TOPIC:

1. Strategic planning model ABCDE.

2. Industrial organizational model of above average return.

Submitted by: Rimsha (MBA-5- L21211)

Submitted to: Ms. Zulaikha Mahmood

Department of Management Sciences National University of Modern

Languages
 1. Strategic planning model ABCDE:

Introduction:

Strategic Planning:
Strategic planning is an organizational management activity that is used to set priorities, focus
energy and resources, strengthen operations, ensure that employees and other stakeholders are
working toward common goals, establish agreement around intended outcomes/results, and
assess and adjust the organization’s direction in response to a changing environment. It is a
disciplined effort that produces fundamental decisions and actions that shape and guide what an
organization is, who it serves, what it does, and why it does it, with a focus on the future.
Effective strategic planning articulates not only where an organization is going and the actions
needed to make progress, but also how it will know if it is successful.

ABCDE Model is very useful model for understanding the flow of strategy from the beginning
to the end of a cycle of strategic planning and execution activities. The model is illustrated in the
nearby graphic and described below:

Explanation:

A – Assessment of current situation:

This element involves scanning the external environment, competitive scanning, assessing the
current situation; and clarifying perceptions of problems, needs, and opportunities.

Here we have an assessment model of PEST and SWOT:

Assessment model pest:

Political: Here government regulations and legal factors are assessed in terms of their ability to
affect the business environment and trade markets.

Economic: Through this factor, businesses examine the economic issues that are bound to have
an impact on the company.
Social: With the social factor, a business can analyze the socio-economic environment of its
market via elements like customer demographics, cultural limitations, lifestyle attitude, and
education.

Technological: How technology can either positively or negatively impact the introduction of a
product or service into a marketplace is assessed here.

Assessment model of SWOT:

Strengths: Strengths are internal, positive attributes of your company. These are things that are
within your control.

Weaknesses: Weaknesses are negative factors that detract from your strengths. These are things
that you might need to improve on to be competitive.

Opportunities: Opportunities are external factors in your business environment that are likely to
contribute to your success.

Threats: Threats are external factors that you have no control over. You may want to consider
putting in place contingency plans for dealing them if they occur.

B – Baseline the gap:

This element involves identifying performance gaps, and evaluating trends. We create a baseline
by putting everything about the organization into a single context for comparability and
planning. It includes information about relationships, customers, suppliers and partners.

C– Components of strategy:
Major component of strategic plan are: core competencies, values, mission, vision, metrics,
goals and objectives, portfolios, and processes. Vision is the most important of the components
(in formulating and executing a strategic initiative). This describes the point where managers
would select and fund strategic initiatives as a ‘C’ component. Example of good mission
statement of Walt Disney is: “To make people happy.

D – Delivery of component:

This is the delivery of the strategic initiative, as well as other programs, projects, and operational
work. As part of this, executives will formulate action plans; benefits capture plans, targets,
standards, and metrics.

E – Evaluation of progress:

This includes review of progress, reporting, tweaking of goals, corrective actions, and learning.
 Establish a regular review cycle using your balanced scorecard.
  Analyze and compare trends using graphs for rapid communication of performance.
 Don’t be afraid to change your metrics- life cycle.
 Plan must be dynamic in nature.
 Recognize and reward good performance results.

ABC is the process of strategy formulation and the DE is the piece of strategy execution.

An Example
Here is an example script for telling the strategic initiative story. You should be able to find all
elements of the ABCDE model in it:

My organization found its financial performance slipping versus expectations, due to changes in
the external environment that affect the entire industry. The organization developed a strategic
intent that went beyond survival, to thriving. The changes involve creating a more coherent value
proposition that will cause redesign of the elements of the business model. Accordingly,
executives chartered and resourced this strategic initiative to close the performance gap. Our
strategic initiative will incrementally provide benefits that support the balanced score card
metrics. We plan to complete delivery of targeted benefits in 24 months, and close the program.

2. Industrial organizational model of above average return:

Introduction:
In academia, strategy frameworks are often referred to as “models for above average returns.”
They are characterized in this way because they describe a plan that will generate a return on
investment that is over and above what the asset, or business, would commonly provide without
that plan. Put simply, if you want to outperform the competition, and create a compelling reason
for shareholders to invest in you, you need a strategy.

