Strategic Planning - Case Study Example

Strategic Planning (17, 10, Strategic Planning Strategic planning comprises of several components. These include developing a company’s missionand vision and defining the goals and values of the organization. Developing these components establishes the direction of the company and helps to position it for success in future.  There are many advantages of strategic planning but some companies do not do strategic planning. Some of them feel that they don’t need strategic planning as they are small in size.If there is no or only a weak competitive pressure on a company whose environment is characterized by low uncertainty there may be no need of formal planning. (Kim & Mauborgne) Small companies struggling to survive have no formal planning structure implemented because the talent of the top executives and mangers will be devoted on selling the product or service. (Steiner) Many executives are also skeptical of strategic planning. In fact, the process is looked as a barrier to good decision-making. Example: Strategic planning appears to be rare in the small business environment. Most small firms do not engage strategic planning at all, and the rest may do so only temporarily. This is because small business planning behavior has been characterized as unstructured, irregular, comprehensive, and reactive. The small business managers goals are described as vague or inadequately defined, pragmatic and short-range. The costs involved and the time required for strategic planning is unnecessary for small business. Problems of Strategic Planning  There are many problems associated with strategic planning. The process is usually conducted annually, and focuses only on individual business units. Effective strategy planners spread strategy reviews throughout the year. Companies that develop strategy continuously are more efficient.S trategic planning is only successful if a company actually works to model the mission and values set forth. If it’s just a statement on a wall or in an employee handbook, and there’s no action on the part of senior management to communicate the mission and vision to all employees it’s not going to work.  A variety of ideas are not generated in strategic planning. The organization has to ensure that various perspectives and different levels of knowledge are reflected. This can be achieved by including senior management representatives from all functional units of the organization. That should include small units as well as those units that are far away from corporate HQ. (Burke & Morrison) In some cases only top managers contribute to the agenda of the strategy meeting. Not all important issues will be set to the agenda and some important aspects that have an impact on the Meta level of corporate issues are not considered. Strategic decisions’ quality can be improved if middle management contributes its knowledge to the stage of agenda setting. It is therefore recommended to establish a procedure that ensures the involvement of middle managers during the process of agenda setting. Degree and content of such a procedure should consider both size and structures of the organization.(Steven & Jaret) SWOT Analysis SWOT analysis is a tool which is used mainly for strategic planning. It identifies strengths, weaknesses, opportunities and threats of an organization. It looks at favorable, unfavorable events pertaining to an event, and also the internal and external factors involved with achieving specific objects. There are both advantages and disadvantages of this type of analysis. (Fine) Advantages: Its helps summarizing and clarifying opportunities and issues faced by Business organizations. It plays a key role in how a business sets it objectives and develops strategies for achieving goals Another advantage of this technique is its low cost. New ideas are generated using the SWOT analysis without costing the business much. Time and resources are required for hiring business strategists or marketing teams, but SWOT analysis can easily be performed by anyone who has an understanding of how business is run. (Williamso, Cooke, Jenkins, & Moreton) SWOT analysis is also very simple to conduct. The advantage again is t hat no expertise is needed to perform the analysis and anyone from the organization can perform it. Disadvantages: The simplicity with which the analysis can be performed is also a disadvantage. A list is made through the SWOT analysis which may not focus sufficiently or deeply on how objectives are to be achieved. The list is not presented critically. Further research is also required for SWOT analysis. It needs to be extended beyond the simple list of opportunities, strengths, weaknesses and threats.The business should know what degree of strengths and weakness it posses as compared to its competitors so that it knows how much strong those strengths are. It should also know the size of the opportunity or the threat to evaluate the relation with its competitors. While a SWOT analysis can be simple and straightforward, more research and analysis is usually needed in order to obtain a comprehensive picture. Limitations The SWOT framework has the tendency to over simplify things. This may lead to classifying firms environmental factors into categories they may not usually fit in. The classifications of strengths, weakness, opportunities and threats are also arbitrary. A technological change can be either an opportunity or a threat. A company’s culture can be a strength or a weakness.. (Harvard Business Press ) Overall cost leadership Low cost strategy works on the capability of the company to produce and deliver products at lower costs than that of competitors. It demands the companies to develop policies which focus on bringing the costs down. Company strategies aimed at controlling costs include: Construction of efficient-scale facilities, Tight control of costs and overhead, Avoiding marginal customer accounts, Minimizing operating expenses, Reduction of input costs, Tight control of labor costs, Lower distribution costs. Low-cost leader gains competitive advantage by bring down the costs of production or than those of the other competitive firms in the market. The strategy is very important for firms selling unbranded commodities in industries such as beef or steel. Some companies use their good cost structures to protect their markets from the competitors’ market by responding to its move of making in-roads in the market space by reducing prices. We need to adopt cost leadership generic strategy for the following reasons: Price competition among competing sellers is a dominant competitive force. The product is a commodity-type item easily available from a variety of sellers. There are not many ways to achieve product differentiation that add value to the buyer. Most buyers use the product in the same ways and have much the same requirements. Buyers incur low switching costs in changing from one seller to another and are prone to shop for the best price Buyers are