An Effective Business Plan For Entrepreneurs and managers

1 An Effective Business Plan For Entrepreneurs and managers Vuttichat Soonthonsmai, DBA. Hankuk University of Foreign Studies, South Korea and Burpha University, Thailand STARTSIM Project for enhancing global Entrepreneurship Spirit Copyright Reserved 2008

2 Table of Content Page Chapter 6 6 1. Introduction to Business Plan I. Strategic Assessment and Entrepreneurship Management 8 2. Business Environment 12 Analyzing the environment - Five Forces Analysis 16 Ansoff's Matrix 17 The Boston Matrix 24 3. Strategic Assessment and Development 24 Vision 24 25 Mission Statement 25 Goal and Philosophy Strategic Posture 39 4. Implementing the business plan and Action Plan 42 5. Control and Evaluation 61 References

Figure Table of Figure 3 1 2 Five Forces Analysis Page 3 Ansoff's Product/Market Matrix The Boston Matrix - Product Portfolio Decisions 12 4 Value Chain Analysis 16 17 5 Porter’s Genneric Strategies 19 6 Ansoff's Product/Market Matrix 27 30

Table of Table 4 Figure The S.W.O.T and possible strategies Page 1 The time, budget, and target sales 21 2 40

5 Acknowledgement This handbook is prepared for the interested person who want to “Do it Self” in the collaboration of the STARTSIM Project for enhancing global Entrepreneurship Spirit. STARTSIM project is the European Union sponsoring for encouraging the entrepreneurs and practitioners to learn and prepare an effective business plan to reach the entrepreneurial firms. The book is divided into five parts. The first part introduces the essential of business plan for business owners and other stakeholders, and key players in the business plan development and writing. The second part shows how the firms assess their strengths, weaknesses, opportunities, and threats (SWOT) analysis through the sophisticated internal and external analytically management tools. The third part contains the strategically posture formulation through the strategic management process under the entrepreneurship-oriented firms. The fourth part shows how the business owners implement the business plan effectively through an action plan that point out such the essential key elements as who involve, when the plan will be executed, including how much the budget was allocated to each program, and what the key performance index should be. The last part contains how the plan is evaluated and controlled with providing the essential evaluation methods. However, the handbook provides the essential elements that business owners and interest persons need to know and understand. To better concretely and comprehensively writing business plan, an appropriated research may need and an additional good advice from the experts, investors, financial institute advisor enable the business owners to execute this plan sustainability.

6 CHAPTER 1 INTRODUCTION TO BUSINESS PLAN This chapter is divided into five sections. The first section explores the nature of strategic management and process and detailed summary of the components of a business plan, including the internal and external environmental scanning, and explains how to analyze these factors with the SWOT Analysis. The second section presents the nature of the strategic posture and process, explains what and how to formulate the strategic corporate, business units, and functions. The third section portrays how to implement the plan and explains what questions the entrepreneurs are likely to be asked by bankers, investors, and others. The fourth section indicates how to evaluate and control the plan efficiently. And the last section suggests how to communicate and present the business plan. I. Strategic Assessment and Entrepreneurship Management One of the most important cornerstones of starting a business is the business plan. Once the business plan was completed, entrepreneur may be ready for run the business internationally. The business plan is a flexible document that should change as the business grows. The plan serves as an entrepreneur's road map to building a successful business. It describes the direction the company is taking, what its goals are, where it wants to be, and how it plans to get there. The business plan, therefore, serves three essential functions-- it provides an operational guide for action and success, it attracts lenders, and it is a reflection of its creator. The business plan should have:  A clear statement of the business.  A clear statement of the business status.  A clear statement of the market.  A clear statement of the competition.  A clear statement of suppliers.  An accurate description of the business financial condition. The business plan therefore is the one that the entrepreneur actually uses to manage the business successfully. Developing and writing the plan takes time, cost, and efforts. Updating and revising the plan annually, especially its financial projections, are essential. There are three questions related to the business plan as follows. 1. Identify the two main purposes of a business plan. Is one more important than the other? Why or why not? 2. Why do so many small business owners fail to prepare business plans? What are the consequences? 3. What major elements should a small business owner incorporate into a comprehensive business plan? It is noticeable that a corporation with an uninvolved board of directors but a highly involved top management has individually entrepreneurship management. The board is willing to be used as a rubber stamp for top management's decisions. The CEO, operating alone or with a team, dominates the corporation and its strategic decisions through his/her business plan with the strategic planning aspect.

7 The business plan has the essential elements as follows. Cover page Table of contents Executive Summary Background and current situation Environmental Scanning : Environmental Audit External Environment -Societal Environment -Societal Forces -Economic Forces -Political-Legal Forces -Technological Forces -Industry (Task Environment) Analysis -Shareholders -Suppliers -Governments -Special Interest Groups -Employees/ Labor Unions -Customers -Competitors -Creditors -Trade Associations -Communities Internal Environment -Structure -Culture -Resources Vision/Mission Objectives and Goals Strategic Posture -Corporate Level -Strategic Business Unit (SBUs) Level -Functional Level Functional Strategy -Marketing -Operations, Procurement and Technologies -Human Resource Development -Accounting and Finance Strategy Implementation Action plan Financial Projection Evaluation and Control Contingencies plan Appendixes

8 CHAPTER 2 BUSINESS ENVIRONMENT The environmental analysis of five forces is essential for the strategist to identify and to develop business’s competitive priority to accomplish the short-run and long-run objectives. According to Minzberg and Brian Quinn (1996), the uncontrollable or uneasy controllable factors that impact on global strategy are following. 1. Social and culture. Social factor is one of the major factors that both domestic and international business owners should be aware of. These factors indicate the demographic information like how many target population, the classification of age groups, birth and mortality rate, migration rate, including such influential forces as the quest for minority groups, demand of women for opportunity and recognition, the changing patterns of work and leisure, and the changing composition of world population. Culture is the subject to analyze in terms of ways of life of subculture groups and consumer behavior pattern. 2 Technology. Globalization can help people to travel and communicate with each other more easily and efficiently. Technological developments are not only the fastest unfolding but the most far-reaching in extending or contracting opportunity for an established company, Also, the development of the essential infrastructure comes from the advance technology of transportation and communication at present and in the future. 3. Politic and regulations. The factors strongly affect global industry. The political force is important to the business firm which are similarly extensive and complex. The relation between private enterprise and government, between workers and management, the impact of national planning on corporate planning. 4. Economic. The economic of each country is one of the most

9 important factors to drive consumers to purchase and to spend the money for the products. The economic indicators are GNP, GDP, interest rate, inflation rate, exchange rate, and unemployment rate. 5. Ecological and environmental issues. The environmental issue is increasingly the major problem which many countries are facing the problems of the air, noise, and water pollution that are so serious that governments rank this problem as one of the major national problems that needs to be solved urgently. With the increase in sensitivity to the impact on the physical environment of all industrial activity, it becomes essential, often to comply with law, to consider how planned expansion and even continued operation under changing standards will affect and be perceived to affect the air, water, traffic density and quality of life generally of any area which a company would like to enter. The analytical of these five forces enables the MNCs to identify their opportunities and threat in their industry. The information from environmental scanning with the internal MNCs factors scanning is essential for the strategic planner to identify the S.W.O.T. In order to gain the competitive advantages, the strategists need to analyze these information efficiently. The following example shows how the global company utilizes the five forces scanning to identify the best position in the global marketplace. Heineken is the most international beer brand in the world and the leading brand in Europe. Heineken N. V has its root in Amsterdam in 1864, has become one of the most famous beer companies in the world. Firm has also enjoyed the steadily increasing growth rate of beer consumption for a long time. However, the firm has recently faced the strenuous of an extended decline growth rate in beer consumption that continues to show in current market especially its home market in

