First Edition, 2012 ISBN 978-81-323-2583-3 © All rights reserved. Published by: Orange Apple 4735/22 Prakashdeep Bldg, Ansari Road, Darya Ganj, Delhi - 110002 Email: info@wtbooks.com 

Table of Contents

Chapter 1 - Introduction to Strategic Management

Chapter 2 - Business Plan

Chapter 3 - Marketing Plan

Chapter 4 - Marketing Research

Chapter 5 - Marketing Strategy

Chapter 6 - Marketing Warfare Strategies

Chapter 7 - Strategic Planning

Chapter 8 - Market Analysis and Competitor Analysis

Chapter- 1

Introduction to Strategic Management

Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. A balanced scorecard is often used to evaluate the overall performance of the business and its progress towards objectives. Recent studies and leading management theorists have advocated that strategy needs to start with stakeholders expectations and use a modified balanced scorecard which includes all stakeholders.

Strategic management is a level of managerial activity under setting goals and over Tactics. Strategic management provides overall direction to the enterprise and is closely related to the field of Organization Studies. In the field of business administration it is useful to talk about "strategic alignment" between the organization and its environment or "strategic consistency". According to Arieu (2007), "there is strategic consistency when the actions of an organization are consistent with the expectations of management, and these in turn are with the market and the context." Strategic management includes not only the management team but can also include the Board of Directors and other stakeholders of the organization. It depends on the organizational structure.

“Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment.” (Lamb, 1984:ix)

Strategy formation

Strategic formation is a combination of three main processes which are as follows:

• Performing a situation analysis, self-evaluation and competitor analysis: both internal and external; both micro-environmental and macro-environmental.

• Concurrent with this assessment, objectives are set. These objectives should be parallel to a time-line; some are in the short-term and others on the long-term. This involves crafting vision statements (long term view of a possible future), mission statements (the role that the organization gives itself in society), overall corporate objectives (both financial and strategic), strategic business unit objectives (both financial and strategic), and tactical objectives.

• These objectives should, in the light of the situation analysis, suggest a strategic plan. The plan provides the details of how to achieve these objectives.

Strategy evaluation

• Measuring the effectiveness of the organizational strategy, it's extremely important to conduct a SWOT analysis to figure out the strengths, weaknesses, opportunities and threats (both internal and external) of the entity in business. This may require taking certain precautionary measures or even changing the entire strategy.

In corporate strategy, Johnson, Scholes and Whittington present a model in which strategic options are evaluated against three key success criteria:

• Suitability (would it work?) • Feasibility (can it be made to work?) • Acceptability (will they work it?)

Suitability

Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organisation's strategic position.

• Does it make economic sense? • Would the organization obtain economies of scale or economies of scope? • Would it be suitable in terms of environment and capabilities?

Tools that can be used to evaluate suitability include:

• Ranking strategic options • Decision trees

Feasibility

Feasibility is concerned with whether the resources required to implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information.

Tools that can be used to evaluate feasibility include:

• cash flow analysis and forecasting • break-even analysis • resource deployment analysis

Acceptability

Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes, which can be return, risk and stakeholder reactions.

• Return deals with the benefits expected by the stakeholders (financial and non-financial). For example, shareholders would expect the increase of their wealth, employees would expect improvement in their careers and customers would expect better value for money.

• Risk deals with the probability and consequences of failure of a strategy (financial and non-financial).

• Stakeholder reactions deals with anticipating the likely reaction of stakeholders. Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger with regards to quality and support.

Tools that can be used to evaluate acceptability include:

• what-if analysis • stakeholder mapping

General approaches

In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management:

• The Industrial Organizational Approach o based on economic theory — deals with issues like competitive rivalry,

resource allocation, economies of scale o assumptions — rationality, self discipline behaviour, profit maximization

• The Sociological Approach o deals primarily with human interactions o assumptions — bounded rationality, satisfying behaviour, profit sub-

optimality. An example of a company that currently operates this way is Google. The stakeholder focused approach is an example of this modern approach to strategy.

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes. In the bottom-up approach, employees submit proposals to their managers who, in turn, funnel the best ideas further up the organization. This is often accomplished by a capital budgeting process. Proposals are assessed using financial

criteria such as return on investment or cost-benefit analysis. Cost underestimation and benefit overestimation are major sources of error. The proposals that are approved form the substance of a new strategy, all of which is done without a grand strategic design or a strategic architect. The top-down approach is the most common by far. In it, the CEO, possibly with the assistance of a strategic planning team, decides on the overall direction the company should take. Some organizations are starting to experiment with collaborative strategic planning techniques that recognize the emergent nature of strategic decisions.

Strategic decisions should focus on Outcome, Time remaining, and current Value/priority. The outcome comprises both the desired ending goal and the plan designed to reach that goal. Managing strategically requires paying attention to the time remaining to reach a particular level or goal and adjusting the pace and options accordingly. Value/priority relates to the shifting, relative concept of value-add. Strategic decisions should be based on the understanding that the value-add of whatever you are managing is a constantly changing reference point. An objective that begins with a high level of value-add may change due to influence of internal and external factors. Strategic management by definition, is managing with a heads-up approach to outcome, time and relative value, and actively making course corrections as needed.

The strategy hierarchy

In most (large) corporations there are several levels of management. Strategic management is the highest of these levels in the sense that it is the broadest - applying to all parts of the firm - while also incorporating the longest time horizon. It gives direction to corporate values, corporate culture, corporate goals, and corporate missions. Under this broad corporate strategy there are typically business-level competitive strategies and functional unit strategies.

Corporate strategy refers to the overarching strategy of the diversified firm. Such a corporate strategy answers the questions of "which businesses should we be in?" and "how does being in these businesses create synergy and/or add to the competitive advantage of the corporation as a whole?" Business strategy refers to the aggregated strategies of single business firm or a strategic business unit (SBU) in a diversified corporation. According to Michael Porter, a firm must formulate a business strategy that incorporates either cost leadership, differentiation or focus in order to achieve a sustainable competitive advantage and long-term success in its chosen areas or industries. Alternatively, according to W. Chan Kim and Renée Mauborgne, an organization can achieve high growth and profits by creating a Blue Ocean Strategy that breaks the previous value-cost trade off by simultaneously pursuing both differentiation and low cost.

Functional strategies include marketing strategies, new product development strategies, human resource strategies, financial strategies, legal strategies, supply-chain strategies, and information technology management strategies. The emphasis is on short and medium term plans and is limited to the domain of each department’s functional

responsibility. Each functional department attempts to do its part in meeting overall corporate objectives, and hence to some extent their strategies are derived from broader corporate strategies.

Many companies feel that a functional organizational structure is not an efficient way to organize activities so they have reengineered according to processes or SBUs. A strategic business unit is a semi-autonomous unit that is usually responsible for its own budgeting, new product decisions, hiring decisions, and price setting. An SBU is treated as an internal profit centre by corporate headquarters. A technology strategy, for example, although it is focused on technology as a means of achieving an organization's overall objective(s), may include dimensions that are beyond the scope of a single business unit, engineering organization or IT department.

An additional level of strategy called operational strategy was encouraged by Peter Drucker in his theory of management by objectives (MBO). It is very narrow in focus and deals with day-to-day operational activities such as scheduling criteria. It must operate within a budget but is not at liberty to adjust or create that budget. Operational level strategies are informed by business level strategies which, in turn, are informed by corporate level strategies.

Since the turn of the millennium, some firms have reverted to a simpler strategic structure driven by advances in information technology. It is felt that knowledge management systems should be used to share information and create common goals. Strategic divisions are thought to hamper this process. This notion of strategy has been captured under the rubric of dynamic strategy, popularized by Carpenter and Sanders's textbook . This work builds on that of Brown and Eisenhart as well as Christensen and portrays firm strategy, both business and corporate, as necessarily embracing ongoing strategic change, and the seamless integration of strategy formulation and implementation. Such change and implementation are usually built into the strategy through the staging and pacing facets.

Historical development of strategic management

Birth of strategic management

Strategic management as a discipline originated in the 1950s and 60s. Although there were numerous early contributors to the literature, the most influential pioneers were Alfred D. Chandler, Philip Selznick, Igor Ansoff, and Peter Drucker.

Alfred Chandler recognized the importance of coordinating the various aspects of management under one all-encompassing strategy. Prior to this time the various functions of management were separate with little overall coordination or strategy. Interactions between functions or between departments were typically handled by a boundary position, that is, there were one or two managers that relayed information back and forth between two departments. Chandler also stressed the importance of taking a long term perspective when looking to the future. In his 1962 groundbreaking work Strategy and

Structure, Chandler showed that a long-term coordinated strategy was necessary to give a company structure, direction, and focus. He says it concisely, “structure follows strategy.”

In 1957, Philip Selznick introduced the idea of matching the organization's internal factors with external environmental circumstances. This core idea was developed into what we now call SWOT analysis by Learned, Andrews, and others at the Harvard Business School General Management Group. Strengths and weaknesses of the firm are assessed in light of the opportunities and threats from the business environment.

Igor Ansoff built on Chandler's work by adding a range of strategic concepts and inventing a whole new vocabulary. He developed a strategy grid that compared market penetration strategies, product development strategies, market development strategies and horizontal and vertical integration and diversification strategies. He felt that management could use these strategies to systematically prepare for future opportunities and challenges. In his 1965 classic Corporate Strategy, he developed the gap analysis still used today in which we must understand the gap between where we are currently and where we would like to be, then develop what he called “gap reducing actions”.

Peter Drucker was a prolific strategy theorist, author of dozens of management books, with a career spanning five decades. His contributions to strategic management were many but two are most important. Firstly, he stressed the importance of objectives. An organization without clear objectives is like a ship without a rudder. As early as 1954 he was developing a theory of management based on objectives. This evolved into his theory of management by objectives (MBO). According to Drucker, the procedure of setting objectives and monitoring your progress towards them should permeate the entire organization, top to bottom. His other seminal contribution was in predicting the importance of what today we would call intellectual capital. He predicted the rise of what he called the “knowledge worker” and explained the consequences of this for management. He said that knowledge work is non-hierarchical. Work would be carried out in teams with the person most knowledgeable in the task at hand being the temporary leader.

In 1985, Ellen-Earle Chaffee summarized what she thought were the main elements of strategic management theory by the 1970s:

• Strategic management involves adapting the organization to its business environment.

• Strategic management is fluid and complex. Change creates novel combinations of circumstances requiring unstructured non-repetitive responses.

• Strategic management affects the entire organization by providing direction. • Strategic management involves both strategy formation (she called it content) and

also strategy implementation (she called it process). • Strategic management is partially planned and partially unplanned. • Strategic management is done at several levels: overall corporate strategy, and

individual business strategies.

• Strategic management involves both conceptual and analytical thought processes.

Growth and portfolio theory

In the 1970s much of strategic management dealt with size, growth, and portfolio theory. The PIMS study was a long term study, started in the 1960s and lasted for 19 years, that attempted to understand the Profit Impact of Marketing Strategies (PIMS), particularly the effect of market share. Started at General Electric, moved to Harvard in the early 1970s, and then moved to the Strategic Planning Institute in the late 1970s, it now contains decades of information on the relationship between profitability and strategy. Their initial conclusion was unambiguous: The greater a company's market share, the greater will be their rate of profit. The high market share provides volume and economies of scale. It also provides experience and learning curve advantages. The combined effect is increased profits. The studies conclusions continue to be drawn on by academics and companies today: "PIMS provides compelling quantitative evidence as to which business strategies work and don't work" - Tom Peters.

The benefits of high market share naturally lead to an interest in growth strategies. The relative advantages of horizontal integration, vertical integration, diversification, franchises, mergers and acquisitions, joint ventures, and organic growth were discussed. The most appropriate market dominance strategies were assessed given the competitive and regulatory environment.

There was also research that indicated that a low market share strategy could also be very profitable. Schumacher (1973), Woo and Cooper (1982), Levenson (1984), and later Traverso (2002) showed how smaller niche players obtained very high returns.

By the early 1980s the paradoxical conclusion was that high market share and low market share companies were often very profitable but most of the companies in between were not. This was sometimes called the “hole in the middle” problem. This anomaly would be explained by Michael Porter in the 1980s.

The management of diversified organizations required new techniques and new ways of thinking. The first CEO to address the problem of a multi-divisional company was Alfred Sloan at General Motors. GM was decentralized into semi-autonomous “strategic business units” (SBU's), but with centralized support functions.

One of the most valuable concepts in the strategic management of multi-divisional companies was portfolio theory. In the previous decade Harry Markowitz and other financial theorists developed the theory of portfolio analysis. It was concluded that a broad portfolio of financial assets could reduce specific risk. In the 1970s marketers extended the theory to product portfolio decisions and managerial strategists extended it to operating division portfolios. Each of a company’s operating divisions were seen as an element in the corporate portfolio. Each operating division (also called strategic business units) was treated as a semi-independent profit center with its own revenues, costs, objectives, and strategies. Several techniques were developed to analyze the relationships

between elements in a portfolio. B.C.G. Analysis, for example, was developed by the Boston Consulting Group in the early 1970s. This was the theory that gave us the wonderful image of a CEO sitting on a stool milking a cash cow. Shortly after that the G.E. multi factoral model was developed by General Electric. Companies continued to diversify until the 1980s when it was realized that in many cases a portfolio of operating divisions was worth more as separate completely independent companies.

The marketing revolution

The 1970s also saw the rise of the marketing oriented firm. From the beginnings of capitalism it was assumed that the key requirement of business success was a product of high technical quality. If you produced a product that worked well and was durable, it was assumed you would have no difficulty selling them at a profit. This was called the production orientation and it was generally true that good products could be sold without effort, encapsulated in the saying "Build a better mousetrap and the world will beat a path to your door". This was largely due to the growing numbers of affluent and middle class people that capitalism had created. But after the untapped demand caused by the second world war was saturated in the 1950s it became obvious that products were not selling as easily as they had been. The answer was to concentrate on selling. The 1950s and 1960s is known as the sales era and the guiding philosophy of business of the time is today called the sales orientation. In the early 1970s Theodore Levitt and others at Harvard argued that the sales orientation had things backward. They claimed that instead of producing products then trying to sell them to the customer, businesses should start with the customer, find out what they wanted, and then produce it for them. The customer became the driving force behind all strategic business decisions. This marketing orientation, in the decades since its introduction, has been reformulated and repackaged under numerous names including customer orientation, marketing philosophy, customer intimacy, customer focus, customer driven, and market focused.

The Japanese challenge

By the late 70s, Americans had started to notice how successful Japanese industry had become. In industry after industry, including steel, watches, ship building, cameras, autos, and electronics, the Japanese were surpassing American and European companies. Westerners wanted to know why. Numerous theories purported to explain the Japanese success including:

• Higher employee morale, dedication, and loyalty; • Lower cost structure, including wages; • Effective government industrial policy; • Modernization after WWII leading to high capital intensity and productivity; • Economies of scale associated with increased exporting; • Relatively low value of the Yen leading to low interest rates and capital costs, low

dividend expectations, and inexpensive exports; • Superior quality control techniques such as Total Quality Management and other

systems introduced by W. Edwards Deming in the 1950s and 60s.

Although there was some truth to all these potential explanations, there was clearly something missing. In fact by 1980 the Japanese cost structure was higher than the American. And post WWII reconstruction was nearly 40 years in the past. The first management theorist to suggest an explanation was Richard Pascale.

In 1981, Richard Pascale and Anthony Athos in The Art of Japanese Management claimed that the main reason for Japanese success was their superior management techniques. They divided management into 7 aspects (which are also known as McKinsey 7S Framework): Strategy, Structure, Systems, Skills, Staff, Style, and Supraordinate goals (which we would now call shared values). The first three of the 7 S's were called hard factors and this is where American companies excelled. The remaining four factors (skills, staff, style, and shared values) were called soft factors and were not well understood by American businesses of the time. Americans did not yet place great value on corporate culture, shared values and beliefs, and social cohesion in the workplace. In Japan the task of management was seen as managing the whole complex of human needs, economic, social, psychological, and spiritual. In America work was seen as something that was separate from the rest of one's life. It was quite common for Americans to exhibit a very different personality at work compared to the rest of their lives. Pascale also highlighted the difference between decision making styles; hierarchical in America, and consensus in Japan. He also claimed that American business lacked long term vision, preferring instead to apply management fads and theories in a piecemeal fashion.

One year later, The Mind of the Strategist was released in America by Kenichi Ohmae, the head of McKinsey & Co.'s Tokyo office. He claimed that strategy in America was too analytical. Strategy should be a creative art: It is a frame of mind that requires intuition and intellectual flexibility. He claimed that Americans constrained their strategic options by thinking in terms of analytical techniques, rote formula, and step-by-step processes. He compared the culture of Japan in which vagueness, ambiguity, and tentative decisions were acceptable, to American culture that valued fast decisions.

Also in 1982, Tom Peters and Robert Waterman released a study that would respond to the Japanese challenge head on. Peters and Waterman, who had several years earlier collaborated with Pascale and Athos at McKinsey & Co. asked “What makes an excellent company?”. They looked at 62 companies that they thought were fairly successful. Each was subject to six performance criteria. To be classified as an excellent company, it had to be above the 50th percentile in 4 of the 6 performance metrics for 20 consecutive years. Forty-three companies passed the test. They then studied these successful companies and interviewed key executives. They concluded in In Search of Excellence that there were 8 keys to excellence that were shared by all 43 firms. They are:

• A bias for action — Do it. Try it. Don’t waste time studying it with multiple reports and committees.

• Customer focus — Get close to the customer. Know your customer. • Entrepreneurship — Even big companies act and think small by giving people the

authority to take initiatives.

• Productivity through people — Treat your people with respect and they will reward you with productivity.

• Value-oriented CEOs — The CEO should actively propagate corporate values throughout the organization.

• Stick to the knitting — Do what you know well. • Keep things simple and lean — Complexity encourages waste and confusion. • Simultaneously centralized and decentralized — Have tight centralized control

while also allowing maximum individual autonomy.

The basic blueprint on how to compete against the Japanese had been drawn. But as J.E. Rehfeld (1994) explains it is not a straight forward task due to differences in culture. A certain type of alchemy was required to transform knowledge from various cultures into a management style that allows a specific company to compete in a globally diverse world. He says, for example, that Japanese style kaizen (continuous improvement) techniques, although suitable for people socialized in Japanese culture, have not been successful when implemented in the U.S. unless they are modified significantly.

In 2009, industry consultants Mark Blaxill and Ralph Eckardt suggested that much of the Japanese business dominance that began in the mid 1970s was the direct result of competition enforcement efforts by the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ). In 1975 the FTC reached a settlement with Xerox Corporation in its anti-trust lawsuit. (At the time, the FTC was under the direction of Frederic M. Scherer). The 1975 Xerox consent decree forced the licensing of the company’s entire patent portfolio, mainly to Japanese competitors. This action marked the start of an activist approach to managing competition by the FTC and DOJ, which resulted in the compulsory licensing of tens of thousands of patent from some of America's leading companies, including IBM, AT&T, DuPont, Bausch & Lomb, and Eastman Kodak.

