2. Strategic Planning
Strategic Planning is making decisions about:
• Determining the organization’s mission;
• Formulating policies to guide the organization in
establishing objectives, choosing a strategy, and
implementing the chosen strategy;
• Establishing long-range and short-range objectives to
achieve the organization’s mission;
• Determining the strategies that are to be used in
achieving the organization’s mission
3. STRATEGIC ACTION PLANNING
SWOT Analysis
VISION
STRATEGIC AREAS FOR DEVELOPMENT
STRATEGIC OBJECTIVES
Strategic
Action 4
Strategic
Action 3
MISSION
Internal Environment
Strengths
Weaknesses
- Value systems
- Culture
- Staffing
- Support systems, operating environment
The long range objectives that
will drive the development
process and stretch the
organization to achieve them.
External Environment
Opportunities
Threats
- The changing environment
- The demand for new products
- The economic environment
- Availability of resources
Strategic
Action 2
Strategic
Action 1
EVALUATION/FEEDBACK
The reason for the
existence of the
organization & establishes
the values, beliefs &
guidelines for the conduct
of business
4. Steps of a Strategic Plan
• Where is your agency in its development
RIGHT now?
• Assess the Internal and External
Environments
– SWOT Analysis
S Str e n gth s
W We a k n e s se s
Internal Environment
O Op p o r tu n itie s
T Th r e a ts
External Environment
5. Importance of Planning
• Most important function of management
– The difference between higher profits or huge
loses, expansion or failure
• All managers are involved with planning in
some way
– Deciding to expand and build a new building to
deciding on work schedules
6. Importance of Planning
• Mangers use their plans to determine whether the
business is making progress
• It encourages managers to be more specific in their
decisions
• Planning in a large business is like a jigsaw puzzle.
All the pieces must work together
– Coordination to avoid conflict & missed opportunities
– Sharing plans between departments helps each see how
their plans effect another
7. Levels of Planning
Managers plan on two levels
• Strategic planning (upper management)
– Long term
– Provides broad goals & direction for the entire
business
• Operational (mid-level management)
– Short term
– Identifies specific activities for EACH area of the
business
8. Planning Tools
• Budgets – most widely used tool
• Schedules – deadlines
• Standards – Quality, Quantity, Time, Cost
• Policies – general rule for the whole business
• Procedure – steps followed to perform certain work
• Research – Gathering information
20. Mergers and acquisitions
• A merger is the combination of two previously
separate organisations, typically as more or
less equal partners.
• An acquisition involves one firm taking over
the ownership (‘equity’) of another, hence the
alternative term ‘takeover’.
22. Integration in M&A
Approaches to integration:
• Absorption – strong strategic interdependence and little need
for organisational autonomy. Rapid adjustment of the
acquired company’s strategies, culture and systems.
• Preservation – little interdependence and a high need for
autonomy. Old strategies, cultures and systems can be
continued much as before.
• Symbiosis – strong strategic interdependence, but a high need
for autonomy. Both the acquired firm and acquiring firm learn
and adopt the best qualities from each other.
• Holding – a residual category – with little to gain by
integration. The acquisition will be ‘held’ temporarily before
being sold on, so the acquired unit is left largely alone.
23. Strategic alliances
• A strategic alliance is where two or more
organisations share resources and activities to
pursue a strategy.
• Collective strategy is about how the whole
network of alliances of which an organisation is a
member competes against rival networks of
alliances.
• Collaborative advantage is about managing
alliances better than competitors.
24. What is meant by Strategic Alliance?
Definition 1:
An agreement between two or more individuals or entities
stating that the involved parties will act in a certain way in
order to achieve a common goal. Strategic alliance usually
make sense when the parties involved have
Complementary strengths.
Definition 2:
Strategic alliances are innovative and interesting forms of
relationships between organizations. Organizations create
alliances in their quest to compete against fast & nimble
competitors.
25. What is Meant by Strategic Alliance? cont’d
Definition 3:
Strategic alliances are agreements
between companies (partners) to reach
objectives of a common interest. Alliances
are among the various options which
companies can use to achieve their goals.
