Lecture #2

Strategic Planning Guidelines

• The strategic planning and cash flow lecture can be very helpful to the students' understanding of the process and outcome of preparing a strategic plan. Attached are several planning guidelines and three planning aides which should help the students work through the detailed process of strategic planning. This material corresponds to the chapter in the textbook on strategic planning.
• It is recommended that you first review the strategic planning guidelines in order to create the right mindset and alert the students to potential pitfalls if they are not careful. These guidelines reflect years of observation regarding the strengths of the best teams and the weaknesses of teams which have gotten themselves in trouble.
• Next, walk the class through each of the three planning aides in order to illustrate the kind of information desired and its use to the team in preparing its strategic plan.
  
• The three charts are especially important in the presentation and review of the business plan and financial request; event time chart, cash flow time chart and performance time chart. Individually and collectively, they summarize the team's plan for the foreseeable future.
  
• A sample event time chart, cash flow time chart and performance time chart are attached. Quarters 1 to 4 represent historical data. Quarters 5 to 8 represent projections for the next year in business.
  
• The event time chart represents a set of decisions which are time phased and reinforcing. The cash flow time chart is built from this planned set of events. The performance time chart is constructed from both charts plus a number of assumptions regarding the probable success of the plan in the market.
  
• We have also included a detailed printout of the Cash Flow template which was used to construct the cash flow time chart. We have found that cash flow planning is extremely difficult for both students and executives to operationalize. An approach which seems to help is to walk the students through the process of determining and entering their cash flow numbers.
  
• More specifically, enter quarters 1 - 4 into a Cash Flow template as preparation for the training. During the class, project the template on a screen with a computer projection system. Walk the students through the first year of business. Start first with the balance sheet and income statement and then show the students how they are related to receipts and disbursements and ultimately to the cash position of the firm at any point in time.
  
• Next, reference the event time chart and the planned disbursements (expenses and asset investments). Enter these figures into the cash flow part of the template. Now project revenues and cost of goods sold. Although the students will be uncomfortable with the process, these numbers represent educated guesses based upon historical trends, major events in the plan (i.e., a new product introduction, entry into new markets, massive ad campaigns, etc.), and the team's cleverness relative to the competition.
  
• Once the planned disbursements and receipts have been entered, then the funding requirements can be determined by looking at the ending cash position. The books can be balanced by adding loans and/or equity .
  
• If you are able to work between the event time chart, performance time chart and the cash flow template, you can dynamically illustrate how all of these factors interplay in the management of the business.
  
• As a general rule, the students will be able to reasonably plan their decisions and estimate their disbursements and receipts for the fifth quarter. In fact, they should make most of these decisions on the decision template first and then enter them into the event time chart and then the Cash Flow template. With each successive quarter, they will feel increasingly uncomfortable; still, they must make these decisions and plan their events. By working them through the first quarter of that plan, they will be able to understand the process, even if it is uncomfortable.
  
• After you have completed the work on Quarter 5, we suggest that you bring up a template in which all of the data for 8 quarters has been entered. You can then show the students how the entire plan is tied to the cash flow. It should also be possible to demonstrate to them how to determine the amount of equity funding or debt they will require to realize their plan and achieve their objectives.
  
  

Miscellaneous Quotes Relevant to The Marketplace Experience

Observation:

The Marketplace can be played either like a game of checkers or like a game of chess.

"You can please some of the people all of the time, all of the people some of the time, but never all of the people all of the time."

- P.T. Barnum (sort of)

"The best-planned strategies will not survive the test of battle."

- Gen. George Patton

"Plans are worthless, but planning is everything."

-Gen. Dwight D. Eisenhower

"The Devil is in the details."

-Adm. Rickover

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Strategic Planning Guidelines for Competing in
the Marketplace

A strategy is a plan of action.

A strategy is a series of interconnected tactics purposely organized to be executed in a particular order in time and space for the purpose of achieving specific goals.

Strategic Planning Guidelines for Competing in the Marketplace

• Have a plan for learning how to compete
• Decide how to decide
• Find your place in the market
• Always look over your shoulder
• Think ahead
• Have a Plan for Learning How to Compete
• Focus, Excel, and Expand with Success
• Expand the Horizon of What You Can See
• Dominate the High Ground
• Decide How to Decide
• Set Objectives
• You Cannot Go to Hawaii on Market Share
• Allocate Resources Based on Profitability and/or Potential
• Position the Firm for Long-term Success
• Find Your Place in the Market
• Know Your Market
• Listen, Create, Deliver, Listen, and Adjust (quickly)
• Give the Customers What They Want
• Create Positive Feelings-Even a Gee Whiz-Now and Then
• Establish Your Unique Contribution
• Run Faster Than the Competition
• Always Look Over Your Shoulder
• Do Not Underestimate Your Competition
• Link Decisions to Competitor Strengths and Weaknesses
• Think Ahead
• Time Phase Decisions 
• Link Decisions to Reinforce Each Other
• Do Not Undercapitalize Your Plan

Make a lot of money and you will have a lot of company.

Do Not Underestimate Your Competition

• Chances are, your competitors are looking at the same market data and coming to the same conclusions as you.
  
• If it is obvious to you, it is probably obvious to almost everyone.
  
• Any bright idea you have has already been considered by others.
  
• If you come to a major revelation, count on at least one other competitor doing so also.
  
• Unless you engage in heroic efforts, do not assume you will be first to market.
  
  
• The one who seems to be doing the least on the surface, is probably very active behind the scenes.
  
• People who are aggressive in other parts of their lives, will probably be aggressive in business as well.
  
• Clever competitors will try to hide their own intentions until the last minute. They will intentionally do things which will lead you to the wrong conclusion or keep you occupied with potential threats. If possible, they will try to get you to expend resources needlessly.
  
  
• The competition will imitate any good idea you have. The more profitable the idea, the faster the imitation.
  
• Great tactics will be attacked.
  
• Someone will always mess around in your market.
  
• There is always someone who will say, "Damn the torpedoes (profit), full speed ahead."
  
• If you think a competitor must be losing money with a given strategy but they keep repeating it, you are probably wrong.
  
  

Outline for the Business Plan

The Business Plan should include the following components:

1. Executive Summary
2. Review of financial and market performance during the past year
3. Assessment of current situation and the market
   1. Customers
   2. Competition
   3. Company's strengths and weaknesses
   4. Major problems/opportunities to be dealt with in next year
4. Strategy for the next year in business (What will it take to get ahead or stay ahead?)
   1. Target market(s)
   2. Marketing mix
      1. Product
      2. Price
      3. Promotion
      4. Distribution
   3. Research and development
   4. Manufacturing
   5. Market and financial objectives
   6. Key components of strategy for third year
5. Event time chart
6. Pro forma cash flow, balance sheet and income statement
7. Financial request

The communication style should emphasize objectivity and candor.

Outline for the Report to the Board of Directors

The Report to the Board of Directors should include the following components:

1. Executive Summary
2. Review of financial and market performance during the past year
3. A review of business during the past year
   1. Comparison of actions taken against business plan
   2. Discussion of departures from business plan, justification, and outcome
   3. Review of significant events that affected the company and/or market
4. Assessment of current situation and the market
5. Strategy for the next year in business (What will it take to get ahead or stay ahead?)
   1. Target market(s)
   2. Marketing mix
      1. Product
      2. Price
      3. Promotion
      4. Distribution
   3. Research and development
   4. Manufacturing
   5. Market and financial objectives
6. Event time chart
7. Pro forma cash flow, balance sheet and income statement

The communication style should emphasize objectivity and candor.

Insert charts: Sample time chart

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