Strategic Planning
for Managers
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Contents
1. Five Tasks of Strategic Planning
2. Factors Shaping the Choice of Strategy
3. Three Tests of Best Strategy
4. Analyzing Industry Environment and Crafting
Competitive Strategy
5. Strategy Implementation and Execution
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Five Tasks of
Strategic Planning
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Five Tasks of Strategic Planning
Forming a
strategic
vision
Setting
objectives
Crafting a
strategy to
achieve the
desired
outcomes
Implementing
and executing
the chosen
strategy
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Evaluating
performance,
monitoring new
developments,
and initiating
corrective
adjustments
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Forming a Strategic Vision
Forming a
strategic
vision
•
Very early in the strategy-making
process, company managers need to
pose a set of questions:
•
"What is our vision for the company
— where should the company be
headed, what should its future
technology-product-customer focus
be, what kind of enterprise do we
want to become, what industry
standing do we want to achieve in
five years?"
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Setting Objectives
Setting
objectives
•
The purpose of setting objectives is
to convert managerial statements of
strategic vision and business mission
into specific performance targets —
results and outcomes the
organization wants to achieve.
•
Setting objectives and then
measuring whether they are
achieved or not help managers track
an organization's progress.
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Strategic Objectives in Four Perspectives
Enhance Long-term
Shareholder Value
Improve
Cost Efficiency
Financial
Build High
Performance Products
Increase Revenue Growth
Expand
Market Share
Enhance
Brand Image
Customer
Achieve
Operational
Excellence
Drive Demand
through Customer
Relation Management
Manage Dramatic
Growth through
Innovation
Implement Good
Environmental
Policy
Internal Process
Learning & Growth
Develop Strategic
Competencies
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Build Learning
Culture
Expand Capabilities with
Technology
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Crafting Strategy
Crafting a
strategy to
achieve the
desired
outcomes
•
A company's strategy represents
management's answers to such fundamental
business questions as :
•
whether to concentrate on a single business or build
a diversified group of businesses
•
whether to cater to a broad range of customers or
focus on a particular market niche
•
whether to develop a wide or narrow product line
•
how to respond to changing buyer preferences
•
how big a geographic market to try to cover
•
how to react to newly emerging market and
competitive conditions
•
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how to grow the enterprise over the long term.
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What Does a Company's Strategy Consist Of?
Crafting a
strategy to
achieve the
desired
outcomes
•
Company strategies concern how:
•
how to grow the business
•
how to satisfy customers
•
how to outcompete rivals
•
how to respond to changing market
conditions
•
how to manage each functional piece of
the business and develop needed
organizational capabilities
•
how to achieve strategic and financial
objectives
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Strategy Implementation and Execution
•
Implementing
and executing
the chosen
strategy
Strategy implementation concerns the
managerial exercise of putting a freshly
chosen strategy into place
•
Strategy execution deals with the managerial
exercise of supervising the ongoing pursuit of
strategy, making it work, and showing
measurable progress in achieving the
targeted results.
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Strategy Evaluation and Monitoring
•
Evaluating
performance,
monitoring new
developments,
and initiating
corrective
adjustments
It is management's duty to stay on top of
the company's situation, deciding
whether things are going well internally,
and monitoring outside developments
closely.
•
Marginal performance or too little
progress, as well as important new
external circumstances, will require
corrective actions and adjustments.
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Strategy Hierarchy
Corporate
Strategy
Business
Strategies
Functional Strategies (R&D,
Marketing, Manufacturing, HR,
Finance, etc.
Strategy
hierarchy for
a diversified
company
Operating Strategies (regions,
plants, departments within
functional areas)
