Strategic Planning

What is Strategic Planning?

Strategic planning is a systematic process through which an organization agrees on and builds commitment among key stakeholders to priorities that are essential to its mission and are responsive to the environment. Strategic planning guides the acquisition and allocation of resources to achieve these priorities.

Strategic Planning Process

Problem identification

Values

(Environmental scanning)

(Environmental scanning)

(Overall Goal & Objectives)

The figure shows the strategic planning process and the feedback cycle

Strategic Planning or Problem Identification Tools

Various analysis techniques can be used in strategic planning, few of which are:
1. SWOT Analysis
(strength, weakness, opportunities and threats)

2. PEST Analysis (political, economic, social and technological)

3. Boston Consulting Group (BCG) Matrix

4. PESTLE Analysis
and environmental factors) (political, economic, social, technological, legal

5. GE/McKinsey Matrix

SWOT Analysis
The SWOT analysis is a broad overview of the most important internal strengths and weaknesses and the most important external opportunities and threats. Strengths: What are the organizations internal strengths? (What do we do well?) Weaknesses: What are the organizations internal weaknesses? (Where can we improve?) Opportunities: What external opportunities exist with respect to pursuing our mission? (What changes are taking place in our environment that might allow us to better achieve our mission?)

Threats: What external threats might hinder the pursuit of our mission? (What changes in the environment do we need to guard against or prepare for in doing our work?)
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SWOT Analysis
Internal Assessment (Audit): Organizational assets, resources, people, culture, systems, partnerships, suppliers, ... External Assessment (Audit): Marketplace, competitors, social trends, technology, regulatory environment, economic cycles . SWOT SWOT

Good Points
Easy to Understand Apply at any organizational level

Possible Pitfalls
Needs to be Systematic and Specific Be honest about your weaknesses
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Example: Ford Motors SWOT Analysis

Strengths:
It is the fourth largest automaker in the world. Ford has good market share in Europe. Ford (American based company) occupied seventh rank in 2008 Fortune 500 list. The online Web site of ford attracts at least 11 million people annually. Manufacturing facilities in more than 30 countries. Good relations with employees by offering better work environment and competitive wages. Ford supports racing teams which include NASCAR, Formula One and etc Sell vehicles in majority of countries. Technological Alliances with Toyota and Honda Motor Companies.

Example: Ford Motors SWOT Analysis

Weaknesses:
Ford sold the UK based Jaguar and Land Rover companies to Tata Motors of India in March 2008. The company sales are dropped in 2008 as compared to year 2007. Ford fired number of employees due to outsourcing. Opportunities: Produce fuel efficient and hybrid cars in the upcoming years. Become more environment friendly company. Enter into the Asian market. Joint ventures with other major competitors to combat recession. Initiate manufacturing operations in low cost countries.

Example: Ford Motors SWOT Analysis

Threats:
Rapid changes in fuel prices. Government regulation outside US. Long lasting recession/depression in majority of countries. Hard competition from other motor vehicle companies like Toyota, TATA motors and etc. Variation in currency rates.

PEST Analysis
PEST analysis is concerned with the environmental influences on a business. key external

The acronym stands for the Political, Economic, Social and Technological issues that could affect the strategic development of a business. Identifying PEST factors influences the useful way of summarizing the external environment in which a business operates.

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PEST Analysis
Political Factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include: tax policy employment laws environmental regulations trade restrictions & regulations political stability

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PEST Analysis
Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. Following are some examples: economic growth interest rates exchange rates inflation rate

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PEST Analysis
Social Factors
Social factors include the demographic and cultural aspects of the external macro-environment. These factors affect customer needs and the size of potential markets. Some social factors include: health consciousness population growth rate age distribution career attitudes emphasis on safety

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PEST Analysis
Technological Factors
Technological factors can increase production levels and influence outsourcing decisions. Some technological factors include: R&D activity automation technology incentives rate of technological change

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Example: Siemens AG PEST Analysis

Political:

Siemens AG will be subject to legislation in any country within which they are operating. With head office in Germany they are subject to German and European corporate law. In the UK, Siemens must obey English legislation specific to that market.
As a multinational company Siemens will be subject to fiscal policies employed by the governments of the countries in which they are operating. Economic:

Siemens AG is particularly exposed to fluctuations in the exchange rate between the US Dollar and the Euro because high percentage of the companys business volume is conducted in the US and has Exports from Europe. Siemens business has been negatively effected by the prolonged economic downturn in majority of its markets worldwide.
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Example: Siemens AG PEST Analysis

Social:

Most people particularly upcoming generation find that there are several electrical goods such as mobile phones they cant live without. Therefore, Siemens is challenged with constant updating and changing customer demands for new and improved electrical gadgets.
Increase in divorce rates and students decision to live alone resulted in increase in households in Europe, this could mean increased consumption of electrical goods and accessories. Technological:

Research, development and innovation unit in Siemens AG is playing vital role in maintaining the strong bond with consumers. With other competitors in the market and high demand of new products the challenge of RD&I unit is getting significant and extensive research is needed to meet the rate of technological change.
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BCG Matrix
The Boston Consulting Group (BCG) Matrix is a simple tool to assess a companys position in terms of its product range. It helps a company think about its products and services and make decisions about which it should keep, which it should let go and which it should invest in further.

