Completed Entrepreneurship Assignment Two-muleba Matafwali

CAVENDISH UNIVERSITY ZAMBIA ASSIGNMENT BRIEF AND FEEDBACK FORM STUDENT NUMBER: _ 081202111

LECTURER:

COHORT: MBA12 (DL)

Mr. Ngenda

MBA 24 – Entrepreneurship

SUBJECT: ASSIGNMENT NO TWO

DATE HANDED OUT:

DATE DUE IN:

June 2009

TBA

ASSIGNMENT BRIEF Q.1 Why is strategic planning important to a small company? Elaborate in detail using references. Q.2 Explain how a small business can gain a competitive advantage using the principles of differentiation and customer focus. Give an example of a business using each strategy.

STUDENT INSTRUCTIONS: 1. This form must be attached to the front of your assignment 2. The assignment must be handed in without fail by the submission date (see assessment schedule for your course) 3. Ensure that the submission form is date stamped by the reception staff when you hand it in 4. Late submission will not be entertained unless with prior agreement with the subject tutor 1. All assessable assignments must be word processed

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ASSIGNMENT GUIDANCE This assignment is intended to assess the student’s knowledge in all of the following areas. However, greater emphasis should be given to those items marked with a (Tutor: - please tick as applicable)

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ASSESSABLE SKILLS Good and adequate interpretation of the questions Knowledge and application of the relevant theories Use of relevant and practical examples to back up theories Ability to transfer and relate subject topics to each other Application or use of appropriate models Evidence of library research Knowledge of theories Written Business English communication skills Use of visual (graphs) communications Self Assessed ‘time management’ Evidence of field research

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Table of Contents Item

Page Number

ASSIGNMENT BRIEF................................................................................................................... 1 Table of Contents............................................................................................................................ 3 Introduction..................................................................................................................................... 4 Competitive Strategies.................................................................................................................... 6 Building competitive advantage via differentiation.........................................................................7 Building competitive advantage via focusing..................................................................................9 Customer Focus..............................................................................................................................9 Case in point: Billy Blue:...............................................................................................................10 From sales clump to record sales..................................................................................................10 Conclusion..................................................................................................................................... 11 References....................................................................................................................................12

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Introduction Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis) or STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors) and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal) Strategic planning is the formal consideration of an organization's future course1. All strategic planning deals with at least one of three key questions: 1. "What do we do?" 2. "For whom do we do it?" 3. "How do we excel?" In business strategic planning, the third question is better phrased "How can we beat or avoid competition2. In many organizations, this is viewed as a process for determining where an organization is going over the next year or more -typically 3 to 5 years, although some extend their vision to 20 years In order to determine where it is going, the organization needs to know exactly where it stands, then determine where it wants to go and how it will get there. The resulting document is called the "strategic plan". It is also true that strategic planning may be a tool for effectively plotting the direction of a company; however, strategic planning itself cannot foretell exactly how the market will evolve and what issues will surface in the coming days in order to plan your organizational strategy3. Therefore, strategic innovation and tinkering with the 'strategic plan' have to be a cornerstone strategy for an organization to survive the turbulent business climate. Strategic planning is a very important business activity. It is also important in the public sector areas such as education. It is practiced widely informally and formally. Strategic planning and decision processes should end with objectives and a roadmap of ways to achieve those objectives.

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Importance of Strategic Planning Strategic planning is a very important aspect of business activities and is practiced widely. Decision processes and strategic planning should ideally end with an objective and a set method to achieve the objective. Poor implementation and inappropriate strategy are the main reasons why a strategic plan sometimes fails4. Other reasons include poor market research, failure to define the objectives and lack of creativity in identifying the objectives. There are various reasons why companies favor strategic planning. Some of the reasons for strategic planning are listed below: 1. To acquire the capability to benefit from the desired objectives 2. To fit well within the core competencies of the organization, resources and the external world. 3. To acquire the capability to provide competitive and sustainable competitive advantage within the organization. 4. Strategic planning can provide an overall strategic direction to the core management of the organization and also gives a specific direction to areas like financial strategy, marketing strategy, organizational development strategy and human resources strategy, to achieve success5 5. Clearly define the purpose of the organization and to establish realistic goals and objectives consistent with that mission in a defined time frame within the organization’s capacity for implementation. 6. Communicate those goals and objectives to the organization’s constituents. 7. Develop a sense of ownership of the plan. 8. Ensure the most effective use is made of the organization’s resources by focusing the resources on the key priorities 9. Provide a base from which progress can be measured and establish a mechanism for informed change when needed 10. Bring together of everyone’s best and most reasoned efforts have important value in building a consensus about where an organization is going. Other reasons include that strategic planning: (1) Provides clearer focus of organization, producing more efficiency and effectiveness (2) Bridges staff and board of directors (in the case of corporations) (3)Building strong teams in the board and the staff (in the case of corporations) 5

