#2 Strategic Planning

Question 1

Why is formal planning necessary?

Answer 1

TOCPA

1. Encourages management to think ahead systematically
2. Forces management to clarify objectives and policies
3. Better coordination of company efforts
4. Clearer performance standards for control
5. Helping the company to anticipate and respond quickly to environmental changes and sudden developments

Question 2

What is strategic planning?

Answer 2

The managerial process of creating and maintaining a fit between the organisation’s

• objectives,
• resources and
• evolving market opportunities

Question 3

What are the 4 steps of strategic planning?

Answer 3

1. Defining the company mission
2. Setting company goals and objectives
3. Designing the business portfolio
4. Planning, marketing and other functional strategies

Question 4

Step 1

Answer 4

Step 1: Defining the company’s mission

• Statement of organisation’s purpose
• MRSFDM (market-oriented, realistic, specific, fit market environment, distinctive competencies, motivating)
• reviewed periodically

Question 5

Step 2

Answer 5

Step 2: Setting company’s goals and objectives

- Marketing objective (e.g. reduce pollution) leads to marketing strategy

Question 6

Step 3

Answer 6

Step 3: Designing the Business Portfolio
- Portfolio: collection of businesses and products that make up the company

• 3 Steps
  1. Analyse current business portfolio
  2. Decide which one should receive more or less investments
  3. Develop growth strategies by either adding new products or decreasing businesses

Question 7

What is BCG Matrix and how does it work?

Answer 7

Boston Consulting Group Portfolio Matrix

• demarcation between SBUs: stars, cash cows, question marks and dogs based on relative market share and market growth rate
• stars: high growth and share, profit potential - may need many resources
• cash cow: low growth rate but high market share - helps to produce cash
• question mark: low market share but high growth rate, pump in more resources to become a star (or choose to phase out)
• dogs: low growth and share, meaning that there is low profit potential

Question 8

Limitations of BCG?

Answer 8

IDFU
1. Can be difficult, time-consuming and costly to implement

2. Difficult to define SBUs and measure market share/growth
   - only 2 dimensions: may not be the ONLY success factors
3. Focus on current business but not the future
4. Can lead to unwise expansion or diversification

Question 9

Step 4

Answer 9

Step 4: Planning, Marketing and other Functional Strategies
1. SWOT Analysis

2. Opportunity Matrix
3. Threat Matrix
4. Strategic Planning Gap
   - Gap between desired sales and current portfolio
   - Market dvt, product dvt, diversification growth
5. Product Market Expansion Grid

Question 10

What is the Product Expansion Grid?

Answer 10

Existing Products/New Products vs Existing Markets/New Markets

Existing Pdt + Existing Mkt: Market Penetration

Existing Pdt + New Mkt: Market Development

New Pdt + Existing Mkt: Product Development

New Pdt + New Mkt: Product Diversification