10 Europe. This decline may result from four major reasons: 1) steadily increasing health-consciousness consumers in developed countries, 2) highly level of competition of beer industry in the global market, 3) an aging population: slower growing populations in developed countries than in many developing countries outside Europe, and 4) increasing excise tax for beer in developed countries such as France, U.K. Company has scanned the environmental factors that impact on the beer consumption. The societal environmental factors involve changes in customers’ life- style and preferences. They are trading in quantity for quality along with “moderation” life-style. This has come a demand for more enjoyment, a definite taste and so called a “search for richer favor”. This search for an enhanced flavor experience has sparked a sociological shift in consumer attitudes toward beer, resulting in an increasingly competitive and fragmented marketplace. Obviously, an increasing number of people can create a rising overall demand for beer products. With the fast-growing populations in many developing countries, this soars marketing opportunity to expand businesses across the culture in different political- legal forces and economic situation status. The advance transportation and communication technology enhance Hieneken’s great chances to develop the strategic alliance around the world as well as to communicate with its customer efficiently. Wit this intensified competition and sophisticate transportation and communication technology development has come a review emphasis on the unserved or potential market in developing countries. However, the growing health-conscious customers in most developed countries such as U.K, the U.S, German can hurt beer industry. In recent years, increased awareness of and attitude toward the benefits of healthy living has hurt

11 beer consumption and encourages the public to call for increased levels of government regulations of this industry. Weather is also one of the major factors which make the beer’s demand fluctuation. The fluctuation of exchange rate in global trade with some countries that have unstable economic status can be the major threats. Furthermore, although beer industry had the high barriers for the new global beer entrants due to the high capital requirement. The barriers are somewhat high enough to prevent the local or domestic beer to enter the niche market. Beer industry, therefore, is the highly competitive intensify industry because of a high bargaining power of buyers and suppliers, many substitute products, and many high power competitors of both domestic brand and global brand such as the U.S beer, German’s beer. The outcomes of the environmental scanning enables Heineken to identify how to segment market and select the target market include to plan the global strategy called glocalization. Under glocalization, Heineken should have high flexible business and functional strategic plans. It should open the “every minute” welcome opportunity for partners from the same industry and/or different industry to consolidate and subsidize. Firm, from this perspective, can utilize the proper distribution through the combination of Heineken brand and the local mainstream brands, which gains the economic of scale in production. Also Heineken needs to aware of that more products may sold under single(global) brand and label and package, but their composition such as communication approach will have to take local preferences into account.. Results from the environmental scanning also suggest the company to do the cross-cultural research on the alcoholic and non- alcoholic beverage consumption pattern. The studies should attempt to describe the impact culture has on salient consumer behavior constructs of perception,

12 information processing, value systems, and self-concept. In conclusion, the five forces analysis is essential for MNCs to understand the current situation of industry and identify their portions in the global trade and enhance their competitive advantage to achieve the consumers’ goal and company’s goals. Figure 1 Five Forces Analysis Analyzing the environment - Five Forces Analysis Five forces analysis helps the marketer to contrast a competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a single product or range of products. For example, Dell would analyse the market for Business Computers i.e. one of its SBUs. Five forces looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. The threat of entry.  Economies of scale e.g. the benefits associated with bulk purchasing.

13  The high or low cost of entry e.g. how much will it cost for the latest technology?  Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up?  Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects.  Will competitors retaliate?  Government action e.g. will new laws be introduced that will weaken our competitive position?  How important is differentiation? e.g. The Champagne brand cannot be copied. This desensitises the influence of the environment. The power of buyers  This is high where there a few, large players in a market e.g. the large grocery chains.  If there are a large number of undifferentiated, small suppliers e.g. small farming businesses supplying the large grocery chains.  The cost of switching between suppliers is low e.g. from one fleet supplier of trucks to another. The power of suppliers  The power of suppliers tends to be a reversal of the power of buyers.  Where the switching costs are high e.g. Switching from one software supplier to another.  Power is high where the brand is powerful e.g. Cadillac, Pizza Hut, Microsoft.  There is a possibility of the supplier integrating forward e.g. Brewers buying bars.  Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Gas/Petrol stations in remote places. The threat of substitutes  Where there is product-for-product substitution e.g. email for fax Where there is substitution of need e.g. better toothpaste reduces the need for dentists.  Where there is generic substitution (competing for the currency in your pocket) e.g. Video suppliers compete with travel companies.  We could always do without e.g. cigarettes. Competitive Rivalry

14  This is most likely to be high where entry is likely; there is the threat of substitute products, and suppliers and buyers in the market attempt to control. This is why it is always seen in the center of the diagram. Industry Analysis THAI needs to analyze the industry in terms of competitive ability and strategic group and strategic mapping as follow. Competitive Intensity. The Industry Competitive Intensity is one of the major sophisticated approaches that can identify the industry structural attractiveness. Porter(1991), an authority on competitive strategy, proposed that the company competitive advantage depended on the degree of competitive intensity within the company industry. The level of this intensity is determined by the principle competitive forces. These forces, the company’s competitive advantage variables, composed of five forces as shown. 1) Threat of New Entrants. Among the Strategic Business Units (SBUs) of THAI, Airline & facilities, Cargo service, and Catering service, both airline & facilities and cargo service gain the advantages due to the economics of scale, product differentiation, and capital requirement. However, the catering service does not gain such big advantages as airline & facilities and cargo service, it still gains the product differentiation and the Thai government policy , which limits entry into the industry through the cabinet approval, in the industry. The threats of New Entrants of airline and cargo industries are relatively low as that of catering service is relatively high. 2) Threat of Rivalry. Among Existing Firms. In Airline industry, it is said that there are noticeably many strong competitors whose movement may cause retaliation or counter efforts. For example, the share of partnercode among Korean Air, Singapore Airline, Delta Airline, and the other big European Airlines increased

15 the level of competitive activity to such an extent which any introduction of a new product or service or marketing strategies is now quickly followed by similar moves from THAI and any other airlines. Accordingly, the cargo and catering service industries gets low impacts from the rivalry among existing firms in the industries because of the immature market, the product differentiation, and relatively low exit barriers. 3) Bargaining Power of Buyers. Both Airline and cargo service industries are affected by the buyers through their ability to force down price, bargaining for higher quality or more services, and play competitors against each other. In other word, it seems to be difficult to make the product or service differentiation in the buyers’ point of view, including the low switching cost results in easily switching to the competitors. Compared to the Airline and Cargo industries, the catering industry is relatively lower bargaining power of buyers because of the highly switching cost and a few competitors in the industry. 4) Threat of Substitute Products or Services. The three of THAI SBUs have quite a few substitute services because it is difficult to search for the services that can perform the dame functions. 5) Bargaining Power of Suppliers. Among the three THAI’s SBUs, the Airline and Cargo industries can be affected by the suppliers through their ability to raise prices or reduce the quality of purchased goods and services due to a few suppliers of equipments and accessories for airplane and cargo utilities. In contrast with the Catering industry, the bargaining power of suppliers is relatively low results from there are a lot of suppliers of such the raw materials as food, fresh fruits, and vegetables. 6) Complementary Product or Service. The travel agencies, hotel, and

16 travel facilities are the complements to the Airline service. Additionally, the container and packaging businesses are the complements to the Cargo service. And the flatware, boxes, plastic wares, soft-drink, liquor are the complements to the Catering service. Ansoff's Matrix – Planning to Growth This well known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth. Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection. Figure 2 Ansoff's Product/Market Matrix Market Penetration Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers. Market Development Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product, or marketing it in a new region, are examples of market development. Product Development This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then

17 marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers. Diversification This is where we market completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where we have no previous industry nor market experience. For example a soup manufacturer invests in the rail business. Ansoff’s matrix is one of the most well know frameworks for deciding upon strategies for growth. The Boston Matrix The Boston Consulting Group's Product Portfolio Matrix The Boston Matrix - Product Portfolio Decisions Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth. You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share. Figure 3 The Boston Matrix - Product Portfolio Decisions This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows. Dogs

18 These are products with a low share of a low growth market. These are the canine version of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get rid of these products. Cash Cows These are products with a high share of a slow growth market. Cash Cows generate more more than is invested in them. So keep them in your portfolio of products for the time being. Problem Children These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share. Stars These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars. Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows is used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs, and this means that you will need a larger contribution from the successful products to compensate for the failures. Problems with the Boston Matrix 1. There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Boeing launch a new jet, it may gain a high market share quickly but it still has to cover very high development costs. 2. It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Ford own Landrover in the UK. This is an SBU not a single product. 3. There is another assumption that SBUs will cooperate. This is not always the case. 4. The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as a planning tool and always rely on your gut feeling.

