Chapter 5: Business Marketing Planning: Strategic Perspectives PowerPoint by: Ray A. DeCormier, Ph.D. Central Connecticut State University Chapter Topics 1. Marketing’s strategic role in corporate strategy development 2. The multifunctional nature of business marketing decision-making 3. Components of a business model that can be converted into superior positions of advantage in the business market 4. A valuable framework for detailing the processes and systems that drive strategy success New Strategies New strategies come from new ideas New ideas often come from new voices To meet both domestic and foreign competition, B2B firms are recognizing the vital role of marketing in developing and implementing successful strategies Effective Strategies Effective strategies share a: A. Responsiveness to market needs B. Ability to exploit the organizations special competencies C. Ability to make valid assumptions about environmental trends D. Ability to take advantage of competitive behavior E. Realistic basis for securing and sustaining a competitive advantage Market-Driven Organizations Market-driven organizations are: Centered on customers Take an outside-in view of strategy Demonstrate an ability to sense market trends ahead of their competitors Hierarchy of Strategies – 3 parts Corporate Strategy Business-Level Strategy Functional Strategy Hierarchy of Strategies – Part 1 Corporate Strategy – – – – What businesses are we in? What are our core competencies? How should we allocate resources? What businesses should we be in? Corporate Strategy At this level, the role of Marketing is to: a) Assess market attractiveness and competitive effectiveness of the firm b) Promote customer orientation to management c) Formulate the company’s overall value proposition that is marketed to the customer, management and employees Marketing Strategy to Corporate An important role for marketing management is to make the firm understand the “Customer is King” and advocate a set of values and beliefs that put the customer first in the firm’s decision-making process. Hierarchy of Strategies – Part 2 Business-Level Strategy – How do we compete in a given industry? – How should we position ourselves against competitors? Business-Level Strategy The focus is on how firms compete in a given industry. Competition is not between large corporations. It is between individual business units (SBUs) that compete in specific markets. Each SBU needs to develops its own business and marketing plans to answer: How can we compete? How and what is the most efficient way to get to the market? What are our distinctive skills? Hierarchy of Strategies – Part 3 Functional Strategy – How can we allocate resources to most efficiently and effectively support business-level strategies? – How can we use resources to meet the firm’s objectives within a specific product market? The interplay between the three levels of strategic formulation: 1. Cuts across functional areas 2. Involves issues related to long term objectives 3. Involves allocating resources across SBUs and/or product markets 4. Includes decisions about the direction of corporate strategy, application of technology and choice of alliance partners Strategic Decision 1. 2. 3. Process involves active participation of several functional groups with differing opinions about: a. Appropriateness of certain strategies b. Corporate goals Altering strategic goals can cause friction between them. However, strategic decision-making represents a bargaining process between competing functional factions. The Game • There are a number of players within an organization that want to change strategy to further their interests. • Certain managers feel their functional areas belong to them (“turf”) and if anyone intrudes by changing the strategy, they are stepping over their bounds. • Further, various groups possess different philosophies, beliefs and incentives resulting in different thoughtworlds. • Thus, each subculture has a different agenda. • The bargaining process for arriving at a mutually agreeable strategic decision between these competing forces represent “the game.” Collective Action Perspective of Strategy Formulation Process 16 Corporate Progress Requires a Meeting of the Minds Successful cross-functional connections occur when turf wars, thought-worlds, and other various interest groups come together and develop a workable strategy to deal with the competitive world. In order for this to occur, the marketing group needs to be sensitive to—and connect with—these “stakeholders.” Cross-Functional Connections Explore Interrelationships between Marketing and Four Business Functions B2B TOP PERFORMERS Marketing managers who know how to get the job done (i.e., facilitate negotiations across functional areas) possess certain characteristics: 1. Responsive & timely 2. Perspective-taking ability to understand and anticipate other functional managers’ priorities 3. Open, frequent and high quality communication style 4. Their word is their bond and follow through 5. Able to develop a strong network 19 Successful marketing managers know how to integrate functional areas. They: 1. 