Week 3
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The document discusses strategic planning concepts including defining a company's core competencies, assessing business units, and growth strategies. It emphasizes that core competencies should evolve over time in response to changes in the business environment. Business portfolio analysis is a key part of strategic planning and involves evaluating products and businesses using tools like the BCG matrix to determine how to allocate resources. Growth opportunities can be pursued through market penetration, market development, product development, integration, and diversification strategies.
Week 3
- 2. COMPANYWIDE STRATEGIC PLANNING 2
- 3. • “instead of emphasizing making and selling, companies now see themselves as part of value creation and delivery process” • it starts much more before there is product/service and continues through development and after launch • THE PROCESS:- assessing market opportunities choosing the value designing the value delivering value communicating value grown and sustained THE VALUE CHAIN • Primary activity • Secondary activity 3 The value delivery process
- 4. • “Core Competencies are not seen as being fixed. Core Competencies should change in response to changes in the company's environment. They are flexible and evolve over time. As a business evolves and adapts to new circumstances and opportunities, so its Core Competencies will have to adapt and change” • The main ideas about Core Competencies were developed by C K Prahalad and G Hamel through a series of articles in the Harvard Business Review followed by a best-selling book - Competing for the Future. Their central idea was that over time companies may develop key areas of expertise which are distinctive to that company and critical to the company's long term growth 3 Distinctive capabilities being market driven • market sensing • customer linking and • channel bonding 4 Core competencies
- 5. Difficulty for competitors to imitate • Why does Dell have such a strong position in the personal computer market? • Core competencies that are difficult for the competition to imitate: • - Online customer "bespeaking" of each computer built • - Minimisation of working capital in the production process • - High manufacturing and distribution quality - reliable products at competitive prices Makes a significant contribution to the perceived customer benefits of the end product • fundamental customer benefit - what is it that causes customers to choose one product over another? To identify core competencies in a particular market, ask questions such as "why is the customer willing to pay more or less for one product or service than another?" "What is a customer actually paying for? 5 EXAMPLE: 1
- 6. Core Competency Example: Wal-Mart The core competency of Wal-Mart can be said to be “Groceries at a low cost”. Criteria Yes/No Yes. The customer gets their goods cheaper than Customer benefit? anywhere else Yes. A company would require huge scale to Difficult to imitate? replicate, and that is obviously not an easy thing to achieve. Yes. Walmart sells all kinds of goods using the Can be leveraged? same model Yes, I think in the US at least, most consumers Uniquely identifies the organization? would identify Walmart as being amongst the cheapest in this space. 6 Yes – it‟s scale, but also supply chain management, Difficult to pin down? and high inventory turnover etc.
- 7. Core Competency Example: Apple The core competency of Apple can be said to be “making user friendly user interfaces and design” Criteria Yes/No Yes. The customer clearly benefits from Customer benefit? great user interfaces Yes. Companies have been trying for Difficult to imitate? years and not yet succeeded. Yes. This core competency has been Can be leveraged? rolled out to the iPod, the iPhone, and most recently, the iPad. Uniquely identifies the organization? Yes Yes – it‟s not just design, but marketing, 7 Difficult to pin down? software, hardware etc.
