Definitions of Strategy
Business strategy is a plan of action carried out tactically to achieve a business objective. A business objective is a desired result.

I)   The Classic Approach to Formulating Strategy: "Competitive strategy is a combination of goals for which the firm is striving and the means by which it is seeking to get there."

II) The Decision Based Definition of Strategy: "A business strategy is a set of dynamic, integrated decisions which you must make in order to position your business in a complex environment."

III) The "Bottom-up Marketing " View of Strategy: Traditional strategy is top down, decide what you want to do and figure out how to do it. Alternatively, Find a tactic that works and build a strategy around it. Go down to the front where the marketing battle is being fought. Where is the front? In the minds of your customers and prospective customers.

Example:

Motorola's vision is a world where people want to be able to send and receive information anywhere, anytime and in any imaginable form, from voice to high-speed data transmission.

Motorola figures that such a roomy universe of opportunity will allow it to set a goal of expanding its techno-empire at a 15 percent annual clip, doubling revenues every five or six years, just as it has for the last two decades.

Motorola's strategy -- and size -- also force it into an ever-shifting and sometimes confusing array of alliances and battles with governments, rivals and customers. In addition, Motorola is building a worldwide consumer brand .

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How competitive forces shape strategy

The nature and degree of competition in an industry hinge on five forces:

1. The threat of new entrants
2. The bargaining power of customers
3. The bargaining power of suppliers
4. The threat of substitute products or services
5. The jockey for position among current contestants

The weaker the forces collectively, the greater the opportunity for superior performance. Often a subset of the forces are responsible for the industry dynamics, e.g., Intel and Microsoft as suppliers have been the primary force in the PC industry. Understanding the current competitive forces and anticipating which are the most important forces in the future is critical in shaping a firm's strategy.

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Core Competence

Core competencies are the collective learning in an organization. Sony's core competencies in miniaturization has led it to develop consumer products in markets where smaller size is valued. 3M's core competence in sticky tapes led to "post-it" notes. A firm's core competencies can be seen in its primary products.

At least three tests can be applied to identify core competencies within a corporation

1. A core competence provides access to a wide variety of markets
2. A core competence should make a significant contribution to the perceived customer benefits of the end product
3. A core competence should be difficult for competitors to imitate

Core competencies spawn unanticipated products (e.g., post-it notes).

Matching the Process of Product Development to Its Context

Key marketing and development issues are highlighted by positioning a product in the context of a "newness" map and its "development risk versus opportunity cost" map.

Newness is plotted as a function of newness to the company and newness to the market.
 

New products in the lower left portion of the map may come at the expense of existing products (cannibalization). But, if a company does not cannibalized its own products, a competitor will.

Products in the upper left corner raise the issue of company/product fit. How well can the company deal with the development, manufacturing, and marketing issues as compared to the established competitors?

Products in the upper right corner offer the allure of "breakthrough" opportunities (Brave New World), but the risk of market acceptance and fit with corporate skills is high thus the risk of failure is high.

A product's position identifies its risks and required strategies and resources.

Opportunity Cost and Development Risk

Engineering scheduling and product feature issues are illuminated by positioning a product on the "opportunity risk" map. Opportunity is defined as the cost (primarily in lost sales, but also in reputation which will lead to lost future sales) of delaying introduction. Development risk assess the need to have the right product upon introduction.
 

In situations of low development risk and high opportunity cost, getting to market is everything, and a crash program is required. Low opportunity cost coupled with high development risk makes time to market less important, and places the emphasis on making sure the product is right.

Products in the lower left corner typically are new markets where customer expectations are low. The early adopters often want the product now because it offers breakthrough benefits, and they will "live with" problems.

Products in the upper left corner have the same "forgiving" customer attributes, but expected competition forces a crash program.

Products on the far right are problematic. The worst case is the upper right quadrant. The product must be perfect the first time, e.g., start-ups going against existing competitors. The position on the lower far right is often the introduction of a follow on product which is relatively protected from competition (possibly by patent or by technological leadership).

A Process for Industrial New Product Development

Findings from many research studies of new product success and failure have led to several major observations and suggest a model for moving a product from idea to launch.

Observations indicate that 89% of product successes are market driven (market pull) and 11% are technology driven (technology push).

At GE labs technology driven breakthrough products shared the following characteristics:
1) Market needs were recognizes and R&D was targeted at satisfying these needs.
2) When a technical success did not have a specific market need, the product was adapted to suit an identified need
3) Research managers communicated the possibility of a technical breakthrough clearly to other departments which facilitated the identification of a market need

A study undertaken of Japanese and European firms with market pull successes showed the following:
1) No initial difficulties in marketing
2) Had a real product advantage
3) Strong internal communications
4) Superior techniques for data gathering, analysis, and decision making

A product success development model based on observation includes seven stages:
1) Idea generation
2) Preliminary assessment
3) Concept
4) Development
5) Testing
6) Trial
7) Launch

Each stage is separated from the previous one by an evaluation point GO/Kill decision node.

