OVERVIEWOVERVIEW

OF OF

STRATEGIC PLANNINGSTRATEGIC PLANNING

CONCEPTSCONCEPTS

VISION

STATEMENT ABOUT A COMPANY’S

LONG-TERM DIRECTION

Why is a Strategic Vision Important?

A managerial imperative exists to look beyond today and think strategically about– Impact of new technologies

– How customer needs and expectations are changing

– What it will take to outrun competitors

– Which promising market opportunities ought to be aggressively pursued

– External and internal factors driving what a company needs to do to prepare for the future

MISSION

DEFINES COMPANY’S BUSINESS

1. PRODUCT / MARKET

2. TERRITORY / GEOGRAPHY

VISION vs. MISSIONVISION vs. MISSION

A strategic vision concerns a firm’s future business path -- “where we are going”

–Markets to be pursued

–Future technology-product-customer focus

–Kind of company that management is trying to create

A mission statement focuses on current business activities -- “who we are and what we do”

–Current product and service offerings

–Customer needs being served

–Technological and business capabilities

"To enable people and businesses throughout the world to realize

their full potential"

MICROSOFT’S VISION/MISSION

GE is committed to achieving worldwide leadership in each of its businesses. To achieve that leadership, GE's ongoing business strategy centers on four key growth initiatives: - Technology - Services - Customer Centricity - Globalization

GE’S VISION/MISSION

Example of Vision & Mission

Our vision: Getting to a billion connected computers

worldwide, millions of servers, and trillions of dollars

of e-commerce. Intel’s core mission is being the

building block supplier to the Internet economy and

spurring efforts to make the Internet more useful.

Being connected is now at the center of people’s

computing experience. We are helping to expand the

capabilities of the PC platform and the Internet.

Intel

Wit Capital(an Internet startup company)

Our mission is to be the premier Internet investment banking firm focused on the offering

and selling of securities to a community of online individual investors.

We are in the picture business.

Eastman Kodak

Simple Mission Statements

More Mission Statements …

Otis Elevator

Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher

reliability than any similar enterprise in the world.

Our business is renting cars. Our mission is total customer satisfaction.

Avis Rent-a-Car

Setting Goals & Objectives

Converts strategic vision and mission into specific performance targets

Creates yardsticks to track performance

Pushes firm to be inventive and focused on results

Helps prevent complacency and coasting

Second Task of Strategic Management

GOALS

BROAD TARGETS

OBJECTIVES

QUANTIFIED & TIME-BASED

Financial Goals

Strive for stock price appreciation equal to or above the S&P 500 average

Maintain a positive cash flow every year

Achieve and maintain a AA bond rating

Financial Objectives

Grow earnings per share 15% annually

Boost annual return on investment (or EVA) from 15% to 20% within three years

Increase annual dividends per share to stockholders by 5% each year

Strategic Goals Increase firm’s market share Overtake key rivals on quality or customer

service or product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities

What is Strategy? A company’s strategy consists of the set of

competitive moves and business approaches that management is employing to run the company

Strategy is management’s “game plan” to

– Attract and please customers

– Stake out a market position

– Conduct operations

– Compete successfully

– Achieve organizational objectives

Relationship Between Strategy and Business Model

Strategy - Deals with a company’s competitive initiatives and business approaches

Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable

Strategy

Business

Model

Corporate Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level Managers

Division Managers

Operating Mgrs

Functional Mgrs

Levels of Strategy-Making in a Diversified Company

Levels of Strategy-Making in a Single-Business Company

Business Strategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level Managers

