STRATEGIC BUSINESS MANAGEMENT AND PLANNING

Pearson BTEC Level 5 in Management and

Leadership

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Table of Contents 1. Understand the role of strategic planning in organizations ............................... 2

Business objectives ...................................................................................................................... 2

Decision Making Process ....................................................................................................... 3

Strategic planning ......................................................................................................................... 6

Mechanistic planning ............................................................................................................... 9

Strategy Hierarchy .................................................................................................................. 10

2. Understand the impact of internal and external factors on organizations13

Business environment ............................................................................................................... 13

Environmental Frameworks ............................................................................................... 15

Selecting Relevant Factors ................................................................................................. 15

Strategic Position ..................................................................................................................... 16

PESTEL Analysis ........................................................................................................................ 16

SWOT Analysis ........................................................................................................................... 19

MOST analysis ............................................................................................................................ 22

Governance ...................................................................................................................................... 23

Risk ....................................................................................................................................................... 28

Risk probability ......................................................................................................................... 30

3. Understand the strategies that organizations use to achieve competitive advantage

.................................................................................................................................................................... 32

Competitive advantage ............................................................................................................. 32

Strategies .......................................................................................................................................... 38

Competitive Business Strategies .................................................................................... 39

Downsizing ................................................................................................................................... 40

Market position .......................................................................................................................... 42

4. Understand the environmental factors that affect strategic business management

and planning ....................................................................................................................................... 44

Environmental factors ............................................................................................................... 44

Why Is the Location of a Business Important? ...................................................... 46

Cost of production ................................................................................................................... 47

Stakeholders ................................................................................................................................... 50

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1. Understand the role of strategic planning in organizations

Business objectives

Your business objectives are the results you hope to achieve and maintain as you run and grow

your business. As an entrepreneur, you are concerned with every aspect of your business and

need to have clear goals in mind for your company. Having a comprehensive list of business

objectives creates the guidelines that become the foundation for your business planning.

Customer Service

Good customer service helps you retain clients and generate repeat revenue. Keeping your

customers happy should be a primary objective of your organization.

Employee Retention

Employee turnover costs you money in lost productivity and the costs associated with recruiting,

which include employment advertising and paying placement agencies. Maintaining a productive

and positive employee environment improves retention, according to the Dun and Bradstreet

website.

Core Values

Your company mission statement is a description of the core values of your company, according

to the Dun and Bradstreet website. It is a summary of the beliefs your company holds in regard

to customer interaction, responsibility to the community and employee satisfaction. The

company's core values become the objectives necessary to create a positive corporate culture.

Growth

Growth is planned based on historical data and future projections. Growth requires the careful use

of company resources such as finances and personnel, according to Tim Berry, writing on the

"Entrepreneur" website.

Maintain Financing

Even a company with good cash flow needs financing contacts in the event that capital is needed

to expand the organization, according to Tim Berry, writing on the "Entrepreneur" website.

Maintaining your ability to finance operations means that you can prepare for long-term projects

and address short-term needs such as payroll and accounts payable.

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Change Management

Change management is the process of preparing your organization for growth and creating

processes that effectively deal with a developing marketplace. The objective of change

management is to create a dynamic organization that is prepared to meet the challenges of your

industry.

Marketing

Marketing is more than creating advertising and getting customer input on product changes. It is

understanding consumer buying trends, being able to anticipate product distribution needs and

developing business partnerships that help your organization to improve market share.

Competitive Analysis

A comprehensive analysis of the activities of the competition should be an ongoing business

objective for your organization. Understanding where your products rank in the marketplace helps

you to better determine how to improve your standing among consumers and improve your

revenue.

Decision Making Process

Making decisions in a company or organization happens at all levels. A manager of a business

shouldn’t assume he’s right in every decision he has to make. In that regard, different types of

decision-making should be taken depending on the situation at hand.

Identifying Problems

Before making any decision, the organization has to identify exactly what the problem is. Not

identifying the problem could lead to an erroneous decision. The leader of an organization should

evaluate the issue with all employees so everyone knows about it, and then make a decision that

taps into what's worked before if that decision process is right for solving the issue. This form of

decision-making can be made into a computer program with a set pattern of rules to follow in

amending a problem.

Multiple Perspective Analysis

Sometimes using multiple perspective analysis to make a decision is best so a CEO or manager

can force herself out of her usual method of thinking. Professor Hossein Arsham, in an article titled

“Leadership Decision Making” at the University of Baltimore site, notes this method and its steps.

By wearing six different “hats,” you can make a decision using different thinking approaches. For

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instance, a red hat uses reaction and emotion, or being aware of how other people will react when

the decision is made. A green hat will use freewheeling creativity in making a decision. The article

also notes that a decision can be made using differing points of view from customers or those in

different professions.

Short-Term Decisions

Another decision method is the short-term method, or operational decisions. These decisions

usually solve a problem in the immediate term through the action of employees. The method to

this involves practical steps for a quicker outcome. For example, it could be choosing a particular

delivery service to deliver products to the organization’s customers.

Following Up and Feedback

After an organization has made a decision, the manager or CEO needs to follow up on it to make

sure it was implemented correctly. Communication with every employee involved in implementing

the decision is important in this scenario. Additionally, a leader of an organization should get

feedback from those directly affected by the decision. By doing so, the organization can know

whether the decision was the right one. This helps in gauging how to make future important

business decisions.

Strategic planning

Strategic planning is critical to business success. Different from classic business planning, the

strategic variety involves vision, mission and outside-of-the-box thinking. Strategic planning

describes where you want your company to go, not necessarily how you're going to get there.

However, like all other "travel plans," without knowing where you want to go, creating details on

how to arrive are meaningless. Strategic planning defines the "where" that your company is

heading.

Function

Often confused with business operation plans, strategic plans are expressions of ownership dreams

and visions of successful results. Strategic planning functions as the "design" just as a blueprint

functions as the "how" to build something. The strategic plan displays the finished product or goal.

Usually, in smaller businesses, strategic planning is focused on the overall company, not on a

department or division.

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Improvise

Unlike business plans, there is no one right way to create effective strategic planning. It is, by

definition, brainstorming at its best. Strategic planning involves "feel" just as much as it depends

on management science. Since it depends on creativity and outside-the-box thinking, there is no

perfect way to design a winning strategic plan. The more you understand your company, your

industry, and your corporate "wish list," the better a winning strategic plan you'll create.

Use SWOT Analysis

A SWOT -- strengths, weaknesses, opportunities, and threats -- analysis is a wonderful way to

prepare for developing a strategic plan. Identifying these four critical components of your company

existence is often the primary building block of strategic plans. Many Fortune 500 companies use

SWOT analyzes as the basis of their strategic planning activities. You can use this technique as

the foundation for strategic goals for your smaller business just as effectively.

Strategies Equal Methods

Envisioning goals and then defining strategies you'll embrace to achieve your objectives is the true

essence of strategic planning. Easy to overlook in a smaller business, strategic thinking identifies

the methods you will take to reach your goals. For example, if you believe you must expand your

e-commerce function to achieve increased sales volume, you've also identified the method to use

your strategy and reach company goals. Save the specific steps and components for your business

plan. By selecting the strategy, you have defined the method to employ in your detailed

specifications in your business plan.

Strategy Defines Action

As critical as business planning is to the success of your company, all plans are useless unless

followed by action. An additional side benefit of strategic planning is the natural action plan that

stems from identifying your preferred strategy. While strategic planning involves your vision,

mission and dreams, it also further defines the rudiments of your action plan to achieve the results

you want. For example, if you adopt a strategy of increasing business-to-business -- B2B --

revenue, you've also identified a basic action plan.

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Strategic planning

A strategic plan is a document that establishes the direction of a company or work unit. It can be

a single page or fill up a binder, depending on the size and complexity of the business and work.

Most managers would benefit from having their own strategic plan. The process of developing a

plan helps the manager (and the team) step back and examine where they are, where they want

to go, and how to get there.

In the absence of a plan, work still gets done on a day-to-day basis but often lacks a sense of

purpose and priority.

Here is a template for a basic, simplified strategic plan that any manager can fill out, providing

both long-term purpose and direction and tactical operating plans.

While a manager could certainly complete the template alone, I recommend a more collaborative

approach.

Vision Statement

A vision statement is an aspirational statement of where you want your unit to be in the future.

“Future” is usually defined as the next three to five years, but it could be more. A vision should

set the overall direction for the unit and team and should be bold and inspirational. A vision

describes the “what” and the “why” for everything you do.

Here is an example vision statement from Zappos: “One day, 30 percent of all retail transactions

in the US will be online. People will buy from the company with the best service and the best

selection.

Zappos.com will be that online store. Our hope is that our focus on service will allow us to wow

our customers, our employees, our vendors, and our investors. We want Zappos.com to be known

as a service company that happens to sell shoes, handbags, and anything and everything.”

Mission Statement

While a vision describes where you want to be in the future, a mission statement describes what

you do today.

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It often describes what you do, for who, and how. Focusing on your mission each day should

enable you to reach your vision. A mission statement could broaden your choices, and/or narrow

them.

