Unit 4 Planning and Strategy

Words to remember:

ongoing process – непрерывный процесс

to guide the firm – осуществлять руководство компанией

manufacturing facilities – производственные мощности

financial assets – финансовые средства

capabilities – возможности

expertise – знания

to specify objective – (точно) определить цель

to specify order – оговорить заказ

firm’s revenues – доходы компании

tactical (functional) planning – функциональное планирование

integrated activity – комплексная деятельность

operational planning – операционное планирование

mission statement – заявление о целях, программное заявление

competitive advantage – конкурентное преимущество

to outperform competition – опередить конкурентов

to implement plans – выполнять планы, претворять планы в жизнь

distinctive competency – отличительная компетенция (квалификация)

to decree – постановить, издать указ

to contribute to success – способствовать (содействовать) успеху

differential benefit – отличительная выгода

to pay a premium – платить надбавку

brand preference – предпочтение к марке (марочному товару)

to claim – утверждать

day-to-day execution – повседневное выполнение

overall goal (objective) – общая цель

product benefit – выгода от товара, выгода, присущая товару

self-contained division – самодостаточные подразделения

strategic business units – бизнес-единица

to authorize – разрешить; уполномочить; санкционировать

to allocate resources – распределять ресурсы

bargaining power – рыночная власть, позволяющая отстаивать свои интересы

Starting up

Read the following statement about planning and formulate your own definition of its benefits.

Benefits of not planning:

“The nicest thing about not planning is that failure comes as a complete surprise, and is not preceded by a period of worry and depression”

John Perton – Boston College

Reading “Plan Well and Prosper”

1. You will read the text about different stages of planning and their importance

for the successful operation of an enterprise. Read it through and speak on it.

Whether a firm is a major motorcycle manufacturer or a tiny, family-run motorcycle repair shop, planning for the future is a key to prosperity. Planning is an ongoing process of making decisions that guide the firm both in the short and long term periods.

Strategic planning is the managerial decision process that matches the organization’s resources (such as its manufacturing facilities, financial assets, and skilled workforce) and capabilities (the things it is able to do well because of its expertise and experience) to its market opportunities for long-term growth. In a strategic plan, top management, usually the chief executive officer (CEO), president, and other top executives, define the firm’s purpose and specify what the firm hopes to achieve over the next five or so years. For example, a firm’s strategic plan may set a goal of increasing the firm’s revenues by 10 or even 20 percent in the next five years.

Tactical planning (sometimes called functional planning) is done by middle-level managers – the vice presidents or department directors. Tactical planning typically includes both a broad five-year plan to support the firm’s strategic plan and a detailed annual plan for the coming year.

First-line or lower-level managers (a benefit manager, a safety director, a wage and salary manager in the human resource department, a quality control manager, a marketing communications manager, a sales manager) are responsible for a third level of planning, operational planning, which focuses on the day-to-day execution of the tactical plans.

Business planning is an integrated activity. It means that all the organization’s strategic, tactical and operational plans work together.

In the first stage of strategic planning, a firm’s top executives define the mission of the organization, top management’s vision of why the firm exists, how it is different from other firms, and the place in the market it wants to take. Decision making in the strategic planning stage revolves around such “soul-searching” questions as: What business are we in? What customers should we serve? What kinds of products and benefits can we create for them? How should we develop the firm’s capabilities and focus on its efforts? In many firms, the answers to questions such as these become the lead items in the organization’s strategic plan. They become part of a mission statement, a formal statement that describes the organization’s overall purpose and what it hopes to achieve in terms of its customers, products, and resources.

