Developing a strategic business plan

Developing a strategic business planToolboxStrategic Planningis the managerial process of developing and maintaining a strategic fit between the organization's objectives and resources and its changing market opportunities.Org ObjectivesResourcesChanging EnvironmentStrategic Fit2The Role of StrategyCorporateMission &ObjectivesStrategy:CorporateBusinessFunctionalOperating Plans3Vision and Strategy

Sun Tze on StrategyKnow your enemy, know yourself, and your victory will not be threatened. Know the terrain, know the weather, and your victory will be complete.

5Strategic MarketingMarketing Strategy is a series of integrated actions leading to a sustainable competitive advantage.John Scully

6Corporate MissionBroad purposes of the organizationGeneral criteria for assessing the long-term organizational effectivenessDriven by heritage & environmentMission statements are increasingly being developed at the SBU level as well

7Mission statements may be developed at the SBU level in order to make sense, especially for large organization with diverse business interests e.g. NTUC INCOME and NTUC Fairprice

Examples of Corporate MissionSINGAPORE AIRLINES is engaged in air transportation and related businesses. It operates world-wide as the flag carrier of the Republic of Singapore, aiming to provide services of the highest quality at reasonable prices for customers and a profit for the company8Examples of Corporate Mission (contd)MARRIOTTS Mission Statement:We are committed to being the best lodging and food service company in the world, by treating employees in ways that create extraordinary customer service and shareholder value9Corporate CultureThe most abstract level of managerial thinkingHow do you define culture?What is the significance of culture to an organization?How does marketing affect culture in the organization?10Corporate Objectives & GoalsAn objective is a long-range purpose Not quantified and not limited to a time periodE.g. increasing the return on shareholders equityA goal is a measurable objective of the businessAttainable at some specific future date through planned actionsE.g. 10% growth in the next two years11Strategic planning

STRATEGIC PLAN DEVELOPMENTIndustry dynamics and implicationsEnvironmental and internal assessmentCompetitive assessmentInternal assessmentWhat are the major changes in industry dynamics and resulting opportunities and risks?What are your competitive strengths and weaknesses?How does your current business emphasis fit with industry opportunity and competitive landscape?Strategy articulationStrategic definition and implicationsStrategic initiativesFinancial projectionsWhat strategy will you pursue over the next 3 years?What will be the impact of major strategic initiatives?What are the expected financial returns of your strategy?++++Risk/contingen-cies & strategic alternativesWhat strategic alternatives have you considered?+13The Usual Business Planning HierarchyStrategic Planning Many Sub PlansFramework of a Successful Organisation

Business Planning and Delivery Vision is a Critical DriverTo succeed in the long term, our business needs a vision of how we will change and improve in the future. without a vision, the people perishThe vision of the business gives its energy. It helps motivate us. It helps set the direction of corporate and marketing strategy.

Values underpin all we doValues form the foundation of a business management style. Values provide the justification of behaviour and, therefore, exert significant influence on marketing decisions.An example is provided by BT Group - defining its values:BT's activities are underpinned by a set of values that all BT people are asked to respect:We put customers first We are professional We respect each other We work as one team We are committed to continuous improvement.These are supported by our vision of a communications-rich world - a world in which everyone can benefit from the power of communication skills and technology.A society in which individuals, organisations and communities have unlimited access to one another and to a world of knowledge, via a multiplicity of communications technologies including voice, data, mobile, internet - regardless of nationality, culture, class or education.Our job is to facilitate effective communication, irrespective of geography, distance, time or complexity.Source: BT Group plc website

Has the Company got a strong Clear Mission?The Business Mission is important to our sales & marketing planningIt provides an outline of how the marketing plan should seek to fulfil the missionIt provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission?It provides an incentive to implement the marketing plan

"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".Strategic Audit - ensuring that the Company resources and competencies are understood and evaluated

Need to work within Company Resources & ConstraintsObjectives - Corporate & FunctionalValue Chain AnalysisValue Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Michael Porter suggested that the activities of a business could be grouped under two headings: Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.Value Chain Analysis is one way of identifying which activities are best undertaken by our business and which are best provided by others ("outsourced").

