Business Plan Review

Introduction

In the modern business world, it is very important for a business to have an idea about what they need to have sustained success in that marketplace. Success in the business is not possible if there is not something that makes the business different from some of its competitors in the first place. This is the only way an organization can survive in the marketplace and make its presence felt. In order to stay one step ahead of their competitors, organizations these days rely on the concept of competitive advantage. Competitive advantage means that there is something that makes the business unique from the other businesses that are operating in the same marketplace.

Role of Manager in the Strategic Business Planning

Concept of Competitive Advantage

In order to have this competitive advantage, there a range of strategies which might be adopted by the business to make sure that they are having competitive advantage as compared to the other players in the market. In order to do that, the business might pursue many strategies. Some of these sets of strategies are called Porter generic strategies. There are three types of generic strategies: low-cost strategy, differentiation strategy, and focused strategy (Manteghi & Zohrabi, 2011).

Cost Leadership Strategy

The cost leadership strategy emphasizes the fact that effort must be made to appeal to that segment of the market that is cost-conscious, and price plays an important part when it comes to their purchase decision. This can be made possible by offering the price that is lowest in the market and going for that certain target segment that has the lowest price-to-value ratio in the market(Manteghi&Zohrabi, 2011). In order to be successful in this strategy, the idea must be to look at the profitability and ensuring high return on the investment, the cost at which the firm is operating must be lowest as compared to its competitors. The first approach that can be adopted when it comes to this strategy is to utilize the assets that are at the disposal of the organization. For instance, if an organization is part of the service industry, it means that it is trying to get the most out of the assets that are serviceable to the customers. For instance, if an airline is pursuing this strategy, they might be turning around their flight rather quickly to make it happen. On the other hand, in the case of the production plant, it might mean having to ensure that there is a higher volume of input at that point in time(Manteghi & Zohrabi, 2011). The usual method that is adopted is to allow the fixed costs of the assets to be spread over the large production base. When that happens, the per unit cost of the product is on the lower side. In that way, firms can also take advantage of the economies of scale. Mass production, as a matter of fact, is a powerful strategy for manufacturing businesses.

Differentiation Strategy

The strategy that is used by the business these days is to make some differentiation in the product and allow it to compete successfully at the market level. The idea of using product differentiation to a good effect can be measured by the success of the Hero Honda, Asian Paints, Nike Shoes and BMW automobiles. These are some of the organizations that have made some alterations to their product to stay competitive in the market(Nandakumar et al., 2011). An example of a successful exponent of this strategy is the way Apple has used differentiation to have a good effect in their marketing strategy(Manteghi&Zohrabi, 2011). It has to be thought that this strategy might not work in the market segment where people are sensitive to changes in the level of prices(Canavan et al., 2013). It may work well in markets that are competitive and saturated (Friis, 2012). At the same time, customers are very specific about what they need. Another thing that they need to take care of is that the firm needs to have a unique set of skills or resources to execute this strategy and stand out in the market (Nandakumar et al., 2011). Another possible concern is that whatever their UPS or differentiation point is, they have to make it a secret or make it harder for the other competitors to copy it(Sumpio, 2013). Successful differentiation is when the product is able to justify its premium prices, and in that way, they are able to create additional revenue per unit, and the customer’s loyalty to the purchase process is also increasing at that point in time. This is another important factor that needs to be looked at first (Nandakumar et al., 2011). This strategy is thus suitable for larger companies that have sufficient resources at their disposal.

Focus Strategies

This strategy talks about the fact that the organization needs to focus on the smaller sub-segments and target markets in the marketplace to make sure that they create their niche and provide a value base to their customers. The idea is to create a distinct group of customers that have a specific set of skills and they have a specialized set of skills. When pursuing this set of strategies, it is up to the organization to determine how they perceive the marketplace and what sort of way they serve their customers. They are given a choice of a low-priced product for that selected group of customers(Manteghi & Zohrabi, 2011). Or doing it the other way around and introducing a differentiated product and service to that customer in the market. This totally depends on the needs and the wants of the selected customer. On the other hand, the capabilities of the customer also play a big part in making this decision. So, there are many factors that need to be taken care of when making this decision. The idea when pursuing this strategy is to mobilize the resources in a better manner, and rather than opting for the whole market segment, the effort and concentration must be on a couple of market segments(Nandakumar et al., 2011). The idea must be to allow all the efforts that are undertaken by the business to be carried out in the manner that they must tailor that certain market segment, and the marketing mix must be organized in such a manner that the organization is able to cater the needs of the focussed market segment in a better manner(Sumpio, 2013). The firm has to look at the way their competitive advantage, and this is another thing that needs to be looked at in the first place(Nandakumar et al., 2011).

