SME strategic planning

Today we talked about various strategic management tools that may help small and medium size companies with their strategic development.
I was thinking about the efficiency of applying such strategies. Most of these companies may be really small and not afford the time, energy and capital to invest in such techniques. As a matter of fact, as Mittelstand (Tabellenband, 2004) research shows, companies give up planning as years pass. His research showed that most planning is (if ever) done in the first years, after which a steady decline is noticed. Also, the smaller the company, the less planning is done.
Planning and applying strategic management tools may coagulate the various sectors of your company, binding them together (as McKinsey's 7S model does for example). The 7S model tries to analyze various parts of your company (Skills, Staff, Structure, Strategy, Structure, System) and bind them into one, Shared Value unit. My opinion is that by doing this the company's departments become more interrelated and dependable on one another. Also one change may have bigger repercussions in the other 6 sectors the company defines. There may also be the fear of implementing change due to the risk of uncertainty that will be created in other sectors of the SMEs.
Thus, I believe that for small and small to medium size enterprises, devising strategic management tools may have as a consequence the company's loss of flexibility and thus its main competitive advantage against big corporations.

Cheap and effective marketing

It is becoming a real burden for companies to advertise through conventional advertising techniques. TV commercials, radio, street posters become in my opinion outdated and expensive. Of course they will work, bust most of us became so accustomed to street posters that we just think of them as part of the city background, TV commercials as forced interruptions from our favorite shows and so on.
I noticed nowadays more and more companies that advertise through more unconventional means. Placing a cell phone in one of the celebrity's hands as s/he makes a video clip may prove to be less expensive and more effective.
Let's say Nokia decides to advertise its new youth cell phone. Making a TV commercial will cost the company a lot: you need a team to come up with an idea after which you need to pay a lot for transforming the idea into a short video clip, then you need to finance for every second the commercial airs (fees which vary depending on the show you watch/time/audience).
But if Nokia would give a cell phone to a singer who makes a videoclip and agree to pay 30% of the videoclip's cost (which may in some cases cost the same as one single TV advertisement during a peak hour) if that persons flashes the device in front of the TV for several times (see: Puff Daddy Ft Keyshia Cole - Last night on you tube: http://www.youtube.com/watch?v=FxIR5vvdw2U from minutes 0:30 onward) then it would end up spending a lot less: no team to come up with an idea, no advertising campaign and no payment every time the ad airs. Plus the intended audience can be very well selected this way. Putting a cellphone into a celebrity's videclip will be watched by a lot more teenagers than a regular TV ad. Plus you have broadcasters like youtube, MTV and many others that will broadcast the singer's song and implicitly the clip with the cell phone it it. It is a way of "market bundling" by attaching a product next to another product (this case a service)-e.g. mp3 player comes with headphones.

This marketing technique may even extend to books (for example authors may encompass in their writing -if it fits the scenario- about coming into a specific bar and drinking only a special brand of beer). Think that the audience may be a lot larger (if the books turns out to be a bestseller), cheaper to reach and the individuals may be a lot more attached to the general subject and subconsciously to the subliminal product advertised rather than identifying with it in a random TV add.

Company visit - ITAB

The company visit was very educational in my opinion. Well… at least I learned more from it than by reading somebody’s article and then discussing it in class… But I guess we need both theory and practice in life.
I was amazed how well the company was doing in its domain(s). It focused on store layouts and equipment. These services will always be in demand simply because there will always be businesses that need to find efficient solutions for their store arrangement and outfitting. It’s like dentistry: you will always find clientele that needs teeth improvement.
In my opinion, one of the elements that made this company what it is today was the early age in which it entered the market. I believe that it started 40 years ago. It was there when these services were starting to be in demand. Plus, the company managed to adapt and expand, providing in time both the service and some of the equipment, diversifying its portfolio, reducing risk and dependability from the suppliers that produced the same equipment. It provides a great example of vertical integration, since it provides both the solution and the means to a problem. As we walked through the company, I could see that most of the store layout equipment provided for their clientele was organically produced. ITAB had machines that cut the steel, molded it; it had a painting division, binding division, electronics, delivery, etc.
What I found interesting was that they did not rely on advertising. After some clarifications, it became pretty clear why: ITAB relied on B2B relationships and most of the local clientele was already theirs. Due to the age of the company, it managed to recruit these businesses from the beginning. The company focused on a big portfolio of retail stores (not all of which Swedish) that gave the company enough work with their every newly opened store.
R&D was also strong. We saw a prototype for self checking products. Most of the stores today have a supervisor that randomly checks the clientele that uses this kind of service. This is done because it gives the customer the possibility to cheat (clientele may scan less products and thus pay less). But the problem arises as soon as the random check is done because the clientele may associate this action as an insult.
The new ITAB self scanning machine requires the clientele to put the merchandise on a belt after scanning. This belt weights the purchased article and correlates it to the scanned product. If the weight differs (within +/-1 gram), or an additional, not scanned object is placed there, then it detects this as an abnormality.
I believe that ITAB will have a good performance even during these times of recession because it mainly collaborates with retail stores that rely on low cost products like Metro, Kaufland, Ika, and so on.
I would like to see more of such visits in my future schedule.

