Types of Analysis for Strategic Planning

Types of Analysis for Strategic Planning Task 1 Internal Assessment Sometimes, it is something inside the organization that demands a major change. It can be technological change forcing new methods of carrying out its work, Cost efficiency/Performance, Assets condition/Productivity, Organizational culture and image, Organizational structure, Key staff, Operational efficiency, Operational capacity, Brand awareness, Market share and financial resources. External Assessment Sometimes the outside world forces such decisions on the organization. Such forces may include major shifts in the market, big changes in government policy, market competition, distribution methods, and the geography in which you will compete to get result Assumptions We can assume certain alternative that can be true in forming strategy and from which conclusion can be drawn, as the strategy is based on assumptions Priority issues We must address our priority issues. It can be cost of production, service level and delivery, organization and material effectiveness, customer service and friendliness, new product/service innovation and quality RESULT REQUIRED The second step to identify where do we want to be? We must set our mission and objective to reach our goals. Mission/ Vision It can be defined as what the company is to become over set period of time. To be effective the vision must be simple. It must be something that the people within the business can identify easily and it must have tangible impact on the business. Objectives Objectives are concrete goals that the organization seeks to reach, for example, an earnings growth target. The objectives should be challenging but achievable. They also should be measurable so that the company can monitor its progress and make corrections as needed. HOW The third step to find out how will we get there? We should make some strategy and proper programs to reach our goals. Strategic development process is dynamic and continuous. A change in one component can necessitate a change in the entire strategy. As such, the process must be repeated frequently in order to adapt the strategy to environmental changes. Throughout the process the firm may need to cycle back to a previous stage and make adjustments. IMPLEMENTATION The fourth step to define who must do what. Once a strategy is developed it is most important how to implement it and for effective implementation, it needs to be translated into more detailed policies that can be understood at the functional level of the organization. As strategy forms at corporate level, it should be translated into specific policies for functional areas such as marketing, R D, production, Human resources, Information Systems. REVIEWS The final step is to review once implemented, the results of the strategy need to be measured and evaluated, with changes made as required to keep the plan on track. Control systems should be developed and implemented to facilitate this monitoring. Standards of performance are set, the actual performance measured, and appropriate action taken to ensure success. Example: In my previous organization in Dubai, having two divisions, dealing in waterproofing and insulation materials and both were doing well. The management realized scope of further expansion into interior business. The Chairman has three sons. Two of them looking after two divisions and the third just returned from abroad after completing his studies. The company had enough resources, financial, premise etc. to start the new business. The chairman utilized all of the available resources efficiently and started a new interior business. Now I realized that they had followed above strategic planning process to be success and still they are doing well. Task 2 How does one involve stakeholders in the strategic planning process and give examples of what tools you might use to review strategic options. As an organization grows, it becomes more important that all those involved are clear about what the organization is looking to achieve and how it is planning to do it. Each organization should identify those with a legitimate interest in its work (stakeholders) and ensure that there is regular and effective communication with them about the organization. It is therefore worthwhile reviewing who the stakeholders are in the organization because they help to get job done more effectively. Stakeholders may vary according to the nature of the organization but most common can be explained in following diagram. Suppliers Government Customers Organization Bank / Financial Institution Employees Competitors How to engage stakeholders while developing strategy Personal Interviews It can provide quite detailed and rich data on individual behavior and attitudes. Data gathered with this process can help to develop strategy more effectively. Focus Groups Under this method people are selected and invited to meet together to discuss some aspect of a particular product or services which is helpful in making strategic decision. Advertising: It is a form of communication that helps to persuade potential customer to purchase or to consume more of a particular brand of product or service. If the strategy is to develop for a new product then view of prospective customer can be obtained by this means. Newspaper inserts: It enables advertiser to target their advertisement to specific geographic market. Mostly it covers local area and strategy planner can get the feedback from relevant stakeholders. Web/Online Surveys One of the most sophisticated and modern method to involve stakeholders in strategy planning process. It’s quick and more accurate and solves the distribution and result collection problems. Conferences: Company can arrange conferences where views can be exchange which will help the planner to form the strategy accordingly. Stakeholders are invited to discuss on a particular topic. Workshop / problem solving meetings: It is like a meeting emphasizing interactions and exchange of information among a usually small number of participants. Newsletters: A newsletter is a regularly distributed publication, generally about one main topic that is of interest to its subscribers. For example Company send newsletter to their employees to update their market position and any future development. Annual report: It is a complete report of an organization’s activities throughout the preceding year. It is normally sent to Shareholders and other interested stakeholders informing about the