Strategic Planning

Developing Marketing Developing Marketing Strategies and PlansStrategies and Plans

Reasons for PlanningReasons for Planning

If we do not know where we are going any If we do not know where we are going any road will take us there.road will take us there.

The future is unpredictable but it is not a The future is unpredictable but it is not a random walk.random walk.

The essence of strategic planning is the The essence of strategic planning is the consideration of current decision consideration of current decision alternatives in the light of their probable alternatives in the light of their probable consequence over time.consequence over time.

Strategic PlanningStrategic Planning

Successful companies know how to adapt to a Successful companies know how to adapt to a continuously changing market place. They continuously changing market place. They practice the art of market – oriented strategic practice the art of market – oriented strategic planning.planning.

Strategic planning is the process of developing and maintaining a feasible fit between the organization’s objectives, skills, and resources and its changing marketing opportunities.

Strategic PlanningStrategic Planning

Calls for action in three key areas :Calls for action in three key areas :

(i) Managing the company’s businesses (i) Managing the company’s businesses as an investment portfolioas an investment portfolio

(ii) Assessing each business’s strength (ii) Assessing each business’s strength by considering the market’s growth by considering the market’s growth rate and the company’s position and fit rate and the company’s position and fit in that market.in that market.

(iii) Making the strategy (iii) Making the strategy

THE STRATEGIC PLANNING, THE STRATEGIC PLANNING, IMPLEMENTATION AND CONTROL PROCESSIMPLEMENTATION AND CONTROL PROCESS

Planning Implementing Controlling

Corporate Planning

Division Planning

Business Planning

Product Planning

Organizing

Implementing

Measuring results

Diagnosing results

Taking corrective action

Corporate and Division Strategic Corporate and Division Strategic Planning–Four Planning ActivitiesPlanning–Four Planning Activities

1.1. Defining the corporate mission. Defining the corporate mission.

2.2. Establishing strategic business units.Establishing strategic business units.

3.3. Assigning resources to each SBU.Assigning resources to each SBU.

4.4. Developing growth strategiesDeveloping growth strategies

Corporate Strategic Planning (cont.) Corporate Strategic Planning (cont.) Defining the corporate missionDefining the corporate mission

To define mission, a company should address Peter To define mission, a company should address Peter Drucker’s classic question:Drucker’s classic question:– What is our business? Who is the customer? What is of value to What is our business? Who is the customer? What is of value to

the customer? What will our business be? What should our the customer? What will our business be? What should our business be?business be?

A clear, thoughtful mission statement provides A clear, thoughtful mission statement provides employees with a shared sense of purpose, direction employees with a shared sense of purpose, direction and opportunity.and opportunity.– What do we do best? What are the values/ethics of What do we do best? What are the values/ethics of

the firm?the firm?– Define business by need rather than product.Define business by need rather than product.

Lodging vs hotelLodging vs hotelQuick service restaurants vs fast food hamburgersQuick service restaurants vs fast food hamburgers

– Marketing myopia - Transportation vs railroadMarketing myopia - Transportation vs railroad

Corporate Strategic Planning (cont.) Corporate Strategic Planning (cont.) Defining the corporate missionDefining the corporate mission

Good mission statements have three major Good mission statements have three major characteristics :characteristics :

- focus on a limited number of goals- focus on a limited number of goals - stress the major policies and values that the - stress the major policies and values that the

company wants to honorcompany wants to honor - define the major competitive scopes within which - define the major competitive scopes within which

the company will operatethe company will operateThe mission should define the competitive scopes within The mission should define the competitive scopes within

which the company will operate. Industrywhich the company will operate. Industry scope, scope, products and applications scope, competencies scope, products and applications scope, competencies scope, market-segment scope, vertical scope and geographical market-segment scope, vertical scope and geographical scope.scope.

• Mission statements are at their best when they are guided by a vision, an almost “impossible dream” that provides a direction for the company for the next 10 to 20 years.