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Product Life Cycle

There are five stages and correspondingly five customer types associated with them. Customer needs and the basis for competition also couples to these stages.
 

Forecasting Total Market Demand

Recent history is filled with stories of companies and entire industries that have made grave strategic errors because of inaccurate industry wide demand forecasts. These inaccurate forecasts did not stem from a lack of forecasting techniques: regression analysis, historical trend smoothing, etc. The issue is not seeing the forest for the trees.

There are four steps in any total market forecast.

1) Define the market (Personal computers)

2) Divide the total market into segments (Desktop computers, notebooks, and PDAs)

3) Identify and forecast the drivers of demand in each segment and project how they are likely to change (Cost of components, competitors pricing, buyer upgrade cycle, customer acceptance, capability, performance)

4) Build a model and conduct sensitivity analyses to understand the most critical assumptions and to gauge risks to the baseline forecast

Building the model is the essential step. It allows the forecaster to select the fundamental drivers and understand their interaction before the actual numbers obscure the picture.

Essentials of Accounting

Accounting is a language and set of rules to enforce consistent "score keeping" across companies. The purpose of any language is to convey meaning. Accounting information is conveyed by reports called financial statements. These statements convey the financial condition of an entity. The most important of these statements are:

Balance sheet (assets, liabilities, and equity)
Income statement (revenues, expenses, and profit)
Cash flow statement (sources and uses of funds)

Nine concepts govern all accounting and are used as the guiding principals in recording information in these financial statements.

1) The dual aspect concept  (Assets=Liabilities+Equity)

2) The money measurement concept (Accounting reports only facts that can be measured in monetary amounts)

3) The entity concept (Accounts are kept for entities as distinguished from the persons associated with those entities)

4) The going concern concept (Accounting assumes that an entity will continue to operate indefinitely and it is not about to be sold or liquidated)

5) The cost concept (Accounting focuses on the cost of an asset rather than on their market value)

6) The conservatism concept (Revenues are recognized when they are reasonably certain. Expenses are recognized when they are reasonably possible)

7) The materiality concept (Disregard insignificant matters. Disclose all important matters)

8) The realization concept (Revenues are recognized when the goods or services are delivered and accepted)

9) The matching concept (The expenses of a period are associated with the revenues or activities of the period)

Alternate Sources of Financing

Below are several sources of funds for both start-ups and established companies. The list is not exhaustive but meant to give a broad perspective of where to obtain funds and their relative merits.
 

Marketing Strategy

At the heart of any business strategy is a marketing strategy. Businesses exist to deliver products to markets. Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives. A marketing strategy is composed of several interrelated components called the marketing mix:

The Marketing Mix

1) Market selection (choosing the customer)
2) Product planning (what products are the company going to sell to the selected customers)
3) Pricing (a quantitative expression of the value of the product to the customer)
See also the discussion of the Price/Features matrix
4) Distribution (the wholesale and retail channels through which the product moves to the people who ultimately buy it and use it)
5) Marketing communications
                Positioning (what is the message that states the purpose and benefits of the product in the market and how it competes)
                Selling (direct or indirect through others)
                Promotion (informing people about your product, showing them how it can be useful, and persuading the to buy it)
                Support (helping the customer make the product work and replacing or repairing it when its broken)

Decision making Unit and the Decision making Process

The actual selling process breaks down into two components called the decision making unit(DMU) and the decision making process(DMP). The decision making unit consists of all the people who play a role in the decision to purchase a product. The marketing mix program must understand the needs of each and find a way to communicate the marketing message to them. These people are typically identified as:

• Buyer ( the person who actually issues the check i.e. the purchasing agent)
  Decider (the person or group that actually says this is the product we want i.e. the MIS manager)
  Influencer ( who helps the decider decide i.e. the press, analysts, peers, evaluation groups)
  User ( the individual or group who actually uses the product and derives benefit from it)

The people included in the decision making unit interact to make the purchasing decision. The decision making process(DMP) is a description of this interaction. By understanding it a salesperson can best understand who, how, and when to work on getting the customer order.

For example a company has decided to pick a workstation standard. The engineering VP made this decision. Since the standard affects all software engineers an evaluation team is formed to make the recommendation. They hire a consultant to research alternatives. He has great influence due to his strong technical background and years of experience. Recent magazine articles are also reviewed. After a few months the team makes a recommendation, the VP R&D decides to accept it and go ahead. The purchasing manager is asked to negotiate the best deal. The salesperson for the winning workstation company was on top of and influenced every person at every stage of the decision making process.

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Basic Quantitative Analysis for Marketing

Simple calculations often help in making quality marketing decisions. One of the most useful quantities is calculating break-even volumes, i.e., the quantity of units which must be sold to recover an initial investment. With this number we can then ask how long will it take to sell this many units and is it reasonable to assume that the market overall is big enough to support this volume. When sales exceed the break-even volume, the firm starts making a profit.

