ROADMAPPING YOUR BUSINESS
Mar 1, 2003 12:00 PM, MARK MAYFIELD
How many people in the systems contracting business actually set aside time on a periodic basis to plan their businesses? Too often people just don't find the time for real business planning, and their long-term prospects and profits may suffer as a result.
Typically, the excuse is lack of time. The industry is predominately made up of small businesses, and more often than not, the business owner wears many hats. It's hard to put a priority on the somewhat “blue sky” process of sitting down to plan where future business will come from when a stack of RFPs is sitting on your desk or you need to go out in the field for an emergency service call. It's only human to respond to the urgent things first while the important tasks wait their turn.
But your company's survival may depend on it. In this publication, we've discussed the rate of change in all aspects of our lives. Besides adapting to change, the other primary reason to engage in strategic planning efforts is to provide a road map for the growth and increasing profitability of your company.
Strategic planning is a management tool that is essential to help your company do a better job. It involves periodic self-inspection of every aspect of your business and the environment in which you operate and includes answers to the questions of what to do, why to do it, and how to do it. It's so simple that it hardly seems worth the effort. Yet neglecting this important aspect of business management could put you out of business.
You could find yourself so wrapped up in the day-to-day rigors of running the business that you fail to notice that demand for your service (or products) is diminishing. Maybe a staff member has developed a new expertise in an area of technology, but you failed to alter your business strategy to incorporate it, which prevented you from implementing a business advantage over your competition. Best case: you miss out on potentially lucrative new business. Worst case: the employee goes to the competition, which now has two advantages on you.
Perhaps your company is the leader in a certain segment of the business (for example, house of worship sound and video systems), and you focus on that segment. That's a viable strategy, but it is possible that the need for growing your business will exceed the market's need for your services.
Michael Porter of the Harvard Business School says there are three generic strategies from which a business must choose (or a combination of them).
The main idea is that your company delivers a product or service at the lowest possible cost. This strategy lets you open a significant and sustainable cost gap over your competition. It often requires trade-offs with a “differentiation” strategy; it's difficult to invest in, for example, R&D if your strategy relies on minimizing costs. However, it can translate into above-average profitability with industry average prices.
The differentiation strategy dictates that you select one or more needs that are valued by the market and plan your business to serve those needs better and in a different way from your competition. As opposed to cost leadership, this strategy may mean selectively adding costs in these areas. Ultimately, successful execution leads to achieving and sustaining superior performance by serving these buyers' needs uniquely. Successful differentiation also leads to premium prices.
Adopting a focus strategy lets you exploit the same fundamental types of competitive advantage achieved through cost leadership and differentiation, but business is limited to a narrow target market segment with perhaps unusual needs. Some call this niche marketing. This is a most common strategy for smaller systems contracting businesses.
Strategic planning provides the fundamental analysis and understanding of your business, which is a necessary prerequisite to selecting your strategy. The most common way to approach the analytical process is the SWOT analysis. This is simply documenting your company's strengths, weaknesses, opportunities, and threats. The process may seem superfluous, but it's worth putting down on paper. Involve as many employees as you can; the different perspectives may reveal a variety of strengths and weaknesses. This type of analysis should be incorporated in your next business plan. It will be especially impressive to your banker when seeking growth funding.
Once you complete the SWOT analysis, your optimal strategy choice should be obvious. Choose the one that makes sense. Failing to do so may mean your business will be self-limiting, and pursuing all three types of generic strategies will most likely lead to a failure to achieve any one of them.
Mark Mayfield is editor of S&VC.