The Modern Theory Of Business Strategy Business Essay

Strategizing is much more than just visioning, forecasting, planning and reviewing. In the new rapidly changing economy, all important tasks of strategy have been redefined as issues of implementation. These days strategizing is concerned with the match between the internal capabilities of the company and its external environment. The modern subject of business strategy is a set of analytic tools & techniques for understanding better, and so influencing, a company’s position in its actual and potential marketplace.

As strategy today is a subject of application; the obvious key disciplines for strategy are economics and organizational culture. One needs to employ them to define a structure in which the process of strategy formulation and its implementation are bound together.

Putting it simply, strategy refers to the technique or direction one would adopt in achieving a certain objective. For business purposes, objectives are usually more precisely defined using numerical values – 10% increase in sales in the next year could be an example of a business objective (sales). Objectives differ depending upon the conditions one may find himself in and therefore would result in the adoption of varied strategies.

Business strategy refers to the combined strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. A firm must devise a business strategy that incorporates either cost leadership, differentiation or focus and the like in order to achieve a sustainable competitive advantage and long-term success in its areas or industries.

1b) How strategy can be constructed and carried out effectively, even by small businesses?

There could be political strategies, business strategies, social strategies and so on. It is nothing but natural for strategies to differ in matter but they all share some common issues that get addressed in the process. So, in order to work on strategic substance it is imperative to understand the issues that need to be answered in our strategic choices.

Firstly, strategies are to be thought of in long term basis. Strategies are formed keeping in mind the vision of an organization that helps further decide the direction to be taken. Vision is basically the broad reason for an organization’s existence. This being the first structural block.

Secondly, strategies are formulated under the characteristics of an organization’s strengths and weaknesses. The resources and competencies of a firm help define and shape the variety of strategic choices available to the management to choose from. This forms the second major structural block and alongside the first lays the basic foundation for strategy formation.

The rest is basically a web where we need to analyse the current domain of the organization’s activities and possible future expansion, the culture of the organization, the values and expectations of stakeholders, the operational and business environment and the competition. Once this analysis is done, strategies can be derived that help to provide a competitive advantage in the current environment after considering its expected future outcome. This aspect is very important as strategies cannot be altered time and again. They should keep room for a little change as they have to stand the test of time and therefore need to be aligned correspondingly to dynamic business environments.

To sum it up, strategies are essentially long term choices of an organization that define the manner in which competitive advantage shall be obtained, alongside the fulfillment of stakeholders’ expectations, within the boundaries of the organization’s strengths and weaknesses. Evidently, the process of developing strategies is a tedious one and requires concrete analysis of many inter-related factors. It is extremely complex and has an inherent uncertainty about its conception. However, a careful analysis of the business environment including that of competitors can greatly reduce this complexity.

As a strategy developer one has to be in harmony with the vagueness of the opportunity costs for a particular strategic choice and once decided, should focus entirely on the chosen strategic direction. All actions are linked to the strategy of the organization and hence a thorough analysis of various direct and indirect factors is critical to its success.

The most important strategic choice a small organization can make is prepare to do battle with the future, which includes five steps.

Step 1: Anticipate both threats and windows of opportunities for the vision and mission of the organization.

Step 2: Decide how to react to these emerging threats and opportunities.

Step 3: Identify the source from which those risks and opportunities will come from.

Step 4: Identify when the risks will hit or if the opportunity is really valuable.

Step 5: Execute necessary actions to mitigate the threats or take advantage of the opportunities.

Strategic planning for a small business doesn’t have to be as formal, or as detailed as with a large company. The most important step to take is to strike up a discussion with your customers, employees, vendors, investors, and do your homework about your competitors. It helps to talk about your strategy with a partner, advisor, or trusted consultant to reduce ambiguity and bring some focus to your mind around the strategic issues that could impact your business in the future. The biggest mistake a small business owner can do for his organization is, be unprepared or surprised by unfolding future events. Even if he simply thinks things through in his mind and then briefly share his strategic choices or decisions with his employees, he will be ahead of the curve and enabling people to understand how they can connect with his strategy.

For a small business working toward a strategic plan the one thing that can make a lot of difference is to commit all the strategic decision to paper. This is one move ahead of many of its competitors. Inviting the strongest employees to respond to the strategic issues, concerns and getting them involved so they feel some ownership in this simple process brings a clear and thorough insight into the strategic planning. Arranging a strategy adaptation meeting with all hands twice a year for a couple of hours to clarify the direction, make adjustments and respond to questions is yet another time-proven way of facing the changing business demographics.