Within four years of the consent decree, Xerox's share of the U.S. copier market dropped from nearly 100% to less than 14%. Between 1950 and 1980 Japanese companies consummated more than 35,000 foreign licensing agreements, mostly with U.S. companies, for free or low-cost licenses made possible by the FTC and DOJ. The post-1975 era of anti-trust initiatives by Washington D.C. economists at the FTC corresponded directly with the rapid, unprecedented rise in Japanese competitiveness and a simultaneous stalling of the U.S. manufacturing economy.

Competitive advantage

The Japanese challenge shook the confidence of the western business elite, but detailed comparisons of the two management styles and examinations of successful businesses convinced westerners that they could overcome the challenge. The 1980s and early 1990s saw a plethora of theories explaining exactly how this could be done. They cannot all be detailed here, but some of the more important strategic advances of the decade are explained below.

Gary Hamel and C. K. Prahalad declared that strategy needs to be more active and interactive; less “arm-chair planning” was needed. They introduced terms like strategic intent and strategic architecture. Their most well known advance was the idea of core competency. They showed how important it was to know the one or two key things that your company does better than the competition.

Active strategic management required active information gathering and active problem solving. In the early days of Hewlett-Packard (HP), Dave Packard and Bill Hewlett devised an active management style that they called management by walking around (MBWA). Senior HP managers were seldom at their desks. They spent most of their days visiting employees, customers, and suppliers. This direct contact with key people provided them with a solid grounding from which viable strategies could be crafted. The MBWA concept was popularized in 1985 by a book by Tom Peters and Nancy Austin. Japanese managers employ a similar system, which originated at Honda, and is sometimes called the 3 G's (Genba, Genbutsu, and Genjitsu, which translate into “actual place”, “actual thing”, and “actual situation”).

Probably the most influential strategist of the decade was Michael Porter. He introduced many new concepts including; 5 forces analysis, generic strategies, the value chain, strategic groups, and clusters. In 5 forces analysis he identifies the forces that shape a firm's strategic environment. It is like a SWOT analysis with structure and purpose. It shows how a firm can use these forces to obtain a sustainable competitive advantage. Porter modifies Chandler's dictum about structure following strategy by introducing a second level of structure: Organizational structure follows strategy, which in turn follows industry structure. Porter's generic strategies detail the interaction between cost minimization strategies, product differentiation strategies, and market focus strategies. Although he did not introduce these terms, he showed the importance of choosing one of them rather than trying to position your company between them. He also challenged managers to see their industry in terms of a value chain. A firm will be successful only to the extent that it contributes to the industry's value chain. This forced management to look at its operations from the customer's point of view. Every operation should be examined in terms of what value it adds in the eyes of the final customer.

In 1993, John Kay took the idea of the value chain to a financial level claiming “ Adding value is the central purpose of business activity”, where adding value is defined as the difference between the market value of outputs and the cost of inputs including capital, all divided by the firm's net output. Borrowing from Gary Hamel and Michael Porter, Kay claims that the role of strategic management is to identify your core competencies, and then assemble a collection of assets that will increase value added and provide a competitive advantage. He claims that there are 3 types of capabilities that can do this; innovation, reputation, and organizational structure.

The 1980s also saw the widespread acceptance of positioning theory. Although the theory originated with Jack Trout in 1969, it didn’t gain wide acceptance until Al Ries and Jack Trout wrote their classic book “Positioning: The Battle For Your Mind” (1979). The basic premise is that a strategy should not be judged by internal company factors but by

the way customers see it relative to the competition. Crafting and implementing a strategy involves creating a position in the mind of the collective consumer. Several techniques were applied to positioning theory, some newly invented but most borrowed from other disciplines. Perceptual mapping for example, creates visual displays of the relationships between positions. Multidimensional scaling, discriminant analysis, factor analysis, and conjoint analysis are mathematical techniques used to determine the most relevant characteristics (called dimensions or factors) upon which positions should be based. Preference regression can be used to determine vectors of ideal positions and cluster analysis can identify clusters of positions.

Others felt that internal company resources were the key. In 1992, Jay Barney, for example, saw strategy as assembling the optimum mix of resources, including human, technology, and suppliers, and then configure them in unique and sustainable ways.

Michael Hammer and James Champy felt that these resources needed to be restructured. This process, that they labeled reengineering, involved organizing a firm's assets around whole processes rather than tasks. In this way a team of people saw a project through, from inception to completion. This avoided functional silos where isolated departments seldom talked to each other. It also eliminated waste due to functional overlap and interdepartmental communications.

In 1989 Richard Lester and the researchers at the MIT Industrial Performance Center identified seven best practices and concluded that firms must accelerate the shift away from the mass production of low cost standardized products. The seven areas of best practice were:

• Simultaneous continuous improvement in cost, quality, service, and product innovation

• Breaking down organizational barriers between departments • Eliminating layers of management creating flatter organizational hierarchies. • Closer relationships with customers and suppliers • Intelligent use of new technology • Global focus • Improving human resource skills

The search for “best practices” is also called benchmarking. This involves determining where you need to improve, finding an organization that is exceptional in this area, then studying the company and applying its best practices in your firm.

A large group of theorists felt the area where western business was most lacking was product quality. People like W. Edwards Deming, Joseph M. Juran, A. Kearney, Philip Crosby, and Armand Feignbaum suggested quality improvement techniques like total quality management (TQM), continuous improvement (kaizen), lean manufacturing, Six Sigma, and return on quality (ROQ).

An equally large group of theorists felt that poor customer service was the problem. People like James Heskett (1988), Earl Sasser (1995), William Davidow, Len Schlesinger, A. Paraurgman (1988), Len Berry, Jane Kingman-Brundage, Christopher Hart, and Christopher Lovelock (1994), gave us fishbone diagramming, service charting, Total Customer Service (TCS), the service profit chain, service gaps analysis, the service encounter, strategic service vision, service mapping, and service teams. Their underlying assumption was that there is no better source of competitive advantage than a continuous stream of delighted customers.

Process management uses some of the techniques from product quality management and some of the techniques from customer service management. It looks at an activity as a sequential process. The objective is to find inefficiencies and make the process more effective. Although the procedures have a long history, dating back to Taylorism, the scope of their applicability has been greatly widened, leaving no aspect of the firm free from potential process improvements. Because of the broad applicability of process management techniques, they can be used as a basis for competitive advantage.

Some realized that businesses were spending much more on acquiring new customers than on retaining current ones. Carl Sewell, Frederick F. Reichheld, C. Gronroos, and Earl Sasser showed us how a competitive advantage could be found in ensuring that customers returned again and again. This has come to be known as the loyalty effect after Reicheld's book of the same name in which he broadens the concept to include employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty. They also developed techniques for estimating the lifetime value of a loyal customer, called customer lifetime value (CLV). A significant movement started that attempted to recast selling and marketing techniques into a long term endeavor that created a sustained relationship with customers (called relationship selling, relationship marketing, and customer relationship management). Customer relationship management (CRM) software (and its many variants) became an integral tool that sustained this trend.

James Gilmore and Joseph Pine found competitive advantage in mass customization. Flexible manufacturing techniques allowed businesses to individualize products for each customer without losing economies of scale. This effectively turned the product into a service. They also realized that if a service is mass customized by creating a “performance” for each individual client, that service would be transformed into an “experience”. Their book, The Experience Economy, along with the work of Bernd Schmitt convinced many to see service provision as a form of theatre. This school of thought is sometimes referred to as customer experience management (CEM).

Like Peters and Waterman a decade earlier, James Collins and Jerry Porras spent years conducting empirical research on what makes great companies. Six years of research uncovered a key underlying principle behind the 19 successful companies that they studied: They all encourage and preserve a core ideology that nurtures the company. Even though strategy and tactics change daily, the companies, nevertheless, were able to maintain a core set of values. These core values encourage employees to build an organization that lasts. In Built To Last (1994) they claim that short term profit goals, cost

cutting, and restructuring will not stimulate dedicated employees to build a great company that will endure. In 2000 Collins coined the term “built to flip” to describe the prevailing business attitudes in Silicon Valley. It describes a business culture where technological change inhibits a long term focus. He also popularized the concept of the BHAG (Big Hairy Audacious Goal).

Arie de Geus (1997) undertook a similar study and obtained similar results. He identified four key traits of companies that had prospered for 50 years or more. They are:

• Sensitivity to the business environment — the ability to learn and adjust • Cohesion and identity — the ability to build a community with personality,

vision, and purpose • Tolerance and decentralization — the ability to build relationships • Conservative financing

A company with these key characteristics he called a living company because it is able to perpetuate itself. If a company emphasizes knowledge rather than finance, and sees itself as an ongoing community of human beings, it has the potential to become great and endure for decades. Such an organization is an organic entity capable of learning (he called it a “learning organization”) and capable of creating its own processes, goals, and persona.

There are numerous ways by which a firm can try to create a competitive advantage - some will work but many will not. In order to help firms avoid a hit and miss approach to the creation of competitive advantage Will Mulcaster suggests that firms engage in a dialogue that centres around the question "Will the proposed competitive advantage create Perceived Differential Value?" The dialogue should raise a series of other pertinent questions, including:

• "Will the proposed competitive advantage create something that is different from the competition?"

• "Will the difference add value in the eyes of potential customers?" - This question will entail a discussion of the combined effects of price, product features and consumer perceptions.

• "Will the product add value for the firm?" - Answering this question will require an examination of cost effectiveness and the pricing strategy.

The military theorists

In the 1980s some business strategists realized that there was a vast knowledge base stretching back thousands of years that they had barely examined. They turned to military strategy for guidance. Military strategy books such as The Art of War by Sun Tzu, On War by von Clausewitz, and The Red Book by Mao Zedong became instant business classics. From Sun Tzu, they learned the tactical side of military strategy and specific tactical prescriptions. From Von Clausewitz, they learned the dynamic and unpredictable

nature of military strategy. From Mao Zedong, they learned the principles of guerrilla warfare. The main marketing warfare books were:

• Business War Games by Barrie James, 1984 • Marketing Warfare by Al Ries and Jack Trout, 1986 • Leadership Secrets of Attila the Hun by Wess Roberts, 1987

Philip Kotler was a well-known proponent of marketing warfare strategy.

There were generally thought to be four types of business warfare theories. They are:

• Offensive marketing warfare strategies • Defensive marketing warfare strategies • Flanking marketing warfare strategies • Guerrilla marketing warfare strategies

The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications.

By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational approaches were more appropriate. In 1989, Dudley Lynch and Paul L. Kordis published Strategy of the Dolphin: Scoring a Win in a Chaotic World. "The Strategy of the Dolphin” was developed to give guidance as to when to use aggressive strategies and when to use passive strategies. A variety of aggressiveness strategies were developed.

In 1993, J. Moore used a similar metaphor. Instead of using military terms, he created an ecological theory of predators and prey, a sort of Darwinian management strategy in which market interactions mimic long term ecological stability.

Strategic change

In 1968, Peter Drucker (1969) coined the phrase Age of Discontinuity to describe the way change forces disruptions into the continuity of our lives. In an age of continuity attempts to predict the future by extrapolating from the past can be somewhat accurate. But according to Drucker, we are now in an age of discontinuity and extrapolating from the past is hopelessly ineffective. We cannot assume that trends that exist today will continue into the future. He identifies four sources of discontinuity: new technologies, globalization, cultural pluralism, and knowledge capital.

In 1970, Alvin Toffler in Future Shock described a trend towards accelerating rates of change. He illustrated how social and technological norms had shorter lifespans with each generation, and he questioned society's ability to cope with the resulting turmoil and anxiety. In past generations periods of change were always punctuated with times of stability. This allowed society to assimilate the change and deal with it before the next change arrived. But these periods of stability are getting shorter and by the late 20th

century had all but disappeared. In 1980 in The Third Wave, Toffler characterized this shift to relentless change as the defining feature of the third phase of civilization (the first two phases being the agricultural and industrial waves). He claimed that the dawn of this new phase will cause great anxiety for those that grew up in the previous phases, and will cause much conflict and opportunity in the business world. Hundreds of authors, particularly since the early 1990s, have attempted to explain what this means for business strategy.

In 2000, Gary Hamel discussed strategic decay, the notion that the value of all strategies, no matter how brilliant, decays over time.

In 1978, Dereck Abell (Abell, D. 1978) described strategic windows and stressed the importance of the timing (both entrance and exit) of any given strategy. This has led some strategic planners to build planned obsolescence into their strategies.

In 1989, Charles Handy identified two types of change. Strategic drift is a gradual change that occurs so subtly that it is not noticed until it is too late. By contrast, transformational change is sudden and radical. It is typically caused by discontinuities (or exogenous shocks) in the business environment. The point where a new trend is initiated is called a strategic inflection point by Andy Grove. Inflection points can be subtle or radical.

In 2000, Malcolm Gladwell discussed the importance of the tipping point, that point where a trend or fad acquires critical mass and takes off.

In 1983, Noel Tichy wrote that because we are all beings of habit we tend to repeat what we are comfortable with. He wrote that this is a trap that constrains our creativity, prevents us from exploring new ideas, and hampers our dealing with the full complexity of new issues. He developed a systematic method of dealing with change that involved looking at any new issue from three angles: technical and production, political and resource allocation, and corporate culture.

In 1990, Richard Pascale (Pascale, R. 1990) wrote that relentless change requires that businesses continuously reinvent themselves. His famous maxim is “Nothing fails like success” by which he means that what was a strength yesterday becomes the root of weakness today, We tend to depend on what worked yesterday and refuse to let go of what worked so well for us in the past. Prevailing strategies become self-confirming. In order to avoid this trap, businesses must stimulate a spirit of inquiry and healthy debate. They must encourage a creative process of self renewal based on constructive conflict.

Peters and Austin (1985) stressed the importance of nurturing champions and heroes. They said we have a tendency to dismiss new ideas, so to overcome this, we should support those few people in the organization that have the courage to put their career and reputation on the line for an unproven idea.

In 1996, Adrian Slywotzky showed how changes in the business environment are reflected in value migrations between industries, between companies, and within companies. He claimed that recognizing the patterns behind these value migrations is necessary if we wish to understand the world of chaotic change. In “Profit Patterns” (1999) he described businesses as being in a state of strategic anticipation as they try to spot emerging patterns. Slywotsky and his team identified 30 patterns that have transformed industry after industry.

In 1997, Clayton Christensen (1997) took the position that great companies can fail precisely because they do everything right since the capabilities of the organization also defines its disabilities. Christensen's thesis is that outstanding companies lose their market leadership when confronted with disruptive technology. He called the approach to discovering the emerging markets for disruptive technologies agnostic marketing, i.e., marketing under the implicit assumption that no one - not the company, not the customers - can know how or in what quantities a disruptive product can or will be used before they have experience using it.

A number of strategists use scenario planning techniques to deal with change. The way Peter Schwartz put it in 1991 is that strategic outcomes cannot be known in advance so the sources of competitive advantage cannot be predetermined. The fast changing business environment is too uncertain for us to find sustainable value in formulas of excellence or competitive advantage. Instead, scenario planning is a technique in which multiple outcomes can be developed, their implications assessed, and their likeliness of occurrence evaluated. According to Pierre Wack, scenario planning is about insight, complexity, and subtlety, not about formal analysis and numbers.

In 1988, Henry Mintzberg looked at the changing world around him and decided it was time to reexamine how strategic management was done. He examined the strategic process and concluded it was much more fluid and unpredictable than people had thought. Because of this, he could not point to one process that could be called strategic planning. Instead Mintzberg concludes that there are five types of strategies:

• Strategy as plan - a direction, guide, course of action - intention rather than actual • Strategy as ploy - a maneuver intended to outwit a competitor • Strategy as pattern - a consistent pattern of past behaviour - realized rather than

intended • Strategy as position - locating of brands, products, or companies within the

conceptual framework of consumers or other stakeholders - strategy determined primarily by factors outside the firm

• Strategy as perspective - strategy determined primarily by a master strategist

In 1998, Mintzberg developed these five types of management strategy into 10 “schools of thought”. These 10 schools are grouped into three categories. The first group is prescriptive or normative. It consists of the informal design and conception school, the formal planning school, and the analytical positioning school. The second group, consisting of six schools, is more concerned with how strategic management is actually

done, rather than prescribing optimal plans or positions. The six schools are the entrepreneurial, visionary, or great leader school, the cognitive or mental process school, the learning, adaptive, or emergent process school, the power or negotiation school, the corporate culture or collective process school, and the business environment or reactive school. The third and final group consists of one school, the configuration or transformation school, an hybrid of the other schools organized into stages, organizational life cycles, or “episodes”.

In 1999, Constantinos Markides also wanted to reexamine the nature of strategic planning itself. He describes strategy formation and implementation as an on-going, never-ending, integrated process requiring continuous reassessment and reformation. Strategic management is planned and emergent, dynamic, and interactive. J. Moncrieff (1999) also stresses strategy dynamics. He recognized that strategy is partially deliberate and partially unplanned. The unplanned element comes from two sources: emergent strategies (result from the emergence of opportunities and threats in the environment) and Strategies in action (ad hoc actions by many people from all parts of the organization).

Some business planners are starting to use a complexity theory approach to strategy. Complexity can be thought of as chaos with a dash of order. Chaos theory deals with turbulent systems that rapidly become disordered. Complexity is not quite so unpredictable. It involves multiple agents interacting in such a way that a glimpse of structure may appear.

Information- and technology-driven strategy

Peter Drucker had theorized the rise of the “knowledge worker” back in the 1950s. He described how fewer workers would be doing physical labor, and more would be applying their minds. In 1984, John Nesbitt theorized that the future would be driven largely by information: companies that managed information well could obtain an advantage, however the profitability of what he calls the “information float” (information that the company had and others desired) would all but disappear as inexpensive computers made information more accessible.

Daniel Bell (1985) examined the sociological consequences of information technology, while Gloria Schuck and Shoshana Zuboff looked at psychological factors. Zuboff, in her five year study of eight pioneering corporations made the important distinction between “automating technologies” and “infomating technologies”. She studied the effect that both had on individual workers, managers, and organizational structures. She largely confirmed Peter Drucker's predictions three decades earlier, about the importance of flexible decentralized structure, work teams, knowledge sharing, and the central role of the knowledge worker. Zuboff also detected a new basis for managerial authority, based not on position or hierarchy, but on knowledge (also predicted by Drucker) which she called “participative management”.

In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell, borrowed de Geus' notion of the learning organization, expanded it, and popularized it. The

underlying theory is that a company's ability to gather, analyze, and use information is a necessary requirement for business success in the information age. In order to do this, Senge claimed that an organization would need to be structured such that:

• People can continuously expand their capacity to learn and be productive, • New patterns of thinking are nurtured, • Collective aspirations are encouraged, and • People are encouraged to see the “whole picture” together.

Senge identified five disciplines of a learning organization. They are:

• Personal responsibility, self reliance, and mastery — We accept that we are the masters of our own destiny. We make decisions and live with the consequences of them. When a problem needs to be fixed, or an opportunity exploited, we take the initiative to learn the required skills to get it done.

• Mental models — We need to explore our personal mental models to understand the subtle effect they have on our behaviour.

• Shared vision — The vision of where we want to be in the future is discussed and communicated to all. It provides guidance and energy for the journey ahead.

• Team learning — We learn together in teams. This involves a shift from “a spirit of advocacy to a spirit of enquiry”.

