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LESSON 3

LESSON 3. BUSINESS STRATEGY. Session Objectives. Understand how to formulate strategic plan Understand how to formulate business strategy Understand how to formulate business objectives Understand the implication of strategic plan to IS/IT plan. Agenda. Strategic planning

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LESSON 3

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  1. LESSON 3 BUSINESS STRATEGY

  2. Session Objectives • Understand how to formulate strategic plan • Understand how to formulate business strategy • Understand how to formulate business objectives • Understand the implication of strategic plan to IS/IT plan

  3. Agenda • Strategic planning • Strategic framework • Developing business strategy • Business strategy implementation • Implication of business strategy to IS/IT strategy • A resource-based view of strategy

  4. What is Strategic Planning(source: Matt H. Evans, matt@exinfm.com) • Process to establish priorities on what you will accomplish in the future • Forces you to make choices on what you will do and what you will not do • Pulls the entire organization together around a single game plan for execution • Broad outline on where resources will get allocated

  5. Fundamental Questions to Ask • 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)

  6. Strategic Planning Model A B C D E Where we are Where we want to be How we will do it How are we doing Assessment Baseline Components Down to Specifics Evaluate • Environmental Scan • Situation – Past, Present and Future • Mission & Vision • Performance Measurement • Performance Management • Background Information • Significant Issues • Values / Guiding Principles • Targets / Standards of Performance • Review Progress – Balanced Scorecard • Situational Analysis • Align / Fit with Capabilities • Major Goals • Initiatives and Projects • Take Corrective Actions • Feedback upstream – revise plans • Action Plans • SWOT – Strength’s, Weaknesses, Opportunities, Threats • Specific Objectives • Gaps

  7. Another Model of Strategic Planning Establish strategic direction Define strategies Achieve strategies feedback Strategic planning of options selected • Define mission and objectives • Assess situation and options • Select options Implement strategies Strategic thinking and opportunistic decision making

  8. Easy to Understand • Apply at any organizational level • Needs to be Analytical and Specific • Be honest about your weaknesses Assessment Assessment Model:S W O T Internal Assessment: Organizational assets, resources, people, culture, systems, partnerships, suppliers, . . . External Assessment: Marketplace, competitor’s, social trends, technology, regulatory environment, economic cycles . SWOT SWOT Possible Pitfalls Good Points

  9. Baseline Why create a baseline? • Puts everything about the organization into a single context for comparability and planning • Descriptive about the company as well as the overall environment • Include information about relationships – customers, suppliers, partners, . . . • Preferred format is the Organizational Profile

  10. Baseline Organizational Profile1. Operating Environment • Products and Services – Suppliers, Delivery Channels, Contracts, Arrangements, . . . • Organizational Culture – Barriers, Leadership, Communication, Cohesiveness . . . . • Workforce Productivity – Skill levels, diversity, contractor’s, aging workforce, . . . • Infrastructure – Systems, technology, facilities, . . • Regulatory – Product / Service Regulation, ISO Quality Standards, Safety, Environmental, . .

  11. Baseline Organizational Profile2. Business Relationships • Organizational Structure – Business Units, Functions, Board, Management Layers, . . . • Customer Relationships – Requirements, Satisfaction, Loyalty, Expectations, . . . • Value Chain – Relationship between everyone in the value chain . . . . • Partner Relationships – Alliances, long-term suppliers, customer partnerships, . . .

  12. Baseline Organizational Profile3. Key Performance Categories • Customer • Products and Services • Financial • Human Capital • Operational • External (Regulatory Compliance, Social Responsibility, . . . )

  13. Baseline Gap Analysis Challenges / SWOT Baseline / Org Profile Gap = Basis for Long-Term Strategic Plan

  14. Strategic Plan Action Plans Evaluate Progress Components Major Components of theStrategic Plan / Down to Action Mission Why we exist Vision What we want to be Goals What we must achieve to be successful Specific outcomes expressed in measurable terms (NOT activities) Objectives O1 O2 Planned Actions to Achieve Objectives Initiatives AI3 AI2 AI1 Indicators and Monitors of success Measures M1 M2 M3 Targets T1 T1 T1 Desired level of performance and timelines

  15. Components Mission Statement • Captures the essence of why the organization exists – Who we are, what we do • Explains the basic needs that you fulfill • Expresses the core values of the organization • Should be brief and to the point • Easy to understand • If possible, try to convey the unique nature of your organization and the role it plays that differentiates it from others

