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Strategic planning for business growth

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Strategic planning

• Is about determining the direction in which you

want to take your business.

• Strategic planning is an organization's process of

defining its strategy, or direction, and making

decisions on allocating its resources to pursue this

strategy.

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What is Strategy-

Where is this come from?

• Strategy is the direction and scope of an

organisation over the long-term: which achieves

advantage for the organisation through its

configuration of resources within a challenging

environment, to meet the needs of markets and

to fulfil stakeholder expectations"

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Alexander the Great

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• How alexander never lost a battle in 15 years

• Because of this battle strategy

• Famous battle against with the Persian Emperor, Darius III

in the Battle of Gaugamela which had the largest army I

the world at that time.

• Alexander had only 1/5 of army of Darius.

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Three key elements of strategic planning

• Where is your business now?

• Where do you want to take it?

• What do you need to do to get there?

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Strategic Management Process

Identify the

Organization’s

current mission,

goals &

strategies

External analysis

• Opportunities

• Threats

Internal analysis

• Strength

• Weakness

SWOT AnalysisFormulate

Strategies

Implement

Strategies

Evaluate

Results

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• Initial Assessment

• Situation Analysis

• Strategy Formulation

• Strategy Implementation

• Strategy Monitoring

Strategic Management Process

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Initial Assessment

• Vision: What does an organization want to

become?

• Mission: Why Firm exit? What is the business?

What it Should be?

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Vision vs Mission

Vision Mission

• Category of intensions are broad,

all inclusive & FWD thinking

• Mission is the purpose for which an

organization exits

• States aspiration for the firm without

stating the means of achieve them

• States how it would be achieve the

vision of the firm

• Dream & intangible • Shows present business

• Provide Guidelines for formulate the

mission

• Guide Formulation on Business

Goal, objectives & strategies

• Futuristic in nature • Current in nature

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Some examples

• Google’s Vision & Mission

Google’s vision statement is “to provide access to the world’s information in

one click.”

“Google’s mission statement is “to organize the world’s information and

make it universally accessible and useful.”

Face Book Vision & Mission

Vision

“People use Facebook to stay connected with friends and family, to discover

what’s going on in the world, and to share and express what matters to them.”

Facebook’s mission statement is “to give people the power to share and make the world more open and connected.”

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Facebook’s vision statement has the

following main components:

• Global market

• Facilitation of communication among

friends and family

• Tool for discovery

• Tool for self-expression

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• The following are the significant components of

Facebook’s mission statement:

• Empowering people

• Enabling sharing

• Connecting the world

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• Situation Analysis-External environment analysis

• Macro Environment Analysis-PESTEL

represent all the macro environment factors

that influence the organization in the global

environment.

• Micro Environment Analysis- Porter's 5 Forces,

Company in its industry.

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Michael Porter's 5 Forces,

“An industry’s profit potential is largely determined by the intensity of

competitive rivalry within that industry.”

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Apply 5 Forces to your industry where you

belongs to?

• Apply to Bank Industry

• Apply to Hotel industry

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Macro environment analysis

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Aims

• Prepare a PESTLE analysis for a given

situation and use it to analyse the impact

of the external environment on a firm.

• Evaluate the impact on a firm’s objectives

and strategy of a change in any of the

PEST/PESTLE factors.

POLITICAL

• Environmental protection/legislation

• Consumer protection

• Government’s attitude

• Competition regulation

• Advertising standards

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Economic

• Economic growth

• Taxation international trade

• Exchange Rate

• Employment law

• Health and Safety law

• Inflation

• Consumer confidence

• Minimum wage

Social

• Income distribution

• Demographics

• Labour & Social mobility

• Lifestyle changes

• Attitudes to work and leisure

• Education

• Fashion and Fads

• Health & Welfare

• Living conditions

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Technological

• Changes in physical sciences

• Internet

• Energy use and costs

• Rates of technological obsolescence

• New discoveries

• Govt and Industry focus on tech

• Govt spending on research

Legal

• Employment law

• Health and Safety

• Taxation both corporate and consumer

• Other regulations

• International trade barriers

• Strength of the rule of law

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Environmental

• How people’s perception and reaction to

environmental issues can affect a

business.

