Understanding Strategic Business Planning for Business Analysts.
Matthew Coppola- Talk at the BA World Conference.
Implementing the strategic plan
Implementing a well-thought out strategy can result in a desirable outcome.
Monopoly is a great example. Although it is a game of chance there are elements of strategy which contribute to a successful win.
Firstly forget about cheating in business. It doesn’t guarantee winning.
In Monopoly the player who steals money from his opponent or does not remind the other player that they are due rent if they forget, may experience a short term gain, but the long term result could be negative, such as a loss in credibility and trust, and with a short term gain mentality, there is no future focus, so the strategy will be misguided.
Secondly, ethical behaviour and a sense of fair play, is just as important in Monopoly as it is in business
In game strategy we refer to the situation when a player makes a course of action over a series of games, as “repeated games”.
A firm that takes on unethical conduct to craft a quick killing might benefit in the short term, but will end up paying for it in the long term. Take for instance organisations that outsource manufacturing to low cost countries. Yes it will result in cost savings, but may affect reputation of product quality.
However, a business that maintains an open-handed refund and makes a practice of giving customers the benefit of the doubt, might not be as profitable in the short run as a more rigid policy, but is more likely to lead to repeat business, customer loyalty, and long-term gains.
Thirdly maintain a healthy cash position. In Monopoly having a nice wad of cash around helps protect you from times when you land on high rent spot or you want to buy property or build houses.
Same with strategic planning, opportunities arise in the strategic scope which may not have been accounted for when the plan was initially developed. Cash position is a good indicator also of the health of an organisation and their ability to repay short term debts.
Fourthly in Monopoly, by having your hand in different areas you can be guaranteed of income, for example not just having one side of the board but having parts all over.
Business diversification is a strategy to increase the variety of services and products within an organization. Diversification can be a growth strategy, taking advantage of market opportunities, or it may be aimed at reducing risk by spreading interests over different areas.
It can be achieved through acquisition or through internal research and development, and it can involve managing two, a few, or many different areas of interest.
There are two types of diversification strategies
One type is horizontal diversification, which involves expansion into a similar product area, for example, a domestic furniture manufacturer producing office furniture.
In Monopoly it means acquiring all properties under one colour.
Another is vertical diversification, in which a company moves into a different level of the supply chain, for example, a manufacturing company becoming a retailer.
Vertical diversification in Monopoly entails acquiring utilities and other non-residential spots.
So what are the motives for diversification? They are growth, risk reduction, and profitability.
To become the top player in Monopoly you need to acquire as many properties as you can and increase your cash flow by buying houses and hotels.
Players can reduce risk of losing or succumbing to landing on a high rental spot by acquiring as many properties and utilities as they can. That way, nearing the end of the game once everyone have bought houses and hotels, if you do land on a property or utility and you own it, well you avoid rent.
Profitability is also a key motive for diversification. In Monopoly, some properties offer very little rent value, but other properties offer very high rental return. And having a constant cash flow from owning numerous properties helps keep you profitable.
However, a key advantage of a specialised company over one that is diversified across a number of vertically linked businesses is the specialised company’s ability to develop distinctive capabilities. In Monopoly, by concentrating on one or a couple of property blocks on one side of the board enables you to have enough money to build houses and hotels on those properties quicker and with less risk.
And lastly In Monopoly try and team up with players who have a nice wad of cash for needed protection.
A strategic alliance is a cooperative relationship between firms involving the sharing of resources in pursuit of common goals. Having a strategic alliance can help you win against the big boys with more money. Acquiring another company can be expensive, but alliances are more targeted and cheaper way of accessing other company’s capabilities.
So all these points just in a game…
Therefore for an organisation, the most important factor is not luck, but the ability to recognise opportunities when they appear and to have the clarity of direction and the flexibility necessary to exploit these opportunities.
Seeing the benefits of a well thought out strategy takes time and patience. You won’t see the fruitages of a strategy over night.
We can learn this lesson on patience in the game of chess.
Many opportunities will come up that may divert your strategy on a tangent, and as attractive it may be, it doesn’t hurt to be patient and do your research by considering all the known options available.
In business grabbing an attractive opportunity can result in “first mover advantage” however, by being flexible and open to possibilities can result in a more optimal outcome.
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