The strategic analysis should look at six aspects of the business.

The customers: Figure out who your customers are now, who they will be in the future, how they are changing, and what they will want in the future.

The people and talent: What skills and capabilities will be needed to address the threats and opportunities? How many people, what kind of new roles will be needed, how will people’s roles change in the future to handle the threats and grab the opportunities? Will the organization grow and are we developing the leadership to manage the changes coming?

The Suppliers and Vendor: Can they give you what will be required to meet future challenges? Are there new offerings that can help you resolve your particular business issues?

The Competitors: Who are the players in your market? What are the strengths they possess? How can you take advantage of their vulnerabilities with your unique capabilities?

The Products and Services: Are you preparing something new and value added for your customers or users which enable them to be more productive?

The Organizational infrastructure & technology: What will the organization need to do differently in the future to keep up with new and emerging customers? Are you using technology to improve productivity?

Strategy really isn’t rocket science; rather it is a common sense and a willingness to ask some challenging questions and bringing the workable answers. Be willing to think it through, communicate with others, and solicit additional perspectives. Writing down the conclusions and sharing them with the rest of the organization. Lastly, issuing a call to work on strategic action each day to compliment the routine tactical work that has to be done to pay the bills and meet current obligations. All of the above help the small business stay ahead of the curve.

1c) The value of using key analytical tools to help in the strategy-making process

Strategic Analysis

This is all about analysing the strength of position of business and understanding the important external factors that may influence that position. The process of Strategic Analysis can be helped by a number of tools, including:

PEST Analysis – a technique for understanding the “environment”in which a business operates [See Appendix A for details]

Porter’s Five Forces Analysis – a technique for identifying the forces which affect the level of competition within an industry [See Appendix A for details]

Competitor Analysis – a broad range of techniques and analysis that seeks to summarise a businesses’overall competitive position

Critical Success Factor Analysis – a technique to identify those key areas in which a business must outperform the competition in order to succeed

SWOT Analysis – a useful summary technique for summarising the key issues arising from an assessment of a businesses “internal”position and “external”environmental influences.

Analytical methods and tools are key to ensuring that consistency and an appropriate level of rigour is applied to the analysis. The aim of the analytical tool is to intensify the focus of the analysis and to ensure a methodical and a balanced approach.

All analytical tools rely on historical and statistical data to extrapolate future assumptions. It is important to exercise caution when interpreting strategic analysis results. Otherwise the analysis may be influenced by preconceived notions within the organisation which seek to validate a particular strategic assumption.

One of the key skills of a strategic analyst is in understanding which analytical tools or techniques are most appropriate to the objectives of the analysis. One of the most common analytical tool used in devising a business strategy is SWOT Analysis

SWOT Analysis

A SWOT analysis is a simple but widely used tool that helps in understanding the strengths, weaknesses, opportunities and threats involved in a project or business activity.

It starts by defining the objective of the business activity and identifies the internal and external factors that are important to achieving that objective. strengths and weaknesses are usually internal to the organisation, while opportunities and threats are usually external. Often these are plotted on a simple 2×2 matrix.

Strengths

• What does your organisation do better than others?

• What are your unique selling points?

• What do your competitors and customers in your market perceive as your strengths?

• What is your organisations competitive edge?

Opportunities

• What political, economic, social-cultural, or technology (PEST) changes are taking place that could be favourable to you?

• Where are there currently gaps in the market or unfulfilled demand?

• What new innovation could your organisation bring to the market?

Weakness

• What do other organisations do better than you?

• What elements of your business add little or no value?

• What do competitors and customers in your market perceive as your weakness?

Threats

• What political, economic, social-cultural, or technology (PEST) changes are taking place that could be unfavourable to you?

• What restraints to you face?

• What is your competition doing that could negatively impact you?

2) Based on the case study, carry out an analysis of Making It Big’s:

• strengths and weaknesses,

• opportunities and threats

Strengths

Making It Big has had wonderful years over the past couple of years. For the last 10 years MIB enjoyed steady average sales increase of 12%. This was made possible due to the fact that Cynthia, the owner of the business, contributed significant amount of her time and effort to keep the cash flow running.

