Strategic Planning

1.0 Introduction
Johnson et. al (2007) identify 03 levels of strategy, viz. corporate level, business level and operational level. They define strategic planning as the organizational process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people.

2.0 External Environment 2.1 Importance of external factors

The external environment is beyond the control of the organization, but has a significant impact on growth and survival. Hence, it is necessary to proactively monitor the external environment to be able to devise appropriate strategic responses. Gupta (2009) highlight the following important elements of the external environment. Competition competition is very high in todays global context and globalization has made entry of competitors that much easier. Customers consumers set the pattern and trends in any industry. They are the drivers of sales. This is the era of consumerism and they drive business for all players in the industry. Resources the ability of organizations to secure the right human resources, raw materials and financial resources determine its ability to deliver and perform in the market place. Technology with the advent of the IT revolution, technology has been a rapidly changing force in the business landscape. Virtually all businesses have a website, which provides information and can be used for online purchasing. New channels and new methods of competing have thus emerged. Laws and regulations the government sets the environment for the public sector to function effectively. As such it is vital that an organization keeps updated on relevant laws, taxes and regulations. Hinchell, as a food processing organization needs to be updated on consumer protection laws and food quality regulations.

2.2 Stakeholder expectations

Johnson and Scholes (2007) define stakeholders are those individuals or groups who depend on an organization to fulfill their own goals and on whom, in turn, the organization depends. With respect to Hinchell the key stakeholders and their expectations would be as follows. Employees they will be very much interested in the future existence of Hinchell, without which they would be unemployed. Customers Hinchell has been the market leader and has been able to establish its name as a reliable brand. However, recent problems in its processes may lead to concerns about the companys products in the mind of the consumer. 1

Strategic Planning Suppliers suppliers who supply raw materials would be concerned about the going concern of Hinchell because as a large player in the processed foods market many suppliers may still them on Hinchell for business. Shareholders especially the parent company may be concerned about the return on the investment made in the UK operation. Competitors the main competitors such as own labels will seek to grab further share from Hinchell. Government Hinchell staffs a workforce of 5000 employees and may be a significant tax payer. Hence, the government would be concerned about the going concern of Hinchell. Financial community as a large company Hinchell may have acquired various financial facilities and as such the financial community may be concerned about Hinchells ability to honor them considering its current market decline.

2.3 Changes in external environment

Some of the major changes in the external environment that could impact organization strategy are as follows. Food control regulations a variety of changes are taking place in food control regulations. As they become stricter food processing companies need to align their processes accordingly. Move to organic foods more and more consumers are concerned about their health and prefer organic foods. Genetically modified food products are falling in popularity. Trend of eating out with the change in lifestyles more and more consumers and switching to a quick fix lifestyle and dining out. The UK economy is a mature economy and economic growth is limited and as such most mature industries experience stagnating or low growth. Technology is creating new opportunities for business. The advent of the internet has opened up a new channel of business. Further, new production technology can significantly improve output and its quality.

3.0 Business plans and strategies 3.1 Current business strategy

A variety of tools can be used to analyze the effects of current business strategy. 1. BCG Matrix (Kotler and Keller, 2006)

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New varieties H Market Growth Question Mark

Stars

Canned soups L Cash Cows Baked Beans Dogs

H Relative Market Share

The BCG matrix is a tool to analyze the product portfolio. It classifies the product portfolio based on relative market share of the product to its nearest competitor and market growth rate. Considering its product portfolio both baked beans and canned soups can be considered to be mature product ranges. However, Hinchell has opportunity to develop its varieties range which is still immature and has potential to grow.

2. Analysis of financial performance (a) Costs Hinchell may be facing heavy overhead costs due to low utilization of its capital assets, inefficient business processes in both its labeling and distribution functions. (b) Revenue A high number of items are being quarantined by Quality Control and the large amount of wastage has not helped Hinchells supply situation. Also competitors have been grabbing its market share. So revenue should be on the decline. (c) Market share it has dropped down from its market leadership position and has lost out to own label manufacturers.

3.2 Market position

The market position of Hinchell can be analyzed using Porters 5 forces model (Kotler and Keller, 2006). The 05 forces model as shown in Kotler and Keller (2006) is shown overleaf.

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Bargaining power of suppliers the bargaining power of suppliers would be low as Hinchell is a well-established large player. Bargaining power of buyers the bargaining power of buyers has grown over time. As own label products flood the market consumer choice has increased and hence consumer switching costs have become minimal. Threat of new entrants the threat of new entrants is quite low as food processing is a capital intensive process with various quality control processes to be adopted for consumer safety. Threat of substitutes the threat of substitutes is average as consumers can choose from a range of fast foods to dining out for their meals. The trend for dining out can pose significant threats for food processing companies. Industry rivalry the industry rivalry is very high as own label manufacturers have captured share from branded manufacturers such as Hinchell.

