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Management Accounting Business Strategy

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What is Strategy ?
Strategic Planning Model
Analyze the Organization s resources
Identify the Organization s Current vision mission, Objectives, and Strategies

Identify Strengths and weaknesses

Reassess and develop the Organization s mission and objectives Identify Opportunities And threats

Formulate strategies

Implement strategies

Evaluate results

Analyze the environment

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What is Strategy ?
Strategic Planning Model

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Strategic Planning Model
Identification ‡Vision ‡Mission ‡Objectives (Long term/annual) ‡Strategies Analysis ‡Internal ‡External ‡SWOT Revision - Formulation ‡Mission ‡Objectives ‡strategies

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

Linking Strategic Planning Process
Analyze the Organization s resources Identify the Organization s Current vision mission, Objectives, and Strategies Analyze the environment Identify Opportunities And threats Identify Strengths and weaknesses Reassess and develop the Organization s mission and objectives Formulate strategies Implement strategies Evaluate results

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Strategic Planning Model Identification of strategies
Identification ‡Vision ‡Mission ‡Objectives (Long term/annual) ‡Strategies

Strategies for taking the hill won¶t necessarily hold it. ± Amar Bhide The early bird may get the worm, but the second mouse gets the cheese. Unknown

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Strategic Planning Model Identification of strategies 
Basic concepts of strategy: ± Competitive advantage ² operating with an attribute or set of

attributes that allows an organization to outperform its rivals.
± Sustainable competitive advantage ² one that is difficult for

competitors to imitate. 
Basic concepts of strategy (cont.): ± Strategy ² 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 ² focusing all organizational energies on a

unifying and compelling goal.

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Strategic Planning Model Identification of strategies

Companies Embrace Strategic Planning

-- Quest for higher revenues -- Quest for higher profits

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Strategic Planning Model Identification of strategies Types of strategies
A Large Company Corp Level Division/Business Level

Functional Level

Operational Level
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Strategic Planning Model Identification of strategies Types of strategies

A Small Company Company Level

Functional Level

Operational Level
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Strategic Planning Model Identification of strategies Types of strategies

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Strategic Planning Model Identification of strategies Types of strategies ‡ Corporate Strategy
± Sets long-term direction for the total enterprise

‡ Business Strategy
± Identifies how a strategic business unit or division will compete in its product or service domain

‡ Functional Strategy ± Operational Strategy
± Guides activities within one specific area of operations

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Strategic Planning Model Identification of strategies Types of strategies 
Questions addressed by different strategic level:

± 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?

± Functional Strategy ± Operational Strategy
‡ How can we best utilize resources to implement our business strategy?
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Strategic Planning Model Identification of strategies Sources of strategy formulation

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

Direct approach Porter s approach

Strategy clock approach

Model based approach

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Strategic Planning Model Identification of strategies Types of strategy & level of strategy

Direct approach Porter s approach

Strategy clock approach Corporate Strategy Business Strategy Functional / Operational Strategy
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Model based approach

Strategic Planning Model
Formulate strategies
Direct approach

Corporate Strategy

Business Strategy

Operational Strategy

An overall suite of the organization
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Strategic Planning Model Identification of strategies Types of strategy & level of strategy
Direct approach

Corporate Strategy

Business Strategy

Integration strategies Diversification strategies

Intensive strategies Defensive strategies

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Strategic Planning Model Identification of strategies Types of strategies Integration strategies
Forward Integration

Integration /Vertical Strategies

Backward Integration

Horizontal Integration

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Strategic Planning Model Identification of strategies Types of strategies Integration strategies 

Distributors

Gain Control Over = 

Suppliers Competitors

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Strategic Planning Model Identification of strategies Forward Integration

Gain Control Over = 
Current distributors expensive or unreliable Availability of quality distributors limited 

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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Strategic Planning Model Identification of strategies Backward Integration

Gain Control Over = 
Current suppliers expensive or unreliable # of suppliers is small; # of competitors is large High growth in industry sector 

