STRATEGIC PLANNING BASICS FOR MBA

STRATEGIC PLANNING BASICS FOR MBA

COMPARING STRATEGY AND TACTICS:

STRATEGIC GOALS

TACTICAL GOALS

OPERATIONAL GOALS

PLANNING

SWOT ANALYSIS

˗     EXAMINING YOUR COMPANY'S STRENGTHS

˗     EVALUATING YOUR COMPANY'S WEAKNESSES

˗     RECOGNIZING YOUR COMPANY'S OPPORTUNITIES AND THREATS

INNOVATION

COMPARING STRATEGY AND TACTICS:

A strategy is a plan for achieving a major organizational objective. Objectives are important for a number of reasons: they give everyone a set of guidelines and a focus; they help motivate everyone to achieve; they provide a basis for measuring achievement. Tactics on the other hand, are the methods for carrying out the strategy.

Marketing guru, seth godin uses a skiing analogy to explain the difference. He says that negotiating turns on a ski slope requires great tactical skill that must be executed perfectly. But choosing the right place to ski is a strategy. He claims that everyone skis better in utah. Basically, the strategy sets you up so you can perform the tactics flawlessly. All conditions being perfect. Which they never are.

The boundary between top management and middle management and who does strategy; and who does tactics is quickly eroding in today's dynamic and complex marketplace. Today, strategy has seeped down into the lowest levels of management in the organization. At the same time, the CEO who doesn't understand tactics can't ensure that strategies are properly executed. The following sections take a more in-depth look at the various categories of organizational goals and the strategic planning process.

 

STRATEGIC GOALS

Strategic goals generally are developed by top management and focus on Broad issues that affect the company overall. Some examples of strategic goals are: growth, raising Capital, reducing employee turnover, new product development. But more and more the responsibility for Designing and implementing strategic goals is being shared with lower level management and operations people: people closest to the market. In a time when global market conditions fluctuate rapidly, it's a very dangerous practice to rely on strategic plans and goals developed solely in the Ivory Towers of upper management far removed from the street.

For example, product planners often have difficulty forecasting demands so that they can order the correct amount of raw material and schedule production efficiently. Some companies have formed Departments of analysts to crank out copious volumes of numbers in an effort to correctly forecast needs. But the only thing you can ever be certain of is that the forecast will always be off. Consequently, many companies are for the most part over stocked with costly inventory.

Today Smart, Companies are approaching this problem not with forecasting tools but with a strategy focused on more efficient and faster production times: they respond to actual market demand with rapid production; they order raw materials as needed and produce products as needed. So strategic planning for production is now done on the factory floor rather than in the executive penthouse.

 

TACTICAL GOALS

Tactical goals generally are developed by middle managers or those directly responsible for executing a strategy. The purpose of tactical goals is to work out ways to make strategies happen. The metaphor most commonly used to describe tactics is that: tactics are to the battle.

What strategy is to the war. Strategy is the big picture and tactics are the steps taken to achieve the strategy: where strategy generally is concerned with resources, market environment and the mission of the company; tactics usually deal more with people and actions. In essence, tactics are about execution to effectively execute. A tactical plan requires that you take the following actions:

·        Look at all the possible alternatives before proceeding

·      Give all those involved in executing the tactical plan, the resources and the level of authority. They need to do their part

·     Make sure that effective modes of communication are in place to minimize conflict or overlap of activities

·        Continuously monitor progress to ensure that you're on target

 

OPERATIONAL GOALS

Line managers, those who deal directly with the product, typically create operational goals which are usually very narrow in focus and can be accomplished relatively quickly. Operational goals and plans come in many forms. Want to see them all at a glance?

 

PLANNING

Don't make the mistake of thinking that strategic planning takes place only inside the organization. Preferably behind closed doors in rooms with plenty of coffee, bagels charts, spirited banter and brainstorming. That's only one way that strategic planning takes place and it may not even be the most important way. A whole host of external environmental factors have a major impact on the planning you do for your business. This section takes a look at three of the most important factors: customers, dynamic markets and competition.

·        Customer

Do you really know your customers? Customers are jaded by a selection of products and services that overwhelm them with choices. In some markets, customers no longer rush to buy things on sale because a sale is always going on somewhere.

Because customers have so many choices, they're more demanding. Levels of quality that were considered above and beyond only a short time ago, are now considered minimum quality standards. You now have to go way beyond those old standards to grab your customers attention.

