PlanWare: How to ...

Develop a Business Strategy

Statements on vision, mission, objectives, values, strategies and goals (see Key Steps) are not just elements of future planning. They also provide benchmarks for a historic review. Most managers will find it exceedingly difficult to develop a future strategy for a business without knowing its current strategies and measuring their success to date.

Assess Current Position

The starting point must be to determine a company's existing (implicit or explicit) vision, mission, objectives and strategies. Then judge these against actual performance along the following lines:

• Is the current vision being realized?
• How have the company's mission and objectives changed over the past say, three years? Why have the changes occurred or why have no changes occurred? Identify primary reasons and categorize them as either internal or external.
• Describe the actual strategies followed over the past few years in respect of products/services, operations, finance, marketing, technology, management etc.
• Critically examine each strategy statement by reference to activities and actions in key functional areas covering such matters as:
  • How has the company been managed?
  • How has the company been funded?
  • How has the company sought to increase sales and market share?
  • How have productivity/costs moved?

Take each element and quantify by reference to actual performance. Ask of each "why not"?, "why only"?, or "why so"? and locate the reasons for differences between the actual and desired performance.

Drill Down

A useful technique for exploring performance shortfalls is to review the business's financial return and to drill down through the components of this return to locate and assess the key determinants of performance. For example, return on shareholders' funds is a key measure of profitability which can be expressed as:

Take each item in this formula, explore its contents and derive performance measures or ratios. For example:

Sales break down into sales values, units, prices, discounts, commissions, bad debts and so on.

Net income is derived by deducting costs (materials, labor, power etc.), expenses, interest and depreciation from sales revenue.

Shareholders' funds are based on the value of fixed assets, current assets, current liabilities, debt etc.

Subject the resultant ratios to critical examination and attempt to compare them with industry norms. The paper entitled Managing Working Capital explains key working capital ratios. Note that the Exl-Plan financial planners generate extensive ratios based on projected P&Ls, cashflow forecasts and balance sheets for 1-3-5 years ahead.

Seek Root Causes

In reviewing a business it is essential to cut through the symptoms of problems and reach the underlying causes. Questions which can assist in revealing the real causes include the following:

• "What stopped the business from?"
• "What caused the cause of?"
• "Why didn't the business achieve a 25% return?"

By way of an example consider why this company may be unable to increase its market share:

Because it cannot penetrate major customers because its product range is too narrow because the company doesn't have the capability to produce additional products because of shortcomings in R & D because of a lack of expertise and resource because R & D is not an immediate priority because of a lack of profits because of a high interest burden because the company is over-reliant on borrowings because the shareholders won't/can't raise additional permanent capital.

The moral in this case is that there are no major customers due to under-capitalization! For more insights into the causes of business failure have a look at Devising Venture Strategies.

Additional Help

We offer two software packages which could assist you in assessing a business's current position and prospects especially from a marketing perspective:

• Quick Insight is ideal for assessing business ideas and strategy plans for new and smaller businesses.
  
  
• Business Insight is aimed at larger businesses and their consultants who seek to evaluate and develop comprehensive strategic and marketing plans

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