Strategic planning involves taking information from the environment and deciding upon an organizational mission, and upon objectives, strategies, and a strategic architecture. There are many different ways to go about deciding on your mission. Michael Porter, a researcher from Harvard, had a few ways for developing frameworks for developing an organization’s strategy.
One of Porter’s main contributions was Porter’s value chain. The value chain is all the activities an organization undertakes to create value for a customer. According to Porter, there are two ways to gain an edge over competitors. A firm must provide comparable but value but perform the activities on the chain at a lower cost, or; Perform services in a unique way that would create higher value and dictates premium price.
Another preliminary analysis for a company is the Business Portfolio Matrix. The first step in the business portfolio matrix is to identify any division that can be considered a business. Once all divisions (SBU’s) have been identified, the matrix can be used to measure their performance. The matrix depends on two business indicators: The vertical indicator, “market growth rate”, refers to the annual rate of growth of the market in which the division is located. The horizontal indicator, “relative market share”, illustrates the division’s market share. It ranges from low to high relative share of the market.
Based on these 2 axes, there can be four distinct classifications: A star has a high share and a high-growth market. Stars need a lot of financial resources, and become cash cows after grow slows. They then become important cash generators for the company. A cash cow has a low-growth market, but a high share in the market. They produce a lot of cash for the organization while not requiring much additional resources, making them great financial assets. A Question Mark has a high-growth market, but a small share in the market. Companies soon have to... [continues]
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