BBA 473

Strategic Planning and

Policy Analysis

Course Objective

• To look at an organization from the CEO’s perspective and to understand the necessity of leadership and entrepreneurship in an organization. The organizations strengths, weaknesses, opportunities and threats must be analyzed in order to formulate a strategic plan of action, goals, and controls to meet those goals.

Course Outcomes

• Develop the student’s capacity to think strategically about a company, its business position, and how it can gain sustainable competitive advantage.

• Build skills in conducting strategic analysis in a variety of industries, especially to provide the student with a stronger understanding of competitive challenges.

Course Outcomes

• Give students hands on experience in crafting business strategy, reasoning carefully about strategic options, using what-if analysis to evaluate alternatives, and making strategic decisions.

• Improve student’s ability to manage the organizational process by which strategies get formed and executed.

Course Outcomes

• Integrate the knowledge gained in earlier core courses in the business school curriculum.

• Develop powers of managerial judgment and improve ability to create results oriented action plans.

• Elevate importance of ethical principles, personal and company values.

What is Strategic Management?

“If you don’t know where you’re going, you’re liable to wind up

someplace else!”

-- Yogi Berra

“Plans are nothing;planning is everything!”

-- Dwight D. Eisenhower

What do we mean by strategy?

• Strategy is grounded in the array of competitive moves and business approaches management depends on to produce successful performance.

• Strategy is management’s game plan for strengthening the organization’s position, pleasing customers, and achieving performance targets.

Without a strategy,managers have:

No thought-out course to follow

No roadmap to manage by

No action program to produce the intended result

Good strategy andgood strategy execution

are the most trustworthy signsof good management.

Three FundamentalStrategic Questions

• Where are we currently?

• Where do we want to be in the future?

• How will we get there?

Strategic planning is a “disciplined effort to produce

fundamental decisions and actions that shape and guide

what an organization is,what it does, andwhy it does it.”

Benefits of Strategic Planning

• Increased effectiveness• Increased efficiency• Improved understanding and better learning• Better decision making• Enhanced organizational capabilities• Improved communications and public relations• Increased political support

What does a company’sstrategy consist of?

• How to satisfy customers– Broad or narrow product line?– Amount of customer service provided?

• How to grow the business– Concentrate on a single business strategy?– Diversify into related or unrelated industries?– Expand globally?

Company strategies concern:

• How to respond to changing industry and market conditions

• How best to capitalize on new opportunities

• How to manage each functional piece of the business

• How to achieve strategic and financial objectives

Sustained Competitive AdvantageSustained Competitive Advantage

Above-Average ReturnsAbove-Average ReturnsReturns in excess of what an investor expects to Returns in excess of what an investor expects to earn from other investments with similar riskearn from other investments with similar risk

Occurs when a firm develops a strategy that Occurs when a firm develops a strategy that competitors are not simultaneously implementingcompetitors are not simultaneously implementing

Provides benefits which current and potential Provides benefits which current and potential competitors are unable to duplicatecompetitors are unable to duplicate

Strategic CompetitivenessStrategic CompetitivenessAchieved when a firm successfully formulates Achieved when a firm successfully formulates and implements a value-creating strategyand implements a value-creating strategy

which are required for firms to achieve:which are required for firms to achieve:

Above-Average ReturnsAbove-Average Returns

Strategic CompetitivenessStrategic Competitiveness

Sustained Competitive AdvantageSustained Competitive Advantage

The Strategic Management ProcessThe Strategic Management Process

Involves the full set of:Involves the full set of:

ActionsActionsCommitmentsCommitments DecisionsDecisions

Components ofStrategic Management Process

• Recognizing and evaluating external and internal environment.

• Development of strategic mission.

• Strategy Formulation

• Strategy Implementation

• Evaluation of performance

• Rapid technological changes• Rapid technological changes

• Rapid technology diffusions• Rapid technology diffusions

• Dramatic changes in information and communication technologies

• Dramatic changes in information and communication technologies

• Increasing importance of knowledge

• Increasing importance of knowledge

Fundamental nature of competition is changingFundamental nature of competition is changing

The pace of change is relentless....and increasing

The pace of change is relentless....and increasing

Traditional industry boundaries are blurring, such as...

Traditional industry boundaries are blurring, such as...

