Contents

1. Lesson 7.1 - Lesson Introduction............................................................................................2

2. Lesson 7.2 - What is Planning?................................................................................................2
3. Lesson 7.3 - Types of Plans (Part 1).........................................................................................3
4. Lesson 7.4 - Types of Plans (Part 2).........................................................................................3
5. Lesson 7.5 - Goals and Plan Alignment...................................................................................4
6. Lesson 7.6 - What is Business Strategy?.................................................................................4
7. Lesson 7.7 - Competitive Advantage.......................................................................................5
8. Lesson 7.8 - Vision, Mission, and Core Values........................................................................6
9. Lesson 7.9 - The Business Model: The Business Model Narrative...........................................6
10. Lesson 7.10 - The Business Model: The Economic Model...................................................7
11. Lesson 7.11 - The Business Model: Aligning to Strategy.....................................................7
12. Lesson 7.14 - Strategic Management Process Models........................................................8
13. Lesson 7.15 - Strategic Planning Under Conditions of Uncertainty.....................................9
14. Lesson - 7.16. Alternate Approaches................................................................................10
1. Lesson 7.1 - Lesson Introduction
 A firm's business model is actually the end result of the strategic decisions and trade-
offs made by senior managers over time.
 Although the business models result a prior business strategy over time, management
must consider the capabilities of the firm's business model with formulating future
strategies. So these concepts are symbiotic, one cannot exist without the other.

1. Lesson 7.2 - What is Planning?

 The management process consists of planning, organizing, leading, and controlling.
 Planning involves defining goals and objectives, and establishing an overall strategy for
achieving those goals.

Type of plans

 Strategic Plans for broadly guiding and positioning the firm relative to the competition.
 Functional plans that align the goals and direct the strategic activities of the operating
units.
 tactical operational plans that specify the details of how the operational goals will be
achieved.

 If the lower level goals are reached, then the higher level goals will also be achieved.

 The internal environment is comprised of the firm's organizational structure, the firm's
vision, mission, and values, and culture. It's also comprised of the firm's people, their
knowledge and abilities, processes, technology, and the other assets of the firm.
Physical assets as well as intellectual property.

 The external environment consists of the larger general environment of macro forces
like economic cycles. Technological changes, social and demographic changes, as well as
environmental factors specific to the firm's industry and markets.

 Planning must consider the external context of the firm, and is aligned with the internal
resources and capabilities of the firm.

Why is Planning important?

 Planning gives direction to managers and non managerial employees.

 Planning reduces uncertainty.
 Planning establishes the goals and standards that facilitate control.
 The process of planning engages all levels of the organization. And can lead to higher
employee engagement and productivity.
2. Lesson 7.3 - Types of Plans (Part 1)
 The more hierarchical the more organization is, the more mechanistic are
bureaucracies it becomes. Hierarchical organizations in theory, tend to be efficient
and stable environments.
 Flat organizations are more effective in dynamic environments than hierarchical
organizations, since decision making is often delegated well into the operating areas
of the business.

 In most organizations, there are at least three types of manager. Senior or top
managers, middle managers and at the lowest level, supervisors are also called first
level managers.
 Many organizations have also a fourth type of manager called a team leader.
 The most common types of plans developed in any business organization are
strategic plans, functional plans and tactical plans.
 The most common types of strategic plans are corporate, business unit and
functional plans.
 The most common tactical plans are budgets and schedules.
 Key issues address by strategic planning at the corporate level include determining
the markets where the firms will compete, how financial human capital will be
allocated across the firm and what services will be shared across the organizational
units.