2. 3. Understand their capabilities Capitalize on their strengths Facilitate strategies that are responsive to customer needs Successful marketing managers assume a central role in strategy implementation. 21 Inter-Functional Involvement in Marketing Decision Making: An Illustrative Responsibility Chart Organizational Function Decision areas Marketing Manufacturing R&D Logistics Tech. Services SBU Manager Corp. Level Manager Product Design specifications Performance character. Reliability Price List/Discount Tech. Services Customer training Logistics Inventory Customer service level Sales Force Training Advertising Message development Channel Selection Decision role: R=Responsibility; A=Approval; C=Consult; M=Implement; I=Inform, X=No Role Vocabulary Roles in Strategic Decision Making Participants in strategic decision making may assume the following roles: Responsible (R) - Manager takes initiative, analyzes situation, develops alternatives, consults with others, make initial recommendation, & facilitates approval of decision Approve (A) - Manager accepts or rejects decisions Consult (C) - Manager offers input Implement (M) - Manager is accountable for implementing decision Inform (I) - Manager is informed of the decision Marketing Strategy Center (MSC) Representatives may assume more than one role Roles evolve during the marketing strategy development process Composition of the MSC is not strictly prescribed by the organization chart MSC share certain parallels with the buying center One challenge for the business marketer is to minimize interdepartmental conflict. Conflicts are motivated by personal and organizational goals. Organizational objectives may be different for different functional areas. (Example: Various functional areas are rewarded differently.) Managing conflict, promoting cooperation, developing and coordinating strategy is a fundamental responsibility for marketing managers. Strategy Success For a strategy to succeed: Each firm needs to have a business concept that separates them apart from their competition. There are 4 components: 1. Customer Interface 2. Core Strategy 3. Strategic Resources 4. Value Network Refer to Figure 5.2 Fig. 5.2 – Components of a Business Model: Bridges to Profits CUSTOMER INTERFACE Fulfillment & Support Information & Insight Relationship Dynamics Pricing Structure CORE STRATEGY Business Mission Product/Market Scope Basis for Differentiation STRATEGIC RESOURCES Core Competencies Strategic Assets Core Processes VALUE NETWORK Suppliers Partners Coalitions EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS Major business concept components are tied together by three important “bridge” elements: customer benefits, configuration, and company boundaries. Fulfillment & Support Information & Insight 1. Customer Interface Pricing Structure Relationship Dynamics 1. CUSTOMER INTERFACE 1. 2. 3. 4. Fulfillment & Support – They are the channels a firm uses to reach and support customers. Information & Insight – Involves the capture of knowledge from customers and uses it to provide enhanced value to customers. Relationship Dynamics – Involves the dyadic nature of the buy/sell relationship in order to understand customer expectations so it can exceed them, increase the affiliation and lower competitive influences. Pricing Structure – Employs a pricing policy and structure that enhances profits but not at the expense of curtailing business. Fig. 5.2 – Components of a Business Model: Bridges to Profits CUSTOMER INTERFACE Fulfillment & Support Information & Insight Relationship Dynamics Pricing Structure CORE STRATEGY Business Mission Product/Market Scope Basis for Differentiation STRATEGIC RESOURCES Core Competencies Strategic Assets Core Processes VALUE NETWORK Suppliers Partners Coalitions EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS Major business concept components are tied together by three important “bridge” elements: customer benefits, configuration, and company boundaries. Core Strategy – Three Elements The business mission describes overall strategic objective, sets course direction, and defines performance criteria to measure progress. Product/market scope defines where firm competes. Basis for differentiation captures essence of how firm competes differently than its rivals do. Differentiation of Products and Services A business is differentiated when its value- adding activities are perceived as superior and profitable. Value-added features need to motivate customers to pay a higher premium than the cost of superior performance. Provide superior performance through: Speed Responsiveness to complex orders