Module 8 Strategic Plan and Strategic Management

Objective

-Know the concept of strategic management

-Know the concepts of strategy formulation, strategy
implementation, and strategic evaluation
-Be familiar with the strategic management process
-Understand the idea of the grand strategy
-Be aware of the three levels of strategies in diversified
organizations
-Know the tools of corporate level strategies
-Know the tools of business level strategies
-Strategy: a broad and general plan developed to attain long-
term objectives and goals

EXAMPLE
 Corporate level strategy:
 Internal expansion through the development of new
or changed product
 External expansion through forward integration
 SBU level strategy:
 Growth through product differentiation
 Functional level strategy:
 Marketing: Develop a product and test market to
define the size of the market
-Strategy Management: the process of ensuring that an
organization possesses and benefits from the use of an
appropriate organizational strategy
 Strategy formulation- the stage of strategic management
that involves the planning and decision making that leads
to the establishment of the organization’s goals and of a
specific strategic plan
 Strategy implementation-: Strategy Implementation: is
the stage of strategic management that involves the use
of managerial and organizational tools to direct
resources toward achieving strategic outcomes.
 Strategy evaluation
Levels of Planning
Strategic Plan: action steps by which an organization intends to
attain its strategic goals (Become a market leader in the female
executive designer clothes)
Tactical Plans: lays out the procedures and plans for getting
close to the defined strategy (hiring a top female corporate as
the brand ambassador for the collection, setting up the retail
store in downtown area, and offering special discounts for
certain corporate customers.
Operational Plans: it is more about production/ manufacturing
and associated costs budgeting
-Strategic Management: the set of decisions and actions used to
formulate and implement strategies that will provide a
competitively superior fit between the organization and its
environment so as to achieve organizational goals
 Define the Mission of the company
 Scan the external environment to identify opportunities
and threats
 Scan the internal environment to identify strengths and
weaknesses
 Formulate the strategy by capitalizing on its strengths
and minimizing its weaknesses
 Implement the strategy
 Evaluate the strategy
EXAMPLE
MISSION
-The company is in the recreational, leisure and hospitality
business
CORPORATE LEVEL
 Where it is (internal analysis)
 What is the situation (external analysis)
 Where it wants to go
COPORATE LEVEL
 Position: #6 to #3 in the market
 Volume: $1.2 B to $2.6 B within 3 years
 Increase income:$91m to $182m
 OE: 15% to 17%
 How it will get there
 See the SWOT Analysis below
TACTICAL/SBU LEVEL
 What to do
 Reorganize and streamline operations
 Network slot machines – manufacturer own
the slot machines and pays out the winner.
He leases the machines and gets a
percentage of the take ($40,000 earnings per
slot machines for the casino)
 For whom
-Recreation: For the leisure market (electronic
toys, wagering systems, etc.)
-Playtime: For sports market (golf, bowling,
marine products, etc.)
-Hotel: For the hospitality market
 How do we excel
-Enhance coordination between functions
through the creation of focus groups
 -Customer advocacy
-Shared services
-Share information across function by creating an
information system

OPERATIONAL/FUNCTIONAL LEVEL
 Marketing: introduce new products and enter
new markets
 Manufacturing: close and consolidate
manufacturing facilities, computerized
production, automated assembly lines, reduced
inventories and cut workforce
 HR: voluntary retirement program for those who
do not meet requirements and provide training
for those who remain
 Finance: curtail capital spending; curtail
receivables

Formulation Implementation

SWOT ANALYSIS

Strengths
1.Number one in the wagering
market
2.Strong marine products
3.Booming hotel and casino
business
4.Experience in manufacturing
Weaknesses
1.The company went down by
8% in volume last year
2.Their profits went down too.
3.The company’s businesses
were all standalone businesses
4.They have their own services
and sells to OEMs only.
5.Rising costs, changing taste,
substitution, shorter product
life cycle, new technology
6.Losses last year, was due to 65
new produc

Opportunities
1.Global market
2.Marine segment of the
market is growing globally by
20% because of the changing
life style
3.A slight increase in sports
segment but it is a small
segment of the market
Threats
1.No growth in the local market
2.Unpredictable OEM
3.Cyclical business
S1O1- Geographic expansion into
Macao
- Standardize operation for
higher productivity
- Modernize and Integrate
manufacturing to gain more
efficiency
S4T2- Build own brand and
image/SHOWCASE
ts that failed mostly under
Recreation Division
W5- Consolidate
supplier/EVALUATE to get better
prices
W6O1- Forward integration
(Acquisition of video and cable
and theme parks)
W2T1- Sell off unprofitable
operations
W4T2- Shift from OEM to own
brand
W6T3- Smoothen cycle –
Diversify product and market

1. Purpose of a strategy
-To describe the resource allocation and activities for dealing with the environment and attaining
the organization’s goals
-To perform different activities or to execute activities differently than competitors do

