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Strategic Planning for Managers

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Contents
1. Five Tasks of Strategic Planning

2. Factors Shaping the Choice of Strategy


3. Three Tests of Best Strategy 4. Analyzing Industry Environment and Crafting Competitive Strategy 5. Strategy Implementation and Execution

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Five Tasks of Strategic Planning

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Five Tasks of Strategic Planning


Forming a strategic vision Setting objectives

Crafting a strategy to achieve the desired outcomes


Evaluating performance, monitoring new developments, and initiating corrective adjustments

Implementing and executing the chosen strategy

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Forming a Strategic Vision


Forming a strategic vision Very early in the strategy-making process, company managers need to pose a set of questions: "What is our vision for the company where should the company be headed, what should its future technology-product-customer focus be, what kind of enterprise do we

want to become, what industry


standing do we want to achieve in five years?"
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Setting Objectives
Setting objectives

The purpose of setting objectives is

to convert managerial statements of


strategic vision and business mission into specific performance targets

results and outcomes the


organization wants to achieve. Setting objectives and then

measuring whether they are


achieved or not help managers track an organization's progress.
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Strategic Objectives in Four Perspectives


Enhance Long-term Shareholder Value

Financial

Improve Cost Efficiency

Increase Revenue Growth

Build High Performance Products

Expand Market Share

Enhance Brand Image

Customer

Achieve Operational Excellence

Drive Demand through Customer Relation Management

Manage Dramatic Growth through Innovation

Implement Good Environmental Policy

Internal Process Learning & Growth


Develop Strategic Competencies Build Learning Culture Expand Capabilities with Technology

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Crafting Strategy
Crafting a strategy to achieve the desired outcomes A company's strategy represents management's answers to such fundamental business questions as :
whether to concentrate on a single business or build a diversified group of businesses

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whether to cater to a broad range of customers or


focus on a particular market niche whether to develop a wide or narrow product line how to respond to changing buyer preferences how big a geographic market to try to cover how to react to newly emerging market and competitive conditions how to grow the enterprise over the long term. 9

What Does a Company's Strategy Consist Of?


Crafting a strategy to achieve the desired outcomes Company strategies concern how: how to grow the business how to satisfy customers how to outcompete rivals how to respond to changing market conditions how to manage each functional piece of the business and develop needed

organizational capabilities
how to achieve strategic and financial objectives
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Strategy Implementation and Execution


Implementing and executing the chosen strategy Strategy implementation concerns the managerial exercise of putting a freshly chosen strategy into place Strategy execution deals with the managerial exercise of supervising the ongoing pursuit of strategy, making it work, and showing measurable progress in achieving the targeted results.

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Strategy Evaluation and Monitoring

Evaluating performance, monitoring new developments, and initiating corrective adjustments

It is management's duty to stay on top of

the company's situation, deciding


whether things are going well internally, and monitoring outside developments

closely.
Marginal performance or too little progress, as well as important new

external circumstances, will require


corrective actions and adjustments.

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Strategy Hierarchy
Corporate Strategy

Business Strategies

Functional Strategies (R&D, Marketing, Manufacturing, HR, Finance, etc. Operating Strategies (regions, plants, departments within functional areas)
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Strategy hierarchy for a diversified company

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Strategy Hierarchy
Business Strategies

Functional Strategies (R&D, Marketing, Manufacturing, HR, Finance, etc. Operating Strategies (regions, plants, departments within functional areas)

Strategy hierarchy for a single-business company

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Strategy Hierarchy
Corporate Strategic Vision Corporate Strategic Objectives Corporate Strategic Strategy

Business-Level Strategic Vision

Business-Level Strategic Objectives

Business-Level Strategy

Functional Areas Visions

Functional Areas Objectives

Functional Areas Strategies

Operating Unit Visions

Operating Unit Objectives

Operating Unit Strategies 15

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Factors Shaping the Choice of Strategy

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Factors Shaping the Choice of Strategy


External Factors
Economic, societal, political, and government regulations Competitive conditions and industry attractiveness Company opportunity and threat

The mix of considerations that determines a companys strategic situation


Company strengths and weaknesses, competencies and capabilities Personal ambitions and business philosophies of key executives Shared values and company culture

Internal Factors
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Factors Shaping the Choice of Strategy


Economic, societal, political, and government regulations

What an enterprise can and cannot do strategywise is always constrained by what is legal, by what complies with government policies and regulatory requirements, by what is considered ethical, and by what is in accord with

societal expectations and the standards


of good social and community citizenship.

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Factors Shaping the Choice of Strategy


Competitive conditions and industry attractiveness

An industry's competitive conditions and overall attractiveness are big strategy-determining factors.

A company's strategy has to be tailored to the nature and mix of competitive factors in playprice, product quality,

performance features, service, warranties, and so on.

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Factors Shaping the Choice of Strategy


Company opportunity and threat

A company's strategy needs to be deliberately aimed at capturing its best growth opportunities, especially the ones that hold the most promise for building sustainable competitive advantage and enhancing profitability.

