Appunti Project Management and Business Planning

Project management & business planning

Firm’s strategy and planning

• Conceptual models and tools for strategic planning
• The cycle of strategy-planning-budgeting and reporting
• How to design a business plan
• The logic and the features of project management

Lesson 1

Two topics quite widespread refer to:

Business strategy

The strategic plan (and strategic planning) is the formal output of the strategic planning process. Large companies publish on the Internet information of the business plan.

Business strategy characteristics

Is the set of business decisions with these characteristics:

• The most directly related to the basic objectives of the company
• Main objects:
  • The market segments to be served (in the future)
  • The products (goods and services) to offer
  • The steps of the production chain to directly handle
  • How to position the company on the market

Time horizon is 3-5 years. During crises, strategies tend to be shorter (3 years) while during stability is longer (5 years). The output of the strategy is that it must be communicated internally (also to middle managers, the most important for strategy implementation). In big companies, strategy is also communicated externally in order to allow stakeholders the direction the company wants to achieve in the future (this doesn’t happen in small firms).

These decisions are taken by top management (even though ideas may originate from anywhere within the organization) intended to durable modify the company structure. Strategy should aim to gain profits, but also to have stability and produce output. It is also important the communication between the top management to the middle manager strategy implementation.

In order to make the strategy effective, there is another step, which is the strategic planning phase...

Strategic plan (or industrial plan – business plan)

A strategic plan is a program of actions to be carried out over a period of many years, with the measurement of their expected results. The process by which the company formulates the plan is the strategic planning, and it has these features:

• The revision of the current programs in order to implement the strategy; analyze if the current programs are suitable or not.
• The consideration of new programs.
• Simulation of economic and financial consequences.

It is a routine process, tied to deadlines, and established procedures referred to predefined time horizons. The formulation of business strategy is not a routine process. The ideas referred to the strategy can come from the lowest position of the hierarchical level.

Rationalistic approach to S&P process

Some well-known conceptual tools:

• Competitive forces and business attractiveness
• Competitive advantage and value chain (Porter's model)
• Positioning matrix-attractiveness (model Boston C.G.)
• SWOT (strength, weakness, opportunity, threat)
  • S: What are the strengths of the company? (Internal logic) Key elements that if exploited enable a company to increase the competitive advantage.
  • W: The knowledge of the limits of the company, enabling to be more conscious and consequently to try and minimize negative elements not to be penalized in terms of competitive advantage.
  • O: From the market and the external environment. Can be characterized by the competition of the market (e.g., lack of substitutes).
  • T: Also external environment. For example, the introduction of a new law or entrance of a new relevant competitor.
• Resource Based View
• Strategy map and Balanced Scorecard (Kaplan-Norton model)

The first five tools are used during the strategy formulation because they support the implementation.

Competitive forces and business attractiveness

• Potential entrants: Threat of new entrants
• Bargaining power of suppliers
• Industry competitors: Rivalry among existing firms
• Threat of substitute products or services
• Bargaining power of buyers

The BCG matrix

When the market growth and the market share are high, we should maintain the position. When both are low, we should pay attention and then disinvest.

For a particular segment of the market, it is possible to focus on both the differentiation and cost leadership. The Boston Consulting Group analyzes the environmental growth and the market share of the company. When the market growth is high and the market share is high, that means that the company should try and maintain the actual position, to defend their leadership achieved in the years.

On the contrary, when the market growth is low and the market share is also low, maybe it is necessary to define some strategic goals to disinvest in such a segment of the market. A strategy that focuses on product, customers, and has to achieve the previous two isn’t always addressed to increase profitability or market positioning and so on. It can also be addressed to disinvest or maintain their results achieved.

When the market growth is high and the market share is low, there are possibilities through disinvestment to increase the positioning of the company. On the other hand, if market growth is low and market share is high, we don’t have many opportunities to grow and consequently, the strategy needs to focus on exploitation of what we have achieved during the years.

Resource based view

It is important to focus on resources that can be considered critical in the sense that they are important in the strategy because they allow achieving a competitive advantage. These key resources are usually referred to as intangible elements (HR, Technology, R&D), which are the critical elements that enable the company to improve the internal process performances, improve customer satisfaction and finally the shareholders’ satisfaction through financial and economic results.

Competitive advantage

Strategy, industrial key success factor, and organizational capabilities:

• Tangible resources (e.g., cash, securities, borrowing capacity)
• Intangible resources (e.g., technology, patents, copyrights, reputation)
• Human resources (skill/know-how, communication, collaboration)
• Physical resources (plant, equipment, land)

Rationalistic approach to strategy formulation and planning involves using specific tools, matrix, and models that help managers to identify the most correct strategy for the company according to the market growth, company position, resources available, etc. The strategy is supported by specific tools.

Behaviorist or organizational approach

There is another important school, definable as "behaviorist" or "organizational," that doubts the "rationalistic" approach:

• Henry Mintzberg: Strategy formulation means ex-post rationalization of actions, taken independently and freely by various subjects versus rational design, ex-ante elaborated by top management and systematically pursued.
• Deliberate strategy is determined according to a precise and consistent design versus emerging strategy that springs spontaneously from multiple sources coming, for example, from the real life of managers.

The two compared patterns are schematized respectively with the following approaches:

1. Rationalistic approach: Analysis → Planning → Action. The rationalistic approach starts with an analysis of the results achieved, then there’s a planning phase about the goals, and finally, the actions that must be carried out to achieve them.
2. Behaviorist approach: Action → Learning → Correction. The second approach follows action as the key element and starts from an intuition.