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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Strategic Planning Model Identification of strategies Horizontal Integration

Gain Control Over = 
Competes in growing industry 

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

Strategic Planning Model Identification of strategies Types of strategies Intensive strategies
Market Penetration

Intensive Strategies

Market Development

Product Development

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Strategic Planning Model Identification of strategies Types of strategies Intensive strategies

Intensive Efforts are needed:

Improve competitive position
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Strategic Planning Model Identification of strategies Market penetration strategies 

Present products/services

Increased Market Share: Present markets 
Greater marketing efforts 
Current markets not saturated Usage rate of present customers can be increased significantly Shares of competitors declining; industry sales increasing Correlation between sales and marketing expenditures in high Increased economies of scale provide major competitive 25 advantage

Strategic Planning Model Identification of strategies Market development strategies

New Markets: 

Present products/services to new geographic areas
reliable, inexpensive, good 

New channels of distribution quality Firm is successful at what it does Untapped/unsaturated markets Needed capital and HR is available Excess production capacity 

Basic industry rapidly becoming global

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Strategic Planning Model Identification of strategies Product development strategies

Increased Sales: 

Improving present products/services Developing new products/services 

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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Strategic Planning Model Identification of strategies Types of strategies diversification strategies
Related Diversification Diversification Strategies Unrelated Diversification

‡ 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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Strategic Planning Model Identification of strategies Types of strategies diversification strategies
Two Strategy Levels ‡ Business-level Strategy (Competitive) ± Each business unit in a diversified firm chooses a business-level strategy as its means of competing in individual product markets. ‡ Corporate-level Strategy (Companywide) ± Specifies actions taken by the firm to gain a competitive advantage by selecting and managing a group of different businesses competing in several industries and product markets.

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Strategic Planning Model Identification of strategies Types of strategies diversification strategies

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Strategic Planning Model Identification of strategies Types of strategies diversification strategies

Less Popular -More difficult to manage diverse business activities

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 organization¶s existing peaks and valleys ‡ An organization¶s products are currently in the declining stage of the product¶s life cycle 33 ‡ An organization has a strong management team

Strategic Planning Model Identification of strategies Diversification strategies
Unrelated Diversification ‡ Favors capitalizing on a portfolio of businesses that are capable of delivering excellent financial performance ‡ Entails hunting to acquire companies: ± Whose assets are undervalued ± That are financially distressed ± With high growth potential but are short on investment capital
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Strategic Planning Model Identification of strategies Diversification strategies
Unrelated Diversification May be Effective When: ‡ Revenues derived from an organization¶s current products or services would increase by adding new unrelated products ‡ An organization competes in a highly competitive or a no growth industry ‡ An organization¶s current distribution channels can be used to market new products to existing customers ‡ New products have countercyclical sales patterns ‡ An organization¶s basic industry is experiencing declining annual sales and profits ‡ An organization has the capital and managerial talent to 35 compete successfully in a new industry

Strategic Planning Model Identification of strategies Diversification strategies
Unrelated Diversification May be Effective When: ‡ An organization has the opportunity to purchase an unrelated business as an attractive investment opportunity ‡ There exists financial synergy between the acquired and acquiring firm ‡ Existing markets for the present products are saturated ‡ Antitrust action could be charged against a company

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Strategic Planning Model Identification of strategies Diversification strategies

Conglomerate Diversification is effective : 
Declining annual sales & profits Capital & managerial ability to compete in new industry Financial synergy between acquired and acquiring firms Current markets for present products - saturated

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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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Corporate Relatedness: Transferring Skills into Businesses through Corporate Headquarters

Strategic Planning Model Identification of strategies Types of strategies Defensive strategies
Retrenchment

Defensive Strategies

Divestiture

Liquidation

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Strategic Planning Model Identification of strategies Retrenchment /turnaround/reorganizational strategies