Strategy should also provide a defense


against external threats to the company's well-being and future performance.

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Factors Shaping the Choice of Strategy


Company strengths and weaknesses, competencies and capabilities

One of the most pivotal strategy-shaping internal considerations is whether a company has or can acquire the

resources, competencies, and capabilities


needed to execute a strategy proficiently. The best path to competitive advantage is found where a firm has competitively valuable resources and competencies, where rivals can't develop comparable capabilities except at high cost or over an

extended period of time.


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Factors Shaping the Choice of Strategy


Personal ambitions and business philosophies of key executives

Managers do not dispassionately assess what strategic course to steer. Their choices are typically influenced by

their own vision of how to compete and


how to position the enterprise and by what image and standing they want the company to have.

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Factors Shaping the Choice of Strategy


Shared values and company culture

An organization's policies, practices, traditions, philosophical beliefs, and ways of doing things combine to create a

distinctive culture.
The stronger a company's culture, the more that culture is likely to shape the company's strategic actions, sometimes even dominating the choice of strategic moves.

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Strategic Analysis and Strategic Choices


Analyzing strategically about industry and competitive conditions

Analyzing strategically about a companys own situation

What strategic options does the company realistically have?

What is the best strategy?

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Strategic Analysis and Strategic Choices


The Key Questions What are the industrys dominant economic features? What is causing the industrys competitive structure and business environment to change? Which companies are in the strongest/weakest positions? What strategic moves are rivals likely to make next?

Analyzing strategically about industry and competitive conditions

What are the key factors for competitive success?


Is the industry attractive and what are the prospects for above-average profitability?

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Strategic Analysis and Strategic Choices


The Key Questions Analyzing strategically about a companys own situation How well is the companys present strategy working? What are the companys strengths, weaknesses, opportunities, and threats?

Are the companys prices and costs competitive?


How strong is the companys competitive position? What strategic issues does the company face?
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Three Tests of Best Strategy


The Goodness of Fit Test

The Best Strategy

The Competitive Advantage Test The Performance Test

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Three Tests of Best Strategy


A good strategy has to be well matched

to industry and competitive conditions,


market opportunities and threats, and other aspects of the enterprise's external environment. At the same time, it has to be tailored to the company's resource strengths and weaknesses, competencies, and

The Goodness of Fit Test

competitive capabilities.

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Three Tests of Best Strategy


A good strategy leads to sustainable competitive advantage. The bigger the competitive edge that a strategy helps build, the more powerful and effective it is. The Competitive Advantage Test

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Three Tests of Best Strategy


A good strategy boosts company performance. Two kinds of performance improvements are the most telling of a strategy's caliber: gains in profitability and gains in the company's competitive strength and The Performance Test

long-term market position.

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Analyzing Industry Environment and Designing Competitive Strategy

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Porters Five Forces

Barriers to Entry

Buyer Power

Rivalry
Threats of Substitutes Supplier Power

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The Intensity of Rivalry


1. A larger number of firms

The intensity of rivalry is influenced by the following industry characteristics:

2. Slow market growth


3. High fixed cost 4. High storages costs or highly perishable products 5. Low switching cost 6. Low level of product differentiation 7. Strategic stakes are high 8. High exit barriers 9. A diversity of rivals 10. Industry shakeout
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Barriers to Entry
1. Absolute cost advantages 2. Proprietary learning curve 3. Access to inputs 4. Government policy

Entry barriers are influenced by the following factors :

5. Economies of scale
6. Capital requirements 7. Brand identity 8. Switching costs 9. Access to distribution 10. Expected retaliation 11. Proprietary products

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Threats of Substitutes
1. Switching costs
Threats of substitutes are influenced by the following factors :

2. Buyer inclination to substitute


3. Price-performance trade-off of substitutes

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Buyer Power
1. Bargaining leverage 2. Buyer volume 3. Buyer information 4. Brand identity 5. Price sensitivity 6. Threat of backward integration 7. Product differentiation 8. Buyer concentration vs. industry 9. Substitutes available 10. Buyers' incentives

Buyer power is influenced by the following factors :

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Supplier Power
1. Supplier concentration

Supplier power is influenced by the following factors :

2. Importance of volume to supplier 3. Differentiation of inputs 4. Impact of inputs on cost or differentiation

5. Switching costs of firms in the industry


6. Presence of substitute inputs 7. Threat of forward integration 8. Cost relative to total purchases in industry
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Sample Form for an Industry and Competitive Analysis Summary


Dominant Economic Characteristics of the Industry Environment (market size and growth rate, geographic scope, number and sizes of buyers and sellers, pace of technological change and innovation, scale economies, experience curve effects, capital requirements, and so on) Competitive Analysis Rivalry among competing sellers Threat of potential entry Competition from substitutes Power of suppliers Power of consumers Competitive Position of Major Companies/ Strategic Groups. Those that are favorably positioned, and why Those that are unfavorably positioned, and why Competitor Analysis Strategic approaches/predicated moves of key competitors Whom to watch, and why Industry Key Success Factors Industry Prospects and Overall Attractiveness Factors making the industry attractive Factors making the industry unattractive Special industry issues/problems Profit outlook (favorable/unfavorable)

