BUSINESS PLAN REVIEW
In the modern business world, it is very important for a business to have an idea about what they need to have a sustained success in that marketplace. The success in the business is not possible if there is not something that makes business different from some of its competitors at the first place. This is only way an organization can survive in the marketplace and make its presence felt. In order to stay one step ahead of its competitors, the organizations these days are relying on the concept of the competitive advantage. By competitive advantage, it 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, there are many strategies that might be pursued by the business. Some of these sets of strategies are called porter generic strategies. There are three types of generic strategies, such as low cost strategy, the differentiation and the focused strategy(Manteghi&Zohrabi, 2011).
Cost Leadership Strategy
The cost leadership strategy emphasizes on 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 have least price to value ratio among 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 by having the greater utilization of the assets that are at the disposal of the organization. For instance, if an organization is the part of the service industry, it means that trying to get the most out of the assets that are serviceable to the customers. For instance, it there is an airline that is pursuing this strategy, and then 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 higher volume of the input that is happening at that point of 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, firm can also take advantage of the economies of the scale. The mass production as a matter of fact is a powerful strategy for manufacturing businesses.
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 the product differentiation to the good affect can be measured by the success of the Hero Honda, the Asian Paints, and 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). The example of a successful exponent of this strategy is the way Apple has used differentiation to the good affect in their marketing strategy(Manteghi&Zohrabi, 2011). It has to be though looked is that this strategy might not work at the market segment where people are sensitive to the changes in the level of prices(Canavan et al, 2013). It may work well in the 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 firm needs to have 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). The 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 of time. This is another important factor that is needed to be looked at the first place(Nandakumar et al, 2011). This strategy is thus suitable for larger companies who have sufficient resources at their disposal.
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 value base to their customers. The idea is to create distinct group of customers that have specific set of skills and they have specialized set of skills. When pursuing this set of strategy, it is up to the organization that how they perceive the market place and what sort of way they serve their customers. Either they are given a choice of selecting a low priced product to that selected group of customers(Manteghi&Zohrabi, 2011). Or doing it the other way round 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 when making this decision. So there are many factors that are needed 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 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 is needed to be looked at the first place(Nandakumar et al, 2011).
Swot Analysis is the structure planning method that is used to assess the organization. It mainly talks about the underlying strengths and the weaknesses that are possessed by the business and the organization at the internal level. It also looks at the strategic outlook that it can adapt 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 business with a better understanding about what it needs to do.
- It allows business 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 the better business strategy, the business can take advantage of the way it can capitalize 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 at the first place.
- At times it can really help in the terms of the 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 lot of information about the business, most of this information is not really useful with regards to the business.
BCG Matrix is one of the most extensively used grids in the businesses. It helps the business with regards to its analysis of the business units and at the same time, it also allows them to manage those business lines in a better manner. With that, the allocation of the resources and it is used as an analytical tool. It also provides good perspective about the relative market share. The market growth rate and it also allows the critical evaluation of the business in a better manner. The business can split itself as the cash cows, the question marks, dogs and stars. This is one of the facts that are needed to be looked at 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 at the moment.
- It can be easily applied to the large scale companies and they can seek the volume and experience effects in that regard.
- The model in its applicable nature is rather simply to apply and it can easily understood as well.
- It provides a suitable base to the management about 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 but BCG matrix values it a lot.
- There is no clear reasoning about what are the components of the market and how they are defined at the first place.
- The data accumulation can turn out to be a bit of a task when that happens.
The company might be choosing one of these strategies to gain competitive advantage. Thus a company might be using 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 it readily available to the overall market segment. The concept has its inception by Michael Porter in early 1980’s. There are many things that can be attributed as the competitive advantage of the business. It can mean having access to the natural resources necessary for production in that business, or either they can be the high skilled human resource that can get the job done. There are instances when organization 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 they might be looking after the other things that are important for the course of the business.
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.
