Why Strategic Planning?
Why Strategy?
“The best way to predict the future is to create it”
--Peter Drucker
Why Strategic Planning
Strategic planning is the process of thinking systematically about
the future to competitively position the firm
Objectives of Strategic Planning
1.
Build Prepared Minds to Create Real Time Strategic Thinking
2. Increase Strategic Innovation via experiments and initiatives
3. Build consensus around a strategy including long term and
short term objectives
Strategic Planning Process
Planning and Logistics
Research
Preparatory Work
Mission
Strategic Intent
Strategic Vision
Corporate Values
Industry Analysis
Competitor Analysis
Strategic Analysis
Company Analysis
Customer Segmentation
Selling Proposition
Core Competencies
Competitive
Advantage
Elevator Pitch
Economic Engine
Implementation
and
Communication
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Output of Session
What is Strategy?
What is Strategy?
“Strategy is about being different”
--Michael Porter
What is Strategy?
Elements of Strategy:
• Mission:
Who the Firm wants to be
• Strategic Intent:
What the Firm wants to achieve
• Competitive Advantage:
How the Firm can achieve its strategic intent
Strategic Vision
Planning and Logistics
Research
Preparatory Work
Mission
Strategic Intent
Strategic Vision
Corporate Values
Industry Analysis
Competitor Analysis
Strategic Analysis
Company Analysis
Customer Segmentation
Selling Proposition
Core Competencies
Competitive
Advantage
Elevator Pitch
Economic Engine
Implementation
and
Communication
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Output of Session
Strategic Vision: Mission
Mission defines WHO the firm wants
to be
• Defines purpose
• Timeless and visionary
Strategic Vision: Mission Examples
Whole Foods, Whole People, Whole Planet
Nike brings inspiration and innovation to every
athlete* in the world
*If you have a body, you are an athlete
Meritage delivers superior investment returns by
combining equity and expertise to build successful
communications businesses
Strategic Vision: Strategic Intent
Strategic Intent: WHAT the firm wants to
achieve
Strategic Vision: Strategic Intent
THE APOLLO PROGRAM:
“I believe that this nation should commit itself
to achieving the goal, before this decade is
out, of landing a man on the moon and
returning him safely to Earth.”
--President John F. Kennedy, 1962
Why did the Country get so excited?
Strategic Intent Characteristics
• Defines the “what” not the “how”
• Very Long Term
• Captures the essence of winning
• Implies “stretch” not “fit”
• Motivational and directional
• Tool for empowerment, not a tool for centralization
• Think the unthinkable
Strategic Intent Examples
Six Hondas in a two-car garage
Maru-C (translation: Encircle Caterpillar)
To put a Coke within ‘arm’s reach’ of every
consumer in the world
1975: A computer on every desk and in every
home
1999: Empowering people through great
software anytime, anyplace, and on any device
Strategic Analysis
Planning and Logistics
Research
Preparatory Work
Mission
Strategic Intent
Strategic Vision
Corporate Values
Industry Analysis
Competitor Analysis
Strategic Analysis
Company Analysis
Customer Segmentation
Selling Proposition
Core Competencies
Competitive
Advantage
Elevator Pitch
Economic Engine
Implementation
and
Communication
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Output of Session
Industry Analysis – Five Forces
Michael Porter’s Five Forces framework analyzes an
industry’s attractiveness based upon five elements
Enables a company to devise appropriate plan of
action
•
•
•
Position the company to provide the best defense against the
most threatening competitive force(s)
Influence the balance of forces through strategic moves
Anticipate changes in underlying forces and choose strategy
before others recognize change
Competitor Analysis – Five Forces
Intense Rivalry Exists when:
•Numerous
•Low switching costs
competitors with
•High exit barriers
equal size/power
•Rivals are diverse in
•Slow industry
strategies, origins and
growth
personalities
•Lack product
differentiation
POWER OF
SUPPLIERS
THREAT OF
ENTRY
COMPETITIVE
RIVALRY
Sources of Barrier to Entry
•Economies of
Scale
•Cost disadvantages
independent of size’
•Product
differentiation
•Access to distribution
channels
•Capital
requirements
•Government policy
POWER OF
BUYERS
Supplier group powerful if:
Buyer group is powerful if:
•Dominated by a few
companies
•Concentrated or purchases in volume
•Purchases standard/non-differentiated
products
•More concentrated than
industry it sells to
•Limited competition in supplier
products
•Credible threat of forward
integration
•Industry is not important to
supplier group
•Earns low profits
SUBSTITUTES
•Industry’s product unimportant to
quality of buyer’s product/service
•Credible threat of backward integration
Products that a buyer
can choose in place
of your offering
Competitor Analysis – Five Forces
Five Forces Analyses -- Airlines
Force
Description
Rating
THREAT OF
ENTRY
Capital intensive, but with leases and route-specific
entry options
Low –
Medium
POWER OF
SUPPLIERS
Concentrated supplier base, long-term leases,
significant switching costs
POWER OF
BUYERS
Buyers have multiple options on most routes
THREAT OF
SUBSTITUTES
Personal aircraft, automobiles, trains and buses all
serve as substitutes. Advanced communication
technology reduces business travel demand
COMPETITIVE
RIVALRY
Low growth prospects, many players, cutthroat
pricing
High
High
Medium
– High
High
Airline industry highly unattractive
Neutral
Positive
Negative
Implication
for Entrant
Competitor Analysis – Five Forces
Five Forces Analyses – Pharmaceutical Industry
Force
Description
Rating
THREAT OF
ENTRY
Capital required for research and development can
be significant, but with potential for high payout
Medium
POWER OF
SUPPLIERS
Many suppliers with commoditized inputs (e.g.
