Friday, May 31, 2013
Strategy noun: long-term plan or policy; art of war; art of moving troops, ships, aircraft, etc. into favourable positions (Oxford Dictionary) "The important decisions, the decisions that really matter, are strategic. They involve either finding out what the situation is, or changing it, either finding out what the resources are or what they should be. Among these are all decisions on business objectives and on the means to reach them." (Peter Drucker, "The Practice of Management") Strategy. A term used in the theory of games to describe the set of choices a player will make in each possible set of circumstances. (A Dictionary of Economics) How an organization interacts with the stakeholders in its business environment through its current and planned portfolio of products in large part defines its business strategy. (Robert J. Thomas, "New Product Development") From these varied definitions we see strategy as something that involves identifying where resources are and where they're needed, and the art of deploying those resources favourably; deciding on business objectives; and above all it is certainly about choices. My clients have all been able to grow their businesses and in the early years, a lot of this growth is tactical and not strategic. That is, most business owners work very hard in their businesses to drive growth, and they've been a key part of that growth. At some point though, every entrepreneur needs to stop and consider if that is how they wish to continue working and growing their business. When do business owners mostly start thinking about strategy? When they have to make more decisions about resources When they have to decide whether to pursue new opportunities When they need to make decisions about how big the company could be When growth in the business has reached a plateau When they're in trouble When they're overloaded When they're confused When they want to fast-track their progress When something significant changes their life Sometimes, it's when they have an 'Aha!' moment Challenging circumstances lead most business owners to think about strategy, and then strategy itself can be challenging! When you're ready to start developing you business strategy, you need to look at the process from several different aspects: Know what it takes to build a high-value business, and make sure you have one Know how to select a best-fit strategy, that's right for now Know which business model will optimise growth, suit your lifestyle & give you leverage
You can greatly increase your chances of business success by creating a business strategy and adopting a habit of keeping that strategy up-to-date. The purpose of a business strategy is so that you can use it regularly to assess your company's performance against the goals you have set. It can also act as an early warning system to alert you against going astray and gives you a guide to why you're not keeping on track. Having a business strategy will be useful and sometimes vital to investors and banks when you need them to consider funding your business. It is also a useful tool in allocating resources and identifying growth potential. On a practical note, it will help to ensure that you meet certain key targets and manage business priorities effectively. A good business strategy should have a time-frame, typically 12 or 24 months, and should include: o A summary - what your business does, its development, where you want to take it, strategy for improving sales and the process to achieve the desired growth. o Marketing plans - your aims and objectives. o Operational details - Is the location of your business relevant? What suppliers, premises and equipment are needed? o Financial forecasts - including profit and loss, cashflow and sales forecasts and audited accounts. o Main objectives - Clearly define your aims and objectives for your business with dates for completion. o Exit plan - Some business owners like to include a departure date and circumstances into their business strategy. For example, family succession or floatation. Most businesses choose to assess progress every 3 or 6 months. These meetings should involve key members of staff and the same goes for setting up the original strategy. It is important to include those people who will be responsible for implementing your business strategy on a day-to-day basis.
