Archive for the ‘Business Strategy’ Category
March 11th, 2012 | 
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Can you define exactly what makes up a business strategy? Some people say no, but we think you can.
In fact, we believe a valid business strategy has five components:
Your company’s current or desired core competencies A description of how you will differentiate vs. competitors The industry or industries in which you intend to compete The initiatives you plan to implement in the areas of marketing, operations, information technology, finance and organizational development A financial forecast that shows how your plans will meet stakeholder requirements over the next 3 to 5 years
Let’s look at each of these components.
The first component of a valid business strategy is a clear description of your company’s current or desired core competencies.
You may be thinking, “Great, but what’s a ‘core competency?’” While there are many definitions, here’s a good one from Wikipedia:
“ACore competency is something that a firm can do well and that meets the following three conditions:
It provides consumer benefits It is not easy for competitors to imitate It can be leveraged widely to many products and markets.
A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers. It may also include product development or culture, such as employee dedication.”
For example, we could say that Southwest Airlines is a reliable airline that offers low fares. But in order to provide those benefits, it has to have certain “core competencies,” important capabilities that enable it to have low fares and to be reliable. We believe that Southwest Airlines has four core competencies that it executes so well that it regularly beats all other US airlines in terms of profitability.
These core competencies are:
The lowest operating costs per plane An economical point-to-point airport network A fanatical culture focused on customer service and cost savings An ability to keep planes in the air more of the time than its competitors.
Southwest airlines couldn’t offer the benefits of low prices and reliable service if it didn’t master these core competencies. What key benefits do you want to offer your customers? What core competencies do you need to master to provide them?
The second component of a valid business strategy is a description of how you differentiate vs. competitors.
In our experience, differentiation is about being the best at something. This should be encapsulated in your mission statement – what are your company’s aspirations and how are you going to beat the competition? We just talked about how Southwest Airlines differentiates — what are you going to offer customers that will make them choose your products or services so that you can grow your business?
It takes a lot of hard work to come up with a great answer to this question and even more work to make that differentiation real. It’s easy for us to say that Southwest is the best low-cost airline in the US, but it’s extraordinarily difficult for them to pull it off.
The third component of a valid business strategy is a description of the industry or industries in which you intend to compete.
You need to be able to define just what kind of company you are – are you a furniture manufacturer? A gift card retailer? A consulting firm, a bearings distributor, a toy importer, etc.? This step sounds easy but we find that companies are often so concerned about getting too narrow in their focus that they fail to become really clear about what they want to do. A company with a good business strategy will have thought through these issues and made the hard decisions necessary to clarify its identity. If it has, it can easily pass the litmus test of identifying the industry or industries in which it operates.
The fourth component of a business strategy is the set of initiatives you plan to implement in the areas of marketing, operations, information technology, finance and organizational development.
These are the plans that guide your company’s focus and resource allocation over the next several years. If your business strategy is specific enough to be relevant, you will have detailed plans in all of these areas.
The fifth component of a business strategy is a financial plan that forecasts the results you expect to get from your plans and illustrates how they will meet stakeholder requirements over the next 3 to 5 years.
Your strategic planning process cannot be separated from your annual budget process. In the vast majority of companies, if it’s not in the budget, it doesn’t exist. That’s why you have to have a very senior financial person on your strategic planning team, preferably the CFO. During the planning process, your team must compile a financial plan that estimates the results of implementing your strategy. This plan needs to earn the approval of your company’s management and board and should be reviewed on a regular basis to track results and make refinements.
So – those are the five components of a valid business strategy.
Posted in Business Strategy | 
Tags: Business Strategy, Core Competency, Employee Dedication, Financial Forecast, Information Technology, Organizational Development, Stakeholder Requirements, Wikipedia | 
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I’m often asked how we go about helping clients determine their best point five years out on the horizon.
Here are the steps we follow… and the ones I teach my MBA students, too.
1. Conduct a preliminary assessment of your company’s internal strengths (look at everything from supply chain to operations to distribution channels, to the product or service itself, to its market position and positioning, to the marketing of it to consumers and through the distribution chain, to customer service… and everything in between).
2. Assess the strengths of your competitors.
3. Determine what your customers want now and are likely to want in the future.
4. Find out why your competitors’ customers buy from them and not from you… and find out what it would take for them to start doing business with you (i.e. to buy their products and/or services from you).
