PART TWO: PLANNING

Cha • Ethics and corporate social responsibility

pte
r4

Cha • Strategic analysis

pte
r5

• Strategic planning and strategy

Cha
pte formulation
r6

Cha • Fundamentals of decision-making

pte
r7
 CHAPTER SIX: STRATEGIC PLANNING AND
STRATEGY FORMULATION
Learning objectives:

• Explain the importance of planning;

• Write a statement of strategic intent for an organisation;
• Conduct a SWOT analysis for an organisation;
• Set strategic objectives that are SMART;
• Undertake a gap analysis for an organisation;
• Identify, explain and differentiate between corporate-level, business-level
and functional-level strategies as a means of filling the profit gap;
 CHAPTER SIX: STRATEGIC PLANNING AND
STRATEGY FORMULATION
Learning objectives:

• Apply relevant criteria to choose the most appropriate strategies to fill a

given profit gap;
• Distinguish between ‘Red Oceans’ and ‘Blue Oceans’ within a strategic
planning context;
• Understand the basic principles of value innovation;
• Draw a value curve for an organisation as a basis for identifying innovative
strategies;
• Understand what is involved in successfully implementing the strategies that
are identified as best to fill the profit gap;
• Write a strategic plan for an organisation, or a business unit of an
organisation, using the nine-step strategic-planning process discussed in this
chapter.
 LOOK OUT FOR THE FOLLOWING
COMPETENCIES IN THIS CHAPTER
COMPETENCY WHO HAS DEMONSTRATED IT?

C - COMMUNICATION Woolworths (understanding

stakeholder interests)
P - PLANNING AND FINANCIAL MANAGEMENT Barloworld 2020 objectives
T – TEAMWORK Zyda Rylands, MD Woolworths
Food
‘As a collective, we are much more
magical’

S – STRATEGIC ACTION Barloworld 2020 - sustainability

G – GLOBAL AWARENESS Barloworld Equipment – do

business effectively in multiple
cultural contexts
E – EMOTIONAL INTELLIGENCE AND SELF- Great leaders require EI – Daniel
MANAGEMENT Goleman
 South African insight
The strategic profile of Barloworld

WATCH: “Dominic Sewela's strategy for Barloworld CNBC Africa’’. Accessible from:
https://www.youtube.com/watch?v=sE12i2wz6xE
 6.1 The managerial task of planning
• Planning is a formal process:
• Choosing organisation’s vision, mission and overall goals
• Devising divisional, departmental, individual goals (linked to
organisational goals)
• Choosing strategies and tactics to achieve goals
• Allocating resources to goal achievement

• Why is planning important?

• Provides focus for other managerial tasks
• Sense of direction and purpose
• Identify future threats and opportunities
• Most appropriate courses of action (strategies and tactics)
• Co-ordination
• Understand risks & uncertainties associated with various strategic
options.
READ: ‘Good planning means expect the unexpected’, by Michael Kay. Accessible
from: https://www.forbes.com/sites/michaelkay/2017/09/19/good-planning-
means-expect-the-unexpected/#221f38593e4a
 6.1 The managerial task of planning
(cont.).
Key concepts: Strategic plan; Long-term plan; Functional plan; Operational plans; Strategic
planning; Strategy formulation; Strategy implementation
Strategic plan: ‘master plan’ for an organisation, it is a long-term plan with functional and
operational elements.
Long-term-plan: plan that has a duration of five years or longer
Functional plan: a plan that is one to five years in duration
Operational plan: a plan that applies for less than 12 months
Strategic planning: is concerned with strategy formulation and strategy implementation
Strategy formulation: determining what the organisation is going to do to achieve its goals
and objectives
Strategy implementation: determining what key internal variables have to be addressed to
ensure that the strategies are actually turned into action.

DO: How good are you at planning? Accessible from:

http://www.quizmoz.com/quizzes/Personality-Tests/o/Organization-and-Planning-Sk
ills.asp
(last accessed on 28 January 2018).
 6.2 The strategic planning process

LISTEN: Podcast- ‘Ep 18: Mission Control and Strategic Planning (with Liana
Downey)’. Accessible from:
https://www.joangarry.com/ep-18-mission-control-strategic-planning-liana-downey/
 6.2 The strategic planning process
(cont.).
• 6.2.1 Task 1: Clarify the organisation’s strategic intent: vision
and mission
Core strategies
(things the Core values
organisation must (ethical/moral or
do well if it wants to business
fulfil its core performance)
purpose)

Core behaviour
Core purpose standards (expected
(fundamental reason of employees to
to exist) execute core
Mission strategies)

statement

Key concepts: Vision

Vision: an organisation’s vision is concerned with addressing the following question:
‘Where do we want to be or what kind of organisation do we want to be at some
time in the future?’
 6.2 The strategic planning process
(cont.).
• 6.2.1 Task 1: Clarify the organisation’s strategic intent: vision and mission
(cont.).
 6.2 The strategic planning process
(cont.).
• 6.2.2 Task 2: Assess threats and opportunities
• Scan the external environment
• Identify high-priority threats and opportunities
• Issues Priority Matrix (recall Chapter 5)

