Lecture 5
The Strategic and Operational
Planning Process
Lecture 5
Outline:
I.
A.
B.
C.
II.
A.
B.
C.
III.
A.
B.
C.
IV.
A.
B.
C.
PLANNING
Planning Dimensions
Standing Versus Single-Use Planning
Contingency Plans
strategic and operational planning
The Strategic Process
Levels of Strategies
Developing the Mission
ANALYZING THE ENVIRONMENT
Industry and Competitive Situation Analysis
Company Situation Analysis (SWOT)
Competitive Advantage
CORPORATE-LEVEL STRATEGY
Grand Strategy
Corporate Growth Strategies
Portfolio Analysis
V. BUSINESS-LEVEL STRATEGY
A. Adaptive Strategies
B. Competitive Strategies
C. Product Life Cycle
VI. FUNCTIONAL-LEVEL
OPERATIONAL STRATEGIES
A. Marketing Strategy
B. Operations Strategy
C. Human Resources Strategy
D. Finance Strategy
E. Other Functional Strategies
VII.IMPLEMENTING AND
CONTROLLING STRATEGIES
Planning
• Planning Dimensions
–The level of management developing the plan
–The type of plan (strategic or operational)
–The scope of the plan (broad or narrow)
–The time horizon of the plan (short- or long-term)
–Standing plan
5–3
Types of Plans
• 1.Standing Plans
–Policies, procedures, and rules developed for
handling repetitive situations.
–Policies
• General guidelines to be followed when making
decisions.
–Procedures
• A sequence of actions to be followed in order to achieve
an objective.
–Rules
• A statement of exactly what should or should not be
done.
5–4
Types of Plans (cont’d)
• 2.Single-Use Plans
–Programs and budgets developed for handling
non-repetitive situations.
–Program
• A set of activities designed to accomplish an objective
over a specified period of time.
–Program development
• Set project objectives.
• Break the project down into a sequence of steps.
• Assign responsibility for each step.
• Establish starting and ending times.
• Determine the resources needed for each step.
5–5
Types of Plans (cont’d)
• 2.Single-Use Plans
–Budget
• Represents the funds allocated to operate a unit for a
fixed period of time.
• Is a planning tool initially and becomes a control tool
after implementation of the plan.
5–6
Standing versus Single-Use Plans
Exhibit 5–2
5–7
Types of Plans (cont’d)
• 3.Contingency Plans
–Alternative plans to be implemented if
uncontrollable events occur.
–Developing a contingency plan
• What might go wrong in my department?
• How can I prevent it from happening?
• If it does occur, what can I do to minimize its effect?
5–8
Strategic and Operational Planning
• Strategic Planning
–The process of developing a mission and longrange objectives and determining in advance how
they will be accomplished.
• Operational Planning
–The process of setting short-range objectives and
determining in advance how they will be
accomplished.
• Strategy
– A plan for pursuing the mission and achieving
objectives.
5–9
Strategic Planning
• Corporate-Level Strategy
–The plan for managing multiple lines of
businesses
• Business-Level Strategy
–The plan for managing one line of business
• Functional-Level Strategy
–The plan for managing one area of the business
5–10
Strategic and Operational Levels
Exhibit 5–4
5–11
Industry and Competitive
Situation Analysis
• Situation Analysis
–Draws out those features in a company’s
environment that most directly frame its strategic
window of options and opportunities.
• Five Competitive Forces (Porter)
–Rivalry among competing sellers in the industry
–Threat of substitute products and services
–Potential new entrants
–Power of suppliers
–Power of buyers
5–12
Starbuck’s Five-Force
Competitive Analysis
Exhibit –5
5–13
Competitive Analysis
•The bargaining power of customers
•buyer concentration to firm concentration ratio
•bargaining leverage
•buyer volume
•Buyer switching costs relative to firm switching costs
•buyer information availability
•ability to backward integration
•availability of existing substitute products
•buyer price sensitivity
•price of total purchase
•The bargaining power of suppliers
•supplier switching costs relative to firm switching costs
•degree of differentiation of inputs
•presence of substitute inputs
•supplier concentration to firm concentration ratio
•threat of forward integration by suppliers relative to the
threat of backward integration by firms
•cost of inputs relative to selling price of the product
•importance of volume to supplier
•The threat of substitute products
•buyer propensity to substitute
•relative price performance of substitutes
•buyer switching costs
•perceived level of product differentiation
•The threat of new entrants
•the existence of barriers to entry
•Economies of product differences
•Brand equity
•switching costs
•capital requirements
•access to distribution
•absolute cost advantages
•learning curve advantages
•expected retaliation
•government policies
•The intensity of competitive rivalry
•number of competitors
•rate of industry growth
•intermittent industry overcapacity
•exit barriers
•diversity of competitors
•informational complexity & asymmetry
•brand equity
•fixed cost allocation per value added
•level of advertising expense
5–14
Company Situation Analysis Steps
1. Assessment of the present strategy based
on performance.
