Pragmatic Strategic Planning or …
"Three years ago I thought I knew where we were going?"
By Tony Stroud and Daniel Roberts
What is strategy?
“A strategy is a plan for establishing a sustainable competitive (or collaborative) advantage”
Porter
A strategic plan defines what you are going to do and how you are going to do it. For most companies the ‘what’ is straightforward – maximising profit, value, shareholder wealth – it’s the ‘how’ that is tricky.
Strategic Planning
Good strategic planning is vital for all businesses because it identifies the long term goals and objectives and assists in selecting the short-term options to start the ball rolling. Copious volumes have been written and spoken about the subject for many years but all too often companies prefer instead to innovate, build a product and sell it. Strategy is influenced by the last sales call and suddenly one successful meeting or sale means that the whole company focus changes.
Many of the problems faced by the recycling industry today were totally predictable in the past. But many senior managers and owners either do not take the time to think about the future and plan the direction of the business or they choose to ‘bury their head in the sand’ and believe that through their own ingenuity and entrepreneurship they will ‘get by’ or even be successful. Some problems and issues can be difficult to predict – the unexpected happens – but if you have some kind of plan, even if it is not perfect, it can steer you to survival, even success. We live in a fast changing world of innovation, obsolescence and end user preferences. Strategic planning is essential not only for success but also survival.
“Three years ago I thought I knew where I was going.”
The process of strategy formulation can be as valuable as the outcome itself. Allocating time to think strategically and getting the right people around the table can give a new perspective on your company and the state of the recycling industry. It can also be a powerful tool for idea generation.
Frequently new theories are written about strategic planning - market based analysis, resource based analysis, identifying revenue gaps, segmentation, SWOT (strengths, weaknesses, opportunities, threats) analysis, PEST (political, economic, social, technological) analysis, Porter's Five Forces etc. etc. – but real novelty or innovation is generally lacking. The result is a proliferation of thoughts on strategic planning that sometimes creates confusion around a process that is intended to bring order.
Strategic Strategic Strategic Options Implementation Implementation
Position Options Evaluation & &
Objectives Assessment Formulation Selection Planning MonitoringFrom Theory to Practice
Strategic planning is a top-down, goal orientated process that focuses on the outputs and then manages the inputs to achieve the outputs. It is necessary to find the right plan to suit the specific business situation and ensure that the benefits are achieved and not just the costs.
The first stage in the process is to understand what is wanted from the plan – Strategic
Objectives - and classic indicators of the need for a plan can include: not meeting financial targets; stagnant growth; a culture of crisis management; frustration; confused customers; demoralised employees and lack of team work.
The second stage of the process is an assessment of both the internal and external environments – Strategic Position Assessment. The use of simple models and tools helps to structure thinking and takes businesses through the process in a methodical way, reducing the risk of missing important issues.
A market assessment looks at needs, size, growth, structure and trends. It helps companies develop a strategy of product differentiation and / or cost leadership. The other determinant of a successful value creating strategy is market attractiveness and Porter’s Five Forces can help identify the right path to follow. It is used to analyse the intensity of direct competition, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitutes and the threat of new entrants to the market.
In a fast moving environment another way to look at the external environment and how it will impact on the business in future is to consider a PEST (political, economic, social, technological) analysis, which explores the main factors in the external environment which could affect the company. The items in the PEST are collected from past events and experiences but can be used as a forecast for future predictions and trends.
The internal assessment should look at structure, culture, development of capability and measures of performance. This can lead to a resource-based approach to strategy that is built on the premise the organisation itself, in terms of skills and processes, is much harder to copy than its products and hence, less vulnerable to the turbulence in the market it serves.
An important output from the internal business assessment should be an understanding of the balance of the company’s products and services. New product introductions should ideally be balanced with strong cash generators.
Strategic planning is not just about long-term measures. If quick ‘wins’ can come from short-term initiatives it can help underpin the strategic plan and deliver immediate benefits.
A SWOT (strengths, weaknesses, opportunities, threats) analysis is a key element of forming a sound strategic plan. It takes the outputs from the internal and external assessments and assists the company to identify key issues and opportunities from which it can formulate Strategic Options, which is the third stage of the process.
The formulation of options will focus on one or more of the following:
· Market and segmentation initiatives
· Product/service offering initiatives
· Price initiatives
· Cost initiatives
· Asset initiatives
Market segmentation, correctly applied, is about understanding the needs of customers and therefore how they decide between one offer and another. This insight is used to form groups of customers who share the same or very similar value criteria. A company is then able to determine which groups of customers it is best suited to serve and which product and service offers will both meet the needs of its selected segments and outperform the competition.
