Chapter 5 Mini Sim Exercise: Plan for Business Success
Decision Point: Defining SWOT Analysis A more detailed analysis of the company's strategic plan leads you to believe that, although the company has done a relatively good job of identifying its strategic goals, its next logical step would be to analyze the organization and the environment by performing a SWOT analysis. At your next meeting with the senior management team, you suggest this, and you're met with a lot of blank looks. The managers don't seem to quite understand what a SWOT analysis is.
A SWOT analysis is an assessment of the organization and its environment. It examines a company's internal Strengths and Weaknesses as well as its external Opportunities and Threats. That was the best choice. A SWOT analysis assesses an organization's internal strengths and weaknesses (the S and W) and environmental (or external) opportunities and threats (the O and T).
Decision Point: Classifying Plans You think your client has done an excellent job of defining its strategic goals, assessing the organization and environment through a SWOT analysis, and matching environmental threats and opportunities against the company's strengths and weaknesses. However, the management team seems to be struggling just a bit when it comes to fitting in the last piece of the puzzle -- which objectives should be part of the strategic plan, the tactical plan, or the operational plan. Once more, they've asked for your help and guidance. Consider each of the objectives shown below and drag it into the appropriate level of the pyramid to indicate whether these should be part of the company's strategic plan, its tactical plans, or its operational plans.
Increase sales revenue from $8.2 million to $10 million.- Strategic Planning Hire two new online customer service associates by the end of the month.- Operational Planning Hire temporary workers to staff expanded hours of operation during holiday season.- Operational Planning Increasing selling space by 25% in the Meadowville store by completing an addition to the building by year-end. - Tactical Planning Upgrade website to make it mobile-friendly and linked with company social media sites.-Tactical Planning Increase market share in Midwestern region by 20% within the next 5 years. - Strategic Planning Hire a new web designer.- Operational Planning Develop and implement a company wide orientation program for new hires.- Operational Planning Maintain a profitability rate that is among the best-in-class retailers as measured by a percentage of net sales.- Strategic Planning Perform physical inventory of stores.- Operational Planning
Decision Point: Getting to Know the Company Your first step as a turnaround consultant is to get more familiar with the company. What should you review first in order to understand more about the company?
It's mission statement. That was the best choice. The mission statement is a great place to start because an organization's mission statement explains how it will achieve its purpose in the environment in which it conducts business.
A company's mission statement explains how it will achieve its purposes in the environments in which it conducts business. It defines: The nature of the business Whom the business intends to serve (its customers and stakeholders) What needs or benefits it will focus on How it will address those needs Check out some of these mission statements: Facebook: To give people the power to share and make the world more open and connected. Google: To organize the world's information and make it universally accessible and useful. Adidas: We strive to be the global leader in the sporting goods industry, with brands built on a passion for sports and a sporting lifestyle. Hilton Worldwide: To be the preeminent global hospitality company -- the first choice of guests, team members, and owners alike. Lowe's: To help customers improve and maintain their biggest asset: their home.
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Mentoring Moment: A Hierarchy of Plans The final step in formulating strategy is creating actual plans. These plans can be viewed on three levels: strategic, tactical, and operational. The levels constitute a hierarchy because implementing the plans are practical only when there is a logical flow from one level to the next. Strategic planning is an organization's process of defining its strategy -- or priorities -- and making decisions on resource allocations to address those priorities. Generally, strategic plans are created by top management with input from others in the organization. These are long-term plans, reaching out 5 or more years. Tactical planning is shorter-term planning for implementing specific aspects of the company's strategic plan. Think of it this way: The strategic plan addresses the question "What?", whereas tactical plans address the question "How?". These plans typically involve upper and middle management and outline what the company needs to accomplish within a 1-year timeframe. Operational plans are developed by mid-level and lower-level managers and describe the day-to-day operations of the company. Think of an operational plan as a roadmap to achieve the tactical goals. These plans establish short-term targets for daily, weekly, or monthly performance. Think you've got it?
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Mentoring Moment: Strategy Formulation Strategy formulation involves three basic steps, which are summarized below. The first step is setting strategic goals. Remember, strategic goals are derived directly from the firm's mission statement. You'll recall that the mission statement for this retail chain referred to providing customers with "enjoyable shopping experiences that drive long-term loyalty." This might translate into strategic goals such as, "Achieve and maintain outstanding customer service" and/or "Increase customer retention." The mission statement also referred to shareholder value, so at least one of the company's goals should reflect this, such as "Exceed $10 million in sales within the next 5 years" or "Improve net profits by 10% annually." The second step is analyzing the organization and the environment through a SWOT analysis. That's what we've done in the preceding question. The final step in strategy formulation is matching environmental threats and opportunities against internal strengths and weaknesses. This is the most important step in strategy formulation because you want to leverage your strengths to capitalize on opportunities, minimize weaknesses, and counteract threats. Only after these three steps have been completed can the company begin to formulate strategy and then start translating that strategy into actual plans. Let's see how that's done with this retail chain.
