BA460-Week #2: Strategic Planning

“If you don’t know where you are

goingany route will get

you there.”

Chris Bartlett,Harvard Business School

Strategic Thinking :The Big-3 Questions:

1.Where do we want to go?

– What business(es) should be in – Market positions to stake out?– Consumer needs & segments serve?– Outcomes to achieve?

2.Where are we now?

3.How do we get there?

Consumers

Company

Competitors

Conditions

You have begun …Situation & SWOT Analysis

External Opportunities

& Threats

Internal Strengths

& Weaknesses

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

After- SWOT analysis of the situation… the next & most critical step in strategy development…oddly enough is –thinking–

Specifically-thinking about the way things have been & are now… AND- the way things could/should be

After- SWOT analysis of the situation… the next & most critical step in strategy development…oddly enough is –thinking–

Specifically-thinking about the way things have been & are now… AND- the way things could/should be

Need to start thinking abt:

Where you want to go?

*Your Mission & Vision

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."

Mission 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

Mission 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…

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…

http://www.bplans.com/dp/missionstatement.cfm

>Strategy & Vision Statements>Strategy & Vision Statements

Valuable

http://www.bplans.com/dp/missionstatement.cfm

Strategies & Mission Statements

Then decide--

How you will get there?

*Growth, Competitive & Functional Strategies

3 Levels of Strategy

Corporate-Level : In what business do we compete?In what business do we compete?

Corporation

Business-Level : How do we compete?How do we compete?

Sensors Unit Nano-Tech Unit Cons.Elec. Unit

Functional-Level : How do we coordinate?How do we coordinate?

Finance HR / R&D Production Marketing

Business Unit Competitive

Strategy

Business Unit Competitive

Strategy

CorporateGrowth Strategy

CorporateGrowth Strategy

Marketing Positionin

gR&D

Finance

Production

Human Resources

Functional Strategies

Corporation

Level 1-Corporate Strategy

STRATEGICBUSINESS

UNIT #1

COMPETITORA

COMPETITORB

COMPETITORC

MARKET

STRATEGICBUSINESS

UNIT #2

COMPETITORD

COMPETITORE

COMPETITORF

MARKET

In which businesses do we compete?

Corporation

STRATEGICBUSINESS

UNIT #1

COMPETITORA

COMPETITORB

COMPETITORC

MARKET

STRATEGICBUSINESS

UNIT #2

COMPETITORD

COMPETITORE

COMPETITORF

MARKET

STRATEGICBUSINESS

UNIT #3

COMPETITORG

COMPETITORH

COMPETITORI

MARKET?

Growth Strategy

Deciding on what Products & Markets to

compete with & in…

Market Market PenetrationPenetration

ProductProductDevelopmentDevelopment

Market Market DevelopmentDevelopment

PresentPresent NewNew

P R O D U C TP R O D U C T

NewNew

M A R K E TM A R K E T

PresentPresent

Growth Strategies

DiversificationDiversification

Attract new customers to existing products

Attract new customers to existing products

MarketDevelopment

MarketDevelopment

Increase market share among existing customers.

Increase market share among existing customers.

MarketPenetration

MarketPenetration

Create new products for present markets

Create new products for present markets

ProductDevelopment

ProductDevelopment

Concentrate on your primary line of business & look for ways to meet growth objectives thru increasing

your level of operation in your primary business

Concentrate on your primary line of business & look for ways to meet growth objectives thru increasing

your level of operation in your primary business

Level 2: Business Unit Strategy

STRATEGICBUSINESS

UNIT

COMPETITORA

COMPETITORB

COMPETITORC

MARKET

How do we compete?

Price?Quality?Focus?

Also need to decide-- how you are going to compete…

Also need to decide-- how you are going to compete…

w/ what w/ what Competitive Competitive AdvantageAdvantage

Thru Cost Cost Advantage-Advantage-•Offer same benefit as competitor but at lower cost

Thru DifferentialDifferential Advantage-Advantage-

•Offer benefits which exceed competitors

w/ what w/ what Competitive Competitive AdvantageAdvantage

Thru Cost Cost Advantage-Advantage-•Offer same benefit as competitor but at lower cost

Thru DifferentialDifferential Advantage-Advantage-

•Offer benefits which exceed competitors

w/in which w/in which Market SegmentsMarket Segments

All market segmentsNiche segmentsEvolving segments

w/in which w/in which Market SegmentsMarket Segments

All market segmentsNiche segmentsEvolving segments

Competitive Competitive Strategy is the Strategy is the creation of a creation of a unique & valuable unique & valuable position-position-

The position is based on- 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

You can also Formulate Strategy by what dimension you compete on:

Differentiation:

Deliver unique & superior value in terms of product quality, features,

service

Cost: Design, produce,

market more efficiently than

competitors

You can Formulate Strategy by the-

Number & nature of Number & nature of segmentssegments compete w/in- Undifferentiated Differentiated Niche Strategy

& You can Formulate Strategy by-Riding A Products Life Cycle

Adjust Adjust Marketing Mix Marketing Mix according to according to natural natural Drift of products w/in segments-