2. SWOT analysis.
3. Competitive Strength Assessment
(competitive advantage).
4. Conclusions concerning competitive
position.
5. Determination of the strategic issues and
problems that need to be addressed
through strategic processes.
Exhibit 5–6
5–15
SWOT Analysis for
Starbucks Coffee
5–16
Corporate-Level Strategy
• Grand Strategies
–Growth
–Stability
–Turnaround and
retrenchment
–Combination
• Growth Strategies
–Concentration
–Backward and
forward integration
–Related and Unrelated
diversification
5–17
Corporate Grand and Growth Strategies
Exhibit 5–10
5–18
Portfolio Analysis: BCG Matrix
Exhibit 5–11
5–19
Portfolio Analysis: BCG Matrix
• Cash cows, units with high market share in a slow-growing industry. These units typically generate cash in
excess of the amount of cash needed to maintain the business. They are regarded as staid and boring, in a
"mature" market, and every corporation would be thrilled to own as many as possible. They are to be
"milked" continuously with as little investment as possible, since such investment would be wasted in an
industry with low growth.
•Dogs, or more charitably called pets, units with low market share in a mature, slow-growing industry.
These units typically "break even", generating barely enough cash to maintain the business's market share.
Though owning a break-even unit provides the social benefit of providing jobs and possible synergies that
assist other business units, from an accounting point of view such a unit is worthless, not generating cash
for the company. They depress a profitable company's return on assets ratio, used by many investors to
judge how well a company is being managed. Dogs, it is thought, should be sold off.
•Question marks,Question marks are growing rapidly and thus consume large amounts of cash, but
because they have low market shares they do not generate much cash. The result is a large net cash
consumption. A question mark (also known as a "problem child") has the potential to gain market share
and become a star, and eventually a cash cow when the market growth slows. If the question mark does
not succeed in becoming the market leader, then after perhaps years of cash consumption it will
degenerate into a dog when the market growth declines. Question marks must be analyzed carefully in
order to determine whether they are worth the investment required to grow market share.
•Stars, units with a high market share in a fast-growing industry. The hope is that stars become the next
cash cows. Sustaining the business unit's market leadership may require extra cash, but this is worthwhile
if that's what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they
have been able to maintain their category leadership
• As a particular industry matures and its growth slows, all business units become either cash cows or dogs.
5–20
Business-Level Strategies
• Adaptive Strategies
–Prospecting
• Aggressively offering new products and/or entering new
markets.
–Defending
• Staying with the present product line and markets, and
maintaining or increasing customers.
–Analyzing
• A midrange approach between prospecting and
defending, moving cautiously into new markets.
5–21
Competitive Strategies
• Differentiation
–Competing on the basis of features that
distinguish one firm’s products or services from
those of another.
• Cost Leadership
–The firm with the lowest total overall costs has a
competitive advantage in price-sensitive markets.
• Focus
–Concentrating competitive efforts on a particular
market segment, product line, or buyer group.
5–22
Product Life Cycle: Starbucks
Exhibit 5–14
5–23
Functional-Level Operational Strategies
• Marketing
–Which products to produce; how will they be
packaged, advertised, distributed, and priced?
• Operations
–Which processing systems to use to convert
inputs into outputs with quality and efficiency?
• Human Resources
–How to recruit, select, train, evaluate, and
compensate the workforce?
5–24
Functional-Level Operational Strategies
(cont’d)
• Finance
–How to acquire the necessary equity or debt
capital, meet the investment returns expectations
of investors and shareholders; maintain an
accounting system that optimizes the use of
financial resources.
• Other Functional Strategies
–Research and development (R&D) is important to
remaining competitive.
5–25