1 strategies, planning and developing effective business plan executive management orientation...
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Strategies, Planning and Developing Effective Business plan
Executive Management Orientation Program
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Introduction and Concepts
Globalisation and the Modern Business Environment
Traditionally management has been concerned with internal aspects of the organisation e.g productivity, cost reductions…etc
Aspects which managers have control over
Elimination of trade barriers between countries and phenomenal development of ICT has created a global business environment
Environment characterised by intense competition, rapid product
development and innovation and also creation of new markets
Opportunities and challenges presented by the new global business environment to multi-national and national organisations are immense
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Management in the 21 century
Globalisation is affecting organisations in new ways The external environment of an organisation has now significant impact
on the way organisations manage their business processes in terms of planning, organising, leading and controlling
Managers now need to respond to rapid pace of events created by the
external environment
Strategic thinking and planning are increasingly becoming vital characteristics of the 21 century management
Successful organisations now have the necessary skills to create, acquire and transfer knowledge and to change their behavior to reflect new knowledge and insights
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Strategic Management – conceptual model
Model is based on four elements
The following figure expands the elements of the model
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Strategy Implementation
Programmes
Budgets
Procedures
Evaluation and Control
Feedback/Learning Process
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External And Internal Scanning Of The Environment
Scanning the External Environment
Covers monitoring, evaluation and dissemination of information from the external environment to key people within an organization
It is important to identify and analyize the variables (forces) operating within the two components of the external environment viz. the societal and the task
The societal environment. This includes variable such as:
Economic – interest rates, inflation rates, exchange rates, unemployment levels , Membership of regional economic associations, etc.
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Technological – new products, technologies, automation, R&D activities , patent - trademark protection, telecommunications infrastructure
Political/legal - Environmental laws, tax laws, gov. incentives, antitrust regulations, foreign trade regulations, laws of hiring …etc
Sociocultural – age distribution, regional shifts in population, growth rate, life style changes, level of education… etc
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The task environment. The environment includes variables (forces) such as
Customers
Competitors
Suppliers
Governments
Labour unions
Communities
Share holders
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Analysis of Societal EnvironmentEconomic, Sociocultural, Technological, Political-Legal factors
Market Analysis
CommunityAnalysis
Interest Group Analysis
CompetitorAnalysis
SupplierAnalysis
GovernmentAnalysis
Selection of Strategic Factors
•Opportunities•Threats
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It is important when analysing the external variables/forces to identify and prioritise the strategic factors in terms of their probability of occurrence and the probable impact on the corporation, in order to effectively monitor them.
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Industry Analysis: Analysing the Task Environment
Porter’s Approach to Industry Analysis
Model refers to the competitive forces that determine the industry profit potential
The forces include
• Threat of new entrants• Rivalry among existing firms• Threat of substitute products/services• Bargaining power of buyers• Bargaining power of suppliers• Power of other stakeholders
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Threats of new Entrants
Bring new capacity and desire to gain market share
The threat depends on entry barriers such as:
• Economies of scale
• High capital requirement
• Product differentiation
• Switching costs
• Access to distribution channels
• Government policy
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Rivalry among existing firms
Level of rivalry depends on:
• Number of competitors• Rate of growth in industry• Product characteristics • Amount of fixed costs• Capacity• Exit barriers• Diversity of rivals
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Threats of substitute products
Substitutes are different products that satisfy the same need
Substitutes can limit pricing levels of existing products
Bargaining power of buyers Power of buyers depend on:
Proportion of seller’s product
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Potential of backward integration by buyer
Large number of suppliers providing undifferentiated products
Low cost of changing suppliers
Purchased product represents high % of buyer’s costs
Buyer earns low profits
Purchased product has little impact on final quality of product
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Bargaining power of suppliers
Supplier industry dominated by a few companies
Product/service unique or has built up switching costs
Substitutes not readily available
Suppliers able to integrate forward
Purchasing industry buys small portion of supplier products
Relative power of other stakeholders
Include government, local communities, special interest groups, unions and international institutions
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Scanning the Internal Environment
It is imperative that organizational analysis is conducted with the main objective of identifying the critical strengths and weaknesses that will determine whether an organization is able to capitalize on the opportunities and avoid the threats in the external environment
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Core and distinctive competencies
Basically the competency (ies) of an organization is it’s ability to coordinate its capabilities in the provision of its products and services. A core competency refers to the activities that the organization can do very well.