Here is an example of a mission statement from Harley-Davidson: “We fulfill dreams through the

experience of motorcycling, by providing motorcyclists and the general public with an expanding

line of motorcycles and branded products and services in selected market segments.”

A vision and mission can also be combined in the same statement. Here is an example from Walt

Disney Company: “The mission of The Walt Disney Company is to be one of the world's leading

producers and providers of entertainment and information. Using our portfolio of brands to

differentiate our content, services, and consumer products, we seek to develop the most creative,

innovative, and profitable entertainment experiences and related products in the world.”

Note that the statement is both aspirational (“to be one of the…”) and descriptive of what they do

and how they do it.

Core Values

Core values describe your beliefs and behaviors. They are the things that you believe in that will

enable you to achieve your vision and mission.

Here is an example of core values from the Coca-Cola Company:

Leadership: The courage to shape a better future

Collaboration: Leverage collective genius

Integrity: Be real

Accountability: If it is to be, it's up to me

Passion: Committed in heart and mind

Diversity: As inclusive as our brands

Quality: What we do, we do well

SWOT Analysis

SWOT stands for strengths, weaknesses, opportunities, and threats. A SWOT analysis sums up

where you are now and provides ideas on what you need to focus on.

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Long-Term Goals

Long-term goals are three to five statements that drill down a level below the vision and describe

how you plan to achieve your vision.

Yearly Objectives

Each long-term goal should have a few (three to five) one year objectives that advance your goals.

Each objective should be as “SMART” as possible: Specific, Measurable, Achievable, Realistic, and

Time-based.

Action Plans

Each objective should have a plan that details how the objective will be achieved. The amount of

detail depends on the complexity of the objective.

Note that the strategic plan starts at the highest level (vision) and then gets more specific, short

term, and specific. Both are important.

It’s been said that “A vision without a plan is just a dream. A plan without a vision is just drudgery.

But a vision with a plan can change the world.”

Goals – based planning

Traditionally, many advisors have been focused on a single goal shared by all individuals—retiring

comfortably. But, in some circles, a new approach is taking hold to recognize that investors need

a far more personalized approach. This new breed of advisors is working with clients to take a

more holistic, total wealth approach that prioritizes all of their goals—beyond just retirement—and

helps ensure that they are achieved.

What exactly is goals-based planning?

Goals-based planning is the process of helping clients prioritize their financial goals and determine

the optimal plan to fund them. Goals-based planning expands your focus into all aspects of your

clients financial life and eliminates the retirement-only focus.

What is the advantage of goals-based planning?

A new report from David Blanchett, head of retirement research for Morningstar Investment

Management, finds that goals-based planning can lead to a 15%* increase in utility-adjusted

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wealth when compared to a traditional approach to financial planning. To learn more about the

benefits of goals based planning explore this microsite.

Mechanistic planning

A mechanistic model assumes that a complex system can be understood by examining the

workings of its individual parts and the manner in which they are coupled. Mechanistic models

typically have a tangible, physical aspect, in that system components are real, solid and visible.

However, some mechanistic models, such as those in psychology, are based on components that

are considered discrete, but cannot be physically observed.

Models

A model is a description of a system designed to help an observer to understand how it works and

to predict its behavior. Models are typically conceptual, existing as an idea, a computer program

or a set of mathematical formulas. However, a model can be an actual physical object, such as a

small-scale airplane model used to test the performance of a full-size airplane.

Mechanistic and Empirical Models

Empirical models are based on direct observation, measurement and extensive data records.

Mechanistic models are based on an understanding of the behavior of a system's components. For

example, you can observe the change of the tides over many years, and construct an empirical

model that allows you to predict when tides will occur, with no understanding of how the earth,

moon and sun interact. You can also create a mathematical, mechanistic model that uses the laws

of physics to predict tides.

Industry

Industrial engineers use models to predict the behavior of the processes they are designing. A

chemical engineer, for example, can create a mechanistic model of a process based on her

understanding of system components such as distilling columns, reactor chambers and particle

filters.

Social Scientists

Social scientists also create mechanistic models to describe how individuals function, either on

their own or in complex social settings. Mechanistic models of behavior identify discrete drives

such as hunger or sexual desire that researchers use to describe and try to explain human

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behavior. Mechanistic models can also attempt to explain human behavior in terms of biochemical

events in the brain and body.

Strategy Hierarchy

Hierarchy of strategies describes a layout and relations of global strategy and sub-strategies of

the organization.

Hierarchy of strategies describes a layout and relations of corporate strategy and sub-

strategies of the organization. Individual strategies are arranged hierarchically and logically

consistent at the level of vision, mission, goals and metrics.

Sometimes the designation logical framework of strategic planning and management is used.

Methods used in strategic planning: top-down, bottom-up and bidirectional planning.

Hierarchy of Strategies of an organization may look like this:

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The three levels of strategy for a company are corporate, business and functional. Corporate

strategy focuses on determining which businesses the company should be in. Business strategy

develops competitive advantages within a businesses segment. Functional strategy operates at

the level of marketing, operations and finance to ensure that each part of the company has

strategies to support the business. For single-business companies, corporate strategy consists of

continuously evaluating the benefits of remaining in a single business versus becoming active in

complementary industries.

Corporate Strategy

Single-business companies have the advantage of focus and rapid response but are vulnerable to

problems in their industry. Their corporate strategy must demonstrate the advantages of

remaining active in only one industry while evaluating business opportunities in areas with

complementary activities. With a goal of optimizing company operations, profitability and growth,

the corporate strategy must compare the return of a continuing investment in the single business

with the acquisition or starting up of complementary businesses.

Business Strategy

The business strategy of a single-business company is similar to that of a business unit of a

diversified company except that the business strategy must support corporate strategic initiatives

aimed at the single business. The business strategy sets goals for performance, evaluates the

actions of competitors and specifies actions the company must take to maintain and improve its

competitive advantages. Typical strategies are to become a low-price leader, to achieve

differentiation in quality or other desirable features or to focus on promotion.

Marketing Functional Strategy

In companies that are marketing oriented, the marketing strategy on a functional level influences

the other functions and their strategies. A typical marketing strategy is to determine customer

needs in an area where the company has a natural competitive advantage. Such advantages might

be in location, facilities, reputation or staffing. Once the marketing strategy has identified the kind

of product customers want, it passes the information to operations to design and produce such a

product at the required cost. The advertising department must develop a promotional strategy,

sales must sell the product and customer service must support it. The marketing strategy forms

the basis for the strategies of these other departments.

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Other Functional Strategies

The non-marketing functional strategies must support the marketing strategy that, in turn, is a

component of the overall business strategy. In a single-business company, those strategies are

tightly focused on one industry, but they must also deliver data that allows the corporate strategy

to examine possible diversification. Single-business companies are usually either highly ranked in

their single business or dominant in their niche. The strategies at the functional level try to

maintain such a position but also look for external danger signs. If events outside the company's

control lead to a deterioration of its position, strategic components from a functional level must

signal to the corporate level that an implementation of alternative strategies is required.

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2. Understand the impact of internal and external factors on

organizations

Business environment

Your business doesn't exist in a vacuum. The world around you influences your chance of success.

So does your company's internal environment. A business concept that looks perfect on paper

may prove imperfect in the real world. Sometimes failure is due to the internal environment – the

company's finances, personnel or equipment. Sometimes it's the environment surrounding the

company. Knowing how internal and external environmental factors affect your company can help

your business thrive.

External: The Economy

In a bad economy, even a well-run business may not be able to survive. If customers lose their

jobs or take jobs that can barely support them, they'll spend less on sports, recreation, gifts,

luxury goods and new cars. High interest rates on credit cards can discourage customers from

spending. You can't control the economy, but understanding it can help you spot threats and

opportunities.

Internal: Staff

Unless you're a one-person show, your employees are a major part of your company's internal

environment. Your employees have to be good at their jobs, whether it's writing code or selling

products to strangers. Managers have to be good at handling lower-level employees and

overseeing other parts of the internal environment. Even if everyone's capable and talented,

internal politics and conflicts can wreck a good company.

External: Competition

Unless your company is unique, you'll have to deal with competition. When you start your

company, you fight against established, more experienced businesses in the same industry. After

you establish yourself, you'll eventually have to face newer firms that try to slice away your

customers. Competition can make or break you – look at how many brick-and-mortar bookstores

crashed and burned competing with Amazon.

Internal: Money

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Even in a great economy, lack of money can determine whether your company survives or dies.

When your cash resources are too limited, it affects the number of people you can hire, the quality

of your equipment, and the amount of advertising you can buy. If you're flush with cash, you have

a lot more flexibility to grow and expand your business or endure an economic downturn.

External: Politics

Changes in government policy can have a huge effect on your business. The tobacco industry is a

classic example. Since the 1950s, cigarette companies have been required to place warning labels

on their products, and they lost the right to advertise on television. Smokers have fewer and fewer

places they can smoke legally. The percentage of Americans who smoke has dropped by more

than half, with a corresponding effect on industry revenues.

Internal: Company Culture

Your internal culture consists of the values, attitudes and priorities that your employees live by. A

cutthroat culture where every employee competes with one another creates a different

environment from a company that emphasizes collaboration and teamwork. Typically, company

culture flows from the top down. Your staff will infer your values based on the type of people you

hire, fire and promote. Let them see the values you want your culture to embody.

