Market Oriented Strategic Planning

Session three
Session Plan

 Strategic Planning levels

 Planning at the SBU level
 The marketing process
 Planning tools at the product level
What is Strategic Planning

 Managing Investment Portfolio of businesses

 Analysis of each business and establishing fit
 A game plan or Business Model
AIMED AT
Good business performance
1. What is Strategy?

Competitive Shareholder
Firm Advantage Value

Strategy Performance
• Strategy: goal and set of policies designed to
achieve competitive advantage in a particular
marketplace
• Competitive Advantage: ability to transform inputs
into goods and services at a maximum profit on a
sustained basis, better than competitors
 Marketing Productivity chain
Company View Point Level Who cares?

We do stuff Marketing actions Customers

Customers do stuff Customers Reaction Advertising and

Promotion specialist

Stuff Happens Product Market Product Managers

Impact and CMO

Accounting happens Financial outcomes CMO and CFO*

Wealth is affected Firms Value CFO and the CEO*

*Chief Marketing, financial and executive officer

Adapted from : Bolton, R.N. (2004), “Making Marketing Matter” JM Vol 68, pp 73-75
1. What is Strategy?
Understanding the Stages

External Analysis
Environmental Opportunities
Conditions & and Strategy Formulation
Trends Threats
Identify
Choose
& Evaluate
Options Strategy
Inventory of Strengths
Distinctive and
Competencies Weaknesses Strategy
Internal Analysis Implementation
 Tasks of Strategic Management
 Strategic vision and mission
 Establishing SBUs
 Setting Objectives
 Resource allocation
 Crafting Strategy to achieve the desired goals
 Implementing and executing the chosen strategy
efficiently and effectively
 Evaluating performance and initiating corrective
action
Mission

 Industry Scope
 Products and applications scope
 Competence Scope
 Market Scope
 Vertical Scope
 Geographical Scope
 Basic Concepts:
Set
Set of
of processes
processes involved
involved in
in creating
creating or
or
Strategy
Strategy determining
determining thethe strategies
strategies of
of org.
org. Focus
Focus
Formulation
Formulation is
is on
on contents
contents of
of strategy.
strategy.

Methods
Methods by by which
which strategies
strategies are
are
Strategy
Strategy operationalized
operationalized or
or executed
executed with
with in
in org.
org.
Implementation
Implementation Focus
Focus is
is on
on processes
processes which
which achieve
achieve
strategies.
strategies.
TM 7-2

STRATEGY STRATEGY
assess FORMULATION IMPLEMENTATION
environmental
factors

Identify Conduct
Develop
Current Competitive
Specific
Mission Analysis: Carry
Strategies: Maintain
and * Strengths Out
* Corporate Strategic
Strategic * Weaknesses Strategic
* Business Control
Goals * Opportunities Plans
* Functional
* Threats

assess
organizational
factors
 Planning Concepts
A
A comprehensive
comprehensive plan
plan for
for
Strategy
Strategy accomplishing
accomplishing orgl’s
orgl’s goals
goals

A
A comprehensive
comprehensive & & ongoing
ongoing
Strategic
Strategic management
management process
process aimed
aimed at
at
Management
Management formulating
formulating & & implementing
implementing effective
effective
strategies.
strategies.
Is
Is one
one that
that promote
promote aa superior
superior
Effective
Effective alignment
alignment between
between thethe organization
organization &&
Strategy
Strategy its
its environment
environment & & the
the achievement
achievement ofof
goals.
goals.
TM 7-4

SWOT ANALYSIS

Strengths Opportunities

Weaknesses Threats
COMPETITIVE
ADVANTAGE
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998
 Types of Strategic Alternatives:

Types
Types

Corporate-Level
Corporate-Level Functional-Level
Functional-Level
Strategy
Strategy Business-Level
Business-Level Strategy
Strategy
Strategy
Strategy
Set
Setof
ofS.
S.Alt.
Alt.that
thatan
an
org.
org.chooses
choosesfromfromas asitit Set
SetofofS.
S.Alt.
Alt.that
thatan
an Developed
Developedfor
forsingle
single
manages
managesits itsoperations
operations org.
org.chooses
choosesfrom
fromasasitit functional area.
functional area.
simultaneously
simultaneouslyacrossacross conducts
conductsbusiness
businessin inaa
several
severalindustries
industries&& particular
particularindustry
industryor or
Markets.
Markets. market.
market.
TM 7-3

ORGANIZATIONAL LEVELS OF STRATEGIES

CORPORATE STRATEGIES
• Type of
Business to compete in
• Competitive position
• Resource development

BUSINESS STRATEGIES

• How to compete in a particular market

• How to achieve competitive advantage

FUNCTIONAL STRATEGIES
• Action plans for each functional area
Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 1998
Portfolio Management
Techniques

Method of analyzing an organizational mix of

SBUs and matching them with strategic goals.