company’s activities and financial performance. It has been observed that individual stakeholders usually may have their own interests which they will ensure are protected and valued. It means that stakeholders can influence negatively or positively the performance of an organization. It is therefore important for an organization to determine which stakeholders can have a positive or negative impact on their organization so that the positive effects are promoted and the negative effects are managed so as to minimize damage. For example employees of an organization will be concerned about their job security and salaries and other benefits and while planning the strategy if they are not involved in planning process they may resist due to some risk, which they don’t want to take but if they are better educated they will help to achieve strategic goal. There are three important tools that can be used to review strategic options. †¢ Suitability †¢ Feasibility †¢ Acceptability Suitability: This is one of the important tools while developing a strategic plan. The planner must ensure that the strategy he is planning, will it be adjusted with the current environment and are we competent enough to face the challenges. Suitability is a decisive factor for assessing the extent to which a proposed strategy fits the situation identified in the strategic analysis, and how it would sustain or improve the competitive position of the organization. Some authors have referred to this as ‘consistency’. Suitability is therefore a useful tool for screening strategies. For example, if a strategy is likely to improve the organization’s competitive standing then we should find out, can we able to resolve the company’s liquidity problems, or decrease dependence on a particular supplier? Feasibility: Whether it can be implemented successfully. The organization must evaluate their resources and at the evaluation stage there are a number of fundamental questions which need to be asked when assessing feasibility. For example: Can the strategy be funded? Are we capable of performing to the required level (e.g., quality level, service level)? Can the necessary market position be achieved, and will the necessary marketing skills be available? Will the required skills at both managerial and operative level are available? Will the technology (both product and process) be available to compete effectively? Can the necessary materials and services be obtained? It is also important to consider all of these questions with respect to the timing of the required changes. Acceptability: Alongside suitability and feasibility, it is the third factor to review strategic options. This can be a difficult area, since acceptability is strongly related to peoples expectations, and therefore the issue of acceptable to whom? Following essential questions need to be asked when assessing Acceptability. Return What will be the effect on capital structure? Profitability analyses (return on capital employed, payback period, discounted cash flow, market valuation, etc.) Risk Will the function of any department, group or individual change significantly? Financial ratio projections; Sensitivity analysis; Decision matrices Stakeholder Expectations Will the organization’s relationship with outside stakeholders (e.g., suppliers, government, unions, and customers) need to change? Needs, power, interest, and predictability of stakeholders. Task 3 Prepare an example SWOT analysis of an organization you know or have studied listing the 4 key (SWOT) elements in a table. Explain how strategic planner will use the analysis in developing the strategy using some of the example elements you have listed. SWOT stands for strengths, weaknesses, opportunities and threats. Strengths and weaknesses are internal factors, which relates with resources. Opportunities and threats are external factors which relates with environment. SWOT analysis is a tool for auditing an organization and its environment and is often used to highlight where a business or organization is and where it could be in the future. It is the first stage of planning and helps marketers to focus on key issues. The following SWOT analysis looks at PRIMARK which is an Irish clothing retailer. The SWOT analysis will give a clear picture of the business environment PRIMARK is operating in at the present time. Strengths: The strengths of a business or organization are positive elements, something they do well and are under their control. The following section will outline main strengths of PRIMARK. A strong brand is an essential strength of PRIMARK as it is recognized and respected. Competitive pricing is a vital element of their overall success, as this keeps them in line with their rivals, if not above them. The lucrative location. mostly on high street adds up PRIMARK strengths due to its accessibility Keeping costs lower than their competitors and keeping the cost advantages helps PRIMARK pass on some of the benefits to consumers. There distribution chain is one of their strengths and links to success. Supplier relationships are strong at PRIMARK, which strengthens their overall performance. Weaknesses: Weaknesses of an organization is things that need to be improved or perform better, which are under their control. Weaknesses are also things that place you behind competitors. This section will present main weaknesses of PRIMARK. They don’t have good advertising technique to tell customers about their business. There limited product line is a major weakness. PRIMARK does not functions wider international market, which has an effect on success, as they do not reach consumers in more `overseas markets. Due to lower price more customer visit in their store but they don’t have enough checkout counters to avoid long queue. Opportunities: Opportunities are external changes, trends or needs that could enhance the business or organization’s strategic position, or which could be of a benefit to them. This section will outline opportunities that PRIMARK is currently facing. Decrease in taxation is an opportunity for them to reduce prices or increase profits. New market opportunities are a way to push them forward. PRIMARK has the opportunity to enter a niche market, gain leading position and therefore boost financial performance. Expanding the product lines by PRIMARK could help them raise sales and increase their product portfolio. They can enjoy benefits from reduction in interest rates so that business costs would come down. Expanding into other markets