Archive for the ‘General’ Category

The six forces model

The six forces model ( an expansion from the traditional Five forces by Michael Porter) is a strategic business tool used primarily as an industry model which assess the competiveness of a market. It is often used as in strategic management and it can also be used as an alternative to the SWOT model. It’s advantages over the SWOT model is that a bit more specific in it’s areas of analysis drilling down to the main drivers of a market.

As suggested by it’s name it analyzes six areas:

1/ Competition – is their a lot of competition in the market? Are there dominant players?
2/ New entrants – Is it easy for new entrants to enter the market and compete
3/ Buyers – How easy is it for buyers to affect the price, can they work together – how strong is their position
4/ Suppliers – What is the state of the supply base – is it a monopoly – are there many sellers?
5/ Substitutes – how easy can a product or service be substituted?
6/ Complementors – influence of complimentary products and services on the market.

What is the 6 forces model used for?

The primary use of the six forces model is to enable a detailed analysis of an organizations strategic position within the marketplace and calculate the market’s attractiveness with regard to competition and profitability. This assessment is a key step prior to investing resources and deploying strategy as if the market should prove ultra-competitive it may be more prudent to look at obtaining revenues from alternative markets.

The 6 forces model is not a one off activity, markets continually change and any changes in the model requires a re-assessment. As stated the model should form part of a regular strategic planning process and should be reviewed at least annually.

Differences between the 5 forces model and the 6 forces model.

As with all models – Porters original 5 forces model has been criticised for a number of reasons – primarily that elements of the market such as buyers and competitors do not collude. There have been some changes to the 5 forces model and the six forces model expands on the original by assessing complimentary areas of the market.

How to carry out an ABC inventory analysis

One of the key techniques used in supply chain and inventory control is the method of ABC analysis. It’s often seen as the starting point in inventory control and is often used as a key lever on which to base various other inventory tasks such as stock counting, strategic purchasing decisions, storage locations etc.

ABC analysis is an important tool as not all inventory or parts require the same management attention. For example does a $500,000 Engine require the same controls as a bolt which costs $1? By conducting the analysis you can determine which parts require most management attention.

ABC analysis is a categorization system and is often seen as a relation to the Pareto tool in that it is utilizes similar principles to categorize. ABC analysis will typically use three categories, with each category utilizing different management controls for the inventory or part numbers within it. A part’s category is usually determined through calculating the annual consumption value which can be achieved through multiplying the amount of product consumed in a given period (often a year) by it’s price. Once each part has a value they are then grouped.

While you may find different industries utilizing varying “rule sets” for grouping parts – typically the bands will follow close to a 70%, 90%, 100% groups.

70% of the value is represented by the A class items

Between 70% and 90% relates to B class items

C class make up the remaining.

Once you’ve carried out your ABC analysis you’ll generally find that the high cost materials will be categorized as A class items, and the lower value (and higher volume and fast moving parts) will be determined as C class.
As stated once your ABC analysis is complete you’ll want to set your procedures and policies up accordingly. For example

A class parts typically require close monitoring and tight control – they tend to be complex expensive parts and while they will amount to a large costs may probably represent a small percentage of your overall inventory volume (which is where the similarities with Pareto occur).

B class whilst lower grade than A class parts still require more control than consumables and will require some management effort.

C class require the least controls, and will typically make up the largest volume of your stock
ABC analysis is a basic stock management principle that when applied can have direct impact on the policies and procedures that govern your inventory. Take a look at your ERP system – ERP’s will typically contain functionality to both carry out an ABC analysis but also store it as a control mechanism within the system itself.

Bear in mind also that ABC analysis is not a one off exercise and should be considered a periodic process in order to ensure that the controls and efficiencies created are maximized.

Introduction to Negotiation

What is Negotiation? Negotiation happens to you every day, in all types of situations – it’s a common facet of everyday life. In business terms negotiation is seen as a key business tool which can be used in many forms from strategic negotiation with suppliers through to staff disputes. In it’s correct context negotiation is used for resolving conflict –in business it’s used between two parties to agree an often compromised outcome.

Negotiation in a business context

It’s importance in business is that negotiation protects organizational assets – why pay more for something when you don’t have to – have you got the best possible terms of trade? Resources are not a bottomless pit so negotiation has a particularly important part to play as well as protecting an organization commercially.