• Systems thinking — We look at the whole rather than the parts. This is what Senge calls the “Fifth discipline”. It is the glue that integrates the other four into a coherent strategy.

Since 1990 many theorists have written on the strategic importance of information, including J.B. Quinn, J. Carlos Jarillo, D.L. Barton, Manuel Castells, J.P. Lieleskin, Thomas Stewart, K.E. Sveiby, Gilbert J. Probst, and Shapiro and Varian to name just a few.

Thomas A. Stewart, for example, uses the term intellectual capital to describe the investment an organization makes in knowledge. It is composed of human capital (the knowledge inside the heads of employees), customer capital (the knowledge inside the heads of customers that decide to buy from you), and structural capital (the knowledge that resides in the company itself).

Manuel Castells, describes a network society characterized by: globalization, organizations structured as a network, instability of employment, and a social divide between those with access to information technology and those without.

Geoffrey Moore (1991) and R. Frank and P. Cook also detected a shift in the nature of competition. In industries with high technology content, technical standards become established and this gives the dominant firm a near monopoly. The same is true of networked industries in which interoperability requires compatibility between users. An example is word processor documents. Once a product has gained market dominance, other products, even far superior products, cannot compete. Moore showed how firms

could attain this enviable position by using E.M. Rogers five stage adoption process and focusing on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries and pragmatists. If successful a firm can create a bandwagon effect in which the momentum builds and your product becomes a de facto standard.

Evans and Wurster describe how industries with a high information component are being transformed. They cite Encarta's demolition of the Encyclopedia Britannica (whose sales have plummeted 80% since their peak of $650 million in 1990). Encarta's service was subsequently turned into an on-line service and dropped at the end of 2009. Evans also mentions the music industry which is desperately looking for a new business model. The upstart information savvy firms, unburdened by cumbersome physical assets, are changing the competitive landscape, redefining market segments, and disintermediating some channels. One manifestation of this is personalized marketing. Information technology allows marketers to treat each individual as its own market, a market of one. Traditional ideas of market segments will no longer be relevant if personalized marketing is successful.

The technology sector has provided some strategies directly. For example, from the software development industry agile software development provides a model for shared development processes.

Access to information systems have allowed senior managers to take a much more comprehensive view of strategic management than ever before. The most notable of the comprehensive systems is the balanced scorecard approach developed in the early 1990s by Drs. Robert S. Kaplan (Harvard Business School) and David Norton (Kaplan, R. and Norton, D. 1992). It measures several factors financial, marketing, production, organizational development, and new product development in order to achieve a 'balanced' perspective.

Knowledge-driven strategy

Most current approaches to business "strategy" focus on the mechanics of management—e.g., Drucker's operational "strategies" -- and as such are not true business strategy. In a post-industrial world these operationally focused business strategies hinge on conventional sources of advantage have essentially been eliminated:

• Scale used to be very important. But now, with access to capital and a global marketplace, scale is achievable by multiple organizations simultaneously. In many cases, it can literally be rented.

• Process improvement or “best practices” were once a favored source of advantage, but they were at best temporary, as they could be copied and adapted by competitors.

• Owning the customer had always been thought of as an important form of competitive advantage. Now, however, customer loyalty is far less important and difficult to maintain as new brands and products emerge all the time.

In such a world, differentiation, as elucidated by Michael Porter, Botten and McManus is the only way to maintain economic or market superiority (i.e., comparative advantage) over competitors. A company must OWN the thing that differentiates it from competitors. Without IP ownership and protection, any product, process or scale advantage can be compromised or entirely lost. Competitors can copy them without fear of economic or legal consequences, thereby eliminating the advantage.

Strategic decision making processes

Will Mulcaster argues that while much research and creative thought has been devoted to generating alternative strategies, too little work has been done on what influences the quality of strategic decision making and the effectiveness with which strategies are implemented. For instance, in retrospect it can be seen that the financial crisis of 2008-9 could have been avoided if the banks had paid more attention to the risks associated with their investments, but how should banks change the way in which they make decisions in order to improve the quality of their decisions in the future? Mulcaster's Managing Forces framework addresses this issue by identifying 11 forces that should be incorporated into the processes of decision making and strategic implementation. The 11 forces are: Time; Opposing forces; Politics; Perception; Holistic effects; Adding value; Incentives; Learning capabilities; Opportunity cost; Risk; Style - which can be remembered by using the mnemonic 'TOPHAILORS'.

The psychology of strategic management

Several psychologists have conducted studies to determine the psychological patterns involved in strategic management. Typically senior managers have been asked how they go about making strategic decisions. A 1938 treatise by Chester Barnard, that was based on his own experience as a business executive, sees the process as informal, intuitive, non-routinized, and involving primarily oral, 2-way communications. Bernard says “The process is the sensing of the organization as a whole and the total situation relevant to it. It transcends the capacity of merely intellectual methods, and the techniques of discriminating the factors of the situation. The terms pertinent to it are “feeling”, “judgement”, “sense”, “proportion”, “balance”, “appropriateness”. It is a matter of art rather than science.”

In 1973, Henry Mintzberg found that senior managers typically deal with unpredictable situations so they strategize in ad hoc, flexible, dynamic, and implicit ways. . He says, “The job breeds adaptive information-manipulators who prefer the live concrete situation. The manager works in an environment of stimulous-response, and he develops in his work a clear preference for live action.”

In 1982, John Kotter studied the daily activities of 15 executives and concluded that they spent most of their time developing and working a network of relationships from which they gained general insights and specific details to be used in making strategic decisions. They tended to use “mental road maps” rather than systematic planning techniques.

Daniel Isenberg's 1984 study of senior managers found that their decisions were highly intuitive. Executives often sensed what they were going to do before they could explain why. He claimed in 1986 that one of the reasons for this is the complexity of strategic decisions and the resultant information uncertainty.

Shoshana Zuboff (1988) claims that information technology is widening the divide between senior managers (who typically make strategic decisions) and operational level managers (who typically make routine decisions). She claims that prior to the widespread use of computer systems, managers, even at the most senior level, engaged in both strategic decisions and routine administration, but as computers facilitated (She called it “deskilled”) routine processes, these activities were moved further down the hierarchy, leaving senior management free for strategic decions making.

In 1977, Abraham Zaleznik identified a difference between leaders and managers. He describes leadershipleaders as visionaries who inspire. They care about substance. Whereas managers are claimed to care about process, plans, and form. He also claimed in 1989 that the rise of the manager was the main factor that caused the decline of American business in the 1970s and 80s.The main difference between leader and manager is that, leader has followers and manager has subordinates. In capitalistic society leaders make decisions and manager usually follow or execute. Lack of leadership is most damaging at the level of strategic management where it can paralyze an entire organization.

According to Corner, Kinichi, and Keats, strategic decision making in organizations occurs at two levels: individual and aggregate. They have developed a model of parallel strategic decision making. The model identifies two parallel processes both of which involve getting attention, encoding information, storage and retrieval of information, strategic choice, strategic outcome, and feedback. The individual and organizational processes are not independent however. They interact at each stage of the process.

Reasons why strategic plans fail

There are many reasons why strategic plans fail, especially:

• Failure to execute by overcoming the four key organizational hurdles o Cognitive hurdle o Motivational hurdle o Resource hurdle o Political hurdle

• Failure to understand the customer o Why do they buy o Is there a real need for the product o inadequate or incorrect marketing research

• Inability to predict environmental reaction o What will competitors do

Fighting brands Price wars

o Will government intervene • Over-estimation of resource competence

o Can the staff, equipment, and processes handle the new strategy o Failure to develop new employee and management skills

• Failure to coordinate o Reporting and control relationships not adequate o Organizational structure not flexible enough

• Failure to obtain senior management commitment o Failure to get management involved right from the start o Failure to obtain sufficient company resources to accomplish task

• Failure to obtain employee commitment o New strategy not well explained to employees o No incentives given to workers to embrace the new strategy

• Under-estimation of time requirements o No critical path analysis done

• Failure to follow the plan o No follow through after initial planning o No tracking of progress against plan o No consequences for above

• Failure to manage change o Inadequate understanding of the internal resistance to change o Lack of vision on the relationships between processes, technology and

organization • Poor communications

o Insufficient information sharing among stakeholders o Exclusion of stakeholders and delegates

Limitations of strategic management

Although a sense of direction is important, it can also stifle creativity, especially if it is rigidly enforced. In an uncertain and ambiguous world, fluidity can be more important than a finely tuned strategic compass. When a strategy becomes internalized into a corporate culture, it can lead to group think. It can also cause an organization to define itself too narrowly. An example of this is marketing myopia.

Many theories of strategic management tend to undergo only brief periods of popularity. A summary of these theories thus inevitably exhibits survivorship bias (itself an area of research in strategic management). Many theories tend either to be too narrow in focus to build a complete corporate strategy on, or too general and abstract to be applicable to specific situations. Populism or faddishness can have an impact on a particular theory's life cycle and may see application in inappropriate circumstances.

In 2000, Gary Hamel coined the term strategic convergence to explain the limited scope of the strategies being used by rivals in greatly differing circumstances. He lamented that strategies converge more than they should, because the more successful ones are imitated

by firms that do not understand that the strategic process involves designing a custom strategy for the specifics of each situation.

Ram Charan, aligning with a popular marketing tagline, believes that strategic planning must not dominate action. "Just do it!, while not quite what he meant, is a phrase that nevertheless comes to mind when combatting analysis paralysis.

The linearity trap

It is tempting to think that the elements of strategic management – (i) reaching consensus on corporate objectives; (ii) developing a plan for achieving the objectives; and (iii) marshalling and allocating the resources required to implement the plan – can be approached sequentially. It would be convenient, in other words, if one could deal first with the noble question of ends, and then address the mundane question of means.

But in the world in which strategies have to be implemented, the three elements are interdependent. Means are as likely to determine ends as ends are to determine means. The objectives that an organization might wish to pursue are limited by the range of feasible approaches to implementation. (There will usually be only a small number of approaches that will not only be technically and administratively possible, but also satisfactory to the full range of organizational stakeholders.) In turn, the range of feasible implementation approaches is determined by the availability of resources.

And so, although participants in a typical “strategy session” may be asked to do “blue sky” thinking where they pretend that the usual constraints – resources, acceptability to stakeholders , administrative feasibility – have been lifted, the fact is that it rarely makes sense to divorce oneself from the environment in which a strategy will have to be implemented. It’s probably impossible to think in any meaningful way about strategy in an unconstrained environment. Our brains can’t process “boundless possibilities”, and the very idea of strategy only has meaning in the context of challenges or obstacles to be overcome. It’s at least as plausible to argue that acute awareness of constraints is the very thing that stimulates creativity by forcing us to constantly reassess both means and ends in light of circumstances.

The key question, then, is, "How can individuals, organizations and societies cope as well as possible with ... issues too complex to be fully understood, given the fact that actions initiated on the basis of inadequate understanding may lead to significant regret?"

The answer is that the process of developing organizational strategy must be iterative. It involves toggling back and forth between questions about objectives, implementation planning and resources. An initial idea about corporate objectives may have to be altered if there is no feasible implementation plan that will meet with a sufficient level of acceptance among the full range of stakeholders, or because the necessary resources are not available, or both.

Even the most talented manager would no doubt agree that "comprehensive analysis is impossible" for complex problems. Formulation and implementation of strategy must thus occur side-by-side rather than sequentially, because strategies are built on assumptions which, in the absence of perfect knowledge, will never be perfectly correct. Strategic management is necessarily a "repetitive learning cycle [rather than] a linear progression towards a clearly defined final destination." While assumptions can and should be tested in advance, the ultimate test is implementation. You will inevitably need to adjust corporate objectives and/or your approach to pursuing outcomes and/or assumptions about required resources. Thus a strategy will get remade during implementation because "humans rarely can proceed satisfactorily except by learning from experience; and modest probes, serially modified on the basis of feedback, usually are the best method for such learning."

It serves little purpose (other than to provide a false aura of certainty sometimes demanded by corporate strategists and planners) to pretend to anticipate every possible consequence of a corporate decision, every possible constraining or enabling factor, and every possible point of view. At the end of the day, what matters for the purposes of strategic management is having a clear view – based on the best available evidence and on defensible assumptions – of what it seems possible to accomplish within the constraints of a given set of circumstances. As the situation changes, some opportunities for pursuing objectives will disappear and others arise. Some implementation approaches will become impossible, while others, previously impossible or unimagined, will become viable.

The essence of being “strategic” thus lies in a capacity for "intelligent trial-and error" rather than linear adherence to finally honed and detailed strategic plans. Strategic management will add little value—indeed, it may well do harm—if organizational strategies are designed to be used as a detailed blueprints for managers. Strategy should be seen, rather, as laying out the general path - but not the precise steps - by which an organization intends to create value. Strategic management is a question of interpreting, and continuously reinterpreting, the possibilities presented by shifting circumstances for advancing an organization's objectives. Doing so requires strategists to think simultaneously about desired objectives, the best approach for achieving them, and the resources implied by the chosen approach. It requires a frame of mind that admits of no boundary between means and ends.

It may not be so limiting as suggested in "The linearity trap" above. Strategic thinking/ identification takes place within the gambit of organizational capacity and Industry dynamics. The two common approaches to strategic analysis are value analysis and SWOT analysis. Yes Strategic analysis takes place within the constraints of existing/potential organizational resources but its would not be appropriate to call it a trap. For e.g., SWOT tool involves analysis of the organization's internal environment (Strengths & weaknesses) and its external environment (opportunities & threats). The organization's strategy is built using its strengths to exploit opportunities, while managing the risks arising from internal weakness and external threats. It further involves contrasting its strengths & weaknesses to determine if the organization has enough

strengths to offset its weaknesses. Applying the same logic, at the external level, contrast is made between the externally existing opportunities and threats to determine if the organization is capitalizing enough on opportunities to offset emerging threats.

Chapter- 2

Business Plan

A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. When the existing business is to assume a major change or when planning a new venture - a 3 to 5 year business plan is essential.

Audience

Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers. External stake-holders of non-profits include donors and the clients of the non-profit's services. For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Operational plans describe the goals of an internal organization, working group or department. Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project's place within the organization's larger strategic goals.

Content

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process; declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a bind summary of those disciplinary plans.

For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others. It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.

"... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure."

Presentation formats

The format of a business plan depends on its presentation context. It is not uncommon for businesses, especially start-ups to have three or four formats for the same business plan:

• an "elevator pitch" - a three minute summary of the business plan's executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.

• an oral presentation - a hopefully entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may also be included.

• a written presentation for external stakeholders - a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.

• an internal operational plan - a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders.

Typical structure for a business plan for a start up venture

• cover page and table of contents • executive summary • business description • business environment analysis • industry background • competitor analysis • market analysis • marketing plan • operations plan • management summary • financial plan • attachments and milestones

Revisiting the business plan

Cost overruns and revenue shortfalls

Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. However, the problem is not limited to technology or the private sector; public works projects also routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost overruns and revenue shortfalls are optimism bias and strategic misrepresentation. Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans.

Legal and liability issues

Disclosure requirements

An externally targeted business plan should list all legal concerns and financial liabilities that might negatively affect investors. Depending on the amount of funds being raised and the audience to whom the plan is presented, failure to do this may have severe legal consequences.

Limitations on content and audience

Non disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts of interest, privacy concerns, and the protection of one's trade secrets may severely limit the audience to which one might show the business plan. Alternatively, they may require each party receiving the business plan to sign a contract accepting special clauses and conditions.

This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA before looking at a business plan, lest it put them in the untenable position of looking at two independently developed look-alike business plans, both claiming originality. In such situations one may need to develop two versions of the business plan: a stripped down plan that can be used to develop a relationship and a detail plan that is only shown when investors have sufficient interest and trust to sign an NDA.

Open business plans

Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret. However the emergence of free software and open source has opened the model and made the notion of an open business plan possible.

An open business plan is a business plan with unlimited audience. The business plan is typically web published and made available to all.

In the free software and open source business model, trade secrets, copyright and patents can no longer be used as effective locking mechanisms to provide sustainable advantages to a particular business and therefore a secret business plan is less relevant in those models.

While the origin of the open business plan model is in the free software and Libre services arena, the concept is likely applicable to other domains.

Uses

Venture capital

• Business plan contests - provides a way for venture capitals to find promising projects.

• Venture capital assessment of business plans - focus on qualitative factors such as team.

Public offerings

• In a public offering, potential investors can evaluate perspectives of issuing company

Within corporations

Fundraising

Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.

Total quality management

Total quality management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, call centers, government, and service industries, as well as NASA space and science programs.

Management by objective

Management by objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

Strategic planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) and PEST analysis (Political, Economic, Social, and Technological analysis) or STEER analysis involving Socio-cultural, Technological, Economic, Ecological, and Regulatory factors and EPISTELS (Environment, Political, Informative, Social, Technological, Economic, Legal and Spiritual)

Not for profit businesses

The business goals may be defined both for non-profit or for-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit, as well as government agency business plans tend to focus on the "organizational mission" which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue.

The primary difference between profit and non-profit organizations is that "for profit" organizations look to maximize wealth versus non-profit organizations, which look to provide a greater good to society. In non-profit organizations, creative tensions may develop in the effort to balance mission with "margin" (or revenue).

Satires

The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example,

• Five Criteria for a successful business plan in biotech uses Dilbert comic strips to remind people of what not to do when researching and writing a business plan for a biotech start-up. Scott Adams, the author of Dilbert, is an MBA graduate (U.C. Berkeley) who sees humor as a critical tool that can improve the behavior of businesses and their managers. He has written numerous critiques of business practices, including business planning.

• In the article "South Park's" Investing Lesson, The Motley Fool columnist "Fool on the Hill" uses the Underpants Gnomes to illustrate the fallacy of focusing on goals without a clear implementation strategy. The Underpants Gnomes episode satirizes the business plans of the Dot-com era.

Financial plan In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.

In business, a financial plan can refer to the three primary financial statements (balance sheet, income statement, and cash flow statement) created within a business plan. Financial forecast or financial plan can also refer to an annual projection of income and expenses for a company, division or department. A financial plan can also be an estimation of cash needs and a decision on how to raise the cash, such as through borrowing or issuing additional shares in a company.

While a financial plan refers to estimating future income, expenses and assets, a financing plan or finance plan usually refers to the means by which cash will be acquired to cover future expenses, for instance through earning, borrowing or using saved cash.

Content of a business plan We explains what goes into a business plan and why. It is not specific to any particular kind of business plan, nor does it presume any specific layout. Please do not read the section headings as titles of business plan sections.

Though business plans have many different presentation formats, business plans typically cover five major content areas:

• Background information • A marketing plan • An operational plan • A financial plan • A discussion of the decision making criteria that should be used to approve the

plan.

Some of these content areas may be more or less important depending on the kind of business plan. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.

Once a business plan has been developed, the key decision making points are usually summarized in an executive summary.

Executive summary

The executive summary summarizes the key points of the business plan. It should define the decision to be made and the reasons for approval. The specific content will be highly dependent on the core purpose and target audience. To get a sense of the difference the purpose and target audience can make, here are three different sets of key points for an executive summary - one for a loan request, one for a start-up seeking venture finance, and one for an internal plan. Items unique to a particular kind of plan are highlighted in bold:

A loan request executive summary might contain the following information:

• Company information: name of company, years in business, legal structure, minority and majority owners

• Brief description of project • Amount and length of loan • Objective reasons why the bank should be confident that the loan will be paid

back. This likely will include o Financial track record o The future revenue stream

o Any contracts in place that might guarantee the revenue stream is more than just a forecast.

