BUStrategicPlanBasics

1、confidentialbu strategic plan basicstraining materials8 june 2001this 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 & company. this material wa

2、s used by mckinsey & company during an oral presentation; it is not a complete record of the discussion.jim ayala phomelissa gil phoregina manzano phosuresh mustapha phosteve shaw hkoshelly yeh phochoon-gin tan sio1description of materialsthis document was developed as a training presentation fo

3、r the newly appointed business unit ceos of an asian family-owned conglomerate.the purpose 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 pr

4、ovides completeness and consistency of bu strategic plan submissions. these templates are not intended to replace or constrain bu strategic thinking and should be adapted to reflect a particular bus sectoral context as required2what is a bu strategy?a strong business concept that drives an integrate

5、d set of actions that creates value by:creating products/services whose value exceeds the cost of providing themcapturing value from competitors, customers, distributors, suppliers, and producers of substitute products and services3rationale for proposed definitiona strong business concept that driv

6、es an integrated set of actions that creates value by:creating products/services whose value exceeds the cost of providing themcapturing value from competitors, customers, distributors, suppliers, and producers of substitute products and services1. recognize dual role of creating and capturing value

7、 in all elements of business system2. forces choices6. competitive7. externally oriented, customer driven4. recognizes importance of cost as competitive tool5. considers tradeoffs between benefit provided to customers and costs they incur3. gives consideration to all elements of the business system4

8、common elements of real-life strategiesvisionwhere?strong businessconcept consisting ofhow tocompete?integrated set of actionsdeveloped high quality standards and excellent operational proceduresfocus on developing critical mass of stores and establishing market dominancemcdonalds experienced phenom

9、enal success in globalization due to: successfully screening franchisees and a dedication to intense initial and ongoing training consistent delivery of high-quality food and service around the world huge economies of scale and powerful supplier leverage capitalized on “american” appeal of mcdonalds

10、 success 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 across the worldtargeting a broad set of the urban population, increasingly offering a bundled product (i.e., meals) at a low price in

11、major cities around the worldmcdonalds example5bu strategy review interactionshighly interactive debate driven by fact-based understanding of environment and internal capabilitieshow do you expect competitor a to react?how sustainable is your business model? can it be easily duplicated?how robust ar

12、e your contingency plans?how quickly can you shift your business emphasis to capture industry opportunities?bu-ceo6bu strategic plan developmentindustry dynamics and implicationsenvironmental and internal assessmentcompetitive assessmentinternal assessmentwhat are the major changes in industry dynam

13、ics and resulting opportunities and risks?what are your competitive strengths and weaknesses?how does your current business emphasis fit with industry opportunity and competitive landscape?strategy articulationstrategic definition and implicationsstrategic initiativesfinancial projectionswhat strate

14、gy 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 strategy?+risk/contingen-cies & strategic alternativeswhat strategic alternatives have you considered?+7industry dynamics and implicationseconomics

15、of demand by segment substitutes, ability to differentiate volatility, cyclicalityeconomics of supply producer concentration and diversity import competition capacity utilization entry/exit barriers cost structure (fixed and variable)industry chain economics customer and supplier bargaining powerwha

16、t are the major changes in industry dynamics and the resultingopportunities and risks?how is industry structure changing with respect to demand, supply, and industry chain economics? what are the resulting opportunities and risks?what is the expected competitor conduct? what are the resulting opport

17、unities and risks?what are the present and future external factors that could present new opportunities and risks?major industry competitor moves marketing initiatives industry capacity changes m&as, divestitures vertical integration/disaggregation alliances and partnerships cost control and eff

18、iciency improvementsimpact and likelihood of major industry discontinuities changes in regulation/government policy technological breakthroughskey questionsub-questionsissues to be considered* may or may not be applicable to all buswhat industry are you competing in? what are the various segments in

19、 the industry?industry definitionindustry segmentation definition sizing8segment analysisillustrativeindustryboundariessegmentsindustry segmentsrelatively distinct sub-groupings within the industrymarket is relatively similar within the segment but different across segmentsdifferent industry dynamic

20、s may vary in importance in different segments9producersindustrystechnology breakthroughschanges in government policy/regulations domestic internationaleconomics of demand availability of substitutes differentiability of products rate of growth volatility/cyclicalityeconomics of supply concentration

21、 of producers import competition diversity of producers fixed/variable cost structure capacity utilization entry/exit barriersindustry chain economics bargaining power of input suppliers bargaining power of customersmarketing pricing volume advertising/promotion new products/r&d distributioncapa