READ, WATCH & DO: Class discussion – threats and opportunities

Consider cybersecurity and risk (READ:
http://www.itnewsafrica.com/2017/07/sa-must-invest-in-cyber-security-or-
risk-being-crippled/
)
Consider opportunities in Africa (WATCH: video ‘Top 10 African businesses
that will make quick millionaires in 2017 & beyond’ accessible from:
https://www.youtube.com/watch?v=5_EwQ5L-x0M)
DO: talk about the above threats and opportunities as a class.
 6.2 The strategic planning process
(cont.).
• 6.2.3 Task 3: Assess strengths and weaknesses
• Internal environment: look at organisational resources and
capabilities
• Use the Relative Strength/Strategic Importance Matrix & Issues
Priority Matrix – both can be used in the broader SWOT analysis
• SWOT analysis helps strategists answer key questions:
• Which opportunities can the organisation pursue, given existing
competencies and resources?
• Internal strengths that a strategy can be built around?
• Weaknesses to be corrected?
• Threats that should most worry management?
Key concept: SWOT analysis
SWOT analysis: is the assessment of an organisation’s strengths and weaknesses as well
as the assessment of opportunities and threats in the external environment. It can also
be used in the assessment of strengths and weaknesses within the organisation.
 6.2 The strategic planning process
(cont.).
• 6.2.4 Task 4: Set strategic objectives
 6.2 The strategic planning process
(cont.).
• 6.2.4 Task 4: Set strategic objectives
 6.2 The strategic planning process
(cont.).
• 6.2.4 Task 4: Set strategic objectives (cont.).
• Strategic objectives should be SMART
• Specific
• Measurable
• Ambitious (but achievable)
• Relevant (to organisation’s strategic intent)
• Time related.
READ: ‘Science, Technology and Innovation Strategy for Africa’
http://www.hsrc.ac.za/uploads/pageContent/5481/Science,%20Technology%20and
%20Innovation%20Strategy%20for%20Africa%20-%20Document.pdf
DO: Ask your classmates – is STISA 2024 SMART?
 6.2 The strategic planning process
(cont.).
• 6.2.5 Task 5: Undertake a gap analysis
• ‘Will what we have been doing in the past get us to where
we want to be in the future?
• What is the size of the profit gap we need to fill over the
next 5 years?

Key concepts: Gap analysis; Profit gap; Strategies

Gap analysis: involves calculating the difference between profits earned now and the
desired level of profits in the future as reflected in the strategic objectives of an
organisation
Profit gap: the difference / variance between predicted and actual profit.
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)

• Why develop strategies?

• Exploit opportunities
• Defend against threats
• Capitalise on strengths
• Overcome weaknesses
• Achieve the organisation’s vision and mission

Key concept: Strategies

Strategies: are the major courses of action (choices) selected and implemented to
achieve one or more goals.
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)

Key concepts: Corporate-level strategies; Business-level strategies; Operational

or functional level strategies
Corporate-level strategies: grand or master strategies that guide the overall
direction of organisations that have more than one line of business
Business-level strategies: refer to the organisation’s deliberate decisions on how
to meet its customer needs, how to counter the competitive efforts of its rivals,
how to cope with the existing market conditions and how to build its competitive
advantage
Operational or functional-level strategies: refers to the actions and resource
commitments decided upon for the operations (manufacturing), marketing,
human resources, finance and other functional areas.
 6.2 The strategic planning process (cont.).

Internal growth External growth Turnaround Co-operative

strategies strategies strategies strategies
• Market • Vertical • Retrenchment • Joint venture
penetration forward • Recovery • Strategic
• Market integration • Revenue alliance
development • Vertical growth
• Product backward • Divestiture
development integration • Liquidation
• Innovation • Horizontal and
• Red ocean integration bankruptcy
• Blue ocean • Diversification
• Value • Related
innovation diversification
• Consolidation • Unrelated
strategy diversification
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
• Corporate-level strategies:
• DO: Class activity – consider Figures 6.3; 6.4 and 6.5.
• What is value innovation?
• How is this carried out? (discuss Steps 1-4)
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
• Corporate-level strategies:
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
• Corporate-level strategies:
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
• Business-level strategies:
• Top managers of organisations (or SBUs) formulate
strategies for:
• Maintaining / gaining competitive edge
• Determining how much each functional area can
best contribute to overall effectiveness
• Allocation of resources amongst functions
• Customers a key focus area:
• Who will be served?
• Which customer needs will be satisfied?
• How will customer needs be satisfied?
 6.2 The strategic planning process (cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap (cont.)
• Business-level strategies (cont.):
 6.2 The strategic planning process (cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap (cont.)
• Business-level strategies (cont.):

