Differences between Annual Planning and Strategic Planning - Assignment Example

PART A: STRATEGIC PLANNING 1. What are the differences between annual planning and strategic planning? Both strategic and annual planning are management tools. More particularly and simply put, strategic planning determines where an organization is going over the next year or more and how it is going to get there. It is a process that tries to describe an organization’s strengths, weaknesses, opportunities and threats and, at the same time, outlines the organization’s (usually five-year) goals, strategies to achieve the goals, and directions for the given duration of time. Concretely, strategic planning – as a planning tool – provides a blueprint to further and strengthen the organization’s activities, address areas for improvement, and move the program forward to new accomplishments. In the past, organizations call the process of strategic planning long-range planning. More recently, however, planners turned to “strategic planning” to more ably capture the nature of this comprehensive, thoughtful and well-placed planning process. Typically, the process of strategic planning is organization-wide, or focused on a major function such as a division, department or other major function. As with any management tool, it is used for one purpose: to help an organization do a better job by focusing its energy, ensuring that members of the organization are working towards the same goals, assessing and adjusting the direction of the organization in response to a changing environment. A specific way of looking at strategic planning is to consider the activities that it includes. Firstly, it consists of strategic analysis. This activity includes conducting a scan, or review, of the organization’s internal and external realities and environment. Secondly, it consists of setting strategic direction. Vis-à-vis the major issues and opportunities facing the organization, planners then consider what the organization must do. This includes the setting of the over-all accomplishments (or strategic goals) the organization should achieve, and the over-all methods (or strategies) to achieve the accomplishments. And, finally, strategic planning is consisted of action planning, which is the careful laying out of how the strategic goals will be accomplished. Often this includes specifying objectives or specific results with each strategic goal. Under the process of action planning, it is common to develop an annual plan (sometimes called operational plan or management plan), which includes the strategic goals, strategies, objectives, responsibilities and timelines that should be done in the coming year. While the strategic plan is spearheaded by the top management, the annual plan is accomplished by the lower – i.e., middle and/or first-line – managers. Between the strategic plan and the annual work plan, there are some overlaps. However, the differences between them are similarly obvious. The strategic plan describes the broad strategies a program will use to achieve its, say, five-year program goals. In contrast, the annual work plan is the program coordinator’s guide to running the program on a yearly basis. The strategic plan gives an overarching five-year view of the program and goals. The annual plan walks the user through a specific, annual program objective, program timeline, and an outline of what particular people need to do to implement the program – for example, recruit members, convene the meetings, document the meetings, create criteria for identifying partnership members, etc. 2. Discuss five (5) reasons why retailers should plan strategically. Strategic planning is helpful not only for big companies, but can do wonders too even for retail enterprises – or a person/agent or agency/company/organization who is instrumental in reaching the goods or merchandise or services to the end users or ultimate consumer. For example, restaurants that have great nighttime business but no volume during the day would benefit from a strategic plan that is particularly focused on increasing daytime business; or small bookstores struggling to compete with neighborhood giants would benefit from strategic planning to help attract book worms to their shop. The retail industry, while it has been present since time immemorial in the business world, is recently a witness to so much dynamism. For instance, in India, retail has more to do with the increased purchasing power of buyers, increase in product variety, and increase in economies of scale, with the aid of modern supply and distributions solutions. Thus, retailing today finds itself at an interesting crossroads; and, as such, retailers are facing numerous challenges – such as in the areas of location, merchandise, pricing, target audience, and scale or operations -- in preparation for which strategic planning process can be of help. Frequently, retail entrepreneurs do not suffer from dearth of ideas; for, in fact, they entertain and act on too many ideas. Without strategic planning, this spontaneity creates spending that is not connected to budgets and also a confusing array of incomplete and unrelated ideas that do not reverberate with customers – thus, wastage of resources