BCG MATRIX

If you're the owner of an established company, you may wonder how best to deploy

resources to enhance your prospects. Since 1968, the BCG matrix, also known as the

Boston or growth-share matrix, has helped companies answer that question by

providing them a way to analyze product lines in search of growth opportunities.

Named for its creator, the Boston Consulting Group, the BCG matrix

aims to identify high-growth prospects by categorizing the company's products

according to growth rate and market share. By optimizing positive cash flows in high-

potential products, a company can capitalize on market-share growth opportunities.

Reeves Martin, senior partner and managing director of Boston Consulting Group, said

that nearly 50 years after its inception, the BCG matrix remains a valuable tool for

helping companies understand their potential.

"The concept of BCG's growth-share matrix, central nowadays to business schools'

curriculum on strategy ... provided companies with a disciplined and systematic tool for

portfolio management," Martin told Business News Daily. "Recently, Harvard Business

Review named BCG's matrix one of five 'frameworks that changed the world.'"

Understanding the matrix

To create a BCG matrix, businesses gather market-share and growth-rate data on their

business units or products. One large square is drawn and is divided into four equal

quadrants. Along the top of the box, a market share or cash generation is written, and a

growth rate or cash use is written down the left side. On the top left is high market

share, and low market share is on the left. On the left-hand side, high cash use is at the

top and low cash use or growth rate is at the bottom.

Within the diagram, "stars" go in the upper-left quadrant, and "question marks" are put

in the upper-right square. At the bottom, "cash cows" go on the left, and "dogs" are

placed on the right. The diagram visually shows that stars have high market share and a

high growth rate, while question marks have low market share and a high growth rate.

On the bottom, cash cows have a low growth rate but a high market share, and dogs

have a low market share and a low growth rate.

Credit: DeiMosz/Shutterstock

The following ideas apply to each quadrant of the matrix:

Stars: The business units or products that have the best market share and

generate the most cash are considered stars. Monopolies and first-to-market products

are frequently termed stars. However, because of their high growth rate, stars also

consume large amounts of cash. This generally results in the same amount of money

coming in that is going out. Stars can eventually become cash cows if they sustain their

success until a time when the market growth rate declines. Companies are advised to

invest in stars.

Cash cows: Cash cows are the leaders in the marketplace and generate more

cash than they consume. These are business units or products that have a high market

share, but low growth prospects. According to NetMBA, cash cows provide the

cash required to turn question marks into market leaders, to cover the administrative

costs of the company, to fund research and development, to service the corporate debt,

and to pay dividends to shareholders. Companies are advised to invest in cash cows to

maintain the current level of productivity, or to "milk" the gains passively.

Dogs: Also known as pets, dogs are units or products that have both a low market

share and a low growth rate.They frequently break even, neither earning nor consuming

a great deal of cash. Dogs are generally considered cash traps because businesses

have money tied up in them, even though they are bringing back basically nothing in

return. These business units are prime candidates for divestiture.

Question marks: These parts of a business have high growth prospects

but a low market share. They are consuming a lot of cash but are bringing little in return.

In the end, question marks, also known as problem children, lose money. However,

since these business units are growing rapidly, they do have the potential to turn into

stars. Companies are advised to invest in question marks if the product has potential for

growth, or to sell if it does not.

As BCG founder Bruce Henderson wrote in 1968, "all products eventually become

either cash cows or pets [dogs]. The value of a product is completely dependent upon

obtaining a leading share of its market before the growth slows."

Once a company plots out its matrix, it can begin to further analyze its

products'potential.

PORTER FIVE FORCES MODEL

Whether you are starting a new business or looking for more insight into your existing

company's prospects, you probably have questions about the competition. One way to

answer those questions is by using Porter's Five Forces model.

Originally developed by Harvard Business School's Michael E. Porter in 1979, the five

forces model looks at five specific factors that help determine whether or not a business

can be profitable, based on other businesses in the industry.

"Understanding the competitive forces, and their underlying causes, reveals the roots of

an industry's current profitability while providing a framework for anticipating and

influencing competition (and profitability) over time," Porter wrote in a Harvard Business Review article. "A healthy industry structure

should be as much a competitive concern to strategists as their company’s own

position."

According to Porter, the origin of profitability is identical regardless of industry. In that

light, industry structure is what ultimately drives competition and profitability —not

whether an industry produces a product or service, is emerging or mature, high-tech or

low-tech, regulated or unregulated.