Fusion marketing. How to set up a fusion marketing alliance?

I will talk some more about this topic, since I found it very interesting. '
I will explain how to set up such an alliance.
First of all, you need to define who could be your partner(s). Be sure to look for companies that do not engage in the same business as you, since this would make the alliance cannibalistic. Entrepreneur.com offers examples of competitors that are not direct competitors, but nevertheless aim for the same market: landscaper/builder, realtor/mortgage broker, network marketer/entrepreneur, massage therapist/chiropractor
Next you need to agree with your partners how much is each willing to sacrifice in order to convince the customer to go with this alliance, but without making one company suffer more than the other. The sacrifices made by the companies should be more of less of equal value or proportional with the amount of revenue each store would receive from the redirected customer, depending on the type of business and profit margin of each.
Binding the agreement is also important, since it should be clearly defined the tasks of each partner, in order to avoid future possible issues.
Next you must transform the idea into reality. You need to exchange information and create a common advertising material that will be distributed by all the companies involved. Try to make this offer as easy as possible. Don’t make it hard for the customer to benefit from the alliance: for example (related to the pizza store example in the previous blog) don’t make the customer buy a certain number of pizzas in order for the coupon to be valid.
Try to make this network work as fluent as possible. Also be sure to constantly search for new partners that want to join in. The more you find, the more advantages your clientele will have and thus more likely to choose you than a direct competitor that does not posses such bundle of offers.

Source: www.entrepreneur.com

Fusion marketing. What is it?

I found this interesting concept called “fusion marketing” that seemed pretty important, but rarely used by companies.
On entrepreneur.com there is such an example of a pizza place and a dry cleaners store that implemented fusion marketing. The customer that would go into the pizza place would see discount coupons for the dry cleaning place and vice-versa. This alliance would help both companies survive by sending traffic to each other.
In my country for example, there are only few businesses that actually do that, and many of them are owned by the same person. Most people are scared to engage in such activities for the fear of making the “opponent” stronger. But what they fail to realize is that fusion marketing is not meant to be done between direct competitors, but more between companies that aim towards the same target market.
A concrete example would be a strategic alliance between a wedding planner, a catering service and a bride dress store. Neither stores are in direct competition, since a wedding will require all of these services, but they nevertheless aim for the same target market: the future married couples.
Fusion marketing can occur in many forms, not only by discount coupons as I mentioned above. For example a joint mailing list that is incorporated in the store’s business card or printed on each of the store’s packaging material.

Source: www.entrepreneur.com

My opinion about the rationale behind change reluctance goal setting. Reflection on Ownership and Leading Change course

For the “Ownership and Leading Change” class we had to read 6 articles regarding change.
Riley and Clarkson’s article “The Impact of change on Performance” talks about the negative effects of change on organizations. It says that performance is indirectly proportional with change. This affects mostly employees, which start to become confused and do not have enough time to accommodate. They start questioning the effectiveness of the process itself and whether the path taken by the organization is for the better.
I believe that the change the author is talking about here is more of the “dramatic” type, as Nguyen & Mintzberg talk in their article “The Rhythm of Change” since it is felt and reacted upon. Usual, unintended change is occurring all the time within the organization, even if it is internal (like organic or systematic change) or external, in outside environment through the advances made in the industry or market (technological, customer preferences, economic conditions, etc). But this change is not perceived by us in most cases, since we take it as given. We accept to go with the wave, but refuse to go faster without performance drop.
I was thinking that this reaction is due to insecurity and subconscious analogy of this phenomenon with risk. I believe that most employees are risk adverse and are reluctant to change. They prefer a stable job in which they do a stable task and thus receive a stable income. I see few people starting to change jobs just because they are bored of it. I see even fewer starting in a completely new direction, a new job in a new industry just because they became bored of what they did that far. Reason: unwillingness to change, to learn new things, to reshape their mentality and logic, to memorize and process new information, especially after a certain period of tine exposed that specific environment.