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Strategy Hierarchy
Business
Strategies
Functional Strategies (R&D,
Marketing, Manufacturing, HR,
Finance, etc.
Strategy hierarchy
for
a single-business
company
Operating Strategies (regions,
plants, departments within
functional areas)
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Strategy Hierarchy
Corporate
Strategic Vision
Corporate
Strategic Objectives
Corporate
Strategic Strategy
Business-Level
Strategic Vision
Business-Level
Strategic Objectives
Business-Level
Strategy
Functional
Areas Visions
Functional
Areas Objectives
Functional
Areas Strategies
Operating Unit
Objectives
Operating Unit
Strategies
Operating Unit Visions
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Factors Shaping
the Choice of Strategy
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Factors Shaping the Choice of Strategy
External Factors
Economic,
societal, political,
and government
regulations
Competitive
conditions and
industry
attractiveness
Company
opportunity and
threat
The mix of considerations that determines
a company’s strategic situation
Company strengths
and weaknesses,
competencies and
capabilities
Personal ambitions
and business
philosophies of key
executives
Shared values and
company culture
Internal Factors
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Factors Shaping the Choice of Strategy
Economic,
societal, political,
and government
regulations
•
What an enterprise can and cannot do
strategywise is always constrained by
what is legal, by what complies with
government policies and regulatory
requirements, by what is considered
ethical, and by what is in accord with
societal expectations and the standards
of good social and community
citizenship.
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Factors Shaping the Choice of Strategy
Competitive
conditions and
industry
attractiveness
•
An industry's competitive conditions
and overall attractiveness are big
strategy-determining factors.
•
A company's strategy has to be tailored
to the nature and mix of competitive
factors in play—price, product quality,
performance features, service, warranties, and so on.
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Factors Shaping the Choice of Strategy
Company
opportunity and
threat
•
A company's strategy needs to be
deliberately aimed at capturing its best
growth opportunities, especially the
ones that hold the most promise for
building sustainable competitive
advantage and enhancing profitability.
•
Strategy should also provide a defense
against external threats to the
company's well-being and future
performance.
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Factors Shaping the Choice of Strategy
Company
strengths and
weaknesses,
competencies and
capabilities
•
One of the most pivotal strategy-shaping
internal considerations is whether a
company has or can acquire the
resources, competencies, and capabilities
needed to execute a strategy proficiently.
•
The best path to competitive advantage is
found where a firm has competitively
valuable resources and competencies,
where rivals can't develop comparable
capabilities except at high cost or over an
extended period of time.
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Factors Shaping the Choice of Strategy
Personal
ambitions and
business
philosophies of
key executives
•
Managers do not dispassionately assess
what strategic course to steer.
•
Their choices are typically influenced by
their own vision of how to compete and
how to position the enterprise and by what
image and standing they want the
company to have.
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Factors Shaping the Choice of Strategy
Shared values
and company
culture
•
An organization's policies, practices,
traditions, philosophical beliefs, and ways
of doing things combine to create a
distinctive culture.
•
The stronger a company's culture, the
more that culture is likely to shape the
company's strategic actions, sometimes
even dominating the choice of strategic
moves.
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Strategic Analysis and Strategic Choices
Analyzing
strategically
about industry
and competitive
conditions
Analyzing
strategically
about a
company’s own
situation
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What strategic
options does the
company
realistically
have?
What is the best
strategy?
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Strategic Analysis and Strategic Choices
The Key Questions
Analyzing
strategically
about industry
and competitive
conditions
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What are the industry’s dominant economic
features?
•
