Strategy of a New - Business Plan Example

10 June 2008 Business Strategy of a New Business Introduction Normally each corporate has specific goals it is consistently pursuing. These vary between organizations but the table below is a summary of common business goals. Of these three the one of primary importance to commercial businesses would be profitability - the reason why most enterprises exist. The new business will be a delivery company operated in a small geographical area. The services provided will be goods delivery. The highly competitive nature of many markets and the likely future prospect of continued economic turbulence as national and global economic fortunes vary, requires that business managers continue to look for opportunities to improve performance. These success drivers are obvious but it is amazing how many businesses ignore their importance. This is particularly true in difficult markets or economic recession where short term financial constraints lead to cost cutting. Mission, Environmental Scanning and Core Competencies Mission The mission of the new business is to provide high-quality delivery services to wide target audience. The original mission has made it clear that it is in the relatively unexploited sector that the new business sees its clearest opportunity for innovation. The new business sets out to create a range of high-quality services that are distinctive in type. The main goals and strategic objectives are to get and keep a customer. Also, the new delivery company is aimed to achieve competitive advantage and sustainable competitive creating value for their customers, select markets where they can excel and present a moving target to their competitors by continually improving their position. Three of the most important factors are innovation, quality and low cost (Chase and Jacobs 54). Environmental Scanning This technique is intended to capture the key characteristics of the environment in which the business operates. These factors, which may be supportive or constraining to the future development of the organization, provide the backcloth' against which the future strategies and plans must be formulated. In product delivery industry, corporate resources are balanced both internally and externally. Internal balance is achieved by the coordination of all marketing activity and its integration with the other areas of the business. External balance is concerned with the continuous adjustment of a company to its market environments through changes in product, price, package, channels, advertising, and selling. In this sense, marketing forces are viewed by the new venture as shaping the total organization and all the business functions (Drejer 92). Political changes do not have a great impact on this business. A special attention should be paid to economic processes (gas and oil prices) and demographic changes. Changing environments create market opportunities for the delivery company that must be reflected in adaptive corporate action. Resources cannot merely be directed to the cultivation of old markets if competitive positions are to be enhanced (Schien 77). Core Competencies For the new delivery company, core competencies are clear distinctive brand proposition and low cost, exceptional service quality and effective solutions for customers. Strategy theory based on core competencies-or technology, since these two words are not clearly defined as mutually exclusive conceptions-has become an alternative approach to strategy making. The new business deliberately plans a competitive strategy based on excessive inventory levels and long customer lead times (Pittengrew et al 71). Thus, there are some deficiencies in the organizational systems that can be solved only through a process of systems improvement. The applicability of operations strategies mentioned above is obviously greater in processes producing high volumes. The ideas for waste reduction used in conjunction with these systems are generally applicable: setup time reduction, better quality control, flexibility of workers, and flexibility of the production process (Schien 82). The benefit of operations strategies implemented by new business is that they focus attention on the need for accuracy of the inputs -- inventory records, customers' orders, forecasts bills of materials, and yield formulas. The purpose of inventory is to insulate each step of the production process from the other steps and to protect the production process from the suppliers and the customers. Although this protective barrier may make life easier in the short run, it is an obstacle to understanding and improving the systems involved. If an easy method of achieving good production and inventory control existed, it would be like the philosopher's stone -- capable of creating gold from base metal. Unfortunately, there is no quick fix. Certainly, effective production and inventory control cannot be accomplished by simply installing new production scheduling software. What is required, however, is improvement in those systems whose deficiencies give rise to the problems. The new delivery company has gone far beyond the point where the potential reductions in inventory holding cost, as traditionally computed, are used to justify continuing improvement efforts (Pittengrew et al 71). Competitive Priority The development of (competitive advantage is one of the main reasons for every corporation. Pricing and promotion strategies are used as strategies tools in order to respond to the changing environment and customers needs. Taking into account the costs and benefits, it is possible to say that the new delivery company considers the selling price from several points of view. The first is the highest price at which the number of units sold will not be significantly reduced. This pricing strategy results in optimum revenue and the greatest unit profitability. Planning the selling price is a direct responsibility of the marketing channel manager. The aim of the strategy is to meet market demands and potential to grow. The company employs flexible cost-plus pricing. This approach is effective because it results in severe price escalation (Paley 44). To ensure stable market position and stable prices, the company uses an estimated future cost method to establish the future cost for all services. This strategy ensures that the selling price they set enables the company to cover all costs. Competitiveness is derived from external factors-or positional advantage-and internal factors-or resources and assets used. The latter is the effect of the competencies of the firm. Thus, a definition of competitiveness might be: competitiveness is a measure of the ability of the company to deliver. So, the competitive priority of the new business is low cost and high quality of services provided to large target audience. Inventory control will be viewed as a process that makes tradeoffs between high inventory costs and low utilization of capacity. This tradeoff is an important aspect of all scheduling techniques. For example, delivery planning relies on long predetermined lead times between operations. Just-in-Time systems use less-than-capacity scheduling of equipment (in conjunction with worker flexibility. The slack capacity and the ability of the workers to do more than one job serve as a cushion against variation (Johnston 92). Structure and Infrastructure The new company will consist of 11 employees. 