In business, it is important to set a goal. It is also important to achieve that goal. The attainment of business goals is possible through effective business strategies. Business strategy is the plan that defines the following aspects of your business plan: Direction. Every strategy should be geared towards the identification and attainment of long-term goals. The direction of the business plans that you will formulate should be consistent to the realization of these long-term objectives. Market or Scope. It is also important to include the market in the evaluation of your strategies. In this manner, you will be able to determine your competitors and perform the activities needed in maintaining the competition in the market. Advantage. This involves the determination of the things that will make you stand out against you competitors and how you can use them well toward the attainment of your business goals. Resources. This includes every single factor that will serve as your asset in the market. Skills, expertise, finance, relationships, manpower, and facilities are part of the resources that you can utilize in your strategy. Environment. This refers to the external factors that are involved in the market's competition. This can be broken down into two groups: the macro factors which involve the political, legal, social, and cultural factors and the micro factors which involve customers, competitors, and suppliers. Stakeholders. These are the people who have the power and influence in the market. Their values and expectations play a big role in the competition and in the formulation of your strategy as well. You can see that in the formulation of your business strategy, most of the aspects that you have to deal with are concerned with the market and the competition. More importantly, strategies are created in order to create a substantial effect in the organization of the business. Business strategies are created in accordance to the levels of the business. Strategies can be formulated in the corporate, business unit, and operational level. In the corporate level, the strategies are formulated in accordance with the overall purpose and scope of the enterprise. Corporate strategies are those that you normally see in the mission statement of businesses. In the business unit level, strategies are created to achieve competitiveness in the market. These are strategic decisions influencing the product choices, customer needs, market competition, and new opportunities in the market. In the operational level, the strategies are concerned with the organization of the business and its parts. This is the application of the corporate and business unit strategies in the operations of the business. A business strategy can influence the overall performance of your enterprise. Because strategies are created at all levels of the organization and imposed to achieve business objectives, it is imperative that the formulation of these strategies should be directed toward its implementation in the organization. An effective strategy is possible by understanding the nature of each aspect that influences the market. More than the formulation of these strategies, it all boils down to how they can be implemented within the organization and how they can affect the actual and potential marketplace.
Businesses need a business strategy to rise above their competitors. Formulating and planning the strategy for the business needs some goals as a basis though. Start with Some Goals In Mind It's very important that the business state its goals first. The business has to state its long term goal and short term goals as well. With that, a business strategy can be formulated. Strategies are formulated as to how such goals can be achieved. Setting goals should be given a timeframe. This way, the strategies formulated for each can be evaluated after such time. Goals should also be measurable so there would be a way to indicate whether strategies and implementation were effective. It's also important to keep the strategies up to date. If the business did not achieve its goal for a certain period, then the strategies need to be reviewed and adjusted. Markets also evolve and change, hence the need for updating strategies. Coming up with a Marketing Plan Completing a marketing plan is a very important part of formulating a business strategy. The marketing plan would contain a background of the business. More importantly, it would contain core marketing strategies for the business. Of course, strategies would generally be based on research and analysis. A list of strengths and weaknesses should be listed and analyzed. Opportunities and threats are also looked into if the business wants to be thorough. Financial Forecasts Included Well, this is usually included in the marketing plan as well. Financial forecasts should be included to assess how profitable the business is going to be or expected to be. Aside from that, it is from the financial forecasts that the business would know how to manage its finances and anticipate its cash flow, inventory and other financial matters. Business Strategy: Evaluation While the marketing plan is that important, checking how well the strategies did is really important if the business wants to achieve not only its short terms goals but also its long term goals. It is important that evaluation is done so strategies can bring the business ahead of its competitors. Looking at Your Business and Knowing Your Customers and Competitors The business strategy should not only be about the company. It should also look at what is happening in the market. The business must be conscious of what its competitors are doing so it can strategize on how to get ahead of them. For instance, a business could decide to pursue a price based strategy in order to get a lion's share of the market. On the other hand, one can also pursue a differentiation-based strategy. Again strategies should be based on what the company sees will bring it ahead of its competitors. But the other half it though is knowing the company customers. If the company knows its customers, well then it will be able to anticipate how it would react to every price change, for example, or how it will appreciate additional features. Of course, the decision on which strategies to take should always be based on the combination of all these factors. Again, the time frame and evaluation is important. Keeping the strategies updated is vital too.
