Developing A Strategic Business Plan Part 2 (Pages 37 75)

DEVELOPING A STRATEGIC BUSINESS PLAN

Toolbox

Capability platform: assessment of sources of competitive advantage (1/2)

Physical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocator

• BHP’s low-cost mines

• Telecomm/media company with rights radio spectrum

• Avon’s representatives

• Coca-Cola

• Pharmaceutical company with a "wonder drug”

• "Favored nation" status with a key minister in liberalizing economy

Innovation

Cross-functional coordination

Market positioning

Cost/efficiency management

Talent development

• 3M with new products

• McDonald’s with QSC&V

• J&J with branded consumer health products

• Emerson Electric’s Best Cost Producer program

• P&G brand management program

Privileged assets

Distinctive competencies

Necessary capabilities in order to succeed in the industry

Example

Capability platform: assessment of sources of competitive advantage (2/2)

Extremely relevant

Somewhat relevant

Irrelevant

Step 1: Ensure that these are the capabilities required to succeed in the industry. Use this list as a thought starter, add and delete as you see appropriate

BU Overall

Segments

A B C

Step 2: Assess your overall position relative to the capabilities required to succeed in the industry. Also, determine if these capabilities are relevant to the segments you serve

Physical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocatorInnovation

Cross-functional coordination

Market positioning

Cost/efficiency management Talent development

Privileged assets

Distinctive competencies

Necessary capabilities in order to succeed in the industry

Competitor capability comparison

BU Overall

CompetitorsA B C

Step 3: Compare the strengths and weaknesses of your competitive position vs. the necessary skills

Physical asset

Location/"space"

Distribution/sales network

Brand/reputation

Patent

Relationship with "license" allocatorInnovation

Cross-functional coordination

Market positioning

Cost/efficiency management Talent development

Privileged assets

Distinctive competencies

Necessary capabilities in order to succeed in the industry

• •

• •

Porter’s 5 Forces of Competitive Position Diagram

Competitive Rivalry

New Market Entrants

Buyer PowerProduct &

Technology Development

Supplier Power

Porter 5 Forces

Porter’s 5 Forces of Competitive Position version #2

IndustryCompetitors

Intensity of Rivalry

Suppliers Buyers

Substitutes

NewEntrants

Entry BarriersEconomies of ScaleBrand IdentityCapital Requirements

Determinants of Supplier PowerSwitching CostsSupplier VolumeImpactForward Integration

Determinants of Substitution ThreatRelative Price PerformanceSwitching Costs

Determinants of Buyer PowerBuyer ConcentrationBuyer VolumeBackward Integration

Rivalry DeterminantsIndustry GrowthFixed CostsProduct DifferencesBrand IdentityExit Barriers

Porter’s 5 Forces of Competitive Position #3

Forces at work framework1.Determinants of supplier power

• Differentiation of inputs• Switching costs of suppliers and firms in

the industry• Presence of substitute inputs• Supplier concentration• Importance of volume to supplier• Cost relative to total purchases in the

industry• Impact of inputs on cost or

differentiation• Threat of forward integration relative to

threat of backward integration by firms in the industry

2.Determinants of barriers to entry• Economies of scale• Proprietary product differences• Brand identity• Switching costs• Capital requirements• Access to distribution• Absolute cost advantages

– Proprietary learning curve– Access to necessary inputs– Proprietary, low-cost product design

• Government policy• Expected retaliation

5.Rivalry determinants• Industry growth• Fixed (or storage) cost/value added• Intermittent overcapacity• Product differences• Brand identity• Switching costs• Concentration and balance• Informational complexity• Diversity of competitors• Corporate stakes• Exit barriers

3.Determinants of buying power• Bargaining leverage

– Buyer concentration vs. firm concentration

– Buyer volume– Buyer switching costs relative to

firm switching costs– Buyer information– Ability to backward integrate– Substitute products– Pull-through

