Module 4: Business Strategies and the Strategic Planning Process

Introduction to Business Strategy

Definition of Business Strategy: Business strategy is defined as building a competitive focus in one specific line of business.
Corporate vs. Business Strategy: While a corporation may have multiple lines of business (e.g., three, four, or five), a business strategy looks at an individual market or product line to determine how to successfully compete within it.
Examples of Multi-Brand Business Strategies: * Carnival Cruise Lines: Owns various cruise brands including Holland America, Princess, Seabourn, and Kunard. Each brand offers a slightly different experience and targets a specific audience. * Loblaw Corporation: Operates multiple grocery store brands such as President's Choice, City Market, and No Frills.
Core Strategic Question: The primary question addressed by business strategy is: "How do we win within this specific market?"
Integration with HR: Objectives at the business level must be linked to the corporate level strategy and supported by human resource programs.

The Reality of Strategic Planning: Four Types of Business Strategies

Strategic planning is a dynamic process that identifies current positions and future directions. This results in four distinct types of strategies:

Intended Strategy: The agreed-upon approach developed through formal planning. It represents the general actions intended to achieve specific goals.
Emergent Strategy: Strategies created from new ideas, conditions, or environmental changes. In dynamic environments, these emerge in response to unforeseen opportunities and threats.
Discarded Strategy: A strategy that is deemed inappropriate due to changing circumstances, corporate direction, or shifting company strategies. Changes in the business environment often make existing strategies irrelevant.
Realized Strategy: The actual implemented plan that has been seen through to fruition.
Hypothetical HR Example: * Intended: Providing various HR programs to business lines. * Emergent: Realizing a need to help businesses strengthen leadership development. * Discarded: Moving away from applying changes across all business units to focus only on large businesses while excluding smaller ones. * Realized: Whatever the actual outcome is once the programs and policies are put into effect.

Overview of the Seven-Step Strategic Planning Process

While some models use between 3 and 10 steps, standard business and HR textbooks typically identify seven steps for the strategic planning process. It is a formal written statement describing future direction, performance targets, and implementation processes.

Step 1: Mission, Vision, and Values: Establishing what the organization does, where it is going, and its core beliefs.
Step 2: Business and HR Objectives: Defining the desired destination and progress measurements.
Step 3: External Environment Analysis: Making sense of competitors and the marketplace.
Step 4: Competitive Advantage Analysis: Examining what the organization does better than anyone else, particularly traits that cannot be imitated.
Step 5: Competitive Position: Deciding how the organization will compete.
Step 6: Implementation: Defining programs and strategy execution to achieve success.
Step 7: Performance Evaluation: Assessing results and starting the iterative process again.
Note on Iteration: Strategic planning is not a single event but an ongoing, iterative (back-and-forth) process. It requires continuous analysis of the environment and mission.

Step 1: Mission, Vision, and Values

Mission Statement: Asks, "What is the organization's reason for being?" It clearly states the business's existence without outlining the full business model. It addresses purpose for employees, the community, stakeholders, and shareholders. It must be realistic, credible, and compelling. * Microsoft Mission: "To empower every person and every organization on the planet to achieve more." * Wendy's Mission: "To deliver superior quality products and services for our customers and communities through leadership, innovation, and partnerships." * Google Mission: "To organize the world's information and make it universally acceptable."
Vision Statement: A clear statement of what the organization wants to achieve, designed to unite employees. It acts as an "Employee Value Proposition" (the "why" behind joining). It paints a future state that is better than the present. * Microsoft Vision: "To help individuals and businesses to realize their full potential." * Wendy's Vision: "To be the quality leader in everything we do." * Google Vision: "To provide access to the world's information in one click."
Value Statement: Identifies what the organization cares about and the basic beliefs governing operation. It shapes employee behavior and commitment to something bigger than the self. Examples include integrity, honesty, passion, accountability, teamwork, and respect for diversity.

