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Edinburgh Business School MBA AUC Academic Partner Strategic Planning Revision Instructor: Moataz Darwish, MBA
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What Is Strategic Planning? • The Strategic Planning and Strategic Thinking • two skills which are fundamental to strategic thinking: • synthesis and • evaluation. Identify the relevant models to apply to a particular issue. Weigh up the pros and cons of potential courses of action and arrive at a reasoned conclusion Introduction – Moataz Darwish 2
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Augmented Model - summary Who Decides To Do What Analysis And Diagnoses Analysis And Diagnoses Choice Implementation OBJECTIVES THE GENERAL INTERNAL FACTORS GENERIC STRATEGY RESOURCES AND Business Definition ENVIRONMENT Value chain ALTERNATIVES STRUCTURE Mission Macroeconomic analysis: Shareholder value analysis SWOT Divisional, functional, Shareholder wealth unemployment, inflation, Competence Corporate strategy: matrix Gap analysis interest rate, exchange (resources/routines matrix) Stability, expansion, Managerial style Means and ends rate Architecture Retrenchment, Combination Critical success factors Ethics Forecasting Experience curve Business C strategy: Cost Incentives Profit maximisation Competitive advantage of Economies of scale leadership, Differentiation, Resource allocation Nations (Diamond) Economies of scope Focus Opportunity cost Growth vector (Ansoff) Environmental scanning Innovation Segmentation Marginal analysis Stakeholder map PESTEL Synergy Strategy variations Optimisation Credible, quantifiable, Scenarios Joint production Diversification: related and Budgets disaggregated, economic, Opportunity cost unrelated (Fam Matrix) Critical success factors Financial THE INDUSTRY AND Marginal analysis Vertical integration Evaluation and control Principal agent INTERNATIONAL Ratios Mergers and acquisitions Performance measures CSR ENVIRONMENT Gearing Joint ventures and alliances Ratios Demand and supply, price Cash flow Pricing: leadership, limit, Degree of Planning and STRATEGISTS determination, elasticity Benchmarking predatory type of Control Prospector, analyzer, defender, reactor Barriers to entry Human resource management Strategy choice Monitoring systems Risk aversion Forms of competition: Culture: power, role, task, Risk analysis perfect, imperfect, Managerial perceptions Principal agent oligopoly, monopoly personal Team composition Net present value FEEDBACK Segmentation Familiarity Matrix Communication Group dynamics Differentiation COMPETITIVE POSITION Corporate Governance Product life cycle Scenarios Management style Quality Break even Adaptability Culture: power, role, task, Strategic groups Market share personal Portfolio analysis (BCG) Payback Learning organisation Perceived differentiation Sensitivity Strategic groups Game theory First mover Five forces Competitive reaction Elements of competitive adv ETOPS Strategic advantage profile (SAP) Introduction – Moataz Darwish
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Who decides to do what • Business Definition: • Name (Brand) / Products / Segments / Geography / Position • Strategist: Strategist / Leader / Decision makers/ Board (relate to Generic Strategy & Implementation) • Prospector / Analyzer / Defender / Reactor. • Principle agent problem/Control/Power/Conflict/Culture (relate to Mod 6). • Stakeholders (Interests/Influence), corporate governance, CSR. • Management skills. • Organization: (relate to Internal & Implementation-structure) • Small (Entrepreneurial) single product company - owner-manager, • Integrated company, • Large diversified company (SBUs). • Objectives (What are they trying to achieve): (relate to Strategy/Targets) • Means (how) vs. ends (what) • Growth (new products, market share); Max Profitability; stability (efficiency/cost cutting), reputation, survival, or no clear objective. • Principle agent problem. • Conclusion: Clear Obj.? Confusing / Weak?... Introduction – Moataz Darwish 6
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Revenue and Costs: the Basic Model • Economy-wide changes can have significant effects on revenues and costs. • The model is constructed by identifying the variables which determine revenue and costs and determining the factors which affect these variables. Revenue = Total Market x Market Share x Price Outlay = Number of Workers x Wage Rate + Units of Capital x Price + Units of Material x Price Introduction – Moataz Darwish 9
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Macro-environment Forecast Short-term PEST What is likely to happen Long-term Present Scenarios Env Scanning Likely Impact on Future+wider range variables Sales and revenues (purchasing Power) Competitive Reaction I/P costs (wage rates & investment costs) Introduction – Moataz Darwish 10
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The International Economy • The importance of the national framework is summed up in the Porter National Diamond Framework : 1. Factor conditions 2. Related and supporting industries 3. Demand conditions 4. Strategy, Structure and Rivalry When assessing a company’s competitive advantage: 1. If country specific - exploit foreign markets by exporting. 2. If company specific - can invest in the country concerned, insulating it from exchange risks.. Introduction – Moataz Darwish 11
