Our goal? Practice all steps of strategic planning process Choose a company for which to formulate a strategic business plan Identify / formulate: - mission statement – framework w/in which strategy shall be crafted - corporate vision – where do we want to be in # years - business aims -> specific objectives Scan the environment – carry out external, internal & industry analysis -> situational analysis -> Internal analysis - core business & competencies, resources available, corp. structure, required inputs, corp. culture => IFAS (Internal Factor Analysis Summary)
Our goal? Practice all steps of strategic planning process Environment scanning contd: -> External analysis - PEST(LE) => EFAS (External Factor Analysis Summary) - Industry Analysis (task environment): -> Porters Five (Six) forces => Industry Matrix - Situational Analysis – finding a strategic fit b/w external opportu- nities & internal strengths - mitigating harmful effects of external threats due to internal weaknesses => SFAS (Strategic Factor Analysis Summary) => SWOT analysis
Which companies do these mission statements represent? "To experience the joy of advancing and applying technology for the benefit of the public "To build a place where people can come to find and discover anything they might want to buy online." "To produce high-quality, low cost, easy to use products that incorporate high technology for the individual. We are proving that high technology does not have to be intimidating for non-computer experts.
Mission statement Kodak vs. Polaroid KODAK: We will build a world-class, results-oriented culture based on our six key values: - respect for the individual, uncompromising integrity, trust, credibility, - continuous improvement and personal renewal - recognition and celebration of achievement through which we will grow more rapidly than our competitors by providing customers and consumers with solutions they need to capture, store, process, output and communicate images to people and machines anywhere, anytime. POLAROID: … to put the latest cutting edge technology in the peoples hands and give them the power to use it comfortably, affordably… and in an instant.
Mission statements Take a wild guess BMW vs. Mercedes McDonalds vs. KFC IBM vs. Apple Acer vs. Dell Google vs. Yahoo
Mission statement samples BMW: "The BMW Group is the world's leading provider of premium products and premium services for individual mobility. Mercedes: We invented the automobile - now we are passionately shaping its future. As a pioneer of automotive engineering, we feel inspired and obliged to continue this proud tradition with groundbreaking technologies and high-quality products.
Mission statement samples McDonalds: to provide the fast food customer food prepared in the same high-quality manner world-wide that is tasty, reasonably-priced & delivered consistently in a low-key décor and friendly atmosphere." KFC: to sell food in a fast, friendly environment that appeals to pride conscious, health minded consumers.
Mission statement samples IBM: "At IBM, we strive to lead in the invention, development and manufacture of the industry's most advanced information technologies, including computer systems, software, storage systems and microelectronics. We translate these advanced technologies into value for our customers through our professional solutions, services and consulting businesses worldwide." Apple: "To produce high-quality, low cost, easy to use products that incorporate high technology for the individual. We are proving that high technology does not have to be intimidating for noncomputer experts."
Mission statement samples Dell: "To be the most successful computer company in the world at delivering the best customer experience in markets we serve. Acer: "Measuring and tracking the effects of climate change demands accurate reporting. ACER believes in a grassroots approach - utilizing citizen scientists to conduct such measurement in a scientifically sound manner.
Mission statement samples Google: Googles mission is to organize the worlds information and make it universally accessible and useful. Yahoo: 1. To connect people to their passions, communities, and the worlds knowledge. 2."Yahoo's mission is to be the most essential global Internet service for consumers and businesses."
Mission statements – conclusion? Questions to consider Why are some mission statements similar? Why do they look so broad or general? Would it pay to narrow a mission statement down? Your task For the company of your choice, formulate a mission statement in your own words based on your current knowledge about the company. Identify the mission statement based on your research.