A core competency becomes a distinctive competency when it is superior to those of competition
Distinctive competencies are judged on the basis of value, rareness, imitability and organisation
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Using resources to gain competitive advantage
As resources are building blocks of competitive advantage, strategic analysis approach will need to cover
• Strengths and weaknesses of the organization resources • How the strengths are related to specific capabilities and
core competencies
• How the competencies are able to provide sustainable competitive advantage
• Identifying resource gaps and investment in upgrading weaknesses
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Determining the sustainability of an advantage
Two factors determine the sustainability a competitive advantage
• Durability – the rate at which resources ,capabilities and competencies depreciate or become obsolete
• Imitability – the ease and rate at which the resources….etc
can be imitated
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• Business Models
A business model of an organisation is composed of
Who it serves
What it provide
How it makes money
How it differentiates and sustains a competitive advantage
How it provides its product/service
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Typical BM include
Customer Solution Model
Profit Pyramid Model
Installed Base Model ( Multi – component model )
Advertising Model
Time Model
Efficiency Model
Blockbuster Model
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• Value-Chain Analysis
• Definition
VC is a sequence of value-creating activities in a business process
Value Chain for Manufactured Product
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Industry value-chain analysis
VC of majority of industries can be divided into upstream and downstream segments
Analysis of an industry can be made in terms of profit margin available at any point along the VC
For a company operating up + down the value chain, there is usually an area of primary expertise where its primary activities lie
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Analysis of corporate value chain involves
• Examination of each product VC. Identify strengths and weaknesses, competitive advantage created by strengths (if any) and possible distinctive competencies
• Examination of linkages within each product lines VC
• Examination of potential synergies among VC of different product lines or business units to accomplish economies of scale and of scope
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Scanning Functional Resources and Capabilities
Organizational structures
Examination of strengths and weaknesses of an organizational functional areas is a good starting point for analysis of the organizations’ value chain
Organisational structure vary a great deal
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Corporate culture
Beliefs, values and expectations learned and shared by the corporate staff
Culture reflects the dominant orientation of the company. It conveys a sense of identify for employees and helps promote employees commitment to the corporate goals
It also Promotes stability of the organisation as a social system
Strategic marketing issues
e.g market position and segmentation, marketing mix , product life cycle and brand and corporate reputation
Strategic financial issues
e.g financial leverage and capital budgeting
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Strategic R&D issues
e.g technical competence, technology transfer. Also with R&D mix (product R&D and process R&D)
Strategic operations issues e.g intermittent and continuous systems
Strategic HRM e.g use of cross – functional teams in concurrent engineering, temporary
and part time workers
Strategic information systems / technology issues
e.g impact on performance and supply chain-management
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Strategy Formulation – Business Strategy
Situational Analysis: SWOT Analysis
Situational analysis deals with relating external opportunities with internal strengths. Also with dealing with external threats and internal weaknesses
SWOT analysis is a well established analytical tool for situational analysis
SWOT analysis often criticized for including ambiguous statements, long lists of factors which are not prioritised. Observations are also often subjective
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Generating a Strategic Factors Analysis Summery (SFAS)
The SFAS matrix combines the critical external and internal factors from EFAS and IFAS to identify the important strategic factors which need to be considered when formulating business strategies
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Review of Mission and Objectives
It is imperative that an organisation has a clear communicable mission which acts as a unifying theme for its business
Often the cause of problems in organisational performance is unclear or ambiguous mission statement
Also company’s objectives may not be clearly stated and do not therefore provide real guidance to management and employees
It is therefore important to continuously review objectives to ensure that they are both challenging and achievable
If a gap exists between planned achieved objectives, then either strategies have to be changed or objectives adjusted to be more realistic
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Business Strategies
Objective of BS is to create or improve the competitive position of an organisation or a business units products/services
Porter’s Competitive Strategies
Two fundamental issues need to be addressed:
Should an organisation compete on basis of lower cost or should it differentiate its products/services on other basis such as quality?