SWOT Analysis

Swot Analysis is the structure planning method that is used to assess the organization. It mainly talks about the underlying strengths and weaknesses that are possessed by the business and the organization at the internal level. It also looks at the strategic outlook that it can adopt based on the external factors that are faced by the business, such as the opportunities that it has at its disposal and the weaknesses that are possessed by the business.

Benefits of the SWOT

• It provides businesses with a better understanding of what they need to do.
• It allows businesses to make sure that they assess their strengths and their weaknesses.
• It can deter the threats that are faced by the business and how they can get rid of them.
• Whenever there are opportunities that are present in the market, with the help of a better business strategy, the business can take advantage of the way it can capitalize on its advantage.
• It allows the business to develop goals and strategies with the help of which they can chalk out the ways they can achieve them in the long run.

Weaknesses of the SWOT Analysis

• It does not really provide the list or the issues in the order in which they can be sorted out.
• It does not give any underlying solutions to the problems that are faced by the business and how to solve them in the first place.
• At times, it can really help in terms of idea generation, but it does not give a clear hindsight about what sort of idea is best for the business in the long run.
• At times, even if it can provide a lot of information about the business, most of this information is not really useful with regard to the business.

BCG Matrix

BCG Matrix is one of the most extensively used grids in businesses. It helps the business with regard to its analysis of the business units, and at the same time, it allows it to manage those business lines in a better manner. With that, the allocation of resources is used as an analytical tool. It also provides a good perspective on the relative market share. The market growth rate also allows for a better critical evaluation of the business. The business can split itself into the cash cows, the question marks, the dogs and the stars. This is one of the facts that need to be looked at in the first place.

Strengths of the BCG

• It is very helpful to the managers who are trying to evaluate the portfolio of the company and determine its current position.
• It can be easily applied to large-scale companies, and they can seek the volume and experience effects in that regard.
• The model, in its applicable nature, is rather simple to apply, and it can easily understood as well.
• It provides a suitable base for management regarding its future course of action.

Weaknesses of the Model

• It does not really take into account the possible synergies that might exist among the business.
• The higher market share is not the only factor that can determine the success of the business; the BCG matrix values it a lot.
• There is no clear reasoning about the components of the market and how they are defined in the first place.
• Data accumulation can turn out to be a bit of a task when it happens.

Conclusion

The company might be choosing one of these strategies to gain a competitive advantage. Thus, a company might be using a host of strategies to stay ahead of the pack, such as offering lower costs as compared to their competitors in the market or making some sort of differentiation to ensure that they are adding some extra value to that product. The company might also be tempted to select one or two types of scope for their product by offering their products to a selected portion of the market or making them readily available to the overall market segment. The concept was introduced by Michael Porter in the early 1980s. There are many things that can be attributed to the competitive advantage of the business. It can mean having access to the natural resources necessary for production in that business, or they can be the highly skilled human resources that can get the job done. There are instances when organizations can use the entry and exit barriers of the industry to their advantage, and they can give that extra edge to the business. The competitive advantage thus might be adding some additional value to the product, or it might be looking after other things that are important for the course of the business.

References

Canavan, D., Sharkey Scott, P., &Mangematin, V. (2013). Creative professional service firms: aligning strategy and talent. Journal of Business Strategy, 34(3), 24-32.

Friis, M. (2012). Generic strategies in emerging market start-ups-A case study in the solid state lighting industry.

Manteghi, N., &Zohrabi, A. (2011). A proposed comprehensive framework for formulating strategy: a Hybrid of balanced scorecard, SWOT analysis, Porter‘s generic strategies and Fuzzy quality function deployment. Procedia-Social and Behavioral Sciences, 15, 2068-2073.

Nandakumar, M. K., Ghobadian, A., &O’Regan, N. (2011).Generic strategies and performance-evidence from manufacturing firms. International Journal of productivity and performance management, 60(3), 222-251.

Sumpio, B. E. (2013). Application of Porter’s Five Forces Model and generic strategies for vascular surgery: should be stuck in the middle?. Vascular, 21(3), 149-156.

