Just like planning to go for a trip on an unfamiliar journey, strategic planning is used in business organizations as a map to help establish ways to achieve the set goals. The process of strategic planning involves examining the strengths, weaknesses, opportunities, and threats of the organizations.
After examining, a strategic plan for future operations is developed. For an organization to get to its desired destination in growth there has to be a strategic plan to help carve a path to follow.
Strategic planning helps an organization to know where it intends to go over a specific period. This also maps-out how the organization intends to get there and helps to establish whether the organization achieves its goal in the end. Strategic planning is very different from a business planning.
A strategic plan focuses on the whole business unlike a business plan that focuses on a precise agenda (Bradford and Duncan). A strategic plan is a living and dynamic process (Bradford and Duncan).
Strategic planning models include the Michael Porter’s Five Forces, the Adrian Slywotzky’s Value Migration, and the W. Chan Kim and Renee Mauborgne’s Blue Ocean Strategy. Michael E. Porter from Harvard business school formed the porter’s five forces analysis in the late 1970s (Bradford and Duncan).
Based on industrial organization economics, the five forces analysis focuses on the competitiveness and attractiveness of a market (Tracy). An attractive market therefore is one, which has high-level profitability while the opposite is true for an unattractive market.
Of the five forces analysis, the first three are influenced by external competition while the remaining two are influenced by internal threats (Porter). Porter referred to his theory as the Porter’s Five Forces, ‘micro environment’ (Porter).
These include factors that closely influence an organization’s ability to make profit and effectively serve its customers (Porter). Nonetheless, industry attractiveness does not really mean that all organizations in that market niche make an equal profit margin. Companies apply individual business models to enable them compete with the rest in the industry.
Core competencies allow companies to achieve greater profit margins than the normal industrial average. The airline industry is a low profitability industry but individual organizations apply unique business strategies that enable them go above the industry average (Porter).
The porter’s five forces entail three forces that are influenced by the horizontal competition (Porter). They include the threat of substitute products, the threat from already established rivals, and the threat of new entrants (Porter).
The remaining two forces on the hand are vertical completion. These are the bargaining power of the suppliers and the bargaining power of the customers (Porter). Below is a graphical representation of the porter’s five forces (Porter).
Adrian Slywotzky’s Value Migration is shifting of value-creating forces (Slywotzky). The organization shifts to designs that satisfy the clients better. Concisely, it entails creating as much value as possible for the customer.
This is achieved only by providing products and services that effectively satisfy the needs of the consumers. Value migration as described by Slywotzky is in three categories. They are, value flows between companies, value flows between companies, and value flows between business models within a company (Slywotzky).
Value flows between industries may be shown by flows from hospitality to transport industry. Between companies, a good example is from Corel word perfect for Microsoft (Slywotzky).
A good example of value flows between business designs would be from IBM mainframe computers to IBM PC’S with system integration (Slywotzky). With value migration, there are three stages involved and they are, value inflow stage, value stability stage, and value outflow stage.
Value inflow is the value borrowed from other organizations or different industries. Value stability on the other hand is a situation where there is a competitive equilibrium. This means that the market share and the profit margins are at equilibrium.
Lastly, the value outflow shows that the organization has lost its value in the industry through factors such as the outflow of talent and other vital resources (Slywotzky).
The value chain is represented by all actions that add utility to the consumer and may be internal or external (Slywotzky). Monitoring the linkage between the value chain activities assures the organization of a harmonious chain.
However, calculating or determining value is quite difficult considering that the consumers can only determine the value. This makes a value subjective (Slywotzky). To work around it, the relative market value of a firm is considered as the level of success of an organization in value creation.
Blue Ocean Strategy is yet another widely used strategic planning model. A blue ocean is created when an organization comes up with value innovation that enhances the values of both the consumers and the company at the same time (Kim).
In blue ocean strategy, competition is less imperative since it involves innovation of unexploited markets. Here the demand is created as opposed to the earlier described strategies where demand is sought after. This provides for unlimited opportunities for rapid growth and profitability (Kim).
In view of the blue ocean strategic planning, competition based strategies are not sufficient for high performance sustenance (Kim). W. Chan Kim and Renee Mauborgne acknowledge that while competition based strategies are imperative, they are not sufficient (Kim).
They argue that organizations have to go beyond competing to create their own market. This will help enhance growth and enable firms to realize new profits and opportunities for rapid growth. Their model is based in contrast with the environmental determinism view/ structural view.
The determinism view assumes that industrial conditions are inevitable and that firms must find ways to compete with these conditions (Kim). They argue that with such strategies, one organization’s gain is the other loss since in competition each firm tries to outdo the other. The blue ocean strategy is opposed to the normal capture and distribution of wealth. Rather, it supports the creation of wealth.
This strategy focuses on restructuring the industrial structures and market boundaries to enhance value. This view is popularly referred to as the Reconstructionist view (Kim).
Organizations in W. Chan Kim and Renee Mauborgne’s view must think outside the box and surpass the limitations of the industrial structures. This strategy assumes that out there is a large untapped demand. The only challenge is how to create the demand focusing on value innovation rather than competing (Kim).
In this model therefore, competition is irrelevant (Kim). Through the expansion of the demand, there is a great deal of wealth creation, which creates a possibility for increased profits.
The later model of strategic planning is of an innovative nature while the earlier discussed models are competitive in nature. That is the greatest difference between the blue ocean strategy and the other two.
Works Cited
Bradford and Duncan. Simplified Strategic Planning. Washington, DC: Chandler House, 2000. Print.
Kim, Chan. Blue Ocean Strategy. Boston, MA: Harvard Business School Press, 2005. Print.
Porter, Michael. The Five Competitive Forces That Shape Strategy. Boston, MA: Harvard business, 2008. Print.
Slywotzky, Adrian. Value Migration: How to Think Several Moves Ahead of the Competition Hardcover. Boston, MA: Harvard Business School Press, 1996. Print.
Tracy, Brian. The 100 Absolutely Unbreakable Laws of Business Success. San Franscisco, CA: Berrett, Koehler Publishers, 2000. Print.