and opportunities. For it is strategic planning that provides a framework for action that is embedded in the mindsets of the organization and its employees. With strategic planning, managers particularly can have an occasion to assess strategic situations similarly, discuss the alternatives in a common language, and decide on actions (based on a shared set of values and understanding) that need to be taken in a reasonable period of time. Shortly said, a valid reason for strategic planning for retail industry is to deal with possible wastage of resources and opportunities by building the strategic management capacity of the organization. Because the process of strategic planning involves scanning of internal and external environment, it helps the organization to develop, organize and utilize a better understanding of its context – that is, industry or arena – in which the retail industry operates, of its customers (both current and potential), and of its own capabilities and limitations. This leads to a clearer idea of organization’s identity and more lucid grasp of the business environment. To date, retail industry is very much dynamic. And strategic planning provides an opportunity on at least an annual basis to constantly adjust to current events and actions by competitors. Strategic planning likewise provides the proper incentives to attract and properly motivate key managers in the organization. Finally, still in relation to the dynamism of retail industry, strategic planning is akin to down-board thinking, or the way world-class chess players think. This makes one not only to decide on immediate moves, but also to look “down board” and consider opponent’s possible responses to one’s moves and plan a number of moves ahead. PART B: CASE STUDY (STARBUCKS RETAIL MARKETING STRATEGY 1. Who is Starbucks’ target market? Describe the target market using one set of consumer characteristics. Explain why you think this group of people is the target market for Starbucks. The target market of Starbucks is any person and any age. Its customer base is diverse. This is revealed the product positioning that Starbucks has. They have introduced so many products that are set to capitalize on the Starbucks brand. The store offers juices and cocoa for children, creamy blended drinks for those who don’t particularly like coffee, and a number of different types of brewed coffee, in addition to the specialty breakfast foods that it offers such as scones and muffins. In addition, we are aware that Starbucks continues to refine and target their product offerings to the changing tastes of consumers. For our purpose, let us try to describe Starbucks’ target market in terms of demographics, or things such as age, sex, marital status, education, occupation and income. Starbucks targets both males and females, mainly 18 to 30 years old, but really does cater for everybody’s needs. It also offers a range of non-coffee beverage to cater for those who are not taking coffee among family members. The ambiance that Starbucks maintain in all its shops makes their customers exude certain coolness and give off the image of having some sort of social status, with lots of money to spare. It is not surprising, then, that Starbucks’ customers are mainly in their final years of high school, in university, or just starting to work – meaning, they have had a good education, and, if they do have a job, it almost certainly includes a big income as well. According to psychographic research, which is about personality and attitude measurement, consumer segments are likely to respond to specific marketing messages. And there is strong evidence that in each of the social classes there is a constellation of specific lifestyle factors – like shared beliefs, attitudes, activities and behaviors) – distinguishing members of each class from the members of each class from the members of all other social classes. Thus, Starbucks continues to target their market segment because the store is actually selling a lifestyle – to both customers and employees by creating an atmosphere where people doing similar activities and having complementary interests and opinions spend their time. Understandably, Starbucks has made the front porch as extension of coffee (just as the English pub is an extension of people’s homes but for a different beverage) – making it a gathering and meeting place in addition to the coffee. And, referring to this, said Scott Bedbury, Starbucks VP of Marketing: “…I think that’s maybe what Starbucks has to offer people: that safe harbor, that place to kind of make sense of the world. In the long run, what distinguishes us from our competitors, what is the most enduring competitive advantage we have, is that we are able to give our customers an experience at the store level… (of offering) a place, an experience, tied up in inspired thought.” 