Should competition be head to head with competitors for market share or should it focus on a niche market
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Two generic strategies proposed:
Cost leadership – aims at mass market. Requires efficient-scale facilities, diligent pursuit of cost reduction, tight cost and overhead control. May also require minimisation of R&D, sales and advertising activities
Differentiation – aims at mass market. Requires creation of a product or service that is perceived by the customer as unique
Cost of differentiation needs to be paid for as a premium
Differentiation can result in earning above average returns because of resulting brand loyalty
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Above strategies may also be Cost focus or Differentiation focus. Both aim to serve specific buyer group or market niche
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Issues in competitive strategies
• Quality is increasingly becoming a strategic issue in today’s business environment and successful organisations differentiate their products and services in the area of quality
• The Following table identifies eight dimensions of quality
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Cooperative strategies
Intended to create a competitive advantage. Can be divided into two types
Collusion – Explicit or tacit. Intended to reduce output and increase prices
Strategic alliance – Intended to achieve mutually beneficial strategic objectives. Can help increase profitability of the members and have positive effect on value
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Strategy Formulation – Corporate Strategy
Introduction
Corporate strategy deals with 3 major aspects of organisational development, namely:
The organisation’s strategic direction, sometimes referred to as directional strategy. The direction may be that of growth, stability or retrenchment
The markets in which the organisation operates, referred to as portfolio strategy
The manner in which corporate management coordinates activities + transfers resources and cultivates capabilities among business units, referred to as parenting strategy
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Directional Strategies
At a corporate level, senior managers need to consider the following strategic issues:
Should the corporation expand, continue operations unchanged, or cut back?
Should operations remain within current industry or should they be diversified?
If a growth strategy is adopted should the expansion be nationally or globally? Should the growth be effected organically or by means of acquisitions, mergers or strategic alliances?
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Growth strategy
Concentration
Refers to growth in the organisation’s own product lines Two types of concentration strategies:
• Vertical integration. This can be either:
Forward – Organisation becomes it own distributor Backward – Organisation becomes it own supplier
• Horisontal integration – Growth achieved by expanding product lines into other geographic location or by expanding product range into existing markets. Can be achieved by merging with other companies in the same business
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Diversification strategies
Growth is achieved through either related or unrelated diversifications
• Related diversification. Refers to diversification into a related industry to achieve strategic fit
• Unrelated diversification. Growth is achieved by diversifying into unrelated business. Sometimes referred to as conglomerate diversification. This strategy is often adopted when the objective is mainly financial and therefore serves as a means of reducing risk
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Stability Strategy
Appropriate if organisation is operating in a predictable environment
Often followed by small businesses operating in a ‘niche’ markets, enjoying adequate growth
Considered useful in the short run but extremely risky in the long term
There are different types of SS, namely:
• Pause/Proceed-with-Caution Strategy. Often considered a temporary strategy when environment is not clear or when organisation needs to consolidate resources
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• No-Change Strategy. Based on a decision to continue existing operation and policies for foreseeable future.
Often followed when there are no obvious opportunities or threats or
significant internal strengths and weaknesses
• Profit Strategy. Often adopted when organizational performance is declining (e.g low sales) by reducing investment and expenditure (e.g. R&D, sales force, advertising….etc)
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Retrenchment Strategy
Used when an organisation performance and competitive position are weak
An organisation in this position may opt for:
• Turnaround strategy
• Capitive company strategy
• Sell-Out/Divestment strategy
• Liquidation strategy
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Portfolio Analysis
Used when corporate strategy involves a number of business
Boston Consulting Group (BCG) matrix
Provides a framework for understanding diverse businesses
Helps managers establish priorities for making resource allocation decisions
Business classified in terms of:
• Market share
• Anticipated market growth
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The BCG Matrix
Anticipated Growth Rate
Stars Question Marks
?