Cynthia learned the whole trade of a business at an early age and rode on the surge of the feminism movements. She was already mentally prepared and economically challenged to take on the risky path of setting up her own venture. Her earlier stint with Cheap Frills also enabled her to learn the tricks of trade and get really close to the suppliers, manufacturers, whole-sellers and customers. This proved to be a foundational platform that let her project her thoughts and evaluate an opportunity that can be filled. Hence, the birth of Making It Big took place.

This opportunity was plus-size clothing manufacturing & selling business. It was only possible for her to evaluate and pick such an opportunity because she was able to put herself in the shoes of the her potential customers. She, being a female and a fat one at that, helped her empathize her customers and bring to them a product that can truly add value to their lives. Besides, she had personal beliefs of strengthening fat women. For that she had to attend various seminars, feminism conferences, fashion shows and other such social events to market her clothing collection of the season as well as learning more about the reservations of her customers. She had to use these platforms to raise awareness and to strengthen the fat category of female population to lead a normal life. This step of approaching a new customer bracket is always risky and frought with FUD phenomena among customers. FUD phenomena also known as Fear, Uncertainty, Doubt, leaves a whole set of problems of manufacturing, marketing and selling for the niche to be addressed. It also turned out in the very beginning that no manufacturer is willing to accept orders to custom make plus-sized ladies garments for a new venture.

To overcome these challenges, Cynthia needed a partner, an expert in the area of ladies garments manufacturing, a dedicated sales person, a manufacturing facility, long list of suppliers, transporters, sewing staff and other office personnel. Moreover, she was also supposed to raise awareness and market her products to the category of fat women who usually stay indoor.

One of her strengths played in the initial stages of her setup was a brilliant discovery of an expert seamstress as a contractor who helped MIB hire/train more such experts. This solved a major issue of getting the staff ready to take on the challenges that may lay ahead. It has been observed over years that staffing alone can take running businesses down if care is not taken and successful businesses have always invested largely on human resources functions. Therefore Cynthia focused on selecting and grooming a culture among employees who were hard-working and committed individuals. This strengthened the confidence of MIBs management on employees performance especially during times of tight money supply. This enables management to take sound decisions and face competition without fear of being wiped out.

Another factor that improved the success rate of MIB tremendously was that Cynthia had two parallel businesses Cheap Frills and MIB running in parallel; with one complementing the other. In such circumstances, its easy to loose sight of the direction due to the division of owner’s attention. However, Cynthia managed it well and had highly motivated staff to take care of both of her businesses. This helped Cynthia maintain a healthy level of cash flow and also to acquire short-term credit from financial institution. Since, the two businesses were identical therefore there was also some overlap in their customers. Later on, when Cynthia dissolved one of her business, Cheap Frills, she was not only able to generate cash on liquidating its assets but she also converted it to MIB’s warehouse. In short, running two businesses had a symbiotic relationship not parasitic and when she sold one of them it benefited the other even more.

When it comes to manufacturing, MIB also met with a good luck in that it developed a product line that could carry over the season and still look new item because of different colors. This helped MIB manage SKUs and inventory at the very early stages of manufacturing. This also streamlined MIBs manufacturing processes so that the owner-manager could divert her attention on the more pressing tasks of sales and marketing.

Another strength that MIB was successfully able to capitalize on was the idea of using various marketing channels; retail store ads, catalog for mail-in orders and a comprehensive website. Especially, when it comes to mail-in orders, Cynthia used a very unconventional approach of reaching out to the customer segment of fat women. This approach let MIB reach true potential customers, read fat women, rather than shot-gunning all the housholds in the area for search of potential customers. This caused MIB to develop strong relationship with new customers and repeat sales were possible apart from saving tremendous amounts of marketing budgets for a yet growing MIB.

Weaknesses

One of the biggest weaknesses that was figured out for MIB is the improvisational style of business that cannot cope with change. This style, although good for executing short-term goals while maintaining a tight grip on cash flow, is difficult to adapt to changing external factors. Cynthia, being the owner-manager, did not have a business degree to start with. She was working on her business purely through determination and intuition. This can bring short-term success but to really succeed in the global scale and expand the business beyond the territorial boundaries, one has to endeavour into the realm of experimentation and critical analysis of the various medium-term strategies and its market acceptance.