External: Customers and Suppliers

Next to your employees, your customers and suppliers may be the most important people you

deal with. Suppliers have a huge impact on your costs. The clout of any given supplier depends

on scarcity: If you can't buy anywhere else, your negotiating room is limited. The power of your

customers depends on how fierce the competition for their dollars is, how good your products are,

and whether your advertising makes customers want to buy from you, among other things.

Environmental Business Analysis

Environmental business analysis is a catchall term given to the systematic process by which

environmental factors in a business are identified, their impact is assessed and a strategy is

developed to mitigate and/or take advantage of them. While frameworks do exist to aid in

environmental analysis, it is important to understand that they are simply frameworks to orient

the user toward a more precise understanding of the business environment; they are by no means

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necessary. Rather, it is important to understand the business environment, the universal processes

used in analysis and how analysis is converted into strategy.

Analysis Process

Any business manager should be able to analyze the environment in which the company does

business. The general process used to analyze the business environment has four basic steps.

First, the environment is scanned for environmental factors. Next, the relevant factors are culled

and monitored. Then, those factors are analyzed for impact. Lastly, scenarios are forecast based

upon the environmental factors identified and strategies developed accordingly. Further, as

strategies are implemented, the business environment is monitored so that any unforeseen

changes can be accounted for.

Identifying Environmental Factors

Identifying environmental factors is most commonly done by brainstorming. All environmental

factors are not always obvious to everyone and the more people included, especially in this initial

brainstorming, the more accurate the environmental profile developed will be. Common

environmental factors include new tax laws, tariff limits, export laws, consumer trends, developing

technology, new replacement products (i.e., the iPod to the CD player), laws concerning emissions,

or a new competitor.

Environmental Frameworks

Several popular frameworks exist to aid in identifying environmental factors. They are

frequently used together. The first is PEST or PESTEL analysis, which looks at the political,

economic, social and technological factors affecting a business; sometimes environmental

and legal are included. Secondly, SWOT analysis is used. This is a framework that looks

at the strengths, weaknesses, opportunities and threats affecting a business, both

internally and externally. Lastly, the Five Forces are considered: internal forces, external

forces, competitors, new entrants and producers of complementary products/services.

Selecting Relevant Factors

Only the most relevant environmental factors identified should be given further analysis.

All factors are not equally relevant; for example, certain tax laws will affect the business

but really require little additional analysis compared to the threat posed by a competitor.

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Further, it is important to try to quantify the effect of the environmental factors identified.

Quantification will allow the true impact to be assessed and compared historically and in

the future.

Strategic Position

After carefully identifying and quantifying those environmental factors most relevant to

the future success of a company, assumptions are made regarding the future development

of those factors and a strategy formed. Methods to accomplish this will vary, but all good

plans will have the common feature of a monitoring/feedback mechanism and a system

to update the strategy accordingly, such as a monthly review.

PESTEL Analysis

A PESTEL analysis is a framework or tool used by marketers to analyze and monitor the macro-

environmental (external marketing environment) factors that have an impact on an organisation.

The result of which is used to identify threats and weaknesses which is used in a SWOT analysis.

PESTEL stands for:

P – Political

E – Economic

S – Social

T – Technological

E – Environmental

L – Legal

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Lets look at each of these macro-environmental factors in turn.

All the external environmental factors (PESTEL factors)

Political Factors

These are all about how and to what degree a government intervenes in the economy. This can

include – government policy, political stability or instability in overseas markets, foreign trade

policy, tax policy, labour law, environmental law, trade restrictions and so on.

It is clear from the list above that political factors often have an impact on organisations and how

they do business. Organisations need to be able to respond to the current and anticipated future

legislation, and adjust their marketing policy accordingly.

Economic Factors

Economic factors have a significant impact on how an organisation does business and also how

profitable they are. Factors include – economic growth, interest rates, exchange rates, inflation,

disposable income of consumers and businesses and so on.

These factors can be further broken down into macro-economical and micro-economical factors.

Macro-economical factors deal with the management of demand in any given economy.

Governments use interest rate control, taxation policy and government expenditure as their main

mechanisms they use for this.

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Micro-economic factors are all about the way people spend their incomes. This has a large impact

on B2C organisations in particular.

Social Factors

Also known as socio-cultural factors, are the areas that involve the shared belief and attitudes of

the population. These factors include – population growth, age distribution, health consciousness,

career attitudes and so on. These factors are of particular interest as they have a direct effect on

how marketers understand customers and what drives them.

Technological Factors

We all know how fast the technological landscape changes and how this impacts the way we

market our products. Technological factors affect marketing and the management thereof in three

distinct ways:

New ways of producing goods and services

New ways of distributing goods and services

New ways of communicating with target markets

Environmental Factors

These factors have only really come to the forefront in the last fifteen years or so. They have

become important due to the increasing scarcity of raw materials, polution targets, doing business

as an ethical and sustainable company, carbon footprint targets set by governments (this is a

good example were one factor could be classes as political and environmental at the same time).

These are just some of the issues marketers are facing within this factor. More and more

consumers are demanding that the products they buy are sourced ethically, and if possible from

a sustainable source.

Legal Factors

Legal factors include - health and safety, equal opportunities, advertising standards, consumer

rights and laws, product labelling and product safety. It is clear that companies need to know what

is and what is not legal in order to trade successfully. If an organisation trades globally this

becomes a very tricky area to get right as each country has its own set of rules and regulations.

After you have completed a PESTEL analysis you should be able to use this to help you identify

the strengths and weaknesses for a SWOT analysis.

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SWOT Analysis

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for

identifying both the Opportunities open to you and the Threats you face.

Used in a business context, it helps you carve a sustainable niche in your market. Used in

a personal context, it helps you develop your career in a way that takes best advantage of your

talents, abilities and opportunities.

Business SWOT Analysis

What makes SWOT particularly powerful is that, with a little thought, it can help you uncover

opportunities that you are well-placed to exploit. And by understanding the weaknesses of your

business, you can manage and eliminate threats that would otherwise catch you unawares.

More than this, by looking at yourself and your competitors using the SWOT framework, you can

start to craft a strategy that helps you distinguish yourself from your competitors, so that you can

compete successfully in your market.

How to Use the Tool

Originated by Albert S. Humphrey in the 1960s, the tool is as useful now as it was then. You can

use it in two ways – as a simple icebreaker helping people get together to "kick off" strategy

formulation, or in a more sophisticated way as a serious strategy tool.

Strengths

What advantages does your organization have?

What do you do better than anyone else?

What unique or lowest-cost resources can you draw upon that others can't?

What do people in your market see as your strengths?

What factors mean that you "get the sale"?

What is your organization's Unique Selling Proposition (USP)?

Consider your strengths from both an internal perspective, and from the point of view of your

customers and people in your market.

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Also, if you're having any difficulty identifying strengths, try writing down a list of your

organization's characteristics. Some of these will hopefully be strengths!

When looking at your strengths, think about them in relation to your competitors. For example, if

all of your competitors provide high quality products, then a high quality production process is not

a strength in your organization's market, it's a necessity.

Weaknesses

What could you improve?

What should you avoid?

What are people in your market likely to see as weaknesses?

What factors lose you sales?

Again, consider this from an internal and external perspective: Do other people seem to perceive

weaknesses that you don't see? Are your competitors doing any better than you?

It's best to be realistic now, and face any unpleasant truths as soon as possible.

Opportunities

What good opportunities can you spot?

What interesting trends are you aware of?

Useful opportunities can come from such things as:

Changes in technology and markets on both a broad and narrow scale.

Changes in government policy related to your field.

Changes in social patterns, population profiles, lifestyle changes, and so on.

Local events.

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Threats

What obstacles do you face?

What are your competitors doing?

Are quality standards or specifications for your job, products or services changing?

Is changing technology threatening your position?

Do you have bad debt or cash-flow problems?

Could any of your weaknesses seriously threaten your business?

Further SWOT Tips

If you're using SWOT as a serious tool (rather than as a casual "warm up" for strategy

formulation), make sure you're rigorous in the way you apply it:

Only accept precise, verifiable statements ("Cost advantage of $10/ton in sourcing raw

material x", rather than "Good value for money").

Ruthlessly prune long lists of factors, and prioritize them, so that you spend your time

thinking about the most significant factors.

Make sure that options generated are carried through to later stages in the strategy

formation process.

Apply it at the right level – for example, you might need to apply the tool at a product or

product-line level, rather than at the much vaguer whole company level.

Use it in conjunction with other strategy tools (for example, USP Analysis and Core

Competence Analysis) so that you get a comprehensive picture of the situation you're

dealing with.

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MOST analysis

M.O.S.T. analysis is a highly-structured method for providing targets to team members at every

level of an organisation. Working from the top down, it ensures that you retain focus on the goals

which matter most to your organisation.

As a system, it breaks down the communication barriers between different levels on the same

team by asking at every stage “How does this help us reach our next level of targets?” In this

way, every tactic employed has to be justified in terms of reaching strategies, which in turn must

contribute to objectives, which must, finally, contribute to your mission.