chemicals); low threat of forward integration
Low
POWER OF
BUYERS
Buyers often completely price inelastic; patents limit
substitutes; near zero threat of backward integration
Low
THREAT OF
SUBSTITUTES
Patent protection for multiple years enable monopoly
rents
Low
COMPETITIVE
RIVALRY
First-to-market competition is intense, but abundant
growth opportunities as new diseases/cures are
discovered
Medium
Pharmaceutical industry highly attractive
Neutral
Positive
Negative
Implication
for Entrant
Competitive Advantage
Planning and Logistics
Research
Preparatory Work
Mission
Strategic Intent
Strategic Vision
Corporate Values
Industry Analysis
Competitor Analysis
Strategic Analysis
Company Analysis
Customer Segmentation
Selling Proposition
Core Competencies
Competitive
Advantage
Elevator Pitch
Economic Engine
Implementation
and
Communication
Critical Issues
Key Initiatives
Objectives and Primary Tasks
Output of Session
Competitive Advantage
Competitive Advantage is HOW the firm will
achieve its strategic intent
• Doing something unique and different that
customers value
Competitive Advantage
Economic
Engine
Core
Competencies
COMPETITIVE
ADVANTAGE
Selling
Proposition
Customer
Segmentation
Customer Segmentation
Strategic selection of a sub-segment of an addressable
market to create or enhance a competitive advantage
Segment
Definition
NONCONSUMERS
Customers not consuming any product or consuming only
in inconvenient settings
UNDERSHOT
CONSUMERS
Customers who consume a product but are frustrated with
its limitations; they display willingness to pay more for
enhancements along dimensions most important to them
OVERSHOT
CONSUMERS
Customers who stop paying for further improvements in
performance that historically had merited attractive price
premiums
Customer Segmentation
OVERSHOT
CONSUMERS
UNDERSHOT
CONSUMERS
NONCONSUMRERS
Company
Customer Segmentation
Nonconsumer: Social networking was an entirely new activity.
Nonconsumer: Google’s customers used traditional media outlets, but
few to none utilized the internet
Undershot : Wealthy, health conscious consumer who values
organic environmentally friendly products
Undershot : Tennis shoes with high performance technology
Overshot: Frequent mid level business traveler (i.e. salesperson)
who wants low prices and on time flights.
Overshot: First time furniture buyer who wants inexpensive,
immediately available and modern furniture.
Competitive Advantage
Economic
Engine
Core
Competencies
COMPETITIVE
ADVANTAGE
Selling
Proposition
Customer
Segmentation
Selling Proposition
Profitability benefit of Selling Proposition
Neiman
Marcus,
Whole Foods
Industry
Average
Competitor
Premium
Differentiated
Competitor
Sales Price
Wal-Mart,
Southwest
Airlines
Low-Cost
Competitor
Costs
Competitive Advantage
Economic
Engine
Core
Competencies
COMPETITIVE
ADVANTAGE
Selling
Proposition
Customer
Segmentation
Core Competencies
Core Competency
A core competency is a business activity in which a firm can be
BEST IN WORLD
Three tests of a core competency
• Provides potential access to a wide variety of markets
• Makes significant contribution to perceived customer value
and benefits
• Difficult for competitors to imitate
Must support the selling proposition
Consider outsourcing activities that aren’t core competencies
Leveraging Core Competencies
When a Company is seeking growth and diversification, it
must leverage existing core competencies:
Example: Honda
Honda Core Competencies
Small Engine Design
Moderate Scale Assembly with Outsourcing
Creative Distribution
Motorcycles
Small
Cars
Misc.
Pumps
Generators
Outboards
Lawn
Mowers
Business Opportunities that leverage core competencies
Snow
Blowers
Competitive Advantage
Economic
Engine
Core
Competencies
COMPETITIVE
ADVANTAGE
Selling
Proposition
Customer
Segmentation
Economic Engine
Economic Engine is a single financial measure of the
competitive advantage
Profit per X
If you could pick one and only one ratio – profit per X –
to systematically increase over time, what X would
have the greatest and most sustainable impact on your
business?
Economic Engine
Key Economic
Shift
Competitive
Advantage Impact
CUSTOMER
Shift from profit per
DIVISION to profit
per CUSTOMER
Note exploiting core
competency in blade
technology to their
advantage
Analyzing profit per customer
enabled the ‘razors and razor
blade’ model whereby Gillette
sells razors at a loss to lock-in
customers to its highly profitable
recurring revenue stream from
disposable razor blades.
CUSTOMER
VISIT
Shift from profit per
STORE to profit per
CUSTOMER VISIT
Required Walgreens to
create core
competencies in real
estate and product
placement
After initially avoiding high real
estate costs, Walgreens shift to
profit per customer visit led to the
strategic insight to pay a premium
for high profile store locations with
multiple entry ways
EMPLOYEE
Shift from profit per
LOAN to profit per
EMPLOYEE
Did not change the low
cost value proposition, but
required new core
competencies in
technology to increase
employee productivity and
encourage online banking
Wells Fargo’s profit per employee
engine created a lean cost structure
well-equipped to face the economic
reality of banking commoditization in
the face of deregulation.
Profit per
Commentary