22、city change expansion/contraction entry/exit acquisition/merger/ divestiturevertical integration forward/backward integration vertical joint ventures long-term contractsinternal efficiency cost control logistics process r&d organization effectivenessfinance profitability value creationtechnologi

23、cal progressemployment objectivesexternalshocksfeedbacktructureconductperformancestructure-conduct-performance (scp) model101. determinants of supplier power differentiation of inputs switching costs of suppliers and firms in the industry presence of substitute inputs supplier concentration importan

24、ce of volume to supplier cost relative to total purchases in the industry impact of inputs on cost or differentiation threat of forward integration relative to threat of backward integration by firms in the industry2. determinants of barriers to entry economies of scale proprietary product differenc

25、es brand identity switching costs capital requirements access to distribution absolute cost advantages proprietary learning curve access to necessary inputs proprietary, low-cost product design government policy expected retaliation5. rivalry determinants industry growth fixed (or storage) cost/valu

26、e added intermittent overcapacity product differences brand identity switching costs concentration and balance informational complexity diversity of competitors corporate stakes exit barriers3. determinants of buying power bargaining leveragebuyer concentration vs. firm concentrationbuyer volumebuye

27、r switching costs relative to firm switching costsbuyer informationability to backward integratesubstitute productspull-through4. determinants of substitution threat relative price performance of substitutes switching costs buyer propensity to substitute2. new entrants3. buyers4. substitutesintensit

28、y of rivalry1. suppliers price sensitivityprice/total purchasesproduct differencesbrand identityimpact on quality perceptionbuyer profitsdecision makers incentives5. industry competitorsforces at work framework11opportunities/threats how are demand and supply expected to evolve? how do you expect th

29、e industry chain economics to evolve? what are the potential major industry discontinuities? what competitor actions do you expect?your buswot analysisconvert opportunitiesbuild on strengthsneutralize threatsaddressweak-nessesstrengths/weaknesses what are your bus assets/competencies that solidify y

30、our 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 assessmentsurfaces potential opportunities/threats arising from factors external to the bu12scp applied to lexmarkrapidly chan

31、ging technology, e.g., birth of portable, handheld, wireless computersrapidly changing customer preferencespossibility of a paperless society given increasing environmental concern and rise of the interneteconomics of demandinkjet printers replacing laser in non-network environmenthigh price sensiti

32、vity; 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 product

33、 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 channelaggress

34、ive 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 player

35、sclamp down on counterfeit and recycled consumables suppliersfinanceprice competition on printer hardware drives margins down and forces players to rely on profits from consumable products (good margins) and high volume capture on hardwaresexternalshocksfeedbacktructureconductperformance13resulting

36、opportunities and risks for lexmarkopportunitiesrisksbecome 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 increase printin

37、g usage be the supplier of printers for pc/peripheral players hoping to the expand into printer marketexpand leadership in corporate institutional accountsincreasing demand for customization may increase costs and erode marginsany decline in pc sales may significantly bring down revenuesmarket share

38、 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 societynot exhaustive14competitive assessmentprivileged assets that create competitive advantage, e.g.

39、 physical assets, location/”space”, distribution/sales networkdistinctive skills/competencies that create competitive advantage, e.g. innovation, talent developmentwhat are yourcompetitivestrengths andweaknesses?what are the capabilities required to succeed in this industry?how do you compare agains

40、t 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 minimumkey questionsub-questionsissues to be considered*

41、 kpis are a handful of levers that drive the value of the industry/business15capability platform: assessment of sources of competitive advantage (1/2)physical assetlocation/spacedistribution/sales networkbrand/reputationpatentrelationship with license allocator bhps low-cost mines telecomm/media com

42、pany with rights radio spectrum avons representatives coca-cola pharmaceutical company with a wonder drug” favored nation status with a key minister in liberalizing economyinnovationcross-functional coordinationmarket positioningcost/efficiency managementtalent development 3m with new products mcdon

43、alds with qsc&v j&j with branded consumer health products emerson electrics best cost producer program p&g brand management programprivileged assetsdistinctive competenciesnecessary capabilities in order to succeed in the industryexample16step 1: ensure that these are the capabilities re

44、quired to succeed in the industry. use this list as a thought starter, add and delete as you see appropriatebu overallsegmentsabcstep 2: assess your overall position relative to the capabilities required to succeed in the industry. also, determine if these capabilities are relevant to the segments y

