Module 7 – Strategic Planning
Chapter 4
Learning Objectives
LO1 Summarize the basic steps in any planning process
LO2 Describe how strategic planning should be
integrated with tactical and operational planning
LO3 Describe how strategy is base on analysis of the
external environment and the firm’s strengths and
weaknesses.
LO4 Discuss how companies can achieve competitive
advantage through business strategy
4-2
Learning Objectives (cont.)
LO5 Describe the keys to effective strategy
implementation
LO6 Explain how to make effective decisions as a
manager.
LO7 Summarize principles for group decision making.
4-3
Basic definitions
• Strategy
– “pattern of actions and resource allocations to
achieve the goals of the organization”
Basic Definitions
• "Strategy is the direction and scope of an
organization over the long-term, and which enables
the organization to achieve advantage through its
configuration of resources within a challenging
environment, to meet the needs of markets and to
fulfill stakeholder expectations.”
To rephrase that……
• Direction: Where is the business trying to go
in the long-term?
• Markets and scope: Which markets should a
business compete in and what kind of
activities are involved in such markets?
• Advantage: How can the business perform
better than the competition in those markets?
To rephrase that……
• Resources: What resources (skills, assets,
finance, relationships, technical competence,
facilities) are required in order to compete?
• Environment: What external, environmental
factors affect the businesses' ability to
compete?
• Stakeholders: What are the values and
expectations of those who have power in and
around the business?
Basic definitions
• (Stakeholders)
– A person, group, or organization that has direct or
indirect stake in an organization because it can
affect or be affected by the organization's actions,
objectives, and policies.
– Employees, govt., owners, the community…..
Basic definitions
•
•
•
•
(Stakeholders)
Strategic goals/objectives
Strategic management
Strategic planning
Strategic vs. tactical vs. operational
In a nutshell
• Where are we now?
• Where do we want to go?
• How will we get there?
Whole bunch of nutshells…..
•
•
•
•
Corporate strategy
Business strategies
Functional strategies
Operating strategies
In another nutshell……
Your
strengths
Expected environmental changes
Resource
allocations
Your
weaknesses
Expected reactions
by
competitors
The Strategic Management Process
S/W
O/T
4-15
Sources of sustainable competitive
advantage
•
•
•
•
•
Valuable
Rare
Difficult to imitate
Non-substitutable
“organized” (?)
Core
competencies
The Strategic Management Process
4-17
SWOT example
• SWOT in action
Corporate strategies
•
•
•
•
Concentration
Vertical integration
Concentric diversification
Conglomerate diversification
Business strategy
• Porter’s 5 Forces
PORTER’s 5 FORCES MODEL
Potential
entrants
Threat of
new entrants
Barriers to entry
•
•
•
•
•
•
•
•
Access to inputs
Economies of scale
Government policy
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
PORTER’s 5 FORCES MODEL
Potential
entrants
Threat of
new entrants
Buyers
Bargaining power
of buyers
Buyer power
•
•
•
•
•
•
Buyer volume
Buyer information
Brand identity
Product differentiation
Buyer concentration vs. industry
Price sensitivity
PORTER’s 5 FORCES MODEL
Potential
entrants
Threat of
new entrants
Buyers
Bargaining power
of buyers
Threat of
substitutes
Substitute
products
Threat of substitutes
• Switching costs
• Buyer inclination to substitute
• Price-performance trade-off of substitutes
PORTER’s 5 FORCES MODEL
Potential
entrants
Threat of
new entrants
Bargaining power
of suppliers
Suppliers
Buyers
Bargaining power
of buyers
Threat of
substitutes
Substitute
products
Supplier power
•
•
•
•
Supplier concentration
Differentiation of inputs
Cost relative to total purchases
Switching costs
PORTER’s 5 FORCES MODEL
Potential
entrants
Threat of
new entrants
Bargaining power Industry competitors
of suppliers
Suppliers
Buyers
Rivalry among
existing firms
Threat of
substitutes
Substitute
products
Bargaining power
of buyers
Intensity of competitor rivalry
•
•
•
•
•
•
•
Very high strategic stakes
Large number of firms
Diversity of rivals
Slow market growth
High fixed cost
Short shelf-life
Low switching costs
Advantage
Target Scope
Low
Cost
Product/Service
Uniqueness
Broad
(Industry wide)
Cost Leadership
Strategy
(Sam’s)
Differentiation
Strategy
(Toyota)
Narrow
(Market
segment)
Focus
Strategy
(low cost)
(Dollar General)
Focus
Strategy
(differentiation)
(Tiffany’s)
Strategies for Gaining Sustainable
Competitive Advantage
• Cost leadership
–Requires efficiency throughout
–Same price, higher margins
–Lower price, greater mkt share
–All wages low?
– Threat?
Strategies for Gaining Sustainable
Competitive Advantage
• Differentiation – TREAD SOFTLY
– Customer service, technological superiority
– Changing the rules
– Increased costs means must have higher price
Strategies for Gaining Sustainable
Competitive Advantage
• Focus
– Unique market niche
– Premium price/differentiation
– Great customer loyalty (why?)
– Ex: Bad-credit finance companies, big & tall
men’s shops, petite dress shops
Does it work????
• Criticism #1
– Assumes the world will "hold still while a plan is being
developed and then stay on the predicted course while
that plan is being implemented."
• Criticism #2
– Manage by objective measures of hard data,
• Criticism #3
– Inflexibility
– Focus on goals set, not goals that should be set
• Criticism #4
– Monkey see, monkey do….
– Bellbottoms and pet rocks