Strategic planning

Strategic Planning

Dr. Subhodip MitraDept. Of Hospital Administration

KMC, Manipal

Dr. Subhodip Mitra

What is a Planning?

Planning (also called forethought) is the process of thinking about and organizing the activities required to achieve a desired goal.

Dr. Subhodip Mitra

What is a strategy?

“The continuous process of making entrepreneurial (risk-taking) decisions systematically and with greatest knowledge of their futurity, organizing systematically the efforts needed to carry out these decisions, and measuring the result of these decisions against the expectations through organized systemic feedback”

- Peter Druker

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What is strategic planning?

It is the process of deciding on objectives of the organization, on changes on these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use and disposition of these resources

Dr. Subhodip Mitra

Three important features

1. A shift in orientation from producing services

2. A statement of purpose is not the starting point of planning

3. Understanding that planning and management are concurrent

Dr. Subhodip Mitra

1) Internal environment2) External environment3) Industry analysis4) Enterprise profile5) Orientation, values & vision of execution6) Mission, major objectives and strategic intent7) Development of alternative strategies8) Evaluation of choice of strategies9) Medium and short range planning10)Consistency testing and contingency planning

Strategic Planning Approach

Dr. Subhodip Mitra


1. Internal Environment Resources and Weaknesses Strengths in R&D, production, operation,

procurement, marketing, products and services

Human and financial resources Company image, organization structure and

climate Planning and control systems Relations with customers

Dr. Subhodip Mitra


2. External EnvironmentThreats and opportunities Evaluation of competitive situationEconomic, social, political, legal, demographic

and geographic factorsTechnological developments and for products

and services in the market

Dr. Subhodip Mitra

3. Industry AnalysisEvaluate the attractiveness of the industryFocus on : Kind of competition in the industry, possibility

of new firms in the market, availability of substitute products or services and bargaining positions of suppliers as well as the buyers or customers


Dr. Subhodip Mitra

4. Enterprise ProfileIt is the starting point of for determining

where the company is and where it should goDetermine the mission of the enterpriseClarify it’s geographic orientationAssess the competitive position of their firm


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5. Orientation, values and visions of executivesEnterprise profile is shaped by people They set the organizational climate and

determine the direction of firmCarefully examine their values, preferences

and their attitude towards risks


Dr. Subhodip Mitra

6. Mission, Major objectives and strategic intent

Major objectives are the end points towards which the activities of the organization are directed

Strategic intent is the commitment to win in the competitive environment

Prof Gary Hamel and Prof C.K Prahlad analysed companies that achieved global leadership

Intent statement is stable over time and focuses on the essence of winning


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7. Development of Alternative Strategies Specialize or concentrate DiversifyInternational ExpansionJoint ventures and strategic alliances Liquidation Retrenchment


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8. Evaluation of choice of strategies Choices must be considered in light of risks

involved and failure may result in bankruptcyTiming of the strategy must be chosen

carefully Intercommunication of strategies


Dr. Subhodip Mitra

9. Consistency testing and contingency planning

Last key aspect of the strategic planning process and essential during all phases

Contingency plans must be prepared as future cannot be predicted with high degree of certainty


Dr. Subhodip Mitra

10. Medium and Short-Range planning Not a part of strategic planning process but

must be implemented during all phases of the process

Implementation may require organizing or reengineering the organization, staffing

Providing leadership thorough effective communication

Install controls to monitor performance


Dr. Subhodip Mitra

Tools for Strategic Planning

I. TOWS Matrix

II. B.C.G. Matrix

III. Porter’s analysis

IV. SERVO analysis

Dr. Subhodip Mitra

I. TOWS Matrix

• The TOWS matrix is a conceptual framework for a systemic analysis that facilitates matching of the external threats and opportunities with the internal weakness and strengths of the organization.

• Introduced for analyzing the competitive situation of the company or even of a nation that leads to the development of four distinct sets of strategic alternatives.

Dr. Subhodip Mitra

What does TOWS stand for?