OperatingManagers

Functional Managers

Networking of Missions,Goals/Objectives, and Strategies

Level 1

Level 2Business-LevelManagers

Level 3Functional Managers

Level 4Plant Managers,Lower-LevelSupervisors

CorporateLevel

Goals/Objs

Corporate-wideStrategic

Vision

CorporateLevel

Strategy

BusinessLevel

Goals/Objs

BusinessLevel

Mission

BusinessLevel

Strategies

FunctionalGoals/Objs

Functional Missions

FunctionalStrategies

OperatingGoals/Objs

OperatingMissions

OperatingStrategies

Two-Way Influence Two-Way Influence Two-Way Influence

Two-Way Influence Two-Way Influence Two-Way Influence

Two-Way Influence Two-Way Influence Two-Way Influence

Corporate-Level Managers

SWOT Analysis -What to Look For

Potential Resource Strengths

Potential Resource Weaknesses

Potential Company Opportunities

Potential External Threats

• Powerful strategy

• Strong financial condition

• Strong brand name image/reputation

• Widely recognized market leader

• Proprietary technology

• Cost advantages

• Strong advertising

• Product innovation skills

• Good customer service

• Better product quality

• Alliances or JVs

• No clear strategic direction

• Obsolete facilities

• Weak balance sheet; excess debt

• Higher overall costs than rivals

• Missing some key skills/competencies

• Subpar profits

• Internal operating problems . . .

• Falling behind in R&D

• Too narrow product line

• Weak marketing skills

• Serving additional customer groups

• Expanding to new geographic areas

• Expanding product line

• Transferring skills to new products

• Vertical integration

• Take market share from rivals

• Acquisition of rivals

• Alliances or JVs to expand coverage

• Openings to exploit new technologies

• Openings to extend brand name/image

• Entry of potent new competitors

• Loss of sales to substitutes

• Slowing market growth

• Adverse shifts in exchange rates & trade policies

• Costly new regulations

• Vulnerability to business cycle

• Growing leverage of customers or suppliers

• Reduced buyer needs for product

• Demographic changes

The Three Stepsof SWOT Analysis

Core Competencies -- AValuable Company Resource

A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability

Often, a core competence results from collaboration among different parts of a company

Typically, core competencies reside in a company’s people, not in assets on the balance sheet

A core competence gives a company apotentially valuable competitive capabilityand represents a definite competitive asset

Examples: Core Competencies

Expertise in integrating multiple technologies to create families of new products

Know-how in creating operating systems for cost efficient supply chain management

Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product System to fill customer orders accurately and

swiftly

Distinctive Competence -- ACompetitively Superior Resource

# 1

A distinctive competence is a competitively significant activity that a company performs better than its competitors

A distinctive competence Represents a competitively

valuable capability rivals do not have

Presents attractive potential for being a cornerstone of strategy

Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength

Examples: Distinctive Competencies

Sharp Corporation– Expertise in flat-panel display technology

Toyota, Honda, Nissan– Low-cost, high-quality manufacturing

capability and short design-to-market cycles Intel

– Ability to design and manufactureever more powerful microprocessors for PCs

Starbucks– Store ambience and innovative coffee

drinks

Determining the CompetitiveValue of a Company Resource

To qualify as the basis for sustainable competitive advantage, a “resource” is measured by 4 tests

1. Is the resource hard to copy ?

2. Does the resource have staying power -- is it durable ?

3. Is the resource really competitively superior ?

4. Can the resource be trumped by the different capabilities of rivals ?

Are the Company’sPrices and Costs Competitive?

Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis

Key analytical tools

– Value chain analysis

– Benchmarking

The Concept of aCompany Value Chain

A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service

A company’s value chain consists of a linked set of value-creating activities performed internally

The value chain contains two types of activities– Primary activities -- where most of the value

for customers is created– Support activities -- facilitate performance of the

primary activities

Characteristics of Value Chain Analysis

Combined costs of all activities in a company’s value chain define the company’s internal cost structure

Compares a firm’s costs activityby activity against costs of key rivals– From raw materials purchase to

– Price paid by ultimate customer

Pinpoints which internal activities are a source of cost advantage or disadvantage

RepresentativeCompany Value Chain

Representative Value Chain for an Entire Industry

The Value Chain Systemfor an Entire Industry

Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain

Suppliers’ value chains are relevant because– Costs, quality, and performance of inputs provided by

suppliers influence a firm’s own costs and product performance

Forward channel allies’ value chains are relevant because – Forward channel allies’ costs and margins are part of

price paid by ultimate end-user– Activities performed affect end-user satisfaction

