High Performance Business

Some companies try to reach their highest customer value and satisfaction goals. These companies
are called High Performance Businesses. A High Performance Business model has four
characteristics as the key to success: stakeholders, processes, resources and organization.

Stake
holders

Processes

Resources Organization

Fig: The High Performance Business

Stakeholders: A business can never earn sufficient profit and growth unless it nurtures its
stakeholders other than stockholders such as suppliers, distributors, customers, employee etc. There is
a dynamic relationship connecting the stakeholder groups. A smart company creates a high level of
employee satisfaction, which leads to higher efforts to produce quality products and services, which
create higher customer satisfaction, which leads to more repeated business to higher growth and
profits, which leads to high stockholders satisfaction to invest more and so on.

Processes: A company can accomplish its stakeholder goals only by managing and linking work
processes such as new product development, customer attraction and retention and order fulfillment.
They are reengineering the work flows and building cross-functional teams responsible for each
process. Critical business processes are:
 Order to payment cycle
 Inventory management process
 Customer service process

Resources: To carry out its business processes, a company needs resources – labor power, materials,
machines, information and energy. Many companies today out sources less critical resources such as
cleaning services, land-scaping etc if they can be obtained at better quality or lower cost.

Organization: A company’s organization consists of its structures, policies and corporate culture etc.
In a changing business environment, structures and policies can be changed but the company’s
culture is very hard to change. Yet changing a corporate culture is often the key to successful
implementing a new strategy.
 Strategic Planning

Market oriented strategic planning: It is the planning which refers creating, maintaining and
developing a viable fit between organizational objectives, resources and the change in marketing
scenario.

Strategic planning calls for action in three key areas:

 Managing a company’s businesses as an investment portfolio.

 Assessing each business’s strength by considering the market’s growth rate and the
company’s position and fit in that market.
 Establishing a strategy. For each business, the company must develop a strategic planning for
achieving its long-run objectives.

An organizational strategic planning is involved in different level of that organization. Most large
companies consist of four organizational levels: the corporate level, the division level, the business
unit level and the product level.

1) The corporate level: Corporate headquarters is responsible for designing a corporate strategic
plan to guide the whole enterprises; to allocate resources to each division; to decide which
business to start or eliminate etc.

2) The division level: Each division establishes a division plan covering the allocation of funds
to each business unit within the division.

3) The business unit level: Each business unit develops a strategic plan to carry that business
unit into a profitable future.

4) The product level: Each product level within a business unit develops a marketing plan for
achieving its objectives in its product market.

Marketing Plan

The marketing plan: It is the central instrument for directing and coordinating the marketing effort.
Plans are developed by teams, with inputs and sign-offs from every important function. These plans
are then implemented at the appropriate levels of the organization, results are monitored and
corrective actions are taken if necessary.

The marketing plan operates at two levels: strategic and tactical.

The strategic marketing plan: It lays out the target markets and the value proposition that will be
offered based on an analysis of the best market opportunities.

The tactical marketing plan: It specifies the marketing tactics, including product features,
promotion, merchandising, pricing, sales channels and service.
Strategic Cycle
By preparing statements of mission, policy, strategy and goals corporate headquarters establishes the
framework within which the divisions and business units prepare their plans. All corporate
headquarters undertake four planning activities:

 Defining the corporate mission

 Establishing strategic business units (SBUs)
 Assigning resources to each SBU
 Planning new business, downsizing or terminating older businesses.

Planning Implementing Controlling

Corporate Organizing Measuring

Planning Results

Division Implementing
Planning Diagnostic
Results

Business
Planning
Taking
Corrective
Product Action
Planning

Fig: The Strategic Cycle

Strategic Business Unit: Large companies normally manage quite different businesses, each
requiring its own strategy. These units are called strategic business units. A SBU has three
characteristics:

1. It is a single business or collection of related businesses that can be planned separately from
the rest of the company.
2. It has its own set of competitors.
3. It has a manager who is responsible for strategic planning and profit performance and who
controls most of the factors affecting profit.