Internal environment analysis

• Process of evaluating an organizations resources &

capabilities.

– Company’s resources, core competencies and activities. An

organization holds both tangible resources: capital, land,

equipment, and intangible resources: culture, brand equity,

knowledge, patents, copyrights and trademarks.

Core competences-

– Set of skills, activities, & resources that together deliver

customer vale & differentiate a business from its competitors.

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Value Chain Analysis- VCA

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Value-chain analysis is an analytical framework that assists in

identifying business activities that can create value and

competitive advantage to the business

• Inbound logistics.

– Dell works with more than 165,000 channel partners in inboundlogistics and provides USD 125 million partner incentives andinvestments annually

– Using JIT Philosophy

– Dell is able to save on huge inventory costs and sustain costleadership for the majority of its products and services

– Customer orders are registered by Dell and its vendorssimultaneously by an integrated system. Then, materials are shippedby suppliers within 2 hours and shortly received at Dell’s assemblyunit due to geographical proximity

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Value Chain Analysis-

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• Operations.

– The main distinctive point between operations of Dell and its

competitors relates to the fact that Dell is not a computer manufacturer;

– Company merely assembles parts manufactured by other companies.

At the same time, high level of product customization is adapted as

one of the bases of competitive advantage by the business.

– Operations mainly consist of three stages – assembly of standard

parts, installation of custom parts and testing product configurations

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DELL- Inbound logistics & Operation

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• Outbound logistics.

– Practice of mass customization,

– Dell is able to complete order fulfillment in a short duration of

time.

– Dell completes customer shipments in a timely basis, staying

committed to its promise of product customization as a result of

cumulative advantages of part modularity, inventory program

managed by vendors, demand management and mass

customization.

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• Marketing and sales

– Dell as a critically important primary activity and the company’s

marketing strategy has changed since the company became

private in August 2013.

– Dell marketing management aims to associate the brand image

with an entrepreneurial spirit.

• Service.

• It has been noted that Dell’s employees “take 50,000 phone

calls from customers every day and document and organize

their comments, which are then distributed to managers

• There are 4300 Dell certified partners globally who assist with

Dell solutions and services to customers.

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SWOT Analysis

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Google-

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Strategic Formulation

• Successful situation analysis is followed by creation of long-term objectives.Long-term objectives indicate goals that could improve the company’scompetitive position in the long run.

• In an organization, strategies are chosen at 3 different levels:

• Functional Level Strategy:

• is a response to operational level strategy. It advocates for the business to seeits management decisions as specific to a functional area of the organization,such as marketing, human resources, finance, information management andpublic relations

• Business level strategy.

• This type of strategy is used when strategic business units (SBU), divisions orsmall and medium enterprises select strategies for only one product that is soldin only one market.

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Strategic Formulation

• Corporate level strategy.

At this level, executives at top parent companies choose which

products to sell, which market to enter and whether to acquire a

competitor or merge with it. They select between integration,

intensive, diversification and defensive strategies.

Also you can add fourth strategic Level

• Global/International strategy.

– The main questions to answer: Which new markets to develop

and how to enter them? How far to diversify?

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Strategic Formulation

• Business level strategy.

• Porters Three Generic Strategies

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BCG Matrix

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BOSTON CONSULTING GROUP

MATRIX

• (BCG) Matrix is developed by Bruce

Henderson of the Boston Consulting Group in

the early 1970’s

• Businesses or products are classified as low or

high performers depending upon their marketgrowth rate and relative market share.

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• MARKET SHARE

• Market share is the percentage of the total market

that is being serviced by your company, measured

either in revenue terms or unit volume terms.

• Relative Market Share

RMS = Business unit sales this year

Leading rival sales this year

The higher your market share, the higher proportion

of the market you control.

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• MARKET GROWTH RATE

• Market growth is used as a measure of a

market’s attractiveness.

