Generally, a poorly prepared business plan would definitely fail and it can be blamed on any one or more of the following factors: inadequate information about the industry, lack of competitors, and knowledge about the business unit’s position i.e. Strengths & weakness, opportunities, threat and unrealistic goals.
Good business planning could be the means to achieve this. Business planning could be described as past of an on-going continuous activity concerning the direction of the whole organization. It contains the mission, objectives, strategies, tactics and policies that will serve as a guide to the organization in adapting to the environment for a specified period of time. A business plan is considered as the backbone of the business unit. And as such business planning implies vision and attempt to follow it to reach the goal.
Planning must bring about a specified course of action from the objectives outlined by the organization.Plans are meant to bring positive results but there is the possibility of this not being realized due to restriction which might be inherent with the planning process.
Business planning should not be a blue print so to speak but flexible and accommodative so that it could from time to time be changed to successfully become adapted to the general environment. For example in the event of problems in a production process, corrective action could be taken easily by those who are directing affairs not necessarily the planners.
Business planning could be effected for a new as well as existing organization or business unit; the sequence is to define the company’s mission statement and then thoroughly analyze the situation in which the business currently finds itself. This is the concept of company situation analysis.
Next in the sequence is an organizational objective which is how the company should fulfill its mission and clarifies where the company wants to be. These unlike the mission statement, should be quantified. The choice of strategies which are the concrete ideas that set about achieving company objectives then follows; they are related to how the mission will be accomplished.Emanating from the strategy is tactics which is the day to day operation of the objectives and mission to achieve the company objectives.
There are two parts of making up this analysis. The first input relates to the organization’s macro – environment and these are factors over which the company has little or no control. They are listed under four separate headings: political, economic, socio-cultural and Technological and are known by acronym ”PEST”. Some planners also add ‘Legal’ (making the acronym SLEEP) and environmental (PESTLE). This is the external audit part of what is called the company audit. A number of very short statements are made in respect of each of the PESTLE sub-divisions.
The second part concerns what is called the internal audit; this considers the individual capabilities of the company, SBU by SBU, and again short statements are made. Thereafter, a fundamental appraisal process – SWOT analysis – is carried out. This SWOT analysis (strengths, Weaknesses, opportunities and threats) is an attempt to translate company specific factors from the company audit into corporate strengths and weaknesses plus external environmental factors (from PESTLE analysis) into external opportunities and threats. It must be noted here that, the strengths and weaknesses got to do with the internal environmental part of the situation analysis whilst the opportunities and threats got to do with the external environment. SWOT analysis is a simple tool for auditing an organization and its environment and generating strategic alternatives from situation analysis. It is the first stage of business planning.It is applicable to the organization on the issues that potentially have the most impact and so it is useful when a very limited amount of time is available.
The internal and external situation analysis can produce a large number of information with much of them being highly irrelevant so the SWOT analysis serves as an interpretative filter to reduce the information to a manageable quantity of key issues. By understanding these four aspects of its situation a firm can better leverage its strengths, correct its weaknesses capitalize on opportunities and remedy potential threats. The organization may also use the understanding of these situation analyzes as evaluative criteria to judge the current state of the organization. An example of corporate strength could be found in a company’s brand image like Coca Cola which can stand flaws as when after some newspapers reported that coke was contaminated, sales soared in spite of the report in Pakistan against Coca-Cola.
Google is reported to lack customer lock-in. Its competitors have much firmer hold on customers because they hold much information about users. Opportunities are the chance to introduce a new product or service whilst a threat could be the entry of competitors to the market.
Using as part of a tool of situation analysis, corporate strengths and weaknesses may be identified by function area and or key issues with each later on analyzed. An example of (by function) issues to analyze include marketing (market position) technology (e.g. R & D, product development) Financial (Profitability, ROCE) etc operational (JIT requirements, cost-effectiveness, etc) Human resources (skills and flexibility, competence, etc) Human resources (skills and flexibility, competence, etc) Human resources (skill and flexibility, competence, etc) and management (attitudes towards innovation and change). Others are (by key issues capacity to achieve and maintain appropriate competitive advantage and market position on the medium and long-term; ownership structure and the means of policy formulation, capacity to develop and manage international or global activities, etc.
Having considered the internal analysis of the company’s state, a brief consideration of the external analysis through the opportunities and threats by using PESTLE analysis; each word in the acronym is analyzed in brief for example:
The government in power might make decisions (usually political) which affect economic trends, market and industrial structure and employment law. These can affect the business directly or indirectly.
Economic factors: Exchange rates, interest rates, tax laws etc also have direct effect on the organization.
Social and cultural factors also affect the environment in which the organization operates. For example, education, income levels and skills and competence will impact upon the organization.
Analyzing the technological stance of the organization itself and or the rate of technological advancement prevailing in the industry e.g. the computer, electronics and automobile industry could indicate the company potentials. People are becoming increasingly concerned about environmental issues like pollution, noise, destruction every length to even campaign against certain products and for that matter the firms concerned.
Morden (1993) writes that the external environments may be analysed in terms of the following:
Variables within the extension environment show little or no change over long periods of time. This is the mature stage. It shows good relationship between firm and stake holders.
Moderately dynamic: Variables show a limited degree of change over time e.g. minor changes in technology.
Variables show a significant degree of change over time. The situation may be worsened by entry of new entrants and exit of others. An example of UK turbulent environment was the 1986 Building Society Act which brought about the deregulation of the Building Societies and increased competition.
Turbulent with increasing rates of change: environmental variables show an increasingly rapid rate of change. This threatens the survival of existing operators who are not forward-looking and so not innovative. The computer industry provides a good example when the founders of Google came out with a unique search engine which even caught MSN unawares. Innovation at this stage needs to be constant.
At the end of this analysis, the threats and opportunities inherent would have been unearthed. Threats are the features or variables which threaten the very survival of the business directly or indirectly. Some examples include political uncertainty, global recession which present themselves as bottlenecks to growth. Opportunities may include changes in legislation, removal of barriers to international trade the emergence of ‘grey’ markets.
To the business planner, having analyzed the situation of the business in-depth as above, and the corporate strengths and weaknesses, the external environment, environmental stability and specific threat and opportunities identified, these may then be used in the planning aspect. For example the choice of appropriate strategy to exploit the corporate strengths and external opportunities as well as those to remedy corporate weaknesses and the external threats. This being made possible because of the knowledge of the general environment available to the planner as a result of situation analysis.
Since intended outcome of the business planning is the successful positioning of the company armed with the above information gathered, the situational analysis to a large extent becomes a valid tool needed to carve the future position of the business.