Strategic Planning Techniques

Strategic planning is an organization's process of defining its strategy, or

direction, and making decisions on allocating its resources to pursue
this strategy. In order 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. Generally,
strategic planning 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 an organization is going over the next year or—more typically—3
to 5 years (long term), although some extend their vision to 20 years.

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 Strategic Planning Techniques
There are some important planning techniques
which are as under:
1. The BCG (Growth Share Matrix.
2. Space (strategic position and action
Evaluation)
3. Directional policy matrices
4. PIMS (profit impact of market share.)

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 Planning Techniques

The BCG (Growth Share Matrix.

Portfolio planning: the Boston Matrix
In portfolio planning analyses the current position
of an organization’s products in their markets, and
the state of growth or decline in each of those
markets.

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 Planning Techniques

The BCG (Growth Share Matrix.

Market share: One entity’s sale of a product or

service in a specified market expressed as a
percentage of total sales by all entities offering
that product or service.

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 Planning Techniques

The Boston consulting group (BCG) developed a

matrix based on research that classifies a
company’s products in terms of potential cash
generation and cash expenditure requirements.

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 Planning Techniques

Market share
Market growth High Low
High Stars Question marks
Low Cash cows Dogs

a. Stars. In the short term, these require capital

expenditure in excess of the cash they generate, in order
to maintain their market position, but promise high
returns in the future.
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 Planning Techniques

b. Cash Cows: in due course, starts will become cash

cows. Cash cows need very little capital expenditure
and generate high levels of cash income. Cash cows
can be used to finance the starts.
c. Question marks. Do the products justify
considerable capital expenditure in the hope of
increasing their market share, or should they be
allowed to die quietly as they are squeezed out of
the expanding market by rival product?

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 Planning Techniques

d.dogs: They may be ex-cash cows that have now

fallen on hard times. Dogs should be allowed to
die or should be killed off. Although they will show
only a modest net cash outflow, or even a modest
net cash inflow, they are cash traps which tie up
funds and provide a poor return on investment.

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 Activity 2
Juicy Drinks Ltd provides fruit juices to supermarket chains, which sell
them under their own label. The traditional squeezed orange juice is
performing well and although margins are low, there are sufficient
economies of scale to do well in this market. Juicy drinks has advanced
production and bottling equipment and long-term contracts with some
major growers. Recently the company conducted market tests on
freshly squeezed pomegranate juice. In the taste tests consumers loved
it, but the production process proved problematic, particularly because
of the numerous small seeds. However, the company hopes to
eliminate the production problems and expand its share of the growing
interesting juice market.

What kind of products, according to the Boston classification, are

described here.

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 Answer Activity 2
a. Orange juice is a cash cow

b. Pomegranate juic is a question mark, which the company wants to turn

into a star.

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 Planning Techniques

2.Space (strategic position and action evaluation)

This analysis the position of a company and suggests
a strategy on the basis of:
i. Financial strength.
ii. Environmental stability.
iii. Industry strength.
iv. Competitive advantage
Factors determining each of the key issues are then
determined.
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 Planning Techniques

2.Space (strategic position and action evaluation)

Factors determining environmental stability.
Technology changes.
Rate of inflation
Demand variability
Price range of competing products.
Barriers to entry into market.
Competitive pressure
Price elasticity of demand
Pressure from substitute products
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 Planning Techniques

2.Space (strategic position and action evaluation)

Factors determining financial strength
Return on investment.
Leverage.
Liquidity.
Capital required vs available.
Cash flow
Ease of exit from market
Risk involved in business
Inventory turnover
Economies of scale and experience.
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 Planning Techniques

2.Space (strategic position and action evaluation)

Factors determining industry strength
Growth potential
Profit potential
Financial stability
Technological know how
Resource utilisation
Capital intensity
Ease of entry into market
Productivity, capacity utilisation
Other: manufacturer’s bargaining power.
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 Planning Techniques

2.Space (strategic position and action evaluation)

Factors determining Competitive advantage.
Market share
Product quality
Product life cycle
Product replacement cycle.
Customer loyalty
Competition capacity utilisation
Technological know how
Other: speed of new product introductions.
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 Planning Techniques

3. Directional policy matrices: Product or

business are plotted against two dimensions:
Attractiveness of the industry (or sector
profitability) and business strengths ( or
competitive capabilities), to get an overall score
which can then make the difference between
further investment or withdrawal.

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 Planning Techniques

PIMS (Profit impact of market share.) this

indicates a positive relationship between market
share and profitability. Companies with high
market share tend to have high profits, so high
market share is often an objective laid down at
planning stage.

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 Activity

Swan cruise was formed in 20x1 by a group of four

friends who each owned cabin cruiser and used
redundancy payments to purchase another four,
from their own boating activities' and contacts
they concluded that there was a good opportunity
in the market for family cruising holidays on the
canal system. They produced rough budgets and
drew up an advertising plan. Because they wanted
to get started quickly to catch the spring season,
the partners did not give time to strategic planning.
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 Activity

After their publicity leaflets and advertising in the press

brought them a good number of bookings, they began to
run into problems.
a. The waterways authority demanded more safety
measures and insurance premiums were more than
budgeted.
b. Customers found the cruisers too small for family
parties to live in for a week.
c. Customers regularly got into difficulties with running
the boats and at the locks and the partners had to
spend much time teaching and helping customers.
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 Activity

d. There were a lot of complaints and demands

for refunds.
e. Three of the boats were damaged by beginner .
f. The waterways authority threatened to
withdraw the licence because of speeding by
young customers.
Write a short memorandum to the partners
setting out how they would benefit from using
strategic planning.
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 Answer Activity

Swan cruises would have benefited from strategic

planning. Since this process would have ensured that the
partners had the right resources to serve the target
market. The stages to be covered are as follows.
a. Strategic analysis. Setting out a clear mission
statement, objectives, and show if swan had the
potential to achieve its objectives. Assessment of the
external environment might predict changes in the
economy and in competition likely to affect this ability to
achieve objectives. (This can be summarised in a SWOT
analysis)
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 Answer Activity

b. Strategic choice. This would involve identifying

the strategic options and selecting the most
suitable. Given their resources and abilities this
process made them choose different boats to buy.
This would also be related to choice of tactics and
operations and their budget.
c. Review and control: These would be essential
throughout the planning and implementation of the
project so that they know if they are achieving
targets and working within budget limits.
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