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Strategic and Marketing Planning
Benefits
of
Planning
Consistency
Commitment
Responsibility
Communication
Benefits of Planning
Direction
#1:
Top Down
#2:
Bottom Up
#3:
Goals Down,
Plans Up
Approaches to Planning
The Strategy Hierarchy
SBU
Strategy
Marketing Strategy
Marketing
objectives
Product markets
strategies
Corporate Level
Functional Level of SBU
Strategic Business Unit Level
Corporate Strategy
Mission and vision Objectives Business portfolio strategy Resource development Corporate valuesSBU Strategy
Business definition Objectives Product market portfolio Competitive strategy Resource allocation and managementSBU
Strategy
Finance and
administration
Strategy
Production
and operation
strategy
R&D Strategy
Technology
Product
development
Human
resources
Strategy
Strategic Planning
Investment Management Growth & Company Position StrategyCorporate, Business and Marketing Strategy Model
Corporate Strategy
Building core competencies Business portfolio Capital investments andresource allocation
Corporate culture Corporate structure Product/market portfolio Resource allocation Product-markets Business culture Strategic costmanagement
Markets Products and services Profit-yielding strategies Brand management Profit improvementBusiness Strategy
Distinctive competencies Developing competitiveposition
Competitive advantageMarketing Strategy
Developing marketposition
Customer satisfactionFocus
Customer value creation, maintenance and defence
Focus
Economic
value added
Focus
Economic
value added
Shareholder
Value
Business
Value
Customer
Value
Strategic-Planning, Implementation, and Control Process
Planning
Measuring
results
Diagnosing
results
Taking
corrective
action
Implementation
Corporate
planning
Division
planning
Business
planning
Product
planning
Organising
Implementing
Control
Objectives Address Two Questions:
Where do we want to be?
When do we expect to get there?
Corporate Plan Objectives
Planning Terms
Vision: the long term, I have a dreamMission: purpose of organisationObjective: a shorter term goal leading to the achievement of the MissionStrategy: a description of the method of achieving the objectiveTactic: the short term application of the strategyPorters five forces model
SUBSTITUTES
INDUSTRY
COMPETITORS
Rivalry among
Existing Firms
BUYERS
POTENTIAL
ENTRANTS
Threat of entry
Bargaining power of suppliers
Bargaining power of buyers
Threat of Substitute Products or Services
SUPPLIERS
Porters five-forces model (2)
Bargaining power
of suppliers
Threat of
new entrants
Competitive
rivalry
Threat of
substitutes
Bargaining power
of buyers
Where there are numerous or equally balanced competitors,
there is slow industry growth, lack of differentiation, low buyer switching costs, high fixed costs, overcapacity, perishable products (and services) and high exit barriers.
Porters five-forces model (3)
Bargaining power
of suppliers
Threat of
new entrants
Competitive
rivalry
Threat of
substitutes
Bargaining power
of buyers
When there are only a few large buyers in the market, the buying volume is large, there is low differentiation between competitive products, the value of the industry product is low, the sellers quality is relatively unimportant to the buyer, there are low switching costs for the buyer or high switching costs for the seller, the buyer is a low profit earner, the buyer has access to full market information or the buying company could forward integrate and become a competitor.
Porters five-forces model (4)
Bargaining power
of suppliers
Threat of
new entrants
Competitive
rivalry
Threat of
substitutes
Bargaining power
of buyers
When the barriers to industry entry are low, there are:
no cost advantages for existing competitorsa lack of product differentiationlow capital costs for market entryrelatively easy access to distribution channels.Porters five-forces model (5)
When there are only a few large suppliers, the suppliers product is highly differentiated or unique, the supplier sells the same product to other industries or a supplier could forward-integrate and enter the market as a competitor.
Bargaining power
of suppliers
Threat of
new entrants
Competitive
rivalry
Threat of
substitutes
Bargaining power
of buyers
Porters five-forces model (6)
Bargaining power
of suppliers
Threat of
new entrants
Competitive
rivalry
Threat of
substitutes
Bargaining power
of buyers
When substitute products are close in performance and price to the industrys product, there are low switching costs and switching is a commonplace occurrence.
