Transcript No Slide Title

Guest Lecture
Planning and Strategy:
The future of a firm
What is Strategic Planning?
• Strategic planning is long-term planning that focuses
on the organization as a whole. The question is what
must be done in the long term to attain organizational
goals.
• Strategy is defined as a broad and general plan
developed to reach long-term objectives. Strategy is
actually the end result of strategic planning. A strategy
must be consistent with organizational objectives,
which in turn must be consistent with organizational
purpose.
Strategic Process
• It is the process of ensuring that an organization
possesses and benefits from the use of an appropriate
organizational strategy. The process is generally
thought to consist of five sequential and continuing
steps:
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–
–
–
–
Environmental analysis
Establishment of an organizational direction
Strategy formulation
Strategy implementation
Strategy control
Feedback
Step 1
Environmental
Analysis
General
Operating
Internal
Step 2
Establishing
Organizational
Direction Mission
Objectives
Step 3
Strategy
Formulation
Step 4
Strategy
Implementation
Step 5
Strategy Control
Environment Analysis
•
•
Environmental analysis is the study of the
organizational environment to pinpoint
environmental factors that can significantly influence
organizational operations.
Managers commonly perform environmental analysis
to help them understand what is happening both
inside and outside their organizations. They can then
increase the probability that the organizational
strategies they develop will appropriately reflect the
organizational environment.
Environmental Factors
•
The general environment is the level of an
organization’s external environment that contains
components normally having broad long-term
implications for managing the organization; its
components are economic, social, political, legal, and
technological. Several concepts are important in the
study of the general environment.
– Economics is the science that focuses on
understanding how people of a particular community
or nation produce, distribute and use various goods
and services.
– The social component is part of the general
environment that describes the characteristics of the
society in which the organization exists.
Demographics are the statistical characteristics of a
population. Social values are the relative degrees of
worth society places on the manner in which it exists
and functions. Over time, demographics and social
values change.
– The political component is the part of the general
environment related to government affairs. The legal
component refers the legislation, and the existing
sets of laws and regulations. The technology
component includes new approaches to producing
goods and services.
•
The operating environment is the level of the
organization’s external environment that contains
components normally having relatively specific and
immediate implications for managing the
organization. Major components include customers,
competition, labour, suppliers, and international
issues. The international component is the operating
environment segment that is composed of all the
factors relating to the international implications of
organizational operations.
• The internal environment is the level of an
organization’s environment that exists inside the
organization and normally has immediate and specific
implications for managing the organization. In broad
terms, the internal environment includes marketing,
finance, and accounting. From a more specific
management viewpoint, it includes planning,
organizing, influencing, and controlling within the
organization.
Establishing Organizational Direction
• The organization mission is the purpose for which, or
the reason why, an organization exists. Organizational
mission is a very broad statement of organizational
direction and is based upon a thorough analysis of
information generated through environmental
analysis. A mission statement is a written document
developed by management, normally based on input
by managers as well as non-managers, which
describes and explains the organization’s mission.
• Organizational objectives must reflect and flow
naturally from an organizational mission.
The Chinese University of Hong Kong
• To be acknowledged locally, nationally and internationally as
a first-class research university whose bilingual and bicultural
dimensions of student education, scholarly output and
contribution to the community consistently meet standards of
excellence.
• To assist in the preservation, creation, application and
dissemination of knowledge by teaching, research and public
service in a comprehensive range of disciplines, thereby
serving the needs and enhancing the well-being of the citizens
of Hong Kong, China as a whole, and the wider world
community.
PCCW
• Attract the best talent as the employer of choice
• Create and capture growth opportunities in the global
New Economy
• Deliver innovative services that enhance the lifestyles
and businesses of our customers
• Be the preferred partner to develop and propel focused
businesses that achieve our vision
• Be the pre-eminent channel for prudent institutional
investment
Changes of Vision and Mission
• Julius Rosenwald acquired the control of Sears, Roebuck &
Co., in 1985. He started the regular, factual mail-order catalog
and adopted the policy of “satisfaction guaranteed or your
money back”. Sears became the world largest mail order plant
at the earlier 20th century.
• By the mid 1920s, major highways were built to link up cities
passing through rural areas. Farmers were no longer isolated,
since automobiles became affordable. General Robert E. Wood
developed the vision of “quality at a good price—the mass
merchandiser for middle America.”
• By the 1970s, new entrepreneurs recognised much earlier than
Sears the concept of discount merchandising goods. Sam
Walton’s Wal-Mart stores emphasise value for customers. Sears
has been replaced by Wal-Mart as America’s largest
merchandiser
Organizational Objectives
• Organisational objectives are the targets set out for the
organization. Organisational input, process, and output
are required to reach organisational objectives.
Organisational objectives reflect the purpose (mission)
of the organisation.
