OVERVIEW

OF
STRATEGIC PLANNING
CONCEPTS
 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. MISSION
A strategic vision A mission statement
concerns a firm’s future focuses on current
business path -- “where business activities -- “who
we are going” we are and what we do”
–Markets to be pursued –Current product and
service offerings
–Future technology-
product-customer focus –Customer needs being
served
–Kind of company that
management is –Technological and business
trying to create capabilities
 MICROSOFT’S
VISION/MISSION

"To enable people

and businesses
throughout the
world to realize
their full potential"
 GE’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
 Example of Vision & Mission

Intel

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.
 Simple Mission Statements

Eastman Kodak
We are in the picture business.

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.
 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.

Avis Rent-a-Car
Our business is renting cars. Our mission is total
customer satisfaction.
Setting Goals & Objectives
Second Task of Strategic Management

 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
 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

Boostannual 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 Business Model

company’s competitive -Concerns whether
initiatives and business revenues and costs
approaches flowing from the
strategy demonstrate
eg
y the business can be
t s
tra es
S n
s i el
Bu od
M
amply profitable and
viable
 Levels of Strategy-Making in
a Diversified Company

Corporate-Level Managers Corporate

Strategy

Two-Way Influence

Division Managers Business Strategies

Two-Way Influence

Functional Mgrs Functional Strategies

Two-Way Influence

Operating
Operating Strategies
Mgrs
 Levels of Strategy-Making in
a Single-Business Company

Executive-Level Managers Business

Strategy

Two-Way Influence

Functional Managers Functional Strategies

Two-Way Influence

Operating
Operating Strategies
Managers
 Networking of Missions,
Goals/Objectives, and Strategies
Level 1 Corporate-wide
Strategic
Corporate
Level
Corporate
Level
Corporate- Vision Goals/Objs Strategy
Level
Managers Two-Way Influence Two-Way Influence Two-Way Influence

Level 2 Business Business Business

Business-Level Level Level Level
Mission Goals/Objs Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 3
Functional Functional Functional
Functional
Missions Goals/Objs Strategies
Managers
Two-Way Influence Two-Way Influence Two-Way Influence
Level 4
Plant Managers, Operating Operating Operating
Lower-Level Missions Goals/Objs Strategies
Supervisors
 SWOT Analysis -
What to Look For
Potential Resource Potential Resource Potential Company Potential External
Strengths Weaknesses Opportunities Threats

• Powerful strategy • No clear strategic • Serving additional • Entry of potent new

• Strong financial direction customer groups competitors
condition • Obsolete facilities • Expanding to new • Loss of sales to
• Strong brand name • Weak balance geographic areas substitutes
image/reputation sheet; excess debt • Expanding product • Slowing market
• Widely recognized • Higher overall line growth
market leader costs than rivals • Transferring skills • Adverse shifts in
to new products exchange rates &
• Proprietary • Missing some key
trade policies
technology skills/competencies • Vertical integration
• Costly new
• Cost advantages • Subpar profits • Take market share
regulations
• Strong advertising • Internal operating from rivals
• Vulnerability to
• Product innovation problems . . . • Acquisition of business cycle
skills • Falling behind in rivals
• Growing leverage
• Good customer R&D • Alliances or JVs to of customers or
service • Too narrow expand coverage suppliers
• Better product product line • Openings to exploit • Reduced buyer
quality • Weak marketing new technologies needs for product
• Alliances or JVs skills • Openings to extend • Demographic
brand name/image changes
 The Three Steps
of SWOT Analysis
 Core Competencies -- A
Valuable 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 a
potentially valuable competitive capability
and 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 -- A
Competitively Superior Resource
 A distinctive competence is a competitively significant activity
that a company performs better than its competitors

 A distinctive competence
 Represents a competitively #1
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 manufacture
ever more powerful microprocessors for PCs
 Starbucks
– Store ambience and innovative coffee
drinks
 Determining the Competitive
Value 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’s
Prices 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 a
Company 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 activity
by 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
 Representative
Company Value Chain
Representative Value Chain for an
Entire Industry
 The Value Chain System
for 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
Pulp & Paper Industry

Timber farming
Logging
Pulp mills
Papermaking
Example: Key Value Chain Activities
Home Appliance Industry

Parts and components manufacture

Assembly
Wholesale distribution
Retail sales
Example: Key Value Chain Activities
Soft-Drink Industry

Processing of basic ingredients

Syrup manufacture
Bottling and can filling
Wholesale distribution
Advertising
Retailing Albertson’s
Example: Key Value Chain Activities
Computer Software Industry

Programming
Disk loading
Marketing
Distribution
 Activity-Based Costing: A Key
Tool 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 systems
provide data for determining costs
for each relevant value chain activity
 Benchmarking Costs of
Key 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 performing
an activity -- learn what is the “best” way
to do a particular activity from those
demonstrating 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
 Product innovation
 Market size and growth
rate  Degree of product
 Position in life cycle differentiation
 Number of rivals
 Scope of competitive
 Buyer needs and rivalry
requirements
 Production capacity  Economies of scale
 Pace of technological
change
 Experience and learning-
 Prevalence of vertical
curve effects
integration  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
 Industry Driving Forces
 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
 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 approaches
in 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 Map
of 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
Key to Gaining a Competitive Advantage
 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
5 Generic Competitive Strategies
 Menu of Strategy Options
for Winning in the Marketplace