Business StudiesDepartment Business Planning and Strategy

Business StudiesDepartmentBusiness StudiesDepartment

Business Planning and StrategyBusiness Planning and Strategy


BUSINESS PLANNING AND STRATEGYBUSINESS PLANNING AND STRATEGY

1. 1. BUSINESS PLANNING is the establishment of BUSINESS PLANNING is the establishment of objectivesobjectives and the and the formulation,formulation, evaluation evaluation and and selectionselection of policies, of policies, strategies,strategies, tactics tactics and and actionaction required to achieve them. required to achieve them.

2. THE BUSINESS PLAN is a predetermined response to the external 2. THE BUSINESS PLAN is a predetermined response to the external events that will impact the direction of a business.events that will impact the direction of a business.

3. BUSINESS STRATEGIES are the long term plans that are needed to 3. BUSINESS STRATEGIES are the long term plans that are needed to reach those targetsreach those targets – – Stimpson, 2000Stimpson, 2000

4. A company’s strategy is a pattern of decisions and actions that are 4. A company’s strategy is a pattern of decisions and actions that are taken to achieve its aims and objectives - Jones, Hall and Raffo,2004.taken to achieve its aims and objectives - Jones, Hall and Raffo,2004.


BUSINESS PLANNINGBUSINESS PLANNING

‘‘Planning is everything: the plan is nothing’-US general EisenhowerPlanning is everything: the plan is nothing’-US general Eisenhower

A A business planbusiness plan is a document, where as is a document, where as planningplanning is the process of preparing a course is the process of preparing a course of action to achieve objectives.of action to achieve objectives.

The Importance of PlanningThe Importance of PlanningIt forces managers to look ahead, rather than being obsessed with day-to-day It forces managers to look ahead, rather than being obsessed with day-to-day problems.problems.It forces managers to identify strengths, weaknesses, opportunities and threats It forces managers to identify strengths, weaknesses, opportunities and threats (SWOT).(SWOT).It provides a focus and sense of direction.It provides a focus and sense of direction.Coordinating activities.Coordinating activities.MotivatingMotivatingIt establishes criteria by which performance can be judged.It establishes criteria by which performance can be judged.It facilitates delegation.It facilitates delegation.It reduces the gap between objectives and performance.It reduces the gap between objectives and performance.It forces managers to be realistic in terms of the objectives they set.It forces managers to be realistic in terms of the objectives they set. It identifies inefficiencies and unnecessary duplication of effort.It identifies inefficiencies and unnecessary duplication of effort.


LEVELS OF PLANNINGLEVELS OF PLANNING

STRATEGIC Deciding on objectives of the organization, changes in these objectives, resources used to attain objectives, and policies to govern the acquisition and disposition of these resources.

Deciding on objectives of the organization, changes in these objectives, resources used to attain objectives, and policies to govern the acquisition and disposition of these resources.

TACTICAL Ensuring that the resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives. Ensuring that the resources are obtained and used effectively and efficiently in the accomplishment of the organization’s objectives.

OPERATIONAL Ensuring that specific tasks are carried out effectively and

efficiently Ensuring that specific tasks are carried out effectively and

efficiently


THE BUSINESS PLANTHE BUSINESS PLAN

1.1. Business plans are particularly associated with new start-up Business plans are particularly associated with new start-up businesses.businesses.

2.2. It is not only a requisite for seeking finance from investors, but It is not only a requisite for seeking finance from investors, but also an essential document for describing aims and objectives also an essential document for describing aims and objectives and enabling measurement of progress towards achieving them. and enabling measurement of progress towards achieving them.

Business Plans provide the means to:Business Plans provide the means to: Appraise the present and future of the business.Appraise the present and future of the business. Work out short and long-term objectives.Work out short and long-term objectives. Establish framework for action to achieve these objectives.Establish framework for action to achieve these objectives.

The business plan is a working document that helps the The business plan is a working document that helps the owner to monitor current operations, plan the future of the owner to monitor current operations, plan the future of the business and evaluate actions necessary for the success of business and evaluate actions necessary for the success of the business. the business.