"If the forces are intense, as they are in such industries as airlines, textiles, and hotels,

almost no company earns attractive returns on investment," Porter wrote.

"If the forces are benign, as they are in industries such as software, soft drinks, and

toiletries, many companies are profitable."

Understanding the Five Forces

Porter regarded understanding both the competitive forces and the overall industry

structure as crucial for effective strategic decision-making. In Porter's model, the five

forces that shape industry competition are:

Competitive rivalry. This force examines how intense the competition

currently is in the marketplace, which is determined by the number of existing

competitors and what each is capable of doing. Rivalry competition is high when there

are just a few businesses equally selling a product or service, when the industry is

growing and when consumers can easily switch to a competitors offering for little cost.

When rivalry competition is high, advertising and price wars can ensue, which can hurt

a business's bottom line. Rivalry is quantitatively measured by the Concentration Ratio

(CR), which is the percentage of market share owned by the four largest firms in an

industry.

Bargaining power of suppliers. This force analyzes how much

power a business's supplier has and how much control it has over the potential to raise

its prices, which, in turn, would lower a business's profitability. In addition, it looks at the

number of suppliers available: The fewer there are, the more power they have.

Businesses are in a better position when there are a multitude of suppliers. Sources of

supplier power also include the switching costs of firms in the industry, the presence of

available substitutes, and the supply purchase cost relative to substitutes.

Bargaining power of customers. This force looks at the power

of the consumer to affect pricing and quality. Consumers have power when there aren't

many of them, but lots of sellers, as well as when it is easy to switch from one

business's products or services to another. Buying power is low when consumers

purchase products in small amounts and the seller's product is very different from any of

its competitors.

Threat of new entrants. This force examines how easy or difficult it

is for competitors to join the marketplace in the industry being examined. The easier it is

for a competitor to join the marketplace, the greater the risk of a business's market

share being depleted. Barriers to entry include absolute cost advantages, access to

inputs, economies of scale and well-recognized brands.

Threat of substitute products or services. This force

studies how easy it is for consumers to switch from a business's product or service to

that of a competitor. It looks at how many competitors there are, how their prices and

quality compare to the business being examined and how much of a profit those

competitors are earning, which would determine if they have the ability to lower their

costs even more. The threat of substitutes are informed by switching costs, both

immediate and long-term, as well as a buyer's inclination to change.

Example of Porter's Five Forces

There are several examples of how Porter's Five Forces can be applied to various

industries online. As an example, stock analysis firm Trefis looked at how Under

Armour fits into the athletic footwear and apparel industry.

Competitive rivalry Under Armour faces intense competition from Nike, Adidasand

newer players.

Nike and Adidas, which have considerably larger resources at their

disposal, are making a play within the performance apparel market

to gain market share in this up-and-coming product category.

Under Armour does not hold any fabric or process patents, and

hence its product portfolio could be copied in the future.

Bargaining power of suppliers A diverse supplier base limits bargaining power.

In 2012, Under Armour's products were produced by 27

manufacturers located across 14 countries. Of these, the top 10

accounted for 49 percent of the products manufactured.

Bargaining power of customers Under Armour'scustomers include both wholesale customers as well

as end customers.

Wholesale customers, like Dick's Sporting Goods and the Sports

Authority, hold a certain degree of bargaining leverage, as they

could substitute Under Armour's products with other competitors' to

gain higher margins.

Bargaining power of end customers is lower as Under Armour enjoys

strong brand recognition.

Threat of new entrants Large capital costs are required for branding, advertising and

creating product demand, and hence this limits the entry of newer

players in the sports apparel market.

However, existing companies in the sports apparel industry could

enter the performance apparel market in the future.

Threat of substitute products The demand for performance apparel, sports footwear and

accessories is expected to continue, and hence we think this force

does not threaten Under Armour in the foreseeable future.

Trefis has also completed Porter's Five Forces analyses of companies,

including Facebook,  Nike, Coach and Ralph Lauren.

Strategies for success

Once your analysis is complete, it is time to implement a strategy to expand your

competitive advantage. To that end, Porter identified three "generic strategies"that can

be implemented in any industry, and in companies of any size:

Cost leadership: In this strategy, your goal is to increase profits by

reducing costs while charging industry-standard prices, or to increase market share by

reducing the sales price while retaining profits.

