Strategy New

Strategic Planning and Policy
Analysis
AN OVERVIEW
OF TRATEGIC PLANNING
AND MANAGEMENT
Chapter 1 Overview of St. Mgt 2

What
does strategy
mean?
 Howdo you explain
strategic planning and
management?

 In ancient Greek, ‘stratos’ was the term for the
army and so in military terms, ‘strategy’ referred
to ‘the act of the general’.
 So, the origins of ‘strategy’ – the ‘art of the
general’ – comes from the military arena – from
China came “The Art of War” by Sun Tzu, from
Prussia came “On War’ by Carl von Clausewitz.
Strategic Planning and policy analysis

ppt. Dr. Gemechis Desta Copy right
2014, Leadstar UC 4
 Strategyrefers to the formulation
of basic organizational mission,
purpose, policy and program
strategies to achieve
organizational goals.

Strategic Mgt. represents the
management responsibility for
defining the organization’s mission,
formulating strategies, and guiding
long-term organizational activities
consistent with internal & external
conditions.

 St.
Mgt. is defined as the
set of decisions & actions
that result the formulation
& implementation of plans
designed to achieve
organization’s objectives.

There is a need in modern times for strategies;
 To achieve agreed goals and objectives,

 To give a strong sense of purpose and direction
 To gain competitive edge over rival
organizations
 To cope with recent technological and social
changes

2014, Leadstar UC 10
Where are we now?

Where are we now?
Where are we going?

Where are we now?
Where are we going?
How will we get there?

Where are we now?
Where are we going?
How will we get there?
How will we measure our progress?

I. The Planning School
II. The Positioning School
III. The Resource Based School

 Achieves a ‘fit’ between the organizational
strategy and the environment in which it
operates.
 Requires detailed and inflexible planning
 not suitable in turbulent markets.
 Uses ‘Product Life Cycle’ and other marketing
theories
 Emphasizes competitive advantage
 Focuses on a rational, analytical approach of
making strategy
 Attempts to place the organization and its
products in a favorable market or environment.
 Based on performance measurement and
decision making tools.
Robert Grant 1998, Jay Barney 1991
Looks to the internal environment instead of the
market
Incorporates the ‘core competence’ approach of
Prahalad and Hamel, 1994
Based on an ‘inside-out’ approach suggesting that
the competitive advantage of an organization is
based on its own distinctive resources,
capabilities and competences.

What are levels of
strategy?

 Most academics classify strategies into
three levels:
1. Corporate
2. Business –
3. Functional/Operational –

Levels of Strategy
Corporate Strategy
Business 1 Business 2 Business 3
R&D Finance & Acct Marketing Production
Source: Pearce II & Robinson, 1991: 6

 It
is also called portfolio-level
strategy & primarily concerned
with top management, chief
executive or board level decisions
for acquisitions, mergers, major
expansions, & divestitures that
add or reduce product line.
Generally focus on: growth,
stability or retrenchment
(defense);
 Growth by internal expansion
◦ growth through vertical integration
 backward integration ('upstream'
integration)
 forward integration ('downstream'
integration)
why vertically integrate?
 economies of scale
 reduced uncertainty
◦ growth through diversification
 advantages
 when existing market is saturated
 spreads risks
25
 Growth through mergers and takeovers
◦ types of merger and takeover
 horizontal
 vertical
◦ motives for mergers and takeovers
 growth
 economies of scale
 monopoly power
 reduced uncertainty
26
 It is found in the middle of the decision
making hierarchy and composed mainly of
business & corporate managers.
 It is concerned with a single strategic

business unit (SUB) and how each business
attempts to achieve its mission within its
chosen area of activity.
 Managers at this level translate the
statements of direction and intent
generated at the corporate level into
concrete objectives & strategies for
individual SUBs.
 The strategy is directed towards identifying
products that should be developed and
offered to selected markets; and taking care
of meeting the customer’s needs while
achieving the objectives of the organization.

 It is found at the bottom of the decision making
hierarchy composed of mainly of managers of
product, geographic and functional areas.
 This strategy is implemented in order to support

the business strategy by each functional area.
 Functional level decisions are concerned with

how to implement new technologies, develop
new products, open new markets, expand new
facilities, and institute new human resource
programs.

 Whatare the benefits as
well as challenges of
Strategic Management?