I was in Star Bucks Club Ultima this afternoon to talk with a friend regarding a new business that he is planning to start. One of the things that he mentioned was this unique business strategy that's quite different from what we traditionally learn in business school. According to him, this strategy sorts of deviates from normal business concepts that we hear and read from the usual management gurus. This strategy is called "Blue Ocean Strategy" I was intrigued by the idea so I did a little bit of research on the subject. Blue Ocean Strategy is a corporate strategy that aims to tap unclaimed markets making competition irrelevant. The strategy is embodied in the book entitled "Blue Ocean Strategy" by Professors W. Chan Kim and Renee Mauborgne and Published by Harvard Business School Press. The authors claim that the Blue Ocean Strategy is a result of several years of study of strategic moves by over 30 industries in a span of 100 years. In the book, "Blue Ocean" refers to an untapped market, a market wherein there is only little or no competition at all enabling anyone to claim the market for his own since it is not yet too crowded. In contrast, "Red Ocean" refers to a market where competition is very high. The market is considered as very crowded already since almost everybody is producing the same type of service and the same kind of goods. The Blue Ocean strategy is simply to innovate something; something that makes people gives a higher value for a certain product or service. Since doing this would require additional cost, the cost that is incurred by the value added is reduced by eliminating product or service features that the market does not really care about. In order that this can be understood well a "local" application must be cited. According to my friend a classic example of how the Blue Ocean Strategy was used here in the Philippines is the strategic moves of the Gokongwei group. As we all know, the Gokongwei group owns Mobile phone company, Sun Cellular and airline Cebu Pacific among other companies. Since the market for mobile phones has already been saturated by both Smart and Globe, what Sun Cellular did is to create a "new market" by adding value to products already found in existing markets. As a result of this "added" value, (By making sun to sun calls free) a new untapped market was opened. It could be said that Sun Cellular is not competing directly with Globe and Smart but rather they have raised awareness among the people to buy into this "new market." As a result, most people now have two cellular phones or two sim cards in a dual sim phone. In this way Sun Cellular is not "out-performing" Smart and Globe but rather they have created a new market, making competition irrelevant. In the airline industry, Cebu Pacific has managed to apply the Blue Ocean Strategy by adding "value" to what people really want, which is to "fly." People don't care about a newspaper, a hot meal or a fancily dressed flight stewardess. What people care about is that they can "fly." In order to do this airline fares must go down since this is what people care about. This in a sense allowed Cebu Pacific to tap into the "untapped" market. The existing market is referred to as "customers who can only afford to fly." The untapped market is "every can fly." This is embodied in Cebu Pacfic's advertisement "Now every JUAN can fly" (A play on the words "every juan" = "everyone", with "J" being pronounced as "H", Juan is the "universal" first name of Filipinos just like John is for the Americans). Cebu Pacific has managed to slash down fares by reducing cost on service features that most people do not really care about such as hot meals etc. Being involved with the International Marketing Group (IMG), I can now clearly see that they have employed the Blue Ocean Strategy in the way they do business. I do not know if they have being doing this consciously or unconsciously. Instead of selling insurance products directly, IMG teaches it's clients and brokers the concepts of financial planning and management. (albeit not in a very organized manner) Product is not given primary importance. The financial broker shows his client his need for financial planning. The financial broker who is well versed in financial planning concepts then introduces products that suits the client needs. The untapped market of financial planning needs by the people is claimed by IMG and the added cost for this value service is compensated by reducing cost with regards to training agents and marketing efforts since IMG works on a model that allows insurance and financial services company to "outsource" their marketing and training. Other insurance companies have already followed this path. The trend now is that insurance agents are now becoming financial planners. My friend's proposed business has a similar concept but it is something more than financial planning. He wants to introduce a value added service to clients that will enable him to add value to existing service in order to capture "untapped markets" However I could not discuss the details of the plan yet, but I am sure that employing the Blue Ocean Strategy would enable him to succeed in the new business that he is thinking. Perhaps in the proper time I could help him promote his business by writing an article on it, probably when the final details of the plan have been ironed out. However you might want to check out his website at [http://www.premierebusinessinc.com] In Traditional Business strategy we talk about "crushing the competition" whereas in Blue Ocean Strategy we talk about "Creating new markets with little or no competition." Instead of "Strategic Planning" Blue Ocean Strategist resort to "Strategic thinking." Instead of "cutting prices" to capture a market, Blue Ocean Strategy is to add "value" to products and services to claim an untapped market. I could personally say the Blue Ocean Strategy is a unique strategy. Critiques may say that the Strategy has already existed a long time ago and that principles that are said to be unique to the strategy can be found in other traditional business strategies as well. For me, the critics may just be jealous that they were not the first ones to embody the "strategy" in compact form. The critic's contention are not valid at all since our way of discovering something or learning something is to build upon the knowledge that has been universally accepted by the majority. A new theory is always built upon something that has already been long time accepted as a scientific principle or even theory. (Just like the theory of relativity rest upon the foundations of the principles of thermodynamics, electricity, gravity etc.) Whatever the Critics have to say, the strategy certainly is here to stay and is sure to have an effect on the way future entrepreneurs, managers and leaders will think and do business in the years to come.