Differentiation: This strategy aims to make the company's products

significantly different from the competition, improving their competitiveness and value to

the public. This strategy requires both good research and development and effective

sales and marketing teams.

Focus: In the focus strategy, businesses select niche markets in which to sell their

goods. This strategy requires intense understanding of the marketplace, its sellers,

buyers and competitors. The use of this strategy frequently requires the companies to

also implement a cost leadership or differentiation position.

Porter said the new strategy should be executed at the corporate, business unit and

departmental levels. Of these, Porter considered the business unit most significant.

More information about the generic strategies is available in Porter's 1985

book, Competitive Advantage (Free Press).

Alternatives and addendums

While Porter's Five Forces is an effective and time-tested model, it has been criticized

for failing to explain strategic alliances. In the 1990s, Yale School of Management

professors Adam Brandenbuger and Bare Nalebuff created the idea of a sixth force,

"complementors," using the tools of game theory. In their model, complementors sell

products and services that are best used in conjunction with a product or service from a

competitor. Intel, which manufactures processors, and computer manufacturer Apple

could be considered complementors in this model. More information can be found

at Strategic CFO.

Regardless of whether the complement force is potent in your company's industry,

additional modeling tools are likely to help you round out your understanding of your

business and its potential. A value chain analysis aims to help companies

understand where they have the best productive advantage, while the BCG matrix helps companies identify which products are likely to benefit the most from

increased investment.- See more at: http://www.businessnewsdaily.com/5446-porters-five-forces.html#sthash.qlN3czVm.dpuf

Generic Strategies

These three approaches are examples of "generic strategies," because they can be applied to products or services in all industries, and to organizations of all sizes. They were first set out by Michael Porter in 1985 in his book, "Competitive Advantage: Creating and Sustaining Superior Performance."Porter called the generic strategies "Cost Leadership" (no frills), "Differentiation" (creating uniquely desirable products and services) and "Focus" (offering a specialized service in a niche market). He then subdivided the Focus strategy into two parts: "Cost Focus" and "Differentiation Focus." These are shown in Figure 1 below.

Tip:

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could be interpreted as meaning "a focus on cost" or "a focus on differentiation." Remember that Cost Focus means emphasizing cost-minimization within a focused market, and Differentiation Focus means pursuing strategic differentiation within a focused market.

The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage – in other words, developing the "edge" that gets you the sale and takes it away from your competitors. There are two main ways of achieving this within a Cost Leadership strategy:

Increasing profits by reducing costs, while charging industry-average prices.

Increasing market share through charging lower prices, while still making a reasonable profit on each sale because you've reduced costs.

Tip:

Remember that Cost Leadership is about minimizing the cost to the organization of delivering products and services. The cost or price paid by the customer is a separate issue!The Cost Leadership strategy is exactly that – it involves being the leader in terms of cost in your industry or market. Simply being amongst the lowest-cost producers is not good enough, as you leave yourself wide open to attack by other low-cost producers who may undercut your prices and therefore block your attempts to increase market share.

You therefore need to be confident that you can achieve and maintain the number one position before choosing the Cost Leadership route. Companies that are successful in achieving Cost Leadership usually have:

Access to the capital needed to invest in technology that will bring costs down.

Very efficient logistics.

A low-cost base (labor, materials, facilities), and a way of sustainably cutting costs below those of other competitors.

The greatest risk in pursuing a Cost Leadership strategy is that these sources of cost reduction are not unique to you, and that other competitors copy your cost reduction strategies. This is why it's important to continuously find ways of reducing every cost. One successful way of doing this is by adopting the Japanese Kaizen   philosophy of "continuous improvement."

The Differentiation Strategy

Differentiation involves making your products or services different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value.

To make a success of a Differentiation strategy, organizations need:

Good research, development and innovation.

The ability to deliver high-quality products or services.

Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.

Large organizations pursuing a differentiation strategy need to stay agile with their new product development processes. Otherwise, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments.

The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, by understanding the dynamics of that market and the unique needs of customers within it, develop uniquely low-cost or well-specified products for the market. Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.

As with broad market strategies, it is still essential to decide whether you will pursue Cost Leadership or Differentiation once you have selected a Focus strategy as your main approach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of a generic Focus strategy is to ensure that you are adding something extra as a result of serving only that market niche. It's simply not enough to focus on only one market segment because your organization is too small to serve a broader market (if

you do, you risk competing against better-resourced broad market companies' offerings).

