Business Planning in

Different Environments

What do you mean by

Business Planning
Business planning, also known as strategic

planning or long-range planning,

BP is a management-directed process that
is intended to determine a desired future
state for a business entity and to define
overall strategies for accomplishing the
desired state.
Through planning, management decides
what objectives to pursue during a future
period, and what actions to undertake to
achieve those objectives.

What do you mean by

Business Planning
Successful business planning requires

concentrated time and effort in a

systematic approach that involves
Assessing the present situation;
Anticipating future profitability and
market conditions;
Determining objectives and goals;
Outlining a course of action; and
Analyzing the financial implications of
these actions.

What do you mean by

Business Planning
A business plan is an externally

focused document that provides

more detailed information on the
proposed
development
of
an
organisation, and is likely to be
shared with potential investors funding bodies for the voluntary
and community sector.

What do you mean by

Business Planning
A business plan will usually include more

detailed information on the financial

position of the organisation, financial
forecasts, and competitor and market
analysis.
A business plan is more formal and detailed
in its structure and contents.
It may be more difficult to present the level
of detail required within a business plan in
a pictorial format, for example.

What do you mean by

Business Planning
The increase in the use of formal long-range plans reflects a number
of significant factors:
Competitors engage in long-range planning.
Global economic expansion is a long-range effort.
Taxing authorities and investors require more detailed reports
about future prospects and annual performance.
Investors assess risk/reward according to long-range plans and
expectations.
Availability of computers and sophisticated mathematical models
add to the potential and precision of long-range planning.
Expenditures for research and development increased dramatically,
resulting in the need for longer planning horizons and huge
investments in capital equipment.
Steady economic growth has made longer-term planning more
realistic.

TYPES OF PLANS
In addition to differentiation by planning horizon,

plans are often classified by the business function

they provide.
All functional plans emanate from the strategic plan
and define themselves in the tactical plans.
Four common functional plans are:
Sales and Marketing: for developing new products and

services, and for devising marketing plans to sell in the

present and in the future.
Production: for producing the desired product and services
within the plan period.
Financial: for meeting the financing needs and providing for
capital expenditures.
Personnel: for organizing and training human resources.

Entrepreneurial Level Business

planning
A business owner has to choose a model of

planning, such as strategic planning, that will

guide the entire business.
Planning is about setting goals that can be
timed and measured to determine if a company
meets the desired level of performance.
Without a strategic plan, a business owner will
make more reactive decisions in response to the
market.
With a strategic plan, all of the firm's employees
will know what direction to take.

Planning for large and

diversified companies
In smaller companies, strategic planning is a less formal
Large, diversified corporations, however, offer a different

setting for planning.

Most of them use the product/market division form of
organizational structure to permit decentralized decision
making involving many responsibility-center managers.
Because many managers must be involved in decisions
requiring coordinated action, informal planning is almost
impossible.
Therefore, even executives whose corporate situation
permits informal planning may find that our delineation
of the process helps them clarify their thinking.

Three Levels of Strategy

Corporate planning and strategy
Business planning and strategy.
Functional planning and strategy

Three Levels of Strategy

Corporate planning and strategy - Corporate

objectives are established at the top levels.

Corporate planning, leading to the formulation of
corporate strategy, is the process of
a) Deciding on the companys objectives and
goals, including the determination of which
and how many lines of business to engage in
b) Acquiring the resources needed to attain
those objectives, and
c) Allocating resources among the different
businesses so that the objectives are
achieved.

Three Levels of Strategy

Business planning and strategy - Business

planning, leading to the formulation of business

strategy, is the process of determining the
scope of a divisions activities
deciding on the divisions objectives in its
defined area of operations, and of establishing
the policies adopted to attain those objectives
Strategy formulation involves selecting division
objectives and goals and establishing the
charter of the business, after delineating the
scope of its operations vis--vis markets,
geographical areas, and/or technology

Three Levels of Strategy

Functional planning and strategy: In functional

planning, the departments develop a set of feasible

action programs to implement division strategy,
while the division selects in the light of its
objectives the subset of programs to be executed
and coordinates the action programs of the
functional departments.
Strategy formulation involves selecting objectives
and goals for each functional area (marketing,
production, finance, research, and so on) and
determining the nature and sequence of actions to
be taken by each area to achieve its objectives and
goals.

