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Develop or validate the Strategic Plan

 

Contents

1. Define KRA & Strategic Objectives

 

a. Environmental Scanning & Industry Analysis

i. Societal Environment PEST/STEP Analysis

  • A PEST is an analysis of the external macro-environment that affects all firms.

  • PEST is an acronym for Political, Economical, Social and Technological factors of the external macro- environment.

  • Such external factors usually are beyond the firm's control and sometimes present themselves as threats.

  • However, changes in the external environment also create new opportunities and the letters sometimes

  • are rearranged to construct the more optimistic term of STEP analysis.

  • Many macro-environmental factors are country specific and a PEST analysis will need to be performed for all countries of interests.

  • Environmental Trend Analysis

Task/Soc
Environ.
Factors

Economical

  1.
  2.
  3.

Technological

  1.
  2.
  3.

Political/Legal

  1.
  2.
  3.

Social /Cultural

  1.
  2.
  3.

Buyers Power

       

Suppliers Power

       

Substitutes

       

Potential Entrants

       

Rivals

       

Interest Groups

       

Government

       
  • Strategic Issues and Strategic Factors

    • Strategic Issues: Trends likely to affect future environment

    • Strategic Factors: Those strategic issues with high probability of occurrence and high probable impact on corporations

  • Issues Priority Matrix

 

Probability of Occurrence

 

 

Probable Impact on Corporation

 

High

Medium

Low

High

High Priority

High Priority

Medium Priority

Medium

High Priority

Medium Priority

Low Priority

Low

Medium Priority

Low Priority

Low Priority

 

  • Porter’s Five Forces of Competition Framework “Competitive Intensity”

  • The Spectrum of Industry Structures

 

Perfect  Competition 

Oligopoly

Duopoly

Monopoly

Concentration 

Many firms 

A few firms 

Two firms 

One firm 

Entry and Exit
Barriers

No barriers 

Significant barriers

High barriers 

Product
Differentiation

Homogeneous
Product

Potential for product differentiation

Information

Perfect
Information flow

Imperfect availability of information

 

  • Checklist for Industry Analysis

  1. Threats of new entrants: (potential competitors)

    1. Brand Loyalty (Product Differentiation)

    2. Absolute Cost Advantages:

      1. Superior Production operation due to process past experience, patents or secret process

      2. Control of particular input

      3. Access to cheaper funds

      4. Access to distribution Channels

      5. Huge Capital Requirements

    3. Economies of Scale: Cost reduction through mass producing a standardized output

    4. Switching Cost:: Consumer cost to switch form one product to another

    5. Government Regulation:

  2. Rivalry among existing firms:

    1. Competition Structure: Number & Size of competitor companies: Fragmented  -consolidated

    2. Demand Condition & Rate of Industry Growth: Declining  or growing Demand

    3. Exit Barriers:

    4. Diversity of Rivals:

    5. Capacity: Low price

    6. Product or Service Characteristics: undifferentiated product
      Commodity: a product whose characteristics are the same

  3. Substitute products or services:

  4. Bargaining power of buyers:

    1. Few Number of Buyers & Larger Number of suppliers

    2. Buyers Purchasing Large quantity

    3. Potential Integration backward

    4. Other

  5. Bargaining Power of Suppliers

    1. Few Suppliers domination

    2. Unique Product & high switching Cost

    3. Supplier could integrate forward

    4. Other

  6. Relative Power of other Stake holders

    1. Government

    2. Trade Associations

    3. Unions

    4. Complementors

    5. Other

iii. External Factor Analysis Summary (EFAS)