(4)Providing the glue that keeps the board together (in the case of corporations) (5)Producing great satisfaction among planners around a common vision (6) Increases productivity from increased efficiency and effectiveness (7) Solves major problems

Explain how a small business can gain a competitive advantage using the principles of differentiation and customer focus. Give an example of a business using each strategy. A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices6. Competitive Strategies Following on from his work analyzing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. The four strategies relate to the extent to which the scope of businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products7. The four strategies are summarized in the figure below:

www.wikipedia/wiki/porterr

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The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry. Building competitive advantage via differentiation This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria. This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer8. Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products. Successful differentiation requires being unique at something buyers consider valuable. When differentiation offers value to the customer, it yields competitive advantage. Differentiation is unsuccessful when the forms of uniqueness pursued by a firm are not valued highly by enough buyers to cause them to choose the firm’s product over rivals’ products. Successful differentiation allows a firm to: (1) command a premium price; and/or (2) sell more units of its product at a given price; and/or (3) realize greater degrees of buyer loyalty. Differentiation can produce superior profitability if the price premium achieved exceeds any added costs associated with accomplishing differentiation. Differentiation strategies may be aimed at broad customer groups or narrowly focused on a limited buyer segment having particular needs. One company that has adopted the differentiation strategy is the Mercedes Benz Differentiation of a product has enabled Mercedes Benz to beat down the power of its customers by offering them basically the same product (engines) at various prices under various models and class. The versatility of Mercedes Benz “enables it not only to produce a wide range of vehicle ranging from cars to trucks but it has employed a superior engineering technology in relation to other automobile manufacturers and made available through the existence of a worldwide after ales service”9. This diversity of programme permits consumers to make a wide variety of choices made by customers who decided to buy a Mercedes Benz product and making them a household name. Successful differentiation strategies can grow out of activities performed anywhere in the overall activity-cost chain; they do not arise solely from marketing and advertising departments. The places in the chain where differentiation can be achieved include: 7

 The procurement of raw materials that affect the performance or quality of the end product.

(McDonald’s is more selective and particular than its competitors in selecting the potatoes it uses in its french fries.)  Product-oriented R&D efforts that lead to improved designs, performance features, expanded

end-uses and applications, product variety, shorter lead times in developing new models, and being the first to come out with new products.  Production process oriented R&D efforts that lead to improved quality, reliability, and product

appearance.  The manufacturing process insofar as it emphasizes zero defects, carefully engineered

performance designs, long-term durability, improved economy to end-users, maintenance-free use, flexible end-use application, and consistent product quality.  The logistics system to the extent that it improves delivery time and accurate order fulfillment.  Marketing, sales, and customer service activities that result in helpful technical assistance to

buyers, faster maintenance and repair services, more and better product information provided to customers, more and better training materials for end-users, better credit terms, better warranty cover ages, quicker order processing, more frequent sales calls, and greater customer convenience. Differentiation is thus much broader than just “quality and service” aspects. Quality is primarily a function of the product’s physical properties, whereas differentiation possibilities that create value to buyers can be found throughout the whole activity-cost chain 10 Anything a firm can do to lower the buyer’s total costs of using a product or to raise the performance the buyer gets represents a potential basis for differentiation. There are, of course, no guarantees that differentiation will produce a meaningful competitive advantage. If buyers see little value in uniqueness and a “standard” item sufficiently meets customer needs, then a low-cost strategy can easily defeat a differentiation strategy. In addition, differentiation can be defeated when competitors are able to quickly copy most kinds of differentiation attempts11. Rapid imitation, of course, means that real differentiation is never achieved and that competing brands remain pretty much alike despite the efforts of sellers to create uniqueness. Thus, to be successful at differentiation a firm must search out durable sources of uniqueness that are protected by barriers to quick or cheap imitation12. The most common pitfalls to pursuing differentiation include: 8

 Trying to differentiate on the basis of something that does not lower buyer cost or enhances the buyer’s well-being, as perceived by the buyer.  Over-differentiating so that price is too high as compared to competitors or that product quality or service levels go well past the needs of buyers.  Trying to charge too high a price (the bigger the premium the more buyers can be attracted to competitors by means of a lower price).  Not knowing the cost of differentiation and plodding ahead on the blind assumption that differentiation makes good economic and competitive sense.  Not understanding or identifying what the buyer will consider as value.

