The thing about Amazon

I love just about everything about Amazon. Sure, lots of sites now do good e-commerce, but Amazon were so ahead of their time when they launched, and most people are still a long way from catching up.

One of the few things I do worry about with Amazon, however, is the amount of packaging they use - its just not very environmentally friendly, is it?

However, a friend described to me the other day how they saw the delivery man through the window as he dropped their Amazon delivery. Of course, the delivery man flat denied it! But as it turned out, the item was so over-packaged that it was completely unscathed after the drop. So perhaps over-packaging makes sense after all.

What are the take-outs from this? Well, we need to sort out two problems in the physical goods e-commerce space:
1. No matter how sophisticated our fulfillment systems are, at the end of the chain is the good old delivery driver. Economies of scale suggest that businesses will always be under pressure to use less skilled, less expensive delivery drivers who take less care over the product. It seems that the last mile is the weak chain in the link.
2. Sooner or later, the physical goods e-commerce industry is going to have to face up to the environmentalists regarding the environmental costs of individual delivery and over-packaging of items. This is unlikely to be a friendly discussion.

The Tao Te Ching

A lot of business strategy metaphors are based on war. This is understandable given that the origins of strategy are often traced back to The Art of War by Sun Tzu. But there are other possibilities - the Tao Te Ching, provides a complete set of non-war-based metaphors for business strategy (and indeed for most other things).

You can also read Ron Hogan's freewheeling adaptation online.

An Investment Management Value Chain

(Click to enlarge image)

The first step in understanding any business is to understand its value chain.

(The above value chain was drawn using StratNavApp.com, the innovative and collaborative online tool for strategists. Try it now for free.)

Meetings and Minutes

If a meeting is not worth minuting, is it worth having?

An unintended consequence of insurance

An unfortunate and unintended consequence of insurance (and assurance) is that it transfers wealth away from those who take particularly good care of their insurable interests (for example, taking good care of their health, never leaving the back gate unlocked, driving carefully, etc.) towards those that don't.

Clever underwriting (for example, distinguishing between smokers and non-smokers) and no-claims bonuses attempt to address (and neutralise) this transfer, but these are blunt instruments at best.

As an individual, the best that you can hope to do is to shop around, and look for insurers that ask you the types of questions that enable you to specify the things you do to take care of your insurable interests.

Looking towards the 4 Horizons

As you are putting the finishing touches onto next year's budget proposal, how do you know you have identified the right projects? One check is to use the 4 horizons model - a sustainable business plan should have a combination of 4 types of projects:

Horizon 1 includes all the projects that you need to do in order to sustain your business - projects required to comply with changes to legislation, to maintain existing systems and to fix problems in your existing business.
Horizon 2 includes all the projects that you need in order to improve your business, and includes internal improvements, such as efficiency and effectiveness improvements, as well as developing new products to meet new and/or changing client needs.
Horizon 3 includes projects that will transform your business. These could take your business into new markets, places in the value chain or new business models.
Horizon 4 includes at least one project that could transform your industry - the so-called category killer.

It does not take much to imagine that it is often Horizon 3 and 4 projects that get left out or cut during the budgeting process, but it is also self-evident that they are absolutely necessary if your business is to survive and thrive.

How much effort should be placed into each of the 4 horizons? That really depends on the nature of your competitive environment. In a very competitive environment, you would need to invest much more in Horizon 3 and 4 projects than you would in a less competitive environment.

Here is an alternative graphic representation of the 4 horizons:

Note: I have adapted the 4 Horizons model from the more widely used 3 Horizons model. However, I believe that in today's hyper-competitive environment, the 4th horizon is now necessary.

You can now do your own 3 Horizons analysis using the innovative StratNavApp.com online strategy collaboration tool. Simple click on StratNavApp.com, register or log in, and select "Planning" from the main navigation.

The dot.com Bust

The dot.com bust is not the end of the internet - Lots of waves have crashed against the shore, but the tide is still coming in

Local Optimisation at the Expense of the Whole

This situation occurs where one component of a system is overengineered relative to the others to such an extent that each unit of improvement in that component leads to a proportionately lower improvement, or even a deterioration, in the performance of the system as a whole. For example, putting a Porche engine into a go-kart would probably not only not produce the desired performance, but might completely crush the go-kart preventing it from moving at all unless it was adequately reinforced.

Asking the Turkeys to vote for Christmas is a similar idea. For example, asking a division to do an analysis which should result in its closure with the loss of all jobs, is unlikely to produce the correct result. The more clever the analysts, the more likely they are to work this out and disguise the results. In this instance, only an external agent will produce a valid analysis.

Key Components of a Business Plan

It is difficult to prescribe an exact template or framework for a business plan. Much depends on the purpose and audience for which you are preparing it.

For example:

a business plan prepared for a start-up seeking funding from a venture capitalist
would be quite different from
a business plan used for management and control within an established organisation.