Regrouping 

Cost & asset reduction to reverse declining sales & profit 

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

Strategic Planning Model Identification of strategies Divestiture strategies 

Selling a division or part of an organization 
Retrenchment failed to attain improvements Division needs more resources than are available Division responsible for firm s overall poor performance Division is a mis-fit with organization Large amount of cash is needed and cannot be raised through other sources Government antitrust actions are expected
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Strategic Planning Model Identification of strategies Liquidation strategies

Selling 

Company s assets, in parts, for their tangible worth 

Retrenchment & divestiture failed Only alternative is bankruptcy planned way cash / funds Minimize stockholder loss by selling firm s assets

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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies
Sources of Competitive Advantage

Competitive Advantages (Sources of Rates of Profit in Excess of the Competitive Level)

Avoid Competitors
Attractive Industry Attractive Strategic Group Mobility Barriers Attractive Niche

Be Better Than Competition

Cost Advantage

Differentiation Advantage

Entry Barriers

Isolating Mechanisms

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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies

Cost Leadership Strategies

DifferentiationStrategies

Focus Strategies
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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies

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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies

Cost Leadership Strategies

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

PRODUCT DESIGN INPUT COSTS

MANAGERIAL EFFICIENCY

Strategic Planning Model Identification of strategies Cost Leadership Strategies 

In conjunction with differentiation Economies or diseconomies of scale Capacity utilization achieved Linkages w/ suppliers & distributors Low cost low price
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Strategic Planning Model Identification of strategies Cost Leadership Strategies

‡

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 firm¶s 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

‡

Can be especially effective when:
1. Price competition among rivals is vigorous 2. Rival¶s products are identical and supplies are readily available 3. There are few ways to achieve differentiation 4. Most buyers use the product in the same way 5. Buyers have low switching costs 6. Buyers are large and have significant power 7. Industry newcomers use low prices to attract 51 buyers

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

Outcomes of Low Cost strategy 
High efficiency Low overhead Limited perks Intolerance of waste Budget controls Rewards linked to cost saving

Risks of low Cost Producer 
Copy by competitors Technological change Change in behavior of customers

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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies

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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Strategic Planning Model Identification of strategies Differentiation Strategies
The Nature of Differentiation ³Differentiation means providing something unique that is valuable to the buyer beyond simply offering a low price.´ (M. Porter) THE KEY IS CREATING VALUE FOR THE CUSTOMER

‡ ‡ ‡ ‡

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.

Strategic Planning Model Identification of strategies Differentiation Strategies
The Nature of Differentiation Achieving Differentiation Advantage How one goes about obtaining a differentiation advantage depends upon whether or not a product is an observable good, an experience good, or a communication good. ‡ Observable Goods: the buyers can easily form accurate judgments about the quality of a product. ‡ Experience Goods: the buyers finds it difficult and/or costly to determine the quality of the product prior to purchase and use. ‡ Communication Goods: the value to the buyer rises as the number of buyers and users increases.
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Strategic Planning Model Identification of strategies Differentiation Strategies 
Supervisor service Spare part availability Engineering design Product performance Useful life Gas mileage Ease of use Garvin model Attractive packaging Extensive advertising Quality of sales rep. Quality of website List of customers Professionalism Size of firm Profitability of company 56

vs

Strategic Planning Model Identification of strategies Differentiation Strategies 

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

‡

Successful differentiation must:
1. Be perused after careful study and determining the feasibility of incorporating differentiating features 2. Be in such a way that it is hard to copy or expensive for rivals to duplicate 3. Create perception in the mind of the customer that higher differentiation price is less that then perceived value

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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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Strategic Planning Model Identification of strategies Differentiation Strategies Differentiation Advantage 
higher price charge Customer loyalty

Risks of differentiation 
Can be beaten by cost leadership if not properly perceived Can be copied

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Strategic Planning Model Identification of strategies Michael Porter s Generic Strategies

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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Strategic Planning Model Identification of strategies Focus Strategies 