2. Grand Strategy at different organizational levels

Levels of Strategy Grand Strategy

Strategic: Corporate
(Holding Co.)
Action
-Direct expansion
-Acquisition or JV
Tools
-Portfolio strategy (mix of
SBUs and product lines that
fit together in such a way
Growth Strategy Maintain Strategy Retrenchment
Internal Expansion absence of -Downsizing (shrinking
-Expansion of business division significant change current business units)
-Development of new or changed -Divesting (selling off of
product businesses that no longer
-Expansion of current product to new seem central to the
markets corporation)
-Liquidating (selling off a
business unit for the cash
value of the assets, thus
terminating its existence)
as to provide synergy and
competitive advantage)
-BCG Matrix (evaluates
SBUs with respect to
dimensions of business
growth rate and market
share)
Tactical: Business (SBU)
-BCG (evaluates products
with respect to growth and
market share)
-Competitive Action
a. Focus on core
competencies
-RND
-Manufacturing
-Customer intimacy
b. Develop synergy
c. Create value for
customers
-Product Life-Cycle
Tools: Porter’s Competitive
Forces
-Potential new entrants
-Bargaining power of
buyers
-Bargaining power of
suppliers
-Threat of substitute
products
-Rivalry among competitors
Operational/Functional
Departmental Action
-Implementation/
External Expansion
-Integration
a. Forward (a company enters the
business of its customers)
b. Backward (a company enters the
business of its suppliers)
c. Horizontal (a company acquires its
competitors)
-Diversification
a. Concentric (a firm acquires or starts
a business related to it in terms of
technology, markets, distribution
channels, compatible managerial skills,
or products)
b. Conglomerate (a firm adds
unrelated goods or services to a firm’s
product line)
-Joint Venture
Porter’s Differentiation Strategy absence of
a. Differentiation significant change
b. Cost leadership
c. Focus (niche)
Cooperative Strategy
a. Collaboration
b. Partnering
c. Strategic alliance
Commonly Used Strategy
a. Market penetration
b. Market development
c. Product development
-HR: retain or hire absence of
-Marketing: test market significant change
-Finance: raise or borrow money
-Production: make or buy (outsource
Execution or offshore)
RND: use of alternative or new
material

Grand Strategy
a. Stability - absence of significant change
b. Growth – direct expansion, diversification, merger and acquisition
-Internal growth:
expansion of business division
Development of new or changed products
Expansion of current products into new markets
-External growth
Acquiring additional businesses through diversification
Merger or acquisition
c. Retrenchment or downsizing – shrinking current business units or selling off or liquidating
entire business
Liquidation: selling off a business unit for the cash value of the assets, thus terminating
its existence
Divestiture: is selling off of businesses that no longer seem central to the corporation
d. Combination

3. Global Strategy
a. Globalization- the standardization of product design and advertising strategies throughout
the world
b. Multi-domestic strategy – the modification of product design and advertising strategies to
suit the specific needs of individual countries
c. Transnational strategy – combines the global coordination to attain efficiency with flexibility
to meet specific needs in various countries.
4. Competitive Strategy
a. Focus on core competence – the business activity that an organization does particularly well
in comparison to competitors.
-Superior research and development
-Mastery of a technology or manufacturing efficiency
-Customer service
b. Synergy – a condition when the organization’s parts interact to produce a joint effect that is
greater than the sum of the parts acting alone
-Market power (customer loyalty)
-Brand image/Superior service using technology
-Effective and efficient organization
-Management skills
c. Value – the combination of benefits received and cost paid by the customers

5. Forms of Diversification
a. Single business – provides a limited number of goods or services to one segment of a
particular market
 b. Dominant business – provides a limited number of goods or services to various segments of
a particular market
c. Related business – provides a variety of similar goods or services to one segment of the
market; use similar technologies and share common distribution channels
d. Unrelated business or conglomerate – provides variety of goods or services to many
different markets
e. Strategic business unit –
a division or subsidiary of a firm that serves a distinct product-market segment
has a well-defined set of customers and covers a specific geographic area
has its own income statement and balance sheet

6. Actions and Tools at different levels of Strategy in a Diversified Organization

Corporate levels
-Actions
-Acquistion of new businesses
-Addition or divestment of business units,
plants, or product lines
-Joint ventures with other corporations
-Tools
-Portfolio Strategy: mix of SBUs and product
lines that fit together in such a way as to
provide synergy and competitive advantage
-BCG Matrix: evaluates SBUs with respect to
dimensions of business growth rate and
market share
-Star: has a large share in a rapidly
growing industry
-Cash cow: exists in a mature market,
slow-growth industry but is a
dominant business in the
industry with a large market
share
-Question marks: exists in a new,
rapidly growing industry but has
only a small market share
-Dogs: has only a small market share
in a slow-growth industry
-Strategies
Growth Strategy
-Forward integration: a company enters the
business of its customers
-Backward integration: a company enters the
business of its suppliers
-Horizontal integration: a company acquires
its competitors
-Joint ventures: alternative means to forward,
 backward, and horizontal integration
-Concentric diversification or related
diversification – a firm acquires or starts a
business related to it in terms of technology,
markets, distribution channels, compatible
managerial skills, or products
-Conglomerate diversification: a firm adds
unrelated goods or services to a firm’s
product line

Maintain/Stability Strategy
-Stay in the same business, same market, with
no growth or small growth

Retrenchment Strategy
-Divest business units, plants or product lines
Business level/SBUs
-Actions related to how to compete
How can the firm maintain competitive edge?
How can each functional department
contribute to the firm’s effectiveness?
How should resources be allocated among the
functions?

