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Chapter 3: Winning Markets - Market-Oriented Strategic Planning
In chapters 1 and 2, we asked the question: How do companies compete in a global marketplace? One part of the answer is a commitment to creating and retaining satisfied customers. We can now add a second part: Successful companies know, how to adapt to a continuously changing marketplace. They practice the art of market-oriented strategic planning.
is the managerial process of developing and maintaining a viable fit between the organization's objectives, skills, and resources and its changing market opportunities. The aim of strategic planning is to shape the company's businesses and products so that they yield target profits and growth.
- Market-oriented strategic planning
The concepts and tools that underlie strategic planning emerged in the 1970s as a result of a succession of shock waves that hit U.S. industry-the energy crisis, double-digit inflation, economic stagnation, Japanese competitive victories, deregulation of key industries. No longer could U.S. companies rely on simple growth projections to plan production, sales, and profits. Today, the main goal of strategic planning is to help a company select and organize its businesses in a way that will keep the company healthy even when unexpected events adversely affect any of its specific businesses or product lines. Strategic planning calls for action in three key areas: The first is managing a company's businesses as an investment portfolio. The second key area involves assessing each business's strength by considering the market's growth rate and the company's position and fit in that market. The third key area is strategy. For each of its businesses, the company must develop a game plan for achieving its long-run objectives. Each company must determine what makes the most sense in the light of its industry position, objectives, opportunities, skills, and resources.
Marketing plays a critical role in the strategic-planning process. According to a strategic-planning manager at General Electric:
The marketing manager is the most significant functional contributor to the strategic- planning process, with leadership roles in defining the business mission; analysis of the environmental, competitive, and business situations; developing objectives, goals, and strategies; and defining product, market, distribution, and quality plans to implement the business's strategies. This involvement extends to the development of programs and operating plans that are fully linked with the strategic plan.
To understand marketing management, we must understand strategic planning. And to understand strategic planning, we need to recognize that most large companies consist of four organizational levels: the corporate level, division level, business unit level, and product level. Corporate headquarters is responsible for designing a corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources to allocate to each division, as well as on which businesses to start or eliminate. Each division establishes a division plan covering the allocation of funds to each business unit within the division. Each business unit develops a business unit strategic plan to carry that business unit into a profitable future. Finally, each product level (product line, brand) within a business unit develops a marketing plan for achieving its objectives in its product market.
The marketing plan operates at two levels. The strategic marketing plan lays out the broad marketing objectives and strategy based on an analysis of the current market situation and opportunities. The tactical marketing plan outlines specific marketing tactics, including advertising, merchandising, pricing, channels, and service.
The marketing plan is the central instrument for directing and coordinating the marketing effort. In today's organizations, the marketing department does not set the marketing plan by itself. Rather, plans are developed by teams, with inputs and sign-offs from every important function. These plans are then implemented at the appropriate levels of the organization. Results are monitored, and corrective action is taken when necessary. The complete planning, implementation, and control cycle is shown in Figure 3.1.
By preparing statements of mission, policy, strategy, and goals, headquarters establishes the framework within which the divisions and business units prepare their plans. Some corporations give a lot of freedom to their business units to set their own sales and profit goals and strategies. Others set goals for their business units but let them develop their own strategies. Still others set the goals and get heavily involved in the individual business unit strategies.
All corporate headquarters undertake four planning activities:
- Defining the corporate mission
- Establishing strategic business units (SBUs)
- Assigning resources to each SBU
- Planning new businesses, downsizing older businesses
DEFINING THE CORPORATE MISSION
An organization exists to accomplish something: to make cars, lend money, provide a night's lodging, and so on. Its specific mission or purpose is usually clear when the business starts. Over time the mission may lose its relevance because of changed market conditions or may become unclear as the corporation adds new products and markets to its portfolio.
When management senses that the organization is drifting from its mission, it must renew its search for purpose. According to Peter Drucker, it is time to ask some fundamental questions.' What is our business? Who is the customer? What is of value to the customer? What will our business be? What should our business be? These simplesounding questions are among the most difficult the company will ever have to answer. Successful companies continuously raise these questions and answer them thoughtfully and thoroughly.
Organizations develop mission statements to share with managers, employees, and (in many cases) customers. A well-worked-out mission statement provides employees with a shared sense of purpose, direction, and opportunity. The statement guides geographically dispersed employees to work independently and yet collectively toward realizing the organization's goals. Mission statements are at their best when they are guided by a vision, an almost "impossible dream" that provides a direction for the company for the next 10 to 20 years. Sony's former president, Akio Morita, wanted everyone to have access to "personal portable sound," so his company created the Walkman and portable CD player. Fred Smith wanted to deliver mail anywhere in the United States before 10:30 A.M. the next day, so he created Federal Express. Here are two examples of mission statements:
- Rubbermaid Commercial Products Inc. Our Vision is to be the Global Market Share Leader in each of the markets we serve. We will earn this leadership position by providing to our distributor and end-user customers innovative, high-quality, cost-effective and environmentally responsible products. We will add value to these products by providing legendary customer service through our Uncompromising Commitment to Customer Satisfaction.
- Motorola The purpose of Motorola is to honorably serve the needs of the community by providing products and services of superior quality at a fair price to our customers; to do this so as to earn an adequate profit which is required for the total enterprise to grow; and by so doing provide the opportunity for our employees and shareholders to achieve their reasonable personal objectives.
Good mission statements have three major characteristics. First, they focus on a limited number of goals. The statement "We want to produce the highest-quality products, offer the most service, achieve the widest distribution, and sell at the lowest prices" claims too much. Second, mission statements stress the major policies and values that the company wants to honor. Policies define how the company will deal with stakeholders, employees, customers, suppliers, distributors, and other important groups. Policies narrow the range of individual discretion so that employees act consistently on important issues. Third, they define the major competitive scopes within which the company will operate:
- Industry scope: The range of industries in which a company will operate. Some companies will operate in only one industry; some only in a set of related industries; some only in industrial goods, consumer goods, or services; and some in any industry. For example, DuPont prefers to operate in the industrial market, whereas Dow is willing to operate in the industrial and consumer markets. 3M will get into almost any industry where it can make money.
- Products and applications scope: The range of products and applications that a company will supply. St. Jude Medical aims to "serve physicians worldwide with high-quality products for cardiovascular care."
- Competence scope: The range of technological and other core competences that a company will master and leverage. Japan's NEC has built its core competences in computing, communications, and components. These competences support its production of laptop computers, television receivers, and handheld telephones.
- Market-segment scope: The type of market or customers a company will serve. Some companies will serve only the upscale market. For example, Porsche makes only expensive cars and licenses its name for high-quality sunglasses and other accessories. Gerber serves primarily the baby market.
- Vertical scope: The number of channel levels from raw material to final product and distribution in which a company will participate. At one extreme are companies with a large vertical scope; at one time Ford owned its own rubber plantations, sheep farms, glass manufacturing plants, and steel foundries. At the other extreme are corporations with low or no vertical integration. These "hollow corporations" or "pure marketing companies" consist of a person with a phone, fax, computer, and desk who contracts out for every service including design, manufacture, marketing, and physical distributions...