8 of them will be drivers and 2 managers and an accountant. Authority will be centralized. Centralization leads to greater rigidity and more formalized central control. Most organizations fuse both. Specialization of task by units results in fragmentation and creates problems in communication and coordination. The greater the degree of specialization, the greater the tendency to concentrate on individual functions while losing sight of overall corporate objectives (Johnston 98). The company will need 4 lorries, 1 computer and a website. The cost of the lorries is $20000 each. The company will have to rent a premise, have the Internet connection and a buy a computer. The initial cost of the business venture is $100000. Systems emphasize the integration and coordination of functions and facilities, the adaptation of organizations to their internal and external environments, the impact of changes in one part of the organization on others, the resources necessary to support the organization system itself, the resources necessary to achieve goals, and the endsmeans relationship. Coordination is one of the organizational activities essential to the marketing mix. The nature, intricacy, and magnitude of the marketing task, especially in conglomerate organizations, complicates the problem. Also, the "spill over" of marketing into other functional areas, the use of marketing specialists, and the necessity of linking independent operating entities such as manufacturers, wholesalers, and retailers in an integrated system, places heavy burdens on coordination (Johnston 43). These burdens are eased by greater use of committees that include people outside marketing, the addition of nonmarketing personnel to marketing staffs, and the establishment of coordinating responsibilities such as research and development, product planning, and market planning. Among marketing conditions that tend to lead to decentralization are the dynamic nature and heterogeneity of markets, the power of consumers in the marketplace, and the rapid communications possible among corporate units. Decentralization of decision making varies among organizations, and some companies now want it close to the marketplace. This affords greater autonomy for brand or product managers and an advisory position for central marketing staffs. In general, line organizations lend themselves to decentralization and staff units to centralization. As greater authority passes down the line closer to markets, decentralization brings a need for marketing specialists at the branch level, thereby creating problems of coordination (Chase and Jacobs 105). Break-Even Analysis This technique of financial analysis is intended to provide an overview of the financial performance of the corporate. The financial ratios can be applied to the business to examine current achievement and trends. They can also be applied to competitors to enable external benchmarks' of performance to be established. This analysis allows business to estimate if it would be profitable to sell this service. There are many potential ratios available but these comprise those that would be regarded as a core set' designed to provide an overall insight into the business and the challenges facing management. They reflect the typical approaches used by corporate management, business analysts and bankers (Chase and Jacobs 105). The level of Net Profit Margin will need to be sufficient to ensure that borrowing can be serviced (interest and repayments of principal), reinvestment can take place for the development of the business and equity shareholders can receive a satisfactory return. The level of Net Profit margin (% will vary considerably between industries - for example Net Margin may vary from as low as say 2-3% in construction to 25-30% with certain. Measures the effectiveness with which the Net Assets invested in the business are used to generate sales income. The trend of achievement should be monitored as well as comparison to other similar businesses. We assume that the new company sells a service for $10 per mile. We assume that the variable cost associated with this service is $5. The fixed cost related to the service is $100 000. The new venture would have deliver products on 100000 miles to remain profitable (Chase and Jacobs 105). Break Even = FC / (SP VC) (where FC is Fixed Cost, SP is selling Price and VC is Variable Cost The risk consideration is that if the business hits a difficult trading period (change in market/exchange rate fluctuation/economic recession etc) repayment of outstanding principal and interest will still be required on the debt (loans, leases, hire purchase etc). The advantage of equity is that in the lean times dividend payments could cease. The higher the relationship of debt to equity the greater the underlying risk in the business (Chase and Jacobs 105). Conclusion Successful operations require recognition and authority at the top decision-making level. The new business must be carefully planned and based not merely on knowledge of internal corporate affairs, but also on knowledge of external environments. Valuable items such as jewels and precious metals can bear these costs more easily than can low-value items such as lumber and coal. Variations in product lines and such features as packaging, color, size, style, and variety place a heavy burden on the distribution system. Now more products have to be handled with lower volume per item and higher costs of storage, inventory, and handling. Transportation and handling costs, distant locations, and time are barriers to the development of markets. Through physical distribution, costs are reduced and time and geographic barriers are hurdled, thereby enabling companies to cultivate additional markets profitably. Works Cited 1. Chase R.B., Jacobs R.F. Operations Management for Competitive Advantage with Student-CD, Hill/Irwin; 10 edn, 2003. 2. Drejer, A. Strategic Management and Core Competencies: Theory and Application. Quorum Books, 2002. 3. Johnston R. Cases in Operations Management, 3rd Edition Pearson Education Limited, 2003 4. Paley, N. The Manager's Guide to Competitive Marketing Strategies. Thorogood, 2006. 5. Pittengrew, A. M., Thomas, H. Whittington, R. Handbook of Strategy and Management. Sage Publications, 2006. 6. Schien, E. H. Organizational Culture and Leadership. Jossey-Bass, 1996. Read More