BA 460 -Week 2 Strategic Planning If

BA 460 -Week #2: Strategic Planning

“If you don’t know where you are going any route will get you there. ” Chris Bartlett, Harvard Business School

Strategic Thinking : The Big-3 Questions: 1. Where do we want to go? – – What business(es) should be in Market positions to stake out? Consumer needs & segments serve? Outcomes to achieve? 2. Where are we now? 3. How do we get

You have begun … Situation & SWOT Analysis Company Consumers Competitors Conditions Internal Strengths & Weaknesses External Opportunities & Threats

You are finding answers re: Consumers Competitors Conditions v. How the market is segmented & the relevant criteria that influence consumers use in their purchasing decisions v. The nature & magnitude of the competition v. Existing & emerging Economic & Technological trends that will impact demand, pricing, product design & positioning

Your Company n Financial Situation n n n Margins Working Capital Financial Structure Wealth Creation Productivity Marketing Mix

After- SWOT analysis of the situation… the next & most critical step in strategy development…oddly enough is –thinking– Specifically-thinking about the way things have been & are now… AND- the way things could/should be

Need to start thinking abt: Where you want to go? *Your Mission & We will produce outstanding financial returns by providing totally reliable, competitively superior, global, airground transportation of high-priority goods and documents that require rapid, timecertain delivery. "

Mission or Purpose is a precise description of what an organization does. It should describe the business the organization is in. It is a definition of “why” the organization exists A vision is a statement about what your organization wants to become … A compelling description of the state and function of the organization once it has implemented and achieved the strategic plan…

http: //www. bplans. com/dp/missionstatement. cfm

Valuable Strategies & Mission Statements http: //www. bplans. com/dp/missionstatement. cfm >Strategy & Vision Statements

Then decide-- How you will get there? *Growth, Competitive & Functional Strategies

3 Levels of Strategy Corporate-Level : In what business do we compete? Corporation Business-Level : How do we compete? Sensors Unit Nano-Tech Unit Cons. Elec. Unit Functional-Level : How do we coordinate? Finance HR / R&D Production Marketing

Corporate Growth Strategy Business Unit Competitive Strategy Functional Strategies R&D Marketing Finance Production Human Resources

Level 1 -Corporate Strategy In which businesses do we comp Corporation ?

Growth Strategy Deciding on what Products & Markets to compete with & in…

Growth Strategies PRODUCT Present Market Penetration New Product Development MARKET New Market Development Diversification

Concentrate on your primary line of business & look for ways to meet growth objectives thru increasing your level of operation in your primary business Market Penetration Increase market share among existing customers. Market Development Attract new customers to existing products Product Development Create new products for present markets

Level 2: Business Unit Strategy: How do we Compete? Focus? Quality? Price? STRATEGIC BUSINESS UNIT MARKET COMPETITOR A COMPETITOR B COMPETITOR C

vw/ what Competitive Advantage üThru Cost Advantage- • Offer comparable benefit as competitor but produced at lower cost üThru Differential Advantage- • Offer superior benefits to competitor- vw/in which Market Segments üAll market segments üNiche segments üEvolving segments

l Competitive Strategy is the creation of a unique & valuable position- The position is based on– Performing the same activities as competitors, but differently --or performing a different set of activities • Porters Generic Strategies • Strategies & Mission Statements

You can also Formulate Strategy by what dimension you compete on: Cost: Design, produce, market more efficiently than competitors Differentiation: Differentiation Deliver unique & superior value in terms of product quality, features, service

You can Formulate Strategy by the. Number & nature of segments compete w/in. Undifferentiated n Differentiated n Niche Strategy n

& You can Formulate Strategy by. Riding A Products Life Cycle n Adjust Marketing Mix according to natural Drift of products w/in segments-

Put them all together &… 1. Cost/Quality Differentiation 2. Number & nature of segments compete w/in 3. Riding the Product Life Cycle

Number & nature of segments compete w/in #2 Compete Broad Market on: Cost #1 Product Quality Niche Mrkt Ride Product Life. Cycle #3 Evolving Mrkt Competitive Strategy Matrix

Competitive Strategy Matrix Broad Mrkt Compete on: Niche Mrkt Evolving Mrkt Product Quality Cost Leader - Differentiator Cost Overall Cost Leader. Lo -Tech Leader Differentiator- Focus Hi- End Focus PLC Lo+Trad+Hi

Cost Leadership Strategic Choices A cost leader does not try to be industry innovator l The overriding goal is- increased efficiency & lower costs relative to rivals l Will seek to minimize costs in marketing, R&D & production l

Business-Level Strategy: Cost Leadership l Advantages –A cost leader is able to charge lower prices – Even at same price more efficient cost leader generates greater profitability

