Market Oriented Strategic Planning

Session three

Session Plan
Strategic

Planning levels Planning at the SBU level The marketing process Planning tools at the product level

What is Strategic Planning

Managing

Investment Portfolio of businesses Analysis of each business and establishing fit A game plan or Business Model AIMED AT Good business performance

1. What is Strategy?
Firm
Competitive Advantage Shareholder Value

Strategy

Performance

Strategy: goal and set of policies designed to achieve competitive advantage in a particular marketplace Competitive Advantage: ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors

Marketing Productivity chain

Company View Point Level Who cares?

We do stuff Customers do stuff Stuff Happens

Marketing actions Customers Reaction Product Market Impact Financial outcomes

Customers

Advertising and Promotion specialist Product Managers and CMO CMO and CFO* CFO and the CEO*

Accounting happens Wealth is affected

Firms Value

*Chief Marketing, financial and executive officer Adapted from : Bolton, R.N. (2004), Making Marketing Matter JM Vol 68, pp 73-75

1. What is Strategy?
External Analysis
Environmenta l Conditions & Trends Inventory of Distinctive Competencies Opportuniti es and Threats Strengths and Weaknesse s

Understanding the Stages

Strategy Formulation
Identify & Evaluate Options

Choose Strateg y
Strategy Implementation

Internal Analysis

 Strategic

vision and mission Establishing SBUs Setting Objectives Resource allocation Crafting Strategy to achieve the desired goals Implementing and executing the chosen strategy efficiently and effectively Evaluating performance and initiating corrective action

Tasks of Strategic Management

Mission
Industry

Scope Products and applications scope Competence Scope Market Scope Vertical Scope Geographical Scope

Basic Concepts:
Strategy Strategy Formulation Formulation Set of processes involved in creating or Set of processes involved in creating or determining the strategies of org. Focus determining the strategies of org. Focus is on contents of strategy. is on contents of strategy.

Strategy Strategy Implementation Implementation

Methods by which strategies are Methods by which strategies are operationalized or executed with in org. operationalized or executed with in org. Focus is on processes which achieve Focus is on processes which achieve strategies. strategies.

TM 7-2

assess environmental factors

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

Identify Current Mission and Strategic Goals

Conduct Competitive Analysis: * Strengths * Weaknesses * Opportunities * Threats

Develop Specific Strategies: * Corporate * Business * Functional

Carry Out Strategic Plans

Maintain Strategic Control

assess organizational factors

Planning Concepts
Strategy Strategy A comprehensive plan for A comprehensive plan for accomplishing orgls goals accomplishing orgls goals A comprehensive & ongoing A comprehensive & ongoing management process aimed at management process aimed at formulating & implementing effective formulating & implementing effective strategies. strategies. Is one that promote a superior Is one that promote a superior alignment between the organization & alignment between the organization & its environment & the achievement of its environment & the achievement of goals. goals.

Strategic Strategic Management Management Effective Effective Strategy Strategy

TM 7-4

SWOT ANALYSIS

Strengths

Opportunities

Weaknesses
COMPETITIVE ADVANTAGE

Threats

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 19

Types of Strategic Alternatives:

Types Types

Corporate-Level Corporate-Level Strategy Strategy

Set of S. Alt. that an Set of S. Alt. that an org. chooses from as it org. chooses from as it manages its operations manages its operations simultaneously across simultaneously across several industries & several industries & Markets. Markets.

Business-Level Business-Level Strategy Strategy

Set of S. Alt. that an Set of S. Alt. that an org. chooses from as it org. chooses from as it conducts business in a conducts business in a particular industry or particular industry or market. market.

Functional-Level Functional-Level Strategy Strategy

Developed for single Developed for single functional area. functional area.

TM 7-3

ORGANIZATIONAL LEVELS OF STRATEGIES

CORPORATE STRATEGIES Type of

Business to compete in Competitive position Resource development

BUSINESS STRATEGIES

How to compete in a particular market How to achieve competitive advantage Action plans for each functional area
FUNCTIONAL STRATEGIES

Irwin/McGraw-Hill

The McGraw-Hill Companies, Inc., 19

Portfolio Management Techniques

Method of analyzing an organizational mix of SBUs and matching them with strategic goals.