  • Sample Environment Opportunities Table

Key Strategic Factors Weight Rating Weighted  Range
PEST Analysis Score
Political        
O1 Environmental protection laws  0.1     4 0.4 Long
O2 Government policies  0.1 4 0.4 Long
Economic        
O3 Energy availability and cost   0.4 5 2 Long
O4  Funding, grants and initiatives  0.2 5 1 Medium
Social        
O5 Environment awareness   0.05 1 0.05 Long
O6 Demographics  (population in remote areas 0.05 2 0.1 Long
Technology        
O7 Manufacturing maturity and capacity  0.05 3 0.15 Long
Key Strategic Factors Weight Rating Weighted  Range
Basic POTER Five +1 Score
O8 Rivalry among existing firms 0.05 4 0.2 Short
O9 Bargaining power of buyers 0.05 3 0.15 Short

 

  • Sample Environment Threats Table

Key Strategic Factors Weight Rating Weighted  Range
PEST Analysis Score
Political        
T1 Political Stability  0.05 2 0.1 Long
T2 Lobbying/pressure groups  0.1 4 0.4 Medium
Economic        
T3 Devaluation/revaluation  0.05 3 0.15 Medium
T4 Interest rates   0.05 2 0.1 Short
T5 Market Instability 0.25 5 1.25 Medium
Social        
T6 Consumer attitudes and opinions  0.2 5 1 Medium
Technology        
T7 Maturity of technology  0.05 3 0.15 Long
T8 Patent protection  0.05 2 0.1 Long
Key Strategic Factors Weight Rating Weighted  Range
Basic POTER Five +1 Score
T9 New Entrance 0.1     4 0.4 Long
T10 Substitute products or services 0.05 3 0.15 Medium
T11 Bargaining power of suppliers 0.05 1 0.05 Short

b. Internal Scanning: Organizational Analysis

  1. Resource Based View RBV

  2. Value Chain Analysis

  3. Scanning Functional Resources

  4. Synthesis of Internal Factors - IFAS

i. Resource Based View RBV

  • A resource is an asset, process, skills, or knowledge controlled by the organization.

  • A competitive advantage is rooted in developing key resources that are different.

  • The RBV explains organizational existence based on internal assets that are Valuable, Rare, Inimitable, and have an Organizational focus (VRIO).

  • Resources that meet the VRIO criteria contribute to an organization’s competitive advantage.

  • Most companies have many resources (both tangible and intangible) but few that are strategic in nature.

  • Most strategic assets tend to be knowledge-based and are intangible.
    Although tangible resources enable a company to execute business processes, it is the intangible ones that are more likely to serve as sources for competitive advantage.

  • Core Competencies and Distinctive Competencies

    • Core Competencies:  Things a corporation can do exceedingly well

    • Distinctive Competencies: Core competencies that are superior to those of competitors

  • A Distinctive Competency Meets Three Tests

    1. Customer value
      It must make a disproportional contribution to customer perceived value.

    2. Competitor unique
      It must be unique and superior to competitors capabilities

    3. Extendability
      It must be something that can be used to develop new products/ services or enter new markets.

  • VRIO Framework of Resources Analysis

    1. Value

      • Does the resource provide competitive advantage?

      • Does the resource enable the firm to exploit an external opportunity or neutralize an external threat?

      • Valuable resources contribute to an organization’s efficiency and effectiveness

    2. Rareness

      • Do other competitor posses?

      • A resource must be rare enough that perfect competition has not set in

      • There may be other firms that possess the resource, but still few enough that there

    3. Imitability

      • Is it costly to other to imitate?

      • This cost may be due to: patent, or because the organization is the first mover

    4. Organizational Focus

      • Is the company organized to exploit of its valuable, rare, and costly to imitate resources?

      • Organizational focus, refers to

    • Integrated and aligned managerial practices, routines, and processes.

    • Managerial leadership and decisions that support key assets in terms of how these assets are developed and sustained.

  • Sustainability of a Distinctive Competency

    1. Durability

      • New Technology can make a company's core competency obsolete or irrelevant.

    2. Imitability
      Imitability depends on
      Transparency: The speed by which the other competitors can understand the relationship of resources and capabilities supporting SE Strategy

      • Transferability: The ability of competitors to gather & mobilize resources to support a competitive strategy.

