Strategic Planning
Chapter 6
Copyright Atomic Dog Publishing, 2003
Strategy

Before a manager can develop plans for individual
departments or an organization, a larger plan—a blue
print—for the entire organization must be developed

The larger vision that guides the activities of
managers and other employees in an organization is
known as a strategy

Strategic thinking is defined as the determination of
the basic long-term goals and objectives of an
enterprise, and the adoption of courses of action and
the allocation of resources necessary for carrying out
these goals
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Strategy

Strategy is a process that results in an
outcome called a strategy that is the basis for
organizational decisions and actions

Strategy is established by top-level managers

New organizational strategies and structures
enable organizations to deal with complexity
through constant learning and change

Strategic thinking and strategic planning help
organizations create order out of chaos
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Strategic Thinking Frameworks

Some method is needed to help managers make
difficult strategic choices about which businesses to
add, which to keep, and which to jettison

These and other frameworks are used by managers
to focus attention on strategic thinking

Frameworks are useful to narrow the range of issues
considered, focusing on the forces and sources of
competitive advantage

One of the best-known and most widely used
methods is the business portfolio matrix developed
by the Boston Consulting Group (BCG)
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The Business Portfolio Matrix

Identify each division, product line, and so
forth, that can be considered a business

These units are called strategic business
units (SBUs)

Each SBU has four characteristics:

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Distinct mission
Own competitors
Single business or collection of businesses
Can be planned for independently
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The Business Portfolio Matrix (cont.)

Four distinct SBU classifications are:




Star
Cash cow
Question mark
Cash trap
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Strategic Choices

Four alternative strategies can be taken with
each SBU




Build
Hold
Harvest
Divest
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Criticisms of Business Portfolio Matrix

Major criticisms of the business portfolio
matrix include:



Focusing on market share and market growth as
the primary indicators of profitability
Tending to lead managers to focus on what to bring
to market and de-emphasizing the importance of
marketing
Reducing many complex concepts in strategic
thinking to 2 x 2 arrays for the purpose of
simplification
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Porter’s Five Forces

Michael Porter has developed several useful
frameworks for developing an organization’s strategy

In any industry the nature of competition is embodied
in five competitive forces:

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The threat of new entrants
The threat of substitute products or services
The bargaining power of suppliers
The bargaining power of buyers
The rivalry among the existing competitors
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Porter’s Five Forces (cont.)

Strength varies from industry to industry

These five forces determine profitability

Use the five forces framework to determine the
competitive structure of an industry prior to making
strategic decisions

Intel’s CEO, Andy Grove, has stated that Porter
neglected a sixth important force: complementors
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Porter's Value Chain

Another concept introduced by Porter is known as the
value chain

It is all the activities an organization undertakes to
create value for a customer

To gain competitive advantage over rivals, a firm must
either provide a comparable buyer value but perform
the activities of the value chain more efficiently
(reducing costs), or perform the activities in a unique
way that creates higher value and commands a
premium price
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The Strategic Planning Process
Copyright Atomic Dog Publishing, 2003
The Strategic Planning Process

The Strategic Planning Process is a process
of examining the organization’s environment,
establishing a mission, setting desired goals
and objectives, and developing an operating
plan

Strategic planning never ends—either the
organization is formulating a new strategy or
it’s implementing an existing one, assessing
progress, and revising processes as needed
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The Strategic Planning Process (cont.)

Rigato identified five questions that
managers need to answer before spending
time and money on strategic planning:

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
Do you recognize a need to change?
Are you prepared for honest feedback—even if
it’s painful?
Are you willing to change the way you do
business—and change yourself?
Will you turn the plan into action?
Do you have the guts to lead your company into
uncharted waters?
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The Strategic Planning Process (cont.)

Strategic planning process consists of four
steps:
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


Assessing the organization’s internal and external
environments
Establishing a mission statement
Establishing goals and objectives
Establishing an operating plan
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Assessing the Organization’s
Environment

Strategy, plan, or mission for the future begins with an
assessment of the current situation in which the
company finds itself

A systematic, thorough analysis requires attention to
four items:

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


Internal strengths
Internal weaknesses
External opportunities
External threats
Provided managers with useful signals for strategic
change
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Assessing the Organization’s
Environment (cont.)

