Strategic Planning Essentials: Concepts and Implementation

Posted on Nov 17, 2024 in Economy

1. Defining Business Strategy

Strategy is the pattern of organizational movements and management approaches used to achieve goals and fulfill the company’s mission.

2. Steps in Strategic Planning

Strategic planning involves:

A. Formulation: Developing the mission, identifying opportunities and threats, determining strengths and weaknesses, establishing long-term goals, and generating alternative strategies.

B. Implementation: Setting annual objectives, policies, motivating staff, and allocating resources.

C. Assessment: Reviewing internal and external factors, measuring performance, and taking corrective actions.

3. Five Basic Components of a Mission Statement

  • Clients: Who are the company’s customers?
  • Products or Services: What are the main offerings?
  • Market: Where does the company compete?
  • Growth and Survival: Is the company committed to growth and financial stability?
  • Technology: What technology does the company use?
  • Philosophy: What are the core beliefs and values?
  • Self-Concept: What is the company’s competitive advantage?
  • Public Image: Is the company socially and environmentally responsible?
  • Employees: Are employees valued as assets?

4. Importance of Mission and Vision Statements

They establish the overall corporate environment.

5. When to Change a Mission Statement

As a business grows, its foundational beliefs may need review, though original ideas are often reflected in updated statements.

6. Strategy vs. Tactics

Strategy and tactics are two aspects of one reality. Strategy is the overall plan, while tactics are the specific actions to implement the strategy.

7. Macro vs. Micro Environment

Macro Environment: Studies broader factors like politics, economics, social trends, and technology (PEST analysis).

Micro Environment: Focuses on specific factors like suppliers, customers, competition, and substitute products (Five Forces).

8. Five Forces Shaping Competition

  • Threat of new entrants
  • Rivalry among existing competitors
  • Bargaining power of customers
  • Bargaining power of suppliers
  • Threat of substitute products

9. Bargaining Power of Suppliers

Suppliers are powerful when:

  1. Dominated by a few companies.
  2. Face few substitute products.
  3. The sector is a significant customer.
  4. Their product is a crucial input.
  5. Products are differentiated or involve switching costs.
  6. They pose a threat of forward integration.

10. Types of Benchmarking

  • Internal: Comparing operations within the company.
  • Competitive: Comparing against direct competitors.
  • Generic: Comparing functions across dissimilar industries.

Internal Review Tools

  • EFI Matrix
  • Value Chain
  • BCG Matrix
  • Functional Analysis

External Analysis Tools

  • EFE Matrix
  • Five Forces
  • Benchmarking

Bargaining Power of Customers

Customer power increases when:

  • Sales are concentrated in a few buyers.
  • The product is a significant portion of the buyer’s costs.
  • Products are not differentiated.
  • Switching costs are low.
  • Buyers threaten backward integration.
  • Buyers have full market information.

Factors Determining Rivalry Intensity

  • Large number of competitors
  • Slow market growth
  • High fixed or storage costs
  • Elasticity of demand
  • Cost structure
  • Diverse competitive actions

Adjustment in Strategy Formulation

Adjustment is needed to align strategies with internal and external factors. Tools include PEST Analysis, EFE Matrix, IFE Matrix, SWOT Matrix, SPACE Matrix, BCG Matrix, Five Forces, and main strategies.

IFE Matrix: Value vs. Rating

  • Value: Importance of a factor (0.0 to 1.0).
  • Rating: Company’s response to the factor (1 to 4).

SPV: Values and Skills

  • Value: Importance for success (0.0 to 1.0).
  • Rating: Effectiveness of current strategies (1 to 4).

Value Chain

Identify primary and secondary activities that generate value.