They are based on cooperation between
companies.
26. Purposes of Strategic Alliances
• Competition is shifting from a "firm versus firm perspective"
to a "supply chain versus supply chain perspective."
Therefore, firms seeking competitive advantage are
participating in cooperative supply chain arrangements, such
as strategic alliances, which combine their individual
strengths & unique resources.
• Enabling a firm to focus resources on its core skills &
competencies while acquiring other components or
capabilities it lacks from the marketplace.
• Alliances can often improve market power of a firm because
either the alliance partner is a customer for the product or
because the distribution channels & buying power of the
partners can be combined
27. Purposes of Strategic Alliances cont’d
• Alliances enable buying & supplying firms to combine their
individual strengths & work together to reduce non-value-
adding activities & facilitate improved performance.
• In order for both parties to remain committed to this form of
relationship, mutual benefit must exist (i.e. a "win-win"
relationship)
28. Success Factors
• Selection:
– Strategically evaluate which upstream & downstream members
should be included in the supply chain to create a highly
competitive & efficient supply network.
– Selecting strategic partner should be based on company’s goals,
objectives & values system.
– Select partners who have competencies in collaboration & those
who already have a proven ability to work in a collaborative
environment.
• Intention:
Both partners should acknowledge their mutual dependence &
their willingness to work for the survival & prosperity of the
relationship.
29. Success Factors cont’d
• Trust:
– Existence of trust in a relationship reduces perception of risk
associated with opportunistic behavior as this generates greater
profits & serve customers better
• Communication:
– Communication is critical for building successful relationships to
achieve the benefits of collaboration as it allows partners to
understand alliance goals, roles, responsibilities & helps with the
sharing & dissemination of individual experiences
• Conflict Resolution:
– Firms should be motivated to engage in joint problem solving as they
are, by definition, linked together to manage an environment that
was more uncertain & turbulent than each one could control.
30. Types of Strategic Alliances
• Joint Venture: an agreement by two or more parties to form
a single entity to undertake a certain project. Each of the
businesses has an equity stake in the individual business and
share revenues, expenses & profits.
• Outsourcing
• Global Strategic Alliances: working partnerships between
companies (often more than 2) across national boundaries &
increasingly across industries. Sometimes formed between
company & a foreign government, or among companies &
governments
31. Types of Strategic Alliances cont’d
• Equity strategic alliance: an alliance in which 2 or
more firms own different percentages of the
company they have formed by combining some of
their resources & capabilities to create a competitive
advantage.
• Non- equity strategic alliance: an alliance in which 2
or more firms develop a contractual-relationship to
share some of their unique resources & capabilities
to create a competitive advantage.
32. Types of Strategic Alliances cont’d
• R&D: Strategic alliances based around R&D tend to fall into
the joint venture category, where two or more businesses
decide to embark on a research venture through forming a
new entity.
• Franchising: is an excellent way of quickly rolling out a
successful concept nationwide. Franchisees pay a set-up
fee & agree to ongoing payments so the process is
financially risk-free for the company. However, downsides
do exist, particularly with the loss of control over how
franchisees run their franchise.
33. Examples of Alliances
• Nokia and Microsoft in alliance to make Zune phone
• Star Alliance – Airlines alliances.
• Philips and Sony jointly launched the mini-CD.
• Nestlé and Fonterra Sign Agreement on Dairy Alliance for the
America
• McDonald’s with Disney, Coca-Cola & Walmart
• Online grocer Webvan Group forms alliances with foodmakers:
Kellogg, Nestle, Pillsbury, Quaker
34. Types of strategic alliance
There are two main kinds of ownership in strategic
alliances:
• Equity alliances involve the creation of a new
entity that is owned separately by the partners
involved.
• Non-equity alliances are typically looser,
without the commitment implied by ownership.
35. Equity alliances
• The most common form of equity alliance is the
joint venture, where two organisations remain
independent but set up a new organisation jointly
owned by the parents.
