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Mahalabya strategic plan
1. Define KRA & Strategic Objectives
a. Environmental Scanning & Industry Analysis
i. Societal Environment PEST/STEP Analysis
ii. Industry Analysis: "Analyzing the Task Environment"
iii. External Factor Analysis Summary (EFAS)
b. Internal Scanning: Organizational Analysis
i. Resource Based View RBV
ii. Value Chain Analysis
iii. Scanning the Functional Resources
iv. Synthesis of Internal Factors - IFAS.
c. Strategic Factor Analysis Summary (SFAS)
d. Identify Key Results Area KRA/ Key Business Drivers KBD/ Critical Success Factors CSF
e. Setting Strategic Objectives
2. Strategy Formulation
a. Corporate Strategy
i. Portfolio Strategy
b. Business Strategy
1. Define KRA & Strategic Objectives
Vision / Mission Statement
Situational Analysis: SWOT
a. Environmental Scanning & Industry Analysis
b. Internal Scanning: Organizational Analysis
c. Strategic Factor Analysis Summary (SFAS)
Identify Key Results Area KRA/ Key Business Drivers KBD/ Critical Success Factors CSF
Setting Strategic Objectives
a. Environmental Scanning & Industry Analysis Environmental Scanning: Societal Environment
PEST/STEP Analysis
Industry Analysis: "Analyzing the Task Environment“
Synthesis of External Factors - EFAS
i. Societal Environment PEST/STEP Analysis A PEST is an analysis of the external macro-environment that affects
all firms.
PEST is an acronym for Political, Economical, Social and Technological factors of the external macro- environment.
Such external factors usually are beyond the firm's control and sometimes present themselves as threats.
However, changes in the external environment also create new opportunities and the letters sometimes
are rearranged to construct the more optimistic term of STEP analysis.
Many macro-environmental factors are country specific and a PEST analysis will need to be performed for all countries of interests.
Environmental Trend Analysis
Task/SocEnviron.Factors
Economical
1. 2. 3.
Technological
1. 2. 3.
Political/Legal
1. 2. 3.
Social /Cultural
1. 2. 3.
Buyers Power
Suppliers Power
Substitutes Potential Entrants
Rivals Interest Groups
Government
Strategic Issues and Strategic Factors
o Strategic Issues: Trends likely to affect future environment
o Strategic Factors: Those strategic issues with high probability of occurrence and high probable impact on corporations
Issues Priority Matrix
Probabilityof Occurrence
Probable Impact on Corporation
High Medium Low
HighHigh
PriorityHigh
Priority
Medium
Priority
MediumHigh
PriorityMedium Priority
Low Priority
LowMedium Priority
Low Priority
Low Priority
ii. Industry Analysis: "Analyzing the Task Environment" Porter’s Five Forces of Competition Framework
The Spectrum of Industry Structures
Checklist for Industry Analysis
Porter’s Five Forces of Competition Framework “Competitive Intensity”
The Spectrum of Industry Structures
Perfect Competition Oligopoly Duopoly
Monopoly
Concentration Many firms A few firms
Two firms
One firm
Entry and ExitBarriers
No barriers Significant barriers High barriers
ProductDifferentiation
HomogeneousProduct
Potential for product differentiation
Information PerfectInformation flow
Imperfect availability of information
Checklist for Industry Analysis
1. Threats of new entrants: (potential competitors)
a. Brand Loyalty (Product Differentiation)
b. Absolute Cost Advantages:
i. Superior Production operation due to process past experience, patents or secret process
ii. Control of particular input
iii. Access to cheaper funds
iv. Access to distribution Channels
v. Huge Capital Requirements
c. Economies of Scale: Cost reduction through mass producing a standardized output
d. Switching Cost:: Consumer cost to switch form one product to another
e. Government Regulation:
2. Rivalry among existing firms:
a. Competition Structure: Number & Size of competitor companies: Fragmented -consolidated
b. Demand Condition & Rate of Industry Growth: Declining or growing Demand
c. Exit Barriers:
d. Diversity of Rivals:
e. Capacity: Low price
f. Product or Service Characteristics: undifferentiated product Commodity: a product whose characteristics are the same
3. Substitute products or services:
4. Bargaining power of buyers:
a. Few Number of Buyers & Larger Number of suppliers
b. Buyers Purchasing Large quantity
c. Potential Integration backward
d. Other
5. Bargaining Power of Suppliers
a. Few Suppliers domination
b. Unique Product & high switching Cost
c. Supplier could integrate forward
d. Other
6. Relative Power of other Stake holders
a. Government
b. Trade Associations
c. Unions
d. Complementors
e. Other
iii. External Factor Analysis Summary (EFAS) Sample Environment Opportunities Table
Key Strategic Factors Weight Rating Weighted RangePEST Analysis Score
Political O1 Environmental protection laws 0.1 4 0.4 Long
O2 Government policies 0.1 4 0.4 LongEconomic
O3 Energy availability and cost 0.4 5 2 LongO4 Funding, grants and initiatives 0.2 5 1 Medium
Social O5 Environment awareness 0.05 1 0.05 LongO6 Demographics (population in remote areas
0.05 2 0.1 Long
Technology O7 Manufacturing maturity and capacity 0.05 3 0.15 Long
Key Strategic Factors Weight Rating Weighted RangeBasic POTER Five +1 Score
O8 Rivalry among existing firms 0.05 4 0.2 Short
O9 Bargaining power of buyers 0.05 3 0.15 Short
Sample Environment Threats Table
Key Strategic Factors Weight Rating Weighted RangePEST Analysis Score
Political T1 Political Stability 0.05 2 0.1 LongT2 Lobbying/pressure groups 0.1 4 0.4 Medium
Economic T3 Devaluation/revaluation 0.05 3 0.15 MediumT4 Interest rates 0.05 2 0.1 ShortT5 Market Instability 0.25 5 1.25 Medium
Social T6 Consumer attitudes and opinions 0.2 5 1 Medium
Technology T7 Maturity of technology 0.05 3 0.15 LongT8 Patent protection 0.05 2 0.1 Long
Key Strategic Factors Weight Rating Weighted RangeBasic POTER Five +1 Score
T9 New Entrance 0.1 4 0.4 Long
T10 Substitute products or services 0.05 3 0.15 MediumT11 Bargaining power of suppliers 0.05 1 0.05 Short
b. Internal Scanning: Organizational Analysis
i. Resource Based View RBV
ii. Value Chain Analysis
iii. Scanning Functional Resources
iv. Synthesis of Internal Factors - IFAS
i. Resource Based View RBV A resource is an asset, process, skills, or knowledge controlled by the
organization.
A competitive advantage is rooted in developing key resources that are different.
The RBV explains organizational existence based on internal assets that are Valuable, Rare, Inimitable, and have an Organizational focus (VRIO).
Resources that meet the VRIO criteria contribute to an organization’s competitive advantage.
Most companies have many resources (both tangible and intangible) but few that are strategic in nature.
Most strategic assets tend to be knowledge-based and are intangible.Although tangible resources enable a company to execute business processes, it is the intangible ones that are more likely to serve as sources for competitive advantage.
Core Competencies and Distinctive Competencies
o Core Competencies: Things a corporation can do exceedingly well
o Distinctive Competencies: Core competencies that are superior to those of competitors
A Distinctive Competency Meets Three Tests
a. Customer valueIt must make a disproportional contribution to customer perceived value.
b. Competitor uniqueIt must be unique and superior to competitors capabilities
c. ExtendabilityIt must be something that can be used to develop new products/ services or enter new markets.
VRIO Framework of Resources Analysis
a. Value
Does the resource provide competitive advantage?
