TACTICAL PLANNING Vs. STRATEGIC PLANNING Wednesday, Dec 10 2008 

Tactical Planning is Short range planning that emphasizes the current operations of various parts of the organization.

Short Range is  defined as a period of time extending about one year or less in the future.

Managers use tactical planning  to outline what the various parts of the organization must do for the organization to be successful at some point 1year or less into the future.

Tactical plans are usually developed in the areas of production, marketing, personnel, finance and plant facilities.

COMPARING AND COORDINATING STRATEGIC & TACTICAL PLANNING:

Basic differences between strategic planning and tactical planning:

  1. Since upper managers generally have a better understanding of the organization as a whole than lower level managers do, upper management generally develops the strategic plans and because lower level managers generally have better understanding of the day to day organizational operations, generally the lower level managers develop the tactical plans.           
  2. Because Strategic  Planning emphasizes analyzing the future and tactical planning emphasizes analysing the everyday functioning of the organization,facts on which to base strategic plans are usually more difficult to gather than are facts on which to base tactical plans.                                                                                                                       
  3. Because strategic plans are based primarily on a prediction of the future and tactical plans on known circumstances that exist within the organization, strategic plans are generally less detailed than tactical plans.                                                                             
  4. Because strategic planning focuses on the long term and tactical planning on the short term, strategic plans cover a relatively long period of time whereas tactical plans cover a relatively short period of time.

Despite their differences, tactical and strategic planning are integrally related. Manager need both tactical and strategic planning program, and these program must be closely related to be successful.

Tactical planning should focus on what to do in the short term to help the organization achieve the long term objectives determined by strategic planning.

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STRATEGY IMPLEMENTATION & STRATEGIC CONTROL Wednesday, Dec 10 2008 

Strategy Implementation, the 4th step of the strategy management process, is putting formulated strategies into action.

Without successive implementation, valuable strategies deeloped by managers are virtually worthless.

The successful implementation of strategy required 4 basic skills:

  1. INTERACTING SKILL
  2. ALLOCATING SKILL
  3. MONITORING SKILL
  4. ORGANIZING SKILL

INTERACTING SKILL:

Interacting Skill is the ability to manager people during implementation. Managers who are able to understand the fears and frustrations others feel during the implementation of a new strategy tend to be the best implementers. These managers empathize with organization members and bargain for the best way to put a strategy into action.

ALLOCATING SKILL :

Allocating skill is the ability to provide the organizational resources necessary to implementing a strategy. 

Successful implementers are talented at scheduling jobs, budgeting time and money, allocating other resources that are critical for implementation.

MONITORING SKILL:

Monitoring skill is the ability to use information to determine whether a problem has arisen that is blocking implementation.

Good Strategy Implementers set up feedback systems that continually tell them about the status of strategy implementation.

ORGANIZING SKILL :

Organizing skill is the ability to create throughout the organization a network of people who can help solve implementation problems as they occur.

Good implementers customize this network to include individuals who can handle the special types of  problems anticipated in the implementation of a particular strategy.

Overall , the successful implementation of a strategy requires handling people appropriately, allocating resources necessary for implementation, monitoring and implementing progress, and solving implementation problems as they occur.

Perhaps the most important requirements are knowing which people can solve specific implementation problems and being able to involve them when those problems arise.

 

STRATEGIC CONTROL:

Strategic Control, the last step of the Strategy Management Process, consists of monitoring and evaluating the strategy management process as a whole to ensure that it is operating properly.

Strategic Control focuses on the activities involved in environmental analysis, organizational direction, strategy formulation, strategy implementation, and strategy control itself – checking that all steps of the strategy management process are appropriate, compatible and functioning properly.

SAMPLE ORGANIZATIONAL STRATEGIES Wednesday, Dec 10 2008 

SAMPLE ORGANIZATIONAL STRATEGIES

Analyzing the organizational environment and applying one or more of the strategy tools i.e. Critical Question Analysis, SWOT Analysis, Business Portfolio Analysis and the Porter’s Model; will give the managers a foundation on which to formulate organizational strategy.

The 4 common organizational strategies that evolve this way are:

  1. Growth
  2. Stability
  3. Retrenchment
  4. Divestiture.

GROWTH STRATEGY:

Growth Strategy is adopted by management to increase the amount of businsess that an SBU is currently generating.

The growth strategy is  generally applied to star SBUs or question mark SBUs who have the potential to become stars.

Management generally invests substantial amounts of money to implement this strategy and may even sacrifice short term profit to build long term gain.

Managers can also pursue a growth strategy by purchasing an SBU from another organization.

STABILITY:

Stability is a strategy adopted by management to maintain orslightly improve the amount of business that an SBU is generating.

This strategy is generally applied to cash; cows, since these SBUs are already in an advantageous position.

