Having a business strategy enables you to focus on the most important things you need to do to achieve your goals in the future. At the end of this year, it is the best time to ask yourself some questions and do some work to prepare your business strategy for next year.
We are living in an uncertain world. Changes occur everywhere around us occurred in smaller and smaller time frames. So, I found very difficult for me and many of my clients to have a business strategy that will last for years from now. This is true especially when it comes to small businesses or startups that can’t predict the future as something that will be closest to what can really happen.
Here, I want to share the part of my steps in developing a new strategy for the next year.
Business Strategy #1: What are your goals for next year?
Yes, start with your goals, or what you want to achieve at the end of next year. It is important to know the end results you are trying to achieve in order to make it possible to visualize the end results after realization of your business strategy for next year. For example, if your goal is to increase your profit by 20%, you will know how much income you will need to generate. Knowing how much income you will generate you will know what you will need to do in order to generate the required amount of income.
Let’s take an example. If your company is a service company that repair specific appliances and you want to increase the profitability by 20%, you can simply calculate the income that will generate desired profit. Let’s say that in this year you have 300.000,00$ profit generated by 1.000.000,00$ income. You know that if you want 360.000$ profit, you will need to generate 1.200.000$ income next year. This calculation will bring several questions as follow:
- Can I increase my profit margin from 30% to 36% in order to achieve my goals?
- What I need to do to increase my profit margin from 30% to 36%?
- What I need to do in order to increase the income for 20%?
Answering these questions, you can see what you will need to do to achieve your goals.
Business Strategy #2: Look at Your Current Business Processes
As you know, processes are the engines that drive your company. You already know what you want to achieve. But, you can’t really build your best strategy until you first understand what you’re trying to carry out and start working backwards. So, you need a systems approach to analyze and find possible improvements for the coming year that you can include in your business strategy.
One tool that you can use in this situation is 7W (7 Wastes) from lean production categorizing unproductive manufacturing practices identified by Taiichi Ohno, the father of the Toyota Production System (TPS). The 7W you would look for are following:
- Overproduction – Working of products or services in advance or in excess of demand wasted money, time, and space. Overproduction is not only for manufacturing companies, but it is present in all types of companies. For example, overproduction can appear when you work on development of the features of products and services that aren’t something your customers want. Or, at least you are not sure that your customers really want them.
- Waiting – The biggest reason for the ineffectiveness of the processes comes from waiting time of the processes. In such a case you waste time when one process waits to begin while another finishes. You need to ensure that the flow of operations is smooth and continuous.
- Transportation – Transportation is moving product between processes. As you can see these times add no value to the products/services. So, it creates costs and can cause damage of the products, or equipment, or the operator. A change in layout often can help you to cut these negative effects.
- Inappropriate processing – Sometimes we simply complicate things in process development. If you analyze the processes, you will easily notice that they have integrated certain activities that are not important for the production of your products or services.
- Excessive inventory – With excessive inventory you spend your cash flow on inventory products that you cannot still sell and space for inventory that is not needed now. Simply ask yourself following question: do you really need a such amount of inventory for normal operations of your business? What you need to do to decrease inventory level in your company?
- Unnecessary motion – During the work there are different movements required for performing the work. Analyzing all movements will show you possibilities for reducing the number of movements, and the time an employee spends on carrying out the work. This means increased productivity, reducing costs of production, and reducing costs of the product or service in the form of value that you deliver to your customers.
- Defects – Inappropriate processing lead to defective products and services. This will always lead to higher costs of inventory, inspection, design of the product, and processes. What are the biggest reasons for defective products as services as outputs from your business processes? What you can do to cut them?
3 More Wastes You Need to Consider In Your Business Strategy
Jeffrey Liker introduces eight wastes. It is unused employee creativity. Today, creativity is one of the biggest potential of any company despite what kind of business they are. Creativity leads to creative problem solving, creative improvements, creative change… And this is an essential competitive advantage for any company. Higher creativity level means the higher business potential energy of the company.
As a ninth group of wastes some authors talk about environmental trends as a lost opportunity for the company to join the environmental trends that provide great savings. For example, using solar energy instead of electric energy to warm water as a part of the production process. It is a big saving for each company. Review all those costs that don’t add value related to environmental trends. If you succeed to cut these wastes your company will become “green company”. It will save a large amount of money that will directly affect the price of the product or service.
And as the tenth group of possible wastes I am usually talking is unnecessary communication. This wastes emerged as inevitable, especially because today’s work in large part is based on communication. A study by McKinsey Global Institute published in July 2012 titled as “Social Economy” says that employees who have some interactive work 28% of their workweek spent on managing email. A logical question that follows is whether this time from 11 hours a week (if you consider the 40-hour work week) serves to create and deliver value for customers?
Business Strategy #3: Look Inside the World’s Best Companies
As a third step you can take for your new business strategy for next year is to spend some time making a list of the highest performing, most sustaining, and successful companies you know, inside or outside your market and industry. Think about what their business strategy really is. What they’re trying to achieve with all the tactics they use?
It is important to have some drivers for you as an entrepreneur and small business owner. You want your business to replicate the success of the biggest companies in the world. So, spend some time to think about how they are doing something or accomplishing something.
Now, you can compile everything you found until now in your own unique business strategy. This strategy will guarantee the success of your company. But remember, this is only the starting point. Business strategy doesn’t guarantee that you will implement it. The fact is that when you have a strategy, you will be encouraged and better organized. In such a way there are bigger chances to achieve everything you want to achieve.