1. LESSON 3
BUSINESS STRATEGY

2. Session Objectives Understand how to formulate strategic plan
Understand how to formulate business strategy
Understand how to formulate business objectives
Understand the implication of strategic plan to IS/IT plan

3. Agenda Strategic planning Strategic framework
Developing business strategy
Business strategy implementation
Implication of business strategy to IS/IT strategy
A resource-based view of strategy

4. What is Strategic Planning (source: Matt H. Evans, matt@exinfm.com)
Process to establish priorities on what you will
accomplish in the future
Forces you to make choices on what you will do
and what you will not do
Pulls the entire organization together around a
single game plan for execution
Broad outline on where resources will get allocated

5. Fundamental Questions to Ask
Where are we now? (Assessment)
Where do we need to be? (Gap / Future End State)
How will we close the gap (Strategic Plan)
How will we monitor our progress (Balanced Scorecard)

6. Strategic Planning Model A B C D E
Where we are
Where we want to be
How we will do it
How are we doing
Assessment
Baseline
Components
Down to Specifics
Evaluate
Environmental Scan
Situation – Past, Present and Future
Mission & Vision
Performance Measurement
Performance Management
Background Information
Significant Issues
Values / Guiding Principles
Targets / Standards of Performance
Review Progress – Balanced Scorecard
Situational Analysis
Align / Fit with Capabilities
Major Goals
Initiatives and Projects
Take Corrective Actions
The Overall Model consists of five major phases
SWOT – Strength’s, Weaknesses, Opportunities, Threats
Gaps
Specific Objectives
Action Plans
Feedback upstream – revise plans

7. Another Model of Strategic Planning
Establish
strategic
direction
Define
strategies
Achieve
strategies
feedback
Strategic planning of
options selected
Define mission and objectives
Assess situation and options
Select options
Implement strategies
Strategic thinking and opportunistic
decision making

8. Assessment Model:S W O T
Internal Assessment: Organizational assets, resources, people, culture, systems, partnerships, suppliers, . . .
External Assessment: Marketplace, competitor’s, social trends, technology, regulatory environment, economic cycles .
Easy to Understand
Apply at any organizational level
SWOT
Needs to be Analytical and Specific
Be honest about your weaknesses
SWOT
Good Points
Possible Pitfalls

9. Why create a baseline? Puts everything about the organization into a
single context for comparability and planning
Descriptive about the company as well as the
overall environment
Include information about relationships –
customers, suppliers, partners, . . .
Preferred format is the Organizational Profile

10. Organizational Profile 1. Operating Environment
Baseline
Products and Services – Suppliers, Delivery
Channels, Contracts, Arrangements, . . .
Organizational Culture – Barriers, Leadership,
Communication, Cohesiveness
Workforce Productivity – Skill levels, diversity,
contractor’s, aging workforce, . . .
Infrastructure – Systems, technology, facilities, . .
Regulatory – Product / Service Regulation, ISO
Quality Standards, Safety, Environmental, . .

11. Organizational Profile 2. Business Relationships
Baseline
Organizational Profile 2. Business Relationships
Organizational Structure – Business Units,
Functions, Board, Management Layers, . . .
Customer Relationships – Requirements,
Satisfaction, Loyalty, Expectations, . . .
Value Chain – Relationship between everyone in the value chain
Partner Relationships – Alliances, long-term
suppliers, customer partnerships, . . .

12. Organizational Profile 3. Key Performance Categories
Baseline
Organizational Profile 3. Key Performance Categories
Customer
Products and Services
Financial
Human Capital
Operational
External (Regulatory Compliance, Social
Responsibility, )

13. Gap = Basis for Long-Term Strategic Plan
Baseline
Gap Analysis
Baseline / Org Profile
Challenges / SWOT
Gap = Basis for Long-Term Strategic Plan

14. Major Components of the Strategic Plan / Down to Action
Action Plans
Evaluate Progress
Mission
Why we exist
Vision
What we want to be
Goals
What we must achieve to be successful
Objectives
Specific outcomes expressed in measurable terms (NOT activities) O1 O2
Initiatives
Planned Actions to
Achieve Objectives
AI1
AI2
AI3
Indicators and
Monitors of success
Measures M1 M2 M3
Targets T1 T1 T1
Desired level of performance and timelines