Corporate vision McDonalds: … be the world's best quick service restaurant experience. Being the best means providing outstanding quality, service, cleanliness, and value, so that we make every customer in every restaurant smile. Toyota: "To become the most successful and respected lift truck company in the U.S. Avery Dennison : "To be recognized as the world's best coating and converting company by providing innovative decorating, information transfer and bonding solutions that enable our customers' success. - Manufacturing pressure sensitive labeling materials, retail apparel ticketing, graphics imaging media, office products, specialty tapes
Corporate vision Your task Identify the corporate vision for your company Can be found directly in the vision statement or derived from a mix of information provided by top management. Will be subject to re-evaluation / reconsideration after SWOT analysis based on EFAS, IFAS, and SFAS are performed
Progress check External analysis Socio-economic (societal) environment – PEST(LE) analysis - analyzing general forces that do NOT directly affect business activities in the short-run BUT they DO influence long-term decisions - i.e. forces that regulate the exchange of materials, energy, money, and information Task environment –> industry analysis (Porters 5 forces)
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? GDP trends – prospects of economic growth Interest rates – past, current and projected Currency exchange rates Inflation rates (Consumer Price Index) – past, current, projected – - $ supply Level of unemployment and supply of labor Labor costs – wage rates and control Availability of natural resources and their costs – energy, oil, minerals (Iceland)
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Disposable and discretionary income Devaluation/revaluation, price control Demographics – qty of people on retirement – drawing from pension funds Distribution of wealth (income) in the society – linked w/taxing Purchasing power (spending power growth) Trade agreements (EU, NAFTA, ASEAN) Creation of World Trade Org. WTO
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Higher GDP => higher consumer expenditures => alleviating competitive pressures w/in industry => potential for expansion => => higher profits => OPPORTUNITY Fall in GDP => lower profits => price wars due to market saturation Higher interest rates => borrowing becomes more expensive => FMCGs go unaffected (nearly) => THREAT => drop in demand for housing => fall in demand for cars, home appliances, capital equipment => higher cost of companys capital => less able to raise funds to invest in new assets
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Exchange rates - e.g. Czech company with majority of sales & revenues derived from trade with customers in Euro-zone - cheaper Euro => lower revenues after conversion to CZK holding sales constant => THREAT - cheaper USD against Japanese Yen => 240 Yen/USD down to 85 Yen/USD => increase in price of imported goods from Japan (e.g. cars) => protection against competition from abroad => => OPPORTUNITY
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Price inflation => destabilization of economy => economic growth slowing down => e.g. unstable currency => difficult/hazardous to engage in investment planning => THREAT -> real value of future returns becoming uncertain – long-term projects Price deflation => real price of fixed payments goes up => harms companies w/regular fixed repayments of debt => THREAT => lower discretionary income
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Increase in $ supply – decision of National Bank & government - always in response to latest developments in macro-econ environment - particularly - in situations when fluctuations in prices are large Govt doesnt issue more bonds b/c nobody wants them since they lose value over time => more difficult to plan investments b/c of THREAT of hyperinflation => trade conducted using alternative (more stable) currencies
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? High level of unemployment => greater # of people to choose from => higher tendency to treat employees unethically and reduce their pay => falling wage rates => higher savings on labor costs (OPPORTUNITY) limited by legally imposed minimum wage rate (THREAT) => tendency to move to countries w/weaker economies yet qualified workers (1990 – Czechoslovakia, Ukraine, etc.)
