Strategic Business Planning

Developing of Strategic Options

Effective Strategic Planning

An effective strategy has to contain both position goals, where the company wants to be,
and execution goals, the resources the company wants to develop and have available to
operate with.

Of the five goals, three are ‘position’ goals – market/product, identity and
profit/performance --- and two are ‘capability’ goals – distinctive capability and people.
Therefore a balance between position and execution is built into the framework.

Please ask yourself two questions about your strategic process: ‘What is the “Group
Business Plan” trying to achieve?’ and ‘What is the process being used to achieve it?’
The process defines the achievement. If the planning process is bottom-up, from
operating companies to the group, then the definition of the business will always remain
with the operating companies. The group’s power to influence then is limited, both
managerially and psychologically.

If the planning process is top-down, with the group defining the high level goals for the
operating companies to interpret, then influence remains with the group. It is the
mechanism which keeps the ‘herd of companies’ moving in the same direction. It is the
way large groups should proceed if there is to be business coherence between the
different companies in the group.

There are two high-level goals which top managers need to answer. One is the classic,
‘What business are we in?’ the other is ‘What do we stand for?’ This is concerned with
the values that define the business purpose. When both are answered they become the
‘glue’ holding the business together.

When you have decided on your business purpose and the key goals, make sure that
every director, GM, every manager and every employee can look any customer, any
competitor or any other stakeholder in the eye and say why they can claim them as
legitimate aims for the group to achieve.

STRATEGIC OPTIONS
By This stage you will have discussed and made an initial decision on the direction you
want the business to take. The company purpose and goals will be agreed, atleast in
outline. Your team will be working together as a unit and will be keen to develop a clear
strategy. Verify and agree where your direction is taking you. Make sure that you have
defined a position for the company that you have the capability to execute and which has
special value in your market or to your customers.
However, even if the strategy is emerging fairly clearly, ensure that you are considering
the full range of strategic options that you could pursue.
Start by reviewing where the process has reached, cover atleast the areas detailed below.

New business opportunities

It is likely that your team have identified a number of business opportunities. These will
concern either new product/service opportunities, possible new markets, new approaches
to business or possible acquisitions. These should all be described and prioritized.

Market trends

Outline the main trends in the market. Where some of these trend appear contradictory,
such as one trend towards higher service levels and another towards lower cost, then
outline both, including the volumes and types of customers that are following each trend
and what is driving the trend. Sometimes there will be a number of trends, with inter-
relationships between them. Ensure that these are fully understood and explained. Try to
forecast what you expect to happen to each trend over the next 1 to n years.
This analysis is at the heart of generating the strategic options and helping to
decide which one the company will eventually follow.

Industry trends

In this section cover issues such as: the ownership and size of successful and
unsuccessful companies, moves toward vertical or horizontal integration, returns on
investment and general financial performance.
Also in this section explore the impact of technology and possible substitution
threats.

Economic trends

What is the economic trend in each major market? What is the range of economic
forecasts? What other economic factors could have an impact on the company’s
operations?

Political

Are there political issues facing you in any of your main or intended targets? How can
you protect yourself from unfavorable outcomes?

Social

The impact of any changes in demographic features or social attitudes.

Stakeholder requirements

Some of the information will come from the business values chart and otherrequirements
will have emerged from general discussions.
This section should cover the requirements of:
• Owners
• Employees
• Pension fund
• Others who are seen to have stake in the company’s future. This can be as
broad as the strategy team decides.

Competitor analysis

Develop competitor analysis matrix on the format given below:

Competitor Key strengths Key weaknesses Main product Marketing Strategic thrust
ranking (max 3) (max 3) range proposition
Biggest
competitor
Next major
competitor
Third major
competitor

Marketing proposition eg, quality, price, customization, service, delivery time, reliability,
financing, image etc.

Strategic thrust may be expanding into new markets either at home or overseas, changing
distinctive capability, merging or acquiring new companies, developing different types of
product, expanding production facilities, or just to solve some significant problems which
are plaguing them.

Competitor product matrix

Products Your Biggest Next major Third major
Company competitor competitor competitor
1 X X X X
2 X X X
3 X X X
4 X X X
5 X X X
6 X
7 X X

It is best to give a brief summary of the competition and then include the matrix in the
synopsis.
Business values

Again, prepare a brief summary of the business values chart, outline its potential impact
on future strategy and include the chart.

Culture
Outline the current and desired culture. Emphasise its importance to the execution of the
strategy.

Capabilities

Summarise the main capabilities of the company as generated in the workshops.

Resource priorities

Make a list of resource priorities. You will need urgently to develop some key resources
whatever strategy is chosen.

Generating options

Having completed the synthesis, compare it to your emerging embryo strategy and check
that there is a strong logical fit between the two.
From the synthesis produce a range of options around the basic strategy that has
been generated. If there is an option that can now be identified that has not been
previously considered, ensure that this is highlighted.

THREE GENERIC STRATEGIES

In simple terms, there are three generic strategies a company can follow:
• Lowest cost producer;
• Differentiation;
• Niche.

Lowest cost producer

The lowest cost producer can provide the product or service at a lower cost than any
competitor. The cost of production may be less, but the selling price may be as high or
higher than competitors.