• A consortium alliance involves several partners
setting up a venture together.
36. Non-equity alliances
• Non-equity alliances are often based on
contracts.
• Three common forms of non-equity alliance:
Franchising.
Licensing.
Long-term subcontracting.
37. Motives for alliances
• Scale alliances – lower costs, more bargaining
power and sharing risks.
• Access alliances – partners provide needed
capabilities (e.g. distribution outlets or licenses to
brands)
• Complementary alliances – bringing together
complementary strengths to offset the other
partner’s weaknesses.
• Collusive alliances – to increase market power.
Usually kept secret to evade competition
regulations.
38. Strategic alliance processes
Two themes are vital to success in alliances:
• Co-evolution – the need for flexibility and change
as the environment, competition and strategies of
the partners evolve.
• Trust – partners need to behave in a trustworthy
fashion throughout the alliance.
41. Portfolio Analysis
• Portfolio analysis
– management views its product lines and business
units as a series of investments from which it
expects a profitable return
42. Different Portfolio Models
There are different portfolio models.
However, in this course, two of them will be
discussed.
• The BCG growth-share matrix, introduced by
the Boston Consulting Group.
• The business strength-industry attractiveness
matrix associated with General Electric and
McKinsey & Co.
43. FUNCTIONAL STRATEGIES
EVERY BUSINESS UNIT DEVELOPS FUNCTIONAL STRATEGIES FOR EACH MAJOR
DEPARTMENT
• MARKETING STRATEGY
• FINANCIAL STRATEGY
• RESEARCH & DEVELOPMENT STRATEGY
• OPERATIONS STRATEGY
• PURCHASING STRATEGY
• LOGISTICS STRATEGY
• HUMAN RESOURCES STRATEGY
• INFORMATION TECHNOLOGY STRATEGY
45. MARKETING STRATEGIES:
THE CUSTOMER-PRODUCT DECISION
MARKET PENETRATION STRATEGY
(Stay in current markets with existing products)
INCREASE RATE OF PURCHASE/CONSUMPTION
ATTRACT RIVAL’S CUSTOMERS
BUY OUT RIVALS
CONVERT NON-USERS INTO CURRENT USERS
MARKET DEVELOPMENT STRATEGY
(Find new markets for current products)
ENTER NEW GEOGRAPHICAL MARKETS
FIND NEW USES FOR EXISTING PRODUCTS
FIND NEW TARGET MARKETS
PRODUCT DEVELOPMENT STRATEGY
(Develop new products for existing markets)
IMPROVE FEATURES
IMPROVE QUALITY/RELIABILITY/DURABILITY
ENHANCE AESTHETICS/STYLING
ADD MODELS
DIVERSIFICATION STRATEGY
(Develop new products for new markets)
47. BCG Matrix
• Question marks
– new products with the potential for success but
need a lot of cash for development
• Stars
– market leaders that are typically at or nearing the
peak of their product life cycle and are able to
generate enough cash to maintain their high share
of the market and usually contribute to the
company’s profits
48. BCG Matrix
• Cash cows
– products that bring in far more money than is
needed to maintain their market share
• Dogs
– products with low market share and do not have
the potential to bring in much cash
49. BCG Matrix—Limitations
• Use of highs and lows to form categories is too
simplistic.
• Link between market share and profitability is
questionable.
• Growth rate is only one aspect of industry
attractiveness.
• Product lines or business units are considered
only in relation to one competitor.
• Market share is only one aspect of overall
competitive position.
50. Advantages and Limitations of
Portfolio Analysis
Advantages
• Encourages top management to evaluate each of the
corporation’s businesses individually and to set
objectives and allocate resources for each
• Stimulates the use of externally oriented data to
supplement management’s judgment
• Raises the issue of cash flow availability to use in
expansion and growth
51. Managing the Multibusiness
Corporation
• Structure of the Multidivisional Company
o Theory of the M-form
o The divisionalized firm in practice
• The Role of Corporate Management
• Managing the Corporate Portfolio
o Portfolio planning techniques
o Value-creation through corporate
restructuring
• Managing Individual Businesses
• Managing Internal Linkages
• Recent Trends
52. The Functions of Corporate Management
—Decisions over diversification, acquisition,
divestment
—Resource allocation between businesses.
