Strategic Thinking and Planning

Strategy

Is an integrated pattern of decisions an organization makes to achieve its objectives through resource allocation and actions in various markets

Internal Strategic Decisions

Allocations of resources within the firm

External Strategic Decisions

Moves the company makes in relation to its rivals and other firms in the market

Operational Decisions

Those that require a decision maker to evaluate how to do things right. Meeting objectives without wasting resources

Strategic Decisions

Choices that managers make about how to do the right things.

This is about effectiveness.

Goal

A desired outcome, a specific end state the organization wants to achieve

Strategy

Is the organization’s mean for achieving its goals

Management by Objective

Very detailed goals for the overall organization as well as their individual business units and then evaluate performance against these goals

An organization might set goals for:

-The entire corporation

-Individuals businesses within the corporation

-Departments within each business

-Teams or individuals within each department

Strategic Decisions

Strategic decisions are focused on how to do the right things. When managers make strategic decisions, they must take into account several unique features

1. Span functional areas of an organization

Strategic decisions must consider the allocation of resources across the entire organization

2. Require “fit”, or internal and external alignment

Strategic decisions must be aligned with the organization’s internal

characteristics as well as the realities of the external environment

3. Typically long term

Strategic decisions provide a road map for the organization to arrive at a desirable end state at some point in the future

4. Made in a competitive context

Strategic decisions must account for the actions of competing firms

Components of strategy

There are generally four categories of types of decisions that are strategic in nature: arenas,staging, vehicles, and differentiators

Arenas

Where will the firm be active? Managers need to choose in which product markets and countries the firm will be complete

Staging

How fast or slow will the firm expand? Managers need to choose the best sequence of the firm’s moves

Vehicles

How will the firm get into different product markets or countries? Managers need to choose between exports, licensing agreements, alliances, acquisitions, building new facilities, etc

Differentiators

How will the firm win? Managers need to choose how the firm will compete with direct rivals, through r&d, proximity to customers and excellent service, innovate products

Cross-Functional Aspects of Strategic Decisions

They span marketing, manufacturing, and other functional areas of the organization

Functional Policies

Long term policy decisions that affect only one functional area of a

business

Strategic Fit

Strategic fit describes the degree to which an organization’s policies are consistent with one another and are suitable for the environment in which the organization operates

There is not one best strategic decisions for all firms

Internal Alignment

Internal alignment is the coherence among all the functional policies and internal activities of an organization. This allows the organization to take advantage of its strengths and minimize its weaknesses

Examples of internal factors

Financial resources, physical resources, relationships with suppliers, human resources, business processes

External Alignment

External alignment is the consistency among a firm's policies and activities that allows the firm to take advantage of opportunities present in the external environment and to minimize threats

Examples of external factors

Customers

Competitors

Suppliers

Government

Special Interest Groups

Opportunity Cost

Opportunity cost is the loss of potential benefits from non chosen alternatives when another alternative is selected

Long term decisions

-Strategic in nature

-Focused on effectiveness (doing the right things)

-Require careful evaluation of many alternatives

-Generate risk and opportunity costs

-Difficult to reverse

-Concern major commitments such as building assets in a foreign country or merging with a rival

Short term decisions

-Operational in nature

-Focused on efficiency (doing things right)

-Involve a limited and well known set of choices

-Limited risk and opportunity cost

-Easy to reverse

-Concern minor commitments such as adding new product features or purchasing components from a new supplier

Qualitative Competitor Analysis

Goals, assumptions, strategies, capabilities

Assumptions

The assumptions a competitor makes about itself and the other companies in its industry can create certain biases or blind spots about customer preferences or market changes

Capabilities

Assessing a competitor's capabilities permits an appraisal of the competitors ability to initiate or react to strategic decisions

Offensive Moves

-Is the competitor satisfied with its current position?

-What likely moves or strategy shifts will the competitor make?

Defensive Capabilities:

-Where is the competitor vulnerable

-What will provoke the greatest and most effective retaliation by the competitor

Sensitivity Analysis

When a manager understands there is a source of uncertainty, they will run a sensitivity analysis. Sensitivity analysis is an investigation of how the benefits or costs of a decision will change with different assumptions

Scenario Planning

Scenario planning considers many contingencies rather than one most likely situation.

This increases the organization’s flexibility to adapt to environmental changes.

Scenario planning typically occurs in five stages

Stage 1 of scenario planning

Managers identify a core issue, such as “should our firm build a plant in South America in the next five years”

Stage 2 of scenario planning

Managers identify critical uncertainties and driving forces in the external Environment

Stage 3 of scenario planning

Managers create four-cell tables to consider two uncertainties

Stage 4 of scenario planning

Managers identify the implications of each scenario, including the firm’s vulnerabilities, gaps in its resources and capabilities, alternative strategies, and critical decisions to make

Stage 5 of scenario planning

Managers evaluate strategic alternatives to determine how attractive or unattractive each alternative is under the different scenarios

Strategic Flexibility

Is the ability to shift course and alter investment and operations to deal with changing conditions.

Identification of contingencies affecting the firm can help managers develop specific plans while also being flexible to uncertain circumstances that arise.

Defensive

Hang onto what has worked in the past and make incremental

refinements to the firm’s operations

Reactive

Make adjustments only when forced to do so by the external

environment

Analyzers

Actively benchmark other rivals, analyze what works for them, and

imitate what appears to be successful

Prospectors

Adopt a proactive stance, attempting to create opportunities

through innovation