Does the resource enable the firm to exploit an external opportunity or neutralize an external threat?
Valuable resources contribute to an organization’s efficiency and effectiveness
b. Rareness
Do other competitor posses?
A resource must be rare enough that perfect competition has not set in
There may be other firms that possess the resource, but still few enough that there
c. Imitability
Is it costly to other to imitate?
This cost may be due to: patent, or because the organization is the first mover
d. Organizational Focus
Is the company organized to exploit of its valuable, rare, and costly to imitate resources?
Organizational focus, refers to Integrated and aligned managerial practices,
routines, and processes.
Managerial leadership and decisions that support key assets in terms of how these assets are developed and sustained.
Sustainability of a Distinctive Competency
a. Durability
New Technology can make a company's core competency obsolete or irrelevant.
b. ImitabilityImitability depends onTransparency: The speed by which the other competitors can understand the relationship of resources and capabilities supporting SE Strategy
Transferability: The ability of competitors to gather & mobilize resources to support a competitive strategy.
Replicability: The ability of competitors to use duplicate resources to imitate our company success
The VRIO Framework (amended for sustainability)
Resources &
CapabilitiesValuable? Rare?
Costly to
Imitate?
Exploited byOrganization?
DurabilityCompetitiveImplications
No Disadvantage
Yes No Parity
Yes Yes No Temporary Advantage
Yes Yes Yes Yes No
Competitive Advantage with limited sustainability
Yes Yes Yes Yes YesSustainable Competitive Advantage
Using Resources for Competitive Advantage
o Identify & Classify Resources in Terms of Strengths & Weaknesses
o Combine Strengths into Specific Capabilities
o Appraise Potential in Terms of Sustainable Competitive Advantage & Profits
o Select Strategy that Best Exploits Resources & Capabilities relative to External Opportunities
o Identify Resource Gaps & Invest in Upgrading Weaknesses
ii. Value Chain Analysis The Value Chain Concept
o Identifies the separate activities and business processes performed to design, produce, market, deliver,
o and support a product / service Consists of two types of activities
Primary activities
Support activities
Business Functions & Value Chain Analysis
o Value Chain Analysis studies business functions or chain of activities that transform inputs into outputs to create value for customers.
o Each activity incurs cost
o The organization margin or profit depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain.
o It is in these activities that a firm has the opportunity to generate superior value.
A Typical Company Value Chain
Value Chain Analysis studies business functions or chain of activities that transform inputs into outputs to create value for customers. Each activity incurs cost and the organization margin or profit depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value.
o Primary activities are:
R&D and Technical Support
Production
Sales & Marketing
Services
o Supporting activities are:
Material Management
Inbound & Outbound Logistics
Financial Function
HR & General Administration
Value Chain Center of Gravity
o That part of the chain that is most important to the organization and the point where it has its greatest expertise & capabilities
o Often it is the point at which the organization was founded.
Industry Value Chain Analysis (the Value System)
o A company's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. Porter calls this series of value chains the value system, shown conceptually below:
Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain
o Suppliers’ value chains are relevant because
Costs, quality, and performance of inputs provided by suppliers influence a firm’s own costs and product performance
o Forward channel allies’ value chains are relevant because
Forward channel allies’ costs and margins are part of price paid by ultimate end-user
Activities performed affect end-user satisfaction
Outsourcing Value Chain Activities
o The Company may specialize in one or more value chain activities and outsource the rest. The extent to which it performs upstream and downstream activities is described by its degree of vertical integration.
o To decide which activities to outsource, managers must understand the company’s strengths and weaknesses in each activity, both in terms of cost and ability to differentiate.
o Managers may consider the following when selecting activities to outsource:
o Whether the activity can be performed cheaper or better by suppliers.
o Whether the activity is one of the firm's core competencies
o The risk of performing the activity in-house.