— Business strategy formulation
—Monitoring and controlling business
performance
—Sharing and transferring resources and
capabilities
Managing
linkages
between
businesses
Managing the
individual
businesses
Managing the
Corporate
Portfolio
53. The Development of Strategic Planning Techniques:
General Electric in the 1970’s
Late 1960’s: GE encounters problems of direction,
coordination, control, and profitability
Corporate planning responses:
Portfolio Planning Models —matrix-based frameworks
for evaluating business unit performance, formulating
business strategies, and allocating resources
Strategic Business Units —GE reorganized around
SBUs (business comprising a strategically-distinct
group of closely-related products
PIMS —a database which quantifies the impact of
strategy on performance. Used to appraise SBU
performance and guide business strategy formulation
54. Portfolio Planning Models: Their
Uses in Strategy Formulation
• Allocating resources-- the analysis indicates both the
investment requirements of different businesses and their
likely returns
• Formulating business-unit strategy-- the analysis yields
simple strategy recommendations (e.g..: “build”, “hold”, or
“harvest”)
• Setting performance targets-- the analysis indicates likely
performance outcomes in terms of cash flow and ROI
• Portfolios balance-- the analysis can assist in corporate
goals such as a balanced cash flow and balance of growing
and declining businesses.
55. Low
Medium
High
Low Medium High
IndustryAttractiveness
Portfolio Planning Models:
The GE/ McKinsey Matrix
Industry Attractiveness Criteria Business Unit Position
- Market size - Market share (domestic,
- Market growth global, and relative)
- Industry profitability - Competitive position
- Inflation recovery - Relative profitability
- Overseas sales ratio
Business Unit Position
56. Corporate Parenting
• Corporate parenting
– views a corporation in terms of resources and
capabilities that can be used to build business unit
value as well as generate synergies across
business units
57. Corporate Parenting
• Generates corporate strategy by focusing on
the core competencies of the parent
corporation and the value created from the
relationship between the parent and its
businesses
58. Developing a Corporate
Parenting Strategy
1. Examine each business unit in terms of its
strategic factors
2. Examine each business unit in terms of areas
in which performance can be improved
3. Analyze how well the parent corporation fits
with the business unit
59. INTRODUCTION
BOSTON CONSULTING GROUP (BCG)
MATRIX is developed by BRUCE
HENDERSON of the BOSTON
CONSULTING GROUP IN THE EARLY
1970’s.
According to this technique, businesses or
products are classified as low or high
performers depending upon their market
growth rate and relative market share.
60. MARKET SHARE
• Market share is the percentage of the total market that is
being serviced by your company, measured either in revenue
terms or unit volume terms.
• RELATIVE MARKET SHARE
• RMS = Business unit sales this year
Leading rival sales this year
• The higher your market share, the higher proportion of the
market you control.
61. MARKET GROWTH
RATE
• Market growth is used as a measure of a market’s
attractiveness.
• MGR = Individual sales - individual sales
this year last year
Individual sales last year
• Markets experiencing high growth are ones where the total
market share available is expanding, and there’s plenty of
opportunity for everyone to make money.
62. THE BCG GROWTH-SHARE
MATRIX
• It is a portfolio planning model which is based on the
observation that a company’s business units can be classified
in to four categories:
Stars
Question marks
Cash cows
Dogs
• It is based on the combination of market growth and market
share relative to the next best competitor.
63.
64. STARS
High growth, High market share
• Stars are leaders in business.
• They also require heavy investment, to
maintain its large market share.
• It leads to large amount of cash
consumption and cash generation.
• Attempts should be made to hold the
market share otherwise the star will
become a CASH COW.
65. CASH COWS
Low growth , High market share
• They are foundation of the company and
often the stars of yesterday.
• They generate more cash than required.