So most of the employees are scared of changes and associate it as a transition towards the worse. The more they work in a sector, the harder they get accustomed to new things. I believe that the interest to discover new things, the desire to stay up to date with all what is happening is decreasing as age passes. Reasons may be that we absorb information slower than we previously did in our childhood, plus we realize that the amount of information is way too vast for us to comprehend. So we tend to stay with the things we knew when we were younger.
For example, the amount of people over the age of 60 that know how to operate the computer is a bit more than a handful (at least back home, where they did not receive any IT lessons). But these people prefer reading instead, a “hobby” many had when they were young. Our generation spends more time on the PC, playing games, reading e-news and watching youtube than reading physical books. I am trying to say that we assimilate the environment and try to fit in until a certain age, when we found our equilibrium. From that point onward, it will be harder for us to accept changes (i.e. old people learning PC skills and us abandoning the PC and starting to read books instead).
Ok.. now let’s get back to Rieley and Clarkson. Their solution to this fast change is developing reality based measures, clear objectives and benchmarks. They say that being vague is not recommended.
I believe that the rationale behind this is to help people reach change by hiding the process itself. If I were a worker and had a lot of imagination, I would envision change as a swim in the sea. I don’t know where the current will take me (thus I am reluctant to go into the water in the first place), but people (the change makers) push me in the water. By setting a goal, a clear objective, for example somebody telling me that there is a island 2000 feet in front of me (even if the island – goal- is not there, but it will appear, the closer we get), will give me enough power to propel through water and materialize that “island”, instead of having my thoughts caught in concerns such as the deepness of the water or the fear of drowning.
People are usually reluctant to change, unless it is a mass phenomenon. After a certain period of time we prefer more our old friends, car and apartment. But when a change is made, it is better to have a clear objective. This will help you best to pass through the transition period and keep your eyes on the price.

Reference:
Rieley, J.B. & Clarkson, I. (2001) “The Impact of Change on Performance”.
Nguyen Huy, Q. & Mintzberg, H. (2003) “The Rhytm of Change”.

E business - How to differenciate from others?

The web is full of products. It is up to the e-seller to convince the customer that his/her product is the best. Price, of course, is a big motivator for any buyer, but I will try to talk here more about customer service, which can also attract clientele, and even better, be able to maintain a long run relationship with that person, in the sense that he/she may return and make additional purchases in the future.

The reliability of the seller is a big issue. If you are a big, well known company or even have store front locations, you may convince the customer to go ahead with the purchase. But when it comes to C2C business, references may become a bigger priority for the buyer than the actual price of the merchandise involved in the transaction.
Ebay and other sites use references to inform customers about the seller, how serious s/he really is about the sale, if s/he had any complaints in the past, and so on. Tripadvisor.com also uses customer feedback for hotels and restaurants.

But what happens if you are a small, newly formed B2C company that has no background, no history and hadn't accomplished that many sales yet?
Every no-name e-company that was concerned in providing products and services probably passed through this stage through their beginning.
If they had an initial physical store or office, then things would have been easier, since they may have gained some reputation at least throughout the local redidents, but many merchandise selling companies started only with a hall which was used as inventory space and office and a couple of computers.
What did they do to advance? Here are some tips:
-Always have ways that the customer can reach you (telephone, mail, email and even sms). Even if this may require more people to hire, it is important that you listen to your every customer.
-Stay in touch: become involved with your customers. If they don't want to return at your e-store, ask why (email or call them). It may be that they just misunderstood a term or are upset that a product is not in stock. They may find the site difficult to navigate. This way you may earn the customer back, since he/she fells taken care of, but also receive valuable info about your weak spots that need improvement.
-Respond quickly: HP for examples set a goal to respond to each mail within 24 hours. Customers don't like to wait. A good strategy is to have some frequently answered questions in hand, so that you just forward them if necessary. But when using this strategy, try to individualize the mail as much as possible, even if it involves only putting the customers name is the reply. For the rest of the mails, that require particular answers, take your time and answer the question thoroughly.
-Be ready to provide customer support for the product purchased. Dell has several such services for the laptops you buy from them. Online chat is available 24/7 and this even includes remote desktop alternatives.

