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Lecture notes, cheat sheets
Strategic management. Lecture notes: briefly, the most important
Directory / Lecture notes, cheat sheets Table of contents
1. Subject and objectives of the course 1.1. Essence of strategic management Management consists in determining: - "where are we?", - goals of our activity ("where are we going?"), - possible ways to achieve it ("how to go?"), - criteria for choosing the optimal path, - the final result ("where did you come?"), - differences in goals and results for the use of this information in further management cycles. Strategic management extends to the long-term goals and actions of the company. We can say that the formulation of the strategy (mode of action) and its clear tools are the core of management and the surest sign of good company management. The content of strategic management are: - definition of the purpose and main goals of the company's business, - analysis of the external environment of the company, - analysis of its internal situation, - selection and development of a strategy at the level of SZH, firms, - analysis of the portfolio of a diversified company, - designing its organizational structure, - choice of degree of integration and control systems, - management of the complex "strategy - structure - control", - determination of standards of conduct and policies of the company in certain areas of its activity, - providing feedback on the company's results and strategy, - improvement of strategy, structure, management. 1.2. Basic requirements for a strategic manager In order to compete in today's complex and rapidly changing environment, a firm must identify who manages strategy development - strategic managers. Their task is to ensure the activities of the entire organization in a certain direction (often they are called complex managers). They are different from functional managers, who provide individual business functions (human resources, sourcing, manufacturing, sales, customer service, accounting) and occupy a unique position in the company, managing the entire organization in a strategic sense. According to Denis Shevchuk (www.deniskredit.ru), the most successful strategic managers should have the following qualities: - be well informed - be able to manage your time and energy, - be good politicians (consensus builders), - they should not be, like experts, "fixated", - the ability to promote the program in private directions. Good awareness provides for the possibility of making a wide range of management decisions at different levels of management. Managers must create a network of information sources in various parts of the organization that will enable them to stay within operational realities. They must be able to allocate their time and energy among various tasks, decisions or problems. They need to know when to delegate responsibility and when to get involved in a particular decision. A good politician must have the art of reaching consensus on the basis of his ideas, and not press his authority to promote them. He must act as a member or leader of a coalition, not as a dictator. The changing world requires a certain amount of flexibility from the strategic manager. He must be ready to maneuver and adapt to the evolving situation. This does not mean that the firm should act without certain goals, but one must be prepared to adjust them. 2. Structure and levels of the strategic management process 2.1. The main stages of strategic management The main stages of strategic management are: 1. Defining the scope of the business and developing the purpose of the firm. 2. Transformation of the purpose of the company into private long-term and short-term goals of activity. 3. Defining a strategy for achieving the goals of the activity. 4. Development and implementation of the strategy. 5. Evaluation of activities, monitoring the situation and the introduction of corrective actions. 2.2. Main organizational levels of strategy development Strategy cannot be developed only at the top level of management. It is practically expedient to distinguish four levels of its development: - corporation level, - level of SZH (branches), - functional level, 2.3. The main generalizing conclusions on the topics of chapters 1, 2 1. Strategic management procedures are applicable to a wide range of organizations, from large with many SBAs to small individual, from manufacturing to service enterprises and from profit-seeking to non-profit (eg budgetary). 2. Organizational strategy is the output of a rational planning process. 3. The main components of the strategic management process include determining the purpose, the main goals of the organization, analyzing the external and internal environment of the organization, choosing a strategy at the SBA and corporation level in accordance with its strengths and weaknesses and external dangers and opportunities, adapting organizational management systems to the chosen organizing the strategy. 4. Strategic manager - a person who leaves an imprint on the entire activity of the organization, on its main independent divisions. His concern is to maintain the "health" of the entire organization while moving in a certain direction. 5. The strategic manager must be well informed, skilled in managing his own time and energy, and also be a good politician, a flexible expert, able to persevere step by step the program in the direction taken. 6. Strategic management permeates the entire company. It can be divided into the following levels: corporation, SZH, functional services and the lowest level of management. 7. Strategic management includes communication between levels of management in order to ensure the reality and content of the strategy. 8. Strategic planning fails if the executors do not plan because of the uncertainty of tasks, and the higher planning bodies lose their sense of operational reality. 3. The purpose of the company, its goals and main tasks 3.1. Business Definition Corporate goal setting is the first key indicator of how an organization sees the interests of its shareholders. Goal-setting determines the business of the firm, its main goals, characteristics and leading philosophy. Goal setting sets the organizational context for future strategic decisions. Corporate target designation contains three main components: - definition of the company's business, - setting its main goals, - definition of corporate philosophy. When defining a business, the following questions should be answered: - What is our business? - What will he be? - What should it be? For a single business company, the answer to the question "what is our business" involves answers to private questions: - who will be satisfied (what consumer groups)? - what will be satisfied (what needs of consumers)? - how will the needs of consumers (art or distinctive advantages) be satisfied? For a diversified company, the question "what is our business?" should be considered at two levels: - customer-oriented for SZH (as well as for a single business company), - Portfolio-oriented SZH at the corporate level. The latter should include: - objectives of the company's SZH portfolio, - necessary diversification (range) of SZH portfolio, - the required balance between SBAs in the portfolio. 3.2. Determination of long-term and short-term goals Goal setting is the process of converting a business purpose into a specific set of goals. At the same time, the necessary process of directing the efforts of each part of the organization in the appropriate direction begins. Goals are needed for each key result that the manager considers important for success. Specific key results may typically include size and rank in the industry, business growth, return on investment, dividend growth, market size, reputation for product quality and/or technology leadership, ability to operate in an unstable economy, degree of diversification, financial strength, customer service, ability to compete by cost. Examples of goals of well-known companies: Federal Express: Become the largest and best transportation company in the world. Alcan Aluminum: To be the lowest cost aluminum manufacturer. General Electric: Become the most powerful competitor in the world, number 1 or 2 in market share in every area of the company's business. Atlas Corp: Become a low cost mid-range gold producer, producing within 125000 ounces of gold per year and having a gold reserve of 1500000 ounces. Black and Decker: Continue to introduce new products and globalize the business. Both long-term and short-term goals are required. Long-term goals have two purposes: firstly, they indicate what needs to be done today in order to achieve long-term goals, and secondly, the presence of such goals pushes the manager to make today's decisions, taking into account the long-term perspective. Short-term goals consistently indicate what immediate and short-term results should be achieved. They show both the speed the organization needs to move along the chosen path and the required level of action ("how much and when" should be done). The purpose and goals of the organization must be measurable. Companies whose managers set goals for each key result and then take aggressive action to achieve what needs to be achieved are better candidates for winning than companies whose managers operate with hopes, requests, and good intentions. Wordings should be excluded: "maximize profits", "reduce costs", "make more efficient", "increase sales". For strategic thinking, it is important to establish a comprehensive hierarchy of goals at all levels of leadership from top to bottom (Denis Shevchuk). This ensures for all managers not only the clarity of tasks, but also the reality of their achievement (which is ensured by the participation of low-level managers in the process). 3.3. Taking into account the interests of the company's investors when setting goals Contributors provide the company with capital and are entitled to expect a corresponding return on investment. The shareholders of the company are its legal owners. Therefore, the preferred goal of most corporations is to maximize shareholder returns. Investors receive a return on their capital in two ways: - from the payment of dividends, - from an increase in the price of capital with an increase in the scale of the market (an increase in the market price of shares). The best way for a company to maximize shareholder returns is to use a strategy that maximizes its own rate of return on investment, which is a good indicator of the company's performance, i.e. the more efficient the company, the better the prospects for shareholders and the greater its ability to pay dividends. Moreover, a high rate of return leads to an increase in demand for the company's shares. 3.4. The main generalizing conclusions on the topic of chapter 3 1. Determining the purpose of the company is the starting point of strategic management. It forms the context in which the strategy is formed. 2. The definition of purpose contains three elements: the definition of the company's business, the purpose of the corporation, and the definition of corporate philosophy. 3. For single business companies, the business definition focuses on the customer groups served, the customer needs that must be met, and the technologies that are needed to meet those needs. In sum, this is a consumer-oriented definition of a business. 4. For a diversified company, the business definition includes the objectives of the portfolio, the size of the portfolio, and the necessary balance between the business areas in the portfolio. 5. The main goal of the company should reflect the need to ensure the welfare of the company's owners - its shareholders. Maximizing long-term profit is the main goal, which includes maximizing shareholder returns. 6. To avoid over-focusing on short-term profitability conditions, a company needs to add a set of sub-objectives that balance short-term and long-term conditions. 7. Corporate philosophy clarifies the company's attitude towards business. This philosophy reflects the core values of the campaign, its aspirations, beliefs and philosophical priorities. 4. Content and factors that determine the corporate strategy 4.1. General content of the strategy Strategy - the image of organizational actions and management approaches used to achieve the organizational objectives and goals of the organization. Determination of the scope of business, goal setting, determination of short-term and long-term tasks (programs), determination of a strategy for achieving the goal forms a strategic plan. 4.2. Corporate strategy of a diversified company For a diversified company, its strategy must make it more than the sum of the SBA. It consists in actions to gain positions in various industries and improve the management of each SZH and their entire complex. There are four important aspects of the corporate strategy of a diversified company that should be noted: 1. Actions to complete the diversification. The first provision of diversification is that the SBA portfolio should consist of different SBAs (new, mature, etc.). Part of this strategy is deciding whether diversification will be narrow (in a small number of industries) or broad (in many industries), and how the company will be positioned in the selected industries. 2. Managing a diversified company and expanding the joint activities of existing SBAs. After selecting a position in the existing SBAs, the corporate strategy should focus on ways to improve the performance of the set of SBAs. Decisions must be made to strengthen long-term competitive positions and thus profitability, as well as to invest in SBAs. A complete portfolio management plan usually includes a strategy of rapid growth in the most favorable SBAs, support for other SBAs, organizing restructuring in weak SBAs with potential, and undressing SBAs that are not long-term viable. 3. Finding ways to increase synergy among relatively unrelated SBAs and turn it into a competitive advantage. In linked diversification, some SBAs use similar or complementary technologies, a similar mode of operation, the same distribution channels, the same consumers, or other measures of synergy. This creates favorable opportunities for technology transfer, broad expertise on ways to reduce costs, enhance competitive status, and is a significant source of competitive advantage (i.e., the 2+2=5 effect should be provided). 4. Establishing investment priorities and directing the corporation's resources to the most attractive SBAs. 4.3. Strategy in SZH Such a strategy is also a single business strategy. The essence of the strategy in SZH is the creation and strengthening of a long-term competitive status in the market. The difference between a strong strategy and a mediocre one is the provision of significant competitive advantages that are appropriate to the situation and contribute to the improvement of the company's performance. 4.4. Functional and operational strategies Functional strategies represent the firm's plan of action in private areas (R & D, production, marketing, finance, human resources, information systems, etc.). Functional strategies add detail to the business strategy and show what functional actions will be taken. The main role of the functional strategy is to support the overall business strategy. Another role is to achieve functional goals. Operational strategy refers to narrower and more detailed approaches. It is important from the point of view of strategic completeness. Even the smallest organizational unit, if its existence is important, is an essential element in achieving the goal, and its managers must understand this and have corresponding goals. 4.5. Factors that determine the company's strategy There are a lot of these factors. The interaction of factors is usually complex and has specific differences for the industry and the company. As a rule, the strategy does not ensure success if the boundary between the internal and external situation is not drawn, the acquisition of significant competitive advantages is not ensured, and the company's performance is not improved. 4.6. The main generalizing conclusions on the topic of chapter 4 1. Strategy - the image of organizational actions and management approaches used to achieve the goals of the organization. 2. Determination of the business area, goal setting, definition of short-term and long-term tasks (programs), definition of strategy constitute the strategic plan of the company. 3. The strategic plan should contain: actions to change the strategy, fine-tune it to the situation, to find and consolidate new opportunities for the company, to improve the company's activities, diversify it, improve competitive positions and influence industry conditions. 4. The strategy depends on the external and internal conditions of the firm. The main external factors are: social, political, legislation, the influence of society, the attractiveness of the industry, market threats and favorable opportunities for the company. 5. The primary internal factors influencing the company's strategy are: the strengths and weaknesses of its activities, the competence of management, its personal ambitions, the company's philosophy and ethics, the company's culture and the market value of shares. 5. Industry and competitive analysis 5.1. Place and content of industry and competitive analysis The purpose of the situational analysis is to identify those features of the company's internal and external environments that most prominently affect the company's strategic vision and capabilities. Attention is focused on getting clear answers to a well-defined set of strategy questions. These responses are then used to form a clear picture of the company's strategic situation and identify alternatives for its strategic actions. The methods of strategic situational analysis of a single business company are later largely used to analyze the strategy of a diversified company. Industry and competitive analysis is usually used to analyze the external situation (macro environment) of a single business company. Situational analysis concerns the immediate environment of the firm (microenvironment). The logical outcome of a company's strategic analysis is to evaluate alternatives for choosing a strategy. Thus, this analysis is the starting point of the process of forming a strategic plan. The industries differ greatly from each other, and the analysis methodology should take this into account (for more details, see the book Shevchuk D. A. Strategic Management: A Study Guide. - Rostov-on-Don: Phoenix, 2006). The design of the industry and competitive analysis should provide answers to the following questions: - What economic characteristics are of primary importance for the industry? - What is driving the changes in the industry and what impact do they have? - What are the competitive forces in the industry and how strong are they? - Which companies are in a strong/weak competitive position? - Who will act in the future in the competition in a similar way? - What are the key factors that will determine competitive success or failure? - How attractive is the industry in terms of above average profit? 5.2. Determining the dominant economic characteristics in the industry Usually they include: - market size; - areas of competitive rivalry (local, regional, national, global); - market growth rate and industry life cycle stage; - the number of rivals and their relative size, the degree of concentration; - number of buyers and their relative sizes; - prevalence of anterior or posterior integration; - ease of entry and exit; - the degree of differentiation of products / services of competing firms; - the level of technological changes in the production process and in new products; - the impact of the economy on the scale of production, transportation, marketing; - whether the degree of utilization of production capacity is critical in achieving low-cost production efficiency; - whether there is a strong dependence of the cost of a unit of production on the cumulative value of the volume of production in the industry; - capital requirements; - profitability in the industry is above or below the average in the economy. It is advisable to draw up a "portrait" of the industry according to these characteristics and then analyze it. 5.3. Key drivers driving change in the industry Usually these include: 1. Changes in the long-term growth rate (it strongly influences investment decisions, the degree of attraction for new firms. Shifts in the growth rate upset the balance between supplying and buying industries, entry and exit). 2. Changes in who buys goods and how they are used (these shifts create new opportunities that should not be missed, but also require the restructuring of firms - for example, the creation of services, etc.). 3. Product innovation. 4. Technological changes. 5. Marketing innovations (new sales methods, product differentiation, cost differentiation). 6. Entry or exit of major firms in the industry. 7. Increasing globalization in the industry. 8. Changes in cost and efficiency. 9. The transition of consumers to differentiated goods from standard ones. 10. Impact of legislative changes. 11. Changing the social, demographic situation and lifestyle. 12. Reducing uncertainty and risk in business. 5.4. Analysis of the competitive forces acting on the firm This analysis is done with the aim of identifying opportunities and dangers that a firm may face in an industry. Porter proposed the five forces model for this. He argued for this model that the higher the pressure of these forces, the less the existing companies have the ability to increase prices and profits. The weakening of forces creates favorable opportunities for the company. The company, by changing its strategy, can influence these forces in its favor. The risk of entry by potential competitors (Porter's first strength) poses a threat to the company's profitability. On the other hand, if this risk is small, the company can raise the price and increase profits. The competitive strength of this factor is highly dependent on the height of barriers to entry (the cost of entry into the industry). There are three main sources of such barriers: - loyalty to the brand of buyers (incoming companies must cover this with significant investments); - absolute cost advantages (lower production costs provide existing companies with significant advantages that are difficult for new companies to achieve); - economies of scale (this advantage is associated with large companies). It is associated with a reduction in costs in the mass production of standardized products, discounts for large purchases of raw materials, materials and components, a decrease in unit advertising costs, etc. All this creates significant difficulties for companies starting production. The second competitive force according to Porter is the rivalry of existing companies in the industry. Three factors should be identified here: - the structure of industry competition, - conditions of demand, - the height of exit barriers in the industry. The structure of industry competition depends on the degree of consolidation in the industry (whether it is fragmentary, whether there are oligopoly or monopoly conditions). A fragmented industry poses potentially more threats than opportunities because entry into such industries is relatively easy. In consolidated industries, companies tend to be large and independent. Thus, the competitive actions of one company directly affect the market share of competitors, causing them to respond and unwinding the spiral of competition. The ability of such companies to wage a price war poses a major competitive threat. In this case, companies tend to compete on qualitative distinctive advantages, i.e., the competitive war is waged from the standpoint of brand loyalty and minimizing the likelihood of a price war. The success of this tactic depends on the industry's ability to differentiate products. Growth in demand in the industry is leading to moderate competition while providing great opportunities for expansion. Demand grows with the market, companies can increase the rate of return on investment, and this makes the company more attractive. On the contrary, a decrease in growth causes more competition, companies can take away markets only from other companies. Thus, a decrease in demand is the main danger of increased competition. Exit barriers are a major hazard when demand in an industry falls. Exit barriers are economic and emotional factors that keep a company going even when revenues are low. The result is overcapacity, leading to increased price competition as companies cut prices in an attempt to use idle capacity. Typically, exit barriers include the following: - investments in equipment have no alternatives to their use and, if the company leaves the industry, they must be written off; - high fixed cost of exit due to payments to laid-off workers; - emotional attraction to the industry; - strategic relationships between SBAs, such as considerations of synergy or integration between them; - economic dependence on the industry: for example, if a company is not diversified, it is forced to stay in the industry. There is a certain relationship between the individual factors of competition. The forces of competition acting on a firm in an industry evolve over the life cycle of the industry. The rapid growth of the industry weakens competitive forces. At this stage, there are favorable opportunities for expansion and capture of market areas. The threat of competition, especially price competition, increases during a slowdown. In the maturity stage, the threats of competition subside and it is possible to limit price competition through the consent of price leaders. Therefore, relatively high profitability is observed at this stage. Non-price competition can play a large role at this stage and is important for companies that take advantage of product differentiation. The situation is changing in the recession stage. Competition especially increases if exit barriers are high, profits are falling, and the danger of a price war is significant. The third porter force is the ability of buyers to "bargain". It poses a threat of pressure on prices due to the need for better quality or service. Weak buyers, on the other hand, allow prices to rise and profits to rise. Buyers are strongest in the following situations: - when the supplying industry is made up of many small companies and there are few and large buyers - when buyers buy in large quantities - when the industry depends on buyers for most of its activities - when buyers can choose between supplying industries according to the minimum price criterion, which increases price competition in the industry - when economically for buyers acquisitions from different companies are considered as a single whole - when buyers use the threat of selling their supply through vertical integration. The fourth competitive force is pressure from suppliers. It consists in their threat to raise prices, forcing companies to reduce the number of products supplied, and therefore profits. Alternatively, weak suppliers provide an opportunity to lower prices for their products and demand higher quality. The most powerful is the pressure from suppliers in the following cases: - when the delivered product has few substitutes and it is important for the company; - when companies in the industry are not important for supplying firms; - when suppliers supply such products that it is expensive for companies to switch from one type to another; - when suppliers exploit the threat of vertical integration forward; - when the buying companies are unable to use the threat of their vertical integration back. The fifth competitive force is the threat of replacement products. The existence of complete replacement products poses a serious competitive threat that limits a company's prices and profitability. However, if a company's products have few perfect substitutes, then companies have the opportunity to raise prices and make additional profits, and their strategies should take advantage of this fact. 5.5. Assessment of competitive positions and possible actions of competing companies Graphical strategic grouping procedures are used to study the relative competitive positions of firms in an industry. Companies in the same strategic group can be combined on different grounds: the breadth of the range of products, the methods of using distribution channels, identical technological approaches, the degree of vertical integration, the nature of service and technological maintenance, the purpose of similar products for similar customers, the quality of products, pricing. An industry may contain one strategic group with identical strategic approaches to the market. Another limit is the presence of many strategic groups in the industry. The procedure for constructing a strategic grouping map and assigning firms to a particular strategic group is as follows: 1. Competitive characteristics that differentiate firms in the industry (prices, quality, geography of activity, degree of vertical integration, product range, etc.) are identified. 