For example, the tactic of decreasing the number of stock checks a sales assistant has to carry

out contributes to the strategy of increasing the number of sales assistants on the shop floor at

any one time. This strategy helps the company to reach its objective of helping customers in the

shop as soon as a problem arises, which contributes to the mission, selling more products.

The analysis can be applied to many areas of a business, from its most obvious applications in

sales, marketing and business growth to internal processes and human resources.

Mission

Every organisation is different, and we can make no assumptions about what its mission might be

without asking the right questions. Profitability, for instance, is explicitly not the mission of a non-

profit organisation.

Even with for-profit organisations, you cannot assume that profit as an end goal. Under Jeff Bezos,

Amazon has focused on razor-thin margins with as little profit as possible in exchange for huge

amounts of market share.

A good mission is ambitious and essential to broader business success. It could even be the entire

reason for the organisation’s existence. Once it has been established, the rest of the M.O.S.T.

analysis can begin.

Missions should be reviewed when they have succeeded or found to be flawed.

Objectives

Each objective should be a contributing condition for the mission’s success. This means that an

objective achieved will make the mission target easier to reach, but they might not be essential

to reach your mission.

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Objectives should be Specific, Measurable, Achievable, Realistic and Timely (S.M.A.R.T.),

otherwise goal-creep will set in and objectives will become fuzzy and difficult to implement.

A good objective sets a clear target to achieve within a tight time-frame. Ideally, it will complement

your other objectives to compound successes across the M.O.S.T. analysis.

Objectives should be reviewed if they are found not to help the mission.

Strategies

Strategies are the options open to achieve objectives. These may be quite complex, involving

many tactics, and they may overlap to an extent. Strategies are an implementation detail.

Strategies offer a way to quickly review and group the tactics implemented on the ground floor,

so they make sense as methods to achieve your objectives.

If strategies do not accurately describe the tactics being used, or do not work directly towards

your objectives, you should review them.

Tactics

Tactics are the methods you will use to carry out your strategies. They should be simple and

relatively discrete processes that can easily be understood and carried out even by people who

don’t have a high-level overview of the M.O.S.T. analysis.

A good tactic is small and S.M.A.R.T. With effective tactics, your strategies will quickly lead to

completed objectives.

If your tactics are inefficient and complex in practice, or there are unexpected obstacles to

implementing them successfully, they should be reviewed.

Governance

Corporate governance is the system of rules, practices and processes by which a company is

directed and controlled. Corporate governance essentially involves balancing the interests of a

company's many stakeholders, such as shareholders, management, customers, suppliers,

financiers, government and the community. Since corporate governance also provides the

framework for attaining a company's objectives, it encompasses practically every sphere of

management, from action plans and internal controls to performance measurement and

corporate disclosure.

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!--break--Governance refers specifically to the set of rules, controls, policies and resolutions put

in place to dictate corporate behavior. Proxy advisors and shareholders are important stakeholders

who indirectly affect governance, but these are not examples of governance itself. The board of

directors is pivotal in governance, and it can have major ramifications for equity valuation.

The Board of Directors

The board of directors is the primary direct stakeholder influencing corporate governance.

Directors are elected by shareholders or appointed by other board members, and they represent

shareholders of the company. The board is tasked with making important decisions, such as

corporate officer appointments, executive compensation and dividend policy. In some instances,

board obligations stretch beyond financial optimization, when shareholder resolutions call for

certain social or environmental concerns to be prioritized.

Boards are often comprised of inside and independent members. Insiders are major shareholders,

founders and executives. Independent directors do not share the ties of the insiders, but they are

chosen because of their experience managing or directing other large companies. Independents

are considered helpful for governance, because they dilute the concentration of power and help

align shareholder interest with those of the insiders.

Good and Bad Governance

Bad corporate governance can cast doubt on a company's reliability, integrity or obligation to

shareholders. Tolerance or support of illegal activities can create scandals like the one that rocked

Volkswagen AG in 2015. Companies that do not cooperate sufficiently with auditors or do not

select auditors with the appropriate scale can publish spurious or noncompliant financial results.

Bad executive compensation packages fail to create optimal incentive for corporate officers. Poorly

structured boards make it too difficult for shareholders to oust ineffective incumbents. Corporate

governance became a pressing issue following the 2002 introduction of the Sarbanes-Oxley Act in

the United States, which was ushered in to restore public confidence in companies and markets

after accounting fraud bankrupted high-profile companies such as Enron and WorldCom.

Good corporate governance creates a transparent set of rules and controls in which shareholders,

directors and officers have aligned incentives. Most companies strive to have a high level of

corporate governance. For many shareholders, it is not enough for a company to merely be

profitable; it also needs to demonstrate good corporate citizenship through environmental

awareness, ethical behavior and sound corporate governance practices.

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Business leadership

The four fundamental factors of production are land, labor, capital and entrepreneurship. The final

factor belies the vital importance of leadership in business settings. Leadership acts as the catalyst

that makes all other elements work together; without leadership, all other business resources lie

dormant. Savvy business leaders are in tune with the needs and issues of their subordinates, and

keep up to date on new developments in leadership theory and methodology to maximize their

effectiveness.

Significance

A leaderless organization is like an army without generals. Work forces need the leadership of

skilled and experienced individuals to provide guidance and a single direction for all employees to

follow. Leaders are invaluable when it comes to formulating and communicating new strategic

directions, as well as communicating with and motivating employees to increase dedication to

organizational goals.

Functions

Business leaders serve a range of important functions in their organizations. Leaders are

responsible for training employees to perform their tasks effectively, as well as supervising the

actual completion of those tasks on a regular basis. Leaders must inspire employees to get excited

about the company and their work, pushing them to excel and helping them along the way.

Leaders are also tasked with protecting the employees under their supervision from internal and

external threats, including everything from political backstabbing to physical security.

Types

Different leaders employ different leadership styles. Leaders with a command and control style

formulate ideas on their own and dictate actions to their employees. Collaborative leaders come

up with ideas with the assistance of employees from all levels of the organization, leveraging

employees' creativity to boost company performance. Facilitative leaders delegate almost all

productive tasks to subordinates, and focus on providing their employees with everything they

need to excel in their jobs. Business owners' leadership styles are extremely important in crafting

company culture.

Delegation

Delegation, the act of assigning productive tasks to subordinates, is vital to success as a business

leader. More important than delegating individual tasks, however, is the ability to delegate

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authority and develop leaders for the future. Assigning tasks is a basic management activity;

assigning responsibility for figuring out how to accomplish objectives takes management to the

next level. It is important to develop leaders to partner with you in the future as your business

grows; this can greatly increase employee satisfaction and loyalty as well.

Considerations

Leaders and leadership styles may need to be changed to suit specific situations. A new CEO in an

established company, for example, may benefit from altering his leadership style to be more in

line with the culture of his new company. Top executives themselves may need to be switched out

from time to time if a company's performance establishes a pattern of decline.

Long term planning

Long-term business planning is done in recognition of the fact that reaching some of the company’s

goals can require an effort undertaken over a number of years, with many steps that must be

completed along the way. In contrast, the company’s annual plan is focused on how to allocate

the company’s financial and human resources only for the next year. The annual plan has much

more detailed financial projections than the long-term plan, which is more of a statement of

general strategic direction.

1. Define what long-term means for your organization. Industrial technology companies may need

to do a long-term plan that spans five to seven years because of the complex development steps

involved in bringing new technologies to a marketable stage. For a clothing designer, a three-year

look into the future may be as long as is feasible because fashion trends change so quickly. Choose

a time frame that represents the time required to take your company to the next level of success.

2. Develop a system for uncovering new opportunities. Take a systematic approach to gathering

data about trends in your industry or trends in other industries you may want to enter over the

long term. Make it an ongoing process.

3. Develop a long-term vision. Imagine it is five years in the future and you are visiting your

company. Describe how large it has become in terms of generating revenues, how many people

now work at the company, how the scope of its product line has changed and how it has expanded

geographically.

4. Create long-term objectives. Convert your vision into numbers, such as what revenues are

projected to be five years from now.

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A hotel company would have a long-term objective for the number of properties it will own or

manage five years down the road. The objectives don’t need to be as numerous as those in the

annual plan. Think of them as strategic pillars for your company’s long-term future.

5. Select the long-term opportunities to concentrate on based on your data gathering and your

long-term vision. Decide on the new markets you want to explore, and the new products or

services you want to develop. These opportunities are your long-term projects. Assign

responsibility for moving each project forward to members of your management team.

6. Create action plans for each of the projects. Determine, in a broad sense, what needs to be

accomplished each year on each of the projects over the time horizon of the long-term plan.

Short, mid and long term planning

The different time frames of the short, medium and long-term planning processes place the focus

on time-sensitive aspects of the company's structure and environment. You can differentiate

planning based on the time frames of the inputs and expected outcomes. Business owners develop

plans to reach their overall goals, and they usually find it useful to separate planning into phases.

This allows you to track immediate improvements while evaluating progress toward eventual goals

and targets. The different time frames of the planning process place the focus on time-sensitive

aspects of the company's structure and environment. You can differentiate planning based on the

time frames of the inputs and expected outcomes.

