What came first - Chicken or the Egg? Do you formulate a simple business strategy first or do you carry out market analysis first? Remember you are not standing still when you are making your decisions; conditions are as dynamic and complex as ever.
In my previous article, Business Strategy, I brought out four different options that are available for any business to choose from. In this article I will bring out the analysis framework which helped generate strategic options for X and which helped X choose between four alternate business strategies.
The choices made by individuals and arrived at through available mechanism is a function of environmental conditions they operate in and decision making systems that are in place. At X some tough decisions had to be made in some very tough conditions, conditions that would stare you in the eyes without batting an eye and would say “You shall not survive me”. A thorough analysis was the need of the hour at X, one that will help throw options to mitigate short-term cash-flow issues while deciding on the course of long term strategy.
The analysis framework is shown below:
The above framework has been drawn from Aaker & McLoughlin.
Picking up from where I left let’s try to dissect the strategic consideration framework/model that I had developed for X. Let me give you the most optimum business strategy that translates itself in to infinite wealth for your business or for that matter any businesses but of course in a perfect world :-). Peter Drucker suggests that purpose of business is to create customer and I have stretched my imagination by assuming customers will eventually translate in to wealth for the business.
Primary purpose of business strategy is to develop a competitive advantage that provides customers with superior value (benefits relative to costs) compared to competitive offerings.
The four dimensions that define business strategy that will lead to strategic advantage are:
·Product-Market investment strategy (Answers where to compete?)
·Customer Value proposition (Answers how to compete?)
·Assets & competencies (Answers how to compete?)
·Functional strategies & programs (Answers how to compete?)
Product-Market Investment Strategy:
The scope of the business and the dynamics within that scope represent a very basic strategic dimension. The scope of business is defined by the products(used interchangeably with ‘services’) it offers and chooses not to offer, by market it does and does not seek to serve, by the competitors it chooses to compete with or to avoid by its level of vertical integration. While business dynamics consider service or product level tactical entry or exit plan and repositioning of these, financial and non financial resources are allocated based on these product-market investment decisions.
The investment pattern will determine the future direction of the firm. Some broad level choices that are available are:
·invest to grow in existing market
·invest to maintain existing position
·milk the business by minimizing investment
·recover as many assets as possible by liquidating or divesting the business
The Customer Value Proposition:
Customer value proposition is the perceived functional, emotional, social or self expressive benefit that is provided by the organization’s offering/s. Therefore value positioning of a service or product should correlate to one or more customer value proposition listed. And this combination should be sustainable for the offering firm without exerting undue pressure over resources while at the same time should differentiate itself enough from its competition. Customer value proposition (CVP) can involve some or combination elements such as good value, excellence in service, best overall quality, product or service line breath (one stop shop), global branding, etc.
Competencies and Assets:
Strategic competencies are referred to those intangibles that have evolved organically within a firm or have been acquired and are hard to imitate by its competitors. Strategic competencies are based on knowledge that an organisation wields and an organization’s ability to capture knowledge from its talent pool. As such processes are considered as competencies as they are but knowledge product and can be included with in the category of organisation’s ability to manage knowledge.
Strategic assets are those resource elements that can be leveraged to gain competitive advantage while it also contributes in developing a firm’s competencies. Strategic assets include both tangible elements such as financial capabilities, installed customer base, etc and intangible elements such as brand name.
Competencies and assets together give an organisation its competitive advantage, careful planning in developing the two and there effective utilization should lead to synergies which in turn will lead to significant, enduring and sustainable advantage that will result over time.
Here it is important to point to the fact that strong asset or competencies are hard to build and even harder to quantify in absolute terms as sufficient enough; how much is enough will always remain a relative dysphemism. Competitive myopia translates in to yesterday’s hard won competitive advantage that provides customer delight in to today’s order winners and tomorrow order qualifiers. The ability of an organisation’s asset and competencies to support a strategy will in part depend on their power relative to those of its competitors. Competencies and assets provide sustainable competitive advantage (SCA).
Functional strategies:
Set of assets and competencies should mandate some strategy imperatives, in the form of a supportive set of functional strategies. These strategies are implemented through a host of short-term tactics. Some of the functional strategies are list below:
·Distribution strategy
·Brand-building strategy
·Communication strategy
·Segmentation strategy
·IT strategy
·Quality strategy
·Customer relationship strategy
Some introspective questions that drive functional strategies include: What conditions needs to be manufactured internally and externally in order to drive the agreed value proposition to end customer? What changes are required to manufacture these conditions? Are the assets and competencies in place to carry out these changes? Do these assets and competencies need to be created, strengthened, supported or changed? How do we do this?
Strategic Options
Since we do not live in a perfect world we are forced to choose between options available. Strategic options is a point of synthesis and distillation for the four dimensions of business strategy discussed above viz. Product-market investment strategy, the customer value proposition, competencies and assets and functional strategies. The over whelming complexity in the form of alternatives or choices that these four dimensions produced is narrowed down to specific few; a firm’s strengths and weaknesses combined with the opportunities and threats presented to it from the external environment will ultimately decide the business strategy. Therefore a strategic option is a particular value proposition for a specific product/service market with supporting assets and competencies and functional strategies.
