Professional Documents
Culture Documents
What is Strategy ?
Strategic Planning Model
Analyze the Organization s resources
Identify the Organization s Current vision mission, Objectives, and Strategies
Reassess and develop the Organization s mission and objectives Identify Opportunities And threats
Formulate strategies
Implement strategies
Evaluate results
What is Strategy ?
Strategic Planning Model
Future process
Identification Objectives - 2 (Long term/annual) Strategies -1 Analysis SWOT -3 + 1 & 2 Revision - Formulation Mission -2 Objectives -2 Strategies -1 Linking with formal process
Strategies for taking the hill wont necessarily hold it. Amar Bhide The early bird may get the worm, but the second mouse gets the cheese. Unknown
competitors to imitate.
Basic concepts of strategy (cont.): Strategy a comprehensive action plan that identifies long-term
direction for an organization and guides resource utilization to accomplish organizational goals with sustainable competitive advantage.
Strategic intent focusing all organizational energies on a
Functional Level
Operational Level
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Functional Level
Operational Level
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Business Strategy
Identifies how a strategic business unit or division will compete in its product or service domain
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Corporate strategy
In what industries and markets should we compete?
Business strategy
How are we going to compete for customers in this industry and market?
Strategy design
Strategy As experience
Strategy lenses
Strategy As ideas
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Strategic Planning Model Identification of strategies Methods of strategy formulation and selection
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Strategic Planning Model Identification of strategies Types of strategy & level of strategy
Strategy clock approach Corporate Strategy Business Strategy Functional / Operational Strategy
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Corporate Strategy
Business Strategy
Operational Strategy
Strategic Planning Model Identification of strategies Types of strategy & level of strategy
Direct approach
Corporate Strategy
Business Strategy
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Backward Integration
Horizontal Integration
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Distributors
Suppliers Competitors
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Distributors Retailers
Firm competing in industry expected to grow markedly Firm has both capital & HR to manage new business of distribution When advantages of stable production are high Current distributors have high profit margins
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Firm s suppliers
Firm has both capital & HR to manage new business Stable prices are important Current suppliers have high profit margins Organization need to quickly acquire the needed resource
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Firm s competitors
Gain monopolistic characteristics w/o federal government challenge Increased economies of scale major competitive advantages When organization has both capital and human resource available Competitors are faltering due to lack of managerial expertise or need for particular resource 22
Intensive Strategies
Market Development
Product Development
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Present products/services
New Markets:
New channels of distribution quality Firm is successful at what it does Untapped/unsaturated markets Needed capital and HR is available Excess production capacity
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Increased Sales:
Products in maturity stage of life cycle Industry characterized by rapid technological development Competitors offer better-quality products @ comparable prices Compete in high-growth industry Strong R&D capabilities
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Related When their value chains posses competitively valuable cross-business strategic fits Unrelated When their value chains are so dissimilar that no competitively valuable cross-business relationships exist
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However -The greatest risk of being in a single industry is having all your eggs in one basket
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Strategic Planning Model Identification of strategies Diversification strategies Related Diversification Preferred To Capitalize on:
Transferring competitively valuable expertise, technological know-how, or other capabilities Combining the related activities of separate businesses into a single operation to lower costs Exploiting common use of a well-known brand name Cross-business collaboration to create competitively valuable resource strengths and capabilities 32
Strategic Planning Model Identification of strategies Diversification strategies Related Diversification May be Effective When:
An organization competes in a no-growth or a slow growth industry Adding new, but related, products would significantly enhance the sales of current products New, but related products could be offered at highly competitive prices New, but related, products have seasonal sales levels that counterbalance an organizations existing peaks and valleys An organizations products are currently in the declining stage of the products life cycle 33 An organization has a strong management team
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Strategic Planning Model Identification of strategies Diversification strategies Value-Creating Strategies of Diversification
Operational and Corporate Relatedness High Operational Relatedness: Sharing Activities between Businesses Low Related Constrained Diversification Vertical Integration (Market Power) Unrelated Diversification (Financial Economies) High Both Operational and Corporate Relatedness (Rare capability that creates diseconomies of scope) Related Linked Diversification (Economies of Scope) Low
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Defensive Strategies
Divestiture
Liquidation
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Regrouping
Failed to meet objectives & goals consistency; has distinctive competencies Firm is one of weaker competitors Inefficiency, low profitability, poor employee morale, pressure for stockholders Strategic managers have failed Rapid growth in size; major internal reorganization necessary 40
Selling
Retrenchment & divestiture failed Only alternative is bankruptcy planned way cash / funds Minimize stockholder loss by selling firm s assets
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Avoid Competitors
Attractive Industry Attractive Strategic Group Mobility Barriers Attractive Niche
Cost Advantage
Differentiation Advantage
Entry Barriers
Isolating Mechanisms
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DifferentiationStrategies
Focus Strategies
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Type 1: Low cost strategy that offers products or services to a wide range of customers at the lowest price available on the market Type 2: Best value strategy that offers products or services to a wide range of customers at the best price-value available on the markets. It offers as compared to rivals products with 46 Similar attributes at lowest price available.
Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies The Sources of Cost Advantages
Scale Experience Capacity Utilization Product Design/Process Fit Location Integration/Purchasing Organizational Skills
Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies Drivers of Cost Advantages
ECONOMIES OF SCALE ECONOMIES OF LEARNING CAPACITY UTIIZATION PRODUCTION TECHNIQUES -Indivisibilities -Specialization & division of labor -Increased dexterity -Improved coordination/organization -Ratio of fixed to variable costs -Mechanization and automation -Efficient utilization of materials -Increased precision -Design for automation -Designs to economize on materials -Location advantages -Ownership of low-cost inputs -Bargaining power -Supplier cooperation -Organizational slack
MANAGERIAL EFFICIENCY
In conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages w/ suppliers & distributors Low cost low price
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Best Way is to ensure total costs across value chain are lower than competitors total costs:
1. Perform value chain activities more efficiently than rivals and control factors that drive costs (plant layout change, new technology, common parts, product design, full capacity) 2. Revamp the firms overall value chain to eliminate or by pass some cost-producing activities. (new suppliers/distributors, relocating facilities etc)
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Strategic Planning Model Identification of strategies Cost Leadership Strategies Low Cost Producer Advantage
Many price-sensitive buyers Few ways of achieving differentiation Buyers not sensitive to brand differences Large # of buyers w/bargaining power
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Differentiation Strategies
Type 3: a strategy aimed at producing products and services considered unique industry wide and directed at consumers who are relatively price insensitive
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TANGIBLE DIFFERENTIATION Observable product characteristics: size, color, materials, etc. performance packaging complementary services
INTANGIBLE DIFFERENTIATION Unobservable and subjective characteristics relating to image status, exclusively, identity.
TOTAL CUSTOMER RESPONSIVENESS: Differentiation not just about the product, it embraces 54 the whole relationship between the supplier and the customer.
vs
Greater product flexibility Greater compatibility Lower costs Improved service Greater convenience More features
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Strategic Planning Model Identification of strategies Differentiation Strategies Can be especially effective when: 1. There are many ways to differentiate and many buyers perceive the value of the differences 2. Buyer needs and uses are diverse 3. Few rival firms are following a similar differentiation approach 4. Technology change is fast paced and competition revolves around evolving product features
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Risks of differentiation
Can be beaten by cost leadership if not properly perceived Can be copied
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Focus Strategies
Type 4: Low cost focus strategy offers products or services to a small range (niche) of customers at the lowest price available on the market where you are cost leader Type 5: Best value focus strategy offers products or services to a small range of customers at the best price-value available on the markets. Also called focused differentation
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Industry segment of sufficient size Good growth potential Not crucial to success of major competitors Used in conjunction with differentiation or cost leadership strategies
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Strategic Planning Model Identification of strategies Focus Strategies Can be especially effective when: 1. The target market niche is large, profitable, and growing 2. Industry leaders do not consider the niche crucial 3. Industry leaders consider the niche too costly or difficult to meet 4. The industry has many different niches and segments 5. Few, if any, other rivals are attempting to 63 specialize in the same target segment
Risks of focus
Can be copied
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Focused differentiation
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No frills
Low Low
High Price
Number reflect the position of the customers Two axes are price and perceived benefits of products or service
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Strategic Planning Model Identification of strategies strategy clock Price based strategies (position 1 & 2)
A no frills is a strategy in which prices are very low and the benefits to the customers are also very low Customers are conscious of the prices, not able to pay high Applicable where goods are hard to differentiate Goods for market entry Customers are not willing to pay for higher perceived benefits Customer loyalty is a challenge A low price strategy higher perceived benefits as compared to competitor and charge lower prices than competitor Lead to price war and lower margins Ideal method is to reduce the price by reducing the costs without letting the competitor know about cost reduction method.