The purpose of identifying the company’s strategic business units is to develop separate strategies and
assign appropriate funding. Two of the best-known business portfolio evaluation models are:

 The Boston Consulting Group model and

 The General Electric model.

These models help managers to think more strategically, understand the economics of their businesses
better, improve the quality of their plans, improve communication between business and corporate
management, pinpoint information gaps and important issues, eliminate weaker businesses and
strengthen their investment in more promising businesses.

The Boston Consulting Group Model: The Boston Consulting Group, a leading management
consulting firm, developed and popularized the growth-share matrix. The eight circles represent the
current sizes and positions of eight businesses units. The size of the circle depends on the dollar
volume of each business. The location of each business unit indicates its market growth rate and
relative market share.

The market growth rate on the vertical axis indicates the annual growth rate of the market in which
the business operates and the relative market share is measured in the horizontal axis, refers to the
SBU’s market share relative to that of its largest competitor in the segment.

20%
Stars Question Marks

e
rat
wth
gro 10%
t
Cash Cow Dogs
rke
Ma

0.0%
0.1X
10X

1X

Relative Market Share

Fig: BCG’s Growth-Share Matrix

The growth-share matrix is divided into four cells, each indicating a different type of business.

1) Question Marks: It has high-growth markets but low relative market shares. So it requires a lot
of cash to spend on plant, equipment & personnel to keep up with fast growing market. The
strategy for the company is ‘build’.

2) Stars: It is the market leader. It does not produce positive cash flow for the company. It spends a
lot of cash to keep up with the high market growth and sustain. The strategy for this unit should
be ‘hold’ because it is yielding a lot of money and it has a very good growth rate.

3) Cash Cows: It has a low growth rate but has the largest market share. It produces a lot of cash for
the company. The company needs not to expand further because the growth rate is low. The best
 strategy for this unit is ‘harvest’ if the unit wants to increase short-term cash flow regardless of
long-term effect by eliminating R&D, advertisement expenditures etc.

4) Dogs: Business that has weak market shares in low-growth markets. So the company must decide
whether it is holding on to this business. The best strategy is ‘divest’ if the unit wants to sell or
liquidate the business.

An SBU’s appropriate objective cannot be determined solely by its position in the growth-share
matrix. If additional factors are considered, the growth-share matrix can be seen as a special case of a
multifactor portfolio matrix such as By General Electric model.

The Strategic Planning Gap

Sometimes the projected total sales and profits are less than the future desired sales and profits. So,
there exists a gap between them. The corporate management will have to develop or acquire new
business to fill the gap. To fill the gap three options are available.
Sales

Desired sales Diversification Growth

The Strategic
Integrative Growth
Planning Gap
Intensive Growth

Current portfolio

Years

Fig: The Strategic planning gap

1) Intensive Growth: The first option is to identify and review opportunities to achieve further
growth within current businesses. A company can encourage current customers to buy more,
or to attract competitor’s customers or to convince idle customers to start to use the
 company’s products. Ansoff proposed a useful framework named “Product-market expansion
grid”.

Current Products New Products

1. Market- 3. Product
Current
penetration development
Markets
strategy strategy
2. Market-
New 4. Diversification
development
Markets strategy
strategy

Fig: Ansoff’s Product-Market Expansion Grid

a) Market-penetration strategy: The Company first considers whether it could gain more market
share with its current products in their current markets.

b) Market-development strategy: Next the company considers whether it can find or develop new
markets for its current products.

c) Product-development strategy: Then it considers whether it can develop new products of

potential interest to its current markets.

d) Diversification strategy: The last step is to review opportunities to develop new products for
new markets.

2) Integrative Growth: A Company’s sales and profits can be increased through backward, forward
or horizontal integration within its industry. It may acquire more suppliers (backward integration),
more wholesalers or retailers (forward integration) or more competitors (horizontal integration) to
generate more profits.

3) Diversification Growth: Diversification growth makes sense when good opportunities can be
found outside the present businesses. A good opportunity is one in which the industry is highly
attractive and the company has the business strengths to be successful. Three type of diversification is
possible. The company may introduce new product that has synergies with the existing product lines,
or it may introduce new product that is unrelated with the current product lines or it may seek new
business which has no relationship with current products, technology or markets.

