DEVELOPING A STRATEGIC BUSINESS

Toolbox

DEVELOPING A STRATEGIC BUSINESS PLAN

Strategic Planning
is the managerial process of developing and maintaining a strategic fit between the organization's objectives and resources and its changing market opportunities.
Org Objectives Strategic Fit C!anging Environ"ent Reso rces

The ole of Strateg!

Corporate Mission & Objectives

Strategy: Corporate Business Functional

Operating Plans

"ision and Strateg!

Sun Tze on Strateg!

Know

your enemy, know yourself, and your victory will not be threatened. Know the terrain, know the weather, and your victory will be complete.

Strategic #arketing
$Marketing Strategy is a series of integrated actions leading to a sustainable competitive advantage. John Scully

%orporate #ission
&road

purposes of the organization 'eneral criteria for assessing the long(term organizational effectiveness )riven b! heritage * environment #ission statements are increasingl! being developed at the S&+ level as well

,xamples of %orporate #ission

S-.'/01 , /- 2-.,S is engaged in air transportation and related businesses. -t operates world(wide as the flag carrier of the epublic of Singapore3 aiming to provide services of the highest 4ualit! at reasonable prices for customers and a profit for the compan!

,xamples of %orporate #ission 5cont6d7

#/ -1TT6S #ission Statement8 9e are committed to being the best lodging and food service compan! in the world3 b! treating emplo!ees in wa!s that create extraordinar! customer service and shareholder value

%orporate %ulture
The

most abstract level of managerial thinking How do you define culture? What is the significance of culture to an organization? How does marketing affect culture in the organization?

%orporate 1bjectives * 'oals

/n

objective is a long(range purpose

.ot 4uantified and not limited to a time period ,.g. increasing the return on shareholders6 e4uit!

goal is a measurable objective of the business

/ttainable at some specific future date through planned actions ,.g. :;< growth in the next two !ears

Strategic planning

ST /T,'-% 02/. ),",210#,.T

Environ"ental an# internal Strategic #e$inition an#

9hat are the major

changes in industr! d!namics and resulting

9hat strateg! will !ou

pursue over the next > !ears?

%
9hat are !our
competitive strengths and

%
9hat will be the
impact of major

%
=ow does !our
current business emphasis fit with industr!

%
9hat are the expected
financial returns of !our strateg!?

%
9hat strategic
alternatives have !ou

The +sual &usiness 0lanning =ierarch!

Strategic 0lanning @ #an! Sub 0lans

Framework of a Successful 1rganisation

&usiness 0lanning and )eliver!

"ision is a %ritical )river

To succeed in the long term3 our business needs a vision of how we will change and improve in the future. $without a vision3 the people perishA BThe vision of the business gives its energ!.

-t helps motivate us. -t helps set the direction of corporate and marketing strateg!.

"alues underpin all we do

Val es $or" t!e $o n#ation o$ a b siness& "anage"ent st'le(

"alues provide the justification of behaviour and3 therefore3 exert significant influence on marketing decisions. B&T's activities are underpinned b! a set of values that all &T people are asked to respect8
9e put customers first 9e are professional 9e respect each other 9e work as one team 9e are committed to continuous improvement.

B/n example is provided b! &T 'roup ( defining its values8

BThese are supported b! our vision of a communications(rich world ( a world in which ever!one can benefit from the power of communication skills and technolog!. B/ societ! in which individuals3 organisations and communities have unlimited access to one another and to a world of knowledge3 via a multiplicit! of communications technologies including voice3 data3 mobile3 internet ( regardless of nationalit!3 culture3 class or education. B1ur job is to facilitate effective communication3 irrespective of geograph!3 distance3 time or complexit!.
Source8 &T 'roup plc website

=as the %ompan! got a strong %lear #ission?

T!e B siness )ission is i"*ortant to o r sales + "ar,eting *lanning -t provides an outline of how the marketing plan should seek to fulfil the mission -t provides a means of evaluating and screening the marketing planC are marketing decisions consistent with the mission?

