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    Often thought of as something done only by large Fortune 500 companies, Strategic Planning involves determining a company's target position or goals within a market.  While some small business advisors suggest using a basic SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) for planning purposes, a more detailed analysis is required to fully understand a company's long-term position in the marketplace.

External Factors

    External factors, representing the environment a company operates in, can have a strong influence on a company's success, and must be evaluated carefully:

Economic

    High barriers to entry can create a competitive edge for a company (e.g., microchip fabrication, pharmaceuticals manufacturing), whereas low barriers to entry often result in an industry that is flooded with small providers (e.g., landscaping and various "handyman" services, tax return preparation services,  business/marketing consulting services). 

Political / Legal / Government

    Some industries such as firearms, healthcare providers, and aviation equipment are in highly regulated environments.  Other industries such as mining, logging, hunting, firearms, tobacco, and pornography are often highly controversial and draw criticism from a non-trivial portion of the population.

Market / Competitive

    Companies do not operate in a vacuum; competitors, suppliers, and even customers can exert influence on a company's products.  Furthermore, these factors can change rapidly (just ask Netflix or mySpace). 

    Michael Porter of the Harvard Business School developed the Five Forces analysis framework (shown at right) in 1979 for evaluating a market, and his model is still taught in business schools around the world today.

Porter Five Forces Model Image

Dispersion of Profits within the Industry

    If profits are concentrated among only a few companies, a new entrant will have difficulty gaining any substantial market share.  If there are no clear market leaders, however, a new entrant will have a significantly easier time gaining market share.

Technological

    Changes in technology affect some industries more than others.  A web design firm or software engineering company must stay on the cutting-edge of new technologies, whereas an industry such as violin making has changed little over the past three centuries.

Social / Demographic

    Changes in demographics can have a profound effect on a company.  In the United States, the Baby Boomer generation exerts an enormous influence on the economy, while the rise in the usage of social media has forced companies to reevaluate their marketing strategies.

Geographic / Environmental

    Geographic factors can affect a company.  A remote location may have lower initial capital requirements, yet result in higher costs for raw materials, supplies, and fuel, as well as lead to longer transportation delays.

Internal Factors

    Internal factors are the second piece to any strategy plan, as these factors must all work together for a business to succeed.

    Developed in the early 1980's by Tom Peters and Robert Waterman of the McKinsey & Company consulting firm, the McKinsey 7S Framework is still used today to analyze internal forces within an organization.

    Three of these forces are technical in nature and considered "hard S's" (shown in blue).  The others are more people- or relationship- based and considered "soft S's" (shown in red).

 

McKinsey7S Framework Image

Strategy

A long-term strategy or business plan.

Structure

The way an organization is structured, including reporting relationships.

Systems

Policies and procedures governing the company's daily activities.

Shared Values

Core values of the company, including stated values as well as actual corporate culture.

Style

Leadership style of the company and its managers.

Staff

Employees of the company, including some external partners.

Skills

Skills and competencies of the employees of the company.

 

 

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