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CH.4 Winning Markets

CH.4 Winning Markets. MM Sem 1, 2003 Warin Chotekorakul. Planning, Implementation and Control Process. Performance Monitoring. Planning. Implementation. Corporate planning Division planning Business planning Product planning. Organizing Implementing. Measuring result

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CH.4 Winning Markets

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  1. CH.4 Winning Markets MM Sem 1, 2003 Warin Chotekorakul

  2. Planning, Implementation and Control Process Performance Monitoring Planning Implementation Corporate planning Division planning Business planning Product planning Organizing Implementing Measuring result Diagnosing result Taking corrective action

  3. Strategic Planning: 3 levels • Corporate Strategy • 1. Mission and Vision 4.Resource Deployment • 2. Objectives 5. Corporate values • 3. Business Portfolio Strategy SBU Strategy • SBU Strategy • 1. Business Definition 2. Objectives • 3. Product-Market Portfolio • 4. Competitive Strategy • 5. Resource Allocation and Management SBU Strategy • Mktng Strg • Mktng Obj • Pdt mkt strg • R&D Strg • Tech • Pdt Develm Pdtn & Oprtn Strategy Fin & Admin Strategy HR Strategy

  4. Corporate Planning • Corporate Planning addresses the following types of questions: • Management:Role of corporation • Financial holding • Conglomerate • Operating company • Organizational scope:What biz should the company be in? • Financing:How and where finance should be raised? • Organization:How the company should be structured?

  5. Corporate Planning (2) • Corporate Planning addresses the following types of questions (2): • Defining mechanisms:What should its Vision/Mission be? • Synergies:How should financial and operational synergies between SBU’s be realized?

  6. SBU Planning • SBU planning must address the following types of questions: • Where to competee.g., which product/market segment? • How to competee.g., when and how to differentiate and /or achieve cost leadership?

  7. Functional strategies • Functional strategies address what individual “Activities” in a biz should do to support overall SBU strategy. • Marketing: • Which communication channels? • Which distribution channels? • What price?e.g., What actual price should be? • Production: • How to manufacturee.g., in-house VS outsource • Where to manufacture? • What infrastructure to invest in?

  8. Mission “The statement which guides employees to work independently and collectively towards realizing the organization's goals.” The type of org/bizwe want to be and who we want to serve - a biz definition reflecting scope of activities

  9. Vision • Visualization of the organization's intentionsfor the future and what it takes to succeed

  10. Establishingan SBU What is an SBU? • SBU is a strategically independent business unit, • defined on the basis of external and internal criteria. • SBU should be a market-driven concept.

  11. Establishing an SBU (2) External strategic Independence (customer/competitor perspective) Signf diff on the external envi,e.g., distinct cust groups, buying patterns and criteria, competitors, etc. Internal strategic Independence (producer perspective) Signf diff in the internal activities of the company, thus preventing utilisation of Shared resources, e.g., tech, pdtn processes, raw mat, distn channels, etc.

  12. Establishing an SBU (3) • Primary external clues for identifying SBUs are: • Price independence (not diff prices) • Quality independence • Technological independence • Distinct customers • Distinct competitors • Substitutability • Divestibility (Getting rid of one pdt line will not affect the sales volume of another pdt line)

  13. Establishing an SBU (4) • Internal dependence of businesses is assessed by analyzing shared resources and linkages bet value chain • Support activities e.g., personnel, finance and other general overhead activities are inevitably shared bet SBU’s, but this does not imply interdependence. • Changes in strategy greatly affecting shared resources require reassessment of SBU definitions e.g., SBUs X and Y.

  14. Assigning Resources to Each SBU • The aim of identifying the company’s SBU is to develop separate strategies and assign appropriate funding.

  15. Tools for assigning resources Portfolio evaluation models: • BCG model • GE (General Electric) model

  16. BCG Matrix • What is the BCG Matrix? • What do the contents in the model mean? • What are the strategies that this matrix suggests?

  17. What is the BCG Matrix? • BCG matrix is a 2x2 growth-share matrix that helps management analyze portfolios and also suggests strategies. • What do the contents in the model mean? • Market Growth Rate:annual growth rate of the market that the SBU in ( >10% is considered high) • Relative (VS Absolute) Market Share:the SBU’s market share relative to its largest competitor( > 1.0 is considered high share) • 1. If you are a market follower, use sales of yours/ sales of the market leader

  18. 2. If you are a market leader, use sales of yours/sales of the next strongest competitor • Four different types of businesses (Walker, Boyd, Larreche Ch.2) • Question marks: Businesses in high-growth market with low relative market share • Stars: Market leaders in high-growth markets • Cash Cows: Market leaders in low-growth markets • Dogs:Low-share businesses in low-growth markets