The "something extra" that you add can contribute to reducing costs (perhaps through your knowledge of specialist suppliers) or to increasing differentiation (though your deep understanding of customers' needs).

Business Plan

Small Business Week, which takes place the third week in October, gives entrepreneurs the

opportunity to share stories, exchange ideas, meet experts, and participate in events held

across the country. It’s also a great time for aspiring small business owners to get their feet

wet and meet potential business partners or investors.

If your business is still all in your head, however, it might be hard to convince anyone that

you have a credible company and that you'll use their funding well. And that's precisely

where a business plan comes in. This highly recognized management tool is basically a

written document that describes who you are, what you plan to achieve, how you plan to

overcome the risks involved and provide the returns anticipated.

Many entrepreneurs may see putting a business plan together as a daunting task involving

hundreds of pages. However, in reality, it should be a concise and structured document that

gives readers everything they need to assess your company's project.

Here are the ten elements you should consider:

1. Your business proposal. Include a description of exactly what you're

proposing. Ask yourself: who your customer is, what business are you in

exactly, what do you sell, and what are your plans for growth?

2. Your unique selling point. Address how your goods or services will appeal to

customers. How will your company or product/service make a difference in the lives of your

customers?

3. Market analysis. Make sure you show your lender that you understand your customer

needs so that you can offer a product or service that precisely fits those needs. You'll need

to provide information such as your target market, customer demographics, competition and

distribution methods.

4. Key competitive information. Provide information on competitor weaknesses and

strengths and show how you intend to improve on what they're doing.

5. Organizational structure. Use organization charts to clearly spell out the roles of key

management people and the proposed size of your organization.

6. HR requirements. You should include information on how you plan to recruit and

maintain your employees or handle outsourced work.

7. Premises and capital goods. Do an assessment of the company's needs with regard to

premises and capital goods (such as machinery, technological equipment).

8. Key financial data. Be sure to modify your information depending on your target

audience. For example, your bank will be interested in how you intend to repay the loan or

overdraft, what you intend to do with the money and how it will help your business grow.

Potential investors will also want to see the expected return and sources of funding, while

shareholders are looking for the prospect of the share price and what dividend they can

expect on their shares.

9. Legal structure. Address issues such as taxes, liability concerns, information on

proprietorships, partnerships, limited or incorporated companies. If you're buying an existing

business, be sure to clarify buy-and-sell agreements. Keep in mind that you should have a

lawyer look over all contracts and legal issues.

10. An executive summary. It helps to write this last; a page or two of highlights is

sufficient. Be sure to clarify whether this is a new business venture, an expansion of an

existing business or the purchase of a new business.

Canada’s business development bank, BDC, puts entrepreneurs first. With almost 1,900

employees and more than 100 business centres across the country, BDC offers financing,

subordinate financing, venture capital and consulting services to 29,000 small and medium-

sized companies. Their success is vital to Canada’s economic prosperity.

Strategic Alliances

A strategic alliance is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. This form of cooperation lies between mergers and acquisitions and organic growth.

Advantages of Strategic Alliances

Strategic alliances usually are only formed if they provide an advantage to all the

parties in the alliance. These advantages can be broken down to four broad

categories.

The first category is organizational advantages. You may wish to form a strategic

alliance to learn necessary skills and obtain certain capabilities from your strategic

partner. Strategic partners may also help you enhance your productive capacity,

provide a distribution system, or extend your supply chain. Your strategic partner

may provide a good or service that complements a good or service you provide,

thereby creating a synergy. If you are relatively new or untried in a certain industry,

having a strategic partner who is well-known and respected will help add legitimacy

and creditability to your venture.

A second category is economic advantage. You can reduce costs and risks by

distributing them across the members of the alliance. You can also obtain greater

economies of scale in an alliance, as production volume can increase, causing the

cost per unit to decline. Finally, you and your partners can take advantage of co-

specialization, where you bundle your specializations together, creating additional

value, such as when a leading computer manufacturer bundles its desktop with a

leading monitor manufacturer's monitor.

Another category includes strategic advantages. You may join with your rivals to

cooperate instead of compete. You can also create alliances to create vertical

integration where your partners are part of your supply chain. Strategic alliances

may also be useful to create a competitive advantage by the pooling of resources

and skills. This may also help with future business opportunities and the

development of new products and technologies. Strategic alliances may also be

used to get access to new technologies or to pursue joint research and

development.