ESTABLISHING STRATEGIC ESTABLISHING STRATEGIC BUSINESS UNITSBUSINESS UNITS

Most companies operate several businesses. Most companies operate several businesses. They often define their businesses in terms They often define their businesses in terms of products. But according to Levitt, a of products. But according to Levitt, a business must be viewed as a customer-business must be viewed as a customer-satisfaction process, not a goods-producing satisfaction process, not a goods-producing process. Products are transient, but basic process. Products are transient, but basic needs and customer groups endure forever.needs and customer groups endure forever.

A business can be defined in terms of three A business can be defined in terms of three dimensions : Customer groups, Customer dimensions : Customer groups, Customer needs, and Technology.needs, and Technology.

CHARACTERISTICS OF AN CHARACTERISTICS OF AN SBU …….SBU …….

It is a single business or collection of It is a single business or collection of related businesses that can be planned related businesses that can be planned separately from the rest of the separately from the rest of the companycompanyIt has its own set of competitorsIt has its own set of competitorsIt has a manager who is responsible for It has a manager who is responsible for strategic planning and profit strategic planning and profit performance and who controls most of performance and who controls most of the factors affecting profitthe factors affecting profit

Corporate Strategic Planning- Corporate Strategic Planning- Assigning resources to each SBU.Assigning resources to each SBU.

The purpose of identifying the company’s SBUs is to develop separate strategies and assign appropriate funding.Managers need some analytical tools for classifying their businesses by profit potential. Two models (analytical tools) are best known models for portfolio analysis.

PORTFOLIO ANALYSISPORTFOLIO ANALYSIS

One of the tools used in analyzing market One of the tools used in analyzing market scenarios and strategic decisions scenarios and strategic decisions concerning product mix is the portfolio concerning product mix is the portfolio analysis.analysis.

(A) The B C G Model (A) The B C G Model

( Boston Consulting Group’s Model )( Boston Consulting Group’s Model )

(B) The G E Approach (B) The G E Approach

( General Electric Approach )( General Electric Approach )

Analyzing Current SBU’s:Analyzing Current SBU’s:Boston Consulting Group ApproachBoston Consulting Group Approach

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Question Marks

• High growth, low share • Build into Stars or phase out • Require cash to hold market share

Stars

• High growth & share• Profit potential • May need heavy investment to grow

Cash Cows

• Low growth, high share• Established, successful SBU’s•Produce cash

Cash Cows

• Low growth, high share• Established, successful SBU’s•Produce cash

Dogs

• Low growth & share • Low profit potential

Dogs

• Low growth & share • Low profit potential

Relative Market ShareHigh 1.0X Low

Mark

et

Gro

wth

Rate

Low

1

0%

H

igh

?

(BCG Model assumes a market growth rate of 10% as the cut-off point. The market share is expressed in log scale and 1.0 is taken as a cut-off point.)

PORTFOLIO ANALYSISPORTFOLIO ANALYSIS(B) THE G E APPROACH(B) THE G E APPROACH

The problem with the BCG model is that the The problem with the BCG model is that the cut-off point taken on the market growth rate cut-off point taken on the market growth rate to classify high growth and low growth to classify high growth and low growth markets is arbitrary, and in most cases 10 % markets is arbitrary, and in most cases 10 % is too high a growth rate. To overcome this is too high a growth rate. To overcome this problem and also to consider factors problem and also to consider factors contributing to market growth and share, the contributing to market growth and share, the GE (General Electric) approach comes in GE (General Electric) approach comes in handy. ( Contd.. )handy. ( Contd.. )

PORTFOLIO ANALYSISPORTFOLIO ANALYSIS(B) THE G E APPROACH(B) THE G E APPROACH

YELLOW

RED

GREEN

High Medium Low

High

Medium

Low

Firm’s Strengths (Contd..)

