Strategy Design and Planning

Chapter Outline The strategic design approach the strategic planning approach The Design versus The Planning Model A Model for strategic planning

The strategic The strategic design approachdesign approach

Seven PremisesSeven Premises strategy formation should be a

controlled, conscious process. the CEO is “the” strategist. strategy formation must be kept simple

and informal.

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The strategic The strategic design approachdesign approach

Strategies should be unique. strategy design should be full-blown,

not incremental. strategies should be articulated. once the first 6 premises are completed

the strategy can be implemented.

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The Strategic Planning ApproachThe Strategic Planning Approach

3 premises3 premises strategy formation should be a

controlled process. responsibility rests with the CEO in

principle, and executed by staff planners.

strategies emerge full-blown, to be explicated for implementation.

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differences between the design and differences between the design and planning approachesplanning approaches

the design model emphasizes simplicity and informalness while the planning model uses an intricate array of procedures.

The planning model uses staff planners as major actors, while the design school uses them as minor actors in the implementation process.

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A combination modelA combination modelThe basic Plan FormatThe basic Plan FormatI. I. mission statementmission statement a. business definitiona. business definition b. long-term objectivesb. long-term objectivesII. II. scan of external environmentscan of external environment a. industry environmenta. industry environment b. macroenvironmentb. macroenvironmentIII. III. scan of internal environmentscan of internal environment a. value chain analysisa. value chain analysis b. financial analysisb. financial analysis c. assessment of strengths and weaknessesc. assessment of strengths and weaknessesiv. iv. business strategy statementbusiness strategy statementv. v. integrated programsintegrated programs

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i. The mission statement

1. What business should we be in?1. What business should we be in?2. Why do we exist?2. Why do we exist?3. What is unique about our organization?3. What is unique about our organization?4. Who are our principal customers?4. Who are our principal customers?5. What are our principal products/services, present 5. What are our principal products/services, present

and future? and future?

6. What are our principal market segments, present 6. What are our principal market segments, present and future? and future?

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The mission statement7. What are our principal outlets/distribution channels, 7. What are our principal outlets/distribution channels,

present and future? present and future?

8. How is our business different than it was three and 8. How is our business different than it was three and five years ago? five years ago?

9. What is likely to be different about our business 9. What is likely to be different about our business three and five years in the future? three and five years in the future?

10. What are our principal economic concerns?10. What are our principal economic concerns?11. What philosophical issues are important to our 11. What philosophical issues are important to our

future? future?

12. What special considerations do we have regarding 12. What special considerations do we have regarding stakeholder groups? stakeholder groups?

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Stakeholder groups

owners/ stockholders/ investors/ constituents

board of directors parent organization legislative bodies employees

customers/ clients/ users

suppliers general public

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Stakeholder groups

owners/ stockholders/ investors/ constituents

board of directors parent organization legislative bodies employees

customers/ clients/ users

suppliers general public

ii. long-term objectives marketingmarketing profitabilityprofitability physical and financial resourcesphysical and financial resources productivityproductivity worker performanceworker performance management developmentmanagement development innovationinnovation social responsibilitysocial responsibility stockholder responsibilitystockholder responsibility size/ growth/ diversificationsize/ growth/ diversification

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iii. scan of internal environment and financial analysis

value chain analysisvalue chain analysis financial analysisfinancial analysis

$ leverage ratios$ liquidity ratios$ activity ratios$ profitability ratios

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iii. scan of internal environment and financial analysis

value chain analysisvalue chain analysis financial analysisfinancial analysis

$ leverage ratios$ liquidity ratios$ activity ratios$ profitability ratios

dupont financial analysis

salesminus

costs

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dupont financial analysis

salesminus

costsnet profit

sales

dupont financial analysis

salesminus

costsnet profit

sales net profit marginTIMES

asset turnover

salestotal assets

dupont financial analysis

salesminus

costsnet profit

sales net profit marginTIMES

asset turnover

salestotal assets

total debttotal assets

(1-Debt Ratio)

[divided by]

roi

roe

iv. the strategy statement

Answers the five questions ofAnswers the five questions of::1 What should be our future driving force?2 How does this differ from our current

driving force?3 What changes will be needed to meet

the future driving force?4 How is this compatible with the mission?5 How is this compatible with the

conclusions from our strategic analysis?