  19. What are the strategies that the matrix suggests? • Build:to increase an SBU’s market share • Hold: to preserve an SBU’s market share • Harvest:to increase the SBU’s short-term cash flow regardless of long-term effect • Divest: to sell the business

  20. Strategies for BCG Analysis Star ---Invest (build)--- Question Mark ? ---Invest (build)--- ---Harvest--- ---Divest--- Cash cow ---Hold (maintain)--- ---Harvest--- Dog ---Harvest--- ---Divest---

  21. BCG Model(ref. Kotler Ch.3) 20% StarQuestion Marks 18% Cash CowDogs 16% 1 14% 3 2 12% Market Growth Rate 10% 8% 4 6 6% 4% 5 2% 7 0 0.6x 0.4x 1x 8x 6x 4x 2x 0.8x 10x 0.1x 0.2x Relative (VS Absolute) Market Share

  22. Questions? • Is the company healthy? • If not, what would be your suggestions? Can the company simplysell all or some of its dog businesses? • Can the company bring a Dog business back to a Cash Cow position?

  23. Frequently Made Mistakes • Require all SBUs to yield the same growth rate or return. • Leaving cash cow too early or too late. • Making major investment in dogs hoping to turn them around. • Maintaining too many question marks and underinvesting in each.

  24. McKinsey/GE Approach • looks at more factor in evaluating an actual or potential business than the BCG model does • Two key strategic dimensions: 1. Industry attractiveness: attractiveness level of the interested industry/market 2. Business strength: reflecting internal situation of company

  25. GE Model • X-axis is business strength. • Y-axis is market attractiveness. • Possible strategies based on this model are:- 1. Invest / grow 2. Selectivity / earnings 3. Harvest / divest

  26. The McKinsey/GE Business-Assessment Array Mkt. Attractiveness 5.00 Invest / Grow Invest / Grow Selectivity Earnings 3.67 Bus. Strength Invest / Grow Selectivity Earnings Harvest / Divest 2.33 Selectivity Earnings Harvest / Divest Harvest / Divest 1.00 5.00 3.67 2.33 1.00

  27. Benefit They help the managers think more strategically on what business they should eliminate or strengthen their investment. Pitfalls 1. Too much emphasis on market-share growth and entry into high-growth business. 2. Ratings and weight can be manipulated. 3. Failure to delineate the synergies between two or more businesses. Critique of Portfolio Models

  28. Planning New Business • Intensive growth:try to grow within ur biz 1. Market penetration: 1.1. Buy more 1.2. Competitors’ customers 2. Market development: 2.1. New Users: e.g., Aspirin 2.2. New locations 3. Product development: new pdt but the same tech e.g., higher quality products

  29. Planning New Business (2) • Integrative growth:add biz that are unrelated to the current biz 1. Backward integration: to secure the right ss 2. Forward integration 3. Horizontal integration: 3.1) To monopolize market 3.2) To control intensity of competition

  30. Planning New Business (3) • Diversification growth:Do not put all eggs in one basket 3.1 Concentric diversification: New cust, New pdt with similar/related tech n’ marketing e.g. milk and yogurt 3.2 Horizontal diversification: Current cust, new tech e.g., Nike’s sunglasses, sport shoes, T-shirts, etc. 3.3 Conglomerate diversification: very diversified e.g., Mitsubishi

  31. Business Strategic Planning • Set up a mission. • Conduct SWOT analysis • Define goal formulation • Define strategic formulation • Define strategic alliance • Define program formulation • Implementation • Feedback and control

  32. SWOT Analysis OPPORTUNITY THREAT External factor STRENGTH WEAKNESS Internal factor

  33. Goal Formulation • MBO (Management By Objective) • Goals should be set: • hierarchically • quantitatively • realistic • consistent

  34. Strategic Formulation Overall cost leadership Differentiation Focus

  35. Strategic Alliances Product or service alliances: e.g., Rinnai & Electrolux Promotional alliances: e.g., McDonald & Disney Logistics alliances: e.g., Star alliance Pricing collaborations: e.g., Tour organizer & Hotel

  36. The Value Delivery Sequence • Strategic marketing - customer segmentation - market selection / focus - value positioning • Tactical marketing - product/service development - pricing - sourcing, making - distributing/servicing - sales force, sales promotion, advertising

  37. Steps in the planning process • Analyzing market opportunities • Developing marketing strategies • Planning marketing programs • Managing the marketing effort • Control (annual-plan, profitability, strategic)

  38. Contents of the marketing plan • Executive summary and table of contents • Current marketing situation • Opportunity and issue analysis • Objectives • Marketing strategy • Action program • Projected profit-and-loss statement • Controls

  39. Takeaways from Today • Diff tasks to be done in 3 levels of planning (Corporate, SBU, and Functional) • How to define an SBU correctly • How to allocate resources across SBUs: BCG, and GE models • Different growth strategies

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