Most business owners know that companies are much more likely to survive and thrive if they have a robust and thought through strategy. It may be too late if you are looking at a company liquidation strategy, but how do you go about setting one?
A good strategy will allow the business to fight off competition, both from current competitors and new entrants. It can also signpost new opportunities for the firm to exploit.
There have been many methods of strategy setting proposed over the years and some are amazingly complex, however a simple and effective model is Khalifa’s ‘Four Es’1 which asks the business owner to assess their firms situation based on four specific areas.
Exerting and leveraging organisational capacity – An inward looking aspect, this asks the firm owners to look at what capacity they already have and find new ways to use it. For example an engineering firm may have a high tech, expensive milling machine that they use only for part of the time. Finding other ways to utilise the excess capacity means that the machine itself becomes more cost effective. Service based firms should also look at the capability of their staff. Executives are often surprised to find that existing staff have skills that the company are already buying in from outside. By completing a full staff skills audit these can be identified and used effectively in the future.
Extending and Renewing Organisational capacity – the second of the inward looking sections leads managers to look at the capability of the company and find ways of increasing this. Using our two examples above this could mean that the milling machine may be upgraded through more parts or software allowing it to produce a larger variety of items more quickly or cheaply than before. Similarly by investing in training and education the current staff can be upskilled to allow the company to offer better services for its clients.
The two inward looking strategy methods are arguably easier and more cost effective. They build on the already entrenched capabilities of the company to produce more sales opportunities. The good thing about this is that when strategy setting, the executive is dealing with a number of known factors such as the existing skill base or capacity thus giving a good start to the process. The external looking methods deal with more unknowns but may provide greater opportunities.
Exploring New Market Opportunities – When a firm has an existing core competence or an established brand in a particular sector, moving into a new market with an existing product or service allows the company to expand their reach. The manager needs to look at ways in which a current ability or asset can be useful in other areas. A simple example would be a marketing company that has a known name within the construction industry. The firm could then look at other sectors to apply the knowledge and skills gained in working for building firms in a different sector. It is important to ensure that the firm do not overreach and lose focus as entering many markets at the same time could cause quality to be compromised.
Exploiting Current Market Opportunities – Firms that have an existing, successful brand in an established market can use a strategy of leveraging their existing relationships to ‘piggyback’ a new product or service. This can be very cost effective as the expensive to develop brands, sales and distribution channels are already established. If we go back to our engineering firm that may produce gears for industry, developing a strategy of supplying bearings and lubricants allow new products to be introduced to existing customers and may even provide new client opportunities. The firm has existing relationships with dealers who presumably know and trust their supplier. Using this asset to supply something that the company produces or a complimentary product that is bought in gives the company a ready-made increase in sales. Joint ventures can be especially useful in that both partners give the other access to their channels making the arrangement a win-win situation.
Using this four-way matrix, executives can assess their firms’ current situation against each of the aspects and then use these to devise a holistic strategy for the company. It can also be useful to pinpoint areas of strategy setting where a company is weak allowing managers to make changes to rectify any failings.
SALEM KHALIFA, A., 2008. The “strategy frame” and the four Es of strategy drivers. Management Decision, 46(6), pp. 894-917.