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Strategic Planning Model Identification of strategies strategy clock Differentiation strategy (position 4)
A differentiation strategy aims to provide better products or serves than competitors at the same or higher price by adding unique selling points (USP) Concentrate that perceived benefits are different than the competitors Customers do not buy features, they buy benefits Include marketing, branding, advertising, core competences and enhancing product features and benefits Offer to wide range of customers
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Strategic Planning Model Identification of strategies strategy clock Hybrid strategy (position 3)
A hybrid strategy aims to provide higher perceived benefits by lowering the prices Combination of differentiation and low price strategies Aim is to earn huge profits Method is to add differentiation i.e. new features in the products It can be done by finding drawbacks in competitors product and offer better product
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Strategic Planning Model Identification of strategies strategy clock Focused strategy (position 5)
A focused strategy aims to provide higher benefits at higher prices Premium products Marketed to specific segment(niche) of the markets
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Strategic Planning Model Identification of strategies strategy clock Failure strategies (position 6, 7 &8)
These are not beneficial to customers There are no perceived benefits Prices is high and perceived benefits are low Lead to failure of organization In position 6 price is high are there is no increase in corresponding benefits. Common in monopolies In position 7 price is higher than the competitors and reduction in perceived benefits as compared to position 6 In position 8 there is higher reduction in perceived benefits but price is maintained Objective is leave the market with maximum benefits
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Strategic Planning Model Identification of strategies strategy clock Competitive advantage and price based strategies
Same perceived benefits at lower prices Price war Entry into specific segments with demand of low price products Lowering of margins Lowering of costs
Immobile resources Difficult imitation Regular differentiation Cost reduction with differentiation
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Strategic Planning Model Identification of strategies Strategies for competing in turbulent, high velocity markets
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Strategic Planning Model Identification of strategies Means for achieving Cooperation among strategies competitors
Industry segment of sufficient size Good growth potential Not crucial to success of major competitors Used in conjunction with differentiation or cost leadership strategies
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Strategic Planning Model Identification of strategies Means for achieving Joint venture / partnering strategies Two or more companies form a temporary partnership or consortium for purpose of capitalizing on some opportunity include: R&D partnerships Reasons / benefits Cross-distribution Improved communication agreements Globalized operations Cross-licensing agreements Risk management Cross-manufacturing Opportunity is complex agreements 75 Core competency Joint-bidding consortia
Strategic Planning Model Identification of strategies Means for achieving Joint venture / partnering strategies
Managers who must collaborate daily; not involved in developing the venture Benefits the company not the customers Not supported equally by both partners May begin to compete with one of the partners
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Strategic Planning Model Identification of strategies Means for achieving Mergers / Acquisitions strategies
A merger occurs when two organizations of about equal size unite to form one enterprise. An acquisition occurs when a large origination purchases a smaller firm Takeover/hostile takeover occurs when merger or acquisition in not desired Friendly merger is one which is desired by both parties. White knight is the terms used when a firm agrees to acquire another firms which is facing a hostile takeover by another firm. Leveraged buyout occurs when company shares are bought by company management and private parties using 78 borrowed funds
Strategic Planning Model Identification of strategies Means for achieving Mergers / Acquisitions strategies
Provide improved capacity utilization Better use of existing sales force Reduce managerial staff Gain economies of scale Smooth out seasonal trends in sales Gain new technology Access to new suppliers, distributors, customers, products, creditors
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Strategic Planning Model Identification of strategies Means for achieving Mergers / Acquisitions strategies
Reasons why Mergers and Acquisitions Fail Too much diversification Managers overly focused on acquisition Too large an acquisition Difficult to integrate different organizational cultures Reduced employee moral due to layoffs and relocations 80
Strategic Planning Model Identification of strategies Means for achieving First mover advantages strategies
Benefits a firm may achieve by entering a new market or developing a new product or service prior to rival firms Potential Advantages
Securing access to rare resources Gaining new knowledge of key factors & issues Carving out market share Easy to defend position & costly for rival firms 81 to overtake
Strategic Planning Model Identification of strategies Means for achieving First mover advantages strategies Such action are useful when:
they can build reputation and image They can produce cost advantages They can create customer loyalty Make the copy difficult for competitors Create entry barrier
Risks
Unexpected problems Unanticipated costs
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Strategic Planning Model Identification of strategies Means for achieving Outsourcing strategies
Potential Advantages
Less expensive Allows firm to focus on core business Enables firm to provide better services
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Strategic Planning Model Identification of strategies strategy clock Other concepts Other strategies
Hyper competition Strategic business unit Knowladge management Benchmarking BU Same perceived benefits Price war
Lock in strategy Repositioning Strategic alliance /collaboration International strategies Multi- domestic strategy Global strategy Corporate parenting Cost effeicienvy Inovation Knowladge management franchising Leceing
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Porter/Bowman
Functional Level
Operational Level
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Long-Term Objectives Results expected from pursuing certain strategies Strategies represent actions to accomplish long-term objectives
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Long-Term Objectives Strategists Should Avoid -Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope
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Long-Term Objectives
Varying Performance Measures by Organizational Level
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Long-Term Objectives Financial vs. Strategic Objectives Financial Objectives Strategic Objectives
Growth in revenues Growth in earnings Higher dividends Higher profit margins Higher earnings per share Improved cash flow Larger market share Quicker on-time delivery than rivals Quicker design-to-market times than
rivals
Lower costs than rivals Higher product quality than rivals Wider geographic coverage than rivals 90
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Long-Term Objectives Not Managing by Objectives Managing by extrapolation Managing by crisis Managing by subjectives Managing by hope
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Long-Term Objectives The Balanced Scorecard Robert Kaplan & David Norton -Strategy evaluation & control technique Balance financial measures with non-financial measures Balance shareholder objectives with customer & operational objectives
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Long-Term Objectives
Vision Mission Strategies long term objectives/Goals Annual Objectives Critical Success Factors KPI = Functions and processes Initiatives /Activities
Vision Mission Strategies long term objectives/Goals Annual Objectives Initiatives /Activities Measures/ standard Targets Budgets
O1
O2
O1
O2
M1 2M3 M T1 T1 T1
T1
T1 T1
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Strategic Plan
Mission Vision Long term objectives/ Goals Annual Objectives Initiatives/Activities Measures Targets Budgets O1 AI2 M3 T1 AI3 O2
AI1 M1 M2
T1
T1
Directly relates to the Mission Indirectly relates to the Mission Statement Statement Covers long time period (such as 10 years) Covers short time period (such 1 year budget cycle)
Consolidate payable processing through a P-Card System over the next two years.
Monitor and address employee morale issues through an annual employee satisfaction survey across all business functions.
Measure your milestones short-term outcomes at shortthe Action Item level. Measure the outcomes of your objectives. Try to keep your measures one per objective. May want to include lead and lag measures to depict cause-effect relationships if you are causeuncertain about driving (leading) the desired outcome. Establish measures using a template to capture critical data elements
Objective Description description of objective purpose, in sufficient detail for personnel not familiar with the objective to understand its intent. Objective descriptions are typically two or three paragraphs long. This will appear in the pop-up window when you mouse over the objective in the Balanced Scorecard System.
Comments additional information about the objective not covered in above blocks, such as recommendations for further revision, additional organizations objective impacts, recommendations for coordination / alignment with other objectives, etc. Measure Name - The name exactly as you want it to appear in the Balanced Scorecard, including the measure number (i.e. Percent Employees Satisfied, etc.) Measure Description description of the measure, include its intent, data source, and organization responsible for providing measure data. This will appear in the pop-up window when you mouse over the measure in the Balanced Scorecard. Measure Formula formula used to calculate measure value (if any) Data Source - The source of the data manual, data spreadsheet, or database name and contact familiar with the data
Measure Weight - the relative weight of the measure based on the impact it has on the overall objective. The total weights for all measures for an objective must add to 100 Target Maximum Maximum expected value for the measure. Effective Date Date the target first becomes effective
Measure Reporter Person responsible for providing measure data. Include the name, organization and email. Frequency How often target data will be reported Units Units of measure
Target Point where the measure goes from green to amber Target Minimum Point where the measure goes from amber to red. The target minimum and target can not be the same value. Scorecard Perspective Name
Questions ?
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Thank You
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