For a new venture, the executive summary might contain:

• Company information: name of company, proposed legal structure, current legal structure, minority and majority investors.

• Amount of investment requested • Expected terminal value • Description of market opportunity • Objective reasons why the market opportunity can be exploited by this

particular team

For an internal project plan, the executive summary might look like this:

• Company information: not applicable • Description of project • Project mandate: who requested the proposal, who is being assigned to carry

it out • Strategic, tactical and financial justifications • Summary of resources needed: staff, funds, facilities

In some cases information will overlap. For example, some of the reasons why a loan is likely to be repaid might equally as well be used as justification for the kind of extraordinary return expected by venture capitalists.

In some cases the business plan as a whole contains similar information, but for one type of plan it is mere detail and for another it is a key decision making factor. For instance, both start-ups and internal projects need staff and facilities. However the staffing and facilities needs are considered details in a plan for start-up financing. In a plan for internal projects they are key elements and, in fact, may be the only resources needed.

Organizational background

In a written plan, information may appear in a separate section, an appendix, or may be omitted all together depending on the nature of the plan. If the plan is directed at people outside of the company, a brief synopsis may appear in the executive summary. This will be supplemented with a more detailed discussion elsewhere in the plan.

Current status

• Number of Employees • Annual sales figures • Key product lines • Location of facilities • Current stage of development (start-ups)

• Corporate structure (options are): o Sole proprietors o Partnership o Joint Venture o Publicly traded corporation o Private corporation o Limited liability company o Public utility o Non-profit organization o Cooperative

• Names of the majority investor, if any

History

• Founding date • Major successes • Strategically valuable learning experiences

Management team

• Board members • Owners • Senior managers • Managing partners • Head scientists and researchers

Marketing plan

The marketing plan has five objectives: If the product is a new product with no existing market, one must identify all substitute products. For each significant substitute product one must explain:

• Name, features, why substitute, why proposed product better • Switching costs and why new product justifies switching • Expected adoption dynamics • Expected role once market begins to develop

Pricing

• Chosen Price points • Proposed Pricing strategy

Demand management

In economics, demand management is the art or science of controlling economic demand to avoid a recession. The term is also used to refer to management of the distribution of,

and access to goods and services on the basic of needs. An example is social security and welfare services. Rather than increasing budgets for these things, governments may develop policies that allocate existing resources according to a hierarchy of need.

Distribution

• Distribution strategy • List of major distributors • Current status of negotiations

Promotion and brand development

• Promotion strategy

Operational plan

The plan outlines how one would service their clients cost effectively.

Manufacturing/deployment plan

• Supply chain requirements • Production inputs • Facility requirements - size, layout, capacity, location • Equipment requirements • Warehousing needs for raw materials, finished goods

o Space requirements

Information and communications technology plan

• Systems needed o Operations: Billing, HR, SCM, CRM, Knowledge bases, etc o Websites: internal, public

• Security and privacy requirements • Hardware requirements • Off-the-shelf software needed • Custom development requirements

Staffing needs

• List of roles • Management structure • Head count approval • For each role

o Job descriptions o Number of employees o Proposed compensation

o Availability • Training plan

Training requirements

Training requirements should look to address two issues - a benefit to motivate staff and developing the capability of the organisation to deliver the business objectives. Ideally all training requirements should be based on as an assessment of the business plan objectives, the required competence and capability to deliver these objectives and understanding of the current capacity and capability of the organisation. Simple question to ask to assess the appropriateness of the training - as a result of the training how much better will the organisation be at delivering its objectives. Remember that training covers a wide range of activities from project work and on the job training to professional qualifications. Most learning takes place outside of formal training activities.

Intellectual property plan

• Intellectual property inventory • Portfolio development plan

Acquisition plan

Some business plans gain competitive advantage by buying companies up and down the value chain. Some gain competitive advantage by buying up companies and consolidating them. Sometimes a business plan will seek to earn a superior return by adding superior management talent to an existing weak company.

When acquisitions form a major part of the business strategy, the acquisition plan needs to be included in the business plan.

• Acquisition strategy • Proposed acquisition targets • Effect on market structure (if consolidation plan is being proposed)

Organizational learning plan

The organizational learning plan discusses what lessons will be learned from the marketing, operational, and finance plans and how those lessons will be consolidated to gain strategic advantage.

• Market sensing - organization's method for collecting information about customers (George Day)

• Strategic Staircase - the accumulation of future competencies by building on existing competencies. (Michael Hays, Costas Markides)

Cost allocation model

If variable costs play an important role in the business plan, it may be helpful to include a cost allocation model. This is particularly true if one has a unique business model that creates competitive advantage by transforming traditionally fixed costs into variable costs.

• Fixed cost • Variable costs

Financial plan

Current financing

• Key investors or owners • Angels, friends, and family • Existing loans and liabilities

o Terms, obligations

Funding plan

• IMF • World Bank

Financial forecasts

• Sometimes called pro formas o Balance sheet o Income statement o Cash flow statement

• 1-3-5-7 year projections (depends on length of project) o For loans, repayment period determines length of projections, i.e. a six

month loan doesn't need seven year forecasts o For investments point at which returns stabilize (terminal value)

determines length of forecast • Annual, quarterly, and monthly versions should be provided • Graphs of key values often helpful: gross revenue, EBITDA, NPV, etc. • Financial portions of the marketing, asset development, and operations are often

placed in this section rather than in the section discussing the plan. They are viewed as elaboration on the various line items in the pro-formas.

Risk analysis

Risk evaluation

• Market risks - lack of surgeons; large geographical area so that we don't compete against our own clients;

o New entrants to market Ease of entry Potential threat to market share- advertising companies

o Slower than expected adoption • Operational risks • Staffing risks- imbedding the right candidate for the right surgeon

o Availability of skilled workforce- x-pharma reps, x-equipment reps o Union issues

• Financing risks o Liabilities o Poorly worded investor contracts at risk for litigation o Investor pull-out o Lack of follow-on funding to complete project

• Managerial risks o Poor board or investor dynamics o Agency risk particular to the venture

Risk management plan

Detailed plans are more often found as part of internal plans. Plans written for funders may need to include a high level of description if there are significant controllable risks.

• Methods and procedures to limit liabilities • Reserve funds • Continuity of operations plan

Chapter- 3

Marketing Plan

A marketing plan is a written document that details the necessary actions to achieve one or more marketing objectives. It can be for a product or service, a brand, or a product line. Marketing plans cover between one and five years. A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundation of a well-written marketing plan. While a marketing plan contains a list of actions, a marketing plan without a sound strategic foundation is of little use.

The marketing planning process

Marketing process can be realized by the marketing mix in step 4. The last step in the process is the marketing controlling. In most organizations, "strategic planning" is an annual process, typically covering just the year ahead. Occasionally, a few organizations may look at a practical plan which stretches three or more years ahead.

To be most effective, the plan has to be formalized, usually in written form, as a formal "marketing plan." The essence of the process is that it moves from the general to the specific, from the vision to the mission to the goals to the corporate objectives of the organization, then down to the individual action plans for each part of the marketing program. It is also an interactive process, so that the draft output of each stage is checked to see what impact it has on the earlier stages, and is amended.

Marketing planning aims and objectives

Behind the corporate objectives, which in themselves offer the main context for the marketing plan, will lie the "corporate mission," which in turn provides the context for these corporate objectives. In a sales-oriented organization, the marketing planning function designs incentive pay plans to not only motivate and reward frontline staff fairly but also to align marketing activities with corporate mission.

This "corporate mission" can be thought of as a definition of what the organization is, of what it does: "Our business is …" This definition should not be too narrow, or it will constrict the development of the organization; a too rigorous concentration on the view

that "We are in the business of making meat-scales," as IBM was during the early 1900s, might have limited its subsequent development into other areas. On the other hand, it should not be too wide or it will become meaningless; "We want to make a profit" is not too helpful in developing specific plans.

Abell suggested that the definition should cover three dimensions: "customer groups" to be served, "customer needs" to be served, and "technologies" to be used . Thus, the definition of IBM's "corporate mission" in the 1940s might well have been: "We are in the business of handling accounting information [customer need] for the larger US organizations [customer group] by means of punched cards [technology]."

Perhaps the most important factor in successful marketing is the "corporate vision." Surprisingly, it is largely neglected by marketing textbooks, although not by the popular exponents of corporate strategy - indeed, it was perhaps the main theme of the book by Peters and Waterman, in the form of their "Superordinate Goals." "In Search of Excellence" said: "Nothing drives progress like the imagination. The idea precedes the deed." If the organization in general, and its chief executive in particular, has a strong vision of where its future lies, then there is a good chance that the organization will achieve a strong position in its markets (and attain that future). This will be not least because its strategies will be consistent and will be supported by its staff at all levels. In this context, all of IBM's marketing activities were underpinned by its philosophy of "customer service," a vision originally promoted by the charismatic Watson dynasty. The emphasis at this stage is on obtaining a complete and accurate picture.

A "traditional" - albeit product-based - format for a "brand reference book" (or, indeed, a "marketing facts book") was suggested by Godley more than three decades ago:

1. Financial data—Facts for this section will come from management accounting, costing and finance sections.

2. Product data—From production, research and development. 3. Sales and distribution data - Sales, packaging, distribution sections. 4. Advertising, sales promotion, merchandising data - Information from these

departments. 5. Market data and miscellany - From market research, who would in most cases act

as a source for this information. His sources of data, however, assume the resources of a very large organization. In most organizations they would be obtained from a much smaller set of people (and not a few of them would be generated by the marketing manager alone).

It is apparent that a marketing audit can be a complex process, but the aim is simple: "it is only to identify those existing (external and internal) factors which will have a significant impact on the future plans of the company." It is clear that the basic material to be input to the marketing audit should be comprehensive. Accordingly, the best approach is to accumulate this material continuously, as and when it becomes available; since this avoids the otherwise heavy workload involved in

collecting it as part of the regular, typically annual, planning process itself - when time is usually at a premium.

Even so, the first task of this annual process should be to check that the material held in the current facts book or facts files actually is comprehensive and accurate, and can form a sound basis for the marketing audit itself. The structure of the facts book will be designed to match the specific needs of the organization, but one simple format - suggested by Malcolm McDonald - may be applicable in many cases. This splits the material into three groups:

1. Review of the marketing environment. A study of the organization's markets, customers, competitors and the overall economic, political, cultural and technical environment; covering developing trends, as well as the current situation.

2. Review of the detailed marketing activity. A study of the company's marketing mix; in terms of the 7 Ps - (see below)

3. Review of the marketing system. A study of the marketing organization, marketing research systems and the current marketing objectives and strategies. The last of these is too frequently ignored. The marketing system itself needs to be regularly questioned, because the validity of the whole marketing plan is reliant upon the accuracy of the input from this system, and `garbage in, garbage out' applies with a vengeance.

Portfolio planning. In addition, the coordinated planning of the individual products and services can contribute towards the balanced portfolio.

80:20 rule. To achieve the maximum impact, the marketing plan must be clear, concise and simple. It needs to concentrate on the 20 percent of products or services, and on the 20 percent of customers, that will account for 80 percent of the volume and 80 percent of the profit.

7 Ps: Product, Place, Price and Promotion, Physical Environment, People, Process. The 7 Ps can sometimes divert attention from the customer, but the framework they offer can be very useful in building the action plans.

It is only at this stage (of deciding the marketing objectives) that the active part of the marketing planning process begins. This next stage in marketing planning is indeed the key to the whole marketing process. The "marketing objectives" state just where the company intends to be at some specific time in the future. James Quinn succinctly defined objectives in general as: Goals (or objectives) state what is to be achieved and when results are to be accomplished, but they do not state "how" the results are to be achieved. They typically relate to what products (or services) will be where in what markets (and must be realistically based on customer behavior in those markets). They are essentially about the match between those "products" and "markets." Objectives for pricing, distribution, advertising and so on are at a lower level, and should

not be confused with marketing objectives. They are part of the marketing strategy needed to achieve marketing objectives. To be most effective, objectives should be capable of measurement and therefore "quantifiable." This measurement may be in terms of sales volume, money value, market share, percentage penetration of distribution outlets and so on. An example of such a measurable marketing objective might be "to enter the market with product Y and capture 10 percent of the market by value within one year." As it is quantified it can, within limits, be unequivocally monitored, and corrective action taken as necessary.

The marketing objectives must usually be based, above all, on the organization's financial objectives; converting these financial measurements into the related marketing measurements.He went on to explain his view of the role of "policies," with which strategy is most often confused: "Policies are rules or guidelines that express the 'limits' within which action should occur."Simplifying somewhat, marketing strategies can be seen as the means, or "game plan," by which marketing objectives will be achieved and, in the framework that we have chosen to use, are generally concerned with the 8 P's. Examples are:

1. Price - The amount of money needed to buy products 2. Product - The actual product 3. Promotion (advertising)- Getting the product known 4. Placement - Where the product is located 5. People - Represent the business 6. Physical environment - The ambiance, mood, or tone of the environment 7. Process - How do people obtain your product 8. Packaging - How the product will be protected

(Note: At GCSE the 4 Ps are Place, Promotion, Product and Price and the "secret" 5th P is Packaging, but which applies only to physical products, not services usually, and mostly those sold to individual consumers)

In principle, these strategies describe how the objectives will be achieved. The 7 Ps are a useful framework for deciding how the company's resources will be manipulated (strategically) to achieve the objectives. However, they are not the only framework, and may divert attention from the real issues. The focus of the strategies must be the objectives to be achieved - not the process of planning itself. Only if it fits the needs of these objectives should you choose, as we have done, to use the framework of the 7 Ps. The strategy statement can take the form of a purely verbal description of the strategic options which have been chosen. Alternatively, and perhaps more positively, it might include a structured list of the major options chosen.

One aspect of strategy which is often overlooked is that of "timing." Exactly when it is the best time for each element of the strategy to be implemented is often critical. Taking the right action at the wrong time can sometimes be almost as bad as taking the wrong action at the right time. Timing is, therefore, an essential part of any plan; and should

normally appear as a schedule of planned activities.Having completed this crucial stage of the planning process, you will need to re-check the feasibility of your objectives and strategies in terms of the market share, sales, costs, profits and so on which these demand in practice. As in the rest of the marketing discipline, you will need to employ judgment, experience, market research or anything else which helps you to look at your conclusions from all possible angles.

Detailed plans and programs

At this stage,you will need to develop your overall marketing strategies into detailed plans and program. Although these detailed plans may cover each of the 7 Ps (marketing mix), the focus will vary, depending upon your organization's specific strategies. A product-oriented company will focus its plans for the 7 Ps around each of its products. A market or geographically oriented company will concentrate on each market or geographical area. Each will base its plans upon the detailed needs of its customers, and on the strategies chosen to satisfy these needs. Brochures and Websites are used effectively.

Again, the most important element is, indeed, that of the detailed plans, which spell out exactly what programs and individual activities will take place over the period of the plan (usually over the next year). Without these specified - and preferably quantified - activities the plan cannot be monitored, even in terms of success in meeting its objectives.It is these programs and activities which will then constitute the "marketing" of the organization over the period. As a result, these detailed marketing programs are the most important, practical outcome of the whole planning process. These plans must therefore be:

• Clear - They should be an unambiguous statement of 'exactly' what is to be done. • Quantified - The predicted outcome of each activity should be, as far as possible,

quantified, so that its performance can be monitored. • Focused - The temptation to proliferate activities beyond the numbers which can

be realistically controlled should be avoided. The 80:20 Rule applies in this context too.

• Realistic - They should be achievable. • Agreed - Those who are to implement them should be committed to them, and

agree that they are achievable. The resulting plans should become a working document which will guide the campaigns taking place throughout the organization over the period of the plan. If the marketing plan is to work, every exception to it (throughout the year) must be questioned; and the lessons learnt, to be incorporated in the next year's planning.

Content of the marketing plan

A marketing plan for a small business typically includes Small Business Administration Description of competitors, including the level of demand for the product or service and the strengths and weaknesses of competitors

1. Description of the product or service, including special features 2. Marketing budget, including the advertising and promotional plan 3. Description of the business location, including advantages and disadvantages for

marketing 4. Pricing strategy 5. Market Segmentation

Medium-sized and large organizations

The main contents of a marketing plan are:

1. Executive Summary 2. Situational Analysis 3. Opportunities / Issue Analysis - SWOT Analysis 4. Objectives 5. Strategy 6. Action Program (the operational marketing plan itself for the period under

review) 7. Financial Forecast 8. Controls

In detail, a complete marketing plan typically includes:

1. Title page 2. Executive Summary 3. Current Situation - Macroenvironment

o economy o legal o government o technology o ecological o sociocultural o supply chain

4. Current Situation - Market Analysis o market definition o market size o market segmentation o industry structure and strategic groupings o Porter 5 forces analysis o competition and market share o competitors' strengths and weaknesses o market trends

5. Current Situation - Consumer Analysis o nature of the buying decision o participants o demographics

o psychographics o buyer motivation and expectations o loyalty segments

6. Current Situation - Internal o company resources

financial people time skills

o objectives mission statement and vision statement corporate objectives financial objective marketing objectives long term objectives description of the basic business philosophy

o corporate culture 7. Summary of Situation Analysis

o external threats o external opportunities o internal strengths o internal weaknesses o Critical success factors in the industry o our sustainable competitive advantage

8. Marketing research o information requirements o research methodology o research results

9. Marketing Strategy - Product o product mix o product strengths and weaknesses

perceptual mapping o product life cycle management and new product development o Brand name, brand image, and brand equity o the augmented product o product portfolio analysis

B.C.G. Analysis contribution margin analysis G.E. Multi Factoral analysis Quality Function Deployment

10. Marketing Strategy- segmented marketing actions and market share objectives o by product, o by customer segment, o by geographical market, o by distribution channel.

11. Marketing Strategy - Price

o pricing objectives o pricing method (e.g.: cost plus, demand based, or competitor indexing) o pricing strategy (e.g.: skimming, or penetration) o discounts and allowances o price elasticity and customer sensitivity o price zoning o break even analysis at various prices

12. Marketing Strategy - promotion o promotional goals o promotional mix o advertising reach, frequency, flights, theme, and media o sales force requirements, techniques, and management o sales promotion o publicity and public relations o electronic promotion (e.g.: Web, or telephone) o word of mouth marketing (buzz) o viral marketing

13. Marketing Strategy - Distribution o geographical coverage o distribution channels o physical distribution and logistics o electronic distribution

14. Implementation o personnel requirements

assign responsibilities give incentives training on selling methods

o financial requirements o management information systems requirements o month-by-month agenda

PERT or critical path analysis o monitoring results and benchmarks o adjustment mechanism o contingencies (What if's)

15. Financial Summary o assumptions o pro-forma monthly income statement o contribution margin analysis o breakeven analysis o Monte Carlo method o ISI: Internet Strategic Intelligence

16. Scenarios o Prediction of Future Scenarios o Plan of Action for each Scenario

17. Appendix o pictures and specifications of the new product

o results from research already completed

Measurement of progress

The final stage of any marketing planning process is to establish targets (or standards) so that progress can be monitored. Accordingly, it is important to put both quantities and timescales into the marketing objectives (for example, to capture 20 percent by value of the market within two years) and into the corresponding strategies.