Cash Cows Dogs
High Low
High
Low
Market Share
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Strategic implications of the matrix
cash cows- “milk”
use cash to invest in stars and question marks
Stars – require heavy investment
eventually will become cash cows
Question marks – two strategies
invest to transform them into stars
Divest
Dogs
Sold off or liquidated
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Functional Strategies
Functional strategies deal with the means to achieve corporate and business objectives and strategies
Essentially it deals with improving functional capabilities in order to provide and sustain competitive advantage
The direction a functional strategy takes is governed by the strategy of the business unit
Strategy Formulation – Functional Strategy
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Marketing Strategy
Marketing strategy is concerned with product development,
pricing, selling and distribution
Marketing strategy may take the form of market development which aims at increasing market share for existing products or alternatively developing new markets for current products
Marketing strategy may also take the form of product development which aims at developing new products for existing markets or, alternatively, developing new products for new markets
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Pricing strategies may include skim pricing ie high price for pioneering products when demand is high and competitors are few
Penetration pricing, on the other hand, enables a pioneering organisation to accelerate market development by gaining dominant market share
Advertising and promotion include push strategy (heavy promotion by discounting and special offers to gain shelf space). Alternatively a pull strategy may be used to attract products to distribution channels. Advertising in this case aims at building brand awareness to stimulate demand by consumers
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Financial Strategy
Intended to examine and select the most appropriate course(s) of
action to deal with the financial implications of corporate and business level strategic options
Financial strategy objective is to maxmise the financial value of the firm
Financial strategy deals with strategic decisions such as equity/debt financing
Also with trade-off between debt/equity financing and internal financing via cash flow
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Research and Development (R&D) Strategy
Deals with product and process improvements also with different
types of R&D e.g basic, product, process
R&D strategies may focus on either technological leader or technological follower approaches
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Operations strategies
Operations strategies addresses the following issues
• How the product is manufactured
• Where the product is manufactured
• Extent of integration of production process
• Deployment of resources
• Supplier relationship
Modern manufacturing techniques has given rise to alternative production strategies e.g
• Advance Manufacturing Technology (AMT)
• Modular manufacturing
• Mass customisation
• Lean manufacturing
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Purchasing strategies
Objective is to secure supply of raw materials, parts and supplies needed
to perform the operations functions
Purchasing strategies include:
• Multiple sourcing – often considered to have the advantages of promoting supplier competition and ensuring continuity of supplies
• Sole sourcing – considered to promote quality. Supplier relationship critical used in JIT system to simplify production process and reduce inventory
The strategy significantly reduces transaction costs
• Parallel sourcing – Two suppliers are sole suppliers of two different parts and they are also at the same time backup suppliers for each other’s parts
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Logistics strategies
Deals with flow of products into and out of the manufacturing
process
Strategies may be based on:
• Centralisation
• Outsourcing
• Internet
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Human Resources Management Strategies
Human Resources Management Strategies are greatly
influenced by the type of organisation's business and its corporate strategy
Some organisations opt for hiring low-skilled employees to undertake repetitive work and receive low pay
Alternatively organisations can hire relatively highly paid skilled employees which can be trained to participate in self managing teams
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Information Technology Strategies
Information Technology is increasingly providing organisations with powerful
tools to help market their products and enhance their business value chain
Pioneered by FedEx, application of Information Technology now enables customers to track their packages using its website
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The Sourcing Decision: Location of Functions
Functional strategies need to be built on the capabilities of the function
If capabilities are not strong the function could be outsourced
Outsourcing errors include:
• Outsourcing core activities
• Selection of wrong supplier
• Poor contractual linkage
• Ignoring personnel issues
• Loosing outsourcing control activities
• Overlooking hidden costs of outsourcing
• Failing to plan an exist strategy
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Strategic Choice: Selecting the Best Strategy
Process of strategic choice
• Strategic choice involves a detailed evaluation of alternative strategies and selection of the best strategy
• There is evidence that consensus is a good basis for
strategic choice
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Developing Policies
Once a strategy has been selected, policies need to be
developed
Policies define broad guidelines for implementation. Policies provide guidance for decision making
An organisation operates on day-to-day basis under such policies
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Strategy Implementation, Evaluation and Control
Strategy Implementation
Involves development of programmes budgets and procedures aimed at achieving the objectives and based on the organization's strategies and policies
Common problems associated with implementation include:
Implementation period longer than planned
Unexpected major problems surfaced
Ineffective coordination of activities
Crises and ‘fire fighting’ taking focus away from implementation
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Involved employees incapable of performing additional jobs
Employees at lower level inadequately trained
Impact of external environmental factors
Lack of effective leadership by departmental managers
Implementation tasks + activities poorly defines
Poor monitoring of activities
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• Who implements strategy?
