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.

Cr
edit: 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 companys 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-fiveforces.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 costminimization 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 industryaverage 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 lowestcost 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. Its 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.
Canadas 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 mediumsized companies. Their success is vital to Canadas 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 cospecialization, 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 ones company (there are many cases
when companys 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

ones 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 ones
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 predominance 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 Ventures
A 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.

Outsourcing
The 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 Marketing
Affiliate 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 Licensing
This is a contractual arrangement whereby trade marks, intellectual property
and trade secrets are licensed to an external firm. Its 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 Licensing
This 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. Its a lower-risk way
of expanding the reach of your product compared to building your
manufacturing base and distribution reach.

Franchising
Franchising 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&D
Strategic 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.

Distributors
If 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 distributors success can be easily measured
against other distributors.
Distribution Relationships
This 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.
Its 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-strategicalliances/#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 isnt
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 strategy
2. Operational strategy
3. 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
organizations 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.

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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 Base
Not 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 Closes
The 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 Opportunities
The Internet has created a global community of peers. In the past, a business owners
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 Effective
Perhaps 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.

Information
If 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.

Sales
Having 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 Plans

by Kristie Lorette, Demand Media

Learn ways to implement your business plan.

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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 organizations executives
informed on what is happening, and provide progress reports on the implementation of
the plan. Letting an organizations 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 Basics

The 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 1950s 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
organizations 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.
Perspectives
The 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 Perspective
This perspective includes employee training and corporate cultural attitudes
related to both individual and corporate self-improvement. In a knowledgeworker 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 Perspective
This 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 Perspective

Recent 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 Perspective
Kaplan 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 financialrelated data, such as risk assessment and cost-benefit data, in this
category.
Strategy Mapping
Strategy 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 Software
The 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 >>