• They extract the profits by investing as little
cash as possible
• They are located in an industry that is
mature, not growing or declining.
66. DOGS
Low growth, Low market share
• Dogs are the cash traps.
• Dogs do not have potential to bring in
much cash.
• Number of dogs in the company should be
minimized.
• Business is situated at a declining stage.
67. QUESTION MARKS
High growth , Low market share
• Most businesses start of as question marks.
• They will absorb great amounts of cash if the
market share remains unchanged, (low).
• Why question marks?
• Question marks have potential to become star
and eventually cash cow but can also become
a dog.
• Investments should be high for question
marks.
68. MAIN STEPS OF BCG MATRIX
• Identifying and dividing a company into SBU.
• Assessing and comparing the prospects of
each SBU according to two criteria :
1. SBU’S relative market share.
2. Growth rate OF SBU’S industry.
• Classifying the SBU’S on the basis of BCG
matrix.
• Developing strategic objectives for each SBU.
70. BENEFITS
• BCG MATRIX is simple and easy to understand.
• It helps you to quickly and simply screen the
opportunities open to you, and helps you
think about how you can make the most of
them.
• It is used to identify how corporate cash
resources can best be used to maximize a
company’s future growth and profitability.
71. LIMITATIONS
• BCG MATRIX uses only two dimensions,
Relative market share and market growth rate.
• Problems of getting data on market share and
market growth.
• High market share does not mean profits all
the time.
• Business with low market share can be
profitable too.
74. CONCLUSION
Though BCG MATRIX has its limitations it is one of the
most FAMOUS AND SIMPLE portfolio planning matrix
,used by large companies having multi-products.
81. Portfolio Planning Models:
Applying the BCG Matrix to BM Foods Inc.
Annualrealrateofmarketgrowth(%)
Relative market share
2 1.5 1 0.5 0.1
-20246810
Frozen food
division
Fruit juices
division
Bakery division
Health foods
division
Current position Previous position. Area of circle proportional to $ sales.
82. Matrix uses business
strength compared to
market attractiveness
Business strength (strong,
average, or weak).
Market attractiveness
(high, medium, low).
GE Multi-factor Matrix
84. Market Attractiveness Matrix (GE)
BUSINESS POSITON
STRONG
MARKETATTRACTIVENESS
LOWMEDIUMHIGH
MEDIUM WEAK
Low Attractiveness
Medium Attractiveness
High Attractiveness
85. GE Nine Cell
Attractiveness/Strength Matrix
• Use quantitative measures of industry
attractiveness and business strength to plot
location of each business in matrix
• Each business unit appears as a circle
• area of circle can represent relative size of industry
with pie slice showing the company’s market share
87. The Porter Competitive Model
Used to understand and evaluate the
structure of an industry’s business
environment and the threats of
competition to a specific company.
91. Porter Competitive Model Tips
1. To incorrectly define the industry can cause major
problems in doing Section I of the analysis term paper.
2. You must identify the specific market being evaluated.
3. Your analysis company is the Strategic Business Unit.
4. Identify rivals by name for majors, by category for minor
rivals if needed to present the best possible profile of
rivals.
92. Porter Competitive Model
5. Be sure to address the power implications of both
customers and suppliers. Power buys them what?
6. Identify buyers and suppliers by categories versus
companies.
7. Summarize your Porter Model analysis.
94. outcomes
• Identify alternative strategy options, including
market penetration, product development, market
development and diversification.
• Distinguish between different diversification
strategies (related and conglomerate
diversification) and evaluate diversification drivers.
95. outcomes
• Assess the relative benefits of vertical integration
and outsourcing.
• Analyse the ways in which a corporate parent can
add or destroy value for its portfolio of business
units.
• Analyse portfolios of business units and judge
which to invest in and which to divest.
98. Diversification
• Diversification involves increasing the range of
products or markets served by an organisation.
• Related diversification involves diversifying into
products or services with relationships to the
existing business.
• Conglomerate (unrelated) diversification
involves diversifying into products or services
with no relationships to the existing businesses.
