OVERVIEW OF STRATEGIC PLANNING CONCEPTS

1. OVERVIEW OF STRATEGIC PLANNING CONCEPTS

2. VISION STATEMENT ABOUT A COMPANY’S LONG-TERM DIRECTION

3. Why is a Strategic Vision Important? • A managerial imperative exists to look beyondtoday and think strategically about • Impact of new technologies • How customer needs and expectations are changing • What it will take to outrun competitors • Which promising market opportunities ought to be aggressively pursued • External and internal factors driving what a company needs to do to prepare for the future

4. MISSION DEFINES COMPANY’S BUSINESS • PRODUCT / MARKET • 2. TERRITORY / GEOGRAPHY

5. VISION vs. MISSION • Astrategic vision concerns a firm’sfuture business path -- “where we are going” • Markets to be pursued • Future technology-product-customer focus • Kind of company that management is trying to create • A missionstatement focuses on current business activities -- “who we are and what we do” • Current product and service offerings • Customer needs being served • Technological and business capabilities

6. "To enable people and businesses throughout the world to realize their full potential" MICROSOFT’S VISION/MISSION

7. GE is committed to achieving worldwide leadership in each of its businesses. To achieve that leadership, GE's ongoing business strategy centers on four key growth initiatives: - Technology - Services - Customer Centricity - Globalization GE’S VISION/MISSION

8. Example of Vision & Mission Intel Our vision: Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce. Intel’s core missionis being the building block supplier to the Internet economy and spurring efforts to make the Internet more useful. Being connected is now at the center of people’s computing experience. We are helping to expand the capabilities of the PC platform and the Internet.

9. Simple Mission Statements Eastman Kodak We are in the picture business. Wit Capital (an Internet startup company) Our missionis to be the premier Internet investment banking firm focused on the offering and selling of securities to a community of online individual investors.

10. More Mission Statements … Otis Elevator Our mission is to provide any customer a means of moving people and things up, down, and sideways over short distances with higher reliability than any similar enterprise in the world. Avis Rent-a-Car Our business is renting cars. Our mission is total customer satisfaction.

11. Setting Goals & Objectives Second Task of Strategic Management • Converts strategic vision and mission into specific performance targets • Creates yardsticks to track performance • Pushes firm to be inventive and focused on results • Helps prevent complacency and coasting

12. GOALS BROAD TARGETS OBJECTIVES QUANTIFIED & TIME-BASED

13. Financial Goals • Strive for stock price appreciation equal to or above the S&P 500 average • Maintain a positive cash flow every year • Achieve and maintain a AA bond rating

14. Financial Objectives • Grow earnings per share 15% annually • Boost annual return on investment (or EVA) from 15% to 20% within three years • Increase annual dividends per share to stockholders by 5% each year

15. Strategic Goals • Increase firm’s market share • Overtake key rivals on quality or customer service or product performance • Attain lower overall costs than rivals • Boost firm’s reputation with customers • Attain stronger foothold in international markets • Achieve technological superiority • Become leader in new product introductions • Capture attractive growth opportunities

16. What is Strategy? • A company’s strategy consists of the set of competitive moves and business approaches that management is employing to run the company • Strategy is management’s “game plan” to • Attract and please customers • Stake out a market position • Conduct operations • Compete successfully • Achieve organizational objectives

17. Strategy- Deals with a company’s competitive initiatives and business approaches Business Model-Concerns whether revenues and costs flowing from the strategydemonstrate the business can be amply profitable and viable Strategy Business Model Relationship Between Strategy and Business Model

18. Two-Way Influence Two-Way Influence Two-Way Influence Levels of Strategy-Making in a Diversified Company Corporate Strategy Corporate-Level Managers Division Managers Business Strategies Functional Mgrs Functional Strategies Operating Mgrs Operating Strategies

19. Two-Way Influence Two-Way Influence Levels of Strategy-Making in a Single-Business Company Executive-Level Managers Business Strategy Functional Managers Functional Strategies Operating Managers Operating Strategies

20. Level 1 Two-Way Influence Two-Way Influence Two-Way Influence Level 2 Business-Level Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 3 Functional Managers Two-Way Influence Two-Way Influence Two-Way Influence Level 4 Plant Managers, Lower-Level Supervisors Networking of Missions,Goals/Objectives, and Strategies Corporate-wide Strategic Vision Corporate Level Goals/Objs Corporate Level Strategy Corporate-Level Managers Business Level Mission Business Level Goals/Objs Business Level Strategies Functional Missions Functional Goals/Objs Functional Strategies Operating Missions Operating Goals/Objs Operating Strategies

21. Potential Resource Strengths Potential Resource Weaknesses Potential Company Opportunities Potential External Threats • Powerful strategy • Strong financial condition • Strong brand name image/reputation • Widely recognized market leader • Proprietary technology • Cost advantages • Strong advertising • Product innovation skills • Good customer service • Better product quality • Alliances or JVs • No clear strategic direction • Obsolete facilities • Weak balance sheet; excess debt • Higher overall costs than rivals • Missing some key skills/competencies • Subpar profits • Internal operating problems . . . • Falling behind in R&D • Too narrow product line • Weak marketing skills • Serving additional customer groups • Expanding to new geographic areas • Expanding product line • Transferring skills to new products • Vertical integration • Take market share from rivals • Acquisition of rivals • Alliances or JVs to expand coverage • Openings to exploit new technologies • Openings to extend brand name/image • Entry of potent new competitors • Loss of sales to substitutes • Slowing market growth • Adverse shifts in exchange rates & trade policies • Costly new regulations • Vulnerability to business cycle • Growing leverage of customers or suppliers • Reduced buyer needs for product • Demographic changes SWOT Analysis -What to Look For