2. The position of firms is plotted on a two-coordinate graph (for pairs of selected characteristics). 3. Firms that fall into the same strategic area are marked. 4. The share of each group in the total sales of the industry is different. Thus, a two-dimensional map of the strategic grouping of the industry is built. When constructing maps of a strategic grouping, the following rules must be observed: - the main variables along the coordinate axes should not correlate with each other, - these variables should reflect significant differences between competitors, - these variables should be discrete, - the areas of company names should reflect their relative share of sales in the industry, - if there are more than two significant variables, it is advisable to build several maps. The closer the various strategic groups are located, the stronger their competitive rivalry. Although firms in the same strategic groupings are the closest rivals, the next closest rivals are in the closest groups. It is essential to study the behavior of the closest competitors. It is a mistake to expect external manifestations of rivals' competitive actions without knowing their strategy and assumptions about their next moves. What competitors are doing and going to do is the best guide for the strategic actions of their own company, otherwise it is forced to be on the defensive all the time. Summarizing information about competitors' goals and strategies using this table and strategic grouping maps is usually sufficient to assess the severity of competitive threats in a particular competitive position. In order to assess the future position of firms in the competition, it is necessary to focus on their potential to improve their position in the market. Aggressive competitors are sources of new strategic initiatives. Satisfied opponents continue their current strategy with a little fine-tuning. Restless and distressed rivals may move to fresh strategic offensive or defensive action. In this regard, it is useful to imagine yourself in the place of the managers of these companies and to suggest their possible actions. 5.6. Identification of key factors for competitive success Key success factors (KSF) are the main determinants of financial and competitive success in a given industry. Their identification is one of the top priorities in strategy development. They can serve as cornerstones for building a strategy, but they can vary from industry to industry. Typically, the industry is characterized by three or four such factors, and of these one or two are the most important, and the task of analysis is to identify them. The types of CFUs and their components are listed below. 1. Factors related to technology: - competence in scientific research (especially in knowledge-intensive industries); - ability to innovate in production processes; - ability to innovate in products; - the role of experts in this technology. 2. Factors related to production: - the efficiency of low-cost production (economy of scale, the effect of accumulation of experience); - production quality; - high capital productivity; - location of production, guaranteeing low costs; - provision of adequate qualified manpower; - high labor productivity (especially in labor-intensive industries); - cheap design and technical support; - flexibility of production when changing models and sizes. 3. Factors related to distribution: - powerful network of distributors/dealers; - possibility of income in retail trade; - own trade network of the company; - fast delivery. 4. Factors related to marketing: - a well-tested, proven way of selling; - convenient, affordable service and maintenance; - Exact satisfaction of customer requests; - breadth of the range of goods; - commercial art; - attractive design and packaging; - guarantees to buyers. 5. Qualification related factors: - outstanding talents; - know-how in quality control; - experts in the field of design; - technology experts; - the ability to accurate clear advertising; - the ability to obtain as a result of the development of new products in the R&D phase and quickly bring them to the market. 6. Factors related to the organization's capabilities: - first-class information systems; - the ability to quickly respond to changing market conditions; - management competence and managerial know-how. 7. Other types of CFU: - favorable image and reputation; - awareness of oneself as a leader; - convenient location; - pleasant, friendly service; - access to financial capital; - patent protection; - overall low costs. In addition, an overall assessment of the attractiveness of the industry should be made. 5.7. Summarizing Industry and Competitive Analysis It should be noted that analysis is not an algorithm that can be applied thoughtlessly. Both the substitution of initial data and the interpretation of the results require creative thinking. Such an analysis is also not a single procedure, but requires periodic repetition, taking into account real changes and the results of the practice of its application. 6. Analysis of the company's situation 6.1. Purpose of analysis Industry and competitive analysis concerned the external environment of the company. The purpose of a situational analysis is to assess the strategic situation for a particular company in such an environment. He must answer the following questions: How well does the current strategy work? What are the company's strengths, weaknesses, opportunities and threats? Can the company compete on cost? How strong is the company's competitive position? - what strategic actions create the face of the company? 6.2. Evaluation of the applied strategy First of all, you should understand what strategy the company adheres to: - low price leadership, - different from rivals - focusing on narrow groups of consumers or marketing niches. The next characteristic of the competitive environment in the industry is the degree of vertical integration and the geographical scale of the market. Auxiliary strategies in production, marketing, finance, employment of labor should be explored. Additionally, you should analyze the company's recent actions that are integrated into the company's strategy and can provide private competitive advantages and / or improve the competitive position. The most obvious indicators of strategic activity are the following provisions: - increasing or decreasing the size of the market controlled by the firm, - whether the amount of profit received by the company is growing or not, and how large it is in comparison with rivals, - what are the trends in the company's net profit and the rate of return on investment, - how much growth in the firm's sales, faster or slower than the market as a whole. Naturally, the best strategy is one that does not require radical changes. 6.3. SWOT analysis SWOT is an acronym for the words Strengts (forces), Weaknesses (weaknesses), Opportunities (opportunities) and Тhreats (threats). The internal environment of the company is reflected mainly in S и W, and the outer one in О и Т. For the strategic perspective of the company, strengths are especially significant, since they are the cornerstones of the strategy and the achievement of competitive advantages should be built on them. At the same time, a good strategy requires intervention in weak areas. The organizational strategy must be well-adapted to what can be done. Of particular importance is the identification of the distinctive advantages of the company. This is important for strategy development because: - unique opportunities give the company a chance to take advantage of favorable market conditions, - create competitive advantages in the market, - can potentially be cornerstones of the strategy. It is necessary to distinguish between the favorable opportunities of the industry and the company. Prevailing and emerging industry opportunities are best suited to a company that has competitive advantages or other opportunities for growth. SWOT analysis helps answer the following questions: - Does the company use internal strengths or distinctive advantages in its strategy? If a company does not have distinctive strengths, what potential strengths could they be? - Are the weaknesses of the company its vulnerabilities in competition and / or they do not give the opportunity to use certain favorable circumstances? What weaknesses require adjustment based on strategic considerations? - what favorable circumstances give the company a real chance of success when using its skills and access to resources? Let's notice: Favorable possibilities without ways of their realization - illusion. The strengths and weaknesses of a firm make it better or worse able to take advantage of opportunities than other firms. - What threats should the manager be most concerned about and what strategic actions should he take for a good defense? 6.4. Strategic cost analysis One of the clearest indicators of a company's situation is its price position relative to competitors. This is especially true for industries with weakly differentiated products, but even so, companies are forced to keep up with rivals, otherwise they risk losing their competitive position. Differences in the costs of rivals can be caused by: - the difference in prices for raw materials, materials, components, energy, etc. - difference in basic technologies, age of equipment, - differences in internal costs due to different sizes of production units, the cumulative effect of output, productivity levels, different tax conditions, levels of organization of production, etc. - difference in sensitivity to inflation and changes in exchange rates, - the difference in transport costs, - cost difference in distribution channels. Strategic value analysis focuses on a firm's relative value position relative to its competitors. The primary analytical approach to such an analysis is to build a value chain for individual activities, showing the picture of the cost from raw materials to the price of final consumers. This table shows that there are three main areas in the chain of action/costs where the greatest differences are possible for competing firms: the area of supply, the front parts of the distribution channels, and the company's own internal activities. If a firm loses competitiveness at the back or front of the chain, it can change its internal operations to regain competitiveness. When value gaps lie primarily at the back of the chain, a firm can take six strategic actions: - seek better prices from suppliers, - work with suppliers to reduce their costs, - undertake backward integration to control material costs, - try to use cheaper substitutes, - find new sources of supply with reasonable prices, - try to reduce the difference by saving in other parts of the chain. In case this is characteristic of the front of the chain, three corrective actions are possible: - use more attractive forms for participants of distribution channels, - change the economic strategy, including the possibility of front integration, - try to make up the difference by reducing costs in other parts of the chain. When the source of loss of cost competitiveness lies in the interior of the chain, it is advisable to consider the following actions: - revision of internal budget items; - an attempt to raise the productivity of workers and expensive equipment; - study whether it would be more profitable to perform some technological processes on the side than by the company itself; - investment in resource-saving technological improvements; - considering cost components that cause concern as objects of new investments in production and equipment; - modification of products in order to reduce their cost; - balancing high internal costs with savings in the front and back of the chain. 6.5. Assessing the strength of a firm's competitive position In addition to diagnosing the price competitive position, a general analysis of the company's competitive position and competitive strength is required. He must answer the questions: How strong is the firm's current competitive position? - what change in the competitive position can be expected using today's strategy (with its fine tuning)? - what is the rank of the firm relative to key competitors in each important component of competitive strength and industry key success factor? - What is the list of competitive advantages of the company? - What is the firm's ability to defend its position in light of industry drivers, competitive pressures, and anticipated rival actions? To assess the competitive position of the firm, scores are used on key success factors. In this case, the assessments of such factors for the firm and its rivals are weighted. The general rule is that a company should accumulate its competitive strengths and protect its competitive weaknesses. It must build a strategy around its strengths and take action to address its weaknesses. At the same time, the strengths rating of the opponents shows where you can expect their attacks from and, conversely, where they are weaker. If a company has important competitive strengths where rivals are relatively weak, then actions can be taken to exploit this circumstance. 6.6. Determining the Firm's Preferred Strategic Actions The final stage of the situational analysis is the identification of all important strategic approaches that should form the company's action plan. They should build on their situational analysis and answer the following questions: - Is the current strategy adequate to the driving forces in the industry? - how closely does the current strategy relate to future industry success factors? - How good is the protection of the current strategy against the five competitive forces in the future, and not now and in the past? - Is the current strategy able to adequately protect the company from external threats and internal weaknesses? - Should the company be wary of competitive attacks from one or more competitors? - Are additional actions needed to improve the company's value position, accumulate positive opportunities or improve its competitive position? 6.7. Summarizing conclusions on the topic of chapter 6 The situational analysis includes five steps. 1. Evaluation: how well the current strategy is working. It includes an overview of the past strategic activities of the company and the determination of the logical relationship of the individual parts of the strategy. 2. Conducting a SWOT analysis. Assessment of the main blocks of the strategy - the strengths of its activities; Weaknesses are important as they represent a source of increased attention and require corrective action. External opportunities and threats should be taken into account, as a good strategy should contribute to the accumulation of positive opportunities and protection against possible threats. 3. Evaluation of the company's value position relative to competitors (using the chain of action / value). The strategy must keep the cost factor at the level of rivals in order to ensure the company's ability to compete. 4. Assessment of the company's competitive position and its competitive strength. This stage shows how the company is located relative to rivals in terms of the main indicators of competitive success. Competitive strength analysis shows where the company is strong and where it is weak. 5. Definition of strategic approaches and problems of the company. The goal of this phase is to develop a complete strategic inventory using situational as well as industry and competitive analysis to understand that. how the existing strategy corresponds to the external and internal situation of the company. Table 6.5 Form of presenting the results of the situational analysis1. Indicators of strategic activity 2. Internal strengths Internal weaknesses External Opportunities External threats 3. Analysis of competitive strength 4. Conclusion regarding competitive position (improving/weakening? competitive advantages/disadvantages?) 5. Main strategic actions/issues that the company should consider. 7. Single business strategy 7.1. Foundations of a Single Business Strategy As stated in Chapter 3, the definition of a business includes addressing the following questions: - What needs of consumers will be satisfied by the activities of the company? Which consumer groups will be affected? - How will these needs be met (the distinctive competencies of the firm)? Consumer needs are related to product differentiation, which is the process of using distinctive advantages in designing products to meet specific consumer needs. Marketing segmentation is a way of dividing the market into groups of consumers based on existing differences in their needs. A company may focus on one or more segments. In general, the clarity of product/market/distinctive competence provides the basis for strategy at the single business level (SBS). 7.2. Choosing a basic competitive strategy for a single business There are three types of strategies: - price leadership - differentiation, - focusing. These strategies are called basic because all types of businesses or industries follow them, whether they are manufacturing, servicing, or non-profit enterprises. The advantages of the low-price leadership strategy are the ability for the leader to offer a lower price than competitors at the same level of profit, and in a price war, the ability to better withstand competition due to better starting conditions. The price leader chooses a low level of product differentiation and ignores market segmentation. It works for the average consumer by providing a reduced price. The price leader is protected from future competitors by its price advantage. Its lower prices also mean it is less sensitive than its competitors to increased pressure from suppliers to enter and buyers to exit. Moreover, since price leadership usually requires a large market, its position in "trading" with suppliers is strengthened. When replacement products enter the market, the price leader can lower the price and maintain market share. The advantage of a price leader is the presence of barriers to entry, since other companies are unable to enter the industry using the prices of the leader. Thus, the price leader is relatively safe as long as he maintains a price advantage. The fundamental danger for him is that competitors find ways to reduce their costs (for example, when changing technology). The goal of a differentiation strategy is to achieve competitive advantage by creating products or services that are perceived by consumers as unique. At the same time, companies can use an increased (premium) price. The advantage of a differentiation strategy is the security of a company from competitors as long as consumers maintain a stable loyalty to its products. This gives it a competitive advantage. For example, powerful suppliers are rarely a problem for such a company, as it is more price-focused than cost-focused. The company, of course, has no problems with strong buyers. Differentiation and broad customer loyalty create entry barriers for other companies that need to develop competitive designs to do so. Finally, replacement products can pose a threat only if competitors are able to produce products that satisfy consumers to the same extent and are able to break the stable loyalty to a differentiated company. The main problem of such a company is maintaining uniqueness in the eyes of consumers, especially in terms of imitation and copying. The threat may also arise from changing consumer demands and tastes. Changes in production technology (for example, the advent of GPS) make the difference between price leadership and differentiation strategies less noticeable. Firms can implement differentiation policies at low cost. Other ways to reduce costs during differentiation are the widespread use of standard components and parts, limiting the number of models, and the use of a "just in time" supply chain. With this in mind, some firms are trying to combine the benefits of price leadership and differentiation. They can charge a premium price for their product over the price of the pure price leader, but which is lower than the pure differentiator, which can provide them with higher profits than companies using pure base strategies. The focus strategy selects a limited group of segments. A marketing niche can be distinguished geographically, by type of consumer, or by a segment from a range of products. Having chosen a segment, the company uses either differentiation or a low-price approach in it. If it uses a low-price approach, then it competes with the price leader in a market segment where the latter does not have an advantage. If a company uses differentiation, then it benefits from the fact that differentiation is made in one or a few segments. In this case, a distinctive advantage in the form of quality based on one's competence in a narrow area is most often used. The competitive advantage of a company pursuing a focus strategy derives from its distinctive advantage. This gives it good competitive power against buyers, since they cannot get the same product elsewhere. In relation to strong suppliers, however, the focusing company is in a worse position, as it purchases in relatively small volumes. But as long as it can increase prices for loyal customers, this disadvantage is not so significant. Potential new firms need to overcome the loyalty barrier, which also reduces the threat of replacement products. The advantage is also a closer relationship with consumers and the ability to better take into account their needs. Management is also simplified compared to companies that adhere to a differentiation strategy. Flexible production systems create new benefits for focusing companies: small batches can be produced at a lower cost. However, in general, the possibility of economies of scale in their production is lower. Their second concern is that the niche a company operates in can suddenly disappear due to changes in technology or consumer tastes. Since there is a threat that differentiators will create similar products, and the price leader will attract buyers at a low price, a company with a focus strategy must be in a state of constant defense of its niche. If companies do not clearly define their strategy, they tend to perform below average and suffer as competition increases. 7.3. Choosing an investment strategy Investment strategy refers to the amount of resources, human and financial, that must give competitive advantage. Basic strategies provide competitive advantages, but they must be developed and maintained. Differentiation from this point of view is the most difficult, as the company invests resources in many functions (R&D, marketing) to develop distinctive advantages. When making investment strategy decisions, companies must consider the return on investment given a given competitive strategy. Two factors are critical in choosing an investment strategy: - company's competitive position in the industry, - stage of the life cycle of the industry. The competitive position of the company in the industry is determined primarily by the market share controlled by the company, and the presence of its distinctive advantages (for more details, see paragraph 6). Each stage of the industry life cycle has different investment requirements. At the inception stage, large investments are required, as the company creates its competitive advantages. It invests in R&D, sales, service. If a company has invested in creating competitive advantages, it will take a strong competitive position. Companies with a weak competitive position at all stages of the life cycle may choose to exit to stop their losses. In the growth stage, the growth strategy of the company with the expansion of the market is natural. Companies require significant investments to maintain their success. At the same time, companies are trying to consolidate existing marketing niches and enter new ones. Therefore, companies must invest resources in marketing, in addition, they must finally choose their basic strategy (for example, weak companies - focus). When growth slows, competition increases and companies with a strong competitive position need resources to expand the market at the expense of the share of weak companies. The nature of investment depends on the strategy of firms. For example, for a price leader with the threat of a price war, it is important to invest in cost management, and when differentiating, it is necessary to strengthen the product range and distribution networks. At the stage of maturity, companies in the face of increasing competition seek to protect their positions. Therefore, investments are made to support the strategy. At this stage, companies are willing to recover their past investments. While new profits were reinvested in the business, dividends were small, and now companies can choose a strategy to maximize shareholder returns. 7.4. Industry Competitive Practices In competitive struggle, you can follow offensive and defensive strategies. Any competitive advantage is continuously attacked by competitors, especially those rich in resources. To defend its advantage, a firm can use one of six main offensive methods: - attacking the strengths of a competitor, - attacking his weaknesses, - general attack - offensive in one direction, - partisan actions, - preemptive strikes. There are two main reasons to go hand-to-hand with competitors, opposing competitive advantages, prices, models, and promotion tactics to each other. The first is an attempt to win market space by outperforming the strengths of a weaker competitor. Attacking a weaker opponent at the time of his greatest strength brings a decisive victory and a leading position in the competition. Another reason is the need to negate the competitive advantages of one or more competitors. The criterion for the success of such tactics is the comparison of the costs of the attack with the benefits obtained. The usual way of the aggressor is to put on the market a product of the same quality at a reduced price. However, how much this strategy increases profits depends on the gain in sales volume. Another type of tactic is to achieve a low price lead and then attack the competition at a reduced price. Without cost advantages, an attack can succeed if the attacker has more financial resources and can draw rivals into a price war. When attacking a competitor's weaknesses, the attacker redirects their strengths and resources directly to the opponent's weaknesses. They can be: - geographical regions where the rival controls a small part of the market; - customer segments that are neglected and/or underserved by the competitor; - situations where the competitor is lagging behind in the quality and use of the product and there is a potential to switch the most sensitive consumers to better quality products; - situations where rivals cannot provide adequate service and it is relatively easy to provide a higher level of customer service; - places where the level of promotion is lowered and the market presence of competitors is ambiguously clearly indicated; - failures in the product lines of market leaders, which makes it possible to develop them into new large market segments; - situations where market leaders miss some of the needs of buyers. In general, attacks on competitors' weaknesses are more likely to succeed than attacks on their strengths. With a general offensive, the aggressors seek to unbalance the competitor's activities in many directions. Such an offensive has the best chance of success when the firm has outstanding market leadership resources and competitive advantages. An offensive in a specific general direction includes such actions as the capture of geographically new markets, the creation of new segments while introducing product differentiation and better satisfaction of consumer needs, and the introduction of new technologies. The general idea is to gain a significant pioneering edge in a new field. Guerrilla actions are typical for small entrepreneurs with few resources. They use the principle of "hit and run", attacking in those places and at such times that create better opportunities than large-scale competitors. It can be: - focusing the attack on a narrow, well-defined segment, poorly protected by a competitor; - attacking the front, where the enemy scattered his resources; - small scattered attacks on the leader using individual price imbalances, insufficient activity in promoting competitors, antitrust laws, patent omissions, etc. Preemptive strikes include a preemptive attack to maintain positions of advantage that the enemy cannot duplicate. They can be: - expansion of product opportunities in the market in order to prevent the same attempt by a competitor, - using better raw materials and/or more reliable suppliers instead of long-term contracts or back integration, - protection of the best geographical positions, - service to prestigious consumers, - gaining a psychological image and position among consumers, - providing the best distribution channels in this area. In the market, all firms can be attacked by competitors (including new market entrants and firms seeking to improve their positions). The goal of a defensive strategy is to reduce this risk. There are several ways to do this: - attempts to block attackers (filling gaps in product lines, improving product models, keeping prices low, good relations with trade, etc.); - signaling real threats (public appeals to firms operating in the market, plans to create adequate production capabilities, leakage of information about new developments, changes in technology, the introduction of new products, etc.); - attempts to reduce the profitability of the attackers' business by creating trade barriers. 