Strategic Planning Process - From Conception to Execution

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Information about Strategic Planning Process - From Conception to Execution
Business & Mgmt

Published on March 14, 2014

Author: MoazzamRafique1



Strategic Planning Process
From Conception to Execution

F r o m C o n c e p t i o n t o I m p l e m e n t a t i o n Strategic Planning Process By Moazzam M. Rafique

1 2 3 4 Identify Strategic Business Opportunity Evaluate the opportunity for industry prospects Evaluate the opportunity with BCG Model Opportunity to Business Plan Contents 5 6 Decision on Opportunity Operationalize the opportunity

A Strategic Opportunity is the one with significant profitable prospects reflecting 20-30% growth in revenues and profits Internal sources • Managerial Meetings • Internal dialogue •Organization’s capabilities •Gross-root initiatives •Focused Groups. External sources • Customers’ needs • Competition benchmark •Technology & innovative trends • Industry transformation A strategic opportunity (SO) needs to be searched and well-thought. Following can be used to identify a SO:

SO should be evaluated for competitiveness and growth prospects to ensure sustainability and profitability. Use following table to identify market competitiveness Criteria Description Market size and share How much is total market size of the identified business? Is it significant enough to current business? Market niche and unsatisfied needs of the customers Un-satisfied needs of the customers should be identified to capture a market niche. Market niche, by definition, means highest market share. Price expectations of the market What is the price customers are expecting for the underlying product/service? What are prices of competitors and substitute products? Market growth rate Annualized growth rate of the identified market? Markets growing for more than 10% and GDP growth rate provide sustainable business. Can we deliver in expected price Our pricing for the identified product. What are the margins Net profit margins based on our pricing and operating costs. Barriers to entry and exit. Barriers to entries like huge investments, legal contracts, etc. Barriers to exist like reputation, sunk costs, human resources, other losses etc.

Based on above information, each opportunity is given a position in following matrix of Boston Consulting Group It is important to understand the competitive landscape to ensure right decision M A R K E T G R O W T H H I G H Question mark Question marks are growing rapidly and thus consume large amounts of cash, but because they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has the potential to gain market share and become a star, or a cash cow. If the question mark does not succeed in becoming the market leader, then it will degenerate into a dog. Question marks must be analyzed carefully in order to determine whether they are worth the investment required to grow market share. Star Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows. Sustaining the business unit’s market leadership may require extra cash, but this is worthwhile if that’s what it takes for the unit to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership, or they move from brief stardom to dogdom. L O W Dog - Low market share in a mature, slow-growing industry. These units typically "break even" and move gradually to closure. Cash cow - Market is saturated. - Try to "milk" continuously with as little investment as possible, since such investment would be wasted in an industry with low growth. LOW HIGH M A R K E T S H A R E

Convert the identified opportunity to a business plan by using following Strategic Triangle Model Strategy Triangle Model converts a SO to a complete business covering all important areas.

Whom (Target Customers) What (Product List) Where (Geographical locations of the business) How Much (Sale Value for each product) When (When to sell each of the products) For How Long (How stable is that long-term buying relationship) Market Focus Market Focus addresses six key questions about the target customers, potential products and related matters.

Unique Value Propositions (UVP) are the differentiating factors on which the Business Model is based. How do we do and what we do better than our competitors? Unique values reflect the complete business model including target market niche. Each UVP should be compared with the competition to ensure it is real UVP. UVPs will always be under threat from the competition so should be reviewed regularly (every 6 months). Two generic UVP strategies are Lowest Price Model and Differentiation. Lowest Price Model is not sustainable without underlying low cost operations. Differentiation identifies un-served, un-satisfied needs of the customers to create a niche. A differentiation (UVP) addressing a bigger market segment will lead to a biggest market share. Must be deliverable Must be better than the competition Must be sustained/improved Must be relevant & attractive Must be reviewed regularly UVPs

Core Functions cover key requirements to achieve and sustain UVPs. CFs must be linked with UVPs Core functions must be evaluated in detail to ensure UVP sustainability. Financing Process & Policies Org. Structure Informa- tion Systems People Core Functions

Decision on a SO is based on Financial Goals i.e. whether SO provides positive returns and increase in shareholders’ wealth. FGs must reflect Market Focus, UVPs and CFs Commonly used Financial Goals include Return on Capital Employed, Return on Equity, IRR, Net Present value of Future Cash Flows, Payback period Normally, a Strategic Opportunity is selected if its NPV is positive or IRR is more than cost of Financing It is important to consider opportunity cost to ensure efforts are put on the highest possible value. FGs should be evaluated over a longer term horizon to ensure profitability and sustainability. Sensitivity analysis helps to identify the impact of worst case scenarios and survival Payback ROE ROCE IRR NPV • Net Present Value of the Future Cash Flows • Internal Rate of Return. If its higher than cost of funds • Return on Capital Employed (Equity+Borrowing) • Return on shareholders’ equity. • Payback period of the investment

Once an opportunity is finalized, it needs to be operationa- lized without undue delays to avoid replication by the competitors. Operational plan should address all of the actions and resources required to launch, including 1. Timelines for the actions 2. Required resources (human, financial and others) 3. Planned management structures 4. Scenario planning 5. Training 6. Risk mitigation 7. Budgets 8. Performance measurement and Accountability (use Balanced Scorecards)

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