Successful segmentation requires an understanding of the market as it really is, a clear definition of the market to be segmented and an insight into how to win and retain different customer groups. Segments need to be identifiable, distinctive and valuable enough to target. However, successful segmentation enables the company to focus resources on specific targets, providing efficiency and a better chance of success.
Generating strategic options that are open to a company can be straightforward but implementation can be a much more difficult process. Pursuing strategies such as cost-leadership and product differentiation can be very hard to achieve and new product failure rates are about 40%, therefore a resource-based approach to strategy may be more appropriate.
Having selected a number of strategic options, stage four of the process is to Evaluate and Select a course of action. The evaluation must include a financial and value impact of each of the options and a sensitivity analysis. What are the risks and how might competitors react? Do the options fit with the capabilities of the company and what are the contingencies if the plan, or elements of it, fail to meet expectations? These are all matters to be considered and deliberated upon before a strategy can be finalised and implemented. However, a good plan well implemented will always be better than a brilliant plan poorly implemented and that leads to the fifth stage of the strategic planning process.
Implementation planning should include the setting of key targets, actions and milestones, the allocation of resources and responsibilities, and gaining performance commitments. Only then can a final financial consolidation be conducted.
The sixth and final stage of the strategic planning process is Implementation and Monitoring. The appropriate data must be captured, key performance indicators measured and progress reported monthly for review and corrective action where necessary. Strategic planning cannot be regarded as a one-off exercise that is put on a shelf to gather dust until someone thinks it is a good idea to look at again. It is a continuous process of monitoring and review with an annual re-assessment of the internal and external business environments or sooner if there is a fundamental change.
How do we do it?
It is quite understandable that many owners and senior managers see the strategic planning process as a major project. However, by breaking down the process into easily understood and manageable stages, using well established planning models, means that it can be easily digested and absorbed.
Accessing relevant data and convincing key personnel of the value of the exercise are the most common reasons why strategic plans do not materialise. Using a facilitator from outside of the company can help overcome these issues, give the planning process impetus and keep it on track.
If you would like to comment on any of the issues raised in this article or discuss how Excelsis can help your company deliver an appropriate strategy to ensure its survival and prosperity please email tony.stroud@excelsis-enterprises.co.uk
The remanufacturing industry - SWOT analysis
PANEL – SWOT ANALYSIS of the REMANUFACTURING INDUSTRY
Strengths
- A vibrant dynamic industry with good infrastructure – trade information, standards etc
- Good acceptance of products despite pressure from printer manufacturers.
- Real and perceived quality
- Sound manufacturing skills
- Support of third party organisations (e.g. charities for collection, NGO’s for supporting free market)
- Technologies with no real challenges in near future
Weaknesses
- Dependence on the empties collection infrastructure
- Need to keep up with fast introduction of new printer models
- Cost of new technology – colour laser printing, chips, inks etc.
- Insufficient legal expertise and financial resources to defend lawsuits
- Many small companies with limited financial resources to withstand unexpected changes to the industry
Opportunities
- Production costs due to scaling, offshore manufacturing and rationalisation
- Geographical coverage – especially in lesser developed countries.
- Improved logistics and IT systems including industry-wide possibilities
- Partnerships with large scale distribution organisations
- New printer manufacturer entrants (Kodak, Lenovo etc)
Threats
- Collection programmes from printer manufacturers
- Cheap imports (China etc)
- More difficult chips – with ‘trojan horse’ features – i.e. those which are not apparent when introduced.
- Hidden – and often obscure – patents with questionable validity.
- Lawsuits from companies with very deep pockets
- Counterfeit products
- Price wars leading to pressure to use cheaper (lower quality) components to remain competitive
Source – Daniel Roberts, Incartek with input from ETIRA
March 2007
BIOGRAPHICAL NOTES
Tony Stroud
A Transition Manager for strategic planning, risk management, project management and process re-engineering.
Considerable international success as a Change Manager, Managing Director, B2B Sales and Marketing Director, Projects Director and Operations Manager gained in, service sectors, engineering, capital equipment and packaging.
Formed Ensign Business Support Services Ltd in 2003 to provide facilitation, expertise and training for high level change projects.
Daniel Roberts
Dan Roberts, as owner/director of Incartek, finds, evaluates and sets up new business areas for companies in the imaging supplies industry.
He has been involved in international aftermarket activities for over 30 years. Formerly he was Director of Planning at Memorex and more recently ran several companies in the distribution of inkjet and toner products.
As published in Recylcer Trade Magazine
Copyright 2007 - Tony Stroud and Daniel Roberts
For more information Contact daniel@incartek.com
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