MarketAttract-iveness

PORTFOLIO ANALYSISPORTFOLIO ANALYSIS(B) THE G E APPROACH(B) THE G E APPROACH

Market attractiveness is measured by factors Market attractiveness is measured by factors like market size, annual growth rate, like market size, annual growth rate, competitive intensity, rate of technological competitive intensity, rate of technological development, government policy and development, government policy and influence of other interest groups.influence of other interest groups.Competitive position is assessed by factors Competitive position is assessed by factors like market share, annual growth in market like market share, annual growth in market share, customer loyalty or brand loyalty, share, customer loyalty or brand loyalty, product quality, brand image, distribution product quality, brand image, distribution network, productivity, R&D, financial position network, productivity, R&D, financial position etc.etc.

PORTFOLIO ANALYSISPORTFOLIO ANALYSIS(B) THE G E APPROACH(B) THE G E APPROACH

On examining the product portfolio of a firm, one On examining the product portfolio of a firm, one may find that some SBUs/Products may fall in the may find that some SBUs/Products may fall in the green segment, some in the yellow and some in the green segment, some in the yellow and some in the red segment.red segment.

SBUs/Products in green segment require to be SBUs/Products in green segment require to be developed and supported, in yellow segment require developed and supported, in yellow segment require to be monitored carefully, and in red segment are to to be monitored carefully, and in red segment are to be harvested or divested for obvious reasons of be harvested or divested for obvious reasons of moderate to weak competitive position in an moderate to weak competitive position in an unattractive market.unattractive market.

Thus in evaluating the product mix of a firm, we have Thus in evaluating the product mix of a firm, we have to examine each product or product line from the to examine each product or product line from the point of view of market attractiveness and its point of view of market attractiveness and its competitive position.competitive position.

Corporate Strategic Planning- Corporate Strategic Planning- Assessing Growth OpportunitiesAssessing Growth OpportunitiesThe company’s plans for its existing The company’s plans for its existing businesses allow it to project total businesses allow it to project total sales and profits. Often, projected sales sales and profits. Often, projected sales and profits are less than what and profits are less than what corporate management wants them to corporate management wants them to be. If there is a be. If there is a strategic planning gapstrategic planning gap between future desired sales and between future desired sales and projected sales, corporate management projected sales, corporate management will have to develop or acquire new will have to develop or acquire new businesses to fill it.businesses to fill it.

GROWTH OPPORTUNITIESGROWTH OPPORTUNITIES( winning markets through market-( winning markets through market-

oriented strategic planning )oriented strategic planning )

Sales

Time (Years)

Desired Sales

Current Portfolio

Strategic Planning

GapIntensive growth

Integrative growth

Diversification growth

HOW CAN THE COMPANY FILL THE HOW CAN THE COMPANY FILL THE STRATEGIC PLANNING GAP ?STRATEGIC PLANNING GAP ?(GROWTH OPPORTUNITIES)(GROWTH OPPORTUNITIES)

Three options are available :Three options are available :

Intensive Growth OpportunitiesIntensive Growth Opportunities

Integrative Growth OpportunitiesIntegrative Growth Opportunities

Diversification Growth OpportunityDiversification Growth Opportunity

(GROWTH OPPORTUNITIES)(GROWTH OPPORTUNITIES)

INTENSIVE GROWTHINTENSIVE GROWTH

Identify opportunities to achieve further Identify opportunities to achieve further growth within the company’s current growth within the company’s current business.business.

Ansoff has proposed a useful Ansoff has proposed a useful framework for detecting new intensive framework for detecting new intensive growth opportunities called a product / growth opportunities called a product / market expansion grid.market expansion grid.

(GROWTH OPPORTUNITIES)(GROWTH OPPORTUNITIES)

INTENSIVE GROWTHINTENSIVE GROWTH

1. Market Penetration

2. Market Development

3. Product Development

4. Diversification

ExistingMarkets

NewMarkets

ExistingProducts

NewProducts

Product/ Market Expansion Grid

Corporate Strategic Planning- Corporate Strategic Planning- Developing Growth StrategiesDeveloping Growth Strategies

– Intensive growth opportunitiesIntensive growth opportunities: Identify : Identify further opportunities to achieve growth within further opportunities to achieve growth within the company’s current business.the company’s current business.