Remember! Brand loyalty is declining, so businesses have to work much harder to keep their customers. Keeping customers is paramount because a customer becomes more valuable over time: from repeat purchases and referrals. Therefore, the solution to planning in this new very complex marketplace lies in: building long-term customer relationships; built on trust and you can't gain the trust of your customers if you don't interact with them.

·        Dynamic markets

Market research has been the foundation of most strategic planning. Unfortunately, traditional market research has formed the basis for most of the market information that companies have used to do their planning. That kind of information typically is too general to be of much use in specific markets. The information you really need for planning purposes comes directly from the customer.

A classic case of the failure to listen to the voice of the customer, is the introduction of new coke, the beverage that taught coca-cola some important lessons. Coca-cola in an effort to break out of the coke pepsi wars decided to tweak its famous formula. It based the decision on faulty market research in which they asked consumers if they would buy a product that tastes better than pepsi but was still a coke. Consumers without ever having tasted the product responded with a resounding yes. However, coca-cola failed to ask the most important question: why? The company went ahead and launched the product based on its feedback and it was a disaster at the end of days. Coca-cola reintroduced classic coke with great fanfare telling its customers that it had made a mistake. Fortunately for coca-cola, their loyal customers became even more loyal.

Customers however, sometimes don't readily reveal what they really want. Often, they give the easiest most expedient answer to a question such as: what do you think of this product? No one wants to intentionally hurt someone's feelings even if it is a big company like coca-cola. If you don't spend time out in the market listening to real people, you're taking a big chance that the information being used by your company doesn't reflect the real feelings of the customer. If the info doesn't match up the strategies you devise won't hit the mark.

·        Keeping up with the changing competition

In the past, a business could create a sustainable competitive advantage relatively easily through, such things as: a unique market segment, lower costs, product and service differentiation and superior execution. In today's fast-changing global marketplace, staying ahead of the competition isn't that easy. Superiority in one or more of those areas can certainly get you started, but you won't be able to sustain an advantage with those factors alone. Many businesses now say that you literally have to ignore the competition to gain a competitive advantage.

 

SWOT ANALYSIS

One of the traditional jumping off points in the development of strategies is a SWOT analysis. SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. The analysis is merely a guide for organizing your thinking about your company and the environment in which it operates.

Strengths and weaknesses are part of the internal analysis of your organization; opportunities and threats are part of the external analysis of the environment in which your company operates. In short, everything outside your organization that may affect it.

To conduct a SWOT analysis for your company, answer the following questions and see where your company stands and to see how the four components of a SWOT analysis interrelate:

·        What are my company's strengths

·        What are my company's weaknesses

·        What opportunities do I see for the future

·      What are the threats that could prevent us from achieving our goals and how will we deal with those threats

 

EXAMINING YOUR COMPANY'S STRENGTHS

Your company's strengths are its skills capabilities and core competencies that work together to enable you to achieve your goals and objectives. Examples of strengths are: an extraordinary team that works well together; a patented technology that you develop or control of; key distribution components.

Successful companies such as search engine company (google) capitalize on their strengths. One of google's biggest strengths is its corporate culture. Its frequently labeled one of the best companies to work for and it takes pride in its creative and family-oriented environment. Why is culture a strength? One of the biggest costs to any business is employees and employee turnover. If you keep employees happy, they won't want to leave and they'll work harder to make sure your company succeeds. It's as simple as that, yet most companies don't spend much time thinking about a strategy for improving their corporate cultures.

Remember! One or more of your strengths may become your competitive advantage in the marketplace. For example: suppose that your company is really good at coming up with innovative designs for new products, it's probably in your best interest to focus your efforts and resources on that strength to differentiate your company in the marketplace.

Scattering scarce resources across too many diverse capabilities only weakens your competitive stance. You can outsource your weaknesses to other companies and focus on what you do best. For example, many companies today outsource expensive manufacturing, distribution and even payroll functions. Plenty of companies are leasing their employees back from peo’s, professional employer organizations, which take the tedious and time-consuming task of human resource management from the companies so they can focus on their core competencies.

 

EVALUATING YOUR COMPANY'S WEAKNESSES

Your company's weaknesses and every company has them, also play a role in your ability to achieve your goals. Ceos often can more easily describe their businesses strengths than their weaknesses generally because they don't like to admit that they have any weaknesses.

Weaknesses are those skills capabilities and competencies that your company lacks and that prevent you from achieving your goals and objectives. If your company doesn't have a critical skill or capability that it needs to achieve a particular goal, you have three choices:

1)     Modify the goal to something achievable with the skill set you have

2)     Raise the capital needed to acquire the skill or capability you need.