5. Examine the trends unfolding in your industry… and in complementary industries.
6. Assess the macro environment, paying close attention to the economic climate, locally, regionally and globally.
7. Take time to really think hard about the direction in which your industry is heading and what it will take to succeed down the road.
8. Start to consider where the industry growth will be occurring… and where declines are expected. Really understand the “why” behind this.
9. Determine where a company such as your should position itself for success down the road based on what you are seeing.
10. Then – and only then – go back and re-evaluate your company in the context of what you have learnt.
Ask yourself the questions below as a starting point.
• Is this a market position that our company can occupy?
• Do we have the right core competencies? If not, can we acquire them through acquisitions, alliances, outsourcing or any other kind of partnership?
• Do we want to?
• How big a change will it mean for our organization?
• Will it be worth it, not simply from an ROI perspective, but in terms of what it means for our future growth?
• What obstacles will we need to overcome to get there?
• What will we need as an organization to leap these hurdles?
• What are the right milestones to achieve on this new path?
There are many more questions to be asked… and these will be part of another article.
In the meantime, if you would like clarification on anything, please feel free to contact me: jmc@theQgroup.com
Otherwise, remember to have fun and be prepared to “Go out on a limb because that is where the fruit is.”
Jane-Michele Clark
By: Jane-Michele Clark
About the Author:
Jane-Michele Clark is president of The Q Group ( http://www.theQgroup.com ), a strategic positioning and marketing firm with a 30 year history. In addition to being a business/marketing strategist, Jane-Michele teaches MBA level marketing at the Schulich School of Business, is a corporate trainer and 9-time nominee for the Canadian Woman Entrepreneur of the Year Award. Jane-Michele can be reached at jmc@theQgroup.com or 416-424-6644.
Posted in Business Strategy |
Tags: Business Strategy, Core Competencies, Doing Business, Heading, Internal Strengths, Macro Environment, Mba Students, Perspective |
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As Michael Porter of the Harvard Business School concluded, when you boil it all down, there really are only two business strategies: Differentiation and Low Cost. For a lot of companies, taking the low cost approach is very appealing. Managers understand that profit is the difference between price and cost, and therefore they may decide to compete based on low cost with the idea that it will assure a healthy profit. Of course the key assumption is that a low cost product will sell.
The problem is that products and services that have minimal costs to produce are typically products with few differentiating features (other than price). Customers who perceive this usually opt for the product or service with the lowest price. Because there can only be one company with the lowest cost, that company tends to be the winner of any price competition. So if a company is the low cost leader, competing based on low cost is a great idea.
However, if a company does not have the lowest costs and adopts a low cost strategy, it should expect low profits and low customer satisfaction. This situation is what former IBM head Lou Gerstner called “commodity hell.” When a company’s products look very similar to everybody else’s they seem like commodities. When products are not differentiated a company must have a low price in order to sell items. If a company is selling a commodity and cannot match the low price of the competition, then the company is in a weak position.
Fortunately, companies don’t have to compete with commodity products and services; instead, they can differentiate. By differentiate I mean companies can use just noticeable differences (JNDs) to give customers reasons to purchase other than simply a low price. Ideally, these JNDs satisfy a specific target market’s needs. Crafting innovative solutions for a market niche means more customer satisfaction and less price competition. In fact, if any customer group finds that there is only one product that truly solves a particular problem, then the company producing it has a virtual monopoly within that specific target market.
Companies that want to avoid price competition and that want to reduce the negative effects of price competition need to learn how to meet the customer needs better than the competitors through better offerings. This is why most companies need to innovate. Companies with innovation processes and employees with innovation skills are more able to offer products and services that command a reasonable price and ensure long-term profits.
By: Calvin Bacon
About the Author:
Dr. Bacon is the Director of Creative Services for Wisepreneur, an online innovation and entrepreneurship magazine. If you would like to ask him a question regarding this article or any other topic, just go to Wisepreneur and use the contact form to send him a message.
Posted in Business Strategy |
Tags: Commodity Products, Innovative Solutions, Market Niche, Marketplace, Match, Noticeable Differences, Price Competition, Profits |
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Due to the global financial situation, some business owners may be thinking that they should diversify from their current income streams. This is opposed to selling out. When you diversify, you keep your current business running (perhaps in an altered state) and commence a new line of products or services. Is this a good idea?