SBU: Strategic Business Unit. Is a division within firm with its own mission, competitors, & strategy.

Formulation of Corporate Level Strategies

GRAND STRATEGIES GRAND STRATEGIES

Provide strategic direction at Provide strategic direction at corporate level. corporate level.

Growth Strategies Growth Strategies

For orgl expansion For orgl expansion along some major along some major dimensions. dimensions.

Involves shrinking Involves shrinking operations & eliminating operations & eliminating unprofitable ones. unprofitable ones. Downsizing. Downsizing.

Retrenchment Retrenchment Strategies Strategies

Call for maintaining Call for maintaining status Quo. Includes status Quo. Includes Portfolio Strategies. Portfolio Strategies.

Stability Stability Strategies Strategies

Formulation of Corporate Level Strategies

Internal Growth
Diversification Vs Single product Diversification Vs Single product

Integration Integration

Growth Growth Strategies Strategies

Vertical (Backward & Forward) Vertical (Backward & Forward)

Other Growth Strategies Other Growth Strategies

ACQUISITION (Purchase of all/part of org.) ACQUISITION (Purchase of all/part of org.) MERGER (Combination of two firms) MERGER (Combination of two firms) JOINT WORKING (Two/ more firms working JOINT WORKING (Two/ more firms working together) together)

Formulation of Corporate Level Strategies

Identify SBU Identify SBU
After identification of SBUs comes the After identification of SBUs comes the categorization categorization

Tools for Tools for Analyzing Analyzing Corporation and Corporation and Strategic choice Strategic choice of businesses of businesses

B C G Matrix B C G Matrix

G E Screen G E Screen

BCG Portfolio Matrix

Star

Market Growth Rate

High

Question Mark

10%

Cash Cow Low

Dog

10x

High

1x

Low

0.1x

Market Share Dominance

Strategic Options for SBUs as analyzed by the BCG Portfolio Matrix

Build Hold Harvest Divest

GE Matrix
Market Attractiveness
High

Medium

Low Strong Medium Weak

Business Position or strength

Product-Market Growth Matrix & Examples

Present Product Market Penetration
Increase usage rate or users

New Product Product Development

New product c category

Present Market

New Market

Market Development
Enter new geographical market or market segment

Diversification
Develop an entirely new product for an entirely new market

Using SWOT (acronym) Analysis to Formulate Strategy

S W O T

Things the company does well. Only yours vs. Things the company does well. Only yours vs. Common among all firms. STRTENGTHS Common among all firms. STRTENGTHS

Things the company does not do well. Things the company does not do well. WEAKNESSES WEAKNESSES Conditions in the external environment Conditions in the external environment that favor strengths. OPPORTUNITIES that favor strengths. OPPORTUNITIES
Conditions in the external environment that do Conditions in the external environment that do not relate to existing strengths or favor areas of not relate to existing strengths or favor areas of current weakness. THREATS current weakness. THREATS

Competitive Competitive Parity Parity Distinctive Distinctive Competence Competence Strategic Strategic Imitation Imitation Sustained Sustained Competitive Competitive Advantage Advantage

Exists when many competing firms have same Exists when many competing firms have same strengths & are able to implement same strategy. strengths & are able to implement same strategy. Strength possess by few competing firms. Strength possess by few competing firms. Coping other organizations distinctive Coping other organizations distinctive competence. competence. Competitive Advantage exists after no one can Competitive Advantage exists after no one can copy or imitate you. copy or imitate you.

Cont.

Core Competence Strategic strengths that form the basis of success of the firm

Formulation of Business Level Strategies (How a particular business competes) Porter's Generic Strategic Model Porter's Generic Strategic Model Structure-conduct-performance paradigm Structure-conduct-performance paradigm Miles and Snow Typology Miles and Snow Typology Strategic Orientation Strategic Orientation Growth strategies Growth strategies Ansoffs Growth Share Matrix Ansoffs Growth Share Matrix

Product Life Cycle Strategies Product Life Cycle Strategies

Miles & Snows typology

Miles & Snows (1978) typology classifies firms into four distinct groups, i.e. defenders, prospectors, analyzers and reactors, based on how a firm responds to three major problems facing it, i.e. entrepreneurial, engineering, and administrative problems.