15. Mission Statement Captures the essence of why the organization
Components
Mission Statement
Captures the essence of why the organization
exists – Who we are, what we do
Explains the basic needs that you fulfill
Expresses the core values of the organization
Should be brief and to the point
Easy to understand
If possible, try to convey the unique nature of your organization and the role it plays that differentiates it from others

16. Examples – Good and Bad Mission Statements
Components
Examples – Good and Bad Mission Statements
NASA
To Explore the Universe and Search for Life and to Inspire the Next Generation of Explorers
Does a good job of expressing the core values of the organization. Also conveys unique qualities about the organization.
Walt Disney
Too vague and and unclear. Need more descriptive information about what makes the organization special.
To Make People Happy

17. Components
Vision
How the organization wants to be perceived in the future – what success looks like
An expression of the desired end state
Challenges everyone to reach for something
significant – inspires a compelling future
Provides a long-term focus for the entire
organization

18. Examples of Vision Descriptors
Components
Adept
Aggressive
Agile
Aligned
Assertive
Available
Best-in-class
Challenging
Clear
Competent
Complex
Compliant
Conservative
Coordinated
Critical
Direct
Equal
Disciplined
Effective
Efficient
Enduring
Expanding
Expert
Fast
Fast-paced
Financially-sound
Focused
Growth
Healthy
Improving
Incentivized
Increasing
Informative
Innovative
Leading
Logical
Major
Nimble
Pioneering
Protected
Organized
Over-Arching
Quick
Ready
Responsive
Savvy
Simple
Solid
Solvent
Stable
State of the Art
Strong
Streamlined
Sufficient
Strategic
Sustainable
Timely
Value-added
Vigilant
Visionary
World-class

19. Guiding Principles and Values
Components
Every organization should be guided by a set of values and beliefs
Provides an underlying framework for making decisions – part of the organization’s culture
Values are often rooted in ethical themes, such as honesty, trust, integrity, respect, fairness,
Values should be applicable across the entire
organization
Values may be appropriate for certain best
management practices – best in terms of quality,
exceptional customer service, etc.

20. Examples of Guiding Principles and Values
Components
We obey the law and do not compromise moral or ethical principles – ever!
We expect to be measured by what we do, as well as what we say.
We treat everyone with respect and appreciate individual differences.
We carefully consider the impact of business decisions on our people and we
recognize exceptional contributions.
We are strategically entrepreneurial in the pursuit of excellence, encouraging original thought and its application, and willing to take risks based on sound business judgment.
We are committed to forging public and private partnerships that combine diverse strengths, skills and resources.

21. Goals Describes a future end-state – desired outcome
Components
Goals
Describes a future end-state – desired outcome
that is supportive of the mission and vision.
Shapes the way ahead in actionable terms.
Best applied where there are clear choices about
the future.
Puts strategic focus into the organization – specific
ownership of the goal should be assigned to
someone within the organization.
May not work well where things are changing fast
– goals tend to be long-term for environments that
have limited choices about the future.

22. Developing Goals Cascade from the top of the Strategic Plan –
Components
Developing Goals
Cascade from the top of the Strategic Plan –
Mission, Vision, Guiding Principles.
Look at your strategic analysis – SWOT,
Environmental Scan, Past Performance, Gaps . .
Limit to a critical few – such as five to eight goals.
Broad participation in the development of goals:
Consensus from above – buy-in at the execution
level.
Should drive higher levels of performance and close a critical performance gap.

23. Examples of Goals Components
Reorganize the entire organization for better responsiveness to customers
We will partner with other businesses, industry leaders, and government agencies in order to better meet the needs of stakeholders across the entire value stream.
Manage our resources with fiscal responsibility and efficiency through a single comprehensive process that is aligned to our strategic plan.
Improve the quality and accuracy of service support information provided to our internal customers.
Establish a means by which our decision making process is market and customer focus.
Maintain and enhance the physical conditions of our public facilities.