Secondly, Cynthia’s partner Janet wasn’t contributing much in the early days of MIB as a business startup. Although, she provided the much needed cash & other financial help but she lacked dedication. This naturally led Cynthia to take on the role of both the partners and hence the role of strategist in MIB was lost forever. Had Janet been taking care of some of the daily sales and marketing matters then Cynthia would be in a better shape to use the above mentioned analytical tools to provide regular insight into business and the way to look forward to. This lack of strategic planning skills among the top management of MIB caused sales growth to come to stall.

Another weakness cited in the case study was that MIB was serving a niche market. Niche markets are always a headache for sales and marketing professional. Customers, fat women staying indoors, were hard to find and their buying patterns, no prior experience or passion of shopping, caused MIB to look for alternate channels of marketing.

The case study also points to a claim by industry experts that most retailers don’t know how to sell to larger or fat customers. The reason for that was the buying behaviour of those customers in that those women were not working due to their hesitation of the social gathering in general. Thus those women were confined to the indoors and therefore they have to approached within the boundaries of their household. Even though MIB tried various marketing channels but they were still not their. The financial figures show that most of their sales were within their base state, California, and thus there was a huge market outside their base state that still needs to be accessed.

Lastly, the case study reveals that MIB employees are over-worked so there is a chance of them leaving MIB despite of their loyalty. This problem is not limited to the leaving of managers only but also to all of the staff members within the organisation. Every year, industry experts quote a huge replacement cost associated with an employee. Therefore its in the best interest of firms to provide enough benefits and compliant human resource policies to retain existing employees. It has also been observed that small firms often make the mistake of not hiring enough employees matching the increase in their business activity. This ultimately leads to employees being overworked and eventually leaving the firm for one of their competitor with better work ethics. The weakness has also been found in MIB’s case.

Opportunities

There are a lot of opportunities that MIB can exploit to project its sales and come out as a successful firm in the long run.

In the very early days of MIB setting up its business, Cynthia developed a small line of credit with a bank to improve growth and opportunity. This is very important to enable a startup fulfill the orders that are beyond the financial capacity of the firm. This immediate or sometimes seasonal surge in sales can only be managed by taking short-term loans. MIB easily managed this opportunity and was able to keep sales growing at a steady rate of 12% over 10 years.

Another opportunity that knocked on the MIB’s door was the fact that Cynthia had no familiarity with mail-order business rules. Those rules were in fact good for marketing of only general household products but MIB was serving a niche market. Had Cynthia invested heavily in a certain mail-order marketing firm, it would have caused severe budgeting problems with no tangible impact on actual sales growth. That niche of a customer segment only stayed indoors and was not very easily approachable. Thus an unconventional approach helped MIB reach its true customers and enable it to cause recurring sales to existing customers.

To reach those difficult to find customer, Cynthia regularly attended trade shows to keep up with the trends and new potential customers. This helped her stay in touch with few of her existing customers as well as attract new ones. Since, MIB needed brand awareness and brand recognition all throughout its lifespan apart from saving finances from huge marketing budgets therefore it was prudent to specifically target the potential customers in such events. Cashing on this opportunity caused MIB to stick in this niche marketplace.

Another bright opportunity that was unveiled was that women plus-size market is growing in 2000s to $47 billion in 2005. MIB being an established player in this market only has to increase its capacity and reach out to customers. This rather unique opportunity that even the statistics agree is hard to miss for MIB. Moreover, careful strategic planning and evaluation of the outcome can result in tremendous growth of MIB in the years to come.

Another NPD group’s survey revealed 35% adult Americans as overweight and 26% as obese, 60% women wear 12 plus size and 16% teenage girls are overweight. This revelation is proof enough for Cynthia to invest in finding the right mix of short-term and long-term strategies to boost its sales and in the process increase market share.

Thus there are ample growth opportunities that MIB needs to cash in and raise its business value.

Threats

There are numerous threats that were mentioned in the case study. However, how many of these MIB has been able to identify and take necessary steps is what we have yet to see.

One of its competitor Charming Shoppes has a huge market share in plus size apparel industry. Charming Shoppes is acquiring its competitors and growing its business annually with billions of sales and thousands of retail outlets. Taking this competitor head on is difficult and unmanageable. However, the more troublesome situation is if Charming Shoppes shows interest in taking over MIB. Not only will this result in doubts among its customers, suppliers and other stakeholders but it will also create an environment of uncertainty among its employees. This will cause reduction in the productivity of its employees internally and loosing its sales instantly externally. This hostile bid may eventually result in Cynthia succumbing to pressure and even agreeing on weaker terms to sales her business to the giant competitor.