What is causing the industry’s competitive
structure and business environment to change?
•
Which companies are in the strongest/weakest
positions?
•
What strategic moves are rivals likely to make
next?
•
What are the key factors for competitive success?
•
Is the industry attractive and what are the
prospects for above-average profitability?
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Strategic Analysis and Strategic Choices
The Key Questions
Analyzing
strategically
about a
company’s own
situation
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•
How well is the company’s present
strategy working?
•
What are the company’s strengths,
weaknesses, opportunities, and threats?
•
Are the company’s prices and costs
competitive?
•
How strong is the company’s competitive
position?
•
What strategic issues does the company
face?
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Three Tests of Best Strategy
The
Goodness of
Fit Test
The Best
Strategy
The
Competitive
Advantage
Test
The
Performance
Test
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Three Tests of Best Strategy
•
A good strategy has to be well matched
to industry and competitive conditions,
The
Goodness of
Fit Test
market opportunities and threats, and
other aspects of the enterprise's
external environment.
•
At the same time, it has to be tailored to
the company's resource strengths and
weaknesses, competencies, and
competitive capabilities.
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Three Tests of Best Strategy
•
A good strategy leads to sustainable
competitive advantage.
•
The
Competitive
Advantage
Test
The bigger the competitive edge that
a strategy helps build, the more
powerful and effective it is.
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Three Tests of Best Strategy
•
A good strategy boosts company
The
Performance
Test
performance.
•
Two kinds of performance
improvements are the most telling of
a strategy's caliber: gains in
profitability and gains in the
company's competitive strength and
long-term market position.
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Analyzing Industry Environment
and Designing Competitive Strategy
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Porter’s Five Forces
Buyer
Power
Barriers to
Entry
Rivalry
Threats of
Substitutes
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Supplier
Power
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The Intensity of Rivalry
1. A larger number of firms
The intensity of
rivalry is influenced
by the following
industry
characteristics:
2. Slow market growth
3. High fixed cost
4. High storages costs or highly
perishable products
5. Low switching cost
6. Low level of product differentiation
7. Strategic stakes are high
8. High exit barriers
9. A diversity of rivals
10. Industry shakeout
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Barriers to Entry
1. Absolute cost advantages
Entry barriers
are influenced by
the following
factors :
2. Proprietary learning curve
3. Access to inputs
4. Government policy
5. Economies of scale
6. Capital requirements
7. Brand identity
8. Switching costs
9. Access to distribution
10. Expected retaliation
11. Proprietary products
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Threats of Substitutes
1. Switching costs
Threats of
substitutes
are influenced by
the following
factors :
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2. Buyer inclination to
substitute
3. Price-performance trade-off
of substitutes
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Buyer Power
1. Bargaining leverage
Buyer power
is influenced by
the following
factors :
2. Buyer volume
3. Buyer information
4. Brand identity
5. Price sensitivity
6. Threat of backward integration
7. Product differentiation
8. Buyer concentration vs. industry
9. Substitutes available
10. Buyers' incentives
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Supplier Power
1. Supplier concentration
Supplier power
is influenced by
the following
factors :
2. Importance of volume to supplier
3. Differentiation of inputs
4. Impact of inputs on cost or
differentiation
5. Switching costs of firms in the
industry
6. Presence of substitute inputs
7. Threat of forward integration
8. Cost relative to total purchases
in industry
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Sample Form for an Industry and Competitive Analysis Summary
Dominant Economic Characteristics of the Industry Environment (market size and growth rate,
geographic scope, number and sizes of buyers and sellers, pace of technological change and
innovation, scale economies, experience curve effects, capital requirements, and so on)
Competitive Analysis