• Computers• Telecommunications• Computers• Telecommunications

21st Century Competitive Landscape21st Century Competitive Landscape

The global economy is changingThe global economy is changing

• People, goods, services and ideas move freely across geographic boundaries

• New opportunities emerge in multiple global markets

• Markets and industries become more internationalized

• People, goods, services and ideas move freely across geographic boundaries

• New opportunities emerge in multiple global markets

• Markets and industries become more internationalized

Traditional sources of competitive advantage no longer guarantee success

Traditional sources of competitive advantage no longer guarantee success

New keys to success include:New keys to success include:

• Flexibility• Innovation• Speed• Integration

• Flexibility• Innovation• Speed• Integration

21st Century Competitive Landscape21st Century Competitive Landscape

Stakeholders:Stakeholders: Groups who are affected by a firm’s Groups who are affected by a firm’s performance and who have claims on its performance and who have claims on its wealthwealth

The firm must maintain The firm must maintain performance at an adequate level in performance at an adequate level in order to maintain the participation order to maintain the participation of key stakeholdersof key stakeholders

OrganizationalOrganizationalOrganizationalOrganizational

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

EmployeesEmployeesManagersManagersNon-ManagersNon-Managers

FirmFirmFirmFirm

Capital MarketCapital MarketCapital MarketCapital Market

Stock market/InvestorsStock market/InvestorsStock market/InvestorsStock market/Investors

Debt suppliers/BanksDebt suppliers/BanksDebt suppliers/BanksDebt suppliers/Banks

Product MarketProduct MarketProduct MarketProduct Market

Primary Customers Primary Customers SuppliersSuppliersPrimary Customers Primary Customers SuppliersSuppliers

Stakeholder Involvement

Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm

How do you divide the How do you divide the returns to keep returns to keep stakeholders involved?stakeholders involved?

11

Capital Capital MarketMarket

Product Product MarketMarket

OrganizationalOrganizational

Stakeholder Involvement

Two issues affect the Two issues affect the extent of stakeholder extent of stakeholder involvement in the firminvolvement in the firm

How do you increase the How do you increase the returns so everyone has returns so everyone has more to share?more to share?

22

Capital Capital MarketMarket

Product Product MarketMarket

OrganizationalOrganizational

Political/Legal

Political/Legal

EconomicEconomic

TechnologicalTechnological

GlobalGlobal

DemographicDemographicSocioculturalSociocultural

CompetitiveCompetitiveEnvironmentEnvironment

Industry Environment

Industry Environment

Components of the General EnvironmentComponents of the General Environment

General Environment• Demographic SegmentDemographic Segment

Population sizePopulation size Age structureAge structure Geographic Geographic

distributiondistribution Ethnic mixEthnic mix Income distributionIncome distribution

• Economic segmentEconomic segmentGeneral Environment

Inflation ratesInflation rates Interest ratesInterest rates Trade deficits or surplusesTrade deficits or surpluses Budget deficits or surplusesBudget deficits or surpluses Personal savings ratePersonal savings rate Business savings ratesBusiness savings rates Gross domestic productGross domestic product

General Environment

• Political/Legal SegmentPolitical/Legal Segment Antitrust lawsAntitrust laws Taxation lawsTaxation laws Deregulation philosophiesDeregulation philosophies Labor training lawsLabor training laws Educational philosophies and policiesEducational philosophies and policies

General Environment

• Sociocultural segmentSociocultural segment

Women in the workplaceWomen in the workplace Workforce diversityWorkforce diversity Attitudes about quality of worklifeAttitudes about quality of worklife Concerns about environmentConcerns about environment Shifts in work and career preferencesShifts in work and career preferences Shifts in product and service preferencesShifts in product and service preferences

General Environment• Technological SegmentTechnological Segment

Product innovationsProduct innovations Applications of knowledgeApplications of knowledge Focus of private and government-supported Focus of private and government-supported

R&D expendituresR&D expenditures New communication technologiesNew communication technologies

General Environment

• Global SegmentGlobal Segment

Important political eventsImportant political events Critical global marketsCritical global markets Newly industrialize countriesNewly industrialize countries Different cultural and institutional attributesDifferent cultural and institutional attributes

External Environmental AnalysisA continuous process which includesA continuous process which includes

Scanning: Identifying early signals of environmental changes and trends

Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends

Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

Industry Environment• A set of factors that directly influences a A set of factors that directly influences a

company and its competitive actions and company and its competitive actions and responses.responses.

• Interaction among these factors determine an Interaction among these factors determine an industry’s profit potential.industry’s profit potential.