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 3 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, the receivables are defined as a financial asset which provides owner of the right to get sufficient money from the debtor whose liability related to the paying off for the asset. The seller of the receiavbles sells the product at a substantial amount of discount the factor, which could be an individual or a specialized agency who for factoring. Debt factoring can be used by companies for ensuring 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 smooth cash flow for an organization due to their receivables have different and varied credit terms which should be managed by them. Importantly, factoring occurs because a company sells off its receivables at a substantial discount at their par value as companies can be at a much better fianancial position by selling their proceeds and improving their business growth (Soufani, 2000).
Business Review Checklist
|Company Background and information|
|1||Clear reason behind the formation of the company|||
|2||Progress made by the company since its inception|||
|3||The key people who are involved in the business and the way they work|||
|4||Sales growth, the strategic chances that are witnessed by the company and the way they have expanded with the passage of time|||
|5||The host of the marketing strategies that are used by the business and the way they are organized|||
|6||The clear delegation of the roles and the responsibilities that are carried out by the people|||
|Operational Review of the Processes|
|1||The overall quality and the acumen of the management|||
|2||The placement of the systems and their overall appropriateness of the organization|||
|3||The Human resource capital at their disposal|||
|4||Remuneration packages of the people|||
|5||The delegation of the responsibility|||
|6||Reporting systems in the business, at the internal and external level|||
|1||is business offering something is not witnessed in some of the other businesses|||
|2||Are there any competitive advantages that are perceived by the business|||
|3||How the distribution and other things can be made more cost effective|||
|4||Is there any market analysis on the part of the business|||
|5||What is the market segmentation the business would be serving in the long run|||
|1||Are there any underlying objectives when it comes to the business|||
|2||How these objectives are going to be achieved if there are any|||
|3||Features and benefits of the product that is on offer by the business at that point of time|||
|4||The pricing strategies and the promotion strategy|||
|5||The promotion strategy and alternative course of actions|||
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 it out rather well what they want to achieve out of this product and.
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 leading manufacturers of the chair 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 prototype and the way they have completed some of their chairs. They have claimed to be using the innovative upholstery in their production and introduced cushion systems in their chair manufacturing. But other than that, the initial discussion about the company is muddled, there is not much information through which any meaningful conclusion about the business and its philosophy can be deduced.
The corporate mission of the J. H. Reid Corporation is that they want to become the world class manufacturers of the 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. And in order to elaborate that point, they have mentioned their details about the amount of sales that are executed by the. So this is another interesting way to talk about the business and the way it would be conducted at 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 that is of manufacturing their patent chair called Chicago Lounge. They have talked about gaining the early capital that is necessary to execute the production. These are some of the things that are mentioned in the background information of the company. 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 that 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, the 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 lefts a lot to be desired as they have talked about their idea of world class manufacturing that includes practices such as getting the cutting edge practices and promoting the culture of safety as well as maintaining a cost structure that is competitive in its nature. These are objectives that are very ambiguous in their nature and it would have been better if something quantifiable objective setting was being done by the business.
In the next section, they have talked about three stages of their product development. In first phase, they would be able to manufacture about 100 chairs in the month, and further no it will be expanded to 1000 per chairs in the coming month. They have stressed about the need of getting additional space to execute their operations in a better manner. In the next section of the plan though, things are explained in a better manner. They have talked about their 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 the Chicago. The deliverables and the raw material 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 towards the way vendor management is carried out. On the other hand, the 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 the manufacturing, instead now it focuses on how the sales of the product would be executed and how the product would be introduced in the market at the first place. This is another aspect of the program that is needed to be looked at in the first place. 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 is introduced is that of how the labour management must be carried out. Thus, the operational plan has more bases covered and 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 a right manner, 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.