7.5. Common strategic mistakes These include: 1. Imitation of the actions of leaders or strong competitors, when there is no place on the market for similar products and such competitors. 2. Savings on marketing and promotion in an attempt to solve all problems based on the quality and exploitation of the merits of the product. 3. Taking many weak positions in the market instead of one strong one. 4. Using credit to finance cost-reducing investments in new equipment and then falling into the trap of high fixed costs due to low cash flows to repay the loan. 5. Applying R&D efforts to market weak products instead of strong ones. 6. Attacking market leaders without significant competitive advantage or adequate financial strength. 7. Aggressive attempts to capture a part of the market, such that they provoke rivals to retaliate in full measure and a price war. 8. Start dropping prices to capture additional markets without cost advantage. 9. Access to the best expensive part of the market without an appropriate reputation among buyers for well-known prestigious goods. 10. Appeal to cosmetic improvement of the product instead of real innovations in essential consumer properties. These mistakes usually occur as a result of desperation, poor analysis of industry and competitive conditions, and/or overestimation of their capabilities. 7.6. Summarizing conclusions on the topic of chapter 7 The choice of competitive strategy (low cost, differentiation, focus) is determined by the specific competitive advantages of the firm. A low-price strategy is advisable to apply in situations where: - the products of the industry differ greatly from individual suppliers, - the market is dominated by price competition, - there are few ways of product differentiation that is essential for buyers, - most buyers use the product in a similar way, - switching costs for buyers from one seller to another are low, - there are many buyers and there are significant barriers to entry. The differentiation strategy is based on technological superiority, quality, service and big money. She is good: - in the presence of many ways of differentiating a product / service that a consumer can evaluate, - the ability of the buyer to diversify products/services; - the absence of many competitors following similar strategies. The competitive advantage of focus is used to achieve a lower cost in a target market niche or to develop the ability to offer something different from competitors to buyers in a niche. Such a strategy can be applied: - if the needs or ways of using the product differ; - the absence of rivals trying to specialize in the same market segment; - the loss by the firm of the opportunity to enter a wide market; - customer segments that differ in size, growth rate, profitability, and intensity of the five competitive forces, making some segments more attractive than others. Various offensive strategic actions allow you to protect competitive advantages. A strategic offensive can be carried out either on the strengths of a competitor, or on weaknesses. They include an offensive in a chosen direction or along the entire front, guerrilla actions or preemptive strikes. The target of such actions may be a market leader, its successor, or the weakest firms in the industry. Strategic approaches to defending a company's position are usually carried out in the form of strengthening the company's market position, preventing competitors from disturbing the situation, discouraging competitors from attacking intentions. 8. Vertical integration and diversification as part of corporate strategy 8.1. Growth and development of the corporation Most companies start out as a solo business. For such companies, maximizing long-term profits means that the company competes well within its market, using price leadership, differentiation, and focus strategies (Chapter 7). However, these strategies can also include vertical integration forward or backward (to gain strategic sales or supply advantages). Another way is to diversify the company's activities. The growth and development of a company usually includes three main stages: - concentration on a single business in one national market; - vertical integration and/or global expansion to a strong position in a key business; - diversification by investing free resources in other types of business. All this leads to the growth of the company, but one should keep in mind the "law" of decreasing returns with increasing "degree of diversification". Beyond a certain point, extensive diversification, vertical integration, and internationalization of the business result in a drop in returns per unit of capital invested, as the company exploits the most profitable opportunities first, and then the least profitable opportunities remain, which limits the firm's growth opportunities. In this figure, the MBA line (return on invested capital) has a falling character. This trend is exacerbated by the additional costs of running a diversified large company (MBC curve). All this creates a limit to the growth of the degree of diversification (usually this is the point of intersection of the MBC and MBA lines). In practice, this point floats in time and, for example, with innovations in management, the MBC line can be replaced by the MBC line1and hence a higher level of corporate diversification becomes acceptable. 8.2. Vertical integration Vertical integration is a method by which a company creates (integrates) its own input stages of the technological chain (back integration) or its output stages (front integration). Integration can be full or narrow. Full combines all inputs or outputs. An example of a bottleneck is when a company buys only a portion of its inputs and manufactures the rest in-house. A company that uses vertical integration is usually motivated by the desire to strengthen the competitive position of its key source business. This should be supported by: - cost savings; - departure from market value in integrated industries; - improved quality control; - protection of own technology. However, vertical integration also has its downsides. The most important of them are: - excessive costs; - losses due to rapid change of technologies; - losses due to unpredictability of demand. Vertical integration can increase costs if the company uses its own input production in the presence of external low-cost sources of supply. This may also be due to the lack of competition within the company, which does not encourage its subsidiaries (suppliers) to reduce production costs. With a sudden change in technology, there is a risk of a company being tied to an outdated technology. With constant demand, a higher degree of integration allows for better protection and coordination of production. When demand is unstable and unpredictable, such coordination in vertical integration is difficult. This can lead to an increase in the cost of management. Under these conditions, narrow integration may be less risky than full integration. It should be noted that narrow integration can reduce costs compared to full integration. This, under certain conditions, allows the company to expand vertical integration. In general, however, while tight integration may reduce management costs, it cannot eliminate them entirely, and this represents a real constraint on expanding the limits of vertical integration based on a company's profitability. As an opposite strategy, a company may use long-term contracts with suppliers and/or customers. Such ties are especially effective when using credit obligations or collateral investments for the development of production. This allows you to achieve the effect of vertical integration without increasing management costs. 8.3. Diversification There are two main types of diversification - related and unrelated. Related diversification is a new area of activity for a company that is related to existing areas of business (such as manufacturing, marketing, procurement, or technology). Unrelated diversification is a new area of activity that has no obvious links to existing business areas. Most companies turn to diversification when they generate more financial resources than are needed to maintain a competitive edge in their original business areas. Diversification can be done in the following ways: - through the internal capital market; - restructuring; - transfer of specific arts between SZH; - separation of functions or resources. Diversification through the internal capital market performs the same functions as the stock market. In the domestic capital market, the main office plays the following main roles: - performance of strategic planning functions, which consist in determining the corporation's SZH portfolio; - setting financial goals and monitoring the activities of SZH; - placement of corporate capital among competing SBAs. Under these conditions, SBAs are autonomous profit centers that are only under the financial control of the main office. The restructuring strategy is one of the types of strategies for the internal capital market. The difference lies in the degree of intervention of the main office in the activities of the SBA. Companies that undergo remodeling have usually been poorly managed in the process of creation and development. The goal is to help them revitalize their activities, change the way they operate, develop new strategies at the SBA level, and inject new financial and technological resources into the company. Where an arts or business transfer strategy is used, the new business is considered to be related to existing SBAs (eg, manufacturing, marketing, procurement, R&D). Typically used are transfers of such arts that reduce costs in a diversified company. Diversification through resource allocation is possible when there is a significant similarity between one or more important functions of existing and new SBAs. The purpose of resource allocation is to realize synergy in the company's activities using common production, distribution channels, promotional tools, R&D, etc. Thus, less investment is required in each SBA compared to a stand-alone solution to this issue. When deciding on the diversification of a company's activities, the cost of managing such a company should be taken into account. These costs are determined by the number of SBAs and the need for coordination between them. Thus, management costs are higher in a company of 12 SBAs, which have a certain synergy, than in a company of 1 °CBA, which do not have this quality. The unit costs of running a diversified company with a high need for coordination (MBCH) are compared with those for a company with a low need for coordination (MBCL). Let's assume that a company with a high need for coordination seeks to strengthen its position through the synergy of the SBA. And a company with little need for coordination follows an internal capital market or restructuring strategy. As can be seen, at each level of diversification, the corresponding values of direct MBCH are greater than the values of MBCL. If we assume that both companies have the same MVA management unit cost curves, a company with a low need for coordination has a higher management profitability than a company with a high need for coordination. Unrelated diversification does not require coordination between SBAs. Consequently, management costs rise with the number of SBAs in a company's portfolio. In contrast, companies with linked diversification incur costs that increase both with the number of SBAs and with the degree of coordination required between them. Thus, the choice between connected and unrelated diversification depends on comparing the profitability of diversification and the additional unit costs of management. The firm should focus on related diversification where the company's key skills can be used in a wide range of industry and commercial situations, and management costs do not exceed those needed to allocate resources or transfer the skills. By the same logic, companies should focus on unrelated diversification if the arts of basic SBA are highly specialized and not externally applied, and management costs do not exceed the values needed to implement the strategy of the internal market. An opposite strategy to diversification might be to create a strategic alliance between two or more companies in the cost, risk and rewards associated with exploiting new business opportunities (eg R&D). However, there is a risk of partner access to key technology. 8.4. Summarizing conclusions on the topic of chapter 8 1. Strategy at the corporate level should focus on managing the growth of the company and its development in order to maximize long-term profits, including in terms of the choice of areas of activity and markets. 2. The corporate strategy should provide additional opportunities for the corporation to reduce costs compared to the simple summation of SBAs. 3. The disadvantage of a company focusing on a single business is that it may need to be vertically integrated to achieve a low cost or differentiation position. 4. Vertical integration saves the cost of market research, product quality protection and special technology. 5. The disadvantages of vertical integration are the costs of expensive domestic sources of supply and the loss of flexibility with changing technology and demand. 6. Narrow integration is usually preferable to full integration because it uses its own suppliers and distributors to the extent determined by competitive pressures and therefore keeps costs to a minimum. Narrow integration also provides greater flexibility in the face of demand uncertainty. 7. The use of long-term contracts allows a company to realize many of the benefits of vertical integration without increasing management costs. However, there is a risk associated with dependence on a partner, which requires the use of loan agreements and targeted investments. 8. Diversification increases income while optimizing the portfolio, restructuring, transferring skills, allocating resources. Diversification for other reasons does not contribute to income growth. 9. Management costs for diversification depend on the number of SBAs in the company and the importance of coordination between them. 10. Related diversification is preferable to unrelated diversification, since the company operates in a more familiar environment and takes less risk. In the event that a company's arts are not transferred, it may resort to unrelated diversification. 11. A strategic alliance of companies can realize many of the benefits of related diversification without increasing management costs. However, when a company enters an alliance, there is a risk that a partner will receive a key technology. This risk is reduced when the company receives investment loans from a partner. 9. Analysis and portfolio management of a diversified company 9.1. BCG matrix The main purpose of its use is to help the manager in determining the requirements for the flow of financial resources between SBAs in the firm's portfolio. The BCG approach includes three main steps: - dividing the scope of the company into SZH and assessing the long-term prospects of the latter, - comparison of SZH with each other using a matrix, - development of strategic goals in relation to each SZH. The main recommendations of the BCG: 1. Surplus funds from cash cows should be used to develop selected wild cats and grow developing stars. The long-term goals are to strengthen the position of the "stars" and turn attractive "wild cats" into "stars", which will make the company's portfolio more attractive. 2. "Wildcats" with weaker or unclear long-term prospects should "undress" in such a way as to reduce the demand for financial resources in the company. 3. A company must exit the industry when the SHZs there are classified as "dogs" - by "harvesting", "stripping" or liquidation. 4. If a company lacks cash cows, stars, or wild cats, then concessions and stripping must be undertaken to balance the portfolio. The portfolio should contain enough "stars" and "wild cats" to ensure healthy growth of the company, and "cash cows" - to provide investments for "stars" and "wild cats". The main strength of the BCG matrix is to focus on the cash flow requirements for different types of SBAs and indicate how these flows can be used to optimize a corporation's portfolio. However, the BCG matrix has a number of significant drawbacks. This is a simplified model in two dimensions, which does not take into account a number of important factors. A business with a small market share can be very profitable and have a strong competitive position. Likewise, market growth is not the only factor that determines the attractiveness of SBAs. 9.2. Matrix McKinsey Like the BCG matrix, this matrix is in two dimensions, but these variables depend on many factors. The attractiveness of SZH is assessed in four stages: - strategic managers identify the criteria for the attractiveness of SZH; - then the weights of the relative importance of individual factors are established; - strategic managers register the attractiveness of individual industries in the corporation's portfolio; - finally, the overall weighted estimates for each SBA are performed. The competitive status of a firm in the SZH is assessed in a similar way: - the strategic manager identifies the key success factors for each industry in which the company competes; - each key success factor is assigned an appropriate weight, determined by the relative importance of the factor for the competitive position; - then the rank of competitive strength in each SBA is established in accordance with the relative importance of the success factor for the industry; - further, the full weighted index of the competitive position of SBA is calculated. Comparison of SZH is performed using the MacKinsey matrix similar to the BCG matrix. The McKinsey matrix is divided into nine cells. SBAs in three of them are characterized as "winners" or the most desirable areas of business. Three cells are characterized as losers, which are the least desirable for business (relatively weak competitive position in unattractive industries). One cell is marked with a "question mark" (analogous to the "wild cat" of the BCG matrix). This is an uncertain but promising business position. With support, these SBAs turn into "winners", but there is also a risk of them becoming "losers". One cell is called "Profit Producer" (analogous to "Cash Cows" of the BCG matrix). The strategic implications of the analysis based on the McKinsey matrix are clear: - "losers" must be "undressed", liquidated or subjected to a harvesting process; - the positions of "winners" and developing "winners" should be strengthened, including, if necessary, by financial investments; - companies must choose "question marks" that can be turned into "winners"; - "profit producers", given their strong competitive position, should be used to reinvest profits in "winners" or selected "question marks"; - "medium business" should be tried to either turn into "winners", or "undress" if it is unpromising in the long term. A balanced SBA portfolio should contain mostly "winners" and developing "winners", a small number of "profit makers" and a few small "question marks" with the potential to grow into "winners". However, companies often have unbalanced portfolios. One of the great advantages of the MacKinsey matrix is its flexibility. The approach takes into account that different industries are characterized by different factors of competitive success. At the same time, a larger number of strategically important variables are taken into account than in the BCG approach. However, not everything is perfect in this approach. One of the main difficulties is that it gives a number of strategic decisions, but does not determine which of them should be preferred. Therefore, the strategic manager must complement this analysis with subjective assessments. Another problem is a certain static display of the firm's market position. 9.3. SZH evolution matrix SZH evolution matrix (Hofer Matrix). The advantage of such a matrix is the distribution of the SBA of the company over various stages of the life cycle. For example, high potential "question mark" SBAs and "emerging winners" should be supported to become "excellent winners" and "profit producers" in the future. Potential "losing" SZH should "undress" as quickly as possible. Businesses in SBAs that are in the stages of maturity and decline must be managed in such a way as to use their competitive strength. Any surplus of cash in these SBAs should be used to support the "emerging winners" and SBAs going through a decelerating stage. Like the McKinsey matrix, this matrix allows managers to assess the degree to which the SBA portfolio is balanced. A balanced portfolio should contain "excellent winners" and "profit makers", few "evolving winners" and high potential "question marks". At the same time, this matrix allows assessing the dynamics of the SBA portfolio. On the other hand, this matrix only complements the McKinsey matrix, since it does not reflect many significant factors. 9.4. Conclusions and possible "traps" of the matrix analysis of the SBA portfolio The undeniable advantages of this technique: - the opportunity for managers to analyze the consequences of diversification; - displaying the necessary cash flows between individual SZH, the ability of the top management of the company to correctly allocate resources; - the concept of SBA portfolio balance allows to identify the current SBA structure and optimize long-term profitability (a balanced portfolio is a company's strength, and an unbalanced one is its weakness). However, the matrix technique of SZH analysis can also lead to certain "traps": - a large number of SBAs can create information overload problems for the company's management (in practice this happens if the number of SBAs approaches 40-50), and hence weak overall solutions; - there may be conflicts between the financial priorities of SZH and the entire company; - simplified application of the matrix technique can create problems for companies using vertical integration or related diversification (an additional important strategic relationship between SBAs should be taken into account). 9.5. Market entry strategy The following main strategies for entering a new business area can be considered: - acquisition; - new internal enterprise; - joint venture. You can acquire a developed company with equipment, personnel. A new internal enterprise starts with nothing (buildings, equipment, personnel, distribution channels), in other words, "from scratch". The choice of a particular strategy depends on a number of factors: - entry barriers (they depend on the degree of product differentiation, cost advantages and opportunities for economies of scale in production; the more significant they are, the more profitable the acquisition becomes); - the degree of connection of a new business with existing ones in the company (the larger it is, the lower the barriers to entry); - the rate of return on investment (here, the acquisition may be more profitable); - the risk inherent in a particular entry model; - factors related to the life cycle of the industry. In general, a new domestic venture may be more acceptable under the following conditions: - the industry is in the stages of origin or growth; - entry barriers are low; - the new SZH is closely connected with the existing business of the company; - the company agrees to receive additional worries about return on investment and risk. The acquisition will be more acceptable: - when the industry is in the stage of maturity; - high entry barriers; - unconnectedness of the new business with existing SBAs (the company adheres to the strategy of unrelated diversification); - the company does not want additional worries about the return on investment and the risk of new entrepreneurship. In portfolio analysis terminology, a new internal venture is attractive to a company that needs more "question marks" in the portfolio or has a strong need to strengthen "emerging winners" in the nascent or growth stage. Acquisition is appropriate when the company needs "evolved winners" or "profit producers". It should be borne in mind that if the acquisition strategy is not developed enough, it may be found that instead of acquiring “winners” or “profit producers”, “dogs” have been added to the portfolio. This can happen for the following reasons: - the company often experiences difficulties when trying to integrate different corporate cultures; - companies overestimate the potential synergy effect; - Acquisitions are associated with high costs; - companies often do not adequately represent the purpose of the acquisition. As noted above, in terms of portfolio management techniques, new domestic ventures act as "question marks". The probability of errors can be reduced by taking into account the possibility of the following typical miscalculations: - the entrance is small in scale; - poor commercialization of new entrepreneurship; - poor management of the business process by the management of the corporation. Small business volumes lead to smaller losses, but in the long run, large volumes generate a greater rate of return. In some situations, companies prefer internal new venture acquisition strategies, but they are wary of the need for new investment and risk (for example, in the case of an "evolving winner" in the nascent and growth stages). This leads to their use of joint ventures, which promote insurance against risk and investment in new projects. However, the following disadvantages of this entry method should be noted: - in addition to investment and risk insurance, a guarantee of sufficient profitability of the new business is required; - companies entering into such cooperation run the risk of losing priority in "know-how"; - partners must control each other, especially with different business philosophies, planning horizons, investment priorities, etc., otherwise conflicts are possible. 9.6. Exit Strategies Leaving is usually required when a company has many "losers" or "question marks", and sometimes many "emerging winners". A company can have three strategies in this case: - "undressing"; - "harvesting"; - liquidation. "Undressing" includes the sale of a business to another company or management from within the company. Easy to sell "evolving winners" or in some cases "question marks" and very hard "losers". "Harvesting" involves controlled divestment to optimize a company's cash flow when a company exits an industry. To increase internal cash flows, firm management eliminates or limits new investment, limits operating costs, reduces promotion and R&D costs, and spends profits from past good periods. SZH loses the market in terms of sales, but the inflow of funds from it increases for a short time. These funds are used to develop other SBAs of the corporation. With a decline in cash flow, they begin to liquidate SZH. The choice of exit strategy is determined by the characteristics of the SBA and the intensity of competition in the industry. 