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The role of corporate strategic planning in this case is to define the
overall corporate values and guiding business principles and to set out the
limits of the business, which can be undertaken by the subsidiary units. Here we
recall the three simple but vital questions mentioned earlier; Where are we now?
Where do we want to be? How do we get there? To help us we start to incorporate
analysis and other useful techniques. We start with the SWOT analysis, otherwise
termed 'WOTS UP', which focuses on the strengths, weaknesses, opportunities and
threats of the organisation. By taking into account the constraints and
opportunities, one can take a look at previous performance, competitors and the
rest of the industry, in relation to the holders own company, and then of course
one can do SWOT analysis; Fig 2: INTERNAL STRENGTHS WEAKNESSES EXTERNAL
OPPURTUNITY THREATS The strengths and weaknesses refer to the internal aspects
of the organisation, comparing to the competition and the market place, - what
the company is relatively good and bad at doing.
The opportunity and threats
relate to the external environment factors and the inter-relationship they have.
Strengths are those positive aspects or competencies, which provide a
significant, market advantage, where the organisation can build upon. This is
simply to tell the present market position, size, structure, managerial
expertise, physical or financial resources, staffing and skill, image and
reputation and lastly the situation (for channel ports and motorways).
Weaknesses are obviously the negative aspects in the present competencies or
resources of the organisation. Its image or reputation limiting its
effectiveness which need to be corrected to minimise the effects. Certain
examples of weaknesses could be operating within a particular narrow market,
limited accommodation or outdated equipment, high proportion of fixed costs,
high level of customer complaints, poor marketing skills or a shortage of key
managerial staff. Opportunities are favourable conditions and usually arise from
the nature of changes in the external environment. Although the organisation
needs to be responsive to the changes, it also has to be sensitive to the
problems of business strategy.
The changes being, new markets, technology
advances, improved economic factors or failure of competitors. The opportunities
offer the organisation the potential to develop existing products, facilities or
services. Threats, the last in the SWOT analysis matrix. These are the opposite
to opportunities, referring to unfavourable situations arising from external
environment developments that are likely to endanger the operations and
effectiveness of the organisation. One would include changes in legislation, the
introduction of a radically new product by competitors, changing social
conditions and the actions of pressure groups. The organisation has to be
responsive to changes that have already occurred, and therefore plan for
anticipated significant changes in the environment, being well prepared for such
demands. One has to consider four fundamental issues that are addressed with
SWOT analysis. Firstly, financial performance - allowing one to asses the
current performance. Secondly, competitiveness - here it is vital to consider
the non-financial factors which allow a company to resist competitive pressure,
applying it successfully to others. Market input is next, and lastly external
environment - these last two aim to highlight external factors, for example,
potential constraints, via analysis of the external environment. This must take
into account all relevant external environment factors. Once the organisation
has completed the SWOT analysis, the question of where they to be in 3-5 years
arises. To help with answering this the 'Boston Consulting Group' (BCG)
portfolio matrix will be introduced. This matrix identifies greater strengths
and weaknesses by producing, again, four different types of businesses (or
products), Dogs, Question marks (or Wild cats), Stars and Cash cows, and is
shown in the following Boston Square; Fig 3: Market growth and cash input High
STAR ? Low FUNDS CASH COW DOG High Low Market share and cash generation The
Boston square is based on a product life cycle and the coincidence of high
market share with high profitability; Fig 4: Product Life Cycle: question star
cash dog mark cow
The product life cycle assumes that the cost a unit drops as
the volume of units produced increases as a result of improvements in the
production process and economies of scale. A typical product developed from
concept to market acceptance, through a period of high demand and eventual
market decline. Of course not all products follow the same cycle, some never
reach the market, and others have a different time scale at each stage of the
cycle. Converting the four stages of the product into matrix form produces the
above Boston square, giving four different characteristics, specifically chosen.
The stars are those products with the best profit and potential, requiring hefty
investment to become established products, which generate cash with minimum
investment. The question marks, otherwise known as wild cats, are those products
requiring a high investment for little return. Market growth is high whilst
market share is low, initially funded by income from cash cows. The dogs are
those obsolescent products which no longer merit further investment as the
market share has been eroded by new developments or fashions. The whole idea of
the Boston square model is to highlight that the strategic management of a
product, or even a whole industry, needs to focus beyond internal factors to
consider market pressures. It also stresses the need to re-invest income to
provide long term sources of revenue. It is essential that four strategies
emerge from this matrix. Firstly, to 'build' - increase market share, turning
question marks into stars.
Secondly, 'hold' - preserve market share, ensuring cash
cows remain cash cows. Thirdly, 'harvest'- increase short-term cash flow by
using cash cows to fund other business products. Lastly to 'divest' - eliminate
those businesses whose use of resources is inefficient. It is also possible to
use a different type of analysis, namely 'Porters' five-part model, of the
existing competitive position. The five parts are established as 1) buyer power,
2) supplier power, 3) entry opportunity, 4) substitute possibilities, 5)
competitor rivalry. These five factors determine how attractive an area of
business will be to a company. Fig 5: Porters five factors affecting current
level of competition can also be successfully related to his later technique -
the value chain, which comes under our third question - How are we going to get
there? The value chain looks at the total value added by the industry and by the
particular organisation within that industry.
The objective of the value chain
analysis is to highlight the objectives which contribute most significantly to
the total value added and to develop strategies to improve on, or defend the
current share of that value added which is gained by the organisation. Fig 6:
The value chain: Suppliers Organisation Customers Strategy and administration
Research and development Design Production Marketing Distribution Customer
service According to this concept every firm is a collection of activities that
are performed to design, produce, market, deliver and support its product.
Another development by porter in 1980, is that 'competitive strategy splits
successful strategies into three broad categories; Fig 7: Porters model of
generic strategies: STRATEGIC ADVANTAGE Low cost position Uniqueness perceived
by customers STRATEGIC TARGETS Industry niche Overall cost Leadership
Differentiation Particular segment only Focus To be successful across its chosen
industry the organisation must either be able to supply the product from the
lowest cost case in the industry or be able to command a higher price in the
market by differentiating its product.
It may not be positive to sustain either
of these strategies across the whole industry and so it adopts its third
strategic category by 'focusing' on particular segments of the industry where it
can command a sustainable competitive advantage. The last part of the corporate
planning is the Ansoff product/market matrix. Competitive strategies should be
the most precise level of strategic planning since they relate to actions
regarding products and markets which are to be implemented to achieve the most
specific objectives of the organisation. The organisation here could acquire or
develop new products to sell its existing customers, mapped out in the Ansoff
matrix. Fig 8: Ansoff matrix: PRODUCTS Existing New MARKETS Existing Market
Penetration strategy Product development strategy New Market development
strategy Diversification The Ansoff matrix indicates the appropriate types of
strategies which should be implemented depending on which box the organisation
decides to select as its preferred method of growth.
The fourth alternative that
this matrix suggests is new products for new customers, otherwise described as a
diversification strategy or questionable strategy, because it doesn't build on
any obvious existing competitive advantage of the business. The other three
strategies are examined by their relevant strengths and weaknesses. From all of
the analysis shown, and followed with the full capabilities of management in
achieving what was set out, one would be able to achieve the original organisation goals. It is possible to see that the development of such a
strategic plan, through corporate planning, is a lenghty but well worthwhile for
the company. We should note that strategic planning and strategic management
accounting has become a vital part of a companies future.
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