1. Strategy
Strategic Planning Process
Session 2
Jan 21, 2010 Salma Rahman

2. Strategy
 Strategy means making clear-cut choices about how
to compete. – Jack Welch
 A strategy is a commitment to undertake one set of
actions rather than another – Sharon Oster

3. Strategy
A company’s strategy is all about HOW…
 How to grow the business, how it will build a loyal
clientele and outcompete rivals, how each functional
piece of the business will be operated, how
performance will be boosted.

4. Strategy – „hows of the strategy‟
Sustainable competitive advantage
 A company achieves SCA when an attractive
number of buyers prefer its products or services
over offerings of competitors and when the basis
for this preference is durable.

5. Strategy – „hows of the strategy‟
Low cost leadership
 e.g. Wal-Mart, Southwest Airlines
Differentiation
 e.g. Harley-Davidson, Rolex, Amazon
Focusing on a narrow market niche
 e.g. Starbucks, e-bay
Developing expertise and resource strengths
 FedEx – next day delivery, Walt Disney – theme park
management and family entertainment

6. 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

7. Marketing Productivity chain
Company View Point Level Who cares?
We do stuff Marketing actions Customers
Customers do stuff Customers Reaction Advertising and
Promotion specialis
Stuff Happens Product Market
Impact
Product Managers
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

8. 1. What is Strategy?
Strategy Performance
Competitive
Advantage
Shareholder
Value
Firm
• 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

9. Strategic Planning Process
Environmental
Conditions &
Trends
Opportunities
and
Threats
External Analysis
Inventory of
Distinctive
Competencies
Strengths
and
Weaknesses
Internal Analysis
Identify
& Evaluate
Options
Choose
Strategy
Strategy Formulation
Strategy
Implementation

10. Basic Concept
Strategy
Formulation
Set of processes involved in
creating or determining the
strategies of org. Focus is on
contents of strategy.
Strategy
Implementation
Methods by which strategies are
operationalized or executed with in
org. Focus is on processes which
achieve strategies.

11. assess
environmental
factors
assess
organizational
factors
Identify
Current
Mission
and
Strategic
Goals
Conduct
Competitive
Analysis:
* Strengths
* Weaknesses
* Opportunities
* Threats
Develop
Specific
Strategies:
* Corporate
* Business
* Functional
Carry
Out
Strategic
Plans
Maintain
Strategic
Control
STRATEGY
IMPLEMENTATION
STRATEGY
FORMULATION
TM 7-2

12. Environmental Analysis

13. Marketing Environment
 Macroenvironment
 PEST ANALYSIS
 Political
 Legislation regulating business
 Growth of public interest groups
 Increased emphasis on ethics and
socially responsible actions
 Economical
 Income distribution and changes in
purchasing power
 Changing consumer spending patterns

14. Marketing Environment
 Macroenvironment
 PEST ANALYSIS
 Social
 Changing age structure of a population
 Changing family structure
 Rising number of educated people
 Increasing diversity
 Technological
 Fast pace of technological change
 High R&D budgets
 Concentration on minor improvements
 Increased regulation

15. External Environment
Porter‟s five forces model
To evaluate the attractiveness of your
industry Power of
Buyers
Power of
Substitutes
Power of new
entrants
Power of
Sellers
Power of
Rivals

16. External Environment
Porter‟s five forces model
To evaluate the attractiveness of your
industry
STEPS
 Outline your key buyers, suppliers, rivals,
new entrants and substitutes.
 Determine the strength of the threat that
each group poses to your company‟s
potential profitability.

17. Porter‟s five forces model
Power of Buyers
Buyers are the customers who demand and purchase
your products and services.
STEPS
 Make a list of your buyers. Name the
major players and describe them by type
(e.g. P&G – consumer goods
manufacturer)
 Assess the strength of buyer power by
rating the features given in table 1.