Rivalry among competing sellers

Threat of potential entry

Competition from substitutes Power of suppliers

Power of consumers
Competitive Position of Major Companies/ Strategic Groups.

Those that are favorably positioned, and why

Those that are unfavorably positioned, and why
Competitor Analysis

Strategic approaches/predicated moves of key competitors

Whom to watch, and why
Industry Key Success Factors
Industry Prospects and Overall Attractiveness

Factors making the industry attractive

Factors making the industry unattractive

Special industry issues/problems

Profit outlook (favorable/unfavorable)
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Five Generic Competitive Strategies
Broad Market
Segment
Low Cost
Differentiation
Overall Low Cost
Leadership Strategy
Differentiation
Strategy
Best Cost
Strategy
Narrow Market
Segment
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Focused Low Cost
Strategy
Focused
Differentiation
Strategy
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Five Generic Competitive Strategies
Overall Low Cost
Leadership
Strategy
Appealing to a broad spectrum of customers
based on being the overall low-cost provider
of product and service
Broad
Differentiation
Strategy
A differentiation strategy calls for the
development of a product or service that
offers unique attributes that are valued by
customers and that customers perceive to be
better than or different from the products of
the competition
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Five Generic Competitive Strategies
Overall Low Cost
Leadership
Strategy
Appealing to a broad spectrum of customers
based on being the overall low-cost provider
of product and service
Broad
Differentiation
Strategy
A differentiation strategy calls for the
development of a product or service that
offers unique attributes that are valued by
customers and that customers perceive to be
better than or different from the products of
the competition
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Five Generic Competitive Strategies
Best Cost Strategy
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•
Giving customers more value for the
money by incorporating good-toexcellent product attributes at a lower
cost than rivals
•
The target is to have the lowest (best)
costs and prices compared to rivals
offering products with comparable
upscale attributes
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Generic Strategies and Industry Forces
Industry
Force
Entry
Barriers
Buyer
Power
Supplier
Power
Threat of
Substitutes
Rivalry
Generic Strategies
Cost Leadership
Differentiation
Focus
Ability to cut price in
retaliation deters potential
entrants.
Customer loyalty can
discourage potential entrants.
Focusing develops core
competencies that can act as
an entry barrier.
Ability to offer lower price to
powerful buyers.
Large buyers have less power
to negotiate because of few
close alternatives.
Large buyers have less power
to negotiate because of few
alternatives.
Better insulated from
powerful suppliers.
Better able to pass on supplier
price increases to customers.
Suppliers have power because
of low volumes, but a
differentiation-focused firm is
better able to pass on supplier
price increases.
Can use low price to defend
against substitutes.
Customer's become attached
to differentiating attributes,
reducing threat of substitutes.
Specialized products & core
competency protect against
substitutes.
Better able to compete on
price.
Brand loyalty to keep
customers from rivals.
Rivals cannot meet
differentiation-focused
customer needs.
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Strategy Implementation and
Execution
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Strategy Implementation
Building a capable
organization
Linking budget to strategy
Designing strategysupportive reward system
Effective
Creating a strategysupportive corporate
culture
Exerting strategic
leadership
HR & Organization
Development Factor
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Strategy
Execution
Establishing strategysupportive policies and
procedures
Instituting best practices and
commitment to continuous
improvement
Installing information system
to support strategy execution
System Factor
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Building a Capable Organization
Staffing the organization
•
Putting together a strong management team
•
Recruiting and retaining talented employees
Building a
capable
organization
Building Core Competencies and Capabilities
•
Developing competence/capability portfolio
suited to current strategy
•
Updating and reshaping the portfolio as external
conditions and strategy change
Structuring the Organization and Work Effort
•
Organizing business function and processes,
value chain activities, and decision making
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Strategy-supportive Reward System
Designing
strategysupportive
reward
system
•
Strategy-supportive motivational practices
and reward systems are powerful
management tools for gaining employee
buy-in and commitment.
•
The key to creating a reward system that
promotes good strategy execution is to
make strategically relevant measures of
performance the dominating basis for
designing incentives, evaluating individual
and group efforts, and handing out
rewards.
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Strategy-supportive Corporate Culture
Creating a
strategysupportive
corporate
culture
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•
Building a strategy-supportive culture is
important to successful strategy execution
because it produces a work climate and
organizational esprit de corps that thrive
on meeting performance targets and being
part of a winning effort.
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Strategic Leadership
Exerting
strategic
leadership
•
Strategic leaders encourage people to be
innovative in order to keep the
organization responsive to changing
conditions, alert to new opportunities, and
anxious to pursue fresh initiatives.
•
Strategic leaders also actively push
corrective actions to improve strategy
execution and overall strategic
performance.
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Linking Budget to Strategy
Linking
budget to
strategy
•
Reworking the budget to make it more
strategy-supportive is a crucial part of the
implementation process because every
organization unit needs to have the
people, equipment, facilities, and other
resources to carry out its part of the
strategic plan.
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Strategy-supportive Policy
Establishing
strategysupportive
policies and
procedures
•
Prescribing new or freshly revised policies
and operating procedures aids the task of
implementation (1) by promoting
consistency in how particular strategy-
critical activities are performed in
geographically scattered operating units
and (2) by helping to create a strategysupportive work climate and corporate
culture.
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Continuous Improvement
Instituting
best practices
and
commitment
to continuous
improvement
•
Competent strategy execution entails
visible, unyielding managerial commitment
to best practices and continuous
improvement.
•
Benchmarking, the discovery and
adoption of best practices, and six sigma
initiatives all aim at improved efficiency,
better product, and greater customer
satisfaction.
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Information Support System
Installing
information
system to
support
strategy
execution
•
Company strategies can’t be implemented
well without a number of support system
to carry on business operations.
•
Well-conceived, state-of-the-art support
system not only facilitate better strategy
execution but can also strengthen
organizational capabilities enough to
provide a competitive edge over rivals.
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Recommended Further Readings
1.
Arthur Thompson and A.J. Strickland III, Strategic Management :
Concept and Cases, McGraw-Hill
2.
Michael Porter, Competitive Strategy : Techniques for Analyzing
Industries and Competitors, Free Press
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End of Material
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