Linking Value Chain Analysis to Competitive AdvantageWhat activities a business undertakes is directly linked to achieving competitive advantage. For example, if we wish to outperform our competitors through differentiating ourselves through higher quality then we will have to perform our value chain activities better than the opposition. But if we adopt a strategy based on seeking cost leadership this will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.

Value ChainIdentification of clients necessitiesSatisfaction of Clients necessities InnovationProcessOperation ProcessPost SalesProcessMarket identificationproducts / services definitionproducts / services creationDelivery products and servicesServices to the clientsPrimary ActivitiesPrimary value chain activities include:Primary ActivityDescriptionInbound logisticsAll those activities concerned with receiving and storing externally sourced materialsOperationsThe manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)Outbound logisticsAll those activities associated with getting finished goods and services to buyersMarketing and salesEssentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.)ServiceAll those activities associated with maintaining product performance after the product has been soldSupport ActivitiesSupport activities include:Secondary ActivityDescriptionProcurement This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers)Human Resource ManagementThose activities concerned with recruiting, developing, motivating and rewarding the workforce of a businessTechnology Development Activities concerned with managing information processing and the development and protection of "knowledge" in a businessInfrastructure Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Steps in a Value Chain AnalysisCore competenciesCore competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage. 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.We need to understand what we are good and what makes us better and to hone these advantages and to develop new ones to underpin the business strategy

Identifying Core CompetenciesPrahalad and Hamel suggest three factors to help identify core competencies in any business:What does the Core Competence Achieve?CommentsProvides potential access to a wide variety of marketsThe key core competencies are those that enable the creation of new products and services.Makes a significant contribution to the perceived customer benefits of the end productCore competencies are the skills that enable a business to deliver a fundamental customer benefit - in other words: 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?Difficult for competitors to imitateA core competence should be "competitively unique": In many industries, most skills can be considered a prerequisite for participation and do not provide any significant competitor differentiation. To qualify as "core", a competence should be something that other competitors wish they had within their own business.What is Competitive Advantage?Competitive advantage is a companys ability to perform in one or more ways that competitors cannot or will not match. Philip KotlerIf you dont have a competitive advantage, dont compete. Jack Welch, GE

32Four Generic Strategies

ScopeBroadTargetNarrowTargetLower CostDifferentiationOther Characteristics of Competitive AdvantageSubstantialityIs it substantial enough to make a difference?SustainabilityCan it be neutralized by competitors quickly?Ability to be leveraged into visible business attributes that will influence customers(Source: Strategic Marketing Management, Aakers)34Seeking Competitive AdvantagesPositions of advantageSuperior customer valueLower relative total costPerformance advantagesCustomer satisfaction, Loyalty, Market Share, ProfitSources of advantagesSuperior skills & knowledge, Superior resources, Superior business process

35WHERE TO COMPETE?CustomersChannelsProductsGeographic marketsTarget customers and segmentsWhich customers are you trying to target or attract?Which are you willing to serve, but will not spend resources to attract?Which would you prefer not to serve?How does the entity reach its target customersWhich distribution channels will you use?What customer segments can they reach?Geographical scope of business activitiesGeographic limits to the business?Local, regional, multi-local, national, international, or global player?If local, which localities?Quality and breadth of the product lineBreadth of the product line?Quality of the product line?Product bundles or a series of unrelated products?36Capability platform: assessment of sources of competitive advantage (1/2)Physical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocatorBHPs low-cost mines

Telecomm/media company with rights radio spectrum

Avons representatives

Coca-Cola

Pharmaceutical company with a "wonder drug

"Favored nation" status with a key minister in liberalizing economyInnovation

Cross-functional coordination

Market positioning

Cost/efficiency management

Talent development3M with new products

McDonalds with QSC&V

J&J with branded consumer health products

Emerson Electrics Best Cost Producer program

P&G brand management programPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industryExample37Capability platform: assessment of sources of competitive advantage (2/2)Extremely relevantSomewhat relevantIrrelevantStep 1: Ensure that these are the capabilities required to succeed in the industry. Use this list as a thought starter, add and delete as you see appropriateBU OverallSegmentsABCStep 2: Assess your overall position relative to the capabilities required to succeed in the industry. Also, determine if these capabilities are relevant to the segments you servePhysical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocatorInnovation

Cross-functional coordination

Market positioning

Cost/efficiency management Talent developmentPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industry38Competitor capability comparisonBU OverallCompetitorsABCStep 3: Compare the strengths and weaknesses of your competitive position vs. the necessary skillsPhysical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocatorInnovation

Cross-functional coordination

Market positioning

Cost/efficiency management Talent developmentPrivileged assetsDistinctive competenciesNecessary capabilities in order to succeed in the industry 39Porters 5 Forces of Competitive Position DiagramPorter 5 Forces

Porters 5 Forces of Competitive Position version #2

42IndustryCompetitors

Intensity of RivalrySuppliersBuyersSubstitutesNewEntrantsEntry BarriersEconomies of ScaleBrand IdentityCapital RequirementsDeterminants of Supplier PowerSwitching CostsSupplier VolumeImpactForward Integration

Determinants of Substitution ThreatRelative Price PerformanceSwitching CostsDeterminants of Buyer PowerBuyer ConcentrationBuyer VolumeBackward IntegrationRivalry DeterminantsIndustry GrowthFixed CostsProduct DifferencesBrand IdentityExit BarriersPorters 5 Forces of Competitive Position #3Forces at work framework1.Determinants of supplier powerDifferentiation of inputsSwitching costs of suppliers and firms in the industryPresence of substitute inputsSupplier concentrationImportance of volume to supplierCost relative to total purchases in the industryImpact of inputs on cost or differentiationThreat of forward integration relative to threat of backward integration by firms in the industry2.Determinants of barriers to entryEconomies of scaleProprietary product differencesBrand identitySwitching costsCapital requirementsAccess to distributionAbsolute cost advantagesProprietary learning curveAccess to necessary inputsProprietary, low-cost product designGovernment policyExpected retaliation5.Rivalry determinantsIndustry growthFixed (or storage) cost/value addedIntermittent overcapacityProduct differencesBrand identitySwitching costsConcentration and balanceInformational complexityDiversity of competitorsCorporate stakesExit barriers3.Determinants of buying powerBargaining leverageBuyer concentration vs. firm concentrationBuyer volumeBuyer switching costs relative to firm switching costsBuyer informationAbility to backward integrateSubstitute productsPull-through4.Determinants of substitution threatRelative price performance of substitutesSwitching costsBuyer propensity to substitute2. New entrants3. Buyers4. SubstitutesIntensity of rivalry1. SuppliersPrice sensitivityPrice/total purchasesProduct differencesBrand IdentityImpact on quality perceptionBuyer profitsDecision makers' incentives5. Industry competitors44Total salesCompanys salesProduct linesProduct configProduct itemsSector salesProductLevelTerritoryRegionCountryClientWorldGeographical LevelShort termMediumtermLongtermTiming LevelNinety ways to measure demand (6 x 5 x 3)Strategic Planning Link with Marketing PlanningBusinesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition. Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (competitive advantage). The main problem with this process is that the environment in which businesses operate is constantly changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision-making is known as marketing planning.Strategic vs. Marketing PlansStrategic planning is concerned about the overall direction of the business. It is concerned with marketing, of course. But it also involves decision-making about production and operations, finance, human resource management and other business issues.

The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.

Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the environment. Sometimes this is quite a straightforward task. For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!). However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. Keeping control of marketing decision-making in such a complex situation calls for well-organised marketing planning.

Key issues in strategic and marketing planning?The following questions are key in the marketing and strategic planning process:Where are we now?How did we get there?Where are we heading?Where would we like to be?How do we get there?Are we on course?

A marketing plan helps to:The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connectedIdentify sources of competitive advantageGain commitment to a strategyGet resources needed to invest in and build the businessInform stakeholders in the businessSet objectives and strategiesMeasure performance

Situation AnalysisInternal Analysiscompany; capability etc.External Analysiscustomers, market definition, industry structureSWOT AnalysisStrengths, Weaknesses, Opportunities & ThreatsIdentify & prioritize major problems and opportunities: selection of key issuesBased on the firms core competencies, decide on future options49SWOTInternal EnvironmentStrengthsWeaknessesWorld class productFinancial resourcesKnow-howTechnical supportInternal processesChannels networkExternal EnvironmentOpportunitiesThreatsWater & Energy crisesEnvironment awarenessProductivity improvementCompetitors market shareEuro X DollarTechnology developmentSWOT ANALYSISOpportunities/Threats

