Business planning is the discipline dealing with formalizing and monitoring business strategies. We present here few of the models that are useful in business planning.
Note that actually business planning is a school of thought that was developed in the 60’s. Its advantage is that it is easy to understand and can be a good basis for modeling businesses. However, as shown by Mintzberg [Mintzberg], it has numerous drawbacks. Before applying business planning, we strongly recommend reading Mintzberg’s book.
Value System and Chain :
- The value system and value chain are important tools for understanding how a company position itself against its competitors. McKinsey initially developed these tools and Porter made them popular.
The value chain is a tool to analyze the value of what a company does The idea in the value chain was to capture the fact that a company does a series of functions (e.g. operations, technology development, etc…). Analyzing how these functions are done relatively to their competitors can provide useful insights [Porter].
The value system is a tool to analyze how a company positions itself relatively to other companies. The idea in the value system was to make explicit the role of a company in the overall activity of providing a product to a customer. The value system makes explicit who are the suppliers and what are the channels of the given company. It allows understanding if all the companies involved in the sale process are truly collaborating or if they have conflicts of interests. It also allows comparing a company with its competitors.
Figure: Value System [Porter]
The five competitive forces are useful to understand a company competitive situation. Porter defines also the model of the five competitive forces [Porter]. This model is a third view of the same reality but it is equally difficult to relate precisely the graphical representation of the five forces to the corresponding value chain or value system.
In using these tools, the planners experience the same kind of modeling difficulties as the software engineers. The value chain and the value system are strikingly useful models when business people need to think about their business strategies. Unfortunately, in their practical applications, the regular modeling frustrations appear, For example, business people have hard time to agree on how to build the models when the companies to model are not trivial anymore (for example when a service industry is modeled). In addition, it is quite difficult to relate the graphical representation of the value chain with the one of the value system. Actually, the difficulties, encountered in modeling a value chain or a value system, are the same as the ones encountered when modeling software.
Strategic Plan :
- It is amazingly hard to answer simple business questions such as “what is my business about?”
Peter Drucker [Drucker] recommend that business people ask themselves the following questions: “what is our business?”, “who is the customer?”, “what is of value to the customer?”, “what will our business be?”, “what should our business be?”. The strategic plan is a tool useful to understand in which business a company is and what is should do. These questions, in appearance simple, are actually tough questions. Most successful companies have answers to these questions and constantly monitor if these answers are still valid [Kotler]. The strategic plan is a tool that can be used to reply to these questions.
Figure: Strategic Plan [Kotler]
Good business planning starts with a good business definition. The strategic plan starts with a business mission. Actually [Ryans] and [Abell] proposes to define precisely what means defining a mission. For this they propose to replace the “business mission” by a “business definition” as defined in Fig. X. Once the business definition is known, the planners can apply the strategic planning process to define what a company should do to become, to maintain or to increase its competitive edge.
Figure: Business Definition [Ryans]
The same comments as the ones made on the applicability of the value chain and value system can be made to the strategic plan and the business definition.
For a very good dicussion of the pros and cons of strategic thinking, please refer to [Mintzberg].
Prentice Hall College Division
Kotler et Dubois
Winning Market Leadership : Strategic Market Planning for Technology-Driven Businesses
Adrian B. Ryans (Editor), Roger More, Don Barclay, Terry Deutscher
John Wiley & Sons; ISBN: 0471644307
Competitive Advantage : Creating and Sustaining Superior Performance
Michael E. Porter
Free Press; ISBN: 0684841460
Strategy Safari: A Guided Tour Through the Wilds of Strategic Management
Henry Mintzberg, Bruce Ahlstrand, Joseph Lampel
Simon & Schuster; ISBN: 0684847434