It is impossible to be everything to everyone. Straying too far away from your original focus may derail your plan. Problems soon arise. They are inevitable. Although, we assess and try to manage expected problems, it is impossible to predict the future. How efficiently and effectively we handle the problem can make or break the firm.
Strategic problems show their ugly faces in many ways. Too many customer clients can mean that the company is producing a bad product. More investment in quality control may be needed. Management may have forgone Q.C. for their salaries. Many symptoms of strategic problems have a domino effect. Too many customer complaints can lead to a deteriorating company image. A bad image can happen for many reasons. Rats found in a fast food spot is not good for its image. Using overseas sweatshops and child labor can hurt an image. For some though, getting into trouble can be good for business. Going to jail, for some, can really help business. A company should try to outweigh the negative perception in the consumers mind, with positive messages about the firm through advertising. A firms product may also be seen as substandard compared to their competitors because the firm has not convinced their consumer that this is otherwise, also through advertising and proper branding.
Another problem facing many firms can be the retention of quality employees. A company may face high absenteeism and turnover, or they may be short of the critical personnel needed. I believe this is a sign of bad management, because the management has not fostered an environment where top employees want to come and stay. Employees have to want to belong. Some are motivated through money, and others by a way of life. What a company should do is foster an environment that allows for the firm and the employees to grow together. A firm needs to match its employees with its goal. Any deviation can hurt the firm.
December 12, 2007
December 9, 2007
Business Policy
The blog has been interesting and definitely unique. I do not think may other classes do a blog. The blog assignment has allowed me to think practically about many of the things I have learned throughout my business school career. It has forced me to write about topics that we always hear and maybe talk about, but not really analyze it. I hope that anyone reading this has learned anything from it, and I hope i can continue to learn from other blogs in the future. I have learned much from reading the blogs of my classmates. The professor's, I'm not sure. I learned more about my classmates that i otherwise would not have had the opportunity to. I think it was a good and unique way and should be continued.
November 12, 2007
Competitive Advantage
A firm must have a competitive advantage. It's sustainability depends on it. Four common ways for a firm to secure a competitive advantage are 1. First entrant into the market, 2. Niche dominance, 3. Market Share, and 4. Government protection. Another competitive advantage that is usually not discussed in business literature; family businesses. Family firms have competitive advantage because they can avoid the bureaucracy that comes with big corporations.
In an emerging market, being the first entrant can be an advantage, but the uncertainty within the environment can be hazardous for new firms. Without any dominant leaders, emerging industries are easy to enter, which leads to higher competition. A new firm must decide on the correct direction of the industry and be the best at it. They need to establish brand recognition and brand loyalty. An example of a new entrant dominating it's industry is Amazon.com. For the first nine years it invested heavily in establishing itself as the best in it's field through brand loyalty , and in 2003, finally made a profit. It now has a strong competitive advantage. It's name is synonymous with e-commerce.
An example of a company creating a niche market can be Def Jam records. This company caters to hip hop listeners, and does very well. With the many record companies, they differentiate themselves by focusing on hip hop. But, among the many hip hop record labels, they have the better artists, and dominate the hip hop music niche.
An example of a company have with tremendous market share can be Microsoft. Microsoft dominates the software industry, but because it has such a broad base of customers, many smaller companies that focus on one part of the market can exist. Another strong competitive advantage a firm can use is serve a niche market only. Many smaller software companies that specialize to customers needs can exist, even with a giant like Microsoft.
Firms with government protection can be the cable companies, such as Cablevision. These companies are given protection because of the costs, trouble, and aesthetically, it would not make sense. Some companies are given geographical locations to provide cable for without threat of competitors. If customers encounter any problems with their service, they do not have much options to turn to.
