8.1: Planning Concepts

Strategic Planning and Ten–Ten Planning

To be strategic is to have plans of action that provide directions for operating in an uncertain world. In this section, our focus is on developing strategic plans to compete in a world characterized by monopolistic competition. Notice that the emphasis is on plans of action and not on a single plan. There is no single plan or single planning approach that can deal with the complexity of contemporary markets. What is needed is a continuous process for churning out new plans, for differentiated products and services, in order to compete in a dynamic environment. This chapter presents a brief overview of the various approaches to strategic planning and provides an overview of the planning literature. There is a lot of material to slog through, but each approach to planning has something to offer. This overview will set the stage for presenting the Ten–Ten planning process in the next chapter. The next chapter will integrate the various planning approaches and present a simplified, yet robust approach to planning called the Ten–Ten planning process. The key benefit of the Ten–Ten planning process is that it can be used for developing business plans in a very short time span.

There are two generic planning strategies that a business can pursue.Michael Porter originally identified three generic strategies. He noted that a business can also focus on a market that is not very competitive. Most people consider this to be a special case of the other two strategies. See Porter (1980). It can strive to be efficient, it can differentiate, or both. In other words, a firm can focus on delivering Midas versions of products, Hermes versions of products, or both. A firm that employs a strategy of efficiency strives to be the low-cost producer and compete on the basis of charging less than the other competitors. In contrast, a firm that is competing on the basis of product differentiation can charge premium prices. If charging premium prices yields larger-than-average profits, the market will, of course, attract attentions. Competitors will enter the market with a slightly different product, perhaps even a better product, at a lower price and ultimately drive down the premium prices. The firm will then have to embark on further cost-cutting initiatives, improve their product in order to hold on to market share and survive, or do both. The market is relentless and it demands a two-pronged approach of developing differentiated products and services and cutting costs.

The first mantra of the entrepreneur is “differentiate through innovation or perish” or in simpler terms “differentiate or die.” The second mantra of the entrepreneur is “strive to reduce costs.” The first mantra is accomplished by focusing on Midas versions of products using extravagant engineering and design. Differentiation is not only the engine driving business success under monopolistic competition, but it is also buttressed by attempting to improve costs and product design through frugal engineering. The second mantra is accomplished by focusing on Hermes versions of products using frugal engineering.

As noted earlier, over 99% of the approximately 23 million businesses compete in markets that are characterized by monopolistic competition. That is there are many buyers, many sellers, market entry and exit is easy, and the products are closely related but not identical. There are the two approaches for differentiating products. The first uses marketing and advertising to develop a brand. The second approach is to engage in product development through some sort of research and development (R&D) process and to develop goods and services with updated features. Both approaches are necessary parts of the differentiation process. Marketing and advertising can help illustrate the features and can sometimes delay encroachment by the competition. But in the long run (probably less than a year), successful differentiation depends on product development and R&D.