1.1. Cost/Quality Cost/Quality Differentiation Differentiation

2.2. Number & nature of Number & nature of segmentssegments compete w/in

3. Riding the Product Life Cycle

Put them all together &…

Product Quality

Product Quality

Competitive Strategy Matrix:

CostCost

Broad MarketBroad Market Niche MrktNiche Mrkt Evolving MrktEvolving MrktCompete on:

#1

#2 #3

Number & nature of segments compete w/in

Number & nature of segments compete w/in

Cost/Quality Differentiation Cost/Quality Differentiation

Riding Product Life Cycle

Riding Product Life Cycle

CompetitiveStrategies

CompetitiveStrategies

Product Life-Cycle

Product Quality

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

CostCost

Broad MrktBroad Mrkt Niche MrktNiche Mrkt Evolving MrktEvolving MrktCompete on:

Cost Leadership Strategic Choices

A cost leader does not try to be industry innovator

A cost leader positions products to appeal to mainstream customers

The overriding goal is- increased efficiency & lower costs relative to rivals

Generic Business-Level Strategy:Cost Leadership

Advantages– If rivals charge

similar prices, a cost leader achieves superior profitability

– A cost leader is able to charge a lower price than competitors

An overall cost leader will attempt to be low-cost producer in every segment of the market.

will have good profit margins on all sales while keeping prices low for price-sensitive customers.

An overall cost leader will attempt to be low-cost producer in every segment of the market.

will have good profit margins on all sales while keeping prices low for price-sensitive customers.

Overall Cost

Leader

Cost Leader- Lo -Tech Focus

Cost Leader - PLC

Lo+Trad+Hi

-- 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

-- Will seek to minimize costs in marketing & production

Products will be allowed to age & change in appeal from High End, to Traditional, and eventually Low End buyers.

-- Will seek to minimize costs in marketing & production

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

Product Quality

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

CostCost

Broad MrktBroad Mrkt Niche MrktNiche Mrkt Evolving MrktEvolving MrktCompete on:

Generic Business-Level Strategy: Differentiation

Create a product that customers perceive as different or distinct in an important way

Advantages– Premium price– Increased revenues =

superior profitability

Differentiator

A differentiator will seek to create maximum awareness & brand equity.

Wants to be well known as maker of high quality/highly desirable products

A differentiator will seek to create maximum awareness & brand equity.

Wants to be well known as maker of high quality/highly desirable products

Differentiation Advantages

Customers develop brand loyalty: The greater the loyalty.. The less the price sensitivity…

Differentiators can pass price increases on to customers

Differentiation and brand loyalty are barriers to entry

Differentiation: Disadvantages

Difficulty in maintaining long-term distinction in customers’ eyes– Agile competitors can quickly

imitate– Patents & first-mover advantages

are limitedDifficulty/expense of maintaining

premium pricing– requires greater marketing costs

DIFFERENTIATOR w/ HIGH-TECH FOCUS

A high-tech differentiator seeks to be top producer of best performing leading-edge products

A high-tech differentiator seeks to be top producer of best performing leading-edge products

Competitive Strategies; Focused Differentiation:Focus on particular

group or geographic market– Seek differentiation

in targeted market segment

– Serve special needs of narrow target market

DIFFERENTIATOR w/ PRODUCT LIFE-CYCLE FOCUS

A product life-cycle differentiator

seeks to be well-known as a top

producer of good performing

products in each of the targeted segments.

A product life-cycle differentiator

seeks to be well-known as a top

producer of good performing

products in each of the targeted segments.

Level 3- Functional Strategy

R&D

PRODUCTIONMARKETING

/SALES

PURCHASING

INVENTORY

FINANCE

STRATEGIC BUSINESS UNIT

How do we coordinate?

What makes a decision strategic?

Multi-functional in scope & consequences

Requires choice & trade-offs, integration & alignment

R&D

Prdtn

Mrktg

In order to execute & achieve selected growth & competitive strategies--Need to coordinate decisions

across all Functional domains

Marketing

Production

Finance

R&D

HR

Functional Integration & Strategic Alignment

Getting In-Sync w/ Functional Planning

The goal of functional

planning is to

achieve a state of Internal

Strategic Alignment

The goal of functional

planning is to

achieve a state of Internal

Strategic Alignment

MARKETINGPRODUCTION

FINANCE

INTERNAL STRATEGIC ALIGNMENT

MARKETINGPRODUCTION

FINANCEAchieved 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

Functional Planning Matrices

ExamplesExamples ofof::

internal internal strategic strategic

alignmentalignment

Functional Alignment: In Achieving Cost Efficiency

Functional Alignment: Implementing Differentiation Strategy

Functional Alignment: In Achieving Superior Innovation

Functional Alignment: Superior Customer Rlshps

When When all decisionsall decisions made by & made by & within all functional areas within all functional areas are are in syncin sync w/ one another, w/ one another,

As well as w/ your overall strategic As well as w/ your overall strategic direction -- you achieve…direction -- you achieve…

When When all decisionsall decisions made by & made by & within all functional areas within all functional areas are are in syncin sync w/ one another, w/ one another,

As well as w/ your overall strategic As well as w/ your overall strategic direction -- you achieve…direction -- you achieve…

Distinctive Competencies

Distinctive Competencies

Competitive Advantage*

Distinctive Competencies

*Achieved when you sustain profits above Industry

Average

Distinct competencies needed to achieve selected

competitive strategy

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

Distinct Competencies

CompetencieCompetencies in s in automationautomation & & human human resourcesresources could lead to could lead to a a competitive competitive advantage in advantage in cost cost leadershipleadership. .

