Intermediate Budgeting Developing a Strategic Business Plan
Strategic Fit Resources Org Objectives Changing Environment 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.
Strategy: • Corporate • Business • Functional Corporate Mission & Objectives Operating Plans The Role of Strategy
Corporate Mission • Broad purposes of the organization • General criteria for assessing the long-term organizational effectiveness • Driven by heritage & environment • Mission statements are increasingly being developed at the SBU level as well
Examples of Corporate Mission SINGAPORE AIRLINES is engaged in air transportation and related businesses. It operates world-wide as the flag carrier of the Republic of Singapore, aiming to provide services of the highest quality at reasonable prices for customers and a profit for the company
Examples of Corporate Mission (cont’d) MARRIOTT’S Mission Statement: We are committed to being the best lodging and food service company in the world, by treating employees in ways that create extraordinary customer service and shareholder value
Corporate Culture • 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?
Corporate Objectives & Goals • An objective is a long-range purpose • Not quantified and not limited to a time period • E.g. increasing the return on shareholders’ equity • A goal is a measurable objective of the business • Attainable at some specific future date through planned actions • E.g. 10% growth in the next two years
STRATEGIC PLAN DEVELOPMENT Environmental and internal assessment Strategic definition and implications • What strategy will you pursue over the next 3 years? • What are the major changes in industry dynamics and resulting opportunities and risks? Industry dynamics and implications Strategy articulation + + • What will be the impact of major strategic initiatives? • What are your competitive strengths and weaknesses? Competitive assessment Strategic initiatives + + Internal assessment Financial projections • How does your current business emphasis fit with industry opportunity and competitive landscape? • What are the expected financial returns of your strategy? + Risk/contingen-cies & strategic alternatives • What strategic alternatives have you considered?
Vision is a Critical Driver • To succeed in the long term, our business needs a vision of how we will change and improve in the future. • “without a vision, the people perish” • The vision of the business gives its energy. • It helps motivate us. • It helps set the direction of corporate and marketing strategy.
Values underpin all we do Values form the foundation of a business’ management style. • Values provide the justification of behaviour and, therefore, exert significant influence on marketing decisions. An example is provided by BT Group - defining its values: • BT's activities are underpinned by a set of values that all BT people are asked to respect: • We put customers first • We are professional • We respect each other • We work as one team • We are committed to continuous improvement. • These are supported by our vision of a communications-rich world - a world in which everyone can benefit from the power of communication skills and technology. • A society in which individuals, organisations and communities have unlimited access to one another and to a world of knowledge, via a multiplicity of communications technologies including voice, data, mobile, internet - regardless of nationality, culture, class or education. • Our job is to facilitate effective communication, irrespective of geography, distance, time or complexity. Source: BT Group plc website
Has the Company got a strong Clear Mission? • The Business Mission is important to our sales & marketing planning • It provides an outline of how the marketing plan should seek to fulfil the mission • It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission? • It provides an incentive to implement the marketing plan
Strategic Audit - ensuring that the Company resources and competencies are understood and evaluated
Value Chain Analysis • Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. • Michael Porter suggested that the activities of a business could be grouped under two headings: • Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and • Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. • Value Chain Analysis is one way of identifying which activities are best undertaken by our business and which are best provided by others ("outsourced"). • Linking Value Chain Analysis to Competitive Advantage • What activities a business undertakes is directly linked to achieving competitive advantage. • For example, if we wish to outperform our competitors through differentiating ourselves through higher quality then we will have to perform our value chain activities better than the opposition. • But if we adopt a strategy based on seeking cost leadership this will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.
Core competencies • Core competencies are those capabilities that are critical to a business achieving competitive advantage. • The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. • Senior management cannot focus on all activities of a business and the competencies required to undertake them. • So the goal is for management to focus attention on competencies that really affect competitive advantage. • Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change. • We 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 strategy
Identifying Core CompetenciesPrahalad and Hamel suggest three factors to help identify core competencies in any business:
Four Generic Strategies Lower Cost Differentiation Broad Target Scope Narrow Target
Other Characteristics of Competitive Advantage • Substantiality • Is it substantial enough to make a difference? • Sustainability • Can it be neutralized by competitors quickly? • Ability to be leveraged into visible business attributes that will influence customers (Source: Strategic Marketing Management, Aakers)
Seeking Competitive Advantages • Positions of advantage • Superior customer value • Lower relative total cost • Performance advantages • Customer satisfaction, Loyalty, Market Share, Profit • Sources of advantages • Superior skills & knowledge, Superior resources, Superior business process
WHERE TO COMPETE? • Target customers and segments • Which customers are you trying to target or attract? • Which are you willing to serve, but will not spend resources to attract? • Which would you prefer not to serve? Customers • Geographical scope of business activities • Geographic limits to the business? • Local, regional, multi-local, national, international, or global player? • If local, which localities? • How does the entity reach its target customers • Which distribution channels will you use? • What customer segments can they reach? Geographic markets Channels Products • Quality and breadth of the product line • Breadth of the product line? • Quality of the product line? • Product bundles or a series of unrelated products?