How are demand and supply expected to evolve?How do you expect the industry chain economics to evolve?What are the potential major industry discontinuities?What competitor actions do you expect?YOUR BUSINESSCONVERT OPPORTUNITIESBUILD ON STRENGTHSNEUTRALIZE THREATSADDRESSWEAK-NESSESStrengths/Weaknesses

What are your BUs assets/competencies that solidify your competitive position?What are your BUs assets/competencies that weaken your competitive position? Can be used as a thought starter for competitive analysis and internal assessmentSurfaces potential opportunities/threats arising from factors external to the business51SWOT Analysis is still a useful Tool

TOWS matrixStrengthsWeaknessesOpportunitiesS-O strategies W-O strategies ThreatsS-T strategies W-T strategies S-O strategies pursue opportunities that are a good fit to the companies strengths.W-O strategies overcome weaknesses to pursue opportunities.S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats. PEST analysisA scan of the external macro-environment in which the company wants to operate (or operates) and can be expressed in terms of the following factors:

Political Economic Social Technological

POLITICALecological/environmental issues current legislation home market future legislation European/international legislation regulatory bodies and processes government policies government term and change trading policies funding, grants and initiatives home market lobbying/pressure groups international pressure groups wars and conflict ECONOMIChome economy situation home economy trends overseas economies and trends general taxation issues taxation specific to product/services seasonality/weather issues market and trade cycles specific industry factors market routes and distribution trends customer/end-user drivers interest and exchange rates international trade/monetary issues SOCIALlifestyle trends demographics consumer attitudes and opinions media views law changes affecting social factors brand, company, technology image consumer buying patterns fashion and role models major events and influences buying access and trends ethnic/religious factors advertising and publicity ethical issues TECHNOLOGICALcompeting technology development research funding associated/dependent technologies replacement technology/solutions maturity of technology manufacturing maturity and capacity information and communications consumer buying mechanisms/technology technology legislation innovation potential technology access, licencing, patents intellectual property issues global communications PEST Analysis - market, business, proposition, etc.PEST or SWOTA PEST analysis most commonly measures a market; a SWOT analysis measures a business unit, a proposition or idea.Generally speaking a SWOT analysis measures a business unit or proposition, whereas a PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words. PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format, that helps understanding, presentation, discussion and decision-making. PEST analysis can be used for marketing and business development assessment and decision-making, and the PEST template encourages proactive thinking, rather than relying on habitual or instinctive reactions.

ProducersIndustrySTechnology breakthroughsChanges in government policy/regulationsDomesticInternationalEconomics of demandAvailability of substitutesDifferentiability of productsRate of growthVolatility/cyclicalityEconomics of supplyConcentration of producersImport competitionDiversity of producersFixed/variable cost structureCapacity utilizationEntry/exit barriersIndustry chain economicsBargaining power of input suppliersBargaining power of customersMarketingPricingVolumeAdvertising/promotionNew products/R&DDistributionCapacity changeExpansion/contractionEntry/exitAcquisition/merger/ divestitureVertical integrationForward/backward integrationVertical joint venturesLong-term contractsInternal efficiencyCost controlLogisticsProcess R&DOrganization effectivenessFinanceProfitabilityValue creationTechnological progressEmployment objectivesExternalshocksFeedbacktructureConductPerformanceStructure-conduct-performance (SCP) model57Definition of risksDefinitionRisk of loss due to changes in industry and competitive environment, as well as shifts in customer preferences Business riskRisk due to changes in regulatory environment (e.g. deregulation)Regulatory riskRisk due to major changes in technologyTechnology riskRisk of failures due to business processes and operations or peoples behavior, either intentional (e.g. fraud) or unintentional (e.g. errors)Integrity riskRisk of loss due to changes in the political, social, or economic environmentsMacroeconomic risk58ManagementManagement, control and evaluationFive disciplines Peter SengePersonal Mastery: Aspiration involves formulating a coherent picture of the results people most desire to gain as individuals, alongside a realistic assessment of the current state of their lives today.Learning to cultivate the tension between vision and reality can expand people's capacity to make better choices, and to achieve more of the results that they have chosen. Mental Models:Reflection and inquiry skills is focused around developing awareness of the attitudes and perceptions that influence thought and interaction. By continually reflecting upon, talking about, and reconsidering these internal pictures of the world, people can gain more capability in governing their actions and decisions. Five disciplines Peter SengeShared Vision: Establishes a focus on mutual purpose.People learn to nourish a sense of commitment in a group or organization by developing shared images of the future they seek to create, and the principles and guiding practices by which they hope to get there. Team Learning:Group interaction. Through techniques like dialogue and skillful discussion, teams transform their collective thinking, learning to mobilize their energies and actions to achieve common goals, and drawing forth an intelligence and ability greater than the sum of individual members' talents.Five disciplines Peter SengeSystems Thinking: People learn to better understand interdependency and change, and thereby to deal more effectively with the forces that shape the consequences of our actions. Systems thinking is based upon a growing body of theory about the behavior of feedback and complexity - the innate tendencies of a system that lead to growth or stability over time. To help people see how to change systems more effectively and how to act more in tune with the larger processes of the natural and economic world. Project management - processes

