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Defining Strategic Planning

Strategic planning is an organization’s process of defining its strategy and making decisions on how to allocate resources to pursue that strategy. To determine the direction of the organization, it is necessary to understand its current position and the possible avenues through which it can pursue a particular course of action. Strategic planning generally deals with at least one of three key questions:

  • What do we do?
  • For whom do we do it?
  • How do we excel?

In many organizations, this is viewed as a process for determining where the organization is going over the next year or, more typically, three to five years, although some extend their vision to 20 years. The last question—how do we excel?—is critical to achieving competitive advantage, and it should be answered clearly and practically in the planning process prior to extensive investment in resources.

Components of a Strategic Plan

Planning is concerned with defining goals for a company’s future direction and determining the resources required to achieve those goals. To meet the goals, managers will develop marketing and operational plans inclusive of key organizational values (vision, mission, culture, etc.).

Common components of a business plan include external and internal analyses, marketing and branding, investments, debt, resource allocation, suppliers, production processes, competition, and research and development. While different business models include different components in their planning, based on unique organizational or industry needs, the central theme is that all aspects of the strategy should be researched and discussed prior to incurring the costs of operations.

Business plan
Business plan
These are some factors to consider when making a business plan.

Planning Process

There are many approaches to strategic planning, but typically one of the following approaches is used.

Situation-Target-Proposal

This method involves the following steps:

  • Situation: Evaluate the current situation and how it came about.
  • Target: Define goals and objectives (sometimes called ideal state).
  • Proposal: Map a possible route to the goals and objectives.

Draw-See-Think-Plan

This method involves addressing the following questions:

  • Draw: What is the ideal state or the desired end state?
  • See: What is today’s situation? What is the gap between today’s situation and the ideal state, and why?
  • Think: What specific actions must be taken to close the gap between today’s situation and the ideal state?
  • Plan: What resources are required to execute these specific actions?

Source: Boundless. “Defining Strategic Planning.” Boundless Management. Boundless, 08 Dec. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/the-planning-process-91/defining-strategic-planning-439-1457/

E-Business Strategy

The term electronic business (commonly referred to as E-business or e-business) is sometimes used interchangeably with e-commerce. In fact, e-business encompasses a broader definition that includes not only e-commerce, but customer relationship management (CRM), business partnerships, e-learning, and electronic transactions within an organization.

Electronic-business methods enable companies to link their internal and external data-processing systems more efficiently and flexibly, to work more closely with suppliers and partners, and to better satisfy the needs and expectations of customers. In practice, e-business is more than just e-commerce. While e-business refers to a strategic focus with an emphasis on the functions that occur using electronic capabilities, e-commerce is a subset of an overall e-business strategy.

E-Business Process

E-business involves business processes that span the entire value chain: electronic purchasing and supply-chain management, electronic order processing, customer service, and business partner collaboration. Special technical standards for e-business facilitate the exchange of data between companies. E-business software allows the integration of intrafirm and interfirm business processes. E-business can be conducted using the Internet, intranets, extranets, or some combination of these.

E-business/e-commerce transaction
E-business/e-commerce transaction
This is an example of the electronic steps for a credit-card transaction.

In the emerging global economy, e-commerce and e-business have become increasingly necessary components of business strategy and strong catalysts for economic development. The integration of information and communications technology (ICT) in business has revolutionized relationships within organizations and those among organizations and individuals. Specifically, the use of ICT in business has enhanced productivity, encouraged greater customer participation, and enabled mass customization.

Advantages of E-Commerce

E-business enhances three primary processes:

  1. Production processes including procurement, ordering and replenishment of stocks; processing of payments; electronic access to suppliers; and production control processes
  2. Customer-focused processes including promotional and marketing efforts, Internet sales, customer purchase orders and payments, and customer support
  3. Internal management processes including employee services, training, internal information-sharing, videoconferencing, and recruiting. Electronic applications enhance information flow between production and sales forces to improve sales-force productivity. ICT improves the efficiency of work-group communications and electronic publishing of internal business information.

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

Strategic alliances

A strategic alliance is a relationship between two or more parties to pursue a set of agreed-upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between mergers and acquisitions (M&A) and organic growth.

Reasons for Strategic Alliance

The alliance is a cooperation or collaboration that aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.

The alliance often involves technology transfer (access to knowledge and expertise), economic specialization (David C. Mowery, Joanne E. Oxley, Brian S. Silverman. Strategic Alliances and Interfirm Knowledge Transfer. Winter 1996. Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm, pp. 77-91), shared expenses, and shared risk.

U.S. patents from 1790-2010
U.S. patents from 1790-2010
The above chart highlights the total patents granted over time in the U.S. Because of the high volume of technological evolution, technology transfer in strategic alliances has become more common.