Customized to solve customer problems Provide superior quality by: Reducing customer costs Improving performance Offer innovative product features that employ new technologies Fig. 5.2 – Components of a Business Model: Bridges to Profits CUSTOMER INTERFACE CORE STRATEGY Fulfillment & Support Information & Insight Relationship Dynamics Pricing Structure Business Mission Product/Market Scope Basis for Differentiation STRATEGIC RESOURCES Core Competencies Strategic Assets Core Processes VALUE NETWORK Suppliers Partners Coalitions EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS Major business concept components are tied together by three important “bridge” elements: customer benefits, configuration, and company boundaries. Competitive Advantage Employing superior strategic resources and skills can gain a competitive advantage. Core competencies are set of skills, systems, and technologies that create uniquely high value for customers. Strategic assets are more tangible requirements for advantage; includes brands, customer data, distribution coverage, patents. Core processes are methodologies and routines that companies use to transform competencies, assets, and other inputs into value for customers. Fig. 5.2 – Components of a Business Model: Bridges to Profits CUSTOMER INTERFACE CORE STRATEGY Fulfillment & Support Information & Insight Relationship Dynamics Pricing Structure Business Mission Product/Market Scope Basis for Differentiation STRATEGIC RESOURCES Core Competencies Strategic Assets Core Processes VALUE NETWORK Suppliers Partners Coalitions EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS Major business concept components are tied together by three important “bridge” elements: customer benefits, configuration, and company boundaries. Value Network A value network includes those who complement and enrich the organization. Do we have good relations with suppliers, partners, vendors and other supporters? Can we partner with others in such a way that we can use their assets as if they were our own? Example: Using UPS as shipping service Competitive positioning is about being different and competing in a distinct way by using a unique mix of customer values. Michael Porter states there are six fundamentals principles that a company should employ for establishing and maintaining a distinct strategic position. Michael Porter Asks: What is Strategic Positioning? Michael Porter & Strategic Positioning Right goal: Superior long term ROI instead of performance goals (i.e., % share market) Create and deliver a good customer value proposition Create a distinctive value chain by offering or performing similar features but in a different way Accept trade-offs: You can’t be everything to everyone, therefore give up some things and reinforce others that enhance the distinctions Emphasize those element that facilitate the strategic “fit” and reinforce them Continuity of direction means to define a distinctive value proposition and build strong customer relations by staying consistent to that plan Building the Strategic Plan Companies need to do many things well. However, underperformance is caused by a breakdown between strategy and operations. Kaplan & Norton contend that successful strategic execution involves two rules: a. Understand the Management cycle that links strategy and operations, and b. Know what tools to apply at each stage of the cycle. The Management System This system allows management to plan, coordinate and monitor the links between strategy and operations. The Management System Involves 5 stages: 1. 2. 3. 4. 5. Strategy development Translate strategy into objectives Design key processes Monitor performance Adapt the strategy 2 Key tools for successful strategy implementation are: 1. 2. Balanced Scorecard Strategy Map Balanced Scorecard Developed by Kaplan and Norton. We know measures are central to any strategy. The Balanced Scorecard is a comprehensive system for converting a company’s vision and strategy into a tightly connected set of performance measures. Balanced Scorecard Examines the performance of a business unit from four perspectives: 1. Financial 2. Customer 3. Internal Business 4. Learning and growth The Balanced Scorecard - Translating Strategy Into Operational Terms 1. Financial Perspective Long-Term Shareholder Value Revenue Growth Productivity Cause-and-Effect Relationships Defines the chain of logic by which intangible assets will be transformed to tangible value. 