Step 2: Developing Objectives

Types of Goals: * Soft Goals: Broad objectives such as better leadership or corporate social responsibility (CSR). * Hard Goals: Specific numerical targets, such as achieving a $10\%$ return on net assets.
Balanced Scorecard Approach: A framework to organize, track, and measure goals across four categories: 1. Financial Results 2. Customer Satisfaction 3. Learning and Growth Characteristics 4. Internal Business Practices
HR Involvement: HR must be involved since people carry out the objectives. Determining objectives can be a long process; for example, defining CSR in one organization took over two years.

Step 3: Analyzing Environmental Context (SWOT)

SWOT Analysis: A tool to analyze internal and external environments.
External Environment (Opportunities and Threats): * Opportunity Example: Hiring talent from competitors who are conducting layoffs. * Threat Example: A potential acquisition or takeover due to high profitability.
Internal Environment (Strengths and Weaknesses): Assessing capabilities in performance management, learning and development, and customer retention.

Step 4: Competitive Advantage and Resources

Competitive advantage relates to a company's ability to use resources better than competitors to earn higher profit rates or returns on assets. Resources include:

Tangible Assets: Physical substances that can be consumed (raw materials, machinery, property, buildings).
Intangible Assets: Non-concrete assets like reputation, brand perception, and goodwill.
Goodwill: The premium paid for a company above its appraised value during a merger or acquisition. * Calculated Example: If a company pays $\$3,000,000,000$ for an appraised value of $\$2,500,000,000$ , the goodwill value is $\$500,000,000$ .
Capabilities (Human Capital): Skills, abilities, expertise, and core competencies of employees. HR contributes strategically by securing and building these capabilities.

Step 5: Competitive Position and Porter's Model

Value Proposition: A statement of benefits offered through products/services.
Employee Value Proposition (EVP): Benefits employees receive (tangible and intangible) that aids in attraction and retention.
Porter's Generic Strategies: 1. Low-Cost Leader Strategy: Providing products at a low cost to a broad market (e.g., HR focus on low-cost benefits/training). 2. Broad Differentiation Strategy: Differentiating products for a broad market (e.g., Whole Foods focusing on quality and service training). 3. Best-Cost Provider Strategy: Providing higher value at a discount price (e.g., IKEA's affordable but fashionable furniture). 4. Focused Market Niche (Differentiation): Serving a small segment with high-end products (e.g., Rolls Royce). 5. Focused Market Niche (Lower Cost): Serving a niche segment with lower-cost products (e.g., Maybelline vs. Chanel).

Step 6: Strategy Implementation

Operational Planning: Implementation involves translating strategy into tangible actions.
Components: 1. Budgets: Financial allocations for strategic activities. 2. Programs: Specific initiatives (e.g., leadership development or succession planning). 3. Procedures: Step-by-step methods to deliver programs successfully.
Goal: The realized benefits of programs should outweigh the costs, resulting in a positive return on investment.

Step 7: Evaluating Performance

Performance evaluation ensures the vision and mission are being achieved. It should happen throughout the process, not just at the end. Key operational indicators include:

Market share growth.
Sales volume and product offerings.
Product differentiation success.
Optimization of competitive position.
Employee performance and behaviors.

Common Errors in Strategic Planning

Excluding Key Decision Makers: Failing to involve key people can ruin project design. * Prevention Tool (RACI Chart): An accountability matrix identifying who is Responsible, Accountable, Consulted, and Informed.
Failing to Use the Plan as a Guide: Deviating from the developed plan leads to poor performance, wasted time, and alienated stakeholders.
Misalignment of Incentives/HR Programs: HR programs must reflect the strategy. * Examples: Not updating sales compensation when targeting a new market; hiring permanent staff for a failing business; offering expensive new benefits during an acquisition.

Corporate and HR Governance

Definition of Governance: Establishes power, decision-making authority, accountability, and the voice of stakeholders. It ensures goals are achieved ethically and in the interest of shareholders.
HR Governance Structure: * Board of Directors: Accountable for leadership compensation and succession. * Line Managers: Hold the primary authority for most people management decisions (not the HR department).
Purpose of HR Governance: Ensures line managers make decisions consistent with organizational guidelines, philosophy, culture, and ethics. It defines who has authority for financial transactions and policy decisions within HR. It prevents conflicts of interest and ensures due process for employees.