19 Figure 4 Value Chain Analysis The value chain is a systematic approach to examining the development of competitive advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980). The chain consists of a series of activities that create and build value. They culminate in the total value delivered by an organisation. The 'margin' depicted in the diagram is the same as added value. The organisation is split into 'primary activities' and 'support activities.' Primary Activities Inbound Logistics Here goods are received from a company's suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation. Operations This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car's engine. Outbound Logistics The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer. Marketing and Sales In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix. Service

20 This includes all areas of service such as installation, after-sales service, complaints handling, training and so on. Support Activities Procurement This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims). Technology Development Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments. Human Resource Management (HRM) Employees are an expensive and vital resource. An organisation would manage recruitment and selection, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy. Firm Infrastructure This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department. Situation Analysis Situation Analysis requires that top management attempt to find a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses. This can result in the identification of THAI’s distinctive or core competence. The two useful following methods of analyzing THAI’s current situation are S.W.O.T. analysis and portfolio analysis presented. The environmental scanning information and the aggregate international tourists demand are essential for the strategists to identify the THAI’s S.W.O.T. In order to gain the competitive advantages, the strategists analyze the certain

21 essential information efficiently to indicate the real opportunities, strengths, threats and weaknesses. The Key element of S.W.O.T. (S.W.O.T. Analysis) Table 1 The S.W.O.T and possible strategies can be shown as this following table S.W.O.T(TOWS) matrix Strength(S) Weakness(W) gement by headquarter inancial health ten airlines in overall image, the first place of requirements ground service, silver award of top airline of Far East policies Opportunities(O) Threats(T) high quality service and accommodation facilities. such some -culture target’s countries as Eastern European countries, and Russia.

22 needs Thailand” Portfolio Analysis Product Portfolio Analysis is the most recommended aid to the integration and evaluation of environmental data for THAI with three business units: Airline, Cargo, and Catering. GE Analytical Matrix is used to analyze the long-term industry attractiveness and business strength/competitive position that are plotted in two dimensions for identifying each SBU’s position. According to the GE Analytical Matrix for THAI’s SBUs, the major business units such as Catering, Cargo services currently locate in the high industry attractiveness, but the Airline & Facilities locate in the average industry attractiveness due to the highly competitiveness as mentioned earlier. Similarly, business strengths analysis results show that THAI’s current portfolio situation are relatively average to high. Among the THAI’s business units, the position of the GE matrix for the Catering service identified the highest strong in business with the approximately 25% of market share, as those for the Cargo service and Airline & Facilities are indicated the average business strength and competitive position with the market share roughly 20% and 10%, respectively. The THAI’s future portfolio is anticipated with assuming that the present corporate and SBU strategies continue unchanged, top management should assess the probable impact that likely changes to THAI’s task and societal environments will have. The “performance gap” will show the appropriate area that the SBU can move around. The current positions of Cargo and Airline service suggest that they should

23 move from the current average business strength to the high business strength position by developing the more aggressively sophisticated strategic plans through the product differentiation approach and marketing strategy in different scenarios as presented in appendix D.

24 CHAPTER 3. CURRENT STRAYEGIC POSTURE AND PROCESSES This section will present the business owner’s vision, goals, objectives, philosophy and culture, strategic for marketing, operation, human resources management, and accounting and financial management. Vision Business owner’s vision has been communicated business owner-wide, and top-management organization structure and business owner management performance indicators are being implemented. Vision indicates the answers for the following questions. What is our business?, Who is the customer?, What is of value to the customer?, What will our business be?, and What should our business be?. Mission Statement According to the vision, the business owner’s mission statement is developed. Mission statements, based on limited goals, stress major policies and values and define the major competitive scopes for the firm. The good example of mission statement is. “Business is the first choice firm and the world-class organization which focus on enhancing customer product or service, more efficient operations and lower costs has brought noticeable improvements that ultimately will see business owner positioned not only to compete the competitors, but also to lead the worldwide airline industry through the diligent sustainable product or service development, safety standards, product or service quality, organization and management, and employee relationship.” Objectives and Goals Good management is the key to success and good management starts with setting goals. Set objectives for the firm in order for the accomplishment of the many tasks necessary in starting and managing the business successfully. Business objective should be specific in measurable terms of performance. Break major objectives down into sub-objectives, showing what the firm expects to achieve in the next two to three months, the next six months, the next year, and the next five years, sequentially. Beside each objective and sub-objective place a specific date showing when it is to be achieved. That means the objectives are specific with respect to magnitude and time For example, there may be four major objectives to achieve the business owner’s vision as follows. 1. To enhance the competitive potential. 2. To increase product or service operation efficiency. 3. To improve the management team and employee enthusiasm. 4. To response the government policies.

25 Goals The entrepreneur must develop the action plan in the business plan to attain the goals. While the effort required to reach each sub-goal should be great enough to challenge the firm, it should not be so great or unreasonable as to discourage the firm. Do not plan to reach too many goals all at one time. Establishing priorities is essential. Plan in advance how to measure results so the firm can know exactly how well the firm is doing, is necessary. This is what is meant by \"measurable\" goals. If the firm can’t keep score as the firm goes along, the firm is likely to lose motivation. Re-work the business plan of action to allow for obstacles that may stand in the firm’s way. Then, try to foresee obstacles and plan ways to avert or minimize them. Philosophy and Culture Firm may develop a new corporate philosophy and culture that aims to achieve sustainable growth to enhance the popularity among customers comes from the comprehensive product or services and efficient, on-time operation, gracious product or services through the cost-efficiency and product or service quality commitments. Core Competencies Its resources, especially marketing staff, technicians and product or service staff, were so skillful and expert that they were strategically used as the competitive weapons to compete the competitors. Strategic Posture Corporate strategies can be presented as follows. 1. Corporate Strategy According to business owner’s vision and goals, the corporate strategy is established to achieve both customer’s satisfaction and employee’s satisfaction through the sophisticate strategic plan to enhance the competitive advantage as follows. 1.1 Growth strategy: Internal Horizontal Integration Business owner can use the ongoing product-development strategy by enjoying the profit of the sales growth from business growth strategy through the product development strategy. The product or service development strategy leads business owner understandably keeps up with customer needs in order to develop such the new product or product or service lines to meet them. Selecting this alternative, business owner will have a variety of differentiation products or services to serve the customer needs and help to increase the sales volume in target market. Additionally, product-line extension plan enables business owner a selection to achieve the competitive advantage by establishing the entry barriers for competitors. The major disadvantages of this alternative are the requirements of huge capital and excellent marketing, operation, human resources development strategies and not suitable for early-market entry. 1.2 Growth strategy: Concentric and External Integration.

26 Business owner needs to formulate the penetration market-entry strategies for early stage of product for each target markets, then followed by the market development. The firm should plan to use an appropriate global marketing mix to enter to the new target markets. This strategy starts with the global marketing research and cultural analysis to clarify and to understand each consumer target markets’ preference and behavioral pattern by reconsidering the current marketing strategy. Business owner needs to re-segment the total market for identifying not only the particular served target markets but also unserved target market and then developing the current product or services and the other factors to achieve the certain customer’s need by utilizing the business owner’s resources efficiently. This alternative enables the business owner to reduce the bargaining power of customer, supplier and to increase the complementary products or product or services through the new product, market, and alliance developments. Each firm’s business units should be developed to closely coordinate and associate with each other itself and the alliance network. Firm would concentrate on establishing the “tribeneficial” elements as competitive weapons to achieve the customer needs- i.e., product quality and product or service, relatively low and competitive price, and heavy promotion. The firm may use its alliance network for providing the current marketing situation information, polling or sharing some essential strategies, knowledge, and resources. The major disadvantage is that low price will be offset by the high sale volume. This choice is also required the huge capital and long time to implement. 2. Business Unit Strategies Business owner should identify the business units. Business unit composed of the product or services that are uniquely different from the competitors’ product or services. Business units can be defined in terms of customer groups served, customer needs, and technology. Also, they are defined by unique business, competitor, and profit performance variables. Michael Porter (1980) proposed the generic strategies for strategic business units as follows. Generic strategies were at their most popular in the early 1980s. They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. Each of the three options are considered within the context of two aspects of the competitive environment: Sources of competitive advantage – are the products differentiated in any way, or are they the lowest cost producer in an industry? Competitive scope of the market – does the company target a wide market, or does it focus on a very narrow, niche market?