2. Customer Perspective Product/Service Attributes Price Quality Time Relationship Function Partnership 3. Internal Process Perspective Manage Operations Manage Customers Manage Regulatory and Social Processes Manage Innovation 4. Learning and Growth Perspective Human Capital + Information Capital + Organization Capital Image Brand Customer Value Proposition Clarifies conditions that create value for the customer. Value-Creating Processes Defines processes that transform intangible assets into customer and financial outcomes. Clustering Assets and Activities Defines intangible assets to be aligned and integrated to create value. Cause & Effect Relationship defines the logic that transforms intangible assets into tangible assets. Consideration is give to: 1. Productivity 2. Long-term shareholder value 3. Revenue growth Balanced Scorecard seeks to match financial objectives with business units’ growth and other life cycle stages. Growth stage: ◦ Operation: This stage is where the company needs to commit resources for new product or service. ◦ Financial objectives: Know sales growth rate by segment Know % of revenue from new product, services and customers Sustain Stage: ◦ Operation: This stage represents majority of business where the strategy is to maintain and grow slowly. ◦ Financial objectives: Focus on share of target customers and account Know customer and product line profitability Harvest Stage: ◦ Mature SBUs or products Operations: Provide only enough investment to maintain product equipment and capabilities. Financial Objectives: Goal is payback Know customer and product-line profitability The Balanced Scorecard - Translating Strategy Into Operational Terms 1. Financial Perspective Long-Term Shareholder Value Revenue Growth Productivity Cause-and-Effect Relationships Defines the chain of logic by which intangible assets will be transformed to tangible value. 2. Customer Perspective Product/Service Attributes Price Quality Time Relationship Function Partnership 3. Internal Process Perspective Manage Operations Manage Customers Manage Regulatory and Social Processes Manage Innovation 4. Learning and Growth Perspective Human Capital + Information Capital + Organization Capital Image Brand Customer Value Proposition Clarifies conditions that create value for the customer. Value-Creating Processes Defines processes that transform intangible assets into customer and financial outcomes. Clustering Assets and Activities Defines intangible assets to be aligned and integrated to create value. 2. CUSTOMER PERSPECTIVE Clarifies conditions that create customer value Take into consideration: 1. 2. 3. Product/Service attributes (price, quality, time & function) Relationships (partnerships) Image (brand) 2. CUSTOMER PERSPECTIVE: CORE MEASURES Market Share Proportion of business in a particular market by: a. % share of market b. Total number of customers c. Dollars spent or unit volume sold Customer Acquisition Tracks in absolute or relative terms rate at which SBU attracts and/or wins new customers Customer Retention Tracks in absolute or relative terms rate at which SBU retains new customers Customer Satisfaction Matches the satisfaction level of customers on specific performance criteria such as quality, service, delivery, reliability, etc. Customer Profitability Assesses the net profit on each customer, or a segment, after deducting unique expenses allocated to support 52 that customer or segment 3. Internal Process Perspective This highlights the value-creating processes that define the other processes that will transform intangible assets into tangible assets. It considers: 1. 2. 3. 4. Operations management Customer management Innovation management Regulatory & social processes management 3. Aligning Internal Business Processes Key Value Propositions & Customer Strategy Operations Management The Focus of Internal Business Processes Customer Relationship Management Innovation Management Low Total Cost Strategy Highly Efficient Operating Processes Efficient, Timely Distribution Ease of Customer Access Superb Post-Sales Service Seek Process Innovations Gain Scale Economies Product Leadership Strategy Flexible Manufacturing Processes Rapid Introduction of New Products Capture Customer Ideas for New Offering Educate Customers about Complex New Products/Services Disciplined, High-Performance Product Development First-to-Market Complete Customer Solutions Strategy Deliver Broad Product/ Service Line Create Network of Suppliers for Extended Product/ Service Capabilities Create Customized Solutions for Customers Build Strong Customer Relationships Develop Customer Knowledge Identify New Opportunities to Serve Customers Anticipate Future Customer Needs Lock-in Strategies Provide Capacity for Proprietary Product/ Service Reliable Access and Create Awareness Influence Switching Costs of Existing and Potential Customers Develop and Enhance Proprietary Product Increase Breadth/ Applications of Standard Ease of Use Source: Adapted from Robert S. Kaplan and David P. Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Publishing Corporation, 2004), pp. 322-344. The Balanced Scorecard - Translating Strategy Into Operational Terms 1. Financial Perspective Long-Term Shareholder Value Revenue Growth Productivity Cause-and-Effect Relationships Defines the chain of logic by which intangible assets will be transformed to tangible value. 