Often more diverse group of people than those involved in planning
Implementation undertaken by almost every body in the organization
Important that changes in mission, objectives, strategies and policies + their importance to the company are clearly communicated to all operations people
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• What Must Be Done
Plans They make strategy action oriented e.g introduction of lean six sigma programmes through Xerox corporation
BudgetsDeveloping a budget is the last real check an organisation has on feasibility of the selected strategy
ProceduresStandard Operating Procedures (SOP’s) provide activities required to complete programmes. They need to be regularly updated. For new strategies current SOP’s may require to be changed
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Also important that synergy is achieved between divisions, departments….etc. Synergy can result from:
Shared know how
Coordinated strategies
Shared tangible resources e.g. R&D
Economies of scale and scope
Pooled negotiating power
New business creation
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• How is strategy to be implemented? Organising for Action
Very often introduction of a new strategy or changes in existing one lead to changes in organisation structure
Stages of corporate development
Impact of organisational life cycle on corporate strategy and likely structure need to be carefully understood
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• International Issues in Strategy Implementation
The organisation structure strongly influenced by the nature of the organisations international activities viz multidomestic or global
International strategic alliances (e.g JV and licensing) is a means of gaining entry into other countries. Criteria for successful strategic alliances are:
Partners have a shared vision about the potential for joint value creation
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Alliance important to both partners, especially to top management
Achievement of realistic objectives dependent on both partners
Joint activities must have added value for customers and partners
Alliance accepted by stakeholders
Partners contribute key strengths but protect core competencies
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Objective of E&C is to ensure organization is achieving what it set
out to accomplish
Step 1 in model deals with measure determination. This is done by top and operational management. They determine what processes and results need monitoring
In step 2 agreed and acceptable measures of performance results are established. Standards may cover all stages of processes
Step 3 and 4 deals with regular measurement of actual performance and comparison with agreed standards of performance
The last step (step5) deals with the corrective actions required if performance does not meet standards
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• E & C in Strategic Management
In the process of E & C management can be faced with important strategic and operational decisions if strategic objectives are unlikely to be met.
Systematic evaluation of implemented strategy needs to be undertaken. This is shown in the following diagram
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• Measuring Performance
Commonly used measure such as ROI is becoming inadequate in evaluating performance of the strategic plan which may include employee development, social responsibility….etc
ROI is only limited to giving indications of what happened (in terms of profitability) not what is happening or what is likely to happen
Steering controls are now used as measures of variables that influence future profitability. Typical measure is inventory turnover
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Types of control
Input controls Focus on resources e.g skills, abilities and value
Behavior controls Deal with activities which generate performance e.g policies, rules, SOP’s….etc. Also ISO 9000, 14000….etc
Output controls Specify end result of behaviors such as objectives, performance targets and milestones
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Activity Based Costing (ABC)
An accounting techniques based on allocating indirect and fixed costs to individual products or product lines
Enterprise Risk Management (ERM)
ERM is being adopted because of increasing amount of environmental uncertainty which can impact the whole organisation. Use of scenario analysis to identify key business risks
Management of risks involves identifying risks, analysing scale of impact and likelihood and then measuring the risks using an agreed standard
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Primary Measures of Corporate Performance
Simple financial measures are now being replaced by more meaningful measures for assessing the success or failure of a strategy
Stakeholder Measures – These are based on direct and indirect impact of organizations activities on stakeholder interest.
