Business, Marketing, and Management Principles for IT and Engineering

Dimitris N. Chorafas

• Publisher: Auerbach Publications
• Year: 2016
• Print ISBN: 9780367382612
• eBook ISBN: 9781000755282
• Topic: Business
• Subtopic: Management
• Index: Business

In order to achieve long-term profitability and assure survival for their companies, managers must be informed, imaginative, and capable of adapting to shifting circumstances. Practical decisions rather than theories hold the upper ground. Business, Marketing, and Management Principles for IT and Engineering supplies the understanding required to e

Part One

Business Strategy

1

Strategy

1.1 BUSINESS STRATEGY DEFINED

By strategy we understand the art of conquest by means of a master plan. A strategy may be personal, corporate, or national, or it may be civilian, cultural, religious, or military. Buddha said, “Between him who conquered in war millions of men, and him who conquered himself, the greater victor is the latter.” The conquest of oneself is the supreme strategy.

Some strategies prove to be brilliant; others are dumb or outright disastrous. The error, however, is not always in the master plan. “The value of a strategy is that of the people who apply it,” said Jack Welch, the former chief executive officer (CEO) of General Electric (GE). His dictum applies in the dual sense of

• successes, and

• failures

“Once we have learned our lesson from a failure, we must again assume the risk commensurate to the job we are doing,” Walt Disney once suggested. In the opinion of Bernard Arnault, of LVMH and Christian Dior, “errors are inevitable—but properly used they can serve in forming one’s mind.” What should be avoided is falling into the abyss. Therefore the master plan should be dynamic, adaptable, with a “Plan B” for fallback.

Business strategy achieves its aims through a plan (Chapter 4) consisting of tactical moves that concern the execution of operations under the master plan. Tactics are a vital ingredient of strategy, but they are subordinated to it. The four fundamental components of any master plan are as follows:

1. Human Resources Strategy (Chapters 2 and 6)—Aiming to identify, recruit, and keep developing the company’s managers and professionals.

Andrew Carnegie was once asked if he were to lose all his factories but keep his personnel, or lose all his personnel but keep his factories, which option would he choose. He answered the former, because if he had the people he selected and trained over the years he would rebuild his empire. A company’s greatest asset is not the money in its vaults but people and people: its customers and its employees.

2. Financial Strategy (Chapter 14)—Focusing on forward planning to protect and grow the entity’s economic resources in spite of uncertainties and turbulence.

An effective financial strategy requires positioning the company against market forces. To do so, board members, CEOs, chief financial officers (CFOs), and their colleagues must raise their eyes above the day-to-day commitments and face their broader responsibilities of safeguarding and growing the company’s assets.

3. Market Strategy (Chapter 8)—Focusing on effectively identifying the company’s market, managing the change occurring in the market, and developing a plan able to sustain leadership.

The more dynamic the market is, the greater the need for market repositioning. Of the top 100 American industrial companies ranked by assets in 1914 when World War I started, only one has been in this select list in 2010: GE. Most of the others disappeared. Of the top 100 in 1945, at the end of World War II, only a handful are top ranking these days, and the then No. 1, General Motors (GM), had to go into bankruptcy to restructure itself and try to survive.

4. Product Strategy (Chapter 12)—Aiming to be in charge of products and services offered to the market, and pricing them in a competitive but profitable way to confront the moves made by our company’s challengers.

With fast advancing technology, what companies need to position themselves into the market is to not only gain recognition but also retain their brand’s attractiveness. This calls for innovating and developing products the rest of the industry does not have. Such products however, should fit within the company’s strategic thinking.

No entity can be a leader in all fields, but it must lead at least in some products that will become its key market thrust and income earner. It should be always remembered that strategic products change over time because of moves by competitors and the market’s inflection points that bring companies at crossroads (Section 1.3).

As these references document, business strategy cannot be made in the abstract. It must be factual, and it calls for exercise of skill, forethought, and artifice in reaching goals and carrying out plans. Strategy is a dynamic process characterizing the interaction of two or more persons or entities each of whose actions is based on certain expectations of moves by the other, over which the first has no control. This definition contains the three elements that set strategy apart from other plans or moves:

• It is a master plan, not just a list of individual actions.

• It is against hence it involves competition, a basic ingredient in any strategy.

• It has an opponent, another person, group, organization, or nation, without which the competitive situation could not exist.

In the sense outlined by these three bullets, strategy has been applied to war, business, and propaganda, as well as politics. Successful strategies follow an ancient military maxim that states, “Reinforce success, abandon failure.” Strategy is not an objective in itself, but a master plan to accomplishing objectives.