2. What is the retail format of Starbucks? Select one of the marketing mix elements and explain how it contributes to satisfying the needs and wants of the target market you identified above. Starbucks chooses to associate itself with all things bustling, active and vigorous. Thus, its locations of all the stores are carefully selected for convenience and Starbucks specifically targets places that are heavy with pedestrian street traffic. Some of the place where one would find a Starbucks are either in the form of a large store or just a small kiosk (both ideal just for popping in for a quick take away coffee or for a nice light lunch break) would be at shopping centers, airport terminals and supermarket foyers – places that are always hectic and filled to the brim with people who have busy lifestyle and are always on the go. Traffic is another consideration in selecting locations. For where there is a big traffic of vehicles, highly visible location it is. And this provides access to customers that value quality and great coffee. Besides, location strategy of Starbucks involves “clustering”. Clustering means saturation of major market before new markets are entered. For instance, there need to have at least 100 Starbucks outlet in, say, Seattle before the company expands to another new region. When this positioning strategy was first embarked on by the company, Mr. Schultz was said to have lost his mind. The subsequent years, however, of the Starbucks have proven that several stores in close proximity to one another are generally increasing over-all revenue. 3. Does Starbucks have a competitive advantage? If yes, describe what it is and give details of its primary source. Explain why you think this is a competitive edge or a sustainable competitive advantage. If no, explain why you think Starbucks does not have a competitive advantage. What should the company do to develop one and what should be its primary source? Discuss your reasoning for selecting the primary source as the basis of the development of a sustainable competitive advantage. First, a brief description of competitive advantage and how it is important. Competitive advantage is the responsible factor for any company’s success in warding off business rivals and substitutes and sticking around for a long period of time. Its importance consists in its ensuring the company’s earning of excess returns for a longer period of time. Competitive advantages do not just come in one form – that is, companies can have multiple competitive advantages. This is so because at least there are six areas where companies can stand out and ensure their long-term success. And these are market share, strong brand management, enjoying the network effect, having certain trademarks and patents, being cost effective and creating high switching costs. Now, of these areas, it is said that Starbucks’ strong brand management – for which a firm can charge a price premium – is its competitive edge. It was actually something that baffles analysts for it was uncommon to charge premium price for commodity product like coffee. In an interview, Howard Schultz tries to explain that Starbucks has been able to build a sustainable brand not simply through advertising and sales promotion, but through the emotional connection with their customers. And this is accomplished in everyday occasion of touching and interacting with their customers directly. Schultz is taking pride that they have done a wonderful job of knowing their customers’ drink, names and even their kids’ names. And this Schultz identifies as the soul and the conscience of the company. According to him, this makes the company transcend its limitation – one of which is the fact that Starbucks does not have patent on anything that it does. Accordingly, one thing that Starbucks has learned over the years is that what employees do in front of customers matter very much. It’s more than the roasting of highest quality of coffee and delivering it fresh to the customers; it has included the way in which it is delivered, the style, the elegance, the environment, the relationship of the staff to the customers, and the trust that staff have built with customers. Starbucks competes directly against specialty coffees sold at retail through supermarkets, specialty retails, and a growing number of other specialty coffee stores. In addition, Starbucks compete for whole bean coffee sales with franchise operators and independent specialty coffee stores. In virtually every major metropolitan area where Starbucks operates and expects to expand, there are local or regional competitors with substantial market presence in the specialty coffee business. But Starbucks’ biggest competitor in the coffee industry is the Coffee Bean. PART C: CASE STUDY (Strategic Profit Model) 1. Using Exhibit 2, construct strategic profit models for Radio Shack and Best Buy by using data from the abbreviated income statements and balance sheets in Exhibit 1. You can do these calculations by hand. A. The Return on Assets for Radio Shack is computed, thus: Figures from the Income Statement The Gross Margin (of Profit) amounts to 2,434, being difference between the Net Sales (4,841) and the Cost of Goods Sold (2,407). The Total Expenses amount to 1,876 or the sum of the Variable Expenses in the amount of 101 and the Fixed Expenses in the amount of 1,775. The Net Profit is 558, or the difference between the Gross Margin and the Total Expenses. The Net Profit Margin is 0.1152, or the quotient of the Net Profit (558) and the Net Sales (4,841). Figures from the Balance Sheet The Total Current Assets is 1,776, or the