18. Porter‟s five forces model
Power of Buyers
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Concentration Are the buyers fragmented or highly concentrated
(i.e. do a few monopolize the market)? If they are
few and concentrated, then buyer bargaining
power is typically high
1 2 3 4 5 NA
Product cost vs.
total purchases
Does your product buyer‟s purchase represent a
significant fraction of the buyer‟s costs? If so, buyer
bargaining power is typically high.
1 2 3 4 5 NA
Product
Differentiation
Is the buyer‟s product or service a commodity? Is
branding critical for success? Is there an actual vs.
a perceived difference? If the products are
standard or undifferentiated, buyers typically have
high bargaining power.
1 2 3 4 5 NA
Switching Costs Are switching costs high or low? If buyers face few
switching costs, their bargaining power is typically
high.
1 2 3 4 5 NA
Profits Do buyers earn low profits? If so, they are typically
more likely to bargain hard.
1 2 3 4 5 NA

19. Porter‟s five forces model
Power of Buyers
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Backward
integration
Can they make what you make themselves? Is
there a threat of backward integration? If so, the
threat is typically high.
1 2 3 4 5
NA
Impact on
Quality/
Performance
Is the product you offer important to the quality of
the buyer‟s products or services? If not, buyer
power is typically high.
1 2 3 4 5
NA
Buyer
Information
Does the buyer have complete information on the
product he may purchase? If so, buyer power is
typically high.
1 2 3 4 5
NA
(Harvard Business School, 2005)

20. Porter‟s five forces model
Power of Suppliers
Suppliers provide labor, materials, financial capital, or
equipment to your firm.
STEPS
 Make a list of your suppliers. Name the
major players and describe them by
type.
 Assess the strength of supplier power by
rating the features given in table 2.

21. Porter‟s five forces model
Power of Suppliers
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Concentration Are your suppliers fragmented or highly
concentrated (i.e. do a few monopolize the
market)? If an industry is dominated by a few
companies, the suppliers are typically high
powerful.
1 2 3 4 5 NA
Presence of
substitute inputs
Are there any substitutes for your suppliers‟
products? If not, suppliers are typically powerful.
1 2 3 4 5 NA
Importance
relative to
customer
Is your industry an important customer of the
supplier group? If not, suppliers are typically
powerful.
1 2 3 4 5 NA
Impact on
Quality/
performance
Is your supplier‟s product essential to the quality or
performance of your business? If so, suppliers are
typically powerful.
1 2 3 4 5 NA
Product
Differentiation
Is the supplier‟s product or service a commodity? Is
branding critical for success? Is there an actual vs.
a perceived difference? Suppliers with
differentiated products typically have more
bargaining power than suppliers selling
commodities.
1 2 3 4 5 NA

22. Porter‟s five forces model
Power of Suppliers
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Switching costs How costly is it for you to switch from the
supplier‟s product? If switching costs are high,
suppliers are typically more powerful.
1 2 3 4 5
NA
Forward
Integration
Can the supplier produce the product you make?
Is there a threat of forward integration? If so,
suppliers are typically powerful.
1 2 3 4 5
NA
(Harvard Business School, 2005)

23. Porter‟s five forces model
Power of Rivals
Rivals are firms that make similar products to yours and
are in direct competition with you.
STEPS
 Make a list of your rivals. Name the
major players and describe them by
type.
 Assess the threat of rivalry by rating the
features given in table 3.

24. Porter‟s five forces model
Power of Rivals
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Industry Growth How slowly or quickly is the industry growing? If it
is a slow growth industry, there is likely to be a
more intense fight among rivals for market share.
1 2 3 4 5 NA
Fixed costs Does your business have high fixed costs? If so,
rivals will typically be tempted to cut prices to
ensure sales, thus posing a significant threat.
1 2 3 4 5 NA
Intermittent
Overcapacity
How frequently is there a problem of excess
capacity in your industry? Are there periods when
there is excess capacity? Overcapacity often leads
to price cutting. If so, there is typically a threat.
1 2 3 4 5 NA
Product
differentiation
Is your product a service or commodity? Typically,
the closer a product is to being a commodity, the
fiercer the intensity of rivalry.
1 2 3 4 5 NA
Brand Identity Is branding critical for your rival‟s success? Is there
an actual vs. a perceived difference? Brand
identification by buyers reduces the threat of rivals.
1 2 3 4 5 NA