In an emerging market, being the first entrant can be an advantage, but the uncertainty within the environment can be hazardous for new firms. Without any dominant leaders, emerging industries are easy to enter, which leads to higher competition. A new firm must decide on the correct direction of the industry and be the best at it. They need to establish brand recognition and brand loyalty. An example of a new entrant dominating it's industry is Amazon.com. For the first nine years it invested heavily in establishing itself as the best in it's field through brand loyalty , and in 2003, finally made a profit. It now has a strong competitive advantage. It's name is synonymous with e-commerce.
An example of a company creating a niche market can be Def Jam records. This company caters to hip hop listeners, and does very well. With the many record companies, they differentiate themselves by focusing on hip hop. But, among the many hip hop record labels, they have the better artists, and dominate the hip hop music niche.
An example of a company have with tremendous market share can be Microsoft. Microsoft dominates the software industry, but because it has such a broad base of customers, many smaller companies that focus on one part of the market can exist. Another strong competitive advantage a firm can use is serve a niche market only. Many smaller software companies that specialize to customers needs can exist, even with a giant like Microsoft.
Firms with government protection can be the cable companies, such as Cablevision. These companies are given protection because of the costs, trouble, and aesthetically, it would not make sense. Some companies are given geographical locations to provide cable for without threat of competitors. If customers encounter any problems with their service, they do not have much options to turn to.
November 1, 2007
Business Strategies
Every firm needs a competitive advantage to succeed. While some companies develop strong competitive advantages through patents, brand recognition, and monopolies, new firms entering a market have to have their own competitive advantage. The three most common business strategies for firms to develop a competitive advantage are cost leadership, differentiation, and focus strategies. Many different factors are analyzed before deciding on a specific business strategy; for example, the type of industry and its competitive environment. In a fragmented industry, specializing your product and focusing on a niche market may be better suited. Another important factor in deciding on a business strategy is the cost associated with delivering the product. The higher costs to make, the higher you may have to price it. In this case, you would have to go with a differentiation strategy and focus on a niche market. In my opinion, a differentiation strategy and a focus strategy can be sometimes mixed up as being one and the same, but they are different.. Differentiation has a lot to do with branding; a focus strategy might not necessarily. But when used in combination, these can be effective business strategies for a firm.What type of mass market retailers/department stores implement these strategies, you might ask?
Cost leadership- The classic low-cost retail provider would be Wal-Mart. They offer their customers lower prices than their competitors. Wal-Mart though can lower their prices because they have tremendous purchasing power over suppliers. Suppose you are the supplier of Wal-Mart; they offer to buy some of your merchandise at a price that you agree to. You now have a major client and they buy 10% of your merchandise. But the next order, they want to buy 20%, and because they are buying so much, want a lower price; you of course say yes. Over time they buy more and more of your products, and they own about 60% of your inventory. They are your major customer; you have to negotiate lower prices because you cannot lose their business, and they know that. They now have a grip on your firm.
Differentiation - To effectively differentiate your product, you have to create an image behind this product. I do not mean innovation when i say differentiation; rather your product might be the same or similar to other products on the market, but you want to convince customers that your product is better. Your product could be different for many reasons. Some companies competitive strategy is a strong brand or the image that they create to their consumers. For example, Lexus and Toyota. Toyota owns Lexus. These are two similar products though one costs more. Many apparel retailers and specialty retailers use this strategy. A pair of jeans can range from say 20 dollars to hundreds of dollars. For example, a pair of Levi's may cost around 30 dollars, whereas a pair of True Religion jeans may cost 270 dollars. Here the line may become hazy between focus and differentiation because many of these companies implement both; But, what is it that makes these jeans different? The material used might be a little different, and the time and effort put into making each jean may also be different, but these extra costs, might not be enough to justify the difference between prices. A better answer might lie in the brand/make of the jean, and on the image that it creates for consumers. Much is spent on carefully crafting an image and a brand for the company and its product. These costs will be rewarded through customer loyalty once the image/brand catches on with consumers.