Internal strengths—financial, human, and
other resources



Financial—cash, securities, and other tangible
resources usually presented on its balance sheet
and other accounts
Human—ideas, ingenuity, patents, and other
intangible yet essential bases for competitiveness
that only human beings can provide to an
organization
Internal weaknesses—a lack of inefficiently
used financial, human, or other resources
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Assessing the Organization’s
Environment (cont.)

External opportunities—anything that has the
potential to increase the firm’s strengths

External threats—anything that has the
potential to hurt or even destroy a firm
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Key Components of an
Organization’s Environment
Copyright Atomic Dog Publishing, 2003
Key Components of an
Organization’s Environment

Sociocultural milieu

Technological developments

Economic conditions

Political climate
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Sociocultural Milieu

Strategic planners must be able to identify
changing cultural and social conditions that will
influence the organization

Environmental scanning
 Help managers stay in touch with developments
 Look at external trends in business and society in
general
 Focus primarily on the competition, customer,
regulatory, and technical sectors of the
environment
 Receive information from multiple,
complementary sources
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Sociocultural Milieu (cont.)

Issues management


Focus on gathering information about and analyzing a
single issue
Customer-perceived value




Obtain precise information on the needs and values of
their internal and external customers
Use this information to tailor products and services to
meet distinct market segment requirements
See performance improve and give customer the
opportunity to define what customer satisfaction means
Reduce costs and improve customer service, while
increasing profitability
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Technological Developments

Technological innovation can create new
industries or vastly alter existing ones



Personal computers
Telecommuting
Internet
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Economic Conditions

New “players” enter the worldwide economic
game every day

New alliances form, new trading blocs come
into existence, and new rules of fair
competition are constantly being drafted and
debated

Managers will need to make a wide variety
of adjustments on a continuous basis if they
want their companies to remain competitive

To achieve success, stay abreast of and
adapt to changing economic conditions
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Economic Conditions (cont.)

New rules governing the network economy
revolve around several axes:




Wealth flows directly from innovation, not
optimization
Ideal environment for cultivating the unknown is
to nurture the ability and nimbleness of
networks
Abandoning the highly successful known—
undoing the perfected—should be explored
The cycle of “find, nurture, destroy,” happens
faster and more intensely than ever before
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Political Climate

Political climate that propelled the United
States into a world superpower no longer
exists

Complex battles over scarce resources,
differing value systems, xenophobia, and
long-festering hatreds are shaping the political
climate well into the next century

Business must be prepared for volatile, even
revolutionary changes in geographic
boundaries, contract and licensure
regulations, and limitations on direct
investment
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Establishing an Organizational
Mission Statement
Copyright Atomic Dog Publishing, 2003
Establishing an Organizational
Mission Statement

Mission statement answers the question
“What is this organization’s purpose?” for
employees, customers, and other constituents

A vision is important because it helps the firm
model strategic plans and provides a kind of
touchstone for goal setting

To establish a mission, firm must consider:



History
Distinctive competence(s)
Environment
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History

Includes accomplishments and failures,
objectives and policies, decisions,
employees, etc.

Must assess its history to determine its
current resource base, its image, and its
various capacities

Appreciate and use organizational stories

Look to the history of the industry it is part of,
or the history of the human needs and
expectations it hopes to satisfy through
organized activity
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Distinctive Competence(s)

Identify and capitalize on what it does best
and also what customers desire

A capacity that’s unique to the firm and that’s
valued in the market
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Environment

Contains opportunities, constraints, and
threats to the firm

Conditions must be analyzed and evaluated

Mission should be responsive to the
organization’s environment
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Characteristics of a Mission
Statement
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Characteristics of a Mission
Statement

Customer-focused

Achievable

Motivational

Specific
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Customer-Focused

Customer satisfaction and, better yet,
customer delight and loyalty are necessary for
enduring success

Customers, not employees, are a firm’s best
salespeople

Understand the definition of value through the
eyes of the consumer
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Achievable