DStrateg! is the direction and scope of an organisation over the longterm: which achieves advantage for the organisation through its configuration of resources within a challenging environment3 to meet the needs of markets and to

Strategic /udit

( ensuring that the %ompan! resources and competencies are understood and evaluated

.eed to work within %ompan! esources * %onstraints

1bjectives ( %orporate * Functional

"alue %hain /nal!sis

"alue %hain /nal!sis describes the activities that take place in a business and relates them to an anal!sis of the competitive strength of the business. #ichael 0orter suggested that the activities of a business could be grouped under two headings8
-( .( Pri"ar' Activities ( those that are directl! concerned with creating and delivering a product 5e.g. component assembl!7C and S **ort Activities3 which whilst the! are not directl! involved in production3 ma! increase effectiveness or efficienc! 5e.g. human resource management7. -t is rare for a business to undertake all primar! and support activities.

"alue %hain /nal!sis is one wa! of identif!ing which activities are best undertaken b! our business and which are best provided b! others 5DoutsourcedD7. Lin,ing Val e C!ain Anal'sis to Co"*etitive A#vantage 9hat activities a business undertakes is directl! linked to achieving competitive advantage. For example3 if we wish to outperform our competitors through #i$$erentiatingourselves through higher 4ualit! then we will have to perform our value chain activities better than the opposition. &ut if we adopt a strateg! based on seeking cost lea#ers!i* this will

"alue %hain
Innovatio O*eratio Post Sales n Process n Process Process Satis$actio I#enti$icatio n o$ n o$ client&s Client&s necessities necessities )ar,et *ro# ct Deliver i#enti$icati ' on *ro# cts s / services *ro# c / ts an# services creation service #e$initio Service s to t!e clients

0rimar! /ctivities

0rimar! value chain activities include8

Support /ctivities

Support activities include8

Steps in a "alue %hain /nal!sis

%ore competencies

%ore competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for anal!sing core competencies is recognising that competition between businesses is as much a race for competence master! as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies re4uired to undertake them. So the goal is for management to focus attention on competencies that reall! affect competitive advantage. %ore %ompetencies are not seen as being fixed. %ore %ompetencies should change in response to changes in the compan!'s environment. The! are flexible and evolve over time. /s a business evolves and adapts to new circumstances and opportunities3 so its %ore %ompetencies will have to adapt and change. 9e need to understand what we are good and what makes us better and to hone these advantages and to develop new ones to underpin the business strateg!

-dentif!ing %ore %ompetencies

9hat is %ompetitive /dvantage?

Competitive

advantage is a companys a ility to perform in one or more ways that competitors cannot or will not match!"
Philip Kotler

#f

you dont have a competitive advantage$ dont compete!"

Jack Welch, GE

Four Generic Strategies

Lower Cost Broad Target Differentiation

Scope
Narrow Target

1ther %haracteristics of %ompetitive /dvantage

Substantialit!

-s it substantial enough to make a difference?

Sustainabilit!

%an it be neutralized b! competitors 4uickl!?

/bilit!

to be leveraged into visible business attributes that will influence customers

%Source& Strategic 'arketing 'anagement$ (akers)

Seeking %ompetitive /dvantages

0ositions

of advantage

Superior customer value 2ower relative total cost

0erformance

advantages

%ustomer satisfaction3 2o!alt!3 #arket Share3 0rofit

Sources

of advantages

Superior skills * knowledge3 Superior resources3 Superior business process

9=, , T1 %1#0,T,?
Target c sto"ers an# seg"ents
9hich customers are !ou tr!ing to target or attract? 9hich are !ou willing to serve3 but will not spend resources to attract?

C sto"er

Geogra*!ical sco*e o$ b siness activities

'eographic limits to the business? 2ocal3 regional3 multi( local3 national3 international3 or Geogra*!i c "ar,ets C!annels

0o1 #oes t!e entit' reac! its target c sto"ers

9hich distribution channels will !ou use? 9hat customer segments can the! reach?

Pro# cts

2 alit' an# brea#t! o$ t!e *ro# ct line

&readth of the product line? Eualit! of the product line? 0roduct bundles or a series of unrelated products?

