OVERVIEW OF STRATEGIC PLANNING CONCEPTS

STATEMENT ABOUT A COMPANY’S VISION STATEMENT ABOUT A COMPANY’S LONG-TERM DIRECTION

Why is a Strategic Vision Important? A managerial imperative exists to look beyond today and think strategically about Impact of new technologies How customer needs and expectations are changing What it will take to outrun competitors Which promising market opportunities ought to be aggressively pursued External and internal factors driving what a company needs to do to prepare for the future

MISSION DEFINES COMPANY’S BUSINESS PRODUCT / MARKET 2. TERRITORY / GEOGRAPHY

VISION vs. MISSION A strategic vision concerns a firm’s future business path -- “where we are going” Markets to be pursued Future technology-product-customer focus Kind of company that management is trying to create A mission statement focuses on current business activities -- “who we are and what we do” Current product and service offerings Customer needs being served Technological and business capabilities

MICROSOFT’S VISION/MISSION "To enable people and businesses throughout the world to realize their full potential"

GE’S VISION/MISSION GE is committed to achieving worldwide leadership in each of its businesses. To achieve that leadership, GE's ongoing business strategy centers on four key growth initiatives: - Technology - Services - Customer Centricity - Globalization

Example of Vision & Mission Intel Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core mission is being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet.

Simple Mission Statements Eastman Kodak We are in the picture business. Wit Capital (an Internet startup company) Our mission is to be the premier Internet investment banking firm focused on the offering and selling of securities to a community of online individual investors.

More Mission Statements … Otis Elevator Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world. Avis Rent-a-Car Our business is renting cars. Our mission is total customer satisfaction.

Setting Goals & Objectives Second Task of Strategic Management Converts strategic vision and mission into specific performance targets Creates yardsticks to track performance Pushes firm to be inventive and focused on results Helps prevent complacency and coasting

GOALS BROAD TARGETS OBJECTIVES QUANTIFIED & TIME-BASED

Financial Goals Strive for stock price appreciation equal to or above the S&P 500 average Maintain a positive cash flow every year Achieve and maintain a AA bond rating

Financial Objectives Grow earnings per share 15% annually Boost annual return on investment (or EVA) from 15% to 20% within three years Increase annual dividends per share to stockholders by 5% each year

Strategic Goals Increase firm’s market share Overtake key rivals on quality or customer service or product performance Attain lower overall costs than rivals Boost firm’s reputation with customers Attain stronger foothold in international markets Achieve technological superiority Become leader in new product introductions Capture attractive growth opportunities

What is Strategy? A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company Strategy is management’s “game plan” to Attract and please customers Stake out a market position Conduct operations Compete successfully Achieve organizational objectives

Relationship Between Strategy and Business Model Strategy - Deals with a company’s competitive initiatives and business approaches Business Model -Concerns whether revenues and costs flowing from the strategy demonstrate the business can be amply profitable and viable Strategy Business Model

Levels of Strategy-Making in a Diversified Company Corporate-Level Managers Corporate Strategy Two-Way Influence Division Managers Business Strategies Two-Way Influence Functional Mgrs Functional Strategies Two-Way Influence Operating Mgrs Operating Strategies

Levels of Strategy-Making in a Single-Business Company Executive-Level Managers Business Strategy Two-Way Influence Functional Managers Functional Strategies Two-Way Influence Operating Managers Operating Strategies

Networking of Missions, Goals/Objectives, and Strategies Level 1 Level 2 Business-Level Managers Level 3 Functional Level 4 Plant Managers, Lower-Level Supervisors Corporate-wide Strategic Vision Corporate Level Goals/Objs Corporate Level Strategy Corporate-Level Managers Two-Way Influence Two-Way Influence Two-Way Influence Business Level Mission Business Level Goals/Objs Business Level Strategies Two-Way Influence Two-Way Influence Two-Way Influence Functional Missions Functional Goals/Objs Functional Strategies Two-Way Influence Two-Way Influence Two-Way Influence Operating Missions Operating Goals/Objs Operating Strategies

SWOT Analysis - What to Look For Potential Resource Strengths Potential Resource Weaknesses Potential Company Opportunities Potential External Threats Powerful strategy Strong financial condition Strong brand name image/reputation Widely recognized market leader Proprietary technology Cost advantages Strong advertising Product innovation skills Good customer service Better product quality Alliances or JVs No clear strategic direction Obsolete facilities Weak balance sheet; excess debt Higher overall costs than rivals Missing some key skills/competencies Subpar profits Internal operating problems . . . Falling behind in R&D Too narrow product line Weak marketing skills Serving additional customer groups Expanding to new geographic areas Expanding product line Transferring skills to new products Vertical integration Take market share from rivals Acquisition of rivals Alliances or JVs to expand coverage Openings to exploit new technologies Openings to extend brand name/image Entry of potent new competitors Loss of sales to substitutes Slowing market growth Adverse shifts in exchange rates & trade policies Costly new regulations Vulnerability to business cycle Growing leverage of customers or suppliers Reduced buyer needs for product Demographic changes

The Three Steps of SWOT Analysis

Core Competencies -- A Valuable Company Resource A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability Often, a core competence results from collaboration among different parts of a company Typically, core competencies reside in a company’s people, not in assets on the balance sheet A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset

Examples: Core Competencies Expertise in integrating multiple technologies to create families of new products Know-how in creating operating systems for cost efficient supply chain management Speeding new/next-generation products to market Better after-sale service capability Skills in manufacturing a high quality product System to fill customer orders accurately and swiftly

Distinctive Competence -- A Competitively Superior Resource A distinctive competence is a competitively significant activity that a company performs better than its competitors # 1 A distinctive competence Represents a competitively valuable capability rivals do not have Presents attractive potential for being a cornerstone of strategy Can provide a competitive edge in the marketplace—because it represents a competitively superior resource strength

Examples: Distinctive Competencies Sharp Corporation Expertise in flat-panel display technology Toyota, Honda, Nissan Low-cost, high-quality manufacturing capability and short design-to-market cycles Intel Ability to design and manufacture ever more powerful microprocessors for PCs Starbucks Store ambience and innovative coffee drinks

Determining the Competitive Value of a Company Resource To qualify as the basis for sustainable competitive advantage, a “resource” is measured by 4 tests 1. Is the resource hard to copy ? 2. Does the resource have staying power -- is it durable ? 3. Is the resource really competitively superior ? 4. Can the resource be trumped by the different capabilities of rivals ?

