STRATEGIC MAGEMENT
3. Technics of strategic planning
Second part
Strategic planning in Hungary
1
Information base of planning
There are many tools which can help the data
collection for the planning. Of course, the
traditional information sources, like statistics,
accounting, internet (photo), etc. can be useful
for it. Similar, but more sophisticated techniques
are the Balanced Scorecard, SAP.
Some methods serve information first of all for the
analysis of the firm’s past and present situation.
Others (e.g. extrapolation, brainstorming,
benchmarking) can help the forecasting as well.
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Source: www.gt2006.freeblog.hu/albumunk/mexiko - Chichén Itza
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Balanced Scorecard (BSC) is an information base
which helps all processes of strategic
management. During the planning (e.g. working
out of the strategy) BSC adaptors create a system
of indices which characterises the expected
development of the company. Then they monitor
permanently, how the goals are realised. If, based
on the experiences, they stated the necessity to
change the strategy, they do it.
The main topics of indices are /1/ the financial
aspect, /2/ the satisfaction of customers’ needs,
/3/ the efficiency of business processes and /4/
the aspects of learning and development.
Source: Kaplan-Norton
4
The financial BSC indices are traditional ones, they
evaluate the volume of (net) income, value added
and equity with the help of ROA, ROI etc.
The satisfaction of the customers can be analysed
by evaluating the products’ features, the
customer relation (e.g. the execution time of
orders) and the firm’s image.
The criteria of the efficiency of business processes
monitor the processes of production, services,
purchasing.
In the framework of the learning and development
aspects, innovation, the skills of employees, the
possibilities of firm’s ICT and the motivation
system are evaluated.
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Tasks of building a BSC system are the following:
• Creation of the BSC respective the strategy.
• Firm’s transformation (creation of the
organisational frameworks to the adaptation).
• Communication (information of all employees
on BSC goals and indices, by which their
performance is evaluated).
• Development of a business (operative) plan
based on the fixed long-term BSC goals and
indices.
• Monitoring and feedback (learning).
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Brainstorming is a process of collecting ideas.
The organizer brings people together and
encourages their free and open discussion on
the creative solution of a problem. During the
process no idea can be rejected.
Benchmarking is an effective tool of the
evaluation of the situation. It compares the
company’s performance to that of the best
ones and state the methods of „best”
practice.
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Delphi method is an other collective method of
analysis (used first of all in forecasting). In the
beginning a panel of experts is asked to form their
views on the analysed question (e.g. make
predictions). Then experts can compare their
responses with that of the rest of the panel, and
can modify their statements. The process is
repeated and after some steps usually a
consensus (e.g. a common forecast often with
scenarios) emerges.
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Analyse of uncertainty
The future being uncertain, the planners have to
analyse the risks coming from this situation.
Uncertainty: if the manager does not know the coming events, the
variants of his future (possible) actions and/or their results. In
some cases he can estimate the probabilities of the probable
events, in others not.
Expected value is a mathematical estimation of an uncertain
data, of which we know the possible values and the probability
of their realisation.
E = Σ (ai • pi ), where
ai are the possible values of the forecasted data,
pi are the probabilities of the future value of this data,
and i are the set of possible outcomes (or years).
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Exercise
We receive an offer to buy a share. According to
our evaluation its possible value may be 100
euros with 30 % probability, 110 euros with 50
% probability, and 120 euros with 20 %
probability . How many is the expected value
of this share?
E = 0,3 • 100 + 0,5 • 110 + 0,2 • 120 = 109
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The traditional method to mark, that a data is
uncertain is the indication of the interval, in
which we wait its realisation.
In an uncertain situation EU recommends for
planners the scenario development (description
of the external and internal factors of the future
with different suppositions). The more important
scenarios can be determined by the analysis of
the „driving forces” and the „axes”. Driving
forces are the main factors which cause the
uncertainties, axes can be formed by the
possible outcomes of these factors.
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Example:
In a company the next year’s revenue is uncertain
because of the uncertain growth of sales and
prises. Experts forecast, that the sales’ volume
can stagnates but can also grows with 5%; and
the inflation can be 3, or 5%.
In this case the driving forces can be the sales’ volume and the
inflation, the axes are the stagnation and growth of sales, and the
low or higher inflation.
So, planners have to analyse the four scenarios, in
which /1/sales stagnate and the inflation is low
or /2/ higher, and /3/ sales are growing and the
inflation is low or /4/ higher.
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Competition strategy
A competition strategy of a company has to
determine the actions which protect and
develop the market of their products.
Firms can influence the demand of their
products with the help of the so called
marketing mix, especially the 4 P (product,
price, place, promotion) first of all. So, the
competition strategy has to determine, how
the company wants develop its marketing mix.