Changes in the environment mean that the forecasts often have to be changed. Along with these, the related plans may well also need to be changed. Continuous monitoring of performance, against predetermined targets, represents a most important aspect of this. However, perhaps even more important is the enforced discipline of a regular formal review. Again, as with forecasts, in many cases the best (most realistic) planning cycle will revolve around a quarterly review. Best of all, at least in terms of the quantifiable aspects of the plans, if not the wealth of backing detail, is probably a quarterly rolling review - planning one full year ahead each new quarter. Of course, this does absorb more planning resource; but it also ensures that the plans embody the latest information, and - with attention focused on them so regularly - forces both the plans and their implementation to be realistic.

Plans only have validity if they are actually used to control the progress of a company: their success lies in their implementation, not in the writing'.

Performance analysis

The most important elements of marketing performance, which are normally tracked, are:

Sales analysis

Market share analysis

Few organizations track market share though it is often an important metric. Though absolute sales might grow in an expanding market, a firm's share of the market can decrease which bodes ill for future sales when the market starts to drop. Where such market share is tracked, there may be a number of aspects which will be followed:

• overall market share • segment share - that in the specific, targeted segment • relative share -in relation to the market leaders • annual fluctuation rate of market share • also the specific market sharing of customers.

Expense analysis

The key ratio to watch in this area is usually the `marketing expense to sales ratio'; although this may be broken down into other elements (advertising to sales, sales administration to sales, and so on).

Financial analysis

The "bottom line" of marketing activities should at least in theory, be the net profit (for all except non-profit organizations, where the comparable emphasis may be on remaining within budgeted costs). There are a number of separate performance figures and key ratios which need to be tracked:

• gross contribution<>net profit • gross profit<>return on investment • net contribution<>profit on sales

There can be considerable benefit in comparing these figures with those achieved by other organizations (especially those in the same industry); using, for instance, the figures which can be obtained (in the UK) from `The Centre for Interfirm Comparison'. The most sophisticated use of this approach, however, is typically by those making use of PIMS (Profit Impact of Management Strategies), initiated by the General Electric Company and then developed by Harvard Business School, but now run by the Strategic Planning Institute.

The above performance analyses concentrate on the quantitative measures which are directly related to short-term performance. But there are a number of indirect measures, essentially tracking customer attitudes, which can also indicate the organization's performance in terms of its longer-term marketing strengths and may accordingly be even more important indicators. Some useful measures are:

• market research - including customer panels (which are used to track changes over time)

• lost business - the orders which were lost because, for example, the stock was not available or the product did not meet the customer's exact requirements

• customer complaints - how many customers complain about the products or services, or the organization itself, and about what

Use of marketing plans

A formal, written marketing plan is essential; in that it provides an unambiguous reference point for activities throughout the planning period. However, perhaps the most important benefit of these plans is the planning process itself. This typically offers a unique opportunity, a forum, for information-rich and productively focused discussions between the various managers involved. The plan, together with the associated discussions, then provides an agreed context for their subsequent management activities,

even for those not described in the plan itself. Additionally, marketing plans are included in business plans, offering data showing investors how the company will grow and most importantly, how they will get a return on investment.

Budgets as managerial tools

The classic quantification of a marketing plan appears in the form of budgets. Because these are so rigorously quantified, they are particularly important. They should, thus, represent an unequivocal projection of actions and expected results. What is more, they should be capable of being monitored accurately; and, indeed, performance against budget is the main (regular) management review process.

The purpose of a marketing budget is, thus, to pull together all the revenues and costs involved in marketing into one comprehensive document. It is a managerial tool that balances what is needed to be spent against what can be afforded, and helps make choices about priorities. It is then used in monitoring performance in practice.

The marketing budget is usually the most powerful tool by which you think through the relationship between desired results and available means. Its starting point should be the marketing strategies and plans, which have already been formulated in the marketing plan itself; although, in practice, the two will run in parallel and will interact. At the very least, the rigorous, highly quantified, budgets may cause a rethink of some of the more optimistic elements of the plans.

Chapter- 4

Marketing Research

Marketing research is the systematic gathering, recording, and analysis of data about issues relating to marketing products and services. The goal of marketing research is to identify and assess how changing elements of the marketing mix impacts customer behavior. The term is commonly interchanged with market research; however, expert practitioners may wish to draw a distinction, in that market research is concerned specifically with markets, while marketing research is concerned specifically about marketing processes.

Marketing research is often partitioned into two sets of categorical pairs, either by target market:

• Consumer marketing research, and • Business-to-business (B2B) marketing research

Or, alternatively, by methodological approach:

• Qualitative marketing research, and • Quantitative marketing research

Consumer marketing research is a form of applied sociology that concentrates on understanding the preferences, attitudes, and behaviors of consumers in a market-based economy, and it aims to understand the effects and comparative success of marketing campaigns. The field of consumer marketing research as a statistical science was pioneered by Arthur Nielsen with the founding of the ACNielsen Company in 1923.

Thus, marketing research may also be described as the systematic and objective identification, collection, analysis, and dissemination of information for the purpose of assisting management in decision making related to the identification and solution of problems and opportunities in marketing.

Role of marketing research (MR)

The task of marketing research is to provide management with relevant, accurate, reliable, valid, and current information. Competitive marketing environment and the ever-increasing costs attributed to poor decision making require that marketing research provide sound information. Sound decisions are not based on gut feeling, intuition, or even pure judgment.

Marketing managers make numerous strategic and tactical decisions in the process of identifying and satisfying customer needs. They make decisions about potential opportunities, target market selection, market segmentation, planning and implementing marketing programs, marketing performance, and control. These decisions are complicated by interactions between the controllable marketing variables of product, pricing, promotion, and distribution. Further complications are added by uncontrollable environmental factors such as general economic conditions, technology, public policies and laws, political environment, competition, and social and cultural changes. Another factor in this mix is the complexity of consumers. Marketing research helps the marketing manager link the marketing variables with the environment and the consumers. It helps remove some of the uncertainty by providing relevant information about the marketing variables, environment, and consumers. In the absence of relevant information, consumers' response to marketing programs cannot be predicted reliably or accurately. Ongoing marketing research programs provide information on controllable and non-controllable factors and consumers; this information enhances the effectiveness of decisions made by marketing managers.

Traditionally, marketing researchers were responsible for providing the relevant information and marketing decisions were made by the managers. However, the roles are changing and marketing researchers are becoming more involved in decision making, whereas marketing managers are becoming more involved with research. The role of marketing research in managerial decision making is explained further using the framework of the "DECIDE" model:

D Define the marketing problem

E Enumerate the controllable and uncontrollable decision factors

C Collect relevant information

I Identify the best alternative

D Develop and implement a marketing plan

E Evaluate the decision and the decision process

The DECIDE model conceptualizes managerial decision making as a series of six steps. The decision process begins by precisely defining the problem or opportunity, along with the objectives and constraints. Next, the possible decision factors that make up the alternative courses of action (controllable factors) and uncertainties (uncontrollable factors) are enumerated. Then, relevant information on the alternatives and possible outcomes is collected. The next step is to select the best alternative based on chosen criteria or measures of success. Then a detailed plan to implement the alternative selected is developed and put into effect. Last, the outcome of the decision and the decision process itself are evaluated.

Marketing research characteristics

First, marketing research is systematic. Thus systematic planning is required at all the stages of the marketing research process. The procedures followed at each stage are methodologically sound, well documented, and, as much as possible, planned in advance. Marketing research uses the scientific method in that data are collected and analyzed to test prior notions or hypotheses.

Marketing research is objective. It attempts to provide accurate information that reflects a true state of affairs. It should be conducted impartially. While research is always influenced by the researcher's research philosophy, it should be free from the personal or political biases of the researcher or the management. Research which is motivated by personal or political gain involves a breach of professional standards. Such research is deliberately biased so as to result in predetermined findings. The motto of every researcher should be, "Find it and tell it like it is." The objective nature of marketing research underscores the importance of ethical considerations, which are discussed later in the chapter....

Comparison with other forms of business research

Other forms of business research include:

• Market research is broader in scope and examines all aspects of a business environment. It asks questions about competitors, market structure, government regulations, economic trends, technological advances, and numerous other factors that make up the business environment. Sometimes the term refers more particularly to the financial analysis of companies, industries, or sectors. In this case, financial analysts usually carry out the research and provide the results to investment advisors and potential investors.

• Product research - This looks at what products can be produced with available technology, and what new product innovations near-future technology can develop.

• Advertising research - is a specialized form of marketing research conducted to improve the efficacy of advertising. Copy testing, also known as "pre-testing," is

a form of customized research that predicts in-market performance of an ad before it airs, by analyzing audience levels of attention, brand linkage, motivation, entertainment, and communication, as well as breaking down the ad’s flow of attention and flow of emotion. Pre-testing is also used on ads still in rough (ripomatic or animatic) form. (Young, p. 213)

Classification of marketing research

Organizations engage in marketing research for two reasons: (1) to identify and (2) solve marketing problems. This distinction serves as a basis for classifying marketing research into problem identification research and problem solving research.

Problem identification research is undertaken to help identify problems which are, perhaps, not apparent on the surface and yet exist or are likely to company image, market characteristics, sales analysis, short-range forecasting, long range forecasting, and business trends research. Research of this type provides information about the marketing environment and helps diagnose a problem. For example, The findings of problem solving research are used in making decisions which will solve specific marketing problems.

The Stanford Research Institute, on the other hand, conducts an annual survey of consumers that is used to classify persons into homogeneous groups for segmentation purposes. The National Purchase Diary panel (NPD) maintains the largest diary panel in the United States.

Standardized services are research studies conducted for different client firms but in a standard way. For example, procedures for measuring advertising effectiveness have been standardized so that the results can be compared across studies and evaluative norms can be established. The Starch Readership Survey is the most widely used service for evaluating print advertisements; another well-known service is the Gallup and Robinson Magazine Impact Studies. These services are also sold on a syndicated basis.

• Customized services offer a wide variety of marketing research services customized to suit a client's specific needs. Each marketing research project is treated uniquely.

• Limited-service suppliers specialize in one or a few phases of the marketing research project. Services offered by such suppliers are classified as field services, coding and data entry, data analysis, analytical services, and branded products. Field services collect data through mail, personal, or telephone interviewing, and firms that specialize in interviewing are called field service organizations. These organizations may range from small proprietary organizations which operate locally to large multinational organizations with WATS line interviewing facilities. Some organizations maintain extensive interviewing facilities across the country for interviewing shoppers in malls.

• Coding and data entry services include editing completed questionnaires, developing a coding scheme, and transcribing the data on to diskettes or magnetic tapes for input into the computer. NRC Data Systems provides such services.

• Analytical services include designing and pretesting questionnaires, determining the best means of collecting data, designing sampling plans, and other aspects of the research design. Some complex marketing research projects require knowledge of sophisticated procedures, including specialized experimental designs, and analytical techniques such as conjoint analysis and multidimensional scaling. This kind of expertise can be obtained from firms and consultants specializing in analytical services.

• Data analysis services are offered by firms, also known as tab houses, that specialize in computer analysis of quantitative data such as those obtained in large surveys. Initially most data analysis firms supplied only tabulations (frequency counts) and cross tabulations (frequency counts that describe two or more variables simultaneously). With the proliferation of software, many firms now have the capability to analyze their own data, but, data analysis firms are still in demand.

• Branded marketing research products and services are specialized data collection and analysis procedures developed to address specific types of marketing research problems. These procedures are patented, given brand names, and marketed like any other branded product.

Types of marketing research

Marketing research techniques come in many forms, including:

• Ad Tracking – periodic or continuous in-market research to monitor a brand’s performance using measures such as brand awareness, brand preference, and product usage. (Young, 2005)

• Advertising Research – used to predict copy testing or track the efficacy of advertisements for any medium, measured by the ad’s ability to get attention, communicate the message, build the brand’s image, and motivate the consumer to purchase the product or service. (Young, 2005)

• Brand equity research - how favorably do consumers view the brand? • Brand association research - what do consumers associate with the brand? • Brand attribute research - what are the key traits that describe the brand

promise? • Brand name testing - what do consumers feel about the names of the products? • Commercial eye tracking research - examine advertisements, package designs,

websites, etc. by analyzing visual behavior of the consumer • Concept testing - to test the acceptance of a concept by target consumers • Coolhunting - to make observations and predictions in changes of new or

existing cultural trends in areas such as fashion, music, films, television, youth culture and lifestyle

• Buyer decision processes research - to determine what motivates people to buy and what decision-making process they use

• Copy testing – predicts in-market performance of an ad before it airs by analyzing audience levels of attention, brand linkage, motivation, entertainment, and communication, as well as breaking down the ad’s flow of attention and flow of emotion. (Young, p 213)

• Customer satisfaction research - quantitative or qualitative studies that yields an understanding of a customer's of satisfaction with a transaction

• Demand estimation - to determine the approximate level of demand for the product

• Distribution channel audits - to assess distributors’ and retailers’ attitudes toward a product, brand, or company

• Internet strategic intelligence - searching for customer opinions in the Internet: chats, forums, web pages, blogs... where people express freely about their experiences with products, becoming strong "opinion formers"

• Marketing effectiveness and analytics - Building models and measuring results to determine the effectiveness of individual marketing activities.

• Mystery Consumer or Mystery shopping - An employee or representative of the market research firm anonymously contacts a salesperson and indicates he or she is shopping for a product. The shopper then records the entire experience. This method is often used for quality control or for researching competitors' products.

• Positioning research - how does the target market see the brand relative to competitors? - what does the brand stand for?

• Price elasticity testing - to determine how sensitive customers are to price changes

• Sales forecasting - to determine the expected level of sales given the level of demand. With respect to other factors like Advertising expenditure, sales promotion etc.

• Segmentation research - to determine the demographic, psychographic, and behavioural characteristics of potential buyers

• Online panel - a group of individual who accepted to respond to marketing research online

• Store audit - to measure the sales of a product or product line at a statistically selected store sample in order to determine market share, or to determine whether a retail store provides adequate service

• Test marketing - a small-scale product launch used to determine the likely acceptance of the product when it is introduced into a wider market

• Viral Marketing Research - refers to marketing research designed to estimate the probability that specific communications will be transmitted throughout an individuals Social Network. Estimates of Social Networking Potential (SNP) are combined with estimates of selling effectiveness to estimate ROI on specific combinations of messages and media.

All of these forms of marketing research can be classified as either problem-identification research or as problem-solving research.

There are two main sources of data - primary and secondary. Primary research is conducted from scratch. It is original and collected to solve the problem in hand. Secondary research already exists since it has been collected for other purposes. It is conducted on data published previously and usually by someone else. Secondary research costs far less than primary research, but seldom comes in a form that exactly meets the needs of the researcher.

A similar distinction exists between exploratory research and conclusive research. Exploratory research provides insights into and comprehension of an issue or situation. It should draw definitive conclusions only with extreme caution. Conclusive research draws conclusions: the results of the study can be generalized to the whole population.

Exploratory research is conducted to explore a problem to get some basic idea about the solution at the preliminary stages of research. It may serve as the input to conclusive research. Exploratory research information is collected by focus group interviews, reviewing literature or books, discussing with experts, etc. This is unstructured and qualitative in nature. If a secondary source of data is unable to serve the purpose, a convenience sample of small size can be collected. Conclusive research is conducted to draw some conclusion about the problem. It is essentially, structured and quantitative research, and the output of this research is the input to management information systems (MIS).

Exploratory research is also conducted to simplify the findings of the conclusive or descriptive research, if the findings are very hard to interpret for the marketing managers.

Marketing research methods

Methodologically, marketing research uses the following types of research designs:

Based on questioning:

• Qualitative marketing research - generally used for exploratory purposes - small number of respondents - not generalizable to the whole population - statistical significance and confidence not calculated - examples include focus groups, in-depth interviews, and projective techniques

• Quantitative marketing research - generally used to draw conclusions - tests a specific hypothesis - uses random sampling techniques so as to infer from the sample to the population - involves a large number of respondents - examples include surveys and questionnaires. Techniques include choice modelling, maximum difference preference scaling, and covariance analysis.

Based on observations:

• Ethnographic studies -, by nature qualitative, the researcher observes social phenomena in their natural setting - observations can occur cross-sectionally (observations made at one time) or longitudinally (observations occur over several time-periods) - examples include product-use analysis and computer cookie traces.

• Experimental techniques -, by nature quantitative, the researcher creates a quasi-artificial environment to try to control spurious factors, then manipulates at least one of the variables - examples include purchase laboratories and test markets

Researchers often use more than one research design. They may start with secondary research to get background information, then conduct a focus group (qualitative research design) to explore the issues. Finally they might do a full nation-wide survey (quantitative research design) in order to devise specific recommendations for the client.

Business to business market research

Business to business (B2B) research is inevitably more complicated than consumer research. The researchers need to know what type of multi-faceted approach will answer the objectives, since seldom is it possible to find the answers using just one method. Finding the right respondents is crucial in B2B research since they are often busy, and may not want to participate. Encouraging them to “open up” is yet another skill required of the B2B researcher. Last, but not least, most business research leads to strategic decisions and this means that the business researcher must have expertise in developing strategies that are strongly rooted in the research findings and acceptable to the client.

There are four key factors that make B2B market research special and different to consumer markets:

• The decision making unit is far more complex in B2B markets than in consumer markets

• B2B products and their applications are more complex than consumer products • B2B marketers address a much smaller number of customers who are very much

larger in their consumption of products than is the case in consumer markets • Personal relationships are of critical importance in B2B markets.

Marketing research in small businesses and nonprofit organizations

Marketing research does not only occur in huge corporations with many employees and a large budget. Marketing information can be derived by observing the environment of their location and the competitions location. Small scale surveys and focus groups are low cost ways to gather information from potential and existing customers. Most secondary data (statistics, demographics, etc.) is available to the public in libraries or on the internet and can be easily accessed by a small business owner.

Below are some steps that could be done by SME (Small Medium Entreprise) to analyze the market:

1. Provide secondary and or primary data (if necessary); 2. Analyze Macro & Micro Economic data (e.g. Supply & Demand, GDP,Price

change, Economic growth, Sales by sector/industries,interest rate, number of investment/ divestment, I/O, CPI, Social anlysis,etc.);

3. Implement the marketing mix concept, which is consist of: Place, Price, Product,Promotion, People, Process, Physical Evidence and also Political & social situation to analyze global market situation);

4. Analyze market trends, growth, market size, market share, market competition (e.g. SWOT analysis, B/C Analysis,channel mapping identities of key channels, drivers of customers loyalty and satisfaction, brand perception, satisfaction levels, current competitor-channel relationship analysis, etc.),etc.;

5. Determine market segment, market target, market forecast and market position; 6. Formulating market strategy & also investigating the possibility of partnership/

collaboration (e.g. Profiling & SWOT analysis of potential partners, evaluating business partnership.)

7. Combine those analysis with the SME's business plan/ business model analysis (e.g. Business description, Business process, Business strategy, Revenue model, Business expansion, Return of Investment, Financial analysis (Company History, Financial assumption, Cost/Benefit Analysis, Projected profit & Loss, Cashflow, Balance sheet & business Ratio,etc.).