As a business owner it is easy to get off track and find your self with a money pit instead of a gold mine. From years of working with business owners, here are some of the most impactful errors that you should avoid when running your business. Taking out too much cash. With a cash-based business, like a restaurant, dry cleaner or other cash based business; this can be the most devastating error. When you take cash out of the business, your revenues are reduced and and your profits are reduced. This is great if you want to avoid paying taxes, but this also greatly devalues your business. Remember, this is also illegal! Employing your family. In the beginning is it expected you might leverage your family, especially, if you can pay them less than a regular employee. The challenge is when you go to value your business, now a full cost employee has to be added back and this reduces the profit and the value of the business. Consider paying your fmaily member full wages as soon as you can. Many businesses on tax return. Actually having multiple businesses on one tax return is not so bad, unless you do not have the income and expenses separated. It is even worse if you have multiple locations and those incomes and expenses are combined. This makes it hard to determine the value of one unit. Openly disclosing a business is for sale. Because the sale of a business can take a year or longer, openly disclosing this information can affect your employees, vendors and customers. This can reduce your revenue, your credit lines. For one business, the sales team left and the business went out of business before it could be sold. This should be kept highly confidential. Changing the way they run the business. It is easy to think that once you have decided to sell your business now you can take you foot off the gas and relax. The truth is buyers are most critical of your most recent activity. So the now is really the time to make the numbers look the best they have ever looked. By avoiding thses fatal errors, you are more likely to see your business as a gold mine than a money pit.
Having worked in a high-end management consultancy practice for many years (in my previous career), I've discovered a thing or two about market research, and how critical it is to your business success. Whenever we took on a new management consultancy project for a client, one of the very first things we did was to go and speak to their clients and customers about their biggest issues/problems/frustrations etc. Yet as solo service business owners this critical step is very often overlooked - market research is not just for the big corporations, but for every business owner, regardless of size. As a result of not implementing a market research system, business owners are left wondering why: Their product launch flopped. Their program registrations are very slow, or just okay-ish. Clients aren't signing up for strategy sessions, and in turn becoming paying clients. It's all because they haven't done their market research. They haven't bothered to take the time to find out what their clients' biggest issues are; what they want; or what keeps them awake at night. Instead, business owners just put their "thing" out there and provide what they think their clients need, not what they want... there's a very big difference between the two. Creating a market research system is really very simple, and actually quite a lot of fun too! You get to have a conversation with your clients and potential clients, and really get to the heart of what's bothering them. It's a wonderful way to connect with your clients. And once you know what it is that's keeping your clients up at night, you can begin to provide the solutions for them. Your market research will give you: Business ideas and focus. Product and services ideas and focus. Article and blog posts ideas and topics. So today, I'd like to share with you the three key areas that go into creating a complete, and effective, market research system. 1. Keyword Research: This is a great way to start and get a feel for what your clients are searching for online. If done correctly, you'll get lots of ideas to jumpstart your products, programs, and services. And you'll also be able to customize your copy to include the phrases and keywords that your clients are searching on. 2. One-on-One Interviews: This is an absolute must do to get to the heart of your client's issues, frustrations, and problems. However, to do it correctly you need to know what questions to ask, and how to ask them. This is a skill that is very easily learnt, but so critical to have if you want to get the most out of your market research. 3. Online Survey: This is a great way to get a "snapshot" of exactly what it is that is keeping your clients up at night. However, the results are dependent on what's happening in your client's lives at that particular time, so should never be used on its own to formulate your next big offering. You should plan to conduct market research with your clients and customers once a year. And for maximum impact, include all three areas as part of your market research system. The good news... once you've implemented your market research system the first time, doing it again is a very simple process; you just rinse and repeat!