Conceptualizing and labeling strategic options help crystallize and describe alternative business strategies. This in turn helps describe the selected business strategy and get the required approval from internal stakeholders (employees) and external stakeholders (partners, financers, customers, etc).
The following depiction gives you a bird’s eye view of strategic considerations that were made in the process of developing marketing strategy for X.
The short-to-mid term consideration was to put in place business and growth strategy for X’s individual companies to generate cash. The short-to-mid term strategies will un-tie precious resources X so desperately needs and give it a relative comfort of time to decide what its long term objective should be.
The methodology seen above is a simplistic depiction of how marketing strategy recommendations were arrived at for X. In my next few articles I will dwell in to more details on how I prioritized what the short term marketing strategy should be and how I integrated these with long term considerations by combining patterns that I saw emanating from customer data, Industry data, Competitor data etc.
After a barrage of concluding questions in my previous article of Stage III you might wonder how will I answer these questions and where will I start?
The start is here and now. In Stage III Article-2 I had discussed about the Rummler and Brache, a great tool to capture Sourcing and Procurement ‘AS-IS”.
The martix above captures essence of Rummler and Brache’s frame work. The bi-directional arrow heads that you see should be considered a spectrum, including those that are diagonally aligned. It is important to treat these arrow heads and the areas they cover as spectrum due to lack of clear demarcation in the responsibilities that one sees in real world organisations.
The following are some of the questions that I used in semi-structured interviews to capture the current state of affairs at X’s various purchasing departments.
1A. Org level goals & concerns
1.What is the role of Business Services department within X?
2.Which are the most critical functions with-in BS that will make a difference to X?
3.Why do you think these are critical?
4.What are you seeking to achieve through these functions?
5.What mechanisms or processes do you have in place to deliver these functions?
6.What problems/issues are you currently facing/ you anticipate facing when working on and with these functions?
7.How do you plan to overcome these issues?
8.How do you ensure the process goal/departmental goal is in line with business goal?
1B. Org level design & concerns (Focus on Procurement/P&P/IT) (1B)
1.What processes/mechanisms do we currently have in place that caters to organisation’s procurements/P&P/IT needs?
2.If yes, who are the current owners? Do we have a purchase department or function?
3.If no, it cannot be NO because then the business stops functioning!!! No, could be an answer that could come out of lack of knowledge.
4.How are resources allocated to each of these functions? – Man power, budget, IT, etc
5.Any specific areas of concerns? - Quality, Speed, Dependability, Flexibility, Cost?
6.Why is it an area of concern?
7.Do you see any duplication of efforts in the work flow? Why do you consider it to be so?
8.How do you detect duplication of work?
9.Do you see any miscommunication in the work flow? Why do you consider it to be so?
10.How do you detect miscommunication?
11.Where do you source your information from to make business decision?
12.Decision on demand variation in the market? – Capital goods, Outsourced service & Materials
13.Decision on supplier pricing? Of all above and IT
14.What decision making processes is in place? Who do you involve in the developing decisions?
15.When do you outsource manpower? Why do you outsource man power needs?
16.How do you approach manpower outsourcing?
17.How would you describe EINW’s relationship with your suppliers?
1C. Org level management & concerns (Focus on Procurement/P&P/IT) (1C)
1.How do you ensure accountability in your department?
2.What measures do you have in place to ensure Quality, Quantity & Timeliness? – of procured goods & services
3.How do you ensure the employee has all the information needed to carry on the task assigned?
4.How do you ensure documentation, training and employee needs are being met regularly?
2A. Process level goals & concerns
1.What is the role of your department/process/function within EINW?
2.What procurement strategy/policy do you have in place?
3.Which are the most critical functions with-in your function that you think makes a difference to EINW?
4.Why do you think these are critical?
5.What are you seeking to achieve through these functions?
6.What mechanisms or processes do you have in place to deliver these functions?
7.What problems/issues are you currently facing/ you anticipate facing when working on and with these functions?
8.How do you plan to overcome these issues?
9.How do you ensure the process goal/departmental goal is in line with business goal? Can you spell this goal out for me?
2B. Process level design & concerns [Sourcing]
1.How do you recognize and identify business need for procurement?
2.Do you differentiate between procurements for internal consumption or External Trading?
3.How do you validate need for procurement?
4.How do you budget procurement?
5.Do you carryout risk assessment before procurements? Yes – when? No – Why not?
6.How do you develop specifications for the goods/services being procured?
7.How do you source suppliers? First time purchase, repeat purchase?
8.How do you handle emergency, out of turn needs?
9.How do you ensure Value for Money (VFM) for the procurements that you make?
10.What procedure do you follow in requesting quotations?
11.How do you develop legal framework for the procurement being made?
12.Do you invite tenders? When? Why not?
13.How do you evaluate the quotations and the tenders received?
14.How do you carryout legal and financial check of the selected suppliers?
15.How do you select supplier/s?
16.Do you notify unselected supplier? How do you do it?