Business Portfolio Analysis
Outline
IntroductionBCG (Boston Consulting Group) MatrixGE(General Electric)/McKinsey Multi-Factor MatrixIntroduction
The creation of SBUs enables the setting of SBUs mission and objectives and the allocation of resources across SBUs in the organizationSenior management need to have a framework to evaluate SBUs and to assign limited resources among them; hence portfolio analysisMany models but only 2 are covered here: BCG, & GE modelsBCG (Boston Consulting Group) Matrix
Provides a framework for senior management in allocating resources across business units in a diversified firm byBalancing cash flows among business units, andBalancing stages in the product life-cycle (PLC)The BCG Matrix
(Log Scale)
BCG Matrix (contd)
The horizontal axis is the Relative Market Share shown in a log scaleVertical line is usually set as 1.0 Relative Market ShareAn SBU to the left of this line means it is the market leader in the industry or segment in which it operatesConversely, an SBU to the right of this line (1.0 RMS) means it is not the leaderThe vertical axis is the industry growth rate .The horizontal rate is usually set at 10% market growthThe BCG Matrix
High
Low
High
Low
Market Growth Rate
Relative Market Share
The Strategic Implications of the BCG
Cash cowsInvestments sufficient to maintain competitive position. Cash surpluses used in developing and nurturing stars and selected question mark firms.StarsAggressive investments to support continued growth and consolidate competitive position of firms.The Strategic Implications of the BCG
Question marksSelective investments; divestiture for weak firms or those with uncertain prospects and lack of strategic fit.DogsDivestiture, harvesting, or liquidation and industry exit.Co then considers acquisitions, divestments and new ventures to get a balanced portfolioQuestion Marks
(Problem Children)
Stars
Investmentcontinue to invest for capacity expansionEarningsLow to high earningsCash-flowNegative (net cash user)Strategy ImplicationsContinue to increase market shareeven at the expense of short-term earningsCows
InvestmentCapacity maintenanceEarningsHigh Cash-flowPositive (net cash contributor)Strategy ImplicationsMaintain market share and cost leadership until further investment becomes marginalDogs
InvestmentGradually reduce capacityEarningsHigh to lowCash-flowPositive (net cash contributor) if deliberately reducing capacityStrategy ImplicationsPlan an orderly withdrawal to maximize cash flowExample of a BCG Matrix for a Engineering company in India
High
Low
High
Low
Product Sales Growth Rate
Relative Market Share
Lighting
Switchgear
Transformer
Fan
Pumps
Motor
Objective: Continuously generate cash cows
Money earned by a cash cow is not reinvested in that part of the business but in a question mark with the intent to gain share; hoping to turn a ? into a star.
As the market matures, and competition lessens, that star will degenerate into a cash cow and the process will be repeated.
With a new cash cow, the firm has a steady source of funds to pursue future avenues of growth.
BCG Matrix
(Three Paths to Success)
Three Paths to Success (contd)
High
Low
High
Low
Market Growth Rate
Relative Market Share
BCG Matrix
(Three Paths to Failure)
Three Paths to Failure (contd)
High
Low
High
Low
Market Growth Rate
Relative Market Share
Limitations on Portfolio Planning
Flaws in portfolio planning:The BCG model is simplistic if used blindly; considers only two competitive environment factors relative market share and industry growth rate.High relative market share is no guarantee of a cost savings or competitive advantage (but normally does a good job of predicting cash flow)Low relative market share is not always an indicator of competitive failure or lack of profitability (but normally does a good job of predicting cash flow).Limitations on Portfolio Planning
Flaws in portfolio planning:Multifactor models (e.g., the McKinsey matrix or the GE Grid) are better though imperfect. Importantly, goals other than cash flow may be more critical (such as ROI). If so, use the BCG with cautionFail to look at dependencies among SBUs wrt transferring competencies, economies of scope,etc.GE(General Electric)/McKinsey Multi-Factor Matrix
Originally developed by GEs planners drawing on McKinseys approachesMarket attractiveness is based on as many relevant factors as are appropriate in a given contextBusiness-position assessment also made on a many factorsSBU needs to be rated on each factorAttempt to explain why different SBU had different profitability
GE Multifactor Portfolio Matrix
Business Strength
Industry attractiveness
High
High
Medium
Medium
Low
Low
Invest/Grow
Selectivity
/earnings
Harvest
/Divest
Protect Position
Invest to Build
Build selectively
Build selectively
Selectively manage for earnings
Limited expansion or harvest
Protect & refocus
Divest
Manage for earnings
GE Multifactor Portfolio Matrix (Contd)
Invest/Grow
Selectivity
/earnings
Harvest
/Divest
Business Strength
Industry attractiveness
High
High
Medium
Medium
Low
Low
Some Limitations of the GE Model
Subjective measurements across SBUsProcess also highly subjectiveFrom the selection and weighting of factors to the subsequent development of both a firms position and the market attractiveness Businesses may have been evaluated with respect to different criteriaSensitive to how a product market is definedAnsoffs Growth Vector Matrix
Market penetration
Market
development
Diversification
Product / Service
development
Present
New
Present
New
MARKET
PRODUCTS / SERVICES
Using the Ansoff Matrix in the Objective-setting Process
Market penetration (1)
Market
development (3)
Diversification (4)
Product / Service
development (2)
Established
New
Established
New
MARKET
PRODUCTS / SERVICES
High Risk
The Strategic-Planning Gap
Sales
10
5
0
Time (years)
Desired
sales
Integrative growth
Intensive growth
Current
portfolio
Strategic-
planning
gap
Diversification growth
Integrative Growth
Backward Integration
Forward Integration
Horizontal Integration
Diversification Growth
Concentric diversification
A process that occurs when new products related to current products are introduced into new markets.
Conglomerate diversification
A process that occurs when new products unrelated to current technology, products or markets are introduced into new markets.
