Organizational strategy instruments for managers and entrepreneurs
Organizational tools for business owners and managers
Ideas that have stood the test of time
As an entrepreneur or manager, you do not require comprehensive knowledge of strategic theories to be successful. Your company requires a guide to assist you in developing a winning strategy. It will be scrutinized by your board of directors and other stakeholders, who will instruct you on how to make your plan stand up to such scrutiny.
Some of the most generally used business methods for your business requirements may be found right here….
Identifying key segments
If you want to grow your business, you need to focus on those sectors that account for at least 80% of your revenue or are expected to contribute in the future. Large widgets to UK engineering matters most to your firm for any or these reasons. You need to be aware of it.
In the end, what matters is UK engineering and French manufacturing handle medium-sized widgets.
The best proof of consumer benefit may be gleaned from some fundamental research, regardless of how you choose to define it.
Segmentation becomes clearer when you have a concept of consumer value.
The 80/20 Principle
According to Vilfredo Pareto, around 80% of your peas originate from about 20% of your pods. Several other business authors have expanded on this idea by applying it to a variety of other business situations. Joseph M. Juran, the quality management guru, expanded on Joseph Juran’s work in the 1940s. The 80/20 rule is generic, that is shockingly common, although it should not be taken too literally. Monitor the market sectors that are expected to contribute to 80 percent of your five-year forecasted earnings. Researching and analyzing segments that yield just 20% value-enhancing insights is not worth the effort.
In one row, the company’s internal factors (Strength and Weaknesses) are listed, while the other row is devoted to external elements (Opportunities and Threats). He came up with the idea in the early sixties to help strategists discern between things that they could change and those that couldn’t. ” It is fantastic to perform a SWOT analysis, but for what purpose? What may be inferred from the data? Strategy development difficulties are categorized into internal and external categories, and this is the best that can be said of it. There are many ways to describe it: at its worst, it is just a bunch of unrelated thoughts and feelings that do not add up to anything.
Specific — The number against a certain parameter is exact.
Measurable — such as a market share percentage in a category rather than a vague aim such as “top supplier,” in order to be meaningful.
Achievable — trying for the unlikely will only lead to disappointment — there is no use in aiming for the impossible.
Relevant — If the goal is to dominate the market, it would be incorrect to aim to win the trade journal’s award for “best marketing campaign of the year.”
Time-Limited — In order to motivate yourself and your team, you need to set a time limit for your goal; otherwise, you cannot make tough decisions.
In the year 2023, you might strive for market leadership in a certain category in the UK. The aim is admirable, but it is a little too nebulous for an effective plan. S-M-A-R-T goals should be the rule rather than the exception. The smartest goals are indeed logical. The goals are the same as in the preceding example:
What you are looking for (a market share target in that segment). Measureable (market research to which you subscribe will reveal whether the 35 percent is met). Accomplishable (you are at 29 percent now and your new product range has been well received). A limited amount of time (2023).
Economic value added
If a company makes a return on capital of 12 percent, is that good news or bad news? It depends primarily on two factors — the cost of long-term debt and the element of risk in investing in the company. Each company has its own cost of capital, which reflects these factors. A ranking based on EVA return (EVA/capital employed) Is a better indicator. It tells you how companies are performing relative to the sector risk and financial risk each Is exposed to. The top-ranking companies will outperform investor expectations and ‘creating shareholder value’.
Balanced scorecard and strategy map
Managers using the balanced scorecard framework are the most popular. It was designed by Robert Kaplan and David Norton to help execute and manage strategy. Non-financial performance measurements are included besides the conventional set of financial goals. The BSC’s importance in strategy execution cannot be overstated. In strategy creation, this is less of an issue because it can obscure the terrain. According to Kaplan and Norton’s strategy map, a company may generate value by linking its strategic goals in a causal manner.
Income elasticity of demand
The “income elasticity of demand” (‘IED’) is a microeconomic concept. Consumption curves are used to compare changes in income and consumption of various goods and services. Depending on the classification of a product, it is likely to have a distinct IED. If your target market is a certain industry or sub-industry, you may locate an IED estimate online. You can use economic projections from a trusted source to predict market demand. To generate a market demand projection, multiply the income elasticity of demand by the number of people in the market.
The Five Forces (Porter)
The Five Forces model, developed by Michael Porter, illustrates how corporations are prevented from maximizing profit by competition with one another. In order to keep an industry profitable, it must contend with the five dynamics listed above: internal rivalry, threat of new entrants, market demand growth relative to supply, supplier power and consumer power. The more accessible a market is, the more competitive it is. In order for a product or service to compete, it must be easy for customers to switch to a competitor’s product or service. It is not uncommon for all five factors to work together to increase profitability in some businesses, such as soft drinks, software, and personal care products.
The converse is true in other industries, such as airplanes and textiles, where all five variables work against the airlines and average profitability is weak. Changing the limits of your core product and market categories is one way to solve this. One of the other opponents has advocated for the corporate environment (government regulations, pressure organizations) as a sixth factor. Because of an in-depth and risk-adjusted scenario analysis, the authors provide an updated industry model. They miss, though, Porter’s real brilliance.
Not the finish point, but a beginning point for industry research and strategy formulation. Overridingly, its simplicity is its greatest asset.