22. The Three Stepsof SWOT Analysis

23. Core Competencies -- AValuable Company Resource • A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability • Often, acore competence results from collaborationamong different parts of a company • Typically, core competenciesreside in a company’s people, not in assets on the balance sheet • A core competence gives a company apotentially valuable competitive capabilityand represents a definitecompetitive asset

24. Examples: Core Competencies • Expertise in integrating multiple technologies to create families of new products • Know-how in creating operating systems for cost efficient supply chain management • Speeding new/next-generation products to market • Better after-sale service capability • Skills in manufacturing a high quality product • System to fill customer orders accurately and swiftly

25. # 1 Distinctive Competence -- ACompetitively Superior Resource • A distinctive competence is a competitively significant activity that a company performs better than its competitors • A distinctive competence • Represents a competitivelyvaluable capabilityrivals do not have • Presents attractive potential for being a cornerstone of strategy • Can provide acompetitive edge in the marketplace—because it represents a competitively superior resource strength

26. Examples: Distinctive Competencies • Sharp Corporation • Expertise in flat-panel display technology • Toyota, Honda, Nissan • Low-cost, high-quality manufacturingcapability and short design-to-market cycles • Intel • Ability to design and manufactureever more powerful microprocessors for PCs • Starbucks • Store ambience and innovative coffeedrinks

27. Determining the CompetitiveValue of a Company Resource • To qualify as the basis for sustainable competitive advantage,a “resource”is measured by 4 tests 1.Is the resource hard to copy? 2.Does the resource have staying power--is itdurable? 3.Is the resource really competitively superior? 4.Can the resource be trumpedby the different capabilities of rivals ?

28. Are the Company’sPrices and Costs Competitive? • Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company analysis • Key analytical tools • Value chain analysis • Benchmarking

29. The Concept of aCompany Value Chain • A company’s business consists of all activities undertaken in designing, producing, marketing, delivering, and supporting its product or service • A company’s value chain consists of a linked set of value-creating activities performed internally • The value chain contains two types of activities • Primary activities -- where most of the value for customers is created • Support activities -- facilitate performance of the primary activities

30. Characteristics of Value Chain Analysis • Combined costs of all activities in a company’s value chain define the company’s internal cost structure • Compares a firm’s costs activityby activity against costs of key rivals • From raw materials purchase to • Price paid by ultimate customer • Pinpoints which internal activities are a source of cost advantage or disadvantage

31. RepresentativeCompany Value Chain

32. Representative Value Chain for an Entire Industry

33. The Value Chain Systemfor an Entire Industry • Assessing a company’s cost competitiveness involves comparing costs all along the industry’s value chain • Suppliers’ value chains are relevant because • Costs, quality, and performance of inputs provided by suppliers influence a firm’s own costs and product performance • Forward channel allies’ value chains are relevant because • Forward channel allies’ costs and margins are part of price paid by ultimate end-user • Activities performed affect end-user satisfaction

34. Example: Key Value Chain Activities Pulp & Paper Industry Timber farming Logging Pulp mills Papermaking

35. Example: Key Value Chain Activities Home Appliance Industry Parts and components manufacture Assembly Wholesale distribution Retail sales

36. Example: Key Value Chain Activities Soft-Drink Industry Processing of basic ingredients Syrup manufacture Bottling and can filling Wholesale distribution Advertising Retailing Albertson’s

37. Example: Key Value Chain Activities Computer Software Industry Programming Disk loading Marketing Distribution

38. Activity-Based Costing: A KeyTool in Analyzing Costs • Determining whether a company’s costs are in line with those of rivals requires • Measuring how a company’s costs compare with those of rivals activity-by-activity • Requires having accounting data that measures the cost of each value chain activity • Activity-based accounting systemsprovide data for determining costsfor each relevant value chain activity

40. Benchmarking Costs ofKey Value Chain Activities • Focuses on cross-company comparisons of how certain activities are performed and the costs associated with these activities • Purchase of materials • Payment of suppliers • Management of inventories • Getting new products to market • Performance of quality control • Filling and shipping of customer orders • Training of employees • Processing of payrolls

41. Objectives of Benchmarking • Determine whether a company is performing particular value chain activities efficiently by studying practices and procedures used by other companies • Understand the best practices in performingan activity -- learn what is the “best” wayto do a particular activity from thosedemonstrating they are “best-in-world” • Assess if company’s costs in performing particular value chain activities are in line with competitors • Learn how other firms achieve lower costs • Take action to improve company’s cost competitiveness

42. INDUSTRY ANALYSIS

43. Environmental Components

44. Market size and growth rate Position in life cycle Number of rivals Buyer needs and requirements Production capacity Pace of technological change Prevalence of vertical integration Product innovation Degree of product differentiation Scope of competitive rivalry Economies of scale Experience and learning-curve effects Industry profitability Industry’s Dominant Economic Traits

45. 5 Forces Model of Competition

46. Industry Driving Forces • Internet and e-commerce opportunities • Increasing globalization of industry • Changes in long-term industry growth rate • Changes in who buys the product and how they use it • Product innovation • Technological change/process innovation • Marketing innovation

47. Industry Driving Forces • Entry or exit of major firms • Diffusion of technical knowledge • Changes in cost and efficiency • Market shift from standardized to differentiated products (or vice versa) • Changes in degree of uncertainty and risk • Regulatory policies / government legislation • Changing societal concerns, attitudes, and lifestyles

48. What Are the Key Factors for Competitive Success? • Competitive factors most affecting every industry member’s ability to prosper • Specific strategy elements • Product attributes • Resources • Competencies • Competitive capabilities • KSFs spell the difference between • Profit and loss • Competitive success or failure