%apabilit! platform8 assessment of sources of

E3a"*le 0h!sical asset 2ocationFDspaceD 0rivileged )istributionFsales network &randFreputation Necessar ' &=06s low(cost mines TelecommFmedia compan! with rights radio spectrum /von6s representatives %oca(%ola

-nnovation )istinctive competencies %ross(functional coordination #arket positioning %ostFefficienc! management

># with new products #c)onald6s with ES%*" G*G with branded consumer health products ,merson ,lectric6s &est %ost 0roducer

%apabilit! platform8 assessment of sources of competitive advantage

0h!sical asset 2ocationFDspaceD 0rivileged assets )istributionFsales network &randFreputation Necessar' ca*abilities in or#er to s ccee# in t!e in# str' 0atent BU Overall A B

,xtremel! relevant Somewhat relevant -rrelevant

Seg"ents C

-nnovation %ross(functional coordination #arket positioning %ostFefficienc! management Talent development

Ste* -4 ,nsure that these are the capabilities re4uired to succeed in the industr!. +se this list as a thought starter3 add and delete as !ou see appropriate Ste* .4 /ssess !our overall position relative to the capabilities re4uired to succeed in the industr!. /lso3 determine if these capabilities are relevant to the segments !ou serve

)istinctive competencies

%ompetitor capabilit! comparison

Co"*etito BU Overall rs A B 0h!sical asset 2ocationFDspaceD 0rivileged assets )istributionFsales network &randFreputation Necessar ' 0atent C

-nnovation %ross(functional coordination #arket positioning %ostFefficienc! management Talent

)istinctive competencies

Ste* 54 %ompare the strengths and weaknesses of !our competitive position vs. the necessar! skills

0orter6s H Forces of %ompetitive 0osition )iagram

0orter H Forces

0orter6s H Forces of %ompetitive 0osition version IJ

0orter6s H Forces of %ompetitive 0osition I>

Entry Barriers Economies of Scale Brand Identity Capital Requirements

Determinants of Supplier Power

Switching Costs Supplier Volume Impact Forward Integration

New !ntrants

Ri"alry Determinants Industry $rowth Fi%ed Costs Product Differences Brand Identity E%it Barriers

Suppliers

Industry Competitor s Intensity of Rivalry

Buyers
Determinants of Buyer Power

Determinants of Su stitution !hreat

Relati"e Price Performance Switching Costs

Buyer Concentration Buyer Volume Bac#ward Integration

Su stitutes

Forces at work framework

-( Deter"inants o$ s **lier *o1er )ifferentiation of inputs Switching costs of suppliers and firms in the industr! 0resence of substitute inputs Supplier concentration -mportance of volume to supplier %ost relative to total purchases in the industr! -mpact of inputs on cost or differentiation Threat of forward integration relative to .( Deter"inants o$ barriers to entr' ,conomies of scale 0roprietar! product differences &rand identit! Switching costs %apital re4uirements /ccess to distribution /bsolute cost advantages 0roprietar! learning curve /ccess to necessar! inputs 0roprietar!3 low(cost product design

.( Ne1

6( In# str'

-( S **liers -ntensit! of
6( Rivalr' #eter"inants -ndustr! growth Fixed 5or storage7 costFvalue added -ntermittent overcapacit! 0roduct differences &rand identit! Switching costs %oncentration and balance -nformational complexit! )iversit! of competitors %orporate stakes

5( B 'ers
5( Deter"inants o$ b 'ing *o1er Bargaining leverage &u!er concentration vs. firm concentration &u!er volume &u!er switching costs relative to firm switching costs &u!er information /bilit! to backward integrate Price sensitivit' 0riceFtotal purchases 0roduct differences &rand -dentit! -mpact on 4ualit! perception &u!er profits )ecision makers' incentives

7(
7( Deter"inants o$ s bstit tion t!reat elative price performance of substitutes Switching costs &u!er propensit! to