27 Figure 5 Porter’s Genneric Strategies Source: Porter (1980). The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus or Niche. 1. Cost Leadership The low cost leader in any market gains competitive advantage from being able to many to produce at the lowest cost. Factories are built and maintained, labor is recruited and trained to deliver the lowest possible costs of production. ‘cost advantage’ is the focus. Costs are shaved off every element of the value chain. Products tend to be ‘no frills.’ However, low cost does not always lead to low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than competitors. 2. Differentiation Differentiated goods and services satisfy the needs of customers through a sustainable competitive advantage. This allows companies to desensitize prices and focus on value that generates a comparatively higher price and a better margin. The benefits of differentiation require producers to segment markets in order to target goods and services at specific segments, generating a higher than average price. The differentiating organization will incur additional costs in creating their competitive advantage. These costs must be offset by the increase in revenue generated by sales. Costs must be recovered. There is also the chance that any differentiation could be copied by competitors. Therefore there is always an incentive to innovated and continuously improve. 3. Focus or Niche The focus strategy is generally known as a ‘niche’ strategy. Where a firm can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organization focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. A niche strategy is often used by small firms. A firm may use either a cost focus or a differentiation focus. With a cost focus a firm aims at being the lowest cost producer in that niche or segment. With a

28 differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potentially problems with the niche approach. Small, specialist niches could disappear in the long term. Cost focus is unachievable with an industry depending upon economies of scale e.g. telecommunications. It is suggested that the firm selects one generic strategy. It is sometimes argued that if firm selects one or more approaches, and then fail to achieve them, that the firm gets “stuck in the middle” without a competitive advantage. 2. Functional Strategies 3.1 Marketing Marketing is the process of creating and delivering desired goods and services to customers and involves all of the activities associated with winning loyal customers. Marketing plan should accomplish at least four objectives: 1. It should determine customer needs and wants through market research. 2. It should pinpoint the specific target markets the company will serve. 3. It should analyze the firm's competitive advantages and build a marketing strategy around them. 4. It should help create a marketing mix that meets customer needs and wants or target market. Target markets are the specific groups of customers at whom the firm aims its goods or services. Determining customer needs and wants through market research is determined. Market research serves as the foundation for the marketing plan. Its objective is to learn how to improve the level of satisfaction for existing customers and to find ways to attract new customers. By performing some basic market research, small business owners can detect key demographic and market trends. Market research does not have to be time consuming, complex, or expensive to be useful. The marketing plan focuses the company's attention on the customer and recognizes that satisfying the customer is the foundation of every business. Its purpose is to build a strategy for success with a focus on the customer. The marketing plan has four objectives: 1. Determining customer needs and wants through market research 2. Pinpointing specific target markets the small company will serve 3. Analyzing the firm's competitive advantages, and 4. Building a marketing strategy around them Generally, the contents of the marketing plan are. 3.1.1 Executive summary and table of contents 3.1.2 Current marketing situation 3.1.3 Opportunity and issue analysis (opportunities/threats analysis, strengths/weaknesses analysis, issues analysis) 3.1.4 Objectives (financial, marketing) 3.1.5 Marketing strategy 3.1.6 Action programs

29 3.1.7 Financial projections Company can find a competitive advantage by clearly understanding the customer’s needs and behavior. Due to the limitation of the company’s resources, the company seeks for the sophisticate competitive advantage by using the appropriate marketing technique called marketing segmentation. Kotler & Keller (2006) presented that there are three major steps to select the appropriate target market and to develop the competitive advantage under the limitation of company resources as follow. Market Segmentation. Market Targeting. Product Positioning. Market Segmentation was defined as “the act of dividing a market into distinct groups of buyers and company identifies different ways to segment and develop profile of the resulting market segments” (Kotler & Keller, 2006). Understanding the customer profile is the first key factor which company should analyze. The major result of this step is each customer groups profiled in term of attitude, behavior, demographic, psychographic, life-style, and customer’s benefit sought. Market Targeting was defined as “the act of developing measures of segment attractiveness to evaluate the various segments and decide how many customer and which ones to serve” (Kotler & Keller, 2006). Kotler & Keller(2006) also presented two factors of market targeting were segment size and growth and segment structural attractiveness or industry competitive intensify (Porter, 1991). The first factor was the segmented market size and segment growth that should be the right size based on the company size and the good opportunity of sales and profit growth. Product Positioning means the act of designing the company’s offer so that it occupies a distinct and value place in the target customer’s minds (Kotler & Keller, 2006). The major objective of product positioning is to assist the marketing manager to see how customers perceive the product and to suggest an opportunity for introducing the new product or improving the present product. The product position can make the product different easily. As a matter of fact, marketers generally try to offer the “differentiated products.” They always have to keep in mind “every product and service can be differentiated.” Marketing objective Ansoff’s matrix is one of the most well known frameworks for deciding upon strategies for growth through the different marketing objectives. This well known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth. Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection.

30 Figure 6 Ansoff's Product/Market Matrix Source: Ansoff (1957). Market Penetration The firm markets its existing products to its existing customers. This means increasing its revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and the firm do not seek any new customers. Market Development Here the firm markets its existing product range in a new market. This means that the product remains the same, but it is marketed to a new target market. Exporting the product, and/or marketing it in a new region, are examples of market development. Product Development This is a new product to be marketed to its existing customers. Here a firm develops and innovate new product offerings to replace existing ones. Such products are then marketed to its existing customers. This often happens with the soft drink markets where existing favors are changed or replaced and then marketed to existing customers. Diversification This is where the firm markets completely new products to new customers. There are two types of diversification, namely related and unrelated diversification. Related diversification means that the firm remains in a market or industry with which it is familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated diversification is where the firm has neither previous industry nor market experience. For example an agricultural manufacturer invests in the telecommunication business. Marketing strategy Small businesses must be more focused on the types of customers who they want to target. Small firms are ideally suited to reach market segments that their

31 larger rivals overlook or consider too small to be profitable. A clear, concise target market allows a small business to be profitable. Applying the concept of the marketing mix requires a company to conduct useful market research and to develop and market each of the four P’s—Product, Price, Place and Promotion Product Business owner names the product or service by stating a description of primary product and service along with that of the firm’s major competitors. What are the product ‘s strengths? How should the firm communicate the product’s appeal to the customers? In addition, the major components of the product such as brand, packaging, label, and services should be delivered to the right target market at the right time, the right place, and the right cost. Price Setting prices for products and services may be complex and difficult and requires that a number of factors be carefully considered. Price conveys an image that must match the firm’s target markets. The firm must also consider its place among the competition. The factors that small business owners should consider when determining price for goods and services includes:  Product/service costs  Market factors - supply and demand  Sales volume  Business location  Seasonal fluctuations  Psychological factors  Competitors' prices  Company's competitive advantage  Credit terms and purchase discounts  Customers' price sensitivity  Desired image and Figure of Speech  Economic conditions  Technology Drives When introducing a new product, firms may choose from three basic strategies: 1. Market Penetration: set prices below competitors to gain market entry. 2. Skimming: set higher prices for new products and for markets with little or no competition. 3. Sliding-Down-the-Demand-Curve: set higher prices initially and slide down as technology improves and/or one step ahead of competitors. Pricing established goods and services offers the following techniques: Odd pricing, price lining, discounts, multiple unit pricing, leader pricing, geographical pricing, suggested retail prices, and so on. Place Whether the firm operates a factory, wholesale outlet, retail store, service shop, or are a contractor, the firm will have to sell. No matter how good the product

