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1、CONFIDENTIAL,BU Strategic Plan Basics,Training materials8 June 2001,This report is solely for the use of client personnel.No part of it may be circulated,quoted,or reproduced for distribution outside the client organization without prior written approval from McKinsey it is not a complete record of
2、the discussion.,Jim Ayala PHOMelissa Gil PHORegina Manzano PHOSuresh Mustapha PHOSteve Shaw HKOShelly Yeh PHOChoon-Gin Tan SIO,1,DESCRIPTION OF MATERIALS,This document was developed as a training presentation for the newly appointed Business Unit CEOs of an Asian Family-owned conglomerate.The purpos
3、e of this document is to guide new CEOs through the basic elements of developing a BU-level strategic plan.This presentation is complemented by a companion document the“BU Strategic Plan Template Book”which provides completeness and consistency of BU strategic plan submissions.These templates are no
4、t intended to replace or constrain BU strategic thinking and should be adapted to reflect a particular BUs sectoral context as required,2,WHAT IS A BU STRATEGY?,A strong business concept that drives an integrated set of actions that creates value by:Creating products/services whose value exceeds the
5、 cost of providing themCapturing value from competitors,customers,distributors,suppliers,and producers of substitute products and services,3,RATIONALE FOR PROPOSED DEFINITION,A strong business concept that drives an integrated set of actions that creates value by:Creating products/services whose val
6、ue exceeds the cost of providing themCapturing value from competitors,customers,distributors,suppliers,and producers of substitute products and services,4,COMMON ELEMENTS OF REAL-LIFE STRATEGIES,Vision,Where?,Strong businessconcept consisting of,How tocompete?,Developed high quality standards and ex
7、cellent operational proceduresFocus on developing critical mass of stores and establishing market dominance,McDonalds experienced phenomenal success in globalization due to:Successfully screening franchisees and a dedication to intense initial and ongoing trainingConsistent delivery of high-quality
8、food and service around the worldHuge economies of scale and powerful supplier leverageCapitalized on“American”appeal of McDonaldsSuccess in tailoring assortment mix to meet local needs,“We want to be the worlds best quick-service restaurant experience”,We will offer identical excellent quality acro
9、ss the world,Targeting a broad set of the urban population,increasingly offering a bundled product(i.e.,meals)at a low price in major cities around the world,McDONALDS EXAMPLE,5,BU STRATEGY REVIEW INTERACTIONS,Highly interactive debate driven by fact-based understanding of environment and internal c
10、apabilities,How do you expect Competitor A to react?,How sustainable is your business model?Can it be easily duplicated?,How robust are your contingency plans?,How quickly can you shift your business emphasis to capture industry opportunities?,BU-CEO,6,BU STRATEGIC PLAN DEVELOPMENT,Industry dynamics
11、 and implications,Environmental and internal assessment,Competitive assessment,Internal assessment,What are the major changes in industry dynamics and resulting opportunities and risks?,What are your competitive strengths and weaknesses?,How does your current business emphasis fit with industry oppo
12、rtunity and competitive landscape?,Strategy articulation,Strategic definition and implications,Strategic initiatives,Financial projections,What strategy will your BU pursue over the next 3 years?,What will be the impact of major strategic initiatives?,What are the expected financial returns of your
13、strategy?,+,+,+,+,Risk/contingen-cies&strategic alternatives,What strategic alternatives have you considered?,+,7,INDUSTRY DYNAMICS AND IMPLICATIONS,Economics of demandBy segmentSubstitutes,ability to differentiateVolatility,cyclicalityEconomics of supplyProducer concentration and diversityImport co
14、mpetitionCapacity utilizationEntry/exit barriersCost structure(fixed and variable)Industry chain economicsCustomer and supplier bargaining power,What are the major changes in industry dynamics and the resultingopportunities and risks?,How is industry structure changing with respect to demand,supply,
15、and industry chain economics?What are the resulting opportunities and risks?,What is the expected competitor conduct?What are the resulting opportunities and risks?,What are the present and future external factors that could present new opportunities and risks?,Major industry competitor movesMarketi
16、ng initiativesIndustry capacity changesM&As,divestituresVertical integration/disaggregationAlliances and partnershipsCost control and efficiency improvements,Impact and likelihood of major industry discontinuitiesChanges in regulation/government policyTechnological breakthroughs,Key question,Sub-que
17、stions,Issues to be considered*,*May or may not be applicable to all BUs,What industry are you competing in?What are the various segments in the industry?,Industry definitionIndustry segmentationDefinitionSizing,8,SEGMENT ANALYSIS,ILLUSTRATIVE,Industryboundaries,Segments,Industry segments,Relatively