• T : Threats • O : Opportunity • W: Weakness • S : Strength

Dr. Subhodip Mitra

Dr. Subhodip Mitra

WT Strategy (Min-Min)

• Aims to minimize both weaknesses and threats and called min-min (minimize-minimize)

• Ex: May require the company to liquidate or it retrenches

Dr. Subhodip Mitra

WO Strategy (Min-Max)

• Minimises the weakness and maximises the opportunities

• A company with a weakness in a certain area may develop those areas or acquire needed competencies to strengthen it

Dr. Subhodip Mitra

ST Strategy (Max-Min)

• Organization uses it’s strengths to deal with threats in the environment

• Use of technological, financial, managerial or marketing strengths to cope with threat

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SO Strategy (Max-Max)• Most desirable, capitalizes on company’s strengths to

take advantage of opportunities• Aim of all enterprises would be to move from other

positions in the matrix to this one

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Disadvantages of TOWS matrix

• Certain combinations like SW or OT are not considered

• It only gives the possible strategies that can be implemented, not the best strategy to use

• Does not show interrelationship between the external and the internal factors

Dr. Subhodip Mitra

II. B.C.G. Matrix

• Also called as Boston consultancy group matrix, growth share matrix or product portfolio

• Developed in the early 70’s by the Boston Consultancy Group

• It is the most well known portfolio management tool

• Based on product life cycle theory

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Relevance of the BCG Matrix

The BCG matrix has two dimensions:

i. Relative position (market share)

ii. Business (or market) growth rate

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What is the basic idea of the BCG Matrix?

If a product has a bigger market share or if the product’s market grows faster, it is better for the company

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BCG Matrix contents?

1) Question Mark2)Star3)Cash Cow4)Dog

Dr. Subhodip Mitra

Dr. Subhodip Mitra

Disadvantages of BCG matrix

i. Critics contend that it is too simplisticii. Growth rate criterion has been considered

insufficient for the evaluation of an industry’s attractiveness

iii. The market share as a yardstick for estimating the competitive position may be inadequate

Dr. Subhodip Mitra

III. Porter’s Analysis

• Introduced by Prof. Michael Porter• He suggested four “generic” business strategies

that could be followed in order to gain competitive advantage

• The i)Differentiation leadership and ii)Cost Leadership strategies seek competitive advantage in a broad range of market

• iii)Differentiation focus and iv)Cost Focus strategies are best used in a narrow market or industry

Dr. Subhodip Mitra

Dr. Subhodip Mitra

i) Cost Leadership

• Lowest-cost producer in the industry• Production on a large scale which enables the

targets a boarder market• The firm can compete on the price with every

other industries and earn higher unit profits• Successful if the firm is the cost leader and is

unchallenged in this position• Beneficial when customers are price sensitive

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ii) Differentiation Leadership

• The business targets much larger markets and aims to achieve competitive advantage across the whole of the industry

• Involves selecting one or more criteria by buyers and positioning the business uniquely to meet those criteria

• It is about giving customers clear reasons to choose their product over others

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Ways to achieve differentiation leadership?

1. Superior product quality

2. Branding

3. Industry-wide distribution across major channels

4. Consistent promotional support

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iii) Cost Focus

• Here a firm seeks a lower-cost advantage in just one or small number of market segments

• These firms often enjoys a high degree of customer loyalty and this entrenched loyalty often discourages other firms from competing directly

• They may charge higher cost to their customers since close substitute products do not exist

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iv) Differentiation Focus

• A firm aims to differentiate within just one or a small number of target market segments

• Market segmentation clearly identifies customer needs and wants and it meets the need of the segment

• It provides the highest quality product with specialist expertise

• It maintains exclusiveness of the product

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IV. SERVO Analysis

• The SERVO (Strategy, Environment, Resources, Values, Organization) analysis framework model is a diagnostic management tool used to build and test a firm’s strategic decisions and initiatives.

• The interactions and relationships among these five elements are examined

• Helps in strategy formulation and implementation

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Contd.....

• SERVO allows for broad, integrative, in-depth analysis

• Emphasizes the relationships among actions or decisions.

• Balance between both internal and external dimensions impacting strategy.• ‘Fit’ is critical in the application of this model.

