Why Strategic Planning?

Why Strategy?

“The best way to predict the future is to create it”

--Peter Drucker

Why Strategic Planning

Strategic planning is the process of thinking systematically about the future to competitively position the firm

Objectives of Strategic Planning1. Build Prepared Minds to Create Real Time Strategic Thinking

2. Increase Strategic Innovation via experiments and initiatives

3. Build consensus around a strategy including long term and short term objectives

Strategic Planning Process

Planning and Logistics

Research

Strategic Intent

Mission

Critical Issues

Key Initiatives

Objectives and Primary Tasks

Preparatory Work

Strategic Vision

Implementation and

Communication

Corporate Values

Strategic Analysis

Industry Analysis

Competitor Analysis

Company Analysis

Selling Proposition

Economic Engine

Customer Segmentation

Core Competencies

Competitive Advantage

Elevator Pitch

Output of Session

What is Strategy?

What is Strategy?

“Strategy is about being different”

--Michael Porter

What is Strategy?

Elements of Strategy:• Mission:

Who the Firm wants to be

• Strategic Intent:

What the Firm wants to achieve

• Competitive Advantage:

How the Firm can achieve its strategic intent

Strategic Vision

Planning and Logistics

Research

Strategic Intent

Mission

Critical Issues

Key Initiatives

Objectives and Primary Tasks

Preparatory Work

Strategic Vision

Implementation and

Communication

Corporate Values

Strategic Analysis

Industry Analysis

Competitor Analysis

Company Analysis

Selling Proposition

Economic Engine

Customer Segmentation

Core Competencies

Competitive Advantage

Elevator Pitch

Output of Session

Strategic Vision: Mission

Mission defines WHO the firm wants to be• Defines purpose• Timeless and visionary

Strategic Vision: Mission Examples

Whole Foods, Whole People, Whole Planet

Nike brings inspiration and innovation to every athlete* in the world

*If you have a body, you are an athlete

Meritage delivers superior investment returns by combining equity and expertise to build successful communications businesses

Strategic Vision: Strategic Intent

Strategic Intent: WHAT the firm wants to achieve

Strategic Vision: Strategic Intent

THE APOLLO PROGRAM:

“I believe that this nation should commit itself to achieving the goal, before this decade is out, of landing a man on the moon and returning him safely to Earth.”

--President John F. Kennedy, 1962

Why did the Country get so excited?

Strategic Intent Characteristics

• Defines the “what” not the “how”

• Very Long Term

• Captures the essence of winning

• Implies “stretch” not “fit”

• Motivational and directional

• Tool for empowerment, not a tool for centralization

• Think the unthinkable

Strategic Intent Examples

Six Hondas in a two-car garage

Maru-C (translation: Encircle Caterpillar)

1975: A computer on every desk and in every home 1999: Empowering people through great software anytime, anyplace, and on any device

To put a Coke within ‘arm’s reach’ of every consumer in the world

Strategic Analysis

Planning and Logistics

Research

Strategic Intent

Mission

Critical Issues

Key Initiatives

Objectives and Primary Tasks

Preparatory Work

Strategic Vision

Implementation and

Communication

Corporate Values

Strategic Analysis

Industry Analysis

Competitor Analysis

Company Analysis

Selling Proposition

Economic Engine

Customer Segmentation

Core Competencies

Competitive Advantage

Elevator Pitch

Output of Session

Industry Analysis – Five Forces

Michael Porter’s Five Forces framework analyzes an industry’s attractiveness based upon five elements

Enables a company to devise appropriate plan of action• Position the company to provide the best defense against the most threatening competitive force(s)• Influence the balance of forces through strategic moves• Anticipate changes in underlying forces and choose strategy before others recognize change

Competitor Analysis – Five Forces

THREAT OF ENTRY

POWER OF SUPPLIERS

POWER OF BUYERS

SUBSTITUTES

COMPETITIVE RIVALRY

Supplier group powerful if:

•Dominated by a few companies

•More concentrated than industry it sells to

•Limited competition in supplier products

•Credible threat of forward integration

•Industry is not important to supplier group

Buyer group is powerful if:

•Concentrated or purchases in volume

•Purchases standard/non-differentiated products

•Earns low profits

•Industry’s product unimportant to quality of buyer’s product/service

•Credible threat of backward integration

•Economies of Scale

•Product differentiation

•Capital requirements

•Cost disadvantages independent of size’

•Access to distribution channels

•Government policy

Products that a buyer can choose in place of your offering

Sources of Barrier to Entry•Numerous competitors with equal size/power

•Slow industry growth

•Lack product differentiation

•Low switching costs

•High exit barriers

•Rivals are diverse in strategies, origins and personalities

Intense Rivalry Exists when:

Competitor Analysis – Five Forces

Five Forces Analyses -- Airlines

Force Description RatingImplication for Entrant

THREAT OF ENTRY

Capital intensive, but with leases and route-specific entry options

Low – Medium

POWER OF SUPPLIERS

Concentrated supplier base, long-term leases, significant switching costs

High

POWER OF BUYERS

Buyers have multiple options on most routesHigh

THREAT OF SUBSTITUTES

Personal aircraft, automobiles, trains and buses all serve as substitutes. Advanced communication technology reduces business travel demand

