Menumbuhkan Jiwa Wirausaha Pada Anak

Persaingan global antar bangsa yang tak mengenal batas antar negara menuntut setiap orang untuk kreatif memunculkan ide-ide baru. Mempersiapkan anak agar mempunyai jiwa wirausaha, agaknya jadi satu hal yang penting dilakukan oleh orangtua. Peran orangtua dan guru Wirausaha diperlukan untuk menumbuhkan rasa penuh tanggung jawab dan penuh kreativitas pada anak. Rasa tanggung jawab dan kreativitas dapat ditumbuhkan sedini mungkin sejak anak mulai berinteraksi dengan orang dewasa. Orangtua adalah pihak yang bertanggung jawab penuh dalam proses ini. Anak harus diajarkan memotivasi diri untuk bekerja keras, diberi kesempatan untuk bertanggung jawab atas apa yang dia lakukan.

Selain itu, peran lingkungan, misal guru-guru, juga berpengaruh terhadap pembentukan pribadi anak. Mereka bisa berperan dalam membuat anak agar bisa menjadi seorang enterpreneur. Untuk itu, guru harus kreatif mengajar dan membuat soal. Berikan kesempatan anak untuk berpikir alternatif. Dengan kreativitas orangtua dan guru, anak dilatih memiliki beberapa alternatif jawaban dan solusi atas masalahnya. Alternatif tersebut akan melatih anak mampu mengambil keputusan yang tepat dari berbagai pilihan yang ada.
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Jiwa wirausaha juga memerlukan motivasi yang bagus, intelegensi yang baik, kreatif, inovatif, dan selalu mencari sesuatu hal baru untuk bisa dikembangkan. Pengembangan kreativitas akan membuat anak mampu menciptakan hal-hal baru. Kreativitas inilah modal dasar untuk menjadi enterpreuner. Modal penting lainnya adalah sikap bertanggungjawab.

Latihan bertahap
Menumbuhan sifat wirausaha pada diri anak memerlukan latihan bertahap. Bentuknya bisa sederhana dan merupakan bagian dari keseharian anak. Misalnya, toilet training untuk melatih anak yang masih ngompol. Tujuan akhirnya agar anak mampu membuang kotoran ditempatnya, membersihkan kotorannya, dan memakai kembali celananya. Latihan itu dilakukan secara bertahap dan mengajarkan anak untuk bertanggungjawab.

Latihan lain, misalnya melatih anak untuk dapat membereskan mainan selesai bermain dan meletakkan mainan di tempatnya. Hal ini juga merupakan latihan untuk bertanggungjawab dan awal pengajaran tentang kepemilikan. Ini mainan saya diletakkan di sini. Ini mainan kakak, kalau mau pinjam, harus ijin dulu. Sifat tersebut adalah awal untuk menumbuhkan jiwa wirausaha pada anak.

Latihan selanjutnya adalah mengajarkan anak untuk mampu mengelola uang dengan baik. Terangkan pada anak, dari mana uang yang dipakai untuk membiayai rumah tangga. Jelaskan bahwa untuk mendapatkan uang tersebut, orangtua harus bekerja keras. Uang hanya boleh dipakai untuk kebutuhan yang benar-benar perlu. Dengan demikian anak akan menjauhi sikap konsumtif.

Dalam mengajarkan anak mengelola uang, latihan yang perlu diajarkan bukan hanya cara membelanjakan, namun juga menabung, sedekah dan mencari uang. Tentu saja cara ini memerlukan konsistensi orangtua terhadap aturan. Misalnya, saat mengajak anak berbelanja. Catat terlebih dahulu kebutuhan yang akan dibeli. Orangtua harus konsisten untuk tidak belanja di luar catatan belanja. Bila anak mengamuk meminta mainan atau barang kebutuhan lain di luar catatan, maka orangtua harus konsisten untuk tidak membelikannya. Aturan itu harus sudah disepakati sejak awal.

Latihan menabung
Setelah anak diajarkan mengelola uang, tahap selanjutnya si anak mulai dapat diajarkan menabung. David Owen, seorang penulis buku di Amerika Serikat, mengisahkan tentang bagaimana ia mampu mendorong anak-anaknya menjadi gemar menabung dan penuh perhitungan dalam membelanjakan uang. Ia membuat “Bank Ayah”, khusus untuk anak-anaknya. Prinsip yang dikembangkan dalam "Bank Ayah" adalah pemberian tanggungjawab dan kontrol keuangan secara penuh pada anak sebagai pengelola uang mereka sendiri. Uang anak adalah milik anak, bukan milik orang tua. Bahkan anak juga bebas mencari pendapatan di luar jatah uang saku yang telah mereka dapatkan.

Dalam hal ini "Bank Ayah" berperan dalam melakukan kontrol secara tidak langsung, yaitu dengan mengembangkan prinsip-prinsip perbankan seperti bonus yang dapat menarik minat akan untuk menambah saldo tabungan, juga saldo minimal, yang dapat membatasi jumlah pengambilan uang agar tidak terkuras habis. Dengan ini anak akan benar-benar bertanggungjawab dan berhati-hati dalam membelanjakan uangnya.

"Bank Ayah" ala David Owen ini tidak cuma menjadi daya tarik anak untuk menabung. Lebih dari itu "Bank Ayah" dikelola sebagai sarana pembelajaran dari praktik ekonomi kepada anak dengan bahasa yang sederhana. Dengan sedikit improvisasi, Owen mengubah "Bank Ayah" ini menjadi media latihan berinvestasi pada anak-anaknya. Owen sendiri berhasil mendirikan sebuah perusahaan pialang saham yang bernama "Dad and”.

Sekilas tentang Business Plan

Apa itu Business Plan?
Rencana bisnis (business plan) adalah rencana kerja sebuah bisnis untuk melihat ke depan dan untuk mempersiapkan diri pada masalah-masalah dan peluang bisnis. Sayangnya, banyak orang berpikir bahwa rencana bisnis hanya untuk memulai usaha baru atau mengajukan pinjaman bisnis. Padahal, rencana bisnis juga penting untuk menjalankan bisnis, untuk menera seberapa besar kebutuhan bisnis, dan untuk keperluan pengajuan pinjaman baru atau investasi baru. Rencana bisnis diperlukan juga untuk mengoptimalkan pertumbuhan dan perkembangan sesuai dengan prioritas bisnis.

Apa itu rencana startup?
Salah satu hal penting dalam rencana bisnis adalah rencana start up. Rencana startup secara sederhana mencakup ringkasan kegiatan bisnis, pernyataan misi, kunci sukses, analisis pasar, dan analisis impas. Rencana semacam ini baik digunakan untuk memutuskan apakah sebuah rencana dilanjutkan atau tidak. Dengan kata lain rencana stratup digunakan untuk mengetahui apakah ada nilai bisnis yang harus dikejar, tetapi dengan rencana startup tidak cukup untuk menjalankan bisnis.

Apakah ada rencana bisnis standar?
Sebuah rencana bisnis yang normal (yang mengikuti nasihat dari para ahli bisnis) mencakup seperangkat elemen standar, seperti yang ditunjukkan di bawah ini. Format rencana bisnis standar memang bervariasi, tetapi umumnya mencakup komponen-komponen sebagai berikut: deskripsi perusahaan, produk atau layanan, prakiraan pasar, tim manajemen, dan analisis keuangan.