To apply this calculation we must understand the following definitions:

Variable cost (K)=$cost uniquely associated with each unit produced (ex. Microprocessor on a PC mother board)

Fixed cost(FC)=$cost which are fixed and do not vary with the volume of output(ex. a new IC fab plant)

Contribution(C)=The difference between the price($P) of one unit - Variable cost per unit($K)
                         C=P-K
Volume(V)=quantity of units produced

Break-even volume (BEV)= $Fixed Cost FC/C ($contribution per unit )

Distribution Policy

Designing a distribution channel to deliver both a product (or service) and it's benefits to a customer begins with a question:

"What needs to be done to get my product sold?"

Suppose a watch manufacturer decides to compete in the mass market for watches in the $15 price range. Successfully selling this kind of product requires the firm to have:

1. Established brand name
2. Distribution in a large number of convenient outlets
3. Good display in those outlets
4. An efficient means of restocking retail outlets

The next question is "who is to do each task?"

Here we are asking should the company perform the function or delegate it to an intermediary? This is the question of channel length. Consider the good display of watches in a large number of outlets. Theoretically the manufacturer can perform this function by opening a large number of retail outlets. However, existing retail and department stores accomplish this task more efficiently.

There is also the question of Channel Breadth

How many firms of each type does the manufacturer want to have. The basic alternatives are:

1. Exclusive distribution (only one place to get it, typically for high priced specialty goods "Rolls Royce"") 2. Selective distribution (a few well trained and qualified "Mercedes")
3. Intensive distribution (find it everywhere thus convenience is the driver "Honda")

Sales Strategies

The intention here is to present a collection of sales strategies to provide a common reference base and vocabulary. The marketing manager operates at a level selecting the target segments and executing the marketing mix. The sales manager must deal at a lower level with the specific customers (names, addresses) .

Team selling (multiple disciplines and people working together on a high price, complex sale)

Key accounts ( a culling of potential customers into those who display a desirable attribute: size, profitability, or opinion leadership, etc.)

National accounts (companies with nation wide disbursement that are sold to at a central headquarters location)

Multi-level selling ( Contacting people at all levels in the organization from engineer to VP marketing and convincing them to buy the product)

Systems selling ( involves elements of team selling and includes multiple products which tied together often deliver a "solution")

Third party sales (using other organizations like retailers or OEMs to sell your product)

Telemarketing ( Telephone selling often involving automatic dialing from targeted lists. )

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Putting the Service-Profit Chain to Work

The service-profit chain establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain are as follows:

Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided the customer. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.

It is estimated that a 5% increase in customer loyalty can produce profit increases from 25% to 85%

Media Selection

For many firms an important means of achieving marketing communications goals is the development of an advertising strategy. Communications goals are usually expressed as desired increases in sales or market share. Sometimes intermediate goals such as product awareness and knowledge are employed. Integral to good advertising strategy is an efficient media plan that maximizes the achievement of communications goals within the constraint of a fixed budget.

Some of the more important criteria for evaluating a media plan are:

1) Cost of space/time- the price for a one page ad or a 30 second TV spot
2) Reach- The size of the audience reached (ex. LA times circulation of 1,000,000)
3) Audience composition- description of the audience in terms of various demographic characteristics such as age, income, or education.
4) Impact- is one media type more forceful at commanding attention than another
5) Exposure value- evaluation of a given media vehicle may be undertaken on the basis of cost per thousand (CPM) exposures.

In the example of life cereal, both children and mothers are desired targets. Beyond this, mothers of families with children 10-18 might be considered better prospects than those with younger children. Also, families with higher education might be considered generally more receptive to nutritional claims in the advertising strategy.

The Focused Factory

The conventional factory produces many products for numerous customers in a variety of markets, thereby demanding the performance of a multiplicity of manufacturing tasks all at once from one set of assets and people. Its rationale is "economy of scale" and lower capital investment.

A factory that focuses on a narrow product mix for a particular product niche will outperform the conventional plant, which attempts a broader mission. Because its equipment, supporting systems, and procedures can concentrate on a limited task for one set of customers, its costs and especially its overhead are likely to be lower than those of the conventional plant. But, more important, such a plant can become a competitive weapon because its entire apparatus is focused to accomplish the particular task demanded by the company's overall strategy and marketing objective.

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The Job of the General Manager

The general manager's job can be one of the most challenging and desirable assignments in any business. It is distinguished from the functional manager's job by its significant multi functional and profit responsibilities. A GM may be responsible for running a company, a division, or several of each.

GMs have different responsibilities in different companies and industries but most often they face common issues. The basic job of the GM is to get results in both the long and short term. To that end, the job entails the following:

1) Establishing strategic direction
2) Setting goals and maintaining standards of performance
3) Marshaling and allocating resources
4) Selecting and developing people
5) Organizing the effort
6) Maintaining an understanding of day to day operations
7) Building a positive work environment

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