Strategic Alternatives For Large

& Diversified Companies
A large firm may plan to grow through adopting

any of the major grand strategy. There are

many grand strategies that can be chosen by
the firm these are as follows
Innovation Strategy
Integration Strategy
Diversification Strategy
Turn around Strategy

Strategic Alternatives For Large

& Diversified Companies
Innovation Strategy
High failure rate of innovation
Building competencies in innovation
Significance of Innovation Strategies
Responding
to
the
trends
&

competition
To
be market
innovation
Developing a USP

leader

through

Strategic Alternatives For Large

& Diversified Companies
Integration Strategy
Types of Integration
Horizontal

Integration: also known as

lateral integration, simple means a
strategy to increase the market share by
taking over a similar company
Advantages of Horizontal Integration
Lower Cost Structure
Increased Product differentiation
Replicating the business model
Reduced industry rivalry

Strategic Alternatives For Large

& Diversified Companies
Vertical Integration Strategies:
Vertical
Forward
Integration

Strategies
Advantages of Vertical forward integration
Disadvantages of Vertical forward integration

Vertical

Backward

Integration

Strategies
Advantages of Vertical Backward Integration
Disadvantages of Vertical Backward Integration

Strategic Alternatives For Large

& Diversified Companies
Diversification Strategy
Concentric Diversification
Conglomerate Diversification
Types of Concentric Diversification
Market related Concentric Diversification
Technology related Concentric Diversification
Market
related
&
Technology
related
Diversification
Advantages of Concentric Diversification
To counteract cyclical trend
Excess cash flow
Saturation of product market
Leveraging the present setup

Concentric

Tools & Techniques of Strategies

Analysis & choice

BCG Matrix
Ansoff

Product-Market

Matrix
GE Nine Cell Matrix

Boston consulting group

(BCG)
Matrix is developed by Bruce

Henderson of
the Boston
Consulting Group in the early
1970s
According

to this technique,
business
or
products
are
classified as low or high
performance depending upon
their market growth rate &

Relative Market Share and

Market Growth

To understand the BCG Matrix

you need to understand how
market share and market
growth interrelate.

MARKET SHARE
Market share is the percentage

of the total market that is being

serviced by your company,
measured either in revenue
terms or unit volume terms.
RELATIVE MARKET SHARE
RMS =

year

Business unit sales this

this year

Leading rival sales

MARKET GROWTH RATE

Market

growth
measure
of
attractiveness.

is

used as a
a
markets

MGR = Individual sales - individual

sales
this year
last year
Individual sales last
year
Markets experiencing high growth

are ones where the total market

THE BCG GROWTH-SHARE MATRIX

It is a portfolio planning model

which is based on the observation

that a companys business units
can be classified in to four
categories:
Stars
Question marks
Cash cows
Dogs
It is based on the combination of

market growth and market share

STARS
High growth, High market share
Stars are leaders in business.
They also require heavy investment,

to maintain its large market share.

It leads to large amount of cash
consumption and cash generation.
Attempts should be made to hold the
market share otherwise the star will
become a CASH COW.

CASH COWS
Low growth , High market
share
They are foundation of the company

and often the stars of yesterday.

They generate more cash than required.
They extract the profits by investing as
little cash as possible
They are located in an industry that is
mature, not growing or declining.

DOGS
Low growth, Low market share

Dogs are the cash traps.

Dogs do not have potential to

bring in much cash.

Number of dogs in the company
should be minimized.
Business
is situated at a
declining stage.

QUESTION MARKS
High growth , Low market share
Most businesses start of as question marks.
They will absorb great amounts of cash if

the market share remains unchanged,

(low).
Why question marks?
Question marks have potential to become
star and eventually cash cow but can also
become a dog.
Investments should be high for question
marks.

WHY BCG MATRIX ?

To assess :
Profiles of products/businesses
The cash demands of products
The development cycles of products
Resource allocation and divestment
decisions

MAIN STEPS OF BCG

MATRIX
Identifying and dividing a company into

SBU.
Assessing and comparing the prospects of
each SBU according to two criteria :
1. SBUS relative market share.
2. Growth rate OF SBUS industry.
Classifying the SBUS on the basis of BCG
matrix.
Developing strategic objectives for each
SBU.