Focus - Examples of focus strategies also abound in retailing. Many specialty retailers and mass market retailers implement focus strategies, and compete based on low-cost or differentiation. Retailers like Forth and Towne (a subsidiary of Gap Inc., which is closing all of its 19 stores) whose focus target is on women over 35 years old; or Motherhood Maternity, which focuses on pregnant mothers; or Neiman Marcus, whose customer base is a more affluent one. Focus strategies work because they fill consumers specific wants, and can provide for underserved markets. Each of Gap Inc.'s three main brands (Banana Republic, Gap, and Old Navy) focus on a different segment of the market, with Banana Republic selling higher priced (better quality) products, and Old Navy serving to a more cost-conscious consumer.
On a side note, for my classmates, if you have read this far, within the simulation these strategies can also be used. Although a focused strategy might be rather difficult because we do not have specific information about the market, some early trends have developed after only two quarters. It is a competition, and i definitely want to win, so I will not write too much about it, but thanks to the progress report, which i did not particularly like because other groups may see our strategies, every second and fourth quarters each group can see what the other is doing, but they need to know what they are looking for. The low-cost leader is obviously the importer. He was in the market with both products before any other group therefore should have some economies of scale where they can provide low prices, and also can provide lower prices because they can take advantage of a lower experience curve than our newly entered firms.I wonder if there any firms using a differentiation strategy in our simulation?
Cost leadership- The classic low-cost retail provider would be Wal-Mart. They offer their customers lower prices than their competitors. Wal-Mart though can lower their prices because they have tremendous purchasing power over suppliers. Suppose you are the supplier of Wal-Mart; they offer to buy some of your merchandise at a price that you agree to. You now have a major client and they buy 10% of your merchandise. But the next order, they want to buy 20%, and because they are buying so much, want a lower price; you of course say yes. Over time they buy more and more of your products, and they own about 60% of your inventory. They are your major customer; you have to negotiate lower prices because you cannot lose their business, and they know that. They now have a grip on your firm.
Differentiation - To effectively differentiate your product, you have to create an image behind this product. I do not mean innovation when i say differentiation; rather your product might be the same or similar to other products on the market, but you want to convince customers that your product is better. Your product could be different for many reasons. Some companies competitive strategy is a strong brand or the image that they create to their consumers. For example, Lexus and Toyota. Toyota owns Lexus. These are two similar products though one costs more. Many apparel retailers and specialty retailers use this strategy. A pair of jeans can range from say 20 dollars to hundreds of dollars. For example, a pair of Levi's may cost around 30 dollars, whereas a pair of True Religion jeans may cost 270 dollars. Here the line may become hazy between focus and differentiation because many of these companies implement both; But, what is it that makes these jeans different? The material used might be a little different, and the time and effort put into making each jean may also be different, but these extra costs, might not be enough to justify the difference between prices. A better answer might lie in the brand/make of the jean, and on the image that it creates for consumers. Much is spent on carefully crafting an image and a brand for the company and its product. These costs will be rewarded through customer loyalty once the image/brand catches on with consumers.
Focus - Examples of focus strategies also abound in retailing. Many specialty retailers and mass market retailers implement focus strategies, and compete based on low-cost or differentiation. Retailers like Forth and Towne (a subsidiary of Gap Inc., which is closing all of its 19 stores) whose focus target is on women over 35 years old; or Motherhood Maternity, which focuses on pregnant mothers; or Neiman Marcus, whose customer base is a more affluent one. Focus strategies work because they fill consumers specific wants, and can provide for underserved markets. Each of Gap Inc.'s three main brands (Banana Republic, Gap, and Old Navy) focus on a different segment of the market, with Banana Republic selling higher priced (better quality) products, and Old Navy serving to a more cost-conscious consumer.