Cont
According to them, the entrepreneurial problem defines an organizations product-market domain; the engineering problem focuses on the choice of technologies and process for production and distribution; and the administrative problem involves the formulization, rationalization and innovation of an organizations structure and policy processes.

PORTERS FIVE COMPETITIVE FORCES MODEL Rivalry Customer Bargaining Power Supplier Bargaining Power Threat of New Entrants Threat of Substitutes Text Page 27 Customer Supplier Company

Company

Porters Generic Strategic Model

Each of the three strategies is based on having a strong Differential Advantage so this factor is not plotted.
High

Focus

Profitability (ROI)

Cost Leadership Differentiation

No Differentiation No Cost Leadership No Focus

Low Narrow

Scope of Target Market

Broad

Implementation of Miles & Snow Typology Culture Culture

Prospector Prospector Reactor Reactor Defender Defender Analyzer Analyzer Response Style Response Style Capitalize on Emerging Opportunities Capitalize on Emerging Opportunities Maintain the Status Quo Maintain the Status Quo Reduce Operating Costs Reduce Operating Costs Defend Stable Market, Aggressively Defend Stable Market, Aggressively Enter Emerging Opportunities as Enter Emerging Opportunities as Second In Second In

Product Life Cycle

A concept that provides a way to trace the stages of a products acceptance, from its introduction (birth) to its decline (death).

Product Life Cycle 1. Like humans, Product also have Life Cycle. 2. This term is applied to generic category of product not to specific brands. 3. PLC consists of aggregate demand over an extended period of time for all brands in generic product category. 4. Length of PLC varies. 5. PLC is related to a market.

Product Life Cycle

Introductory Growth Stage Stage

Maturity Stage

Dollars

Decline Stage Product Category Sales Product Category Profits

0 Time

Extending the PLC

Change Change Change Change

product product use product image product positioning

Introductory Stage

Full-Scale Launch Full-Scale Launch of New Products of New Products

High failure rates Unpredictable conditions Little competition Not Important Frequent product modification Standards being Developed Limited distribution Selective Channels as build up takes place Negative profits High marketing and production costs Promotion Strategy Aim at early adopters Promotion Emphasis Awareness and information Sales Promotion Intensive personal selling to channels to stock

Growth Stage

Offered in more sizes, Offered in more sizes, flavors, options flavors, options
Some emulators threatens competitive advantage of firm Market penetrations From high prices and Increasing rate of demand is quality and ensuring distribution Market consolidation through intensive distribution Emphasizes brand benefits Word of mouth; minimal advert Normally start to fall Build Brand preference

Competition Strategy Profits Goal Distribution Promotion Strategy Emphasis Prices Sales Promotion

Maturity Stage

Many consumer Many consumer products are in Maturity products are in Maturity

Competition

Maximum competitors Declining sales growth and Saturated markets Marginal competitors drop out Strategy Defend Brand position extend product line by Stylistic product changes Prices What the market can bear avoid price war and profits fall Promotion Strategy Use as a vehicle for differentiation Promotion Emphasis Moderate since buyers are aware Heavy promotions To encourage brand switching convert buyers to loyal buyers Market is fragmented Niche marketers emerge

Decline Stage

Rate of decline depends on Rate of decline depends on change in tastes or change in tastes or adoption of substitute products adoption of substitute products

Competition Strategy Profits Prices Distribution

Promotion Strategy Emphasis Elimination of all nonessential marketing expenses

Few with rapid shake out Prepare for removal and milk the brand Decline as Long-run drop in sales due to declining demand and push up costs Low to permit quick liquidation of Large inventories of unsold items Selective with unprofitable outlets closed down promote low price to reduce stock