THE BUSINESS PLANTHE BUSINESS PLAN

The Business Plan is a statement of:The Business Plan is a statement of:

The current situation – The current situation – A situational Audit.A situational Audit. Where the business is going – Where the business is going – Objectives.Objectives. How will it get there – How will it get there – Strategy.Strategy. The financial implications of the proposed The financial implications of the proposed

activities.activities. The viability of the proposal.The viability of the proposal. Constraints and expected difficulties.Constraints and expected difficulties.


CONTENTS OF A BUSINESS PLANCONTENTS OF A BUSINESS PLAN

SummarySummaryThe introduces the business plan. It should clearly and concisely state the The introduces the business plan. It should clearly and concisely state the

nature of the business, the amount of external finance it seeks and the nature of the business, the amount of external finance it seeks and the purpose of the application.purpose of the application.

A Description the businessA Description the businessDetails should be given of:Details should be given of:

The history of the business (if it’s an existing business) or reasons for The history of the business (if it’s an existing business) or reasons for starting up the business.starting up the business.

Legal form or organization.Legal form or organization. The capital structure.The capital structure. The key personnel (qualifications, experience, responsibility)The key personnel (qualifications, experience, responsibility)



The Product or ServiceThe Product or ServiceThe product or service should be described and comparisons made with rival The product or service should be described and comparisons made with rival

products. The ‘position’ in the market should be located and its products. The ‘position’ in the market should be located and its unique unique selling points (USP)selling points (USP) should be emphasized. should be emphasized.

Reference should also be made to the ways in which the product is likely to be Reference should also be made to the ways in which the product is likely to be developed in the future.developed in the future.

The MarketThe MarketThis section should be based on market research data and trends in the market This section should be based on market research data and trends in the market

should be identified. The target customer (or target groups of customers) should be identified. The target customer (or target groups of customers) should be described. Market shares, the degree of competition and future should be described. Market shares, the degree of competition and future threats should be included in the assessmentthreats should be included in the assessment..



The Marketing PlanThe Marketing PlanThe marketing plan will detail strategies in relation to:The marketing plan will detail strategies in relation to:

Pricing policies.Pricing policies. Advertising and other forms of promotion.Advertising and other forms of promotion. Selling and distribution.Selling and distribution. Product development and product launch.Product development and product launch.

Manufacturing and Operations PlanManufacturing and Operations PlanThis section of the business plan deals with the production of goods (or the This section of the business plan deals with the production of goods (or the

means of providing services). Details of location, production facilities, means of providing services). Details of location, production facilities, techniques and capital equipment are given as part of the business plan.techniques and capital equipment are given as part of the business plan.



Financial InformationFinancial InformationThe nature of financial information included in this section of the plan The nature of financial information included in this section of the plan

depends on whether the firm is an existing business or a start up business.depends on whether the firm is an existing business or a start up business.

In the case of the former, it is essential to include actual balance sheets, In the case of the former, it is essential to include actual balance sheets, profit and loss accounts and cash statements from the recent past. profit and loss accounts and cash statements from the recent past.

For both start up and existing business it will be necessary to include the For both start up and existing business it will be necessary to include the following information:following information:

Budgets for main functional areas.Budgets for main functional areas. Cash flow forecasts.Cash flow forecasts. Costing and break even analysis.Costing and break even analysis. Budgeted trading and profit and loss account.Budgeted trading and profit and loss account. Budgeted balance sheetBudgeted balance sheet Total borrowing requirements.Total borrowing requirements. Security for the loan and proposal for repaymentSecurity for the loan and proposal for repayment


Essay QuestionEssay Question

Assess the value of a business plan in Assess the value of a business plan in the case of:the case of:

a)a) A start up business seeking external A start up business seeking external finance.finance.

b)b) An existing business financing An existing business financing expansion from internal sources.expansion from internal sources.


STRATEGIC ANALYSISSTRATEGIC ANALYSIS

The process of reviewing exist plans and identifying new opportunities and the The process of reviewing exist plans and identifying new opportunities and the risks associated with them is termed risks associated with them is termed strategic analysis.strategic analysis.

