Mgmt 478 Strategic Planning and Strategy Formulation Fall 2005

Mgmt 478Mgmt 478

Strategic Planning and Strategy Formulation

Fall 2005Fall 2005

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Strategic PlanningFirst step to develop strategic thinking

Allows organizations to understand its own direction and purpose and main variables that influence strategy

It provides a framework to formulate and control strategies

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The BIG picture

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Strategic Planning Process

Mission Objectives Environmental Analysis Internal Analysis Strategy Formulation Control

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ObjectivesObjectives

External AnalysisExternal Analysis

Need to be clear, specific, and measurable

Long and short-term

Mission and VisionMission and Vision

Provide direction to the business and includes values, culture, and relation to stakeholders

Determine impact of external variables on firms’ strategy and performance

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Strategy FormulationStrategy Formulation

ControlControl

Series of fits’ determination that include SWOT analysis to formulate strategies

Prevents, compares, and corrects strategic performance according to objectives established

Internal AnalysisInternal AnalysisIdentifies strengths and weaknesses todetermine how they can lead to sustainablecompetitive advantage

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The StrategicThe StrategicManagementManagement

ProcessProcess

The StrategicThe StrategicManagementManagement

ProcessProcessChapter 3Chapter 3InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2ExternalExternal

EnvironmentEnvironmentStrategic IntentStrategic Intent

Strategic MissionStrategic Mission

Strategy FormulationStrategy Formulation Strategy ImplementationStrategy Implementation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 9Chapter 9CooperativeCooperative

StrategiesStrategies

Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure& Control& Control

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation

Str

ateg

icIn

puts

Feedback

Str

ateg

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utc

omes

Str

ateg

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trat

egic

Act

ion

sA

ctio

ns

StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average

ReturnsReturns

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FeedbackVision

Mission

Objectives

SWOTAnalysis

Control

Strategic Planning Process

External Environment

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Mission and VisionMission and VisionInspiring statement designed to motivate firm’s stakeholders to agree with top management objectivesIndicates direction and purpose of firm, its main business, unique culture, and relation to employees, stakeholders, and community

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Sounds FamiliarSounds Familiar ?VISIONThe Iowa State University College of Business aims to become a nationally significant professional school with a nationally prominent faculty providing unique disciplinary and interdisciplinary focuses reflecting the science and technology strengths of Iowa State University, and to be recognized among the top ten Colleges of Business in land-grant universities in the United States

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COB’s MissionCOB’s Mission

To prepare tomorrow's business leaders through educational experiences that link theory with practice and reflect the multi-disciplinary demands of a business world that is increasingly global, technologically-oriented, and diverse. These challenging educational experiences result from the discovery activities by the College’s faculty, a challenging learning environment, state-of-the-art technology, and faculty, staff, and students engaged on campus and with the business community .

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ISU - Strategic plan

Vision:

Create, share, and apply knowledge to make Iowa and world a better place

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Microsoft mission

To enable people and businesses throughout the world to realize their full potential The tenets central to accomplishing our mission stem from our core company values: Broad Customer Connection, A Global, Inclusive Approach, Excellence, Trustworthy Computing, Great People with Great Values, Enabling People to Do New Things

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Starbucks mission

Establish Starbucks as the premier purveyor of the finest coffee in the world while maintaining our uncompromising principles while we grow.

15Starbucks mission

The following six guiding principles will help us measure the appropriateness of our decisions: Provide a great work environment and treat each other with respect and dignity. Embrace diversity as an essential component in the way we do business. Apply the highest standards of excellence to the purchasing, roasting and fresh delivery of our coffee. Develop enthusiastically satisfied customers all of the time. Contribute positively to our communities and our environment. Recognize that profitability is essential to our future success

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Environmental mission statement

Starbucks is committed to a role of environmental leadership in all facets of our business We fulfill this mission by a commitment to: Understanding of environmental issues and sharing information with our partners. Developing innovative and flexible solutions to bring about change. Striving to buy, sell and use environmentally friendly products. Recognizing that fiscal responsibility is essential to our environmental future. Instilling environmental responsibility as a corporate value. Measuring and monitoring our progress for each project. Encouraging all partners to share in our mission.