Another threat that this niche market is facing is that famous brands like Tommy Hilfiger and Old Navy, have also started releasing plus-size women apparel. With big brands entering this market, there is little room for breathing left for smaller players like MIB. IT currently does not carry any brand recognition. Therefore big brands pose a significant threat to the existing sales of MIB.

The market leader, Charming Shoppes, is investing heavily on sophisticated MIS to keep detailed profiles of customers and thus refine direct sales. MIB currently does not possess the financial backbone to undertake such a huge task. The best it can do is to hire more effective sales and marketing personnel to increase market reach beyond its base city and state in order to beat the onslaught of the competition.

Lastly, as can be seen from its balance sheet that MIB has more business coming from mail-orders and internet. However, it has been observed over the past year by the top management of MIB that mail-orders are decreasing over the past few quarters. Therefore, it needs to immediately look for alternatives to mail-orders in order to keep running a positive cash flow.

3) From your analysis above, write a considered assessment of what needs to be done to develop and strengthen Making It Big’s competencies and capabilities, to the point where the company has a

competitive advantage.

The SWOT analysis conducted above presents a picture for MIB that if proper steps are not taken immediately, it could risk loosing its business to the competition. The owner-manager, Cynthia, needs to take helm of affairs and be able to come up with a business strategy and a plan to implement it that not only neutralizes all the threats but also drastically contribute to the growth of MIB as an enterprise.

One important part of the overall strategy that MIB needs to develop must include augmenting the strength of already hard-working and committed employees in the form of better marketing & sales professionals. Care must be taken that the hired marketing personnel are able to launch effective campaigns that can drive sales even in hard economic times. Cynthia herself has not been able to fulfill this role properly and there are currently no one in this position within the organisation.

“Small business generally do not have the resources ot plan and purchase external advice and support; they are very susceptible to small environmental changes; owner-managers may not have the necessary experience for managing all aspects of a small business; and owner-managers cannot devote a lot of time to consciously working through plans because of day-to-day work pressures. A consequence of this is that owner-managers tend to have a shorter and more functional emphasis on planning.”

(S. Carter & D. Jones-Evans, 2006)

Therefore this emphasis on marketing can cause positive change for MIB at large.

Another strategic planning that MIB needs to conduct is to look for sales outside the confines of its base city and state of California. Even though MIB is not geared for globalization just yet but it is in a position to dramatically increase its market share as well as its brand recognition by effectively marketing its products in the rest of the states of Americas. MIB has a very strong manufacturing arm and an able manufacturing manager, which can handle increasing the production capacity as well as increase in order processing.

Going beyond the psychological boundaries of its base city and state isn’t easy. MIB may have to forge new partnerships with garments retailers in other parts of America. This can eventually result in reduction of financial pressure due to marketing and also raise its brand recognition among the new set of customers across the country.

It has also been observed that the mail-in orders are decreasing over the last few quarters. This may be because of the increase in the usage of internet based business. MIB needs to invest heavily on generating more business electronically by investing heavily on its e-commerce infrastructure. This will not only prove to be a viable alternative but if executed correctly can give significant boost to the existing sales.

Another aspect that Cynthia as an owner of MIB can improve upon is by hiring experienced managers with relevant educational background. It seems that the new hired managers have matching skills and relevant past experience yet they fail to build a sound strategy that can help Cynthia steer the business towards increasing sales. A couple of vocational training courses may not be adequate to make these managers think “outside the box”. Therefore, MIB needs to invest in hiring seriously strong candidates with relevant qualifications and education. Cynthia needs to take some vocational training as well as management courses to improve her perspective of her business and the market in general.

Another aspect clearly missing from the case study as well as Cynthia’s perspective is that there is no mention of any SWOT analysis done for the MIB’s competitors. Without a competitor’s analysis there can be no strategic planning that can yield significant positive change.

4) How well do you think the tools and techniques for crafting and executing business strategy work for small businesses run by owner-managers with limited resources (including key staff members)?

Overtime strategic planning has been evolved into a concept that is commonly considered as the most effective solution to all the business issues. Some businesses follow strategic planning so religiously and focus so much of their energies on their strategic plan that it seems like their primary product. Even though, appropriately executed strategic plans are wonderful. However, they must be taken as a tool of a corporation to achieve its goals, not to make them a goal unto themselves. Most importantly the strategic plans must not take most of the valuable time of employer or employees.