18、 distinct sub-groupings within the industryMarket is relatively similar within the segment but different across segmentsDifferent industry dynamics may vary in importance in different segments,9,Producers,Industry,S,Technology breakthroughsChanges in government policy/regulationsDomesticInternationa
19、l,Economics of demandAvailability of substitutesDifferentiability of productsRate of growthVolatility/cyclicalityEconomics of supplyConcentration of producersImport competitionDiversity of producersFixed/variable cost structureCapacity utilizationEntry/exit barriersIndustry chain economicsBargaining
20、 power of input suppliersBargaining power of customers,MarketingPricingVolumeAdvertising/promotionNew products/R&DDistributionCapacity changeExpansion/contractionEntry/exitAcquisition/merger/divestitureVertical integrationForward/backward integrationVertical joint venturesLong-term contractsInternal
21、 efficiencyCost controlLogisticsProcess R&DOrganization effectiveness,FinanceProfitabilityValue creationTechnological progressEmployment objectives,Externalshocks,Feedback,tructure,C,onduct,P,erformance,STRUCTURE-CONDUCT-PERFORMANCE(SCP)MODEL,10,1.Determinants of supplier powerDifferentiation of inp
22、utsSwitching costs of suppliers and firms in the industryPresence of substitute inputsSupplier concentrationImportance of volume to supplierCost relative to total purchases in the industryImpact of inputs on cost or differentiationThreat of forward integration relative to threat of backward integrat
23、ion by firms in the industry,2.Determinants of barriers to entryEconomies of scaleProprietary product differencesBrand identitySwitching costsCapital requirementsAccess to distributionAbsolute cost advantagesProprietary learning curveAccess to necessary inputsProprietary,low-cost product designGover
24、nment policyExpected retaliation,5.Rivalry determinantsIndustry growthFixed(or storage)cost/value addedIntermittent overcapacityProduct differencesBrand identitySwitching costsConcentration and balanceInformational complexityDiversity of competitorsCorporate stakesExit barriers,3.Determinants of buy
25、ing powerBargaining leverageBuyer concentration vs.firm concentrationBuyer volumeBuyer switching costs relative to firm switching costsBuyer informationAbility to backward integrateSubstitute productsPull-through,4.Determinants of substitution threatRelative price performance of substitutesSwitching
26、 costsBuyer propensity to substitute,2.New entrants,3.Buyers,4.Substitutes,Intensity of rivalry,1.Suppliers,Price sensitivityPrice/total purchasesProduct differencesBrand IdentityImpact on quality perceptionBuyer profitsDecision makers incentives,5.Industry competitors,FORCES AT WORK FRAMEWORK,11,Op
27、portunities/ThreatsHow are demand and supply expected to evolve?How do you expect the industry chain economics to evolve?What are the potential major industry discontinuities?What competitor actions do you expect?,YOUR BU,SWOT ANALYSIS,CONVERT OPPORTUNITIES,BUILD ON STRENGTHS,NEUTRALIZE THREATS,ADDR
28、ESSWEAK-NESSES,Strengths/WeaknessesWhat are your BUs assets/competencies that solidify your competitive position?What are your BUs assets/competencies that weaken your competitive position?,Can be used as a thought starter for competitive analysis and internal assessment,12,SCP APPLIED TO LEXMARK,Ra
29、pidly changing technology,e.g.,birth of portable,handheld,wireless computersRapidly changing customer preferencesPossibility of a paperless society given increasing environmental concern and rise of the internet,Economics of demandInkjet printers replacing laser in non-network environmentHigh price
30、sensitivity;minimal opportunity for major product differentiationGrowth of laser and inkjet printer markets stable but dependent on PC sales and degree of replacementEconomics of supplyHP holds lions share of printer marketIndustry capacity exceeds market demandPresence of counterfeit and recycled p
31、roduct supply especially in consumablesHigh exit barriers due to asset intensityIndustry chain economicsBargaining power of suppliers low Bargaining power of distributors highLittle integration(forward or backward),MarketingManufacturers competing mainly on priceRetail dominant distribution channelA
32、ggressive development and release of new productsMoves to increase brand awareness via marketing campaignsCreative financing packagesInternal efficiency Relentless drive to low cost manufacturingContinuous efforts to create more specialized features and/or functionsOthersEntry of PC and peripherals
33、playersClamp down on counterfeit and recycled consumables suppliers,FinancePrice competition on printer hardware drives margins down and forces players to rely on profits from consumable products(good margins)and high volume capture on hardware,S,Externalshocks,Feedback,tructure,C,onduct,P,erformanc