9.7. Determining the optimal strategy for a diversified firm In practice, most diversified companies can be classified as follows: - business with a "main" business in terms of sales with a moderately differentiated part of the related or unrelated business (approximately a third or less of the total sales of the corporation); - narrowly diversified entrepreneurship with a small number (2-5) associated SBAs; - a strictly differentiated case from many related SZH; - a narrowly differentiated business of the few (2-5) SZH in unrelated industries; - a highly differentiated case from many SZHs in many unrelated areas; - matter of many SBAs in unrelated industries, but within each industry SBAs are linked into groups. The procedure for evaluating the strategy adopted by the corporation should include the following steps: - identification of the existing strategy; - construction of one or more SBA portfolio matrices for its analysis; - assessment and comparison of the long-term attractiveness of each SBA; - assessment and comparison of the competitive strength of the company in each SZH in order to determine which of them are most suitable for industry conditions; - ranking SZH according to the history of their activities (stages of evolution) and prospects; - assessment of each SBA for compliance with the corporate strategy and determination of their relative strategic importance for the corporation; - ranking SBAs according to priorities for new investments, determining for each SBA the general direction of development and strategic actions (aggressive development, protection of what has been achieved, "undressing", "harvesting", liquidation); - determination of the state of diversification in the corporation as a whole (the ratio of sales volumes in SZH, in the corporation as a whole, to the current profit in them); - assessment of the significance for the corporation of expanding or narrowing the base of diversification; - assessment of the ratio of related and unrelated SZH in the company's portfolio; - trends in the development of the corporation within the national framework and in the internationalization of business; - the results of recent actions to develop key SBAs and/or strengthen existing business positions; - actions to supplement the portfolio with new SBAs; - actions to reduce weak and unattractive SBAs; - assessment of proportions of investments in SZH; - Evaluation of the effectiveness of corporate management in the implementation of strategic goals and the growth of competitive advantages. As a result of the analysis in these areas, answers to the following questions should be obtained: - Does the firm's portfolio contain the necessary SBAs in attractive industries? - Does the portfolio contain a sufficient number of profitable SBAs? - Is there a balance between developing and fading SBAs? - are there enough "profit makers" to fund "emerging winners" and "question marks"? - Does the main business of the company have sufficient profitability and prospects or is it a "cash cow"? - Can the company's SZH portfolio dampen seasonal and other business fluctuations? - Does the company really need so many SZH or do they really need to be reduced? - Is there an industry leader in the company that occupies a significant share in the volume of the corporation, or does the company consist of many SBAs in medium-weak positions? - what should be removed from the SZH portfolio in order to improve the position of the corporation as a whole? 9.8. Development (adjustment) of a corporate strategy based on the analysis of the SZH portfolio The best variant of the SZH portfolio is its complete set of SZH with a high degree of attractiveness, taking into account the need to balance them. Various variants of portfolio imbalance and methods for its elimination are discussed above. The final stage in the development (adjustment) of the action plan is to ensure actions to coordinate the relationship of those SBAs that constitute the attractive axis of competitive potential. Possible ways of such coordination: - allocation of related activities in the company's value chain (centralization of purchases, joint R&D, full or partial integration of production, integration of the dealer network and sales organization, etc.); - coordinating the strategies of related SBAs in order to strengthen the firm's strengths in approaches to consumers, supply, distribution channels and the creation of a defensive or offensive front against competitors; - formulation at the level of corporations of a single strategic plan of action in competition; - organization of interaction between SBAs, creation of committees and project groups for the transfer of "know-how", advanced technology, experience between SBAs; - diversification into new business to strengthen strategic relationships, win in the value chain of existing business; - reduction of SZH, which do not correspond to the basic concept of strategic relationships and which are difficult to coordinate; - motivation of SZH managers in order to encourage them to work together in the interests of realizing the strategic potential of the company. 9.9. Summarizing conclusions on the topic of chapter 9 1. There are three main techniques for analyzing and managing a firm's portfolio: the BCG matrix, the McKinsey matrix, and the Hofer industry evolution matrix. 2. The strength of the BCG approach lies in its focus on cash flow requirements. The weakness lies in the simplification of business categories and static assumptions about market size, growth, and profitability. 3. The strength of McKinsey's approach is its ability to bring together a wide range of strategically important variables in an analysis. The main weakness is stability in relation to the evolution of the industry. 4. The strength of the SBA evolution matrix is in the distribution of SBAs by life cycle phases. The weakness is that many strategically important quantities are ignored. 5. In general, portfolio analysis helps a company develop a diversification concept, allocate resources, and determine actions to balance a portfolio. However, there is a weakness in the assumption that a company should be broken down into a foreseeable number of SBAs, the ignorance of potential cash flow priority conflicts between and within SBAs, and the tendency to ignore SBA relationships. 6. Correcting imbalances in the SBA portfolio usually requires the application of an entry or exit strategy. 7. The choice of entry strategy is determined by barriers to entry, links to existing activities, cost of entry, rate of return on investment. risk and stages of the industry life cycle. Domestic new entrepreneurship is appropriate for the strategic goal of strengthening "question marks" and "evolving winners". Acquisition is advisable when it is necessary to strengthen the "producers of profit" or "winners". 8. Many acquisitions fail due to poor post-acquisition integration, overestimation of potential synergy benefits, high acquisition costs, and poor management of the internal business process. The protection against this is a good structure, buying strategy and integration actions. 9. Many new in-house business start-ups fail due to low entry volumes, poor commercialization, and poor management of the process by corporate management. Defenses against this include structural approaches in project selection and management, integration of R&D and marketing for successful commercialization, and high volume entry. 10. Exit strategies include: "stripping", "harvesting" and elimination. The choice is determined by the characteristics of the relevant SBA and the intensity of competition in the industry. 11. There are six main strategies for a diversified firm: - make new acquisitions; - "undress" weak SZH or not feed them in the future; - to reconstruct the SZH portfolio; - switch to a narrowly diversified SZH portfolio; - move to the internationalization of business; - close/liquidate unprofitable SZH if it is impossible to sell them. 10. Tools for implementing the strategy 10.1. Key tasks for implementing the strategy Once a strategic plan has been developed, the manager is faced with the challenge of turning it into action and good results. If the development of a strategy is primarily an entrepreneurial activity, then its implementation is an internal administrative activity. The details of such activities depend on the specific situation. However, there are recurring key tasks in this process. Each of these key tasks is decomposed into a number of subtasks. Building an organization capable of implementing the strategy should include: - development of an internal organizational structure based on the needs of the strategy, - the creation of arts and distinctive advantages on which the strategy is based, - selection of people for key positions. The development of a budget that ensures the implementation of the strategy provides for: - providing each organizational unit with a budget that ensures the implementation of its part of the strategic plan, - control over efficient use of resources. The creation of internal administrative support systems requires: - defining and managing policies and procedures that affect the strategy, - development of administrative and operational systems for action in strategically critical situations. The development of a payment and incentive system should include: - motivation of organizational units and personnel in the interests of implementing the strategy, - development of a system of material and moral incentives, - development of results-based management. The development of corporate culture in relation to the strategy includes: - setting private indicators, - definition of ethical standards, - creating a working environment to support the strategy, - fostering the spirit of work at a high cultural level. The style of strategic leadership requires: - managing the performance growth process, firm culture and promoting strategy; - supporting organizational innovation and new opportunities; - participation in policies for the implementation of the strategy, support for production capabilities and organizational consensus; - emphasis on ethical standards in behavior; - corrective action initiatives to improve strategy implementation methods. 10.2. Practical recommendations for ensuring the organization of a strategically effective company Here are some practical recommendations based on the experience of the best US companies: 1. The organizational chart of most of these companies is quite stable. It is common to use decentralized governance schemes with business/product divisions (BPOs). 2. Part of the organizational structure is quite mobile and flexible, which allows you to quickly respond to changing external conditions. 3. New SBAs appear to enable new types of businesses to develop. Often this happens by creating a new production for a new product or by turning part of an existing business into an independent branch. 4. People, products and even production facilities often move from one department to another in order to be most efficient, promoted, increase competitive strength and adapt to market conditions. 5. Most of these companies have relatively small head office staff, with most of their members coming from "field units". There is a fairly frequent rotation of staff "main office - branches." 6. Forms of functional management, as a rule, are "customized" to the main tasks of companies. This means that they are less enterprising, adapt more slowly and can ignore important changes in the external environment. 7. It is believed that the key feature of an entrepreneurial, highly adaptable business is the small size of independent branches. Usually their annual sales volumes are 50-100 million dollars with a maximum of about 1000 million dollars. 8. The means of preventing "liming" and stagnation of organizations is their regular reorganization through the rotation of personnel, the transfer of production from one SZH to another, the division of large bureaucratic machines into smaller ones, etc. 9. It is useful to use "loose-stretched" control. At the same time, on the one hand, autonomy, an entrepreneurial environment, and innovative activity of branches are created, and on the other hand, the control of a strong central government allows it to control the situation, ensuring a unified strategic development of business. At the same time, the basic part of the organization's structure must be stable, but its "content" is often reorganized, and the peripheral parts of the organization must be relatively flexible. 10.3. Corporate culture that ensures the effective implementation of the strategy The culture of the corporation is based on the basic ethical norms and principles of activity. Ethics include: - honesty and observance of the law, - resolution of conflicts of interest, - benevolence in trade and market practices, - use of inside information to ensure business security, - maintaining relationships and profitability practices, - payment for work done - use of information from other sources, - political activity, - protection of internal information, - use of assets, resources and property of the company, - payment under contracts and promissory notes. The general principles of the company's activities can be: - the primary importance of consumers and their service; - commitment to quality; - commitment to innovation; - respect for the individuality of employees and the obligations of the company towards them; - the importance of maintaining honesty, directness and ethical standards; - respect for shareholders; - respect for supplier companies; - corporate partnership; - the importance of protecting the environment. The basic principles of a corporation are needed to develop its structure, organizational art, distinctive advantages, budget, enabling systems, motivations, policies and procedures, and culture. The deeper the use of principles in administrative practice, the more powerful a strategy can be created. The McKinsey firm has developed a framework for evaluating principles in seven areas of the company: - strategies (strategy); - structure; - principles, position and philosophy (shared value); - approaches to staff activities and its orientation to staff (staff); - administrative practices, day-to-day procedures, including reward systems, formal and informal policies, budgeting, financial management and control (systems); - organizational art, opportunities and distinctive advantages (skills); - leadership style (style). This design was named 7S. Principles of activity are the core of organizational activity. They define the leading principles of the strategy: "who are we, what do we do, where are we going and what principles do we profess?" They describe the corporate culture. At the same time, the 7S scheme indicates the interconnection of various branches of administrative activity of the management and that changes should be made to each of them when others change, and especially the company's strategy. 10.4. Fundamentals of the company's management action policy in the strategic area The problem of the strategic management of the company is to diagnose the situation and choose one or more ways to own it. In doing so, there are six main actions of leadership: - stay on top of what is happening and look for ways to do better (control the situation); - promote a culture in which the company's actions to implement the strategy become more energetic; - support the functioning of the organization in changing conditions, prepare not to miss new opportunities and "boil" with innovative ideas; - create a consensus of opinions, participate in the formulation of a strategy and policy for its implementation, while maintaining a "wrestling stance"; - promote ethical standards in the practice of the company; - take corrective action to implement the strategy and throughout the strategic area. Recent studies of strategic management in nine of the largest US companies have shown that managers are better off following the following policies: - allow poorly supported ideas in the firm to "die a natural death"; - create additional barriers and tests for well-supported ideas, but unacceptable for the manager (this is better than open opposition); - for completely unacceptable proposals to create an environment conducive to the negative conclusions of the manager's subordinates; - strive to ensure that the main number of negative decisions is the result of a consensus of various management groups. Reserve your personal veto for serious issues and critical moments; - manage the strategy, and not dictate it (a few orders, decisions until a consensus is reached); - be suspicious of symbolic influences and provisions that may stimulate undesirable actions; - make sure that all the main forces operating in the company are represented in the top management; - include new people and ideas in the consideration of changes in order to exclude the possibility of them appearing in the future as a systematic opposition to other views; - to minimize the insecurity of one's own position in disputes, especially on highly controversial points, and in situations that the opposition can use to attack. Any strategic plan needs to be adjusted. The manager's behavior when discussing ways to correct it can be expressed through reactive and active approaches. When there is a certain amount of time to develop proposals for adjustment, a reactive approach can be used: - be flexible, keep the list of proposals open as long as possible, - ask as many questions as possible to the authors of proposals, - obtain as much information as possible from experts, - maintain the subordination of participants in the discussion, - seek to know the reaction of as many people as possible on the problem raised. The final decision should take into account the largest possible amount of information, allow the situation to be crystallized to the maximum, and be based on taking into account the opinions of different groups. An active approach includes: - study with the help of commissions of explosive or disturbing areas; - collection of ideas and concepts among colleagues; - breaking down people into teams with a sharp difference in competence, interests, experience and collecting ideas among them; - contact with many people inside and outside the firm; - stimulating low-level proposals to ensure the reality of solutions; - consistent steps to harmonize private ideas at different levels of activity; - change policy management to ensure that managers agree to support the chosen course of action. 11. Organization of strategic control 11.1. The role of control in the implementation of the strategy Implementation of the strategy involves choosing the right combination of structure and control over the implementation of the company's strategy. In general, control is necessary because although the management structure assigns roles and tasks to performers, it does not provide them with motivation. Strategic control systems are systems of formal goal-setting control, observation, evaluation and feedback that provide managers with information about the organization's performance and the need for corrective actions. Therefore, the control system must implement four steps of action: - establishment of performance evaluation standards to be developed concurrently with the strategy; - creation of a measuring system that will show the degree of achievement of goals, which is a complex task, since many actions are difficult to evaluate; - comparison of actual functioning with established goals; - evaluating the results of the comparison and developing, if necessary, corrective actions. 11.2. Types of control systems Control systems can analyze a fairly wide class of phenomena: from measuring organizational outputs to measuring organizational behavior, which, of course, is more complicated. Control should be exercised at all levels of management: corporate, divisional, functional and individual. Market control is the most objective, since it is based on a price system and allows you to evaluate the behavior of the company, and the indicators used are quite objective. The market price of shares is determined by competition, and all its fluctuations give managers feedback on their performance. The rate of return on investment measures the return on investment capital and is another form of market control. At the corporate level, such an assessment can show the performance of the company relative to other firms; at the divisional level, it gives a relative assessment of the work of the firm's departments, which is important for diversification. Transfer prices show the economic relationship between branches. They can be set in two ways: based on market prices and based on cost. Therefore, there are certain problems in their use as an indicator. At the divisional level, the success of market control depends on the ability of corporate and divisional managers to reach equivalent decisions on price resources. This is very important for the main office of a company with many branches. Market control is the basis of portfolio planning, as comparing rates of return on investment (ROI) is a fundamental way for a company to evaluate the performance of its branches. Exit control is the next objective form of control, which is used in the absence of other objective methods. At the same time, the company must evaluate or predict the achievement of relevant goals for various departments, functions or divisions. The divisional level evaluates sales volume, performance, growth and market share. These indicators change in the course of the activities of branches and reflect the behavior of branch managers. At the functional level, the degree of achievement of the corresponding goals is also assessed. Functional results can be used to develop a company's distinctive advantages, they are at the same time powerful methods for controlling the behavior of personnel. Control by individual results is common at all levels - top managers, marketers, manufacturers, etc. However, when there are difficulties in assessing performance (for example, in R&D or teamwork), it is very difficult to evaluate individual returns. The inappropriate use of exit control can lead to negative consequences at all levels of the organization. Bureaucratic control is a directive form of controlling the behavior of departments, functional bodies and employees. At the same time, they are prescribed the best ways to achieve results. Rules and procedures are guidelines for action. They indicate what should be done, and so the standard behavior produces a predictable result and a predictable response. They are usually useful in routine situations, but difficult to use otherwise. Budgets are a collection of rules for allocating resources. They are determined by the structure of the organization and set certain limits. Particular attention should be paid to ensuring that there are no conflicts between departments and functional bodies during their implementation. Standardization is a very important way to control behavior. Inputs, processes and outputs can be standardized. Entrances are controlled to ensure that they have a high quality of human or physical resources. The process is standardized in order to program activities and ensure minimum costs and high quality. Organizational outputs are standardized according to specific end product criteria, quality and service. By standardizing its activities, the company creates an effective system for monitoring its functioning. The manager must monitor the use of bureaucratic controls to ensure they are appropriate. It should be borne in mind that this type of control is quite expensive, in any case, more expensive than the market one. When neither outputs nor behavior can be monitored or measured, the organization must find other forms of control. Team control is most useful. It is based on the creation of the firm's internal results system. This form of control is when employees themselves establish the norms and results of their behavior. Such control is useful in conjunction with the standardization of inputs. In a large organization, different departments or product lines may have different cultures, and this situation undermines the links between them. Team control is inconvenient when the company is growing or changing rapidly, as there is no time to take into account these organizational changes (Denis Shevchuk). In practice, various types of control are used by the company at the same time and their correct combination is very important. 11.3. Management levels and control systems Strategic choices at the functional, SBA and corporate levels naturally determine the management structure and control systems. A. Functional levelAt this level, management systems are characterized by vertical differentiation. Horizontal differentiation is less suitable, since it is about the implementation of one management function, and this provides tight control. At the same time, bureaucratic control and exit control are used to reduce costs. Standardization is very important to control inputs, outputs, human resources. Rules and budgets must control production and personnel. In general, in production, the main task of control at the functional level is to reduce costs. In R&D, the company is primarily interested in creating technological differentiation and developing new products. Control in this area is quite difficult, as it is difficult to keep track of what people are doing. It is usually carried out in the form of self-monitoring or by small groups of employees working together. In the field of marketing, as in R&D, the use of flat management structures is typical, where it is difficult to track the activities of employees. However, exit control and bureaucratic control is used here. Simple control structures with little differentiation under price leadership lead to relatively simple forms of cost control of the firm's activities. In differentiation, the task of the control system is also to protect distinctive advantages. For this reason, bureaucratic control and control by the collective is of great importance. In companies that use a focus strategy, control is based on a trade-off of cost control and distinctive advantage. Usually these are relatively small companies, and control by the team is of particular importance. At the inception stage, taking into account the small size and simple management structure, it is enough to control the personnel within small working groups. In the growth stage with the development of management structures, the company needs to develop low-price competencies or to look for future advantages of differentiation and control must be sufficiently flexible (mainly from the side of the team). At the growth slowdown stage, the price leader should use exit control and bureaucratic control, and the differentiator should pay attention and control from the collective side. In the stage of maturity, products should be standardized, their range should be expanded. For the price leader, the main goal of control is to reduce costs. The differentiator should strive to develop distinctive advantages. Accordingly, bureaucratic control and control by the collective are of particular importance. In the decline stage, control must track the costs of leaving the SBA and the full costs of changing the strategy. It is essential that such a system should be cheap. B. System of control at the corporate levelThe structures of management and control depend on the chosen strategy, the degree of synergy of the SBA. With unrelated diversification, the links between SBAs are minimal, and at the corporate level it is necessary to monitor the adherence to the overall strategy of the company, in connection with which market control methods are used. With vertical integration, it becomes necessary to coordinate the actions of SZH from the side of the main office - this requires centralized control and, in addition to market control, methods of bureaucratic control are used. Related diversification uses the synergy of SBAs, which requires significant centralization of management and control. Therefore, the role of bureaucratic control and control by the collective is increasing. 