Planning Characteristics

Many businesses develop strategic planning within a short-term, medium-term and long-term

framework. Short-term usually involves processes that show results within a year. Companies aim

medium-term plans at results that take several years to achieve. Long-term plans include the

overall goals of the company set four or five years in the future and usually are based on reaching

the medium-term targets. Planning in this way helps you complete short-term tasks while keeping

longer-term goals in mind.

Short-Term Planning

Short-term planning looks at the characteristics of the company in the present and develops

strategies for improving them. Examples are the skills of the employees and their attitudes. The

condition of production equipment or product quality problems are also short-term concerns. To

address these issues, you put in place short-term solutions to address problems. Employee training

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courses, equipment servicing and quality fixes are short-term solutions. These solutions set the

stage for addressing problems more comprehensively in the longer term.

Medium-Term Planning

Medium-term planning applies more permanent solutions to short-term problems. If training

courses for employees solved problems in the short term, companies schedule training programs

for the medium term. If there are quality issues, the medium-term response is to revise and

strengthen the company's quality control program. Where a short-term response to equipment

failure is to repair the machine, a medium-term solution is to arrange for a service contract.

Medium-term planning implements policies and procedures to ensure that short-term problems

don't recur.

Long-Term Planning

In the long term, companies want to solve problems permanently and to reach their overall

targets. Long-term planning reacts to the competitive situation of the company in its social,

economic and political environment and develops strategies for adapting and influencing its

position to achieve long-term goals. It examines major capital expenditures such as purchasing

equipment and facilities, and implements policies and procedures that shape the company's profile

to match top management's ideas. When short-term and medium-term planning is successful,

long-term planning builds on those achievements to preserve accomplishments and ensure

continued progress.

Risk

Risk means that there is a chance that you won’t receive a return on your investment. It is an

exposure to danger to your bottom line. When you are in business, you need to consider the kinds

of events that could pose a risk to your business and take steps to mitigate them.

Strategic Risk

Strategic risks result directly from operating within a specific industry at a specific time. So shifts

in consumer preferences or emerging technologies that make your product-line obsolete – eight-

track, anyone? – or other drastic market forces can put your company in danger. To counteract

strategic risks, you’ll need to put measures in place to constantly solicit feedback so changes will

be detected early.

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Compliance Risk

Risks associated with compliance are those subject to legislative or bureaucratic rule and

regulations, or those associated with best practices for investment purposes. These can include

employee protection regulations like those imposed by the Occupational Safety and Health

Administration (OSHA), or environmental concerns like those covered by the Environmental

Protection Agency (EPA) or even state and local agencies.

Financial Risk

Direct financial risks have to do with how your business handles money. That is, which customers

do you extend credit to and for how long? What is your debt load? Does most of your income come

from one or two clients who might not be able to pay? Financial risks also take into account interest

rates and if you do international business, foreign exchange rates.

Operational Risks

Operational risks result from internal failures. That is, your business’s internal processes, people

or systems fail unexpectedly. Therefore, unlike a strategic risk or a financial risk, there is no return

on operational risks.

Operational risks can also result from unforeseen external events such as transportation systems

breaking down, or a supplier failing to deliver goods.

Reputational Risk

Loss of a company’s reputation or community standing might result from product failures, lawsuits

or negative publicity. Reputations take time to build but can be lost in a day. In this era of social

networking, a negative Twitter posting by a customer can reduce earnings overnight. A negative

blog post or a bad product review can occasionally spread like wildfire online, quickly thrusting a

company into damage-control mode.

Other Risks

Other risks are more difficult to categorize. They include risks from the environment, such as

natural disasters. Difficulties in maintaining a trained staff that has up-to-date skills to operate

your business is sometimes called employee risk management. Health and safety risks not covered

by OSHA or state agencies fall into this category as do political and economic instability in countries

you import from or export to.

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Risk probability

Probabilistic risk assessment (PRA) is a systematic and comprehensive methodology to

evaluate risks associated with a complex engineered technological entity (such as an airliner or

a nuclear power plant) or the effects of stressors on the environment (Probabilistic Environmental

Risk Assessment - PERA) for example.

Risk in a PRA is defined as a feasible detrimental outcome of an activity or action. In a PRA, risk

is characterized by two quantities:

1. the magnitude (severity) of the possible adverse consequence(s), and

2. The likelihood (probability) of occurrence of each consequence.

Consequences are expressed numerically (e.g., the number of people potentially hurt or killed)

and their likelihoods of occurrence are expressed as probabilities or frequencies (i.e., the number

of occurrences or the probability of occurrence per unit time). The total risk is the expected loss:

the sum of the products of the consequences multiplied by their probabilities.

The spectrum of risks across classes of events are also of concern, and are usually controlled in

licensing processes – it would be of concern if rare but high consequence events were found to

dominate the overall risk, particularly as these risk assessments are very sensitive to assumptions

(how rare is a high consequence event?).

Probabilistic Risk Assessment usually answers three basic questions:

1. What can go wrong with the studied technological entity or stressor, or what are the

initiators or initiating events (undesirable starting events) that lead to adverse

consequence(s)?

2. What and how severe are the potential detriments, or the adverse consequences that the

technological entity (or the ecological system in the case of a PERA) may be eventually

subjected to as a result of the occurrence of the initiator?

3. How likely to occur are these undesirable consequences, or what are their probabilities or

frequencies?

Two common methods of answering this last question are event tree analysis and fault tree

analysis – for explanations of these, see safety engineering.

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In addition to the above methods, PRA studies require special but often very important analysis

tools like human reliability analysis (HRA) and common-cause-failure analysis (CCF). HRA deals

with methods for modeling human error while CCF deals with methods for evaluating the effect of

inter-system and intra-system dependencies which tend to cause simultaneous failures and thus

significant increase in overall risk.

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3. Understand the strategies that organizations use to

achieve competitive advantage

Competitive advantage

Businesses are always looking for a competitive advantage, a way to stand apart from the masses

and to offer something that's just right for a specific target audience. Therein lies the secret.

Competitive advantage requires identifying a specific target audience with a clearly defined need,

developing and delivering a high-quality and appropriately priced product or service and doing it

better than anybody else.

Target Audience With Clearly Defined Need

Effective business strategy begins with focusing on the particular needs of a target audience.

Cooks who wanted a faster way to cook food welcomed the microwave. Busy people on the move

wanting a fast, affordable way to communicate with others embraced the cell phone. Businesses

that are able to identify an audience and meet their needs better than their competitors will find

themselves with a clear competitive advantage.

Delivering a High-Quality Service

Competitive advantage means just that: being better than the other available alternatives that

your target audience has and, in the process, achieving an advantage. It's not enough to be "just

as good as" the competition. Successful strategic advantage falls to those who can deliver a

product or service that is better in some way and that is more meaningful to the target audience,

says Lin Grensing-Pophal, a marketing consultant and the author of "Marketing With the End in

Mind." High-quality is defined differently by different people, she says, and encompasses all

elements of the marketing mix—product, price, place (or access) and promotion.

An Appropriate Price

Determining an appropriate price depends on the market and the competitive strategy that the

business has selected. Is a Starbucks coffee worth $4 to $5? It is if Starbucks customers are willing

to pay that much.

Starbucks caters to a different audience than McDonald's, for instance, which sells coffee for much

less. Appropriate price will be determined by the competitive position that a company hopes to

achieve relative to its competitors and the weight of its brand image.

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Being the Best

Being the best—at whatever it is—is the key to achieving competitive advantage for a business.

Whether that means the best price, the easiest access, the best quality or the best service,

successful companies find a way to differentiate themselves from the masses.

Strategic moves to build a competitive advantage

Companies can make a number of different strategic moves to build competitive advantage. The

aim is to create a clear difference that is important to your customers, and is something your

competitors cannot match. You can create competitive advantage by developing a strategy of

leadership in factors such as cost, quality, innovation and customer experience. However,

according to PRTM Management Consulting, you should identify the one thing that you do

extraordinarily well and focus your strategy on that.

Knowledge

Your information systems strategy can build a strong competitive advantage by enabling you to

capture and share the knowledge of experts in the company. Using knowledge-capture software

or a secure forum on your website, you can ask experts to contribute best practice, advice or

information on important business processes. Sharing that knowledge can help you reduce costs

or improve performance and efficiency in areas that provide competitive advantage, such as

product development, engineering, manufacturing and customer service.

Cost

Costs provide you with an important competitive advantage. By becoming a low-cost producer,

you can offer customers prices that your competitors may not be able to match. If you can offer

low prices while maintaining quality, you can strengthen competitive advantage further. You can

make a number of strategic moves to reduce costs, including investing in efficient production

equipment, outsourcing manufacturing to a low-cost producer, or collaborating with suppliers to

improve supply-chain efficiency.

Innovation

A strategy of innovation gives you a competitive advantage by developing products that

differentiate your company and meet customer needs more effectively than competitors. Focus

your product development program on features that offer customers exceptional value or unique

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benefits. Those innovative features will provide a strong advantage because competitors will find

it difficult to imitate them or provide substitutes that offer the same value.

Partnership

A partnership strategy can improve many aspects of competitive advantage. Working with partners

can give you access to strategically important skills, components or other resources that enable

you to innovate in your operations and products. Integrating your operations with partners in the

supply chain can also improve competitive advantage by giving you exclusive access to key

supplies and creating barriers to entry for competitors.