3)   Find another company that has the core competency you need and outsource that need or collaborate through a strategic partnership

Suppose for example that you have a fast food company, that's known for its food and the ability to get it to the customer very quickly. Your weakness however, is administering the business side of the business accounting, payroll and so forth. You should consider outsourcing those weaknesses to a company that specializes in providing these services to businesses.

 

RECOGNIZING YOUR COMPANY'S OPPORTUNITIES AND THREATS

Opportunities are those things that help your business grow to new levels. Threats are barriers to that growth. The classic books of michael porter on competitive strategy, provide a framework for looking at the environmental factors that can affect every business: competitive strategy; techniques for analyzing industries and competitors and competitive advantage; creating and sustaining superior performance. These factors are worded as threats but their corollary is really an opportunity.

When you see a way around a barrier or threat, you're seeing an opportunity to move forward in the market. Porter's basic assumption is that sustaining high performance levels requires a well-conceived strategy and a tactical plan based on how your industry works. He asserts that five forces affect the ultimate profit potential of a company. Here are porter's five forces:

1)     Threat of new entrants

Barriers to entering an industry, include: economies of scale; brand loyalty; capital requirements; switching costs (the costs buyers incur in time and money to retrain staff and learn a new product or relationship); access to distribution channels; proprietary factors (for example, technology owned by someone else) and government regulations. If these barriers are very high, your company will need to be well funded. It takes a long time to tear down barriers and find strategic partners to overcome them.

2)     Threat from substitute products

Substitute products may come from other industries but they accomplish the same basic function as your product, in a different way or at a different price. You need to know the likelihood that customers will use these substitutes and what it will cause them to switch to your product. If switching to your product is difficult or costly to the customer, you'll need to ensure that your marketing strategy educates the customer on the value of switching to your product.

3)     Threat from buyers bargaining power

Volume buyers in an industry can force down prices. In a world where a simple internet search can provide buyers with an enormous amount of price information, buyers have a lot of bargaining power. Your ability to create complex products and services that can't easily be compared on price and that convey a strong benefit to the buyer will help you avoid competing solely on price.

4)     Threats from suppliers bargaining power suppliers can exert pressure by

Threatening to raise prices or change quality or volume of supply, here's where strategic improvising can really help. You should always have more than one supply source for anything you have to purchase to make your product. That way if your main supplier hikes prices or runs a low on materials, you can quickly switch to a backup supplier.

5)     Threat from the rivalry among existing

Industry firms, a highly competitive industry drives down profits and prices airline price wars are a good example of this situation. Competing on price is a no win proposition. You need to compete on value. So making sure that buyers understand the benefit they receive from dealing with your company will be critical to your success.

Again, a marketing strategy that's focused on a value message is important. By looking at your industry from the five forces perspective, you can get a better sense of the opportunities and threats facing your business. Even when the environmental forces seem negative and threats appear to be more prevalent than opportunities, your business can still do well.

 

INNOVATION

One of the biggest Trends in business during the past few years has been process or operational Innovation: redesigning every aspect of a business in new ways to reduce costs, save time or provide better service. What's the reasoning behind operational Innovation? All systems which include business organizations are subject to entropy a natural degradation that occurs over time. If your business strives to maintain its current status, never a good idea. Ultimately, you'll begin consuming your own resources just to survive and then you can't respond quickly when change occurs.

What operational Innovation is all about? Be careful not to confuse the strategy of operational Innovation with operational Improvement which really is just a way to achieve higher performance by using current methods. Operational Innovation is about coming up with brand new ways of doing whatever processes are part of your business. The advantage of this strategy is that it's very difficult for a competitor to copy your operational plan. Process Innovations produce faster time to Market and lower costs which result in higher customer satisfaction and retention; a big payoff for any company that practices this strategy.

Process Innovation itself is quite simple, it has five components:

1)     Develops goals and a plan for fostering innovation in your company

2)     Ensures that top management conveys its total commitment to the effort

3)     Makes sure that everyone feels a sense of urgency

Remember operational Innovation usually has a better chance of working if it occurs under conditions of urgency an urgent need is more easily felt by everyone in the organization and the only way that Innovation can be successful is if everyone commits to it.

4)     Starts the Innovation effort by looking at your company as if you were starting from scratch

5)     Anything goes takes perspectives from the top of the organizational chart and the bottom. Meet in the Middle With A New Perspective that's comprised of the best of both positions.

Remember, of course any Innovation strategy must begin with your customers, you need to ask your customers what are you trying to accomplish then begin to find and put into place procedures and systems designed to meet those needs