Diversification can sound like a good idea but it does need to be thought through carefully. Really, diversifying into another business line should be treated like commencing a new undertaking from the start. However, you may have some existing infrastructure and personnel that will assist you. Nevertheless, I think it is a good idea to approach the idea as if you were commencing a new business with all the planning and thinking that this entails.
If your enterprise is not currently profitable, diversifying may not be the solution. Indeed, it could make the situation worse. Why isn’t your business currently profitable? Is this just a temporary thing or is this what you experience most of the time? If you are running an unprofitable or low profit business, before you launch into another enterprise, you had better find out why the current business is not making money so that you don’t take some of the problems into the new products or services that you are selling.
There is a view that public companies that conduct several business lines produce a poorer return on shareholders funds than companies that focus on one thing. I don’t have any data to back up this statement but I know of some respected business commentators that share that view. Why would this be? It is because the management of the company cannot give its full and proper attention to any one particular business line. Therefore it is mismanaged and under resourced.
The same problem can arise for a small business. The owner or manager is usually time poor and for any new offering to the market that is going to be developed, it must be given proper time and energy or everything may fail, including the existing operations.
So when is a good time to diversify? Consider these situations.
Seasonal sales. If your business has ups and downs in sales throughout the year it can be good to have an alternative source of income that can plug the holes during the down times.
Marginal benefits in expanding the existing operations. By analysing your market you may consider that your existing business has little practical ability to expand beyond its current level. This could be for various reasons. One reason might be that you consider that the extra effort and cost in increasing your market share will equate to, or be greater than, the extra benefits that you will get from that market share.
A great opportunity presents itself. Sometimes an exciting prospect presents itself. You may have just been lucky or you may have been searching for this opportunity. The availability of great opportunities will only be for a limited time. If you don’t seize the opportunity, then someone else will. If you have the time and resources, this can be a good reason to diversify.
The existing enterprise runs very successfully with little owner input. This is the ultimate goal for the owner of an enterprise. You get to the point where you do not need to work in the business, unless you choose to. This means you are running a well systematised operation and the thinking that you have put into your existing enterprise can be applied to a new one.
You have surplus capital. I once read that Warren Buffett (one of the world’s most respected investors) said that the most important decision that a company makes is what to do with its capital. Should it reinvest it or should it return it to its shareholders? Theoretically, a company should return its capital to its shareholders if it believes that it cannot obtain a return on the funds in excess of what the shareholders could obtain if they invested funds elsewhere. So, if you have surplus capital, should you invest it in another commercial undertaking or should you return it to the owners?
Diversifying can sound like a good idea, but make sure the conditions are right before you leap into it.
By: John Jeffreys
About the Author:
Wishing you easier business.
John Jeffreys
John Jeffreys wants you, the business owner or manager, to have an easier life. John Jeffreys helps you to achieve this by drawing on his 30 years business experience as a Chartered Accountant and partner in major accounting firms. For instant access to videos, audios and software products, visit http://www.businessease.com.au
Posted in Business Strategy |
Tags: Business Strategy, Diversification, Financial Situation, Income Streams, Infrastructure, Making Money, Profit Business, Temporary Thing |
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Over the years, I have met and worked with literally hundreds of business owners. At one time or another, many of them have written a business plan. But very few of them have a working business strategy. A business plan and a business strategy are two very different tools. A business plan normally is prepared for a financing partner, either a bank or an investor. The purpose of the plan is to let investors know about the business and its potential for success in order to encourage them to invest in the business.
A business strategy is quite different. Rather than a document for investors, this is a plan for the owner to follow. It begins with an evaluation of the business’ goals. Where does the business owner want the business to be in 5, 10 or 20 years, both in terms of fair market value and cash flow? What are the plans for exiting the business? Will it be sold to an outside party or to key employees, or will it be turned over to the owner’s children?
Next, we have to do a thorough evaluation of the current state of the business. This includes a valuation of the business and an evaluation of the business’ strengths and weaknesses. The more thorough the evaluation, the better the potential outcome, but even a cursory evaluation is helpful.
Most businesses have a tendency to identify strengths and weaknesses solely from input from top management. The approach needs to be broader than this to get a true assessment. A broader approach includes interviews with key personnel and surveys of all staff levels. A side benefit of the interviews and surveys is it provides significant insight into the opportunities of the business.