.inet! wa!s to measure demand 5K x H x >7

Geogra*!ical Level
8orl# Region Co ntr' Territor' Client Total sales Sector sales

Pro# c t Level

Co"*an'&s sales Pro# ct lines Pro# ct con$ig Pro# ct ite"s S!ort ter" )e#i " ter" Long ter"

Ti"ing Level

Strategic 0lanning 2ink with #arketing 0lanning

&usinesses that succeed do so b! creating and keeping customers. The! do this b! providing better value for the customer than the competition. #arketing management constantl! have to assess which customers the! are tr!ing to reach and how the! can design products and services that provide better value 5$competitive advantageA7. The main problem with this process is that the $environmentA in which businesses operate is constantl! changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision(making is known as marketing planning.

Strategic vs. #arketing 0lans Strategic planning is concerned about the overall direction of

the business.

-t is concerned with marketing3 of course. &ut it also involves decision(making about production and operations3 finance3 human resource management and other business issues.

The objective o a strategic plan is to set the direction o a business and create its shape so that the products and services it provides meet the overall business objectives! #arketing has a ke! role to pla! in strategic planning3 because it is the job of marketing management to understand and manage the links between the business and the $environmentA. Sometimes this is 4uite a straightforward task.
For example3 in man! small businesses there is onl! one geographical market and a limited number of products 5perhaps onl! one productL7. =owever3 consider the challenge faced b! marketing management in a

Me! issues in strategic and marketing planning?

The following 4uestions are ke! in the marketing and strategic planning process8
9here are we now? =ow did we get there? 9here are we heading? 9here would we like to be? =ow do we get there? /re we on course?

/ marketing plan helps to8

The abilit! of a business to achieve profitable sales is impacted b! dozens of environmental factors3 man! of which are inter(connected -dentif! sources of competitive advantage 'ain commitment to a strateg! 'et resources needed to invest in and build the business -nform stakeholders in the business Set objectives and strategies

Situation /nal!sis
-nternal ,xternal S91T
etc.

/nal!sisNcompan!C capabilit! /nal!sisNcustomers3 market

definition3 industr! structure

/nal!sis Strengths3 8eaknesses3 Opportunities * Threats

&ased

on the firm6s core competencies3 decide on future options

-dentif! * prioritize major problems and opportunities8 selection of ke! issues

S91T

S91T /./2OS-S
NEUTRALI: E T0REATS

O**ort nities/T!re ats =ow are demand and suppl! expected to evolve?

Strengt!s/ 8ea,nesses

BUILD ON STRENGT0S

9OUR BUSINESS

CONVERT OPPORTUNITIES

9hat are !our &+6s assetsFcompetenci

ADDRESS 8EA;< NESSES

Surfaces potential opportunitiesFthreats arising from factors external to the business

%an be used as a thought starter for competitive anal!sis and

S91T /nal!sis is still a useful Tool

T19S matrix

S<O strategies pursue opportunities that are a good fit to the companies strengths. 8<O strategies overcome weaknesses to pursue opportunities. S<T strategies identif! wa!s that the firm can use its strengths to reduce its vulnerabilit! to external threats. 8<T strategies establish a defensive plan to prevent the firm's weaknesses from making it highl! susceptible to

0,ST anal!sis
/

scan of the external macro( environment in which the compan! wants to operate 5or operates7 and can be expressed in terms of the following factors8
Political Economic Social Technological

0,ST /nal!sis ( market3 business3 proposition3 etc.

PEST or S8OT

/ PEST anal'sis most commonl! measures a "ar,etC a S8OT anal'sis measures a b siness nit= a *ro*osition or i#ea. 'enerall! speaking a S91T anal!sis measures a business unit or proposition3 whereas a 0,ST anal!sis measures the market potential and situation3 particularl! indicating growth or decline3 and thereb! market attractiveness3 business potential3 and suitabilit! of access ( market potential and 'fit' in other words. 0,ST anal!sis uses four perspectives3 which give a logical structure3 in this case organized b! the 0,ST format3 that helps understanding3 presentation3 discussion and decision(making. 0,ST anal!sis can be used for marketing and business development assessment and decision(making3 and

Structure(conduct(performance 5S%07 model

In# str' Pro# cers E3ternal s!oc,s

tr ct re

on# ct

er$or"ance

"eedback

Technolog!