  16. Components Examples – Good and BadMission Statements NASA To Explore the Universe and Search for Life and to Inspire the Next Generation of Explorers Does a good job of expressing the core values of the organization. Also conveys unique qualities about the organization. Walt Disney Too vague and and unclear. Need more descriptive information about what makes the organization special. To Make People Happy

  17. Components Vision • How the organization wants to be perceived in the future – what success looks like • An expression of the desired end state • Challenges everyone to reach for something significant – inspires a compelling future • Provides a long-term focus for the entire organization

  18. Components Guiding Principles and Values • Every organization should be guided by a set of values and beliefs • Provides an underlying framework for making decisions – part of the organization’s culture • Values are often rooted in ethical themes, such as honesty, trust, integrity, respect, fairness, . . . . • Values should be applicable across the entire organization • Values may be appropriate for certain best management practices – best in terms of quality, exceptional customer service, etc.

  19. Components Examples of Guiding Principles and Values We obey the law and do not compromise moral or ethical principles – ever! We expect to be measured by what we do, as well as what we say. We treat everyone with respect and appreciate individual differences. We carefully consider the impact of business decisions on our people and we recognize exceptional contributions. We are strategically entrepreneurial in the pursuit of excellence, encouraging original thought and its application, and willing to take risks based on sound business judgment. We are committed to forging public and private partnerships that combine diverse strengths, skills and resources.

  20. Components Goals • Describes a future end-state – desired outcome that is supportive of the mission and vision. • Shapes the way ahead in actionable terms. • Best applied where there are clear choices about the future. • Puts strategic focus into the organization – specific ownership of the goal should be assigned to someone within the organization. • May not work well where things are changing fast – goals tend to be long-term for environments that have limited choices about the future.

  21. Components Developing Goals • Cascade from the top of the Strategic Plan – Mission, Vision, Guiding Principles. • Look at your strategic analysis – SWOT, Environmental Scan, Past Performance, Gaps . . • Limit to a critical few – such as five to eight goals. • Broad participation in the development of goals: Consensus from above – buy-in at the execution level. • Should drive higher levels of performance and close a critical performance gap.

  22. Components Examples of Goals Reorganize the entire organization for better responsiveness to customers We will partner with other businesses, industry leaders, and government agencies in order to better meet the needs of stakeholders across the entire value stream. Manage our resources with fiscal responsibility and efficiency through a single comprehensive process that is aligned to our strategic plan. Improve the quality and accuracy of service support information provided to our internal customers. Establish a means by which our decision making process is market and customer focus. Maintain and enhance the physical conditions of our public facilities.

  23. Components Objectives • Relevant - directly supports the goal • Compels the organization into action • Specific enough so we can quantify and measure the results • Simple and easy to understand • Realistic and attainable • Conveys responsibility and ownership • Acceptable to those who must execute • May need several objectives to meet a goal

  24. Components Goals vs. Objectives

  25. Components Examples of Objectives Develop a customer intelligence database system to capture and analyze patterns in purchasing behavior across our product line. Launch at least three value stream pilot projects to kick-off our transformation to a leaner organization. Centralize the procurement process for improvements in enterprise-wide purchasing power. Consolidate payable processing through a P-Card System over the next two years. Monitor and address employee morale issues through an annual employee satisfaction survey across all business functions.

  26. Down to Specifics Objectives Initiatives Action Plans What are Action Plans? • The Action Plan identifies the specific steps that will be taken to achieve the initiatives and strategic objectives – where the rubber meets the road • Each Initiative has a supporting Action Plan(s) attached to it • Action Plans are geared toward operations, procedures, and processes • They describe who does what, when it will be completed, and how the organization knows when steps are completed • Like Initiatives, Action Plans require the monitoring of progress on Objectives, for which measures are needed

  27. Down to Specifics Criteria for Good Measures Integrity – Complete; useful; inclusive of several types of measure; designed to measure the most important activities of the organization Reliable: Consistent Accurate - Correct Timely – Available when needed: designed to use and report data in a usable timeframe Confidential and Secure: Free from inappropriate release or attack