-Tools
Porter’s Competitive Forces
-Potential new entrants
-Bargaining power of buyers
-Bargaining power of suppliers
-Threat of substitute products
-Rivalry among competitors

-Strategies
Porter’s competitive strategies
-Differentiation strategy
-Use of advertising, distinctive product
features, exceptional service, or new
technology to achieve a product
perceived as unique
-Influence customer perceptions and
providing real differences and product
warrranty
-Offerings: design, quality, brand
image, technological leadership, customer
service leadership, extensive dealer
network
-Cost leadership
-Constructing plants that yield high
economics of scale, constantly striving to
control overhead and production
costs o reduce per-unit cost, minimizing RND,
services, sales force, advertising, and
similar cost
-Avoiding customer whose demands
would result in high selling or service costs
-High volume and/or rapid growth are
often needed for profitability
-Focus
-Concentration on a specific regional
market, segment, or buyer group

Growth Strategies
-Market Penetration: growth in current market
with current goods or services
-Market Development: seeks new markets for
current products
-Product Development: seeks to develop new
or improved goods or services for current
markets

Product life cycle: planning according to the

life cycle phase of the firm’s goods or
Services
- Introduction: product
development (RND), finding new
customers (marketing), financing
start-up, expansion, and marketing
costs
- Growth: same as in the
introduction phase
- Maturity: cost cutting to reduce
per unit production costs, shutting
down obsolete plants, laying off
employees, and automating may
be utilized. Maintain or increase
market share at the expense of
competitor. Buy out competitor
- Decline: reduce per unit cost
through efficiency reduction in
capital investments;
standardization of product or
service options and variations;
reduction of the number of
products; improve marketing
efficiency through mergers or
acquisition of competing firms
 - Termination: sharp reduction in
availability and possibly the total
elimination of a good or service.
Functional: How do we support the business-level strategy
(Example: Product differentiation)
-Marketing: test marketing, aggressive
advertising, consumer product trial
-Production: plan for a new or additional
production facilities
-Finance: raise or borrow money, handle large
cash investments, authorize
construction of new production facilities
-Human resources: recruitment of additional
personnel and training middle managers
for movement into new position
-Research and development: use of new
materials for the new product

7. What is the strategic planning process

a. Scan the external environment (Social, Political,

Economic, Technological, Cultural, Competition)
-Opportunities and threats
Competitor intelligence/benchmarking
Demographics/Population statistics
Economic Forecasting
New technology/new product (substitution)
Regulatory/legislative
Cultural trends/shifts in expectations

b. Scan the internal environment (Management,

Production, RND, Finance, Marketing & Sales, HR,
MIS, etc)
-Strengths and weaknesses
How do you compare to competition?
Core competence
Synergy
Value creation

c. Prepare or review Mission Statement

-Mission: Why are you in business? It is the
organization’s purpose (something to be
accomplished)
-Vision” word picture of the organization at
some future time, which sets the overall
 direction of the organization (something to
pursue)
-Values: the collective principles and ideals
which guide the thoughts and action of an
individual, or a group of individuals
-Business philosophy: the rule of conduct for
operating the organization. It translates
the values into more accurate descriptions of
how the values will be applied to run the
business

d. Formulate strategies
-Corporate level - Strategic/Goals:
Long-term growth rate – define targets for
increased sales, expanded markets,
New products, better services
long-term profitability – how much more
income
position in the industry (strategic)
-Business level/SBUs - Tactical Objectives: annual
sales, annual profits, incremental changes in
products and services (tactical)
-Functional level: marketing, production, etc.
-Operational Objectives: monthly activities and
goals that, when implemented and achieved will
reinforce the tactical planning objectives (monthly
production, monthly sales, monthly cash flow)

e. Implement strategies
-What are the different alternatives to achieve
goals and objectives?
-What is the budget for each alternative: what are
the consequences and how much will cost?
-Select programs
-Develop action plans
-Implement
-Leadership: ability to influence organization
members to adopt the behavior needed
for strategy implementation
-Structure: changes in the manager’s
responsibilities and authority, consolidation of
facilities, departments, and
division, degree of decentralization, task
design, and production technology
-Information and control systems: changes in
the reward systems, pay incentives,
budgets for allocating resources, procedures,
and rules
 -Human resources: recruiting, selecting,
training, transferring, promoting, laying off, or
recalling employees to achieve strategic goals

f. Evaluate results