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

Strategic Planning Model Identification of strategies Focus Strategies Focus Advantage 
no/less competition with rivals Develop differentiation

Risks of focus 
Can be copied

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Strategic Planning Model Identification of strategies strategy clock
High
Hybrid Differentiation

4
Focused differentiation

3 Perceived product benefits
Low price

5

2

6

1
µNo frills¶

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Strategies destined For ultimate failure

Low Low 


8

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
An organization can achieve competitive advantage through three generic strategies. Achieving competitive advantage means gaining an edge over competitors, competitive advantage means the ways by which an organization can increase its sales and earn higher profits compared to its competitors (Porter)  An organization can achieve competitive advantage by satisfying the customer needs better than the competitors i.e. customer analyze how much benefits he will receive in return for paying a certain amount of money and other inputs. The strategy clock represents different positions adopted by customers on the basis of selling price and perceived benefits. The most important factors in this is organizations cost as compared to its competitors (Cliff Bowman) 66 

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

Competitive advantage and differentiation strategies 
  

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

Why Joint Ventures Fail 
  

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 Joint venture / partnering 

Can be effective when 
Synergies between private and publicly held Domestic with foreign firm, local management can reduce risk Complementary distinctive competencies Resources & risks where project is highly profitable Two or more smaller firms competing w/larger firm Need to introduce new technology quickly
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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 

Companies taking over the functional operations of other firms

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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Strategic Planning Model Identification of strategies Types of strategies
A Large Company Corp Level Macro level - covering while org.

Division/Busi ness Level

Porter/Bowman

Functional Level

Operational Level

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Strategic Planning Model Identification of objectives

Long-Term Objectives ‡ Results expected from pursuing certain strategies ‡ Strategies represent actions to accomplish long-term objectives

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Strategic Planning Model Identification of objectives

Long-Term Objectives Objectives: 
Quantifiable Measurable Realistic Understandable Challenging Hierarchical Obtainable Congruent Time-line

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Strategic Planning Model Identification of objectives

Long-Term Objectives Strategists Should Avoid -Managing by Extrapolation Managing by Crisis Managing by Subjectives Managing by Hope

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Strategic Planning Model Identification of objectives

Long-Term Objectives
Varying Performance Measures by Organizational Level

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Strategic Planning Model Identification of objectives

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

Strategic Planning Model Identification of objectives

Long-Term Objectives Financial vs. Strategic Objectives 
Maximize short-term financial objectives harm longterm strategic objectives Pursue increased market share at the expense of shortterm profitability Tradeoffs related to risk of actions; concern for business ethics; need to preserve natural environment; social responsibility issues

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Strategic Planning Model Identification of objectives

Long-Term Objectives Not Managing by Objectives ‡ ‡ ‡ ‡ Managing by extrapolation Managing by crisis Managing by subjectives Managing by hope

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Strategic Planning Model Identification of objectives

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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Strategic Planning Model Identification of objectives

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

AI1 AI2 AI3

AI1 AI2 AI3 M3

M1 2M3 M T1 T1 T1

Measures/ M1M2 standard Targets Budgets

T1

T1 T1

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Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Strategic Plan

Mission Vision Long term objectives/ Goals Annual Objectives Initiatives/Activities Measures Targets Budgets O1 AI2 M3 T1 AI3 O2

Why we exist What we want to be

Action Plans Evaluate Progress

What we must achieve to be successful
Specific outcomes expressed in measurable terms (NOT activities) Planned Actions to Achieve Objectives Indicators and Monitors of success 95 Desired level of performance and timelines

AI1 M1 M2

T1

T1

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Key Performance Categories
Customer Products and Services Financial Human Capital Operational External (Regulatory Compliance, Social Responsibility, . . . )

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Goals ± Long term objectives
Describes a future end-state desired outcome endthat is supportive of the mission and vision. Shapes the way ahead in actionable terms. Best applied where there are clear choices about the future. Puts strategic focus into the organization specific ownership of the goal should be assigned to someone within the organization. May not work well where things are changing fast goals tend to be long-term for environments that longhave limited choices about the future.