Lastly is the category of political advantages. Sometimes you need to form a

strategic alliance with a local foreign business to gain entry into a foreign market

either because of local prejudices or legal barriers to entry. Forming strategic

alliances with politically-influential partners may also help improve your own

influence and position.

Problems in Starategic alliances

Problems of strategic alliance is accompanied by a problem which is different from that of a single organisation. The probability of

occurring of such a problem becomes inevitable when two different and independent organisations work together.

The difference of opinion occurs very often due to various reasons like difference in cognizance, difference of values, difference in aims and difference in alliance resources. These types of differences become important factors for the triggering of innovation. However, the strong motivation for promoting such transactions that are beneficial to one part alone may end up in damaging the relationship of trust. It is possible that the fruits of alliance cannot be materialised in the event of lack of strong relationship and it is also possible that the strategic alliance partners may turn rivals in future.

The strategic alliance which has such types of problems requires relationship, trust and devotion, in particular. The following nine pints can be listed as the conditions for the strategic alliance.

· To have a clear understanding about the present and future capability requirement for one’s company (there are many cases when company’s jump over to grab any opportunity to meet the immediate needs, in actual practice).· To study the alliance which has the possibility of covering a very wide scope.· To seriously study the capability, zeal and values of the other party before entering into alliance relationship. It is necessary to understand the actual state of affairs of the other party. · To consider beforehand, the risk of knowledge getting stereo typed, disclosure of knowledge and optimism etc. The two partners will have to harmonise and cooperate with each other, while they complete with each other at the same time.· To avoid over dependence. It must be kept in mind that the alliance is not an alternative method to the development from inside. It should act to supplement the information resources of one’s company or improving upon them.· The alliance of enterprise must be constructed managed in the form of an independent enterprise.· The partners should have complete mutual trust. Trust and liberal communication are indispensable for the success of any alliance. · The core type activity and the traditional organisation of one’s company must be modified so that the results achieved as a

consequence of alliance are received with flexible mind.· It is the responsibility of the leader to clearly communicate the purpose, importance and reasonability of the alliance through his or her speech and conduct. It is necessary that the leader must set a model example concerning the devotion, patience and flexibility.

As the enterprises adopt strategic alliance more frequently with an aim of acquiring and learning the knowledge, the management of overall alliance patter will gain importance over the individual alliance management. And with the progress in the process of forming alliance the significance of contribution of individual alliances to the strategy and basic purpose of enterprise will become less important. Rather, it will become necessary to study how various alliances affect the growth of the enterprises.

In this world of knowledge leadership based competition, the pre-dominance on the basis of the product is no longer a continuous possession. The knowledge which is difficult to transfer alone has become the real and basic asset for an enterprise. 

However, the information resources which have higher degree of independence and are difficult to transfer also have some peculiar problems attached to them. The typical characteristic features like non-general purpose utility and fixed types etc of such information resources normally lead to loss of sensitivity, flexibility in behaviour and maneuverability towards the changes in the environment of the organization.

Collaborative agreements between businesses can take a number of forms and are becoming increasingly common as businesses aim to get the upper hand over their competitors. The main types of strategic alliances are listed below:

Joint VenturesA joint venture is an agreement by two or more parties to form a single entity to undertake a certain project. Each of the businesses has an equity stake in the individual business and share revenues, expenses and profits.

“Joint Ventures are agreements between parties or firms for a particular purpose or venture. Their formation may be very informal, such as a handshake and an agreement for two firms to share a booth at a trade show. Other arrangements can be extremely complex, such as the consortium of major U.S. electronics firms to develop new microchips,” says Charles P. Lickson in A Legal Guide for Small Business.Joint ventures between small firms are very rare, primarily because of the required commitment and costs involved.

OutsourcingThe 1980s was the decade where outsourcing really rose to prominence, and this trend continued throughout the 1990s to today, although to a slightly lesser extent.The early forecasts, such as the one from American Journalist Larry Elder, have been shown to not always be true:“Outsourcing and globalization of manufacturing allows companies to reduce costs, benefits consumers with lower cost goods and services, causes economic expansion that reduces unemployment, and increases productivity and job creation.”

Affiliate MarketingAffiliate marketing has exploded over recent years, with the most successful online retailers using it to great effect. The nature of the internet means that referrals can be accurately tracked right through the order process.Amazon was the pioneer of affiliate marketing, and now has tens of thousands of websites promoting its products on a performance-based basis.