However, it is possible to describe the basic components of a business plan.

The main categories would include:

The organisation's vision, mission and values
Analysis
Plan
Key Risks
Organisation and Resources

Each of these is considered below.

The organisation's vision, mission and values

These define the basic purpose and parameters of existence for the organisation.

Often a vision statement OR a mission statement is enough. You probably don't need both.

Over the last decade, the emphasis has shifted from vision statements towards mission statements. This has happened as organisations recognise the increasing importance of purpose.

Where the organisation is not a completely stand-alone entity, the vision, mission and values should reflect the context of the parent structure. The more stand-alone the organisation is, the more important it is that the vision and mission reflect a uniquely differentiated competitive position.

Analysis

The analysis sets out the evidence which supports the business plan.

It should cover:

the external competitive environment, as well as
internal factors.

The external competitive environment

You should include an analysis of

the current situation,
recent changes and
anticipated changes

in:

The relative negotiating power and interests of external entities such as customers, distributors, suppliers, regulators, government and lobbying groups.
The level and nature of competitiveness within the industry, for example:

the number of competitors and/or level industry fragmentation,
their recent performance and strategies, and
the bases of competition, for example, price, innovation, customer segmentation, distribution relationships, etc.
See also: 7 steps to master competitor analysis for business strategy

The threat of product or service substitution or becoming obsolete.
The threat of new entrants into the market. This should include an analysis of the barriers to entry.

See Porter's 5 Forces Analysis for more insight into these considerations. A PESTEL analysis is another great way to identify a wide range of opportunities and threats your business faces.

Scenario planning is a useful technique for external analysis where there is a lot of structural uncertainty in the competitive environment.

The internal factors

Internal factors would include, strengths, weaknesses and flexibility with regard to:

Systems, including computer and manual systems, process, procedures and policies,
Staff, skills, knowledge / intellectual property and organisational capabilities, and
Culture, organisational style and structure.

The external and internal analyses are often combined and summarised in a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.

You might also include an Options Analysis. This is where you consider a number of options before deciding on a way forward, and justify which option(s) carried forward into the plan. Typically you would evaluate each option in terms of:

Robustness in the face of the external analysis. This includes multiple scenarios if you have done scenario planning.
The organisation's ability to deliver it, given its strengths and weaknesses.
Fit to the vision, mission and values of the organisation or its parent context.
The financial value of the option. This is calculated using a Discounted Cash Flow or similar analysis.

Fortunately, you don't have to start with a blank sheet of paper when doing your analysis. There are numerous frameworks and tools that have emerged to help with this. You can see the key ones at 9 essential tools for strategy analysis.

Plan

Based on the analysis, the plan itself is then articulated in terms of:

Goals, Objectives and Key Performance Indicators (KPIs) with targets, and Critical Success Factors (CSFs). In simple terms, KPIs are the measurable outcomes that are to be achieved as part of the strategy. These could include key financial indicators, as well as measures of customer outcomes, product, service or process performance, or internal capabilities. CSFs include less quantitative outcomes that must be achieved.

I find it useful to specify KPIs as S.M.A.R.T. objectives. It can be useful to further divide these into 4 perspectives:
1. Financial objectives such as shareholder returns, (working) capital efficiencies, margins, funding, etc.
2. Market share and/or customer experience objectives,
3. Process performance and efficiency objectives, and
4. Organisational capability, staff, skills, systems and cultural objectives.
These objectives should reflect the specifics of the strategy. Avoid generic industry benchmarks.

See also: Getting the most out of KPIs.
Initiatives or tasks: What will be done, by whom, and by when to achieve the KPI targets and CSFs. Including what the output or deliverable of the task will be. A simplified Gantt chart is often a useful way of communicating this.
Financial: A budget or forecast showing how the plan plays out. This should include a forecast of:

the cash flow, income statement and balance sheet for the organisation,
key non-financial indicators such as head-count,
key financial and non-financial ratios, and
sensitivity analysis

The financial plan should include the costs and benefits of the initiatives and tasks listed in the section before.

Typically, you would do this:

on a monthly basis for the first 12 months, and then

on an annual basis for the subsequent 4 years.

The structure of the financial plan should reflect the underlying economics of the business model. This is so that you can run meaningful sensitivity tests. The inputs to the sensitivity tests should be consistent with the uncertainties identified in the Analysis or in the Key Risks. The outputs should be consistent with the stated Objectives.

Key Risks

The Key Risks should follow naturally from the Analysis. You should also highlight the plans and governance you will put in place to manage and mitigate these risks.

Organisation and Resources

An organigram or biographies of key players and their roles is useful. This might include significant external players or other divisions within a group.

photo credit: verchmarco Eine Liste mit Zielen für das neue Jahr 2019 auf einem Notizbuch mit Kugelschreiber via photopin (license)