Garis besar rencana bisnis standar?
Komponen utama rencana bisnis standar meliputi:
1. Ringkasan Eksekutif: Bagian ini hanya satu atau dua halaman dan biasanya ditulis terakhir.
2. Company Description: Deskripsi perusahaan (company description) memuat landasan hukum pendirian, sejarah, rencana start up, dll
3. Produk atau Layanan: Bagian ini memuat apa saja yang dijual atau ditawarkan. Uraian difokuskan pada manfaat bagi pelanggan.
4. Analisis Pasar: Bagian ini memuat peluang pasar, kebutuhan pelanggan, di mana mereka (pelanggan) berada, bagaimana untuk menjangkau mereka, dll
5. Strategi dan Implementasi: Bagian ini disusun secara spesifik, disertakan tanggung jawab manajemen dengan tanggal dan anggaran.
6. Tim Manajemen: Sertakan latar belakang anggota tim kunci, strategi personil secara detail.
7. Rencana Keuangan: Sertakan laba rugi, arus kas, neraca, analisis impas, asumsi-asumsi, rasio bisnis, dll

Recognizing The Soul of "Entrepreneur" Since The Early

If we are asked by someone when we were little, "what ideals you?". What is our response? Many of us said, want to become doctors, presidents, engineers, pilots, or any other profession. But is there any of us who replied, "want to be a businessman?". Maybe some of us have the answers like that, but there certainly is not much. Because when we were little, become a businessman or an entrepreneur is a choice that "abstract" or options that are not clear among the various options other professions, we do not know, or lack of information about what an entrepreneur was.

Actually to be an entrepreneur we have learned from an early age. We remember when our school, we had been taught about the craft. The lesson of these crafts is one way of indirectly, to foster our entrepreneurial spirit. Because, in these lessons we are taught to create something and not infrequently also we are led to show our work to others. Without us realizing it, when we make these things, we think to create something favored by teachers and / or others. At that time the urge arises or the effort to make other people like it or like something that I had made. In addition, when we show our work to others, that's when we learn to introduce our work to others and indirectly we have learned to market what we have made to others.

If the work we do not get good grades or do not get many good comments from people who saw it, other times we'll try to make something that is preferred by teachers and others.

That was several points about entrepreneurship that we have got an early age. At that time, we have learned to understand and study the tastes of others and also we have learned to introduce our work to others. If we think carefully, actually what we have learned, we try and we made at the time, may have been a few times to produce works that can be used as inspiration for a business. By adding or expanding our work into a product that can be liked by others so that they can be marketed.

Actually, the basics of being an entrepreneur have we got an early age through high school. Now live how we implement business in the business world, by becoming an entrepreneur.
Hopefully !

Definition of Entrepreneurship

There are many interpretations and definitions of entrepreneurship. Entrepreneurship according to Onuoha (2007) is the practice of starting new organizations or revitalizing mature organizations, particularly new businesses generally in response to identified opportunities. According to intellectuals and business experts, the definition of entrepreneurship is simply the combining of ideas, hard work, and adjustment to the changing business market. It also entails meeting market demands, management.

Entrepreneurship is often a difficult undertaking, as a vast majority of new businesses fail. Entrepreneurial activities are substantially different depending on the type of organization that is being started. Entrepreneurship ranges in scale from solo projects (even involving the entrepreneur only part-time) to major undertakings creating many job opportunities. Many "high value" entrepreneurial ventures seek venture capital or angel funding in order to raise capital to build the business. Angel investors generally seek returns of 20-30% and more extensive involvement in the business.

Many kinds of organizations now exist to support would-be entrepreneurs, including specialized government agencies, business incubators, science parks, and some NGOs. Lately more holistic conceptualizations of entrepreneurship as a specific mindset (see also entrepreneurial mindset) resulting in entrepreneurial initiatives e.g. in the form of social entrepreneurship, political entrepreneurship, or knowledge entrepreneurship emerged.

The concept of entrepreneurship has a wide range of meanings. On the one extreme an entrepreneur is a person of very high aptitude who pioneers change, possessing characteristics found in only a very small fraction of the population. On the other extreme of definitions, anyone who wants to work for himself or herself is considered to be an entrepreneur.

The word entrepreneur originates from the French word, entreprendre, which means "to undertake." In a business context, it means to start a business. The Merriam-Webster Dictionary presents the definition of an entrepreneur as one who organizes, manages, and assumes the risks of a business or enterprise.

Business Plan at a Glance

What is a Business Plan?
Business plan is any plan that works for a business plan to look ahead and to prepare themselves to solve the problems and business opportunities. Unfortunately, many people think that business plan is used only a plan to start a new business or making business loans. In fact, the business plan is also important to run a business, to figure how much business needs, and for the purposes of the new loan or new investment. Business plans are also required to optimize growth and development in accordance with business priorities.

What is the plan startup?
One of the important things in your business plan is a plan to start-up. This plan includes a simple startup business summary, mission statement, the key to success, market analysis, and break-even analysis. Such plans are well used to decide whether a plan is continued or not. In other words start-up plan used to determine whether there is business value to be pursued, but with the startup plan is not enough to run a business.

Is there a standard business plan?
A normal business plan (which follow the advice of business experts) includes a set of standard elements, as shown below. A standard business plan formats are varied, but generally includes the components as follows: description of the company, product or service, market forecasts, management team, and financial analysis.

An outline of the standard business plan?
The main components of a standard business plan includes:
1. Executive Summary: This section is only one or two pages and is usually written last.
2. Company Description: Description of the company (company description) contains the legal basis for the establishment, history, start-up plans, etc.
3. Product or Service: This section contains anything sold or offered. Description focuses on the benefits to customers.
4. Market Analysis: This section contains market opportunities, customer needs, where they (customers) are, how to reach them, etc.
5. Strategy and Implementation: This section is organized specifically, included management responsibilities with dates and budgets.
6. Management Team: Include backgrounds of key team, personnel strategy in detail.
7. Financial Plan: Include the income statement, cash flow, balance sheet, break-even analysis, assumptions, business ratios, etc.

Market Segmentation

The division of a market into different homogeneous groups of consumers is known as market segmentation.
Rather than offer the same marketing mix to vastly different customers, market segmentation makes it possible for firms to tailor the marketing mix for specific target markets, thus better satisfying customer needs. Not all elements of the marketing mix are necessarily changed from one segment to the next. For example, in some cases only the promotional campaigns would differ.

A market segment should be:
• measurable
• accessible by communication and distribution channels
• different in its response to a marketing mix
• durable (not changing too quickly)
• substantial enough to be profitable
A market can be segmented by various bases, and industrial markets are segmented somewhat differently from consumer markets, as described below.

Consumer Market Segmentation
A basis for segmentation is a factor that varies among groups within a market, but that is consistent within groups. One can identify four primary bases on which to segment a consumer market:
• Geographic segmentation is based on regional variables such as region, climate, population density, and population growth rate.
• Demographic segmentation is based on variables such as age, gender, ethnicity, education, occupation, income, and family status.
• Psychographic segmentation is based on variables such as values, attitudes, and lifestyle.
• Behavioral segmentation is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought.
The optimal bases on which to segment the market depend on the particular situation and are determined by marketing research, market trends, and managerial judgment.

Business Market Segmentation
While many of the consumer market segmentation bases can be applied to businesses and organizations, the different nature of business markets often leads to segmentation on the following bases:
• Geographic segmentation - based on regional variables such as customer concentration, regional industrial growth rate, and international macroeconomic factors.
• Customer type - based on factors such as the size of the organization, its industry, position in the value chain, etc.
• Buyer behavior - based on factors such as loyalty to suppliers, usage patterns, and order size.