2. Customer Perspective Product/Service Attributes Price Quality Time Relationship Function Partnership 3. Internal Process Perspective Manage Operations Manage Customers Manage Regulatory and Social Processes Manage Innovation 4. Learning and Growth Perspective Human Capital + Information Capital + Organization Capital Image Brand Customer Value Proposition Clarifies conditions that create value for the customer. Value-Creating Processes Defines processes that transform intangible assets into customer and financial outcomes. Clustering Assets and Activities Defines intangible assets to be aligned and integrated to create value. 4. Learning & Growth Intangible assets must be aligned to long term strategy to achieve long term growth. Intangible assets represent “the capabilities of the company’s employees to satisfy customer needs.” They include: Human capital Information capital Organization capital 4. Learning & Growth (continued) To implement strategy, the organization needs: 1. Human Capital: Availability of employees with skills & talent 2. Information Capital: Availability of information systems and infrastructure 3. Organization Capital: The culture, leadership, incentives and teamwork Benefit of the Balanced Scorecard The Balanced Scorecard helps align the firms tangible and intangible assets with the organization’s strategic goals. See next frame: – 3. Aligning Internal Business Processes 3. Aligning Internal Business Processes Key Value Propositions & Customer Strategy Operations Management The Focus of Internal Business Processes Customer Relationship Management Innovation Management Low Total Cost Strategy Highly Efficient Operating Processes Efficient, Timely Distribution Ease of Customer Access Superb Post-Sales Service Seek Process Innovations Gain Scale Economies Product Leadership Strategy Flexible Manufacturing Processes Rapid Introduction of New Products Capture Customer Ideas for New Offering Educate Customers about Complex New Products/Services Disciplined, High-Performance Product Development First-to-Market Complete Customer Solutions Strategy Deliver Broad Product/ Service Line Create Network of Suppliers for Extended Product/ Service Capabilities Create Customized Solutions for Customers Build Strong Customer Relationships Develop Customer Knowledge Identify New Opportunities to Serve Customers Anticipate Future Customer Needs Lock-in Strategies Provide Capacity for Proprietary Product/ Service Reliable Access and Ease of Use Create Awareness Influence Switching Costs of Existing and Potential Customers Develop and Enhance Proprietary Product Increase Breadth/ Applications of Standard Source: Adapted from Robert S. Kaplan and David P. Norton, Strategy Maps: Converting Intangible Assets into Tangible Outcomes (Boston: Harvard Business School Publishing Corporation, 2004), pp. 322-344. Strategy Map The cause & effect components of the Balanced Scorecard template is transformed into visual model called the “strategy map.” The strategy map allows the company to describe and illustrate its: Objectives, initiatives & targets Measurements used to assess performance Linkages which are the foundation of the strategic direction Strategy Map The next frame illustrates a firm’s strategic map for pursuing a product leadership strategy. To start the company emphasize: Productivity strategy & Revenue Growth strategy Refer to Strategy Map Template Balanced Scorecard Strategy Map Template: Product Leadership Long-Term Shareholder Value Financial Perspective Productivity Strategy Revenue Growth Strategy Manage Total Life-Cycle Product Costs Revenues from New Products Gross Margins: New Products “Products and Services That Expand Existing Performance Boundaries into the Highly Desirable” Customer Perspective High-Performance Products: Smaller, Faster, Lighter, Cooler, More Accurate, More Storage, Brighter… First to market Operations Management Internal Perspective Flexible Robust Processes Supply Capacity for Rapid Growth Customer Management New Customer Segments Innovation Regulatory and Social Rapid Introduction of New Products Educate Customers about Complex New Products/Services Disciplined, High-Performance Product Development Minimize Product Liability And Environmental Impact In-line Experimentation and Improvement Capture Customer Ideas for New Products/Services Product Development Time: From Idea to Market Contribute to Communities “Find, Motivate, Grow, and Retain the Best Talent” A Capable, Motivated and Technologically Enabled Workforce Learning and Growth Perspective Information Capital Human Capital Deep Functional Expertise Creative, Versatile Employees: Crossfunctional Teamwork Virtual Product Prototyping and Simulation Computer-Aided Design and Manufacturing (CAD/CAM) Organization Capital Creativity, Innovation