Posts Tagged ‘strategy’

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.

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.

Strategic Planning – Business Aims and Objectives

At it’s most basic Businesses exist to solve the needs of their customers – this might be through the provision of products or services which in exchange for payment form 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 industrial sector to industrial 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.

Benchmarking strategy

The process of Benchmarking refers to identifying processes, procedures and systems assessing your performance among a peer group, identifying best practice and then incorporating it into your organization.

Benchmarking can be used when undertaking strategic planning as it directly relates to the execution of strategy through processes, systems and policies. Benchmarking can help in the assessment of organizational goals and whether they can be met.

Perhaps crucially through selecting the appropriate peer group benchmarking can directly feed back into organizational planning as key activities and initiatives within the marketplace can be incorporated into goals and targets. This is especially true when the peer group is a trade association or trade group. The challenge here is visibility of performance and methods – and while “Best practice” can be subjective capturing it statistically in a competitive market environment can be difficult.

The actual process for benchmarking isn’t overtly complicated in that it requires a series of steps to be completed and some upfront decision making in what will be assessed.

The key steps are:

1/ Being clear in what you’re benchmarking – backed up with data and metrics
3/ You select the right peer group to benchmark from – you are able to back up best practice with data and choose the right partner(s) to benchmark with
4/ You follow up your benchmarking with an improvement activity to bridge the gap between current status and best practice
5/ You regularly undertake benchmarking to ensure that you keep abreast with your peers.

The key to using benchmarking for strategy is appropriate ties between the benchmarking team and strategic planning – used correctly benchmarking can support strategy assumptions and drive decision making to target improvements and initiatives that will support strategic goals.