114 CHAPTER 6 THE CORE OF YOUR PLAN
It is easy to focus on the businesses that you do have – and overlook the businesses that
you could have. You perhaps need to think a bit laterally to make sure that you cover all
the options. You will end up with a list of businesses (and products) that you want to:
divest; milk; expand; acquire.
Your next action is to develop business strategies to help you pursue each of these desires.
Business strategies to satisfy your desires
We are back to talking as if you have just one business. You know your desires. Now you
need to develop a strategy. To help you organise your thoughts, 12 off-the-shelf business
strategies are provided in the boxes on pages 115 to 118. As always with such lists, there
has to be an element of generalisation and oversimplification. They are intended primarily
to stimulate ideas. There are three each of:
integration strategies (backward, horizontal and forward);
market-intensive strategies (market penetration, and market and product
development);
diversification strategies (concentric, horizontal and conglomerate);
defensive strategies (joint ventures, retrenchment and divestment).
Do not get hung up on the names. For example, forming joint ventures with other busi-
ness partners is listed as a defensive strategy. Yet the purpose is often an offensive attack.
Moreover, do not forget that there is an inverse for each strategy listed here. Consider
the very first one – backward integration, where you take control of your supply chain.
Six examples of synergy
Skill, competence
or advantage
Examples of synergy gained from applying it
across two businesses
1 Management Exploitation of skills managing, say, retail outlets, or software
development, etc.
2 R&D
Leverage of skills in developing plastics, micro-components, etc.
3 Vertical integration Benefits from control over supplies and/or channels to market.
4 Branding Use of an established name to promote a different product.
5 Marketing and sales Building on resources for direct selling.
6 Administration Pooling resources to reduce costs.
BUSINESS STRATEGIES TO SATISFY YOUR DESIRES 115
This often makes good sense, but at the same time the opposite (outsourcing) is very
much in vogue. Similarly, breaking up conglomerates tends to feature more in current
management thinking than building them (but a solid strategy is often to create a new
business unit with the objective of selling it off in a couple of years’ time).
Perhaps it is most important to remember that these are not the only business strat-
egies that you can pursue – and your detailed strategy might involve a mix of many
approaches. The following list shows criteria that you might use to assess and measure
your strategy.
Seven criteria for evaluating strategy
1 Return on investment (ROI).
2 Risk of losing the investment.
3 Ownership and control (what has to be given up?).
4 Potential for growth.
5 Stability of employment and earnings.
6 Prestige.
7 Social responsibility.
Three cost-reduction/integration strategies
Strategy Action Consider pursuing if
Backward
integration
Take
ownership of
suppliers
you need more control over inputs
there are few suppliers, many competitors
the market is growing rapidly (converse is more
important – in a shrinking market backward
integration restricts your ability to diversify)
suppliers earn high profit margins
Horizontal
integration
Take
ownership of
competitors
greater market share increases your power (watch
monopoly laws)
the market is growing rapidly
economies of scale will be beneficial
your target has key resources or skills that you lack
you have resources or skills that will benefit the target
Forward
integration
Take
ownership of
channels to
market
existing channels are expensive, unreliable or
otherwise inadequate
scarce supply of channels gives the owner competitive
advantage
the market is growing rapidly (the converse is more
important – in a shrinking market forward integration
reduces your ability to diversify)
116 CHAPTER 6 THE CORE OF YOUR PLAN
BE OBJECTIVE
When developing or reviewing a strategy, try to be objective. Suppose that you conclude
your review today, and then an outstanding opportunity pops up over the horizon. It
wasn’t part of your strategy, but it looks so tempting. What should you do? Careful anal-
ysis, of course. Be flexible, but ask thoughtful questions before changing course. The
mermaid might turn out to be a sea cow (that cannot be milked).