Advantages:
◦ Prevent or mitigate the effects of risks
◦ It helps managers' master change
◦ Encourages & permits to evaluate
alternative courses of action
◦ It provides an overall framework for
decision making & resource allocation
effectively
◦ It reveals & clarifies the SWOT analysis
 The difficulties of forecasting the uncertain
future accurately
 The complexity of the environment to be

forecasted and the complex relations
involved between environmental variables
 The limitations of the data available

 Vision
 Mission/Mandate
 Internal Analysis
 Eternal Analysis
 Trend Analysis
 Strategic Planning
 Implementation / Operational Mgt
 Evaluation

Vision
“What do we want to become?”
Copyright 2007 Prentice Hall Ch 2 -39

Vision
Clear Business
Vision
Comprehensive
Mission Statement

Addis Ababa City Government 2025
Vision
“In 2025, Addis Ababa will be
world class city, a green, clean and
livable city; with vibrant economy
and residents all living above
poverty line, hub of conference
tourism and national bench-mark
of good governance.”
Basic Components of St. Mgt 44
Mission Statements
“What is our business?”

Mission Statements
•Enduring statement of purpose

•Distinguishes one firm from another
•Declares the firm’s reason for being

Products
Services Markets
Customers
Technology
Mission
Employees
Elements
Survival
Growth
Profit
Public
Image
Self-Concept Philosophy
Ch 2 -49 Copyright 2007 Prentice Hall

PepsiCo’s mission is to increase the value of our
shareholders’ investment. We do this through
sales growth, cost controls, and wise
investment resources. We believe our
commercial success depends upon offering
quality and value to our consumers and
customers; providing products that are safe,
wholesome, economically efficient and
environmentally sound; and providing a fair
return to our investors while adhering to the
highest standards of integrity.
Ch 2 -50 Copyright 2007 Prentice Hall

The External and Internal
Environment Analysis
m@hi 51
External Assessment
“It is not the strongest of the

species that survive, nor the most
intelligent, but the one most
responsive to change.”
m@hi 52
External Strategic Management Audit
– Environmental Scanning
– Industry Analysis
Identify & evaluate factors beyond the control of
a single firm
– Political factors Purpose of an External
– Economic factors Audit
– Social factors – Develop a finite list of
• opportunities that could
– Technology benefit a firm
– Legal issues • threats that should be
avoided
m@hi 53
Competitive Forces
Collection & evaluation of data on competitors is
essential for successful strategy formulation
Identify Rival Firms’
•Strengths
Competition in
•Weaknesses virtually all
•Capabilities industries can
be described
• Objectives
as intense
•Strategies
m@hi 54
m@hi 55
 Rivalry among competing firms
◦ Most powerful of the five forces
◦ Focus on competitive advantage
of strategies over other firms
m@hi 56
 High number of competing firms
 Similar size of firms competing
 Similar capability of firms
competing
 Falling demand for the industry’s
products
 Falling product/service prices in the
industry
m@hi 57
 Consumers can switch brands easily
 Barriers to leaving the market are
high
 Barriers to entering the market are
low
 Fixed costs are high among firms
competing
 The product is perishable
m@hi 58
 Potential
Entry of New
Competitors
◦ Barriers to entry are important
◦ Quality, pricing, and marketing
can overcome barriers
m@hi 59
 Potential development of
substitute products
◦ Pressure increases when:
 Prices of substitutes decrease
 Consumers’ switching costs
decrease
m@hi 60
 Bargaining Power of Suppliers is increased
when there are:
◦ Large numbers of suppliers
◦ Few substitutes
◦ Costs of switching raw materials is high
Way-out
 Backward integration is gaining control or
ownership of suppliers
m@hi 61
 Bargaining power of consumers
 Customers being concentrated or
buying in volume affects intensity
of competition
 Consumer power is higher where
products are standard or
undifferentiated
m@hi 62
The Internal Environment:
Resources, Capabilities and
Core Competencies
External Environment
What the Firm Might Do
Sustainable
Competitive
Advantage
Internal Environment
What the Firm Can Do
Discovering Core
Competencies
Resources
* Tangible
* Intangible
Resources What a firm Has...
What a firm has to work with:

its assets, including its people
and the value of its brand name
Discovering Core
Competencies
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
Capabilities What a firm Does...
Capabilities represent:
the firm’s capacity or ability to integrate
individual firm resources to achieve a
desired objective.
Discovering Core
Competencies
Discovering
Core
Competencies
Core
Competencies
Sources of
Competitive
Advantage
Capabilities
Teams of
Resources
Resources
* Tangible
* Intangible
Discovering Core
Competencies
Discovering
Core
Competencies
Core
Competencies
Sources of
Competitive
Advantage
Capabilities Criteria of
Teams of Sustainable
Resources Advantages
Resources
* Valuable
* Tangible
* Intangible * Rare
* Costly to Imitate
* Nonsubstitutable * Outsource
Core Competencies What a firm Does...
that is Strategically
For a strategic capability to
Valuable
be a Core Competency, it
must be:
Valuable
Rare
Costly to Imitate
Nonsubstitutable
Core Competencies
Resources Core Competence

• Inputs to a firm’s
• A strategic capability
production process
Does the capability

satisfy the criteria of YES
The source of Capability sustainable competitive
• Integration of a advantage?
team of resources NO
Capability
• A nonstrategic team
of resources
 The central purpose of the SWOT analysis is to
identify strategies that align, fit or match an
organization's resources and capabilities to the
demands of the environment in which the
organization competes.
 SWOT analysis should be to build on organization

strengths in order to exploit opportunities and
counter threats and to correct organizational
weaknesses. 2014, Leadstar UC 82
 Core competencies in key areas.
 Adequate financial resources.
 Well-thought-of by buyers.
 An acknowledged market leader.
 Well-conceived functional area strategies.
 Access to economies of scale.
 Insulated/protected from strong
competitive pressures.
 Proprietary technology.
 Cost advantages.
 Better advertising campaigns.
 Product innovation skills.
 Proven management.
 Ahead on experience curve.
 Better manufacturing capability.
 Superior technological skills.

 No clear strategic direction.
 Obsolete facilities.
 Lack of management depth and
talent.
 Missing some key skills or
competencies.
 Poor track record in implementing
problems.
 Falling behind in R&D.
 Too narrow product line.
 Weak market image
 Weak distribution network.
 Below-average marketing skills.
 Unable to finance needed changes in
strategy.
 Higher overall unit costs relative to
key competitors
 Ability to serve additional customer groups
or expand into new markets or segments.
 Ability to transfer skills or technological
know-how to new products or businesses.
 Integrating forward or backward.
 Falling trade barriers in attractive foreign
markets.
 Ability to grow rapidly because of strong
increases in market demand.
 Emerging new technologies.
 Entry of lower-cost foreign competitors.
 Rising sales of substitute products.
 Slower market growth.
 Growing bargaining power of customers or
suppliers.
 Changing buyer needs and tastes.
 Adverse demographic changes.

The Strategic Planning
Matt H. Evans,
matt@exinfm.com
• “If you fail to plan, then you plan to fail – be
proactive about the future”
 It is about establishing priorities on what
you will accomplish in the future
•Strategic planning improves performance
•Communicate to everyone what is most
important
Matt H. Evans,
matt@exinfm.com
Phase one: Determining core
purpose and envisioning the
future
Phase two: Assessing the

strategic position
Phase three: Developing strategic

priorities

Phase four: Applying
strategies of operations
Phase five: Aligning people

with financial resources
Phase six: Executing the

plan

• Where are we now? (Assessment)
• Where do we need to be? (Gap / Future End
State)
• How will we close the gap (Strategic Plan)
• How will we monitor our progress (Balanced
Scorecard)
Matt H. Evans,
matt@exinfm.com
Copyright 2007 Prentice Hall Ch 7-94
The Nature of Strategy
Implementation
-- Successful strategy formulation does not

guarantee successful strategy
implementation
Ch 7-95 Copyright 2007 Prentice Hall

Nature of Strategy
Implementation
Formulation vs. Implementation
 Formulation positions forces before the

action
 Implementation manages forces during

the action

Nature of Strategy
Implementation
 Formulation focuses on effectiveness
 Implementation focuses on efficiency

Nature of Strategy
Implementation
 Formulation is primarily an intellectual

process
 Implementation is primarily an operational

process

Nature of Strategy
Implementation
 Formulation requires good intuitive &

analytical skills
 Implementation requires special

motivational & leadership skills

Nature of Strategy
Implementation
 Formulation requires coordination among

a few individuals
 Implementation requires coordination

among many individuals

Nature of Strategy
Implementation
Strategy Implementation
 Varies among different types & sizes of

organizations

Copyright © 2011 Pearson
Education, Inc.
Publishing as Prentice Hall Ch 9 -102
Strategy Review, Evaluation,
and Control
– Strategies become obsolete

– Internal environments are dynamic
– External environments are dynamic

Education, Inc.
Ch 9 -103 Publishing as Prentice Hall
Strategy Review, Evaluation,
and Control
Strategy Evaluation
 Vital to the organization’s well-being
 Alert management to potential/actual
problems in a timely fashion
 Erroneous/wrong strategic decisions
can have severe negative impact on
organizations
Copyright © 2011 Pearson Education, Inc.