Managers need to constantly analyse the strategies their businesses Managers need to constantly analyse the strategies their businesses are following, and alternative plans that could be adopted in order are following, and alternative plans that could be adopted in order to:to:

Review progress according to the original plan.Review progress according to the original plan. Assess other opportunities that could be exploited.Assess other opportunities that could be exploited. Identify the risks associated with alternative strategies.Identify the risks associated with alternative strategies.

IN THE BOX:IN THE BOX: Q UESTION 3, UNIT 16, PAGE 129 OF HALL, JONES AND Q UESTION 3, UNIT 16, PAGE 129 OF HALL, JONES AND RAFFO, BUSINESS STUDIES,3RAFFO, BUSINESS STUDIES,3RDRD EDITION EDITION


The SWOT ANALYSISThe SWOT ANALYSIS

This involves looking at the internal strengths and weaknesses This involves looking at the internal strengths and weaknesses of a business and the opportunities and threats.of a business and the opportunities and threats.

STRENGHTS:STRENGHTS: These are things that the business and its staff These are things that the business and its staff do which:do which:

They are effective at.They are effective at. They are well known for.They are well known for. Make moneyMake money Generate business and reputation Generate business and reputation Lead to confidence in the market.Lead to confidence in the market. Cause customers to come back for repeat business.Cause customers to come back for repeat business. Cause other businesses to try t learn from them.Cause other businesses to try t learn from them.


The SWOT ANALYSISThe SWOT ANALYSIS

WEAKNESSES:WEAKNESSES: These are the things that the business does badly, These are the things that the business does badly, that it is ineffective at or that it has a poor reputation for. It also that it is ineffective at or that it has a poor reputation for. It also includes the factors that cause losses, hardships, disputes, includes the factors that cause losses, hardships, disputes, grievances and complaints for a business.grievances and complaints for a business.

OPPORTUNITIES:OPPORTUNITIES: These are the directions that the business could These are the directions that the business could profitably take in the future because of its strengths or because of profitably take in the future because of its strengths or because of the elimination of its weaknesses. This involves a consideration of the elimination of its weaknesses. This involves a consideration of the business environment from the widest and most creative the business environment from the widest and most creative standpoint.standpoint.

THREATS:THREATS: Threats to a business arise from the activities of Threats to a business arise from the activities of competitors and from failing to take opportunities or to build on competitors and from failing to take opportunities or to build on successes. Threats also come from complacency, a lack of rigour, successes. Threats also come from complacency, a lack of rigour, and from falling profits.and from falling profits.


STRENGTHSSTRENGTHS Current Products are market leaders Current Products are market leaders in some countries in terms of sales and in some countries in terms of sales and market share.market share.Brand loyalty to product and to Brand loyalty to product and to corporate identity.corporate identity.Effective promotionEffective promotionExcellent Distribution Network Excellent Distribution Network Constant R&D leading to new ideas.Constant R&D leading to new ideas.

WEAKNESSESWEAKNESSES

Age of life cycle of certain products.Age of life cycle of certain products.

Restricted product range could cause Restricted product range could cause problems if sales suddenly fall.problems if sales suddenly fall.

OPPORTUNITIESOPPORTUNITIESExpansion into new geographical Expansion into new geographical areas.areas.Development of global brand and Development of global brand and marketing.marketing.Possible growing demand for soft Possible growing demand for soft beverages.beverages.Legislation on drinks driving may Legislation on drinks driving may encourage growth of soft drinks sale.encourage growth of soft drinks sale.Expansion into new markets.Expansion into new markets.

THREATSTHREATSGrowing competition from supermarket Growing competition from supermarket own brands.own brands.Increasing competition from competitors Increasing competition from competitors bringing out new products.bringing out new products.Competition from alcoholic beverages Competition from alcoholic beverages and non-alcoholic beverages.and non-alcoholic beverages.Legislation on ingredients could force Legislation on ingredients could force changes in production.changes in production.

SWOT Analysis of A Soft Drink Manufacturer


SWOT Analysis for McDonald’s RestaurantSWOT Analysis for McDonald’s Restaurant

STRENGTHSSTRENGTHS Consistent quality and hygiene standardsConsistent quality and hygiene standards Internationally known brand name.Internationally known brand name. Restaurants in most countriesRestaurants in most countries

WEAKNESSESWEAKNESSES Limited menu range.Limited menu range.No variety of décor or food choices in No variety of décor or food choices in different countries.different countries.Staff turnover high, especially among part Staff turnover high, especially among part time staff.time staff.