Profiling the Segments
The identified market segments are summarized by profiles, often given a descriptive name. From these profiles, the attractiveness of each segment can be evaluated and a target market segment selected.

The Seven S Model: Business Analysis Model

Typically, the 7S model is used in large corporations. Often, those companies have a hard time getting a handle on their situation and their potential because they are fragmented across continents, business units, confusing conglomerates, or constant acquisition and shuffling. The 7S model gives the multifaceted company a single set of metrics with which to analyze.

I believe that 7S is just as appropriate (on a smaller scale, of course) for the smaller business. But before we look at how it's helpful, let's consider what the 7S's are.

The 7S's were created by Robert H. Waterman, Julien R. Phillips, and Tom Peters (the most well-known of the group because of his book In Search of Excellence).
They are a group of interrelated categories which make up an organization. Like rowers in a boat, when they are all aligned, a business will likely succeed, prosper, innovate, and move in the direction it wants to move. When these factors are not aligned the business can fail, remain stagnant, reach maturity or decline quickly, or flounder about.

The Seven S's

1. Structure: This is more than just the stated hierarchy of the organization. This is the "in practice" hierarchy, too. Is a business focused on the customer? Is it segmented by function? Is it segmented by geography? Is it top heavy with a lot of decision-making executives?
2. Systems: This is the process through which the company gathers information and makes decisions. If it's effective, a company can react quickly and appropriately to changes in the marketplace. If a company's systems are not adequate, the company stands the risk of being ponderous.
3. Skills: This is the collective skill set of the organization. If a company determines to hire only people who can speak two or more languages, they will quickly fill their ranks with skilled people who allow them to communicate to other people more effectively. Some companies in the early growth stages can react to a need by hiring too many people in one skill category and run the risk down the road of having a variety of absent skills. There is no perfect mix, this is a matter of constantly balancing and rebalancing based on need.
4. Style: This category is about the culture of the company. Is it aggressive? Is it conservative? Is it innovative? Is everyone happy? Does the company feel bloated and unwieldy? Each company has its own style and that style is set by the leadership and supported (or changed) by the mix of staff hired.
5. Staff: This category, obviously, deals with the people in the organization. It involves not only their skills (mentioned in another S) but also whether or not there are enough (or too many) staff members to do the job as well as the personal and professional goals that each person has.
6. Superordinate goals (which later was appropriately renamed Shared Values):This category talks about the overarching purpose in the organization more specifically, it deals with the real or practiced values and compares them to the stated values. A company, for example, may claim to be customer-centered but in reality it could reward staff for high volumes of sales, encouraging staff to ignore the customer and focus on making their numbers.
7. Strategy: Strategy deals with tomorrow- what is the company planning on achieving in the future and what are they doing today to prepare for those goals?

How to perform a SWOT analysis

The SWOT analysis is a valuable step in your situational analysis. Assessing your firm’s strengths, weaknesses, market opportunities, and threats through a SWOT analysis is a very simple process that can offer powerful insight into the potential and critical issues affecting a venture.

The SWOT analysis begins by conducting an inventory of internal strengths and weaknesses in your organization. You will then note the external opportunities and threats that may affect the organization, based on your market and the overall environment. Don’t be concerned about elaborating on these topics at this stage; bullet points may be the best way to begin. Capture the factors you believe are relevant in each of the four areas. You will want to review what you have noted here as you work through your marketing plan. The primary purpose of the SWOT analysis is to identify and assign each significant factor, positive and negative, to one of the four categories, allowing you to take an objective look at your business. The SWOT analysis will be a useful tool in developing and confirming your goals and your marketing strategy.

Some experts suggest that you first consider outlining the external opportunities and threats before the strengths and weaknesses. Marketing Plan Pro will allow you to complete your SWOT analysis in whatever order works best for you. In either situation, you will want to review all four areas in detail.

Strengths
Strengths describe the positive attributes, tangible and intangible, internal to your organization. They are within your control. What do you do well? What resources do you have? What advantages do you have over your competition?

You may want to evaluate your strengths by area, such as marketing, finance, manufacturing, and organizational structure. Strengths include the positive attributes of the people involved in the business, including their knowledge, backgrounds, education, credentials, contacts, reputations, or the skills they bring. Strengths also include tangible assets such as available capital, equipment, credit, established customers, existing channels of distribution, copyrighted materials, patents, information and processing systems, and other valuable resources within the business.

Strengths capture the positive aspects internal to your business that add value or offer you a competitive advantage. This is your opportunity to remind yourself of the value existing within your business.

Weaknesses

Note the weaknesses within your business. Weaknesses are factors that are within your control that detract from your ability to obtain or maintain a competitive edge. Which areas might you improve?

Weaknesses might include lack of expertise, limited resources, lack of access to skills or technology, inferior service offerings, or the poor location of your business. These are factors that are under your control, but for a variety of reasons, are in need of improvement to effectively accomplish your marketing objectives.

Weaknesses capture the negative aspects internal to your business that detract from the value you offer, or place you at a competitive disadvantage. These are areas you need to enhance in order to compete with your best competitor. The more accurately you identify your weaknesses, the more valuable the SWOT will be for your assessment.

Opportunities

Opportunities assess the external attractive factors that represent the reason for your business to exist and prosper. These are external to your business. What opportunities exist in your market, or in the environment, from which you hope to benefit?

These opportunities reflect the potential you can realize through implementing your marketing strategies. Opportunities may be the result of market growth, lifestyle changes, resolution of problems associated with current situations, positive market perceptions about your business, or the ability to offer greater value that will create a demand for your services. If it is relevant, place time frames around the opportunities. Does it represent an ongoing opportunity, or is it a window of opportunity? How critical is your timing?

Opportunities are external to your business. If you have identified “opportunities” that are internal to the organization and within your control, you will want to classify them as strengths.

Threats

What factors are potential threats to your business? Threats include factors beyond your control that could place your marketing strategy, or the business itself, at risk. These are also external – you have no control over them, but you may benefit by having contingency plans to address them if they should occur.

A threat is a challenge created by an unfavorable trend or development that may lead to deteriorating revenues or profits. Competition – existing or potential – is always a threat. Other threats may include intolerable price increases by suppliers, governmental regulation, economic downturns, devastating media or press coverage, a shift in consumer behavior that reduces your sales, or the introduction of a “leap-frog” technology that may make your products, equipment, or services obsolete. What situations might threaten your marketing efforts? Get your worst fears on the table. Part of this list may be speculative in nature, and still add value to your SWOT analysis.

It may be valuable to classify your threats according to their “seriousness” and “probability of occurrence.”
The better you are at identifying potential threats, the more likely you can position yourself to proactively plan for and respond to them. You will be looking back at these threats when you consider your contingency plans.

An Introduction to Business Plans

A business plan is a written description of your business's future. That's all there is to it--a document that describes what you plan to do and how you plan to do it. If you jot down a paragraph on the back of an envelope describing your business strategy, you've written a plan, or at least the germ of a plan.

Business plans can help perform a number of tasks for those who write and read them. They're used by investment-seeking entrepreneurs to convey their vision to potential investors. They may also be used by firms that are trying to attract key employees, prospect for new business, deal with suppliers or simply to understand how to manage their companies better.