• Peter F. Drucker indicates that the very survival of a
management system may be endangered if
management emphasises only a profit objective. This
single objective emphasis encourages managers to take
action that will make money today with little regard
for how a profit will be made tomorrow.
•
Peter Drunker proposed a multi-objective
framework:
– Marketing standing: Market share is the ratio of dollar
sales of an organisation in a particular market to the
total sales of all competitive products and services in
that market.
– Innovation: Most successful companies, especially in
the areas of technology where most engineers will
work, are continually searching for new products and
services. 3M, for example, requires of its 40-odd
divisions that at least 25% of sales be of products
introduced in the last five years.
– Productivity: Productivity measures an organisation’s
ability to produce more goods and services per unit of
input (labour, materials, and investment).
– Physical & financial resource: An organisation needs
to establish goals for the resources (plant, equipment,
inventory, and capital) it needs to perform effectively.
– Profitability: The profitability of an organisation is
essential to its continuation, and the desired level
should be set explicitly as an objective against which
to measure organisation success.
– Managerial performance & development: Since good
management is the key to organisational success,
effective firms plan carefully to assure that managers
will be available in the years ahead in the quality and
quantity needed for the organisation to prosper.
– Worker performance & attitude: Today’s more
educated work force has much to offer the company
that knows how to motivate it and challenge it
effectively.
– Social responsibility: Every organisation has
responsibilities as a “corporate citizen” that extend
beyond the legal and economic requirements. These
include responsibility to customers, employees,
suppliers, community, and society as a whole. The
organisation that does not at least take responsibility
for its effect on the environment deserves to be
penalised by society
Strategy Formulation Tools
•
Strategy formulation is the process of determining
appropriate courses of action for achieving
organizational objectives and thereby accomplishing
organizational purpose. Tools commonly used are:
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Critical question analysis
SWOT analysis
Business portfolio analysis
Porter’s model for industry analysis
Critical Question Analysis
•
Critical question analysis is a strategy development
tool that consists of answering basic questions about
the present direction and environment, and actions
that can be taken to achieve organizational objectives
in the future. Four basic questions are typically
addressed:
– What are the purposes and objectives of the
organization?
– Where is the organization presently going?
– In what kind of environment does the organization
now exist?
– What can be done to better achieve organizational
objectives in the future?
SWOT Analysis
• SWOT analysis is a strategy development tool that
matches internal organizational strengths and
weaknesses with external opportunities and threats.
– A strength is something a company is good at doing or
a characteristic that gives it an important capability. A
company’s internal strengths usually represent
competitive assets.
– A weakness is something a company lacks or does
poorly or a condition that puts it at a disadvantage. A
company’s internal weaknesses usually represent
competitive liabilities.
Strengths and Weaknesses
•
Successful strategists seek to capitalise on what a
company does best. One of the “trade secrets” of
first-rate strategic management is consolidating a
company’s technological, production, and marketing
know-how into core competencies that enhance its
competitiveness. A core competence is something a
company does especially well in comparison to its
competitors. Typically, a core competence relates to a
set of skills, expertise in performing particular
activities, or a company’s scope and depth of
technological know-how. It resides in a company’s
people, not assets.
Examples of Strengths and Weaknesses
Potential Internal Strengths
•
Core competencies in key areas
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Adequate financial resources
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Well-thought-of by buyers
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An acknowledged market leader
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Well-conceived functional area
strategies
•
Access to economies of scale
•
Insulated from strong competitive
pressures
•
Proprietary technology
•
Cost advantages
•
Better adverting campaigns
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Product innovation skills
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Proven management
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Ahead on experience curve
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Better manufacturing capability
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Superior technological skills
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Others?
Potential internal weaknesses
•
No clear strategic direction
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Obsolete facilities
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Lack of managerial depth and talent
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Missing some key skills or
competencies
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Poor track record in implementing
strategy
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Plagued with internal operating
problems
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Falling behind in R&D
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Too narrow a product line
•
Weak market image
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Weak distribution network
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Below average marketing skills
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Unable to finance needed changes in
strategy
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Higher overall unit costs relative to key
competitors
Opportunities
• Marketing opportunity is a big factor in shaping a
company’s strategy. Not all industry opportunities are
relevant to a company. The industry opportunities
most relevant to a particular company are those that
offer important avenues for profitable growth, those
where a company has the most potential for
competitive advantage, and those which the company
has the financial resources to pursue.
Threats
• Threats can stem from the emergence of
cheaper technologies, rivals’ introduction of
new or better products, the entry of low-cost
foreign competitors into a company’s market
stronghold, new regulations that are more
burdensome to a company than to its
competitors, vulnerability to a rise in interest
rates, the potential of a hostile takeover,
unfavourable demographic shifts, adverse
changes in foreign exchange rates, etc.