12. Additional questions of strategic management 12.1 Strategic marketing management Questions "What to sell?", "To whom to sell?", "Where to sell?" and "How to sell?" are fundamental to companies. Because all other issues - the organization of production, the innovation process, the construction of a management system - follow from them. Who do we compete withMany Russian managers believe that their main competitors are other domestic companies. Perhaps, while the market share of foreign companies is small, but in the coming years, for the majority of Russian companies, the main threat will be precisely large foreign companies with colossal resources and experience. As the devaluation effect wears off, their pressure on Russian producers will increase. Components of the struggleTouching upon the problem of choosing a geographic market, a competitive product and a niche that the company intends to occupy, we come close to formulating the product-market strategy of the enterprise. These are the rules by which the company's relations with the external environment are formed, which ultimately come down to solving four fundamental questions: "What to sell?", "To whom to sell?", "Where to sell?" and "How to sell?". First of all, it is necessary to assess the competitiveness of one's own products: which products have the best consumer properties compared to competitors or can be "raised" to their level at minimal cost. Russian managers should also critically evaluate the competitiveness of their products and more boldly abandon unpromising businesses. To whom to sell?Who is your target customer - a wide range of people or corporate clients, or a specific (perhaps very narrow) group? Depending on what the company can do better than competitors, it chooses one of the basic strategies - "cost leadership", "differentiation" and "focused differentiation". Among Russian companies operating in the domestic market, the niche strategy has not yet become widespread. So far, they are striving to cover the entire product line and occupy the maximum number of market segments. The emergence of Russian highly specialized companies like Guinness or Perrier is a matter of the future, when competition will intensify and the market will be divided into narrower segments. The choice of target segments is a matter of resources and a competent assessment of one's own strategic position. Those domestic manufacturers who compete mainly with Russian companies still have the resources to develop a wide range of products. When choosing a focused strategy, the capacity of the domestic market, as a rule, is not enough. It is possible to expand sales by entering a foreign market, but this dramatically increases the cost of promoting a product. Where to sell?The normal way for a company to develop is to grow to a national scale, to gain a foothold in the role of a national leader, and only then make a strategic choice - to enter the international market or strengthen its position on the national one. However, it happens that entering a foreign market is the only way to survive. Many enterprises of the military-industrial complex found themselves in such a situation after the collapse of the USSR. However, not everyone is in such harsh conditions. If you ask the director of a Russian company producing consumer products the question: "Why are you not trying to enter the national or international markets, but are you content with local or regional markets?", the answer will be simple: "Why spend huge amounts of money to enter the Western market, where high competition and need specialists who know this market? In Russia, the consumer goods market is growing at 25% per year, there is low competition and we know the consumer perfectly." How to sell?Each company independently determines the strategy in the field of sales management and the choice of distribution channels. This is dictated by business logic, product characteristics, availability of resources and the needs of target customers. A properly chosen distribution channel and well-organized sales can create additional competitive advantages for a company, provide it with access to important marketing information, etc. Industrial equipment manufacturer Caterpillar sells its tractors, excavators, etc. only through its own dealer network. The cumulative turnover of dealers around the world is twice that of Caterpillar itself - $27 billion a year for dealers versus $14 billion for Caterpillar in the mid-1990s. Dealer partnerships provided Caterpillar with a key competitive advantage - the ability to replace any part anywhere in the world within 24 hours. In addition, dealers know more about the needs of consumers than Caterpillar, which means that the company significantly saves on marketing research. Learn from competitorsBeing one step ahead of your competitors and winning in the competition is possible if the company knows what the one it is going to overtake is doing. And at the same time he understands what can and should be improved. Comparison of the strategies used by competitors allows you to successfully solve your own problems. An analysis of the product and market strategies of Western engineering companies shows that they receive about half of their income not from the sale of equipment, but from the service associated with this equipment - installation, repair services, supply of spare parts, etc. However, blindly copying the steps of competitors is fraught with dangers. For example, one Russian company producing automotive electronics found an easy way to build its product line. She closely monitors what products Polish, Czech and Hungarian competitors throw into the Russian market. And immediately begins to produce the same products, but at a lower price. Minimizing the cost of market research turns into dependence on competitors - if they make a mistake in marketing decisions, they will unwittingly drown their "intellectual heirs". To develop a product-market strategy, you need to look at your business as broadly as possible (often referred to as a “helicopter view”). During this operation you need: * outline the boundaries of your market; * understand who the main competitor is; * compare positions in the main market segments; * measure investment opportunities and needs; * decide whether to cover the entire market or to "go into a niche"; * find the path of the goods from the producer to the consumer. 12.2. strategic square The very first, most important, and most important, in terms of consequences, decision that the statesman and commander must make is to determine the type of war into which he is immersed; one cannot go wrong here, just as one cannot try to turn war into something contrary to its nature. You cannot wage a marketing war in one way. There are more like four of them. Which method of warfare to choose is the very first and most important decision that you need to make. This decision depends on your position in the strategic square that can be built for any industry. Let's take the American automobile industry as an example again. It is a well-established industry with very strong relationships. In fact, the last person to set up an automobile company in this country was Walter P. Chrysler in 1925. Today we have the "big four": General Motors, Ford, Chrysler and American Motors. But if Clausewitz had been alive, getting off the plane at the Detroit airport and taking a look at the situation, he would immediately clean up the mess. It's not the Big Four. Judging by market shares, this is, so to speak, a "big unit". General Motors has 59%! All the rest, even taken together, can not be compared with General Motors. Ford's American market share is 26%, Chrysler's is 13%, American Motors is 2%. In total - 41% for three. Of course, we do not include imports, which account for another 34% (equivalent to 25% of the entire US car market). Import, as the figures show, is of considerable importance, but we do not set ourselves the goal of analyzing the industry in all its details. Our goal is to illustrate four types of marketing warfare based on the example of the Detroit Four. All four companies—American Motors, Chrysler, Ford, and General Motors—are vastly different in strength. Each one is about half the size of the next one on the list. There is no equality among them. It's like a football league with four teams: one is from high school, one is from college, one is from college, and one is made up of professional players. Is there any doubt about who will win? In this game, it's not just about winning. Yes, under the name of General Motors there will be more points on the scoreboard. For others, victory has a different meaning. * For Ford, the big win will be gaining market share. * For Chrysler, winning will be profitable survival. * For American Motors, any survival is already a victory. In this marketing situation, all companies have different resources, different strengths, different goals. So why don't they have different marketing strategies? What type of war should General Motors, Ford, Chrysler and American Motors choose? Let's look at the positions of each company. The type of war that General Motors should chooseFirst of all: who are the competitors of General Motors? There is the Department of Justice, there is the Federal Trade Commission, there is the Securities and Exchange Commission and there is the US Congress with both of its chambers. General Motors can't win by winning all the time. If a company liquidates one or more of its automaker competitors, the court or Congress will break it up into several small pieces. Remember what happened to the other big winner American Telephone and Telegraph Company? She did not suit the Ministry of Justice! General Motors can only win by not losing. And therefore must choose a defensive type of war. However, defensive warfare should not be interpreted as passive work. "Defence itself," writes Clausewitz, "is a negative occupation, because it forces one to resist the intentions of the enemy instead of developing one's own." On the contrary, good defense is offensive in nature, it has a clear goal: to protect the company's dominant market position. What should Ford do?Ford is a strong company number 2. The company has the resources to carry out offensive attacks. But who should she attack? As Willie Sutton liked to say, "I rob banks because they hold money." Ford should attack General Motors because it has a market. Mathematically, this is very easy to represent. If Ford can take 10% of the business away from General Motors, its own market share will increase by 25%. If Ford takes 10% of the business from American Motors, the change in its own sales will be difficult to measure. Great is the temptation to capture the weak - the theory of "easy prey" works. The opposite, however, is closer to the truth. The smaller the company, the harder it will fight to protect the small market share it has. It will use such techniques as price cuts, discounts, lighter guarantees. Never attack an injured animal. The best strategy for Ford would be offensive warfare. She must conduct a series of attacks on weak positions in the ranks of General Motors. How to find these weaknesses and play on them is the topic of the next chapter. What should Chrysler do?An old American proverb says that when elephants fight, it's the ants who get hurt the most. Chrysler must stay out of the battle between General Motors and Ford and make flanking attacks. That's exactly what Lee Iacocca did. His (now classic) flanking attacks on the entire US auto industry include the "first" convertible car. Mr. Iacocca's achievements will seem even more significant when you know where he came from. After 8 years at the head of Ford, he suddenly moved to Chrysler, helped by a slight push from Henry Ford II. One might have expected him to bring Ford's strategy to Chrysler. Not at all. Yak-okka is famous for having created an entirely new strategy for Chrysler, much more suitable for this organization. How many marketing generals can do the same? Most of us would try to play the game of "marketing" in the same way that brought us luck in the past. In retrospect, there is only one Ford strategy that Iacocca could use as a template for Chrysler. It was a successful flanking attack in the form of the Mustang, the first two-seater "personal" car. Iacocca personally developed this car, which became the bestseller in its class, after he managed to persuade Henry Ford to do it. What should American Motors do?What advice can you give to poor American Motors? Unless you go into the woods, put on camouflage and become a partisan. American Motors is too small to launch offensive attacks on General Motors. Even if they are initially successful, the company doesn't have enough dealers, production capacity, or marketing muscle to sustain the attacks. American Motors is also too small to flank the industry. Not small enough to launch such attacks - yet it's a company tested by Nash Rambler. But still too small to dominate the segment after being the first to create a new car concept. The only category where American Motors consistently wins is Jeep vehicles. This is a classic guerrilla tactic. Find a segment that is large enough to be profitable for the guerrilla, but too small to be encroached upon by the leader. mountain in the headLet's get back to our battlefield again. The mountain, of course, is the height on which the leader has established himself. If you go over the mountain, then you will start an offensive marketing war. You may be lucky and find a valley or gorge through which your troops can break through. But the battle will be hard and most likely expensive, as the leaders usually have enough resources to organize powerful counterattacks. If, in an effort to avoid the attacks of a competitor, you go down the mountain, then you will choose a defensive war. You know the rule: the best defense is an attack. Bypassing the mountain, you will wage a flanking war. As a rule, this type of marketing operation turns out to be the most effective and least expensive. However, for many product categories it is difficult to boast of an abundance of opportunities for flank attacks. And if you pass under the mountain, you will lead a guerrilla war. You want to find a territory that is completely safe so that it does not need to be defended. Or too small for the leader to encroach on her. 12.3. The need to analyze the competitive position In the process of transition to the market, enterprises have faced many problems of survival. Full access to the external environment brought not so much new opportunities as new problems for the effective functioning of the enterprise in the market. Enterprises came to the introduction of marketing and to this day they come only because of the plight with the sale of their own products. This is typical for most domestic enterprises. And often, the newly created marketing department turns into a second sales department. Also, often the management does not fully understand the essence of marketing and "ties" the salary of marketing department specialists to sales volumes. And as a result, marketers do not have enough time or significant motivation for a constant and comprehensive analysis of the market. The actions of the management are understandable - it is necessary to sell products and make a profit now and to the maximum, and not spend time, money and efforts of specialists in order for them to conduct research, which often does not bring a quick and one hundred percent return. Thus, by creating a marketing department, the company hopes to get additional consumers and ensure the sale of its products. Meanwhile, focusing solely on sales, the company cannot fully control the situation. It is "boiling in its own juice", unaware of the danger of becoming an outsider in the industry. Management often has a delusion - "we know our competitors, we do not need to constantly monitor the situation in the industry ...". This delusion leads to the fact that the enterprise freezes at a certain stage of development. Due to the fact that the competitive position is not clearly defined, management begins to understand that something is going wrong only after a clear decline in sales. In this situation, as a rule, attempts are made to establish sales by searching for more and more new markets for their products, while its life cycle, for example, due to the development of technology from competitors, is already at the stage of residual demand. Or, for example, finding new raw materials allowed competitors to significantly reduce the prices of their products. This clearly shows the need for constant monitoring of the industry and a comprehensive study of its competitive position in it. Information needed for competitor analysisIt should be noted that classical marketing does not insist on an in-depth study of competitors, it is proposed to simply rank them according to the breadth of the assortment, external advantages, quality characteristics, prices and product promotion systems. The opinions of consumers regarding the products of competitors are also used, which also affects the rank of a competitor. In my opinion, such a superficial study is unacceptable for Russian enterprises. The fact is that the situation in most domestic markets is extremely unstable, and those who were "nobody" yesterday may become leaders tomorrow and vice versa. This is due to many features and macro factors. This situation can be characterized as "the unpredictability of one's own position and the position of neighbors in the market." In this regard, it is necessary to single out the problem that most Russian marketers face - how to predict changes in the situation in the industry in a year, in a number of years. To answer this question, you need a fairly detailed study of competitors. All information about competitors can be classified into two groups: primary and secondary. Data specially obtained for the analysis of specific aspects of a competitor's activities are primary information. The main methods of collecting primary information are observations, surveys and experiments. With their help, facts of interest are established, the actions of a competitor are quantitatively and qualitatively described. The main sources of primary information about competitors are, as a rule: distribution channels of products, suppliers and consumers of products; advertising agencies, sales agents, marketing firms serving a competitor, engineering, sales and management personnel of a competitor's enterprise, special analytical services. The main advantage of primary information: the speed of answering questions of interest, the simplicity of its subsequent reduction into the desired form, the presentation of a "live" opinion about the activities of a competitor. The disadvantages of primary information are: subjectivity, incompleteness, high degree of unreliability, difficulty of access and high cost (in the case of enterprise personnel and special analytical services). Secondary information about a competitor includes data that has undergone preliminary analytical processing, the purposes of which, as a rule, do not coincide with the goals of the analysis. In this regard, this information requires additional selection, ranking and compilation procedures that bring it into the form necessary for analysis. The main sources of secondary information include: reports on production and economic activities, articles on the activities of a competitor in the periodical press, reference publications on market conditions, trends and problems of its development, including data on a competitor, published interviews of management personnel and company management, consumer opinions about characteristics of a competitor's product. Problems related to collecting the necessary informationIt should be noted that often, the above information is clearly not enough to draw up a picture of competition. An in-depth study also requires secondary information of a confidential nature, for example, the production volumes of a particular nomenclature item, the production schedule, the shipment base of a competitor enterprise, which also includes a description of all its consumers. In general, an in-depth study of a competitor begins with an analysis of financial indicators (balance sheet data) - here you can already trace the dynamics of the competitor's development and its relative strength. All secondary information on the degree of accessibility can be divided into three groups: 1. Open information (nomenclature, prices, quality characteristics of products, promotion system, market presence). 2. Conditionally open information (balance sheet of the enterprise, income statement, rating of the enterprise). 3. Secret information (production volumes broken down by product lines, production schedule, shipment base, applied technologies). When collecting and analyzing information, a number of problems arise: the first group is characterized by incomplete information for a full-fledged study of the competitive situation in the market, the second group is often characterized by unreliability - domestic enterprises tend to falsify balance sheet data in order to evade taxes, i.e., an inaccurate assessment is possible strength of the competitor, and finally the third group is characterized by closed access or extreme high cost. To solve problems of unreliability, it is desirable to collect information from various (independent) sources, which increases the objectivity of the results obtained. Here, a good way is to expertly weigh sources of information by their relative reliability, or by the credibility of the source. The solution to problems with the third group of information is seen in increasing the financing of marketing in the enterprise. As practice shows, not a single serious study of competitors' activities is complete without the use of such information. Methods for analyzing the competitive position of an enterprise in the industryAll methods of studying the competitive position of an enterprise can be divided into two groups. The first group is parametric (mainly based on primary information, when parameters for comparing competitors are selected and the opinions of consumers, sellers, suppliers regarding these parameters are clarified, then the information is reduced to a convenient form - a matrix or table). The advantage of these methods is the speed and relative cheapness, but at the same time there is a danger of subjectivity and inaccuracy of opinions. It is quite difficult to trace the strength or weakness of a competitor, especially since it is impossible to make forecasts of its development. The second group is ratings (here, information obtained by interviewing managers and consolidated financial statements of competitors are used, then a clear mathematical model is built, on the basis of which all data on competitors are reduced to coefficient indicators). Based on the indicators, a rating of enterprises is built. The obvious advantage of these methods is sufficient accuracy and the ability to identify the exact position of one's own enterprise in the industry. But, in my opinion, it is necessary to add another group of methods related to a more detailed study of the industry - an in-depth analysis of competitors and making forecasts for the development of the industry. Here, information is needed that reveals the internal mechanisms of the competitor. Such information may include data on production volumes broken down into individual nomenclature items, detailed data on exports and shipments, production plans, etc. Based on these data, it is possible to build a competitor's behavior model, its future state. These techniques will allow you to gain a huge advantage over competitors and, possibly, win the competition, if used correctly. It is impossible not to note the specifics of the third group of methods - there is a rather thin line between these methods and industrial espionage, and special care is needed here. Situational approach to the analysis of competition in the market (problems of choosing alternatives)Despite the obvious relevance of constant monitoring of the competitive position of an enterprise, it is necessary to take into account the factor of high cost of information and a margin of time for making a decision. In determining the composition of the data to be used, it is important to constantly weigh these factors against the significance of the results obtained during the analysis. In other words, it is necessary to correctly determine your position regarding objective, but rather "expensive" results, and "cheap", but not accurate enough, comparing all this with time to make a decision. Depending on the situation in the enterprise, marketers are recommended to select the information necessary for analyzing the competitive position based on the following model. The presented model assumes the choice of this or that information for the analysis of competitors under the following conditions: Block 1 - a quick response to the current problem is necessary, with a lack of funding for marketing research. Here you can select only general information, such as: the number of competitors in the industry, their product lines, prices, assessments of enterprises - competitors in the press, external characteristics of promotion systems, etc. As a result, there is probably insufficient data for a full-fledged analysis of the industry. Block 2, here some tactical task is also solved, most often - quickly determining one's place in the industry. With sufficient funding, it is recommended to use ready-made ratings from the largest consulting companies or rating agencies for this. Basically, these are such companies as: Standard & Poor's, Dun & Bradstreet, Moody's, etc., and in Russia - Expert RA rating agency, AK&M agency, etc. The rating score allows you to quickly navigate and possibly make any decision, but plans for the future does not allow to build. Also, the basis for building ratings is the financial performance of the enterprise, and in Russia falsification is possible and, as a result, an incorrect assessment. Block 3 - This block is questionable, as it is probably not possible to conduct an in-depth analysis of the industry cheaply and quickly. Block 4, most likely here - the enterprise is in a crisis situation and the management sees a way out in a quick change in the behavior of the enterprise in the market. In this case, in order to quickly orientate yourself about the capabilities of your enterprise and neighbors in the industry, it is best to purchase a ready-made industry analysis report from a well-established marketing or consulting company. In this case, the result is guaranteed, but there are also disadvantages - firstly, you will have to trust other people's results, and secondly, you will have to pay quite a lot. Block 5 - this block characterizes the situation when it is necessary to develop a line of behavior for an enterprise in the industry, without having large funds for this and without striving for a detailed study. In this case, the best way to analyze competitors is parametric analysis based on primary information. With proper implementation, it is possible to obtain good results. Block 6 - this block, like block 3, is questionable, but for other reasons - is it advisable to analyze competitors for a long and expensive time, and even without a sufficient degree of detail? Most likely not, but if you still have to, then we can advise you to develop a rating of enterprises on your own, although a lot of difficulties will arise and there will be quite large financial costs. Block 7 characterizes the situation when the company's management feels that the leadership in the industry, which has been holding for many years, has begun to "stagger" and it is necessary to study in detail its competitors, which until recently were not visible. Here it is possible to make forecasts for the development of the industry on their own, by the forces of the marketing department. Perhaps the use of project management. Block 8 - this block most likely shows not a specific situation, but constant monitoring of the situation in the industry. This is the most effective block that allows you to keep control over all your competitors and most effectively respond to market changes. Based on the foregoing, we can conclude that the need for constant monitoring of the industry is obvious, but there are many options for using financial resources and time. Thus, wisely using the knowledge of marketers, it is possible to get a lot of advantages to achieve leadership in the industry or simply survive in it. 12.4. Using the principles of classical Chinese strategy in modern business Modern business, with its fierce competition and periodic upheavals, requires managers at all levels to search for a strategy that would guarantee the company the most efficient use of resources and maximum resistance to internal and external crises. Of all the currently tested management methods, the experience of the countries of the Far East is of the greatest interest. Examples of the post-war recovery of Japan, the rapid growth of the "Asian dragons" of Hong Kong, Taiwan, South Korea and Singapore, and the modern growth of the Chinese economy indicate the effectiveness of the economic development strategies adopted in these countries. Indeed, without laying the foundation for their growth on the use of natural resources or external borrowing, using the most efficient market conditions (including unfavorable ones) and available resources (often very scarce), representatives of the Far East were able to shake the positions of the leading economic monsters. There is no doubt that the leading role in the success of Far Eastern businessmen belongs precisely to the use of certain principles of strategy that ensure success. And these principles are the principles of classical Chinese strategy, the foundations of which were laid more than two thousand years ago. The main feature of the classical Eastern worldview is the postulate of the unity of all spheres of life. That is, all processes, whether it be the development of the economy, politics, culture, or even the construction of a house, in the view of an oriental person, are subject to the same laws. Only the specific manifestations of the action of these laws differ. Accordingly, a person who has comprehended these basic laws is "doomed" to success in business, personal life, and in any of his undertakings. Traditionally, the philosophy and ethics of the Far East were formed by Taoism, Confucianism and Buddhism. That is why, it is very common to meet a businessman or top