sum of the Inventory, the Accounts Receivables, and the Other Current Assets. The Total Assets – in the amount of 2,518 – is the summation of the Total Current Assets (1,776) and the Fixed Assets (742). The Asset Turnover is 1.92, being the quotient between Net Sales (4,841) and the Total Assets (2,518). The Return on Assets for Radio Shack, which is the product of the Net Profit Margin (0.1152) and the Asset Turnover (1.92) is 0.221184. B. The Return on Assets for Best Buy is computed, thus: Figures from the Income Statement The Gross Margin (of Profit) is 6,495. It is the difference between Net Sales (27,433) and the Cost of Goods Sold (20,938). The Total Expenses nets 5,053, representing the sum of the Variable Expenses (which in this case is nil) and the Fixed Expenses (5,053). The Net Profit is 1,442, or the difference between Gross Margin (6,495) and the Total Expenses (5,053). The Net Profit Margin is .0525, or the quotient between the Net Profit (1,442) and the Net Sales (27,433). Figures from the Balance Sheet The Total Current Assets is 6,903) – the sum total of the Inventory (2,851), Accounts Receivables (375) and Other Current Assets (329). The Total Assets, meaning the sum of the Total Current Assets (6,903) and Fixed Assets (3,392), is 10,295. The Asset Turnover is 2.664, or the quotient between Net Sales (27,433) and Total Assets (10,295). The Return on Assets for Radio Shack, or the product of the Net Profit Margin (0.0525) and the Asset Turnover (2.664), is 0.1398 2. Explain from the marketing perspective why you would expect the gross margin percentage, expenses-to-sales ratio, net profit margin, inventory turnover, and asset turnover to be different for Radio Shack and Best buy. From the marketing perspective, what would explain the anticipated difference between Radio Shack and the Best Buy in terms of gross margin percentage, expenses-to-sales ratio, net profit margin, inventory turnover, and asset turnover is the two consumer electronic dealers’ diversity in retail strategies. The Radio Shack practically targets three family oriented customer segments: the active suburban families with teenage children, the urban “flash” consumers with pre-teen kids and the small-town values families with children of all ages. These groups are said to represent 38 percent of the US population and 46 percent of the consumer electronics market. Likewise, Radio Shack has over 5,000 stores in the US, Puerto Rico and the US Virgin Islands usually located in major malls and strip centers and stand-alone locations. In addition, it sells services provided by third parties, has a network of 2,000 dealers servicing smaller markets, operates 500 kiosks and owns four manufacturing plants producing its private-label merchandise. For its part, Best Buy operates 700 category stores in the US plus a Web site. Best Buy’s shops are bigger (with 42,000 sq. ft.) in comparison to Radio Shack’s (2,500 sq. ft.). The products of Best Buy are falling on only four groups: consumer electronics (e.g., MP3 players, car stereos, etc.), home office products (i.e., desktop, notebook computers, telephones, networking and accessories), entertainment software (DVD’s, video games hardware and software, CD’s computer software, and subscriptions), and appliances (i.e., vacuums, small electrics, and housewares). From the litany of their differences, it is easy to see that indeed the financial indicators are likewise going to be diverse. 3. Assess which chain has better over-all financial performance. Why? At the surface level, it would appear that Best Buy is financially performing better. Of course, it is because the figures reflected by its financial statements – the Income Statement and the Balance Sheet – are mostly five digits. However, as the Return on Assets suggests, it is in fact the Radio Shack that has the better over-all financial performance. The Best Buy has 0.1398 ROA, while the Radio Shack has 0.221184. The Return on Assets is an indicator of how profitable a company is relative to its total assets. It gives an idea as to how efficient management is at using its assets to generate earning. References: Bryson, J. (2004). Strategic planning for public and nonprofit organizations. San Francisco: Jossey Bass. Department of Health and Human Services (Centers for Disease Control and Prevention). (October 2008). Integrating the strategic plan, logic model, and workplan. Retrieved on December 3, 2008 from http://www.cdc.gov/healthyyouth/evaluation/pdf/brief5.pdf Goodstein L, Nolan T., and Pfeiffer W. (1993). Applied strategic planning. New York: McGraw and Hill, Inc. Kirbyson, G. (2004). Howard Schultz: uncommon grounds. Brandchannel.com. Retrieved on December 5, 2008 from http://www.brandchannel.com/careers_profile.asp?cr_id=47 McNamara, C. (1997). Basic description of strategic planning (including key terms to know). Retrieved on December 3, 2008 from http://www.managementhelp.org/plan_dec/str_plan/basics.htm Schiffman, L. et al. (2006). Consumer behavior. New York: Pearson Prentice Hall. Stallman, C. (2006). Competitive advantages. Teenanalyst.com. Retrieved on 5 December, 2008 from http://www.teenanalyst.com/general/compadvantages.html http://www.retailconcepts.com/strategicPlanning.html Read More