Two men once visited the same forest and noticed that people in the forest and adjoining areas walked barefoot. One of them saw this as a potential market to sell footwear whereas the other man thought that there is absolutely no market to sell footwear as people are not aware of it and hence would not be so keen on buying shoes. Thus, it is all about your perception; it decides how successful you can be as an entrepreneur. Markets are created based on ones perceptions and others only jump into the bus once the market is created. But the early mover always has an advantage and the consumers in those markets would be more loyal towards those brands in the future. In this day and age the market share of the established companies is diminishing as new competitors are coming in. In order for the well established organizations to grow at a particular rate it is important to exploit new markets. Strategy analytics plays a key role here. These new markets are present in the developing countries and considering the potential of growth in these countries it makes it important for organizations to penetrate in these untapped markets before your competitors enter. But before entering them a proper analysis has to be carried out which involves looking at various parameters like growth in these markets, market potential of the product, close substitutes of the product, barriers to entry, etc. A proper market entry strategy has to be designed beforehand. Many specialized consulting companies are present to carry out this analysis. Some of them are boutique firms which specialize in a particular area of consulting. These consulting companies help to identify these markets, do strategy analytics of how to compete in these markets and even support in the design and execution of the strategies. Along with the market entry strategy an exit strategy also needs to be designed in case the things don't go according to your plans. Most of the companies are ready to invest in new markets provided an exit option is also there and their money is not stuck in the long run. Market entry strategy involves sales, strategy analytics, pricing, sourcing and manufacturing, service delivery model, ecosystem development, financial and investment models and complying with various government rules and regulations. So, lot of research needs to be carried out before an organization can enter a new market but with the help of these boutique firms who have lot of knowledge about the various emerging markets around the world, the analysis is simplified to a great extent.
When a person starts a business whether it be a restaurant, bakery, small manufacturing plant, etc they do not want to always remain a "small fish in a big pond." They want to become one of the "big fish" and in order to do that requires strategic planning. To increase their businesses revenue the owner needs to not only plan intelligent strategies but they also need to implement them wisely. If not implemented wisely the business is not going to see a profit and they may even be forced to go out of business. Strategic planning involves formulating business growth strategies and policies over a specific period of time. If your business involves mobile or internet technology the trends in these fields change quite often so you would have to do it more often so formulating a six month to one year business strategy plan would make more sense than doing a five year plan. When doing business strategies or strategic planning you or the management team can concentrate on the entire business or just one aspect of the business. Writing a business plan deals with the challenges that you are likely to occur when the business is just starting out. The actual strategic planning will deal the opportunities to grow the business and the methods that will be used. Although they are two different things, you do need to make sure that you have a business plan written up so everyone will know just what direction the business is going. If you do not have a business plan which is usually used for strategic planning there is a strong chance your business will not succeed. In strategic planning there is no definite model that a business can use because each business is different and usually formulates their own model that will work with their particular business. Although the model may vary there are some important compounds that you need to include. One component is the purpose of the business which is when the business will explain the entire idea of why your business exists. This component is not complicated and will focus just on the businesses objective. Another component is the ultimate goals of the business called organizational objectives which will help you achieve the purpose of the business. You want to make sure that goals you set are achievable within the time period you set up. The next component is strategy planning for every goal. Having strategies in place will help to insure that you will accomplish each goal that you have set out. You should also make checkpoints so you can see if the strategy is working or not and if you need to make any changes. The last component is monitoring implementation of your strategy plan. If your strategic plan is not monitored you will not know how effective it is and whether it needs to be revised. As you can see, strategic planning and good business strategies are very important to a business, especially if it is a new business.
