Building a Strategy

Chapter VI

Strategic Planning

... Is primary vehicle for achieving strategic alignment across an organization and ensuring the effective implementation of a company's strategy

– Strategic planning is an iterative process that takes time and requires a series of back-and-forth communications between senior management and units, whereby all parties examine, discuss, and refine the plan

Strategic Planning Process

1. Situation Analysis

1. Situation Analysis 2. SWOT 2. SWOT 3. Priority

Issues3. Priority

Issues 4. High-level Action Plans 4. High-level Action Plans

• Industry structure

• Competitors• Customers• Company• Forces shaping

the industry

•Strengths•Weaknesses•Opportunities•Threats

•Broad areas to focus on

•Detail the objectives, tasks, and requirements needed to carry out a strategic initiative

5. Finalizing Strategic

Plan

5. Finalizing Strategic

Plan

2. Performing SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats COMPANY

Performing SWOT Analysis 1. Brainstorm a company or unit's strengths

2. Consolidate ideas

3. Clarify ideas

4. Identify the top three strengths

5. Repeat Steps 1-4 for Weaknesses, Opportunities, and Threats

3. Determining Priority Issues 1. Review the results of the SWOT analysis and identified

Competitive Advantages

2. Identify priority issues (aiming at gaining or sustaining Competitive Advantage)

3. Elicit discussion – to ensure that each proposed priority issue is clear

4. Vote on priority issues

4. High-level Action Plan Structure 1. A description of the priority issue and why it's important

2. Objectives expressed in specific metrics and time frames

3. Key steps involved in achieving the priority issue

4. Resources required

5. Interlocking requirements involving other units

6. Anticipated cost and gain

High-level Action Plan - Resources How will the strategic initiative impact the group's ongoing day-

to-day work?

Can the existing resources cover strategic initiative action plans in addition to business-as-usual?

If not, what additional resources will the unit need? With what expertise and skills?

What new skills will people need to carry out a strategic initiative?

What training will be required? At what cost?

What new systems or technology will be required to support the initiative? At what cost?

High-level Action Plan - Interlocks

Most units don't work in isolation to accomplish their objectives. They need to collaborate with others—both inside as well as outside the company

When cross-functional teams are created, it must be developed a charter that outlines the roles, responsibilities, key milestones, deliverables, and decision-making processes of the group

High-level Action Plan – Cost & Gain

Present a concrete value of investment

Estimate all costs involved

Present the revenue plan, as a result of this strategic scheme

High-level Action Plan – Example (1)1. Unit: Printing2. Priority issue: Long-range capacity plan

– Description: Build new facilities and purchase modern technology that will increase printing capacity to produce higher unit volume at lower cost.

– Strategic Importance: Our current capacity will not allow us to meet market demand or achieve our strategic objective of increasing market share.

3. Objectives and metrics: Develop long-range printing facilities that will: meet forecast demand from 2008-2013 and achieve dramatic improvement in quality, cost, and customer service– Year 1: Complete design phase and begin construction by year-end– Year 2: Complete construction, purchase modern technology and start-up production by year-end– Year 3: Achieve initial running rate of 525 million units a year at a cost of $.270 per unit

High-level Action Plan – Example (2)

4. StepsYear 1

What Who When

Establish design specifications

Printing team; Engineering leads

January 2008

Approve specifications Senior management February 2008

Flow-chart and system design; costing

Printing team; Engineering and Finance lead

June 2008

Detailed drawings for bid purposes; costing

Printing team; Engineering and Finance lead

August 2008

Approval Senior management August 2008

Bids Purchasing and construction October 2008

Construction starts Construction team November 2008

High-level Action Plan – Example (3)

5. Resources: Need to hire one full-time construction manager, two plant managers and three assistants to support these managers.

6. Interlocks: Printing unit works with To When

Construction unit

Manage entire construction process Start January 1, 2008

Legal Handle all licenses, liability assessment, and insurance

Start March 1, 2003

Customers Form customer service committee to design order-entry shipment systems

Start May 1, 2003

High-level Action Plan – Example (4)

7. Impact estimate:

Cost: Expense capital = $125 millionCapital = $125 millionEquipment = $250 millionTotal investment = $500 million

Revenue:(new

printing house)

Yr 1 Yr 3 Yr 5

Price/unit $.425 $.400 $.350

Cost/unit $.325 $.270 $.180

Units 177M 525M 700M

Revenue $75M $210M $500M

High-Level Action Plan - Review

1. Check in informally

2. Report regularly

3. Conduct quarterly reviews

5. Strategic Plan

NOW, PUT IT ALL TOGETHER!

The Elements of a Strategic Plan 1. Direction statement (Mission, Vision, Business definition,

Competitive Advantages, Core competencies)

2. Strategic objectives

3. Priority issues (Achieving and Sustaining Competitive Advantage)

4. Action plans (briefly describe the specific steps the company needs to take in order to achieve its objectives)

Porter’s Five Tests of a Sound Strategy

1. A unique value proposition compared to competitors

2. A different, tailored value chain

3. Clear tradeoffs, and choosing what not to do

4. Activities that fit together and reinforce each other

5. Continuity of position with continual improvement

Continuity of Strategy

Continuity of strategy is fundamental to sustainable competitive advantage

Reinvention and frequent shifts in direction are costly and confuse the customer, the industry and the organization

Continuity is required in value proposition Successful companies continuously improve in

how they realize their strategy Continuity of strategy allows learning and

change to be faster and more effective