So what's included in a business plan, and how do you put one together? Simply stated, a business plan conveys your business goals, the strategies you'll use to meet them, potential problems that may confront your business and ways to solve them, the organizational structure of your business (including titles and responsibilities), and finally, the amount of capital required to finance your venture and keep it going until it breaks even.
Sound impressive? It can be, if put together properly. A good business plan follows generally accepted guidelines for both form and content. There are three primary parts to a business plan:

• The first is the business concept, where you discuss the industry, your business structure, your particular product or service, and how you plan to make your business a success.
• The second is the marketplace section, in which you describe and analyze potential customers: who and where they are, what makes them buy and so on. Here, you also describe the competition and how you'll position yourself to beat it.
• Finally, the financial section contains your income and cash flow statement, balance sheet and other financial ratios, such as break-even analyzes. This part may require help from your accountant and a good spreadsheet software program.

Breaking these three major sections down even further, a business plan consists of seven key components:
1. Executive summary
2. Business description
3. Market strategies
4. Competitive analysis
5. Design and development plan
6. Operations and management plan
7. Financial factors

In addition to these sections, a business plan should also have a cover, title page and table of contents.
How Long Should Your Business Plan Be?
Depending on what you're using it for, a useful business plan can be any length, from a scrawl on the back of an envelope to, in the case of an especially detailed plan describing a complex enterprise, more than 100 pages. A typical business plan runs 15 to 20 pages, but there's room for wide variation from that norm.

Much will depend on the nature of your business. If you have a simple concept, you may be able to express it in very few words. On the other hand, if you're proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across.

The purpose of your plan also determines its length. If you want to use your plan to seek millions of dollars in seed capital to start a risky venture, you may have to do a lot of explaining and convincing. If you're just going to use your plan for internal purposes to manage an ongoing business, a much more abbreviated version should be fine.

About the only person who doesn't need a business plan is one who's not going into business. You don't need a plan to start a hobby or to moonlight from your regular job. But anybody beginning or extending a venture that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.

Startup.
The classic business plan writer is an entrepreneur seeking funds to help start a new venture. Many, many great companies had their starts on paper, in the form of a plan that was used to convince investors to put up the capital necessary to get them under way.

Most books on business planning seem to be aimed at these startup business owners. There's one good reason for that: As the least experienced of the potential plan writers, they're probably most appreciative of the guidance. However, it's a mistake to think that only cash-starved startup need business plans. Business owners find plans useful at all stages of their companies' existence, whether they're seeking financing or trying to figure out how to invest a surplus.

Established firms seeking help. Not all business plans are written by starry-eyed entrepreneurs. Many are written by and for companies that are long past the startup stage. Walker Group/Designs, for instance, was already well-established as a designer of stores for major retailers when founder Ken Walker got the idea of trademarking and licensing to apparel makers and others the symbols 01-01-00 as a sort of numeric shorthand for the approaching millennium. Before beginning the arduous and costly task of trademarking it worldwide, Walker used a business plan complete with sales forecasts to convince big retailers it would be a good idea to promise to carry the 01-01-00 goods. It helped make the new venture a winner long before the big day arrived. "As a result of the retail support up front," Walker says, "we had over 45 licensees running the gamut of product lines almost from the beginning."

These middle-stage enterprises may draft plans to help them find funding for growth just as the startup do, although the amounts they seek may be larger and the investors more willing. They may feel the need for a written plan to help manage an already rapidly growing business. Or a plan may be seen as a valuable tool to be used to convey the mission and prospects of the business to customers, suppliers or others.

About the only person who doesn't need a business plan is one who's not going into business. You don't need a plan to start a hobby or to moonlight from your regular job. But anybody beginning or extending a venture that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.

Here are seven reasons to think about updating your business plan. If even just one applies to you, it's time for an update.

1. A new financial period is about to begin. You may update your plan annually, quarterly or even monthly if your industry is a fast-changing one.
2. You need financing, or additional financing. Lenders and other financiers need an updated plan to help them make financing decisions.
3. There's been a significant market change. Shifting client tastes, consolidation trends among customers and altered regulatory climates can trigger a need for plan updates.
4. Your firm develops or is about to develop a new product, technology, service or skill. If your business has changed a lot since you wrote your plan the first time around, it's time for an update.
5. You have had a change in management. New managers should get fresh information about your business and your goals.
6. Your company has crossed a threshold, such as moving out of your home office, crossing the $1 million sales mark or employing your 100th employee.
7. Your old plan doesn't seem to reflect reality any more. Maybe you did a poor job last time; maybe things have just changed faster than you expected. But if your plan seems irrelevant, redo it.

Business plans tend to have a lot of elements in common, like cash flow projections and marketing plans. And many of them share certain objectives as well, such as raising money or persuading a partner to join the firm. But business plans are not all the same any more than all businesses are.

Depending on your business and what you intend to use your plan for, you may need a very different type of business plan from another entrepreneur. Plans differ widely in their length, their appearance, the detail of their contents, and the varying emphases they place on different aspects of the business.

The reason that plan selection is so important is that it has a powerful effect on the overall impact of your plan. You want your plan to present you and your business in the best, most accurate light. That's true no matter what you intend to use your plan for, whether it's destined for presentation at a venture capital conference, or will never leave your own office or be seen outside internal strategy sessions.

When you select clothing for an important occasion, odds are you try to pick items that will play up your best features. Think about your plan the same way. You want to reveal any positives that your business may have and make sure they receive due consideration.

Types of Plans
Business plans can be divided roughly into four separate types. There are very short plans, or miniplans. There are working plans, presentation plans and even electronic plans. They require very different amounts of labor and not always with proportionately different results. That is to say, a more elaborate plan is not guaranteed to be superior to an abbreviated one, depending on what you want to use it for.

The Miniplan
A miniplan may consist of one to 10 pages and should include at least cursory attention to such key matters as business concept, financing needs, marketing plan and financial statements, especially cash flow, income projection and balance sheet. It's a great way to quickly test a business concept or measure the interest of a potential partner or minor investor. It can also serve as a valuable prelude to a full-length plan later on.

Be careful about misusing a miniplan. It's not intended to substitute for a full-length plan. If you send a miniplan to an investor who's looking for a comprehensive one, you're only going to look foolish.

The Working Plan
A working plan is a tool to be used to operate your business. It has to be long on detail but may be short on presentation. As with a miniplan, you can probably afford a somewhat higher degree of candor and informality when preparing a working plan.

A plan intended strictly for internal use may also omit some elements that would be important in one aimed at someone outside the firm. You probably don't need to include an appendix with resumes of key executives, for example. Nor would a working plan especially benefit from, say, product photos.

Fit and finish are liable to be quite different in a working plan. It's not essential that a working plan be printed on high-quality paper and enclosed in a fancy binder. An old three-ring binder with "Plan" scrawled across it with a felt-tip marker will serve quite well.

Internal consistency of facts and figures is just as crucial with a working plan as with one aimed at outsiders. You don't have to be as careful, however, about such things as typos in the text, perfectly conforming to business style, being consistent with date formats and so on. This document is like an old pair of khakis you wear into the office on Saturdays or that one ancient delivery truck that never seems to break down. It's there to be used, not admired.

The Presentation Plan
If you take a working plan, with its low stress on cosmetics and impression, and twist the knob to boost the amount of attention paid to its looks, you'll wind up with a presentation plan. This plan is suitable for showing to bankers, investors and others outside the company.