These are just some of the customer support. Even though they are basic, they nevertheless are able to increase the customer's return rate and site reputation. Their back-draw is that they require time and money, reason why many e-businesses are reluctant to try them and prefer to spend more on advertising.

References: http://www.entrepreneur.com/, last visited on 08/11/08

E business – How to generate income?

There are a few ways to make money using an online site. One of them is obviously selling e-merchandise (products and services) and getting your return from a markup or simply for your expertise work and time invested (if you sell a service).
But money can be made also without selling a particular product. Providing good information on your site so that it becomes an attraction for others is enough. Independent online newspapers earn their income this way. They provide free news that attract a lot of visitors. The more visitors you have, the more valuable is the web space in which you public the news. Advertising companies may want to "rent" a portion of your web page in order to advertise their products. The most common practices are the following:
I will use Facebook, because it came handy. But please keep in mind that these prices are a bit hi, since Facebook is a well known, frequently visited web site.

The site mentions 2 options(these are quotes from www.facebook.com):
"Daily Budget: What is the most you want to spend per day?(min US$1.00)" - the standard bid was set at 25$
"Max Bid: What is the most you are willing to pay per click?(min US$0.01)
Suggested bid: US$0.31 - 0.42"
So, the first option displays the banner and does not count the click on it, while the second pays only if a click is done. For both, the more you pay, the bigger the chances of your add to pop-up.

Entrepreneur.com talks about the costs that may be associated with putting the site up. It says that allowing credit card payment on your site increases the monthly fee for maintaining the site. You should also consider the fact that there is another monthly processing fee, and all these fees vary with the amount of transactions you make.

So in this post I talked about the website's owner options of earning income, either by selling products, services or space, but also about the cost he/she may incur when making web transactions and the income he/she may receive when selling virtual space.

E business – What are the possible dangers?

The bankruptcy rate of these companies is very high. One reason is that most of them generate no or insignificant cash flow and rely only on investment money. Most e companies are inclined to the errors I will point out bellow. These are the aspects need to be taken into consideration:

These companies mostly rely on mass customers in order to generate their revenue. There is a huge market out there and a lot of tastes. You do not know whether your web site will reach the intended customer and attract his/her attention. So the revenue that you expect is very subjective and volatile. The mistakes the companies make is spend heavily at the beginning of unnecessary equipment (expensive offices, overpriced and over performing PC’s that are not really required in the early stages, and so on) even before receiving a significant income form the business. These companies should reduce costs as much as possible at this stage, until they can establish a relation between revenue and expenses (a cash flow) and thus a bracket on the range of their affordable expenses.

Businesses should always define the exact source of income. Solely stating that revenues will come from future ad dollars and e-commerce is not enough. The income generating sector should be well defined before the activity can start, so that you know for sure that the possibility of revenue will appear in the future.

Try to balance the revenues with the market share. Many low-cost product e-businesses appear first on the search engines like “pricegrabber” when you look for the lowest price of a certain equipment or service. These companies rely heavily on market share, but hardly generate any revenue from sales. They rely on huge purchases in order to survive, which makes this strategy very volatile since you rely of customers that go with the lowest bidder (not loyal) and that leave you as soon as they find a better offer. Of course, going on the other side is not good either (high price and low sales).
The best alternative is a balance between the two at the point where you have the highest rate of returning customers. But for that you will probably have to focus on more than just the product (fast delivery, optional features of the products, customized parts discounts for repeated purchases or high volume of merchandise bought, etc)

Focus on the industry you are in. Do not try to cover everything because you will have nothing to win since bigger competitors in that are better than you as a new entrant.