Factoring Debts

From a business perspective, Debt Factoring can be defined as an activity of financial transaction related to debtor finance where a business sells off its receivables at a substantial discount. There are three parties involved in factoring:

• Factor (purchasing receivables)
• Creditor (selling the receivables)
• Debtor (individual or company who is indebted to pay off the liability)

In factoring, receivables are defined as financial assets that provide the owner with the right to get sufficient money from the debtor whose liability is related to paying off the asset. The seller of the receivables sells the product at a substantial discount factor, which could be an individual or a specialized agency for factoring.  Debt factoring can be used by companies to ensure that they have a certain amount of cash flow, which is important for meeting their business needs (Soufani, 2000).

In modern-day business, debt factoring can also be used as a financial instrument for providing better and smoother cash flow for an organization due to their receivables having different and varied credit terms which they should manage. Importantly, factoring occurs because a company sells off its receivables at a substantial discount at their par value, as companies can be in a much better financial position by selling their proceeds and improving their business growth (Soufani, 2000).

Business Review Checklist

Introduction

Company Background and Information

When it comes to providing adequate background information about the company and why it was initiated, the J. H. Reid Corporation has come up with a very reasonable explanation. The idea that is presented by the J. H. Reid Corporation is very strong, and in the executive summary, they laid out rather well what they want to achieve out of this product.

The only thing that does not make a lot of sense is that in the executive summary, there must not e that much detailed financial information and this is something that might have been averted in the initial section of the business plan. The company’s mission is to become a leading manufacturer of chairs and other such equipment, and this is one of the main ideas that are propagated by J. H. Reid Corporation. When talking about their product line, they talk about some prototypes and the way they have completed some of their chairs. They claim to be using innovative upholstery in their production and have introduced cushion systems in their chair manufacturing. Other than that, the initial discussion about the company is muddled, and there is not much information through which any meaningful conclusion about the business and its philosophy can be deduced.

The J. H. Reid Corporation’s corporate mission is to become a world-class manufacturer of innovative chairs. But what is innovative? They have not really discussed it in that detail. At the same time, they have also talked about being a profitable business. This is something that any business plan does not need to mention due to the simple fact that every business that works is making an attempt to be profitable. When describing their business, they have talked about the stages of development their business is currently in. In order to elaborate on that point, they mentioned the details of the number of sales that they had executed. So this is another interesting way to talk about the business and the way it would be conducted in the first place. As per their business description, they have talked about the origin of their name and, at the same time, their primary business activity, which is manufacturing their patent chair called Chicago Lounge. They talked about gaining the early capital necessary to execute the production. These are some of the things that are mentioned in the company’s background information. It would have been better if company background was provided in a more focussed manner rather than discussing unnecessary details. They have also talked about some of the distinctive competencies of their business, and this is another thing that stands out rather positively: they have reviewed their business strengths in the right manner. Thus, the important thing during the business plan is to make sure that all the relevant background and company information is presented in the right manner. At the same time, an effort must be made to bring some clarity regarding the business information.

Operational Review of the Processes

There is a section in their business plan that talks about their whole operational plan. But the way they have started this section left a lot to be desired as they have talked about their idea of world-class manufacturing that includes practices such as getting cutting edge practices and promoting the culture of safety as well as maintaining a cost structure that is competitive in its nature. These objectives are very ambiguous in their nature, and it would have been better if the business had set some quantifiable objective setting.

In the next section, they have talked about three stages of their product development. In the first phase, they would be able to manufacture about 100 chairs in the month, and further, it will be expanded to 1000 per chair in the coming month. They have stressed the need to get additional space to execute their operations in a better manner. In the next section of the plan, though, things are explained better. They have talked about the arrangement of the first phase of their plan, where about 100 chairs were prepared in the small shop at the designer’s outlet and at the home that was located in Chicago. The deliverables and the raw materials that would be needed to create that product are also discussed. In the second phase of the plan, the focus is not only on the work processes but also on the way vendor management is carried out. On the other hand, inventory management is also looked at in that phase of the plan. The space of 3000 sqft would be needed to execute the second phase of the business plan. The potential locations are also discussed in that part of the plan. The third stage is not about manufacturing; instead, it focuses on how the sales of the product would be executed and how the product would be introduced in the market in the first place. This is another aspect of the program that needs to be looked at first. The concept of vertical integration would be introduced in that part of the plan. One thing that was missing in the first few phases of the plan, and now that it is introduced, is how labour management must be carried out. Thus, the operational plan has more bases covered, which makes it a very readable and interesting prospect. All the necessary details are provided. The major costs for the projects are going to be the labour and the cost of the raw material. What they have done is that they have subcontracted some of the work, and due to that, they are in a good position to make sure that they get the low-cost material from their suppliers and also allow them to take the low capital investment position sought in the market. The rationale for this strategy is that they want to vertically integrate their component part manufacture in the right manner. The operational plan is presented in the right manner, and the phases through which the operation process would be going, as well as the underlying information important for business decision-making, is laid out in the right manner. The cost constraints are also discussed to allow for greater operational integration.