Most companies today not only fail to arrive at the right strategic answer, they no longer even understand the question. A failure to understand the critical importance of, and payoff from erudite strategic positioning extends from the Board Room down to through the ranks of middle management. I have observed across a host of organizations three consistent challenges that diminish the understanding and valuation of strategic positioning as a primary determinant of long-term, sustainable profitability. The three challenges include, 1. A misunderstanding of the difference between strategy and operational effectiveness or continuous improvement programs 2. Annual strategy planning processes that are distinctly not strategic 3. Organizational barriers, disincentives, and shortfalls As historical context to the first challenge, beginning in the 1980's operational effectiveness was at the heart of the Japanese challenge to Western companies. An embrace of continuous quality improvement tools quickly became the order of the day - tools later broadly implemented and renamed by companies such as Motorola and General Electric as Six Sigma. Companies became much better operators and enhanced efficiency, sometimes drastically reinventing cost structures and shifting "efficiency frontiers". While operational effectiveness is necessary, it is not by itself sufficient. Also, drastic gains in efficiency have rarely been reflected in long-term gains in profitability. Rather, as all competitors in a market hire the same consultants, read the same management books and employ the same tools, the result is competitive convergence, which serves all equally poorly. These hyper-competitive conditions that today create across-the-board challenges are largely self-created and a direct result of ignoring the importance of competitive positioning, which is based in deliberate choices to engage in a unique set of activities to deliver a unique mix of value. The second challenge is based in internal process and nomenclature shortfalls. Often when I talk to executive management of a company about the need for strategic analysis or considerations, they will typically refer me to their annual "strategic" or business planning processes. A strategic or business planning exercise in most organizations is a mandatory response to the information requirements to manage a publicly traded company. The core requirement is revenue forecasting or "planning". Effective strategy formulation requires a different term perspective, different skill sets, and asking and answering a materially different set of questions. Strategy formulation is a craft that requires the right approach, tools, dedication of effort, analysis, and disciplined, courageous decision making. A clearly articulated strategy will include creation of a unique and valuable position - one that will necessarily require support from a unique and cohesive set of activities. A strategy must also make courageous and wise decisions regarding tradeoffs; good strategy will always be more about what an organization chooses not to do than about what it chooses to do. Finally, a strategy must carefully consider issues of fit. Strategies derive power and sustainability from the way that the chosen activities fit with and reinforce one another. Unlike continuous improvement or operational effectiveness, which is based on isolation of a single activity, strategic positioning is about an entire set of activities that build sustainable positioning against imitators, substitutes or direct competitors. The third challenge that I have consistently seen among organizations in embracing meaningful strategy is shortcomings in company leadership and their unpublished reward systems. The choice to apply scarce resources to continuous improvement or operational effectiveness to the exclusion of strategic considerations and decisions is a potent seduction, most particularly for the politically savvy executive in today's corporate environment. Sadly, what is too often rewarded is risk aversion, vocal contributions as an observant critic of big change, concrete short-term plans, and actionable / measurable goals and objectives. Operational effectiveness and continuous improvement programs provide a safe haven and a chic business suit for that internal rewards environment. What strategy requires on the other hand are deep analysis, a longer-term orientation, broad understanding of strategic principles and markets, and above all, the willingness to make hard decisions. The job of a leader is to understand, set and implement strategy, and most importantly have the courage to say no to certain activities, customers, markets, geographies, etc. As long as we continue to move forward under the assumption that we are in business to make money, wise strategic positioning will remain a challenging, yet absolute requirement of attaining superior returns on invested capital. While effective programs like Six Sigma will remain a ticket to solvency, sole reliance on those programs will equate to running faster and faster on a treadmill into a profit-starved competitive convergence.