One of the fundamental notions underpinning a master plan is that of identifying our side’s strengths and weaknesses, putting forward moves that reinforce our strengths and estrange our weaknesses. In his book Competitive Strategy, Michael Porter, of Harvard University, asked how companies can secure long-term competitive advantage in the realm of two conflicting schools:

1. The Harvard Business School, which urged companies to adjust to their unique circumstances

2. The Boston Consulting Group, which argued that planning can be based on a “universal principle,” the so-called experience curve

According to the second hypothesis, the more a firm knows about a market, the more it can lower its price and increase its market share. Porter tried to find a middle way by studying individual companies and setting them in the context of their industry. From this he deducted generic strategies.*

To my book, “generic strategies” are the wrong approach, and “universal principles” should be used only by the unable who has been asked by the unwilling to do the unnecessary. Although one can learn a great deal by reading Sun Tzu and Machiavelli (among other great thinkers—see Section 1.2), a successful master plan is not made of prefabricated components. It is a work of art based on the strategist’s

• imagination,

• training,

• experience,

• information, and

• thinking

A successful strategy is specific and has locality. It can be formulated only after the objectives of a person (enterprise, group, the society) have been established. The making of strategy involves projection into the future and selection among alternative plans of action. Projections and forecasts help reduce but don’t do away with the effects of the unknown. Selection among alternatives is the basic process that we use to optimize a chosen course of action.

• No organization can lead its way within a competitive environment in an effective manner, without some form of formal or informal strategy.

• Reasons generic to the enterprise and its environment not only require strategic reevaluations but also call for corrective actions and reformulation of strategy.

For every form of organization—state, community, enterprise—strategies should not be strict, inflexible, monolithic, or obsolete. The existence of an established strategy should never be thought to allow the chief executive and his immediate assistants to dissociate themselves from an active follow-up of the affairs of the organization on the assumption that, having given orders to execute everything will fall into place.

President Truman once remarked that of all the challenges and headaches of the presidency—the Cold War, the Berlin crisis, Korean War, MacArthur’s confrontation, the recession—there was not a greater one than giving orders, expecting them to be followed, and then seeing that nothing happens.

The formulation of a winning strategy—industrial, financial, military, political, individual—involves the reevaluation of one’s own plans, educated guesses on those of the adversary, imaginative moves to match them, and a great deal of supervision and follow-up. Control action (Chapter 7) is necessary to make sure that a plan, once established, is put into effect.

1.2 SUN TZU AND MACHIAVELLI

Two thousand five hundred years ago, Sun Tzu, the great Chinese statesman and general, said, “If you know yourself and know your enemy, you will not have to fear the outcome of one hundred battles.” But then he added, “To win one hundred victories is not the acme of skill. To subdue the enemy without fighting is the supreme excellence.”* In Sun Tzu’s opinion,

• every person’s invincibility depends on oneself,

• but the enemy’s vulnerability depends on the enemy himself

The translation of Sun Tzu’s principles of strategic moves into a business strategy ranges from building up human resources to financial planning and the tuning of the firm’s activities in response to shifting market demand. The critical element will be overtaking, not just counteracting to, the actions of competitors. Therefore the crucial questions management should ask itself are as follows:

• What’s our strategy?

• What’s the strategy of our opponents?

• Can the strategy we have chosen leave them behind?

The next critical queries senior management should ask itself and ask for clear answers are as follows: Which of our products are losing market appeal? Why? What are their sales? Profit margins? Costs? Risks? How do our products hold against those of our competitors? How are our clients and competitors looking at our strengths and weaknesses? Are they taking advantage of the latter?

When we talk of products and services we also talk about markets. Is the primary market to which we appeal changing? The secondary markets? How do we stand in our primary market against our competitors? How fast does this market grow? How fast does it shift? In which direction is it shifting? Which are the special risks the market’s move presents to our firm’s future?

Borrowing a page out of Sun Tzu’s book, these questions have to be answered in a factual and documented manner prior to even thinking about possible moves. The answers to be provided will talk a great lot about business opportunity and pending disaster; and about how well our organization has positioned itself against market forces—which essentially means about order and disorder in our enterprise management.

To Sun Tzu’s book, which has looked at this issue, order and disorder are conditioned by structure, organization (Chapter 3) and direction (Chapter 6). Strength or weakness greatly depend on tactical disposition, whereas c...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgments
• Part One Business Strategy
• Part Two Management Principles
• Part Three Marketing and Sales
• Part Four Innovation
• Part Five Financial Staying Power