Econo"ics o$ #e"an# /vailabilit! of substitutes breakthroughs )ifferentiabilit! of products %hanges in ate of growth government polic!Fregulations "olatilit!Fc!clicalit! )omestic Econo"ics o$ s **l' -nternational %oncentration of producers -mport competition )iversit! of producers FixedFvariable cost structure %apacit! utilization ,ntr!Fexit barriers In# str' c!ain econo"ics &argaining power of input suppliers &argaining power of customers

)ar,eting >inance 0ricing 0rofitabilit! "olume "alue creation /dvertisingFpromotion Tec!nological .ew productsF *) *rogress )istribution E"*lo'"ent Ca*acit' c!ange ,xpansionFcontraction ,ntr!Fexit /c4uisitionFmergerF divestiture Vertical integration ForwardFbackward integration "ertical joint ventures 2ong(term contracts Internal e$$icienc' %ost control 2ogistics 0rocess *) 1rganization effectiveness

)efinition of risks
De$inition B siness ris,

isk of loss due to changes in industr! and

competitive environment3 as well as shifts in customer preferences 5e.g. deregulation7

Reg lator' ris,

isk due to changes in regulator! environment isk due to major changes in technolog! isk of failures due to business processes and

Tec!nolog' ris,

Integrit' ris,

operations or people6s behavior3 either intentional 5e.g. fraud7 or unintentional 5e.g. errors7 or economic environments

)acroecono"ic ris,

isk of loss due to changes in the political3 social3

#anagement
#anagement3

control and

evaluation

Five disciplines @ 0eter Senge

Personal )aster'4
/spiration involves formulating a coherent picture of the results people most desire to gain as individuals3 alongside a realistic assessment of the current state of their lives toda!. 2earning to cultivate the tension between vision and realit! can expand people's capacit! to make better choices3 and to achieve more of the results that the! have chosen.

)ental )o#els8
eflection and in4uir! skills is focused around developing awareness of the attitudes and perceptions that influence thought and interaction. &! continuall! reflecting upon3 talking about3 and reconsidering these internal pictures of the world3 people can gain more capabilit! in governing their actions and decisions.

Five disciplines @ 0eter Senge

S!are#

Vision8

,stablishes a focus on mutual purpose. 0eople learn to nourish a sense of commitment in a group or organization b! developing shared images of the future the! seek to create3 and the principles and guiding practices b! which the! hope to get there.

Tea"

Learning8

'roup interaction. Through techni4ues like dialogue and skillful discussion3 teams transform their collective thinking3 learning to mobilize their energies and actions to achieve common goals3 and drawing forth an intelligence and abilit! greater than the sum of

Five disciplines @ 0eter Senge

S'ste"s

T!in,ing8

0eople learn to better understand interdependenc! and change3 and thereb! to deal more effectivel! with the forces that shape the conse4uences of our actions. S!stems thinking is based upon a growing bod! of theor! about the behavior of feedback and complexit! ( the innate tendencies of a s!stem that lead to growth or stabilit! over time. To help people see how to change s!stems more effectivel! and how to act more in tune with the larger processes of the natural

0roject management ( processes

0roject management @ a process

0roject management @ process chain

0roject management @ risk anal!sis

Success Me!s ( )eplo!ment

Success Me!s ( %ommunication

Success Me!s ( -mplementation

Success Me!s ( -mplementation

Success Me!s ( #easurement

Success Me!s ( #easurement

Success Me!s ( ,valuation

&est %ompanies Spend more time on Forward 0lanning than =istorical /nal!sis

Ac!ieving Agilit' T!ro g! a Ne1 A**roac! to >orecasting #n toda$%s turbulent econom$, rolling orecasts are proving to be an important ne& tool in changing the &a$ budgeting and planning has traditionall$ been handled! 'ar$ (randel

&enefits of olling Forecasts