• MGR = (Individual sales this year- individual Last year )

individual sales last year

Markets experiencing high growth are ones where

the total market share available is expanding, and

there’s plenty of opportunity for everyone to make

money.

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Cash Cow

• Low growth , High market share

• They are foundation of the company and often

the stars of yesterday.

• They generate more cash than required.

• They extract the profits by investing as little cash

as possible

• They are located in an industry that is mature,

not growing or declining.

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Star

• High growth, High market share

• Stars are leaders in business.

• They also require heavy investment, tomaintain its large market share.

• It leads to large amount of cashconsumption and cash generation.

• Attempts should be made to hold themarket share otherwise the star willbecome a CASH COW.

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Question Mark

• High growth , Low market share

• Most businesses start of as question marks.They will absorb great amounts of cash if themarket share remains unchanged, (low).

• Why question marks?

• Question marks have potential to becomestar and eventually cash cow but can alsobecome a dog.

• Investments should be high for questionmarks

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DOG

• Low market share

• Dogs are the cash traps.

• Dogs do not have potential to bring in much

cash.

• Number of dogs in the company should be

minimized.

• Business is situated at a declining stage.

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BCG Matrix- Summary

Stars – products in markets experiencing high growth rates with a high or

increasing share of the market

o Potential for high revenue growth

Cash Cows:

o High market share

o Low growth markets – maturity stage of PLC

o Low cost support

o High cash revenue – positive cash flows

Dogs:

o Products in a low growth market

o Have low or declining market share (decline stage of PLC)

o Associated with negative cash flow

o May require large sums of money to support

Problem Child:

o Products having a low market share in a high growth market

o Need money spent to develop them

o May produce negative cash flow

o Potential for the future? 46

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Some strategic choices that are in conformity with the BCG matrix could be:

1. Build strategy

Create a new brand and a new target audience by means of a Question Mark.

2. Hold strategy

Maintain this success and benefit from market growth by means of a Star.

3. Harvest strategy

Make as much money as possible with the product by means of the Cash Cow. This can be achieved by improving or renewing the product or by manufacturing by-products.

4. Divest strategy

Abandon the investment in the product by means of a Dog; the market is saturated or there is no or little interest in the product.

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BCG Matrix - Microsoft

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BCG Matrix - Google

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Product Life Cycles

Sales

Time

Development Introduction Growth Maturity Saturation Decline

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Product Life Cycle (PLC):1. Each product may have a different life cycle2. PLC determines revenue earned3. Contributes to strategic marketing planning4. May help the firm to identify when a product

needs support, redesign, reinvigorating, withdrawal, etc.

5. May help in new product development planning6. May help in forecasting and managing cash flow

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Product Life Cycles

• The Development Stage:

• Initial Ideas – possibly large number

• May come from any of the following –– Market research – identifies gaps in the market

– Monitoring competitors

– Planned research and development (R&D)

– Luck or intuition

– Creative thinking – inventions, feeling

– Futures thinking – what will people be

using/wanting/needing 5,10,20 years hence?

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Development stage

• MS DOS -> windows

• iPhone - > smart phones

• nano technologies

• Robotics->

Product Life Cycles

• Product Development: Stages– New ideas/possible inventions

– Market analysis – is it wanted? Can it be produced at a profit? Who is it likely to be aimed at?

– Product Development and refinement

– Test Marketing – possibly local/regional

– Analysis of test marketing results and amendment of product/production process

– Preparations for launch – publicity, marketing campaign

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Product Life Cycles

• Introduction/Launch:

– Advertising and promotion campaigns

– Target campaign at specific audience?

– Monitor initial sales

– Maximise publicity

– High cost/low sales

– Length of time – type of product

Product Life Cycles

• Growth:

– Increased consumer awareness

– Sales rise

– Revenues increase

– Costs - fixed costs/variable costs, profits may be

made

– Monitor market – competitors reaction?