Better • “fit“ leads to better performance

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Illustration of the ‘fit’ concept

The reality of most organizational situations is that some inconsistencies will exist between the elements over time

Resources and Capabilities Strategy Environment

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Dr. Subhodip Mitra

Strategy

• Strategy is the set of competitive decisions and actions made in response to the firm’s environment.

• Should identify the firm’s goals and objectives, the product/service and market, the business activities, the value it will offer to customers, and how it will provide superior offerings.

• Strategy within the SERVO model is composed of four elements:

–Goals –Scope –Competitive basis/premise –Business Model

Dr. Subhodip Mitra

Environment – External includes things ‘outside’ the legal boundaries of

the firm. – Internal environment includes stakeholders, forces and

conditions ‘inside’ the firm. • Environment can also be segmented into components in

proximity to the business. –Internal

–Task–Industry–Macro-environment

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Resources

• Resources:– Assets and capabilities used to generate outputs.

• Includes:– Financial– Human– Physical– Intangible

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Values

– Analyst must capture the human & social sides of the firm’s leading decision makers.– Values are reflected in the posture and managerial style of the decision maker.– Shared values represent the collective value system that drives a firm’s organizational culture.

• Go beyond the firm’s mission statement by encompassing strategic intent, beliefs, mental mindsets, and future direction.

• Can be the fundamental building block of an organization

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Organization

– Culture : beliefs, history, modus operandi, stories, traditions, and values. – Leadership: actions & behaviours of top decision makers. – Staffing : attraction, development, motivation, retention, and training of individuals. –Structure : allocation of responsibilities & reporting relationships within a firm. –Systems: flow of primary and secondary activities that are important for daily functioning.

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Strength of fit:1. Tight (T) – Highest level of performance2. Loose (L) – Lowest level of performance3. Medium (M) – Some decisions in elements support each other, some do not Temporal fit:4. Early (e) - Firm has a new pattern of it between it’s SERVO elements5. Delayed (d) – Firm is slow competitor 6. Normal (n) – Changes at the same time as a “typical” firm

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Interpretation

The SERVO model is an analytical framework that addresses what is important to strategic thinking.• The analyst will need to consider the key factors associated with the firm, its strategy, and the environment in terms of the five elements.• A strategic problem is present when the fit among the elements is loose, fragile, or broken. • The analyst’s objective is to generate recommendations to decision making clients that will tighten the fit among the loose relating elements.

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Advantages

– Balances between internal and external factors.– Model departs from ‘structure follows strategy’ and broadens scope.– Recognizes that change requires management of the relationships among ALL five elements of strategic fit.– Inclusive and holistic.

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Disadvantages

• Model is abstract, not precise.• Can assist with both formulation &

implementation tasks, but does not provide guidance for either.

• Model is difficult to apply. – Inter-relationships between elements are

hard to discern.• Model tends to be static.

Dr. Subhodip Mitra

Applicability of Strategic Planning?

Strategic planning appears to be most effective in panning for growth and for diversification

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Growth

Extending the area of service by creating or adding a new facility

Provide a new service in the hospital which expands the role of the hospital

Create community awareness by publicizing special services, hoping it will increase the use of hospital facilities

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Diversification

• May become necessary for:i. Generating capital from non-operating sources of

revenue for financing replacement, expansion or enhancement of technology

ii. Surviving competition iii. Improving hospital’s long term ability to survive

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Areas of diversification

Related Diversification : Increasing services or enlarging product line. e.g., Outpatient surgery unit, birth centres, commercial lab, emergency centre, ambulance service, hospice day care, sports medicine, etc,.

Unrelated diversification : Investment of finds and capital management of land and property.

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References

• Essentials of Management by Harold Koontz and Heinz Weihrich (9the)

• Principles and Practice of Management by L.M. Prasad (7the)

• Business and competitive analysis by Craig S. Fleisher and B.E. Bensoussan (1ste)

• Principles of Hospital Administration & Planning by B.M. Sakharkar (2nde)

Dr. Subhodip Mitra

Strategic planning

Business

strategic planning approach

strategic planning process

subhodip mitra

contingency planning

climate planning

shortrange planning

starting point of planning

short range planning