3. Lesson 7.4 - Types of Plans (Part 2)

 Strategic plans are developed at the corporate and the business unit levels of the
firm, often referred to as the SBUs of the firm.
  Typically, if a firm has multiple business units, it will be organized into a divisional
structure.
 SBU strategy is directed towards creating and sustaining competitive advantage.
 A divisional structure allows senior managers to delegate profit responsibilities
down to the divisional leadership. This approach fixes accountability at a level below
the CEO.
 Functional structures tend to be more efficient than divisional structures.
 Business units that are organized by function, tend to have a single or a very few
individual product lines and are often focused on lowering costs to economies of
scale.
 Functional plans are strategic plans that focus on implementing the SBU strategies.
 Strategic plans at the business unit level set the overall goals and objectives for the
functional plans.
 Tactical plans are also referred to as operational plans. These plans tend to have a
very narrow focus and usually apply to the specific areas of the organization.

4. Lesson 7.5 - Goals and Plan Alignment

 We define business strategy as the goal directed activities, to achieve competitive
advantage.
 For goals to be effective and motivated in human behavior. The goals must be smart,
specific, measurable, achievable, relevant and time bound.
 The most common goal set that the highest levels of the organization, are financial
goals.

5. Lesson 7.6 - What is Business Strategy?

 The main objective of business strategy is to achieve superior performance in the
marketplace. This is done by developing a competitive advantage over the other firms.
 A competitive advantage is superior performance relative to other firms in the industry.
 A competitive advantage is achieved by the firm being different in important ways
relevant to the firm's competition and the firm's costumers.
 If the firm's profitability is higher then the average profitability of that firm's industry,
the firm is said to be enjoying a competitive advantage.
 If the firm has outperformed competitors over a prolonged period of time, the
competitive advantage is said to be sustainable.
 Competitive parity occurs when the firm's performance relevant to its direct
competitors is approximately the same as those competitors.
 Competitive disadvantage is underperformance relative to competitors in the same
industry.
 Elements of a Good Business Strategy
 First, a good business strategy will begin with a diagnosis of the competitive
advantage facing the firm. This diagnosis is through analysis of the firm's
external and internal environments.
 Second, a good strategy will formulate an effective guiding policy backed up by
strategic commitment. Such as capital investments, or changes to the
organization's technical and business architecture, business processes, human
capital, and organizational structure.
 Third, a good business strategy needs to be implemented with a set of coherent
actions. For example, addressing customer range anxiety, Tesla is building out a
network of charging locations across the United States.

6. Lesson 7.7 - Competitive Advantage

 Competitive advantage is determined relative to the firm's competition in that firm's
industry.
 There is no absolute measure of competitive performance nor a specific standard or a
threshold that, once crossed, competitive advantage is achieved.
 The firm seeks to achieve competitive advantage by creating superior value, while
containing the cost to create it. There are three fundamental approaches to doing this.
They are cost leadership, differentiation, and focus.
 The first is cost leadership. Cost leaders deliver comparable value propositions
as their competitors, but enjoy a cost advantage over the competition. Cost
leaders typically produce standardized products and focus on operational
excellence. Cost leaders win by attracting price sensitive customers with
products that provide comparable quality to higher priced alternatives.
 The second approach is differentiation . Differentiation can be created in many
ways including product design, performance, features, technology, brand image,
quality, customer service, product support, and warranties just to name a few. A
differentiation strategy often trades off costs for creating higher customer
utility. Differentiators can charge a premium for the differential of value they
create, thus creating higher profit margins.
 The third approach is focus. Firms that follow a focus strategy identify market
niches and tailor specific solutions that meet the unique requirements of the
market segment. These firms will also follow either a cost leadership or a
differentiation strategy but within the niche that the firm serves. The economic
models look similar to that of cost leadership or differentiation, however, since
cost leadership is often driven by high production and sales volumes, most niche
focus firms compete mainly on a differentiation strategy.
7. Lesson 7.8 - Vision, Mission, and Core Values
 An organization's business strategy should be consistent with senior management's
vision, and the organization's mission and core values.
 Vision:
 A well crafted vision will be aspirational, motivational; will stretch the capabilities
of the organization and create meaningful long term goals
 Vision also drives the development of the future goals and objectives of the
organization.
 A good description of vision is that its management's view of a realistic, credible,
attractive, future for the organization. A vision is what management wants to
accomplish is often stated in a way that conveys in a personal way, the future of
the organization. This future in general will include management's description of
the firm's future business model, technology architecture, workforce, and
strategic positioning in the markets that the firm intends to serve.
 There's importance difference between management's vision for the firm and the
firm's vision statement.
 Vision statements will typically appear on the firm's websites, external reporting,
and probably display throughout the organization's facilities. It's usually a concise
aspirational statement that provides a sense of purpose. The vision statement,
however, usually does not drive strategic planning, but instead is more focused
on inspiring employees and other stakeholders of the firm.
 Mission Statement:
 Many organizations have a mission statement that either supports the
organization's vision or incorporates the vision into a general statement of
purpose.
 Whereas a vision deals with aspirations, the mission statement deals with how
the organization intends to accomplish its vision.
 Often, mission statements will have either a product focus or a customer focus.
 Core Values:
 Core values underlie the organization's culture and are a critical part of the
organization's mission and guiding principles.
 Business strategies and the conduct of business activities need to be consistent
with the firm's core values.