SBU: Strategic Business Unit. Is a division

within firm with its own mission, competitors, &
strategy.
 Formulation of Corporate Level Strategies

GRAND
GRANDSTRATEGIES
STRATEGIES
Provide
Providestrategic
strategicdirection
directionat
at
corporate level.
corporate level.

Stability
Stability
Growth
Growth Strategies
Strategies Strategies
For
Fororg’l
org’lexpansion
expansion
Strategies
along Retrenchment Call
Callfor
formaintaining
alongsome
somemajor
major Retrenchment maintaining
dimensions. status
statusQuo.
Quo.Includes
Includes
dimensions. Strategies
Strategies Portfolio
Involves PortfolioStrategies.
Strategies.
Involvesshrinking
shrinking
operations
operations&&eliminating
eliminating
unprofitable
unprofitableones.
ones.
Downsizing.
Downsizing.
Formulation of Corporate Level Strategies
Internal Growth
Diversification
DiversificationVs
VsSingle
Singleproduct
product

Integration
Integration
Vertical
Vertical(Backward
(Backward&&Forward)
Forward)
Growth
Growth
Strategies
Strategies
Other
OtherGrowth
Growth Strategies
Strategies
ACQUISITION
ACQUISITION(Purchase
(Purchaseofofall/part
all/partof
oforg.)
org.)
MERGER
MERGER(Combination
(Combinationof oftwo
twofirms)
firms)
JOINT
JOINTWORKING
WORKING(Two/
(Two/more
morefirms
firmsworking
working
together)
together)
 Formulation of Corporate Level Strategies

Identify
IdentifySBU
SBU
After
Afteridentification
identificationof
ofSBUs
SBUscomes
comesthe
the
categorization
categorization
Tools
Tools for
for
Analyzing
Analyzing
Corporation BBCCG
GMatrix
Matrix
Corporation andand
Strategic
Strategic choice
choice
of
of businesses
businesses

G
GEEScreen
Screen
BCG Portfolio Matrix
Star

Question Mark
Market Growth Rate

High

10%

Cash Cow Dog

Low

10x High 1x Low 0.1x

Market Share Dominance
Strategic Options for SBUs as analyzed by the
BCG Portfolio Matrix

• Build
• Hold
• Harvest
• Divest
GE Matrix
High
Market Attractiveness

Medium

Low

Strong Medium Weak

Business Position or strength
Product-Market Growth Matrix & Examples

Present Product New Product

Market Product
Penetration Development
Present Market Increase usage New product c
rate or users category

Market Diversification
Development
New Market Develop an entirely
Enter new geographical
market or new product for an
market segment entirely new market
Using SWOT (acronym) Analysis to
Formulate Strategy

S Things
Thingsthe
Common
thecompany
companydoes
Commonamong
amongall
doeswell.
allfirms.
well.Only
Onlyyours
firms. STRTENGTHS
STRTENGTHS
yoursvs.
vs.

W Things
Things the
the company
WEAKNESSES
WEAKNESSES
company does
does not
not do
do well.
well.

O Conditions
Conditions in
that
that favor
in the
the external
favor strengths.
external environment
environment
strengths. OPPORTUNITIES
OPPORTUNITIES

Conditions
Conditionsin inthe
theexternal
externalenvironment
environmentthat
thatdo
T
do
not
notrelate
relateto
toexisting
existingstrengths
strengthsor
orfavor
favorareas
areasof
of
current weakness. THREATS
currentweakness. THREATS
 Cont.
Competitive
Competitive Exists
Exists when
when many
many competing
competing firms
firms have
have same
same
Parity
Parity strengths
strengths && are
are able
able to
to implement
implement same
same strategy.
strategy.

Distinctive
Distinctive Strength
Strength possess
possess by
by few
few competing
competing firms.
firms.
Competence
Competence
Strategic
Strategic Coping
Coping other
other organization’s
organization’s distinctive
distinctive
Imitation
Imitation competence.
competence.

