LESSON 6

STRATEGIC & OPERATIONAL

PLANNING FOR NEW VENTURES

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 Strategic Management
• Is crucial to building a successful business.
• Involves developing a game plan to guide a company
as it strives to accomplish its mission, goals , and
objectives, and to keep it on its desired course.

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 Examples of definitions

‘A strategy is the pattern of resource deployments it

undertakes in order to achieve its objectives’.

Definitions of strategy refer to:

* goals, aims and objectives
* plans of action
* utilization of resources
* coordination of the organization
* position relative to competitors
* means of competing
* defeat of competitors

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 Functional areas of strategy

* Marketing strategy

* Human resource strategy

* Financial strategy

* Operational strategy

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 Is Strategic Planning Really That Important?
• Study of 500 small companies:
– One of the most significant factors in distinguishing
growing companies from those in decline: use of a
written business plan.
– Developing a strategic plan is crucial to creating a
competitive advantage---the aggregation of factors
that sets a company apart from its competitors and
gives it a unique position in the market.

• However, another study shows that:

– Only 12% of small companies had a long-range plan in
writing.
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 Building a Sustainable Competitive Advantage

Capabilities

Sustainable Superior value

Lessons Core competitive
learned competencies for customers
advantage

Skills

6 Chapter 3: Strategic Plan 6

 Key: Core Competencies
• Unique set of capabilities a company develops in key
areas, such as superior quality, customer service,
innovation, team-building, flexibility, responsiveness,
and others that allow it to vault past competitors.
– They are what a company does best.
– Best to rely on a natural advantage (often linked to a
company’s “smallness”).

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 Strategic Management Process
Step 1: Develop a vision and translate it into a
mission statement.
Step 2: Assess strengths and weaknesses.
Step 3: Scan environment for opportunities
and threats.
Step 4: Identify key success factors (KSF).

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 Strategic Management Process

Step 5: Analyze competition.

Step 6: Create goals & objectives.
Step 7: Formulate strategies.
Step 8: Translate plans into actions.
Step 9: Establish accurate controls.

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Step 1: Develop a Vision and Create a
Mission Statement
• Vision – an expression of what an
entrepreneur stands for and believes in.
• Vision is based on an entrepreneur’s values.
• A clearly defined vision:
– Provides direction
– Determines decisions
– Motivates people

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Step 1: Develop a Vision and Create a
Mission Statement
• Mission - addresses question:"What
business are we in?”
• A written expression of how the
company will reflect the owner’s values,
beliefs, and vision.
• Sets the tone for the entire company and
guides the decisions people make.

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Step 2: Assess Company Strengths and Weaknesses
• Strengths
– Positive internal factors that contribute
to accomplishing the mission, goals,
and objectives.
• Weaknesses
– Negative internal factors that inhibit
the accomplishment of the mission,
goals, and objectives.

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Step 3: Scan for Opportunities and Threats
• Opportunities
– Positive external options the company
can employ to accomplish its mission,
goals, and objectives.
• Threats
– Negative external forces that inhibit the
firm's ability to accomplish its mission,
goals, and objectives.

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 External Market Forces
Technological
Technological

Competitive
Competitive Economic
Economic

Politicaland
Political and Socialand
Social and
Regulatory
Regulatory Demographic
Demographic

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Step 4: Identify Key Success Factors (KSF)

• Key success factors:

• relationships between a
controllable variable and a
critical factor that influence a
company’s ability to compete in
the market.
• The keys to unlocking the secrets
of competing successfully in a
particular market segment.
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 Knowledge Management
• The practice of gathering, organizing, and disseminating
the collective wisdom and experience of a company’s
employees for the purpose of strengthening its
competitive position.
• Knowledge management involves:
– Taking inventory of the special knowledge the people in the
company possess.
– Organizing that knowledge and disseminating it to those who
need it.

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 Step 5: Analyze Competitors
• Study: Top executives say that their industries
are becoming more competitive
• Factors:
– Smarter rivals
– More price competition
– Increased customer awareness

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Competitor Analysis

• Direct competitors
– Offer the same products and services
– Customers often compare prices, features and deals among
these competitors when they shop
• Significant competitors
– Offer some of the same or similar products or services
– Product or service lines overlap but not completely
• Indirect competitors
– Offer same or similar products in only a small number of
areas

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 Analyze Competitors

Analyzing key competitors allows an entrepreneur to:

– Avoid surprises from existing competitors’ new
strategies and tactics.
– Identify potential new competitors and the threats
they pose.
– Improve reaction time to competitors’ actions.
– Anticipate rivals’ next strategic moves.

