non value added costs

Strategic Planning
By Bill Gaw

Through developing, communicating and implementing an effective strategic plan, managers benefit in a number of ways. First, they benefit through increased organizational effectiveness. Increased effectiveness results from the direction provided by setting specific objectives. Applying a balanced scorecard process to those objectives, employees can more effectively employ the firm’s resources to fulfill them.

A second benefit of planning is improved employee motivation. Communication of a strategic plan within the company stimulates positive employee response. Employees feel they’re part of a “more professional organization.” And, they’re correct. Their management has identified where it wishes to go, and made the necessary commitment to get there.

Another benefit of strategic planning is enhancement of managerial skills. As the planning process includes discussion bearing on all functional areas, it provides a general management overview. Thus, it offers functional mangers an opportunity to broaden their viewpoints and grow with the organization.

Lessons Learned: Finally, the strategic plan provides the basis for developing balanced scorecards—without which the execution of relevant tactical planning would be limited.

Part 1 of 2: Situation Analysis - Objectives and Strategies

The planning team considers the first question, “Where are we today?” during a “situation analysis.” Here, the team brainstorms and creates four lists: Internal strengths and external weaknesses and external opportunities and external threats.


Internal strengths are those characteristics of the company which place it, or can place it, at a significant competitive advantage. Internal weaknesses, on the other hand, are characteristics of the firm which place it at a significant disadvantage.


Let’s say that our company has been working hard at establishing customer connectivity through the implementation of a total customer satisfaction. In the past two years they launched a new product introduction program that included the adoption of a concurrent engineering process. Product installation at customer sites has been optimized through the establishment of an effective field service team and after market spare parts support has hit an all time high. These are recorded as strengths on chart 1-3.


On the other hand our company is facing monetary problems in Europe, cus-tomer complaints about long order lead times, and late deliveries to shipment commitments. These are recorded as weakness on chart 1-3.


External opportunities are those factors, independent of the organization, which may be seized to the company’s advantage. External threats, again independent of the firm, threaten it with harm.

Our total industry is not delivering to customer expectations, is experiencing a high failure rate of equipment installed and customers are not satisfied with the level of field support. These are opportunities to gain a competitive edge on our competitors and are recorded as opportunities on chart 1-4.

Some of our competitors are designing metric hardware into their equipment to help international customers with equipment maintenance and repair, they are also pushing new product launch programs and one particular competitor has become a leader relative to “on-time” deliveries. These are threats that could negatively impact our business and must be addressed.

Lessons Learned: Identifying your strengths and weaknesses is an important step toward answering the first strategic planning question, “Where are we today?”

Ask a half dozen executives—all from the same company —what business they’re in, and you could get six answers. Each answer represents an indivi-dual’s perception of the company’s business. And, those differing perceptions represent a problem.

As their perceptions of the business are different, the executives can hardly be working together effectively. In fact, there’re not! You’ve seen organizations whose R&D group is developing a product “destined” to be a technology winner while marketing is preparing to sell it as a low quality offering. Or companies whose advertising was shouting “quality” while manufacturing was cutting costs.

A well developed mission statement solves this multi-perception problem. It announces clearly “What business we're in?” and “Who buys our products and why?” providing the necessary focus to concentrate resources. That  concentration of resources, in turn, leads to improved organizational performance.

Lessons Learned: A well developed mission statement is broad enough to allow for the diversity you intend. And, it also provides the focus to accurately describe what products and services you offer and the markets you address. The most effective mission statements are no longer than one or two sentences.

Part No. 2: Objectives and Strategies

Objectives deal with the various measures of organization performance. Financial objectives set minimum levels of net profit or return on investment. Marketing objectives call for a specific sales level, sales growth rate or market share. Operations objectives seed improvement in productivity or efficiency. Setting ob-jectives helps us answer the question, “Where do we wish to arrive, and when?”

In qualifying objectives within your plan, wherever possible, use measurements which relate to your current reporting system. You’ll be busy enough implementing the plan; don’t try to pioneer a new reporting system at the same time.

Lessons Learned: Objectives must meet a number of criteria. Each objective must be quantified so management can measure its accomplishment. Each should be challenging and, at the same time, attainable so employees will extend effort to achieve it. And objectives must be limited in number (five or six) to avoid dilution of effort and confusion.



Knowing where we are today and where we wish to arrive and when, the planning team must now decide: “How do we get there from here?” This third key question is the subject of strategizing. The planning team develops two types of strategies: Defensive and Competitive.

Defensive strategies correct internal weaknesses to counter external threats. These strategies reduce the organization’s vulnerability to menacing factors which are, themselves, outside the company’s control.

Lessons Learned: Don’t ignore what your competition is doing. Not developing an aggressive defensive strategy to address their potential gains is the downfall of many companies. Competitors are famous for making huge gains while focusing totally on internal matters.  



Competitive strategies built on strength utilize internal strengths to seize external opportunities. These strategies employ the firm’s competitive advantages to its benefit. Without aggressive competitive strategies, a company will never reach its full growth and profit potential.

Competitive strategies’ most significant benefit lies in its redirection of man-agement’s attention from tasks to opportunities. Managers busy fighting day-to-day “brush fires” become task oriented—not looking for significant opportunities. Competitive strategies provide a format for recognition of available opportunities. Then, it wrests management’s attention from daily tasks and refocuses it on those recognized opportunities. Strategies, thus, elevate managerial awareness from its earlier task oriented, to a higher opportunity oriented level.

Lessons Learned: In my experience, internal problems such as shop floor chaos and the end-of-the-month crunch are eliminated only through a well thought out competitive strategy that has total company commitment from the CEO down to and including the “trench” people.

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