Several business ventures also carry a misguided belief that strategic planning is reserved only for large businesses that can afford the effort, time and resources to develop a sound plan. However, a small business intends to compete against the industrial “big guns” in the marketplace then it is imperative to guess some of their tactics and game plans – and strategic planning is a primary component of any successful and large venture. It also does not suggests that a small venture needs all the bells and whistles and the complexity of larger corporation’s strategic plans. For a working entrepreneur it is possible to devise a good working draft in a matter of hours that is sound enough for the small business to keep on the course to becoming a solid competitor.

The original idea of strategic planning is to set up a strategy that a small business is going to follow over a short to medium term of time period. It can be for a specific business unit, like strategizing a production planning strategy, or it can for the whole of a business. Usually its the job of board of directors to set an overall strategy for the whole of business and to execute that high-level strategy each area of the company plans their strategy which is compliant with the overall strategy. Various businesses use various periods of time for the planning of their strategies. Basically, this time period depends on rate of change the industry is going through. In a fast-changing environment for example the internet, devising a 5-year plan is worthless. For slowly changing industries the longer the time period of planning the better and desirable outcome is possible. Moreover, for smaller businesses, without the overhead of any board of directors and the owner-manager expected to do every decision, business strategic planning becomes quite informal and short-term. A small business can quickly react to any change perceived externally in the industry or internally within the organization. However, care must be taken in executing the planned strategies by avoiding overdoing strategic planning and waiting for a favourable outcome of the last strategy within a sufficient period of time.

A business can not have any direction without a sound strategy. Strategy determines the direction to take. Running a business without a strategy is like cooking without a recipe. It can be done, but the results may not be what you desire. Without a planning a strategy, the chance of achieving any business goals is considerably diminished.

For a small business, strategic planning may seem like an overhead. However the reality is that any given business must not focus on strategic planning so much that the main purpose of business is seems lost. Strategic planning should be an integral part of a business not the only part. Every step executed must fit with the direction the business is supposed to take, thus every action taken must follow the strategy planned earlier. In other words, every staff member of the firm must know the overall strategy and also recognizes his contribution in making it happen – and in helping to change it, if needed be. A strategy must not be set in stone. There is a need to revisit and revise the strategy at regular time intervals, which must correspond to the rate at which the business industry is changing. For strategic plans execution, businesses must also devise sound processes and train and equip the employees to follow them.

Even though there is no formal format of a strategic plan but there are a large variety of models and tools available for this purpose. The important criterion for selection of a model is that the model should be workable for your particular business.

In its most basic form, the critical components of an effective small business strategy are:

Business Vision

Organizational Goals

Strategies for Achieving Each Goal

Action Plans to Implement each Strategy

Monitoring Plan Execution

Business Vision

The business vision is often also called the mission of the business. It is a brief statement of the reason of the business existence and the aims it wants to achieve. A vision is not supposed to be complicated, but it should define the true essence of the aims and objectives a business wants to achieve.

Organizational Goals

Goals are the ends, not the means, to which an organization’s efforts and energies are aimed and the way of accomplishing the mission. For example a goal can be to provide the best quality detergent in the whole world. This goal requires that all the strategies are committed to choosing quality as an endpoint. For that purpose, brainstorming among the key managers on a wide variety of goals is needed to select a few of the goals that satisfy the business vision. Moreover, brainstorming session may raise some conflicts between goals in the early stages. Numerous goals can be set for achieving each mission. However, it is suggested that enough goals are selected to have a latitude for making choices.

This step is all about making choices. Not everything is doable, yet an owner-manager of a small business needs to look at a broader spectrum in choosing the business goals. Later on, he needs to make a decision about the possible goals that the business is going to pursue. Other set of goals can be pursued later on, but planning is all about decisions taken within a healthy time frame.

The Goals Grid simply asks you to ask two questions of each possible goal:

Do We Have It?

Do We Really Want It?