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Newly found reservoirs of crude oil, ores (iron, gold, silver, copper), coal, etc. => higher volume to be processed => attraction for investors => greater exports => higher income to state treasury through taxes on revenues earned from the exported processed raw materials => source of economic stability => easier to predict economic growth and establish ones vision under the assumption of stable political arena and free market economy
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Lower disposable income - if due to higher taxes => THREAT of financing long-term debt => red stop sign or warning for investors and companies currently operating in that country => temptations for all to raise expenditures, suppress revenues and/or reduce salaries to increase savings => strategic move to avoid higher taxes Lower discretionary income => confirmation of above-mentioned suspicions => Need to monitor macro-economic variables and statistics
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? More & more people on retirement - demographics => greater $ burden on the state treasury => need to compensate for increased outflow of $ into pension funds and healthcare sys. by: a) raising taxes - THREAT b) issuing more bonds – investment incentive for all c) reducing $ spent on R&D and education – insidious THREAT for high-tech businesses yet an OPPORTUNITY to seek unskilled manual workers hired for lower pay d) reducing $ spent on the development of infrastructure => more corporate $ to be sacrificed for employees health issues => Proportion of a, b, c,d.. => rational expectations => corp. vision & strategy
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Distribution of wealth in the society => large differences in wages b/w managers and manual workers => tendency to maximize the use of people w/lower pay and reduce the no. of top managers => inclination to suppress workers wages as much as they are willing to take => adjust wages for different professions to the levels commonly accepted in the society => OPPORTUNITY or THREAT
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Intensifying inflation => decrease in purchasing power => lower expected sales => lower revenues earned from sale of any product which is measured by CPI => strategic move to seek new markets/industries (OPPORTUNITY) which: - have not yet matured or been saturated - are not experiencing negative trends - operate under free-market conditions or are subject to a promise of guaranteed subsidies => diversification w/in same market is not a likely long-term solution
External analysis – Macro-environment -> PEST(LE) How do economic factors affect our business in the world of tomorrow, NOT today? Boeing sample problem Exchange rates example Prices of inputs example Industrial production level example
External analysis – Technological factors -> PEST(LE) Overview Generate problem-solving inventions - Technological change <= no. of patents and licenses <= no. of R&D institutions and universities involved in R&D - Govt vs. industry R&D spending, i.e. sources of R&D funding - New and/or improved distribution & communication channels - Impact on the life cycles of relevant products -> planned rates of obsolescence - Patent protection
External analysis – Technological factors -> PEST(LE) Strong involvement of universities in R&D and growing /high # of R&D institutions => new patents and licenses => grounds for technological change & innovation - OPPORTUNITY => higher efficiency in using resources – automation in automotive - miniaturization in IT &TELCO => creation of new products/processes, sciences/industries - MP3, online computer games, Skype, hologram video phones - shopping online, bar-coding, Computer-Aided Manufacturing, Computer-Aided Design - genetic engineering, new synthetic materials, nanotechnology
External analysis – Technological factors -> PEST(LE) Increasing involvement of universities in R&D and # of R&D- oriented organizations in a given country => opportunity to invest into new technologies and development of associated infrastructure - OPPORTUNITY => new jobs for R&D experts and educated professionals => new hospitals => more medical doctors needed => new assembly lines in IT, automotive => more software developers needed => improved position against competitors -> lower unit production costs => room to reduce unit price => expectations of higher sales => higher sales volumes & thus revenues for suppliers
External analysis – Technological factors -> PEST(LE) Increasing involvement of universities in R&D and # of R&D- oriented organizations in a given country => OPPORTUNITIES => increased potential for sale of new products (smart phones) => higher # of saved lives via new medications, surgical tools … => new/improved modes of transportation -> faster, higher comfort (more room, i-net access, air-conditioned), more efficient fuels (airlines going from turbo-propelled to jet engine aircraft)