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Forecasting: What Will Happen Next? • One approach is to think in terms of the business cycle – series decomposition • Cyclical patter of boom & depression • 3 components: general trend over time, the underlying smooth cycle, and random fluctuations. •What is the trend? Or discontinuity? “long term growth rate in potential output” •What is the underlying cyclical pattern? •What random influences are likely to be disturbing the trend? Introduction – Moataz Darwish 12
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An Overview of Macro Models The macro models are used to identify trends and changes in the variables which affect the market in which the company operates; Introduction – Moataz Darwish 13
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The Market Corporate Level • Are we in the right markets? • What resources should be allocated to various markets? Business Unit Level • What price should we be charging for our product?’ • How much should we be spending on marketing?’ Functional Level Introduction – Moataz Darwish 15
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The Industry Environment • Product Life Cycle (PLC) • Demand/Time (Intro, Growth, Maturity, Decline) • BCG Portfolio Model • Relative Market Share - compared to that of its leading competitors. (link w Economies of scale / experience effect) • Market Growth Rate (link w stage of the PLC • Porter Five Forces • Threat of new entrants, Threat of substitutes, Suppliers’ bargaining power, Buyers’ bargaining power, Industry competitors’ rivalry • Comparison bet. 2 products/ 2 companies/ 2 countries/ 2 periods • Link w Supply/Demand and PLC • Price / Differentiation Matrix • Ansoff’s Growth Vector (relate to Familiarity matrix – Fig 7.4) • Direction in which the company intended to develop its portfolio. Introduction – Moataz Darwish 16
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The Industry Environment • Supply and Demand: • Supply & cost structure (Sellers capacity utilization, cost of increasing capacity, availability and wage costs of additional employees, availability of raw materials, potential for foreign competitors to enter the market…) • Demand (what Buyers are willing to pay (price) for different quantities • Prices (Supply-Demand interaction) • Market Structures: • Perfect Competition (homogeneous, no barriers to entry, no economies of scale, availability of information, large number of sellers and buyers) • Monopoly (one producer, barriers to entry, product differentiation) • Contestable Markets (entry costs are not sunk, and exit can be achieved costlessly). • Oligopoly (few competitors ) • Barriers to Entry (Structural->Size of the market, Sunk costs, Control by legislation, Economies of scale, Experience effect; Strategic->pricing) • Strategic Groups: • Similar to one another and different from firms outside the group on one or more key dimensions of their characteristics and strategy. Introduction – Moataz Darwish 17
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Segmentation • Market segment is: • a group of consumers within a broader market who possess a common set of characteristics, • and consumers in a segment respond to market mix variables in broadly the same way. • Some characteristics for market segmentation are: • income, social class, geographical location, age, sex, family size, educational background, etc. • Four main characteristics which a segment needs to have: • Identifiable: sufficient common features; Demand related: at least one characteristic which translates into demand terms, ex. willingness to pay more for a high quality product; Adequate size: to ensure attractive return on the investment; Attainable: be reachable by available marketing and advertising approaches. Segmentation is a potentially powerful tool for transforming a loss- making product into a profitable product without changing anything but the price charged to different groups of consumers. Introduction – Moataz Darwish 19
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Price / Differentiation Extends the concept of segmentation to the determination of which bundle of characteristics should be incorporated in the version of the product targeted at each group. The two most important determinants of a product’s success are likely to be: the price of the product compared to similar products, and the degree to which consumers perceive the product as a different •A base of differentiation must fill some customer need (tangible or intangible): Image,offering (perceived hunger, comfort, cleanliness, beauty, status, style, taste, safety, quality, service,differentiation) – ex Aspirin accuracy, furthering a cause, reliability in use, belonging. Some bases of differentiation also lend themselves to low costIntroduction – Moataz Darwish 20
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