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Product Life Cycles

• Maturity:– Sales reach peak

– Cost of supporting the product declines

– Ratio of revenue to cost high

– Sales growth likely to be low

– Market share may be high

– Competition likely to be greater

– Price elasticity of demand?

– Monitor market – changes/amendments/new strategies?

Product Life Cycles

• Saturation:

• New entrants likely to mean market is ‘flooded’

• Necessity to develop new strategies becomes more pressing:

– Searching out new markets:

• Linking to changing fashions

• Seeking new or exploiting market segments

• Linking to joint ventures – media/music, etc.

– Developing new uses

– Focus on adapting the product

– Re-packaging or format

– Improving the standard or quality

– Developing the product range

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Product Life Cycles

• Decline and Withdrawal:– Product outlives/outgrows its usefulness/value

– Fashions change

– Technology changes

– Sales decline

– Cost of supporting starts to rise too far

– Decision to withdraw may be dependent on availability of new products and whether fashions/trends will come around again?

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Product Life Cycles-of Nokia

Sales

Time

Development Introduction Growth Maturity Saturation Decline

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Profit

Stages Time Duration

Introduction 1995-2002

Growth 2002-2009

Maturity 2009-2011

Decline 2011- till now

The concept Phones

Nokia – E Series

Nokia – Symbian

& N- SeriesNokia – Windows

& N- Symbian

Product Life Cycles & BCG Matrix

Sales

Time

Development Introduction Growth Maturity Saturation Decline

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GE-McKinsey

GE-McKinsey nine-box matrix is a strategy tool that offers a systematic

approach for the multi business corporation to prioritize its investments

among its business units

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GE-McKinsey-

Determine the industry Growth

• Long run growth rate

• Industry size

• Industry profitability: entry barriers, exit barriers, supplier power, buyer

power, threat of substitutes and available complements (use Porter’s

Five Forces analysis to determine this)

• Industry structure (use Structure-Conduct-Performance framework to

determine this)

• Product life cycle changes

• Changes in demand

• Trend of prices

• Macro environment factors (use PEST or PESTEL for this)

• Seasonality

• Availability of labor

• Market segmentation

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GE-McKinsey-

Determine strength of a business unit or a product

• Total market share

• Market share growth compared to rivals

• Brand strength (use brand value for this)

• Profitability of the company

• Customer loyalty

• VRIO resources or capabilities (use VRIO framework to determine this)

• Your business unit strength in meeting industry’s critical success factors

(use Competitive Profile Matrix to determine this)

• Strength of a value chain (use Value Chain Analysis and Benchmarking to

determine this)

• Level of product differentiation

• Production flexibility

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Application-GE-McKinsey

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Corporate level strategy. At this level, executives at top parent companies choose

which products to sell, which market to enter and whether to

acquire a competitor or merge with it. They select between

integration, intensive, diversification and defensive strategies

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Approaches Corporate level strategy.

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❑Directional/ Grand Strategy• Growth Strategies- expand company activities

• Stability Strategies-make no change

• Retrenchment strategies – Reduce the current activities

❑Portfolio Strategy- minimize the risk by diversification

❑Parental Strategy – How best parent companies createmore value in their businesses than rivals would

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Ansoff Matrix

Successful leaders understand that if their organization is to grow in the long

term, they can't stick with a "business as usual" mindset, even when things

are going well. They need to find new ways to increase profits and reach new

customers.

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Strategy Implementation

It following 6 steps:

Setting annual objectives;

Revising policies to meet the objectives;

Allocating resources to strategically important areas;

Changing organizational structure to meet new strategy;

Managing resistance to change;

Introducing new reward system for performance results if needed.

The best strategic plans must be implemented and only well executed

strategies create competitive advantage for a company.

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Strategy Monitoring

Implementation must be monitored to be successful. Due to constantly changing

external and internal conditions managers must continuously review both

environments as new strengths, weaknesses, opportunities and threats may arise.

If new circumstances affect the company, managers must take corrective actions

as soon as possible.

• Strategy Evaluation Framework,

• Balanced Scorecard,

• Benchmarking

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