External analysis – Technological factors -> PEST(LE) Intentionally increased rate of obsolescence => planned obsolescence -> cars dont last as long as they used to 40 years ago b/c auto manufacturers intend to sell more in less time -> cellular phones are made to break w/the average length of time spent with one TELCO provider w/out changing ones service plan -> i.e. synchronizing obsolescence w/complementary products (THREAT/OPPORTUNITY)
External analysis – Environmental factors -> PEST(LE) New or improved sources of energy and more efficient consumption (new or more efficient fuels) - OPPORTUNITY Waste disposal – manufacturers using chemicals for production – statutory restrictions -> THREAT Pollution - older cars shall be subject to higher traffic fees & insurance (OPPORTUNITY/THREAT) Rate of obsolescence - restrictions on the sale of old types of micro-wave ovens or cellular phones - OPPORTUNITY/THREAT Weather/climate changes – development of new ski resorts endangered due to decreasing snowfall in a particular region (THREAT) -> Longer winters => higher revenues for sellers of snow tires, tools … => OPPORTUNITY
External analysis – Political factors -> PEST(LE) Type of government and its stability Freedom of speech and press The degree of enforceability of law (rule of law) Bureaucracy and corruption levels Taxation Policy Domestic/foreign trade regulations, tariff controls Social and unemployment policy Trade agreements (EU, NAFTA, ASEAN) and membership therein Creation of World Trade Org. WTO Legislation – current and pending – also political background Access to new technologies (in terms of $ and political predispositions) $ and political support for R&D and innovation => new inventions
External analysis – Political factors -> PEST(LE) China – 2 nd largest fastest growing economy – vs. other countries to be entered during geographical expansion - new territory expected to be converted into market economy depending on changes in political orientation -> seeking growth of market share -> OPPORTUNITY - judgment and comparison of objectivity of macro-economic KPIs -> i.e. China vs. Thailand vs. South Korea vs. North Korea … comparison of simplicity of tax structure & tax breaks in different countries and expectations Govt support in development and use of infrastructure Property ownership issues – dictatorships vs. free-market econs
External analysis – Legal factors -> PEST(LE) Legislation – current and pending – also political background The degree of enforceability of law (rule of law) Unemployment law (unemployment benefits) Health and safety; legal age (18 in EU or 21 in USA => child labor) Product safety and consumer protection legislation Protection of patents, copyrights, and intellectual property in general Product labeling Torts Disabilities Act Legislation regulating who may offer brokerage services Deregulation of utility and other industries; advertising regulations Minimum wages Tax laws
External analysis – Legal factors -> PEST(LE) Affect a firms costs - new EU legislation requiring all restaurants to re-design bathrooms, utilize new utensils … <= health preservation - the use of unleaded solder enforced => all IT-products manufacturers must re-design their production processes Impact on revenues through influencing demand for products made by the company - all drivers must buy new a first-aid kit – to comply w/new traffic legislation => secure business for their manufacturers
External analysis – Socio-cultural factors -> PEST(LE) Regulate values, morals, customs, religious concerns - Demographics – changes in ethnic composition; religious concerns; immigration/emigration issues; trends in the geographic distribution of population; life expectancy changes; birth rates - Demographics – aging population => qty of people on retirement –> drawing from pension funds -> Ramadan period for Muslims => work-related restrictions -> special requirements for dining services at work -> work time-related issues -> unacceptable for exercising Christians to work on Sundays => HR -> migration of people to cities => harder to find suitable workforce in the countryside
External analysis – Socio-cultural factors -> PEST(LE) - Postponement of family formation; population growth rates -> prone to hire young female workers w/out worrying about squandering resources invested in their training if the time of their pregnancy is expected to arrive later - Health and safety consciousness -> higher hygiene standards to follow => higher investment in building appropriate internal facilities in the workplace - Mobility, life-style changes, career expectations (HR concerns) -> more women looking after their careers => HR policies - Demographics - distribution of wealth in the society; rising affluence (i.e. abundance of material wealth); greater disparities (inequalities) in income levels (middle-class, upper-middle classes)
External analysis – Socio-cultural factors -> PEST(LE) Level of education - linked to political decisions whether education should be free and accessible to all equally - higher level of general knowledge => more effort to gather more info concerning a product & its substitutes/complements => more prudent judgment regarding the choice => different marketing styles of product presentation - countries w/higher educational standards => more likely to recruit brain tanks for R&D