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Balanced Scorecard Approach – Covers financial and non financial measures e.g
Financial
Customer
Internal business perspective
Innovation and learning
Top management and board of director evaluation
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Guidelines for Proper Control
Control should involve minimum amount of information needed to give reliable picture of events
Control should monitor important activities and results, regardless of
measurement difficulty
Controls should be timely to enable effective corrective actions
Both long-term and short-term controls should be used
Control should deal with major deviation from agreed tolerances
Focus on reward of meeting or exceeding standards rather than punishment for failing to meet standards
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Developing A Business Plan
Why Write a Business Plan? 1. The process of putting a business plan together forces the people
preparing the plan to look at the business in an objective and critical manner
2. It helps to focus ideas and serves as a feasibility study of the business's chances for success and growth.
3. The finished report serves as an operational tool to define the company's present status and future possibilities.
4. It can help management run the business successfully
5. It is a strong communication . It defines the mission, competition, management and personnel. The process of constructing a business plan can be a strong reality check
6. The finished business plan provides the basis for your financing proposal
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Business Plan Components
The Executive Summary
The first page of the business plan should be a persuasive summary that will entice areader to take the plan seriously and read on. The Executive Summary should follow thecover page, and not exceed two pages in length.
The summary should include: • A brief description of the company's history
• The company's objectives
• A brief description of the company's products or services
• The market the business will compete in
• A persuasive statement as to why and how the business will succeed, discussing the business's competitive advantage
• Projected growth for the company and the market
• A brief description of the key management team
• A description of funding requirements, including a time-line and how the funds will be used
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The Product or Service
• It is important for the reader to thoroughly understand your product offering or the services you currently provide or plan on providing.
• It is important to explain this section in layman's terms to avoid confusion. Do not overwhelm the reader
• It is important to discuss the competitive advantage your product or service has over the competition. Or, if you are entering a new market, you should answer why there is a need for your offering.
• Discuss any barriers that you face in bringing the product to market, such as government regulations, competing products, high product development costs, the need for manufacturing materials, etc.
• Areas that should be covered in this section include:
– If you are still in the development stage, what is the roll out strategy or timeline to bring the product to market?
– What makes your product or service unique? What competitive advantage does the product or service have over its competition?
– Can you price the product or service competitively and still maintain a healthy profit margin?
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The Market
• Investors look for management teams with a thorough knowledge of their target market. If you are launching a new product, include your marketing research data. If you have existing customers, provide an analysis of who your customers are, their purchasing habits, their buying cycle.
• This section of the plan is extremely important, because if there is no need or desire for your product or service there won't be any customers. If a business has no customers, there is no business.
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• This section of the plan should include:
– A general description of your market
– The niche you plan on capitalizing on and why
– The size of the niche market. Include supporting documentation
– A statement and supporting documentation as to why you believe there is a need for your product or offering by this market
– What percentage of the market do you project you can capture?
– What is the growth potential of the market? Include supporting documentation How will you satisfy the growth of the market?
– How will you price your goods or services in the growing competitive market?
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The Marketing Strategy • Once you have identified who your market is, you'll need to explain your strategy for
reaching the market and distributing your product or service. Potential investors will look at this section carefully to make sure there is a viable method to reach the target market identified at a price point that makes sense.
• Analyze your competitors' marketing strategies to learn how they reach the market. If their strategy is working, consider adopting a similar plan. If there is room for improvement -- work on creating an innovative plan that will position your product or service in the minds of your potential customers.
• Developing an innovative marketing plan is critical to your company's success. Investors look favorably upon creative strategies that will put your product or service in front of potential customers. Spend time developing this section.
• Once you have identified how you will reach the market, discuss in detail your strategy for distributing the product or service to your customers. Will you mail order, personally deliver, hire sales reps, contract with distributors or resellers, etc.?
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The Competition
• Understanding your competition's strengths and weaknesses is critical for establishing your product's or service's competitive advantage. If you find a competitor is struggling, you need to know why, so you don't make the same mistake.
• Specific areas to address in this section are:
1. Identify your closest competitors. Where are they located? What are their revenues? How long have they been in business?