manager of Japanese or Chinese origin who has deep knowledge in these areas. There can be no doubt that for him this is not abstract reasoning or "questions of religion", but a purely practical thing. However, it should be noted that these teachings are very abstract from the issues of life of modern man. Of course, a practical manager will never be satisfied with such general recommendations. Of course, the rulers of former times were not satisfied with them either. Over the millennia-long history of China's development, the sciences of public administration, diplomacy and the art of war have grown from the roots of philosophical teachings. What best meets the needs of modern business? Japan was the first to answer this question. "Business is war"proclaimed the founder of Matsushita Donki Corporation, Mr. Konosuke Matsushita, "All the laws of war apply to the art of doing business" wrote the largest management textbooks on the front pages and ... won the first round of the economic war. Since the end of the forties, Japanese management has been using the methodology of warfare, the foundations of which were laid back in the XNUMXth century BC. BC e. Chinese commander Sun Wu, in his famous treatise Sun Tzu. In the future, this strategy was adopted by all the "dragons" and for a long time ensured their continued success. It should be noted that in each specific case, the application was of a certain nature, due to national characteristics and the specifics of a particular economic system. If the Japanese management in their homeland actively relied on the provisions of the bushido code of honor of the samurai, then it turned out to be problematic to build relations with Western employees of the corporation according to this principle. Chinese companies practice the use of classical strategy within the canons of Confucian morality, etc. In any case, the application of the principles of classical Chinese strategy ensured the success of business in any country and in all markets. Even the problems that have arisen in the economies of a number of Far Eastern countries in recent years are associated solely with the departure from the basic principles laid down in the foundations of the growth of their economies. Well, success can darken the eyes of the winner and prepare his coming defeat. This is also one of the postulates of the military philosophy of the Far East. It is very difficult, having felt lifted and gained strength, to force yourself to withstand all the restrictions and requirements imposed by the classical Chinese strategy. This requires constant and hard work, an open mind and an objective assessment. But any person who started "combat operations" (be it a medieval army or a modern company) should be ready for this. This is the only path to success. This is as true as the fact that anyone who loses a battle is inclined to see in his defeat the will of chance, unfavorable conjuncture or excessive frost, but very rarely admits his shortcomings and the great preparation of the enemy. I would immediately like to dismiss the frequently encountered objection that Eastern methods of management are not suitable for use in Russian conditions. Russian history knows at least two examples of successful "management" in full accordance with the Eastern military tradition. These are the campaigns conducted by the Russian commanders A.V. Suvorov and M.I. Kutuzov. It is unlikely that they were familiar with the canons of medieval China. Yes, and familiarity with the basic postulates would be clearly not enough for their full application in a difficult war. It's just that the Russian tradition and, above all, the tradition of managing the masses of people is very close to the Eastern tradition. And the last. As stated above, the true principles underlying strategy are universal. They are the same for any conditions and any time. The methods of their application differ. But copying methods without understanding the basic principles can only give a negative result. War is the art of deception. This is one of the key ideas of Sun Tzu's treatise. "If you are strong, show weakness. If you are weak, show strength. If you are close, show that you are far. If you are far, show that you are close." In Japan, this principle was given the following interpretation by Jigiro Kano: "If you want to go to the right, take a step to the left. If you want to push away, pull towards you." Despite the obviousness of this approach, specific conclusions are not always obvious. It makes no sense to cover up individual specific shares. The fog should surround all the activities of the firm. Of course, everyone around should assume that everyone understands. Only such a policy will confuse opponents. If competitors are misinformed about all the activities of the company, then their mistakes will not be tactical, but strategic. The question arises: how to combine this postulate with the company's openness policy and public actions? The answer can only be this: PR - actions and should serve as a tool for disinformation. It makes no sense for a large firm and a monopolist to advertise this position. This will not give it any advantages in the market, but it will cause legitimate irritation of the population and justified interest of the tax authorities and authorities, which it would be desirable to avoid. At the same time, a company that is only striving to take a leading position, such an image would not hurt at all. To convince the consumer that your offer is the only real one on the market, isn't this the dream of any entrepreneur in the competitive struggle? It goes without saying that in the conditions of civil society there is no possibility of preserving "military secrets". And in the conditions of real combat operations, the true battle plan can be known only to a narrow circle of people. Therefore, the true development strategy should be open only to the top management of the company, and fraudulent actions should be carried out with the help of the entire staff of the company. There is still the problem of information leakage, the publication of which would be undesirable. Lao Tzu, the founder of Taoism, said: "To show everything is to hide everything." Any experienced spy, both today and two thousand years ago, knew that the most interesting information is refutation. The firm strives to refute the criticism all the more fiercely, the more this criticism hits the mark. To refute deliberately absurd accusations is the destiny of the extremely weak and unsure of themselves. However, both the refusal to comment and the outwardly dismissive attitude towards the leaked information can offset possible losses. With rare exceptions, it does not make sense to spend money and effort on hiding the facts of the company's activities. From the moment the information comes out of the top official's office, it is almost impossible, or possible for a very short time. Efforts should be directed to giving the published facts interpretations that are beneficial to oneself. If you know the enemy and know yourself, fight a thousand times and win a thousand times. if you know yourself and don't know him, you win once, you lose again. If you don't know him or yourself, you will always fail. The issue of information has always been considered important. However, Chinese military theory puts it in first place and points to a direct dependence of the outcome of the battle on the awareness of the commander. Naturally, knowing the real situation and intentions of competitors means a lot, and this was discussed above. At the same time, it is worth analyzing not only the real actions of the enemy, but also the possibilities rejected by him. There is always a chance to get rich on what your competitor left behind. However, the Chinese tradition pays great and even priority attention to introspection. "Your victory is in your opponent, your invincibility is in yourself," says Sun Tzu. Only a commander who knows the real capabilities of his troops can enter the battle. War is a situation when, when giving an order to a unit, the commander must accurately assess its capabilities. In the course of the work of the company, the head cannot constantly monitor the activities of each unit. At the most crucial moments, he is forced to rely on the conclusions or the quality of the performance of his duties by subordinates. Therefore, if the manager is not sure about the quality of the work of the performers or their motivation, it is necessary to reorganize, up to the replacement of personnel, without waiting for the employees to make specific mistakes. You can not endanger the existence of the entire company out of empty pity for negligent employees and on the grounds that nothing terrible has happened yet. When it happens, it may be too late. It makes no sense to check the quality of fortifications when the enemy is already attacking. This should be done when he has not yet approached. That is why Eastern management attaches great importance to internal analysis and evaluation of personnel. Declared statements that the company is absolutely perfect, refer rather to the previous section of the article. Any manager knows that if the organization of work is checked a hundred times, it is necessary to start the hundred and first check. And, above all, this applies to periods of recovery, success and stability, because it is at this time that the prerequisites for future crises are laid. Attempts to reorganize during times of crisis tend to be wildfire and much less effective or even harmful to business. "They don't change horses in midstream." At the same time, not a single self-respecting eastern manager will allow himself to express doubts about the results of a specialist's work. If the leader does not criticize certain shortcomings, but questions the qualifications of the subordinate, then, according to Eastern ethics, he is obliged to immediately demand his resignation, because in this situation he "loses face." At the same time, exams and tests taken by subordinates should be perceived by them as management's concern for their qualifications and career growth, and not as an attempt to get rid of them. In addition, the manager always has the opportunity to check the quality of work and qualifications without hurting the feelings of subordinates. A very important point for a leader is gaining the trust of subordinates. Practice shows that as a stereo image can be obtained only by having two points, an objective picture of the state of the company can only be obtained by observing it from different levels. A leader who relies only on his own assessments and vision of his immediate environment is one-eyed. The ability to objectively perceive information coming from all levels of the service pyramid gives him the opportunity to gain complete vision. Objective information from subordinate subordinates can only come if the manager shows by concrete actions that his interests lie in the well-being of the entire company and all those working in it. Such an attitude will certainly evoke a response from lower-level workers and an atmosphere of creativity and cooperation, as opposed to blindly following orders under pain of punishment. Under these conditions, even repressive measures of leadership and reorganization should not cause internal resistance. Victory is offensive. invincibility - defense. This principle echoes the words given in the previous section, but it also carries an additional semantic load. Theoretically, any business should constantly develop. However, in practice, this is a very difficult task. The financial and energy costs of a developing firm are enormous. Military theory states that the attacker should have a threefold advantage. (Interestingly, this rule has been in effect for a long time, regardless of the technical equipment of the troops). If we take the cost structure of an actively growing company, it turns out that most of it, as a rule, 2/3 goes to development and only 1/3 to maintain the current system. (Of course, the proportion is very arbitrary). This is where the temptation arises, at a certain stage of development to gain a foothold on what has been achieved. It cannot be said that such a position is always unjustified. The skillful combination of defense and attack is the fundamental rule of classical Chinese strategy. He who attacks skillfully can win the battle, but only he who knows how to defend himself can win the whole war. According to the classical theory of kendo, in the absence of sufficient resources for an attack, one should go on the defensive, and after exhausting the enemy, go on the offensive only against a weakened enemy. However, the mistake is the desire to go entirely on the defensive. At one time, V.I. understood this very deeply. Lenin. "Defense is the death of any rebellion," he wrote. But if we recognize that any business is a rebellion against the existing distribution of the market, the desires of competitors and the desire of the consumer to save his money, then this rule can be applied to the work of the company. Business is no less cruel than an ordinary war. Moreover, this is a war of annihilation. Economic history knows no examples when competitors were completely satisfied with capturing a part of the market from the enemy. Only by throwing a competitor out of the market in general and taking all his positions, one can speak of victory, and not of private success. Therefore, any firm is always under attack. This applies even to absolute monopolists. Chinese and Japanese mythology is filled with legends of the small and weak defeating strong opponents. However, this is most clearly shown in the Jewish legend of David and Goliath. Moreover, knowledge of such myths is very useful not only for Davids, but also for Goliaths. If the firm goes entirely on the defensive, then you can be sure that sooner or later competitors will find a way to undermine its position. Moreover, they will certainly do this, having mastered new areas of activity, the development of which the company itself refused to develop. As for the defensive strategy, the most important issue here is an objective assessment of oneself and competitors. This was discussed above. However, it is important to note that the leader must be aware of all the realities of an ever-changing life. An ideally built defense system, after a short time, no longer meets the requirements of the day. Only by constantly analyzing the situation and one's readiness for various scenarios can one strengthen the positions achieved. Defense is considered a much more difficult task than offensive. Bamboo principle.The legend about the creator of jiu-jitsu Akayama Shirobei claims that when he walked in his garden in winter, he noticed that large and powerful branches break under a large layer of snow, but thin, young branches bend, shedding snow, and remain unharmed . According to legend, this led the teacher to create a perfect wrestling system. One way or another, this idea is one of the basic ones in Eastern philosophy. In China, it has been formulated as the "bamboo principle". Difficulties should not be rigidly resisted; under the pressure of circumstances, one should retreat, bend, in order to straighten up later, throw off the load and restore one's position. Bamboo is chosen here as an ideal image, because in comparison with other materials it has the greatest flexibility and resilience. At the same time, in order to keep bamboo in a bent state, even more energy is required than in order to bend it. In practice, no one is capable of super-effort for a long time. This is the secret of the "invincibility" of bamboo. In terms of military strategy, this principle was widely applied in determining the need to switch from retreat to offensive and vice versa. In the Eastern tradition, the retreat or even the surrender of key positions was not considered shameful. It was considered most important to keep the troops for the preparation of the battle in the most favorable conditions for themselves. Sun Tzu himself points out: "If you see that victory is guaranteed to you, attack, even if the sovereign orders to stand still. If the terrain is unfavorable and victory is in doubt, withdraw the troops, even if the sovereign orders to attack." "It's not scary to retreat, it's scary not to continue the fight. It makes no sense to die stupidly when you can retreat, gather strength and win." These are the sayings of the samurai of Japan. If we talk about the choice of strategy, in accordance with this principle, then it is necessary to remember the following. In military tactics are known: retreat, offensive, defense and negotiations. Business distinguishes: avoidance, rivalry, compromise and cooperation. Each of the tactics corresponds to a specific situation, and only the combination of all four ensures victory in war and success in business. It is important, even in the process of negotiation or retreat, to focus on achieving concrete results, as the bamboo strives steadily upwards. An enemy is always an enemy, and a competitor is always a competitor. A competitor can be destroyed, you can lose to him, you can merge with him, but it is impossible to "reconcile" while interests intersect (Denis Shevchuk). In the East, "bambooness" was associated with wisdom and was applied in all spheres of life. It is very difficult to give specific recommendations within the framework of this principle, since in each case it has its own, original application. It is only important to note that, organizing the structure of his company, or making specific strategic decisions, the manager must ensure the maximum combination with the "bamboo principle" (Shevchuk D.A.). Principle of a kitchen knifeAn old Chinese legend is known that when a certain prince entered the kitchen, he noticed with what light and elegant movements his cook cuts the meat. "Your movements are perfect. How do you do it" exclaimed the prince. "Some chefs cut bones and tendons and change the knife every ten days. Some saw them and change the knife every month. I have been using your servant's knife for over twenty years. This is because when I meet a bone, I go along it with a knife, I find a joint and there cut easily." According to legend, at that moment the prince attained wisdom and subsequently easily coped with his problems. This principle is widely used by Eastern managers. Its essence is that you should never rush into the problem "on the forehead." Even if it allows to solve it, too big expenses will be required. No position is equally fortified throughout. There are always weak spots. The art of a general or a businessman is to discover them and concentrate his main efforts there. If it is possible to find the key points of the problem and bypass or neutralize the main nodes of resistance, then the costs of developing new business areas can be ten times less than with a "frontal attack". A military commander cannot make appointments in the same way as a civilian ruler does.Questions of "personnel management" have always been the most important in Chinese military science and the science of state administration. The oldest saying from this area refers to the "bible" of Taoism "Tao Te Ching". Its creator Lao Tzu wrote: "Learning and philosophizing are the cause of confusion in the state. Therefore, a wise ruler keeps the stomachs of his subjects full and their heads empty." It should be noted that no one was going to destroy scientists or art. The court of a wise ruler should always, according to Eastern tradition, welcome philosophers and scientists. A noble man, according to Confucius, had to have deep knowledge in many areas. However, it was about putting it at the service of the sovereign. It was proposed to protect "xiao ren" (small people), unreliable and alien to the idea of duty, from excessive knowledge. It should be noted that this principle is successfully applied in large eastern corporations, when, while providing ordinary workers with decent earnings and giving certain moral incentives, top management avoids acquainting them with the true foundations of the activities of these structures. In the practice of Far Eastern companies, the issues of working with personnel are among the most important in the life of a corporation. It is argued that in the composition of the board of directors, the most influential is the person in charge of personnel. V. Tsvetov said that while visiting the enterprises of "Matsushita Denka" he was struck by the slogan: "Cadres decide everything." However, not only the similarity of the poster with the Soviet slogan of recent times deserves interest. The fact is that this concept has become a key concept for Eastern management. It can be argued that it was the establishment of work with personnel that gave the impetus that brought Japan to the forefront of the world economy. The main secret is to create an appropriate moral climate and the interest of employees in the results of the company. This topic is so vast that it deserves a separate study. It is only necessary to say that if the methods of working with personnel are unique to countries such as Japan, Korea and China, then the basic principles are universal and can be used in any system. In this case, it is necessary to consider the issue of selection of managerial personnel. It is clear that the staff must be highly motivated. At the same time, the motivation of the top management and grass-roots workers may not coincide. It is important that all of them have a deep interest in the prosperity of the firm. If there is no such motivation, no matter how skilled the employee is, he cannot be counted on at a critical moment. Such people can be used as specialists, even with high pay, but they absolutely cannot be included in the management structure. Thus, it is problematic to build a personnel policy in the selection of managerial personnel solely on the basis of professionalism. Building it on the principle of personal loyalty is also dangerous. First of all, middle managers devoted to a particular manager, for fear of being objectionable, can protect the latter from truthful, but impartial information about the company's activities. If, however, to select personnel based on the idea of \uXNUMXb\uXNUMXbloyalty to the company, then, as well as in the first case, it is difficult to distinguish truly devoted people from those who strive to give the impression of such. Lao Tzu said: "A true warrior never looks belligerent." The desire to impress is interpreted in the East as a lack of self-confidence and weakness of position. But how then to distinguish a real fighter from an ordinary person, before the start of the battle? After all, waiting for real events can be deadly. Obviously, without forgetting the requirements of professionalism and devotion, the main emphasis of the manager must be on understanding the real problems facing the firm. This is exactly how the team is selected by eastern managers. At the same time, with the growth of the company, each manager allows a lower-level employee to independently form a team based on his understanding of the tasks. At the same time, each manager is personally responsible for the activities of his entire team. In principle, this very closely corresponds to the relationship between daimyo and samurai in medieval Japan, or the arrangement of governors in ancient China. However, the principles of making appointments in the firm differ significantly from the rules of the state bureaucracy. The greatest theoretician of state government in medieval China, Juan Zi, wrote: "A military leader should not make appointments as a civil official does, because the officers will not understand him. A civilian official should not make appointments as a military leader does, because other officials will not understand him." Indeed, the scope of the company does not include a number of the most important tasks of the state. It does not deal with social security, law enforcement and a number of other government functions. In addition, the state is a form of human community, that is, formally belongs to all its citizens. The company belongs to specific founders and builds relationships with employees on a contractual basis. The essence of these relationships does not change much even under the existing system of lifetime employment and social benefits in Japan. For Japan, this is a motivation system formulated in the slogan: "One firm - one family." However, as in any other country, in Japan, the firm is an army operating in a brutal war for survival. The achievements of civil society and the election of officials are a great achievement of modern states. However, as soon as the founders trust the manager to manage their funds, then he reports exclusively to them. And in no case should he report to other, lower-ranking workers. This, of course, does not exclude the justification of management decisions and the clear setting of tasks for subordinates, which is a necessary condition in any management system. As A.V. Suvorov: "Every soldier must know his own maneuver." True, no one said that every soldier should know the plan of the entire battle. For the Eastern communal consciousness, the social security system adopted in large corporations is very close. However, in these countries, it would never occur to anyone to exercise their "civil rights" in front of their boss. The meeting of the Board corresponds to the supreme military council, and not the meeting of the Parliament. Letuchka in the department corresponds to a meeting of an officer with his soldiers, and not a meeting of local government. The purpose of these events is to obtain information, listen and analyze the proposals of lower-level employees and set goals. The function of making final management decisions, in the Eastern tradition, belongs exclusively to the highest official, as well as all responsibility for their consequences. A military leader who does not have selected troops is doomed to defeat.This is a rule that has never been challenged by the professional military. Even in periods of greatest social upheaval, when the interests of the state were defended by the militia, a guard was formed in a short time to solve the most important tasks and as the last trump card of any military leader. In any firm that has reached a certain level of development, there must be appropriate divisions. Their functions can be varied. This may be the most profitable or developed production, "the pride of the company." This may be a division to serve strategically important customers. This may be a "key" unit that ensures the entire life of the company. Of course, any manager of a large corporation must have "special forces" of the most capable and proven managers to be deployed to crisis areas. In any case, the "choice troops" should serve as the backbone on which the manager relies and which he sacrifices only at the last moment. The boundaries of these units should be clearly defined, and the very fact of belonging to them, or the opportunity to join them, is an additional incentive for employees. Of course, in the practice of firms, serious material incentives are provided for employees of these departments. There are cases when it was due to the work of "selected troops" that famous firms got out of the most difficult crises, even losing other divisions. The examples given here concern the most general and most essential principles adopted by the Far East management. Perhaps some of the provisions presented here will seem banal. However, what is banality as not a well-known truth. Unfortunately, despite the obviousness of many conclusions, very often the basic principles are violated even in the countries of the Far East region themselves. As for Russia and Europe, there are no examples of firms fully complying with these principles. Violation of these rules inevitably leads to certain losses, insignificant if the violations are small, or to deep crises if the fundamentals are violated. The management science of this region has reached a much more detailed study of the issue of business activity. The very teaching of classical Chinese strategy is immeasurably more profound. It offers different options for behavior in different situations, gives a very interesting classification of possible conditions, as well as various universal ways of obtaining information and spreading disinformation. Unfortunately, within the framework of this work it is impossible to consider all aspects of this doctrine. In any case, as all successful managers of Eastern companies emphasize, the experience of others can by no means be transferred mechanically. It is necessary to identify and understand the principles on which success is based, and introduce them into the practice of your company in your own original and unique way for a particular situation. This is the class of manager in the Eastern tradition. 