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Developing Goals/Long term objectives
Cascade from the top of the Strategic Plan Mission, Vision, Guiding Principles. Look at your strategic analysis SWOT, Environmental Scan, Past Performance, Gaps . . Limit to a critical few such as five to eight goals. Broad participation in the development of goals: Consensus from above buy-in at the execution buylevel. Should drive higher levels of performance and close a critical performance gap.

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Examples of Goals/Long term objectives
Reorganize the entire organization for better responsiveness to customers We will partner with other businesses, industry leaders, and government agencies in order to better meet the needs of stakeholders across the entire value stream. Manage our resources with fiscal responsibility and efficiency through a single comprehensive process that is aligned to our strategic plan. Improve the quality and accuracy of service support information provided to our internal customers. Establish a means by which our decision making process is market and customer focus.

Maintain and enhance the physical conditions of our public facilities.

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Objectives ± Annual objectives
‡ Relevant - directly supports the goal ‡ Compels the organization into action ‡ Specific enough so we can quantify and measure the results ‡ Simple and easy to understand ‡ Realistic and attainable ‡ Conveys responsibility and ownership ‡ Acceptable to those who must execute ‡ May need several objectives to meet a goal

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

GOALS Very short statement, few words Broad in scope

OBJECTIVES Longer statement, more descriptive Narrow in scope

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)

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Examples of Objectives ± Annual objectives
Develop a customer intelligence database system to capture and analyze patterns in purchasing behavior across our product line. Launch at least three value stream pilot projects to kick-off our transformation to a leaner organization.

Centralize the procurement process for improvements in enterprise-wide purchasing power.

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.

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

What are action plans
The Action Plan identifies the specific steps that will be taken to achieve the initiatives and strategic objectives where the rubber meets the road Each Initiative has a supporting Action Plan(s) attached to it Action Plans are geared toward operations, procedures, and processes They describe who does what, when it will be completed, and how the organization knows when steps are completed Like Initiatives, Action Plans require the monitoring of progress on Objectives, for which measures are needed
Objectives Initiatives Action Plans

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

What are action plans
‡ ‡ ‡ ‡ ‡ Assign responsibility for the successful completion of the Action Plan. Who is responsible? What are the roles and responsibilities? Detail all required steps to achieve the Initiative that the Action Plan is supporting. Where will the actions be taken? Establish a time frame for the completion each steps. When will we need to take these actions? Establish the resources required to complete the steps. How much will it take to execute these actions? Define the specific actions (steps) that must be taken to implement the initiative. Determine the deliverables (in measurable terms) that should result from completion of individual steps. Identify in-process measures to ensure the processes used to carry out the action are working as intended. Define the expected results and milestones of the action plan. Provide a brief status report on each step whether completed or not. What step, communication process will we follow? How well are we doing in executing our action plan? Based on the above criteria, you should be able to clearly define your action plan. If you have several action plans, you may have to prioritize.

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Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action

Action plan execution
Requires that you have answered the Who, What, How, Where, and When questions related to the project or initiative that drives strategic execution Coordinate with lower level sections, administrative and operating personnel since they will execute the Action Plan in the form of specific work plans Assign action responsibility and set timelines Develop working plans and schedules that have specific action steps Resource the project or initiative and document in the form of detail budgets (may require reallocation prior to execution) Monitor progress against milestones and measurements Correct and revise action plans per comparison of actual results against original action plan

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action Quantify your action level up in terms of measurement

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

Strategic Planning Model Identification of objectives
Major Components of the Strategic Plan / Down to Action Measurement template
(Insert organization name) (Insert division name) (Insert department name) Risk Frame area objective supports (Insert objective owner) (Insert measurement owner) (Insert reporting contact info)

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.

References ± source documentation for objective and objective description

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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