Capability platform: assessment of sources of competitive advantage Example Physical asset Location/"space" Distribution/sales network Brand/reputation Patent Relationship with "license" allocator • BHP’s low-cost mines • Telecomm/media company with rights radio spectrum • Avon’s representatives • Coca-Cola • Pharmaceutical company with a "wonder drug” • "Favored nation" status with a key minister in liberalizing economy Privileged assets Necessary capabilities in order to succeed in the industry Innovation Cross-functional coordination Market positioning Cost/efficiency management Talent development • 3M with new products • McDonald’s with QSC&V • J&J with branded consumer health products • Emerson Electric’s Best Cost Producer program • P&G brand management program Distinctive competencies
Entry Barriers Economies of Scale Brand Identity Capital Requirements Porter’s 5 Forces of Competitive Position #3 Rivalry Determinants Industry Growth Fixed Costs Product Differences Brand Identity Exit Barriers New Entrants Determinants of Supplier Power Switching Costs Supplier Volume Impact Forward Integration Industry Competitors Intensity of Rivalry Suppliers Buyers Determinants of Buyer Power Buyer Concentration Buyer Volume Backward Integration Determinants of Substitution Threat Relative Price Performance Switching Costs Substitutes
Forces at work framework • 2. Determinants of barriers to entry • Economies of scale • Proprietary product differences • Brand identity • Switching costs • Capital requirements • Access to distribution • Absolute cost advantages • Proprietary learning curve • Access to necessary inputs • Proprietary, low-cost product design • Government policy • Expected retaliation • 1. Determinants of supplier power • Differentiation of inputs • Switching costs of suppliers and firms in the industry • Presence of substitute inputs • Supplier concentration • Importance of volume to supplier • Cost relative to total purchases in the industry • Impact of inputs on cost or differentiation • Threat of forward integration relative to threat of backward integration by firms in the industry 2. New entrants 5. Industry competitors 1. Suppliers 3. Buyers Intensity of rivalry • 3. Determinants of buying power • Bargaining leverage • Buyer concentration vs. firm concentration • Buyer volume • Buyer switching costs relative to firm switching costs • Buyer information • Ability to backward integrate • Substitute products • Pull-through • 5. Rivalry determinants • Industry growth • Fixed (or storage) cost/value added • Intermittent overcapacity • Product differences • Brand identity • Switching costs • Concentration and balance • Informational complexity • Diversity of competitors • Corporate stakes • Exit barriers 4. Substitutes • 4. Determinants of substitution threat • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute • Price sensitivity • Price/total purchases • Product differences • Brand Identity • Impact on quality perception • Buyer profits • Decision makers' incentives
World Geographical Level Region Country Territory Client Total sales Sector sales Company’s sales Product Level Product lines Product config Product items Short term Medium term Long term Timing Level Ninety ways to measure demand (6 x 5 x 3)
Strategic Planning Link with Marketing Planning • Businesses that succeed do so by creating and keeping customers. • They do this by providing better value for the customer than the competition. • Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (“competitive advantage”). • The main problem with this process is that the “environment” in which businesses operate is constantly 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. Marketing Plans • Strategic planning is concerned about the overall direction of the business. • It is concerned with marketing, of course. • But it also involves decision-making about production and operations, finance, human resource management and other business issues. • The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives. • Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the “environment”. Sometimes this is quite a straightforward task. • For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!). • However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. • Keeping control of marketing decision-making in such a complex situation calls for well-organised marketing planning.
Key issues in strategic and marketing planning? • The following questions are key in the marketing and strategic planning process: • Where are we now? • How did we get there? • Where are we heading? • Where would we like to be? • How do we get there? • Are we on course? • A marketing plan helps to: • The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected • Identify sources of competitive advantage • Gain commitment to a strategy • Get resources needed to invest in and build the business • Inform stakeholders in the business • Set objectives and strategies • Measure performance
Step 1: Analyze the situation • Situational analysis: a process planners use, within time and resources constraints, to gather, interpret, and summarize all information relevant to the planning issue under consideration. • Focuses on the internal forces at work in the organization and the influences from the external environment.
Step 2: Generate alternative goals and plans • Goals: Target or end that management desires to reach. • Stresses creativity • Encourages managers and employees to think broadly
SMART Goals • Specific: Goals are precise, describing particular behaviors and outcomes. • Measurable: Desired results can be quantified. • Attainable (but challenging): Goals can be achieved, but challenging. • Relevant: Contribute to the organization’s overall mission and be consistent with its values, including ethical standards. • Time-bound: Specify a target date for completion.
Plans • The actions or means managers intend to use to achieve organizational goals. • Single-use plans: designed to achieve a set of goals that are not likely to be repeated in the future. • Standing plans: focus on ongoing activities designed to achieve an enduring set of goals. • Contingency plans: specify actions to take when a company’s initial plans have not worked well or events in the external environment require a sudden change.
Step 3: Evaluate goals and plans • Evaluate advantages, disadvantages, and potential effects of each alternative goal and plan. • Prioritize the goals • Consider the costs of each initiative and the likely investment return.
Step 4: Select goals and plans • Select the most appropriate and feasible alternative. • Identifies the priorities and trade-offs among the goals and plans.
Step 5: Implement the goals and plans • Key to achieving goals • Managers and employees must understand the plan, have the resources to implement it, and be motivated to do so. • Linking the plan to other systems in the organization, such as rewards, helps ensure successful implementation.
Step 6: Monitor and control performance • Monitor actual performance of employees against the goals and plans.