could be a possibility for them. Threats: Threats are factors which may restrict, damage or put areas of the business or organization at risk. They are the factors which are outside of the companys control. Being aware of the threats and being able to prepare for them makes this section valuable when considering contingency plans and strategies. This section will outline main threats PRIMARK is currently facing. Consumer lifestyle changes could lead to less of a demand for its products. Changes in the way consumers shop and spend and other changing consumer patterns could be a threat to their performance. Being undercut by low-cost imports is a major threat for them. Slow growth and decline of the retail market is a threat to them. Increased competition from overseas is another threat to them as it could lead to lack of interest in their product. The actions of a competitor could be a major threat against PRIMARK, for instance, if they bring in new technology or increase their workforce to meet demand. Price wars between competitors, price cuts and so on could damage profits for them. A slow economy or financial slowdown could have a major impact on their business and profits. PRIMARK could be threatened by the growing power customers have to set the price of their products. Conclusion Given this analysis we come to realize that each organization has its own external and internal problems to handle. The process in which we enable to identify and analyze such problems is by using proper management method of analysis like SWOT. The SWOT analysis is useful in a difficult strategic situation. The strengths are analyzed to reach opportunities and to avoid threats. The search of weaknesses is of importance as it allows the manager to minimize them. It also explains what unique resources you have and what you can offer that makes you stand from the rest. Task 4 Explain the differences between balanced scorecard, scenario planning, cost benefit analysis and sensitivity analysis giving at least one example of where each technique would be most appropriately applied Balance Scorecard The balance scorecard is a performance management tool to measuring whether the smaller-scale operational activities of a company are aligned with its larger- scale objectives in terms of vision and strategy. By focusing not only on financial outcomes but also on the operational, marketing and developments inputs to these, the balance scorecard helps provide a more comprehensive view of a business, which in turn helps organization act in their best long-term interests. It was proposed by Robert Kaplan and David Norton in 1996 In the balance scorecard we refer to the several different kinds of balance. For example -The balance between short and the long term. -The balance between four perspectives. The Balance scorecard approach generally has four perspectives: Finance: Return on Investment, Cash flow, Return on capital employed Financial results (quarterly/Yearly) Internal business processes: Process alignment (is the right process in the right department?) Learning and growth Is there the correct level of expertise for the job? Employee turnover Source Businessball.com Job satisfaction Training learning opportunity Customer: Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate Scenario Planning Scenario planning is a method for learning about the future by understanding the nature and impact of the most uncertain and important driving forces affecting our world. It is a group process which encourages knowledge exchange and development of mutual deeper understanding of central issues important to the future of the business. It is a process of visualizing What future conditions or events are probable? What their consequences or effects would be like and how to respond to, or benefit from them. Four aspect should taken into consideration in scenario planning Future scientific capabilities Technological developments The role of business and government Social attitudes The transport for London is having scenario planning about future development like air conditioning in Tube. Cost benefits Analysis The process involves, weighting the total expected costs against the total expected benefits in order to choose the best or most profitable option. It is typically used by governments to evaluate the desirability of a given intervention. It is an analysis of the cost effectiveness of different alternatives in order to see whether the benefits are greater than costs. The costs and benefits of the impacts of an intervention are evaluated in terms of the public’s willingness to pay for them (benefits) or willingness to pay to avoid them (cost) inputs are typically measured in terms of opportunity costs the value in their best alternative use. The guiding principle is to list all parties affected by an intervention and place a monetary value of the effect it has on their welfare as it would be valued by them. Sensitivity Analysis It is a technique for determining the outcome of a decision if a key prediction turns out to be wrong. ‘The Study of how the uncertainty in the output of a model (numerical or otherwise) can be apportioned to different sources of uncertainty in the model input’ Suppose that the manager of an organization just completed a linear programming solution which will have a major impact on the company, such as determining how much to increase the overall production capacity and are about the present the results to the board of directors. How confident are you in the results? How much will the results change if your basic data (e.g. profit per item produced, or availability of a component) is slightly wrong? Will that have a minor impact on your results? Will it give a completely different outcome, or change the outcome only slightly? Bibliography: Primark.co.uk Thompson John L . Strategic Management . 4th Ed Team-based strategic planning By C. Davis Fogg 1994 http://www.netmba.com/strategy/process/ JOHNSON, G., and SCHOLES, K. (1997). Exploring Corporate Strategy, Fourth Edition, Prentice Hall, New York. [Chapter 8] Business dictionary.com Cases in public policy analysis by George M. Guess, Paul G. Farnham Wikipedia.org Practical Optimization: a gentle Introduction – John W. Chinneck, 2000 A Practical guide to using the Balanced scorecard By Nils-Gà ¶ran Olve, Anna Sjà ¶strand, Carl-Johan Petri Businessball.com http://www.well.com/~mb/scenario_planning/ dft.gov.uk Sensitivity analysis in practice by Andrea Saltelli, Stefano Tarantola, Francesca Campolongo