MODULE 1: STRATEGIC PLANNING

I. Strategic Planning
- Develop long range goals
- Defines the strategies and policies that will achieve these goals
- Blueprint on how to achieve the mission, vision and goals of the entity
- Usually 3 to 5 years to achieve. Capital expenditures are longer to achieve
- This is contingent upon the ability of the entity to achieve these goals

 Attributes of successful strategic planning

1. Accurate assessment of current state and forecast of future trends
2. Comprehensive and significant
3. SMART (Specific, Measurable, Achievable, Realistic, Timely)
4. Supported by management and employees
5. Regular monitoring and review of strat plan
6. Emphasis of meeting the objectives and how it should be achieved
7. Easily understandable and are reported to employees to know the progress
8. Focus, discipline and commitment
 External Factors – outside factors that may affect the entity
The entity should assess and evaluate external factors to take advantage of opportunities,
work around limitations and react to threats

o Opportunities - potential benefits

o Limitations – constraints that reduce the ability to achieve its goals
o Threats – issues that could limit the profitability and impede success
 Internal factors – within the management control
The entity should evaluate its internal factors to identify its strengths, weaknesses and
competitive advantages
o Strengths – core competencies of the entity which creates its competitive
advantages
o Weaknesses – disadvantages of the entity

II. Mission
- Articulates reason for existing
- Foundation of entity’s strat plan

III. Vision
- Forward looking view of the what should be state of the entity

IV. Long-term Mission and Goals

- The map that plans the future of the company. This usually last 3 to 10 years
- Includes the following for assessment and analysis:
o Product Line – profitability of existing product lines, potential new lines,
capacity issues and discontinuation
 o Market Diversification – new market, products and industries
o Market Penetration – expansion to new or existing markets

V. Tactical Plans
- Determining specific objectives and the means on how to achieve these
- Short-term, up to 18 months only

VI. Porter’s Strategies

- Cost leadership
- Differentiation
- Focus/ Niche

1. Cost Leadership – to produce and sell its product for less than its rival firms.
Ways:
 Lower the price to create competitive advantage
 Match the price but reduce the product cost to increase profits

Works Well:

 In market where buyers have large amount of bargaining power

 In markets where sellers can influence buyers to switch by cutting prices
Does Not Work Well:

 If the firm is focused with cutting prices without considering its

technological advances. (Compromise quality)

2. Differentiation – customers perceive the value of the product to be superior that

they are willing to pay for a higher price
Ways:
 Lower the price and cover its premiums with increased customer base
 Increase the price to offset or exceed the value of the product perceived by
customers
 Works Well – in markets where:

 Customers can see the value of the product

 Appeal of the product attracts
 Competing firms choose features to differentiate their products

Does not Work Well – in markets where:

 Customers do not see the value in relation to its premium
 Customers are indifferent to its unique features and prefer product with a
lower price

3. Focus/ Niche – firms focus on specific or smaller group of customers

Works Well:
 The focus group is large enough to make profits
 Competitors are not able to compete with the pricing or meet the needs of
the customers thru specialization
Does not Work Well:
 Competitors are able to penetrate the market and get a portion of the
customer base
 Customers are not willing to pay for the unique features of the product and
prefer the generic items that are existing in the market

VII. Planning Tools and Techniques

 SWOT
 Porter’s Five Forces
 Situational Analysis
 PEST
 Scenario Planning
 Competitive Analysis
 Contingency Planning
 BGC Growth Matrix

1. SWOT Analysis – analysis of both internal and external factors to develop the strategic plan
of the firm

2. Porter’s Five Forces – developed by Michael Porter

a. Barriers to Entry – hurdles that new firms must overcome in entering new market
 New companies will attempt to enter the new market when barriers are
low, there is potential for profits and existing companies’ retaliation are low
 When opportunities exist, new companies will try to enter these markets.
Hence, the profits will fall to a competitive level
 Existing firms are motivated to keep their price structures at a competitive
level
b. Market Competitiveness – existence of rival firms. This is the most significant of the
five forces
 Ability of rival firms to respond to changes
 Advertising
 R&D
 Alliance with suppliers and rival firms
 Customers do not have brand preferences
 Costs of existing markets are in excess to continue operating within the
market
c. Existence of Substitute Products – existence of substitute products will affect the
ability of the firm to sustain its profits
 When customers perceive the substitute has no difference with the main
product, price increase will reduce the demand of the product
 If few substitutes exist, price increase will have no significant effect with the
main product
d. Bargaining Power of Customers – when buyer has negotiation powers, they have a
strong force within the competitive environment of the firm
 High buyer concentration
 Availability of information to buyers
 Ability of buyers to change suppliers
 Number of existing suppliers within the market is high
e. Bargaining Power of Suppliers – when suppliers are in a position to change its
prices, they have a strong force within the competitive environment of the firm
 Inability of the firm to change supplier
 Reputation of the supplier
 Demand for product inputs is high
 Existing relationship and alliances between suppliers and rival firms
3. Situational Analysis – broad term in analyzing the internal and external factors to better
understand the organization’s capabilities, its customers and its business environment
 SWOT
 Michael Porter’s Five Forces
o These analyses will help the firm to understand its risk and potential benefits
associated with specific course of action

4. PEST (Political, Economic, Social, Technology) – is a tool used to identify, assess, organize
and keep track of macroeconomic factors.
o Macroeconomic factors are broad elements that impact the overall market and are
outside the control of the firm

5. Scenario Planning – requires forecasting and creating alternatives for the future.
o Creation of estimated revenues and costs under each scenario
o Plan on how the firm will adapt given the scenarios given
 Likelihood of occurrence (most to least likely)
 Outcomes (positive to negative)

6. Competitive Analysis – studies the company’s competitors to help identify its strengths and
weaknesses.
o This helps the firm to determine the areas for improvement and opportunities for
differentiation

7. Contingency Planning – development of alternative plan with a premise that the adopted
plan will fail, assumed variables are faulty and objectives are impractical or irrelevant.
o Characteristics
 Developed around the probability that the variables used in the
development of strategic plan are NOT VALID
 Determine the effect of changes in variables and evaluate corrective actions
 Focus on the ability of the company to respond to these changes
o Contingency planning is crucial in maintaining the competitive footing of the firm
 8. BGC Growth-Share Matrix (Boston Group Consulting) – analyzing portfolio or products
market and growth share to assist the firm to decide if they will sell, keep or invest the
excess resources

o Dogs – low growth, low market share

 Repositioned, liquidated and sold outright
o Cash cows – low growth, high market shares
 Keep as long as possible
o Stars – high growth, high market share
 Invest in these products
o Questions Marks – high growth, low market share

More resources needed