On a side note, for my classmates, if you have read this far, within the simulation these strategies can also be used. Although a focused strategy might be rather difficult because we do not have specific information about the market, some early trends have developed after only two quarters. It is a competition, and i definitely want to win, so I will not write too much about it, but thanks to the progress report, which i did not particularly like because other groups may see our strategies, every second and fourth quarters each group can see what the other is doing, but they need to know what they are looking for. The low-cost leader is obviously the importer. He was in the market with both products before any other group therefore should have some economies of scale where they can provide low prices, and also can provide lower prices because they can take advantage of a lower experience curve than our newly entered firms.I wonder if there any firms using a differentiation strategy in our simulation?
October 23, 2007
Porter's "Five Forces Model"
Michael Porter's "Five Forces" can be used to analyze the attractiveness of an industry for any entrepreneur thinking about entering an industry. There are five factors that an entrepreneur must look at before entering the industry: bargaining power of suppliers, bargaining power of buyers, threats of substitutes, barriers to entry, and rivalry among existing competitors. Suppose I, a budding entrepreneur, wanted to enter the pharmaceuticals industry. This is a general industry term, and can be further segmented into other parts of this giant industry. Pharmaceutical firms manufacture and market their products well; Biotech firms are behind the research that supplies the manufactures. While some biotech firms have grown to the point where they could manufacture themselves, others have been rolled up by "Big Pharma" firms. According to the PhRMA, there are over only 100 companies in the pharmaceutical industry compared to over 300 publicly traded biotech firms, and hundreds private firms. The pharmaceutical industry is the fifth most profitable industry in the U.S. "Big Pharma", top ten U.S pharmaceutical companies made up over 60 percent in retail sales in 2003, according to IMS Health, Inc. North America, Europe, and Japan comprise 78 percent of the 600 billion dollar global market. The U.S leads the world in consumption. Emerging markets in Brazil, China, et al promise growth for the maturing markets in the top three regions. Without the pricing controls in the U.S. that foreign companies must deal with (Europe,Japan), these companies have higher profit margins allowing them to take over as industry leaders from the European companies, who lost their competitive edge.
"Big Pharma" has manufactured and sold various pharmaceutical products (drugs), but now has the research in-house to develop new products. These companies control their suppliers (biotech firms) buying buying them up as they become bigger. These biotech firms do not have the human nor financial resources to compete in the market against the industry giants. Any serious threat is absorbed immediately preventing other firms from entering the industry.
The buyers do not have much say either. Without pricing controls, and with the patent time allotted in the market, these companies are free to charge what they want, and customers pay. These companies sell to Medicade, and the government willingness to keep its citizens healthy. A potential threat is creeping in from Congress which have been pushing legislation for better negotiating terms for Medicade and these companies in terms of prices.
There are high barriers to entry for any new competitors entering the pharmaceutical industry. If you want to mass produce, and most importantly market your product, you will need a high amount of start-up capital. Also alot of the research is screened before any new drug can make it onto the market. Many drugs fail in the Screening phase done by the FDA. These are expenses that these companies must absorb until their "blockbuster" becomes an option. "Blockbusters" are drugs that revenue over 1 billion dollars per year.
For an entrepreneur, this industry would be difficult to enter and succeed in. But, a ray of hope might exist. The biggest threat facing pharmaceutical firms is the expiration of patent protected drugs. Competition is creeping in from generic drug makers.Once "Big Pharma"'s patent ends, the generics are free to duplicate and offer lower prices to customers, effectively ending the monopoly the firm had on prices, the market, and on customers. To make matters worse for competitors, many of these firms have merged and consolidated, combining research and development to protect themselves from potential rivals.
The industry does have opportunities. According to Hoover's, people over sixty will increase to 20 percent of the global population, and drug spending will triple between 2005 and 2015 by 55-74 year old. There is hope for drug makers and generics, but for an entrepreneur, the industry is very unattractive, and would probably not be a wise decision to start a firm.
"Big Pharma" has manufactured and sold various pharmaceutical products (drugs), but now has the research in-house to develop new products. These companies control their suppliers (biotech firms) buying buying them up as they become bigger. These biotech firms do not have the human nor financial resources to compete in the market against the industry giants. Any serious threat is absorbed immediately preventing other firms from entering the industry.
