Lesson 1, Topic 1
In Progress

Business Unit Strategic Planning

Lakshmi Datti December 23, 2021

The business unit strategic-planning process consists of the following steps as shown in Figure

Business Unit Planning Process

(1)       Business Mission

Each business unit needs to define its specific mission within the broader company mission. Thus, a television studio-lighting-equipment company might define its mission as “To target major television studios and become their vendor of choice for lighting technologies that represent the most advanced and reliable studio lighting arrangements.”

(2)       SWOT Analysis

The overall evaluation of a company’s strengths, weaknesses, opportunities, and threats is called SWOT analysis. It’s a way of monitoring the external and internal marketing environment.

a.         External Environment (Opportunity and Threat) Analysis – A business unit must monitor key macroenvironment forces and significant micro environment factors that affect its ability to earn profits. A marketing intelligence system was used to track trends and important developments and any related opportunities and threats. A marketing opportunity is an area of buyer need and interest that a company has a high probability of profitably satisfying. An environmental threat is a challenge posed by an unfavorable trend or development that, in the absence of defensive marketing action, would lead to lower sales or profit.

b.         Internal Environment (Strengths and Weaknesses) Analysis – It’s one thing to find attractive opportunities and another to be able to take advantage of them. Each business needs to evaluate its internal strengths and weaknesses

A SWOT-like analysis was instrumental in the development of the corporate strategy that drove Dell to years of success.

•           Dell’s strength was selling more effectively and efficiently directly to consumers than IBM and Compaq, its hardware competitors at the time.

•           Dell’s weakness, however, was that its brand was not as strong and it lacked a well-entrenched channel infrastructure and solid dealer relationships.

•           Dell’s opportunity was that the consumer market was becoming more sophisticated and customers increasingly knew exactly what they wanted.

•           Dell’s threat was that it would fail to generate a big enough customer base in the face of strong competitors and demanding channel partners.

(3)       Goal Formulation

Goals are objectives that are specific with respect to magnitude and time.

Most business units pursue a mix of objectives, including profitability, sales growth, and market share improvement. The business unit sets these objectives and then manages them by objectives (MBO). For an MBO system to work, the unit’s objectives must meet four criteria:

a.         They must be arranged hierarchically, from most to least important. Managers can increase profit by increasing revenue and reducing expenses. They can grow revenue, in turn, by increasing market share and prices.

b.         Objectives should be quantitative whenever possible. The objective “to increase the sales” is better stated as the goal “to increase sales to 15 percent within two years.”

c.         Goals should be realistic. Goals should arise from an analysis of the business unit’s opportunities and strengths, not from wishful thinking.

d.         Objectives must be consistent. It’s not possible to maximize sales and profits simultaneously

(4)       Strategic Formulation

Every business must design a strategy for achieving its goals, consisting of a marketing strategy and a compatible technology strategy and sourcing strategy. Porter’s Generic Strategies by Michael Porter proposed three generic strategies that provide a good starting point for strategic thinking: overall cost leadership, differentiation, and focus.

•           Overall cost leadership. Firms work to achieve the lowest production and distribution costs to win market share. They need less skill in marketing. The problem is that other firms will usually compete with still-lower costs and hurt the firm that rested its whole future on cost.

•           Differentiation. The business concentrates on achieving superior performance in an important customer benefit area valued by a large part of the market. The firm seeking quality leadership, for example, must make products with the best components, put them together expertly, inspect them carefully, and effectively communicate their quality.

•           Focus. The business focuses on one or more narrow market segments, gets to know them intimately, and pursues either cost leadership or differentiation within the target segment.

(5)       Program Formulation and Implementation

Today’s businesses recognize that unless they nurture other stakeholders—customers, employees, suppliers, distributors— they may never earn sufficient profits for the stockholders. A company might aim to delight its customers, perform well for its employees, and deliver a threshold level of satisfaction to its suppliers. It must not violate any stakeholder group’s sense of fairness about the treatment it is receiving relative to the others.

According to McKinsey & Company, strategy is only one of seven elements—all of which start with the letter “s”—in successful business practice. The first three—strategy, structure, and systems—are considered the “hardware” of success. The next four—style, skills, staff, and shared values—are the “software.”

(6)       Feedback and Control

Peter Drucker pointed out that it is more important to “do the right thing”—to be effective—than “to do things right”—to be efficient. The most successful companies, however, excel at both. Once an organization fails to respond to a changing environment, it becomes increasingly hard to recapture its lost position.  The key to organizational health is a willingness to examine the changing environment and adopt new goals and behaviors.