Hello and welcome.
My name is Fernando Fleury. Glad to know you.
Our first topic of discussion today is
the strategy and its connection with planning and budgeting.
A quick story overview shows you that strategy
is a relatively new subject in the field of management.
Until the early 70s world demand grew above the world capacity of
supply so companies would dedicate efforts for production.
How to produce more,
how to produce better,
how to produce with lower costs.
With a world economic crises in the late 70s and early 80s,
world demands sharply decreased and we observed
an excessive production capacity in relationship to the existing demand.
It was the first moment in recent history that companies had
really to compete for the same client in the same market.
The modern approach to strategy was first presented by Michael Porter in 1984.
He developed what we call today a market based theory of strategy.
Porter's theory can be summarized in three stages.
The first stage is market evaluation.
In order to analyze the potential profitability of a certain market,
Porter identified five or six forces.
Porter's main five forces are: clients,
suppliers, competitors, substitutes, and potential entrants.
The sixth force is the environment.
That can mean the physical environment,
social, or political environment.
After evaluating the potential for profitability of a certain market,
the company must develop its own market positioning or value proposition.
This is the second stage.
The value propositions should be based on a quality or cost effectiveness approach.
Companies as Mercedes, Montblanc, Armani are well
known for their market positioning based on a quality proposition.
On the other side,
Walmart and Zara are also well known for their very effective cost proposition.
The third stage is called the value chain.
The company must look at every single step in its internal prediction activity,
must be clear if this step is correctly designed to deliver
its value proposition for the chosen market.
That is exactly where budgeting plays a fundamental role.
The budgeting procedures, techniques,
and methodologies we shall study along the next lectures are a key issue to provide
effectiveness for the market and value propositions which were
previously defined while working on the forecast of demand,
pricing and sales, production and cost.
The budgeting analysis enable
a more through life approach to the understanding of the strategic decisions made.
In this sense, the annual budget is
a critical element for the revision of the strategic planning developed.
Working on the budget,
companies will usually have to conduct a broad revision
in its strategic plan or at least fine tune the previous decisions.
Remember, the company environment may be very dynamic so
revising previously taken decision is something companies must permanently do.
The budgeting approach will provide a very useful support for that.
Now let's go for our suggested readings.
If you have a special interest for this subject,
I recommend you reading Porter's Competitive Strategy
or From Competitive Advantage to Corporate Strategy.
See you in our next lecture. Bye-bye.