The Nature of Strategic Planning

The Nature of Strategic Planning

“There are a lot of great ideas that have come and gone in (the digital advertising) industry. Implementation many times is more important than the actual idea.”
-David Moore, CEO of 24/7 Real Media

Strategic planning is the managerial  process of creating and maintaining a fit between the organization’s objectives and resources and the evolving market opportunities. 

The goal of strategic planning is long-run profitability and growth. Thus, strategic decisions require long-term commitments of resources.

Large companies may manage a number of very different businesses called…
Strategic Business Units. SBUs

SBUs are a subgroup of a single business or collection of related businesses within the larger organization.

Characteristics of a  strategic business units:
A distinct mission and specific target market

control over its resources
It’s own competitors

A single business or a collection of related businesses.

In Theory, an SBU should have it’s own resources:

  • Accounting

  • Engineering
  • Manufacturing
  • Marketing

In reality, an SBU will at time have to share:

  • Manufacturing Facilities

  • Distribution Channels

  • Top Level Management

(pic of football plays on blackboard)

There are several tools used to  manage the strategic direction of a company’s portfolio of business.

The 3 most commonly used are:

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  1. Ansoff’s Strategic Opportunity Matrix

  2. The Boston Consulting Group Model

  3. The General Electric Model

Ansoff’s Strategic Opportunity Matrix Matches products with market

Market penetration: A firm using market penetration alternative would try to increase market share among existing customers.

Market development: A firm using market development alternative would try to attract new customers to existing products.

Product development: A firm using product development would use a strategy that allowed the creation of a new product for present market.

Diversification: A Firm using diversification strategy would be increasing sales by introducing new products into new markets.

The Boston Consulting Group Model

A firms mid and top level management must find harmony between SBUs that show a firms overall desired growth and profits with an acceptable amount of risk.

Potfolio Matrix
A tool for allocating resources among products or strategic business units on the basis of relative market share and market growth rate

Star is a fast-towing market leader within a businesses portfolio matrix. 

Ex: Ipad
One of Apple’s Stars.
Star SBUs have large profits but need lots of cash to finance rapid growth.

Cash Cow is an SBU that generates more cash than it needs to maintain its market share.

MacBooks and laptops are categorized as cash chows. 

It is in a  low-growth market and the product has a dominant market share.

Problem Child or Question Mark
Shows rapid growth but poor profit margins. 

Problem children need a lot of cash.

Without cash, they become dogs.

DOGS:
A dog has low growth potential and a small market share. Most dogs eventually leave the market place to die or dissolve.

The 4 Basic strategies for an SBU to allocate resources are:
 Build: If a company has an SBU that it believes has the potential to be a star, building would be the appropriate goal.

Hold: If an SBU is a successful cash cow, a key goal would be to hold or preserve market share. That allows the company an advantage of very postive cash flow.

Ex. Project Runway is a cash cow for lifetime Cable and parent companies Hearst and Disney.

Harvest: Appropriate for all SBUs except the ones classified as stars. The goal is to increate the short-term cash return without too much concern for the long-term impact.

Ex. Lever Brothers has been harvesting Lifebuoy soap for a  number of years with little promotional backing.

Divest: Getting rid of SBUs with low shares of low-growth market is often appropriate. Problem children and dogs are most suitable for the divest strategy.

Ex. Nestle is in the process of selling it’s powerBar SBU. PowerBar is an underperforming brand.

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The General Electric Model is the third model for selecting strategic alternatives.

Named after General Electric.

Market attractiveness and company strength are the measurements used in this model. It is a richer and more complex dimension…compared to the Boston Consulting Group Model…But it is harder to quantify.