If the activity relies on fast-changing technology or
the product is sold in a rapidly-changing market,
o Whether the outsourcing of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory, etc
The Company Value Chain
The Value Chain System
iii. Scanning the Functional Resources Assessment of each of the company's functional areas & their
operational activities, identifying constraints and clarifying areas where performance improvements should be achieved & how.
Describe the nature of the market segment in which the company operates.
Provides a summary information concerning the opportunity reached for the company in both local and export markets.
Organizational Structure
Corporate Culture
Strategic Marketing issues
Strategic Finance issues
Strategic R & D issues
Strategic Operations issues
Strategic Human Resources issues
Strategic Information Systems issues
Human Resources & Organization Structure Basic Structures of Corporations
Strategic Business Unit SBU
Independent product-market unit with:
a. Unique mission
b. Identifiable competitors
c. External market focus
d. Control of its business functions
Corporate Culture
o Attributes of Corporate Culture
o Intensity
Integration
o Functions of Corporate Culture
a. Conveys sense of identity
b. Generates employee commitment
c. Adds to organizational stability
d. Serves as a frame of reference
Strategic Marketing Issueso Marketing Position & Segmentation
o Marketing Mix Variables
o Product Life Cycle
Marketing Position & SegmentationMarketing Position:
o Deals with the question: What are our customers?
o It refers to the selection of specific markets, products, and geographic location
Marketing Segmentation:
o The organization defines what niches it seeks
o Do products and services directly compete with each other?
Marketing Mix Variables
Product Place Promotion Price
Quality Channels Advertising List price
Features Coverage Personal selling Discounts
Options Locations Sales promotion Allowances
Style Inventory Publicity Payment periods
Brand name Transport Credit terms
Packaging
Sizes
Services
Warranties
Returns
The Product Life Cycle
Strategic Financial Issues
Financial Leverage
o It is the Ratio of total debit to total assets
o It is helpful in deciding how debit is used in increase the earnings
Capital Budgeting
o It is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional receipt that will result form each investment.
Strategic R&D Issueso R&D Intensity, Technological competence, and Technology
Transfer
o R&D Mix
o Impact of Technological Discontinuity on Strategy
R&D Mix
o Basic R&D
o Product R&D
o Process (Engineering) R&D
Technological Discontinuity
Strategic Operation Strategic Operation Issues
o Manufacturing, Distribution & Materials Management
o Experience Curve
o Flexible Manufacturing for Mass Customization
Manufacturing, Distribution & Materials Managemento Manufacturing Capabilities, Resources & Efficiency
o Operations Planning, & Control & Material Mgmt.
o Maintenance Management System
o Quality Systems
Experience Curve
Economies of Scale versus Economies of Scope
Experience Curve
Economies of Scale versus Economies of Scope
Positioning Strategy HMLV High Mix Low Volume Manufacturing - Process Focused
(Organizing the Productive Resources According to Capability)
o Low Volume
o Wide Variety /High Customization
o Not as Efficient/ Highly Flexible
o General Purpose Equipment
o High Skilled and Highly Trained Workforce
o Jumbled and Complex Work Flow
HVLM High Volume Low Mix Manufacturing - Product Focused
(Organizing the Productive resources around the Product)
o High Volume
o Limited variety Products/Services
o Line Flows
o Special Purpose Equipment
o Low Labor Skills
o Capital intensive/ High Automation
o Efficient
iv. Synthesis of Internal Factors - IFAS. Sample Internal Factors (Strength)
Key Strategic FactorsWeight Rating Weighted Range
ScoreS1 Reputation, presence and reach
0.2 5 1 Long
S2 Experience, knowledge, data 0.2 5 1 LongS3 Innovative aspects 0.2 5 1 Long
S4 Accreditations, qualifications, certifications
0.1 4 0.4 Long
S5 Cultural, attitudinal, behavioral