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Five Generic Competitive Strategies


Low Cost
Overall Low Cost Leadership Strategy
Best Cost Strategy

Differentiation
Differentiation Strategy

Broad Market Segment

Narrow Market Segment

Focused Low Cost Strategy

Focused Differentiation Strategy

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Five Generic Competitive Strategies


Overall Low Cost Leadership Strategy Appealing to a broad spectrum of customers based on being the overall low-cost provider of product and service

Broad Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition

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Five Generic Competitive Strategies


Best Cost Strategy

Giving customers more value for the money by incorporating good-toexcellent product attributes at a lower cost than rivals The target is to have the lowest (best) costs and prices compared to rivals offering products with comparable upscale attributes

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Generic Strategies and Industry Forces


Industry Force
Entry Barriers

Generic Strategies Cost Leadership Ability to cut price in retaliation deters potential entrants. Ability to offer lower price to powerful buyers. Differentiation Focus Focusing develops core competencies that can act as an entry barrier. Large buyers have less power to negotiate because of few alternatives.

Customer loyalty can discourage potential entrants.


Large buyers have less power to negotiate because of few close alternatives.

Buyer Power

Supplier Power

Better insulated from powerful suppliers.

Better able to pass on supplier price increases to customers.

Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.
Specialized products & core competency protect against substitutes. Rivals cannot meet differentiation-focused customer needs.

Threat of Substitutes

Can use low price to defend against substitutes. Better able to compete on price.

Customer's become attached to differentiating attributes, reducing threat of substitutes. Brand loyalty to keep customers from rivals.

Rivalry

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Strategy Implementation and Execution

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Strategy Implementation
Building a capable organization

Linking budget to strategy

Designing strategysupportive reward system

Effective
Creating a strategysupportive corporate culture Exerting strategic leadership

Establishing strategysupportive policies and procedures Instituting best practices and commitment to continuous improvement Installing information system to support strategy execution

Strategy
Execution

HR & Organization Development Factor


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System Factor
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Building a Capable Organization


Staffing the organization Putting together a strong management team Recruiting and retaining talented employees

Building a capable organization

Building Core Competencies and Capabilities Developing competence/capability portfolio suited to current strategy Updating and reshaping the portfolio as external conditions and strategy change
Structuring the Organization and Work Effort Organizing business function and processes, value chain activities, and decision making

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Strategy-supportive Reward System


Designing strategysupportive reward system
Strategy-supportive motivational practices and reward systems are powerful management tools for gaining employee buy-in and commitment. The key to creating a reward system that

promotes good strategy execution is to


make strategically relevant measures of performance the dominating basis for designing incentives, evaluating individual and group efforts, and handing out rewards.

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Strategy-supportive Corporate Culture


Creating a strategysupportive corporate culture
Building a strategy-supportive culture is important to successful strategy execution

because it produces a work climate and


organizational esprit de corps that thrive on meeting performance targets and being part of a winning effort.

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Strategic Leadership
Exerting strategic leadership
Strategic leaders encourage people to be innovative in order to keep the

organization responsive to changing


conditions, alert to new opportunities, and anxious to pursue fresh initiatives. Strategic leaders also actively push corrective actions to improve strategy execution and overall strategic performance.

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Linking Budget to Strategy


Linking budget to strategy
Reworking the budget to make it more strategy-supportive is a crucial part of the

implementation process because every


organization unit needs to have the people, equipment, facilities, and other resources to carry out its part of the strategic plan.

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Strategy-supportive Policy
Establishing strategysupportive policies and procedures
Prescribing new or freshly revised policies and operating procedures aids the task of

implementation (1) by promoting


consistency in how particular strategycritical activities are performed in geographically scattered operating units and (2) by helping to create a strategysupportive work climate and corporate culture.

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Continuous Improvement
Instituting best practices and commitment to continuous improvement
Competent strategy execution entails visible, unyielding managerial commitment

to best practices and continuous


improvement. Benchmarking, the discovery and adoption of best practices, and six sigma initiatives all aim at improved efficiency, better product, and greater customer satisfaction.

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Information Support System


Installing information system to support strategy execution
Company strategies cant be implemented well without a number of support system

to carry on business operations.


Well-conceived, state-of-the-art support system not only facilitate better strategy execution but can also strengthen organizational capabilities enough to provide a competitive edge over rivals.

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Reference/Recommended Further Reading


Arthur Thompson and A.J. Strickland III, Strategic Management : Concept and Cases, McGraw-Hill.
You can obtain this excellent book at this link : http://www.amazon.com/Strategic-Management-ConceptsArthur-Thompson/dp/0072443715/ref=sr_1_3?ie=UTF8&s=books&qid=1219804406&sr=1-3

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