Almost all the information in a presentation plan is going to be the same as your working plan, although it may be styled somewhat differently. For instance, you should use standard business vocabulary, omitting the informal jargon, slang and shorthand that's so useful in the workplace and is appropriate in a working plan. Remember, these readers won't be familiar with your operation. Unlike the working plan, this plan isn't being used as a reminder but as an introduction.

You'll also have to include some added elements. Among investors' requirements for due diligence is information on all competitive threats and risks. Even if you consider some of only peripheral significance, you need to address these concerns by providing the information.

The big difference between the presentation and working plans is in the details of appearance and polish. A working plan may be run off on the office printer and stapled together at one corner. A presentation plan should be printed by a high-quality printer, probably using color. It must be bound expertly into a booklet that is durable and easy to read. It should include graphics such as charts, graphs, tables and illustrations.

It's essential that a presentation plan be accurate and internally consistent. A mistake here could be construed as a misrepresentation by an unsympathetic outsider. At best, it will make you look less than careful. If the plan's summary describes a need for $40,000 in financing, but the cash flow projection shows $50,000 in financing coming in during the first year, you might think, "Oops! Forgot to update that summary to show the new numbers." The investor you're asking to pony up the cash, however, is unlikely to be so charitable.

The Electronic Plan
The majority of business plans are composed on a computer of some kind, then printed out and presented in hard copy. But more and more business information that once was transferred between parties only on paper is now sent electronically. So you may find it appropriate to have an electronic version of your plan available. An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to delve deeply into the underpinnings of complex spreadsheets.

Source:The Small Business Encyclopedia, Business Plans Made Easy, Start Your Own Business and Entrepreneur magazine.

SWOT analysis referred from strategic environment

A scan of the internal and external environment is an important part of the strategic planning process. Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

Strengths

A firm's strengths are its resources and capabilities that can be used as a basis for developing a competitive advantage. Examples of such strengths include:

• patents
• strong brand names
• good reputation among customers
• cost advantages from proprietary know-how
• exclusive access to high grade natural resources
• favorable access to distribution networks

Weaknesses

The absence of certain strengths may be viewed as a weakness. For example, each of the following may be considered weaknesses:

• lack of patent protection
• a weak brand name
• poor reputation among customers
• high cost structure
• lack of access to the best natural resources
• lack of access to key distribution channels

In some cases, a weakness may be the flip side of a strength. Take the case in which a firm has a large amount of manufacturing capacity. While this capacity may be considered a strength that competitors do not share, it also may be a considered a weakness if the large investment in manufacturing capacity prevents the firm from reacting quickly to changes in the strategic environment.

Opportunities

The external environmental analysis may reveal certain new opportunities for profit and growth. Some examples of such opportunities include:

• an unfulfilled customer need
• arrival of new technologies
• loosening of regulations
• removal of international trade barriers

Threats

Changes in the external environmental also may present threats to the firm. Some examples of such threats include:

• shifts in consumer tastes away from the firm's products
• emergence of substitute products
• new regulations
• increased trade barriers

The SWOT Matrix

A firm should not necessarily pursue the more lucrative opportunities. Rather, it may have a better chance at developing a competitive advantage by identifying a fit between the firm's strengths and upcoming opportunities. In some cases, the firm can overcome a weakness in order to prepare itself to pursue a compelling opportunity.

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed. The SWOT matrix (also known as a TOWS Matrix) is shown below:

SWOT / TOWS Matrix

	Strengths	Weaknesses
Opportunities	S-O strategies	W-O strategies
Threats	S-T strategies	W-T strategies

S-O strategies pursue opportunities that are a good fit to the company's strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats.
W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly susceptible to external threats.

Recommended Reading

Bradford, Robert W., Duncan, Peter J., Tarcy, Brian, Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast!

The Strategic Planning Process

In today's highly competitive business environment, budget-oriented planning or forecast-based planning methods are insufficient for a large corporation to survive and prosper. The firm must engage in strategic planning that clearly defines objectives and assesses both the internal and external situation to formulate strategy, implement the strategy, evaluate the progress, and make adjustments as necessary to stay on track.

A simplified view of the strategic planning process is shown by the following diagram:

The Strategic Planning Process

Mission &       Objectives

Environmental   Scanning

Strategy     Formulation

Strategy  Implementation

Evaluation       & Control

Mission and Objectives

The mission statement describes the company's business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities.
Guided by the business vision, the firm's leaders can define measurable financial and strategic objectives. Financial objectives involve measures such as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Environmental Scan

The environmental scan includes the following components:
• Internal analysis of the firm
• Analysis of the firm's industry (task environment)
• External macro environment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external analysis reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and threats is generated by means of a SWOT analysis
An industry analysis can be performed using a framework developed by Michael Porter known as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute products, and industry rivalry.

Strategy Formulation

Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.

Strategy Implementation

The selected strategy is implemented by means of programs, budgets, and procedures. Implementation involves organization of the firm's resources and motivation of the staff to achieve objectives.

The way in which the strategy is implemented can have a significant impact on whether it will be successful. In a large company, those who implement the strategy likely will be different people from those who formulated it. For this reason, care must be taken to communicate the strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the strategy is misunderstood or if lower-level managers resist its implementation because they do not understand why the particular strategy was selected.

Evaluation & Control

The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
1. Define parameters to be measured
2. Define target values for those parameters
3. Perform measurements
4. Compare measured results to the pre-defined standard
5. Make necessary changes

Recommended Reading

Bradford, Robert W., Duncan, Peter J., Tarcy, Brian, Simplified Strategic Planning: A No-Nonsense Guide for Busy People Who Want Results Fast!

Porter's Generic Strategies

Michael Porter has described a category scheme consisting of three general types of strategies that are commonly used by businesses to achieve and maintain competitive advantage. These three generic strategies are defined along two dimensions: strategic scope and strategic strength. Strategic scope is a demand-side dimension (Porter was originally an engineer, then an economist before he specialized in strategy) and looks at the size and composition of the market you intend to target. Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm. In particular he identified two competencies that he felt were most important: product differentiation and product cost (efficiency).

He originally ranked each of the three dimensions (level of differentiation, relative product cost, and scope of target market) as either low, medium, or high, and juxtaposed them in a three dimensional matrix. That is, the category scheme was displayed as a 3 by 3 by 3 cube. But most of the 27 combinations were not viable.

In his 1980 classic Competitive Strategy: Techniques for Analysing Industries and Competitors, Porter simplifies the scheme by reducing it down to the three best strategies. They are cost leadership, differentiation, and market segmentation (or focus). Market segmentation is narrow in scope while both cost leadership and differentiation are relatively broad in market scope.

Empirical research on the profit impact of marketing strategy indicated that firms with a high market share were often quite profitable, but so were many firms with low market share. The least profitable firms were those with moderate market share. This was sometimes referred to as the hole in the middle problem. Porter’s explanation of this is that firms with high market share were successful because they pursued a cost leadership strategy and firms with low market share were successful because they used market segmentation to focus on a small but profitable market niche. Firms in the middle were less profitable because they did not have a viable generic strategy.

Combining multiple strategies is successful in only one case. Combining a market segmentation strategy with a product differentiation strategy is an effective way of matching your firm’s product strategy (supply side) to the characteristics of your target market segments (demand side). But combinations like cost leadership with product differentiation are hard (but not impossible) to implement due to the potential for conflict between cost minimization and the additional cost of value-added differentiation.

Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. They claim that a low cost strategy is rarely able to provide a sustainable competitive advantage. In most cases firms end up in price wars. Instead, they claim a best cost strategy is preferred. This involves providing the best value for a relatively low price.

Cost Leadership Strategy
This strategy emphasizes efficiency. By producing high volumes of standardized products, the firm hopes to take advantage of economies of scale and experience curve effects. The product is often a basic no-frills product that is produced at a relatively low cost and made available to a very large customer base. Maintaining this strategy requires a continuous search for cost reductions in all aspects of the business. The associated distribution strategy is to obtain the most extensive distribution possible. Promotional strategy often involves trying to make a virtue out of low cost product features.

To be successful, this strategy usually requires a considerable market share advantage or preferential access to raw materials, components, labour, or some other important input. Without one or more of these advantages, the strategy can easily be mimicked by competitors.

Successful implementation also benefits from:

• process engineering skills
• products designed for ease of manufacture
• sustained access to inexpensive capital
• close supervision of labour
• tight cost control
• incentives based on quantitative targets.

always ensure that the costs are kept at the minimum possible level.

When a firm designs, produces and markets a product more efficiently than competitors such firm has implemented a cost leadership strategy. Cost reduction strategies across the activity cost chain will represent low cost leadership. Attempts to reduce costs will spread through the whole business process from manufacturing to the final stage of selling the product. Any processes that do not contribute towards minimization of cost base should be outsourced to other organisations with the view of maintaining a low cost base. Low costs will permit a firm to sell relatively standardised products that offer features acceptable to many customers at the lowest competitive price and such low prices will gain competitive advantage and increase market share. These writings explain that cost efficiency gained in the whole process will enable a firm to mark up a price lower than competition which ultimately results in high sales since competition could not match such a low cost base. If the low cost base could be maintained for longer periods of time it will ensure consistent increase in market share and stable profits hence consequent in superior performance. However all writings direct us to the understanding that sustainability of the competitive advantage reached through low cost strategy will depend on the ability of a competitor to match or develop a lower cost base than the existing cost leader in the market.

A firm attempts to maintain a low cost base by controlling production costs, increasing their capacity utilization, controlling material supply or product distribution and minimizing other costs including R&D and advertising. Mass production, mass distribution, economies of scale, technology, product design, learning curve benefit, work force dedicated for low cost production, reduced sales force, less spending on marketing will further help a firm to main a low cost base. Decision makers in a cost leadership firm will be compelled to closely scrutinise the cost efficiency of the processes of the firm. Maintaining the low cost base will become the primary determinant of the cost leadership strategy. For low cost leadership to be effective a firm should have a large market share. New entrants or firms with a smaller market share may not benefit from such strategy since mass production, mass distribution and economies of scale will not make an impact on such firms. Low cost leadership becomes a viable strategy only for larger firms. Market leaders may strengthen their positioning by advantages attained through scale and experience in a low cost leadership strategy. But is their any superiority in low cost strategy than other strategic typologies? Can a firm that adopts a low cost strategy out perform another firm with a different competitive strategy? If firms costs are low enough it may be profitable even in a highly competitive scenario hence it becomes a defensive mechanism against competitors. Further they mention that such low cost may act as entry barriers since new entrants require huge capital to produce goods or services at the same or lesser price than a cost leader. As discussed in the academic frame work of competitive advantage raising barriers for competition will consequent in sustainable competitive advantage and in consolidation with the above writings we may establish the fact that low cost competitive strategy may generate a sustainable competitive advantage. However, this is not true in all cases.

Further in consideration of factors mentioned above that facilitate a firm in maintaining a low cost base; some factors such as technology which may be developed through innovation (mentioned as creative accumulation in Schumpeterian innovation) and some may even be resources developed by a firm such as long term healthy relationships build with distributors to maintain cost effective distribution channels or supply chains (inimitable, unique, valuable non transferable resource mentioned in RBV). Similarly economies of scale may be an ultimate result of a commitment made by a firm such as capital investments for expansions (as discussed in the commitment approach). Also raising barriers for competition by virtue of the low cost base that enables the low prices will result in strong strategic positioning in the market (discussed in the IO structural approach). These significant strengths align with the four perspectives of sustainable competitive advantage mentioned in the early parts of this literature review. Low cost leadership could be considered as a competitive strategy that will create a sustainable competitive advantage.

However, low cost leadership is attached to a disadvantage which is less customer loyalty. Relatively low prices will result in creating a negative attitude towards the quality of the product in the mindset of the customers. Customer’s impression regarding such products will enhance the tendency to shift towards a product which might be higher in price but projects an image of quality. Considering analytical in depth view regarding the low cost strategy, it reflects capability to generate a competitive advantage but development and maintenance of a low cost base becomes a vital, decisive task.

Differentiation Strategy
Differentiation is aimed at the broad market that involves the creation of a product or services that is perceived throughout its industry as unique. The company or business unit may then charge a premium for its product. This specialty can be associated with design, brand image, technology, features, dealers, network, or customers service. Differentiation is a viable strategy for earning above average returns in a specific business because the resulting brand loyalty lowers customers' sensitivity to price. Increased costs can usually be passed on to the buyers. Buyers loyalty can also serve as an entry barrier-new firms must develop their own distinctive competence to differentiate their products in some way in order to compete successfully. Examples of the successful use of a differentiation strategy are Hero Honda, Asian Paints, HLL, Nike athletic shoes, Perstorp BioProducts, Apple Computer, and Mercedes-Benz automobiles. Research does suggest that a differentiation strategy is more likely to generate higher profits than is a low cost strategy because differentiation creates a better entry barrier. A low-cost strategy is more likely, however, to generate increases in market share. This may or may not be true.

Variants on the Differentiation Strategy
The shareholder value model holds that the timing of the use of specialized knowledge can create a differentiation advantage as long as the knowledge remains unique ^[1]. This model suggests that customers buy products or services from an organization to have access to its unique knowledge. The advantage is static, rather than dynamic, because the purchase is a one-time event.

The unlimited resources model utilizes a large base of resources that allows an organization to outlast competitors by practicing a differentiation strategy. An organization with greater resources can manage risk and sustain losses more easily than one with fewer resources. This deep-pocket strategy provides a short-term advantage only. If a firm lacks the capacity for continual innovation, it will not sustain its competitive position over time.

Focus Strategy
In this strategy the firm concentrates on a select few target markets. It is also called a segmentation strategy or niche strategy. It is hoped that by focusing your marketing efforts on one or two narrow market segments and tailoring your marketing mix to these specialized markets, you can better meet the needs of that target market. The firm typically looks to gain a competitive advantage through product innovation and/or brand marketing rather than efficiency. It is most suitable for relatively small firms but can be used by any company. A focus strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment.

Examples of firm using a focus strategy include Southwest Airlines, with provides short-haul point-to-point flights in contrast to the hub-and-spoke model of mainstream carriers, and Family Dollar, which targets poor urban American families who can not drive to Wal-Marts in the suburbs because they do not own a car.

Recent developments
Michael Treacy and Fred Wiersema and tarun (1993) have modified Porter's three strategies to describe three basic "value disciplines" that can create customer value and provide a competitive advantage. They are operational excellence, product leadership, and customer intimacy.