45、ou servephysical assetlocation/spacedistribution/sales networkbrand/reputationpatentrelationship with license allocatorinnovationcross-functional coordinationmarket positioningcost/efficiency managementtalent developmentprivileged assetsdistinctive competenciesnecessary capabilities in order to succ

46、eed in the industrycapability platform: assessment of sources of competitive advantage by segment (2/2)illustrative extremely relevantsomewhat relevantirrelevant17bu overallcompetitorsabcstep 3: compare the strengths and weaknesses of your competitive position vs. the necessary skillsphysical assetl

47、ocation/spacedistribution/sales networkbrand/reputationpatentrelationship with license allocatorinnovationcross-functional coordinationmarket positioningcost/efficiency managementtalent developmentprivileged assetsdistinctive competenciesnecessary capabilities in order to succeed in the industry com

48、petitor capability comparisonillustrative 18necessary capabili-ties in order to succeed in the industryprivileged assetsdistinctive competen-ciescapability platform applied to lexmarkdistribution/sales networkbrand/reputationinnovationcross-functional coordinationmarket positioningcost/efficiency ma

49、nagement laserinkjet (sales network)(distribution)(reputation)(brand)segmentsextremely relevantsomewhat relevantirrelevant19necessary capabilities in order to succeed in the industryprivileged assetsdistinctive competenciescompetitor capability comparison applied to lexmarkdistribution/sales network

50、brand/reputationinnovationcost/efficiency managementlexmarkhpepson formed own account teams; customer relationships inherited from ibmwell-established retail distribution/ dealer networkknown for quality specialized products and network softwarebest-known brandknown for product qualityquick to marke

51、t with new technologiesawarded leader in implementa-tion of necessary product featuresleader in print qualitycross-functional coordination delivers superior product design and customer servicemarket positioningcross-functional coordinationownership of technology allows low-cost, in-house manufacture

52、 of critical components 20benchmark performance against relevant industry kpiskpis (examples)financial indicatorsmarginnet incomeroce operating indicatorsadvertising effectivenessutilization rate strategic indicatorsmarket sharepercent of revenue from new productsworking capital trend external indic

53、atorsmarket prices of raw materials bucompetitor acompetitor bcompetitor c21kpisfinancial indicatorsoperating incomemarginsroceoperating indicatorsdistribution reachcycle timestrategic indicatorsmarket sharebrand awarenesslexmarkhpepsonbenchmarking applied to lexmarkstrongmediumweak* includes other

54、information equipment (e.g. scanners, projectors)$457 million12%29%$1,573 million* 9%*11%*$583 million*6%*n/a*12%47%17%22internal assessmentrelevant bu segments (based on customer, product, geography, distribution channel)operating contribution estimates for each segmenthow does your current busines

55、s emphasis fit with the industry opportunities and the competitive landscape?which segments of the business are providing the highest returns?*what have been the performance trends along major bu kpis?kpi performance trends over the last 3-5 years, e.g. return on capital employed (roce)*, operating

56、income, margins, capital employedassessment of underlying trend driversexpected evolutionkey questionsub-questionsissues to be consideredwhich intangible assets could be near-term sources of value?identification of in-house intellectual property, talent, networks, brand/imageconversion into sources

57、of value* based on latest available, 1-2 year historical financial statements* roce = operating income x (1-tax rate) all interest bearing debt (short and long) + minority interest + stockholders equity23segment analysisrevenuegross profitoperating profitassets employedpeople employedoperatingprofit

58、 margingross profitmarginrocestep 1: identify the relevant segmentsstep 2: provide a segment analysis based on the following minimum financial metrics: revenue, gross profit and margin, operating profit and marginstep 3: to the extent assets and people can be disaggregated by segment, deployment of

59、assets against returns can be analyzed%php% of totalsegment 1php% of totalsegment 2php% of totalsegment 3php% of totalsegment 4php% of totaltotal%segment 1segment 2segment 3segment 4total24segment analysis applied to lexmarkprinters and suppliersother office imagingkeyboards and other59347rest of wo

60、rldeuropeusproductpercentgeographypercent of total revenues, 1995100% = usd 3,807 million100%=$2494 m100%=$895 m11414864846100%=$3021 m100%=$1024 m14355184646100%=$3452 m100%=$1031 m1428584060100%=$3807 m100%=$1164 m9236832671gross profitrev1992gross profitrev1993gross profitrev1994gross profitrev1995025trend analysis return on cap