Steel Industry Performance

ROE-Ke Spread 40% Great Northern Iron 30%

20%

10%

Worthington Inds Nucor Steel Technologies Oregon Mills Commercial Metals

0% Carpenter Birmingham (10%) British Steel PLC Cleveland-Cliffs Quanex Lukens ACME Metals Ampco

USX-US Steel Inland Steel

(20%) Average Invested Equity ($B) $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 Armco WHX Bethlehem $12 $13 $14 $15

(30%)

Source: Ghemawat (1999)

Pharmaceutical Industry Performance

ROE-Ke Spread 60% SmithKline 40% American Amgen Home Glaxo Products Merck Schering Plough Watson Rhone-Poulenc Mylan Labs Bristol Warner Lambert Myers Eli Lilly 0% ICN Scherer Ivax Genetech Biogen Roberts Genzyme Dura Chiron Cephalon Gensia Cygnus Immunex Average Invested Equity ($B) (80%) $0 $5 $10 $15 $20 $25 $30

20%

Perrigo Pharmacia & Upjohn Pfizer Forest Labs Alza

(20%)

(40%)

(60%)

Source: Ghemawat (1999)

Strategy and Coherence

Strategy (Positioning)

Resources and Capabilities

Organization Design

Tools for Building Competitive Advantage

Resources are inputs into a firms production processes:

Tangible Resources Financial resources Physical resources Human resources Organizational resources Intangible Resources Technological resources Innovative resources Reputation

Capabilities are the capacity for a set of resources to perform a task or activity in an integrative manner

CRITICAL FACTORS FOR COMPETITIVE ADVANTAGE

ORGANIZATIONAL CLIMATE

VALUE

COMPETITIVE ADVANTAGE

RARENESS

Non-substitutable

INIMITABILITY

Core Competencies Require VRIS-O

Value do a firms resources and capabilities allow a firm

to respond to its environment? resource/capability?

Rare how many rival firms already possess this Inimitable do firms face a cost disadvantage in
obtaining this resource/capability compared to firms that already have it?

Non-substitutable are there strategic alternatives? Organization is the firm organized to exploit the full
potential of its resources/capabilities?

Cost Disadvantages of Imitation

Inimitability is critical for a resource/capability to become a core competence Firms trying to imitate another firms core competence are at a cost disadvantage relative to rivals due to

Unique historical conditions Casual ambiguity Social complexity Patents

The Value Chain

The value chain provides a map of firm capabilities and allows systematic search for core competencies
Support Activities
Infrastructure
n gi ar M

Human Resources Research and Development (Innovation) Materials Procurement

Operations

M ar gi n

Marketing & Sales

Outbound Logistics

Inbound Logistics

Service

Primary Activities

Building Blocks of Competitive Advantage

Efficiency Lower Costs Innovation Higher Prices
Customer Responsiveness

Quality

Competitive Advantage via Efficiency

Manufacturing Marketing Infrastructure Human Resources R&D Materials mgt (Supply Chain).
Econ of scale/Learning Flexible manufacturing Price for learning Build brand loyalty Commitment to efficiency Train skills/teams Performance incentives Design for manufacturing Process innovation JIT, Kanban, etc.

Competitive Advantage via Quality

Manufacturing Marketing Infrastructure Human Resources R&D Materials mgt (supply Chain ).
Trace defects to source Input from employees Focus on customer Customer feedback on quality Measure & commit to quality Train quality (TQM, SPC) Quality incentives Design for manufacturing Process & product innovation Help suppliers implement TQM

Competitive Advantage via Innovation

Manufacturing Marketing Infrastructure Human Resources R&D Materials mgt.
Design for manufacturing Inputs on process innovation Customer focus for product innovation Invest in R&D tools Overall project management Hire talented innovators Incentives/opportunities for innovation Cooperate with other functions in process and product innovation No primary responsibility

Competitive Advantage via Customer Responsiveness

Manufacturing Marketing Infrastructure Human Resources R&D Materials mgt.
Customization through flexible mfg Know the customer Customer feedback to functions Commit to customer responsiveness Information systems for feedback Customer focused training Employee incentives and security Customers in innovation process Build responsive logistics systems

Incentives for Employee Security