      • Replicability: The ability of competitors to use duplicate resources to imitate our company success

 

  • The VRIO Framework (amended for sustainability)

Resources & Capabilities

Valuable?

Rare?

Costly to Imitate?

Exploited by
Organization?

Durability

Competitive
Implications

 

No

 

 

 

 

Disadvantage

 

Yes

No

 

 

 

Parity

 

Yes

Yes

No

 

 

Temporary Advantage

 

Yes

Yes

Yes

Yes

No

Competitive Advantage with limited sustainability

 

Yes

Yes

Yes

Yes

Yes

Sustainable Competitive Advantage

  • Using Resources for Competitive Advantage

    • Identify & Classify Resources in Terms of Strengths & Weaknesses

    • Combine Strengths into Specific Capabilities

    • Appraise Potential in Terms of Sustainable Competitive Advantage & Profits

    • Select Strategy that Best Exploits Resources & Capabilities relative to External Opportunities

    • Identify Resource Gaps & Invest in Upgrading Weaknesses

ii. Value Chain Analysis

  • The Value Chain Concept

    • Identifies the separate activities and business processes performed to design, produce, market, deliver,

    • and support a product / service Consists of two types of activities

      • Primary activities

      • Support activities

  • Business Functions & Value Chain Analysis

    • Value Chain Analysis studies business functions or chain of activities that transform inputs into outputs to create value for customers.

    • Each activity incurs cost

    • The organization margin or profit depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain.

    • It is in these activities that a firm has the opportunity to generate superior value.

  • A Typical Company Value Chain

    Value Chain Analysis studies business functions or chain of activities that transform inputs into outputs to create value for customers. Each activity incurs cost and the organization margin or profit depends on its effectiveness in performing these activities efficiently, so that the amount that the customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in these activities that a firm has the opportunity to generate superior value.

    • Primary activities are:

      • R&D and Technical Support

      • Production

      • Sales & Marketing

      • Services

    • Supporting activities are:

      • Material Management

      • Inbound & Outbound Logistics

      • Financial Function

      • HR & General Administration

  • Value Chain Center of Gravity

    • That part of the chain that is most important to the organization and the point where it has its greatest expertise & capabilities

    • Often it is the point at which the organization was founded.

  • Industry Value Chain Analysis (the Value System)

    • A company's value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. Porter calls this series of value chains the value system, shown conceptually below:

      • Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain

    • Suppliers’ value chains are relevant because

      • Costs, quality, and performance of inputs provided by suppliers influence a firm’s own costs and product performance

    • Forward channel allies’ value chains are relevant because

      • Forward channel allies’ costs and margins are part of price paid by ultimate end-user

      • Activities performed affect end-user satisfaction

  • Outsourcing Value Chain Activities

    • The Company may specialize in one or more value chain activities and outsource the rest. The extent to which it performs upstream and downstream activities is described by its degree of vertical integration.

    • To decide which activities to outsource, managers must understand the company’s strengths and weaknesses in each activity, both in terms of cost and ability to differentiate.

    • Managers may consider the following when selecting activities to outsource:

    • Whether the activity can be performed cheaper or better by suppliers.

    • Whether the activity is one of the firm's core competencies

    • The risk of performing the activity in-house.

      • If the activity relies on fast-changing technology or

      • the product is sold in a rapidly-changing market,

    • Whether the outsourcing of an activity can result in business process improvements such as reduced lead time, higher flexibility, reduced inventory, etc

The Company Value Chain

 

The Value Chain System

iii. Scanning the Functional Resources

  • Assessment of each of the company's functional areas & their operational activities, identifying constraints and clarifying areas where performance improvements should be achieved & how.

  • Describe the nature of the market segment in which the company operates.

  • Provides a summary information concerning the opportunity reached for the company in both local and export markets.