Customer Experience

Knowledge of customers and exceptional service are the only sustainable form of competitive

advantage, according to Forrester Research. To achieve that, you need to invest in four key areas:

customer research; quality of customer experience and customer service; sales channels that

provide high levels of customer information; and marketing material that uses customer

information to create high levels of personalization.

Integration of business functions

Can you picture everyone in your business being happy and stress free, with your operations and

business functions working together seamlessly? Integrating your business systems, processes,

and functions can make this your reality.

1. Improved Customer Service

The quicker and more efficiently you address your customers’ needs, the more likely they are to

come back and rave about your excellent customer service. With an integrated business, you can

easily address enquiries by having all the information you need on hand right when you need it.

2. Increase Sales

A properly integrated system can make it easier for customers to purchase your products or

services. Whether it’s an in-store kiosk, online store or online booking calendar, anything that

makes your current sales system operate more smoothly can have a huge impact on your overall

sales.

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3. Provide a Better Work Environment

Many people think that increasing the technology used in a business integration project means

you need fewer workers. In my experience, it actually means that there is more time that can be

spent on non-tech activities like face-to-face customer interaction. This makes it easier for staff

to do their work and clears up time for more meaningful work.

4. Have More Time

Integrating enables you to run your operations more efficiently, saving time. What used to take

two days to do could now be done in one or less! What do you do with all that extra time? Maybe

you can take a vacation!

5. Make More Money

The trick with integrated systems is that everything needs to work together. That includes the

financial system having an efficient accounting system that ties into your existing processes will

help you track your pennies properly so you’ll know where to spend them later.

The best time to work on Business Integration is as you are building your business, but that doesn’t

mean it’s too late. If you’re business is already established, you can to find a way to integrate as

much as you can with the resources you have. Sometimes, just changing the order in which you

do things can help you better integrate your systems.

Pricing strategies

Every business must have a well-studied pricing strategy that allows it to sell its products and

make a profit. Pricing methods cannot be taken lightly and must be adapted to the position in the

market, the mindset of the consumer and the degree of competition. Companies must use effective

pricing strategies to sell their products in a competitive marketplace so they can make a profit.

Business managers need to consider a range of factors, such as prices offered by competitors,

costs for production and distribution, product image positioning in the minds of consumers, and

determining the demographics of potential buyers.

Premium Pricing

Businesses use a premium pricing strategy when they're introducing a new product that has

distinct competitive advantages over similar products. A premium-priced product is priced higher

than its competitors.

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Premium pricing is most effective in the beginning of a product's life cycle. Small businesses that

sell goods with unique properties are better able to use premium pricing. To make premium pricing

palatable to consumers, companies try to create an image in which consumers perceive that the

products have value and are worth the higher prices. Besides creating the perception of a higher

quality product, the company needs to synchronize its marketing efforts, its product packaging

and even the decor of the store must support the image that the product is worth its premium

price.

Penetration Pricing

Marketers use penetration pricing to gain market share by offering their goods and services at

prices lower than those of the competitors. Marketers want to get their products out in the market

so that the products raise consumer awareness and induce buyers to try the products.

Although this lower price strategy may result in losses for the company -- at first -- but marketers

expect that after achieving a stronger market penetration that they will raise prices to a more

profitable level.

Economy Pricing

An economy pricing strategy sets prices at the bare minimum to make a small profit. Companies

minimize their marketing and promotional costs. The key to a profitable economy pricing program

is to sell a high volume of products and services at low prices. Large companies, such as Walmart,

are able to take advantage of this low-price strategy, but small businesses will have difficulty

selling enough products at low prices to stay in business.

Price Skimming

Price Skimming is a strategy of setting prices high by introducing new products when the market

has few competitors. This method enables businesses to maximize profits before competitors enter

the market, when prices then drop.

Psychological Pricing

Marketers use psychological pricing that encourages consumer to buy products based on emotions

rather than on common-sense logic. The best example is when a company prices its product at

$199 instead of $200. Even though the difference is small, consumers perceive $199 as being

substantially cheaper. This is known as the "left-digit effect."

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Bundle Pricing

Businesses use bundle pricing to sell multiple products together for a lower price than if they were

purchased separately. This is an effective strategy to move unsold items that are simply taking up

space. Bundling also creates the perception in the mind of the consumer that he's getting a very

attractive value for his money.

Bundle pricing works well for companies that have a line of complimentary products. For example,

a restaurant could offer a free dessert with an entree on a certain day of the week. Older video

games that are reaching the end of their lives are often sold with a Blu-ray to sweeten the deal.

Companies need to study and develop pricing strategies that are appropriate for their goods and

services. Certain pricing methods work for introducing new products whereas other strategies are

implemented for mature products that have more competitors in the market.

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Strategies

Specific strategies, such as identifying product strengths, adjusting pricing, or acquiring another

business, have historically been used to get a small enterprise off the ground. Understanding these

strategies, and skillfully implementing them, can help entrepreneurs achieve success. New

companies often face unique challenges. Specific strategies, such as identifying product strengths,

adjusting pricing, or acquiring another business, have historically been used to get a small

enterprise off the ground. Understanding these strategies, and skillfully implementing them, can

help entrepreneurs achieve success.

Growth Strategy

A growth strategy entails introducing new products or adding new features to existing products.

Sometimes, a small company may be forced to modify or increase its product line to keep up with

competitors. Otherwise, customers may start using the new technology of a competitive company.

For example, cell phone companies are constantly adding new features or discovering new

technology. Cell phone companies that do not keep up with consumer demand will not stay in

business very long.

A small company may also adopt a growth strategy by finding a new market for its products.

Sometimes, companies find new markets for their products by accident. For example, a small

consumer soap manufacturer may discover through marketing research that industrial workers

like its products. Hence, in addition to selling soap in retail stores, the company could package the

soap in larger containers for factory and plant workers.

Product Differentiation Strategy

Small companies will often use a product differentiation strategy when they have a competitive

advantage, such as superior quality or service. For example, a small manufacturer or air purifiers

may set themselves apart from competitors with their superior engineering design. Obviously,

companies use a product differentiation strategy to set themselves apart from key competitors.

However, a product differentiation strategy can also help a company build brand loyalty.

Price-Skimming Strategy

A price-skimming strategy involves charging high prices for a product, particularly during the

introductory phase. A small company will use a price-skimming strategy to quickly recover its

production and advertising costs. However, there must be something special about the product

for consumers to pay the exorbitant price. An example would be the introduction of a new

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technology. A small company may be the first to introduce a new type of solar panel. Because the

company is the only one selling the product, customers that really want the solar panels may pay

the higher price. One disadvantage of a price-skimming is that it tends to attract competition

relatively quickly. Enterprising individuals may see the profits the company is reaping and produce

their own products, provided they have the technological know-how.

Acquisition Strategy

A small company with extra capital may use an acquisition strategy to gain a competitive

advantage. An acquisition strategy entails purchasing another company, or one or more of its

product lines. For example, a small grocery retailer on the east coast may purchase a comparable

grocery chain in the Midwest to expand its operations.

Competitive Business Strategies

A competitive advantage allows a company to produce or sell goods more effectively than another

business. Business owners commonly develop business strategies in order to maintain a

competitive advantage. Several types of strategies are available in the business environment.

Business owners can use standard strategies or develop their own strategy. Flexibility is an

important feature of competitive business strategies.

Cost Leadership

Cost leadership is a business strategy that allows a company to become the lowest cost production

company in an industry. Traditionally, businesses have two options for improving profits:

increasing sales or decreasing costs. Cost leadership strategies focus on acquiring raw materials

that are the highest quality at the lowest price. Business owners must also use the best labor to

transform raw materials into valuable consumer goods. Low-cost leadership usually translates into

high-quality goods at low consumer prices. The ability to undercut a competitor’s price often leads

to increases in market share.

Differentiation

Business owners use competitive business strategies to differentiate their goods or services from

others in the industry. Differentiation may be actual or perceived. Actual differentiation involves

creating products that are not currently available in the economic marketplace. Perceived

differentiation takes a little more work on the part of companies. Companies typically use

advertising messages that describe a product similar to those in the market with a few subtle

differences. This strategy encourages consumers to differentiate the product in their minds.

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Price Strategy

Many businesses develop pricing strategies to maintain a competitive advantage. These include

penetration, economy, skimming, bundle and promotional strategies. Penetration pricing uses low

initial prices to gain market share and slowly increases the price to its normal level. Economy

pricing offers basic products that have the lowest customer price possible.

Skimming is a price strategy in which companies set high initial product prices that decrease to

match lower prices from new competitors. Bundle pricing is a strategy where companies include

several different products under one price. This allows a business to provide more products to

consumers at a slightly lower price. Promotional pricing strategies may allow businesses to offer

additional benefits to consumers, such as a buy-one-get-one-free business strategy.

Downsizing

Downsizing refers to the reduction of a company's labor force. Instead of firing workers, however,

the employer shrinks the payroll by permanently eliminating positions. This approach has gained

popularity since the 1980s for companies looking to cut costs during tough economic times, or to

improve efficiency and performance. Some employers may also try cutting employees' hours, or

instituting unpaid vacation days as less devastating alternatives. Employers who downsize must

still follow state and federal notification laws.