- 8. • corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources to allocate to each division, as well as on which businesses to start or eliminate • Strategic planning is the process of developing and maintaining a strategic fit between the organization‟s goals and capabilities and its changing market opportunities. 8 Role of strategic planning
- 9. PLANNING IMPLEMENTING CONTROLLING Corporate Measuring planning Organizing results Division Implementing Diagnosing planning results Business Taking planning corrective actions Product planning 9
- 10. • DEFINING THE CORPORATE MISSION • ESTABLISHING STRATEGIC BUSINESS UNIT • ASSIGNING RESOURCES TO EACH STRATEGIC BUSINESS UNIT • ASSESSING GROWTH OPPORTUNITIES 10 CORPORATE & DIVISIONAL PLANNING PROCESS
- 11. • Defining a Market-Oriented Mission • Many organizations develop formal mission statements. A mission statement is a statement of the organization‟s purpose – what it wants to accomplish in the larger environment 11 DEFINING THE CORPORATE MISSION : step-1
- 12. CORPRORATE PLANNING • What is a vision? A vision is a clear, comprehensive „photograph‟ of an organization at some point in the future. It provides direction because it describes what the organization needs to be like, to be successful within the future. A company‟s mission can be defined as: • An operation intended to carry out specific program objectives • A higher calling or meaning, a reason for being. Often this is the reason the company was first created – to fill a need in the marketplace or society. • A concise statement of business strategy developed from the customer’s perspective and it should be aligned with the company‟s vision. • The mission should answer three key questions: • What is it that we do? • How do we do it? • For whom are we doing it?
- 13. • Vision and Mission are different A mission statement concerns what an enterprise is all about. A vision statement is what the enterprise wants to become. Strategic planning is a systematic process whose purpose is to map out how the enterprise should get from where it is today to the future it envisions. • Goals are an expected or desired outcome of a planning process. Goals are usually broad, general expressions of the guiding principles and aspirations of a community. • Objectives are precise targets that are necessary to achieve goals. Objectives are detailed statements of quantitatively or qualitatively measurable results the plan hopes to accomplish
- 14. A business portfolio is the collection of businesses and products that make up the company. • The best portfolio is the one that best fits the company‟s strengths and weaknesses to opportunities in the environment. • The major activity in strategic planning is business portfolio analysis, whereby management evaluates the products and businesses making up the company • A business can define itself in terms of three dimensions: customer groups (TV serial) customer needs (Electricity) technology (TELEVSION SET) SBU‟s features: • single business • own set of competitors 14 ESTABLISHING SBU (STRATEGIC BUSINESS UNIT): step-2
- 15. 15 BCG matrix
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- 17. What Is Customer Equity? • Customer equity is the total combined customer lifetime values of all of the company‟s current and potential customers. • Clearly, the more loyal the firm‟s profitable customers, the higher the firm‟s customer equity. • Customer equity may be a better measure of a firm‟s performance than current sales or market share. Share of customer • To increase share of customer, firms can offer greater variety to current customers or create programs to cross-sell and up-sell in order to market more products and services to existing customers 17
- 18. • GE/McKinsey matrix 18 ASSIGNING RESOURCES TO EACH SBU: step 3
- 19. The major objectives of a portfolio analysis of SBUs is to achieve the following: • Analyse its current SBU portfolio to decide which SBUs must receive more or less investment • Develop growth strategies for adding new SBUs • Decide which SBUs must no longer be retained by the parent organization General Electric GE McKinsey Matrix model is a nine-cell matrix. • Used to perform detailed analysis about a particular SBU of an organization. • Uses exhaustive analysis parameters like industry attractiveness and business strength, therefore better than BCG model 19
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- 24. • The Green Zone consists of the three cells in the upper left corner. If your enterprise falls in this zone you are in a favourable position with relatively attractive growth opportunities. This indicates a "green light" to invest in this product/service. • The Yellow Zone consists of the three diagonal cells from the lower left to the upper right. A position in the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution when making additional investments in this product/service. The suggested strategy is to seek to maintain share rather than growing or reducing share. • The Red Zone consists of the three cells in the lower right corner. A position in the red zone is not attractive. The suggested strategy is that management should begin to make plans to exit the industry 24
- 25. • Planning new businesses • downsizing • terminating older business • Simply this is refers to the gap between desired level of sales and profit (performance) and the projected level of sales and profit if the current strategy is followed • So, to fill this strategic planning gap marketers are using three different strategies. 25 ASSESSING GROWTH OPPORTUNITIES : step-4
