I’ll discuss how to develop a business strategy for a sustainable competitive advantage. Then I’ll go into how to implement them and responding to the environment changes.
Without a solid business plan, you are more likely to fail than succeed. Let’s look at what’s happening in the retail sector.
Sears filed for Chapter 11 bankruptcy protection and they are expected to shut down at least 142 unprofitable stores by the end of 2018.
Mattress Firm recently announced its plan to close 700 stores as part of a restructuring effort.
Amazon is not the only reason that physical retail is troubled —mounting debt and retailers’ own missteps and lack of adaptability are also to blame, among other factors.
Strategic planning is the managerial process of developing and maintaining a viable fit between the company’s objectives, resources, an d its changing opportunities. The aim of strategic planning is to shape and reshape the company’s business and products. So that they combine to produce satisfactory sales and profits.
The company’s plans for its existing businesses will allow it to project total sales and profits. The product portfolio plan will include divesting some businesses, and these will need replacement. If there is a gap between future desired sales and projected sales. Top management will have to develop or acquire new businesses to fill the strategic planning gap.
Business strategy development begins by defining the mission of the business. Top management should continuously monitor the market and competitive situation faced by a company.
The corporate mission may, over time, be changed to respond to the findings of such an assessment. Strategies are developed for the product and market areas selected by management. These decisions determine the composition of a business. The strategic planning process is made up of more than one business area is the periodic analysis of the business portfolio. Strategic business units may have different objectives and strategies, offering various opportunities and requirements.
The strategic plan for each unit spells out how the unit will fulfill its assigned role in the corporation. Underlying each unit strategic plan are functional strategies for each supporting area such as marketing, finance, and operations. Strategies are then implemented and managed.
Deciding on the Corporate Mission
The corporate mission statement defines a nature and scope of a business and provides important guidelines for managing the corporation. Management must initially establish the company’s operations and adjusted decisions as necessary over time.
Strategic choices about where the company is going in the future— choices that take into account company capabilities, resources, opportunities, and problems— establish the mission of the company.
Early in the planning phase, management should develop a statement of mission. This statement is reviewed and updated as changes in the strategic direction of the company occur over time. The mission statement establishes the following important guidelines or business operations.
These guidelines include:
- Why the company is in existence and its responsibilities to shareholders, employees, society, and other stakeholders.
- The customer needs that are satisfied with the company’s products or services
- The extent of specialization within each product market area
- The amount and type of product market diversification desired by management
- Management’s performance expectation for the company
- Other general guidelines for overall business strategy. This includes technologies to be used and the role of research and development within the company
Guidelines used to prepare the mission statement can be seen in Exhibit 1. Here we can see the company and how it develops mission statements for the functional areas.
In addition, the mission statement should indicate the broad goals and policies of the business unit, going beyond the corporate goals and policies. What policies does it want to have regarding customers, employees, and other stakeholders? All of these matters require clarification in the business statement.
Examples of Mission Statements
These examples of mission statements should help give you some ideas. Ideas to help you develop your own mission statement.
- Patagonia: Build the best pr oduct, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.
- American Express: We work hard every day to make American Express the world’s most respected service brand.
- Honest Tea: To create and promote great-tasting, healthy, organic beverages.
- IKEA: To create a better everyday life for the many people.
- Nordstrom: To give customers the most compelling shopping experience possible.
- Workday: To put people at the center of enterprise software.
- Prezi: To reinvent how people share knowledge, tell stories, and inspire their audiences to act.
- Tesla: To accelerate the world’s transition to sustainable energy.
- TED: Spread ideas.
- Matrix Marketing Group: To help businesses grow
Factors Affecting Mission
Several factors help determine the nature and scope of the business mission. Among these factors are the following:
- Benefits provided to the customer
- Technologies used
- Customer segment served and target markets
- The level in the distribution channels
A key impact on the mission decision is what management wants the business to be. The constraining nature of capabilities, resources, opportunities, and problems, management is left with a lot of flexibility. Flexibility in deciding the corporate mission as well as changing it in the future. Priorities and preferences of the CEO or the board of directors may override factual evidence in selecting the business mission.
Environmental turbulence may create the need for alteration of the mission.
In addition to a mission statement, objectives should be selected so that the performance of the company can be gauged. Corporate objectives are the results that top management wants the corporation to accomplish.
Your objectives include the following areas:
- Social responsibility
When corporate objectives are very general, it is important that they are made more specific at lower levels in the organization. Objectives are set at several levels in an organization, beginning with those indicating the company’s overall performance targets.
Corporate objectives are decided by top management. These decisions may be the result of decisions of key objectives. Objectives to determine what is feasible, given the competitive environment in the organization’s capabilities and resources.
Corporate Development Alternatives
Corporate development alternatives are the possible directions of growth that may be taken from the core business of the company. The major corporate development options are shown in Exhibit 2.
There are many specific combinations of these major options. Most companies start a business in some core area. Success often leads to expanding into rule related areas and sometimes entirely new product market areas. Will look at each alternative and provide an understanding of corporate expansion activities.