Management must be careful,however, that in its pursuit of stability it does not turn cash cows into dogs.

RETRENCHMENT:

Retrenchment is to defend or fortify.

Through Retrenchment strategy, mangement attempts to strengthen or protect the amount of business an SBU is generating.

This strategy is generally applied to cash cows or stars that are beginning to lose market share.

DIVESTITURE:

Divestiture is a strategy adopted to eliminate an SBU that is not generating a satisfactory amount of business and that has little hope of doing so in the near future.

In essence, the organization sells or closes down the SBU in question. This strategy is usually applied to SBUs that are dogs or question marks that have failed to increase market share but still require significant amounts of cash.

Do you need any inputs on creating strategies for your SBUs or your organization?

MANAGEMENT INNOVATIONS

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STRATEGY FORMULATION TYPES Wednesday, Dec 10 2008 

Understanding the forces that determine competitiveness within an industry should help managers develop strategies that will make their companies more competitive within the industry.

Porter has developed 3 generic strategies to illustrate the kind of strategies managers might develop to make their organizations more competitive:

  1. Differentiation
  2. Cost Leadership
  3. Focus

DIFFERENTIATION:

Differentiation, the first of Porter’s Strategies,focuses on making an organization more competitive by developing a product or products that consumers perceive as being different from products offered by competitors.

Differentiation includes uniqueness in such areas as product quality, design and level of after sales service.

COST LEADERSHIP:

Cost Leadership is a strategy that focuses on making an organization more competitive by producing products more cheaply than competitors can.

According to the logic behind this strategy, by producing products more cheaply than its competitors do, an organization will be able to offer products to customers at lower prices than competitors can, and thereby increase its market share.

Examples of tactics managers might use to gain cost leadership are obtaining lower prices for product parts purchased from suppliers and using technology to increase organizational productivity.

Similar strategies are also used in the service industry.

FOCUS:

Focus is a strategy that emphasizes making an organization more competitive by targeting a particular customer segment.

What should be your company’s strategy?

 

MANAGEMENT INNOVATIONS

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Strategy Forumulation: GE Multifactor Portfolio Matrix Wednesday, Dec 10 2008 

GE Multifactor Portfolio Matrix:

GE Multifactor Portfolio Matrix is a tools that helps managers develop organizational strategy that is based primarily on market attractiveness and business strengths.

The GE Multifactor Portfolio was deliberately designed to be more complete than the BCG Growth Share Matrix.

Each of the organization’s SBUs are plotted on a 2 dimensional matrix of Industry Attractiveness and Business Strength.

Each of these 2 dimensions are a composite of  a variety of factors that each firm must determine for itself, given its own unique situation.

As examples, Industry Attractiveness might be determined by such factors as:

  • No. of Competitors in the Industry
  • Rate of Industry Growth
  • Weakness of Competitors within an Industry

Business Strengths might be determined by such factors as:

  • Company’s Financial Solid Position
  • Its Good Bargaining Position over Suppliers
  • Its high level of Technology Use.

Specific strategies for a company are implied by where their businesses fall on the matrix.

STRATEGY FORMULATION TOOLS Wednesday, Dec 10 2008 

After the managers involved in the strategic management process have analyzed the environment and determined organizational direction through the development of a mission statement and organizational objective, they are ready to formulate strategy.

STRATEGY FORMULATION is the process of determining appropriate courses of action for achieving organizational objectives and thereby accomplishing organizational purpose.

Managers formulate strategies that reflect environmental analysis, lead to fulfillment of organizational mission, and result in reaching organizational objectives.

Special tools they can use to assist them in formulating strategies include the following:

  1. CRITICAL QUESTION ANALYSIS
  2. SWOT ANALYSIS
  3. BUSINESS PORTFOLIO ANALYSIS
  4. PORTER’S MODEL FOR INDUSTRY ANALYSIS.

These 4 strategy development tools are related but distinct. Managers should use the tools or combination of tools that seems most appropriate for them and  their organizations.

CRITICAL QUESTION ANALYSIS:

The 4 critical questions to be answered here are:

  1. What are the purposes and objectives of the Organization?
  2. Where is the Organization presently going?
  3. In what kind of environment does the organization now exist?
  4. What can be done to better achieve organizational objectives in the future?

 

SWOT ANALYSIS:

SWOT Analysis is a strategic development tool that matches internal organizational strengths and weaknesses with external opportunities and threats.

SWOT is an acronym for the organization’s Strengths, Weakness, Opportunities and Threats.

It is based on the assumption that if managers carefully review such strengths, weaknesses, opportunities and threats, a useful strategy for ensuring organizational success will become evident to them.

 

BUSINESS PORTFOLIO ANALYSIS:

Business Portfolio Analysis is an organizational strategy formulation technique that is based on the philosophy that Organizations should develop strategy much as they handle investment portfolios.