  28. Down to Specifics Examples of MeasurementsLead Indicators • Average time to initiate customer contact => shorter time should lead to better customer service • Average response time to incident => below average response times should lead to increased effectiveness in dealing with incident • Facilities that meet facility quality A1 rating => should lead to improved operational readiness for meeting customer needs

  29. Down to Specifics Targets • For each measurement, you should have at least one target • Targets should stretch the organization to higher levels of performance • Incremental improvements over current performance can be used to establish your targets • Targets put focus on your strategy • When you reach your targets, you have successfully executed your strategy

  30. Down to Specifics Examples of Targets

  31. Evaluate Continuous Feedbackthrough the Balanced Scorecard • Cascade and align from the top to create a Strategic Management System. • Use the Balanced Scorecard framework to organize and report actionable components. • Use the Scorecard for managing the execution of your strategy. • Scorecard “forces” you to look at different perspectives and take into account cause-effect relationships (lead and lag indicators) • Improves how you communicate your strategy – critical to execution.

  32. Evolution of Strategic Planning Effectiveness of strategic decision making Well defined strategic framework Strategically focused organization Widespread strategic thinking capability Reinforcing management processes Supportive value system and climate Multi-year budgets Gap analysis Static allocation of resources Situation analysis and competitive assessments Evaluation of strategic options Dynamic allocation of resources Annual budgets Functional focus Stage 1 Stage 2 Stage 3 Stage 4 Financial Forecast-based Externally Strategic planning planning oriented management (meet budget) (predict the (think (create the future) strategically) future)

  33. Strategic Framework for Strategic Planning External Environments Economic Political Ecological Technological Social Legal Pressure Groups Values Objectives Identify current Identify future Threats and strategies strategies opportunities Evaluate Analyze Evaluate feedback internal strategies resources Monitor Implement Select Strategies Strategies Strategies Customers Suppliers Shareholders Employees Unions Government Public Competitors Customers Suppliers Shareholders Employees Unions Public Media Financial Ins. Stake Holder

  34. Input to Strategic Planning • External environments - sources of important signals to organizations • Pressure groups - demand recognition and rapid management response • Stakeholders - demand fair share of created wealth • Business planning is usually carried out for each strategic business unit • A unit that sells a distinct set of products or services, serve a specific set of customers, and competes with a well-defined set of competitors

  35. Definition of Business Strategy • Definition of business strategy: • An integrated set of actions aimed at increasing the long-term well-being and strength of the organization relative to its competitors

  36. Technique to Develop Business Strategy: Competitive Forces in Industry (Porter, 1980) Threat of new entrants Rivalry among existing competitors Bargaining power of suppliers Bargaining power of buyers Threat of substitute product

  37. Factors Affecting The Impact of Competitive Forces • New entrants • Capital requirements • Patents and specialists skill required • Distribution channels available • Achieved/required economies of scale and resultant cost advantages • Number and size of existing rivals and intensity of competition • Differentiation and brand establishment/loyalty • Access to raw materials/critical resources etc. Business strategy: “how to discourage new entrants to come into the business”

  38. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Substitute products/services • Customer awareness of needs and means of satisfaction • Customer sensitivity to value for money and ability to compare • Existing loyalty of customer—impact of “industry” promotion • Ability to differentiate products etc. Business strategy: “how to create a loyal customers?”

  39. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Competitive rivalry will be intensified by: • Market growth slow (or in decline) • Small number of similar sized competitors dominate • High fixed costs and/or high exit barriers for all rivals • Overcapacity and/or capacity increments are large units • Commodity-like, undifferentiated products. Business strategy: “how to differentiate your products?”

  40. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Buyers’ power will be increased by: • Concentrated/few buyers making high volume and/or high value of purchases • Low switching costs across suppliers • Price sensitive and many alternative sources of supply • Weak brand identities, products not differentiated • Buyers capable of backward integration due to low entry cost. Business strategy: “how to make the buyers depend on your business”

  41. Strategic Choices: Factors Affecting The Impact of Competitive Forces • Suppliers’ power will be increased by: • Few suppliers—high switching costs for rivals and suppliers deal with many small customers • Potential substitute supplier/resources not easily available • Supplied goods make up large part of firm’s costs • Suppliers capable of forward integration or bypass to customers Business strategy: “how to make the suppliers depend on your business”

  42. Generic Competitive Strategy Low Cost Competitive Advantage Differen- tiation

  43. Characteristics of Generic Strategies

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