Cooperative sourcing is a collaboration or negotiation between different companies with similar business processes. To save costs, the competitor with the best production capability can insource the business process of the other competitors. This practice is especially common in IT-oriented industries as a result of low to no variable costs, e.g. banking. Since all of the negotiating parties can be outsourcers or insourcers, the main challenge in this collaboration is to find a stable coalition and the company with the best production function. High switching costs, costs for searching potential cooperative sourcers, and negotiating may result in inefficient solutions.

Forming a Strategic Alliance

Upper management is tasked with the developing complex interactive strategies when entering a strategic alliance. Aligning stakeholders from different businesses and ensuring the costs do not outweigh the benefits requires careful managerial consideration. The following steps highlight key aspects of the strategic alliance process:

  • Strategy development involves studying the alliance’s feasibility, objectives, and rationale; it also entails focusing on the major issues and challenges and development of resource strategies for production, technology, and people. It requires aligning alliance objectives with the overall corporate strategy.
  • Partner assessment involves analyzing a potential partner’s strengths and weaknesses; creating strategies to accommodate all partners’ management styles; preparing appropriate partner selection criteria; understanding a partner’s motives for joining the alliance; and addressing resource capability gaps that may exist for a partner.
  • Contract negotiation involves determining whether all parties have realistic objectives; forming high-caliber negotiating teams; defining each partner’s contributions and rewards as well as protecting any proprietary information; addressing termination clauses and penalties for poor performance; and highlighting the degree to which arbitration procedures are clearly stated and understood.
  • Alliance operations comprise addressing senior management‘s commitment; finding the caliber of resources devoted to the alliance; linking budgets and resources to strategic priorities; measuring and rewarding alliance performance; and assessing the performance and results of the alliance.
  • Alliance termination entails winding down the alliance—for instance, when its objectives have been met or cannot be met or when a partner adjusts priorities or reallocates resources elsewhere.

Potential Benefits of Strategic Alliances

Benefits of strategic alliances vary according to each business’s strengths and objectives and may include:

  • Pooling expensive resources and share development or R & D costs on new products
  • Locking in supply chains
  • Building credibility with customers (“Our strategic partners include…”)
  • Allowing each partner to concentrate on activities that best match its capabilities
  • Learning from partners and developing competencies that may be more widely exploited elsewhere
  • Creating adequate suitability of resources and competencies for an organization to survive

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

Source: Boundless. “Cooperative Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/cooperative-strategy-437-1456/

When to Go Global

When to Go Global

Cost Leadership

A global strategy may be appropriate in industries where firms face strong pressures to reduce costs but weak pressures to respond locally; globalization therefore allows these firms to sell a standardized product worldwide. By expanding to a broader consumer base, these firms can take advantage of scale economies (cost advantages that an enterprise obtains due to expansion) and learning-curve effects because they are able to mass-produce a standard product that can be exported (providing that demand is greater than the costs involved).

Market Expansion

Globalization is not limited to cost leadership, however. Differentiation strategies also enable economies of scope, either fulfilling different needs in different markets with a similar series of products, or developing new products based upon the needs and consumption habits of a new market. Differentiation as part of a global strategy will often require localization, as organizations must adapt to consumer tastes better to compete in the new country. For example, Coca Cola tastes different depending on the country where it is bought because of differences in local preferences.

Sourcing

Other popular and primary strategic reasons for globalization include building supplier relationships, improving access to raw materials (unique to a given region), and cutting costs by using other regions’ specializations. Starbucks sources coffee beans from all over the world, as climate dramatically affects the type and quality of the bean. The globalization strategy of Starbucks—while it includes selling in many countries—is hugely depending on global sourcing, and strategic managers must carefully monitor this process for costs and benefits.

Global strategies require firms to coordinate tightly their product and pricing strategies across international markets and locations; therefore, firms that pursue a global strategy are typically highly centralized.

Corporate Strategy Implications

With global markets in mind, strategic managers must expand their perspective and use varied models to generate different strategies for different places. For example, companies must now conduct a PESTEL analysis for each region in which they operate and recognize expense and competition deviations between regions. For example, tariffs in country A may be much higher than country B, but country B has fewer individuals willing to pay a high price for the good the organization is selling. Managers must conduct a cost/benefit analysis to identify which country actually offers the best profit potential. These analyses are how strategists incorporate global concerns into strategic management.

Gross domestic product (GDP) worldwide
Gross domestic product (GDP) worldwide
The map identifies GDP (nominal) in different countries, highlighting which countries offer high consumer spending opportunities for multinational enterprises.

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

What is global strategy

Global strategy, as defined in business terms, is an organization’s strategic guide to pursuing various geographic markets. A global strategy should address the following questions: What should be the extent of an organization’s market presence in the world’s major markets? How can the organization build the necessary global presence? What are the optimal locations around the world for the various value-chain activities? How can the organization turn a global presence into global competitive advantage?

Source: Boundless. “Global Strategy.” Boundless Management. Boundless, 17 Nov. 2014. Retrieved 07 Feb. 2015 from https://www.boundless.com/management/textbooks/boundless-management-textbook/strategic-management-12/common-types-of-corporate-strategies-90/global-strategy-436-1455/

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