24. Objectives Relevant - directly supports the goal
Components
Objectives
Relevant - directly supports the goal
Compels the organization into action
Specific enough so we can quantify and measure the results
Simple and easy to understand
Realistic and attainable
Conveys responsibility and ownership
Acceptable to those who must execute
May need several objectives to meet a goal

25. Goals vs. Objectives Components GOALS OBJECTIVES
Very short statement, few words
Longer statement, more descriptive
Broad in scope
Narrow in scope
Directly relates to the Mission Statement
Indirectly relates to the Mission Statement
Covers long time period (such as 10 years)
Covers short time period (such 1 year budget cycle)

26. Examples of Objectives
Components
Examples of Objectives
Develop a customer intelligence database system to capture and analyze patterns in purchasing behavior across our product line.
Launch at least three value stream pilot projects to kick-off our transformation to a leaner organization.
Centralize the procurement process for improvements in enterprise-wide purchasing power.
Consolidate payable processing through a P-Card System over the next two years.
Monitor and address employee morale issues through an annual employee satisfaction survey across all business functions.

27. What are Action Plans? Down to Specifics
The Action Plan identifies the specific steps that will be taken to achieve the initiatives and strategic objectives – where the rubber meets the road
Each Initiative has a supporting Action Plan(s) attached to it
Action Plans are geared toward operations, procedures, and processes
They describe who does what, when it will be completed, and how the organization knows when steps are completed
Like Initiatives, Action Plans require the monitoring of progress on Objectives, for which measures are needed
Objectives
Initiatives
Action Plans

28. Criteria for Good Measures
Down to Specifics
Criteria for Good Measures
Integrity – Complete; useful; inclusive of several types of measure; designed to measure the most important activities of the organization
Reliable: Consistent
Accurate - Correct
Timely – Available when needed: designed to use and report data in a usable timeframe
Confidential and Secure: Free from inappropriate release or attack

29. Examples of Measurements Lead Indicators
Down to Specifics
Examples of Measurements Lead Indicators
Average time to initiate customer contact => shorter time should lead to better customer service
Average response time to incident => below average response times should lead to increased effectiveness in dealing with incident
Facilities that meet facility quality A1 rating => should lead to improved operational readiness for meeting customer needs

30. Targets For each measurement, you should have at least one target
Down to Specifics
Targets
For each measurement, you should have at least one target
Targets should stretch the organization to higher levels of performance
Incremental improvements over current performance can be used to establish your targets
Targets put focus on your strategy
When you reach your targets, you have successfully executed your strategy

31. Examples of Targets Down to Specifics
Average Time to Process New Employee Setups in DB
65 days Year 2007
60 days Year 2008
55 days Year 2009
Utilization Rate for Rental Housing Units
90% for
Year 2007
92% for Year 2008
95% for Year 2009
Toxic Sites meeting in-service compliance
55% for Year 2007
70% for Year 2008
Personnel Fully Trained in Safety and Emergency
65% by 2rd Quarter
75% by 3th Quarter
90% by 4th Quarter
Open Positions Filled after 30 day promotion period
75 positions Sept 2007
100 positions Jan 2008
135 positions July 2008
% Reduction in Orders Filled Short in 1st Cycle
50% by Year 2008
65% by Year 2009
85% by Year 2010

32. Continuous Feedback through the Balanced Scorecard
Evaluate
Continuous Feedback through the Balanced Scorecard
Cascade and align from the top to create a Strategic Management System.
Use the Balanced Scorecard framework to organize and report actionable components.
Use the Scorecard for managing the execution of your strategy.
Scorecard “forces” you to look at different perspectives and take into account cause-effect relationships (lead and lag indicators)
Improves how you communicate your strategy – critical to execution.