Note as important: Overall analysis is should be based on 6W+1H (What, When, Where, Which, Who, Why and How) question.

International Marketing Research plan

International Marketing Research follows the same path as domestic research, but there are a few more problems that may arise. Customers in international markets may have very different customs, cultures, and expectations from the same company. In this case, secondary information must be collected from each separate country and then combined, or compared. This is time consuming and can be confusing. International Marketing Research relies more on primary data rather than secondary information. Gathering the primary data can be hindered by language, literacy and access to technology.

Commonly used marketing research terms

Market research techniques resemble those used in political polling and social science research. Meta-analysis (also called the Schmidt-Hunter technique) refers to a statistical method of combining data from multiple studies or from several types of studies. Conceptualization means the process of converting vague mental images into definable concepts. Operationalization is the process of converting concepts into specific observable behaviors that a researcher can measure. Precision refers to the exactness of any given measure. Reliability refers to the likelihood that a given operationalized

construct will yield the same results if re-measured. Validity refers to the extent to which a measure provides data that captures the meaning of the operationalized construct as defined in the study. It asks, “Are we measuring what we intended to measure?”

• Applied research sets out to prove a specific hypothesis of value to the clients paying for the research. For example, a cigarette company might commission research that attempts to show that cigarettes are good for one's health. Many researchers have ethical misgivings about doing applied research.

• Sugging (from "SUG", for selling under the guise of market research) forms a sales technique in which sales people pretend to conduct marketing research, but with the real purpose of obtaining buyer motivation and buyer decision-making information to be used in a subsequent sales call.

• Frugging comprises the practice of soliciting funds under the pretense of being a research organization.

Selecting a research supplier

A firm that cannot conduct an entire marketing research project in-house must select an external supplier for one or more phases of the project. The firm should compile a list of prospective suppliers from such sources as trade publications, professional directories, and word of mouth. When deciding on criteria for selecting an outside supplier, a firm should ask itself why it is seeking outside marketing research support. For example, a small firm that needs one project investigated may find it economically efficient to employ an outside source. Or a firm may not have the technical expertise undertake certain phases of a project or political conflict-of-interest issues may determine that a project be conducted by an outside supplier.

When developing criteria for selecting an outside supplier, a firm should keep some basics in mind. What is the reputation of the supplier? Do they complete projects on schedule? Are they known for maintaining ethical standards? Are they flexible? Are their research projects of high quality?

What kind and how much experience does the supplier have? Has the firm had experience with projects similar to this one? Do the supplier's personnel have both technical and nontechnical expertise? In other words, in addition to technical skills, are the personnel assigned to the task sensitive to the client's needs and do they share the client's research ideology? Can they communicate well with the client?

The cheapest bid is not always the best one. Competitive bids should be obtained and compared on the basis of quality as well as price. A good practice is to get a written bid or contract before beginning the project. Decisions about marketing research suppliers, just like other management decisions, should be based on sound information.

Careers in marketing research

Some of the positions available in marketing research include vice president of marketing research, research director, assistant director of research, project manager, field work director, statistician/data processing specialist, senior analyst, analyst, junior analyst and operational supervisor.

The most common entry-level position in marketing research for people with bachelor's degrees (e.g., BBA) is as operational supervisor. These people are responsible for supervising a well-defined set of operations, including field work, data editing, and coding, and may be involved in programming and data analysis. Another entry-level position for BBAs is assistant project manager. An assistant project manager will learn and assist in questionnaire design, review field instructions, and monitor timing and costs of studies. In the marketing research industry, however, there is a growing preference for people with master's degrees. Those with MBA or equivalent degrees are likely to be employed as project managers.

A small number of business schools also offer a more specialized Master of Marketing Research (MMR) degree. An MMR typically prepares students for a wide range of research methodologies and focuses on learning both in the classroom and the field.

The typical entry-level position in a business firm would be junior research analyst (for BBAs) or research analyst (for MBAs or MMRs). The junior analyst and the research analyst learn about the particular industry and receive training from a senior staff member, usually the marketing research manager. The junior analyst position includes a training program to prepare individuals for the responsibilities of a research analyst, including coordinating with the marketing department and sales force to develop goals for product exposure. The research analyst responsibilities include checking all data for accuracy, comparing and contrasting new research with established norms, and analyzing primary and secondary data for the purpose of market forecasting.

As these job titles indicate, people with a variety of backgrounds and skills are needed in marketing research. Technical specialists such as statisticians obviously need strong backgrounds in statistics and data analysis. Other positions, such as research director, call for managing the work of others and require more general skills. To prepare for a career in marketing research, students usually:

• Take all the marketing courses. • Take courses in statistics and quantitative methods. • Acquire computer skills. • Take courses in psychology and consumer behavior. • Acquire effective written and verbal communication skills. • Think creatively.

Career ladder in marketing research:

1. Vice-President of Marketing Research: This is the senior position in marketing research. The VP is responsible for the entire marketing research operation of the company and serves on the top management team. Sets the objectives and goals of the marketing, research department.

2. Research Director: Also a senior position, the director has the overall responsibility for the development and execution of all the marketing research projects.

3. Assistant Director of Research: Serves as an administrative assistant to the director and supervises some of the other marketing research staff members.

4. (Senior) Project Manager: Has overall responsibility for design, implementation, and management of research projects.

5. Statistician/Data Processing Specialist: Serves as an expert on theory and application of statistical techniques. Responsibilities include experimental design, data processing, and analysis.

6. Senior Analyst: Participates in the development of projects and directs the operational execution of the assigned projects. Works closely with the analyst, junior analyst, and other personnel in developing the research design and data collection. Prepares the final report. The primary responsibility for meeting time and cost constraints rests with the senior analyst.

7. Analyst: Handles the details involved in executing the project. Designs and pretests the questionnaires and conducts a preliminary analysis of the data.

8. Junior Analyst: Handles routine assignments such as secondary data analysis, editing and coding of questionnaires, and simple statistical analysis.

9. Field Work Director: Responsible for the selection, training, supervision, and evaluation of interviewers and other field workers.

Chapter- 5

Marketing Strategy

Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered around the key concept that customer satisfaction is the main goal.

Key part of the general corporate strategy

Marketing strategy is a method of focusing an organization's energies and resources on a course of action which can lead to increased sales and dominance of a targeted market niche. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources. It is most effective when it is an integral component of overall firm strategy, defining how the organization will successfully engage customers, prospects, and competitors in the market arena. Corporate strategies, corporate missions, and corporate goals. As the customer constitutes the source of a company's revenue, marketing strategy is closely linked with sales. A key component of marketing strategy is often to keep marketing in line with a company's overarching mission statement.

Basic theory:

1. Target Audience 2. Proposition/Key Element 3. Implementation

Tactics and actions

A marketing strategy can serve as the foundation of a marketing plan. A marketing plan contains a set of specific actions required to successfully implement a marketing strategy. For example: "Use a low cost product to attract consumers. Once our organization, via

our low cost product, has established a relationship with consumers, our organization will sell additional, higher-margin products and services that enhance the consumer's interaction with the low-cost product or service."

A strategy consists of a well thought out series of tactics to make a marketing plan more effective. Marketing strategies serve as the fundamental underpinning of marketing plans designed to fill market needs and reach marketing objectives. Plans and objectives are generally tested for measurable results.

A marketing strategy often integrates an organization's marketing goals, policies, and action sequences (tactics) into a cohesive whole. Similarly, the various strands of the strategy , which might include advertising, channel marketing, internet marketing, promotion and public relations can be orchestrated. Many companies cascade a strategy throughout an organization, by creating strategy tactics that then become strategy goals for the next level or group. Each one group is expected to take that strategy goal and develop a set of tactics to achieve that goal. This is why it is important to make each strategy goal measurable.

Marketing strategies are dynamic and interactive. They are partially planned and partially unplanned.

Types of strategies

Marketing strategies may differ depending on the unique situation of the individual business. However there are a number of ways of categorizing some generic strategies. A brief description of the most common categorizing schemes is presented below:

• Strategies based on market dominance - In this scheme, firms are classified based on their market share or dominance of an industry. Typically there are four types of market dominance strategies:

o Leader o Challenger o Follower o Nicher

• Porter generic strategies - strategy on the dimensions of strategic scope and strategic strength. Strategic scope refers to the market penetration while strategic strength refers to the firm’s sustainable competitive advantage. The generic strategy framework (porter 1984) comprises two alternatives each with two alternative scopes. These are Differentiation and low-cost leadership each with a dimension of Focus-broad or narrow.

o Product differentiation (broad) o Cost leadership (broad) o Market segmentation (narrow)

• Innovation strategies - This deals with the firm's rate of the new product development and business model innovation. It asks whether the company is on the cutting edge of technology and business innovation. There are three types:

o Pioneers o Close followers o Late followers

• Growth strategies - In this scheme we ask the question, “How should the firm grow?”. There are a number of different ways of answering that question, but the most common gives four answers:

o Horizontal integration o Vertical integration o Diversification o Intensification

A more detailed scheme uses the categories:

• Prospector • Analyzer • Defender • Reactor • Marketing warfare strategies - This scheme draws parallels between marketing

strategies and military strategies.

Strategic models

Marketing participants often employ strategic models and tools to analyze marketing decisions. When beginning a strategic analysis, the 3Cs can be employed to get a broad understanding of the strategic environment. An Ansoff Matrix is also often used to convey an organization's strategic positioning of their marketing mix. The 4Ps can then be utilized to form a marketing plan to pursue a defined strategy.

There are many companies especially those in the Consumer Package Goods (CPG) market that adopt the theory of running their business centered around Consumer, Shopper & Retailer needs. Their Marketing departments spend quality time looking for "Growth Opportunities" in their categories by identifying relevant insights (both mindsets and behaviors) on their target Consumers, Shoppers and retail partners. These Growth Opportunities emerge from changes in market trends, segment dynamics changing and also internal brand or operational business challenges.The Marketing team can then prioritize these Growth Opportunities and begin to develop strategies to exploit the opportunities that could include new or adapted products, services as well as changes to the 7Ps.

Real-life marketing

Real-life marketing primarily revolves around the application of a great deal of common-sense; dealing with a limited number of factors, in an environment of imperfect information and limited resources complicated by uncertainty and tight timescales. Use of classical marketing techniques, in these circumstances, is inevitably partial and uneven.

Thus, for example, many new products will emerge from irrational processes and the rational development process may be used (if at all) to screen out the worst non-runners. The design of the advertising, and the packaging, will be the output of the creative minds employed; which management will then screen, often by 'gut-reaction', to ensure that it is reasonable.

For most of their time, marketing managers use intuition and experience to analyze and handle the complex, and unique, situations being faced; without easy reference to theory. This will often be 'flying by the seat of the pants', or 'gut-reaction'; where the overall strategy, coupled with the knowledge of the customer which has been absorbed almost by a process of osmosis, will determine the quality of the marketing employed. This, almost instinctive management, is what is sometimes called 'coarse marketing'; to distinguish it from the refined, aesthetically pleasing, form favored by the theorists.

Porter generic strategies Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency).

He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.

Porter's Generic Strategies

In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.

Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy.

Porter suggested combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy was seen as an effective way of matching a firm’s product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation were seen as hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation.

Since that time, empirical research has indicated companies pursuing both differentiation and low-cost strategies may be more successful than companies pursuing only one strategy.

Some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price.

Cost Leadership Strategy

This strategy involves the firm winning market share by appealing to cost-conscious or price-sensitive customers. This is achieved by having the lowest prices in the target market segment, or at least the lowest price to value ratio (price compared to what customers receive). To succeed at offering the lowest price while still achieving profitability and a high return on investment, the firm must be able to operate at a lower cost than its rivals. There are three main ways to achieve this.

The first approach is achieving a high asset turnover. In service industries, this may mean for example a restaurant that turns tables around very quickly, or an airline that turns around flights very fast. In manufacturing, it will involve production of high volumes of output. These approaches mean fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit cost, i.e the firm hopes to take advantage of economies of scale and experience curve effects. For industrial firms, mass production becomes both a strategy and an end in itself. Higher levels of output both require and result in high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the firms low costs and prices.

The second dimension is achieving low direct and indirect operating costs. This is achieved by offering high volumes of standardized products, offering basic no-frills products and limiting customization and personalization of service. Production costs are kept low by using fewer components, using standard components, and limiting the number of models produced to ensure larger production runs. Overheads are kept low by paying low wages, locating premises in low rent areas, establishing a cost-conscious culture, etc. Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. This will include outsourcing, controlling production costs, increasing asset capacity utilization, and minimizing other costs including distribution, R&D and advertising. The associated distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features.

The third dimension is control over the supply/procurement chain to ensure low costs. This could be achieved by bulk buying to enjoy quantity discounts, squeezing suppliers on price, instituting competitive bidding for contracts, working with vendors to keep inventories low using methods such as Just-in-Time purchasing or Vendor-Managed Inventory. Wal-Mart is famous for squeezing its suppliers to ensure low prices for its goods. Dell Computer initially achieved market share by keeping inventories low and only building computers to order. Other procurement advantages could come from preferential access to raw materials, or backward integration.

Some writers posit that cost leadership strategies are only viable for large firms with the opportunity to enjoy economies of scale and large production volumes. However, this takes a limited industrial view of strategy. Small businesses can also be cost leaders if they enjoy any advantages conducive to low costs. For example, a local restaurant in a low rent location can attract price-sensitive customers if it offers a limited menu, rapid table turnover and employs staff on minimum wage. Innovation of products or processes may also enable a startup or small company to offer a cheaper product or service where incumbents' costs and prices have become too high. An example is the success of low-cost budget airlines who despite having fewer planes than the major airlines, were able to achieve market share growth by offering cheap, no-frills services at prices much cheaper than those of the larger incumbents.

A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-sensitive customers will switch once a lower-priced substitute is available. A reputation as a cost leader may also result in a reputation for low quality, which may make it difficult for a firm to rebrand itself or its products if it chooses to shift to a differentiation strategy in future.

Differentiation Strategy

Differentiattiate their products in some way in order to compete successfully. Examples of the successful use of a differentiation strategy are Hero Honda, Asian Paints, HLL, Nike athletic shoes, Perstorp BioProducts, Apple Computer, and Mercedes-Benz automobiles.

A differentiation strategy is appropriate where the target customer segment is not price-sensitive, the market is competitive or saturated, customers have very specific needs which are possibly under-served, and the firm has unique resources and capabilities which enable it to satisfy these needs in ways that are difficult to copy. These could include patents or other Intellectual Property (IP), unique technical expertise (e.g. Apple's design skills or Pixar's animation prowess), talented personnel (e.g. a sports team's star players or a brokerage firm's star traders), or innovative processes. Successful brand management also results in perceived uniqueness even when the physical product is the same as competitors. This way, Chiquita was able to brand bananas, Starbucks could brand coffee, and Nike could brand sneakers. Fashion brands rely heavily on this form of image differentiation.

Some research does suggest that a differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier. A low-cost strategy is more likely, however, to generate increases in market share. This however, may result from a limited understanding of 'profits'. Differentiation strategies are indeed likely to result in higher gross and net profit margins due to the pricing power created by perceived uniqueness and high customer satisfaction. However, these higher prices will also likely result in lower sales volumes and lower asset turnovers. As such, the effects on Returns on Capital are likely to be neutral. As illustrated in the Dupont ratio therefore, a firm can achieve high profitability and Returns

on Capital by being either a successful differentiator (with high margins and low volumes) or a successful cost leader (with low margins and high volumes). One strategy is not necessarily more profitable than the other.

Variants on the Differentiation Strategy

The shareholder value model holds that the timing of the use of specialized knowledge can create a differentiation advantage as long as the knowledge remains unique . This model suggests that customers buy products or services from an organization to have access to its unique knowledge. The advantage is static, rather than dynamic, because the purchase is a one-time event.

The unlimited resources model utilizes a large base of resources that allows an organization to outlast competitors by practicing a differentiation strategy. An organization with greater resources can manage risk and sustain profits more easily than one with fewer resources. This deep-pocket strategy provides a short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its competitive position over time.

Focus or Strategic Scope

This dimension is not a separate strategy per se, but describes the scope over which the company should compete based on cost leadership or differentiation. The firm can choose to compete in the mass market (like Wal-Mart) with a broad scope, or in a defined, focused market segment with a narrow scope. In either case, the basis of competition will still be either cost leadership or differentiation.

In adopting a narrow focus, the company ideally focuses on a few target markets (also called a segmentation strategy or niche strategy). These should be distinct groups with specialized needs. The choice of offering low prices or differentiated products/services should depend on the needs of the selected segment and the resources and capabilities of the firm. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. It is most suitable for relatively small firms but can be used by any company. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.

Examples of firm using a focus strategy include Southwest Airlines, which provides short-haul point-to-point flights in contrast to the hub-and-spoke model of mainstream carriers, and Family Dollar.

In adopting a broad focus scope, the principle is the same: the firm must ascertain the needs and wants of the mass market, and compete either on price (low cost) or differentiation (quality, brand and customization) depending on its resources and

capabilities. Wal Mart has a broad scope and adopts a cost leadership strategy in the mass market. Pixar also targets the mass market with its movies, but adopts a differentiation strategy, using its unique capabilities in story-telling and animation to produce signature animated movies that are hard to copy, and for which customers are willing to pay to see and own. Apple also targets the mass market with its iPhone and iPod products, but combines this broad scope with a differentiation strategy based on design, branding and user experience that enables it to charge a price premium due to the perceived unavailability of close substitutes.

Recent developments

Michael Treacy and Fred Wiersema (1993) have modified Porter's three strategies to describe three basic "value disciplines" that can create customer value and provide a competitive advantage. They are operational excellence, product leadership, and customer intimacy.

Criticisms of generic strategies

Several commentators have questioned the use of generic strategies claiming they lack specificity, lack flexibility, and are limiting.

In particular, Miller (1992) questions the notion of being "caught in the middle". He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the ones that can resolve what they call "the dilemma of opposites".

A popular post-Porter model was presented by W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business Review article "Creating New Market Space". In this article they described a "value innovation" model in which companies must look outside their present paradigms to find new value propositions. Their approach fundamentally goes against Porter's concept that a firm must focus either on cost leadership or on differentiation. They later went on to publish their ideas in the book Blue Ocean Strategy.

An up-to-date critique of generic strategies and their limitations, including Porter, appears in Bowman, C. (2008) Generic strategies: a substitute for thinking?

Chapter- 6

Marketing Warfare Strategies

Marketing warfare strategies are a type of strategies, used in business and marketing, that try to draw parallels between business and warfare, and then apply the principles of military strategy to business situations, with competing firms considered as analogous to sides in a military conflict, and market share considered as analogous to the territory which is being fought over. It is argued that, in mature, low-growth markets, and when real GDP growth is negative or low, business operates as a zero-sum game. One person’s gain is possible only at another person’s expense. Success depends on battling competitors for market share.

The use of marketing warfare strategies

Strategy is the organized deployment of resources to achieve specific objectives, something that business and warfare have in common. In the 1980s business strategists realized that there was a vast knowledge base stretching back thousands of years that they had barely examined. They turned to military strategy for guidance. Military strategy books like The Art of War by Sun Tzu, On War by von Clausewitz, and The Little Red Book by Mao Zedong became business classics.

