Dr Richard Shrapnel :: Business Strategist | Undefeatable Strategies

The Forgotten Ingredient in Business Success

Business Planning and its importance in driving business success and profitability is almost a lost art.

There is a tendency to think of business planning as simply something to be done when the Bank Manager asks for it or if there is a need to raise additional finance. Although business planning will assist in these areas its true purpose and intent are far more important than merely the production of a document seeking funds. Business Planning is also not something that is undertaken every few years but rather is a continuous ongoing exercise.

When your mind turns to Business Planning you must begin to think of the process of business planning rather than the document that may be produced at the end of the process. This process is something you pursue if you want to be successful, achieve your goals and improve your performance.

Outcomes of Business Planning

When you begin to consider the process of business planning you are seeking to achieve three important outcomes. They are to:

•Challenge and extend the way you think about your business

•Gain insights and understanding not only about your business but also your customers and the market in which you compete

•Build the confidence and knowledge that the course of action you are going to pursue is correct.

Measure your business planning process against these benchmarks. If you find that your business planning process is not delivering these outcomes then you should pause and restart. As the business planning process builds momentum you should find that a clear direction has been set, that all resources are aligned with that direction and that everyone is focused on achieving your goals. In fact the strength of business planning arises not so much in some unique competitive strategy that may be developed but rather in the fact that you have set a course of action that has drawn in the entire enterprise thereby gaining its commitment and focus. Day after day everyone knows exactly where he or she is heading and what they should be doing and therefore can concentrate on this direction with the knowledge that it has some meaning to them.

We must not forget that in today’s competitive market it is not sufficient to merely employ staff to do a job and expect them to do it. Sure your business will continue and you may well make a profit but you will be dragging the weight of your employees with you as you compete in the marketplace. In today’s competitive market it is necessary that you gain the support of your employees and that they feel pride in the job that they do. If you manage employee resources well you can easily out strive your competitors and improve your profitability significantly. Business Planning can be an important tool in winning support and unleashing enthusiasm and energy.

Key Elements of Business Planning

In undertaking Business Planning there are seven key elements that must be included in the process. These elements are:

•History

•Strategic Analysis and Thinking

oMarketplace

oCompetitive Landscape

oPositioning

•The Organization

•The Future

•Financial Management

•Risk Management

•Implementation

Each of these elements represents another step in the process in building an effective competitive strategy.

Understanding and appreciating the history of an enterprise is the starting point to building effective strategy. Think of it this way, every person has a different personality that is the sum of their genetic make-up and their life experiences and underpins their ability to perform certain tasks. Our history and personality make all of us inherently good at some things and bad at others. An enterprise is no different to a person, it has a certain personality and a history that affect its ability to move forward and compete. Take for example, an enterprise that has been led by a strong leader who founded the business. If that leader is no longer able to lead the way it will be very difficult for that enterprise to find its own way. It is therefore an important first step to consider the history of the enterprise and how certain events may impact upon its future actions.

Strategic Analysis and Thinking is the core of the business planning process. It represents an analysis of the business’s competitive position and provides the factual basis upon which the competitive strategy is built. However, this segment requires not only factual analysis using appropriate models but also a balancing of this analysis with intuition and judgement to arrive at succinct and insightful observations.

This section is considered in three segments in progression: the Marketplace, Competitive Landscape and Positioning.

The Marketplace represents a consideration and definition of which markets the business competes in. It may seem strange but often enterprises do not clearly understand the boundaries of the market in which they compete. Without a clear understanding of the boundaries of the market it is not possible to identify the forces at play within the market and build effective strategies. These boundaries are most readily defined by describing the market the enterprise competes in terms of its geographical boundaries, its products, the segment of the supply chain it fulfills, and the customers it serves. Once the boundaries have been defined the competitive forces at work within that market can be described using for example Porter’s Five Forces Model. In addition, a review and consideration of the environmental factors that may influence that market, for example, technology, consumer preferences, government intervention should also be made.

The Competitive Landscape represents an identification of the players in the marketplace, the market segments that they serve and the respective shares they hold. Once the competitors within the market have been identified, an analysis of the competitive offering of each company in the market may be made. This analysis represents not only an assessment of the strength of their competitive offering but also an identification of the basis upon which enterprises in the market compete. This is an important discovery as once a realisation has been made of the basis of competing within the market then you may determine how your business should compete. The usual answer is that all enterprises compete on a similar basis where each seeks to gain advantage on one or several basis of competing (eg, price, quality, brand etc). However, to be truly competitive the goal is to seek a basis of competing that leaps ahead of competitors and redefines the cost-value relationship that customers receive. Finally, a mapping of the market reflecting each competitor’s offering relative to the market and each other, will provide a good diagrammatical representation (mapping) of the players in the market.

The final segment of the strategic analysis stage is Positioning. This segment represents an analysis of the competitive strength of your business. The tools that we would normally apply in this segment are:

๏SWOT analysis
๏Value & Supply Chain analysis
๏Core competencies or Resources/Capabilities analysis

These tools are applied to identify and better understand the strengths of your business relevant to competitors so as to form a position where your business may compete effectively. Due to the nature of competition this position will of course change continuously, however, the process of business planning will permit the identification of a platform upon which the enterprise may effectively compete.

The third element is the Organisation. Once an understanding has been built of the market in which the enterprise competes, its competitors and its positioning, it is then necessary to build a view of the enterprise that will be necessary to deliver the competitive strategy that has been formed. This view is not limited to merely an organisational structure but represents the vision or purpose and values of the enterprise, the processes that it will need to undertake and the capabilities that it will need to master.

The fourth element represents an articulation of the Future. This articulation is a clear expression of how the enterprise intends to compete in the future and forms a basis for communicating with the community in which the enterprise exists. It draws upon all of the prior segments and sets the platform to move forward.

The fifth and sixth elements are Financial Analysis and Risk Management and represent a validation of the competitive strategy described under the Future. The financial analysis includes forecast Profit and Loss, Balance Sheets and Cash flows drawn from the competitive strategy that has been built. A degree of sensitivity analysis would normally also be undertaken on key drivers to provide a measure of risk management. The risk management segment represents an integral component of every business planning exercise. A risk management analysis must be undertaken in which the risk profile of the business is reassessed based upon the proposed strategy. This risk analysis includes a review of strategic, operational, financial, insurance, process, intellectual property and human resource risks etc., as appropriate.

The final segment and possibly the most important element of the business planning process is that of Implementation. The competitive strategy formed is not complete until it has been successfully implemented. Accordingly, a strategy cannot even be formed unless a consideration has been made of how it may be implemented. An action list is one of the simplest ways to set out and monitor a program of implementation but the creation of a change management program may well be necessary. All decision-making and rewards must be directly linked back to the strategy if it is to be successfully implemented. The Business Plan must become a living document that is used daily in the business.