33. Evolution of Strategic Planning
Effectiveness of
strategic decision
making
Well defined strategic
framework
Strategically focused
organization
Widespread strategic
thinking capability
Reinforcing management
processes
Supportive value system
and climate
Multi-year budgets
Gap analysis
Static allocation of
resources
Situation analysis and
competitive assessments
Evaluation of strategic
options
Dynamic allocation of
resources
Annual budgets
Functional focus
Stage 1 Stage 2 Stage 3 Stage 4
Financial Forecast-based Externally Strategic
planning planning oriented management
(meet budget) (predict the (think (create the
future) strategically) future)

34. Strategic Framework for Strategic Planning
External Environments
Economic Political Ecological
Technological Social Legal
Pressure
Groups
Values
Objectives Identify current Identify future Threats and
strategies strategies opportunities
Evaluate Analyze Evaluate
feedback internal strategies
resources
Monitor Implement Select
Strategies Strategies Strategies
Customers
Suppliers
Shareholders
Employees
Unions
Government
Public
Competitors
Customers
Suppliers
Shareholders
Employees
Unions
Public
Media
Financial Ins.
Stake
Holder

35. Input to Strategic Planning
External environments - sources of important signals to organizations
Pressure groups - demand recognition and rapid management response
Stakeholders - demand fair share of created wealth
Business planning is usually carried out for each strategic business unit
A unit that sells a distinct set of products or services, serve a specific set of customers, and competes with a well-defined set of competitors

36. Definition of Business Strategy
An integrated set of actions aimed at increasing the long-term well-being and strength of the organization relative to its competitors

37. Technique to Develop Business Strategy: Competitive Forces in Industry (Porter, 1980)
Threat of new
entrants
Rivalry among
existing
competitors
Bargaining
power of
suppliers
Bargaining
power of
buyers
Threat of
substitute
product

38. Factors Affecting The Impact of Competitive Forces
New entrants
Capital requirements
Patents and specialists skill required
Distribution channels available
Achieved/required economies of scale and resultant cost advantages
Number and size of existing rivals and intensity of competition
Differentiation and brand establishment/loyalty
Access to raw materials/critical resources etc.
Business strategy: “how to discourage new entrants to come
into the business”

39. Strategic Choices: Factors Affecting The Impact of Competitive Forces
Substitute products/services
Customer awareness of needs and means of satisfaction
Customer sensitivity to value for money and ability to compare
Existing loyalty of customer—impact of “industry” promotion
Ability to differentiate products etc.
Business strategy: “how to create a loyal customers?”

40. Strategic Choices: Factors Affecting The Impact of Competitive Forces
Competitive rivalry will be intensified by:
Market growth slow (or in decline)
Small number of similar sized competitors dominate
High fixed costs and/or high exit barriers for all rivals
Overcapacity and/or capacity increments are large units
Commodity-like, undifferentiated products.
Business strategy: “how to differentiate your products?”

41. Strategic Choices: Factors Affecting The Impact of Competitive Forces
Buyers’ power will be increased by:
Concentrated/few buyers making high volume and/or high value of purchases
Low switching costs across suppliers
Price sensitive and many alternative sources of supply
Weak brand identities, products not differentiated
Buyers capable of backward integration due to low entry cost.
Business strategy: “how to make the buyers depend on your business”

42. Strategic Choices: Factors Affecting The Impact of Competitive Forces
Suppliers’ power will be increased by:
Few suppliers—high switching costs for rivals and suppliers deal with many small customers
Potential substitute supplier/resources not easily available
Supplied goods make up large part of firm’s costs
Suppliers capable of forward integration or bypass to customers
Business strategy: “how to make the suppliers depend on your business”

43. Generic Competitive Strategy
Low
Cost
Competitive
Advantage
Differen-
tiation

44. Characteristics of Generic Strategies
Commonly Required Skills and Resources
Commonly Organizational Requirements
Overall cost leadership
Sustained capital investment and access to capital
Process engineering skills
Intense supervision of labor
Tight cost control, frequent, detailed control reports.
Structured organization and responsibilities.
Incentives based on meeting strict quantitative targets
Differentiation
Strong marketing abilities and creative flair.
Product engineering skills.
Strong capability in basic research.
Corporate reputation for quality or technological leadership.
Strong cooperation from distribution channels.
Strong coordination among functions in R&D, product development, and marketing.
Subjective measurement and incentives instead of quantitative measures (market based incentives).
Amenities to attract highly skilled labor or creative people.
Looser, more trusting organizational relationships.
Focus
Combination of the above policies directed at the particular strategic target.