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 Analyze Competitors

Techniques do not require unethical behavior:

– Monitor industry and trade publications.
– Talk to customers and suppliers.
– Listen to employees, especially sales representatives
and purchasing agents.
– Attend trade shows and conferences
– Get competitors' credit reports and SEC filings.
– Check out the local library.
– Use the World Wide Web to learn more about
competitors.
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 Analyze Competitors

Techniques do not require unethical behavior:

– Monitor competitors’ employment ads.
– Conduct searches for patents filed by competitors.
– Check EPA reports about manufacturing.
– Search databases for types of materials and
equipment competitors are importing.
– Study competitors' literature and "benchmark" their
products and services.
– Visit competing businesses to observe their operations
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 Step 6: Create Company Goals and Objectives
• Goals - broad, long-range attributes to be
accomplished.
• Objectives - more detailed, specific targets of
performance that are S.M.A.R.T.
– Specific
– Measurable
– Assignable
– Realistic (yet challenging)
– Timely

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 Step 7: Formulate Strategies
• Strategy
– A “road map” that guides a company through a
turbulent environment as it seeks to fulfill its
mission, goals, and objectives.
– Focused on the key success factors identified in
Step 4.
• Mission, goals, and objectives = Ends
• Strategy = Means

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 Step 7: Formulate Strategies
Three basic strategies:

Cost
Cost leadership
leadership

Strategy? Differentiation
Differentiation

Focus
Focus
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 Cost Leadership
• Goal: to be the low-cost producer in the industry or
market segment.
• Advantages:
– Reaching buyers who buy on the basis of price.
– Power to set the industry’s price floor.
• Works well when:
– Buyers are sensitive to price changes.
– Competing firms sell the same commodity products.
– A company can benefit from economies of scale.

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 Differentiation
• Company seeks to build customer loyalty by
positioning its goods or services in a unique or
different fashion.
• Idea is to be unique at something customers value.
• Key: Build basis for differentiation on a core
competencies, those things that the small company is
uniquely good at doing in comparison to its
competitors.

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 Focus
• Company selects one or more customer
segments in a market, identifies customers’
special needs, wants, or interests, and then
targets them with a product or service designed
specifically for them.
• Strategy builds on differences among market
segments.
• Rather than try to serve the total market, the
company focuses on serving a niche (or several
niches) within that market.

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 Step 8: Strategies into Action Plans

• Create projects by defining:

– Purpose
– Scope
– Contribution
– Resource requirements
– Timing

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 Step 9: Establish Accurate Controls

• The plan establishes the standards against which actual

performance is measured.
• Entrepreneur must:
– identify and track key performance indicators.
– Take corrective action.

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 OPERATIONAL PLANNING
• Operational planning sets policies, procedures, and
standards (budgets) for achieving objectives.
• Policies are general statements that serve as guides to
managerial decision making and supervisory activities.
• Methods and procedures provide standing instructions to
employees on how to perform their jobs.
• Budgets are detailed plans, expressed in monetary terms,
of the results expected from officially recognized
programmes.
• Operational planning is vital because it helps potential
entrepreneurs to avoid costly blunders, save time, and
results in a more polished product/service.
• Operational planning is in two parts.
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 OPERATIONAL PLANNING
• The first part has to do with:
• Setting Policies – it guides action; they exist so managers
can delegate work and employees will make decisions
based on the thinking and wishes of the business owners.
• Setting Methods and procedures – provides employees
with standing instructions for performing the job.
Contains detailed explanations of how and the order in
which to do the job properly.
• Setting Budgets – sets the requirements needed to
follow the strategies and accomplish the objectives.

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 OPERATIONAL PLANNING
• The second part of operational planning deals with how
you plan to operate the business. This includes:

• Choosing your location --

• Planning operations and physical facilities – capacity and
layout, buy or lease
• Developing sources of supply for goods and services
• Setting up the legal and organizational structure
• Planning your HR requirement***
• Determining your approach to the market***
• Establishing an efficient record system
• Setting up a time schedule

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 Sun Tzu and the Art of Business

• Principle 1. Capture your market without

destroying it.
• Principle 2. Avoid your competitors’ strengths
and attack their weaknesses.
• Principle 3. Use foreknowledge and deception
to maximize the power of business intelligence.

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Sun Tzu and the Art of Business

• Principle 4. Use speed and preparation to

swiftly overcome the competition.
• Principle 5. Use alliances and strategic control
points in the industry to “shape” your
opponents and make them conform to your
will.
• Principle 6. Develop your character as a leader
to maximize the potential of your employees.

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