OPPORTUNITIESOPPORTUNITIES Potential growth in developing countries Potential growth in developing countries such as China.such as China. Develop brand name into new ranges or Develop brand name into new ranges or products such as children’s clothing or products such as children’s clothing or hotels.hotels.

THREATSTHREATSEnvironmental concerns regarding waste, Environmental concerns regarding waste, e.g., take away food containers.e.g., take away food containers.

Strength of competitors such as Burger Strength of competitors such as Burger King.King.

Changing consumer taste; e.g. declining Changing consumer taste; e.g. declining popularity of meat products.popularity of meat products.


PEST – G ANALYSISPEST – G ANALYSIS

This form of business analysis examines the external environment and This form of business analysis examines the external environment and the global factors that may affect a business. It can provide a quick the global factors that may affect a business. It can provide a quick and visual representation of the external pressures facing a and visual representation of the external pressures facing a business, and their possible constraints on strategy.business, and their possible constraints on strategy.

It is usually divided into five external influences on a business.It is usually divided into five external influences on a business.

P – PoliticalP – Political

E – EconomicE – Economic

S – SocialS – Social

T – Technological T – Technological

GG – – Environmental FactorsEnvironmental Factors



POLITICAL:POLITICAL: This is concerned with how political developments, This is concerned with how political developments, regionally, nationally and internationally of might affect a regionally, nationally and internationally of might affect a business’s strategy. It might include a consideration business’s strategy. It might include a consideration legislation,legislation, political pressurespolitical pressures and and government attitude towards businessesgovernment attitude towards businesses..

EONOMIC:EONOMIC: This involves the analysis of a wide variety of economic This involves the analysis of a wide variety of economic factors and their effects on a business. They include:factors and their effects on a business. They include:

Consumer activity – confidence, spending patterns, willingness to Consumer activity – confidence, spending patterns, willingness to spend.spend.

Economic Variables – inflation, unemployment, trade, growth.Economic Variables – inflation, unemployment, trade, growth. Government Policies – fiscal, monetary, supply side, exchange Government Policies – fiscal, monetary, supply side, exchange

rate.rate. Fixed and variable cost of business.Fixed and variable cost of business. The effects of changes in products and labour markets.The effects of changes in products and labour markets.



SOCIALSOCIAL - - What competitive advantage might a business gain by social What competitive advantage might a business gain by social changes taking place outside of the business? For example, falling birth changes taking place outside of the business? For example, falling birth rate, increased life expectancy can lead to the development of products, rate, increased life expectancy can lead to the development of products, particularly private pensions, private medical schemes. Pressure groups particularly private pensions, private medical schemes. Pressure groups can also affect businesses, for example, the anti-smoking lobby has led to can also affect businesses, for example, the anti-smoking lobby has led to smoke free areas in restaurants, in hotels, and on aircrafts.smoke free areas in restaurants, in hotels, and on aircrafts.

TECHNOLOGICALTECHNOLOGICAL – – The impact of technological advancement on business The impact of technological advancement on business strategy. Businesses operate in a world of rapid technological changes. strategy. Businesses operate in a world of rapid technological changes. Organisations need to regularly review the impact of new technologies Organisations need to regularly review the impact of new technologies upon their activities. For example, some music companies have consider upon their activities. For example, some music companies have consider sales over the internet.sales over the internet.

GREENGREEN – – Environmental factors that might affect a business. These would Environmental factors that might affect a business. These would include issues such as:include issues such as:

PollutionPollution Methods of production.Methods of production. How image and landscape are affected by the development of new factoriesHow image and landscape are affected by the development of new factories


The Porter’s Five Forces ModelThe Porter’s Five Forces Model

Michael Porter developed a model that allows business to analyse Michael Porter developed a model that allows business to analyse competitive forces in an industry in order to identify opportunities competitive forces in an industry in order to identify opportunities and threats. These include:and threats. These include:

The risk of entry of new competitorsThe risk of entry of new competitors The degree of rivalry amongst established firms.The degree of rivalry amongst established firms. The bargaining power of buyers.The bargaining power of buyers. The bargaining powers of suppliers.The bargaining powers of suppliers. The threat of substitute products.The threat of substitute products.