Threat of new entrantsThreat of new entrants Power of suppliersPower of suppliers Power of buyersPower of buyers Product substitutesProduct substitutes Intensity of rivalryIntensity of rivalry

Threat of Substitute Products

Threat of Substitute Products

Threat of New

Entrants

Threat of New

Entrants

Threat of New

Entrants

Rivalry Among Competing Firms

in Industry

Rivalry Among Competing Firms

in Industry

Bargaining Power of Buyers

Bargaining Power of Buyers

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Porter’s Five Forces Model of CompetitionPorter’s Five Forces Model of Competition

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:Intense rivalry often plays out in the following ways:

Jockeying for strategic positionJockeying for strategic position

Using price competitionUsing price competition

Staging advertising battlesStaging advertising battles

Making new product introductionsMaking new product introductions

Increasing consumer warranties or serviceIncreasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunityOccurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offPrice competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but Advertising battles may increase total industry demand, but may be costly to smaller competitorsmay be costly to smaller competitors

CutthroatCutthroat competitioncompetition is more likely to occur when: is more likely to occur when:

Rivalry Among Existing CompetitorsRivalry Among Existing Competitors

Numerous or equally balanced competitorsNumerous or equally balanced competitors

Slow growth industrySlow growth industry

High fixed costsHigh fixed costs

Lack of differentiation or switching costsLack of differentiation or switching costs

High storage costsHigh storage costs

Capacity added in large incrementsCapacity added in large increments

High strategic stakesHigh strategic stakes

High exit barriersHigh exit barriers

Diverse competitorsDiverse competitors

Competitor AnalysisCompetitor Analysis

The follow-up to Industry Analysis is The follow-up to Industry Analysis is effective analysis of a firm’s effective analysis of a firm’s CompetitorsCompetitors

CompetitiveCompetitiveEnvironmentEnvironment

Industry Environment

Industry Environment

Competitor AnalysisCompetitor Analysis

AssumptionsAssumptionsWhat assumptions do our competitors hold about the future of industry and themselves?

Current StrategyCurrent StrategyDoes our current strategy support changes in the competitive environment?

Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?

CapabilitiesCapabilitiesHow do our capabilities compare to our competitors?

ResponseResponseWhat will our competitors do in the future?

What will our competitors do in the future?

Where do we have a competitive advantage?

Where do we have a competitive advantage?

How will this change our relationship with our competition?

How will this change our relationship with our competition?

Chapter 2Chapter 2External EnvironmentExternal EnvironmentWhat the Firm Might DoWhat the Firm Might Do

Chapter 3Chapter 3Internal EnvironmentInternal EnvironmentWhat the Firm Can DoWhat the Firm Can Do

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

Challenge of Internal Analysis• How do we effectively manage current core How do we effectively manage current core

competencies while simultaneously developing new competencies while simultaneously developing new ones?ones?

• How do we assemble bundles of resources, How do we assemble bundles of resources, capabilities and core competencies to create value capabilities and core competencies to create value for customers?for customers?

• How do we learn to change rapidly?How do we learn to change rapidly?

Tangible ResourcesTangible ResourcesFinancialFinancial**

PhysicalPhysical**

Human ResourcesHuman Resources**

OrganizationalOrganizational**

What a firm Has...

What a firm has to work with:

its assets, including its people and the value of its brand name

Resources represent inputs into a firm’s production process...

such as capital equipment, skills of employees, brand names, finances and talented managers

Intangible ResourcesIntangible Resources

TechnologicalTechnological**

InnovationInnovation**

ReputationReputation**

“Some genius invented the Oreo. We’re just living off the inheritance.”

F. Ross Johnson,Former President & CEO, RJR Nabisco

ResourcesResources

What a firm Does...

Capabilities represent:the firm’s capacity or ability to integrate individual firm resources to achieve a desired objective.

Capabilities develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources that are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees.

Capabilities become important when they are combined Capabilities become important when they are combined in in unique combinations unique combinations which create core competencies which create core competencies which havewhich have strategic value strategic value and can lead toand can lead to competitive competitive advantageadvantage..

CapabilitiesCapabilities

For a strategic capability to be a For a strategic capability to be a Core Competency, it must be:Core Competency, it must be:

Core CompetenciesCore Competencies

ValuableValuable

RareRare

Costly to ImitateCostly to Imitate

NonsubstitutableNonsubstitutable

What a firm Does...that is Strategically

Valuable

Core Competencies must be:

NonsubstitutableNonsubstitutableCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationshipsCapabilities that do not have strategic equivalents, such as firm-specific knowledge or trust-based relationships

What a firm Does...that is Strategically

Valuable

Core CompetenciesCore Competencies

ValuableValuable

RareRare

Costly to ImitateCostly to ImitateCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexityCapabilities that other firms cannot develop easily, usually due to unique historical conditions, causal ambiguity or social complexity

Capabilities that are possessed by few, if any, current or potential competitorsCapabilities that are possessed by few, if any, current or potential competitors

Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment

Capabilities that either help a firm to exploit opportunities to create value for customers or to neutralize threats in the environment