External analysis – Socio-cultural factors -> PEST(LE) Consumer behavior - savings rates, preferences for branded/unbranded products; perception of media - e.g. if customary to live on credit => greater qty of loans offered by banks => stronger demand for higher wages => higher expected wage expenditure => greater consumption of FMCGs - OPPORTUNITY => decline in long-term investment – real estate, cars - THREAT => emergence of fads - OPPORTUNITY
External analysis – Socio-cultural factors -> PEST(LE) Attitudes towards upper management and work in general - Hofstede Framework for Assessing Cultures - i.e. power distance, individualism vs. collectivism, quantity vs. quality of life, uncertainty avoidance, long vs. short-term orientation - e.g. buy-out of an EU-based company by a Japanese corp. => precise instructions to be followed literally => clashes (THREAT) Increased number of temporary workers - more/less common to opt for temporary workforce - e.g. employment of expats from economically unstable countries Work ethics; gender discrimination (more women in workforce and top management); racial discrimination
External analysis – Overview -> PEST(LE) Choose a company Which industry is it in? What are the most relevant and critical factors in the surrounding environment with the greatest impact on its operations in the short and long run? Explain …
External analysis – Overview -> PEST(LE)
External analysis – Example - PEST(LE)
External analysis – Answer Key -> PEST(LE)
External factor analysis - Summary
STRATEGIC MANAGEMENT SEMINARS November 24, 2011 Seminar #
Michael Porters 5 Forces
Industry analysis – Porters 5 (6?) forces Threat of new entrants Barriers to entry: - economies of scale - product differentiation - capital requirements - switching costs - access to distribution channels - cost disadvantages independent of size - government policy
Industry analysis – Porters 5 (6?) forces Rivalry among existing firms Rivalry related to: - number of competitors - rate of industry growth - produce or service characteristics - amount of fixed costs - capacity - height of exit barriers - diversity of rivals
Industry analysis – Porters 5 (6?) forces Threat of substitute products (goods/services) Products - satisfy the very same need as their direct substitutes Although they appear to be different If switching costs are low => strong effect on an industry Relative power of stakeholders Labor unions Governments Shareholders Banks …
Industry analysis – Porters 5 (6?) forces Bargaining power of buyers Buyers are powerful when: - they purchase large proportion of sellers products - they are capable of integrating backward - there are many alternative suppliers - switching to other suppliers is not costly - the product purchased is NOT important to the final quality/price of buyers products - the product purchased accounts for a substantial %age of buyers costs - they earn low profits
Industry analysis – Porters 5 (6?) forces Bargaining power of suppliers Suppliers are powerful when: - Suppliers industry is dominated by a few players selling to many buyers - Their products are unique - Their products have high switching costs - Substitutes are hardly available or not at all - They can integrate forward and compete directly w/current customers - The goods made/sold by them to buyers constitute only a small portion of suppliers total product portfolio
Industry analysis – Porters 5 (6?) forces
Air-travel industry Rivalry among industry players - Airbus vs. Boeing (vs. ATR, Tupolev) Threat of new entrants - severe regulations - large capital investment - sophisticated supplier and support industries - highly skilled labor - zero/negative profits during an extended start-up phase - China/Russia/Japan or … ? may encourage a subsidized entry into market of their own national company
Air-travel industry Bargaining power of buyers - limited # of traditional and low cost airlines; leasing companies => considerable & growing power b/c of decreased # of orders for new aircraft - they have low switching costs -> Boeing is willing & able to offer better price &/or service than Airbus to steal orders from Airbus - low cost airlines – order aircraft w/basic equipment easily to be produced by either of 2 manufacturers
Air-travel industry Bargaining power of suppliers - engine manufacturers – crucial for aircraft manufacturers - gradually undergoing consolidation - non-existent substitutes due to certification requirements (high reliability/efficiency) => strong bargaining power weakened by shrinking military market to which they also supply Threat of substitutes - high-speed trains (Germany, France) traveling between points falling into air-travel network => lower demand for air-travel alternative - automobile industry – cars, highway network in EU, comfort (A/C) - IT – e.g. skype conference calls => no need to meet physically in 1 place
Air-travel industry Relative power of stakeholders Banks – loans to aircraft manufacturers backed up by long-term contracts w/airlines, governments, renting companies …… Suppliers, labor unions, international relations in the defense sector …