34、e,13,RESULTING OPPORTUNITIES AND RISKS FOR LEXMARK,Opportunities,Risks,Become the first mover in printers for portable,handheld,wireless computer marketGrow demand base via use of creative,non-traditional channels and alternative financing/payment methodsGrow demand for consumables via programs to i
35、ncrease printing usage Be the supplier of printers for PC/peripheral players hoping to the expand into printer marketExpand leadership in corporate institutional accounts,Increasing demand for customization may increase costs and erode marginsAny decline in PC sales may significantly bring down reve
36、nuesMarket share may be eroded as competition intensifies Branding/marketing push from established players Pricing push from low-cost manufacturersMargins at risk if printing usage declines with push for paperless society,NOT EXHAUSTIVE,14,COMPETITIVE ASSESSMENT,Privileged assets that create competi
37、tive advantage,e.g.physical assets,location/”space”,distribution/sales networkDistinctive skills/competencies that create competitive advantage,e.g.innovation,talent development,What are yourcompetitivestrengths andweaknesses?,What are the capabilities required to succeed in this industry?,How do yo
38、u compare against these necessary capabilities?,Strengths and weaknesses of your competitive position vs.necessary capabilitiesBenchmark performance against the industrys relevant key performance indicators(KPIs),with margin and market share as the required minimum,Key question,Sub-questions,Issues
39、to be considered,*KPIs are a handful of levers that drive the value of the industry/business,15,CAPABILITY PLATFORM:ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE(1/2),Physical assetLocation/spaceDistribution/sales networkBrand/reputationPatentRelationship with license allocator,BHPs low-cost minesT
40、elecomm/media company with rights radio spectrumAvons representativesCoca-ColaPharmaceutical company with a wonder drug”Favored nation status with a key minister in liberalizing economy,InnovationCross-functional coordinationMarket positioningCost/efficiency managementTalent development,3M with new
41、productsMcDonalds with QSC&VJ&J with branded consumer health productsEmerson Electrics Best Cost Producer programP&G brand management program,Privileged assets,Distinctive competencies,Necessary capabilities in order to succeed in the industry,Example,16,Step 1:Ensure that these are the capabilities
42、 required to succeed in the industry.Use this list as a thought starter,add and delete as you see appropriate,BU Overall,Segments,A,B,C,Step 2:Assess your overall position relative to the capabilities required to succeed in the industry.Also,determine if these capabilities are relevant to the segmen
43、ts you serve,Physical assetLocation/spaceDistribution/sales networkBrand/reputationPatentRelationship with license allocator,InnovationCross-functional coordinationMarket positioningCost/efficiency managementTalent development,Privileged assets,Distinctive competencies,Necessary capabilities in orde
44、r to succeed in the industry,CAPABILITY PLATFORM:ASSESSMENT OF SOURCES OF COMPETITIVE ADVANTAGE BY SEGMENT(2/2),ILLUSTRATIVE,Extremely relevantSomewhat relevantIrrelevant,17,BU Overall,Competitors,A,B,C,Step 3:Compare the strengths and weaknesses of your competitive position vs.the necessary skills,
45、Physical assetLocation/spaceDistribution/sales networkBrand/reputationPatentRelationship with license allocator,InnovationCross-functional coordinationMarket positioningCost/efficiency managementTalent development,Privileged assets,Distinctive competencies,Necessary capabilities in order to succeed
46、in the industry,COMPETITOR CAPABILITY COMPARISON,ILLUSTRATIVE,18,Necessary capabili-ties in order to succeed in the industry,Privileged assets,Distinctive competen-cies,CAPABILITY PLATFORM APPLIED TO LEXMARK,Distribution/sales network,Brand/reputation,Innovation,Cross-functional coordination,Market
47、positioning,Cost/efficiency management,Laser,Inkjet,(Sales network),(Distribution),(Reputation),(Brand),Segments,Extremely relevantSomewhat relevantIrrelevant,19,Necessary capabilities in order to succeed in the industry,Privileged assets,Distinctive competencies,COMPETITOR CAPABILITY COMPARISON APP
48、LIED TO LEXMARK,Distribution/sales network,Brand/reputation,Innovation,Cost/efficiency management,Lexmark,HP,Epson,Formed own account teams;customer relationships inherited from IBM,Well-established retail distribution/dealer network,Known for quality specialized products and network software,Best-k
49、nown brand,Known for product quality,Quick to market with new technologies,Awarded leader in implementa-tion of necessary product features,Leader in print quality,Cross-functional coordination delivers superior product design and customer service,Market positioning,Cross-functional coordination,Owne
50、rship of technology allows low-cost,in-house manufacture of critical components,20,BENCHMARK PERFORMANCE AGAINST RELEVANT INDUSTRY KPIs,KPIs(examples),Financial indicatorsMarginNet incomeROCE Operating indicatorsAdvertising effectivenessUtilization rate Strategic indicatorsMarket sharePercent of rev
