Business plan is critical for any organization. At its core, the business plan outlines the opportunities in the marketplace that the company intends to seize and the resources that will be marshaled in order for this to happen. For new and young companies, the business plan is essential in helping to obtain financing, but even for established firms it can help management to understand their business and its characteristics more precisely (Concord Business Development, 2001).
The business plan allows for the efficient and effective communication of the company’s mission and how it intends to achieve that mission. The business plan helps to align priorities and resources such as new employees (Ibid). Ultimately, the business plan is less a document than the process by which that document is created. The value of the business plan derives largely from the research and analysis that contributes to its creation.
The process, then, involves the development of a framework by which the business objectives will be achieved. This includes budgets, timelines and resource allocations. Because the business plan is often used to help obtain bank or venture capital financing, it should also help management to frame the medium-to-long-range development of the business (Cox, 2007). It is not imperative that the details of the plan be met — indeed, they probably will not be — but it is important that management demonstrate that they have considered all aspects of the business and developed a plan that works for the immediate future and that can guide the development of the company down the road.
2. Supply and demand impact organizational performance. The company needs to consider how much demand is in the marketplace already for the product, and from there determine the impact that its operations will have on demand. Is its product and/or marketing sufficiently differentiated as to drive higher demand or will the company simply take market share away from existing industry players?
Once demand is estimated, the firm must get a sense of how it will supply that demand. Organizational performance is driven significantly by the means and costs of procurement, production and logistics. In most industries, a firm is faced with positive elasticity of demand, which means that as the price goes up the potential demand goes down. Therefore, in order to maximize organizational performance, the firm must by able to find a way to provide enough supply to meet demand at a price point that will enable it to not only capture a share of the market demand but also to turn a profit.
Supply and demand considerations can also have a significant short run impact. While over the long run supply, demand and price will trend towards equilibrium, this is not necessarily the case over the short run. As a consequence, the firm can set as its strategy to disrupt the equilibrium in the market in order to build its market share. This could mean overproducing, so as to flood the market with lower-priced good. This could mean reducing production to create scarcity, which for many products (such as fashion or automobiles) can drive demand higher. Short-term disruptions in the supply-demand equilibrium can help a firm to improve its market position, so it is important for management to understand these dynamics in order to build their business and improve organizational performance in the long run, even if the organization’s performance is weaker in the short run.
3. Ethics can be important for the long-term success of a business. In general, any economic system functions at its optimal level when the ethical environment is favorable. Corruption, criminality and nepotism are all negative ethical elements that detract from full market efficiency.
This holds true at the firm level as well. When an organization lowers its ethical standards or controls, the result is often an increase in selfish behavior, which ultimately harms the organization. Such behavior may improve organizational performance in the short run, but over the long run it is almost certain that such behavior will detract from total organizational performance.
It is worth noting that ethics alone will not guarantee success. Firms with high levels of integrity but a lack of business ability will fail regardless. Likewise, firms with poor ethics will not necessarily fail. Many people have become critics of the ethical standards of many industries, yet many such industries (pharmaceuticals, agribusiness, casinos, tobacco companies) remain highly successful.
Since the definition of ethics is always in the eye of the beholder, it is essential that the business frame the issue of ethics in a proprietary manner. Each firm will choose a slightly different version of ethics to which it will adhere, but that choice must reflect the ethical standards of potential investors and potential customers so as to continue to attract both groups. A business with a clearly thought-out, well-defined code of ethics is more likely to have those ethics permeate throughout the organization. If nothing else, the ethical principles will be consistent throughout the organization, such that management and other stakeholders know what to expect from their employees. That, at least, will provide insurance against the likelihood of an Enron-type situation where nobody knew what the ethical standards where and therefore ended up acting in an entirely unethical manner.
4. Sustainable competitive advantage comes from firm-specific characteristics that provide a competitive advantage that other firms in the industry cannot replicate, best or match. In the resource-based view of strategy, there are a handful of ways in which a firm can generate sustainable competitive advantage — patents and trademarks, proprietary know-how, installed customer base, reputation of the firm and brand equity (Quick MBA, 2007). Of these, the latter two can be developed through marketing strategy.
Marketing strategy can be built around promoting the reputation of the firm. The firm’s reputation can be trumpeted in order to gain broader acceptance in the marketplace. Alternatively, the firm’s reputation can be detailed with a marketing strategy that emphasizes awards and customer satisfaction surveys. In either case, the marketing strategy would need to be consistent in its message, and would need to reach potential customers not reachable through the conventional channels.
Marketing strategy can also be built around building brand equity. Brand equity comes from recognition, reputation and recall. The more people are aware of a brand, can recall slogans, understand the products associated with that brand and recognize the reputation that the brand managers have sought to build.
By building a strong reputation and brand equity, a firm can establish a dominant position in the marketplace. For example, no matter how good superior another adhesive bandage might be, consumers will always consider Band-Aid to be the best, giving that brand a sustainable competitive advantage by virtue of reputation and brand equity.
Organizational structure can also be used to create sustainable competitive advantage. This is done by structuring the organization in such a manner as to leverage the organization’s proprietary know-how. No matter which organizational structure is chosen, the linkages it creates give the company a specific hierarchy and flow of information than can be used in order to help the company excel in areas where other firms are weak. For example, the centralized command structure of firms like Wal-Mart and FedEx have allowed them to develop consistent excellence of performance that in turn make them very difficult competitors. This has resulted in both company’s meteoric rise from obscurity in the past thirty years.
The organization can also use organizational structure to derive sustainable competitive advantage through its value chain. If the structure allows for the firm to push products and services through the different stages of development more quickly or more efficiently than can competitors, this advantage can be sustained. The aforementioned Wal-Mart and FedEx derive considerable value through their logistics, which by virtue of having a centralized structure can be tightly managed across a range of geographies and business units. This allows both firms to control costs, one of the most important elements in deriving a sustainable competitive cost advantage, which can be used to either compete based on price, or to derive higher than average margins.
Concord Business Development. (2001). Importance. Concord Business Development. Retrieved December 14, 2009 from http://www.concordbusiness.com/services/business_plans/importance.html
Cox, H. (2007). The importance of a business plan. EZine. Retrieved December 14, 2009 from http://ezinearticles.com/?The-Importance-of-a-Business-Plan&id=834882
No author. (2007). Competitive Advantage. QuickMBA. Retrieved December 14, 2009 from http://www.quickmba.com/strategy/competitive-advantage/
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