According to the latter approach, the organizational variables can have a positive impact on strategy formulation, thanks to:

• The decentralization: decision-making power is not centralized, and there is the use of delegation.
• Participatory management models: this means that there is the involvement of different employees.
• Management systems that emphasize the production of ideas, knowledge, and their diffusion within the company.
• Organizational forms and structures that stimulate innovation: matrix because it is not so rigid, adhocracy configuration since it is very flexible, and hybrid that involves both functional areas and processes.

Organizational structure and strategy

Why does the strategy depend on the organizational structure? Organizational structure is organized by different functional areas that can be based on input or output. For example, a strategy that requires the selling of a product in different markets will require a divisional structure that focuses on output.

At the same time, a strategy that focuses on strategy requires an adaptation of the organizational structure.

Identification of CSF

Conceptual tools for strategy formulation and strategic planning

The two processes are considered together because of the evident interrelations and overlaps. The aim of this chapter is to review the main analytical and conceptual tools that support the strategy formulation and implementation.

The value creation means to generate benefits for stakeholders. If I’m able to create value that is greater than inputs used, I’m able to continue my business for a long period of time.

What are the key stakeholders of the company? Usually, the owners or shareholders, because they invest in the company. However, in state-owned companies or public utility companies (e.g., companies that operate in the water sector), the mission is to satisfy users through services that meet their needs, not to create profitability.

How is it possible to increase revenues? The key element to achieve the final goal and achieving new customers are called the critical success factors.

Strategic formulation process: 3-5 years. The first year (economic and financial plan) business plan. Strategic planning process (they must be linked together) should correspond to the goals included in the 1-year budget.

Budgeting (end with the strategy implementation and is the last step) The strategic planning process starts when strategy formulation is created. The output of the strategic planning process is the business plan.

When I decide to implement the strategy, I have to adopt specific tools that relate to the strategic map and balance scorecard, which enable managers to identify the critical success factors and key performance indicators that measure the potential results in 3-5 years' time. The economic and financial plan includes the financial goals for the period chosen, and the first year of those plans characterizes the year of budget. The strategic plan and budget are strictly linked. For this reason, the budgeting can be considered the last phase of the macro process that starts with strategy formulation.

Some of the models are described below:

• Analysis of the competitive alternatives → Porter
• Analysis of the competitive position → Porter
• Resource Based View → Grant
• Analysis of alternatives of strategic course to be pursued in business → Boston Consulting Group
• Determination of the economic value of strategic alternatives → Rappaport
• Analysis of the Strategy Map and BSC → Kaplan & Norton

Analysis of the business attractiveness: The attractiveness of an industry or business depends on its profitability. A strategic Business Area may have more or less force of attraction depending on opportunity and threats.

The competitive forces are:

• Actual competitors
• Potential competitors
• Customers
• Suppliers
• Substitute products

Analysis of the company’s competitive position in business:

1. Decided that the business is convenient, it is necessary to analyze the competitive position compared to its competitors, which is referred to as strengths and weaknesses.
2. To this end, it must firstly identify the key competitive advantage of the business which can be of cost or differentiation.

Once the competitive advantage is identified, it is necessary to identify the Critical Success Factors (CSF). For example, with the model of the "value chain" of Porter, the competitive positioning of the company in a business can be summarized as follows:

Lesson 2

Determining the economic value of alternatives

In the case of companies, the rationality of the strategic choice requires a proper economic evaluation of alternatives, made possible by the economic value model, based on expected cash flows. The "economic value" model is based on financial analysis tools quite sophisticated and can be used during:

• Strategy formulation
• Implementation of the strategy

Financial and non-financial factors give a good idea of the potential evolution of a company’s performance.

The business planning

The strategic planning process is part of a larger system, commonly referred to as the management system. It may be schematized:

Reporting: evaluate the results achieved over a specific period, to identify some results. The sub-system of strategic planning takes the form of a document called in several ways: Strategic or multi-year plan, Industrial plan, Business plan.

Business plans have different features depending on the company. The logic behind the business plan is substantially the same in all companies. However, it is different depending on its function, the articulation of the corresponding process, and the placing in broader processes:

• Solid companies
• Start-ups
• Companies in crisis

We have different purposes:

• If it is a solid company, the purpose of the business plan is not required by law (is not a mandatory document). But the main one is to drive managers, employees, owners, and external stakeholders because they know the flow of the company and have a guide of the actions that must be carried out. The business plan and budget are directly linked.
  • Drive managers: to drive and make responsible managers and employees for the achievement of specific goals. Voluntary reasons, not mandatory.
  • Finance projects: to finance the company and show banks the financial situation. In this case, the budget is not sufficient since it’s only for one year, while the business plan has a longer time, 3-5 years.
  • Economic evaluations: to support the choice of specific strategy. Usually, the strategy takes a period of time from 3 to 5 years.
• If it is a start-up, it is necessary to achieve capital, to finance projects, because they are at the beginning of the business. Start-up companies are characterized by a simple structure, with few employees and few organizational levels. It is not necessary to create a document, but it is necessary to finance sources.
• If the company is in crisis, it is necessary to demonstrate the ability of the company to cover specific debts and to promote recovery.

Definition of business plan

The business plan, to be effective, should be prepared both at a corporate level but also for business units, is quite complicated and expensive. The strategic planning is useful for the strategy implementation. The strategic plan is the document in which illustrates the strategic aims of management relating to the company’s competitive strategies, the action which will be carried out for the achievement of the strategic objectives, the evolution of the key value drivers, and the expected results. The plan performs an essential role with regards to the management of the company, to the members of the Board of Directors in order to fully perform their role for guiding and overseeing the company; to the company in order to attract resources, both human and financial, necessary for the accomplishment of the Action Plan.

The drawing up of the strategic plan is part of systematic strategic planning initiatives. The strategic plan can be defined as the document in which, starting off from the presentation of the company’s situation...