From Sun Tzu they learned the tactical side of military strategy and specific tactical proscriptions. In regard to what business strategists call "first-mover advantage", Sun Tzu said: "Generally, he who occupies the field of battle first and awaits an enemy is at ease, he who comes later to the scene and rushes into the fight is weary." From Von Clausewitz they learned the dynamic and unpredictable nature of military strategy. Clausewitz felt that in a situation of chaos and confusion, strategy should be based on flexible principles. Strategy comes not from formula or rules of engagement, but from adapting to what he called "friction" (minute by minute events). From Mao Zedong they learned the principles of guerrilla warfare.

The first major proponents of marketing warfare theories was Philip Kotler and J. B. Quinn. In an early description of business military strategy, Quinn claims that an effective strategy: "first probes and withdraws to determine opponents' strengths, forces opponents to stretch their commitments, then concentrates resources, attacks a clear

exposure, overwhelms a selected market segment, builds a bridgehead in that market, and then regroups and expands from that base to dominate a wider field."

The main marketing warfare books were:

• Business War Games by Barrie James, 1984 • Marketing Warfare by Al Ries and Jack Trout, 1986 • Leadership Secrets of Attila the Hun by Wess Roberts, 1987

By the turn of the century marketing warfare strategies had gone out of favour. It was felt that they were limiting. There were many situations in which non-confrontational approaches were more appropriate. The Strategy of the Dolphin was developed in the mid 1990s to give guidance as to when to use aggressive strategies and when to use passive strategies. Today most business strategists stress that considerable synergies and competitive advantage can be gained from collaboration, partnering, and co-operation. They stress not how to divide up the market, but how to grow the market. Such are the vicissitudes of business theories.

Marketing Warfare Strategies

• Offensive marketing warfare strategies - are used to secure competitive advantages; market leaders, runner-ups or struggling competitors are usually attacked

• Defensive marketing warfare strategies - are used to defend competitive advantages; lessen risk of being attacked, decrease effects of attacks, strengthen position

• Flanking marketing warfare strategies - Operate in areas of little importance to the competitor.

• Guerrilla marketing warfare strategies - Attack, retreat, hide, then do it again, and again, until the competitor moves on to other markets.

• Deterrence Strategies - Deterrence is a battle won in the minds of the enemy. You convince the competitor that it would be prudent to keep out of your markets.

• Pre-emptive strike - Attack before you are attacked. • Frontal Attack - A direct head-on confrontation. • Flanking Attack - Attack the competitor’s flank. • Sequential Strategies - A strategy that consists of a series of sub-strategies that

must all be successfully carried out in the right order. • Alliance Strategies - The use of alliances and partnerships to build strength and

stabilize situations. • Position Defense - The erection of fortifications. • Mobile defense - Constantly changing positions. • Encirclement strategy - Envelop the opponents position. • Cumulative strategies - A collection of seemingly random operations that, when

complete, obtain your objective. • Counter-offensive - When you are under attack, launch a counter-offensive at the

attacker’s weak point.

• Strategic withdrawal - Retreat and regroup so you can live to fight another day. • Flank positioning - Strengthen your flank. • Leapfrog strategy - Avoid confrontation by bypassing enemy or competitive

forces.

Companies typically use many strategies concurrently, some defensive, some offensive, and always some deterrents. According to the business literature of the period, offensive strategies were more important that defensive one. Defensive strategies were used when needed, but an offensive strategy was requisite. Only by offensive strategies, were market gains made. Defensive strategies could at best keep you from falling too far behind.

The marketing warfare literature also examined leadership and motivation, intelligence gathering, types of marketing weapons, logistics, and communications.

Learning from Napoleon

To understand how business strategists used military strategies, we can look at the innovations of Napoleon and apply them to business situations. Napoleon made four key innovations. They were 1) increase his army’s marching rate, 2) organize the army into self contained units, 3) live off the country, and 4) attack the opponent’s lines of supply. All four provide lessons for business strategists:

1) By increasing the speed that the army marched and fought, they created a military advantage. They could implement their tactics faster than the enemy. Hitler used the same strategy with his Blitzkrieg. The enemy was overrun before they were able to organize a viable resistance. But once these innovations were used, other armies made adjustments and the nature of warfare changed. All armies had to increase their pace of operations to be effective. Businesses, like armies must operate at a faster pace than their competitors in order to have a competitive advantage. They must develop and introduce products faster, implement strategies faster, and respond to environmental factors faster. They must be proactive.

2) Napoleon returned to the cohort organization of the Greek phalanx. These were self contained fighting units of citizens that knew each other in daily life, and had a wide variety of skills and various skill levels. Under the Roman Empire the phalanx was replaced by specialized legions containing 100 fighters (centurion). Each legion had a specialized skill (such as the archer legions from Thrace). For more than 100 years, businesses have taken Adam Smith’s advice and organized by functional specialization, just like the Roman legions did. Accountants populated the finance department and technicians populated the operations department. According to Adam Smith this is the most efficient way of organizing. But as the speed of business increases we need a more flexible system. We use cross functional teams (like the Greek phalanx) that have enough breadth of knowledge to see the big picture, are objective enough to get accurate and unbiased perceptions of environmental factors, and are flexible enough to act quickly.

3) Napoleon’s armies lived off the country instead of bringing supplies with them. This allowed them to march faster. The disadvantage is that stealing from the local population created resentment. But this was a longer term problem. It could be dealt with when the time came. The short term advantage outweighed the long term disadvantage. In business we no longer stock inventory based on an EOQ model. We use a Just In Time model and this reduces costs considerably. However it makes us vulnerable to our supply channel partners. Just as Napoleon had to manage the local people that supplied him his provisions, businesses today have found supply chain management to be a critically important part of doing business.

4) Striking at the opponents lines of supply is known as a flanking strategy. It is effective because it eliminates the need to fight the enemy head-on. An attack on a poorly defended supply line can render the whole enemy army unable to fight. In business today we attempt to do this with exclusivity agreements with suppliers (if you sell Pepsi, you can’t sell Coke). If Pepsi has an exclusivity agreement with Pizza Hut, Coke will effectively be eliminated from that part of the market.

Offensive Marketing Warfare Strategies In marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. Offensive marketing warfare strategies are a type of marketing warfare strategy designed to obtain an objective, usually market share, from a target competitor. In addition to market share, an offensive strategy could be designed to obtain key customers, high margin market segments, or high loyalty market segments.

Fundamental Principles

There are four fundamental principles involved:

1. Assess the strength of the target competitor. Consider the amount of support that the target might muster from allies. Choose only one target at a time.

2. Find a weakness in the target’s position. Attack at this point. Consider how long it will take for the target to realign their resources so as to reinforce this weak spot.

3. Launch the attack on as narrow a front as possible. Whereas a defender must defend all their borders, an attacker has the advantage of being able to concentrate their forces at one place.

4. Launch the attack quickly. The element of surprise is worth more than a thousand tanks.

Types of offensive strategies

The main types of offensive marketing warfare strategies are:

• Frontal Attack - This is a direct head-on assault. It usually involves marshaling all your resources including a substantial financial commitment. All parts of your company must be geared up for the assault from marketing to production. It usually involves intensive advertising assaults and often entails developing a new product that is able to attack the target competitors’ line where it is strong. It often involves an attempt to “liberate” a sizable portion of the target’s customer base. In actuality, frontal attacks are rare. There are two reasons for this. Firstly, they are expensive. Many valuable resources will be used and lost in the assault. Secondly, frontal attacks are often unsuccessful. If defenders are able to re-deploy their resources in time, the attacker’s strategic advantage is lost. You will be confronting strength rather than weakness. Also, there are many examples (in both business and warfare) of a dedicated defender being able to hold-off a larger attacker. The strategy is suitable when

o the market is relatively homogeneous o brand equity is low o customer loyalty is low o products are poorly differentiated o the target competitor has relatively limited resources o the attacker has relatively strong resources

• Envelopment Strategy (also called encirclement strategy) - This is a much broader but subtle offensive strategy. It involves encircling the target competitor. This can be done in two ways. You could introduce a range of products that are similar to the target product. Each product will liberate some market share from the target competitor’s product, leaving it weakened, demoralized, and in a state of siege. If it is done stealthily, a full scale confrontation can be avoided. Alternatively, the encirclement can be based on market niches rather than products. The attacker expands the market niches that surround and encroach on the target competitor’s market. This encroachment liberates market share from the target. The envelopment strategy is suitable when:

o the market is loosely segmented o some segments are relatively free of well endowed competitors o the attacker has strong product development resources o the attacker has enough resources to operate in multiple segments

simultaneously o the attacker has a decentralized organizational structure

• Leapfrog strategy -This strategy involves bypassing the enemy’s forces altogether. In the business arena, this involves either developing new technologies, or creating new business models. This is a revolutionary strategy that re-writes the rules of the game. The introduction of compact disc technology bypassed the established magnetic tape based defenders. The attackers won the war without a single costly battle. This strategy is very effective when it can be realized.

• Flanking attack - This strategy is designed to pressure the flank of the enemy line so the flank turns inward. You make gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force.

Defensive Marketing Warfare Strategies In marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. Defensive marketing warfare strategies are a type of marketing warfare strategy designed to protect a company's market share, profitability, product positioning, or mind share.

Fundamental principles

There are five fundamental principles involved:

1. Always counter an attack with equal or greater force. 2. Defend every important market. 3. Be forever vigilant in scanning for potential attackers. Assess the strength of the

competitor. Consider the amount of support that the attacker might muster from allies.

4. The best defense is to attack yourself. Attack your weak spots and rebuild yourself anew.

5. Defensive strategies should be the exclusive domain of the market leader.

Types of defensive strategies

The main types of defensive marketing warfare strategies are:

• Position defense - This involves the defense of a fortified position. This tends to be a weak defense because you become a “sitting duck”. It can lead to a siege situation in which time is on the side of the attacker, that is, as time goes by the defender gets weaker, while the attacker gets stronger. In a business context, this involves setting up fortifications such as barriers to market entry around a product, brand, product line, market, or market segment. This could include increasing brand equity, customer satisfaction, customer loyalty, or repeat purchase rate. It could also include exclusive distribution contracts, patent protection, market monopoly, or government protected monopoly status. It is best used in homogeneous markets where the defender has dominant market position and potential attackers have very limited resources.

• Mobile defense - This involves constantly shifting resources and developing new strategies and tactics. A mobile defense is intended to create a moving target that is hard to successfully attack, while simultaneously, equipping the defender with a flexible response mechanism should an attack occur. In business this would entail introducing new products, introducing replacement products, modifying existing products, changing market segments, changing target markets, repositioning products, or changing promotional focus. This defense requires a very flexible organization with strong marketing, entrepreneurial, product development, and marketing research skills.

• Flank position - This involves the re-deployment of your resources to deter a flanking attack. You protect against potential loss of market share in a segment, by strengthening your competitive position in this segment with new products and other tactics.

• Counter offensive - This involves countering an attack with an offense of your own. If you are attacked, retaliate with an attack on the aggressor’s weakest point.

Flanking Marketing Warfare Strategies In marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military metaphor to craft a businesses strategy. Flanking marketing warfare strategies are a type of marketing warfare strategy designed to minimize confrontational losses.

Fundamental principles

The fundamental principles involved are:

1. Avoid areas of likely confrontation. A flanking move always occurs in an uncontested area.

2. Make your move quickly and stealthfully. The element of surprise is worth more than a thousand tanks.

3. Make moves that the target will not find threatening enough to respond decisively to.

Types of flanking strategies

Flanking strategies can be either offensive or defensive:

• Flanking Attack (offensive) - This is designed to pressure the flank of the enemy line so the flank turns inward. You make gains while the enemy line is in chaos. In doing so, you avoid a head-on confrontation with the main force. The disadvantage with a flanking attack is that it can draw resources away from your center defense, making you vulnerable to a head-on attack. In business terms, a flanking attack involves competing in a market segment that the target does not consider mission critical. The target competitor will not be as concerned about your activities if they occur in market niches that it considers peripheral. It usually involves subtle advertising campaigns and other discrete promotional measures, like personal selling and public relations. It often entails customizing a product for that particular niche. Rather than finding uncontested market niches, the attacker could also look for uncontested geographical areas. The strategy is suitable when:

o the market is segmented

o there are some segments that are not well served by the existing competitors

o the target competitor has relatively strong resources and is well able to withstand a head-on attack

o the attacker has moderately strong resources, enough to successfully defend several niches

• Flanking Position (defensive) - This involves the re-deployment of your resources to deter a flanking attack. You strengthen your flank if you think it is vulnerable. The disadvantage of this defense is that it can distract you from your primary objective and siphon resources away from where they are needed most. In business terms, this involves the introduction of new products, product lines, or brands, the defensive re-positioning of existing products, or additional promotional activity in a market niche. It requires market segmentation and/or product differentiation. You protect against potential loss of market share in a segment by strengthening your competitive position there.

Guerrilla Marketing Warfare Strategies In marketing and strategic management, marketing warfare strategies are a type of marketing strategy that uses military strategy to form a marketing and advertising campaign. Advertising guerrilla techniques, undoubtedly successful in practical applications, are still new and fresh and not as explicitly explored academically as other marketing methods, a more tacit approach is used in the gathering of competitor information to use tactics to undermine a competitors legitimacy and increase the exposure and sales of the offensive organisation. Jay Conrad Levinson wrote 'Guerrilla Marketing' on aggressive marketing tactics in 1984. The 6th century BC, 13 chapter book Sun Tzu’s 'Art of War' which may have been used by Napoleon, remains relevant and has been accredited with being valuable to both army generals and strategic business directors alike over 25 centuries later.

Method and execution

Aggressive marketing techniques are used more covertly by large organisations to improve advertising impact and reduce the likelihood of competitors’ retaliation. Sponsoring the Indian cricket team failed for Nike, as Reebok managed to put branded stickers on their bats, at far less cost but for a much greater return. Third party market research companies are often used to gather corporate information and guerrilla advertising agencies are contracted to market products in aggressive media, and companies are used to improve the impact of an aggressive marketing strategy and target consumers directly while not directly being responsible for the aggressive marketing execution.

Guerrilla Marketing Warfare Tactics are often the best, most cost effective methods to reach consumers. Often Guerrilla tactics are used against a company by advertising to their competitors’ customers directly for the most impact.

Successful aggressive marketing

The docile nature of a business may require substantial change management and as such only a highly aggressive method will succeed. Škoda Auto, a well known car manufacturer, nearly changed its name in 1997, instead it kept its £350m UK sales and followed an aggressive marketing campaign to change its perceived image during the 1990s and early into the 21st century, to great success doubling its car sales in 11 years, 1997 336,000 sold, 2008 saw 674,000 vehicles sold. Specialist media companies offering directed advertising using guerrilla tactics are often used in this way by large companies for corporate ambiguity and by small companies to benefit from their field expertise and market knowledge.

Retaliation

If an expert agency is not used bad press can be generated from aggressive marketing, Large companies are not exempt from such press, The BBC has been in trouble for advertising to children directly. The media attention generated from this aggressive technique, arguably is more valuable to the BBC than the original technique of advertising directly to children with very little disposable income.

Chapter- 7

Strategic Planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats), PEST analysis (Political, Economic, Social, and Technological), STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors), and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).

Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions:

1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?"

In business strategic planning, some authors phrase the third question as "How can we beat or avoid competition?". (Bradford and Duncan, page 1). But this approach is more about defeating competitors than about excelling.

In many organizations, this is viewed as a process for determining where an organization is going over the next year or - more typically - 3 to 5 years (long term), although some extend their vision to 20 years.

In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan."

It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate.

Etymology

Coined in English 1825, the word strategic is of military origin, from the Greek "στρατηγικός" (strategikos), "of or for a general", from "στρατηγός" (strategos), "leader or commander of an army, general", a compound of "στρατός" (stratos), "army, host" + "ἀγός" (agos), "leader, chief", in turn from "ἄγω" (ago), "to lead".

Vision statements, Mission statements and values

Vision: Defines the desired or intended future state of an organization or enterprise in terms of its fundamental objective and/or strategic direction. Vision is a long term view, sometimes describing how the organization would like the world in which it operates to be. For example a charity working with the poor might have a vision statement which read "A world without poverty"

Mission: Defines the fundamental purpose of an organization or an enterprise, succinctly describing why it exists and what it does to achieve its Vision.

It is sometimes used to set out a 'picture' of the organization in the future. A mission statement provides details of what is done and answers the question: "What do we do?" For example, the charity might provide "job training for the homeless and unemployed"

Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities and provide a framework in which decisions are made. For example, "Knowledge and skills are the keys to success" or "give a man bread and feed him for a day, but teach him to farm and feed him for life". These example values may set the priorities of self sufficiency over shelter.

Strategy: Strategy narrowly defined, means "the art of the general" (from Greek stratigos). A combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.

Organizations sometimes summarize goals and objectives into a mission statement and/or a vision statement. Others begin with a vision and mission and use them to formulate goals and objectives.

While the existence of a shared mission is extremely useful, many strategy specialists question the requirement for a written mission statement. However, there are many models of strategic planning that start with mission statements, so it is useful to examine them here.

• A Mission statement tells you the fundamental purpose of the organization. It defines the customer and the critical processes. It informs you of the desired level of performance.

• A Vision statement outlines what the organization wants to be, or how it wants the world in which it operates to be. It concentrates on the future. It is a source of inspiration. It provides clear decision-making criteria.

An advantage of having a statement is that it creates value for those who get exposed to the statement, and those prospects are managers, employees and sometimes even customers. Statements create a sense of direction and opportunity. They both are an essential part of the strategy-making process.

Many people mistake the vision statement for the mission statement, and sometimes one is simply used as a longer term version of the other. The Vision should describe why it is important to achieve the Mission. A Vision statement defines the purpose or broader goal for being in existence or in the business and can remain the same for decades if crafted well. A Mission statement is more specific to what the enterprise can achieve itself. Vision should describe what will be achieved in the wider sphere if the organization and others are successful in achieving their individual missions.

A mission statement can resemble a vision statement in a few companies, but that can be a grave mistake. It can confuse people. The mission statement can galvanize the people to achieve defined objectives, even if they are stretch objectives, provided it can be elucidated in SMART (Specific, Measurable, Achievable, Relevant and Time-bound) terms. A mission statement provides a path to realize the vision in line with its values. These statements have a direct bearing on the bottom line and success of the organization.

Which comes first? The mission statement or the vision statement? That depends. If you have a new start up business, new program or plan to reengineer your current services, then the vision will guide the mission statement and the rest of the strategic plan. If you have an established business where the mission is established, then many times, the mission guides the vision statement and the rest of the strategic plan. Either way, you need to know your fundamental purpose - the mission, your current situation in terms of internal resources and capabilities (strengths and/or weaknesses) and external conditions (opportunities and/or threats), and where you want to go - the vision for the future. It's important that you keep the end or desired result in sight from the start. .