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The GE Nine-Cell matrix
Although the BCG matrix is a good tool of product
strategy building, it has some limitations. It is
based upon the hypothesis that business
strengths of a product can be described by
market share, and its market opportunities by
growth – but these relationships are debatable.
In addition, the putting the products to four cells
(distinction only four product groups) simplifies
the description of the possible strategies.
So GE offers to develop a nine-cell business
strength-industry attractiveness matrix („grid”).
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The recommendations based on the GE
matrix
Competitiveness
Selective
growth
Investments
Harvest or
liquidation
Selection
Selective
growth
Liquidation
Harvest or
liquidation
Selection
0
Selection
Market attractiveness
Source: own figure based on many publications
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The GE matrix classifies products (businesses) in
accordance of their competitiveness and market
attractiveness. Both criteria are measured trough
experts’ evaluation. The examinations’ results are
put into three - low, medium and high - classes.
The main problem of developing the GE matrix is
the subjectivity of the experts’ evaluation. So, if
the variables’ evaluation is correct, the analyses
can be very effective. But in case, if the fidelity of
this evaluation can be debatable, it would serve
better the computation of a BCG matrix.
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Marketing strategies
The usual price strategy maximise the reesult of
multiplication of the unit price and the sale’s volume of
a product. Other strategy is the fixation of a dumping
price.
The good sale’s channel strategy of mass products’ sale can
be the diversification, the creation of more channel. In
case of a niche product often the good strategy is the
sale in a specialised shop-chain.
The best promotion strategy of some consumer’s
consumption goods is the publicity. But in case of capital
(investment) goods the use of the direct marketing can
be better.
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Business plan of a small firm
Small firms should elaborate business plan /1/
before the foundation, /2/ at the beginning of a
year, /3/ in case of credit application etc.
Business plans which are developed at the time of
foundation should describe the main planned
processes of production or services and analyse their
future competitiveness as well (photos).
Business plans which are developed at the beginning of a
year should analyse first of all the business
opportunities (the possible receipts/turnover) and
should review the expected expenses (costs).
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Source: www.gt2006.freeblog.hu/albumunk/mexico - flamingos in Rio Lagartos
19
Source: www.gt2006.freeblog.hu/albumunk/peru - seals in Ballestas Islands
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Strategic planning in a large firm
In case of a complicated decision planners can use the
Analytic Hierarchy Process (AHP), which is a system
(a decision tree) for the development of the goals,
scenarios, alternative programs, success-criteria of a
strategy. In the first step the main goals and
scenarios are fixed. Then those decision-makers and
their decision criteria are mapped, who are
responsible for the details. The alternatives are
compared pair-wise. After that the planner can
determine the decision which fulfils the goals and is
acceptable for all interested parties (see next slide).
Source: Saaty
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Structure of AHP
Decision
maker A and
his criteria
Alternative 1.
Decision
maker B and
his criteria
Alternative 3.
Decision
maker A and
his criteria
Alternative 1.
Decision
maker B and
his criteria
Alternative 3.
Alternative 2.
Scenario I.
Alternative 4.
Goals
Alternative 2.
Scenario II.
Alternative 4.
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In a well organised corporation managers
protect not only own interests, but interests of
owners as well, and in their plans they fix
indexes which create possibilities to control
(monitor) the fulfilment of the goals as well.
To create good conditions of monitoring, some
formal recommendations on corporate
governance were developed. Recruitment of
external members of board, written minutes
of board’s meetings, external auditing,
publication of balance sheets and firm’s policy
etc. are highly recommended.
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Strategic planning in Hungary
In Hungary the practice of strategic planning was analysed
by researches.
More than one third of the firms prepare long-range plans.
The yearly (business) plans are almost general. Plans on
investments, sales and liquidity are the most frequent
ones. Quality and customers’ satisfaction are analysed
only by one third of the firms.
The arsenal of planning methods is not too rich. Many
firms calculate financial indices, prepare cash-flow
reports, SWOT and break-even analysis. Application of
other tools, e.g. BSC, PERT is rare. (See the next slides.)
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Proportion of firms (%) having the given
behaviour
Firms’ behaviour
Develops long-range plans
minimum on 3 topics
Develops long-range plans
on 1-2 topics
Develops only yearly plans
Does not develop formal plans
Total
Developed Hungary
countries
14
15
28
31
27
100
23
44
18
100
Source: Barakonyi
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Proportion of firms (%) adapting the given
method
Methods
SWOT analysis
Development of scenarios
Portfolio-analysis
Value-chain analysis
Permanent Occasional
application
44
27
14
27
27
26
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Source: Chikán – Czakó - Zoltayné
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Reward
Source:
www.gt2006.freeblog.
hu/albumunk/mexico Sumidero canyon
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Thank you for your attention!
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