Project management a process

Project management process chain

Project management risk analysis

Success Keys - DeploymentDeployment - Completing the PlanSuccessFailure>Assign roles and responsibilities

>Establish priorities

>Involve mid-level management as active participants

>Think it through - decide how to manage implementation

>Charge mid-level management with aligning lower-level plans

>Make careful choices about the contents of the plan and form it will take>No accountability for deployment

>Too many goals, strategies, or objectives - no apparent priority >Plan in a vacuum-functional focus

>No overall strategy to implement

>Make no attempt to link with day-to-day operations

>Not being thorough-glossing over the detailsSuccess Keys - CommunicationDeployment - CommunicatingSuccessFailureAssign roles and responsibilities

Communicate the plan constantlyand consistently

Recognize the change process

Help people through the changeprocessNo accountability

Never talk about the plan

Ignore the emotional impact of change

Focus only on task accomplishmentSuccess Keys - ImplementationImplementing - ISuccessFailureAssign roles and responsibilities

Involve senior leaders

Define an infrastructure

Link goal groups

Phase integration of implementationactions with workload

Involve everyone within theorganizationNo accountability

Disengagement from process

Unmanaged activity

Fragmented accomplishment ofobjectives leads to sub-optimization

Force people to choose between implementation and daily work; too many teams

No alignment of strategiesSuccess Keys - ImplementationImplementing - IISuccessFailureAllocate resources for implementation

Manage the change process

Evaluate results

Share lessons learned; acknowledgesuccesses through open andfrequent communicationFocus only on short term need for resources

Ignore or avoid change

No measurement system

Hide mistakes/lay blame;limited/no communicationSuccess Keys - MeasurementStrategic Measurement - ISuccessFailureAssign roles and responsibilities

Use measurement to understandthe organization

Use measurement to provide aconsistent viewpoint from which togauge performance

Use measurement to provide anintegrated, focused view of thefuture

No accountability

Sub-optimization: focus only onefficiencies

Use measures that provide no realinformation on performance; usetoo many measures

Use measurement to focus on thebottom-line onlySuccess Keys - MeasurementStrategic Measurement - IISuccessFailureUse measurement to communicatepolicy (new strategic direction)

Update the measurement system

Use measurement to providequality feedback to the strategicmanagement processUse measurement to control

Never review measures

Fail to use measurement to makestrategic, fact-based decisions; useonly for controlSuccess Keys - EvaluationEvaluationSuccessFailureAssign roles and responsibilities

Recognize when to update the plan

Modify strategic planning process to accommodate the more mature organization

Incorporate new leaders into the strategic planning process

Integrate measurement with strategic planning

Use experienced strategic planning facilitatorsNo accountability

Poor timing and not recognizing external forces

Rigid application of strategic planning process; ignore lessons learned from previous efforts

Ignore impact of new leaders

Don't use measurement information

Shortcut the processBest Companies Spend more time on Forward Planning than Historical Analysis

Achieving Agility Through a New Approach to Forecasting In todays turbulent economy, rolling forecasts are proving to be an important new tool in changing the way budgeting and planning has traditionally been handled. Mary Brandel Benefits of Rolling Forecasts

Goals / Objectives

SWOT Analysis

Strategy

Implementation

Measurement and Evaluation

Cost LeadershipDifferentiation

Cost FocusDifferentiation Focus