Development Strategies

One of the impressive aspects of the business plan is the fact that the development plan is devised in a very precise and effective manner. The focus is on the fact that all the necessary capital to execute the operations has been acquired. So, it is not about the execution of the operation; how the resources are needed to execute the operation must also be looked at. What they have done is realize that vendor management would be crucial for the execution of the business, and due to that, it is imperative that some sort of control is carried out over the way suppliers are being taken care of. The idea would be to contact the key suppliers, and all the efforts in that regard are already being taken by the business to ensure that there are no more problems in the future. In the other section of the development plan, they talked about the way production prototypes would be used to make sure that the chairs are completed in the amount of time as decided in the production stages as per the things decided in the operational plan. Innovative upholstery will be used to make sure everything is happening in the right manner. However, it would have been better if it was defined what is meant by being innovative in this instance.

Other than the chairs, there are some other products as well that are part of the plan, such as the creation of work surfaces for the laptops. To carry out the third phase of the plan, rather than keeping it late, they have developed all the marketing material that would be needed in the future so that all the support functions can happen in the right manner. As far as making sure that there is some quality control is concerned, it would have been better if there was some mechanism for it and it was provided, but at the moment, this function would be carried out by the Production and Design Manager. One thing that might go in their favour is that the product has been getting rave reviews; for instance, as they have quoted in their business plan, the Design Manager at Herman Miller has appreciated the overall design of the product. So this is another thing that might go in the favour of the business.

Analysis of Market Structure

This is one thing that is not commonly seen in business plans, and so much effort is put into the analysis of the market structure. The fact of the matter is that they have predicted the size of the market in a very typical manner. As per their market estimates, motion furniture demand is increasing at a very rapid pace and due to that, they are now generally used for a lot of purposes. The common purpose for which it is utilized is for watching television, and this is one purpose that they think their product does well. At the same time, upholstered furniture accounts for about 18 % of the total market, and this is another thing that seems to be going in their favour. It needs to be understood that the actual sales of the chair are going to define the market size in the right manner. At the same time, they also conducted a market test; there were about 40,000 people who were viewing the Arts and Crafts area, and about four sales were made at that point in time. It has to be kept in mind that the sample was not selected in a scientific manner, but instead, it was a selection of random samples. That market test has determined their market projection. It is very encouraging to see that both the secondary and primary research were carried out to make sure that the size of the market and projection are determined in the right manner.

Based on their market projection, the market size was determined to be around 27,000, and the sales price was estimated to be around $ 200 each. That means that they have also worked out their sales forecast, which amounts to $ 5.4 million. It has to be kept in mind, though, that they have followed the principle of revenue realization, and all the revenue estimates are based on the principle of conservatism. The way they have analyzed the market is one of the biggest strengths of the business plan as they have worked out the sales forecast and have used a variety of methods to determine what their target market is and what the sales prospect of that target market is. Now, coming towards the competitors, they have made the claim that they don’t have many competitors in the market, but this argument does not hold weight. The claim that they are the only ones that are providing this sort of furniture in the market does not hold true due to the fact that there are many companies that are offering this type of furniture in the market.

It is identified on its part that it is not part of the mainstream furniture industry, and based on its market results, its product only serves the niche segment of the market. So, they have to be very focused on their overall business strategy, especially when it comes to their marketing. This is one of the more positive aspects of this plan. The information is collected in an organized manner, and the sources from which the information is gathered are clear and precise. At the same time, accurate estimates about projection are carried out as they are possible with the amount of information available.