Why Negotiate

Negotiation is used to bargain, compromise and craft an outcome – it is the general process we use for getting what we want from people who in return want something from us. In the context of a buyer seller relationship – the buyer requires a product and / or services with the seller requiring remunerating. The more complex the purchase (or higher the value) the greater the need for negotiation to protect both organizations financially and commercially.

An appropriate time to negotiate

Businesses negotiate all the time! In purchasing departments where cost down initiatives result in the procurement team |”negotiating better terms” through to staff negotiating periods of absence.

Generally speaking negotiation occurs the most where the stakes justify the time, resources and effort (e.g. financial penalties) to carry it out.

Phases of Negotiation

Negotiation is typified by four phases

• Preparation – understand who you will negotiate with, what you want, the market position and other attributes that will assist in the discussions
• What do they want? – understand the likely “trade” points of the other side – what are the buttons to push to get what you want
• Proposal – what can you trade/concede
• Bargain/Trade – the real negotiation!

What is the Promotional Mix

While many marketing students and executives are familiar with the term marketing mix (often called the 4 P’s and determined as Product, price, place and Promotion) the term promotional mix is less well known but is nonetheless a powerful toolset to facilitate sales and market awareness.

The promotional mix refers to the communication methods used to provide information to your customers and the market. Communication to your customers is vital if you want them to know about you. A failure to communicate about your product could result in low sales and an underperforming organization.

Difference between the promotional mix and the marketing mix.

While similar these two business terms relate to different aspects of marketing. The marketing mix takes a holistic view of your marketing opportunities and methods. The Promotional mix looks at what one of those elements in detail – promotion. Similar to the marketing mix the elements of the Promotions mix can all be used in various degrees.

Like the marketing mix the promotional mix is made up of a number of parts:

Advertising
Personal Selling
Promotions
Public Relations

Advertising

There is a vast array of advertising opportunities from online, newspaper, TV and radio to name but a few. While advertising has become more of an art form over the last 50 years its premise is still the same using a medium to get your message across. Your message could be the launch of a new product, brand awareness, special offers – the key is your communicating about your organization to the market.

Personal Selling

This is direct selling to potential buyers. Examples of personal selling include cold calling or door to door selling through to the example of a cosmetics counter in a department store. All involve building a relationship up with the customer (usually a short one!) and making the sale.

Promotions

As we discussed in our article on Pricing strategies for business promotions can be a vital sales tool – and can in particular be extremely useful in highly competitive markets where price is a determining factor. These promotions could include such things as two for one offers, cost discounts or introductory offers.

First time manager – taking the stress out of managing people

Becoming a manager or team leader can be a daunting experience. For many they’ve reached their position through promotion and can find themselves in their new role without experience and tools and in particular when it comes to managing people they are often ill equipped to cope with the pressures that comes with looking after teams or individuals.

Part of the problem is that many simply don’t know what to expect and what tasks are required of them. This is especially true of smaller companies which may lack formal training and support for promoted individuals. In this article we’ll take a look at the common themes associated with Management.

There are some common tasks associated with management:

1/ Setting goals and objectives

Goal setting refers to setting objectives that are to be met by either and individual or team (or company)– through carrying out their companies processes. These can be both short term and long term objectives. For example – in a manufacturing environment a line manager may set his team an objective of producing a certain volume of widgets per day – there may be certain longer term efficiency targets that are to be met (for example over a given month) there may also be strategic targets that are met over the course of a year – sales targets for example.

Goal setting can be both formal and informal – formal goal setting might take the guise of an appraisal or assessment where structured objectives are laid out usually over a period of 12 months with periodic reviews. Informal goals may be certain tasks that are delegated out during the course of a given period.

2/ Resource management

Where a line manager has functional responsibility for a team they will need to co-ordinate resources to ensure the right mix of skills and resources are available to carry out the task at hand. Commonly this will be managing vacation requests or staff coverage for sickness. There maybe formal processes to follow within the company and it is incumbent on the line manager to execute them appropriately.

They might also be called upon to support recruitment activity and attend candidate interviews – they may be asked to produce skills profiles and review CV’s as part of the recruitment task.