  • Organizational Structure

  • Corporate Culture

  • Strategic Marketing issues

  • Strategic Finance issues

  • Strategic R & D issues

  • Strategic Operations issues

  • Strategic Human Resources issues

  • Strategic Information Systems issues

Human Resources & Organization Structure

  • Basic Structures of Corporations

  • Strategic Business Unit SBU

    Independent product-market unit with:

    1. Unique mission

    2. Identifiable competitors

    3. External market focus

    4. Control of its business functions

  • Corporate Culture

    • Attributes of Corporate Culture

    • Intensity

  • Integration

    • Functions of Corporate Culture

      1. Conveys sense of identity

      2. Generates employee commitment

      3. Adds to organizational stability

      4. Serves as a frame of reference

Strategic Marketing Issues

Marketing Position:

  • Deals with the question: What are our customers?

  • It refers to the selection of specific markets, products, and geographic location

Marketing Segmentation:

  • The organization defines what niches it seeks

  • Do products and services directly compete with each other?

Product

Place

Promotion

Price

Quality

Channels

Advertising

List price 

Features

Coverage

Personal selling

Discounts 

Options

Locations

Sales promotion

Allowances 

Style

Inventory

Publicity

Payment periods 

Brand name

Transport

 

Credit terms 

Packaging 

 

 

 

Sizes 

 

 

 

Services 

 

 

 

Warranties 

 

 

 

Returns

 

 

 

Strategic Financial Issues

  • Financial Leverage

    • It is the Ratio of total debit to total assets

    • It is helpful in deciding how debit is used in increase the earnings

  • Capital Budgeting

    • It is the analyzing and ranking of possible investments in fixed assets such as land, buildings, and equipment in terms of the additional receipt that will result form each investment.

Strategic R&D Issues

  • R&D Intensity, Technological competence, and Technology Transfer

  • R&D Mix

  • Impact of Technological Discontinuity on Strategy

  • R&D Mix

    • Basic R&D

    • Product R&D

    • Process (Engineering) R&D

  • Technological Discontinuity

Strategic Operation

  • Strategic Operation Issues

  • Manufacturing Capabilities, Resources & Efficiency

  • Operations Planning, & Control & Material Mgmt.

  • Maintenance Management System

  • Quality Systems

  • Economies of Scale versus Economies of Scope

Experience Curve

 

Economies of Scale versus Economies of Scope

Positioning Strategy

  • HMLV High Mix Low Volume  Manufacturing  - Process Focused

    (Organizing the Productive Resources According to Capability)

    • Low Volume

    • Wide Variety /High Customization

    • Not as Efficient/ Highly Flexible

    • General Purpose Equipment

    • High Skilled and Highly Trained Workforce

    • Jumbled and Complex Work Flow

  • HVLM High Volume Low Mix Manufacturing - Product Focused

    (Organizing the Productive resources around the Product)

    • High Volume

    • Limited variety Products/Services

    • Line Flows

    • Special Purpose Equipment

    • Low Labor Skills

    • Capital intensive/ High Automation

    • Efficient

iv. Synthesis of Internal Factors - IFAS.

  • Sample Internal Factors (Strength)

Key Strategic Factors Weight Rating Weighted  Range
Score
S1 Reputation, presence and reach 0.2 5 1 Long
S2 Experience, knowledge, data 0.2 5 1 Long
S3 Innovative aspects 0.2 5 1 Long
S4 Accreditations, qualifications, certifications  0.1 4 0.4 Long
S5 Cultural, attitudinal, behavioral 0.1 3 0.3 Long
S6 Management System 0.1 2 0.2 Long

 

  • Sample Internal Factors (Weakness)

Key Strategic Factors Weight Rating Weighted  Range
Score
W1 Marketing , distribution, awareness 0.3 5 1.5 Long
W2 Continuity, supply chain robustness 0.3 5 1.5 Long
W3 Financial: Cash flow, start-up cash-drain  0.2 5 1 Short
W4 Gaps in Sustaining internal capabilities  0.1 5 0.5 Medium
W5 Resources, Assets, People 0.1 4 0.4 Medium

