Strategic planning

Levels of Goals/Plans

A model of a prescriptive strategy process

The prescriptive strategic process

Strategic formulations
Alternate strategies are formulated based onSituation Analysis- the process of finding a
strategic fit betweenexternal opportunities and internal strengths while working around external threats and internal weaknesses

Situational analysis
SWOTOpportunities-Threats in environment Strengths-Weaknesses of organisation

Strategy must synchronize opportunity with organisational capability Opportunity has no real value unless a company has the capacity to take advantage of that opportunity

Criticisms of SWOT analysis

Generates lengthy lists Uses no weights to reflect priorities Uses ambiguous words and phrases Same factor can be in 2 categories Requires only a single level of analysis No logical link to strategy implementation

Not for you- Ways to improve on

swot
Generating a Strategic Factors Analysis Summary (SFAS) Matrix SFAS summarizes an organization s
strategic factors by combining the external factors from the EFAS Table with the internal factors from the IFAS Table

Not for you- TOWS Matrix

illustrates how the external opportunities and threats can be matched with internal strengths and weaknesses to result in 4 possible strategic alternatives Provides a means to brainstorm alternative strategies Forces managers to create various kinds of growth and retrenchment strategies Used to generate corporate as well as business strategies

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Strategic formulations at 3 level

Corporate Business Functional

Corporate strategies
It mean strategies for enterprise consisting of more than one business and or company In small and medium organisations, same set of people perform corporate, business and functional strategies

Corporate strategies
It concern with the choice of direction of the group as a whole and the management of its business or product portfolioDirectional strategy- the firm s overall orientation toward growth, stability, or retrenchment Portfolio analysis- industries or markets in which the firm competes through its products and business unites Parenting strategy- the manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units

Simplified Stages of Vertical Integration: Shaw Industries

Polypropylene Fiber Production

Carpet Manufacturing

Retail Stores

Raw Materials

Manufacturing of final product

Distribution

Backward Integration

Forward Integration

International Entry Options for Horizontal Growth

Exporting Licensing Franchising  Turn-key Operations  BOT Concept  Management Contracts Joint Venture Acquisitions Green-Field Development Production Sharing

Stability Strategies- continuing activities without any

significant change in direction Pause/Proceed with caution strategy- an opportunity to rest before continuing a growth or retrenchment strategy No change strategy- continuance of current operations and policies Profit Strategies- to do nothing new in a worsening situation but instead to act as though the company s problems are only temporary
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Retrenchment Strategies- used when the firm has a weak competitive position in some or all of its product lines from poor performance Turnaround strategy- emphasizes the improvement of
operational efficiency when the corporation s problems are pervasive but not critical Contraction- effort to quickly stop the bleeding across the board but in size and costs Consolidation- stabilization of the new leaner corporation

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Porters Competitive Forces

Potential new entrants Bargaining power of buyers Bargaining power of suppliers Threat of substitute products Rivalry among competitors

The Five Forces Affecting Industry Competition

Portfolio strategy
Portfolio analysis- management views its
product lines and business units as a series of investments from which it expects a profitable return Popular portfolio analysis techniques include: BCG Matrix GE Business Screen

Portfolio strategy- BCG Matrix

Applied to analyse and compare cos. many Product lines or Business units Analysis is done through along two factors Significance of industry in terms of growth rate of industry in % and significance of product or business unit in its industry in terms of market share derivative- known as relative competitive position relative competitive position is arrived by dividing its market share by that of the largest competitor- a value of more than 1 shows leadership

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BCG Matrix
Question marks- new products with the potential for success but require a lot of cash for development Stars- market leaders at the peak of their product cycle and are able to generate enough cash to maintain their high market share and usually contribute to the company s profits Cash cows- products that bring in far more money than is needed to maintain their market share Dogs- products with low market share and do not have the potential to bring in much cash

BCG Matrix- Limitations

Use of highs and lows to form categories is too simplistic Link between market share and profitability is questionable Growth rate is only one aspect of industry attractiveness Product lines or business units are considered only in relation to one competitor Market share is only one aspect of overall competitive position

9 cell GE Business screen

Developed by GE with help from Mc-Kinsey & Co. steps 1- select criteria to rate industry- like- volume growth rate, profitability, pricing structure etc and rate industry on a scale of 1- 5 (very unattractive to very attractive) 2- select key factors needed for success in each product line or business like market share, technological position, size, brand image, distribution network etc then rate product line or business on scale of 1- 5 ( very weak to very strong) 3- do plotting in 9 cells Plot firms future portfolio. In case of a gap between projected and desired portfolio- take corrective actions

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GE Business Screen- Limitations

Complex and cumbersome Numerical estimates of industry attractiveness and business strength/competitive position give the appearance of objective, but are actually subjective judgments that can vary from person to person Cannot effectively depict the positions of new products and business units in developing industries

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Advantages and Limitations of Portfolio Analysis Advantages:

Encourages top management to evaluate each of the corporation s businesses individually and to set objectives and allocate resources for each Stimulates the use of externally oriented data to supplement management s judgment Raises the issue of cash flow availability to use in expansion and growth
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Advantages and Limitations of Portfolio Analysis

Limitations: Defining product/market segments is difficult Suggest the use of standard strategies that can miss opportunities or be impractical Provides an illusion of scientific rigor when in reality positions are based on objective judgments Value-laden terms such as cash cow and dog can lead to self-fulfilling prophecies Lack of clarity on what makes an industry attractive or where a product is in its life cycle

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