large and have significant bargaining power Pitfalls: Any generic strategy has their share of risks involved. The risks in cost leadership are: Other firms may be able to lower their cost as well As technology improves the competitor maybe able to leap frog the production capabilities thus eliminating the competitive advantage Firms following focus strategy may be able to achieve even lower costs within their segments and gain significant market share. Example: One of the most prominent businesses using low price strategy is IKEA. To many consumers, IKEA means low-priced furniture, design and style, and shopping convenience. IKEA’s cheap furniture does not make consumers feel cheap but rather beautiful, convenient and well-designed. IKEA has a unique shopping culture that makes consumers feel a “real design and style” when they shop. Thus, brand awareness gives IKEA a great power in the US market. IKEA’s motto is “low price with meaning”, giving customers both low price and value. Product Differentiation Product differentiation is the process which identifies the differences that exist between goods and services that are for consumption by the same segment of the consumer market. The idea behind product differentiation is usually to convince consumers that a particular product is able to fulfill all the functions associated with the competition, but can do so more effectively and possibly at a lower cost. (Anderson, Palma, & Jacques-Francoi) A number of different tactics can be used to create this perception, while still offering the customer some type of value added incentive. The different techniques of product differentiation are: 1. Using packaging which is more user friendly 2. The product can be used in more than one situation 3. Customizing the product according to the customer needs 4. Advertising can also identify additional functions that the product can provide that are not offered by the competitors. There are seven ingredients of a unique, superior product with real value for the customer: 1. It meets customers’ needs better than the competitive products. 2. Is has better-quality than competitors 3. Has unique benefits and features for the customer. 4. Solves customers’ problems with competitive products. 5. It has better value-in-use. 6. Have clearly visible benefits for users. 7. Is innovative— the first of its kind on the market.(Cooper) Truly Superior, Differentiated Products have an average 98% success rate and 53.5% market share, while “Me-Too” Products averaged an 18.4% success rate and 11.6% market share. Though the desire for quick revenue and immediate return within organizations is often strong, there is good cause for launching the “right” product. In the end we will get paid for the extra effort we put in differentiating a product. Pitfalls: Increased costs for the company to maintain the competition within the market place and maintain their market share. This also works against the consumer, as new products make older products obsolete. Product superiority should be defined in the eyes of the customer. While we may believe our product to be superior on one or more dimensions, it is ultimately up to the market to decide whether this is or not. Example A good example for product differentiation is toothpaste. It has gone from a commodity product with superficial advertising to promotional based product with differentiated features that deliver specific benefits. For example, Crest toothpaste has nine different products catering for different consumer needs. Its still an emotional decision, but the product information has become quite detailed to target differentiated products to market segments. Focus Strategy By implementing product differentiation or cost leadership strategy, companies compete via exploiting there core competencies. Organizations can also use focus strategy in which they compete by serving a particular target market. Companies focus on specific smaller niche segments customers rather than focusing on the entire market. Companies choose to follow focus strategy due to the following reasons: 1. The niche market needs are so special that the industry wide competitors chose not to meet them 2. Narrow segments are served poorly by the industry wide competitors as they aren’t focusing on that particular market. 3. The company thinks that it will be able to serve a particular segment more effectively and efficiently rather than catering to the whole industry. Focus strategy can be either based on differentiation or cost leadership. Focused cost leadership This is where companies try to serve narrow market niches generally targeting the smallest buyers in the industry. (These are those buyers who purchase in small quantities and the industry-wide sellers can not meet their needs at low cost) IKES has adopted a low cost focus strategy. The company offers home furnishing that is of good design, functional ad available at a low price. The company does so by offering low cost modular furniture’s and using self service as an alternative to having sales force following and urging the customers to buy products. It has home like displays which eliminate the need for decorators or sales associates to visualize the setting and reduce employee cost. Customers have to pick up there own purchase to reduce company cost. Focused Differentiation strategy Companies who follow this strategy make customized products for small market segments. This strategy can be successfully implemented in industries where, either customization as requested by the consumers is beyond the capabilities of industry-wide differentiator, or the quantity involved is very small for large sellers to handle it economically. Foe example companies like Lamborghini, Ferrari and Aston martin compete in the tiny super car category. Pitfalls: 1. Competitors may focus on even smaller segments of the market 2. Industry-wide seller may recognize the attractiveness of the niche segment identified by the company and use its superior resources to better serve the segment needs 3. Preferences and needs of the niche market recognized may over time become similar to the broader market, eliminating the advantage of focus strategy Bibliography Anderson, S. P., Palma, A. d., & Jacques-Francoi. Discrete Choice Theory of Product Differentiation. Burke, D., & Morrison, A. Business @ the Speed of Stupid: Building Smart Companies After the Technology Shakeout. Perseus Books. Cooper, R. Product Leadership: Creating and Launching Superior New Products. Fine, L. G. The SWOT Analysis: Using your Strength to overcome Weaknesses, Using Opportunities to overcome Threats. Harvard Business Press . SWOT Analysis I: Looking Outside for Threats and Opportunities. Kim, W. C., & Mauborgne, R. Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant. Harvard Business School Press. Steiner, G. A. Strategic planning: what every manager must know. Steven, & Jaret, P. Business Plans Kit for Dummies. Hungry Minds, Inc. 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