12.5. Pricing Strategies: Modern World Trends When it comes time to fight new competitors and protect their profits, large, well-established companies tend to use the same set of pricing strategies: reduce costs or the introduction period of a new product on the market, or diversify the offer of goods, losing out of sight the best strategic "weapon" - modern pricing strategies. Although most companies see pricing decisions as important, requiring close attention from senior management, most often they are either tactical, not strategic, or in response to a competitor's initiative. In this case, the typical reaction of the company's management is: "Let's reduce the price of product X by 15% to counter competitors and see if we can compensate for this loss by raising the price of product Y." Such a decision may not be sufficient to deter competitors and is often the cause of a decrease in the sales of product Y. An effective company pricing strategy must be more than a sharp response to changing market conditions. Any pricing decision should reflect, firstly, the fundamental pricing strategy, secondly, market segmentation, thirdly, market elasticity, fourthly, the level of costs, fifthly, the potential of a competitor, since knowledge of its competitors allows the company to the degree of probability to predict their responses, taken into account when developing pricing strategies, sixthly, the competence of the company's management. It is these questions that are the subject of this article. Fundamental pricing strategyPricing policy has the right to "decisive voice" in decision-making on the capture of new markets or retention of existing ones. However, it should be noted that pricing strategies that are effective for new market participants are not those for the "old-timers" of the market. And this is understandable, since the goals, resource potential, consumer perception of prices, intensity of competition, cost structure, price structure, legal restrictions, relations with consumers of old and new market participants are different. Of course, each company, regardless of the time of work in a particular market, is individual and has a specific structure and price level, but still there is a certain standard set of pricing strategies that are most effective for "newcomers" to the market, and, accordingly, a set of pricing strategies, preferred by the oldest market participants. The most commonly used pricing strategies are shown in the figure below. This division of pricing strategies is primarily due to the fact that new companies and "old-timers" traditionally choose different levels and price structures. Under the market "newcomers", as a rule, understand three types of companies. The first type is new, newly created companies. The second type is national companies diversifying from related industries. The third type is foreign companies that first came to a new national market for them. New companies are more likely than old-timers to face the challenge of changing buying habits. The price level is inextricably linked to the consumer's perceived value of the product or service, so the typical "newcomer" will offer a potential buyer a higher price. Depending on the quality of the product or service, the price of a "newcomer" firm can be either higher or lower than a competitor's analogue that has strong, well-established ties with the market. In highly competitive markets, "newcomer" companies willingly lower the prices of their products relative to the prices of older market participants in order to gain a larger market share. It is no coincidence that the most popular pricing strategy among newcomers is the low price strategy. By claiming "We offer you lower prices," newcomers win over consumers quite easily. A strategy of pricing lower than the old-timer price works best if consumers are able to compare products or services. The effectiveness of the low price strategy is noticeably reduced with a more complex purchase. The complexity of the price structure and hidden price elements are usually not a good tactic, as they force consumers to think about the price advantage of the newcomer. Conservatism and inertia of consumers, on the contrary, help the old-timers of the market. In order to avoid the tension and risk of changing suppliers or rapidly increasing their number, consumers prefer to pay a significant price premium to old, well-established supplier companies. If consumers do not give consent to the supplier company to pay a price premium, the latter masks the real price level with its complex structure. If the old-timer is not a monopolist, then he does everything possible to make it difficult for buyers to compare the prices of competing companies. The most striking illustration of what has been said is the consumer electronics market. For example, Sony Corporation changes model numbers when shipping to different retailers. This is done so that consumers are not sure that they are comparing prices for the same models. The situation is similar in the household chemicals market, where buyers are extremely price sensitive. Companies that practice such a pricing strategy are confident that its use will reduce price transparency. In addition to the desire to avoid "transparency" of prices, market leaders have a strong motivation for double pricing (two-part pricing). Economist Walter Oi drew attention to this trend in his classic analysis of Disneyland's pricing system. In this entertainment center, visitor fees include a fairly significant entrance fee to the territory of the latter and a small fee for using any attraction. Walter Oi proved that by pricing like this, Disneyland was more profitable than selling tickets to rides alone. World practice shows that setting dual tariffs allows companies to get more revenue than when setting a single price for their product or service, but it should not be forgotten that a certain power over the market is necessary for a company to use dual pricing. In recent years, the dual pricing system has become widespread. Every year the number of companies successfully using it is growing. For example, telephone companies charge both a fixed monthly subscription fee for their services and a per-minute call rate. Customers of car rental companies pay not only for the purchase of the service they need (the cost of renting a car per day), but also for the miles traveled by the car. Many trading houses receive membership fees from their regular customers, allowing the latter to purchase goods at some discount. World practice shows that the less a company's influence on the market, the less it can interfere with the price comparison process, and therefore, the simpler the pricing system should be. Most retailers cannot afford membership fees. In a highly competitive market, there are usually relatively few companies in a position to use a flat-rate service fee. In addition, a company, being a leader in one market, for example, a regional one, can occupy a very modest position in another. Simultaneous leadership in all product and regional markets is rare. Differences in occupied market shares, and, accordingly, the degree of influence on the latter are an obstacle to the development of an effective global pricing strategy for the company. That is why the price structure should be flexible and adaptive, i.e. able to change in accordance with the real position of the company in a particular market. Market segmentation and price elasticityAs a rule, companies segment the market in order to maximize profits. Profit maximization is the result of the implementation of price differentiation, the success of which depends on the accuracy and quality of market segmentation. Price differentiation is based on the presence among potential and actual buyers of separate groups that react differently to price changes. Therefore, the formation of a separate price for each segment is quite justified. Correctly segmenting the market can only be done if the reason for the differences between the segments is identified, since it is they that affect the consumer's perception of the value of the product, buying habits and the buyer's willingness to buy the product at a given price. Take, for example, the telecommunications equipment market. The results of the segmentation conducted for Booz and Allen & Hamilton by Robert Docters showed that there are five distinct segments in this market. The terms of sale, the preferred price structure and the corresponding pricing instruments are different for each of the identified customer segments. The necessity and importance of segmenting the telecommunications equipment market, as well as any other market, is primarily determined by the fact that the prices acceptable for representatives of each of the five selected market segments for the same product of the company lie within + 30% of the price, set by the manufacturer. One of the reasons for such a significant spread in prices is the differences in the goals of consumer segments. The goal of price-sensitive buyers is to reduce costs. The goal of other segments is to increase the productivity of telecommunications equipment. In the latter case, consumers are less price sensitive and focus on the potential of the product being offered. Therefore, it is extremely beneficial for manufacturers of telecommunications equipment to position their products differently in each of the five identified market segments, depending on their specifics. Any attempt to establish a single price for all market segments will lead to a loss of market share and a decrease in the level of profit achieved. At present, when competition in many industries tends to intensify, the importance of segmentation is not in doubt. Western airlines are the clearest illustration of this. Since 1978, airline pricing strategies have undergone significant changes several times. Airlines have become masters of segmentation. Prices for Western airlines services, which were once uniform, now vary depending on the city, route, time of day and the passenger himself. In order to objectively determine the value of its market offer for the consumer, the company must, firstly, know the price elasticity of both the market as a whole and each of its segments separately. Then it is necessary to determine which market price will bring the company the highest total income. In this regard, it is necessary to emphasize the following: numerous studies conducted in the markets of consumer goods and services have shown that in most cases setting high prices for market products and services does not allow maximizing the margin - the difference between the selling price and the cost price. For example, lower international telephone rates and lower prices for personal computer RAM led to an increase in the combined revenues of participants in both markets, since the increase in sales that followed these price promotions offset the reduction in the difference between the selling price and the cost price. . CostsCosts, although their role in the price formation process is indisputable, should not directly determine the level of the market price. Depending on the specifics of the industry that produces a particular product, depending on the characteristics of the market for this product, the impact of costs on the market price is different. Of particular interest is the trend that has emerged in recent years in the industrial market. The researchers argue that soon most companies that produce products or provide services for industrial purposes will be able to profit only through large orders. An example is the "plastic" business - the production of disposable tableware, bags and films for packaging products. The largest orders for the supply of these products are issued at a price close to the costs. Today, a company operating in the industrial market can get a solid margin only if it produces innovative products or sells in those regions where this product is scarce. Competitor potentialNew participants in a particular product or service market and "old-timer" companies have various vulnerabilities. For example, the stock exchange rates telecommunications companies based on their market share rather than profitability. On the other hand, large corporations, as usual, must report quarterly on the quotes of their shares. This means that new entrants in the telecommunications market, such as Netscape, can sacrifice margins for the sake of sales and are subsequently rewarded for this, while old-timers, such as Digital Equipment/Alta Vista, are required to report profits. Understanding and, most importantly, exploiting these differences is the key to making effective pricing decisions. In the New York City area, for example, an alternative telecommunications service provider, Teleport Communications Group, generated additional revenue by beating New York Telephone's high prices for telecommunications services within a five-mile radius. After Teleport was able to expand its network, New York Telephone reduced rates for similar services, while raising prices for telecommunications services over five miles away as compensation. Of course, the competitor's new strategy posed some threat to Teleport, but not so strong as to affect the pace of development of the latter. Teleport Communications Group's next strategic goal was the market for telecommunications services delivered over five miles. Teleport has taken a step to capture this market by expanding its network to take advantage of New York Telephone's new rates. As a result, New York Telephone was forced to reduce tariffs for all its services, but by this time the competitor had already gained a foothold in the market and it was too late to stop him. The competence of the company's management Today more than ever, business leaders need to be aware of the variety of pricing strategies and tactics that exist. Managers should not only be able to choose a pricing strategy that matches their goals, but also calculate possible risks in advance. When developing tactical pricing solutions, practitioners do not always take into account the fact that the use of, for example, one of the most commonly used tactical tools - discounts, is associated with significant risks. A few years ago, a major American cigarette manufacturer offered wholesalers a significant discount on their products. As a result, it turned out that end consumers did not receive the expected benefit from price reductions, since wholesalers, taking advantage of discounts provided by the manufacturer, in turn, did not reduce prices for retailers who purchased goods from them. The result of ill-conceived pricing tactics: end-users did not notice any price changes, and, consequently, the manufacturer, who suffered significant losses, did not manage to increase its market share. Numerous examples from both foreign and not yet so rich domestic practice prove the following statement true: "If the price is skillfully managed, then it will be a powerful weapon with which you can effectively counteract competitors while maintaining the company's income." In order to strengthen the practical significance of what has been said, we will make several important remarks. First, it should be remembered that the price level of a commodity must reflect the real position of the latter in the market, i.e., there must be a strict correspondence between the price of a commodity and its position in the market. The second, but no less important remark: the lack of price differentiation for the same product, depending on the characteristics of the segments in which it is sold, indicates an illiterate market segmentation. And the last, third remark: the price structure should correspond to the goals of the company and contribute to the speedy and effective implementation of the chosen pricing strategy. 12.6. Distribution company sales strategy management The author of the article talks about the formation and development of a network of sales and distribution of products in the pharmaceutical market. At the same time, the processes discussed in the material are typical and quite relevant for many other sectors of the Russian economy. The success and prosperity of a distribution (distribution) company in the pharmaceutical market is largely determined by the optimal and adequate work of the sales department. In turn, its effective functioning depends on a properly built marketing technology. In other words, if the rational organizational structure of the sales process itself is one of the priorities of the strategic development of a pharmaceutical company, then the likelihood of a significant increase in turnover in the company is obvious. However, in order not to be disappointed by the results obtained, all declarations of intent must be embodied in the daily routine work of the distributor. And only in this case, the actual activity will not differ so much from the planned results, which, in fact, is the central point of an effective strategy and flexible management of a pharmaceutical company as a whole. The practical implementation of the complex of the above activities should be preceded by an analysis of the most important stages and mechanisms of sales technology, which was the purpose of this work. It should be noted that the principles and technologies given below are applicable not only in the pharmaceutical business, but also in other sectors of the market economy. Distributor mission and servicesBefore proceeding to a direct consideration of the sales structure, it would be useful to determine the mission of the wholesale pharmaceutical company, that is, the main goal for which it decided to enter this market niche. If you do not know the goal and focus only on profit, then middle and top managers lose their starting point when planning and evaluating their activities, they lose guidance when choosing options for action. And the main goal of the wholesale pharmaceutical structure is to provide consumers with commercial services in the form of quality medicines. The means of achieving this goal are personnel, the necessary organizational structure that ensures effective operation, and goods. It must be exactly the right product, delivered to the right place at the right time and properly packaged. Also, the late delivery of a correctly executed order to the client is not a product. The operating principle is that the client must receive the necessary goods in a timely manner at a price that suits him. Services are also discounts provided by the company to the buyer. The larger and more varied they are, the more interesting for the client, but they must be commensurate with real possibilities. Discounts are provided for early or timely payment of invoices, they can be cumulative or wholesale. Their size depends on the price level in the accounts for which they are provided. Service consumersConsumers of services are state (municipal) pharmacies, hospitals, commercial pharmaceutical structures, both retail and wholesale. Moreover, there is a restriction: according to the current legislation, medicines are not subject to free sale. The sale of medicines is allowed to wholesale structures if they have a license for the right to carry out pharmaceutical activities, as well as to legal entities or individuals (private entrepreneurs) who have permits for the sale of medicines. An even more severe restriction exists on the sale of psychotropic drugs - such a right is specifically stipulated in licenses. LicensesThere are three main types of licenses: a pharmaceutical license, hospital licenses with the right to provide medical care, including the right to purchase medicines, and the same licenses with permission to dispense psychotropic and potent drugs. The contract (or an annex to it, certified by the client's seal) contains data from the original or a notarized copy. Since the distributor is not a controlling organization, any information certified by the client's seal is sufficient. Licenses should be stored together with contracts. It is necessary to enter the license validity period into the database in order not to miss its expiration. PricingIn the field of pricing, the wholesaler's policy is usually the following: the margins on the goods are set in such a way that, after paying for it, a certain amount of profit is obtained. But depending on the terms of payment and the real economic condition of the company, they are different. Moreover, the timing of the provision of a commodity loan is of decisive importance here, since the company is obliged to regularly pay supplier factories, regardless of the timeliness of the client's payment for the medicines supplied to them, since usually all sales reports are based on goods exported from warehouses. If the client pays for the goods on the day of receipt, nothing affects the size of the distributor's margin - in this case, the prices are minimal. If the goods are released with a deferred payment, then the longer the delay, the higher the price. This is due not so much to inflation as to the fact that the wholesaler has to pay suppliers. And if the money from customers has not yet returned to the company, then it has to suffer losses or! divert financial resources from circulation. This situation is tantamount to payments on the loan and interest on it, the amount of which is significantly higher than the losses from inflation. Therefore, the difference in prices between prepayment and accepted deferment is determined mainly by the amount of interest on a bank loan. The inflation rate can now be neglected, but in other circumstances it is also included in prices. As a result, "good" customers pay for "bad" ones, as large delays in payments by individual customers force additional price increases. Contracts and registration rulesWith the buyer, a standard contract is usually filled out for all occasions. If necessary, you can specify the agreement with the client by an additional agreement. To facilitate the work in the contract, it is immediately necessary to indicate the data of the seller's license. As an annex to the agreement, the coordinates of the client's license, certified by his signature and seal, must be indicated. The storage of contracts should be organized so that the desired contract is easy to find: numbered pharmacies - in ascending order, and commercial firms - alphabetically. To avoid repeated numbers, continuous numbering of contracts, when they are concluded in parallel by several people, is best done in advance. In the database of clients, a mark is made on the number of the contract, the terms of its validity and the validity of the license. Client baseA. New client. A new client needs to be warned about the need to draw up a contract, fixing in the contract or attaching to it the data of his license, to decide whether he can dispense psychotropic drugs. Enter all necessary information into the database. The first delivery with deferred payment must be preceded by a non-cash advance payment. Previously made cash payments are not taken into account. B. A client with whom the firm has recently worked. For a recent customer who is still difficult to form an impression of as a payer, a reasonable risk limit for the release of goods with deferred payment should be established. For example, by setting a ceiling on the amount of goods not paid by the client. This will minimize the risk. The limit of transition to the status of regular customers is 10 paid invoices with deferred payment. B. Regular customer. A customer becomes a regular when he can be seen as an accurate payer (after 10 paid deferred bills). In the future, when accepting orders, it is necessary to take into account the current state of his payments. It may be necessary to limit the release of goods if the client's condition is apprehensive (large delays in payments, large amounts, etc.). CheckoutWhen accepting an order, after checking the validity period of the contract and license in the database, and making sure that the goods can be released to the client, a number of the following rules should be followed: place the order as soon as possible; transfer it to the warehouse for preparation; you cannot accept an order for something that you do not have (a necessary condition is good accounting); ensure the delivery of goods within the agreed time; Don't promise what you can't deliver. That is, if the goods have not yet arrived, the client must be informed about this. If drugs are not expected, then, in order for the client not to go to competitors, it makes sense to purchase defective products in the secondary market. Of course, the company will not earn money on this (although it will not lose), but it can acquire a reputation as a reliable supplier, and the latter is worth a lot. Certificates for medicines for each series are prepared by the warehouse. It is advisable to attach a price list and promotional products to the accompanying documents. Return actsAfter the export of goods, the warehouse and / or the material accounting department records the issuance of goods in electronic and paper documents. Further work with the order is possible only by issuing returns. If the client can declare to return the goods to the seller, then he draws up a return certificate and transfers it along with the goods to the company. If the invoice is not paid, then its amount is automatically reduced by the amount of returned medicines, and if paid, this amount appears on the client's balance and can be used to close other accounts. Return certificates are stored in the warehouse along with the invoice (or a copy of it) according to which it was made. Working with debtorsEach invoice, depending on the type of payment, has its own expiration date, after which it becomes overdue. When compiling the list of non-payers, an allowance should be made for travel time, i.e., for the date "is the invoice valid until?" additional days are added, taking into account the time of passage of money through the bank. Since the registration of payments in the database does not always coincide with the current one, delays should be counted from the date of the last cash receipt registered in the database. The assessment of the client should be carried out on the totality of payments made. A client is considered chronically indebted if he is late in paying most of his bills. Supervision of employees of the sales departmentThe principle is the development of criteria and instructions. Criteria should be clearly articulated and preferably in quantitative terms. The frequency of inspections is established on the basis of the principle of necessary sufficiency. For the trading department, the main parameters of control are: the export of goods, the receipt of payments, the volume of debts, the distribution of debts over time, the integral assessment of the client's activities, the regularity of service and contacts, the breadth of the clientele. The principle of control is necessity and sufficiency. It is necessary to spend the minimum necessary amount of time and effort on control and at the same time get a fairly complete picture of the existing situation. Additionally, it makes sense to control the correctness of maintaining the database of material accounting (the integrity of the database and the absence of unauthorized adjustments); control over the return of goods to the company's warehouse (correspondence of the actual arrival of goods with the data of material accounting), as well as control over the passage of payments and verification of the correctness of their entry into the material accounting system. AdvertisingThe purpose of advertising is to create an attractive and memorable image of the company. Based on the advertising image, specific advertising campaigns are built and a style of communication and work with the client is developed. It is possible to distinguish the external and internal side of the company's image. External - what the client can see outside the firm. Internal - what the client sees and hears when he comes to the firm. Outside the company, objects with a characteristic design can remind of it: the type of documents, folders, calendars, souvenirs, stickers, packages, advertising on the company's vehicles, etc. The company's office should also be designed accordingly, in which the client will be comfortable and pleasant to be. The style of communication between employees and customers should also correspond to the image of the company, whether it is a telephone conversation or direct communication with a buyer who has come to the company. To a certain extent, all the technological procedures described above can be presented as a set of corporate instructions designed to eliminate problems associated with unpredictable decisions of company employees on obvious issues. In other words, this is a description of the correct actions of the company's sales staff in a particular situation. Strict observance of such internal rules, in addition to the optimal achievement of the expected results, will also help to avoid the occurrence of undesirable chaotic phenomena in the company. 