The way a company’s managers should manage a company should largely be down to the business plan. However there are often external factors limiting a companies business, they may choose to solely benefit shareholders, but practically and legally they must provide some benefit to their employees and their customers to remain socially responsible and have a strong positive public relationship to remain profitable. An umbrella corporation may often have to make strategic decisions to combat potential problems well in the future. In the show Silicon Valley (external) the senior venture capitalist spends a lot of his time studying sesame seed markets in Myanmar and Brazil in order to profit in the future, this example (although fictional and a little overplayed) is a small look into the world of ensuring that profits are maintained and some of the crucial detail that must be taken into account.
The ability to assess the viability of consolidating corporate strategy is not only about turning a profit, but is also about financial and shareholder relations, the capability and flexibility of dynamic and slow moving markets, the technical ability of the employees and manufacturing capabilities as well as cost, the people and manpower involved and the risks undertaken at every stage.
Ensuring that a business has a strategic plan ensures that the company has direction and vision, companies that fail to innovate or differentiate could get left behind or never reach their true potential. A business must define the scope of its operations, how it defines its goals, then how it plans to achieve them, and finally, evaluate. Companies that fail to find a suitable corporate strategy could be left behind and not identify important challenges ahead of time and their current states failings such as their branding or vision.
Aspects a business should consider in corporate strategy.
This article serves to supplement the article Influences for Supply and Demand, that I wrote a while ago. For a more general overview of supply and demand, I suggest visiting there first.
Demand has many factors that influence a market, such as;-
Changes to the prices to substitute products, such as cheaper products available online or at discount stores could reduce the sales of a premium product or product range.
Changes to the availability of complementary goods or changes in the price of complementary goods, such as two large luxury opposing ice cream companies.
Disruptions to the supply chain of competitors, such that their prices or other aspects change.
The incomes of customers could rise, causing customers to choose superior or premium products, similarly, they could fall and choose less or inferior products, Especially prominent for Elastic products or Luxury Items.
Advertising could increase consumer interest or make the product more noticeable to customers or potential customers.
Branding or PR could be used more prominently or advertised.
Recently companies have opted for using social marketing or guerilla marketing, as it can be more successful or noticeable since ad-blockers and the fall of cable TV and TV Advertising have made it harder to reach consumers.
Advertising or Branding of other competitors products could also potentially boost your own profits, especially if the product is generic or seasonal.
Changes to consumer incomes.
The demand for a product or service may also depend on the demographics of the product, if it is aimed at older people and the area is a student town, finding customers may be more difficult than other locations.
External Shocks, such as the economy or new technologies that make the product or service obsolete could also negatively affect the products demand if a business fails to innovate or adapt to change.
An Entrepreneur is someone who sets up a business, who is willing to take risks, in the hope of reward. An Entrepreneur may either succeed or fail at their own personal objectives, or may find that through divorce of ownership, they loose control of a business they started. Essentially an entrepreneur is someone who is willing to take risks. The type of business an entrepreneur sets up may depend on the goals that they want to achieve.
Not everyone wants to make money, some people may have other goals, such as individuals who want to make people feel better. Examples would be medical apparatus, some people invest lots of money into medial apparatus, cancer research or rehabilitation centres to help people who need it.
Some businesses have insider entrepreneurs, who work within a business as though they were on their own, with the resources of the business they are able to accomplish more than they would alone, and therefore they and the business profit from that. Examples would be Eduardo Saverin, although he is an entrepreneur, he briefly worked with Facebook in order to accelerate their growth. He is an example of an Insider Entrepreneur.
Insiders allow a business to setup a corporate think tank, that allows them to come up with ideas through blue sky thinking and creative thinking.
Advantages and Disadvantages of a Corporate ‘Think Tank’
An objectivised think tank may not actually produce any good ideas, although they may seem good, they may not be possible due to financial or time constraints. Examples would be features on software development, it may be good to have a certain feature, but it may not be possible to implement. (See SMART)
This may also lead to income constraints, as time is invested in producing these ideas, it can take lots of their time to do research and development.
It also means the entrepreneurial roles they should be doing are put aside. Examples would be excessive meetings or wasting employee time waiting for information.
They may be all over the world, and may have never worked together before, so the ideas could vary and the results could be poor.
A think tank relies on a good reputation or ideas may never take off from the ground. Research into pointless topics could be expensive.
Having a think tank requires experts who may cost a lot of money. CTO’s and CFO’s could have a good reputation and cost a lot of money to get a project off the ground for start-ups.
It also requires trust, as some employees may not be willing to bare the blame for a failed project.
Employees may not be motivated to do blue sky thinking or may not want to help the business earn profits that they do not get a part of, salary can de-motivate employees.
A gap in the market may be hard to find. Especially Saturated Markets.
Think Tanks can also be Cheap.
Loyal Customers may be able to contribute to Think Tanks, examples would be the hospitality industry. Surveys and Questionnaires could shed light on what customers really want.
There can be high financial risk.
There is an acronym that can help when dealing with think tank blue sky thinking. SMART!
Specific. Vague. Broad topics can not make much sense. Making a website ‘pop’ isn’t a good way of asking a web designer to improve a website.
Measurable. It can be useful to collect statistics or data before taking a calculated risk.
Achievable. Some goals may not be possible because they are not what a company is about.
Realistic. Some goals may not be possible because they are too optimistic.
Time-frame. Some goals may not be possible because of the manpower a business has.
Sales Forecasts are charts and graphs, equations and educated predictions that allow businesses to predict future sales with a degree of accuracy.
Consumer Trends – People being proud of bargains and discounts. sales forecasts become harder to predict when consumerism changes.
Economic Variables – Recessions, Booms and Recovery.
Competitors Actions – loss leaders and pricing strategy may try to undercut you.
Digital Music for example, as become harder to predict as people have found new ways to obtain it illegally.
Fashion Items have an unpredictable life span.
Businesses use a range of forecasting tools to make forecasts
No single technique is reliable, but having multiple will allow you to better predict the future
Using sales forecasts may be useful but having data that is unreliable could mean that the forecast is not accurate. Making forecasts that are too long into the future could be considered extrapolation.
Extrapolation is cheap, although inefficient it gives a fixed perspective of what to expect which is better than nothing.
Planning for the worst allows companies to expect and anticipate failure. Very successful stable products cannot predict when sales will fall as their product is likely very price inelastic and customers are used to the product’s taste or function that changing it could make customers unhappy with the product. ‘Many financial measurements which are useful and valid in static situations are strategic traps in growth situations.’
Failing to predict sales forecasts correctly
Failing to accurately predict sales forecasts may mean that a business could fail. Working capital is cash that is spent on the business, liquidity is not. Having a lot of working capital does not necessarily mean you are liquid. You may also have;
Contingency Finance (A financial Cushion)
Credit Periods yet to expire
An active Working Capital Cycle
That must be paid before you consider any additional finance as liquid that you can spend on anything. Additionally when a business is in liquidation whereby they have had to cease trading there is still things that have to be paid off, and unfortunately for some employees, this may be unfair as it could mean a business cannot afford to pay them because they do not have the funds.
The Tax Office must be paid, to cover the business from litigation.
Shareholders must be paid dividends and the value of their shares.
Employees must be paid their wages.
Some Key Terms
An Income Statement – Measures the business performance over a period of time, and may allow them to determine where forecasting was over-optimistic. It shows a companys revenue and total spending over a given period of time.
A Statement of Financial position is a snapshot of the business assets.
A Cash flow statement shows cash flow sources over a given period of time. It shows exactly how much a business has received and spent.