Market Oriented Strategic Planning

Session three

Session Plan

Strategic Planning levels Planning at the SBU level The marketing process Planning tools at the product level

What is Strategic Planning

Managing Investment Portfolio of businesses Analysis of each business and establishing fit A game plan or Business Model AIMED AT Good business performance

1. What is Strategy?
Firm
Competitive Advantage Shareholder Value

Strategy

Performance

Strategy: goal and set of policies designed to achieve competitive advantage in a particular marketplace Competitive Advantage: ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors

Marketing Productivity chain

Company View Point Level Who cares?

We do stuff

Marketing actions

Customers

Customers do stuff Stuff Happens

Customers Reaction
Product Market Impact Financial outcomes

Advertising and Promotion specialist Product Managers and CMO

Accounting happens
Wealth is affected

CMO and CFO*

Firms Value

CFO and the CEO*

*Chief Marketing, financial and executive officer Adapted from : Bolton, R.N. (2004), Making Marketing Matter JM Vol 68, pp 73-75

1. What is Strategy?
Understanding the Stages
External Analysis
Environmental Conditions & Trends Opportunities and Threats

Strategy Formulation
Identify & Evaluate Options

Choose Strategy
Strategy Implementation

Inventory of Distinctive Competencies

Strengths and Weaknesses

Internal Analysis

Strategic vision and mission Establishing SBUs Setting Objectives Resource allocation Crafting Strategy to achieve the desired goals Implementing and executing the chosen strategy efficiently and effectively Evaluating performance and initiating corrective action

Tasks of Strategic Management

Mission

Industry Scope Products and applications scope Competence Scope Market Scope Vertical Scope Geographical Scope

Basic Concepts:
Strategy Formulation
Set of processes involved in creating or determining the strategies of org. Focus is on contents of strategy.

Strategy Implementation

Methods by which strategies are operationalized or executed with in org. Focus is on processes which achieve strategies.

TM 7-2

assess environmental factors

STRATEGY FORMULATION

STRATEGY IMPLEMENTATION

Identify Current Mission and Strategic Goals

Conduct Competitive Analysis: * Strengths * Weaknesses * Opportunities * Threats

Develop Specific Strategies: * Corporate * Business * Functional

Carry Out Strategic Plans

Maintain Strategic Control

assess organizational factors

Planning Concepts
Strategy A comprehensive plan for accomplishing orgls goals A comprehensive & ongoing management process aimed at formulating & implementing effective strategies. Is one that promote a superior alignment between the organization & its environment & the achievement of goals.

Strategic Management

Effective Strategy

TM 7-4

SWOT ANALYSIS

Strengths

Opportunities

Weaknesses
COMPETITIVE ADVANTAGE
Irwin/McGraw-Hill

Threats

The McGraw-Hill Companies, Inc., 1998

Types of Strategic Alternatives:

Types

Corporate-Level Strategy
Set of S. Alt. that an org. chooses from as it manages its operations simultaneously across several industries & Markets.

Business-Level Strategy
Set of S. Alt. that an org. chooses from as it conducts business in a particular industry or market.

Functional-Level Strategy
Developed for single functional area.

TM 7-3

ORGANIZATIONAL LEVELS OF STRATEGIES

CORPORATE STRATEGIES Type of

Business to compete in Competitive position Resource development

BUSINESS STRATEGIES

How to compete in a particular market How to achieve competitive advantage

FUNCTIONAL STRATEGIES

Action plans for each functional area

Irwin/McGraw-Hill
The McGraw-Hill Companies, Inc., 1998

Portfolio Management Techniques

Method of analyzing an organizational mix of SBUs and matching them with strategic goals.

SBU: Strategic Business Unit. Is a division within firm with its own mission, competitors, & strategy.

Formulation of Corporate Level Strategies

GRAND STRATEGIES
Provide strategic direction at corporate level.

Growth Strategies
For orgl expansion along some major dimensions.

Stability Strategies Retrenchment Strategies

Involves shrinking operations & eliminating unprofitable ones. Downsizing.

Call for maintaining status Quo. Includes Portfolio Strategies.