Many companies start out serving one product market. The product or service offered may be a single product or line of products. This business strategy offers the advantages of specialization but contains the risks of being dependent on one set of customer needs. As a company grows and prospers, management often decides to move into other product in market areas. This is shown in Exhibit 2.
Reducing dependency on the core business is a major factor in corporate development. Of course, financial resources are necessary to expand into related or new areas. In some situations, selling the business may offer management and attractive opportunity for expansion.
Market leaders are seeking a competitive business strategy and carve out a competitive position in the target market. Through market research, the strategic management team can begin to create a business plan to support the desired market position.
New Markets for Existing Products
To expand away from serving a single product market is to serve other customer groups by using the same product or a similar product. For many companies, expanding into new markets is a natural way to grow.
This business strategy reduces the risk of depending on a single market yet it allows the use of existing technologies and production capabilities. When deciding to pursue this business strategy, management must have adequate resources for expansion. And must develop a marketing strategy for the new customer groups.
New Products for Existing Markets
Another business strategy for shifting away from dependency on one product is to expand the product mix offered in the company’s target m arket. New product planning can be developed internally although the acquisition is faster. Resources are necessary to support either alternative. A disadvantage of this business strategy is that the company remains dependent on market changes in a particular product market area.
Diversification is selected for corporate development by many firms. Diversification is the movement from the company into a new product and market area through internal development or acquisition of products for the new market.
This option can be the costliest and riskiest as shown in Exhibit 2.
It may be an attractive avenue for the growth of existing product markets face slow growth. If resources for diversification are available. Unfortunately, the success record for diversification has been dismal.
A recent example could be the performance of GE.
Successful diversification appears to be closely related to industry attractiveness, favorable cost of entry, and the opportunity for improving competitive advantage.
Movement beyond the core business is typical as businesses grow and mature. A company may be involved in all the option shown in Exhibit 2.
These include product and market expansion, diversification, and possible divestment a business unit.
Several factors influence the speed and direction of corporate development activities.
- Available resources
- Management’s preferences
- Pending opportunities and threats
- Corporate management and technical capabilities
- The desire to reduce the total dependency of the company upon a single product market
Understanding the composition of a business is important in both corporate and marketing strategic planning for a specific business. A single-product firm is easy to determine the composition of the business.
Many other firms it is necessary to separate the business into parts to facilitate strategic analysis and planning. When companies are serving multiple markets with different products, grouping similar business areas together facilitates planning.
Business Segment, Group, or Division
These terms identify the major areas of business of a diversified company. Each segment, group, or division often contains a mix of related products or services. Although a single product could be assigned such a designation. This use of the term segments does not correspond to a market segment.
Most large companies break out their financial reports into business or industry segments according to the guidelines the best accounting practices. Some companies may establish subgroups or related products within a business segment targeted two different customer groups.
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The Strategic Business Unit (SBU)
A business segment, group, or division is often too large. Too large in terms of product and market composition for creating business strategic analysis and planning. It should be divided into more specific strategic units. The most popular name for these units is the strategic business unit (SBU).
Typically SBU is organizational units formed based on product market similarities. A strategic business unit is a single product or brand, a line of products, or a mix of related products. They meet a common market need or group of related needs.
The strategic business unit’s top management is responsible for all the basic business functions. The SBU has its own business strategy rather than a shared strategy. It should be a cohesive organizational unit that is separately managed and can produce sales and profits.
Often an SBU comprises a portfolio itself rather than being a single homogeneous unit. The SBU might have product market segments that occupy very different market attractiveness and business strengths positions and strategic missions. This is logical for SBU formulation as the corporate level focuses on the management of shared resources. These businesses often kind of cross-market segments with very different characteristics and opportunities.
Top management should have established guidelines for long-term strategic planning of the company. In a business that has two or more strategic business units, decisions must be made at two levels. The company’s leadership team must first decide what business areas to pursue. Then establish priorities for allocating resources to each as for you.
Decision makers within each SBU you must determine the appropriate strategies for delivering the results that management expects. Corporate level management should assist the SBU in achieving their missions.
Corporate strategy and capability should enhance the capabilities of the SBU. This allows the SBU to compete more effectively than if it operates on a completely independent basis.
To remai competitive, companies must provide their business units with:
- Low-cost capital
- Outstanding executives
- Centralized marketing where appropriate
- And other resources in the corporate arsenal
The SBU has its specific product and market domain.
Corporate resources and synergies help the SBU establish its competitive advantage. The strategic focus and priorities of corporate business strategy help determine SBU strategies.
Top management’s expectations for the corporation indicate the results needed from an SBU. These include Both financial and non-financial objectives. When viewed in this context, the SBU become an active component of the corporation, operating under the corporate umbrella.
The corporate mission statement defines the nature and scope of the business and provides essential business strategic direction for the company. The company’s objectives indicate the performance desired by management. And moving away from the core business, several passes of corporate development is possible.
These include expansion into new products and or markets as well as diversification. Strategic analysis begins by assessing the situation advantage of the business. Several classification models assistant deciding what generic strategy to select for each business in the corporate portfolio.