Overall Cost Leader. Lo -Tech Leader Cost Leader - Focus n An overall cost leader will attempt to be low-cost producer in every segment of the market. PLC Lo+Trad+Hi

Overall Cost Leader. Lo -Tech Leader Focus n Cost Leader - PLC Lo+Trad+Hi -- seeks to dominate the price sensitive market segments. n --sets prices below all competitors — and still be profitable

Overall Cost Leader. Lo -Tech Leader Focus n Products will be allowed to age & change in appeal from High End, to Traditional, and eventually Cost Leader - PLC Lo+Trad+Hi

Competitive Strategy Matrix Broad Mrkt Compete on: Niche Mrkt Evolving Mrkt Product Quality Cost Leader - Differentiator Cost Overall Cost Leader. Lo -Tech Leader Differentiator- Focus Hi- End Focus PLC Lo+Trad+Hi

Generic Business-Level Strategy: Differentiation Create a product that customers perceive as distinct/unique & offer superior quality/service Advantage Customers expect & willing to pay premium prices

Differentiator l l Will have significant expenditures in R&D & production…. Because you want/need to make high quality/highly desirable product Will have significant expenditures in marketing… Because you need to create maximum awareness & brand equity.

Differentiation Advantage … as you develop greater brand equity —thru increased product quality & awareness …. You develop greater brand loyalty…. The greater the loyalty. . the less the price sensitivity

Differentiation: Disadvantages Difficulty in maintaining long-term distinction in customers’ eyes – Agile competitors can quickly imitate l Difficulty/expense of maintaining premium pricing– requires greater marketing costs l

Broad Niche Differentiati on Hi -Tech on Focus Differentiati on - PLC Lo+Trad+Hi match their ideal criteria for positioning, age, and reliability.

Level 3 - Functional Strategy How do we coordinate?

What makes a decision strategic? ü Multi- functional in scope & consequences ü Requires choice & trade-offs, integration & alignment

In order to execute & achieve selected growth & competitive strategies--Need to coordinate decisions across all Functional domains Production R&D Marketing Finance HR

Functional Integration & Strategic Alignment

Getting In-Sync w/ Functional Planning The goal of functional planning is to achieve a state of Internal Strategic Alignment FINANCE PRODUCTION MARKETING

INTERNAL STRATEGIC ALIGNMENT Achieved when : All Decisions made by & within all functional areas are in sync w/ one another, As well as with the overall strategic direction of the firm FINANCE PRODUCTION MARKETING

Functional Planning Matrices Examples of: internal strategic alignment

Functional Alignment: In Achieving Cost Efficiency

Functional Alignment: Implementing Differentiation Strategy

Functional Alignment: In Achieving Superior Innovation

Functional Alignment: Superior Customer Rlshps

When all decisions made by & within all functional areas are in sync w/ one another, As well as w/ your overall strategic direction -- you achieve… Distinctive Competencies

Distinct competencies needed to achieve selected competitive strategy Distinctive Competencies Competitive Advantage* *Achieved when you sustain profits above Industry Average

Areas in which you can develop “Distinct Competencies” n n MARKETING: Awareness & Accessibility R&D: Product innovation & design PRODUCTION: Plant Automation & utilization Human Resources: Worker Expertise & Training

Distinct Competencies in automation & human resources could lead to a competitive advantage in cost leadership.

Achieving Competitive Advantage thru Cost-Focused Strategy n Allows for good profit margins on sales while keeping prices low especially in price-sensitive segments… Functional Alignment Production Marketing R&D üAutomation - pursued early & aggressively üCapacity improvements unlikely (may run overtime instead) Spend moderately on promotion & sales Spend minimally on R&D

Distinct Competencies in awareness, accessibility & design could lead to a competitive advantage built upon differentiation

Differentiator n n Seeks to create maximum awareness & brand equity. Wants to be well known as a maker of high quality/highly desirable products Functional Alignment Production Less likely to invest in increased automation or production capacity Marketing Spend heavy on advertising & sales to create maximum awareness & accessibility Prices tend to be higher High R&D spending - keep products fresh R&D

Virtually all tactical mistakes that are made when implementing strategy are a consequence of the lack of synchronization of decisions made in at least two functional areas

n You develop a new product but forget to buy plant & equipment for it…the year before it is to be launched… R&D and Production breakdown

n The company Marketing, takes an Production & emergency loan because Finance out of sync inventory levels increase…

n You reposition a product from the High End to the Traditional segment, but do not address their material & labor costs… Marketing, R&D, and Production out of sync

n Financial decisions are made before knowing the budget demands of all R&D, Marketing and Production decisions… Everybody is out of sync!