4.Determinants of substitution threat• Relative price performance

of substitutes• Switching costs• Buyer propensity to

substitute

2. New entrants

3. Buyers

4. Substitutes

Intensity of rivalry

1. Suppliers

• Price sensitivity– Price/total purchases– Product differences– Brand Identity– Impact on quality perception– Buyer profits– Decision makers' incentives

5. Industry competitors

Total sales

Company’s sales

Product lines

Product config

Product items

Sector sales

ProductLevel

Territory

RegionCountry

Client

WorldGeographical Level

Short term

Mediumterm

Longterm

Timing Level

Ninety ways to measure demand (6 x 5 x 3)

Strategic Planning Link with Marketing Planning

Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the

competition. Marketing management constantly have to assess which customers

they are trying to reach and how they can design products and services that provide better value (“competitive advantage”).

The main problem with this process is that the “environment” in which businesses operate is constantly changing.

So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed.

This process of adapting and decision-making is known as marketing planning.

Strategic Plan

Business Plan

Marketing Plan

Sales Plan

State Plan

Regional Plan

Industry Plan

Key Account Plan

Strategic vs. Marketing Plans Strategic planning is concerned about the overall direction of the

business. ◦ It is concerned with marketing, of course. ◦ But it also involves decision-making about production and operations,

finance, human resource management and other business issues.

The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.

Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the “environment”. Sometimes this is quite a straightforward task. ◦ For example, in many small businesses there is only one geographical

market and a limited number of products (perhaps only one product!). ◦ However, consider the challenge faced by marketing management in a

multinational business, with hundreds of business units located around the globe, producing a wide range of products.

◦ Keeping control of marketing decision-making in such a complex situation calls for well-organised marketing planning.

Key issues in strategic and marketing planning? The following questions are key in the marketing and strategic

planning process:◦ Where are we now?◦ How did we get there?◦ Where are we heading?◦ Where would we like to be?◦ How do we get there?◦ Are we on course?

A marketing plan helps to:◦ The ability of a business to achieve profitable sales is impacted by

dozens of environmental factors, many of which are inter-connected◦ Identify sources of competitive advantage◦ Gain commitment to a strategy◦ Get resources needed to invest in and build the business◦ Inform stakeholders in the business◦ Set objectives and strategies◦ Measure performance

Situation AnalysisInternal Analysis—company; capability etc.External Analysis—customers, market

definition, industry structureSWOT Analysis

◦Strengths, Weaknesses, Opportunities & Threats

◦Identify & prioritize major problems and opportunities: selection of key issues

Based on the firm’s core competencies, decide on future options

SWOTInternal Environment

Strengths Weaknesses

World class productFinancial resourcesKnow-how

Technical supportInternal processesChannels network

External Environment

Opportunities Threats

Water & Energy crisesEnvironment awarenessProductivity improvement

Competitors market shareEuro X DollarTechnology development

SWOT ANALYSIS

Opportunities/Threats

• How are demand and supply expected to evolve?

• How do you expect the industry chain economics to evolve?

• What are the potential major industry discontinuities?

• What competitor actions do you expect?

YOUR BUSINESS CONVERT

OPPORTUNITIESBUILD ON STRENGTHS

NEUTRALIZE THREATS

ADDRESSWEAK-NESSES

Strengths/Weaknesses

• What are your BU’s assets/competencies that solidify your competitive position?

• What are your BU’s assets/competencies that weaken your competitive position?

Can be used as a thought starter for

competitive analysis and internal assessment

Surfaces potential opportunities/threats arising from factors

external to the business

SWOT Analysis is still a useful Tool

TOWS matrix

Strengths Weaknesses

Opportunities S-O strategies W-O strategies

Threats S-T strategies W-T strategies

S-O strategies pursue opportunities that are a good fit to the companies strengths.W-O strategies overcome weaknesses to pursue opportunities.S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

PEST analysisA scan of the external macro-

environment in which the company wants to operate (or operates) and can be expressed in terms of the following factors:

◦Political ◦Economic ◦Social ◦Technological

POLITICAL• ecological/environmental issues • current legislation home market • future legislation • European/international legislation • regulatory bodies and processes • government policies • government term and change • trading policies • funding, grants and initiatives • home market lobbying/pressure groups • international pressure groups • wars and conflict

ECONOMIC• home economy situation • home economy trends • overseas economies and trends • general taxation issues • taxation specific to product/services • seasonality/weather issues • market and trade cycles • specific industry factors • market routes and distribution trends • customer/end-user drivers • interest and exchange rates • international trade/monetary issues

SOCIAL• lifestyle trends • demographics • consumer attitudes and opinions • media views • law changes affecting social factors • brand, company, technology image • consumer buying patterns • fashion and role models • major events and influences • buying access and trends • ethnic/religious factors • advertising and publicity • ethical issues

TECHNOLOGICAL• competing technology development • research funding • associated/dependent technologies • replacement technology/solutions • maturity of technology • manufacturing maturity and capacity • information and communications • consumer buying mechanisms/technology • technology legislation • innovation potential • technology access, licencing, patents • intellectual property issues • global communications

PEST Analysis - market, business, proposition,

etc.

PEST or SWOT A PEST analysis most commonly measures a market; a

SWOT analysis measures a business unit, a proposition or idea.

Generally speaking a SWOT analysis measures a business unit or proposition, whereas a PEST analysis measures the market potential and situation, particularly indicating growth or decline, and thereby market attractiveness, business potential, and suitability of access - market potential and 'fit' in other words.

PEST analysis uses four perspectives, which give a logical structure, in this case organized by the PEST format, that helps understanding, presentation, discussion and decision-making.

PEST analysis can be used for marketing and business development assessment and decision-making, and the PEST template encourages proactive thinking, rather than relying on habitual or instinctive reactions.

ProducersIndustry

S

• Technology breakthroughs

• Changes in government policy/regulations– Domestic– International

Economics of demand• Availability of substitutes• Differentiability of products• Rate of growth• Volatility/cyclicalityEconomics of supply• Concentration of producers• Import competition• Diversity of producers• Fixed/variable cost

structure• Capacity utilization• Entry/exit barriersIndustry chain economics• Bargaining power of input

suppliers• Bargaining power of

customers

Marketing• Pricing• Volume• Advertising/promotion• New products/R&D• DistributionCapacity change• Expansion/contraction• Entry/exit• Acquisition/merger/

divestitureVertical integration• Forward/backward integration• Vertical joint ventures• Long-term contractsInternal efficiency• Cost control• Logistics• Process R&D• Organization effectiveness

Finance• Profitability• Value creationTechnological

progressEmployment

objectives

Externalshocks

Feedback

tructure C onduct P erformance

Structure-conduct-performance (SCP) model

Definition of risksDefinition

• Risk of loss due to changes in industry and competitive environment, as well as shifts in customer preferences

Business risk

• Risk due to changes in regulatory environment (e.g. deregulation)Regulatory risk

• Risk due to major changes in technologyTechnology risk

• Risk of failures due to business processes and operations or people’s behavior, either intentional (e.g. fraud) or unintentional (e.g. errors)

Integrity risk

• Risk of loss due to changes in the political, social, or economic environments

Macroeconomic risk

Management

Management, control and evaluation

Five disciplines – Peter Senge

Personal Mastery: ◦ Aspiration involves formulating a coherent picture of the

results people most desire to gain as individuals, alongside a realistic assessment of the current state of their lives today.

◦ Learning to cultivate the tension between vision and reality can expand people's capacity to make better choices, and to achieve more of the results that they have chosen.

Mental Models:◦ Reflection and inquiry skills is focused around developing

awareness of the attitudes and perceptions that influence thought and interaction.

◦ By continually reflecting upon, talking about, and reconsidering these internal pictures of the world, people can gain more capability in governing their actions and decisions.

