Business Strategy & Policy
Continued business success is the result of systematic planning, the process of developing strategies to increase the organization's market share and policies to promote this goal and meet other requirements placed on the firm. The first step in strategic planning is to develop sound objectives for the organization based on a rigorous analysis of available data about the marketplace, the competition, and the resources of the organization. These must be specific with measurable outcomes so that success can be objectively determined. Supporting plans and budgets can then be developed to provide a practical guide for carrying out the budget strategy and meeting its objectives. Although much of corporate strategy revolves around the "bottom line," not all approaches to strategy and policy are about marketing support. Total Quality Management and Six Sigma strategies help better position an organization in the marketplace by emphasizing quality.
Keywords Business Plan; Market Share; Policy; Return on Investment (ROI); Risk; Strategic Planning; Strategy; Total Quality Management (TQM)
Management: Business Strategy
A wise person once said that "if you don't know where you're going, you'll never get there." This axiom is no more true anywhere than in the business arena. Development of a successful business does not happen as a result of luck, but requires hard work. As in pathfinding, the roadmap to success in the business world is to determine where one is going and then to specify the best way to get there.
In business, determining the target destination for the organization is called goal setting. Goals define in practical terms what the organization would like to be within a specific period of time. Determining the best way to accomplish these goals is called strategic planning. A strategy is a plan of action to help the organization reach its goals and objectives. A good business strategy is based on the rigorous analysis of empirical data, including market needs and trends, competitor capabilities and offerings, and the organization's resources and abilities. Implementation of the plan is done through policies and practices. These are guiding principles or specific procedures or courses of action developed to help the organization meet its goals and objectives. Policies are typically developed to support business strategies or in response to government regulations. For example, an organization may have a series of customer service policies that deal with how employees are supposed to interact with customers in order to keep them loyal to the organization's brand and it may also have a series of human resource policies for how it deals with its own employees to not only encourage them to maximize their performance, but also so that the organization is in compliance with various laws regarding equal treatment, minimum wage, and so forth. Organizations may also have policies about social and environmental concerns or other factors that it perceives as important to its reputation and success.
Determining the organization's business goals requires an examination of several areas of the firm's functioning. To avoid falling into the trap of doing activities that appear to reach a goal but that, in fact, are only spinning the corporate wheels without making real progress, the objectives of the organization need to be expressed in concrete terms. For example, rather than stating that the goal of the company is to "maximize profits and return on investment," "develop new and high quality products," or "meet our corporate social responsibility," objectives need to be specific; stating how success will be determined in measurable terms. For example, rather than saying that the organization is going to increase profits, a well-stated objective would state how much profit the organization is trying to make and the time frame in which this is to be achieved (e.g., "increase profits to $5 million in the next fiscal year"). Rather than vaguely stating that new products will be developed, a well-stated objective would specify the types of products to be developed and the quality standard to which they are to be developed (e.g., "develop a widget that will automatically mop the floor using a process that yields less than three defects per million"). Similarly, vague goals about social responsibility would be replaced by specific objectives stating in what kinds of public service activities the organization will be involved and the extent of its involvement.
Strategic planning is the process that helps the organization determine what goals to set and how to reach them. This process allows the organization to determine and articulate its long-term goals and to develop a plan to use the company's resources — including materials, equipment, technology, and personnel — in reaching these goals. This business plan summarizes the operational and financial objectives of the organization and is supported by detailed plans and budgets to show how these objectives will be achieved. In addition to articulating organizational objectives and strategies for reaching these goals, the business plan also analyzes the risk involved. In business terms, risk can be defined as the quantifiable probability that a financial investment's actual return will be lower than expected. Higher risks mean both a greater probability of loss and a possibility of greater return on investment. The goal of organizations is to reduce risk by managing it. Risk management is an essential part of business strategy development. This process includes analyzing projected tasks and activities, planning ways to reduce the impact if the predicted normal course of events does not occur, and implementing reporting procedures so that project problems are discovered earlier in the process rather than later.
Whether the organization is trying to maintain its market share or it is trying to be on the leading edge of the industry through sustainable innovation, there are a number of sources of data that can be tapped in order to help make better informed strategic decisions about the direction in which the organization should go. In general, it is advisable to look at every business event — whether it was a success or a failure — as a learning opportunity that can help the organization better understand and anticipate the needs of the market or how to improve internal processes and practices. The organization can also look forward by examining incongruities between the way things currently are and how the industry or organization perceives they should be (e.g., the requirement for more complicated desktop computing capabilities required the development of more affordable computing power) and developing solutions that meet these needs. Similarly, changes to the market or industry as the result of an innovation, contributed by the organization itself or by a competitor, can help organizational management better develop strategies to stay competitive, become leaders in the field, or practice sustainable innovation. Other external changes that require attention when developing strategic plans are demographic changes (e.g., the rise in the number of people in the general population who are computer-literate), the development of new knowledge (e.g., how to develop a graphical user interface that reduces the need for specialized abilities to use a computer), or changes in perceptions (e.g., the acceptance of computers as a way to make life easier).
There are a number of factors that need to be taken into account during the strategic planning process in order to develop a sound, achievable business plan. One of the most important of these steps is setting realistic, achievable objectives. To be useful, objectives should specify the performance that the organization wants to see as a result of meeting the objective, the activities in which the organization will engage to help meet the objective, and the measurable results that will allow the organization to know whether or not the objective has been achieved. In addition, a well written objective should specify the time period in which the improved performance will occur. For example, rather than the nebulous objective of "maximize profits," a well written objective might be to "increase profits (objective) by 25 percent (measurable criterion) over the next year (time frame) by targeting two new metropolitan areas with media ads and six additional sales calls per salesperson (actions)."
In order to develop meaningful objectives that will support the organization in reaching its goals, financial concerns should be expressed in terms of objective, measurable results, such as profits, return on investment, earnings per share, or profit-to-sales ratio. For example, financial objectives should be expressed in specific, concrete terms such as "increase return on investment to 15 percent after taxes within five years" or "increase profits to $6 million before the end of the fiscal year." Similarly, well written objectives should be specific about the market in which these actions will take place. For example, this might include the market share the organization is trying to reach ("increase our share of the market to 28 percent within three years"), dollar...
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