivalry Exists when:
Competitor Analysis – Five Forces
Five Forces Analyses -- Airlines
Force Description RatingImplication for Entrant
THREAT OF ENTRY
Capital intensive, but with leases and route-specific entry options
Low – Medium
POWER OF SUPPLIERS
Concentrated supplier base, long-term leases, significant switching costs
High
POWER OF BUYERS
Buyers have multiple options on most routesHigh
THREAT OF SUBSTITUTES
Personal aircraft, automobiles, trains and buses all serve as substitutes. Advanced communication technology reduces business travel demand
Medium – High
COMPETITIVE RIVALRY
Low growth prospects, many players, cutthroat pricing
High
Neutral
Positive
Negative
Airline industry highly unattractive
Competitor Analysis – Five Forces
Five Forces Analyses – Pharmaceutical Industry
Force Description RatingImplication for Entrant
THREAT OF ENTRY
Capital required for research and development can be significant, but with potential for high payout
Medium
POWER OF SUPPLIERS
Many suppliers with commoditized inputs (e.g. chemicals); low threat of forward integration
Low
POWER OF BUYERS
Buyers often completely price inelastic; patents limit substitutes; near zero threat of backward integration
Low
THREAT OF SUBSTITUTES
Patent protection for multiple years enable monopoly rents
Low
COMPETITIVE RIVALRY
First-to-market competition is intense, but abundant growth opportunities as new diseases/cures are discovered
Medium
Pharmaceutical industry highly attractiveNeutral
Positive
Negative
Competitive AdvantagePlanning and Logistics
Research
Strategic Intent
Mission
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Preparatory Work
Strategic Vision
Implementation and
Communication
Corporate Values
Strategic Analysis
Industry Analysis
Competitor Analysis
Company Analysis
Selling Proposition
Economic Engine
Customer Segmentation
Core Competencies
Competitive Advantage
Elevator Pitch
Output of Session
Competitive Advantage
Competitive Advantage is HOW the firm will achieve its strategic intent• Doing something unique and different that
customers value
Competitive Advantage
Selling Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Customer Segmentation
Strategic selection of a sub-segment of an addressable market to create or enhance a competitive advantage
Segment Definition
NONCONSUMERS
UNDERSHOT CONSUMERS
OVERSHOT CONSUMERS
Customers not consuming any product or consuming only in inconvenient settings
Customers who consume a product but are frustrated with its limitations; they display willingness to pay more for enhancements along dimensions most important to them
Customers who stop paying for further improvements in performance that historically had merited attractive price premiums
Customer Segmentation N
ON
CO
NS
UM
RE
RS
UN
DE
RS
HO
T
CO
NS
UM
ER
S
Company Customer Segmentation
Nonconsumer: Social networking was an entirely new activity.
Nonconsumer: Google’s customers used traditional media outlets, but few to none utilized the internet
OV
ER
SH
OT
C
ON
SU
ME
RS
Overshot: Frequent mid level business traveler (i.e. salesperson) who wants low prices and on time flights.
Overshot: First time furniture buyer who wants inexpensive, immediately available and modern furniture.
Undershot : Wealthy, health conscious consumer who values organic environmentally friendly products
Undershot : Tennis shoes with high performance technology
Competitive Advantage
Selling Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Selling Proposition
Profitability benefit of Selling Proposition
Industry Average
Competitor
Premium Differentiated Competitor
Low-Cost Competitor
Sales Price Costs
Neiman Marcus,
Whole FoodsWal-Mart, Southwest
Airlines
Competitive Advantage
Selling Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Core Competencies
Core CompetencyA core competency is a business activity in which a firm can be BEST IN WORLD
Three tests of a core competency
• Provides potential access to a wide variety of markets
• Makes significant contribution to perceived customer value and benefits
• Difficult for competitors to imitate
Must support the selling proposition
Consider outsourcing activities that aren’t core competencies
Leveraging Core Competencies
When a Company is seeking growth and diversification, it must leverage existing core competencies:
Example: Honda
Business Opportunities that leverage core competencies
Honda Core Competencies
Small Engine Design
Moderate Scale Assembly with Outsourcing
Creative Distribution
Small
CarsMisc.
PumpsGener-ators
Out-boards
Lawn Mowers
Snow Blowers
Motor-cycles
Competitive Advantage
Selling Proposition
Core Competencies
Customer Segmentation
Economic Engine
COMPETITIVE ADVANTAGE
Economic Engine
Economic Engine is a single financial measure of the competitive advantage
Profit per X
If you could pick one and only one ratio – profit per X – to systematically increase over time, what X would have the greatest and most sustainable impact on your business?
Economic Engine
Profit per CommentaryKey Economic Shift
CUSTOMER Shift from profit per DIVISION to profit per CUSTOMER
Analyzing profit per customer enabled the ‘razors and razor blade’ model whereby Gillette sells razors at a loss to lock-in customers to its highly profitable recurring revenue stream from disposable razor blades.
Competitive Advantage Impact
Note exploiting core competency in blade technology to their advantage
CUSTOMER VISIT
Shift from profit per STORE to profit per CUSTOMER VISIT
After initially avoiding high real estate costs, Walgreens shift to profit per customer visit led to the strategic insight to pay a premium for high profile store locations with multiple entry ways
Required Walgreens to create core competencies in real estate and product placement
EMPLOYEE Shift from profit per LOAN to profit per EMPLOYEE
Wells Fargo’s profit per employee engine created a lean cost structure well-equipped to face the economic reality of banking commoditization in the face of deregulation.
Did not change the low cost value proposition, but required new core competencies in technology to increase employee productivity and encourage online banking