Corp as a Portfolio of Competencies
Identify current competenciesCompare competencies to opportunities and threatsDevelop an agenda for corporate developmentAdvantage is that this method recognizes need to add value by looking at inter-dependenciesFrom Agenda to Action
Based on the analysis of the portfolio and what do you have to do the next step is how to you get thereInternal New VenturesAcquisitionsJoint VenturesInternal New Venturing
Internal new venturing is attractive when:Entering as a science-based company.Entering an emerging industry with no established competitors.Good if company has key competencies that can be leveragedInternal New Venturing
Pitfalls of new venturing (very high failure rate):Scale of entry Low-scale entry reduces probability of long-term success (low share drives high costs and low revenue)Commercialization Failure to develop a product that meets basic customer needs.Poor Implementation Using shotgun approach, not setting clear strategic objectives, abandoning projects too soon.Internal New Venturing
Guidelines for successful new venturing:Adopt a structural approach with clear strategic objectives setting R&D direction.Foster close links between R&D and marketing.Use project teams to reduce development time.Internal New Venturing
Guidelines for successful new venturing:Use a selection process to pick venture projects with the highest probability of success.Monitor progress of ventures in gaining initial market share goals.Large-scale entry is important for venture success.Acquisitions as an Entry Strategy
Acquisition is an attractive strategy when:Competencies important in a new business area are lacking in the entering firm.Speed of entry is considered important.Acquisition is perceived as a less risky form of entry.Barriers to entry can be overcomeAcquisitions as an Entry Strategy
Pitfalls of acquisitions:Failing to follow through on postacquisition integration of the acquired firm.Overestimating the economicAcquisitions as an Entry Strategy
Guidelines for successful acquisitions:Properly identify acquisition targets and conduct a thorough preacquisition screening of the target firm.Use a bidding strategy with proper timing to avoid overpaying for an acquisition.Acquisitions as an Entry Strategy
Guidelines for successful acquisitions:Follow through on post acquisition integration synergy-producing activities of the acquired firm.Dispose of unwanted residual acquisition assets.Joint Ventures as an Entry Strategy
AttractionsSharing new project costs and risks.Increasing the probability of successJoint Ventures as an Entry Strategy
DrawbacksRequires a sharing of control with partner firms.Requires that partner firms share profits.Risks giving away critical knowledge.Risks creating a potential competitor.Restructuring
Why restructure?Pull-back from overdiversification.Attacks by competitors on coreRestructuring
Exit strategiesDivestment spinoffs of profitable SBUs to investors; management buy outs (MBOs).Harvest halting investment, maximizing cash flow.Liquidation Cease operations, write off assets.Turnaround Strategy
The causes of corporate declinePoor management incompetence, neglectOverexpansion empire-building CEOsInadequate financial controls no profit responsibilityHigh costs low labor productivityTurnaround Strategy
The causes of corporate declineNew competition powerful emerging competitorsUnforeseen demand shifts major market changesOrganizational inertia slow to respond to new competitive conditionsThe Main Steps of Turnaround
Changing the leadershipReplace entrenched management with new managers.Redefining strategic focusEvaluate and reconstitute the organizations strategy.Asset sales and closuresDivest unwanted assets for investment resources.The Main Steps of Turnaround
Improving profitabilityReduce costs, tighten finance and performance controls. AcquisitionsMake acquisitions of skills and competencies to strengthen core businesses.Successful Planning
Successful marketing
planning requires:
Commitment
Time
Understanding
The McKinsey 7-S Framework
Skills
Shared
values
Staff
Style
Strategy
Structure
Systems
Profit improvement options
Profit Improvement
Sales Growth
Productivity Improvement
Market
Penetration
Existing
Assets
Market
Development
Product
Development
Change
Asset base
Improve
product
sales
mix
( margin)
Increase
Price
Increase
usage
Take
competitors
customers
Improve
asset
utilisation
(experience
and
efficiency
New
Segments
Convert
non-users
Existing
Markets
New
Markets
Cost
Reduction
Investment
innovation diversificationDivestment
redeployment ofcapital resources
Growth focus
Cash and margin focus
Capital utilisation focus
Extended Marketing Mix
1. PRODUCT & SERVICE
Variety
Quality
Design
Features
Brand name
Packaging
Sizes
Add-ons
Warranties
Returns
7. PROMOTION
Advertising
Sales Promotion
Personal selling
Direct marketing
Public relations
6. PLACEMENT
for customer service
Channels
Coverage
Locations
Inventory
Logistics management
2. PRICE
List price
Discounts
Allowances
Settlement and
credit terms
3. PEOPLE
People interacting with people is how many service situations might be described. Relationships are important in marketing
4. PROCESS
In the case of high-contact services, customers are involved in the process. Technology is also important in conversion operations and service delivery
5. PHYSICAL EVIDENCE
Services are mostly intangible. Thus the meaning of other tools and techniques used in measures of satisfaction are important
TARGET CUSTOMERS
INTENDED
POSITIONING
The Marketing Environment
Target
Consumers
Product
Place
Price
Promotion
Marketing
Implementation
Marketing
Planning
Marketing
Control
Marketing
Analysis
Competitors
Marketing
Channels
Publics
Suppliers
Demographic-
Economic
Environment
Technological-
Natural
Environment
Political-
Legal
Environment
Social-
Cultural
Environment
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