Technology LicensingThis is a contractual arrangement whereby trade marks, intellectual property and trade secrets are licensed to an external firm. It’s used mainly as a low cost way to enter foreign markets. The main downside of licensing is the loss of control over the technology – as soon as it enters other hands the possibility of exploitation arises.

Product LicensingThis is similar to technology licensing except that the license provided is only to manufacture and sell a certain product. Usually each licensee will be given an exclusive geographic area to which they can sell to. It’s a lower-risk way of expanding the reach of your product compared to building your manufacturing base and distribution reach.

FranchisingFranchising is an excellent way of quickly rolling out a successful concept nationwide. Franchisees pay a set-up fee and agree to ongoing payments so the process is financially risk-free for the company. However, downsides do exist, particularly with the loss of control over how franchisees run their franchise.

R&DStrategic alliances based around R&D tend to fall into the joint venture category, where two or more businesses decide to embark on a research venture through forming a new entity.

DistributorsIf you have a product one of the best ways to market it is to recruit distributors, where each one has its own geographical area or type of product. This ensures that each distributor’s success can be easily measured against other distributors.Distribution RelationshipsThis is perhaps the most common form of alliance. Strategic alliances are usually formed because the businesses involved want more customers.The result is that cross-promotion agreements are established.Consider the case of a bank. They send out bank statements every month. A home insurance company may approach the bank and offer to make an exclusive available to their customers if they can include it along with the next bank statement that is sent out.It’s a win-win agreement – the bank gains through offering a great deal to their customers, the insurance company benefits through increased customer numbers, and customers gain through receiving an exclusive offer.- See more at: http://www.marketingminefield.co.uk/types-of-strategic-

alliances/#sthash.ub3ip9DB.dpuf

Steps in Strategy Formulation Process

Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.   The process of strategy formulation basically involves six main steps . Though these steps do not follow a rigid chronological order, however they are very rational and can be easily followed in this order.

1. Setting Organizations’ objectives -   The key component of any strategy statement is to set the long-term objectives of the organization. It is known that strategy is generally a medium for realization of organizational objectives. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. Thus, strategy is a wider

term which believes in the manner of deployment of resources so as to achieve the objectives.

While fixing the organizational objectives, it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. Once the objectives and the factors influencing strategic decisions have been determined, it is easy to take strategic decisions.

2. Evaluating the Organizational Environment -   The next step is to evaluate the general economic and industrial environment in which the organization operates. This includes a review of the organizations competitive position. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.

After identifying its strengths and weaknesses, an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources.

3. Setting Quantitative Targets -   In this step, an organization must practically fix the quantitative target values for some of the organizational objectives. The idea behind this is to compare with long term customers, so as to evaluate the contribution that might be made by various product zones or operating departments.

4. Aiming in context with the divisional plans -   In this step, the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. This requires a careful analysis of macroeconomic trends.

5. Performance Analysis -   Performance analysis includes discovering and analyzing the gap between the planned or desired performance. A critical evaluation of the organizations past performance, present condition and the desired future conditions must be done by the organization. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. An attempt is made by the organization to estimate its probable future condition if the current trends persist.

6. Choice of Strategy -   This is the ultimate step in Strategy Formulation. The best course of action is actually chosen after considering organizational goals, organizational strengths, potential and limitations as well as the external opportunities.

DIFFERENT TYPES OF STRATEGY

The word “strategy” means different things to different people, much of which isn’t really strategy at all, A Strategy by Any Other Name, more on this topic.  

Within the domain of well-defined strategy there are uniquely different strategy types, here are three:

1. Business strategy2. Operational strategy3. Transformational strategy

It is worth noting, that a common consideration across different types of strategy are people, process, and technology.  Without this, strategy is a set of lofty ideas, ungrounded in reality.

Let's look further into each of the three that come to mind. What strategy types do you see?

1. Business Strategy

The first of the three types of strategy is Business. It is primarily concerned with how a company will approach the marketplace - where to play and how to win.

Where to play answers questions like, which customer segments will we target, which geographies will we cover, and what products and services will we bring to market.

How to win answers questions like, how will we position ourselves against our competitors, what capabilities will we employ to differentiate us from the competition, and what unique approaches will we apply to create new markets.

Senior managers typically create business strategy. After it is created, business architects play an important role in clarifying the strategy, creating tighter alignment among different strategies, and communicating the business strategy across and down the organization in a clear and consistent fashion.