Sustained
Sustained Competitive
Competitive Advantage
Advantage exists
exists after
after no
no one
one can
can
Competitive
Competitive copy
copy or
or imitate
imitate you.
you.
Advantage
Advantage

Core Strategic strengths that form the basis of

Competence success of the firm
Formulation of Business Level Strategies (How a
particular business competes)

Porter's
Porter's Generic
Generic Strategic
Strategic Model
Model
Structure-conduct-performance
Structure-conduct-performance paradigm
paradigm

Miles
Miles and
and Snow
Snow Typology
Typology
Strategic
Strategic Orientation
Orientation

Growth
Growth strategies
strategies
Ansoff’s
Ansoff’s Growth
Growth Share
Share Matrix
Matrix

Product
Product Life
Life Cycle
Cycle Strategies
Strategies
Miles & Snow’s typology

Miles & Snow’s (1978) typology classifies

firms into four distinct groups, i.e. defenders,
prospectors, analyzers and reactors, based
on how a firm responds to three major
problems facing it, i.e. entrepreneurial,
engineering, and administrative problems.
Cont…

According to them, the entrepreneurial problem

defines an organization’s product-market
domain; the engineering problem focuses on the
choice of technologies and process for
production and distribution; and the
administrative problem involves the
formulization, rationalization and innovation of
an organization’s structure and policy
processes.
 PORTERS FIVE COMPETITIVE
FORCES MODEL
Rivalry

Company
Customer Bargaining Customer
Power
Company
Supplier Bargaining Supplier
Power

Threat of
New Entrants

Threat of
Substitutes
Text Page 27
 Porter’s Generic Strategic Model

Each of the three strategies is based on having a strong

Differential Advantage so this factor is not plotted.
High Focus Cost Leadership
Differentiation
Profitability (ROI)

No Differentiation
No Cost Leadership
No Focus

Low
Narrow Broad
Scope of Target Market
Implementation of Miles & Snow Typology

Culture
Culture Response
Response Style
Style

Prospector
Prospector Capitalize
Capitalize on
on Emerging
Emerging Opportunities
Opportunities

Reactor
Reactor Maintain
Maintain the
the Status
Status Quo
Quo

Defender
Defender Reduce
Reduce Operating
Operating Costs
Costs

Defend
Defend Stable
Stable Market,
Market, Aggressively
Aggressively
Analyzer
Analyzer Enter
Enter Emerging
Emerging Opportunities
Opportunities as
as
“Second
“Second In”
In”
Product Life Cycle

A concept that provides a way to

trace the stages of a product’s
acceptance, from its introduction
(birth)
to its decline (death).
 Product Life Cycle
1. Like humans, Product also have Life
Cycle.
2. This term is applied to generic category
of product not to specific brands.
3. PLC consists of aggregate demand over
an extended period of time for all brands
in generic product category.
4. Length of PLC varies.
5. PLC is related to a market.
 Product Life Cycle
Introductory Growth Maturity Decline
Stage Stage Stage Stage Product
Category
Sales
Dollars

Product
Category
Profits
0

Time
Extending the PLC

 Change product

 Change product use

 Change product image

 Change product positioning

 Full-Scale
Full-Scale Launch
Launch
Introductory Stage of
of New
New Products
Products
 High failure rates Unpredictable conditions
 Little competition Not Important
 Frequent product modification Standards being
Developed
 Limited distribution Selective Channels as
build up takes place
 Negative profits High marketing and
production costs
 Promotion Strategy Aim at early adopters
Promotion Emphasis Awareness and information
 Sales Promotion Intensive personal selling
to channels to stock
 Offered
Offered in
in more
more sizes,
sizes,
Growth Stage flavors,
flavors, options
options
 Competition Some emulators threatens
competitive advantage of firm
 Strategy Market penetrations
 Profits From high prices and Increasing
rate of demand
 Goal is quality and ensuring distribution
 Distribution Market consolidation through
intensive distribution
 Promotion Strategy Emphasizes brand benefits
 Emphasis Word of mouth; minimal advert
 Prices Normally start to fall
 Sales Promotion Build Brand preference
 Many
Many consumer
consumer
Maturity Stage products
products are
are in
in Maturity
Maturity

 Competition Maximum competitors Declining

sales growth and Saturated markets
Marginal competitors drop out
 Strategy Defend Brand position extend
product line by Stylistic product
changes
 Prices What the market can bear avoid
price war and profits fall
 Promotion Strategy Use as a vehicle for differentiation
 Promotion Emphasis Moderate since buyers are aware
 Heavy promotions To encourage brand switching
convert buyers to loyal buyers
 Market is fragmented Niche marketers emerge
 Rate
Rateofofdecline
declinedepends
dependson
on
change
changeinintastes
tastesor
or
Decline Stage adoption
adoptionofof substitute
substituteproducts
products

 Competition Few with rapid shake out

 Strategy Prepare for removal and milk the brand
 Profits Decline as Long-run drop in sales due
to declining demand and push up costs
 Prices Low to permit quick liquidation of Large
inventories of unsold items
 Distribution Selective with unprofitable outlets
closed down
 Promotion Strategy promote low price to reduce stock
 Emphasis
Elimination of all nonessential marketing expenses
Steel Industry Performance
ROE-Ke Spread
40% Great Northern Iron