Medium – High

COMPETITIVE RIVALRY

Low growth prospects, many players, cutthroat pricing

High

Neutral

Positive

Negative

Airline industry highly unattractive

Competitor Analysis – Five Forces

Five Forces Analyses – Pharmaceutical Industry

Force Description RatingImplication for Entrant

THREAT OF ENTRY

Capital required for research and development can be significant, but with potential for high payout

Medium

POWER OF SUPPLIERS

Many suppliers with commoditized inputs (e.g. chemicals); low threat of forward integration

Low

POWER OF BUYERS

Buyers often completely price inelastic; patents limit substitutes; near zero threat of backward integration

Low

THREAT OF SUBSTITUTES

Patent protection for multiple years enable monopoly rents

Low

COMPETITIVE RIVALRY

First-to-market competition is intense, but abundant growth opportunities as new diseases/cures are discovered

Medium

Pharmaceutical industry highly attractiveNeutral

Positive

Negative

Competitive AdvantagePlanning and Logistics

Research

Strategic Intent

Mission

Critical Issues

Key Initiatives

Objectives and Primary Tasks

Preparatory Work

Strategic Vision

Implementation and

Communication

Corporate Values

Strategic Analysis

Industry Analysis

Competitor Analysis

Company Analysis

Selling Proposition

Economic Engine

Customer Segmentation

Core Competencies

Competitive Advantage

Elevator Pitch

Output of Session

Competitive Advantage

Competitive Advantage is HOW the firm will achieve its strategic intent• Doing something unique and different that

customers value

Competitive Advantage

Selling Proposition

Core Competencies

Customer Segmentation

Economic Engine

COMPETITIVE ADVANTAGE

Customer Segmentation

Strategic selection of a sub-segment of an addressable market to create or enhance a competitive advantage

Segment Definition

NONCONSUMERS

UNDERSHOT CONSUMERS

OVERSHOT CONSUMERS

Customers not consuming any product or consuming only in inconvenient settings

Customers who consume a product but are frustrated with its limitations; they display willingness to pay more for enhancements along dimensions most important to them

Customers who stop paying for further improvements in performance that historically had merited attractive price premiums

Customer Segmentation N

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UN

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Company Customer Segmentation

Nonconsumer: Social networking was an entirely new activity.

Nonconsumer: Google’s customers used traditional media outlets, but few to none utilized the internet

OV

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Overshot: Frequent mid level business traveler (i.e. salesperson) who wants low prices and on time flights.

Overshot: First time furniture buyer who wants inexpensive, immediately available and modern furniture.

Undershot : Wealthy, health conscious consumer who values organic environmentally friendly products

Undershot : Tennis shoes with high performance technology

Competitive Advantage

Selling Proposition

Core Competencies

Customer Segmentation

Economic Engine

COMPETITIVE ADVANTAGE

Selling Proposition

Profitability benefit of Selling Proposition

Industry Average

Competitor

Premium Differentiated Competitor

Low-Cost Competitor

Sales Price Costs

Neiman Marcus,

Whole FoodsWal-Mart, Southwest

Airlines

Competitive Advantage

Selling Proposition

Core Competencies

Customer Segmentation

Economic Engine

COMPETITIVE ADVANTAGE

Core Competencies

Core CompetencyA core competency is a business activity in which a firm can be BEST IN WORLD

Three tests of a core competency

• Provides potential access to a wide variety of markets

• Makes significant contribution to perceived customer value and benefits

• Difficult for competitors to imitate

Must support the selling proposition

Consider outsourcing activities that aren’t core competencies

Leveraging Core Competencies

When a Company is seeking growth and diversification, it must leverage existing core competencies:

Example: Honda

Business Opportunities that leverage core competencies

Honda Core Competencies

Small Engine Design

Moderate Scale Assembly with Outsourcing

Creative Distribution

Small

CarsMisc.

PumpsGener-ators

Out-boards

Lawn Mowers

Snow Blowers

Motor-cycles

Competitive Advantage

Selling Proposition

Core Competencies

Customer Segmentation

Economic Engine

COMPETITIVE ADVANTAGE

Economic Engine

Economic Engine is a single financial measure of the competitive advantage

Profit per X

If you could pick one and only one ratio – profit per X – to systematically increase over time, what X would have the greatest and most sustainable impact on your business?

Economic Engine

Profit per CommentaryKey Economic Shift

CUSTOMER Shift from profit per DIVISION to profit per CUSTOMER

Analyzing profit per customer enabled the ‘razors and razor blade’ model whereby Gillette sells razors at a loss to lock-in customers to its highly profitable recurring revenue stream from disposable razor blades.

Competitive Advantage Impact

Note exploiting core competency in blade technology to their advantage

CUSTOMER VISIT

Shift from profit per STORE to profit per CUSTOMER VISIT

After initially avoiding high real estate costs, Walgreens shift to profit per customer visit led to the strategic insight to pay a premium for high profile store locations with multiple entry ways

Required Walgreens to create core competencies in real estate and product placement

EMPLOYEE Shift from profit per LOAN to profit per EMPLOYEE

Wells Fargo’s profit per employee engine created a lean cost structure well-equipped to face the economic reality of banking commoditization in the face of deregulation.

Did not change the low cost value proposition, but required new core competencies in technology to increase employee productivity and encourage online banking