Two of the most common of such academic models are the Resource Model and the Industrial
Organization Model, which focus on key factors inside and outside of the organization,
respectively. Firms use these two major models to help develop their vision and mission and then
choose one or more strategies in pursuit of strategic competitiveness and above-average returns.
These models are:

1. External industrial organizational model

2. Internal resource based model

Explanation:
It explains the environment’s dominant influence on a firm’s strategic actions. The model
specifies actions. The model specifies that the industry in which a company chooses to complete
has a stronger influence on performance than the choices managers make inside the
organizations do:

Four basic assumptions:

1. The external environment is assumed to impose pressures and constraints that determine the
strategies that would result in above-average returns.

2. Most firms competing within an industry or within a segment of that industry are assumed to
control similar strategically relevant resources and to pursue similar strategies in light of those
resources.

3. Resources used to implement strategies are assumed to be highly mobile across firms, so any
resource differences that might develop between firms will be short-lived.

4. Organizational decision-makers are assumed to be rational and committed to acting in the

firm’s best interests, as shown by their profit-maximizing behavior.

The Five Forces Model of competition is an analytical tool used to help firms find the industry
that is the most attractive, as measured by its profitability potential. It suggests that an industry’s
profitability (i.e., its rate of return on invested capital relative to its cost of capital) is a function
of interactions among the Five Forces: suppliers, buyers, rivalry, product substitutes, and
potential entrants to the industry.

FIRMS CAN EARN ABOVE-AVERAGE RETURNS:

1. Cost Leadership Strategy:

Cost Leadership is the mechanism of establishing a competitive advantage by having the lowest
cost of operation in the industry. This strategy is especially beneficial in a market where the price
is an important factor.

2. Differentiation Strategy:

It's an approach that a business takes to develop a unique product or service that customers will
find better than or in another way distinctive from products or services offered by competitors.
Differentiation strategy is a way for a business to distinguish itself from the competition.

The I/O model suggests that above-average returns are earned when firms are able to
effectively study the external environment as the foundation for identifying an attractive industry
and implementing the appropriate strategy.
Research findings support the I/O model, in that approximately 20% of a firm’s profitability is
explained by the industry in which it chooses to compete. However, this research also shows that
36% of the variance in firm profitability can be attributed to the firm’s characteristics and
actions. These findings suggest that the External and Internal environments influence the
company’s ability to achieve strategic competitiveness and earn above-average returns.

STEPS TAKEN IN THE I/O MODEL:

1. The external environment:

Study the external environment, specifically the industry environment. The external
environment: general, industry, and competitor environment. The external environment can be
broken down into two types: the micro environment and the macro environment.

 The micro environment consists of the factors that directly impact the operation of a
company.
 The macro environment consists of general factors that a business typically has no
control over. The success of the company depends on its ability to adapt.

2. An attractive industry:
Locate an industry with high potential for above average returns. An attractive industry is an
industry whose structural characteristics suggest above average returns. If a company uses
Porter's 5 forces industry analysis and concludes that the competitive structure of the industry is
such that there is an opportunity for high profits, then the company can elect to enter
that industry or market.

3. Strategy formulation:
Identify the strategy called for by the attractive industry to earn above average returns. Strategy
formulation is selection of a strategy linked with above average returns in a particular industry.

4. Assets and skills:

Develop or acquire assets and skills needed to implement the strategy. Assets and skills are
assets and skills required to implement a chosen strategy.

5. Strategy implementation:
Use the firm’s strengths (developed/acquired assets/skills) to implement the strategy. A strategy
Implementation: selection of strategic actions linked with effective implementation of the chosen
strategy – leading to superior returns.
Example: VMW is a technology company, now a part of Dell Technologies, focused on cloud
and virtualization software and services. In the 2000’s, VMware was a pioneer, and the market
leader in virtualization technology. The leadership position VMware created by being a first
mover amassed considerable wealth for shareholders and employees, and they had every reason
to defend and maintain that position. At the height of their success, cloud-based technology was
establishing itself as the platform of the future. But, instead of resting on their incumbent
position, VMware chose to take the offensive and disrupt their own market. By taking this
aggressive stance, they extended their dominant market position for far longer than if they had
stood pat. It was risky, but is a classic example of an organization that added to their game by
staying on the offensive.