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BCG Matrix
A high-growth product is for example a new one that we are trying to get to the market. It takes some effort and resources to market it, to build distribution channels, and to build sales infrastructure, but it is a product that is expected to bring the gold in the future. An example of this product would be an 3D TV. A low-growth product is for example an established product known by the market. Characteristics of this product do not change much, customers know what they are getting, and the price does not change much either. This product has only limited budget for marketing. An example of this product would be a regular Colgate toothpaste. These two products can be sub-divided further which results in Question Marks, Stars, Cash Cows and Dogs.
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BCG Matrix
BCG QUESTION MARKS (high growth, low market share) -These products are in growing markets but have low market share. - Question marks are essentially new products where buyers have yet to discover them. - The marketing strategy is to get markets to adopt these products. - Question marks have high demands and low returns due to low market share. - These products need to increase their market share quickly or they become dogs. - The best way to handle Question marks is to either invest heavily in them to gain market share (target every age, lowering the price or advertising) or to sell them

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BCG Matrix
BCG STARS (high growth, high market share) - Stars are defined by having high market share in a growing market. - Stars generate large sums of cash because of their strong relative market share, but also consume large amounts of cash because of their high growth rate. - If market share is kept, Stars are likely to grow into cash cows when the market growth rate declines.

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BCG Matrix
BCG CASH COWS (low growth, high market share) -Cash cows are in a position of high market share in a mature market. - Because of the low growth, promotion and placement investments are low. - Investments into supporting infrastructure can improve efficiency and increase cash flow more. - Cash cows are the products that businesses strive for. - These units should be milked extracting the profits and investing as little as possible. - They provide the cash required to turn question marks into market leaders.

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BCG Matrix
BCG DOGS (low growth, low market share) - Dogs have a low market share and a low growth rate and neither generate nor consume a large amount of cash. - Dogs are cash traps because of the money tied up in a business that has little potential. - Dogs should be avoided or divested.

High market growth consumes large amount of money Low market growth consumes small amount of money Large market share generates large amount of money Small market share generates small amount of money

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Assignment
Apply BCG Matrix to company (Siemens, Dawlance, General Tyre, General Electric, Apple, Procter & Gamble, Shell, Ford, ArcelorMittal etc). Indicate the problem areas and justify the placing. Group of 2 students, per group one company. Max 3 A4 Pages. Put references Due date: 3 Oct, 2011

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Implementation of Strategic Plan

A frequent complaint about the strategic planning process is that it produces a document that ends up collecting dust on a shelf without being implemented. 1. When conducting the planning process, involve the people who will be responsible for implementing the plan. 2. Ensure the plan is realistic. Continue asking planning participants Is this realistic? Can you really do this? 3. Organize the overall strategic plan into smaller action plans, often including an action plan for each committee on the board. 4. In the overall planning document, specify who is doing what and by when. 5. Translate the strategic plans actions into job descriptions and personnel performance reviews. 6. Communicate the role of follow-ups to the plan. If people know the action plans will be regularly reviewed, implementers tend to do their jobs before theyre checked on. 7. The chief executives support of the plan is a major driver to the plans implementation. Integrate the plans goals and objectives into the chief executives performance reviews. 8. Place huge emphasis on feedback to the boards executive committee from the planning participants. 24

Link Budgets to Strategic Plan

The worlds best Strategic Plan will fail if it is not adequately resourced through the budgeting process Strategic Plans cannot succeed without people, time, money, and other key resources Aligning resources validates that initiatives and action plans necessary to complete the strategic plan.

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Monitoring & Evaluation

Are goals and objectives being achieved or not? If they are, then acknowledge, reward and communicate the progress. If not, then review / deviate from the plan. Data from sales, profit, other indicators (measures) can be used to evaluate the performance and modify the strategy in the light of that data.

The major performance measurement systems in use today are profiled below: The Balanced Scorecard Activity-based Costing and Management Economic Value Added (EVA) Quality Management Customer Value Analysis/Customer Relationship Management Performance Prism

Information from a wide variety of sources can help to measure and inform the impact and direction of the strategy. Copyright: Mad7986, http://www.sxc.hu

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Link Budgets to Strategic Plan

Every Action Plan should identify the following:
The people resources needed to succeed The time resources needed to succeed The money resources needed to succeed The physical resources (facilities, technology, etc.) needed to succeed

Management Lesson Never start a project unless all resources are available

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