Source: http://www.entrepreneur.com

E businesess - why?

I still want to start an internet business. I did some research (most of it was found on entrepreneur.com web site) and came up with reasons why one should start an internet business:

Cheap –low budget required for start up, cheap marketing due to lack of printing and mailing costs for advertising,
Up to date info - instead of printouts (catalogs), that expire as soon as new products or services are added or the price changes.
Staff is low, so wages and salaries are allocated only to a handful of people
Open 24/7 – as long as the server works
The world is your market and namely every e-customer from any corner of the world that might be interested in your products or services
Low requirements on permits and government bureaucracy when you are at startup
Never have to face customers – in the case you are not that customer oriented, social kind of person.

During my next blogs I will share with you more about the internet business

IBC Course Project -abandoned idea

I thought about a web based business idea that would provide customers with online info about the restaurants in the Jönköping area.
I will be brief, since the concept will never fulfill…
Each restaurant would have its own space on our website that would comprise of a small map on where the store is, some info about the atmosphere it provides, menu, working hours and maybe a couple of pictures. The data would be ordered either in alphabetical order or by geographical location, the view it provides, prices, menu characteristics, happy hour, customer age, and so on.

A team was supposed to go through town and talk with the owners to provide some info and pictures that would be posted for free on the web (trial period). After the site would have above a certain number of clicks, we would ask the restaurants a small fee for storing their advertisement.

But this idea fell apart yesterday when I encountered this site:
http://www.jlunch.se/lunch/Restaurang/Tusen%20&%20en%20natt (last visited on 02 Nov 2008)

I will try now to come up with another idea.... Hopefully one that is not already taken...

The marketing error of Sanevit

Since this week there wasn't a lot of new material taught in school, I decided to make some research on Savenit, a Romanian company that was founded in my city. I will try to explain why it failed as an enterprise.


Short history

After the fall of communism, Romania still had to import medical equipment; it lacked any means of producing cheap and competitive basic medical paraphernalia. We had to pay a lot in order to provide the patients with the basic syringes that were used nationwide on a daily basis. Shortages of these utensils cumulated and created a problem, so the state had to come out with a solution: Sanevit.

Sanevit was born in October, 1991 in Arad as one of the most important investments of the Romanian private capital; the only firm of such kind in the Eastern Europe. Its goal was to produce and commercialize low-cost syringes and needles at international quality standards (160 mil peaces syringes and 520 mil peaces needles per year) and to reduce the risk of contaminations. Its main stockholders were SIF Banat and Crisana and the rest (between 10-15%) was made out of private investors. The capital required to buy top of the art machinery valuing 37 million US dollars was attained by a loan guaranteed by the State.

Sanevit started producing around the year 1995 and detained monopoly over the domestic market.

Advantages over the competitors:
The syringes were made out of the cylinder, a plunger and a rubber piston which presented several advantages:
-the rubber piston better sealed the liquid content that was present in the cylinder when the syringe was in use
-tightness is maintained for a longer period of time, having a warranty of 5 years
-the force required to push the piston was smaller than the usual syringe (the special rubber used reduced friction), thus enabling uniform dosing of the injectable liquid through gentle slide
-superior rigidity of the plastic components
-easier to read the observation reference marked on the syringe due to the contrast present between the colored markers and the black rubber
-danger of plastic particles injection is eliminated by the presence of the rubber
- The conditions of needle manufacture comply with all existing International Standards: ISO 7886-1/1993; ISO 7864/1993; DIN 13098-1/1994; ISO 9626/1991; ISO 6009/1992; ISO 683/1986; ISO 594-1/1986


Disadvantages that lead to the fall of Sanevit

The present Romanian medical system:
In Romanian medical assistance is free. Everybody who comes into the hospital is treated upon the government’s expense; hospitals don’t benefit from financial autonomy. That makes every monetary choice matter due to the lack of funding towards this branch. The scarce monetary resources must be effectively allocated in order to achieve some level of effectiveness. The price for land transportation plus the initial high price of the superior quality syringes made it an impediment for this industry to evolve. Hospitals argued that too much money was spent on buying these products instead of importing them. They wanted to keep the Romanian syringe factory, but at the same time try to buy the products from the most convenient seller. The government was funding the syringe factory to produce and sell high-class, expensive products which the government had to buy indirectly in order to satisfy the demand present in the hospitals.