Are the Company’s Prices and Costs Competitive? Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis Key analytical tools Value chain analysis Benchmarking

The Concept of a Company Value Chain A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service A company’s value chain consists of a linked set of value-creating activities performed internally The value chain contains two types of activities Primary activities -- where most of the value for customers is created Support activities -- facilitate performance of the primary activities

Characteristics of Value Chain Analysis Combined costs of all activities in a company’s value chain define the company’s internal cost structure Compares a firm’s costs activity by activity against costs of key rivals From raw materials purchase to Price paid by ultimate customer Pinpoints which internal activities are a source of cost advantage or disadvantage

Representative Company Value Chain

Representative Value Chain for an Entire Industry

The Value Chain System for an Entire Industry Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain Suppliers’ value chains are relevant because Costs, quality, and performance of inputs provided by suppliers influence a firm’s own costs and product performance 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

Example: Key Value Chain Activities Pulp & Paper Industry Timber farming Logging Pulp mills Papermaking

Example: Key Value Chain Activities Home Appliance Industry Parts and components manufacture Assembly Wholesale distribution Retail sales

Example: Key Value Chain Activities Soft-Drink Industry Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Advertising Retailing Albertson’s

Example: Key Value Chain Activities Computer Software Industry Programming Disk loading Marketing Distribution

Activity-Based Costing: A Key Tool in Analyzing Costs Determining whether a company’s costs are in line with those of rivals requires Measuring how a company’s costs compare with those of rivals activity-by-activity Requires having accounting data that measures the cost of each value chain activity Activity-based accounting systems provide data for determining costs for each relevant value chain activity

Benchmarking Costs of Key Value Chain Activities Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls

Objectives of Benchmarking Determine whether a company is performing particular value chain activities efficiently by studying practices and procedures used by other companies Understand the best practices in performing an activity -- learn what is the “best” way to do a particular activity from those demonstrating they are “best-in-world” Assess if company’s costs in performing particular value chain activities are in line with competitors Learn how other firms achieve lower costs Take action to improve company’s cost competitiveness

INDUSTRY ANALYSIS

Environmental Components

Industry’s Dominant Economic Traits Product innovation Degree of product differentiation Scope of competitive rivalry Economies of scale Experience and learning-curve effects Industry profitability Market size and growth rate Position in life cycle Number of rivals Buyer needs and requirements Production capacity Pace of technological change Prevalence of vertical integration

5 Forces Model of Competition

Industry Driving Forces Internet and e-commerce opportunities Increasing globalization of industry Changes in long-term industry growth rate Changes in who buys the product and how they use it Product innovation Technological change/process innovation Marketing innovation

Industry Driving Forces Entry or exit of major firms Diffusion of technical knowledge Changes in cost and efficiency Market shift from standardized to differentiated products (or vice versa) Changes in degree of uncertainty and risk Regulatory policies / government legislation Changing societal concerns, attitudes, and lifestyles

What Are the Key Factors for Competitive Success? Competitive factors most affecting every industry member’s ability to prosper Specific strategy elements Product attributes Resources Competencies Competitive capabilities KSFs spell the difference between Profit and loss Competitive success or failure

Example: KSFs for Beer Industry Full utilization of brewing capacity -- to keep manufacturing costs low Strong network of wholesale distributors -- to gain access to retail outlets Clever advertising -- to induce beer drinkers to buy a particular brand

Example: KSFs for Apparel Manufacturing Industry Appealing designs and color combinations -- to create buyer appeal Low-cost manufacturing efficiency -- to keep selling prices competitive

COMPETITOR ANALYSIS

What Are the Market Positions of Industry Rivals? One technique for revealing the different competitive positions of industry rivals is strategic group mapping A strategic group consists of those rivals with similar competitive approaches in an industry

Strategic Group Mapping Firms in same strategic group have two or more competitive characteristics in common Have comparable product line breadth Sell in same price/quality range Emphasize same distribution channels Use same product attributes to appeal to similar types of buyers Use identical technological approaches Offer buyers similar services Cover same geographic areas

Example: Strategic Group Map of Selected Retail Chains

Assessing a Company’s Competitive Strength vs. Key Rivals 1. List industry key success factors and other relevant measures of competitive strength 2. Rate firm and key rivals on each factor using rating scale of 1 to 10 (1 = very weak; 5 = average; 10 = very strong) 3. Decide whether to use a weighted or unweighted rating system (a weighted system is usually superior because the chosen strength measures are unlikely to be equally important) 4. Sum individual ratings to get an overall measure of competitive strength for each rival 5. Based on the overall strength ratings, determine overall competitive position of firm

Strategy and Competitive Advantage Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and Defending against competitive forces Convince customers firm’s product / service offers superior value A good product at a low price A superior product worth paying more for A best-value product Key to Gaining a Competitive Advantage

5 Generic Competitive Strategies

Menu of Strategy Options for Winning in the Marketplace