BA460-2

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Strategic Planning
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Definition Strategic Planning

• A series of goal-directed decisions actions
• matching your skills resources (strengths
  weaknesses)
• w/ market threats opportunities

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Strategic Planning
LONG RUN PROFITABILITY AND GROWTH
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• If you dont know where you are going
• any route will get you there. Chris
  Bartlett,Harvard Business School

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Benefits of Strategic Planning

• Guides entire firm regarding -what it is you are
  trying to do achieve
• Unifies numerous strategy-related decisions and
  organizational efforts

objectives
Strategy
Operations
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The Problem

• Only 5 of workforce aware of the strategy
• Only 25 of managers have incentives linked to
  strategy
• 60 of organizations don't link budgets
  strategy
• 85 of executive teams spend lt1 hour/ month
  discussing strategy
• 90 fail to execute strategy successfully

Robert S. Kaplan and David P. Norton The
Strategy-Focused Organization,
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Separation of Strategic Planning Marketing
Implementation
Very Much
Strategic Planning

• Commitment
• Understanding
• Responsibility

Time Spent
Strategy Implementation
Very Little
Chief Executive Officer
Mid-level Managers
Customer Contact
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What makes a decision strategic?

• Multi-functional in scope consequences
• Requires choice trade-offs, integration
  alignment

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Forces you to make choices on what you will
wont do
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The Big Picture

• Company
• Consumers
• Competitors
• Conditions
• PEST

Marketing
Growth Competitive Strategies

• Profits
• Mrkt Share
• ROA
• ROS
• ROE
• Asset T/O
• Stock
• Mrkt Cap

RD
Production
HR
Finance
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Situation SWOT Analysis answers 1st of 3
Critical Questions
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Strategic Planning answers next 2 critical Qs

• 1.Where are we now?
• 2.Where do we want to go?
• 3.How do we get there?

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Org. goals objectives encapsulated in Mission
Vision Statements Answers Question 2

• 2. Where do we want to go?
• What business(es) should be in
• Market positions to stake out?
• Consumer needs segments serve?
• Outcomes to achieve?

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Final Question answered by Strategic Planning
1.Where are we now? 2.Where do we want to
go? 3.How do we get there? Growth, Competitive
Functional Strategies
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Growth, Competitive Functional Strategies
Span 3 Levels of MGT
Corporate-Level In what business should we
compete?
Business-Level How should we compete?
Functional-Level How do we coordinate?
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Level 1-Corporate Strategy
In which businesses do we compete?
Corporation
?
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• Textron
• Bell helicopters
• E-Z-GO golf cars
• Jacobsen turf care
• United Technologies
• Pratt Whitney aircraft engines
• Cessna Aircraft
• Carrier Heating AC
• Otis Elevators

• DIAGEO PLC
• Burger King
• Guinness
• Old El Paso Mexican food
• Green Giant
• Liquor

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Once decided what businesses to compete in need
to decide -

• what Products Markets to compete w/ in
• Growth Strategy

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Growth Strategies
Present Products
New Products
Market Penetration- Increase share among
existing customers.
Product Development Create new products for
present markets
Present Markets
Market Development Attract new customers to
existing products
New Markets
Diversification new products new markets
new alliances
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2nd Level of Strategy
Corporate Level
Business unit Level
Functional strategy
Research development
Information systems
Manufacturing
Finance
Marketing
Human resources
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Level 2 Business Unit Strategy How do we
Compete?
Focus?
Price?
Quality?
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What Advantage can we create sustain against
our competitors?
w/in which Market Segments should we compete?
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Strategic Thinking- the ten big ideas

• 6. Resource allocation models
• Porter strategic choices are set of basic
  generic strategies
• (low cost, differentiation, market focus)

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• Porter What is Strategy
• Porters Generic Strategies
• Strategies Mission Statements

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You can Formulate Strategy based on what
Competitive advantage you focus on
Differentiation Deliver unique superior value
in terms of product quality, features, service
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You can Formulate Strategy thru your Competitive
Scope
Number Nature of segments compete w/in-
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Generic Strategies
Competitive Advantage
Cost
Uniqueness
Cost Leadership
Broad Differentiation
Broad target
Competitive Scope
Focused Cost Leadership
Focused Differentiation
Narrow target
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You can also Formulate Strategy by-Riding a
Products Life Cycle

• Adjust Marketing Mix according to natural Drift
  of products w/in segments-

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Put them all together

1. Cost/Quality Differentiation
2. Number nature of segments compete w/in
3. Riding the Product Life Cycle

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Competitive Strategy Matrix
Number nature of segments compete w/in
Ride Product LifeCycle
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3
Broad Market
Niche Mrkt
Evolving Mrkt
Compete on


Cost
1
Product Quality
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Competitive Strategy Matrix
Broad Mrkt
Niche Mrkt
Evolving Mrkt
Compete on
Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi
Differentiator- Differentiator Hi- End Focus Differentiator- PLC LoTradHi
Cost
Product Quality
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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• An overall cost leader will attempt to be
  low-cost producer in every segment of the market.

