Key Concepts in Strategy and Strategic Planning

Strategy

  • A set of related actions taken by managers to enhance company performance.

  • Importance of generating VALUE: Outputs > Inputs.

Measuring Value

  • Value Added: Outputs more valuable than inputs (e.g., raw materials, labor).

  • Value chain example:

    • Raw materials → Component parts → Manufacturing → Final assembly → Distribution & retail → Customer.

Determinants of Shareholder Value

  • Key Factors: Profitability (ROIC), Profit growth, Effectiveness of strategies, Competitive advantage.

  • ROIC: ext{ROIC} = rac{ ext{Net Profit}}{ ext{Capital Invested}}

  • Sustained competitive advantage: Above-average profitability maintained over years.

Business Model

  • Conceptual framework on how strategies work together for competitive advantage.

Strategic Planning Process

  1. External Analysis (Opportunities & Threats)

  2. Internal Analysis (Strengths & Weaknesses)

  3. SWOT Analysis

  4. Strategic Choice (Business model, Mission)

  5. Functional Strategies (e.g., Global, Corporate)

  6. Governance & Ethics

  7. Organizational structure & culture.

Mission, Vision & Values

  • Mission: Purpose and goals of the company.

  • Vision: Desired future state of the company.

  • Values: Guidelines for employee conduct.

  • Goals: Specific, measurable targets for achievement.

SWOT Analysis

  • Purpose: Identify strategies that leverage strengths, exploit opportunities, and address weaknesses.

  • Components:

    • Internal Analysis: Strengths & Weaknesses.

    • External Analysis: Opportunities & Threats.

Criticisms of Formal Planning Models

  • Real world unpredictability.

  • Overemphasis on top management.

  • Neglects lower-level managers' roles.

  • Success from serendipity, not just planned strategies.

Mintzberg's Model of Strategy Development

  • Types: Deliberate, Realized, Emergent, Unrealized strategies.

  • Strategy can be influenced by unpredicted changes and autonomous actions by lower-level managers.

Strategic Planning in Practice

  • Scenario Planning: Identify multiple futures, formulate plans, and adapt based on evolving circumstances.