A more obvious example might be where you have a sick dog of a business. You hang on
to it because it is part of your heritage, or because just a little more investment might turn
it around, or for any number of other reasons. The old advice always holds true. Never
look backwards when going forwards. Keep your eye on where you are going and how
you get there. The past is the past. Continuing to invest in a dying business, or holding on
too long in a declining industry, can both prove disastrous.
Three market-intensive strategies
Strategy Action Consider pursuing if
Market
penetration
Increase
your share
of existing
markets
existing markets are not saturated with your
product
you could sell more to existing users
markets are growing and/or competitors’ market
shares are declining
return on marketing investment is high
increased volumes would return economies
of scale
Market
development
Move into new
markets
there are attractive channels to market
you are very successful in existing markets
untapped markets are beckoning
you have the required human and financial
resources
you have excess production capacity
your industry is becoming more global
Product
development
Improve
existing
products or
introduce
new
products
you have strong research and development
capabilities
you can build on existing brand/image
products in your industry change rapidly
your competitors have better products
your market is growing rapidly
BUSINESS STRATEGIES TO SATISFY YOUR DESIRES 117
MAKE IT WORK: GET BUYIN
Make sure that you obtain buy-in from your managers. For example, if you have a cash cow
that you decide to milk, you might find that the business unit’s manager is hostile because
you are taking away cash that he or she wants to reinvest in his or her own unit. Similarly, if
managers do not understand your strategy you may find that they are being obstructive,
perhaps not properly executing instructions that ‘don’t make sense’ to them. This is where
involving managers in the planning process aids understanding and commitment.
Three diversication strategies
Strategy Action Consider pursuing if
Concentric Introduce
new, related
products
existing market is low-growth or saturated
existing products are mature
it would help sales of existing products
core competencies would make these products
very competitive (in this instance focus is on
existing business areas)
the new products would balance seasonality
or cyclicality of existing products
Horizontal Introduce
new,
unrelated
products
for existing
customers
this would boost sales of existing products
the industry is highly competitive or
low-growth
it will exploit existing channels to market
the new products would balance seasonality
or cyclicality of existing products
Conglomerate Introduce
new,
unrelated
products
existing market is shrinking or saturated
some unique opportunity exists
core competencies would make these
products very competitive (in this instance
focus is more on profits)
the new products would balance seasonality
or cyclicality of existing products
extended activities would avoid monopoly laws
could create a new business unit with the
objective of divesting it at a profit
118 CHAPTER 6 THE CORE OF YOUR PLAN
GAMES PEOPLE PLAY
When you are developing your strategy, you must take careful account of how your
competitors will react. You will be unusually lucky if they sit placidly watching while you
gobble up their market share. You should expect them to be monitoring you, learning
from your mistakes and successes, examining your products and prices, and adapting
their strategy accordingly. After all, it’s what you are doing to them. Right?
Three defensive strategies
Strategy Action Consider pursuing if
Joint
ventures
and
mergers
Join forces
with
another
company
it will ease entry to a new market (perhaps overseas)
skills and competencies are complementary
additional resources are needed for a compelling project
additional might will help fight a larger competitor
Retrench Sell assets
and cut
costs
(previous!) managers have failed to implement a
successful strategy
you have failed to keep up with rapid growth
you have persistent low efficiency, low profitability, low
staff morale, etc.
you are swamped by competitors
Divest Sell a
whole
business
unit
the unit needs more resources or capital than you can
provide
the unit is dragging down the whole enterprise
the unit no longer fits into the required portfolio
threatened by monopoly laws
the sale is the only way to protect shareholders’ investments
the only alternative is bankruptcy
Strategies for non-profit organisations
It might appear that the strategies discussed here do not apply to many non-profit
organisations. Generally, government departments cannot diversify or merge,
charities cannot undercut competitors, and so on.
However, there are considerable opportunities – a social welfare department
might outsource job counselling, schools can focus on specific niches, medical care
organisations could sub-contract many activities.
Good strategic planning in non-profit organisations can enhance external
confidence (through better understanding, performance measurement and
accountability) and support requests for funding and other resources.
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