Executives are just beginning to bring advanced, highly credible business architecture practices into the strategy discussions early to provide tools, models, and facilitation that enable better strategy development.

2. Operational Strategy

The second of the three types of strategy is Operational. It is primarily concerned with accurately translating the business strategy into a cohesive and actionable implementation plan. Operational Strategy answers the questions:

Which capabilities need to be created or enhanced? What technologies do we need?

Which processes need improvement? Do we have the people we need?

The vast majority of business architects are currently working in the operational strategy domain reaching up into the business strategy domain for direction.

They work from the middle out to bring clarity and cohesiveness to the organization’s operating model typically working vertically within a single business unit while resolving issues at the business unit boundaries.

More mature business architecture practices work in multiple verticals or move from one vertical to another creating common business architecture patterns

3. Transformational Strategy

The third of the three types of strategy is Transformational. It is seen less often as it represents the wholesale transformation of an entire business or organization.

This type of strategy goes beyond typical business strategy in that it requires radical and highly disruptive changes in people, process, and technology.

Few organizations go down this path willingly.

Transformational strategy is generally the domain of Human Resources, organizational development, and consultants.

These efforts are incredibly complex and can experience significant benefit from applying business architecture discipline though it is rare to see business architects playing a significant role here.

Bottom line:

Not all strategy work is the same. Each strategy type creates a unique role for the business architect requiring a different approach and skill set. Business architects who are successfully delivering in one role should be actively developing the skills they need to move into other strategy domains.

Advantages of Using the Internet for Business

The Internet can boost small businesses.

Related Articles What Are Internal & External Environmental Factors That Affect Business? Advantages & Disadvantages of Using the Internet for Employee Recruitment How to Open an Online Clothing Boutique How to Start a Clothing Business With Buying Wholesale The Advantages & Disadvantages of a Business Using the Internet for Business Activity Advantages of Internet Businesses

The advent of the Internet has in many ways leveled the playing field for small businesses to compete with major corporations. The Internet has allowed fledgling businesses to increase both visibility and revenue, reaching a potential customer population never before seen in history. An owner who understands the benefits of utilizing the Internet when conducting business and applies the practices can maximize the potential of his organization.

Potential Customer BaseNot too long ago, if a person started a business, she might place a few advertisements locally in the hopes of building a name for herself in the area. The Internet has changed that practice completely. An Internet presence instantly gives her company a global audience. Customers from around the world are able to learn about and purchase her products and services. Her potential population of customers is endless.

A Store that Never ClosesThe World Wide Web operates 24 hours a day, seven days a week. Businesses that sell ready-made products benefit most from this advantage. By creating an Internet store, these entrepreneurs have the ability to maintain a virtual retail shop that never closes, affording the owner the possibility of literally making money in his sleep.

Networking OpportunitiesThe Internet has created a global community of peers. In the past, a business owner’s only option was to join a local chamber of commerce in order to network and learn from fellow entrepreneurs. The creation of chat rooms and Internet forums, however, has taken the idea of fellowship to a new level. A person in Portland, Maine, now can exchange advice regarding marketing and promotional techniques with someone in the same line of business based in Sydney, Australia.

Cost EffectivePerhaps the biggest advantage of using the Internet for business is its cost effectiveness. Opening and maintaining an online store costs a fraction of the budget required to open a physical shop. Advertising online is less expensive than in traditional media, and it allows business owners to reach a more targeted demographic. The Internet also allows business to be conducted without expensive travel. In the retail industry, for example, a shop owner can browse and purchase goods for resale from suppliers around the globe without having to leave the comfort of his computer desk.

InformationIf you try to learn the store hours of a business without a website, you may have to call several

times and get transferred to an operator just to get an answer to your simple question. If the

business has a website, however, you can obtain this information quickly and easily. Business

websites can provide customers with a wealth of relevant information, including contact

information, product description and company history.

SalesHaving a website that offers customers the ability to shop online can quickly help improve a

company's financial bottom line. Many consumers prefer shopping online because of its ease

and convenience; they can shop when they want, with no lines and with no visiting the store in

person. Online stores are also ideal for consumers who don't live within a reasonable distance

from a store. Through the Internet, these consumers can still shop at the store.

Advantages:  of internet

1) Information on almost every subject imaginable. 

2) Powerful search engines 

3) Ability to do research from your home versus research libraries. 