8. Lesson 7.9 - The Business Model: The Business Model Narrative

 A business model is how the components of a business fit together to make a profit.
 Business models are created and evolved through the implementation of strategy and
the firm's reaction to past business circumstances.
 There are a number of different frameworks that have been suggested for portraying
and analyzing the components of a firm's business model. Most of the frameworks
have had the following components in common, value delivery, value creation and
value capture.
  First, value delivery. The value delivery component of the firm's business
model is customer facing and customer centric. A business must create,
deliver and capture value to be economically sustainable.
 A second major component of the business model deals with how the firm
creates value and supports the firm's products and services in a post sales
environment. This component of the model focuses on business
operations. This includes the firm's core competencies and other
capabilities.
 The core competencies of a firm are unique capabilities that
enable the firm to deliver and support the firm's competitive
advantage.
 The key activities are the most important things that the
business needs to do to be successful.
 A final major component of the business model is related to
the firm's economic model, or how the firm captures value.

9. Lesson 7.10 - The Business Model: The Economic Model

 A key component of a firm's business model is the firm's overall economic model.
 The economic model defines the economic logic that is, how the firm captures value. It
is comprised of the methods for generating revenues and the cost incurred to capture
those revenues.
 The economic model defines the economic logic that is, how the firm captures value. It
is comprised of the methods for generating revenues and the cost incurred to capture
those revenues.
 The economic model describes how the firm captures the value it is created and
delivered.
 The firm's economic model is comprised of two components expenses, sometimes
referred to as expense drivers and revenues, which we've just discussed as revenue
models.
 The economic model also includes the capital requirements and the cost structure, the
cost structure describes the most important cost inherent in the business model.