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Mission

Objectives

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Mission

Objectives

Vision

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ObjectivesObjectivesNeed to be clear, specific, and measurable

“To be the best in the market”

To increase market share by 5% in the following 2 years

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Environmental AnalysisEnvironmental AnalysisDetermines impact of direct and indirect external variables that impact the institution (Threats & Opportunities)

Direct Variables: Customers, Financial Institutions, Personnel Offer, Competition

Indirect Variables: Economic, Political, Demographic, International

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Internal AnalysisInternal AnalysisDetermines firm’ s Strengths and Weaknesses and their impact on strategy

It includes analysis of resources, competencies, and competitive advantages

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Strategy FormulationStrategy FormulationGeneric Strategies

CostDifferentiationFocus

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External and Internal Analysis

-5 + 5

Variable

Variable

Variable

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SWOT Analysis

Opportunities

StrengthsWeaknesses

Threats Strategy

Strategy

Strategy

Strategy

Strategy

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EvaluationEvaluation

Strategic Measures

Market ShareSalesProductivityQualityTurnoverInnovation !!!

Accounting Measures

Stock priceROAROEROIROSFree cash flow

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Problems with Strategic Planning

Calendar driven Early consensus on right answerAdjust data to fit “right answer” Over commitment of resourcesAnalysis: preferred choice-confirming analysis

Strategic choicesArray of viable alternativesVerification assumptions Prioritize projects allocate resourcesFrom multiple options to analysis to choice

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See future as linear extrapolation Lack of focus to develop alternativesFocus on planning versus implementationAbandonment

Incomplete/erroneous strategy implementation

Analyze trends, contingenciesRealistic assessment of resources, simplicityProblem-solving tracking systemsMeeting structures for frequent reviewContinuous communication and reinforcement

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Lack of motivation to implementMisalignment personal & organizational goalsMisalignment competencies & strategyUnique focus on strategy, overlooking fitInertia

Paralysis because outcome is a plan

Alignment personal and organizational goals Tie incentives to performance Invest in employee learning & development Fit strategy-structure-processes-culture A priori establishment of accountabilities Produce a direction and an agenda

Strategic Planning Strategic Planning can also be applied can also be applied

to individualsto individuals

Personal Example

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My MissionMy Mission

I want to be happy, wealthy, and successful in every endeavor I undertake in my whole life

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Developing a Personal MissionValues

Love, Equity, Kaizen

CultureRespect, Solidarity, Enjoyment

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Defining values

To pay Graduate School for my twoChildren “anywhere”To have $ 1 M for retirement

Stable and joyful familyPublications in Top JournalsBe in top 10 percent among College teachers

Wealthy Successful

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External Analysis+ 5- 5

US Competition

Complexity

Standards

Internationalization

Latin America

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Internal Analysis

Ideas Review Data Analysis Writing Submit

cc cc

Core Competencies

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Using Functional Analysis

Operations Marketing Finance Personnel

Defects rate

Complains

Market share

Image

ROA

Stock Price

Turnover

Training

Physical Professional Financial Spiritual

Workout

Dietary

Position/Degree

Promotion

Salary

Savings

Religion

Meditation

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Internal Analysis- 5 + 5

Idea generation

Literature Review

Working habits

Writing

Analysis

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SWOT Analysis

Weaknesses

Writing / Analysis

Strengths

Generation Ideas

Threats

US Competition/ Complexity

Opportunities

Internationalization

Learn to writeJoint Ventures

Outsource DataCollectionCopy Editor

Research & Teachin Latin America

Apply new ideasin Latin America

Mgmt 478Mgmt 478

Strategic Management and Strategic

Competitiveness

Chapter IChapter I

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The Challenge

Firms achieve strategic competitiveness when they develop and learn how to implement a value-creating strategy

Firms satisfy all of its stakeholders obtaining returns in excess of what investors expect to earn from other investments with similar levels of risk

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21st Century Landscape

Free movement of factors in one huge, single marketSpread of economic innovationsResult is increased competition

Shorter product cycles because of increasing rates of technological changes and diffusionDifferent forms of competition because of changes in ITKnowledge prevails

Globalization

Technology

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Knowledge

A firm’s survival depends on the ability to capture intelligence, transform it into usable knowledge, and diffuse it rapidly throughout the company

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Alternative Models of Superior ReturnsAlternative Models of Superior Returns

Resource-BasedResource-BasedModelModel

Industrial Organization Industrial Organization ModelModel

The External EnvironmentThe External Environment

An Attractive IndustryAn Attractive Industry


Assets and SkillsAssets and Skills

Strategy ImplementationStrategy Implementation

Superior ReturnsSuperior Returns

ResourcesResources

CapabilityCapability

Competitive AdvantageCompetitive Advantage




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I/O Model of Superior ReturnsI/O Model of Superior Returns

The Industrial Organization model suggests that above-average returns for any firm are largely determined by characteristics outside the firm.