One of the impressive aspect of the business plan is the fact that development plan is devised in very precise and an effective manner. The focus is one the fact that all the necessary capital to execute the operations has been acquired. So it is not about the execution of the operation, but how the resources that are needed to execute the operation are also needed to be looked at. What they have done is that they have realized 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 being taken by the business already to ensure that their are no more problems in the coming future. In the other section of the development plan, they have talked about the way production prototypes would be used to make sure that the chairs are complete in the amount of time as per decided in the production stages as per the things decided in the operational plan. To make sure everything is happening in the right manner, the usage of the innovative upholstery would be used. Though 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 creation of the 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 about it and it was provided, but at the moment, this function would be carried out by 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 the business plans that so much though and 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 a typical manner. As per their market estimates, the motion furniture’s demand is increasing at a very rapid pace and due to that, they are now generally used for lot of purpose. The common purpose for which it is utilized is for watching the television and this is one purpose that they think that their product seems to do well. At the same time, the upholstered furniture accounts for about 18 % of the total market and this are another thing that seems to be going in their favour. It is needed 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 have 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 in that point of 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 the random samples. That market test has determined their market projection. It is very encouraging to see that both the secondary as well as primary research was carried out to make sure that the size of the market and projection is 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 principal of revenue realization and all the revenue estimates are based on principal of conservatism. The way they have analyzed the market is one of the biggest strength of the business plan as they have worked out the sales forecast and have used variety of methods to determine what their target market is and what is 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.
There is identification on their part that they are not the part of the mainstream furniture industry and based on their market results, their product is only serving to the niche segment of the market. So they have to be much focused when it comes to their overall business strategy especially when it comes to their marketing. This is one of the more positive aspect of this plan. The information is collected in an organized manner, the sources from which the information is gathered in a clear and precise manner. And at the same time, as accurate estimates about projection are carried out as they are possible with the amount of information available.
First they have laid out the demographics that they are serving at the moment. The demographics that they are going to serve are the young adults that are 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 that are the part of the conservative market. Thus they have to be really focussed about their marketing strategy. And at the same time, as per their own admission, the product is going to serve the niche customers so there is careful consideration that is needed to be taken care of in the right manner. In the initial phase of their marketing, they would be targeting the upscale stores such as Room and Board and Crate and Barrel. There are hosts of other options that have listed from where they would be providing their marketing services. This is the initial phase of the market. The reason due to which these stores are selected is due to the fact that the idea is to attract the customers who are interested in the quality furniture, and as per the assumption made by JHR, they would be more than interested in the contemporary furniture that is offered by the JHR. Though the idea is good, the implementation and the execution are going to be really had. And 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 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 be revolving around the usage of the publications and magazines. In this segment, the effort must be made to use the free and inexpensive magazines for the marketing campaign and the focus would be on creating 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 that how they are going to get the 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 is revolving around varying strategies, and it would have been better if the time lines and phases were designed and presented in the right manner rather than just giving a brief outlook into it. The better approach would have been to provide the timelines about the implementation of the strategy and how it would be taken care of at the first place. There was also need to revisit the order with which each strategy would be implemented at the first place.
Financial Projections and Analysis
One of the distinguishing aspects of the plan is that when forecasting revenue, traditional accounting method of conservatism is followed and there are conservative estimates about the revenue. Now the way revenue has been calculated, it was based on the market test that was conducted by them and with that, they have worked out a whole sale 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 and that makes it easier to look at all the financial information that is at the disposal of the user. They have kept material cost and the utilities as their variable cost, though it can be argued that the labour cost is also a variable cost.
Thus the plan is rather clear when it comes to financing that there would be more reliance on the 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 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 favour of the JHR. At the same time, the risk assessment is also carried out which lends the credibility to the business plan though it would have been better if some risk mitigation strategy was also discussed in the business plan. All in all, the financials are discussed in pretty adequate manner. One month of inventory is kept for the production and keeping in mind that the vendor management that is carried out at the JHR, this is pretty high amount of inventory and it is going to reflect higher cost for the maintenance of the inventory. This is something that is needed to be looked at. The financing methods that are going to be used by the JHR are provided in the 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 and how they are going to go about them.
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