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- 28. Three types of intensive strategies can be identified from the “Ansoff” product/market expansion grid. A. Market penetration • Making more sales without changing its original product or market. It could increases growth through marketing mix improvement. : Adjustment to its product design, advertising, pricing and distribution efforts. Ex: Attract the competitors‟ customers to switch to its brand by charging low price. B. Market development • Identifying and developing new markets for its current products. Acquire additional distribution channels in its present locations, or search for new locations or search for new locations in foreign markets. C. Product development • Offering modified or new products to current markets. Developing 28 product features, developing different quality levels, use alternative technologies
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- 31. • This strategy is used to build or acquire businesses that are related to the company‟s current business. There are also sub strategies used to have an integrated growth. Through diversification, companies can grow by starting up or buying businesses outside their current products / markets or identifying growth opportunities by adding attractive business that are unrelated to the current business. I. Concentric diversification strategy • Companies could seek new product that have technologically and / or marketing synergies with existing product lines, even though the product may appeal to a new class of customers. Ex: jam sachets for Air lines II. Horizontal diversification strategy • Companies might search new products that could appeal to its current customers through technology is unrelated to its current product line. Ex: Cargill‟s acquiring centra chain III. Conglomerate diversification strategy • Companies might seek new businesses that have no relationship to the company‟s current technology, product or market. Ex. TATA, ITC, 31
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- 33. DOWSIZING AND DIVESTING OLDER BUSINESSES • Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating division, or product line. This move often is the final decision to eliminate unrelated, unprofitable, or unmanageable operations. • Firms often acquired other businesses with operations in areas with which the acquiring firm had little experience. After trying for a number of years to integrate the new activities into the existing organization, many firms have elected to divest themselves of portions of the business in order to concentrate on those activities in which they had a competitive advantage. • Divestment is commonly the consequence of a growth strategy. 33
- 34. • MARKET SHARE TOO SMALL: Firms may divest when their market share is too small for them to be competitive or when the market is too small to provide the expected rates of return • AVAILABILITY OF BETTER ALTERNATIVES: Firms may also decide to divest because they see better investment opportunities. Organizations have limited resources. They are often able to divert resources from a marginally profitable line of business to one where the same resources can be used to achieve a greater rate of return. • NEED FOR INCREASED INVESTMENT: Firms sometimes reach a point where continuing to maintain an operation is going to require large investments in equipment, advertising, research and development, and so forth to remain viable. Rather than invest the monetary and management resources, firms may elect to divest that portion of the business. • LACK OF STRATEGIC FIT: A common reason for divesting is that the acquired business is not consistent with the image and strategies of the firm. This can be the result of acquiring a diversified business. It may also result from decisions to restructure and refocus the existing business. • LEGAL PRESSURES TO DIVEST: Firms may be forced to divest operations to avoid penalties for restraint of trade. Service Corporation Inc., a large funeral home chain acquired so many of its competitors in some areas that it created a regional monopoly. The Federal Trade Commission required the firm to divest some of its operations to avoid charges of restraint of trade. 34 REASONS…………..
- 35. 35 BUSINESS/ BUSINESS UNIT PLANNING PROCESS
- 36. • STRATEGIC FORMULATION: 3 generic strategy Superior profits through lower Creating a product or service that is costs perceived as being unique "through out the e.g.: Wal-Mart, big bazaar, Maruti industry” E.g.McDonald, FedEx cars, splendour bike Cost Focus means emphasizing cost- minimization within a focused market aims to differentiate within just one or a 36 small number of target market segments. E.g. specialist holiday operator
- 37. Strengths Weaknesses Opportunities Threats SWOT Analysis
- 38. Product or Service Alliances: One co. license another to produce its products Promotional Alliances: One co. agrees to carry a promotion for another co. product/service Logistics Alliances: One co. offers logistical services for another co. Pricing Collaborations: One or more co.'s join in a special pricing collaborations such as tourism& hospitality companies Categories of Marketing Alliances
- 39. Executive summary Table of contents Situation analysis Marketing strategy Financial projections Implementation controls PRODUCT PLANNING: Marketing Plan Contents