30%

20%
Worthington Inds
Nucor
Steel Technologies
10%
Oregon Mills
Commercial Metals
0%
Carpenter British Steel PLC
Birmingham Cleveland-Cliffs
Quanex
(10%) Lukens USX-US Steel
ACME Metals
Ampco
Inland Steel
(20%)

Armco
Average Invested Equity ($B) WHX Bethlehem
(30%)
$0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 $12 $13 $14 $15

Source: Ghemawat (1999)

Pharmaceutical Industry Performance
ROE-Ke Spread
60%
SmithKline

American Schering Plough

40%
Home Amgen Watson Rhone-Poulenc
Glaxo Products Mylan Labs
Merck Bristol
Myers Warner Lambert Perrigo
20% Pharmacia & Upjohn
Eli Lilly Pfizer Forest Labs
Alza
0%
ICN
Scherer
Ivax
(20%) Genetech
Biogen
Roberts
Genzyme
(40%) Dura
Chiron
Cephalon
(60%) Gensia
Cygnus
Immunex
Average Invested Equity ($B)
(80%)
$0 $5 $10 $15 $20 $25 $30

Source: Ghemawat (1999)

Strategy and Coherence

Strategy
(Positioning)

Resources
Organization
and
Design
Capabilities
Tools for Building Competitive
Advantage
 Resources are inputs into a firm’s production processes:
Tangible Resources Intangible Resources
Financial resources Technological resources
Physical resources Innovative resources
Human resources Reputation
Organizational resources

 Capabilities are the capacity for a set of resources to

perform a task or activity in an integrative manner
 CRITICAL FACTORS FOR COMPETITIVE
ADVANTAGE
ORGANIZATIONAL
CLIMATE

COMPETITIVE
RARENESS
VALUE ADVANTAGE

Non-substitutable INIMITABILITY
Core Competencies Require VRIS-O

 Value – do a firm’s resources and capabilities allow a firm

to respond to its environment?
 Rare – how many rival firms already possess this
resource/capability?
 Inimitable – do firms face a cost disadvantage in
obtaining this resource/capability compared to firms that
already have it?
 Non-substitutable – are there strategic alternatives?
 Organization – is the firm organized to exploit the full
potential of its resources/capabilities?
Cost Disadvantages of Imitation

 Inimitability is critical for a resource/capability to

become a core competence
 Firms trying to imitate another firm’s core
competence are at a cost disadvantage relative to
rivals due to
– Unique historical conditions
– Casual ambiguity
– Social complexity
– Patents
 The Value Chain
The value chain provides a map of firm capabilities
and allows systematic search for core competencies

Infrastructure
Activities
Support

Ma
Human Resources

rg
Research and Development (Innovation)

in
Materials Procurement
Operations

Ma
Outbound

Marketing
Logistics
Inbound

Logistics

& Sales

Service

r gi
n
Primary Activities
Building Blocks of Competitive
Advantage
Efficiency

Lower Costs
Innovation Quality

Higher Prices

Customer
Responsiveness
Competitive Advantage via Efficiency

Manufacturing Econ of scale/Learning

Flexible manufacturing
Marketing Price for learning
Build brand loyalty
Infrastructure Commitment to efficiency
Human Resources Train skills/teams
Performance incentives
R&D Design for manufacturing
Process innovation
Materials mgt
(Supply Chain). JIT, Kanban, etc.
Competitive Advantage via Quality
Manufacturing Trace defects to source
Input from employees

Marketing Focus on customer

Customer feedback on quality

Infrastructure Measure & commit to quality

Human Resources Train quality (TQM, SPC)
Quality incentives

R&D Design for manufacturing

Process & product innovation
Materials mgt
(supply Chain ). Help suppliers implement TQM
Competitive Advantage via Innovation
Manufacturing Design for manufacturing
Inputs on process innovation
Marketing Customer focus for product innovation
Infrastructure Invest in R&D tools
Overall project management

Human Resources Hire talented innovators

Incentives/opportunities for innovation

R&D Cooperate with other functions in

process and product innovation

Materials mgt. No primary responsibility

Competitive Advantage via Customer
Responsiveness
Manufacturing Customization through flexible mfg
Marketing Know the customer
Customer feedback to functions

Infrastructure Commit to customer responsiveness

Information systems for feedback
Human Resources “Customer focused” training
Employee incentives and security
R&D Customers in innovation process

Materials mgt. Build responsive logistics systems

Incentives for Employee Security