Publishing as Prentice Hall Ch 9 -104
Consistency
Rumelt’s Consonance
4 Criteria
Feasibility
Advantage

Education, Inc.
Difficulties in Strategy Evaluation
1. Increase in environment’s complexity

2. Difficulty predicting future with accuracy
3. Increasing number of variables

Education, Inc.
Difficulties in Strategy Evaluation
4. Rate of obsolescence of plans

5. Domestic and global events
6. Decreasing time span for planning certainty

Education, Inc.
Quantitative Criteria for Strategy Evaluation
 Financial Ratios
◦ Compare performance over different periods
◦ Compare performance to competitors’
◦ Compare performance to industry averages

Education, Inc.
Key Financial Ratios
 Return on  Debt to equity
investment  Earnings per
(ROI) share (EPS)
 Return on  Sales growth
equity (ROE)  Asset growth
 Profit margin
 Market share

Education, Inc.
Qualitative Evaluation of Strategy
 Human Resource Factors
 Marketing
 R&D
 Management Information Systems

Education, Inc.
Education, Inc.
Characteristics of an Effective Evaluation System
 Economical
 Meaningful
 Generates useful information
 Timely information
 Provides accurate picture of events

Education, Inc.
Contingency Planning
Alternative plans that can be put into effect if

certain key events do not occur as expected

Education, Inc.
Any Please
12
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Strategic Planning and Policy

Chapter 1 Overview of St. Mgt 2

Chapter 1 Overview of St. Mgt 3

Strategic Planning and policy analysis

Chapter 1 Overview of St. Mgt 5

Chapter 1 Overview of St. Mgt 7

Chapter 1 Overview of St. Mgt 9

 To achieve agreed goals and objectives,

Strategic Planning and policy analysis

Strategic Planning and policy analysis

Where are we going?

Strategic Planning and policy analysis

Where are we going?

How will we get there?

Strategic Planning and policy analysis

Where are we going?

How will we get there?

How will we measure our progress?

Strategic Planning and policy analysis

Strategic Planning and policy analysis

Strategic Planning and policy analysis

Chapter 1 Overview of St. Mgt 19

Strategic Planning and policy analysis

Business 1 Business 2 Business 3

R&D Finance & Acct Marketing Production

Source: Pearce II & Robinson, 1991: 6

Chapter 1 Overview of St. Mgt 22

 It is concerned with a single strategic

Chapter 1 Overview of St. Mgt 29

 This strategy is implemented in order to support

 Functional level decisions are concerned with

Chapter 1 Overview of St. Mgt 30

Chapter 1 Overview of St. Mgt 34

 The complexity of the environment to be

 The limitations of the data available

Chapter 1 Overview of St. Mgt 37

Chapter 1 Overview of St. Mgt 38

“What do we want to become?”

Copyright 2007 Prentice Hall Ch 2 -39

Copyright 2007 Prentice Hall Ch 2 -40

“What is our business?”

Copyright 2007 Prentice Hall Ch 2 -45

•Enduring statement of purpose

Copyright 2007 Prentice Hall Ch 2 -46

Ch 2 -49 Copyright 2007 Prentice Hall

Ch 2 -50 Copyright 2007 Prentice Hall

“It is not the strongest of the

What a firm has to work with:

Resources Core Competence

Does the capability

 SWOT analysis should be to build on organization

Strategic Planning and policy analysis

Strategic Planning and policy analysis

Phase two: Assessing the

Phase three: Developing strategic

Strategic Planning and policy analysis

Phase five: Aligning people

Phase six: Executing the

Strategic Planning and policy analysis

-- Successful strategy formulation does not

Ch 7-95 Copyright 2007 Prentice Hall

 Formulation positions forces before the

 Implementation manages forces during

Copyright 2007 Prentice Hall Ch 7-96