Porter argue that the stronger each of these forces is, the less Porter argue that the stronger each of these forces is, the less able a business is to raise prices and profits. For example, when able a business is to raise prices and profits. For example, when cheap airlines such as EasyJet entered the market in the 1990s, cheap airlines such as EasyJet entered the market in the 1990s, established companies such as BA arguably had to offer lower established companies such as BA arguably had to offer lower priced services.priced services.


INDUSTRY STRUCTURE ANALYSISINDUSTRY STRUCTURE ANALYSIS

Competitors:Competitors: This examines the nature and extent or rivalry amongst organisations This examines the nature and extent or rivalry amongst organisations

operating in the market and the implications of this for the futureoperating in the market and the implications of this for the future. . For example, a For example, a business might consider the extent of product differentiation, the prospects of price business might consider the extent of product differentiation, the prospects of price wars, and profit margins. It may also include questions about the current and future wars, and profit margins. It may also include questions about the current and future productive capacity of the industry.productive capacity of the industry.

Suppliers: Suppliers: This focuses on the bargaining powers of suppliers including their ability to This focuses on the bargaining powers of suppliers including their ability to withdraw or flood the market. Either will affect the business buying supplies. Scarcity withdraw or flood the market. Either will affect the business buying supplies. Scarcity of components for example, may lead to a delay in product, increased costs, or loss of components for example, may lead to a delay in product, increased costs, or loss of business. Flooding the market may lead to a falls in supply prices and possible of business. Flooding the market may lead to a falls in supply prices and possible new entrants to the market.new entrants to the market.

Substitution:Substitution: This looks at the ability of customers to change to the products of a This looks at the ability of customers to change to the products of a competitor.competitor.

Potential Entrant:Potential Entrant: This examines the nature of potential entrants and advantages This examines the nature of potential entrants and advantages they would have.they would have.


COMPETITOR ANALYSISCOMPETITOR ANALYSIS

This involves assessing rivals. The purpose of this analysis is to This involves assessing rivals. The purpose of this analysis is to highlight the strengths and opportunities present in the ‘rest of the highlight the strengths and opportunities present in the ‘rest of the field’ and to learn from other businesses in the industry. field’ and to learn from other businesses in the industry. Competitor analysis looks into a number of areas:Competitor analysis looks into a number of areas:

The strategy of the competitor.The strategy of the competitor. The driving forces and constraints upon it.The driving forces and constraints upon it. Its current business operations, capacities and strengths.Its current business operations, capacities and strengths. Its current market operations and activities.Its current market operations and activities. Assumptions about the competitor.Assumptions about the competitor. Assumptions about the industry itself.Assumptions about the industry itself. Detailed profile of each competitor. This might include, their Detailed profile of each competitor. This might include, their

position in the market, the extent to which they are operation – position in the market, the extent to which they are operation – under or over capacity, their strategies.under or over capacity, their strategies.


COST AND VALUE ANALYSISCOST AND VALUE ANALYSIS

Cost AnalysisCost Analysis is essential to business strategy. A detailed knowledge of the is essential to business strategy. A detailed knowledge of the costs of machinery, workers and materials will be needed before a strategy costs of machinery, workers and materials will be needed before a strategy can be chosen.can be chosen.

It provides exact cost incurred in manufacturing a product or providing a It provides exact cost incurred in manufacturing a product or providing a service.service.

It helps a business to calculate profit margins.It helps a business to calculate profit margins. It help the business determines which products contributes to fixed costs.It help the business determines which products contributes to fixed costs.

Value Analysis:Value Analysis: This is used to identify activities and areas of business that add This is used to identify activities and areas of business that add value, and to find out where value is lost. A business can concentrate on value, and to find out where value is lost. A business can concentrate on areas where value is lost and attempt to reproduce or improve activities areas where value is lost and attempt to reproduce or improve activities that add value.that add value.

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Business StudiesDepartment Business Planning and Strategy