Market penetration strategy Market penetration strategy seeks to seeks to increase current products in current increase current products in current markets.markets.Market development strategyMarket development strategy looks for looks for new markets in which current products can new markets in which current products can expand.expand.Product development strategyProduct development strategy considers considers new product possibilitiesnew product possibilities

(GROWTH OPPORTUNITIES)(GROWTH OPPORTUNITIES)DIVERSIFICATION GROWTHDIVERSIFICATION GROWTH

- Diversification growth opportunitiesDiversification growth opportunities: : Identify opportunities to add attractive Identify opportunities to add attractive businesses that are unrelated to the businesses that are unrelated to the company’s current businesses.company’s current businesses.

Concentric diversification strategyConcentric diversification strategy: : Company seeks new products that have Company seeks new products that have technological and/or marketing synergy technological and/or marketing synergy with existing product lines, even though the with existing product lines, even though the product may appeal to a new class of product may appeal to a new class of customerscustomers

Corporate Strategic Planning Corporate Strategic Planning (cont.)(cont.)

- Horizontal diversification strategyHorizontal diversification strategy: : Company searches for new products Company searches for new products that could appeal to its current that could appeal to its current customers though technologically customers though technologically unrelated to its current product line.unrelated to its current product line.

Conglomerate diversification Conglomerate diversification strategystrategy..

(GROWTH OPPORTUNITIES)(GROWTH OPPORTUNITIES)

INTEGRATIVE GROWTHINTEGRATIVE GROWTH- Integrative growth opportunities.Integrative growth opportunities.

Backward integrationBackward integration: A hotel company : A hotel company acquiring one of its suppliers.acquiring one of its suppliers.

Forward integrationForward integration: A hotel company : A hotel company acquiring travel agents.acquiring travel agents.

Horizontal integrationHorizontal integration: A hotel company : A hotel company acquiring one or more competitors, acquiring one or more competitors, provided the government does not bar the provided the government does not bar the move.move.

Business Strategy Planning –Business Strategy Planning –Planning at the SBU LevelPlanning at the SBU Level

1.1. Business missionBusiness mission

2.2. ExternalExternal environmentenvironment analysisanalysis– – opportunities and threatsopportunities and threats

3.3. Internal environment analysisInternal environment analysis– – strengths and weaknessesstrengths and weaknesses

4.4.Goal Formulation Goal Formulation (What do we want?)(What do we want?)––The visionThe vision

Business Strategy Planning (cont.)Business Strategy Planning (cont.)

5.Strategy Formulation 5.Strategy Formulation (How do we get (How do we get there?)there?)- Michael Porter’s three generic types of strategyMichael Porter’s three generic types of strategy::

Overall cost leadershipOverall cost leadershipDifferentiationDifferentiationFocusFocus

– Strategic Alliances: Strategic Alliances: companies need to form companies need to form strategic alliances with domestic or multinational strategic alliances with domestic or multinational companies that complement or leverage their companies that complement or leverage their capabilities and resources to achieve leadership capabilities and resources to achieve leadership nationally or globallynationally or globally..

Business Strategy Planning (cont.)Business Strategy Planning (cont.)

6.Program formulation6.Program formulation. A company must . A company must develop hiring, training, advertising, and develop hiring, training, advertising, and other programs to support its strategy.other programs to support its strategy.

7. 7. ImplementationImplementation. A firm must . A firm must communicate its strategy to its employees communicate its strategy to its employees and it must have the resources to carry out and it must have the resources to carry out its strategy. its strategy.

8. Feedback and control8. Feedback and control are absolutely are absolutely necessary to track results and monitor necessary to track results and monitor new developments in the environment.new developments in the environment.