Examples of Opportunities and Threats
Potential External Opportunities
• Ability to serve additional
customer groups or expand into
new markets or segments
• Ways to expand product line to
meet broader range of customer
needs
• Ability to transfer skills or
technological know-how to new
products or businesses
• Integrating forward or backward
• Falling trade barriers in attractive
foreign markets
• Complacency among rival firms
• Ability to grow rapidly because of
strong increases in market
demand
• Emerging new technologies
• Others?
Potential External Threats
•
Entry of lower-cost foreign
competitors
•
Rising sales of substitute
products
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Slower market growth
•
Adverse shifts in foreign
exchange rates and trade
policies of foreign governments
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Costly regulatory requirements
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Vulnerability to recession and
business cycle
•
Growing bargaining power of
customers or suppliers
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Changing buyer needs and
tastes
•
Adverse demographic changes
•
Other?
Business Portfolio Analysis
• Business Portfolio Analysis is the development of
business related strategy based primarily on the market
share of businesses and the growth of markets in
which businesses exist. Two business portfolio tools
are the BCG Growth-Share Matrix and the GE
Multifactor Portfolio Matrix.
• The BCG Growth-Share Matrix: The Boston
Consulting Group (BCG) developed and popularised a
portfolio analysis tool that helps managers develop
organizational strategy based upon market share of
businesses and the growth of markets in which
businesses exist.
• The first step is identifying the organizational
strategic business units (SBUs). A strategic
business unit is a significant organization segment
that is analysed to develop organizational strategy
aimed at generating future business or revenue. A
SBU is a single business or collection of related
businesses, has its own competitors, has a
manager, and can be independently planned for.
• The next step is to categorize each SBU within one
of four matrix quadrants:
– Stars have a high share of a high-growth market
and typically need large amounts of cash to support
their rapid and significant growth.
– Cash cows have a large share of a market that is
growing only slightly.
– Question marks have a small share of a high-growth
market. In this case, it is uncertain what
management should do.
– Dogs have a relatively small share of a low-growth
market.
The BPA Framework
High
Question Marks
Stars
Dogs
Cash Cows
Market
Growth
Rate
Low
Low
High
Relative Market Share
Limitations of BPA
• Although this has been widely used, it suffers
several pitfalls. The matrix does not consider such
factors as
– various types of risk associated with product
development,
– threats that inflation and other economic
conditions can create in the future, and
– social, political, and ecological pressures.
The GE Multifactor Portfolio Matrix
• This matrix helps managers develop organizational
strategy that is based primarily on market
attractiveness and business strengths.
Business
Strength
High
5
High 4
Industry
Attractiveness
I – Invest/grow
S – Selective
Investment
H – Harvest/divest
Medium 3
Low 2
Medium
4
3
Low
2
1
• Each of the organization’s businesses or SBUs is
plotted on a matrix in two dimensions: Industry
attractiveness and business strength.
•
•
Industry attractiveness might be determined by such
factors as the number of competitors in an industry,
the rate of industry growth, and the weakness of
competitors within an industry.
Business strengths might be determined by such
factors as a company’s financially solid position, its
good bargaining position over suppliers, and its high
level of technology use.
• Circles represent a company line of business or
SBU. In a circle, a shaded portion represents the
proportion of the total SBU market that a company
has captured. A company has to determine its
strategy in each circle. Circles at the low and right
most section of the matrix are candidate for
divestitute.
Michael E. Porter’s Competitive Model
• We show a five forces model of competition:
– The rivalry among competing sellers in the industry
– The market attempts of companies in other
industries to win customers over to their own
substitute products
– The potential entry of new competitors
– The bargaining power and leverage exercisable by
suppliers of inputs
– The bargaining power and leverage exercisable by
buyers of the products
Firms in other
industries offering
substitute products
Competitive pressures coming form
the market attempts of outsiders to
win buyers over to their products.
Suppliers of
Key Inputs
Competitive
pressures
growing out
of ability to
exercise
bargaining
power and
leverage.
RIVALRY
AMONG
COMPETING
SELLERS
Competitive forces
created by
jockeying for
better market position
and
competitive edge
Competitive pressures coming from
the threat of entry of new rivals.
Potential
New Entrants
Competitive
pressures
growing out
of ability to
exercise
bargaining
power and
leverage.
Buyers
Rivalry
• Rivalry emerges because one or more
competitors see an opportunity to better meet
customer needs or is under pressure to improve
its performance. The big complication in most
industries is that the success of any one firm’s
strategy hinges on what strategies its rivals
employ and the resources rivals are willing and
able to put behind their strategic efforts. Also the
intensity and pressure of competition shift over
time. Regardless of the industry, several common
factors seem to influence the tempo of rivalry
among competing sellers:
• Rivalry intensifies as the number of
competitors increases and as competitors
become more equal in size and capabilities.