This model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.

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I/O Model of Above-Average ReturnsI/O Model of Above-Average Returns

Environment determines strategies

Firms control similar resources

Resources are mobile across firms

Rational managers

Five forces Model

Underlying Assumptions

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Actions requiredActions requiredIndustrial Organization Industrial Organization ModelModel

The External EnvironmentThe External Environment



Assets and SkillsAssets and Skills



AnalysisAnalysis

Profitable industryProfitable industry

Fit industry-strategyFit industry-strategy

Develop or acquireDevelop or acquire

Use firm’s strengthsUse firm’s strengths

Maintain strategyMaintain strategy

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The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

The Resource-Based model suggests that above-average returns for any firm are largely determined by characteristics inside the firm.

This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

This model focuses on developing or obtaining valuable resources and capabilities which are difficult or impossible for rivals to imitate.

Resource-Based Model of Superior Resource-Based Model of Superior ReturnsReturns

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Resource-based modelInternal environment more influentialFirms acquire different resources and unique capabilitiesResources not highly mobileCombination / integration resources form Competitive AdvantagesResources integratively perform tasks to develop capabilities

Underlying Assumptions

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Resource-BasedResource-BasedModelModel

Actions requiredActions required

Relative to rivalsRelative to rivals

That outperformThat outperform

How to createHow to create

Locate industryLocate industry

Exploits resourcesExploits resources

Maintain strategyMaintain strategy

ResourcesResources

CapabilitiesCapabilities

Competitive AdvantageCompetitive Advantage




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Competitive Advantage

Resources and capabilities have the potential to be the basis for competitive advantage when they are valuable, rare, costly to imitate, and nonsubstitutable. When these criteria are met, resources and capabilities become core competencies

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Strategic Intent

Strategic intent suggests how resources, capabilities, and core competencies will be leveraged to achieve desired outcomes in the competitive environment.

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Strategic Mission

Strategic mission specifies the product markets and customers a firm intends to serve through the leveraging of its resources, capabilities, and competencies

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Stakeholders

Strategists need to find ways to insulate the organizations from the demands of stakeholders controlling critical resources

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Stakeholders:Stakeholders: Groups who are affected by a Groups who are affected by a firm’s performance and who firm’s performance and who have claims on its wealthhave claims on its wealth

The firm must maintain The firm must maintain performance at an adequate level in performance at an adequate level in order to maintain the participation order to maintain the participation of key stakeholdersof key stakeholders

OrganizationalOrganizationalOrganizationalOrganizational

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

FirmFirmFirmFirm

Capital MarketCapital MarketCapital MarketCapital Market

Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/InvestorsDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks

Product MarketProduct MarketProduct MarketProduct Market

Primary Customers Primary Customers SuppliersSuppliersPrimary Customers Primary Customers SuppliersSuppliers

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Stakeholder InvolvementStakeholder InvolvementEach of the key stakeholders Each of the key stakeholders wants a piece of the same piewants a piece of the same pie

1111 How do youHow do you divide divide the piethe pie in order to in order to keep all of the keep all of the stakeholders stakeholders involved?involved?

How do youHow do you divide divide the piethe pie in order to in order to keep all of the keep all of the stakeholders stakeholders involved?involved?

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How do youHow do you increase increase the sizethe size of the pie so of the pie so that there is more to that there is more to go aroundgo around??

How do youHow do you increase increase the sizethe size of the pie so of the pie so that there is more to that there is more to go aroundgo around??

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Organizational Strategists

Final responsibility for design and execution of strategic management process, ( from a single strategist in a small company to a cadre of top managers in large corporations). Top managers make decisions about resources, prices, information flow, strategies, scope of operations, and must frequently choose among similarly attractive alternatives

56Evolution of Strategic Management

70”s 80’s 90’s 2000’s

Origins

Planning

SWOT

BCG

Objectives

Name changes

External

International

IO

Internal

RBV

CC

SCA’s

Strg Mgmt Industry Firm

Technology

Innovation

Globalization

Flexibility

knowledge

Documents

Mgmt 478 Strategic Planning and Strategy Formulation Fall 2005