BCG-Matrix for the product line of

Coca-Cola

Question marks
high growth, low market share

Stars
(high growth, high market share)

Cash cows
low growth, high market share

Dogs
(low growth, low market share)

Question Marks

stars
Invest for growth

Cash cows
( milk to fund other business)

Dogs

Ansoff Product-Market
Matrix

Ansoff Product-Market
Matrix
Market penetration
Market development
Product development
Diversification

Market Penetration

Market

penetration

involves

selling

more product to the same market

firm

may

attempt

at

focusing

intensely on existing markets with its

present

products,

using

market

penetration type of concentration.

Market Development
It involves selling the same

products to new markets: it

may try attracting new users
for existing products, resulting
in a market development type
of concentration.

Product Development

It involves selling new

products to the same
markets: it may introduce
newer products in the
existing
markets
by
concentration on product
development.

GE Nine Cell Matrix

The GE/McKinsey Matrix is a nine-cell (3 by 3)

matrix used to perform business portfolio

analysis as a step in the strategic planning
process.
The GE/McKinsey Matrix identifies the optimum
business portfolio as one that fits perfectly to
the company's strengths and helps to explore
the most attractive industry sectors or markets.
The objective of the analysis is to position each
SBU on the chart depending on the SBU's
Strength and the Attractiveness of the Industry
Sector or Market on which it is focused. Each
axis is divided into Low, Medium and High,
giving the nine-cell matrix as depicted below.

GE Nine Cell Matrix

Different factors

can be used to define Industry

Attractiveness. Like: Market

Size, Market Growth Rate,

Demand
variability,
Industry
Profitability,
Competitive
Rivalry, Global Opportunities, Entry and exit
barriers, Capital requirement, Macro environmental
Factors (PEST)

Different factors can also be used to define SBU

Strength. Like: Market

Share, Distribution Channel Access,

Financial Resources, R&D Capability, Brand equity,
Production Capacity, Knowledge of customer and
market, Caliber of management. Relative cost
position

GE Nine Cell Matrix

Industry
Attractivenes
s

Business Unit Strength

Strong

Average

Weak

High

Grow

Grow

Hold

Medium

Grow

Hold

Harvest

Low

Hold

Harvest

Harvest

GE Nine Cell Matrix

Grow Business units that fall under grow

attract high investment. Firms may go for

product differentiation or Cost leadership. Huge
cash is generated in this phase. Market leaders
exist in this phase.
Hold Business units that fall under hold phase

attract
moderate
investment.
Market
segmentation, Market penetration, imitation
strategies are adopted in this phase. Followers
exist in this phase.
Harvest -

Business units that fall under this

phase are unattractive. Low priority is given in
these business units. Strategies like divestment,

Market Attractiveness
Annual market growth

rate
Overall market size
Historical profit margin
Current size of market
Market structure
Market rivalry
Demand variability
Global opportunities

Business Strength
Current market share
Brand image
Production capacity
Corporate image
Profit margins relative
to competitors
R & D performance
Promotional
effectiveness

GE Nine Cell Matrix

Strength
A. It allows intermediate ratings between high and low
and between strong and week.
B. It helps in channeling the corporate resources to
business and achieving competitive advantage and
superior performance.
C. It helps in better strategic decision
making and
better understanding of business scope.
Weakness
D. It tends to obscure business that are become to
winners because their industries are entering at exit
stage.
E. Assessment of business in terms of two factors is not
fair.

EXAMPLE OF GE NINE CELL MATRIX

About Maruti Udyog

Founded in 1981
Products are Maruti 800, Omni, Alto,SX4,Swift

desire, Swift, A-star, Gypsy, Wagon R,Ritz, others.

Vision The Leader in the Indian Automobile
Industry, Creating Customer Delight and
Shareholders Wealth;a Pride of India
Core Values : Our Core Values drive us in every
endeavour
Customer Obession,
fast, Flexible & first mover,
Innovation & creativity
Networking & Partnership
Openess & Learning