3.3 Strengths and weaknesses

The current business strategy followed by Hinchell has many weaknesses that need to be corrected. Lack of focus on process efficiency involving multi-handling Poor planning of capacity utilization Lack of supervision of work force High wastage and re-work Workers are not encouraged to think on their own and the autocratic culture has led to delays in decision making 4

Strategic Planning Overdependence on limited product range In addition, a few strengths that could be identified can be listed as follows. Centralized decision making makes it easier to control business activities Developments in its bread and butter product categories, i.e. baked beans and canned soups Own can making facility giving the required flexibility to cater to changes in demand

4.0 Strategic options

4.1 Strategic option generation
Some of the commonly used tools for strategic option generation include; 1. Porters generic strategies Porters generic strategies discuss about the bases of competition which an organization can compete in the market place. Johnson et. al (2007) state four bases of competition as shown below.

Source: Johnson et. al (2007) It must be noted that own label manufacturers compete on a cost leadership strategy. Hinchell as the former market leader would have managed to build strong brand equity amongst its consumers. Competing on the grounds of cost leadership is not feasible strategy. As such Hinchell needs to follow a broad strategy of differentiation building a competitive advantage by providing a broader product range as well as focusing on organic foods. Further, it could develop a lower priced range in a different brand name to attack the own label manufacturers.

Strategic Planning 2. TOWS matrix Opportunities Focus on organic foods Focus on healthy foods All under one roof concept Growth of internet and ebusiness Strengths Established manufacturing facility Experienced staff Well-known brand name Relationship with channels Develop organic food range Provide value addition at same price Develop sales via website Loyalty scheme for regular customers Increase product range to cover jams & cordials Develop low priced brand to fight off own labels Expand sales to hotels, restaurants and fast food companies Threats Own label manufacturers People switching to fast foods Trend of eating out Food control regulations

Weaknesses Poor internal processes Lack of worker discretion High wastage Bad planning Poorly functioning equipment Inadequate supervision Under-utilized operators Sub-standard raw materials Lack of inter-functional coordination Invest in new equipment and highlight production process in promotions Improve efficiency, cut waste and introduce quality management to provide the consumer with a value-added product. Improve efficiency, cut waste and introduce quality management to improve margins and also engage in loss leader pricing.

3. Ansoffs matrix

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Johnson et. al (2007) discuss about the Ansoffs matrix which shows the growth options available to an entity. The growth opportunities available for Hinchell can be analyzed in terms of the product-market growth matrix. Market penetration it is clear that considering the highly concentrated nature of the competition there are limited opportunities for penetration for baked beans and canned soups. However, Hinchell can seek to penetrate the market further for its new varieties. Product development Hinchell also has the opportunity to come out with new products for its existing market, such as canned vegetables and canned fruits. Market development there is not much scope in terms of expanding into new markets. Diversification Hinchell can also more into related diversifications such as jams, cordials, chutney, fruit drinks, dairy products etc.

4.2 Comparative analysis

When developing strategies it is vital to understand the strategic responses of other players in the market. Hinchell needs to consider how other players in the market would react to its strategies when devising the optimal strategy. It is necessary to develop a competitor analysis to understand the nature of the competition. Three strategic groups can be identified in the processed foods industry. 1. Imported food products from well-known international brands focus on brand rather than price 2. Own label manufactured products by supermarkets focus on price 3. International brands having local operations like Hinchell focus on reputation, brand name, customized products and quality

4.3 Future strategy

The future strategy of Hinchell should consider the following strategic options. 1. Investment in state of the art manufacturing facility, downsize workforce and take steps to improve efficiency 2. Modify the current business operation, invest in new equipment and re-align factory layout and operations. Increase product range to take care of spare capacity 3. Develop new channel of business such as B2B and internet, whilst improving the efficiency of current business operations. 4. Revise factory layout and introduce productivity based pay. Centralize manufacturing at the main site with appropriate downsizing.

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5.0 Strategy plan

5.1 Structure
Hinchell needs to adopt a flexible matrix structure which will enable greater worker empowerment. Director Manufacturing

Line Manager (Food preparation and processing) Product Business Manager (Baked beans) Product Business Manager (Canned soups) Product Business Manager (New varieties)

Line Manager (Labeling and distribution)

As per Johnson and Scholes (2007) a matrix structure has the following advantages. Integration of knowledge Flexibility Allow dual dimensions

5.2 Reviewing strategy options

The most accepted framework for reviewing strategy options is the Johnson and Scholes 3 strategy test. Suitability Suitability is concerned with whether a strategy addresses the key issues that have been identified in understanding the strategic position of the organization (Johnson et. al, 2007). It involves and assessment of as to whether the options fit the key drivers and expected changes in the environment, exploit strategic capabilities and is in line with stakeholder expectations and/or cultural influences. 8

Strategic Planning Acceptability Acceptability is concerned with the expected performance outcomes of a strategy and the extent to which these meet the expectations of stakeholders (Johnson et. al, 2007). This essentially involves three elements. (a) Return profitability, cost-benefit analysis and shareholder value analysis (b) Risk financial ratio projections and sensitivity analysis (c) Stakeholder reactions how different stakeholder groups may react to future strategies

Feasibility Feasibility is concerned with whether an organization has the capabilities to deliver a strategy (Johnson et. al, 2007). This involves the assessment of whether an organization possesses both the financial and human resources to ensure the effective deployment of a strategy.

