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8/13/2019 08 - Strategic Planning.ppt
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Chapter 7
STRATEGIC
PLANNING
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Strategic Plan: a formal statement of plans.
Strategic Planning: the process of preparing &revising the statement.
Nature of Strategic Planning
Strategic Planningis the process of deciding on the
programs that the organization will undertake and on the
approximate amount of resources that will be allocated to
each programs over the next several years.
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Relation to StrategyFormulation
Strategy formulation vs Strategic planning?
Strategy formulation: the process of deciding
new strategies. Strategic planning: the process of deciding
how to implementthe strategies.
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Benefits of Strategic Planning
Can give the organization:
1. A framework for developing the annual
budget.2. A management development tool.
3. A mechanism to force managers to thinklong term.
4. A means of aligning managers with the long-term strategies of the company.
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Exhibit 8.1 A Company without Strategic Planning ProcessExhibit 8.2 A Company with Strategic Planning Process
Strategic Option A
Strategic Option B
Strategic Option C
Strategic Option D
Budgeting
Strategic Option A
Strategic Option B
Strategic Option C
Strategic Option D
Budgeting Budgeting
Strategic
Option A
Strategic
Option C
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1. A danger that planning can end upbecoming a form-filling, bureaucratic
exercise, devoid of strategic thinking.2. An organization may create a large
strategic planning department & delegatethe preparation of strategic plan to that
staff department.3. Strategic planning is time consuming &
expensive.
Limitations of Strategic Planning
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Continued
A formal strategic planning processis not needed in a small, relatively
stable organization. It is not worthwhile in organization
that can not make reliable
estimation about the future.
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Ideas for new programs can originateanywhere in the organization.
Proposal for programs are essentially eitherreactive or proactive.
Capital Investment Analysis
Net present value of the project
Internal Rate of Return
Analyzing Proposed NewPrograms
Only if
applicable
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Analyzing OngoingPrograms
Several analyticaltechniques can aid in thisprocess.
Value Chain Analysis
Activity Based Costing (ABC)
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Value Chain Analysis
The value chain for any firm is the linked set ofvalue creating activities of which it is a part, fromacquiring basic raw materials for component
suppliers to making the ultimate end-useproducts & delivering it to final consumers.
Three potentially useful areas:
1. Linkages with suppliers.
2. Linkages with customers.3. Process linkages within the value chain of the firm.
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Process Linkages with the Value Chainof the Firm
Value chain analysis explicitly recognizes the factthat the individual value activities within the firmare not independent but rather are
interdependent. Improving efficiency throughout the process
linkageswithin the value chain.
Move materials from vendors, through production, & tothe customer at the lowest cost, in the shortest time, &of acceptable quality.
Reducing the number of separate parts & increasingtheir ease of manufacture.
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Continue
Improving efficiency of every activitywithin thechain.
Efficiency of the inward portion
Ex: reducing the number of vendors, having a computer
system place orders automatically.
Efficiency of the production portion
Ex: increased automation, better production control
system. Efficiency of the outward portion
Ex: having customer place order electronically, changingthe location of warehouse & channel of distribution
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Activity-Based Costing
The cost centeris activity.
The basis of allocationis cost driver.
ABC when use as the strategic planning process,
may provide useful insight:
Ex:
It may show that complex products with many separateparts have higher design & production costs than simpler
products. Products with low volume have higher unit cost than high
volume products.
Those information may lead changes in strategies.
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1. Reviewing & updating the strategic planfrom last year.
2. Deciding on assumptions & guidelines.3. First iteration of the new strategic plan.
4. Analysis
5.
Second iteration of the new strategicplan.
6. Review & approval.
Strategic Planning Process