Features of an effective vision statement include:

• Clarity and lack of ambiguity • Vivid and clear picture • Description of a bright future • Memorable and engaging wording • Realistic aspirations • Alignment with organizational values and culture

To become really effective, an organizational vision statement must (the theory states) become assimilated into the organization's culture. Leaders have the responsibility of

communicating the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision, creating short-term objectives compatible with the vision, and encouraging others to craft their own personal vision compatible with the organization's overall vision. In addition, mission statements need to be subjected to an internal assessment and an external assessment. The internal assessment should focus on how members inside the organization interpret their mission statement. The external assessment — which includes all of the businesses stakeholders — is valuable since it offers a different perspective. These discrepancies between these two assessments can give insight on the organization's mission statement effectiveness.

Another approach to defining Vision and Mission is to pose two questions. Firstly, "What aspirations does the organization have for the world in which it operates and has some influence over?", and following on from this, "What can (and/or does) the organization do or contribute to fulfill those aspirations?". The succinct answer to the first question provides the basis of the Vision Statement. The answer to the second question determines the Mission Statement.

Strategic planning outline

The preparatory phase of a business plan relies on planning. The first chapters of a business plan include Analysis of the Current Situation and Marketing Plan Strategy and Objectives.

Analysis of the current situation - past year

• Business trends analysis • Market analysis • Competitive analysis • Market segmentation • Marketing-mix • SWOT analysis • Positioning - analyzing perceptions • Sources of information

Marketing plan strategy & objectives - next year

• Marketing strategy • Desired market segmentation • Desired marketing-mix • TOWS-based objectives as a result of the SWOT • Position & perceptual gaps • Yearly sales forecast

According to Arieu, "there is strategic consistency when the actions of an organisation are consistent with the expectations of management, and these in turn are with the market

and the context" (S.K. Sharman in Human Resource Management: A Strategic Approach to Employment)

Methodologies

There are many approaches to strategic planning but typically a three-step process may be used:

• Situation - evaluate the current situation and how it came about. • Target - define goals and/or objectives (sometimes called ideal state) • Path / Proposal - map a possible route to the goals/objectives

One alternative approach is called Draw-See-Think

• Draw - what is the ideal image or the desired end state? • See - what is today's situation? What is the gap from ideal and why? • Think - what specific actions must be taken to close the gap between today's

situation and the ideal state? • Plan - what resources are required to execute the activities?

An alternative to the Draw-See-Think approach is called See-Think-Draw

• See - what is today's situation? • Think - define goals/objectives • Draw - map a route to achieving the goals/objectives

In other terms strategic planning can be as follows:

• Vision - Define the vision and set a mission statement with hierarchy of goals and objectives

• SWOT - Analysis conducted according to the desired goals • Formulate - Formulate actions and processes to be taken to attain these goals • Implement - Implementation of the agreed upon processes • Control - Monitor and get feedback from implemented processes to fully control

the operation

Situational analysis

When developing strategies, analysis of the organization and its environment as it is at the moment and how it may develop in the future, is important. The analysis has to be executed at an internal level as well as an external level to identify all opportunities and threats of the external environment as well as the strengths and weaknesses of the organizations.

There are several factors to assess in the external situation analysis:

1. Markets (customers) 2. Competition 3. Technology 4. Supplier markets 5. Labor markets 6. The economy 7. The regulatory environment

It is rare to find all seven of these factors having critical importance. It is also uncommon to find that the first two - markets and competition - are not of critical importance. (Bradford "External Situation - What to Consider")

Analysis of the external environment normally focuses on the customer. Management should be visionary in formulating customer strategy, and should do so by thinking about market environment shifts, how these could impact customer sets, and whether those customer sets are the ones the company wishes to serve.

Analysis of the competitive environment is also performed, many times based on the framework suggested by Michael Porter.

Goals, objectives and targets

Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve them.

One of the core goals when drafting a strategic plan is to develop it in a way that is easily translatable into action plans. Most strategic plans address high level initiatives and over-arching goals, but don’t get articulated (translated) into day-to-day projects and tasks that will be required to achieve the plan. Terminology or word choice, as well as the level a plan is written, are both examples of easy ways to fail at translating your strategic plan in a way that makes sense and is executable to others. Often, plans are filled with conceptual terms which don’t tie into day-to-day realities for the staff expected to carry out the plan.

The following terms have been used in strategic planning: desired end states, plans, policies, goals, objectives, strategies, tactics and actions. Definitions vary, overlap and fail to achieve clarity. The most common of these concepts are specific, time bound statements of intended future results and general and continuing statements of intended future results, which most models refer to as either goals or objectives (sometimes interchangeably).

One model of organizing objectives uses hierarchies. The items listed above may be organized in a hierarchy of means and ends and numbered as follows: Top Rank Objective (TRO), Second Rank Objective, Third Rank Objective, etc. From any rank, the

objective in a lower rank answers to the question "How?" and the objective in a higher rank answers to the question "Why?" The exception is the Top Rank Objective (TRO): there is no answer to the "Why?" question. That is how the TRO is defined.

People typically have several goals at the same time. "Goal congruency" refers to how well the goals combine with each other. Does goal A appear compatible with goal B? Do they fit together to form a unified strategy? "Goal hierarchy" consists of the nesting of one or more goals within other goal(s).

One approach recommends having short-term goals, medium-term goals, and long-term goals. In this model, one can expect to attain short-term goals fairly easily: they stand just slightly above one's reach. At the other extreme, long-term goals appear very difficult, almost impossible to attain. Strategic management jargon sometimes refers to "Big Hairy Audacious Goals" (BHAGs) in this context. Using one goal as a stepping-stone to the next involves goal sequencing. A person or group starts by attaining the easy short-term goals, then steps up to the medium-term, then to the long-term goals. Goal sequencing can create a "goal stairway". In an organizational setting, the organization may co-ordinate goals so that they do not conflict with each other. The goals of one part of the organization should mesh compatibly with those of other parts of the organization.

SWOT Analysis SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune 500 companies.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning has been the subject of much research.

• Strengths: characteristics of the business or team that give it an advantage over others in the industry.

• Weaknesses: are characteristics that place the firm at a disadvantage relative to others.

• Opportunities: external chances to make greater sales or profits in the environment.

• Threats: external elements in the environment that could cause trouble for the business.

Identification of SWOTs are essential because subsequent steps in the process of planning for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT attainable a different objective must be selected and the process repeated.

The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying areas for development.

Matching and converting

Another way of utilizing SWOT is matching and converting.

Matching is used to find competitive advantages by matching the strengths to opportunities.

Converting is to apply conversion strategies to convert weaknesses or threats into strengths or opportunities.

An example of conversion strategy is to find new markets.

If the threats or weaknesses cannot be converted a company should try to minimize or avoid them.

Evidence on the use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. J. Scott Armstrong notes that "people who use SWOT might conclude that they have done an adequate job of planning and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate strategies." Findings from Menon et al. (1999) and Hill and Westbrook (1997) have shown that SWOT may harm performance. As an alternative to SWOT, Armstrong describes a 5-step approach alternative that leads to better corporate performance.

Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main categories:

• Internal factors – The strengths and weaknesses internal to the organization.

• External factors – The opportunities and threats presented by the external environment to the organization. - Use a PEST or PESTLE analysis to help identify factors

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that generates no strategies is not important.

Use of SWOT analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and preventive crisis management. SWOT analysis may also be used in creating a recommendation during a viability study/survey.

SWOT - landscape analysis

The SWOT-landscape systematically deploys the relationships between overall objective and underlying SWOT-factors and provides an interactive, query-able 3D landscape.

The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of comparable objects according to findings by Brendan Kitts, Leif Edvinsson and Tord Beding (2000).

Changes in relative performance are continually identified. Projects (or other units of measurements) that could be potential risk or opportunity objects are highlighted.

SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will have highest influence in the context of value in use (for ex. capital value fluctuations).

Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, then that organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business and environmental factors.

• Set objectives – defining what the organization is going to do • Environmental scanning

o Internal appraisals of the organization's SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle

• Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis which will look at environmental factors

• Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organization

• Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change

• Establish critical success factors – the achievement of objectives and strategy implementation

• Preparation of operational, resource, projects plans for strategy implementation

• Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.

Marketing

In many competitor analyses, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product differentiation, degree of vertical integration, historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required to perform accurate marketing analysis. Accordingly, management often conducts market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include:

• Qualitative marketing research, such as focus groups • Quantitative marketing research, such as statistical surveys • Experimental techniques such as test markets • Observational techniques such as ethnographic (on-site) observation • Marketing managers may also design and oversee various environmental

scanning and competitive intelligence processes to help identify trends and inform the company's marketing analysis.

Using SWOT to analyse the market position of a small management consultancy with specialism in HRM.

Strengths Weaknesses Opportunities Threats Reputation in marketplace

Shortage of consultants at operating level rather than partner level

Well established position with a well defined market niche

Large consultancies operating at a minor level

Expertise at partner level in HRM consultancy

Unable to deal with multi-disciplinary assignments because of size or lack of ability

Identified market for consultancy in areas other than HRM

Other small consultancies looking to invade the marketplace

Chapter- 8

Market Analysis and Competitor Analysis

Market Analysis A Market analysis is a documented investigation of a market that is used to inform a firm's planning activities particularly around decisions of inventory, purchase, work force expansion/contraction, facility expansion, purchases of capital equipment, promotional activities, and many other aspects of a company.

Dimensions of market analysis

David A. Aaker outlined the following dimensions of a market analysis:

• Market size (current and future) • Market growth rate • Market profitability • Industry cost structure • Distribution channels • Market trends • Key success factors

The goal of a market analysis is to determine the attractiveness of a market, both now and in the future. Organizations evaluate the future attractiveness of a market by gaining an understanding of evolving opportunities and threats as they relate to that organization's own strengths and weaknesses.

Organizations use the findings to guide the investment decisions they make to advance their success. The findings of a market analysis may motivate an organization to change various aspects of its investment strategy. Affected areas may include inventory levels,a work force expansion/contraction, facility expansion, purchases of capital equipment, and promotional activities.

Elements

Market size

The most common measure of market size is the sum of the revenues of its participants. The following are examples of information sources for determining market size:

• Government data • Trade association data • Financial data from major players • Customer surveys

Market trends

Changes in the market are important because they often are the source of new opportunities and threats. Moreover, they have the potential to dramatically affect the market size.

Examples include changes in economic, social, regulatory, legal, and political conditions and in available technology, price sensitivity, demand for variety, and level of emphasis on service and support.

Market growth rate

A simple means of forecasting the market growth rate is to extrapolate historical data into the future. While this method may provide a first-order estimate, it does not predict important turning points. A better method is to study market trends and sales growth in complementary products. Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data.

Important inflection points in the market growth rate sometimes can be predicted by constructing a product diffusion curve. The shape of the curve can be estimated by studying the characteristics of the adoption rate of a similar product in the past.

Ultimately, many markets mature and decline. Some leading indicators of a market's decline include market saturation, the emergence of substitute products, and/or the absence of growth drivers.

Market segments

Markets are not uniform. Therefore it is also important for investors to identify and evaluate the various segments that make up the total market. This analysis helps organizations determine which areas account for the greatest share of the market's growth and are more susceptible to change. This information, in turn, helps them pinpoint the most promising opportunities within the overall market and guides the choice of specific investments.

Market profitability

While different organizations in a market will have different levels of profitability, they are all similar to different market conditions. Michael Porter devised a useful framework for evaluating the attractiveness of an industry or market. This framework, known as Porter's five forces, identifies five factors that influence the market profitability:

• Buyer power • Supplier power • Barriers to entry • Threat of substitute products • Rivalry among firms in the industry

Industry cost structure

The cost structure is important for identifying key factors for success. To this end, Porter's value chain model is useful for determining where value is added and for isolating the costs.

The cost structure also is helpful for formulating strategies to develop a competitive advantage. For example, in some environments the experience curve effect can be used to develop a cost advantage over competitors.

Distribution channels

Examining the following aspects of the distribution system may help with a market analysis:

• Existing distribution channels - can be described by how direct they are to the customer.

• Trends and emerging channels - new channels can offer the opportunity to develop a competitive advantage.

• Channel power structure - for example, in the case of a product having little brand equity, retailers have negotiating power over manufacturers and can capture more margin.

Success factors

The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives. A few examples of such factors include:

• Access to essential unique resources • Ability to achieve economies of scale • Access to distribution channels • Technological progress

It is important to consider that key success factors may change over time, especially as the product progresses through its life cycle.

Applications

The literature defines several areas in which market analysis is important. These include: sales forecasting, market research, and marketing strategy. Not all managers will need to conduct a market analysis. Nevertheless, it is important for managers that use market analysis data to how analysts derive their conclusions and what techniques they use to do so.

Competitor Analysis Competitor analysis in marketing and strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context through which to identify opportunities and threats. Competitor profiling coalesces all of the relevant sources of competitor analysis into one framework in the support of efficient and effective strategy formulation, implementation, monitoring and adjustment.

Given that competitor analysis is an essential component of corporate strategy, it is argued that most firms do not conduct this type of analysis systematically enough. Instead, many enterprises operate on what is called “informal impressions, conjectures, and intuition gained through the tidbits of information about competitors every manager continually receives.” As a result, traditional environmental scanning places many firms at risk of dangerous competitive blindspots due to a lack of robust competitor analysis.

Competitor array

One common and useful technique is constructing a competitor array. The steps include:

• Define your industry - scope and nature of the industry • Determine who your competitors are • Determine who your customers are and what benefits they expect • Determine what the key success factors are in your industry • Rank the key success factors by giving each one a weighting - The sum of all the

weightings must add up to one. • Rate each competitor on each of the key success factors • Multiply each cell in the matrix by the factor weighting.

This can best be displayed on a two dimensional matrix - competitors along the top and key success factors down the side. An example of a competitor array follows:

Key Industry Success Factors Weighting Competitor

#1 rating

Competitor #1

weighted

Competitor #2 rating

Competitor #2

weighted 1 - Extensive distribution .4 6 2.4 3 1.2

2 - Customer focus .3 4 1.2 5 1.5 3 - Economies of scale .2 3 .6 3 .6 4 - Product innovation .1 7 .7 4 .4 Totals 1.0 20 4.9 15 3.7

In this example competitor #1 is rated higher than competitor #2 on product innovation ability (7 out of 10, compared to 4 out of 10) and distribution networks (6 out of 10), but competitor #2 is rated higher on customer focus (5 out of 10). Overall, competitor #1 is rated slightly higher than competitor #2 (20 out of 40 compared to 15 out of 40). When the success factors are weighted according to their importance, competitor #1 gets a far better rating (4.9 compared to 3.7).

Two additional columns can be added. In one column you can rate your own company on each of the key success factors (try to be objective and honest). In another column you can list benchmarks. They are the ideal standards of comparisons on each of the factors. They reflect the workings of a company using all the industry's best practices.

Competitor profiling

The strategic rationale of competitor profiling is powerfully simple. Superior knowledge of rivals offers a legitimate source of competitive advantage. The raw material of competitive advantage consists of offering superior customer value in the firm’s chosen market. The definitive characteristic of customer value is the adjective, superior. Customer value is defined relative to rival offerings making competitor knowledge an intrinsic component of corporate strategy. Profiling facilitates this strategic objective in three important ways. First, profiling can reveal strategic weaknesses in rivals that the firm may exploit. Second, the proactive stance of competitor profiling will allow the firm to anticipate the strategic response of their rivals to the firm’s planned strategies, the strategies of other competing firms, and changes in the environment. Third, this proactive knowledge will give the firms strategic agility. Offensive strategy can be implemented more quickly in order to exploit opportunities and capitalize on strengths. Similarly, defensive strategy can be employed more deftly in order to counter the threat of rival firms from exploiting the firm’s own weaknesses.

Clearly, those firms practicing systematic and advanced competitor profiling have a significant advantage. As such, a comprehensive profiling capability is rapidly becoming

a core competence required for successful competition. An appropriate analogy is to consider this advantage as akin to having a good idea of the next move that your opponent in a chess match will make. By staying one move ahead, checkmate is one step closer. Indeed, as in chess, a good offense is the best defense in the game of business as well.

A common technique is to create detailed profiles on each of your major competitors. These profiles give an in-depth description of the competitor's background, finances, products, markets, facilities, personnel, and strategies. This involves:

• Background o location of offices, plants, and online presences o history - key personalities, dates, events, and trends o ownership, corporate governance, and organizational structure

• Financials o P-E ratios, dividend policy, and profitability o various financial ratios, liquidity, and cash flow o Profit growth profile; method of growth (organic or acquisitive)

• Products. o products offered, depth and breadth of product line, and product portfolio

balance o new products developed, new product success rate, and R&D strengths o brands, strength of brand portfolio, brand loyalty and brand awareness o patents and licenses o quality control conformance o reverse engineering

• Marketing o segments served, market shares, customer base, growth rate, and customer

loyalty o promotional mix, promotional budgets, advertising themes, ad agency

used, sales force success rate, online promotional strategy o distribution channels used (direct & indirect), exclusivity agreements,

alliances, and geographical coverage o pricing, discounts, and allowances

• Facilities o plant capacity, capacity utilization rate, age of plant, plant efficiency,

capital investment o location, shipping logistics, and product mix by plant

• Personnel o number of employees, key employees, and skill sets o strength of management, and management style o compensation, benefits, and employee morale & retention rates

• Corporate and marketing strategies o objectives, mission statement, growth plans, acquisitions, and divestitures o marketing strategies

Media scanning

Scanning competitor's ads can reveal much about what that competitor believes about marketing and their target market. Changes in a competitor's advertising message can reveal new product offerings, new production processes, a new branding strategy, a new positioning strategy, a new segmentation strategy, line extensions and contractions, problems with previous positions, insights from recent marketing or product research, a new strategic direction, a new source of sustainable competitive advantage, or value migrations within the industry. It might also indicate a new pricing strategy such as penetration, price discrimination, price skimming, product bundling, joint product pricing, discounts, or loss leaders. It may also indicate a new promotion strategy such as push, pull, balanced, short term sales generation, long term image creation, informational, comparative, affective, reminder, new creative objectives, new unique selling proposition, new creative concepts, appeals, tone, and themes, or a new advertising agency. It might also indicate a new distribution strategy, new distribution partners, more extensive distribution, more intensive distribution, a change in geographical focus, or exclusive distribution. Little of this intelligence is definitive: additional information is needed before conclusions should be drawn.

A competitor's media strategy reveals budget allocation, segmentation and targeting strategy, and selectivity and focus. From a tactical perspective, it can also be used to help a manager implement his own media plan. By knowing the competitor's media buy, media selection, frequency, reach, continuity, schedules, and flights, the manager can arrange his own media plan so that they do not coincide.

Other sources of corporate intelligence include trade shows, patent filings, mutual customers, annual reports, and trade associations.

Some firms hire competitor intelligence professionals to obtain this information. The Society of Competitive Intelligence Professionals maintains a listing of individuals who provide these services.

New competitors

In addition to analyzing current competitors, it is necessary to estimate future competitive threats. The most common sources of new competitors are ==

• Companies competing in a related product/market • Companies using related technologies • Companies already targeting your prime market segment but with unrelated

products • Companies from other geographical areas and with similar products • New start-up companies organized by former employees and/or managers of

existing companies

The entrance of new competitors is likely when:

• There are high profit margins in the industry • There is unmet demand (insufficient supply) in the industry • There are no major barriers to entry • There is future growth potential • Competitive rivalry is not intense • Gaining a competitive advantage over existing firms is feasible