5.3 Devising plan

The following strategy plan could be devised for Hinchell Ltd. Centralizing manufacturing operations at main plant to take the advantage of economies of scale and avoid duplication of activities. Upgrading the main plant with new machinery, revising factory layout and making a total changeover. Use the smaller site to develop own hypermarket and trading outlet. Employ part of the existing workforce at the proposed retail outlet. Develop business partnership with wellknown retail chain to manage the operations. Determining total work force required for plant operation and retail operation. Offer a golden handshake to all old unskilled and semi-skilled employees Automate non-value adding activities and train workers to be multi-skilled. Offer productivitybased or performance-based pay to enhance productivity and cut costs. Invest in new product lines such as jams, cordials and fruit juices to ensure the utilization of spare capacity. Obtain contract manufacturing operations for well-known beverage brands as Hinchell has its own can making facility. All engage in the production of own label brands.

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6.0 Factors affecting strategy plan

6.1 Organizational values
The companys core organization values include; Reliability this is because it has been the market leader and would be a well-established brand name Quality Hinchell would have been known for its quality products Ethical proper quality control to ensure the best product for its consumers and ensure consumer safety at all times Environmental proper disposal of waste

The current business strategy followed by Hinchell is failing to deliver these values because internal process inefficiencies, lack of supervision and poor factory layout is failing to deliver products of the required standard.

6.2 Vision and Mission

Vision: To ensure that every UK citizen has a healthy and nutritious meal at home.

Mission statement To deliver quality products with prime importance given to consumer safety To focus on developing organic food products To update and expand product range in line with changes in consumer needs and expectations

6.3 Management objectives

The future objectives of Hinchell can be outlined as follows. To increase productivity by 50% in the oncoming financial year To regain market leadership within the next 02 years Maintain a gross profit margin and net profit margin at least in line with industry standards and competitors. Introduce at least one new product every 06 months

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6.4 Measures of Evaluation

The following measures can be developed in order to evaluate the strategy plan. Monitor achievement in terms of pre-defined objectives every quarter Review internal processes in line with quality standards such as ISO 9001 Develop KPIs to review critical business processes such as quality, labeling and food processing

7.0 Implementation of strategy plan

7.1 Implementation schedule
Months Activities 1 Relocating and Centralizing manufacturing operation Upgrading of manufacturing plant Invest in new product line Contract manufacturing beverage brands Contract manufacturing own labels Setting up of hypermarket 2 3 4 5 6 7 8 9 10

7.2 Dissemination processes

The support of all stakeholders is required in order to ensure the effective implementation of the proposed strategic plan. As such the following dissemination processes are required; Shareholders a monthly review of performance to show improvement compared with prior years Customers, Suppliers, Financial community and Government develop a public awareness campaign of the companys new approach to business

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Strategic Planning Employees communicate to employees the benefits of the proposed strategy and highlight its necessity for the continuation of the business. Obtain employee acceptance. Reward efficient employees.

7.3 Monitoring and Evaluation systems

The following monitoring and evaluation systems are required for the implementation of the organizations strategic plan. Proper financial monitoring system to measure achievement of financial objectives Quarterly review of performance, discussion of problems faced and devising remedial actions Monthly line managers meeting to identify process bottlenecks and discuss improvements Brain storming session by product business managers to devise changes to product mix Reviewing achievement of management objectives Use of Gantt chart to monitor implementation of proposed strategic plan

8.0 Conclusion
Hinchell Ltd. has been the market leader in the UK food processing industry. However, it has seen its share diminish in the face of own labels. As such Hinchell needs to revamp its total business operations. Firstly, centralize the manufacturing operation and investing in new equipment. Secondly, downsizing of staff and taking actions to make use of spare capacity. Finally, establishing a retail operation at the previous small manufacturing site, and thereby effectively engaging in forward integration.

9.0 References
Johnson, G., Scholes, K. and Whittington, R. (2007). Exploring Corporate Strategy: Text & Cases. 8th edition. Pearson, UK. Gupta, A. (2009). Organizations External Environment. http://www.practicalmanagement.com/Organization-Development/Organization-s-External-Environment.html. Assesses on 4th August 2011. Kotler, P. and Keller, K.L. (2006). Marketing Management. 12th edition. Pearson Prentice Hall, New Jersey.

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