4) Information at various levels of study. Everything from scholarly articles to ones directed at

children. 

5) Message boards where people can discuss ideas on any topic. Ability to get wide range of

opinions. People can find others that have a similar interest in whatever they are interested in. 

6) The internet provides the ability of emails. Free mail service to anyone in the country. 

7) Platform for products like SKYPE, which allow for holding a video conference with anyone in the

world who also has access. 

8) Friendships and love connections have been made over the internet by people involved in

love/passion over similar interests. 

9) Things such as Yahoo Answers and other sites where kids can have readily available help for

homework. 

10) News, of all kinds is available almost instantaneously. Commentary, on that news, from every

conceivable viewpoint is also available. 

The Implementation Process of Strategic Plansby Kristie Lorette, Demand Media

Learn ways to implement your business plan.

Related Articles What Is the Difference Between Strategic Planning & Strategic Implementation? What Is Strategic Implementation? The Five Stages of the Strategic Management Process How to Make a Profit Margin Formula in Excel 5 Different Types of Leadership Styles How to Disable Read-Only in Excel

A strategic plan is of little use to an organization without a means of putting it into place. In fact, implementation is an essential part of the strategic planning process, and organizations that develop strategic plans must expect to include a process for applying the plan. The specific implementation process can vary from organization to organization, dependent largely on the details of the actual strategic plan, but some basic steps can assist in the process and ensure that implementation is successful and the strategic plan is effective.

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Step 1

Evaluate the strategic plan. The first step in the implementation process is to step back and make sure that you know what the strategic plan is. Review it carefully, and highlight any elements of the plan that might be especially challenging. Recognize any parts of the plan that might be unrealistic or excessive in cost, either of time or money. Highlight these, and be sure to keep them in mind as you begin implementing the strategic plan. Keep back-up ideas in mind in case the original plan fails.

Step 2

Create a vision for implementing the strategic plan. This vision might be a series of goals to be reached, step by step, or an outline of items that need to be completed. Be sure to let everyone know what the end result should be and why it is important. Establish a clear image of what the strategic plan is intended to accomplish.

Related Reading: What Are the Roles of an Employee in the Implementation Process?Step 3

Select team members to help you implement the strategic plan. Make sure you have a team that “has your back,” so to speak, and understands the purpose of the plan and the steps involved in implementing it. Establish a team leader, if other than yourself, who can encourage the team and field questions or address problems as they arise.

Step 4

Schedule meetings to discuss progress reports. Present the list of goals or objectives, and let the strategic planning team know what has been accomplished. Whether the implementation is on schedule, ahead of schedule, or behind schedule, assess the current schedule regularly to discuss any changes that need to be made. Establish a rewards system that recognizes success throughout the process of implementation.

Step 5

Involve the upper management where appropriate. Keep the organization’s executives informed on what is happening, and provide progress reports on the implementation of the plan. Letting an organization’s management know about the progress of

implementation makes them a part of the process, and, should problems arise, the management will be better able to address concerns or potential changes.

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Balanced Scorecard BasicsThe balanced scorecard is a strategic planning and management systemthat is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance

measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century.

Gartner Group suggests that over 50% of large US firms have adopted the BSC. More than half of major companies in the US, Europe and Asia are using balanced scorecard approaches, with use growing in those areas as well as in the Middle East and Africa. A recent global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used management tools around the world, a list that includes closely-related strategic planning at number one. Balanced scorecard has also been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years. 

The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.

This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.

Kaplan and Norton describe the innovation of the balanced scorecard as follows:

"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.

PerspectivesThe balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning & Growth PerspectiveThis perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems."

The Business Process PerspectiveThis perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.The Customer PerspectiveRecent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.Strategy MappingStrategy maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain. Generally speaking, improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Reference: The Institute Way: Simplify Strategic Planning & Management with the Balanced Scorecard.

Balanced Scorecard SoftwareThe balanced scorecard is not a piece of software. Unfortunately, many people believe that implementing software amounts to implementing a balanced scorecard.Once a scorecard has been developed and implemented, however,performance management software can be used to get the right performance information to the right people at the right time. Automation adds structure and discipline to implementing the Balanced Scorecard system, helps transform disparate corporate data into information and knowledge, and helps communicate performance information. The Balanced Scorecard Institute formally recommends theQuickScore Performance Information SystemTM developed by Spider Strategies   and co-marketed by the Institute.More about Software >>