Criticisms of generic strategies
Several commentators have questioned the use of generic strategies claiming they lack specificity, lack flexibility, and are limiting.
In particular, Miller (1992) questions the notion of being "caught in the middle". He claims that there is a viable middle ground between strategies. Many companies, for example, have entered a market as a niche player and gradually expanded. According to Baden-Fuller and Stopford (1992) the most successful companies are the ones that can resolve what they call "the dilemma of opposites".< A popular post-Porter model was presented by W. Chan Kim and Renée Mauborgne in their 1999 Harvard Business Review article "Creating New Market Space". In this article they described a "value innovation" model in which companies must look outside their present paradigms to find new value propositions. Their approach fundamentally goes against Porter's concept that a firm must focus either on cost leadership or on differentiation. They later went on to publish their ideas in the book Blue Ocean Strategy.

An up-to-date critique of generic strategies and their limitations, including Porter, appears in Bowman, C. (2008) Generic strategies: a substitute for thinking? [1]

If the primary determinant of a firm's profitability is the attractiveness of the industry in which it operates, an important secondary determinant is its position within that industry. Even though an industry may have below-average profitability, a firm that is optimally positioned can generate superior returns.

A firm positions itself by leveraging its strengths. Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation. By applying these strengths in either a broad or narrow scope, three generic strategies result: cost leadership, differentiation, and focus. These strategies are applied at the business unit level. They are called generic strategies because they are not firm or industry dependent.

The following table illustrates Porter's generic strategies:

Porter's Generic Strategies

Target Scope	Advantage
	Low Cost	Product Uniqueness
Broad (Industry Wide)	Cost Leadership Strategy	Differentiation Strategy
Narrow (Market Segment)	Focus Strategy (low cost)	Focus Strategy (differentiation)

Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality. The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses. Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets a broad market.

Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether. If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.

Firms that succeed in cost leadership often have the following internal strengths:

• Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome.

• Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.

• High level of expertise in manufacturing process engineering.

• Efficient distribution channels.

Each generic strategy has its risks, including the low-cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage. Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share.

Differentiation Strategy

A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition. The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Because of the product's unique attributes, if suppliers increase their prices the firm may be able to pass along the costs to its customers who cannot find substitute products easily.

Firms that succeed in a differentiation strategy often have the following internal strengths:

• Access to leading scientific research.

• Highly skilled and creative product development team.

• Strong sales team with the ability to successfully communicate the perceived strengths of the product.

• Corporate reputation for quality and innovation.

The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes. Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.

Focus Strategy
The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.

Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers. However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist.

Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.

Some risks of focus strategies include imitation and changes in the target segments. Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly. Finally, other focusers may be able to carve out sub-segments that they can serve even better.

A Combination of Generic Strategies

- Stuck in the Middle?

These generic strategies are not necessarily compatible with one another.
If a firm attempts to achieve an advantage on all fronts, in this attempt it may achieve no advantage at all.
For example, if a firm differentiates itself by supplying very high quality products, it risks undermining that quality if it seeks to become a cost leader.
Even if the quality did not suffer, the firm would risk projecting a confusing image.
For this reason, Michael Porter argued that to be successful over the long-term,
a firm must select only one of these three generic strategies.
Otherwise, with more than one single generic strategy the firm will be "stuck in the middle" and will not achieve a competitive advantage.

Porter argued that firms that are able to succeed at multiple strategies often do so by creating separate business units for each strategy. By separating the strategies into different units having different policies and even different cultures, a corporation is less likely to become "stuck in the middle."

However, there exists a viewpoint that a single generic strategy is not always best because within the same product customers often seek multi-dimensional satisfactions such as a combination of quality, style, convenience, and price.
There have been cases in which high quality producers faithfully followed a single strategy and then suffered greatly when another firm entered the market with a lower-quality product that better met the overall needs of the customers.

Generic Strategies and Industry Forces

These generic strategies each have attributes that can serve to defend against competitive forces.
The following table compares some characteristics of the generic strategies in the context of the Porter's five forces.

Generic Strategies and Industry Forces

Industry Force	Generic Strategies
	Cost Leadership	Differentiation	Focus
Entry Barriers	Ability to cut price in retaliation deters potential entrants.	Customer loyalty can discourage potential entrants.	Focusing develops core competencies that can act as an entry barrier.
Buyer Power	Ability to offer lower price to powerful buyers.	Large buyers have less power to negotiate because of few close alternatives.	Large buyers have less power to negotiate because of few alternatives.
Supplier Power	Better insulated from powerful suppliers.	Better able to pass on supplier price increases to customers.	Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.
Threat of Substitutes	Can use low price to defend against substitutes.	Customer's become attached to differentiating attributes, reducing threat of substitutes.	Specialized products & core competency protect against substitutes.
Rivalry	Better able to compete on price.	Brand loyalty to keep customers from rivals.	Rivals cannot meet differentiation-focused customer needs.

Recommended Reading

From the three generic business strategies Porter stress the idea that only one strategy should be adopted by a firm and failure to do so will result in “ stuck in the middle” scenario. He discuss the idea that practising more than one strategy will lose the entire focus of the organisation hence clear direction of the future trajectory could not be established. The argument is based on the fundamental that differentiation will incur costs to the firm which clearly contradicts with the basis of low cost strategy and in the other hand relatively standardised products with features acceptable to many customers will not carry any differentiation hence, cost leadership and differentiation strategy will be mutually exclusive. Two focal objectives of low cost leadership and differentiation clash with each other resulting in no proper direction for a firm.

However, contrarily to the rationalisation of Porter, contemporary research has shown evidence of firms practising such a “hybrid strategy”. Hambrick identified successful organisations that adopt a mixture of low cost and differentiation strategy. Research writings of Davis state that firms employing the hybrid business strategy (Low cost and differentiation strategy) outperform the ones adopting one generic strategy. Sharing the same view point, Hill challenged Porter’s concept regarding mutual exclusivity of low cost and differentiation strategy and further argued that successful combination of those two strategies will result in sustainable competitive advantage. As to Wright and other multiple business strategies are required to respond effectively to any environment condition. In the mid to late 1980’s where the environments were relatively stable there was no requirement for flexibility in business strategies but survival in the rapidly changing, highly unpredictable present market contexts will require flexibility to face any contingency. After eleven years Porter revised his thinking and accepted the fact that hybrid business strategy could exist and writes in the following manner.

Competitive advantage can be divided into two basic types: lower costs than rivals, or the ability to differentiate and command a premium price that exceeds the extra costs of doing so. Any superior performing firm has achieved one type of advantage, the other or both.

Though Porter had a fundamental rationalisation in his concept about the invalidity of hybrid business strategy, the highly volatile and turbulent market conditions will not permit survival of rigid business strategies since long term establishment will depend on the agility and the quick responsiveness towards market and environmental conditions. Market and environmental turbulence will make drastic implications on the root establishment of a firm. If a firm’s business strategy could not cope with the environmental and market contingencies, long term survival becomes unrealistic. Diverging the strategy into different avenues with the view to exploit opportunities and avoid threats created by market conditions will be a pragmatic approach for a firm.

Critical analysis done separately for cost leadership strategy and differentiation strategy identifies elementary value in both strategies in creating and sustaining a competitive advantage. Consistent and superior performance than competition could be reached with stronger foundations in the event “hybrid strategy” is adopted. Depending on the market and competitive conditions hybrid strategy should be adjusted regarding the extent which each generic strategy (cost leadership or differentiation) should be given priority in practise.