12.7. Credit consulting - financing assistance The range of problems solved by credit consulting is quite wide. And the specialization of companies providing consulting services can be different: from a narrow one, limited to any one direction of consulting services (for example, audit), to the widest one, covering a full range of services in this area. Accordingly, each specialist (or each firm) working in this field, puts the concept of consulting in its own meaning and gives it its own shade, determined by the direction of a particular company. Credit consulting - provision of consulting services in the field of attracting credit and investment financing for legal entities and individuals. Credit consulting is a new type of business that is actively spreading today. Taking into account the ever-increasing interest of our clients in funds attracted from outside for business development, an objective need arose for the development of such a type of service as loan consulting. At the same time, the offer of various credit programs by banks is also growing. Each of them not only offers the client special conditions, but also requires him to provide a completely specific set of documents and guarantees. It is becoming more and more difficult for a potential recipient of a loan to navigate independently in this area and it is becoming easier to get lost in this stream. Let's try to define consulting in the broadest sense of the word. Consulting is a kind of intellectual activity, the main task of which is to analyze, substantiate the prospects for the development and use of scientific, technical, organizational and economic innovations, taking into account the subject area and problems of the client. Consulting solves issues of management, economic, financial, investment activities of organizations, strategic planning, optimization of the overall functioning of the company, doing business, researching and forecasting sales markets, price movements, etc. In other words, consulting is any assistance provided by external consultants, in solving a particular problem. The main goal of consulting is to improve the quality of management, increase the efficiency of the company as a whole and increase the individual productivity of each employee. When do clients turn to a consulting company for help? According to popular belief, the services of external consultants are mainly and primarily used by those organizations that find themselves in a critical situation. However, assistance in critical situations is by no means the main function of consulting. In what cases and who turns to a consulting company for help? Firstly, in cases where an enterprise with a reliable status plans to restructure the entire system, associated either with expansion, or with a change in the form of ownership, or with a radical change in the spectrum of the enterprise's activities and reorientation to more promising and / or profitable business areas . Secondly, in cases where an enterprise with a reliable status, in order to assert its position in the market and create the necessary image in the eyes of potential partners, turns to the services of a consultant (for example, an auditor), conducts an audit of its activities (for example, an audit) and then makes its results public. Thirdly, in cases where the enterprise is in a critical situation (or even on the verge of collapse) and is not able to get out of this situation on its own due to the lack of experience and internal resources for an adequate and timely response to the situation. The services of a consultant (consulting firm) in this case are in the nature of a crisis-consulting. Professional consulting services have been provided in Russia for more than ten years. Despite such a long period, a clear understanding of why to invite consultants and whether they should be invited at all, among potential consumers of consulting services has not yet developed. The reason for this is largely an inadequate understanding of what consultants can and cannot do, when it makes sense to invite them, and what are the necessary conditions for successful cooperation with consultants. The main task of consultants is to assist clients in solving their management problems. They can solve this problem in several ways: - Find the problem and propose solutions. In a situation where the client is aware that he has a problem, but cannot determine what exactly it is, what are its true causes, consultants can analyze the situation and identify the problem and its causes, as well as develop and offer the client ways to solve it . This is the so-called expert consulting, when the consultants themselves do all the work to detect and solve the problem. - Help the client find the problem himself and determine ways to solve it. There are situations when the client is ready to define the problem and solve it, but he lacks some methodological support for the successful implementation of his intentions. Then the consultants can provide the client with this methodological support and go with him all the way from discovering the problem to solving it. This approach is called process consulting, i.e. consulting in the course of the client's management activities. - Teach the client how to find and solve problems. Creating a system of practical knowledge in the client, a mechanism that allows him from now on to find and solve his problems is the essence of the third approach, called educational counseling. With this approach, the consultant does not participate directly in the process of finding and solving problems, but only trains the client and checks the correctness of the "homework". In practice, all three approaches often intersect and complement each other. Emphasis shifts depending on what the client most needs: to find a solution to the problem for him, or to help him solve the problem, or to be taught how to solve it. Determining the extent of this need, as well as the need to involve consultants in general, depends on a number of factors: - Time. As a rule, any problem introduces its time limits. Depending on how large the margin of time for solving a particular problem is, a choice is made in favor of one or another approach. Usually, expert advice is the fastest way to solve a problem if the invited consultant has proven methods for solving such problems. - Labor resources. Each problem requires labor resources spent on its solution. When the scale of the problem is large enough, it can be quite difficult to single out people who will deal exclusively with solving it, given that all of the client's staff members have their own day-to-day responsibilities within the current activities. However, it is not economically feasible to hire and keep a dedicated staff of specialists for every problem, as some companies sometimes choose to do. Consultants in this case are an additional workforce that is available when needed and removed when the need has passed. - Money. Hiring consultants is costly. Depending on what financial resources the client can allocate to solve the problem, one or another approach of counseling is chosen. As a rule, training consulting is the cheapest way to solve problems if the client has the necessary manpower and time to train them. - Knowledge. The level of expertise is no less critical than time or money. Of course, knowledge can be obtained through self-education. However, the degree of consolidation of knowledge and the skills of their practical application will be different in this case. It is no coincidence that the effectiveness of full-time education is higher than that of distance learning. In addition, self-education is learning from your own mistakes, while by attracting consultants, you can learn from others. - Objectivity. The consultant presents an independent view of the client's problems from the outside. By virtue of his independence, he is free from cliches and prejudices that have developed with the client over the years of his activity and which are often the sources of problems themselves. The consultant may ask questions that the client himself does not think about, because, due to established habits, he does not consider them questions. Finally, the consultant is a disinterested person in the sense that his only interest is the most effective solution to the client's real problems and he has no self-interest in these problems. It should also be noted what the consultant cannot or should not do for the client and why they should not be invited: - Making decisions. The consultant, as a rule, cannot make decisions for the client. The client himself is responsible for his business, responsible to the owners, contractors, personnel and himself, and he is to make the final decisions. The consultant only offers options for solutions, gives recommendations on the optimal solution, but does not make decisions themselves. - Game with the law. The consultant cannot and in no case should give the client recommendations that are contrary to applicable law. Any recommendation the implementation of which brings the client into conflict with the law is a threat to the client's business and in itself creates a serious problem. Thus, the consultant cannot and should not, by solving some problems of the client, create other, sometimes more serious problems for him - problems with the law. - Participation in conflicts. The consultant cannot and should not participate in the client's internal conflicts. It is extremely unethical when some persons in the client's management invite consultants in order to "fall down" others. The consultant must always be above personal or group conflicts, act as an independent arbiter, look for solutions that are useful for the business as a whole, and not for individuals or groups of individuals. - Formal results. The purpose of consulting assistance is to solve the client's problems, not to write a consultation report. The task of the consultant's activity should not be the creation of reports that are beautiful in form and empty in content, "candy wrappers" that are used to create the appearance of useful management activities. Therefore, you should not invite a consultant to write such a report, which will then be stored in a drawer and taken out from time to time for demonstration - this is too expensive and an unjustified way to impress. Based on the above, it is possible to formulate cases when it is necessary to invite consultants. Generally speaking, consultants should be called in when there is a managerial problem that the client wants to solve. However, the participation of a consultant is especially effective in the typical situations listed below: - When the problem is complex, systemic. If the scale of the problem is such that to solve it, it is necessary to carry out radical complex changes in the management system, the principles of building a business, it is best to invite third-party experts who will bring fresh ideas and provide the necessary labor resources. Solving complex problems usually requires significant labor costs and specialized knowledge. - When the problem is one-time, situational. If the client has a problem that is caused by a combination of specific circumstances and is not repetitive, routine, and also requires a prompt solution, it is more efficient not to create internal organizational capacity to solve it, but to invite consultants once. At the same time, it is not effective to invite consultants to solve routine, everyday tasks, that is, to carry out current management activities. - When there are differences of opinion on the problem and how to solve it within the management of the client or between management and owners. In this situation, consultants are the best independent arbiter, able to objectively assess the problem and offer objectively justified ways to solve it. - When the solution to the problem may have serious consequences, including strategic, financial or social. This is a situation similar to the previous one, with the only difference that in this case the cost of solving the problem and the associated responsibility is quite high. Therefore, the management of the client may require independent expert justification for identifying and resolving the problem. Sometimes this is a way for the client to share responsibility with the consultant, not in terms of making a decision, but in terms of developing it. There may be other situations when it is better to invite a consultant. The common criteria for all of them are: - Presence of a problem; - Lack of time or human resources to solve the problem; - Lack of special knowledge to solve the problem; - The high price of the issue. There is no need to say that the invited consultant must be a conscientious professional - this is a prerequisite. However, there are a number of fundamental factors that determine the success of the client's interaction with consultants: - Choosing the right consultant. No consultant can know everything. Some consultants are good for solving some kinds of problems, others are good for others. Therefore, the right selection of a consultant for a specific problem is extremely important. It should be borne in mind that a well-known name does not always guarantee the correct selection. There are many highly specialized and simply obscure consultants that the client may not know about until he encounters a problem that requires their participation. The main thing here is to evaluate the methodology and practical experience that the consultant offers to solve the client's problems. - Communication. The consultant and the client must use a similar conceptual apparatus or, in other words, speak the same language. Otherwise, a situation may arise when the consultant, using his analytical tools, will be able to identify the problem and find ways to solve it, but the client may not understand the recommendations of the consultant. Therefore, it is necessary to agree in advance on the meaning of those concepts and terms that both the client and the consultant use. - The level of training. Recommendations have an effect only when implemented. But in order to use the recommendations of the consultant, the client sometimes needs to have an appropriate minimum level of training. Just as the implementation of even the most detailed workflow requires a certain level of technical expertise, so the implementation of the most detailed management recommendations requires a certain level of managerial expertise. If such a problem occurs, additional measures must be taken to ensure such training. - Understanding goals and objectives. There are situations when the client does not clearly understand what exactly he wants, but he is determined to achieve it. This usually leads to the most serious problems in the interaction between the client and the consultant. Therefore, it is necessary to jointly determine the goals and objectives, and only then start work. Thus, the second part of the question formulated in the title of this article can be answered as follows: you need to study in any case - knowledge will never hurt, even if (one might say - especially if) consultants are invited. However, the training itself, without the practical application of the acquired knowledge, is worth little. When was the last time any of the top managers of enterprises had the opportunity to attend a serious educational course? And what part of the knowledge they have gained is actually applied today in everyday management practice? When working with consultants, regardless of the type of consultation, knowledge is directly embodied in practical activities, or, conversely, acquired in the process of solving specific problems. In any case, the decision on the first part of the question - to invite or not to invite consultants - remains with the client. Consultants, as always, can only give the necessary recommendations, which was done in this article. According to Denis Aleksandrovich Shevchuk, Deputy General Director of INTERFINANCE, the service of obtaining financing from credit institutions is in demand among enterprises implementing investment projects, the cost of which significantly exceeds the cost of projects implemented earlier, as well as in the absence of their own experience in bank lending. The implementation of such projects may include a work plan to increase the investment attractiveness of the enterprise as a Borrower. A team of consultants, which includes diversified highly qualified specialists (financiers, lawyers, economists, marketers, etc.), can provide the client with a full range of services - from preparing a business plan to finding and identifying a financial source (bank, investment company, investment fund, private investors, etc.) in order to assist enterprises and organizations - potential borrowers - in preparing documents for obtaining a loan, choosing forms and methods of lending, searching for investors and arranging financing. The consulting services and products offered by the Credit Agency (credit broker) are as close as possible to the requirements of investors - banks and other credit institutions and investment companies. Actively cooperating with various banks, The credit agency offers clients the organization of financing - search and selection of banks for lending to investment projects, financing the development of production, its reorganization and technical re-equipment, as well as obtaining loans to replenish working capital. As part of the Credit consulting service, we offer support for the procedure for obtaining a loan, namely: - general acquaintance with the lending market in Moscow - providing information and choosing the most optimal loan program and bank - assistance in the collection and execution of a package of documents for obtaining a loan - coordination of a package of documents with the bank and submission of an application for a loan By applying for a loan consultation, you will not only save precious time spent searching for a suitable program, but also receive the most reliable information about the bank and the conditions for obtaining a loan, which often differs significantly from that provided by the bank for advertising purposes. Directions: - mortgage credit lending - small business lending - consumer credit (for personal needs): targeted and non-targeted - car loans Full support of the procedure for obtaining a loan, according to research by INTERFINANCE (http://www.denisshevchuk.narod.ru), is usually paid in the amount of: Legal entities (organizations) - Monthly subscription fee for fundraising is from 500 to 2000 US dollars per month, depending on the complexity (first payment before starting work) + reward for success with a positive decision of the bank in the amount of a monthly payment. Individuals (with a loan amount of up to 1.500.000 rubles) - from 350-500 USD (depends on the amount of the requested loan) at the time of commencement of work +% or fixing 350-500 c.u. with a positive decision of the bank. Up to 300.000 rub. - from 200 c.u. at the start of work. In the case of long-term work, a subscription fee is taken. Mortgage - from 500 USD at the start of work +% or fixing 500 with a positive decision of the bank. As practice shows, often a loan is not granted not because the clients are not creditworthy or hide something, but because the client is unable to correctly understand what the bank requires of him. The essence of the credit consulting service is an independent objective assessment of the existing loan offers on the market in order to offer the most advantageous loan plan from the point of view of the borrower (Denis Shevchuk). Indeed, dozens of banks now offer loans. Their programs differ in terms, interest rates, terms and other parameters. You can do your own market research, spending a lot of time, or you can call loan consultants (or loan brokers) and they will solve your problems. Investment, banking, financial and credit consulting may include: - Express analysis of the enterprise and the nature of the project. - Search for a potential investor or lender. - Drawing up a necessary package of documents for a specific investor or lender (or a list of required documents). - Accompanying the consideration of a credit (investment) application. Specialists will help you to decide on the most convenient form of financing your business, to choose a reliable partner. There is a market demand for the provision of professional brokerage services to support credit transactions. Realtors do not cope with this duty, not all banks are able to work with clients, and the niche that has arisen is filled by those who have the time and desire for this. According to experts, out of about 10 people who decide to draw up documents for obtaining a mortgage loan on their own, only 2 go to the transaction. Now help to potential borrowers is offered by mortgage brokers - organizations that provide professional services in selecting the best banking lending program for a client. According to experts, mortgage brokerage is a new and very promising activity for our country, combining the specialties of a realtor and a financier. According to market participants, the first to enter mortgage brokerage were realtors who founded subdivisions in their firms dealing with consulting services in the field of mortgage lending, and only then specialists in the field of finance and law paid attention to the promising service. Until now, brokers have not conducted an active advertising campaign. Information about their services is distributed through customers or small advertisements in newspapers and the Internet. Every year the number of banks that are ready to provide loans to individuals is increasing. Volume consumer lending only increases from year to year. Currently, the most popular are loans issued for the purchase of household appliances, cars. Also, many banks offer express loans that do not involve the intended use of funds. Initially, Moscow banks and representative offices of foreign banks in Moscow became more active. Then branches, departments and additional offices began to open in the Moscow region (for example, Zheleznodorozhny, Reutov, Balashikha, Lyubertsy, etc.). Now the trend is spreading throughout Russia. All major banking loan products are already known and invented. The question is in the range of products that can be offered by one bank. Banks set themselves the task of offering customers the fullest possible range of credit products. Competition in the lending market is very high, and only banks that have achieved the greatest technological effectiveness of transactions at the lowest cost can win. Private lending today is the most promising direction in terms of development of the banking business in Russia. The market for large corporate clients is very saturated, and the provision of loans to small businesses for financial institutions is not yet very attractive - in particular, due to the lack of transparency of small businesses and legislative barriers. Effective work with individuals requires a wide network, modern banking technologies, significant marketing support, a wide product line, and qualified personnel. The prospect of working with individuals is also confirmed by the interest of foreign investors, who pay attention primarily to the retail market. However, as the market grows consumer loans the percentage of arrears also increases. As long as the loan portfolio is growing rapidly, bad debts may represent a small proportion of loans granted. But the rapid growth will not be endless, and at some point the delay may become a serious problem for banks actively developing retail. This is especially true for those financial institutions that issue unsecured express loans at retail outlets. This is the most profitable type of banking business with a yield of up to 70% per annum in rubles, however, the risks here are very high. The decision to grant a loan is made using a scoring system in a few minutes, during which it is impossible to conduct a qualitative assessment of the solvency of a potential borrower. Express loans are a tidbit for scammers. THE ENTIRE civilized world has long been living in debt. people enjoy consumer loans. The debt of the average American family, for example, is up to 80% of its annual income. Today in Russia there are already people who take a loan, knowing full well that they will not be able to repay it. And in this sense, even the institution of credit histories will not help - a person may not have any debts, but this does not guarantee that he will be able to repay this loan. At the same time, a citizen must also receive protection from the lender: the borrower may fall ill or, for reasons beyond his control, fall into other difficult circumstances, in which case the bank must provide for special conditions for repaying the loan, because bankruptcy is an effective tool to protect the borrower all over the world . In addition, in the United States, for example, there is a regulation governing relations between a borrower and a lender, which provides for the responsibility of the bank - a financial institution cannot, roughly speaking, distribute loans right and left to everyone. The hour is near when the market consumer lending there will be fierce competition. The composition of the main players can change significantly, as well as their interest rates. In the opinion of the company's specialists, the aggravation of competition forces banks to apply a more flexible policy. most individuals would like to take out a loan for repairs. Next in popularity are loans for the purchase of a used car, furniture, computer, household appliances and other household items. Slightly less in demand are loans to pay for tuition and vacation trips. Most individuals would like to take out a loan to carry out repairs. Next in popularity are loans for the purchase of a used car, furniture, computer, household appliances and other household items. Slightly less in demand are loans to pay for tuition and vacation trips. Research and survey data show that Russians are increasingly willing to spend, while actively using loans for urgent needs. Yes, and all the statistical layouts confirm this. So, perhaps in the near future the American model of "life on credit" will become just as popular in Russia. Customer credit is undergoing a period of steady growth. More and more banks are joining. emergency loans in the West have a long history. Its mechanisms in European and American legislation are spelled out so clearly and in detail that the Russian market, which is not even 15 years old, has no choice but to take an example from them. While Russians are discovering America emergency loans, in real America, they have gained a strong position since the second half of the twentieth century. It's in the States emergency loans received the most development: experts consider the American market the most capacious and flexible - despite the fact that initially the growth rate of consumer lending in the industrialized countries of Europe was ahead of the dynamics of the US market. For example, in Germany in the 70s, there was a five-fold increase in emergency lending, which by the early 2000s had reached $190 billion. In the same period, it tripled in the United States, and by the beginning of the 90s it had crossed the mark of 600 billion dollars. Everyone is equal before creditThe official history of emergency lending in America dates back to 1968, when the Consumer Credit Act was passed there. In particular, it establishes fair lending rules, rate caps, transfer and installment sale rules, contract clauses. The law does not ignore the means of judicial protection of the creditor, as well as cases in which the court has the right to recover the balance of the debt for the sale of security or to seize the debtor's property. The law also regulates credit transactions relating to the sale of real estate, goods and services by persons regularly involved in sales on credit. There is no need to worry about the rights of the American consumer: he, like armor, is protected from all possible sides. In addition to the Consumer Credit Law, there is The Uniform Consumer Credit Code. Its task is to protect consumers who receive loans to finance purchases, to ensure the correct, adequate provision of lending services, and to regulate the lending industry as a whole. There is also the US Consumer Protection Act, part of which is also devoted to consumer loans. It obliges lenders to fully inform the consumer about the conditions of lending and prohibits any discrimination in lending. The law also protects consumers from abuse by loan sharks and limits rewards. In addition, it regulates the activities of companies issuing credit cards and providing credit histories, and also establishes the National Consumer Finance Commission, which is competent to conduct investigations in the field of consumer credit. Author: Shevchuk D.A.
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