• Rivalry is usually stronger when demand for
the product is growing slowly.
• Rivalry is more intense when industry
conditions tempt competitors to use price cuts
or other competitive weapons to boost unit
volume.
• Rivalry is stronger when customers’ costs to
switch brands are low.
• Rivalry is stronger when one or more
competitors is dissatisfied with the market
position and launches moves to bolster its
standing at the expense of rivals.
• Rivalry increases in proportion to the size of the
payoff from a successful strategic move.
• Rivalry tends to be more vigorous when it costs
more to get out of a business than to stay in and
compete.
• Rivalry becomes more volatile and unpredictable
the more diverse competitors are in terms of their
strategies, personalities, corporate priorities,
resources, and countries of origin.
• Rivalry increases when strong companies outside
the industry acquire weak firms in the industry
and launch aggressive, well-funded moves to
transform their newly acquired competitors into
major market contenders.
New Entrants
• New entrants to a market bring new production
capacity, the desire to establish a secure place in the
market, and sometimes substantial resources with
which to compete. The degree of threats from new
entrants depends on the nature of barriers of entry.
There are several types of entry barriers:
– Economies of scale: Scale economies deter entry
because they force potential competitors either to
enter on a large scale basis or to accept a cost
disadvantage.
– Inability to gain access to technology and
specialised know-how.
– The existence of learning and experience curve
effects: When lower unit costs are partly or mostly a
result of experience in producing the product and
other learning benefits, new entrants face a cost
disadvantage.
– Brand preferences and customer loyalty.
– Capital requirements.
– Cost disadvantages independent of size.
– Access to distribution channels.
– Regulatory policies, Tariffs and trade restrictions.
Substitute
• Firms in one industry are quite often in close
competition with firms in another industry because
their respective products are good substitutes.
Competitive pressures from substitute products
operate in several ways. Their price is a ceiling.
Their presence allow customers to compare quality
and performance. Their threats depends on
switching cost.
Suppliers
• Whether the suppliers to an industry are a weak or
strong competitive force depends on market
conditions in the supplier industry and the
significance of the item they supply. Suppliers have
market power only when supplies become tight and
users are so anxious to secure what they need.
Suppliers have less leverage when the industry they
are supplying is a major customer
Customers
• The competitive strength of buyers can range from
strong to weak. The bigger buyers are and the larger
the quantities they purchase, the more clout they
have in negotiating with sellers. Buyers also gain
power when the costs of switching to competing
brands or substitutes are relatively low.
Strategy Formulation
• Based on Porter’s model, three generic strategies may
be used:
– Differentiation is a strategy that focuses on developing
a product or products that customers perceive as
being different from products offered by competitors.
Differentiation includes uniqueness in such areas as
product quality, design, and level of after-sale service.
– Cost leadership is a strategy that focuses on
producing products more cheaply than competitors
can.
– Focus is a strategy that emphasizes targeting a
particular customer. For instance, magazine
publishers commonly use a focus strategy in offering
their products to specific customers
• As the result of the BCG Growth-Share Matrix, and
the GE Multifactor Portfolio Matrix, four forms of
strategies may arise:
– Growth is a strategy to increase the amount of
business that an SBU is currently generating. The
growth strategy is generally applied to start SBUs or
question mark SBUs that have the potential to
become stars. Management generally invests
substantial amounts of money to implement this
strategy and may even sacrifice short-term profit to
build long-term gain. A company may also pursue a
growth strategy by purchasing an SBU from another
organization.
– Stability is a strategy to maintain or slightly improve
the amount of business that an SBU is generating.
This strategy is generally applied to cash cows, since
these SBUs are already in an advantageous position.
– Retrenchment is a strategy to strengthen or protect
the amount of business a strategic business unit is
currently generating. This strategy is generally applied
to cash cows or stars that are beginning to lose
market share .
– Divesture is a strategy adopted to eliminate an SBU
that is not generating a satisfactory amount of
business and that has little hope of doing so in the
near future. The organization may sell or close down
the SBU in question.
Strategy Implementation
• Strategy implementation is putting formulated
strategies into action. The successful
implementation requires four basic skills: interacting
skill, allocating skill, monitoring skill, and
organizing skill.
Strategy Control
• Strategic control consists of monitoring and
evaluating the strategy management process as a
whole to ensure that it is operating properly.
Strategic control focuses on the activities involved
in environmental analysis, organizational direction,
strategy formulation, strategy implementation, and
strategy control itself.
Conclusion
• A procedure is only a necessary but not sufficient
condition for success.
• Other factors are equally important:
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Judgment
Communication
Influence
Resources
Timing.
Reference
• Charles Hill and Gareth Jones, Strategic Management,
Houghton Mifflin Company.