CompetencieCompetencies in s in automationautomation & & human human resourcesresources could lead to could lead to a a competitive competitive advantage in advantage in cost cost leadershipleadership. .

Achieving Competitive Advantage thru Cost-Focused Strategy

Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments…

Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments…

Functional Alignment

Production

Automation - pursued early & aggressivelyCapacity improvements unlikely (may run overtime instead)

Marketing

Spend moderately on promotion & sales

R&D Spend minimally on R&D

Distinct Competencies

Competencies Competencies in in awareness, awareness, accessibilityaccessibility & & designdesign could lead to could lead to a a competitive competitive advantage advantage built uponbuilt upon differentiatiodifferentiationn

Competencies Competencies in in awareness, awareness, accessibilityaccessibility & & designdesign could lead to could lead to a a competitive competitive advantage advantage built uponbuilt upon differentiatiodifferentiationn

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 & accessibilityPrices tend to be higher

R&D High R&D spending - keep products fresh

Functional Alignment

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

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…

Marketing, Production & Finance out of sync

The company takes an emergency loan because inventory levels increase…

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…

Everybody is out of sync!

Financial decisions are made before knowing the budget demands of all R&D, Marketing and Production decisions…

Functional alignment- decisions matrixCompetitive Strategy:______

Strategic Objectives

Brand Rnd1

Tactics Rnd2

Marketing1234

1234

R&D1234

1234

Production1234

1234

HR

Finance

EXAMPLE: Functional alignment- decisions matrix

BRAND:_newCompetitive

Strategy: Niche Differentiation

Strategic Objectives

Tactics

Rnd1

Tactics Rnd2

Marketing

R&D

Production

HR

Finance

Competitive Strategy:ND Strategic ObjectivesMarketing 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.

EXAMPLE: Functional alignment- decisions matrix

Competitive

Strategy: Niche Differentiation

Strategic Objectives

Tactics

Rnd1

Tactics Rnd2

Marketing

R&D

Production

HR

Finance

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.

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.

TACTICS -Example: decision matrix- to add a new High End product…

R&DWhat= A New product- Size coordinate = 10. Performance coordinate = 11. MTBF = 25,000 hours. When Due out in 2007

MARKETING

Competitively Price @ $35. Target 68% Awareness (50% @intro +18% will cost=$2M promo budget-allocate web, email & Trade Shows) maintain hi-level Distribution w/ Sales budget = $1.4M…w/ appropo allocations- When 2007.

PRODUCTIONWhat Produce 75,000 units at automation level of 3. When Ready by second month of 2007. How Purchase capacity in 2006.

HRWhat Investments in Concurrent Engineering & Quality Deployment- to reduce R&D Times When & How Much $2M-2005; $1.5M-2006;$1M-2007

FINANCE What Finance $11M. When NOW. How Issue long term debt.

Competitive Strategy:ND Tactics Year 1

Production

For each product, schedule production using the formula:(UnitSalesForecast X 112%) – InventoryOnHand.

Adam – sell 200 to 300 units of capacity. Adam has too much capacity, and given our new product it is unlikely that we will need 900 units of capacity in the future.

Make no other plant improvements to capacity or automation UNTIL YEAR 2- WHEN New High End product DEVLOPMENT COMPLETE – buy 600 units of capacity at automation level 5.0.

Competitive Strategy:ND Tactics Year 1

HR Invest $1.5 million per selected – critical TQM (Quality

Function Deployment; CCE ) & Process Initiatives (CPI,JIT,QIT, Channel Support & Concurrent Engineering)

Finance

On proforma Balance Sheet-- add together Cash and Inventory accounts. -- Keep between 15% and 20% of balance sheet assets in Cash plus Inventory.

Drive Cash position until it roughly equals your Inventory position. …. If you are cash poor, issue additional stock to cover the investment in new capacity. If you are cash rich, pay dividends.

AVOID Short Term Debt.

M A R K E T I N G

M A N A G E M E N T

TODAY’S

1. Finish Situation Analysis

2. Draft Mission & Vision Statements

3. Select Growth & Competitive Strategies

1. Finish Situation Analysis

2. Draft Mission & Vision Statements

3. Select Growth & Competitive Strategies

To compete on cost or differentiation…

that is the question

Also on Today’s

Begin drafting “functionally aligned” strategic &

tactical decisions matrices

Begin drafting “functionally aligned” strategic &

tactical decisions matrices

Competitive Strategy

Strategic Objectives

Brand Rnd1

Tactics Rnd2

Marketing1234

1234

R&D1234

1234

Production1234

1234

HR

Finance

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

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

Getting it togetherGetting it together