S trategy D esign and P lanning

1. Strategy Design and Planning Chapter Outline • The strategic design approach • the strategic planning approach • The Design versus The Planning Model • A Model for strategic planning

2. The strategic design approach Seven Premises • strategy formation should be a controlled, conscious process. • the CEO is “the” strategist. • strategy formation must be kept simple and informal. 51

3. The strategic design approach • Strategies should be unique. • strategy design should be full-blown, not incremental. • strategies should be articulated. • once the first 6 premises are completed the strategy can be implemented. 51

4. The Strategic Planning Approach 3 premises • strategy formation should be a controlled process. • responsibility rests with the CEO in principle, and executed by staff planners. • strategies emerge full-blown, to be explicated for implementation. 53

5. differences between the design and planning approaches • the design model emphasizes simplicity and informalness while the planning model uses an intricate array of procedures. • The planning model uses staff planners as major actors, while the design school uses them as minor actors in the implementation process. 53

6. A combination model The basic Plan Format I. mission statement a. business definition b. long-term objectives II. scan of external environment a. industry environment b. macroenvironment III. scan of internal environment a. value chain analysis b. financial analysis c. assessment of strengths and weaknesses iv. business strategy statement v. integrated programs 55

7. i. The mission statement 1. What business should we be in? 2. Why do we exist? 3. What is unique about our organization? 4. Who are our principal customers? 5. What are our principal products/services, present and future? 6. What are our principal market segments, present and future? 55

8. The mission statement 7. What are our principal outlets/distribution channels, present and future? 8. How is our business different than it was three and five years ago? 9. What is likely to be different about our business three and five years in the future? 10. What are our principal economic concerns? 11. What philosophical issues are important to our future? 12. What special considerations do we have regarding stakeholder groups? 56

9. owners/ stockholders/ investors/ constituents board of directors parent organization legislative bodies employees customers/ clients/ users suppliers general public Stakeholder groups 56

10. Stakeholder groups • owners/ stockholders/ investors/ constituents • board of directors • parent organization • legislative bodies • employees • customers/ clients/ users • suppliers • general public

11. ii. long-term objectives • marketing • profitability • physical and financial resources • productivity • worker performance • management development • innovation • social responsibility • stockholder responsibility • size/ growth/ diversification 57

12. iii. scan of internal environment and financial analysis • value chain analysis • financial analysis • leverage ratios • liquidity ratios • activity ratios • profitability ratios 58

13. iii. scan of internal environment and financial analysis • value chain analysis • financial analysis • leverage ratios • liquidity ratios • activity ratios • profitability ratios

14. dupont financial analysis sales minus costs 61

15. dupont financial analysis sales net profit minus costs sales

16. dupont financial analysis sales net profit minus net profit margin costs sales TIMES asset turnover sales total assets

17. dupont financial analysis sales net profit minus net profit margin costs sales roi TIMES asset turnover roe [divided by] (1-Debt Ratio) sales total debt total assets total assets

18. iv. the strategy statement Answers the five questions of: • What should be our future driving force? • How does this differ from our current driving force? • What changes will be needed to meet the future driving force? • How is this compatible with the mission? • How is this compatible with the conclusions from our strategic analysis? 61

19. v. integrated programs The seven Steps • Identify results needed to accomplish each long-term objective. • select 5 to 10 most critical results required to achieve the long-term objective. • reach agreement on each integrated program. 63

20. integrated programs • Reach agreement on what is needed concerning results, timetable, resource, accountability, and feedback mechanism. • invite review and comment from management levels. • Complete final documentation. • Implement and evaluate.

21. strategic choice Links strategy formulation to strategy implementation. Choice

22. strategic choice Links strategy formulation to strategy implementation. Choice

23. Formulation and Implementation Implementation (Achieving Results) Formulation (Deciding what to do) 1. opportunity and Risk. 1. Organization structure and relationships. Corporate Strategy: Pattern of purposes and policies defining the company and its business. 2.material, technical, financial, and managerial resources. 2. Organization processes and behaviors. 3.personal values and aspirations. 3. top leadership 4.Acknowledgment of noneconomic responsibility to society. 68 Figure 1

24. relating opportunities to resources Matching opportunity and competence. 68

25. relating opportunities to resources Matching opportunity and competence.

26. Schematic development of economic strategy Environmental Conditions and Trends Economic Technical Physical Social Community Nation World 73 Figure 2

27. Schematic development of economic strategy Environmental Conditions and Trends Economic Technical Physical Social Community Nation World Figure 2

28. Schematic development of economic strategy Environmental Conditions and Trends opportunities and risks Economic Technical Physical Social Community Nation World Identification inquiry assessment of risk Figure 2

29. Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence Capability Financial Managerial Functional organizational reputation history opportunities and risks Figure 2

30. Schematic development of economic strategy Distinctive Competence Environmental Conditions and Trends Corporate resources as extending or constraining opportunity identification of strengths and weaknesses programs for increasing capability opportunities and risks Figure 2

31. Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence opportunities and risks Consideration of all Combinations Corporate resources Figure 2

32. Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence opportunities and risks Consideration of all Combinations Corporate resources Evaluation to determine best match of opportunity and resources Figure 2

33. Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence opportunities and risks Consideration of all Combinations Corporate resources Evaluation to determine best match of opportunity and resources choice of products and markets Figure 2

34. Schematic development of economic strategy Environmental Conditions and Trends Distinctive Competence Capability Financial Managerial Functional organizational reputation history Economic Technical Physical Social Community Nation World Consideration of all Combinations opportunities and risks Corporate resources as extending or constraining opportunity identification of strengths and weaknesses programs for increasing capability Identification inquiry assessment of risk evaluation to determine best match of opportunity and resources choice of products and markets economic strategy 16 Figure 2

35. Generic versus competitive strategy Generic Competitive Measure of success Sales growth Market share Return to the firm Value added Return on investment Function Provision of value Maintaining a defensible to the customer position Basic strategic tasks Adapting to change Creating barriers and and innovation deterring rivals Method of expressing Product/market Policies leading to strategy terms defensible position Basic approach to Study a group of Comparison across rivals analysis businesses over at a given time time 76 Table 1

36. Questions ?