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v. integrated programs

The seven StepsThe seven Steps Identify results needed to accomplish

each long-term objective. select 5 to 10 most critical results

required to achieve the long-term objective.

reach agreement on each integrated program.

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integrated programs

Reach agreement on what is needed concerning results, timetable, resource, accountability, and feedback mechanism.

invite review and comment from management levels.

Complete final documentation. Implement and evaluate.

strategic choicestrategic choice

Links strategy formulation Links strategy formulation to strategy to strategy implementation.implementation.

Choice

strategic choicestrategic choice

Links strategy formulation Links strategy formulation to strategy to strategy implementation.implementation.

Choice

Formulation and ImplementationFormulation and Implementation

Corporate Strategy:

Pattern of purposes and

policies defining

the company

and its business.

Formulation(Deciding what to do)

Implementation(Achieving Results)

1. opportunity and Risk.

2. material, technical, financial, and managerial resources.

3. personal values and aspirations.

4. Acknowledgment of noneconomic responsibility to society.

1. Organization structure and relationships.

2. Organization processes and behaviors.

3. top leadership

Figure 1 68

relating opportunities to resources

Matching opportunity and competence.

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relating opportunities to resources

Matching opportunity and competence.

Environmental Conditionsand Trends

EconomicTechnicalPhysicalSocialCommunityNationWorld

Schematic development of Schematic development of economic strategyeconomic strategy

Figure 2 73

Environmental Conditionsand Trends EconomicTechnicalPhysicalSocialCommunityNationWorld

Schematic development of Schematic development of economic strategyeconomic strategy

Figure 2

Environmental Conditionsand Trends EconomicTechnicalPhysicalSocialCommunityNationWorld

opportunities and risks

Identification inquiryassessment of risk

Schematic development of Schematic development of economic strategyeconomic strategy

Figure 2

Environmental Conditionsand Trends

opportunities and risks

Distinctive CompetenceCapabilityCapabilityFinancial

ManagerialFunctional

organizational

reputationhistory

Schematic development of Schematic development of economic strategyeconomic strategy

Figure 2

Environmental Conditionsand Trends

opportunities and risks

Distinctive Competence

Corporate resourcesas extending or constraining opportunity

identification ofstrengthsand weaknesses

programs for increasing capability

Schematic development of Schematic development of economic strategyeconomic strategy

Figure 2

Environmental Conditionsand Trends

opportunities and risks

Distinctive Competence

Corporate resources

Consideration of all Combinations

Figure 2

Schematic Schematic development of development of

economic strategyeconomic strategy

Distinctive Competence

Corporate resources

Consideration of all Combinations

Evaluation to determine best match of opportunity

and resources

Figure 2

Schematic Schematic development of development of

economic strategyeconomic strategy

Environmental Conditionsand Trends

opportunities and risks

Distinctive Competence

Corporate resources

Consideration of all Combinations

Evaluation to determine best match of opportunity

and resources

choice of products and markets

Schematic Schematic development of development of

economic strategyeconomic strategy

Figure 2

Environmental Conditionsand Trends

opportunities and risks

Schematic development of economic strategySchematic development of economic strategy

Environmental Conditionsand Trends

opportunities and risks

Distinctive CompetenceCapabilityCapabilityFinancial

ManagerialFunctional

organizational

reputationhistory

Corporate resources

as extending or constraining opportunity

identification of strengths

and weaknesses

programs for increasing capability

evaluation to determine best match of opportunity

and resources

Consideration of all Combinations

choice of products and marketseconomic strategy

Identification inquiryassessment of risk

EconomicTechnicalPhysicalSocialCommunityNationWorld

Figure 216

Generic versus competitive strategy

Generic CompetitiveMMeasure of successeasure of success Sales growth Sales growth Market shareMarket shareRReturn to the firmeturn to the firm Value added Value added Return on investmentReturn on investmentFFunctionunction Provision of value Provision of value Maintaining a defensibleMaintaining a defensible

to the customerto the customer position positionBBasic strategic tasksasic strategic tasks Adapting to change Adapting to change Creating barriers Creating barriers

and and and innovationand innovation deterring rivals deterring rivals

MMethod of expressing ethod of expressing Product/market Product/market Policies leading toPolicies leading to strategystrategy terms terms defensible position defensible positionBBasic approach to asic approach to Study a group of Study a group of Comparison across Comparison across

rivals analysisrivals analysis businesses over businesses over at a given time at a given time timetime

Table 1 76

Questions ?Questions ?