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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• -- seeks to dominate the price sensitive market
  segments.
• --sets prices below all competitors and still
  be profitable

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Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi

• Products will be allowed to age change in
  appeal from High End, to Traditional, and
  eventually Low End buyers.

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Cost Leadership Strategic Choices

• A cost leader does not try to be industry
  innovator
• The overriding goal is- increased efficiency
  lower costs relative to rivals
• Will seek to minimize costs in marketing, RD
  production

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Business-Level StrategyCost Leadership

• Advantages
• A cost leader is able to charge lower prices
• Even at same price more efficient cost leader
  generates greater profitability

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Generic Business-Level Strategy Differentiation

• Create a product that customers perceive as
  distinct/unique offer superior quality/service
  
• Advantage
• Customers expect willing to pay premium prices

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Differentiator

• Will have significant expenditures in RD
  production.Because you want/need to make high
  quality/highly desirable product
• Will have significant expenditures in marketing
  Because you need to create maximum awareness
  brand equity.

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Differentiation Advantage

• as you develop greater brand equity thru
  increased product quality awareness .
• You develop greater brand loyalty.
• The greater the loyalty.. the less the price
  sensitivity

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Competitive Strategy Matrix
Broad Mrkt
Niche Mrkt
Evolving Mrkt
Compete on
Overall Cost Leader Cost Leader- Lo -Tech Focus Cost Leader - PLC LoTradHi
Differentiator- Differentiator Hi- End Focus Differentiator- PLC LoTradHi
Cost
Product Quality
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Broad Differentiation Niche Differentiation Hi -Tech Focus Differentiation - PLC LoTradHi
match customers ideal criteria for positioning,
age, and reliability.
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3rd Level of Strategy
Corporate Level
Business unit Level
Functional Strategy
Research development
Information systems
Manufacturing
Finance
Marketing
Human resources
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Level 3 Functional Strategy
How do we coordinate?
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The Big Picture

• Company
• Consumers
• Competitors
• Conditions
• PEST

Marketing
Growth Competitive Strategies

• Profits
• Mrkt Share
• ROA
• ROS
• ROE
• Asset T/O
• Stock
• Mrkt Cap

RD
Production
HR
Finance
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INTERNAL STRATEGIC ALIGNMENT
FINANCE
Achieved when All Decisions made by within
all functional areas are in sync w/ one another,
As well as with the overall strategic direction
of the firm
PRODUCTION
MARKETING
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For INTERNAL STRATEGIC ALIGNMENT to occur

• Marketing/RD must be operating in a manner that
  is complementary to Production
• Which is complementary to Human Resources
• Which is complementary to Finance.

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Examples of Strategic Alignment
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• When all decisions made by within all
  functional areas are in sync w/ one another,
• As well as w/ your overall strategic direction --
  you achieve

Distinctive Competencies
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Distinct competencies needed to achieve selected
competitive strategy
Competitive Advantage
Distinctive Competencies
Achieved when you sustain profits above
Industry Average
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Areas in which you can develop Distinct
Competencies

• MARKETING Awareness Accessibility
• RD Product innovation design
• PRODUCTION Plant Automation utilization
• Human Resources Worker Expertise Training

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Achieving Competitive Advantage thru Cost-Focused
Strategy

• Allows for good profit margins on sales while
  keeping prices low especially in price-sensitive
  segments

Functional Alignment
Production Automation - pursued early aggressively Capacity improvements unlikely (may run overtime instead)
Marketing Spend moderately on promotion sales
RD Spend minimally on RD
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Differentiator

• Seeks to create maximum awareness brand equity.
  
• Wants to be well known as a maker of high
  quality/highly desirable products

Functional Alignment
Production Less likely to invest in increased automation or production capacity
Marketing Spend heavy on advertising sales to create maximum awareness accessibility Prices tend to be higher
RD High RD spending - keep products fresh
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• Virtually all tactical mistakes that are made
  when implementing strategy
• are a consequence of the lack of synchronization
  of decisions made in at least two functional areas

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RD and Production breakdown

• You develop a new product but forget to buy plant
  equipment for itthe year before it is to be
  launched

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Marketing, Production Finance out of sync

• The company takes an emergency loan because
  inventory levels increase

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Marketing, RD, and Production out of sync

• You reposition a product from the High End to the
  Traditional segment, but do not address their
  material labor costs

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Everybody is out of sync!

• Financial decisions are made before knowing the
  budget demands of all RD, Marketing and
  Production decisions

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• Need to begin to determine the overall objectives
  specific tactical decisions
• that need to be made within across each
  management domain
• in order to successfully implement your growth
  competitive strategies

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This weeks assignments

• Select w/ which of the Six Basic Strategies you
  are going to compete
• Draft-  Marketing RD Objectives Tactics
• Production HR  Objectives Tactics

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Diff Strategies Play into Different Success
Measures
Profit MS SP MC ROE pf/e ROS pf/s AT s/a ROA pf/a
BCL L2-3 X X X X
Cost- Niche PLC X X X
B-Diff L1.5-2 X X X X
Niche-PLCDiff X X X X