Strategic Planning

Strategic Planning HDCS 4393/4394 Introduction • Strategy is the larger vision in a company that guides the plans for employees and managers. • Strategy has its foundation in strategic thinking. It is the determination of the long-term goals and objectives of an organization and the courses of action and resources necessary for implementing these goals. Strategic thinking produces strategies. Introduction (Cont.) • In modern organizations executives included every level of the organization in developing and implementing the overall strategy. • Strategic planning must anticipate unexpected events, randomness, and chaos to provide a good strategy. Good strategic planning allows a company to develop a sustainable competitive advantage. • The earlier history of planning found organizations using current-year sales, and environmental trends for 5 to 10 years and basing their plant, product and investment decisions on this data within a stable environment. • The environment changed into one of uncertainty, intensifying foreign competition, technological obsolescence, and changing markets and populations; and, managers turned to strategic planning. • Strategic planning is a process that reviews market conditions, customer needs, competitive strengths and weaknesses, sociopolitical, legal, and economic conditions, technological developments, and the availability of resources to assist the organization in its planning for opportunities or threats. • The Strategic Plan includes taking this environmental information and deciding on a mission, objectives, strategies and a strategic architecture. See Figure 6-2 in the readings for a visual diagram of the process. Lets look at one strategic plan in action. Review the Matsushita process where department managers provide 3 plans every 6 months: A five-year plan with technological and environmental changes, a two-year plan taking strategies into new products, and a six-month operating plan that shows monthly projections for production, sales, profits, inventories, quality control, and personal requirements. Organizations need to reflect to be successful the critical questions are: 1. What is our business? 2. What should it be? And these must be answered by top management. What are the Important Strategic Thinking Frameworks? Business Porfolio Matrix Identify each division, product line -called strategic business units (SBU’s) which have 4 parts (distinct mission, own competitors, single business or collection of businesses). They can be planned independently of other businesses of the total organization. Then form a matrix. Market Growth See Figure 6-3 in your reading and analyze your internship company. Pick an area in your intern organization an determine what products or services fall into the 4 boxes: stars, ?, cash cow & cash trap. Definitions Star is a SBU that has a high share of a high-growth market. They need a great deal of resources because of growth. When growth slows they become cash cows. Cash Cow has a high share of a low-growth market and produces a good deal of cash for the organization. Since the market is not growing they do not require a great amount of resources. Question Mark has a low share of a high-growth market, and the organization must decide whether to build, phase it out, or eliminate. Cash Trap Has a low market share of a low growth market. It may generate enough cash to maintain itself, or be a drain, but it does not generate sources of cash. So What are your Strategic Choices using the BCG Business Porfolio Matrix? 1. Build, if you believe it has the potential to be a star. 2. Hold, if the SBU is already a successful cash cow (especially when more cash is needed) 3. Harvest, appropriate for all SBUs except cash cows. 4. Divest, getting rid of low-growth markets. Criticism of this approach • Market share and market growth are critical to profitability and sometimes this finds managers unable to predict the more profitable project. • Some other critics contend that managers focus on what to bring to market and de-emphasize marketing. • Also, can this matrix show the many complex concepts in strategic thinking? It is widely used across diverse industries. 2ND Model: Porter’s Five Forces Harvard Business School economist Michael Porter developed a framework for developing a organization’s strategy. Five competitive forces are identified: 1. The threat of new entrants 2. The threat of substitute products of services 3. The bargaining power of suppliers 4. The substitute products or services 5. The rivalry among the existing competitors. He also uses complementors which refers to the dependence that develops between companies whose products work in conjunction with each other. 2ND Model: Porter’s Five Forces (Cont.) • The strength of Porter’s model forces varies in different industries. However, these 5 forces determine profitability since they shape the firm prices, the costs, the investment required to compete. The Strategic Planning Process 1. The process asks manager to ask what they want the future to be or what they must do to ensure the ` desired future is achieved. 2. In a high performance organization, strategic planning never ends. 3. Managers may be involved in the process and influence it by providing information and suggestions in their areas of responsibility. They must know the process and results since their own department objectives should be derived from the strategic plan. Example One process highlighted was used by Tony Rigato, CEO of MRM, Inc, a distributor of pneumatic industrial components in Michigan. He identified 5 questions managers should consider before the process begins: 1. Do you recognized a need to change? 2. Are you prepared for honest feedback even if it’s painful? 3. Are you willing to change the way you do business and change yourself? 4. Will you turn the plan into action? 5. Do you have the guts to lead your company into uncharted waters? The Components of the Strategic Process include: 1. Assessing the Organization’s Environment 2. Establishing an Organizational Mission 3. Establishing Organizational Goals and Objectives 4. Setting Operating Strategies. Review the reading descriptions of these components. Organizational strategies are the general approaches used to achieve the organizational objectives. These strategies include differentiation, low cost, and niche. Review the descriptions of these strategies. It is important to remember that if an organization's strategic plan is properly executed, the scope, range, issues, and time perspectives will differ from department to department. But all the plans will be derived from the strategic plan and this will guide the achievement.