Functional alignment- decisions matrix Competitive Strategy: ______ Strategic Objectives Brand Tactic Rnd 1 s Rnd 2 Marketing n 1 n 2 n 3 n 4 R&D n 1 n 2 n 3 n 4 Production n 1 n 2 n 3 n 4 HR Finance

EXAMPLE: Functional alignmentdecisions matrix BRAND: _new Competitive Strategy: Niche Differentiation Marketing R&D Production HR Finance Strategic Tactics Objectives Rnd 1 Rnd 2

Competiti ve Strategy: ND Strategic Objectives Marketin Spend aggressively in promotion & sales in Hitech segments…. make our products easy for customers to find. . . price at a g premium. In the low tech segments we”ll exit gracefully, … as they exit the Low End R&D We will keep our existing Hi. Tech products (HI, PRF, & SIZE), phase out TRAD and LO, and introduce a new brand in the High End segment. Our goal is to offer technology oriented customers products that match their ideal criteria for positioning, age, and reliability Producti Grow capacity to meet demand … avoid overtime After products well positioned, investigate modest increases in automation on levels to improve margins, but keep ability to reposition products HR Finance Spend aggressively on recruitment, training; minimize labor T/O w/ +wage & benefit packages; Focus TQM & Process initiatives on reducing labor & material costs, R&D time and enhancing effectiveness of promo & sales budgets… We”ll finance investments primarily thru stock issues, retained earnings, supplement w/ bond offerings as needed. . When our

EXAMPLE: Functional alignmentdecisions matrix Competitive Strategy: Niche Differentiation Marketing R&D Production HR Finance Strategic Tactics Objectives Rnd 1 Rnd 2

Competiti ve Strategy: ND Tactics Year 1 TRAD – increase price, make modest cuts in promotion and sales budget. Forecast a modest reduction in unit sales compared to last year. Example: price $28. 50, promotion budget $600, sales budget $600, and sales forecast 1000. LO – increase price, make modest cuts in promotion and sales budget. Forecast a modest reduction in unit sales compared to last year. Example: $23. 50, Marketin promotion budget $600, sales $800, and sales forecast g 1400. HI – increase price, promotion budget and sales budget. Forecast flat unit sales. Example: $39. 50, promotion budget $1900, sales forecast 400. PRF – increase price, promotion budget and sales budget. Forecast flat unit sales. Example: $34. 50, promotion budget $1900, sales forecast 440. SIZ –increase price, promotion budget and sales budget.

Competitiv e Strategy: N D R&D Tactics Year 1 TRAD – tweak positioning to reduce age. Reduce reliability to reduce material cost. Example: Increase Performance by 0. 1 and reduce MTBF by 1000 hours. LO – leave positioning alone, allowing the product to age further. Reduce reliability to reduce material cost. Example: reduce MTBF by 1000 hours. . HI– improve positioning and reduce age. Hold reliability (MTBF) steady. Example: reduce Size by 1. 2, and increase Performance by 1. 2. PRF – improve positioning and reduce age. Improve reliability to enhance demand. Example: Increase Performance by 1. 4, reduce Size by 0. 5, and increase MTBF by 1000 hours. SIZE – improve positioning and reduce age. Hold reliability (MTBF) steady. Example: Reduce Size by 1. 4, and increase Performance by 0. 5. New HI – Launch a new High End product, with a project length of 20 to 23 months (no later than December of next

TACTICS -Example: decision matrix- to add a new High End product… PRODUCTI ON What= A New product- Size coordinate = 10. Performance coordinate = 11. MTBF = 25, 000 hours. When Due out in 2009 What= Competitively Price @ $35. Promo : target 68% Awareness (50% @intro +18% will cost=$2 M) vehicle-allocation= web, email & Trade Shows. maintain hi-level Distribution w/ Sales budget = $1. 4 M When 2009. What Produce 75, 000 units at automation level of 3. When Ready by second month of 2009. How Purchase capacity in 2008 HR What make appropo investments in recruiting & training and TQM FINANCE What Finance $11 M. When NOW. How Issue long term debt. R&D MARKETI NG

M A R KE T I N G TODAY’S M A N A G E M E N T 1. Finish Situation Analysis 2. Draft Mission & Vision Statements 3. Select Growth & Competitive Strategies

To compete on cost or differentiation… that is the question

Also on Today’s Begin drafting “functionally aligned” strategic & tactical decisions matrices Competitiv Strategic e Strategy Objective s Brand Rnd 1 Tactic s Rnd 2 Marketing n 1 n 2 n 3 n 4 R&D n 1 n 2 n 3 n 4 Production n 1 n 2 n 3 n 4 HR Finance

Need to begin to determine the basic objectives & specific tactical decisions that need to be made within & across each management domain …in order to successfully implement your growth & competitive strategies

Getting it together