Before deciding strategies, the planners have to look at the company’s present performance – internal environment, and at any external factors which might affect its future. To do this, they carry out an analysis, sometimes called a SWOT analysis (strengths, weaknesses, opportunities and threats). First, the organization examines its current performance, assessing its strengths and weaknesses. It looks at performance indicators like market share, sales revenue, output and productivity. It also examines its resources- financial, human, products and facilities. For example, a department store chain may have stores in good locations – a strength – but sales revenue per employee may be low – a weakness. Next, the company looks at external factors from the point of view of opportunities and threats. It is trying to assess technological, economic and political trends in the markets where it is competing. It also examines the activities of competitors. The department store chain, for example, may see the opportunity to increase profits by providing financial services to customers. On the other hand, increasing competition may be a threat to its very existence.

Having completed the SWOT analysis, the company can now evaluate its objectives and perhaps work out new ones. They will ask themselves questions such as: Are we producing the right product? What growth rate should we aim at in the next five years? Which new markets should we break into?

The remaining task is to develop appropriate strategies to achieve the objectives. The organization decides what actions it will take and how it will provide the resources to support those actions. One strategy may be to build a new factory to increase production capacity. To finance this, the company may develop another strategy - the issuing of new shares to the public.

Company planning and strategic decision-making are key activities of top management. Once they have been carried out, objectives and targets can be set at low levels in the organization.

The underlying goal of all marketing strategies and plans is to create a competitive advantage for the firm, i.e. to take what the company does really well and outperform the competition, thereby providing customers with a benefit the competition can’t. A competitive advantage gives consumers a reason to choose one product over another again and again.

How can a competitive advantage be created?

The first step is to identify a firm’s distinctive competency, a firm’s capability that is superior to that of its competition. For example, Coca-Cola’s success in global markets - Coke has 50 percent of the world’s soft-drink business - is related to its distinctive competencies in distribution and marketing communications. Coke’s distribution system got a jump on the competition during World War II, when the firm decreed that every soldier would have access to a five-cent Coke. The US government liked the morale-building effort, and assisted Coke in building 64 overseas bottling plants. Coke’s skillful marketing communications program (television commercials) is another distinctive competency that has contributed to its global success.

The second step in creating a competitive advantage is to turn a distinctive competency into a differential benefit. Differential benefits set products apart from competitors’ products by providing something unique that customers want. Differential benefits provide reasons for customers to pay a premium for a firm’s products and exhibit a strong brand preference.

Note that a differential benefit does not necessarily mean simply offering something different. Mennen marketed a deodorant with a distinctive feature: It contained vitamin D. Unfortunately, consumers did not see any reason to pay for the privilege of spraying vitamin D under their arms. Despite advertising claims, they saw no benefit and the product failed. The moral: effective product benefits must be both different from the competition and wanted by customers.

In small companies that offer a single good or service, the firm’s business strategy is simple. But many companies realize that relying on only one product can be risky. So they become multi-product firms with self-contained divisions organized around products or brands. These individual businesses or units are called strategic business units. They have their own mission, business objectives, resources, managers and competitors. The main goal for multi-product companies is to best allocate resources among different business units to ensure growth for the total organization.

As a collection of different stocks an investor owns is called a portfolio, the different products owned by a larger firm is called its business portfolio. Diversified portfolio of products with different revenue-generating business units reduces the firm’s dependence on one product or one group of customers.

Comprehension / interpretation

1. What is planning?

2. What is strategic planning aimed at? What level of management is involved in strategic planning?

3. What is tactical or functional planning?

4. What is operational planning? What kinds of decisions are taken at this level?

5. Business planning is an ongoing and integrated process of making decisions that guides the firm both in the short and long term periods.

6. Defining the mission for an organization is the first stage of strategic planning. What is a mission statement?

7. What is SWOT analysis? What factors should a company take into account before deciding on strategies for the future development?

8. Competitive advantage for the firm is the underlying goal for all marketing strategies and plans.

9. Competitive advantage is achieved through identifying a company’s distinctive competency and differential benefits the company can offer their customers.

10.Companies should focus on what they do best rather than diversify.

11.What is strategic business unit (SBU)?

12.How can a diversified business portfolio reduce the risk in business?