32 is, no matter what consumers think of it, the firm should sell to survive through the intermediaries. Business owner should consider to utilize the intermediaries or channels of distribution system. This strategy could expedite the system and reduce the essential investment. The following questions should be established. How can the product be distributed? What are the channels of distribution and why? Promotion There are a variety of promotional tools: direct selling, advertising, sales promotion, public relations, and direct marketing. Direct selling methods are through personal sales efforts, advertising and, for many businesses, display - including the packaging and styling of the product itself - in windows, in the establishment, or both. Establishing a good reputation with the general public through courtesy and special services is an indirect method of selling. While the latter should never be neglected, this brief discussion will be confined to direct selling methods. To establish business on a firm footing requires a great deal of aggressive personal selling. The firm may have established competition to overcome. Or, if the product idea is new with little or no competition, the firm has the extra problem of convincing people of the value of the new idea. Personal selling work is almost always necessary to accomplish this. If the firm does not have a good salesperson, seek an employee or associate who is. A second method to boot sales is by advertising. This may be done through newspapers, shopping papers, the yellow pages section of the telephone directory, and other published periodicals; radio and television; handbills, direct mail, and website. The media the firm select, as well as the message and style of presentation, will depend upon the particular customers the firm wish to reach. The firm should plan and prepare advertising carefully, or it will be ineffective. Most media will be able to describe the characteristics of their audience (readers, listeners, etc.). Since the initial planning described the characteristics of your potential customers, the firm want to match these characteristics with the media audience. It is essential to place a limit upon an amount to spend, then stay within that limit because advertising can be very expensive. To help the firm in determining how much to spend in advertising, study the operating ratios of similar businesses. Media advertising salesperson may help the firm plan and even prepare advertisements for the firm. Be sure to tell them the firm budget limitations. The third way of stimulating sales is effective displays both in the place of business and outside it. If the firm has had no previous experience in display work, the firm will want to study the subject or turn the task over to someone else. Observe displays of other businesses and read books, trade magazines, and the literature supplied by equipment manufacturers are very essential. It may be wise to hire a display expert for the opening display and special events, or the firm may obtain the services of one on a part-time basis. Much depends on the type of business and what it may requires. In conclusion, the key factor for developing the sophisticate advantage marketing strategy is the customer’s needs. Company has to pay a close attention to this need and allocate its resources to serve the customer needs as much as it can in order to sit down in the customer’s mind and to compete the other companies. By segmenting market and positioning the product, company can access to

33 customer with the appropriate and challenge competitive strategy with the supported by the company’s and the other external resources. As Peter and Austin (1989) stated in A Passion of Excellence “...Listening to customer, to your people, acting on them, wandering around with customer, your people, suppliers, pay attention to pride, trust, enthusiasm, passion, and love.” Operation, Procurement and Technology Skillful purchasing is an important essential of profitable operation. This is obvious whether the firm is a wholesaler or retailer of merchandise, a manufacturer or a service business operator. Some retailers say that it is the most important single factor:-. Merchandise that is carefully purchased is always easy to sell. It is essential to determine what to buy means finding out the type, quality, kind, brand, size, color, and style -whatever applies to the particular inventory - which will sell the best. This requires close attention to salesperson, trade journals, catalogs, and especially the likes and dislikes of the regular customers. Periodical sales records should be analyzed. Even the manufacturer should view the problem through the eyes and minds of customers before deciding what materials, parts, and supplies to purchase. Business owner should also know the regular customers, and make an appropriated evaluation of the people who the firm hopes they will become the customers. In what socioeconomic category are they? Are they homeowners or renters? Are they looking for price, style or quality? What is the predominant age category? Additionally, the age of the customers can be a basic consideration in establishing a purchasing pattern. It is accepted that young people may buy more frequently than most of the older people. They need more, have fewer responsibilities, and spend more on themselves. They are more conscious of style trends whether in wearing apparel, cars or electronic equipment. If the firm decides to cater to the young trade because they seem dominate in business area, its buying pattern will be completely different than if the more conservative middle-aged customers appear to be in the majority. The firm may purchase directly from manufacturers or producers, from wholesalers, distributors or jobbers. It should select the suppliers who sell what the firm need and can deliver it when the firm needs it. (Distributors and jobbers are used by most business for quick fill-ins between factory shipments.) The firm may distribute and spread purchases among many suppliers to gain more favorable prices and promotional material. Sometimes, the firm may concentrate the purchases among a small number of suppliers to simplify its credit problems. This will also help the firm become known as the seller of a certain brand or line of merchandise, and to maintain a fixed standard in your products, if the firm are buying materials for manufacturing purposes. When to buy is important if business will have seasonal variations in sales volume. More stock will be needed prior to the seasonal upturn in sales volume. As sales decline, less merchandise is needed. This means purchases of goods for resale and materials for processing should vary accordingly. At the outset, how much to buy is speculative. The appropriated policy is to be frugal until the firm has had enough experience to judge your needs. On the other hand, the firm cannot sell merchandise if the firm does not have it.

34 The firm should begin to keep stock control records at once. This will help the firm keep the stock in balance - neither too large nor too small - with a proper proportion and adequate assortment of products, sizes, colors, styles and qualities. Fundamentally, there are two types of stock control - control in dollars and control in physical units. Dollar controls show the amount of money invested in each merchandise category. Unit controls indicate the number of individual items when and from whom purchased by category. A good stock control system can help the firm determine what, from whom, when, and how much to buy. Moreover, company should welcome the state-of-the-art information technologies that provide the information systems for the different kind of works, ranging from routine works to decision making works and process. For example, a “just in time” supply system in which computers track every product and automatically alert warehouses when it is the time to reorder and restock the shelves, called Electronic Data Interchange (EDI). This computer system can to link company’s buyer and vendor/partners that enables the company to customize the assortment and quality to serve the unique customer needs of each location. The advancement of technology enables the firm to operate at peak efficiency. For retail industry, the company may also utilize or equip with scanner cash registers in all stores. Hand-held computers help associates quickly re-order merchandises while back-room computers link each stores with the most sophisticated satellite system in the retail industry. For preparation to achieve operation standard as accreditation, business should continues developing the technical skill on the requirements of the certificate. The firm should aware of the quality management benchmarks in operational aspect. 3.3 Human Resource development. If the business will be large enough to require outside assistance, an important responsibility will be the selection and training of one or more employees. Firm may start out with family members or business partners to help the firm. But if the business grows - as the firm hopes it will - the time will come when the firm must select and train personnel. Careful choice of personnel is essential. To select the right employees determine beforehand what the firm want each one to do. Then look for applicants to fill these particular needs. In a small business the firm will need flexible employees who can shift from task to task as required. Include this in the description of the jobs the firm wishes to fill. At the same time, look ahead and plan your hiring to assure an organization of individuals capable of performing every essential function. In a retail store, a salesperson may also do stock-keeping or bookkeeping at the outset, but as the business grows the firm will need sales people, stock-keepers and bookkeepers. Once the job descriptions are well-done written, line up applicants from whom to make a selection. Do not be swayed by customers who may suggest relatives. If the applicant does not succeed, the firm may lose a customer as well as an employee. Here are some sources of possible new employees: 1. Recommendations by friends, business acquaintances. 2. Placement bureaus of high schools, business schools, and colleges. 3. Employment agencies.

35 4. Trade and industrial associations. 5. Help-wanted ads in local newspapers. The next major task is to screen want ad responses and/or application forms sent by employment agencies. Some applicants will be eliminated sight unseen. For each of the others, the application form or letter will serve as a basis for the interview that should be conducted in private. Put the applicant at ease by describing the business in general and the job in particular. Once the firm has done this, encourage the applicant to talk. Selecting the right person is extremely important. Ask the questions carefully to find out everything about the applicant that is pertinent to the job. References are a must, and should be checked before making a final decision. Then check through a personal visit or a phone call directly to the applicant's immediate former supervisor, if possible. Verify that the information given the firm is correct. Consider, with judgment, any negative comments the firm hear and what is not said. Checking references can bring to light significant information which may save the firm money and future inconvenience. Motivation is the degree of effort an employee exerts to accomplish a task. In lots of ways, motivation reveals itself as excitement. Managers can motivate their employees by using a combination of many techniques.  Empowerment  Job Design o Job enlargement o Job rotation o Job enrichment o Flextime o Job sharing o Flexible or Virtual place  Rewards and Compensation  Feedback  Performance Appraisals and Assessment Center Business strongly put every effort to find the way to achieve the customer’s need under the cost efficiency. The reengineering as well as total quality management program may be established for enhancing the human resource management and development programs. A series of dramatically change in customer product or service process, management process, and technical and maintenance process reflected the success of the program. 3.4. Accounting and Finance The keeping of adequate records cannot be stressed too much. Several studies show that many failures can be attributed to inadequate records or the owner's failure to use what information was available to the owner. Without records, the businessperson cannot see in advance which way the business is going. Up-to- date records may forecast impending disaster, forewarning the firm to take steps to avoid it. While extra work is required to keep an adequate set of records, the firm will be more than repaid for the effort and expense. If the firm is not prepared to keep adequate records - or have someone keep them for the firm - the firm should not try to operate a small business. At a minimum, records are needed to substantiate:- the returns under tax laws, including income tax