Unrealistic ambitions can exceed a firm’s
capabilities

Equally important is to guard against setting
sights too low

Many organizations are now using what are
called “stretch targets” to ensure the
organization continues to reach beyond its
current level of competitiveness
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Motivational

Mission must serve as a source of motivation
at all levels

Mission must have meaning to all employees,
allowing all to translate the mission’s words
into their own motivation, and serving as a
guide for decision and actions

Three phases involved in getting an
organization or a person to be productive are:



Conviction
Commitment
Conversion
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Specific

Mission statement must be clear enough to
allow employees and customers to know in
what business the firm competes as well as in
what business it doesn’t compete

Mission statement should focus on the
fundamental elements that both define the
organization and make the difference between
its success and failure
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Establishing Organizational Goals
and Objectives
Copyright Atomic Dog Publishing, 2003
Establishing Organizational Goals
and Objectives

A firm’s mission must be further translated or reduced
into meaningful goals, which specify in more concrete
detail the firm’s long-term aspirations

End points or targets stem from the organization’s
mission

Effective goals are capable of being converted into
precise actions and shorter-term objectives

Clear goals and objectives help employees track
progress by providing precise targets and immediate
feedback
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Establishing Operating Strategies

An operating strategy is a broad plan of action
for pursuing and achieving the firm’s goals
and satisfying its mission

The competitive strategy model offers several
alternative operating strategies
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Competitive Strategy Model

Organizations can develop distinctive
competence in three ways:



Differentiation
Cost leadership
Niche
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Differentiation

Offer a higher-priced product equipped with more
product-enhancing features than its competitors’
products

Seek a premium price for products

Attempt to maintain high levels of customer loyalty

Offer products at a higher price to a relatively small
group of customers who are willing to pay for the
premium features

Lead to relatively high-cost, low-volume production,
with a high gross profit margin per item

Examples: Mercedes Benz cars, Ben & Jerry's ice
cream, and Godiva chocolates
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Cost Leadership

Offer low costs, low prices, high volume, and
low profit margins on each item

Attempt to attract a large number of
customers with low prices, generating a large
overall profit by the sheer volume of units sold

Examples: U.S. Postal Service, McDonald’s,
and Coca-Cola
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Niche

Offer a unique product or service in a
restricted market (usually a geographic
region)

Example: Southwest Airlines
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Stakeholders and Strategy
Copyright Atomic Dog Publishing, 2003
Stakeholders and Strategy

Customers, or “stakeholders,” come in a
variety of forms

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


Employees
Customers
Suppliers
Stockholders
Community
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Employees

Increasingly, organizations are relying upon their own
people as the source of new ideas, energy, and
creativity—these employees are becoming members
of workplace teams

Traditional view of labor as a cost of production has
been replaced by a view of employees as a resource

Only sustainable competitive advantage for a firm in
the global marketplace is its human resources

Strategic management of employees requires
managers to dedicate time, money, and attention to
their training and development to increase workers’
value, as well as enhance their capacity for
continuous improvement
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Customers

Customers are defined as the end users of the
organization’s products and/or services

Careful identification of the firm’s customers is
essential

Happy customers return and refer other customers

One dissatisfied customer can produce 250 noncustomers

In a free market economy, where customer choice
and freedom are paramount, satisfied customers are
the fundamental focus of any strategy
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Suppliers

Suppliers provide essential raw materials for
the firm

A more effective strategy focuses on
developing long-term relationships with key
suppliers, focusing on building partnerships,
continuously improving product quality, and
driving down costs

Special attention is devoted to eliminating
defective parts and to involving the supplier in
the design process for the firm’s product(s)
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Stockholders

Stockholders are those who own the firm’s
stock

Major responsibility of managers is
communication with stockholders
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Community

Community is an important stakeholder in that it
defines the rules for legal business activity and is the
source of many important resources for the
organization’s continued success

Community consists of private citizens, government,
and other public or regulatory agencies

A strong sense of social responsibility is expected
from the firm

The community’s view is that the firm needs to make
a positive contribution to the community, beyond the
firm’s payroll, purchases, and taxes
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End of Chapter 6
Copyright Atomic Dog Publishing, 2003