5.2 Strategic Planning of Enterprise Development

Strategy is the general comprehensive integrated programme of actions, which determines the enterprise (organisation) priority problems, its mission and the main enterprise objectives and resources distribution for the achievement of these purposes. It is a long-term planning document, the result of the strategic planning.

Strategic planning is the process of carrying out the set of systematised and interconsistent actions for the definition of long-term objectives and directions of the enterprise (the organisation) activity.

The following stages of the enterprise (organisation) strategic planning are singled out.

1. The definition of the mission

2. Strategic targets formulation

3. The environment analysis, the estimation of the mission and the purposes urgency and reality

4. The potential analysis, development prospects, the estimation of potential adequacy to the mission and to the purposes.

5. Working out functional and resource sub strategies

6. The analysis of strategic alternatives

7. The choice of the general strategy

8. The control and the estimation of the results.

The basic overall aim of the enterprise (precisely formulated reason for existence, the main purpose, the enterprise social and entrepreneurial activity direction) is called its mission.

The enterprise (organisation) strategic targets are formulated on the basis of its mission. The efficiency of the managing subject strategy will be guaranteed, if strategic targets of the enterprise are:

- Such that can be measured;

- Clearly oriented in time;

- Provided with resources, balanced and achievable;

- Unidirectional and mutually supported.

Absolute or relative indicators of the strategic targets system can be:

-  Commodities and services market, the enterprise position in it;

- Scientific research and introduction of innovations;

- Industrial potential;

- Personnel;

- Production manufacturing;

- Financial resources;

- Profitability of activity;

- (Activity) manufacturing efficiency;

- Organizational structure of the managing subject;

- Social responsibility.

Working out the enterprise (organisation) strategy should be preceded by the careful analysis of market factors according to the definite system of indicators, which characterise the demand, the supply, and the competition.

The following indicators are used to characterise the demand:

The demand evolution (stability, influence of different factors, prospects of new use);

The sizes of market segments and their increase (the demand characteristics: needs, the acquisition motivation, price elasticity, buyers’ concentration, reliability of distribution channels).

The following indicators are used to characterise the supply:

Producers’ manufacturing capacity;

Expenses structure (kinds of resources: labour force, raw materials and materials; branch peculiarities);

Organizational and economic, technical and social problems of producers (obstacles at the input and at the output of industrial systems, the forms of manufacture organisation, material and technical support state, technical level of production, competitiveness, social and political changes);

Distribution channels (specificity, sizes, dynamics);

Financial system

The following indicators are used to characterise the competition:

Competitors (a market position; a share of fixed costs; the nomenclature of production which is produced by them; availability of strategic developments; structure of capital investments);

Competitors’ resistance (obstacles at the system input, risk of sanctions from competitors);

Production substitutes (quality, use).

Clients (concentration level, a share of expenses for the purchase in the total sum of expenses, expenses for the replacement of one supplier with another);

Suppliers (concentration level, production differentiation).

The choice of the general strategy of the enterprise (organisation)

There are several methods of choosing the general strategy of the enterprise.

Method РІМS (Profit Impact of Market Strategy) is based on modelling strategic factors influence on indicators of the efficiency of the enterprise activity (in particular, profitability of investments, profit). Its application makes it possible to answer the following questions:

- What factors are strategic and predetermine the difference in indicators of efficiency for different kinds of activity;

- What level of efficiency is considered normal for a specific kind of the enterprise activity;

- How efficiency indicators of a certain kind of activity for this or that competition level will change, if updating the enterprise strategy takes place;

- What changes, which will give the chance to improve efficiency indicators of a specific kind of the enterprise activity, are necessary to be made in the enterprise strategy.

The method of the product life cycle provides for the identification of life cycle stages and the definition of priority strategic directions and actions for each stage.

The method offered by Boston consulting group (firm), is the simplest and the most widespread one among matrix methods. Indicators, which form the valuation matrix according to this method, are the rate of growth and the market share of the given enterprise. According to these two indicators, some categories of the so-called strategic managing centres are singled out:

- With high rates of growth and a considerable market share;

- With high possibilities of potential growth and a low market share;

- With low rates of growth, but a high market share;

- With low possibilities of potential growth and a low market share.

It is necessary to solve problems of the choice of general strategy for each such category of strategic managing centres and for the enterprise as a whole.

The following basic valuation indicators are used in the mathematical method of the consulting group "McKinsey":

- Competitive position of a strategic managing centre (weak, middle, strong);

- Market attractiveness (three similar estimations).

The market share

The growth rates		High	Low
	High	“Star”	“?” ("the wild cat")
	Low	“Milk cow”	«The dog»

Figure 5.1 Boston Consulting Group matrix

According to this method specific actions of a certain set of factors in each market (capacity and rates of the market growth, the price level dynamics, the controllable market share, the demand recurrence, the number of competitors, etc.) is studied and analyzed. After the valuation distribution and matrix construction the basic directions of the enterprise (organisation) development are defined.

Other matrix methods of the general strategy definition differ from each other by indicators used for the matrix formation. In particular, in Porter’s method the indicators of "strategic advantages / strategic targets"; in the method of the consultative group "Arthur D. Little" the indicators of "a life cycle stage / a competitive position"; in the method of the consultative group "Shell" the indicators of "the potential market / the enterprise capacity" are taken for building the valuation matrix.

According to the cycle of the enterprise development, it is possible to choose one of possible basic strategies (of the growth, stabilisation and survival) and to define strategic alternatives for each of them.

The strategy of growth (natural)

1. Market intensification: penetration to the new markets, the presence expansion and geographic expansion

2. Diversification: vertical, horizontal

3. Intercompany collaboration and cooperation

4. Foreign economic activity

The strategy of stabilisation (offensive and defensive)

1. Economy: audit of expenses, consolidation, revival

2. Changes: reduction of losses, income renewal, financial activity stirring up

3. Stability provision: selectivity, balancing in the markets, financial economy

The strategy of survival (defensive)

1. Reorganisation of marketing activity: goods withdrawal, expansion in the basic market, etc.

2. Management system reorganisation

3. Financial reorganisation

Along with the basic and alternative strategies, the so-called functional and resource strategies (sub strategies) are formed and realised at the enterprises.

Functional strategies include marketing strategy, research and development strategy, production strategy, personnel management strategy.

Resource strategies include personnel and social development strategy, technical development strategy, material and technical support strategy, financial strategy, organizational strategy, investment strategy.

Each sub strategy contains:

- Aims, conditions and basic directions of activity in a particular sphere, end results in accordance with functional strategies or influencing these results by the realisation of resource strategies;

- The order and sequence (in space and time) of solving problems of long-term plans;

- The set of actions, which are adequate to sub strategies purposes.

Sub strategies are components of the general strategy of the enterprise development. Therefore, it is necessary to develop and realise them as interconnected, interdependent and the co-ordinated elements of the integrated system.