A business plan is essential for the daily functioning of a business oragnisation. Every organisation needs to have a business plan which is regularly reviewed in order to keep it up to date. The plan is articulated by corporate leaders, who give the organisation direction and save it from change via strategic drift. They create a vision of a possible future that allows both themselves and others to see more clearly the direction to take, building upon the organisation's current capacities and strengths.
Elements of a Business Plan
Stoner and Freeman define a business plan thus:
"a formal document containing a mission statement, description of the firm's goods or services, a market analysis, final projections, and a description of management strategies for attaining goals".
We shall look at each of these business plan components.
Mission Statement
As we saw earlier, a mission statement is a way of expressing the overall philosophy of the organisation, which is in line with the values and expectations of its stakeholders, in those groups or individuals who have a stake in, or expectations of, the organisation's performance. They include employees, managers, shareholders, suppliers, customers or clients, and the community in which the organisation operates.
products for the building and automotive markets, says:
"Our mission is to be a dynamic, market driven, global provider of glass products, judged best in class by our customers, our people and our shareholders. We believe our strategies to increase our efficiency, together with our growth initiatives, make us the most competitive glassmaker in the world."
Description of Goods and Services
This is a description of what the organisation has to offer. BT describes itself as "one of Europe's leading providers of communications services". It says: "We aim to help our customers make the most of the opportunities that communications technology brings. As well as voice services, we are concentrating on newer areas where we have established already a strong position, such as mobile, internet and -business services and solutions. As the next stage in the transformation of BT, we plan to create two strong and separately quoted businesses, BT Wireless and Future BT."
Market Analysis
As part of its plan, an organisation needs to consider the state of its market place. Walker Greenbank is a multi-faceted company operating in the printed fabric, home décor
and furniture market. It stated, in an overview of its markets, that:
"Market conditions in the six months to 31 July 2001 continued to be difficult. Therefore, despite a significant reduction in the cost base at the end of last year, this proved insufficient to return the group to profitability and further actions including additional redundancies have had to be taken. The continued slowdown in the market place in the first half combined with customers destocking has particularly affected the group's manufacturing businesses. The slowdown has resulted in sales being 10% lower than the same period last year in the core brands. However, total sales for the group are broadly in line with last year due to the inclusion of a full six months of the acquisitions made in March 2000. The pre-exceptional operating loss in the period is £1,495,000 compared to a pre-exceptional operating loss of £14,000 last year".
Final Projections
These are statements of the organisation's plans for where it is expecting to be in the future. It may be expressed in terms of increased market share, financial turnover or profit. Centrica, the conglomerate which includes the supply of gas and electricity, telecommunications, home heating services, road services such as breakdown recovery, and financial services, had a whole range of projections across the board.
In general they quoted their vision to be:
"a leading supplier of essential services in our chosen markets. Our strategy is to retain and attract customers in our core businesses with continual improvements in service and value, while at the same time developing new opportunities in Britain and internationally."
In detail they say they planned to:
"offer even more value for money services to our customers in Britain and elsewhere. Specifically we will extend our financial and telecommunications services. We aim to supply a million telecommunications services to customers by the end of 2001, including mobiles and web access as well as a fixed-line service. We will continue to develop the AA.com as the premier source of motoring information. We will also bring in a new type of AA roadside recovery vehicle to give our members an even better service. This year you will be able to check your bill online, make payment and access a range of information pages on the gas.co.uk site".
Management Strategies for Attaining Goals
There is a link between business planning and strategic management.
O2 (formerly mmO2) was set up, by means of a demerger from BT, specifically to supply mobile communications services in Europe. Its stated strategy was as follows:
"Our goal is to create shareholder value through above sector average growth in revenue and EBITDA (earnings before interest, tax, depreciation and amortisation). The key elements of our strategy to achieve this goal are to: (a) emphasise operational performance and execution
(b) achieve greater integration by managing our business cohesively, and
(c) lead in new data services through GPRS (General packet radio service, allowing customers to remain connected to the network between calls for the receipt and transmission of data) and UMTS (Universal mobile telecommunications system, an international standard of third generation mobile phones)."
What you will notice from the above quotes is that, although businesses may differ from one another in many ways, such as market share, products or services, size, financial strength, etc. what they have in common is a plan for the future, however unclear the future may be.
In respect of planning, Fayol made the following points:
- Plans have objectives and are guided by policies.
- Planning is a process made up of closely linked stages.
- There are methods and techniques to be used in planning.
- Short-range planning is easier than long-range planning.
Goals and Objectives
The following descriptions of goals and objectives are those which are generally accepted in terms of strategic management:
- Goals (or aims) are a general statement of the direction in which the organisation is planning to go, and which is in agreement with its mission statement. Goals are normally qualitative, i.e. general, in nature, such as O2 plc aiming to "create shareholder value".
- Corporate objectives (or quantified objectives) are more likely to be quantified, or at least to be a precise statement in line with stated goals: for example, Centrica's stated aim to "supply a million telecommunications services to customers by the end of 2001".
The important point to note is the difference between qualitative statements which describe an attribute or a degree of excellence, and quantitative statements which are measurable and include a number or an amount.
Policies, Strategies, Tactics and Control
- Policies refer to the basic objectives of the organisation and define the long-term purpose. As a consequence policies are broad rather than precise in nature, and will exist for every part of the operation, serving as a broad restraint which will give guidance to managers: for example, "to achieve a return on investment (ROI) of 10%".
- In this case there is no fixed time constraint given, which is acceptable in policy-setting provided a time element is implied. In this example the ROI objective is continuous. If the policy was to increase ROI, then the policy statement would have to be written so as to reflect this, for example, "to increase ROI by 10% by the end of this year (2002) and then to maintain it at that level".
- Strategies are objective statements that identify the actions by means of which a particular position is to be achieved or maintained. A long-term plan will include strategic statements which will have been derived from the established policies.
- Tactics follow from the strategies which have been selected, and which in turn have been derived from the organisation's policies. As we saw earlier in distinguishing between strategic and tactical decisions tactics are of a short-term nature and are designed to achieve short-term aims. If the organisation is operating effectively as a functional system, then it follows that, if all tactical objectives are achieved, strategies and therefore overall policies are also achieved. Levels of Management Action The three stages of planning, acting, and evaluating underpin all management action, at whatever level within an organisation.
The stages of management action are:
- establishment of policy
- generation of strategy
- specification of tactics
- provision of control measures.
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