2. Define their target market.
3. What percentage of the market do they currently have?
4. How do your operations differ from your competition? What do they do well? Where is there room for improvement?
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1. In what ways is your business superior to the competition?
2. How is their business doing? Is it growing? Is it scaling back?
3. How are their operations similar to yours and how do they differ?
4. Are there certain areas of the business where the competition surpasses you? If so, what are those areas and how do you plan on compensating?
• Analyzing your competitors should be an ongoing practice. Knowing your competition will allow you to become more motivated to succeed, efficient and effective in the marketplace.
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Operations
• This component deals with how will you implement the idea. What resources and processes are necessary to get the product to market? This section of the plan should describe the manufacturing, R&D, purchasing, staffing, equipment and facilities required for your business.
• You'll want to provide a roll out strategy as to when these requirements need to be purchased and implemented. Your financials should reflect your roll out plan.
• In addition, describe the vendors you will need to build the business. Do you have current relationships or do you need to establish new ones? Who will you choose and why?
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The Management Team
• For most investors the experience and quality of the management team is the most important aspect they evaluate when investing in a company. Investors must feel confident that the management team knows its market, product and has the ability to implement the plan. In essence, your plan must communicate management's capabilities in obtaining the objectives outlined in the plan.
• If your team lacks in a critical area, identify how you plan on compensating for the
void. Whether it is additional training required or additional management staff needed, show that you know the problem exists, and provide your options for solutions.
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• When preparing this section of the business plan you should address the following five areas:
1. Personal history of the principals:
– Business background of the principals – Past experience -- tracking successes, responsibilities and capabilities – Educational background (formal and informal) – Personal data: age, current address, past addresses, interests, education,
special abilities, reasons for entering into a business
2. Work experience:
– Direct operational and managerial experience in this type of business – Indirect managerial experiences
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3. Duties and responsibilities: – Who will do what and why – Organizational chart with chain of command and listing of duties – Who is responsible for the final decisions?
4. Salaries and benefits:
– A simple statement of what management will be paid by position – Listing of bonuses in realistic terms – Benefits (medical, life insurance, disability...)
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5. Resources available to your business:
– Insurance broker's)
– Lawyer
– Accountant
– Consulting group's) – Small Business Association
– Local business information centers – Chambers of Commerce
– Local colleges and universities
– Federal, state, and local agencies
– Board of Directors – World Wide Web (various search engines)
– Banker
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Personnel
The success of a business can often be measured by its employees. consumers will goelsewhere if they don't receive prompt and courteous service. You must consider thefollowing questions in completing this section of the business plan: 1. What are your current personnel needs (full or part-time)? How many employees do you
envision in the near future and then in the next three to five years?
2. What skills must your employees have? What will their job descriptions be?
3. Will you be paying salaries or hourly wages?
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Financial Data
• One of the first steps to having a profitable business is to establish a bookkeeping system which provides you with data in the following four areas:
• Balance Sheet - indicates what the cash position of the business is and what the owner's equity is at a given point (the balance sheet will show assets, liabilities and retained earnings).
• Break-Even Analysis - is based on the income statement and cash flow. All businesses should perform this analysis without exceptions. A break-even analysis shows the volume of revenue from sales that are needed to balance the fixed and variable expenses.
• Income Statement - also called the profit and loss statement, is used to indicate how well the company is managing its cash, by subtracting disbursements from receipts.
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• Cash Flow - this projects all cash receipts and disbursements. Cash flow is critical to the survival of any business.
• If the goal of your business plan is to obtain financing, you will be required to generate financial forecasts. The forecasts demonstrate the need for funds and the future value of equity investment or debt repayments. This exercise is critical in obtaining capital for your business. To obtain capital from lending institutions you must demonstrate the need for the funding and your ability to repay the loan.
• The forecast that you generate should cover a three to five-year period. This is a period in which realistic goals can be established and attained without much speculation. Forecasts should be broken down in monthly increments.
• Projections and forecasts are an integral part of your financial portfolio. Carefully and accurately state your assumptions. Honesty is the best policy! Over-optimism and over-inflation can lead to failure