36 and social security laws, the request for credit from equipment manufacturers or a loan from a bank, and the claims about the business, should the firm wish to sell it. Most firms find it extremely easy to forget about cash flow management; it's not very exciting, and there are a million day-to-day pressures driving cash management out of the owner's schedule. In reality, however, cash flow analysis is one of the building blocks of a successful enterprise. The risks of ignoring cash flow management are high, especially for entrepreneurial companies. Too often, fledgling businesses show paper profits but cannot pay their bills because they run out of cash. The faster a company grows, the more likely it is to experience cash flow complications. The more efficiently it passes along, the less cash any company, big or small, needs during any particular month to keep its operations going smoothly. To track that cycle, there are six phases of Via Systems' cash flow: 1. Cash receipts: how the company invoiced customers, collected accounts receivable, and tracked late payers. 2. Cash concentration: the speed and efficiency with which cash receipts were put to work for the company. 3. Cash disbursements: the way Via Systems timed bill payments. 4. Forecasting: the accuracy of the Brandon’s projections regarding the amount and timing of cash flows. 5. Inventory: how much cash the company has tied up in raw materials and unsold goods. 6. Bank relations: the flow of money among the company's various bank accounts and the details of its borrowing capacity. But the most important, the firm needs them to run its business successfully and to increase the profits. With an adequate yet simple, bookkeeping system the firm can answer such questions as: how much business is the firm doing?, what are the firm expenses? Which appear to be too high?, what is the firm gross profit margin? The firm net profit?, how much is the firm collecting on my charge business?, and so on. The firm should answer these and other questions by preparing and studying balance sheets and profit-and-loss statements. To do this, it is essential that the firm records information about transactions as they occur. Keep this data in a detailed and orderly fashion and the firm will be able to answer the above questions. The firm will also have the answers to such other vital questions about your business as: What products or services do the customers like best? Next best? The kind of records and how many the firm need depends on the particular operation. A boy selling sandwiches part time each day does not need inventory records. He buys and sells his entire stock each day. But shoe store or dress shop operators will soon find they cannot keep necessary inventory information in their heads. As a matter of fact, the firm should maintain a record for answering these three questions: (1) How will this record be used? (2) How important is the information likely to be? (3) Is the information available elsewhere in an equally accessible form? For efficient business operation, use information from records to keep inventory stock in line with sales, to watch trends, and for tax purposes. Use records to plan. A well thought-out business plan as a guide will strengthen its chances for

37 success. A record showing the data for your business plan is the budget. Work up a budget to help the firm determine just how much increase in profit is reasonably within the firm reach. The budget will answer such questions as: What sales will be needed to achieve my desired profit? What fixed expenses will be necessary to support these sales?, what variable expenses will be incurred? a budget enables the firm to set a goal and determine what to do in order to reach it. The firm should compare the budget periodically with actual operations figures. With effective records the firm can do this. Then, where discrepancies show up the firm can take corrective action before it is too late. The right decisions for the right corrective action will depend upon your knowledge of management techniques in purchasing, pricing, selling, selecting and training personnel, and handling other management problems with care. Here are the most two very important facts about accounting and finance decision. 1. Provide the accountant with accurate input. If the firm buy something and don't record the amount in your business checkbook, the accountant can't enter it. If the firm sell something for cash and don't record it, the accountant won't know about it. The records the accountant prepares will be no better than the information the firm provides. 2. Use the records to make decisions. If the firm pays an accountant and s/he tells the firm the sales are down this year, the business owner must prepare and make decision based upon the facts. The following is an example of the Balance sheet. DO IT DRY CLEANERS BALANCE SHEET FOR THE PERIOD ENDING ASSETS Jan. 1, 20XX Dec. 31, 20XX Current 0 0 Cash 0 0 Accounts Receivable 0 0 Inventory Fixed 22,000 6,000 Cleaning Machine 100,000 80,000 Bldg. 22,000 25,000 Land 144,000 111,000 TOTAL ASSETS LIABILITIES 00 Current 00 Accounts Payable 00 Short Term Debt 00 Long term Bank Loan TOTAL LIABILITIES OWNER EQUITY

38 John’s Capital Account 144,000 111,000 [Drawing Account] 144,000 111,000 TOTAL LIABILITIES&O.E. If the firm makes the assumption that no other business activity occurred during the year, notice what effect the depreciation expense has on Owner’s Equity (Net Worth). Also notice that at all times, the accounting equation remains balanced. Assets = Liabilities + Owners Equity. Can the firm determine what the assets value would be after two full years of being depreciated? If the firm determined the value to be $4,000, the firm is correct.

39 CHAPTER 4 IMPLEMENTING THE BUSINESS PLAN IMPLEMENTATION Who will implement the strategies? Implementation is one of the most important stet in strategic decision-making process. After Hush Puppies formulates the strategic management plans, the firm has to implement them. The right persons who will be responsible to implement the strategies are the employees except tom management and Board of Director. Each functional manager will carry on the functional strategies under the business unit and corporate strategies. The vice president, Marketing manager, operation manager, Research and Development manager, Human Resources manager are all the implementers. They generally transform the strategies to the operation and action plans in order to easily implement in the particular time under the budget constraints. What will be implemented? Since the corporate strategies can be divided into three major sequentially phases as follow: Phase 1: Internal Horizontal Integration Phase 2. Concentric Diversification Phase 3: Vertical Integration Phase 1: Internal Horizontal Integration. In order to increase the new product items in the same product line and develop new product line as well as increase the annual sales. There are programs needed to implement in the specific time as follow: 1) New product development program. The new products that are developed need to be the new styles , new design, and different colors of shoes. And the new product need to test market to evaluate the customer’s needs. 2) Market expansion program. This program involves when and where the firm will export the current product to other countries. Under this program, at the first three years, Hush Puppies- Chile plan to increase annual net sale in Chile and export to the three potential foreign markets that are Bolivia, Paraguay, and Uruguay. 3) Sales promotion program. This is the push strategy which is used for push the current and the new developed products to the retailers’ shelves as many and soon as we can. The trade promotion such as discount trade program and consumer promotion are used in the low shoe demand. 4) Advertising program. The program will create the advertising campaigns that create the product and brand awareness and perception of target market. The advertising budget is allocated to different advertising media such as magazine, T.V., direct mail and Internet Web site.

40 Table 2 The time, budget, and target sales Program 1st year 2nd year 3 rd year Total Target Budget Sales 1) New product $300,000 $200,000 $200,000 $700,000 development program 2) Market expansion $100,00 $100,000 $100,000 $300,000 program 3) Sales promotion $50,000 $50,000 $50,000 $150,000 program 4) Advertising $100,000 $100,000 $100,000 $300,000 program If the programs were success in term of increase sale from the last year 15% and/or increase 10% of market share, we will do the next strategic phase. Phase 2: Concentric Diversification. In order to keep up with the customer needs, Hush Puppies Chile will develop the related product lines for men, women, and children. The programs that will be implemented in this phase are: 1) New product development program. This program involves the new product lines such as the apparel and clothing items. The program includes the test market program to evaluate the customer’s needs. 2) Distribution network development. Hush Puppies Chile needs to develop the own specialty stores in order to increase and distribute the current and new product lines. 3) Sales promotion program. This is the push strategy which is used for push the current and the new developed products to the retailers’ shelves as many and soon as we can. The trade promotion such as discount trade program and consumer promotion are used in the low shoe demand. 4) Advertising program. This pull strategy program will create the advertising campaigns that create the product and brand awareness and perception of target market. The advertising budget is allocated to different advertising media such as magazine, T.V., direct mail and Internet Web site.