In the way, in which the sound financial investments should be supported and unsound ones discarded, sound organizational activities should be emphasized and unsound ones deemphasized.

2 Business Portfoilo tools are:

  1. The BCG Growth Share Matrix by Boston Consulting Group.
  2. GE Multifactor Portfolio Matrix by General Electric Company.

BCG Growth-Share Matrix:

The Boston Consulting Group, a leading consulting firm, developed and popularized a portfoilo analysis tools that helps managers develop organizational strategy based on market share of businesses and the growth of markets in which businesses exist.

The 1st step in using this model is identifying the organization’s strategic business units (SBUs). A Strategic business Unit is a significant organization segment that is analysed to develop organizational strategy aimed at generating future business or revenue.

Exactly what constitutes as SBU varies from company to company. In bigger organizations, and SBU could be a company division, a single product or a complete Product Line.

In smaller organizations, it might be the entire company.

Eventhough they vary drastically in form each SBU has the following characteristics:

  1. It is a single business or collection of related businesses.
  2. It has its own competitors.
  3. It has a manager who is accountable for its operation.
  4. It is an area that can be independently planned for within the organization.

After identifying the SBUs, the next step is to categorize each SBU within one of the 4 Matrix Quadrants:

  1. STARS – Star SBUs have a high share of a high growth market and typically need large amounts of cash to support their rapid and significant growth. Stars also generate large amounts of cash for the organization and are usually segments in which management can make additional investments and earn attractive returns.
  2. CASH COWS: SBUs that are Cash Cows have a large share of a market that is growing only slightly. Naturally, these SBUs provide the organization with large amounts of Cash, but since their market is not growing significantly, the cash is generally used to meet the financial demands of the organization in other areas, such as the expansion of a STAR SBU.
  3. QUESTION MARKS: These category of SBUs have a small share of a high growth market. These are “question marks” because it is uncertain whether management should invest more cash in them to gain a larger share of the market or deemphasize or eliminate them. Management will choose the 1st option when it believes it can turn the question mark into a star, and the 2nd option when it thinks that future investments would be fruitless.
  4. DOGS : SBUs that are dogs have a relatively small share of a low-growth market. They may barely support themselves; in some cases, they actually drain off cash resources generated by other SBUs. These are the SBUs which are likely to be shortlisted for deemphasize or elimination.

PITFALLS of the BCG Growth Matrix Model:

The matrix does not consider factors like:

  • Various types of Risk associated with product development
  • Threats that inflation and other economic conditions can create in the future.
  • Social,Political and Ecological Pressures.

 

GE Multifactor Portfolio Matrix:

GE Multifactor Portfolio Matrix is a tools that helps managers develop organizational strategy that is based primarily on market attractiveness and business strengths.

The GE Multifactor Portfolio was deliberately designed to be more complete than the BCG Growth Share Matrix.

Each of the organization’s SBUs are plotted on a 2 dimensional matrix of Industry Attractiveness and Business Strength.

Each of these 2 dimensions are a composite of  a variety of factors that each firm must determine for itself, given its own unique situation.

As examples, Industry Attractiveness might be determined by such factors as:

  • No. of Competitors in the Industry
  • Rate of Industry Growth
  • Weakness of Competitors within an Industry

Business Strengths might be determined by such factors as:

  • Company’s Financial Solid Position
  • Its Good Bargaining Position over Suppliers
  • Its high level of Technology Use.

Specific strategies for a company are implied by where their businesses fall on the matrix.

 

While portfolio models are useful frameworks and reference points, no model is yet designed that will deal with all the various dynamics involved in an organization and an industry and the changing environment. Hence Portfolio models should never be applied in a mechanistic fashion and sound managerial judgement and experience is to be applied alongwith.

 

PORTERS MODEL FOR INDUSTRY ANALYSIS:

Perhaps the best known tool for formulating strategy is the model developed by Michael E. Porter, an internationally acclaimed strategic management expert.

Essentially, Porter’s model outlines the primary forces that determine competitiveness within an industry and illustrates how those forces are related.

The model suggests that in order to develop effective organizational strategies, managers must understand and react to those forces within an industry that determine an organization’s level of competitiveness within that industry.

According to these model, competitiveness within an industry is determined by the following factors:

  1. New Entrants or New Companies within the Industry
  2. Substitute Products or Services – for goods or services that the companies within the industry produce/provide.
  3. Supplier’s Ability to control issues like costs of material/ inputs that industry companies use to manufacture their products or provide their services.
  4. Competition level among the firms in the industry.

According to the model, buyers, product substitutes, supplier and potential new companies within an Industry all contribute to the level or rivalry among industry firms.

 
For further support and clarifications contact:

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