Also included in the evaluation should be benchmarking. Benchmarking identifies areas in which a business is above or below the industry averages. This analysis can immediately identify areas of opportunity.
Now we need to create a strategic plan to overcome the business’ weaknesses and to use its strengths to create the desired value and cash flow. The valuation is key to this process. Most businesses never have a valuation done until they are ready to sell or gift the business. This makes no sense. If we want to target a specific value in the future, wouldn’t we want to know the current value and the method of valuation that is used in our market? By doing a current valuation, we can develop a plan that will use the principals of value in the valuation to build the value of the business.
Once we have a conceptual strategic plan, we need to determine those tactics that are likely to achieve that plan. “Strategy” is most often defined as an elaborate and systematic plan of action intended to accomplish a specific goal or goals, while the “tactics” are the actionable steps that will carry out the strategy. Having a well thought-out strategy keeps the company focused and on target while implementing and tracking a list of actionable tactics ensures real results.
Tactics are the specific tools you will use to carry out your strategy. Your tactics will need to adjust to the conditions of the market. For example, your strategy may include multiple locations. Your initial tactic may be to acquire other businesses like yours in strategic locations. But you may find that there are not qualified or motivated sellers in your targeted locations. You may have to change tactics and build your own office in your desired location.
With tactics tentatively in place, it’s time to begin implementing your business strategy. This includes building your team, developing your reports, creating your systems and procedures and putting in place internal controls. When building your team, be sure to have clear agreements in place with each team member regarding their roles and responsibilities towards you and your business. Clear communication is essential to implementing a successful business strategy.
Be sure that the reporting is set up to give you the information you need to make sure everything is implemented and running smoothly. Good reporting relieves much of the stress of running a business because you know what is happening and why it is happening.
Good reporting is also part of good internal controls. You must have internal controls in place, not only to prevent fraud and theft, but also to ensure that the work is being done in the way you expect.
Creating workable and efficient systems and procedures allow you to run the business by managing systems rather than managing individuals. With proper systems in place, you can build your business as large as you want while maintaining efficiency and high levels of profitability.
By: Thomas Wheelwright
About the Author:
Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on these strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information please visit http://www.provisionwealth.com
Posted in Business Strategy |
Tags: Business Owner, Business Strengths, Current State, Staff Levels, Strategic Plan, Strengths And Weaknesses, Tendency, True Assessment |
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A Strategy is Different From a Plan
The word “strategy” is over-used and its meaning has become diluted. It is often used synonymously – and mistakenly – with the word “plan”. Let’s clear this up.
A plan is a Sargent-major. It tells you precisely what you should do. “Take three men, your rifles and grenades, and start climbing this hill from the southwest corner. Continue straight up the hill until you reach the top where you will plant this flag.” What happens if we’re outnumbered? What happens if we meet enemy machine guns en route? A plan can’t answer.
Strategy provides an overall objective but doesn’t tell you exactly how to accomplish it. Strategy is the wise counselor who stands by your side in the heat of battle and reminds you of your strengths. “We’ll win the war by Christmas using stealth and cunning”, goes the strategy. “By the way, plant this flag at the top of the hill by dawn.” What route should we use? “Doesn’t matter – but use stealth and cunning.” What happens if we’re outnumbered? “Use your stealth and cunning.” What about the machine guns? “Stealth and cunning.”
A plan dictates; strategy shapes. A plan is rigid; strategy is fluid. A plan is an order; strategy is a conversation.
In business, strategy provides the overall goal, the context in which the goal will be reached, and the unique approach that guarantees success for the firm. All plans then spring from the strategy.
Strategy is Unique and Wants to Win
Let me emphasize two things: first, strategy defines a unique approach that is unlike any other firm. Strategy is designed to achieve an objective in a way that nobody else can replicate.
Second, strategy is concerned with success and winning, whether on the battlefield or in the market. Success depends on uniqueness: winning requires an edge, some form of differentiation, a “secret sauce”.
Now that we know how “strategy” and “plan” are different, here’s a strict definition of strategy that we’ll use in the next article:
Strategy is a beacon that specifies a goal, a time frame for achieving that goal, the context in which the goal will be reached, and the company’s unique approach that guarantees its success.
Do you know what your firm’s strategy is?
Copyright
Posted in Business Strategy |
Tags: Battlefield, Dawn, Differentiation, Grenades, Heat Of Battle, Strict Definition, Top Of The Hill, Uniqueness |
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