Friday, July 9, 2010
What is business strategy?
The word 'Strategy' comes from the Greek word 'stratagus'. 'Stratagus' in Greek refers to the art of the general. The various tactics and ploys adopted by the general to achieve victory was his strategy. Therefore we see that the word strategy is very suitable in the business context too. As the business has many 'enemies' both within and without.
Low moral, high wastage, reworking, returns, high overheads, machine downtime and rejects are all internal weaknesses of the organization. To overcome this Chief Executive has to implement action plan developed under a effective strategy. Total quality management, activity based management, total productive maintenance; quality circles etc are the concepts that can be applied to eradicate internal weaknesses.
The external 'enemies' of the business are: competitors, substitute products, new entrants, bargaining power of buyers and sellers. To overcome these external factors many strategies could be adopted (and many more are available - in excess). Choosing the most appropriate strategy is the most important function of top management and the chief executive.
How to set the business strategy?
Setting the business strategy is to an extent complex. But the complexity can be defined in very simple terms i.e. match your business with the environment in which it operates.
How to choose the optimal business strategy?
Choosing the correct business strategy is critical for the success of your business venture. Very often early decisions made cannot be undone - therefore it is vital that you GET IT RIGHT THE FIRST TIME.
The BCG Matrix (Boston Consulting Group)
BCG created the market share/ market growth matrix. On the vertical axis the relative market growth is plotted. On the horizontal axis the relative market share is plotted.
The grid is split up to four main quadrants:
North west: 'stars' - growth businesses
South west: 'cash cows' - harvest business
North east: 'question marks' - emerging business
South east: 'dogs' - businesses which are candidates for divestment.
Typically over its lifetime a business might start off as a question mark, then become a star, and then in maturity become a cash cow, fading eventually into a dog. The matrix thus helps not only with portfolio analysis but also with the life cycle analysis of company products.
Develop an Evaluation Structure and do the research.
Even the best-laid plans can go awry if they are not supported by a solid decision-making
Process. That is why the best investors and entrepreneurs always develop a structure for
Making and evaluating their decisions. When assessing potential investments, Warren Buffet, renowned investor and the second richest man in the world1, uses four basic tenets: the business, the management, the financials, and the value
The result is a holistic business valuation of the prospective investment rather than a mere stock evaluation. Developing such a structure can help create a proven investment strategy over time that can be continually honed and perfected as the marketplace changes.
Stay focused, calm and in control. Most importantly, stick to the plan.
Successful investors, like top entrepreneurs, always operate with a strong financial and emotional
Focus. The best investors know that the market will have its ups and downs over the long-term. They don't make decisions when they're exhausted and they don't act from gut feelings. It is Important to know when and how to get out in order to minimize losses or maximize gains. For example, setting up stop orders at the onset takes the emotion out of decision-making when it Counts.
Top investors also assess their investment strategies from time to time to find out where they are in relation to their ultimate goals.
When events are out of their control, winning investors, like winning entrepreneurs, rely on personal courage and emotional control.
They are also independent and self-confident. They have an ability to feel good whether they win or lose. And most of all, they just keep going. As Peter Lynch so eloquently sums it up in One up on Wall Street: "Don't give in to fear . . . control your emotions . . . otherwise you may abandon hope at the worst moment." This, of course, will bring an entirely undesirable result
Use Strategic Planning to lay the Foundation for your Business Plan
Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail.
A strategic plan is not the same thing as an operational plan. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).
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