Building competitive advantage via focusing Customer Focus This is an organizational orientation toward satisfying the needs of potential and actual customers. Customer focus is considered to be one of the keys to business success. Achieving customer focus involves ensuring that the whole organization, and not just frontline service staff, puts its customers first. All activities, from the planning of a new product to its production, marketing, and after-sales care, should be built around the custome13. Every department and every employee should share the same customer-focused vision. This can be aided by practicing good customer relationship management and maintaining a customer relations program. It is no secret. Retail profitability is connected to customer insight. Years ago, the best retailers were those that could generate pedestrian traffic and had well merchandised stores offering fresh displays and good services firmly entrenched in the relationship age today’s leading retailers are leveraging their customer bases to build profitable relationships with valuable customers by focusing heir merchandising, marketing and customer service offerings into a powerful, integrated brand offering. Retailers those successfully integrate their offerings into one “face” to the customer will build interactive relationships that create strong switching costs. This directive lies at the heart of competitive strategy.

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Most retailers would agree that these goals have become standard operating procedure. However to, truly breakout of the commoditization trap that drives down pricing (and margins), a retailer must be able to address the following questions: 1. Who are your most valued customers (MVCs? 2. What do they need? 3. What motivates them to purchase? 4. Beyond a transaction, how can you interact with your MVCs in a relevant and profitable manner? 5. How can you customize aspects of your business to meet customer needs and drive impact?

Case in point: Billy Blue: From sales clump to record sales Billy Bragman sells men clothing in Billy Blue a San Francisco trading area. Hit hard by the recession of 2001, Bragman found himself on the brick of losing his 15 year of business. George Rane reported Bragman’s case in the san Francisco chronicle (November 2, 2001). Rane revealed Bragman’s proactive approach to customer marketing14. He simply built a list of his best customers and wrote each a letter saying he needed their help. His business was in trouble so he reached out to the customers with whom he has genuinely worked so hard over the years building relationships. In one case, a customer from Pennsylvania was not really shopping for clothes at the time but responded to Bragman’s letter and agreed to buy high ends men’s shirts. Many of his customers responded in the same manner. Bragman soon found himself recovering from his 35 to 40 percent sales slump, and even had a record breaking sales month in November 200 Every company needs a customer based strategy especially in the fierce battle to win the battle for growth. Studies have shown that a 5% increase in customer retention can increase a company’s profitability by 75%16.

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Conclusion Now is the time to take a new look at how entrepreneurs can organize and manage business enterprises, in order to compete in the modern business environment. Companies have to compete with companies that take advantage of information technology to organize and manage the actual business. Businesses with proper business strategic plans can gain competitive advantage through effective business collaboration, development of specific capital needed to increase result valuequality, cost reduction to the essential costs to produce results, and utilization of information technology to deliver customer value and quality.

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References 1. Roger L. Kemp, "Strategic Planning for the Future," The Interstate, Danville, IL (1988). (1) 2. Roger L. Kemp, "Strategic Planning in Local Government: A Casebook," Planners Press,

American Planning Association (APA), Chicago, IL (1992). (2) 3. Roger L. Kemp, "Strategic Planing," Cummings & Hathaway, Rockaway, NY (1995). (3) 4. Patrick L. Burkhart and Suzanne Reuss (1993). Successful Strategic Planning: A Guide for

Nonprofit Agencies and Organizations. Newbury Park: Sage Publications. (4) 5. Bradford and Duncan (2000). Simplified Strategic Planning. Chandler House. (5) 6. Stephen G. Haines (2004). ABCs of strategic management: an executive briefing and plan-to-

plan day on strategic management in the 21st century. (6) 7. Kono, T. (1994) "Changing a Company's Strategy and Culture", Long Range Planning, 27, 5

(October 1994), pp: 85-97 (7) 8. Philip Kotler (1986), "Megamarketing" In: Harvard Business Review. (March—April 1986) (8) 9. John Naisbitt (1982). Megatrends: Ten New Directions Transforming our Lives. Macdonald.

(9) 10. T. Levitt (1960) "Marketing myopia", In: Harvard Business Review, (July—August 1960) (10) 11. M. Lorenzen (2006). "Strategic Planning for Academic Library Instructional Programming."

In: Illinois Libraries 86, no. 2 (Summer 2006): 22-29. (11) 12. L. Fahey and V. K. Narayman (1986). Macroenvironmental Analysis for Strategic

Management&rdquo. West Publishing. (12) 13. R. F. Lusch and V. N. Lusch (1987). Principles of Marketing. Kent Publishing, (13) 14. Brian Tracy (2000). The 100 Absolutely Unbreakable Laws of Business Success.

Berrett,Koehler Publishers. (14) 15. Michael Allison and Jude Kaye (2005). Strategic Planning for Nonprofit Organizations.

Second Edition. John Wiley and Sons. (15) Websites 1. www.smallbusinessesnotes.com/planning (16) 2. www.wikipedia/wiki/porterr 3. www.insideindianabusiness.com/ 4. www.echeat.com/essay

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