Marketing Strategy

First, they have laid out the demographics that they are serving at the moment. The demographics that they are going to serve are young adults in the age group of 18 to 45. As per the market estimates that were carried out in United States census data, there are about 111 million people who are part of the conservative market. Thus, they have to be really focussed on their marketing strategy. At the same time, as per their own admission, the product is going to serve niche customers, so careful consideration needs to be taken care of in the right manner. In the initial phase of their marketing, they would be targeting upscale stores such as Room and Board and Crate and Barrel. There are hosts of other options that have been listed from where they would be providing their marketing services. This is the initial phase of the market. The reason these stores are selected is due to the fact that the idea is to attract customers who are interested in quality furniture, and as per the assumption made by JHR, they would be more than interested in contemporary furniture that is offered by the JHR. Though the idea is good, the implementation and the execution are going to be really had. It can also be argued that rather than opting for these upscale stores, the initial phase of the marketing could have been more focussed as displaying the furniture in these stores is going to soak up a lot of funds and thus it is going to make it hard for them to ensure higher profitability if the costs are so high in the initial phase of their campaign. So this is where they need to look at.

The other phase of the marketing would revolve around the usage of publications and magazines. In this segment, effort must be made to use free and inexpensive magazines for the marketing campaign, and the focus should be on creating a relationship with the customer this time around. This phase of the marketing, though, could have been introduced earlier, and rather than opting for a high promotion in the early stages of the campaign, this low-key strategy is more likely to pay dividends for the JHR, as there is a chance that niche customers would be more attracted to it this time around. The most interesting part of this marketing strategy is how they are going to get national coverage for their product. In this phase, they are getting more direct with their customers and allowing certain customization to their design so that different customers can be accommodated in the right manner. Thus, the marketing plan revolves around varying strategies, and it would have been better if the timelines and phases had been designed and presented in the right manner rather than just giving a brief overview. The better approach would have been to provide the timelines for the implementation of the strategy and how it would be taken care of in the first place. There was also a need to revisit the order in which each strategy would be implemented in the first place.

Financial Projections and Analysis

One of the distinguishing aspects of the plan is that when forecasting revenue, the traditional accounting method of conservatism is followed, and there are conservative estimates of the revenue. Now, the way revenue was calculated was based on the market test that they conducted, and with that, they worked out a wholesale price of about $ 204. This is the amount that JHR would be receiving from the retailer. Coming towards the variable and fixed costs and the way they have worked out, the workings are illustrated in the appendices, making it easier to look at all the financial information at the user’s disposal. They have kept material costs and utilities as their variable cost, though it can be argued that the labour cost is also a variable cost.

Conclusion

Thus, the plan is rather clear when it comes to financing, which is that there would be more reliance on debt financing. It can backfire if the initial profitability is not as per the initial estimates. So this is something that they have to be wary of. The financial plan rounds off with the calculation about the return on investment, and it has to be said that it is a well-thought-out learning. The NPV for the project is positive by a decent margin, and this is one of the things that might go in the JHR’s favour. At the same time, the risk assessment is also carried out, which lends credibility to the business plan, though it would have been better if some risk mitigation strategy had also been discussed in the business plan. All in all, the financials are discussed in a pretty adequate manner. One month of inventory is kept for production, and keeping in mind the vendor management that is carried out at the JHR, this is a pretty high amount of inventory, and it is going to reflect the higher costs for the maintenance of the inventory. This is something that needs to be looked at. The financing methods that are going to be used by the JHR are provided in extensive detail. They are going to use the common stock for the corporation, and they have named one or two investors already in their plan, as well as how they are going to go about them.

References

Blank, S. (2013). Why the lean start-up changes everything. Harvard Business Review, 91(5), 63-72.

Jones, C., Penaluna, A., Matlay, H., &Penaluna, K. (2013). The student business plan: useful or not?. Industry and Higher Education, 27(6), 491-498.

Lei, H. S. (2014). Does a business plan really matter for a small or medium-sized new venture?: three types of new ventures in Taiwan. International Journal of Entrepreneurship and Small Business, 22(1), 89-105.

Sharma, P., Chrisman, J. J., &Gersick, K. E. (2012). 25 years of family business review: Reflections on the past and perspectives for the future.Family Business Review, 25(1), 5.

Tounés, A., Lassas-Clerc, N., &Fayolle, A. (2014). Perceived entrepreneurial competencies tested by business plan pedagogies. International Journal of Entrepreneurship and Small Business, 21(4), 541-557.

Soufani, K. (2000). Factoring and UK small business. Journal of Small Business & Entrepreneurship, 15(3), 78-89.