Yes

No

Yes

Preserve

Eliminate

No

Achieve

Avoid

The goals grid requires that the answer to each question about the goal be put in one of the cells. If the answer is “yes” to both of the questions, then there is a need to preserve the goal. However, ff the answer to the first question is “yes”, but to the second it is “no”, then the goals needs to be eliminated. Moreover, if “no” is answered for the first question and yes is answered to the second, then this is a goal that needs to be achieved. Lastly, if the answer is “no” to both of the questions, then that particular goal needs to be avoided. An important purpose of this goal grid is also to help the business discover the things it is already doing right, whether every the business is following the right direction, whether the business is overlooking anything, and how open the business is for another change.

Another tool, SWOT analysis, is often also pursued at this stage. The SWOT acronym stands for strengths, weaknesses, opportunities and threats. To thoroughly conduct analysis using this tool, it is important to assess each of these factors for not only your own business, but also for the competitors and the industry as a whole. For a small business, it can be a time consuming project and may require a lot of staff and financial resources to be committed for this purpose, the information gained is very useful. Once a baseline SWOT analysis is developed for the internal as well as the external environment, it can be easily reused for future planning efforts.

Strategies for Achieving each Goal

A strategy is another plan or approach that the business takes to reach the desired goals. For example, the quality goal example discussed above, requires pursuing goals like buying the best available components in the market by placing stringent quality control checks throughout the production process or any other set of approaches. Interestingly, defining strategies to achieve the desired goals is the part that changes most frequently within an organization. Upon discovering that one strategy is not working the manager may make a move of looking for other useful ways to get the desired result. The thing to take home in this step is to devise milestone to determine that the strategy is working accordingly and be flexible enough to change it if need be.

Action Plans to Implement each Strategy

Action plans are basically, the specific activities that are used to implement any given strategy. These action plans are given as objectives for the employees. For example, using the same quality goal example again, an objective can be to reduce the reject rate to less than one percent at a certain rating point in the production process. It is suggested that in this step, the objectives are stated as precisely as possible, and in the form of number, so that measuring progress towards its achievement can be done later on. In a bigger organization with multiple departments, it may be helpful that each one of them set their own objectives.

Monitoring Plan Execution

This is the step where nearly all the strategic plans fail. If there is no follow up on the execution of the plan and its progress along the way, it is as if all the time of devising goal, strategies and then elementary objectives is wasted. For a small organization, it is possible for each manager to check up on the progress of the staff member under his/her supervision. There must also be some benchmarks and measurements in the business financial reporting system so that the monetary value of each strategy can be ascertained. This is an important step for the managers not only for them to be able to verify that whether they are following the right direction towards the organizational goals, but it gives them ample opportunity to make changes to the objectives and strategic plans at the right time, if they seem needed.

APPENDIX A

PEST analysis is a scan of the external macro-environment in which an organisation exists. It is a useful tool for understanding the political, economic, socio-cultural and technological environment that an organisation operates in. It can be used for evaluating market growth or decline, and as such the position, potential and direction for a business.

Political factors include government regulations such as employment laws, environmental regulations and tax policy. Other political factors are trade restrictions and political stability.

Economic factors affect the cost of capital and purchasing power of an organisation. Economic factors include economic growth, interest rates, inflation and currency exchange rates.

Social factors impact on the consumer’s need and the potential market size for an organisation’s goods and services. Social factors include population growth, age demographics and attitudes towards health.

Technological factors influence barriers to entry, make or buy decisions and investment in innovation, such as automation, investment incentives and the rate of technological change.

PEST factors can be classified as opportunities or threats in a SWOT analysis. It is often useful to complete a PEST analysis before completing a SWOT analysis. It is also worth noting that the four paradigms of PEST vary in significance depending on the type of business. For example, social factors are more obviously relevant to consumer businesses or a B2B business near the consumer end of the supply chain. Conversely, political factors are more obviously relevant to a defence contractor or aerospace manufacturer.

Porter’s five forces of competitive position analysis was developed in 1979 by Michael E. Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces which determine the competitive intensity and attractiveness of a market. Porter’s five forces helps to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation’s current competitive position, and the strength of a position that an organisation may look to move into.

Strategic analysts often use Porter’s five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by:

• the number of suppliers of each essential input

• the uniqueness of their product or service

• the relative size and strength of the supplier

• the cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by:

• the number of buyers in the market

• the importance of each individual buyer to the organisation

• the cost to the buyer of switching from one supplier to another.

Strategic Analysis Tools Topic Gateway Series

If a business has just a few powerful buyers, they are often able to dictate terms.

3. Competitive rivalry. The key driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.