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Mentoring Moment: The SWOT Analysis A SWOT analysis is a common framework for analyzing an organization and its environment. It helps companies make decisions by identifying factors that can help or hinder their objectives. A SWOT analysis starts by looking at a company's internal Strengths and Weaknesses. These are factors under the company's control, at least to some degree. A company might assess its Strengths by asking the following questions: What does our organization do exceptionally well? What internal resources (people, capital, patents, reputation, technology) do we have? What advantages do we have over our competition? A company might assess its Weaknesses by asking questions like: What areas of our business need improvement to accomplish our objectives? What internal resources (people, capital, technology, reputation) do we lack? What factors detract from our ability to obtain or maintain a competitive advantage? The SWOT analysis then examines external factors, including Opportunities and Threats. These factors are typically outside the company's control but can potentially impact a business, either positively or negatively. In assessing Opportunities in its external environment, a company might ask questions such as: What trends in social patterns, population profiles, and lifestyle changes could positively impact our business? What changes in technology can we capitalize on? Are there changes in government policy or regulation that can favorably impact our business? A company might start assessing the Threats in its external environment by asking the following questions: Is changing technology threatening our business by making our products, equipment, or services obsolete? What are our competitors doing? Are there changes in government policy or regulation that will negatively impact our business? Managers may perform a SWOT analysis to develop a strategy to help them minimize a weakness or threat or use their strengths to help them capitalize on their opportunities.
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Decision Point: Setting Business Goals Once you've completed drafting a new mission statement for the client, you decide it's time to turn your attention to the company's strategic management in terms of setting goals and formulating strategy. You draft an email to the president of the company. To: Emerson Coates, President Subject: Strategic Plan Emerson, as discussed in our meeting last week, I'd like to review the company's long-term goals as soon as possible -- hopefully by Friday, so that I can have questions and comments ready for our next meeting. Please let me know if you have any questions. What should be one of the company's long-term goals?
Open a minimum of 5 stores at outlet malls within the next 5 years. That was the best choice. Opening a minimum of 5 stores at outlet malls within the next 5 years would be a long-term goal. Long-term goals relate to an extended period of time, typically 5 years or more.
Decision Point: SWOT Classification You suggest that the managers spend some time brainstorming on other strengths, weaknesses, opportunities, and threats impacting the business. They come up with the following list. Consider each of the factors identified by the management team and identify it as a strength, weakness, opportunity, or threat. Then drag the statement into the appropriate quadrant of the SWOT analysis.
Strengths: High quality clothing, Reputable customer service, strong website with good functionality Weaknesses: Several stores need extensive remodeling de to age Opportunity: possible expansion of product line to women's wear for younger customers, changing customer tastes, increasing online retail and e-commerce purchase by target market. Threats: weak economy, high employee turnover in several stores, increasing price pressure from suppliers
Decision Point: Contents of a Strategic Plan Along with a list of its long-term goals, Emerson Coates sends over the company's strategic plan, and you begin a detailed review of the plan. You quickly notice that there are some elements of the plan that really don't belong there. Which of the following elements will you choose to retain?
The company's plan to grow sales to exceed $10 million per year within the next 5 years. That was the best choice. The strategic plan reflects decisions about resource allocations, company priorities, and the steps needed to meet strategic goals. The plan to grow sales to exceed $10 million per year within the next 5 years is a strategic goal and should be retained in the strategic plan.
Decision Point: SWOT Analysis: Classifying Changes in Income and Spending To get the management team thinking in the right direction in terms of the SWOT analysis, you continue your presentation with some examples. You display a chart from the Bureau of Economic Analysis that shows that real disposable personal income and consumer spending have decreased each month for the past four months. You ask them how they would characterize this information in terms of a SWOT analysis. What would be their correct response?
Threat. That was the best choice. This is an external factor (outside the control of the company), and it is not favorable for the company, so it would be considered a threat.
Decision Point: The Mission Statement You read the company's mission statement, and it seems vague to you: "To create a shopping experience that makes our customers feel good about themselves and a business that achieves financial success." You're confused about what that means. Is the company focusing on the shopping experience itself to make the customers feel good about themselves, or how they look in the clothes? Or is it focusing on shareholder value by making the company a financial success? You meet with the executive team and learn more about the company. When the company was founded over 40 years ago, it focused on providing quality, classic apparel and accessories for mature women. Over the years, the company made an effort to keep up with fashion trends and fads, but in the process lost much of its customer base, who wanted timeless, quality apparel. Sales slumped, and executives are stumped about what to do next. You suggest the company should go back to its roots and revamp its mission statement as a first step in its makeover. Which of the following mission statements would be most appropriate for the company?
To provide our customers with classically styled career and casual women's apparel and accessories and enjoyable shopping experiences that drive long-term loyalty and shareholder value. That was the best choice. It is very specific regarding the company's customers, the services it provides, and what the company wants to achieve.