It is possible to discover external influences on industry competitiveness using PESTEL analysis. Political, economic, social, technical, environmental, and legal issues make to the acronym. Ethics has been introduced to STEEPLE analysis by several practitioners in recent years. PESTEL analysis is a useful tool for generating ideas for industry-specific problems. You can use it, but be conscious of its restrictions if you are used to it. An unstructured and non-analytical, unranked identification of important market demand and industry supply challenges is the best that can be said about the analysis.
The value chain (Porter)
The value chain may evaluate your company’s competitiveness. Michael Porter initially proposed it in 1984, and it has survived the test of time well. As seen in Figure 29.1, Porter classifies a company’s operations into primary and support activities. When determining which activities are most critical to a company’s performance, a value chain analysis is an excellent technique to use. Instead of prioritizing these efforts, Porter sees them as support functions. If you recognize they may be used to other similar tasks, they might be primary.
The product / market matrix (Ansoff)
The most risky technique is to go too far from what you are most familiar with. Igor Ansoff designed a product/market matrix to show the relative risks of four growth methods. Create a two-by-two matrix with the x-axis representing existing goods and markets and the y-axis representing new products and markets. The Ansoff matrix aids in determining risk associated with a certain approach. More diversity increases the overall risk of a portfolio. Growth strategies based on new goods and markets increase the risk, which managers must always keep in mind.
The attractiveness / advantage matrix
In the 1960s, GE created the Attractiveness/Advantage Matrix. It displays how desirable your company is to potential customers. You should focus your investments in areas where you excel and/or where the returns are greatest. You should think about removing yourself from areas that are weaker or unsustainable. Other things equal, the more appealing a market is when it has a larger and faster-growing market size.
Competition and risk increase as competition intensifies and new products/segments are introduced into the market simultaneously.
The growth / share matrix (BCG)
The Growth/Share Matrix serves as an aim representation of the Attractiveness/Advantage Matrix. Relative market share is used instead of a judgment on how desirable the market is to the firm in question. It was originally used in the late 1960s and is still popular today. Decide if it is worth it to invest in the “dogs,” take advantage of your cash cows, or sell your dogs. Do not allow the tool’s restrictions to stop you from utilizing it, but be aware of them.
A company’s market share can show its competitive edge, but it may not; market share change is just as essential. Use the Desirability/Advantage Matrix and be aware of its flaws to get an insight into an industry’s attractiveness.
The 7S Framework (McKinsey)
Change management and strategy implementation are the primary functions of McKinsey’s 7S Framework, which may also be used for performance improvement. Six of the seven factors necessary for success are structure, systems, skills, style, personnel, and shared values. In answering the issues posed by the framework, however, it is less effective than other approaches. Organizational culture, values, and people are more difficult to alter than strategies. When to use it: while you want to be sure you have considered every variable when determining and addressing the strategy gap.
Blue Ocean Strategy (Kim and Maugborgne)
Differentiated Product + Low Cost = Value Innovation is the pinnacle of the blue ocean approach. For example, when you are in a red ocean, you are competing with other businesses for market share; in a blue ocean, you are competing with no other businesses for market share. Kim and Mauborgne’s additional tools are built on the Strategy Canvas and Value Curve. Despite being more visually appealing, the value curve tool does not have the same weighting and is thus less decisive.
The third tool focuses on how to deal with a Pioneer-Migrator-Settler portfolio that is not performing at its best. It shows how to look for pioneer portions. There are several critical success criteria that need to be rethought, and this is the first step. There has been significant criticism of Kim and Mauborgne’s work, much of it unfounded. Finding uncontested market space is said to be little different from Gary Hamel and C’s by others, with their work being little unique.
K. Prahalad is the author of this work. Misplaced criticism from Kim and Mauborgne. Blue ocean plans have failed for every Apple iTunes and Cirque du Soleil that has succeeded. It is possible to find blue ocean markets, but they are more risky — and frequently much more risky.
Lean startup (Ries)
An entrepreneur’s search for a sustainable company model might be guided by the Four Steps to the Epiphany (2003). The Lean Startup: How Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses was written by Eric Ries and includes this (2011). Start-up entrepreneurs are always looking for the best business concept. The entrepreneur revises or ‘pivots’ to new hypotheses if client feedback shows that the original hypotheses are incorrect. In Steve Blank’s lean startup method, the third premise is agile development.
Building an MVP (minimum viable product) is the first stage in developing a product that can be shown to consumers and learn from their feedback. You develop a new MVP each time you need to learn more, and you clarify exactly what you are testing, measuring, and learning.
The price elasticity of demand
Demand has high price elasticity, which shows that the volume purchased will fluctuate widely in response to price changes. In 1890, the economist Alfred Marshall established the notion, and it has proven to be a helpful one ever since. Customers may convert to chicken from pork if pork’s price rises, but chicken’s does not. The lower cost of chicken makes it a popular choice for many lower-income households. A product’s price is more elastic when the consumer spends a larger percentage of their disposable income on it.
Consider the product’s or service’s pricing elasticity when assessing short-term profit growth potential for price modification. If you are lowering prices in order to win market share, how realistic are your market share gains? What do you think of such presumptions?