Key concept: Generic strategies

Generic strategies: when planning and formulating
strategies that focus on competitors, organisations use a
framework comprised of four basic business-level strategies
and one hybrid strategy, that can be applied to a variety of
organisations in diverse industries.
 6.2 The strategic planning process (cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap (cont.)
• Business-level strategies (cont.):

Focused Cost- Focused cost-

Differentiation Best-cost
differentiation leadership leadership
strategy strategy
strategy strategy strategy

Competing in a
Competing by
Competing by specific customer
Competing in a providing
means of offering or geographic Providing high
specific niche by goods/services to
products / services niche, offering differentiated
serving unique the mass market
that the mass goods/services at products/services
needs of specific at costs as low as
market perceives costs as low as or at low cost
customers or lower than
as unique lower than
competitors
competitors

e.g. Singapore
e.g. Mr Price e.g. RMB e.g. Makro e.g. City Lodge
Airlines
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap
(cont.)
• Operational or functional strategies:
• Actions and resource commitments
• Decided upon for the manufacturing, marketing, HR
and finance functions
• As well as other functional areas
• NB: these strategies must be designed to implement
business strategies and plans.

WATCH: ‘Analysts Cut iPhone X Shipment Forecasts, Citing

Lukewarm Demand’ accessible from:
https://www.bloomberg.com/news/articles/2017-12-25/analys
ts-cut-iphone-x-shipment-forecasts-citing-lukewarm-demand

DISCUSS: What should Apple do? What strategy should be

employed?
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit
gap (cont.)
• Evaluation of corporate-level and business-level
strategies:

• Appropriateness
• Feasibility
• Desirability
• Consistency
• Validity
• Attractiveness.
 6.2 The strategic planning process
(cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit
gap (cont.)
• Functional and operational strategies
• Strategic intent + strategic objectives +
corporate and business level strategies = the
basis for planning
• Who plans? Middle and front-line managers
 6.2 The strategic planning process (cont.).
• 6.2.6 Task 6: Develop strategies to fill the profit gap (cont.)
• Functional and operational strategies
 6.2 The strategic planning process (cont.).
• 6.2.7 Task 7: Implement the strategies identified to best fill
the profit gap

Key concept: Eight S model of strategy execution

Eight S Model of strategy execution: successful strategy implementation relies on aligning
organisational factors with a particular strategy. These organisational factors are taken up in the
Eight S model, and include: strategic purposes, structure, systems and processes, style, staff,
resources, shared values, strategic performance.
 6.2 The strategic planning process (cont.).
• 6.2.7 Task 7: Implement the strategies identified to best fill
the profit gap (cont.).

LISTEN: Podcast, HBR Ideacast, ‘510: Closing The Strategy - Execution Gap’: accessible
from: https://soundcloud.com/hbrideacast/510-closing-the-strategy-execution-gap
 6.2 The strategic planning process
(cont.).
• 6.2.8 Task 8: Control and diagnose results
• Why are controls needed?
• To ensure than plans are carried out as intended
• To evaluate results

• 6.2.9 Task 9: Repeat the planning process

• Forces that impact organisations are constantly changing
• Planning is an ongoing process
• Planning always = a means to an end
• Overall strategic plan is not cast in stone
• Vision or normally fixed
• Strategies can change and must change as changes in the
external environment dictate.
 Management in reality
Case study: Green flooring in a Blue
Ocean? Strategic relationships and
rubber flooring

Clip-to-case: Watch the following clip:

’Blue Ocean: a comprehensive
approach to value chain innovation:
https://ed.ted.com/on/25CLuAyW
 Class activity
 Divide the class into three work groups
 Revise what is meant by the global awareness competency
 Consider the strategies used by Shoprite, Pick ‘n Pay and
Woolworths – what strategies are these organisations using to
expand into Africa?
Principle-
 Allocate a company per group Flexible led
viewpoint
 Make use of tablets, smart phones etc to look up information
viewpoint
 What type of strategy was in place? Can you link the
New
strategy to the strategies discussed in this chapter?
viewpoints
 Make a conclusion regarding the extent to which the
various strategies will be (or have been) successfully
implemented.
 Report back to the class.
 Chapter Summary

Task 1: Clarify the

The management Task 2: Assess Task 3: Assess
organisation’s
task of planning threats and strengths and
strategic intent
opportunities weaknesses
(vision and mission)

Task 6: Develop
Task 7: Task 5: Undertake Task 4: Set strategic
strategies to fill the
Implementation gap analysis objectives
profit gap

Now that we know

about strategic
Task 8: Control and Task 9: Repeat the planning let us consider
diagnose results planning process. how decision-making
impacts the planning
function in Chapter 7.