Five disciplines – Peter Senge

Shared Vision: ◦ Establishes a focus on mutual purpose.◦ People learn to nourish a sense of commitment in a

group or organization by developing shared images of the future they seek to create, and the principles and guiding practices by which they hope to get there.

Team Learning:◦ Group interaction. ◦ Through techniques like dialogue and skillful

discussion, teams transform their collective thinking, learning to mobilize their energies and actions to achieve common goals, and drawing forth an intelligence and ability greater than the sum of individual members' talents.

Five disciplines – Peter SengeSystems Thinking:

◦ People learn to better understand interdependency and change, and thereby to deal more effectively with the forces that shape the consequences of our actions.

◦ Systems thinking is based upon a growing body of theory about the behavior of feedback and complexity - the innate tendencies of a system that lead to growth or stability over time.

◦ To help people see how to change systems more effectively and how to act more in tune with the larger processes of the natural and economic world.

Project management - processes

Project management – a process

Project management – process chain

Project management – risk analysis

Success Keys - Deployment

Deployment - Completing the Plan

Success Failure>Assign roles and responsibilities

>Establish priorities

>Involve mid-level management as active participants

>Think it through - decide how to manage implementation

>Charge mid-level management with aligning lower-level plans

>Make careful choices about the contents of the plan and form it will take

>No accountability for deployment

>Too many goals, strategies, or objectives - no apparent priority >Plan in a vacuum-functional focus

>No overall strategy to implement

>Make no attempt to link with day-to-day operations

>Not being thorough-glossing over the details

Success Keys - Communication

Deployment - Communicating

Success FailureAssign roles and responsibilities

Communicate the plan constantlyand consistently

Recognize the change process

Help people through the changeprocess

No accountability

Never talk about the plan

Ignore the emotional impact of change

Focus only on task accomplishment

Success Keys - Implementation

Implementing - I

Success FailureAssign roles and responsibilities

Involve senior leaders

Define an infrastructure

Link goal groups

Phase integration of implementationactions with workload

Involve everyone within theorganization

No accountability

Disengagement from process

Unmanaged activity

Fragmented accomplishment ofobjectives leads to sub-optimization

Force people to choose between implementation and daily work; too many teams

No alignment of strategies

Success Keys - Implementation

Implementing - II

Success FailureAllocate resources for implementation

Manage the change process

Evaluate results

Share lessons learned; acknowledgesuccesses through open andfrequent communication

Focus only on short term need for resources

Ignore or avoid change

No measurement system

Hide mistakes/lay blame;limited/no communication

Success Keys - Measurement

Strategic Measurement - I

Success FailureAssign roles and responsibilities

Use measurement to understandthe organization

Use measurement to provide aconsistent viewpoint from which togauge performance

Use measurement to provide anintegrated, focused view of thefuture

No accountability

Sub-optimization: focus only onefficiencies

Use measures that provide no realinformation on performance; usetoo many measures

Use measurement to focus on thebottom-line only

Success Keys - Measurement

Strategic Measurement - II

Success FailureUse measurement to communicatepolicy (new strategic direction)

Update the measurement system

Use measurement to providequality feedback to the strategicmanagement process

Use measurement to control

Never review measures

Fail to use measurement to makestrategic, fact-based decisions; useonly for control

Success Keys - EvaluationEvaluation

Success FailureAssign roles and responsibilities

Recognize when to update the plan

Modify strategic planning process to accommodate the more mature organization

Incorporate new leaders into the strategic planning process

Integrate measurement with strategic planning

Use experienced strategic planning facilitators

No accountability

Poor timing and not recognizing external forces

Rigid application of strategic planning process; ignore lessons learned from previous efforts

Ignore impact of new leaders

Don't use measurement information

Shortcut the process

Best Companies Spend more time on Forward Planning than Historical Analysis

Achieving Agility Through a New Approach to Forecasting In today’s turbulent economy, rolling forecasts are proving to be an important new tool in changing the way budgeting and planning has traditionally been handled. Mary Brandel

Benefits of Rolling Forecasts