References

1. William E. Fruhan, Jr., "The NPV Model of Strategy—The Shareholder Value Model," 1979.
2. Porter, Michael E., Competitive Strategy:Techniques for Analyzing Industries and Competitors

Value Chain

The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
A value chain is a chain of activities. Products pass through all activities of the chain in order and at each activity the product gains some value. The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond.
The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities" include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade,[1] had some success in the early 1990s[2].

The value-chain concept has been extended beyond individual organizations. It can apply to whole supply chains and distribution networks. The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's buyers (and presumably extended to the buyers of their products, and so on).
Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries creating new business models, or in other ways create improvements in its value system.
The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and consulting groups participating in the last 10 years, manages the Supply-Chain Operations Reference (SCOR), the de facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics, Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter framework. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard for business excellence, and the US DOD has adopted the newly-launched Design-Chain Operations Reference (DCOR) framework for product design as a standard to use for managing their development processes. In addition to process elements, these reference frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and constantly researched database of prescriptive universal best practices for process execution.

Value Reference Model

A Value Reference Model (VRM) developed by the global not for profit Value Chain Group offers an open source semantic dictionary for value chain management encompassing one unified reference framework representing the process domains of product development, customer relations and supply networks.

The integrated process framework guides the modeling, design, and measurement of business performance by uniquely encompassing the plan, govern and execute requirements for the design, product, and customer aspects of business.

The Value Chain Group claims VRM to be next generation Business Process Management that enables value reference modeling of all business processes and provides product excellence, operations excellence, and customer excellence.

Six business functions of the Value Chain:

• Research and Development
• Design of Products, Services, or Processes
• Production
• Marketing & Sales
• Distribution
• Customer Service

To analyze the specific activities through which firms can create a competitive advantage, it is useful to model the firm as a chain of value-creating activities. Michael Porter identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain and is depicted below:

Primary Value Chain Activities

Inbound Logistics

>

Operations

>

Outbound Logistics

>

Marketing & Sales

>

Service

The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.

• Inbound logistics include the receiving, warehousing, and inventory control of input materials.

• Operations are the value-creating activities that transform the inputs into the final product.

• Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfillment, etc.

• Marketing & Sales are those activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing, etc.

• Service activities are those that maintain and enhance the product's value including customer support, repair services, etc.

Any or all of these primary activities may be vital in developing a competitive advantage. For example, logistics activities are critical for a provider of distribution services, and service activities may be the key focus for a firm offering on-site maintenance contracts for office equipment.

These five categories are generic and portrayed here in a general manner. Each generic activity includes specific activities that vary by industry.

Support Activities

The primary value chain activities described above are facilitated by support activities. Porter identified four generic categories of support activities, the details of which are industry-specific.

• Procurement - the function of purchasing the raw materials and other inputs used in the value-creating activities.

• Technology Development - includes research and development, process automation, and other technology development used to support the value-chain activities.

• Human Resource Management - the activities associated with recruiting, development, and compensation of employees.

• Firm Infrastructure - includes activities such as finance, legal, quality management, etc.

Support activities often are viewed as "overhead", but some firms successfully have used them to develop a competitive advantage, for example, to develop a cost advantage through innovative management of information systems.

Value Chain Analysis

In order to better understand the activities leading to a competitive advantage, one can begin with the generic value chain and then identify the relevant firm-specific activities. Process flows can be mapped, and these flows used to isolate the individual value-creating activities.

Once the discrete activities are defined, linkages between activities should be identified. A linkage exists if the performance or cost of one activity affects that of another. Competitive advantage may be obtained by optimizing and coordinating linked activities.

The value chain also is useful in outsourcing decisions. Understanding the linkages between activities can lead to more optimal make-or-buy decisions that can result in either a cost advantage or a differentiation advantage.

The Value System

The firm's value chain links to the value chains of upstream suppliers and downstream buyers. The result is a larger stream of activities known as the value system. The development of a competitive advantage depends not only on the firm-specific value chain, but also on the value system of which the firm is a part.

Recommended Reading

Porter, Michael E., Competitive Advantage:Creating and Sustaining Superior Performance

In Competitive Advantage, Michael Porter introduces the value chain as a tool for developing a competitive advantage. Topics include:

• Sharing of value chain activities among business units.


• Using value chain analysis to develop low-cost and differentiation strategies.


• Interrelationships between value chains of different industry segments.


• Applying the value chain to understand the role of technology in competitive advantage.

The book concludes by considering the implications for offensive and defensive competitive strategy, including how to identify vulnerabilities and initiate an attack on the industry leader.

References
1. ^ Martin, James (1995). The Great Transition: Using the Seven Disciplines of Enterprise Engineering. New York: AMACOM. ISBN 978-0814403150., particularly the Con Edison example.
2. ^ "The Horizontal Corporation". Business Week. 1993-12-20.

Competitive Advantage

When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.
Michael Porter identified two basic types of competitive advantage:

• cost advantage
• differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation. A resource-based view emphasizes that a firm utilizes its resources and capabilities to create a competitive advantage that ultimately results in superior value creation. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage:
A Model of Competitive Advantage

Resources
Distinctive Competencies		Cost Advantage or Differentiation Advantage		Value Creation
Capabilities

Resources and Capabilities

According to the resource-based view, in order to develop a competitive advantage the firm must have resources and capabilities that are superior to those of its competitors. Without this superiority, the competitors simply could replicate what the firm was doing and any advantage quickly would disappear.

Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily. The following are some examples of such resources:

• Patents and trademarks
• Proprietary know-how
• Installed customer base
• Reputation of the firm
• Brand equity

Capabilities refer to the firm's ability to utilize its resources effectively. An example of a capability is the ability to bring a product to market faster than competitors. Such capabilities are embedded in the routines of the organization and are not easily documented as procedures and thus are difficult for competitors to replicate.

The firm's resources and capabilities together form its distinctive competencies. These competencies enable innovation, efficiency, quality, and customer responsiveness, all of which can be leveraged to create a cost advantage or a differentiation advantage.

Cost Advantage and Differentiation Advantage

Competitive advantage is created by using resources and capabilities to achieve either a lower cost structure or a differentiated product. A firm positions itself in its industry through its choice of low cost or differentiation. This decision is a central component of the firm's competitive strategy.

Another important decision is how broad or narrow a market segment to target. Porter formed a matrix using cost advantage, differentiation advantage, and a broad or narrow focus to identify a set of generic strategies that the firm can pursue to create and sustain a competitive advantage.

Value Creation

The firm creates value by performing a series of activities that Porter identified as the value chain. In addition to the firm's own value-creating activities, the firm operates in a value system of vertical activities including those of upstream suppliers and downstream channel members.

To achieve a competitive advantage, the firm must perform one or more value creating activities in a way that creates more overall value than do competitors. Superior value is created through lower costs or superior benefits to the consumer (differentiation).

In Competitive Advantage, Michael Porter analyzes the basis of competitive advantage and presents the value chain as a framework for diagnosing and enhancing it. This landmark work covers:

• The 10 major drivers of the firm's cost position
• Differentiation with the buyer's value chain in mind
• Buyer perception of value and signals of value
• How to defend against substitute products
• The role of technology in competitive advantage
• Competitive scope and its impact on competitive advantage
• Implications for offensive and defensive competitive strategy

Competitive Advantage makes these concepts concrete and actionable. It rightfully has earned its place in the business strategist's core collection of strategy books