Example: Key Value Chain Activities

Timber farming

Logging

Pulp mills

Papermaking

Pulp & Paper Industry

Parts and components manufacture

Assembly

Wholesale distribution

Retail sales

Home Appliance Industry

Example: Key Value Chain Activities

Processing of basic ingredients

Syrup manufacture

Bottling and can filling

Wholesale distribution

Advertising

RetailingAlbertson’s

Soft-Drink Industry

Example: Key Value Chain Activities

Programming

Disk loading

Marketing

Distribution

Computer Software Industry

Example: Key Value Chain Activities

Activity-Based Costing: A KeyTool in Analyzing Costs

Determining whether a company’s costs are in line with those of rivals requires– Measuring how a company’s costs compare with those

of rivals activity-by-activity

Requires having accounting data that measures the cost of each value chain activity

Activity-based accounting systemsprovide data for determining costsfor each relevant value chain activity

Benchmarking Costs ofKey Value Chain Activities

Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities– Purchase of materials– Payment of suppliers– Management of inventories– Getting new products to market– Performance of quality control– Filling and shipping of customer orders – Training of employees– Processing of payrolls

Objectives of Benchmarking Determine whether a company is performing

particular value chain activities efficiently by studying practices and procedures used by other companies

Understand the best practices in performingan activity -- learn what is the “best” wayto do a particular activity from thosedemonstrating they are “best-in-world”

Assess if company’s costs in performing particular value chain activities are in line with competitors

Learn how other firms achieve lower costs

Take action to improve company’s cost competitiveness

INDUSTRY ANALYSIS

Environmental Components

Industry’s Dominant Economic Traits

Market size and growth rate

Position in life cycle Number of rivals Buyer needs and

requirements Production capacity Pace of technological

change Prevalence of vertical

integration

Product innovation

Degree of product differentiation

Scope of competitive rivalry

Economies of scale

Experience and learning-curve effects

Industry profitability

5 Forces Model of Competition

Industry Driving Forces

Internet and e-commerce opportunities Increasing globalization of industry Changes in long-term industry growth rate Changes in who buys the product and how

they use it Product innovation Technological change/process innovation Marketing innovation

Entry or exit of major firms Diffusion of technical knowledge Changes in cost and efficiency Market shift from standardized to differentiated

products (or vice versa) Changes in degree of uncertainty and risk Regulatory policies / government legislation Changing societal concerns, attitudes, and

lifestyles

Industry Driving ForcesIndustry Driving ForcesIndustry Driving ForcesIndustry Driving Forces

What Are the Key Factors for Competitive Success?

Competitive factors most affecting every industry member’s ability to prosper – Specific strategy elements– Product attributes– Resources– Competencies– Competitive capabilities

KSFs spell the difference between– Profit and loss– Competitive success or failure

Example: KSFs for Beer Industry Full utilization of brewing capacity -- to

keep manufacturing costs low Strong network of wholesale distributors --

to gain access to retail outlets Clever advertising -- to induce beer

drinkers to buy a particular brand

Example: KSFs for Apparel Manufacturing Industry

Appealing designs and color combinations -- to create buyer appeal

Low-cost manufacturing efficiency -- to keep selling prices competitive

COMPETITOR ANALYSIS

What Are the Market Positions of Industry Rivals?

One technique for revealing the different competitive positions of industry rivals is strategic group mapping

A strategic group consists of those rivals with similar competitive approachesin an industry

Strategic Group Mapping Firms in same strategic group have two or more

competitive characteristics in common– Have comparable product line breadth– Sell in same price/quality range– Emphasize same distribution channels– Use same product attributes to appeal to similar types

of buyers– Use identical technological approaches– Offer buyers similar services– Cover same geographic areas

Example: Strategic Group Mapof Selected Retail Chains

Assessing a Company’s Competitive Strength vs. Key Rivals

1. List industry key success factors and other relevant measures of competitive strength

2. Rate firm and key rivals on each factor using rating scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong)

3. Decide whether to use a weighted or unweighted rating system (a weighted system is usually superior because the chosen strength measures are unlikely to be equally important)

4. Sum individual ratings to get an overall measure of competitive strength for each rival

5. Based on the overall strength ratings, determine overall competitive position of firm

Strategy and Competitive Advantage

Competitive advantage exists when a firm’s strategy gives it an edge in– Attracting customers and– Defending against competitive forces

Convince customers firm’s product / service offers superior value– A good product at a low price– A superior product worth paying more for– A best-value product

Key to Gaining a Competitive Advantage

5 Generic Competitive Strategies

Menu of Strategy Optionsfor Winning in the Marketplace