Formulation of Corporate Level Strategies

Internal Growth
Diversification Vs Single product

Integration

Growth Strategies

Vertical (Backward & Forward)

Other Growth Strategies

ACQUISITION (Purchase of all/part of org.) MERGER (Combination of two firms) JOINT WORKING (Two/ more firms working together)

Formulation of Corporate Level Strategies

Identify SBU
After identification of SBUs comes the categorization

Tools for Analyzing Corporation and Strategic choice of businesses

B C G Matrix

G E Screen

BCG Portfolio Matrix

Kajal

Market Growth Rate

Rose Water High

10%

Surma Low

Dog

10x

High

1x

Low

0.1x

Market Share Dominance

Strategic Options for SBUs as analyzed by the BCG Portfolio Matrix

Build Hold Harvest Divest

GE Matrix
Market Attractiveness High

Medium

Low
Strong Medium Weak

Business Position or strength

Product-Market Growth Matrix & Examples

Present Product Market Penetration Present Market
Increase usage rate or users

New Product Product Development

New product c category

New Market

Market Development
Enter new geographical market or market segment

Diversification
Develop an entirely new product for an entirely new market

Using SWOT (acronym) Analysis to Formulate Strategy

S W O

Herbal ingredients Brand Name International Recognition Affordable Prices

Lake of acceptance Outdated packaging Misconception about origin Change in eye makeup trends(dramatic eye makeup) Change in lifestyle(health focused) Competition from international brands Controversy about kajal containing lead

Target Market
Upper and middle class Famous ophthalmologists Beautician Celebrities Beauty tips writers

10-24

Marketing Mix Product : Kajal Price: Rs. 40 Place: Retail Shop Country wide Promotion: Basic Packaging

Competitive Parity

Cont.
Exists when many competing firms have same strengths & are able to implement same strategy. Strength possess by few competing firms. Coping other organizations distinctive competence. Competitive Advantage exists after no one can copy or imitate you.

Distinctive Competence
Strategic Imitation

Sustained Competitive Advantage

Core Competence

Strategic strengths that form the basis of success of the firm

Formulation of Business Level Strategies (How a particular business competes)

Porter's Generic Strategic Model Structure-conduct-performance paradigm

Miles and Snow Typology Strategic Orientation Growth strategies Ansoffs Growth Share Matrix

Product Life Cycle Strategies

PORTERS FIVE COMPETITIVE FORCES MODEL Rivalry Customer Bargaining Power Customer Company

Supplier Bargaining Power

Threat of New Entrants

Supplier

Company

Threat of Substitutes

Text Page 27

Porters Generic Strategic Model

Each of the three strategies is based on having a strong Differential Advantage so this factor is not plotted.
High

Focus

Cost Leadership Differentiation

No Differentiation No Cost Leadership No Focus

Low
Narrow

Scope of Target Market

Broad

Implementation of Miles & Snow Typology

Culture
Prospector

Response Style

Capitalize on Emerging Opportunities

Reactor

Maintain the Status Quo

Defender

Reduce Operating Costs

Analyzer

Defend Stable Market, Aggressively Enter Emerging Opportunities as Second In

Product Life Cycle

A concept that provides a way to trace the stages of a products acceptance, from its introduction (birth) to its decline (death).

Product Life Cycle 1. Like humans, Product also have Life Cycle. 2. This term is applied to generic category of product not to specific brands.

3. PLC consists of aggregate demand over an extended period of time for all brands in generic product category.
4. Length of PLC varies. 5. PLC is related to a market.

Product Life Cycle

Introductory Growth Stage Stage

Maturity Stage

Dollars

Decline Stage Product Category Sales Product Category Profits

0 Time

Extending the PLC

Change product Change product use

Change product image

Change product positioning

Introductory Stage

Full-Scale Launch of New Products

High failure rates Unpredictable conditions Little competition Not Important Frequent product modification Standards being Developed Limited distribution Selective Channels as build up takes place Negative profits High marketing and production costs Promotion Strategy Aim at early adopters Promotion Emphasis Awareness and information Sales Promotion Intensive personal selling to channels to stock

Growth Stage

Offered in more sizes, flavors, options

Some emulators threatens competitive advantage of firm Market penetrations From high prices and Increasing rate of demand is quality and ensuring distribution Market consolidation through intensive distribution Emphasizes brand benefits Word of mouth; minimal advert Normally start to fall Build Brand preference

Competition Strategy Profits

Goal Distribution Promotion Strategy Emphasis Prices Sales Promotion

Maturity Stage

Many consumer products are in Maturity

Competition

Maximum competitors Declining sales growth and Saturated markets Marginal competitors drop out Strategy Defend Brand position extend product line by Stylistic product changes Prices What the market can bear avoid price war and profits fall Promotion Strategy Use as a vehicle for differentiation Promotion Emphasis Moderate since buyers are aware Heavy promotions To encourage brand switching convert buyers to loyal buyers Market is fragmented Niche marketers emerge