Why Businesses Downsize

Economic motivations are the most common reason for downsizing. With credit markets frozen by

the 2007 U.S. economic slowdown, many employers felt they had few options, according to an

analysis by University of Colorado business professor Wayne F. Cascio. Sometimes, management

also downsizes to keep pace with changing business conditions. Companies pursuing different

markets or customers also downsize departments or specialties if employees' skill sets are seen

as obsolete. They may then hire new employees to implement the new business strategy.

Federal Law

Employers who downsize must follow the Worker Adjustment and Retraining Notification Act. The

law requires companies to provide at least 60 days' written advance notice of plant closings or

mass layoffs that affect 50 or more workers, according to the U.S. Small Business Administration.

The law affects companies with 100 or more employees, although some states have passed similar

bills to cover businesses with smaller workforces. Generally speaking, the requirements don't

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count employees who put in 20 or fewer hours per week, or haven't worked more than six months

in the past year.

Options for Employers

Employers unwilling to downsize may consider selling part or all of their companies. However,

such plans may divert energy and time from running the business, according to "Entrepreneur"

magazine. A qualified buyer may also not emerge. Cutting employees' daily or weekly hours is

another option. Businesses may also implement unpaid vacations -- commonly called forced

furloughs -- of one or two days a week, for example. Such measures naturally lower morale, but

can help an employer to control costs and keep everyone on the payroll.

Resources

Rapid Response Teams are available through the U.S. Department of Labor to help labor and

management. The teams provide customized, on-site assistance intended to ease companies and

workers through the difficulty of mass layoffs, according to the department's overview. Team

representatives meet with affected employees before the layoffs to provide career counseling and

help finding new jobs. Other services include interview skills workshops, resume preparation, and

giving information about education and job training opportunities. The teams also provide special

assistance to veterans and adults with disabilities.

Advantages and Disadvantages of Downsizing a Company

Downsizing your organization is necessary in some situations, but it is not always a bad thing for

your business. When you get involved in the downsizing process, you need to make business

decisions that are best for your company and try to leave out the personal feelings that can come

with letting employees go. You need to consider advantages and disadvantages to downsizing

before making your final decision.

Scaling Operations

One of the advantages of downsizing is that it gives you a chance to scale your business down to

a more realistic and manageable size. During periods of growth, companies tend to add personnel

and equipment that serves immediate business purposes. It is natural that a company's business

model or customer base shift during the organization's evolution. Downsizing is your chance to

bring your company size down to something that can more efficiently serve your customers and

remain profitable.

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Re-evaluation

Downsizing forces an organization to re-evaluate its business processes and rewrite its business

plan to more accurately reflect the current business status. A business should constantly update

its business plan to reflect changes in the marketplace and internal shifts that affect business

productivity. The decision to downsize is part of the more important process of re-evaluating the

business plan and places the company in a better competitive position for the future.

Decision Making

When you downsize your company and release employees, your company misses out on the

collective experience of the staff members that are let go. The company decision-making is

affected, because the opinions and input of those departing employees will be missed. If you are

forced to let employees go that have several years with your company, then you lose people with

intimate experience of past decisions and how those decisions affected company productivity and

profitability.

Reputation

Outsourcing business responsibilities is one of the reasons why companies downsize. If you are

downsizing due to outsourcing, then disgruntled former employees can be a source of public

relations issues for your company. They can damage your company's public reputation and that

can lead to a drop in revenue. Repeat customers and potential new clients may not appreciate

your decision and could pull their business.

Market position

Positioning helps lay out where a business (and its product) fits into the marketplace, so that the

marketing team can effectively market it. Positioning is a marketing concept that outlines what a

business should do to market its product or service to its customers. In positioning, the marketing

department creates an image for the product based on its intended audience. This is created

through the use of promotion, price, place and product. The more intense a positioning strategy,

typically the more effective the marketing strategy is for a company. A good positioning strategy

elevates the marketing efforts and helps a buyer move from knowledge of a product or service to

its purchase.

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Target Market Analysis

The best start for any positioning analysis is gaining a thorough knowledge of a product or service's

target market. This is the group of people or businesses that will best benefit from the use of the

product or service. With a good idea of the wants, needs and interests of a product or service's

target market, a good marketing team can help develop a positioning statement to help reach as

much of the target market as possible.

Positioning in Advertisements

Advertisements are usually the first places businesses position themselves. A cosmetics marketing

department, for example, must determine who they are targeting and what consumer need is

being met. If the intended target is African American teenagers, what type of need should the

cosmetics fill? If the cosmetics line is trying to help teenage girls overcome acne issues, the person

in the ad might be one of a younger African American physician who teaches girls how to battle

acne with the use of these cosmetics. To note the importance of positioning, this same type of

advertisement might not work if the intended audience of the cosmetics line was older Caucasian

women trying to look younger.

Positioning in Sales Locations

Reaching the customer is not simply a matter of advertising, it is also a matter of choosing the

right channels for distribution. If a majority of your target market lives in an urban area with only

public transportation available to them, having your product in rural areas where a private

automobile is needed for transport would not equal sales success. Place or position your product

or service as close to the target market as possible. Create similar advertisements in store as the

ones seen out of store to create an overall identity for your brand.

Positioning through Price

It should be noted that there is a large amount of research on the psychology of pricing in

marketing. Simply put, the price of an item tells the buyer more about the item than most realize.

Many associate a higher price with higher quality and the opposite with a lower price. Additionally,

if a product is positioned as a good alternative to high-priced brands, the marketing department

must price it in the middle of the market to avoid a comparison to the cheapest end of the

spectrum.

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4. Understand the environmental factors that affect

strategic business management and planning

Environmental factors

Corporate expansion means not only getting more office space, but also facilities to manufacture

and store supplies and products. Choosing a facility location requires significant financial

investment, and therefore prudent planning, to ensure the location is the most cost-effective and

functional of all your options. Utilize a broad financial view of each proposed site, taking into

account not only its purchase or lease cost but the money put into it over the long term.

Layout

The physical layout of the facility location will determine whether future expansion can include

adding more facility buildings and enlarging manufacturing space within the site. Whether

buildings and manufacturing lines must be created by scratch or they are already exist on-site

with minimal renovations is also a consideration.

Cost

The cost of relocating facilities to the site is a major factor in determining the acceptability of a

location. Cost can involve tailoring existing buildings to fit your operations or building an operation

from scratch. Land may be cheap, but to make it workable might be expensive.

Logistics

The site must have adequate transportation routes to get goods to and from the site. The facility

itself must come equipped with adequate electrical and plumbing to run an effective operation; if

they don't yet exist they must be cheap enough to install at the site.

Labor

A facility requires labor to run. Management staff might relocate from other areas, but on the

ground workers are sourced locally. A facility close enough to a municipality with a healthy supply

of labor to operate it is a must.

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Political Stability

Companies that locate facilities in international locations might benefit from a cost perspective;

however, an unstable local government that puts smooth operations at risk are a deterrent to

choosing to locate there. Some international locales, however, benefit from a free trade zone with

the U.S., saving companies duties on the goods they import back to the U.S.

Regulations

Stringent local environmental regulations that limit the nature of business operations can deter a

company from choosing a particular location. In addition, government regulations and taxes of

various kinds can prove costly down the line. On the flip side, government tax incentives that

encourage corporate development can prove a benefit to certain locales.

Community

Facility locations are not temporary; the choice you make will stick with your company for the long

haul. It's therefore key that your company fits with the community it's associated with. Although

the municipality might appreciate your company's facility because it creates jobs, some might

resent your presence because of aesthetics or environmental factors. Maintaining a hassle-free

relationship with the locals helps ensure your licenses and permits are easier to obtain and

maintain over the life of the site.

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Why Is the Location of a Business Important?

"Location, location, location" is a cliché, but it's true. Picking the right location is a big step towards

ensuring your business has customers. Your choice of business location affects your income, your

expenses, and sometimes whether you're operating legally. Even in an age where people can buy

and sell through the internet and project teams can collaborate from various states and countries,

location plays a significant role in your company's success or failure.

The Right Community

If you work out of your home, you don't need to choose the town or neighborhood for a business.

If you're opening an office or a store, however, then location matters. Essential questions to ask

include the following:

Is the population large enough to support your business?

Is the economy healthy?

Do the demographics work for you? If your target market is young couples with kids, a

retirement community won't be a good fit.

Does your style match those in the community? Do your values match? If the neighborhood

style is funky and casual, opening an elegant store may be a mismatch.

Can you find the workers you need in the local area?

Even if you know the community, you may need to do some market research to confirm that it's

the right location for you.

Zoning Codes

Before you select a specific site, first determine if your business can legally open at that site. In

most cities, zoning codes determine what property owners can do on a given patch of land. Some

zoning codes allow retail, some allow industrial uses and some allow residential use only. Local

government may have rules for everything, from the size of your parking lot to the size of your

business sign.