Location:
Due to its extreme western location, it was cheaper for most of the major cities in the east to import similar syringes (of approximately the same quality) from the eastern countries, or just ship them on the Black Sea. The price they had to pay on transporting the products was becoming an issue. Placing the factory somewhere close to the center of the country could have reduced these costs, or at least distribute them evenly to the marginal cities. Placing the factory in the far west led to an unbalance price of the product and thus to inefficient allocation of the scarce funds the eastern hospitals had.


Outside competition:
First the Romanian state tried to prohibit imports of syringes thus forcing the domestic market to buy Sanevit’s products and imposing import barriers. They wanted to give the syringe factory a head start to recruit its buyers and to have time to accommodate into the new market, taking into notice the fact that there was no other firm that created the same products, no other model in the Eastern Europe from which the company could learn or take as an example.
But later on, because of the high costs the government incurred in its strive to maintain and develop this “experiment”, because of the pressure created by the hospitals and some unjustified errors and ordinances issued by the Ministry, the gates that allowed outside competition to invade were opened. In 1997 the import barriers were no longer and the market was taken over by the foreign firms. In that year Sanevit held 7 million syringes in his stock for the purpose of selling and was confronting financial difficulties regarding the repayment of the loan. Because of the multiple sellers most of the stock wasn’t sold as planed and thus the money needed to pay the loan did not arrive.
By doing this, the government will experience a better use of their funding towards medical paraphernalia, but at the same time kill their investment they had done in the Romanian syringes industry. It was a bad move made with the sole purpose of stopping the avalanche of medical riots that was beginning to cumulate nationwide.

Late payments:
After loosing monopoly upon the market, Sanevit experienced a great loss in their sales. Still it did not lose all of its customers and was still able to make a profit. But late payments of the buyers because of the lack of funding and multiple crisis and riots present during that time in the medical sector pushed the factory on the edge of bankruptcy. They were distributing syringes but were not receiving any money from them; still they had to provide the products because the debtors were the only buyers, thus their only way to get the money was through them.
Another factor that determined the late payment of the loan was the delay vis-à-vis of the starting of in the production. Because of internal financial difficulties and bad management, the production started in 1995 instead of 1993. The company lost 2 years in which they could have produced syringes and needles for the Romanian market.


Failure to pay the loan:
All the delays leaded to the failure of the company to pay its loan. The opening of the domestic market to the international sellers in 1997 and failure of the buyers to pay in time the products purchased led to the inability of Sanevit to pay back the borrowed money. The loan cumulated till the profit of the company was not enough to cover the loan. The company had no way of getting out of this situation, so it declared bankruptcy and turned to the government for help. The state compensated the loaning agencies and the company was given to AVAB, a governmental agency designed to sell the company on the market. The factory was transferred under the property of the Health Ministry by selling the stocks in order to pay the loan.


Info found on the company (till 2003):
Most of the buyers paid meanwhile the loan they had, giving Sanevit a second chance. Besides that, the company was trying to obtain a short term loan in order to attempt to restart the production. All these could lead to the rebirth of Sanevit.
An advantage that Sanevit had now was the financial autonomy of the county health centers. The Health Ministry (the present owner of Sanevit) was having a fierce battle with the independent importers of syringes for the domination of the market. The Health Minister wanted to provide superior products at a higher price, thus reducing contaminations, and tried to stop Romania from becoming dependent from imported articles, but this initiative was pushed backwards by the importers who buy cheap products from outside or products that are dumped or sold for nothing because they are close to the expiry date.

I could not find any relevant info about the factory starting from 2003 onward. So.. in a way I don't know how the factory is doing today. Still, when I left home this summer the factory was still functioning. I don't know at what capacity though.

Sources:
http://www.visualia.hu/sanevit/syringes.htm
http://www.e-next.ro/modules.php?op=modload&name=News&file=article&sid=2798&mode=thread&order=0&thold=0
http://www.prefectura-arad.ro/cpresa/cp0615II.pdf
http://stiri.acasa.ro/1252.html
http://www.activebancare.ro/index.php?unde=prs_int&id=131&PHPSESSID=b5f21fbb0098d242de03ad467615b8cd