 

c. Strategic Factor Analysis Summary (SFAS)

 

Key Strategic Factors Weight Rating Weighted  Range
Score
O3 Energy availability and cost   0.4 5 2 Long
W1 Marketing , distribution, awareness 0.3 5 1.5 Long
W2 Continuity, supply chain robustness 0.3 5 1.5 Long
T5 Market Instability 0.3 5 1.3 Medium
O4  Funding, grants and initiatives  0.2 5 1 Medium
S1 Reputation, presence and reach 0.2 5 1 Long
S3 Innovative aspects 0.2 5 1 Long
S2 Experience, knowledge, data 0.2 5 1 Long
W3 Financial: Cash flow, start-up cash-drain  0.2 5 1 Short
T6 Consumer attitudes and opinions  0.2 5 1 Medium
S3 Accreditations, qualifications, certifications  0.2 4 0.8 Long

 

d. Identify Key Results Area KRA/ Key Business Drivers KBD/ Critical Success Factors CSF

  • Those 4 to 6 major areas wherein performance is essential during the coming year.

  • They are areas in which the organization must achieve success to grow and prosper.
    Include both financial and non-financial areas.

  • Will not cover the entire organization—will identify the critical few areas where priority efforts should be directed.

  • They are the areas of organizational activity in which the organization must excel to meet customer needs, exceed the efforts of the competition, and meet customer expectations.

  • Most will require cross-functional effort.

  • Each will be limited, generally, to 2 or 3 words and will not be measurable as stated, but will contain factors that could be measurable

e. Setting Strategic Objectives

  • Strategic Objectives describe conditions the organization wishes to achieve. Usually there will be one or two strategic objectives for each KRA.

  • As with all objectives, it is important to make them as quantifiable over a time span (3-5 years)

2. Strategy Formulation

a. Corporate Strategy

  • Directional Strategy: The Organization orientation toward growth, stability, or retrenchment.

  • Portfolio Strategy: The industries or Markets in which the firm competes through its products

BCG Growth Share Matrix

 

  • Developed by Boston Consulting Group

  • Relative market share better indicator of business strength than actual market share

    • Eg. You have 10% share

    • Market leader has 20% : relative share is 0.5

    • Market leader has 50%: relative share is 0.2

  • Based on volume - PIMS study: market share is indicator of business strength

  • Question Marks

  • Low share in emerging industry

  • Cash hogs/ need investment

    • rapid growth

    • high costs (low scale econ/ experience effect)

  • Action

    •  Invest and produce a star

    • Divest and use resources elsewhere

  • Stars

  • High share in emerging industry

  • Need investment/ working capital due to high growth

    • may provide from internal funds

    • but may be cash hogs

  • Will sustain the diversified firm into the future

  • Cash Cows

    • High share in mature industry

    • Generates large amounts of cash

    • Not all needs to be reinvested

    • Funds other businesses (stars/ question marks)

    • Important to maintain

      • Market position

      • Operating efficiencies 

  • Dogs

    • Low share in low growth industry

    • many can still perform well

      • esp. if low scale economies/ experience effects

      • eg. Crown Cork and Seal

    • get rid of weak dog businesses

b. Business Strategy

  • Three Main Business level Strategy

    • Cost Leadership Strategy: generate economic value by having lower costs than competitors

    • Differentiation Strategy: generate economic value by offering a product that customers prefer over competitors’ product

    • Focus Strategy: It is directed toward serving the needs of limited customer group or segment.

  • Three main basic decisions

    • Product differentiation or Customer Needs: What is to be satisfied?

    • Market Segmentation or Customer Groups: Who is to be satisfied?

    • Distinctive Competency: How customer needs are to be satisfied?