The buyers do not have much say either. Without pricing controls, and with the patent time allotted in the market, these companies are free to charge what they want, and customers pay. These companies sell to Medicade, and the government willingness to keep its citizens healthy. A potential threat is creeping in from Congress which have been pushing legislation for better negotiating terms for Medicade and these companies in terms of prices.
There are high barriers to entry for any new competitors entering the pharmaceutical industry. If you want to mass produce, and most importantly market your product, you will need a high amount of start-up capital. Also alot of the research is screened before any new drug can make it onto the market. Many drugs fail in the Screening phase done by the FDA. These are expenses that these companies must absorb until their "blockbuster" becomes an option. "Blockbusters" are drugs that revenue over 1 billion dollars per year.
For an entrepreneur, this industry would be difficult to enter and succeed in. But, a ray of hope might exist. The biggest threat facing pharmaceutical firms is the expiration of patent protected drugs. Competition is creeping in from generic drug makers.Once "Big Pharma"'s patent ends, the generics are free to duplicate and offer lower prices to customers, effectively ending the monopoly the firm had on prices, the market, and on customers. To make matters worse for competitors, many of these firms have merged and consolidated, combining research and development to protect themselves from potential rivals.
The industry does have opportunities. According to Hoover's, people over sixty will increase to 20 percent of the global population, and drug spending will triple between 2005 and 2015 by 55-74 year old. There is hope for drug makers and generics, but for an entrepreneur, the industry is very unattractive, and would probably not be a wise decision to start a firm.
October 10, 2007
Mission Statement
After setting up the three goals in the prior blog, and receiving feedback from colleagues, I see that a goal of mine is to start a small business consulting firm. I would like to be able to help friends, family, and clients better their lives and their companies with the knowledge gained from school. I would like to help clients develop their business ideas further, and help existing businesses further grow and compete. About 60 percent of graduates find a job in something completely different from their major. The bachelors degree is a stepping stone; a knock on a door to a corporation hoping that they let you in. When I tell people I am an entrepreneur major, some have no idea what that word means; some think it is not as hard as other business degrees, and some like the idea as a major. A study showed that about 1/3 of people in the U.S have ideas for business, but they do not know how to get these ideas off the ground. every one wants to work for themselves, they just do not know how to make it a viable option for them. Many businesses fail, and the firms that do, do so because of skills and knowledge, not becasue of a lack of desire.
The success rate for start-ups are horrific. Extensive market research needs to be done before start-up. Conducting a SWOT analysis of the industry, using Porter's Theory of Five Forces of Competition, are just as important to a successful business than a great idea is. The research needed is time consuming and should be comprehensive. Demographics, customer profiles, focus markets, segmented or unsegmented, these and many more decisions should be carefully analyzed before making strategic decisions regarding a firms direction. What we offer is quality advice, based on comprehensive information and research. Pre start-up, we analyze a companies viability, and post start-up, we implement strategies to keep it sustainable.
I have experience working in a small family business. In some ways, it is a very typical family firm. It is male dominated, patriarchal, and directions come from the top down. But the company grew rapidly, and its employees were few. As the company grew, the firm hired more outside employees, but after a year of being hired, most were gone. One of their key employees, from the beginning of the growth, is a friend of mine. He is also a graduate of Baruch in entrepreneurship. His experience and knowledge would be invaluable to any company, specifically to a consulting firm. He has been a key contributor to its success, which is immeasurable. Our firm will have quality people, offering excellent advice, based on sound research and information.
The success rate for start-ups are horrific. Extensive market research needs to be done before start-up. Conducting a SWOT analysis of the industry, using Porter's Theory of Five Forces of Competition, are just as important to a successful business than a great idea is. The research needed is time consuming and should be comprehensive. Demographics, customer profiles, focus markets, segmented or unsegmented, these and many more decisions should be carefully analyzed before making strategic decisions regarding a firms direction. What we offer is quality advice, based on comprehensive information and research. Pre start-up, we analyze a companies viability, and post start-up, we implement strategies to keep it sustainable.