10.Lesson 7.11 - The Business Model: Aligning to Strategy

 If a firm is pursuing a cost leadership strategy, the business model that supports that
strategy needs to be highly efficient where overhead and product costs are kept to a
minimum.
 As you might expect, a choice of a differentiation strategy implies focus on product
innovation in terms of features and performance, deploying creative marketing
programs, and using higher quality inputs to create higher quality outputs.
 Companies that use focus strategies concentrate on particular niche markets, and by
understanding the peculiarities of that market, develop customer insights that address
unique needs of customers within that niche.
 It's essential that the firm decide to pursue a differentiation or cost leadership strategy
once a focus strategy is selected, as the main approach.
11.Lesson 7.14 - Strategic Management Process Models
 The approach of vision driving, analysis driving formulation is described in your readings
as the AFI framework.
 The AFI framework can be applied to multiple strategy development methodology
frameworks, often referred to as strategic management process.
 The three most common approaches are discussed in this lesson and include traditional,
conventional top-down approach to strategy development, scenario-based planning,
and strategy as planned emergence.
 Top-Down Approach:
 Under the traditional approach to strategic management, strategic
decisions are made top-down. This begins with management setting the
scope and the planning horizon. The scope brings focus to the effort and
identifies the key business issues to be addressed, and the future time
horizon the management expects the issues to play out in.
 Analysis:
 External Analysis (Opportunities and Threats) – environmental
trends and actions of industry players that impact the firm’s
markets and operations. he outcome of the analysis will be to
define the future external environment and to identify future
opportunities and threats.
 Internal Analysis (Strengths and Weakness)– the firms resources
and business model and fit to the evolving environmental
conditions and competitor strategies. Internal analysis evaluates
the firm's organizational resources.
 SWOT- strengths/weaknesses/opportunities/threats framework
to formulate business strategies.
 Formulation:
 Here managers consider the realities of the external
environment and their available resources and capabilities, then
design strategies that can help the organization achieve its
goals.
 At the corporate level, this analysis also looks at the relative
attractiveness of markets and of their current portfolio of
business units. This leads toward decisions in terms of whether
to exit an existing market, enter a new market, or continue to
concentrate on the markets that the firm is already in.
 Strategy at the business unit level is focused on competitive
advantage, or in many cases, the lack of one.
 Implementation:
 Once formulated, strategies must be properly implemented.
 Strategy is converted to organizational actions, including
determining and implementing a more appropriate
organizational structure if necessary. Many strategic
implementations require policy changes, structural changes,
 and staffing with different knowledge, skills, and abilities than
currently available in the organization.
 Monitor and Evaluation:
 During implementation, progress needs to be monitored and
evaluated.
 Also it's critical to monitor environmental events to determine
that planning assumptions are still valid or some mid-course
correction is required. Because internal and external issues are
constantly evolving, any data gained in this stage should be
retained to help with any future strategies.

12.Lesson 7.15 - Strategic Planning Under Conditions of Uncertainty

 The traditional approach to strategy requires predictions, and thus often leads
management to underestimate uncertainty. This can be dangerous, in that predictions
made can be incorrect and could lead the firm in the wrong direction.
 The major source of uncertainty stems from the firm's external environment.
 Strategically relevant information tends to fall in three categories:
 The First category relates to what managers already know . It's often
possible to identify clear trends such as a market demographics or the
evolution of a maturing technology that can help define potential
demand for a company's future products. When the key variables are
known or easily predicted.
 The second category relates to what is knowable. If management can
frame the issues properly and the right analyses are performed, many
factors that are currently unknown to a company's leadership team, are
in fact knowable. In these situations significant uncertainties can be
reduced and understood within a reasonable level of probability
through the analytical efforts of the planning team.
 The Third category is essentially the unknowable. This is uncertainty
that remains after the best possible analysis has been undertaken. The
unknowable is called residual uncertainty. Examples may include: the
actual outcome of an ongoing and currently unresolved regulatory
debates; or performance attributes of a technology that's still early in
development. Both of these examples imply that the unknowable does
not remain the unknowable or unresolved. It’s just unknowable at the
time the planning work is being performed and when relevant strategy
is being formulated.
 Residual uncertainty facing most strategic decision makers, falls into one of four broad
categories.
 Level 1, is a clear enough future.
 Level 2 is about a decision between two alternative futures.
 Level 3, we have a range of potential plausible futures that can be
identified.
 Level 4, true ambiguity
13.Lesson - 7.16. Alternate Approaches
 In level three situations management can make the assumption that if the future is
largely unpredictable then many potential futures are possible. The challenge then is to
identify the most important variables that drive the uncertainty. Then develop
strategies for an array of possible outcomes. This approach is called scenario based
planning.
 Strategy as planned emergence is more of a philosophy for developing strategy than an
actual methodology and potentially fits in or with at any level of environmental
uncertainty, including the more uncertain levels three and four.