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STRATEGIC PLANNING (TASKS IN STRATEGIC PLANNING
Primarily on biz-level…
STRATEGIC PLANNING
DEFINITION
- Process through which managers determine organisation's mission
- Set of means for achieving the mission
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LEVELS OF STRATEGY
Corporate Level
- What biz are we in?
- Usually relate to the acquisition of new biz
- Pertains to the organisation as a whole
- Combination of biz units & product lines that make up the corporate entity
- EXAMPLE: Nestle Health Science &
Chi-Med in a 50/50 joint venture
- EXAMPLE: Nestle Nutrition acquires Pfizer Nutrition in 2012 for 11.85 billion
- EXAMPLE: Nestle water launches new product - coffee machine
Business Level
- How do we compete?
- Pertains to each biz unit/product line
- Concern about advertising/ extent of research & development & new product development
- EXAMPLE: Nestle Professional, Nutrition, Waters. Each biz unit decides on the most relevant channel
Diversification
- Number of different goods/services a company produces
- Number of different markets it serves
- Large scale, diversified organisations develop strategies at corporate & biz level
- EXAMPLE: Keppel (Shopping malls, shipyard, energy, oil rig)
Functional Level
- How do we support biz-level strategy?
- Pertains to major functional departments within biz unit.
- Involve all major functions including finance, R&D, marketing & manufacturing
- EXAMPLE: Nestle Waters
- Sales function: Promoter at department store?
- Marketing function: Advertising? Discounts?
- Logistics function: How many warehouse globally? Fleet size?
TASKS IN STRATEGIC PLANNING
- Primarily on biz-level strategic planning
Task 1: Develop Mission & Goals
- Developed by answering the (Who are we?), (What biz are we in?), (What do we want to become?)
- Developed through diagnosis of environmental threats & opportunities & assessment of organisation's strengths & weaknesses
Task 2: Diagnose Threats & Opportunities
- The external environmental factors could offer either threats or opportunities to the firm
- Managers must look at the nature & intensity of competition in the industry using Porter's Five Competitive Forces
- The greater the competitive forces, the greater the threat that the organisation's strategic goals may not be reached because of reduced profit potential
- The weaker the competitive forces, the greater opportunities for company to operate successfully
Rivalry among existing firms
- Competitors continually compete for biz
- Number of competitors
- Rate of industry growth
- Price competition
- Advertising battles
- New product introduction
- EXAMPLE: Macdonalds has stable rate of industry growth, does advertising and introduce new products from time to time
Bargaining Power of Customers
- Customers are able to force down prices, bargain for higher quality or more service at same price
- Customers have high bargaining power when a small number of customers purchase relatively large volumes from seller
- They purchase standard/undifferentiated goods
- Easily switch from one seller to another
Threats of New Entrants
- New competitors can enter the same service markets
- Barriers to Entry are other factors that make entering an industry relatively easy/difficult
- High start-up sum required & Specialised knowledge about an industry
- EXAMPLE: Airline Industry
Bargaining Power of Suppliers
- Suppliers can exert power over biz in industry by threatening to raise price/reduce quality of goods provided to the biz
- They have high bargaining power when a small number of suppliers sell to a large number of buyers
- They don't have to worry about substitute goods
- Their goods are differentiated
Threat of Substitute products/services
- Biz in other industries offer substitute products
Task 3: Assess Strengths & Weaknesses
- Assessing internal strengths & weaknesses enables managers to identify organisation's distinctive capabilities & competencies relative to its competitors
- It covers competitive position, human resource skills, technological capabilities, financial resources & managerial depth
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Task 5: Develop Strategic Plan
- Should specify the action needed in order to achieve the goals
- Addresses how the required technological, marketing, financial & human resources will be obtained
- How manufacturing & R&D will be conducted
- How organisation & management capabilities will be utilised
Task 6: Develop Tactical Plan
- Helps implement strategic plans
Task 7: Correct & Assess Results
- Strategic & Tactical planning must be accompanied by controls
- To ensure implementation of plans & evaluation of their results
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EFFECTIVE PLANNING
Common barriers
- Inability to Plan
Some managers lack the background, knowledge/conceptual skills
- Improper Planning Process
Inexperienced managers may not know the process
- Improper Info
Out of date, poor quality/insufficient info
Ways to ensure effective planning
- Research as much info as possible
Within limits of time & money
- Obtain multiple sources of info
- Inclusion of the Right People
Involve others in the planning process