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22
Jul

Business Planning and The Organizational Environment – Part II

Last
month I wrote about the importance of understanding the relationship between
business planning and the organizational environment in which the company
operates.  In this post we explore two of the most important goals of the
business planning process for any company–defining the organizational domain
of the company and devising and executing strategies to continuously expand
that domain in a way that creates additional value for the company’s key
stakeholders.  The organizational domain consists of a number of
different elements and constituencies.  In addition to the products
and services that the company products or otherwise makes available for sale,
the organizational domain includes various stakeholders with a vested interest
in the inputs and outputs of the business and in the way that the business
operations—customers, suppliers, distributors and employees as well as
governmental agencies, unions, special interest groups and other firms
competing with the company in the same markets.  These stakeholders,
taken together, define the specific environment in which the company must
operate and the senior management of the company must develop strategies to
manage and influence these environmental factors in a way that allows to
maximize its ability to successfully identify, obtain and maintain the scarce
resources (e.g., raw materials, technology, skilled human resources, working
capital, customers, etc.) necessary to launch the company and continuously grow
its business and eventually expand its organizational domain.  The
issues in this area are crucial since each of these stakeholders have the
ability to exert significant influence on the company, its managers and other
stakeholders to act in certain ways. 

Companies
and their managers must be adept at several different types of analytical and
strategic tools in order to successfully define their organizational domain and
the relevant specific environmental factors.  For example, one of the
first steps in establishing the organizational domain is determining the
initial products and/or services of the company and identifying the first group
of potential customers that the company intends to serve offering those products
and/or services.  The choice of products and services depends on a
number of factors, most notably the background and technical and business
skills of the founders of the company.  It is essential, however, to
remember that any product or service, regardless of its novelty or assumed
utility, will only be valuable to the company if it attracts the essential
scarce resource—a loyal customer base that can grown to expand the company’s
organizational domain.  Accordingly, when developing the initial
business plan for an emerging company the management team must zealously pursue
information about the company’s target customer base and the steps that must be
taken in order to satisfy customer needs.  Note, of course, that the
challenge for emerging companies, given their goal of rapid growth, is even
more difficult since the business plan must anticipate in advance introduction
of follow-on products and services and expansion of the customer base beyond
the initial group. 

Another
important aspect of building the organizational domain is accessing certain key
inputs necessary for development and commercialization of the chosen products
and/or services.  For example, companies must decide on the best
strategies for obtaining necessary raw materials and technologies.  While
it may be possible to create these inputs internally, companies often turn to
external sources and thus management must be able to identify prospective
supply partners, negotiate acceptable procurement terms and manage the
relationships with those suppliers who become fixtures within the company’s
organizational domain.  Companies must also enter into acceptable
arrangements with outside dealers and distributors to make the products and
services available for sale to customers and must also establish relationships
with banks and other financial institutions, as well as investors, in order to
obtain working capital on acceptable terms and conditions.  While we
discuss elements of the organizational domain separately there are obvious
connections that will require managers to go back and forth between various
issues.  For example, before settling on the design elements and
pricing characteristics of a new product or service the company must be sure
that its suppliers can deliver inputs (i.e., components and/or finished goods)
with the desired features and at an acceptable cost level.  Similarly,
the company’s selection of a customer base and customer satisfaction strategy
must be aligned with the resources of the company’s distribution network. 

In
addition to customers, suppliers and distributors, companies must decide the
best way to manage access to, and relations with, other important stakeholder
groups in their organizational domain—employees, unions, governmental agencies
and special interest groups.  With respect to employees and unions,
companies must be able to recruit and retain skilled workers, including
managers and technical specialists, who can build and maintain a competitive
advantage for the company while still allowing the company to operate at a
competitive level with respect to salaries and the costs of employee
benefits.  If unions are involved the company must be prepared to
engage in vigorous, often heated, negotiations regarding wages, benefits and
protection for union workers against reductions in force.  Companies
deal with applicable laws and regulations by developing compliance programs and
ensuring that their manufacturing activities and their workplace environment
meets or exceeds the basic requirements established by labor, health and safety
laws.  It is well known that business regulation in the US is
extensive in scope and touches upon on all aspects of the employment
relationship—recruiting, compensation, evaluation and discipline. In many cases
the products and services developed and offered by technology-based companies
must be vetted and approved by regulatory agencies (e.g., the federal Food and
Drug Administration in the case of pharmaceutical products) and companies in
that situation must be sure they understand and adhere to specific regulatory
guidelines and concepts of best practices in the relevant industry.  Special
interest groups include consumer advocates that may apply pressure on companies
to refrain from engaging in certain practices such as importing raw materials
from specific foreign countries or utilizing manufacturing processes that might
reduce the safety or quality of the company’s products. 

Finally,
it should not be forgotten that competitors are also part of the organizational
domain designed by a company.  The selection of products and services
and customer markets, as well as the identification of the human and
technological resources necessary for the business to operate, will determine
which firms the company will need to compete with in order to gain access to,
and control over, scarce resources including customers, suppliers,
distributors, talented workers and capital.  While it used to be that
competition generally came from domestic firms it is now the rule, rather than
the exception, that companies can expect challenges from US firms and from
companies based overseas.   It is well known that many emerging
companies are launched “under the radar” with a focus on niche markets that are
too small or unorganized to garner interest from established incumbents.  In
this way the new company can reduce and manage the impact of competition on its
activities.  Companies can also attempt to manage competition by
tying up scarce resources, such as by entering into exclusive supply
arrangements with key vendors for raw materials.  Another way to deal
with competitors is to forge alliances, either directly with a competitor or
with other small firms to create a critical mass of resources that can compete
with larger firms on the basis of economies of scale.

17
Jul

2013 Issues for In-House Counsel – A Mid-Year Review

On the Corporate
Counsel Blog on Legal Solutions I recently provided the following mid-year review of the Top Ten
Issues for In-House Counsel in 2013: http://westlawinsider.com/corporate-counsel/time-for-a-mid-year-review-of-the-top-ten-issues-for-in-house-counsel-in-2013/

8
Jul

Analyzing and Comparing Financial Systems: An Overview

Comparative analysis of financial systems around
the world call for consideration of a variety of issues and questions including
how effective different types of financial systems are at various functions
such as investment and saving, growth, risk sharing, information provision and
corporate governance; what factors, such as the influence of law and politics, drives
evolution of financial systems; and what are roles and activities of specific
actors in the financial system such as banks and other depository financial
intermediaries and regulators.  This report provides an introduction to the important topic of analyzing and comparing financial systems.