Decline Stage

Rate of decline depends on change in tastes or adoption of substitute products

Competition Strategy Profits Prices Distribution

Promotion Strategy Emphasis Elimination of all nonessential marketing expenses

Few with rapid shake out Prepare for removal and milk the brand Decline as Long-run drop in sales due to declining demand and push up costs Low to permit quick liquidation of Large inventories of unsold items Selective with unprofitable outlets closed down promote low price to reduce stock

Steel Industry Performance

ROE-Ke Spread 40% Great Northern Iron

30%

20%

10%

Worthington Inds Nucor Steel Technologies Oregon Mills Commercial Metals

0% Carpenter Birmingham (10%) British Steel PLC Cleveland-Cliffs Quanex Lukens ACME Metals Ampco

USX-US Steel Inland Steel

(20%) Average Invested Equity ($B) $0 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10 $11 Armco WHX Bethlehem $12 $13 $14 $15

(30%)

Source: Ghemawat (1999)

Pharmaceutical Industry Performance

ROE-Ke Spread 60% SmithKline 40% American Amgen Home Glaxo Products Merck Schering Plough Watson Rhone-Poulenc Mylan Labs Bristol Warner Lambert Myers Eli Lilly 0% ICN Scherer Ivax Genetech Biogen Roberts Genzyme Dura Chiron Cephalon Gensia Cygnus Immunex Average Invested Equity ($B) (80%) $0 $5 $10 $15 $20 $25 $30

20%

Perrigo Pharmacia & Upjohn Pfizer Forest Labs Alza

(20%)

(40%)

(60%)

Source: Ghemawat (1999)

Strategy and Coherence

Strategy (Positioning)

Resources and Capabilities

Organization Design

Tools for Building Competitive Advantage

Resources are inputs into a firms production processes:

Tangible Resources Financial resources Physical resources Human resources Organizational resources Intangible Resources Technological resources Innovative resources Reputation

Capabilities are the capacity for a set of resources to perform a task or activity in an integrative manner

CRITICAL FACTORS FOR COMPETITIVE ADVANTAGE

ORGANIZATIONAL CLIMATE

VALUE

COMPETITIVE ADVANTAGE

RARENESS

Non-substitutable

INIMITABILITY

Core Competencies Require VRIS-O

Value do a firms resources and capabilities allow a firm

to respond to its environment?

Rare how many rival firms already possess this

resource/capability?

Inimitable do firms face a cost disadvantage in

obtaining this resource/capability compared to firms that already have it?

Non-substitutable are there strategic alternatives? Organization is the firm organized to exploit the full
potential of its resources/capabilities?

Cost Disadvantages of Imitation

Inimitability is critical for a resource/capability to become a core competence Firms trying to imitate another firms core competence are at a cost disadvantage relative to rivals due to

Unique historical conditions Casual ambiguity Social complexity Patents

The Value Chain

The value chain provides a map of firm capabilities and allows systematic search for core competencies
Support Activities
Infrastructure Human Resources Research and Development (Innovation) Materials Procurement Operations Outbound Logistics Marketing & Sales

Inbound Logistics

Service

Primary Activities

Building Blocks of Competitive Advantage

Efficiency Lower Costs Innovation Higher Prices
Customer Responsiveness

Quality

Competitive Advantage via Efficiency

Manufacturing Marketing Infrastructure Human Resources R&D Materials mgt (Supply Chain).
Econ of scale/Learning Flexible manufacturing Price for learning Build brand loyalty Commitment to efficiency Train skills/teams Performance incentives Design for manufacturing Process innovation JIT, Kanban, etc.

Competitive Advantage via Quality

Manufacturing Marketing
Trace defects to source Input from employees Focus on customer Customer feedback on quality

Infrastructure Human Resources

R&D Materials mgt (supply Chain ).

Measure & commit to quality

Train quality (TQM, SPC) Quality incentives Design for manufacturing Process & product innovation Help suppliers implement TQM

Competitive Advantage via Innovation

Manufacturing
Marketing Infrastructure Human Resources R&D Materials mgt.
Design for manufacturing Inputs on process innovation Customer focus for product innovation
Invest in R&D tools Overall project management Hire talented innovators Incentives/opportunities for innovation Cooperate with other functions in process and product innovation No primary responsibility

Competitive Advantage via Customer Responsiveness

Manufacturing Marketing
Customization through flexible mfg

Know the customer Customer feedback to functions

Infrastructure Human Resources R&D Materials mgt.

Commit to customer responsiveness Information systems for feedback Customer focused training Employee incentives and security Customers in innovation process

Build responsive logistics systems

Incentives for Employee Security