Differentiation
A differentiated strategy means that customers view the company’s product or service as
distinct from anything else on the market. This is achieved by having different products
or services, branding, high service levels, unique distribution, non-standard terms of
business, advanced technology, a skilled sales organization, better guarantee or warranty
conditions, or some other feature of your product or service which enables you to stand
out from the competition.
Niche

A niche strategy involves concentrating on a particular buyer group, geographic area or

segment of the product line. Whereas the previous two strategies involve market-wide
competition, this approach targets a section of the market and serves it very well,
developing all the company’s functional policies to meet the specific needs of the
selected group.

COMPANY STRATEGY

The figure below illustrates one of the key roles of strategic business planning: to obtain
a balance between an operation’s cost base and the value it supplies to the customer. Just
to illustrate, a cheap product or service that has little or no value to the potential customer
will fail. Equally, a product or service that has huge appeal to potential customers but
which they cannot afford will also fail. A product that is highly priced but affordable in
times of economic boom may die in times of recession unless the price can be reduced.

Process cost base

Emerging market
Company needs
strategy
Fixed cost base
Customers’
perceived values

The first objective of all strategy is to ensure that the company has a cost base that the
customer can afford. Since all companies are in a competitive situation, any extravagance
in the cost base can only be justified if it provides special value to the customer. All other
costs have to be reduced to a minimum.

The function of the strategy is to ensure that the is a balance between organisation’s
costs, the prices it can charge, and the perceived value of its products or services in the
market place. Two imperatives should always be at the forefront of your thinking:

• To keep the cost base appropriate to the business

• To know your customers perception of value.

ASSUMPTIONS
Clarify all the assumptions that have been made about the future of the business and its
markets. Draw up a list of the key assumptions, indicating the probability of their
occurrence. This can be done in the form of an assumption sheet as under: for example,

Assumption Validity of assumption Impact if assumption is wrong

Company X will not loose any major
customer
There will not be any major supply
problems from major suppliers
Moderate Currently 2 customers account for 30 % of
sales. Loosing either would cause the
company to miss its sales forecast
High If the supply problem affected Company
X service to major customers then the
immediate and long-term impact would be
considerable.

STRATEGIC OPTIONS SUMMARY

Having outlined the assumptions, and tested the robustness of the strategy against the
assumptions, summarise the strategy using either the growth vector model or the strategic
focus model.

The growth vector model

There are only four basic approaches that you can follow as shown below:

Products/services
Existing New

1. Retrench/exit 1. Add-one
2. Hold market share 2. Enhancements
Existing
3. Grow market share 3. Substitutes
4. New uses
5. New products

Markets
1. New uses 1. Related
2. New customers diversification
New 3. New areas 2. Unrelated
diversification

The model implies that a company pursues one of the following options:
 • Stays in its existing markets with its existing products and harvests the product to
extinction, or tries to maintain the share it has, or tries to grow within the market
with existing products;
• Sells new or modified products or services to its existing customers;
• Sells existing products to new customers;
• Diversifies by selling new products to new customers.

The fourth option carries by far the greatest risk.

It should be possible to summarise your strategy in a way that fits primarily into
one segment of the matrix. However, this is not always the case. The more complex the
strategy, the more segments it will be in. This model can, however, be useful in
summarizing the general strategic thrust.

Strategic focus model

If there is still a lack of clarity within the team about exactly what you are trying to
achieve with the strategy, or if a simple summary is required, the strategic focus model
can be helpful.
For the purposes of this model, assume that all companies have an impled
objective to maximize long term profitability. The model shown below is useful to focus
the team’s attention on profitability and helps to clarify the route you are taking to
achieve that profitability. It is a tool to re-focus your team’s attention on fundamentals,
by taking them through key questions such as: will you increase volume, and if so how?
How will you improve efficiency? Its value is as a summarizing mechanism to clarify the
strategy at the end of this session.

Long-term profitability
-----------------------------------------------
Increase volume Improve efficiency
------------------ --------------------------------------
Expand Market Cost Increase Improve
Market penetration reduction prices Sales mix

Convert Increase Fixed costs

Non-users Usage rate

Enter new Win Variable

Segments competitors’ costs
customers

Introduce
new products
 Strategic thrust

Having finalized your strategic options, it is useful to write a short summary of the
strategic, between one and three pages. This focuses on what the strategy is, the results
you expect and the considerations that lie behind the decisions. Without this short
summary some of the thinking will be lost. It is also useful for ensuring that every
member of the strategy team agrees on how they see the strategy.

SUCCESSFUL STRATEGIES

There are a number of key points to be aware of when developing a strategy:

1. Changing or implementinga strategy will take time. The results might take
years, rather than months, to become visible. Consistency is the key to making a
strategy work and to improve the performance of the business.
2. When evaluating the success of the strategy , measure not only the financial
performance or market share, but also the underlying performance of the
company, such as:
 Customer satisfaction, using market surveys;
 Cost basis compared to competition
 Understanding of product/service performance compared to competition

3. Continually probe and test strategy, and be prepared to refine it.

Always think twice before deciding to make a significant change in strategy.

IMPLEMENTATION
Implementation begins with evaluation. The execution of the plan is critical. An excellent
strategy, poorly implemented, will fail. The opposite can also be true: a reasonable
strategy, based on good assumptions and efficiently produced, can transform a
company’s performance if it is well implemented.