Business Strategic Planning Process

Business strategic planning process: It is the planning process which refers creating, maintaining
and developing a viable fit between organizational objectives, resources and control. This process has
eight steps.
External
environment
(opportunity &
threat analysis)

Business Goal Strategy Program Implementation Feedback

Mission SWOT analysis formulation formulation formulation & control

Internal
environment
(strengths,
weakness
analysis)

Fig: The Business Strategic-Planning Process

Business mission: Each business unit needs to define its specific mission. Business mission includes
long term business policies, goals to achieve.

SWOT analysis: It means the overall analysis of Company’s strengths, weaknesses, opportunities
and threats.

a) External environment: A business unit has to monitor some external forces such as
demographic, economic, technological, political-legal and social-cultural factors which affect
its ability to earn profits. So it should set up a marketing intelligence system to track trends or
important developments. For each trend management needs to identify the associated
opportunities and threats.

b) Internal environment: Each business needs to evaluate its internal strengths and weaknesses.
The business should limit itself to those opportunities where it possesses the required
strengths and should try to improve its weaknesses to earn better profit margins.

Goal formulation: Once the company has performed a W=SWOT analysis, it can proceed to develop
specific goals for the planning period. These goals are usually objectives specified with magnitude
and time. The objectives may be profitability, sales growth, market-share improvement, risk
containment, innovation, reputation etc.

Strategic formulation: Goals indicate what a business unit wants to achieve whereas strategy is a
game plan for getting there. Every business must design a strategy for achieving its goals, consisting
of a marketing strategy, a compatible technology strategy and sourcing strategy.

Program formulation: Once the business unit has developed its principal strategies, it must work out
detailed supporting programs. If the unit has decided to attain technological leadership, it must plan
programs to strengthen its R&D department, gather technological intelligence, develop leading-edge
products, train the technical sales force and develop ads to communicate its technological leadership.
Implementation: Once the company formulated its program, it needs to be implemented cautiously.
A good program may be destroyed by its poor implementation process. The elements for successful
implementation are strategy, structure, system, style, skills, staff and shared values.
Feedback and Control: As the company implements its strategy, it needs to track the results and
monitor new developments. Different environments are changing at different rates. So the market
place will change and the company will need to review and revise its implementation, programs,
strategies or even objectives.

Marketing Plan

Each product level must develop a marketing plan for achieving its goals. The marketing plan is one
of the most important outputs of the marketing process. Marketing plans are becoming more customer
& competitor oriented, better reasoned and more realistic than in the past. Planning is becoming a
continuous process to respond to rapidly changing market conditions. The marketing plan is
sometimes named as battle plan or business plan.

Contents of the marketing plan:

1. Executive summary & table of contents: The marketing plan should open with a brief
summary of the main goals and recommendations. A table of contents should follow the
executive summary.

2. Current market situation: It should contain the relevant data of sales, costs, profits, the
market, competitors, channels and the internal & external forces.

3. Opportunity & issue analysis: The management finds out the best opportunities in the
SWOT analysis and identifies the key issues that affect the company’s objectives attainment.

4. Objectives: The product manager outlines the plan’s major financial and marketing goals,
expressed in sales volume, market share, profit and other relevant terms.

5. Marketing strategy: The product manager defines the target segments, establishes the
strategy to achieve plan’s objectives with the help of inputs such as purchasing,
manufacturing, sales, finance and human resources.

6. Action programs: The marketing must specify the action programs. Each marketing strategy
must be elaborately to answer following questions; what will be done, when will it be done,
who will do it, how much will it cost, how will progress be measured?

7. Financial projections: Action plans allow the product manager to build a supporting budget
consists of both the revenue and expense side. The difference between revenue and cost is
projected profit. The approved budget is the basis for developing plans, scheduling for
material procurement, production scheduling, employee recruitment and marketing
operations.
8. Implementation controls: It is the monitoring and adjusting implementation of the plan.
Typically the goals and budget are spelled out for each month or quarter so management can
review each period’s results and take corrective actions as needed.