41 Table 3 The time, budget, and target sales Program 1st year 2nd year 3 rd year Total Target Budget Sales 1) New product $300,000 $300,000 $300,000 $900,000 development program 2) Distribution $200,00 $200,000 $100,000 $500,000 network development program 3) Sales promotion $50,000 $50,000 $50,000 $150,000 program 4) Advertising $300,000 $300,000 $300,000 $900,000 program If the programs were success in term of increase sale from the last year 15% and/or increase 10% of market share, we will do the next strategic phase. Phase 3: Vertical Integration In order to reduce the cost and take advantage in supplies, Hush Puppies Chile plans to backward integrate into the farm in Chile. To provide the raw material of shoe which is the core product line, the firm will set the cross functional team to do the feasibility study of backward integration. If the results from the feasibility study suggests to move on, Hush Puppies Chile may set the matrix structure that is composed of the marketing, finance, operation from the agriculture division staff to responsible for growing pigs in the next 6 years.

42 CHAPTER 5 CONTROL AND EVALUATION The evaluate process starts with identify the evaluate factors to evauate the performance. The evaluate programs are as follow: 1) Sale performance. The firm needs to set the criteria of monthly sales such as 10% increase in last month sales by sale manager. 2) Annual cost audit. The firm monitor the cost behavior of the new product development process and operation function, and marketing function such as the program needs to reduce 5% of last year’s cost of sales. 3) Marketing Audit. The firm needs to measure and to evaluate the marketing plan by auditing the marketing cost, effeciency of the advertising and sales promotion programs. *****When the entrepreneur has a good idea for producing and selling a product, the idea can be carried out by developing the strategic, operational, and financial planning. All the planning need to be formalized into a business plan, the business plan can be useful for a new business to start up, to attract venture funds or to obtain loan from lending agencies. The business plan tells a story that starts in the here and now and builds believability forward a better future. It provides a detailed blueprint for the activities needed to finance the business, develop the product, market it, and manage the new business. The effective business plan helps determine the feasibility of an idea; it includes the details of the following:  The proposed product and market.  The strengths and weakness of the industry.  Planned marketing policies and strategies.  Production and operation methods and facilities.  Management and managing the human resources.  Financial aspects, including expected revenues, expenses, profits or losses, investment needed, and expected cash flow. Sources of Information Properly developed and well written business plan must be based on what exist’s now and facts. The sources of information could be collected from:  Small Business Administration  Department of Commerce (Federal)  Information Centers  Bureau of Census  State and municipal governments Banks  Chambers of commerce (Trade associations)  Trade journals  Libraries

43  Universities and community colleges  Information from internet  etc. Source: R. SikJos, \"Oxyen Gets i\\irboc:1l'.\" Business Week (September 28, 1998). p.52. (See p. 2-11) The steps in Preparing the Business Plan In writing a business plan, there are 7 steps to help elaborating the business idea and guiding through the different elements of the business plan as follows: 1. Description of the business idea and the company 2. Description of the product/service and industry 3. Market structure/competitors 4. Marketing plan 5. Purchasing and Operation Plan 6. Management and Human Resource Plan 7. Financial Plan 1. Description of the business idea and the company The first step of the plan is dealt with business idea and the description of the company. There are three subsections in this section. First of all, the plan is dealt with the business idea. This definition should tell what customer needs, the business’ perspective and what the potential customers might think of it as the following questions: The questions from the owner’s perspective:  What do you think will sell?  What is your largest line of inventory?  Where is your greatest profit made? The questions from the customer’s perspective”  What do you think they need or want to buy?  What is the best selling item?  On what product or service is most personnel time spent? In dealing with the business idea, there are three different essential points for a business idea to be successful:  Clear customer benefits  Sufficient market size  Feasibility and profitability The second subsection is dealt with the vision statement, mission statement the objective and specific goals for the business. The last past of the subsection is described the company background, the business’s competitive advantage and the way that it goes about making its profits and achieving its mission.

44 2. Description of the product/service and industry This section is to describe the firm’s product and service. The pictures or graphics often include helping visualize the product or service. It is also to explain how the customers use the product or service or how it fulfills some need or desire or solves a problem for the customer. Often the descriptions explain how the firm is able to deliver value benefits to the customer. Finally, the description of all research done, along with the discussion of any legal aspects, such as patents, copyrights or trade mark. Since every product and service is part of the industry, this section also includes the key information identified in the industry analysis such as the indication of the history trend of growth, stability or decline. Industry profit margins are also the important part of this section, as is how profits are typically made. 3. Market Structure/ Competitors The important parts of this section are to define the market and target customers very well and to estimate the expected market volume of the whole market (in units) and the planned sales volume of the firm (in units) that result from the market share the firm expect to have. The rest of the section is to describe the market, target customer, competition and competitive advantage. The Market The market section talks about your customers who they are and what they like to be, who else is pursuing them, and how the firms plan to get or keep the customers. The market section builds on material you may have developed in the feasibility analysis, the industry analysis, and the marketing plan. The market refers to the total population of people or firms to whom the firms plan to sell. Markets are usually described in terms of their size (both in numbers of customers and size of sales) and scope (local, regional, national, international, global). The major ways the market is organized are also covered. Professional, trade, or industry associations, special interest hubs, major national gatherings, and media dedicated to the market are all relevant. Target Customer The target customer section focuses attention on the individual who would buy the product or service. Target customers are described in terms of demographics (such as age, gender, education, income, experience), their relation to the product or service (will they use it themselves, gift it, resell it, etc.), how often they buy (once a day, once a week, twice a month, every three years, once in a lifetime, etc.), their past experience with the firm’s of product or service (new user, prior user of competitor's product, prior user of the firm’s product), and what they are looking for when buying the product or service. What they are looking for should be based on discussions with potential customers, and it hopefully matches closely with the value benefits the firm’s product offers. Providing a comparison of the two is often a good idea. It is very common to have multiple target audiences. When this is the case, the firm should provide a separate description of each one. It often helps to give each target group a specific name when the firms refer to them in the rest of the business plan.

45 Competition and Competitive Advantage This section may do in one page table. The table identifies the major competitors for your market by name and location. Other columns mention the competing product or service, its market share, price, competitive strength, and competitive weakness. The accompanying page of text talks about the firm's competitive advantage what makes your product or service or firm unique and how your competitive advantage gives the firm an opportunity to win sales from those firms. Often this information is based on material gathered from the industry analysis. 4. Marketing plan As we stated earlier, prospective investors and lenders attach a high priority to market considerations. A product may be well engineered but unwanted by customers. The marketing plan must identify user or client benefits and the type of market that exists. Depending on the type of product or service being offered, the marketing plan may be able not only to identify but also to quantify the user's financial benefit: for example, by showing how quickly a user can recover the cost of the product or service through savings in operating costs. Of course, benefits may also take the form of savings in time or improvements in attractiveness, safety, health, and so on. The business plan should document the existence of customer interest by showing that a market exists and that customers are ready to buy the product or service. The market analysis must be detailed enough for a reasonable estimate of demand to be achieved. Estimates of demand must be analytically sound and based on more, than assumptions if they are to be accepted as credible by prospective Investment. Marketing Strategy A good marketing strategy section focuses on three ideas: (1) The overall strategy your firm pursues in the market, (2) The sales plan that shows the specific ways you apply strategy to secure sales from your customers, and (3) The longer term competitive plan that shows how you protect your firm from efforts of the competition to unseat you. The overall strategy subsection discusses the generic strategy (differentiation, cost, focus) as well as any supra-strategies (craftsmanship, customization, etc.) or fragmented industry strategies (no-frills, formula facilities, etc.). Explain here how each is used in the firm and in the sales efforts. The sales The sales plan addresses the day-to-day specifics of how sales are achieved. It builds on the value benefits being sought by your customers and shows how these are turned into promotional efforts, pricing and incentive programs, distribution techniques, and location. Most of all, it emphasizes the way you or your employees go about selling. Examples of advertising materials, displays, coupons, or the like are useful and typically mentioned here, but details are put in an appendix. The proof that your approach is working comes from sales made using these approaches, so the strongest sales plans talk positively about the results of pilot tests, preselling efforts, or