I have experience working in a small family business. In some ways, it is a very typical family firm. It is male dominated, patriarchal, and directions come from the top down. But the company grew rapidly, and its employees were few. As the company grew, the firm hired more outside employees, but after a year of being hired, most were gone. One of their key employees, from the beginning of the growth, is a friend of mine. He is also a graduate of Baruch in entrepreneurship. His experience and knowledge would be invaluable to any company, specifically to a consulting firm. He has been a key contributor to its success, which is immeasurable. Our firm will have quality people, offering excellent advice, based on sound research and information.
September 26, 2007
Education as an Equalizer
Business environments, like our lives, are dynamic. External and internal forces can change the direction of a firm/life in a positive or in a negative way. These changes rarely occur overnight. Instead, these internal and external variables gradually develop into a changing force, which the company/person must adapt itself to; suggesting, that to some degree, the change can be lessened, and in fact, exploited. Entrepreneurs devote great time and effort on better understanding the type of environments in which their firm will compete. Strategy formulation and planning for the change will help the company better exploit them. But, can these same principles be applied in life?
Many changes have occurred in my life. Most, if not all of them, I was not prepared for. One big change, was me going to New York. Internally, I wanted a change; and externally, the opportunity existed... College, as it got more challenging, got more exciting to me. The experience, knowledge, wisdom gained from the professors and students is immeasurable. But, school to me is a tool. The education acquired in school will allow me to further pursue my goals. Money, while it is important (very), I shouldn't have to pursue it. If I am passionate about something, then it should fulfill me financially, but also, in other, maybe more important ways.
Three goals for the next five years that I have are; one, start my own business; Two, help friends and family develop business opportunities; and three, be in a large corporation, and help them implement strategic decisions. All of these are related, in that they all have to do with entrepreneurship. One difference though is in size and scope. Both alternatives are attractive to entrepreneurs. Both can be rewarding and fulfilling. The one main goal that I have in the next five years, is to be in a position to use the skills acquired from my education to help companies and people grow.
Of course, accomplishing this will not be easy; but I am headed in the right direction, and I plan to pursue my academic career further. School, is not easy, but it can be exciting. Though I have not always planned ahead, I feel lucky to be where I am now. To some, our goals would seem unreal and unachievable, but to us, it is now a possibility. We all come from different backgrounds, and so on, but the one common denominator that we all have, is education. So while you sleep, I'm studying.
Many changes have occurred in my life. Most, if not all of them, I was not prepared for. One big change, was me going to New York. Internally, I wanted a change; and externally, the opportunity existed... College, as it got more challenging, got more exciting to me. The experience, knowledge, wisdom gained from the professors and students is immeasurable. But, school to me is a tool. The education acquired in school will allow me to further pursue my goals. Money, while it is important (very), I shouldn't have to pursue it. If I am passionate about something, then it should fulfill me financially, but also, in other, maybe more important ways.
Three goals for the next five years that I have are; one, start my own business; Two, help friends and family develop business opportunities; and three, be in a large corporation, and help them implement strategic decisions. All of these are related, in that they all have to do with entrepreneurship. One difference though is in size and scope. Both alternatives are attractive to entrepreneurs. Both can be rewarding and fulfilling. The one main goal that I have in the next five years, is to be in a position to use the skills acquired from my education to help companies and people grow.
Of course, accomplishing this will not be easy; but I am headed in the right direction, and I plan to pursue my academic career further. School, is not easy, but it can be exciting. Though I have not always planned ahead, I feel lucky to be where I am now. To some, our goals would seem unreal and unachievable, but to us, it is now a possibility. We all come from different backgrounds, and so on, but the one common denominator that we all have, is education. So while you sleep, I'm studying.
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