0.1 3 0.3 Long
S6 Management System 0.1 2 0.2 Long
Sample Internal Factors (Weakness)
Key Strategic FactorsWeight Rating Weighted Range
ScoreW1 Marketing , distribution, awareness 0.3 5 1.5 LongW2 Continuity, supply chain robustness 0.3 5 1.5 LongW3 Financial: Cash flow, start-up cash-drain 0.2 5 1 ShortW4 Gaps in Sustaining internal capabilities 0.1 5 0.5 MediumW5 Resources, Assets, People 0.1 4 0.4 Medium
c. Strategic Factor Analysis Summary (SFAS)
Key Strategic FactorsWeight Rating Weighted Range
ScoreO3 Energy availability and cost 0.4 5 2 LongW1 Marketing , distribution, awareness 0.3 5 1.5 LongW2 Continuity, supply chain robustness 0.3 5 1.5 LongT5 Market Instability 0.3 5 1.3 MediumO4 Funding, grants and initiatives 0.2 5 1 MediumS1 Reputation, presence and reach 0.2 5 1 LongS3 Innovative aspects 0.2 5 1 LongS2 Experience, knowledge, data 0.2 5 1 LongW3 Financial: Cash flow, start-up cash-drain 0.2 5 1 ShortT6 Consumer attitudes and opinions 0.2 5 1 MediumS3 Accreditations, qualifications, certifications
0.2 4 0.8 Long
d. Identify Key Results Area KRA/ Key Business Drivers KBD/ Critical Success Factors CSF
Those 4 to 6 major areas wherein performance is essential during the coming year.
They are areas in which the organization must achieve success to grow and prosper. Include both financial and non-financial areas.
Will not cover the entire organization—will identify the critical few areas where priority efforts should be directed.
They are the areas of organizational activity in which the organization must excel to meet customer needs, exceed the efforts of the competition, and meet customer expectations.
Most will require cross-functional effort.
Each will be limited, generally, to 2 or 3 words and will not be measurable as stated, but will contain factors that could be measurable
e. Setting Strategic Objectives Strategic Objectives describe conditions the organization
wishes to achieve. Usually there will be one or two strategic objectives for each KRA.
As with all objectives, it is important to make them as quantifiable over a time span (3-5 years)
2. Strategy Formulation
a. Corporate Strategy
Directional Strategy: The Organization orientation toward growth, stability, or retrenchment.
Portfolio Strategy: The industries or Markets in which the firm competes through its products
i. Portfolio Strategy
BCG Growth Share Matrix
Developed by Boston Consulting Group
Relative market share better indicator of business strength than actual market share
o Eg. You have 10% share
o Market leader has 20% : relative share is 0.5
o Market leader has 50%: relative share is 0.2
Based on volume - PIMS study: market share is indicator of business strength
Question Markso Low share in emerging industry
o Cash hogs/ need investment
rapid growth
high costs (low scale econ/ experience effect)
o Action
Invest and produce a star
Divest and use resources elsewhere
Starso High share in emerging industry
o Need investment/ working capital due to high growth
may provide from internal funds
but may be cash hogs
o Will sustain the diversified firm into the future
Cash Cows
o High share in mature industry
o Generates large amounts of cash
o Not all needs to be reinvested
o Funds other businesses (stars/ question marks)
o Important to maintain
Market position
Operating efficiencies
Dogs
o Low share in low growth industry
o many can still perform well
esp. if low scale economies/ experience effects
eg. Crown Cork and Seal
o get rid of weak dog businesses
b. Business Strategyo Three Main Business level Strategy
Cost Leadership Strategy: generate economic value by having lower costs than competitors
Differentiation Strategy: generate economic value by offering a product that customers prefer over competitors’ product
Focus Strategy: It is directed toward serving the needs of limited customer group or segment.
o Three main basic decisions
Product differentiation or Customer Needs: What is to be satisfied?
Market Segmentation or Customer Groups: Who is to be satisfied?
Distinctive Competency: How customer needs are to be satisfied?