17.How do you complete legal formalities? Do you enter in to agreement for every purchase made or is it cash and carry?
18.Do you differentiate procurement based on value of purchase? What other criteria or classifications do you have?
19.Do you differentiate between purchase of goods and services that you make? What other criteria or classifications do you have?
20.Who is authorized to issue purchase orders?
21.How are supplier payments initiated?
22.What IT systems, services or infrastructure do you have in place to support your P&P?
2C. Process level management & concerns
23.What is the average turn-around time between supplier identification and issue of purchase order?
24.What is the average turn-around time between issue of purchase order and receipt of goods/service?
25.Average cost of tendering?
26.How many tenders are issued in a year? Half year? quarter? And in a month? Any seasonality patterns?
27.How many goods and material suppliers used in one year? Half year? Quarter? Month?
28.How many service suppliers used in one year? Half year? Quarter? Month?
29.How many of these suppliers were customer nominated?
30.Do you maintain separate records for capital goods, materials or services purchased?
31.How many rejections per year? – Good/services break up?
32.Average total procurement cost? – Cap good/Material? & Service?
33.Breakdown of total procurement cost? – Cap good/Material? & Service?
34.Average total acquisition cost? - Cap good/Material? & Service? [goods + Transaction]
35.Average total transaction cost?
36.Average cost per transaction?
37.Average cost per supplier?
38.Average total tenders per supplier selected?
39.Average cost per tender?
40.Average creditor period?
41.Average labor cost per tender?
42.Average labor cost per supplier?
43.Average inventory hold period? Trading goods/materials.
44.What value evaluation mechanism do you have in place for the procurements that you make?
2B. Process level design & concerns [ICT]
1.How do you recognize and identify business need for ‘a’ IT solution?
2.What ICT strategy/policy do you have in place? What is the overall objective of IT in EINW?
3.What drives ICT strategy/policy?
4.What IT systems, services & infrastructure do you have in place? Which business function/s do they support?
5.How do you validate need for IT procurement?
6.How do you budget IT procurement?
7.Do you carryout IT risk assessment before procurements? Yes – when? No – Why not?
8.How do you develop specifications for the IT goods/services being procured?
9.How do you source IT suppliers? First time purchase, repeat purchase?
10.How do you ensure Value for Money (VFM) from your ICT?
11.IF IT DEPARTMENT CARRIES OUT ITS OWN PROCUREMENT, THEN GET ANSWERS TO QUESTIONS LISTED IN THE 2B PROCUREMENT SECTION.
12.How has ICT benefited your organisation?
2C. Process level management & concerns [ICT]
1.Do you have a comprehensive and coherent IT architecture for EINW?
2.How do you evaluate/measure the effectiveness of the current IT systems?
3.How do you ensure relevance & currency of IT strategy?
4.Do you have a breakup of Systems, Services & Infra that you use? Yes, -can you provide me those?
5.How do you measure cost effectiveness of the IT system in place? (any bench marks –reuse, -vs-)
6.Current Total cost of ownership of the IT systems? – Systems, services & Infra.
7.Current measure for ROI on IT spending?
8.Any other measures of value evaluation that you have in place for IT spends?
2B. Process level design & concerns [P&P]
1.How do you recognize and identify business need for ‘a’ Project/Program solution?
2.What P&P were carried out in the last 12 months? Break up?
3.Who approves initiation of internal projects?
4.What P&P methodologies do you have in place? Why do you use them?
5.What is the overall objective of P&P function within EINW?
6.What drives P&P strategy/policy?
7.How do you budget P&P initiative?
8.Do you carryout risk assessment before P&P initiatives? Yes – when & How? No – Why not?
9.Where do you source your P&P resources from?
10.How do you ensure Value for Money (VFM) from P&P initiatives?
11.IF P&P DEPARTMENT CARRIES OUT ITS OWN PROCUREMENT, THEN GET ANSWERS TO QUESTIONS LISTED IN THE 2B PROCUREMENT SECTION.
12.How has ICT benefited P&P?
2C. Process level management & concerns [P&P]
1.Do you have a comprehensive and coherent P&P policy for EINW?
2.How do you evaluate/measure the effectiveness of the current P&P methodologies used?
3.How do you ensure relevance & currency of P&P undertaken?
4.Do you have a breakup of Systems, Services & Infra that you use? Yes, -can you provide me those?
5.How do you measure cost effectiveness of any new P&P initiative? (any bench marks –reuse, -vs-)
6.Average life time cost of project undertaken in last 2/3 years?
7.Current measure for ROI on P&P spending?
8.Any other measures of value evaluation that you have in place for P&P spends?
All good ideas have ready application. This blog aims to bring forth ideas that have seen application, for further refinement.
I will attempt to give you glimpses of the business landscape that I have been maneuvering, through my articles.
I will post articles that are linked to my everyday work. This blog also includes my other works in a series. This series is a reflection of my work as a Business Consultant - Strategy & Change Management with a reputed M&E company based in Leicester, UK. Please follow the series by stage and article numbers.
For more information contact: info@iideaz.com or visit www.iideaz.com