25. Porter‟s five forces model
Power of Rivals
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Switching costs How costly is it for your buyers to switch between
providers? Low switching costs typically increase
rivalry. When a customer can freely switch from
one product to another, companies must struggle to
capture and retain customers.
1 2 3 4 5 NA
Concentration
and balance
Are there a large number of firms of equal size and
power, all chasing after the same customers? If so,
rivalry is typically intense.
1 2 3 4 5 NA
Diversity of
competitors
Are there competitors with different strategies and
frames of reference? When competitors are
diverse, it‟s more difficult to establish the rules of
the game, so the threat from competitors is
greater.
1 2 3 4 5 NA
Corporate Stakes How high are the rivals‟ corporate stakes? What do
rivals stand to lose (e.g. profits, decision making
power)? Strategic stakes are high when several
firms in an industry take great risks to expand,
diversify, and gain market position. The intensity
and volatility of the rivalry increases when firms
select alternative strategies that may sacrifice
short-term profitability
1 2 3 4 5 NA

26. Porter‟s five forces model
Power of Rivals
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Exit Barriers Are exit barriers low or high? High exit barriers
make it costly to abandon a product; for example,
when an organization has specialized assets that
cannot be easily sold off.
1 2 3 4 5 NA
(Harvard Business School, 2005)

27. Porter‟s five forces model
Power of New Entrants
New entrants in an industry are today‟s new players
who may become tomorrow‟s rivals. The threat of new
entrants is directly related to whether the barrier to
entry into an industry is high or low.
STEPS
 Assess the threat of new entrants by
rating the features in Table 4 and
following the given criteria:
 If a barrier to entry is high, the threat from new
entrants is weak; if a barrier is low, the threat of new
entrants is strong.

28. Porter‟s five forces model
Power of New Entrants
Determinants Defining Question Assess the power of
buyers
Circle one of the
following:
1=low, 5=high or NA if it
doesn’t apply to your industry
Economies of Scale and
Experience
Does successful entry require that
companies have significant economies of
scale or experience? Barriers to entry are
typically high when an aspiring company
must cut costs in order to compete in a
large-scale and/ or experienced market.
1 2 3 4 5
NA
Product Differences Do new entrants need to differentiate by
spending heavily on advertising , customer
service, or product differences to overcome
existing customer loyalty? Product
differentiation is typically a barrier to entry.
1 2 3 4 5
NA
Brand Identity Do new companies need to spend heavily
on brand identification to gain customer
loyalty? Brand identification is typically a
barrier to entry.
1 2 3 4 5
NA
Switching costs Does the buyer have to pay to switch from
one supplier‟s product to another? High
switching costs are typically a barrier to
entry.
1 2 3 4 5
NA

29. Porter‟s five forces model
Power of New Entrants
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Capital
Requirements
Does the new company need to invest large
financial resources (relative to market size) in order
to compete? Huge capital requirements are
typically a barrier to entry.
1 2 3 4 5 NA
Access to
distribution
Do newcomers have access to distribution channels
for products or services? Difficult access can
typically be a high barrier to entry.
1 2 3 4 5 NA
Cost Advantages Established companies have cost advantages over
new rivals because they may have already obtained
proprietary product technology, access to raw
materials, favorable locations and government
subsidies. In addition, established companies may
have passed a learning or experience curve. Such
cost advantages are typically a barrier to entry for
new entrants.
1 2 3 4 5 NA
Government
Policy
Govt policies such as antitrust regulations, can help
to preserve or limit competition. Such policies can
typically create a barrier to entry
1 2 3 4 5 NA

30. Porter‟s five forces model
Power of New Entrants
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Expected
Retaliation
New entrants may decide not to enter a new
market if existing firms may have a history of
retaliating, resources to fight back, a strong
commitment to the industry, and illiquid assets
employed in the industry. Also, if the industry is
growing slowly, they may retaliate against new
players who would threaten sales growth.
1 2 3 4 5 NA

31. Porter‟s five forces model
Power of Substitutes
A substitute is a different product or service from the
one you make that competes for the same customers.
Determinants Defining Question Assess the power of buyers
Circle one of the following:
1=low, 5=high or NA if it doesn’t
apply to your industry
Price Performance Does the substitute offer a better price or
performance? A substitute product or service is a
threat to competition when it offers a higher
performance at a given price or the same
performance at a lower price
1 2 3 4 5 NA
Switching costs Is it costly for buyers to switch to the substitute
product or service? When buyers must pay more to
switch to a substitute, the threat of substitutes is
low.
1 2 3 4 5 NA