46 conventional sales already made. Being able to name customers (especially repeat customers) really builds up this section. Research and Development (R&D) Over the longer term, even with a clear competitive advantage, a sound strategy, and a good sales plan, your competitors are not likely to give up the market: They will fight back. When they do that, trying to match the sales plan features or competitive advantage, what are you keeping in reserve to help you fight back? Here is where you want to have several additional strategies that play against weaknesses in the competition, or further improve your product or service. These can include protections through patents and intellectual property protection or relationships with powerful partners. You may have contracts that tie customers to you long term, but most often advantages come from bringing out improved versions of your product or service before the competition introduces its own improved product or service. Having these improvements ready requires some preparation on your part. In a business, this is often called research and development (R&D) or the growth plan. Most business plans add a section on R&D or growth hereto explain how they are working to maintain an in depth competitive advantage, with one or more additional generations of products or services ready to be used; or quickly brought to market, in order to keep the competition the generation behind your firm in meeting customer needs. Growth plans often talk about longer term partnerships to be sought, new markets to be pursued or ways, to leverage the firm's assets, for example through licensing or franchising. 5. Purchasing and Operations Plans After forecasting the sale volumes, the firm can figure the planned production volumes. There are two subsections included in this section are:  Purchasing  Operations Purchasing The purchase subsection involves the attaining all items including the firm’s assets, input materials, labors, etc., in the proper form, quality and quantity at the proper place, time and cost. The reliable numbers and good planning of capacities are essential for the plan of fixed assets such as machines needed for production. Operations This part is the explanations the type of manufacturing or operating system to be used. Describing the facilities, labor, raw materials, and processing requirements. This section should be organized as follows: operating or manufacturing methods; description of operating facilities (location, space, and equipment); quality control methods; procedures to control inventory and operations; and sources of supply and purchasing procedures. The operating plan offers information on how the product will be produced or the service provided. The importance of the operating plan varies from venture to venture. This plan touches on such items as location and facilities how much space the business will need and what type of equipment it will require. The operating plan

47 should explain the proposed approach to assuring, quality, controlling inventory, and using subcontracting or obtaining raw materials. 6. Organization and Human Resource Plan This section encourages identifying the legal form of the business, designing the organization, and managing human resources, considering service provided from outsource and location of the firm. The organization and human resource plan require some major decisions that could affect long-term effectiveness and profitability. Legal forms of business There are three basic legal forms of business formation. The three basic legal forms are: 1. Proprietorship—Form of business with single owner who has unlimited liability, controls all decisions, and receives all profits. 2. Partnership—Two or more individuals having unlimited liability who have pool resource to own a business. 3. Company Limited—Separate legal entity that is own by stockholders having limited liability. It is very important that the new business creator carefully evaluate the pros and cons of the various legal forms of organizing the new venture. There are many factors that could be taken into consideration in evaluation process such as the costs of starting a business, continuity of business, transferability of interest, capital requirements, management control, distribution of profit and losses, attractiveness for raising capital and tax attributes. The new business creator should carefully weigh all the factors before deciding. Designing the Organization It is important to have an effective organization since the starting point; otherwise, the business creators may find themselves performing all the functions of the organization alone. Being the top management of the firm, the important role for the entrepreneur is that of allocate of resources. The design of the organization should be formal and including the following areas: 1. Organization Structure. This indicates the members’ job, communication and relationship of these jobs. These relationships are depicted in an organization chart. 2. Planning, Measurement, and Evaluation Schemes. All organization activities should reflect the goal and objectives of the new venture. The entrepreneur must spell out how these goals will be achieved (plans), how they will be measured, and how they will be evaluated. 3. Rewards. The entrepreneurs will be responsible for the rewards given to the members of an organization. These rewards can be in various forms such as promotions, bonuses, praises, and so on. 4. Selection Criteria. Setting up guideline for relocation is guide important in order to select individuals for each position. 5. Training. Training at the early stages of the new venture is also very important. It provides a kind of support welcomed and assure the well work performance. This training may be in the form of formal or non-formal education or learning skills.

48 Managing the Human Resources Managing the human resources requires some good selecting process that could affect long-term efficiency and effectiveness. It is important to begin the new venture with a good team of members that is committed to the goals of the new venture. After analyzing the tasks or jobs, need to be performed to make the venture viable. Before hiring other people to do the job in the selection process, there are two important issues must be designed: Job Descriptions The entrepreneur should clarify the roles of employees by preparing job descriptions. The job description is a specified detail of work to be performed by an employee. In preparing the job description for the entrepreneur, the entrepreneur can do as follows: 1. Outline the needs and objectives of the new venture. 2. Work backward to determine the specific activities that will be needed to achieve these goals and objectives. 3. Categorize these activities into areas of responsibility that is marketing, production, administration, and so on. 4. Prepare the job description. Job Specifications Job specifications are those forms that outline the skills and abilities needs to perform the job, including prior experience and education requirements of each job. Reporting responsibilities should also be outlined to help preventing conflict, misunderstanding, and a communication breakdown in the organization. Time spent deciding on these specifications and requirement before hiring will save the entrepreneur form personnel problems in the long run. Related Service Providers These days; small businesses are rarely alone, and the quality of the professionals surrounding. Taking a paragraph or two to identify your bank and banker, your attorney and legal firm, accountant or bookkeeper, and other consultants can help show that you have high quality supports. If you have major relationships established with well-known suppliers or customers, make a list of them. If you have a board of directors, members can be mentioned here or under key personnel. If you have a board of advisers made up of people who are not owners, they would be listed here. Location The other major organizational asset of a business is its location. This is given here, along with a description of the facility that focuses on how it meets the strategic and sales goals of the business. Also mention whether you own, lease, or rent the property. If you have investments in the property, either in terms of ownership or improvements made to it, mention those too. If there are plans to expand the facilities, mention them. 7. Financial Plan Financial analysis constitutes another crucial piece of the business plan. The financial

49 plan presents pro forma statements or projections of the company's financial statements over the next five years (or longer). These forecasts include balance sheets, income statements; and cash flow statements on an annual basis for the five years and cash budgets on a monthly basis for the first year, a quarterly basis for the second and third years, and annually for the fourth and fifth years; It is vital that the financial projections be supported by well substantiated assumptions and explanations of how the figures have been determined. While all the financial statements are important, cash flow statements deserve special attention, because a business may be profitable but fail to produce positive cash flows. A cash flow statement identifies the sources of cash how much will be raised from investors and how much will be generated from operations. It also shows how much money will be devoted to such investments as inventories and equipment. The cash flow statement should clearly indicate how much cash is needed from prospective investors and the intended purpose for the money. Investors also want to be told how and when they may expect to cash out of the investment. Most investors want to invest in a privately in a privately held company for only a limited period. Experience tells them that the eventual return on their investment will be largely dependent on their ability to cash out of the investment. Therefore, the plan should outline what mechanism will be available for exiting the company. The computer is an even more helpful tool for preparing the financial statements needed in the plan. Since the various parts of a financial plan are interwoven in many ways, a change in one item sales volume, interest rates, or cost of goods sold, for example will cause a ripple effect through the entire plan. A long, tedious set of calculations are required if the entrepreneur wishes to check out various assumptions. By using a computer spreadsheet, she or he can accomplish this task electronically. A computer spreadsheet enables an entrepreneur to experi- ment witl7l best case and worst case scenarios and quickly ascertain their effect on the firm's balance sheet, operating profits, and cash flows. The financial statements expected include: (1) Income statements (also called a P&L for profit and loss) and its assumptions, (2) Cash flow and its assumptions, and (3) Balance sheet and its assumptions. For start-up businesses, it is also common to include a listing of the expenses incurred in the start-up process. Forms of Financial Plan 1. Pro forma Income Statement Years 1 through 5 Company Name Pro forma Income Statement by Year For the Years Ended…………. Year 1 Year 2 Year 3 Year 4 Year 5 Gross Sales

50 Cost of Goods Sold Vendor Commission Gross Margin Operating Expenses Selling Travel Advertising Telephone, Internet, Website Insurance Legal & Accounting Office Supply and Postage Payroll Expense Payroll Expenses Miscellaneous Earning Before Interest Taxes Depreciation And Amortization (EBITDA) Depreciation Amortization Earning Before Interest and Taxes (EBIT) Interest Expenses Taxes Net Income (Loss) 2. Pro forma Cash Flows Years 1 through 5 Company Name Pro forma Cash Flows by Year For the Year Ended………………. Year 1 Year 2 Year 3 Year 4 Year 5 CASH INFLOWS Inflows from sales from current period Inflows from sales from previous period Inpayments of venture capital Sale of securities Interest earnings Extraordinary income Short-term loans Overdraft TOTAL INFLOWS Purchasing inputs& oper. supply items External expenses