If you run a home business, zoning is still a factor. Some cities or neighborhoods ban home

businesses, particularly if you have customers driving to your house. Homeowner associations

have rules and restrictions on home businesses, too. Don't give in to the impulse to fly under the

radar. If you get caught, you may have to pay fines or even shutter your business.

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Convenience

Customers will happily make long trips for must-have purchases. When you're just starting out,

however, it's better if the effort of doing business with you is as easy as possible. If you're running

a brick-and-mortar retail store, choosing a street where customers already shop will make it easy

for them to spend money with you. You also want a location that feels safe, particularly if you're

open late in the evening.

Expenses

Now the bad news. Typically, locations guaranteed to bring in a stream of customers are the

priciest locations for setting up a shop. Less-ideal locations will have cheaper rent or a lower price

for the land. If you're off the beaten path, you may need to compensate for the low rent by

spending more for advertising. If you're in a mall, you benefit from the mall's advertising budget.

Definitely shoot for the best location you can afford. A bad location may save you money, but it

will cost you business.

Cost of production

Production cost refers to the cost incurred by a business when manufacturing a good or providing

a service. Production costs include a variety of expenses including, but not limited to, labor, raw

materials, consumable manufacturing supplies and general overhead. Additionally, any taxes

levied by the government or royalties owed by natural resource extracting companies are also

considered production costs.

BREAKING DOWN 'Production Cost'

Also referred to as the cost of production, production costs include expenditures relating to the

manufacturing or creation of goods or services. For a cost to qualify as a production cost it must

be directly tied to the generation of revenue for the company. Manufacturers experience product

costs relating to both the materials required to create an item as well as the labor need to create

it. Service industries experience production costs in regards to the labor required to provide the

service as well as any materials costs involved in providing the aforementioned service.

In production, there are direct costs and indirect costs. For example, direct costs for

manufacturing an automobile are materials such as the plastic and metal materials used as well

as the labor required to produce the finished product. Indirect costs include overhead such as rent,

administrative salaries or utility expenses.

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Deriving Unit Costs for Product Pricing

To figure out the cost of production per unit, the cost of production is divided by the number of

units produced. Once the cost per unit is determined, the information can be used to help develop

an appropriate sales price for the completed item. In order to break even, the sales price must

cover the cost per unit. Amounts above the cost per unit are often seen as profit while amounts

below the cost per unit result in losses.

If the cost of producing a product outweighs the price that is paid for it, this may lead producers

to consider temporarily ceasing operations. For example, in January 2015, the selling price of a

barrel of oil fell to $40 a barrel. With product costs varying from $20 to $50 a barrel, a cash

negative situation occurs for those with production costs on the higher end. Those producers may

choose to cease production efforts until sale prices return to profitable levels which lowers the

amount of supply available within the market and may encourage oil prices to rise based on the

shifting supply and demand models.

Production Costs and Asset Recording

Once a product is complete, it can be recorded as a company asset until the product is sold. This

allows the value of the product to be accounted for within financial statements and other

accounting documents, and provides a way to keep shareholders informed and reporting

requirements to be met.

Ethical concerns

In the complex global business environment of the 21st century, companies of every size face a

multitude of ethical issues. Businesses have the responsibility to develop codes of conduct and

ethics that every member of the organization must abide by and put into action. Fundamental

ethical issues include concepts such and integrity and trust, but more complex issues include

accommodating diversity, decision-making, compliance and governance.

Fundamental Issues

The most fundamental or essential ethical issues that businesses must face are integrity and trust.

A basic understanding of integrity includes the idea of conducting your business affairs with

honesty and a commitment to treating every customer fairly. When customers perceive that a

company is exhibiting an unwavering commitment to ethical business practices, a high level of

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trust can develop between the business and the people it seeks to serve. A relationship of trust

between you and your customers may be a key determinate to your company's success.

Diversity Issues

According to the HSBC Group, "the world is a rich and diverse place full of interesting cultures and

people, who should be treated with respect and from whom there is a great deal to learn." An

ethical response to diversity begins with recruiting a diverse workforce, enforces equal opportunity

in all training programs and is fulfilled when every employee is able to enjoy a respectful workplace

environment that values their contributions. Maximizing the value of each employees' contribution

is a key element in your business's success.

Decision-Making Issues

According to Santa Clara University, the following framework for ethical decision-making is a useful

method for exploring ethical dilemmas and identifying ethical courses of action: "recognizes an

ethical issue, gets the facts, evaluates alternative actions, makes a decision and tests it and

reflects on the outcome."

Ethical decision-making processes should center on protecting employee and customer rights,

making sure all business operations are fair and just, protecting the common good and making

sure individual values and beliefs of workers are protected.

Compliance and Governance Issues

Businesses are expected to fully comply with environmental laws, federal and state safety

regulations, fiscal and monetary reporting statutes and all applicable civil rights laws. The

Aluminum Company of America's approach to compliance issues states, "no one may ask any

employee to break the law, or go against company values, policies and procedures."

ALCOA's commitment to compliance is underpinned by the company's approach to corporate

governance; "we expect all directors, officers and other Alcoans to conduct business in compliance

with our Business Conduct Policies."

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Stakeholders

The word “stakeholder” means any person with an interest in the business -- someone who can

contribute to the company’s growth and success or who benefits from its success. The various

stakeholders in a business have differing roles and their level of involvement in the enterprise

varies from full-time to barely involved at all. The company’s CEO seeks to utilize the skills,

experience and knowledge of each stakeholder group to further the organization’s long-term goals.

Employees

Top management may set the overall strategic direction for the company, but the employees are

responsible for carrying out the tasks specified in the company’s strategic plan in an efficient

manner. Employees are the closest to the action. They interact with customers on a daily basis.

In a manufacturing environment, they work directly on the company’s products. The company’s

success depends in large measure on the skill and dedication of its employees. Without the

employees performing their roles proficiently, the company will not reach its revenue and profit

potential.

Stockholders

Stockholders’ initial role is to provide the capital a company needs to grow and expand, or in the

case of a startup venture, the capital it needs to launch its products or services into the

marketplace. In private companies, stockholders may take an active role in setting the strategic

direction for the venture. They sometimes provide guidance or advice to the company’s

management. In public companies, stockholders can attend an annual meeting and ask questions

of the company’s top management, including the CEO, about the decisions they have made and

the direction the company is going.

Customers

The reason for a company’s existence is to provide products or services that meet the needs of its

target customers and benefit them in a meaningful way. The role of customers is critical to the

company’s survival and success.

Through the purchase decisions they make each day, they select which companies will prosper

and which will fail. They also provide valuable feedback to the company about its products and

customer service level. This feedback enables the company to improve what it offers and to come

up with entirely new solutions to customer needs based on what its customers asked for. For many

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businesses, customers also play a vital role in the company’s marketing efforts by recommending

the company’s products or services to other potential customers.

Vendors

A company’s ability to fill its customer orders on time -- and bring the highest quality goods to the

marketplace -- depends in part on the role its vendors or suppliers play. The company relies upon

raw materials or components being available when they are needed and at reasonable prices. If

the supply of one key item is interrupted, it can cause a disruption in the company’s entire

manufacturing schedule. Vendors also play a role of introducing new applications or solutions to

the company so it can become more efficient, more productive and lower its costs -- and increase

its margins and profits.

The Community

The community provides the skilled workforce that a company depends upon to maintain its

competitive edge. Members of the community, including the news media, often play a watchdog

role, ensuring that the company is a good citizen with fair business practices, concern for the

environment, and a willingness to contribute to charitable and social causes.

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Examples of a company's stakeholder

Stakeholders: Stakeholder's concerns:

Government taxation, VAT, legislation, employment, truthful reporting, legalities,

externalities...

Employees rates of pay, job security, compensation, respect, truthful communication,

appreciation, acknowledgement, recognition.

Customers value, quality, customer care, ethical products.

Suppliers providers of products and services used in the end product for the customer,

equitable business opportunities.

Creditors credit score, new contracts, liquidity.

Community jobs, involvement, environmental protection, shares, truthful communication.

Trade unions quality, worker protection, jobs.

Owner(s) profitability, longevity, market share, market standing, succession planning,

raising capital, growth, social goals.

Investors return on investment, income.

Types of stakeholders

Any action taken by any organization or any group might affect those people who are linked with

them in the private sector. For examples these are parents, children, customers, owners,

employees, associates, partners, contractors, and suppliers, people that are related or located

nearby.

Primary Stakeholders – usually internal stakeholders, are those that engage in economic

transactions with the business (for example stockholders, customers, suppliers, creditors, and

employees).

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Secondary Stakeholders – usually external stakeholders, are those who – although they do not

engage in direct economic exchange with the business – are affected by or can affect its actions

(for example the general public, communities, activist groups, business support groups, and the

media).

Excluded Stakeholders – those such as children or the disinterested public, originally as they

had no economic impact on business. Now as the concept takes an anthropocentric perspective,

while some groups like the general public may be recognized as stakeholders others remain

excluded. Such a perspective does not give plants, animals or even geology a voice as

stakeholders, but only an instrumental value in relation to human groups or individuals.

The definition of corporate responsibilities through a classification of stakeholders to consider has

been criticized as creating a false dichotomy between the "shareholder model" and the

"stakeholders model" or a false analogy of the obligations towards shareholders and other

interested parties.