Corporate Planning and Strategic Planning

What is Corporate Planning and Strategic Planning?

Four main planning activities are undertaken by all corporate headquarters.

  1. Defining the corporate mission.
  2. Establishing strategic business units.
  3. Assigning resources to each SBU.
  4. Assessing growth opportunities.

1. Defining the Corporate Mission

Generally, an organization exists to perform certain activities: to manufacture cars, provide lodging, loan money, etc. As time passes, new opportunities and market conditions might be a reason for the change in the organisation’s mission

Peter Drucker’s classic questions must be addressed in order to define the mission of a business

“What is your business?”

“Who is the customer?”

“What is the value of the customer?”

“What will our business be?”

“What should our business be?”

These questions might sound simple but they are the most difficult questions a company faces. Such questions are asked and answered regularly by successful companies.

Managers, employees and often customers collectively develop a clear cut and reflective mission statement. This helps the business acquire a sense of purpose, direction and opportunity.

A good mission statement manifests a vision, an almost “impossible dream”. This vision can provide the business direction for the next 10 to 20 years.

Example – Mission Statements

Tesla

To accelerate the world’s transition to sustainable energy.

American Express

Become essential to our customers by providing differentiated products and services to help them achieve their aspirations.

Linkedin

To connect the world’s professionals to make them more productive and successful

Facebook

”Our new mission is to bring the world closer together,” Mark Zuckerberg

Twitter

To give everyone the power to create and share ideas and information instantly without barriers.

2. Establishing Strategic Business Units

Each SBU owned by a large company may require a different businesses strategy

The three features of an SBU or Strategic Business Units are:

  1. It is a single business or a set of related businesses, whose strategy planning is done separately from the rest of the company.
  2. The set of competitors of these businesses are separate from those of the company.
  3. The strategic planning and profit performance of a strategic business unit are overlooked by a manager.

The manager also administers the factors affecting profit.

Companies identify strategic business units so they can develop different strategies and allot relevant funding to the same.

Example – Apple

The following chart shows net sales by category by 2019. Apple In 2019, Appl’s iPhone business accounted for more than 50% of the total sales

Another business segment that takes a larger share of the pie is the Wearables, Home and Accessories segment – with roughly $46bn in revenue.

Example – Apple

3. Assigning Resources to Each SBU

Management should decide on how corporate resources are to be allocated to respective strategic business units after they have been defined.

These strategy models help allot the right resources:/

[GRAPHICS PUT IMAGES OF THE MODEL]

The GE/McKinsey Matrix

The GEMcKinsey Matrix

Here the SBUs are classified on the basis of their attractiveness to the industry and the extent of their competitive advantage.

Cash can be grown, harvested, drawn from or held onto by the management.

BCG’s Growth-Share Matrix

BCG’s Growth-Share Matrix

In BCG’s Growth-Share Matrix the two criteria’s for investment decisions are relative market share and the annual rate of market growth.

These two criteria’s help in classifying SBU’s as dogs, cash cows, question marks and stars.

4. Assessing Growth Opportunities

Planning new businesses, downsizing and terminating older businesses are a part of assessing growth opportunities. Corporate management will need to fill the gap in between future desired sales and projected sales, if there is any, by acquiring new businesses.

1. Intensive Opportunities

  • Companies can identify growth within their current businesses.
  • A firm’s strategic growth opportunities in terms of products and markets (both current and new) can be realised by the marketers by using a “product-market expansion grid”.
  • First, a market-penetration strategy is used to analyse if a company could gain more market share with its products in the current markets.
  • Then, through a market development strategy, a company analyses whether it can develop or find new markets for its current products.
  • Then, through product- development strategy it analyses whether it can develop new products for its current markets.
  • Lastly, through diversification strategy, a firm reviews its opportunity to develop new products for new markets.

Example – IKEA’s India expansion plans

Through an omnichannel approach, IKEA plans on reaching 100 million people in India by 2022. IKEA plans on opening stores in Mumbai, Bengaluru and Delhi/NCR.

It is trying an omnichannel approach, by aligning its brick and mortar format stores with online stores. In 2013, IKEA got government approval for a ₹10,500-crore proposal.

The proposal was to open retail stores under 100 per cent FDI. To open stores in several states in India, IKEA signed MoUs with them. By 2025, IKEA plans on opening 25 stores in nine cities.

2. Integrative Opportunities

Businesses related to their current major business can be acquired or built by a company.

Backwards, forward or horizontal integration within its industry can help increase sales and gains by a business.

Example 1

Flipkart (India’s largest online retailer) was acquired by Walmart as an attempt to enter India’s retail market and to compete with Amazon in the Indian market.

Example 2

Amazon realised its long-held wish to sell more groceries by being catapulted into over 450 physical locations after it acquired Whole Foods Market in a deal worth $13.7 billion.

3. Diversification Opportunities

Attractive unrelated business can be added in this third option.

Example

9.99 per cent stake in Mukesh Ambani’s Reliance Jio was bought by Facebook for Rs. 43,574 crores. It made Facebook the largest minority shareholder in Jio Platforms Limited.