Corporate Strategy:

Innovation Strategy

Development of a Business Strategy

Guidelines on Technology Management for Small and Medium-scale Enterprises (SMEs)

The essence of business strategy is to define the actions of the business so as to give a better response to customer needs than the competitors offer. In deciding where to position the business within its competitive environment, a firm should take into account both structural factors affecting the dynamics of competition in a specific industry, and factors determining the relative advantage of the business with respect to competitors in the same industry.

The result of this analysis is identification of market competitive factors, i.e. the factors that need to be met to survive and be successful in the business. Initiatives and decisions have then to be taken accordingly, and priorities established.

The business strategy output consists of:

• defining the key objectives on both existing and potential new businesses; and

• the actions to be taken to achieve these objectives and to meet the critical success factors.

The business strategy formulation provides key inputs to technology strategy formulation. This chapter of guidelines briefly describes how to formulate a business strategy and is structured in four sections:

• Product-market analysis

• Trend analysis

• Identification of market competitive factors; and

• Strategic priorities and actions.

This analytical approach should be applied to each business line of the enterprise.

A business line is defined as a distinct product or service, sold to a uniform set of customers facing a well defined set of competitors, offering products or services that are similar to each other.

1.    Product-Market Analysis

Table 1 shows the market segments attained by each product of the firm. Each cell shows the total sales (turnover), annual growth rate, percentage of contribution to global profits and percentage of participation in that particular market segment (this information is not always available).

TABLE 1. Product-market analysis

A        TURNOVER (total sales of the product in that market segment)

B        ANNUAL GROWTH (average of the last two years of growth in sales of the particular product in that market segment)

C        CONTRIBUTION TO PROFIT (percentage of the profit generated by that product in that market segment relative to the total profit by the company

D        MARKET SHARE (of that product in that market segment)

Yellow-shaded cells are the priority cells. These indicate the product/market pairs, i.e. businesses that today are most important for the success of the company, considering the four factors listed.

2.    Trend Analysis

For the priority cells, Table 2 should be used to identify major trends of the market but in particular to evaluate threats and opportunities.

TABLE 2. Strategic trends, threats and opportunities

It should be stressed that a certain amount of time should be spent on Table 2, since the number of variables is large. Efforts should be made to concentrate on the most important factors. This varies from company to company, but a preliminary list is presented below:

Market:    major client groups, potential clients, trends in terms of growth or reduction of markets, new niches, opportunities for alliances, development of special commercial agreement between countries.

Competitors:    number, concentration and size, potential new competitors, strategic alliances between competitors (present and potential).

Distribution:    number, size and concentration of distribution channels, potential distribution channels, opportunities for alliances.

Suppliers:    number, size, concentration, dependency level, and opportunities for alliances.

Technologies:    technological trends, substituting technologies, opportunities for alliances, subsidized funding for R&D and technological innovation, trends in patent regulations.

Regulations:    trends in regulations at the national and international levels that affect the product characteristics.

The analysis should focus on the priority cells identified above.

3.    Identification of Market Competitive Factors

For each priority cell, an evaluation of the market competitive factors should be performed. Key questions to address when defining market competitive factors are:

• What are the key criteria by which our customers make their choice?

• How can we help our customers gain advantages in his competitive arena?

• How can a competitive position of excellence with respect to competitors be achieved and maintained?

A comprehensive list of competitive factors is presented in Table 3.

TABLE 3. Competitive factors, priorities and position with respect to competitors

Priority according to customers: Grade 1 (low importance); Grade 4 (extreme importance)

Position with respect to competitors: + (better); = (same); - (less)

The above table should be applied in each critical product-market pair. Note that the customer's opinions should be taken into account when completing the table. However, the customer may not have a precise idea of what he really wants, and his view should therefore always be analysed carefully. The following questions should be answered in relation to Table 3:

Critical questions related to Table 3:

• Which of the factors taken for granted by our industry should be eliminated?

• Which competitive factors should be reduced well below industrial standards? Which competitive factors should be raised well above industrial standards?

• Which competitive factors should be created? (not previously considered/offered by the industry)

• How do people become aware of their need for your product or service?

• How do consumers find what you offer? How do consumers order and purchase your product or service?

• How is your product or service delivered? How is your product installed?

• How is your product or service paid for?

• How is your product stored?

• What is the customer really using your product for?

• What do customers need help with when they use your product?

• What about return or exchanges? How is your product repaired or serviced?

• What happens when your product is disposed of or no longer used?

Careful attention to these questions will lead to identification of the market competitive factors. It should be addressed that the analysis so far concerns the firm's overall competitiveness and therefore may involve many aspects not related to technology.

4.    Strategic Priorities and Actions

On the basis of the input obtained from the previous steps, it possible to identify/formulate the enterprise's strategic priorities for each relevant business. The analysis should include both existing and potential businesses. These objectives essentially give shape to the firm's business strategy. At this point, new products and/or new markets should be strongly considered.

An additional approach is to seek completely new ways of satisfying the customer. Table 4 should show the priorities and actions to be taken for each critical competitive factor in each current business relevant to the firm and each potential new business.

TABLE 4. Strategic priorities and actions

It is obvious that the above priorities and actions can turn out to be unfeasible. Revisions may be necessary, as certain market strategy may be unsuitable or too costly. When a suitable strategy has been defined, the critical competitive factors and the associated actions become the reference point for any functional strategy of the enterprise, including the technology strategy.