3/ Discipline

One of the less well liked processes associated with line management is the discipline of staff. This can take a number of forms

a) Informal/Ad hoc – where staff performance is below what is required line managers are expected to communicate this to staff and

b) Formal – companies often have processes and procedures to cater for formal disciplinary issues. Formal problems can take a variety of forms – from prolonged periods of under-performance – bullying in the work place – theft etc.

Staff discipline can be a complex and stressful part of management – it requires delicate but assured action and the first time manager may need appropriate and close support from his peers.

4 Communication

Team leaders and managers act as a conduit for information to be passed around the organization. Commonly this could be in the form of regular team meetings, company briefs or one to one communication. This activity should not be underestimated – it’s a vital tool in ensuring that the workforce are aware of the goals and objectives and that senior management are aware of issues or risks affecting the business.

Managers should consider both the periodicity and mechanism for communicating to their teams and act appropriately. Also remember that communication is a two way street and that you should welcome and encourage feedback from your own team.

5 Management Information and reporting

Another common duty for managers is the reporting of departmental or organizational performance. Typically this will be in the guise of a standard and regular report (often a monthly report) which will be in a standard template throughout the company. This will usually include departmental performance, performance against company goals, issues and activities and business risks. You’ll likely need some data analysis to help report on performance and it’s vital that you understand where the numbers come from and what they mean.

New managers need to seek the appropriate training and support to enable them to carry out their new role to the best of their ability – if your going into management – above all don’t be daunted – management brings responsibility and a fair bit of stress but it can also be exceedingly enjoyable and rewarding at the same time.

Leadership Development? Translating Management into Leadership

For many management comes through a promotion, being given a project to run or some other “happy accident” – those that show promise at work through either performance or by having the right attributes (e.g. whether that’s through capability or by just getting seen by playing the politics – working the hours). The important thing is that for many – management comes with little to no “management training” this can have a dramatic effect in the ability for this new breed of management to be either successful or to make the important transition of manager to leader.

But what is management? At its heart management is an organizational function – it can encompass a variety of tasks from managing people to carrying out a set of tasks (e.g. strategic planning). It’s been said that management has two key functions – firstly to deliver profit and second to develop an environment where the business can flourish in the future. Management is seen as a formal influence that sets rules and guidelines on how to work – while management is strategic it’s a primarily a role that focus’s on decision making.

Difference between Leadership and Management

In today’s business – management is not enough – at the heart of most businesses is a culture of change allowing businesses to compensate for an ever changing market – in this environment management is not enough and business rely on leadership to act as a catalyst for reaching business targets and goals

Leadership on the other hand is a little more ephemeral – Leadership is informal – and characterised by persuasion – Leaders set direction and encourage communication to ensure strategy and goals are promulgated through the organization and achieved – but what are the characteristics of leaders? Check out our list below.

Characteristics of leadership

1/ Leaders set clear goals
2/ Relate to the team through the communication of shared experience
3/ Build a team environment
4/ Focus on relationships between stakeholders
5/ Are a catalyst for change
6/ Relish the use of feedback

Benefits of SWOT Analysis as a management reporting tool

As we stated in our article on management reporting methods – ensuring information is promulgated throughout the organization in a clear and concise fashion is extremely important – the use of best practice templates and methods can help facilitate this.

Of all the various models SWOT Analysis, while better known as a strategic tool, is a popular method associated with management reporting, encouraging review of internal and external influences and can be used to evaluate a variety of business activity from projects through to departmental performance.

SWOT is a four box communication method used to evaluate 4 key factors

Strengths

Internal Activity or attributes that are helpful to achieve objectives

Weaknesses

Internal Activity or deliverables that can have a detrimental impact on the objective.

Opportunities

External Activity that could be helpful in meeting targets

Threats

External Influences or activity that could have a detrimental impact on the objective

SWOTS are especially useful as a reporting tool because it helps identify actions that can be taken to achieve a desired state and as such are often used in strategic planning sessions

Weaknesses of SWOT analysis

While SWOTS can be very useful (especially in strategic analysis) they can have their downsides.

SWOTS can be subjective and overly critical (people typically find it easier to come up with weaknesses and threats than strengths and opportunities). And perhaps key – SWOTS do not automatically drive activity and without proper care and attention can be seen as a list building activity. As such SWOT’s should not be used in isolation.

In summary the use of SWOT analysis is widespread it is a common tool that can help in communicating information within an organization – its simple to construct and to understand used in isolation it can be used to share information – combined with an action plan it can be used as a strategic management tool

Management Reporting – using common methods to get your message across.

One of the common tasks within management is regular reporting of performance and issues. Finding the appropriate tool to communicate this is important as sharing data in a clear and concise method ensures performance and progress is understood and can be promulgated easily throughout the organization.

The most common form of business information that is generated is financial – this can take a variety of forms from P&L, Balance Sheet, Cash flow etc – However its important to remember that businesses have other things to communicate other than financial data such as personnel, marketing, customer satisfaction etc

There are a number of common management planning and analysis tools used within business that can be used to share this type of information. These provide a framework for communicating information and are useful in doing this in a standard routine way.

Examples of Management reports and communication methods.

SWOT Analysis Diagram– Identifies Strengths, Weaknesses Opportunities and Threats

SOFT – Simular to the SWOT, – Strengths Opportunities, Failures and Threats

PERT – Task Analysis model used to review Projects

Six Forces Model – Market Opportunities Model

Best Practice Benchmarking – using analytics and process to drive best practice

Benchmarking is a process of comparing your organizations processes and procedures against others – this is carried out to facilitate the flow of best practice into your organization in order for it to improve efficiency and maintain its place in the marketplace.

There are a number of different types of benchmarking this includes

Internal Benchmarking – often deployed in large organizations this form of benchmarking targets areas of the company that are more efficient than others. This helps organizations maintain standards and uniformity across the organization.

Competitive Benchmarking – this form of benchmarking is used for analyzing your performance within the context of your marketplace – by analyzing yourself against your competitors actions can be taken to improve performance and mitigate the risk of non-competitiveness

While Competitive Benchmarking offers, for many, the greater incentive – i.e. keeping up with the market and mitigating competitors – it also offers the most challenges – for example – you can’t just stroll into your competitors and ask to see how they outperform you!

Given this issue – trade organizations have flourished as they offer a way for a market to share best practice in a non-threatening environment ensuring that where best practice is shared – those who are outperforming in the marketplace get a deeper understanding of their competitive advantage. However it goes without saying that competitive benchmarking remains the hardest to get right.

Another form of benchmarking is Strategic Benchmarking – this is slightly different to facilitating best practice into an organization rather it becomes an assessment of an organizations goals, technologies, and business model to identify further opportunities for change.

Whichever method is used where organizations are looking to facilitate change – benchmarking offers a proven approach. Many organizations continue to look at this aspect and use benchmarking as a cost driver – a tool to reduce overhead while many take an opposing view and utilize it to secure their position in the marketplace. Whatever the objective implementing benchmarking makes change inevitable – this shouldn’t be feared – organizations that embrace change are more likely to be those that innovate and create value for both their customer and their organization.

Introduction to Business Aims and Objectives

At its most basic businesses exist to solve the needs of their customers – this is traditionally through the provision of products or services in return for payment which forms the basis of revenue for organizations.

However over and above this rather simple view of why companies exist are corporate aims – these aims define what the business is setting out to achieve over the longer term. Corporate aims will vary from company to company and business sector – for example Boeing’s corporate targets may be similar to Airbus – But Airbus’s goals will not be the same as McDonalds.

Objectives are the desired outcomes of a business derived from the processes it undertakes. For example using again the example of Airbus (which makes passenger jet aircraft) its business objectives are likely to be along the lines of supplying major airlines with aircraft.

Well defined objectives are crucial to businesses, they enable a business to be assessed in how it is performing against its objectives for example an objective of “Business ABC will increase sales dramatically in the coming months” is subjective – it’s open to interpretation – what % do sales need to rise – over what period 3 months, 9 months 3 years?

A common tool when defining objectives is the Acronym SMART

SMART stands for

Specific
• Measurable
• Agreed
• Realistic
• Time specific

Following these rules helps establish objectives that are clearly defined, measurable and have to be achieved within a certain time frame. Structuring objectives this way ensures that business performance can be quantifiably measured against targets.