Strategic Planning (part 1)

Strategic planning is an organisation-wide activity led by management aimed at deciding which general direction a firm should take. The complexity of the process may depend on the size of the firm. Nevertheless, because of its importance to an organisation’s success, it should be handled conscientiously at all times if it is to be effective.

According to Phaal et al. “the essence of business strategy and planning is concerned with aligning the activities and resources of the firm in such a way as to generate a sustainable competitive position in the market place.” In the simplest of terms, we might say that the process is about answering four basic questions:

1. Where are we now?
2. Where do we want to go?
3. How do we get there?
4. How do we know we’re getting there?

Through a series of posts, we will elaborate on each of these four questions. For this part we will concern ourselves with question #1.

More on the Incubation Process

Key Points

• The incubator must monitor and provide business assistance to incubatees; and
• The incubation process should regularly infuse incubatees with the necessary resources.

Monitoring and Business Assistance
Hackett and Dilts (2004b) define monitoring and business assistance (M&BAI) as “the degree to which the incubator observes and helps incubatees with the development of their ventures, including helping them to learn from low-cost failures and containing the cost of potential terminal failure.” They further depict M&BAI has having three dimensions:

• Time intensity – The amount of time dedicated to the provision of assistance as well as the average time dedicated per assistance episode.
• Comprehensiveness – The range of assistance types provided to the incubatees. This range encompasses strategic, operational, and administrative assistance types.
• Quality – The “relative value” added by the assistance to the incubatee. Assistance that effectively complements or significantly enhances the existing capabilities of incubatees are said to be of high quality.

Other than business assistance, the ability of the incubator to recognise when a firm is non-performing as well as its ability to mitigate it, whether by intensifying business assistance or terminating the contract, also play an important role in the business incubator’s performance.

Resource Munificence
Daft defines resources as “all assets, capabilities, organizational processes, attributes, information, knowledge, etc., controlled by [the organisation] that enable the [organisation] to conceive of and implement strategies that improve its efficiency and effectiveness” (1983). Hamdani (2006) states that launching a new firm requires the allocation of a generous share of resources so that the venture will be able to foresee and effectively respond to significant challenges that inevitably lie in the way. In the incubator-incubation concept, the issue of resource allocation does not only affect the incubatee but the incubator as well. As the old adage states, one cannot give what one does not have. Hackett and Dilts (2004b) confirm this philosophy by stating that “intuitively, it seems likely that an incubator high in resource munificence is more likely to be able to infuse its incubatees [with resources]…than an incubator without these resources.” They further state that resource munificence has three characteristics:

• Availability – The ease with which incubatees are able to access necessary resources.
• Quality - The “relative value” added by the resource to the incubatee.
• Utilization – The frequency of use of resources by the incubatees.

For a backgrounder on the incubator-incubation concept and for a complete set of references, see my earlier post.

We’re in the BPO industry, not the ICT industry

Quick note: When I wrote this, I was thinking of ICT firms that cater to business markets (as opposed to ICT firms that cater to consumer markets).

In my previous entry, I wrote about how information technology can “explode” the value chain such that the value-adding activities of a firm need not be housed under one roof. The beauty of this is that firms now have more flexible options in terms of choosing which parts of the business it wants to concentrate on. While many regions have realised this fact for some time now, I’m not entirely sure if we’re seeing this phenomenon for what it really is: the outsourcing of business services and activities.

The reason I say this is that even now I still observe a largely supply-side driven industry in Davao City. That is, we see the technology first before we see the needs of the market. There’s nothing wrong with that kind of thought process per se, (one might argue that that’s how some breakthroughs were born) but if done on a large scale, I fear we might run the risk of alienating ourselves from those whom we’re trying to sell our products or services to. Even worse, we might run out of resources long before we can even begin selling our products and services!

Re-thinking Cluster Theory

I feel that I must first admit that I haven’t actually finished reading Porter’s The Competitive Advantage of Nations. I have it on my shelf right now but I haven’t gone past chapter two mainly because of my other academic obligations. Not to mention that it’s a very thick book. Probably thicker than War and Peace! (I haven’t finished reading that one either)

Anyway, an interesting thing I learned about cluster theory is that it is actually a theory based largely on correlation rather than hard statistical facts that indicate causation. While the theory was built out of an empirical study of numerous industries from ten nations, I have been told that these were really case studies that didn’t delve deeply enough into the data.

Do Clusters Create Knowledge?

In the knowledge economy, a firm’s competitive advantage lies in its ability to exploit new knowledge faster than its competitors. To induce this, various regions in the Philippines have turned to the theory on clusters. The premise of the theory includes the following:

1. Knowledge is created through inter-organisational collaboration and by lumping players of a certain supply chain in one area, the chances of collaboration increase;
2. Knowledge is created through intensified rivalry and that rivalry between similar firms will be more intense in clusters;
3. Knowledge is created through spill-over effects (through the movement of people). By lumping together similar and related firms in one locality, the mobility of individuals between organisations is increased, thus knowledge “fermentation” accelerates.

The paper by Malmberg and Power published in 2005 (see reference section), however, question these basic assumptions. Through their review of 100 empirical studies around the globe, they found that these assumptions are not as robust as originally thought.

A Focus on the Incubator’s Selection Process

Key point: Being the key determinant of an incubator’s effectiveness in option creation, the selection process should be properly managed.

A properly executed screening process ensures that resources are channeled only to those potential incubatees that truly need it. Hacket and Dilts state that “ideally, only those firms that are ‘weak-but-promising’ (weak due to lack of resources, but promising in the sense that they have built a compelling business case) should be considered” (2004a). Merrifield (1987) proposes to ask three basic questions during the selection process: Is this a good business to be in? Does the applicant have the competence to engage in it? And is incubation the most appropriate way to pursue it? Hamdani (2006) and Merrifield (1987) elaborate on the three questions below.

I.T. and the Value Chain

My objective here is to show how I.T. can be most useful to an organisation. I will begin by decomposing the firm into its major activities using Michael Porter’s value chain. I will then point out the role of I.T. in the organisation as well as provide my opinion on the general direction that the Davao ICT community should take.

Analysing a Firm’s Financial Performance

With all the numbers displayed on a profit-oriented firm’s financial statements, everything boils down to one figure: the ROE. The ROE or Return on Equity is a ratio that measures a firm’s ability to generate net income for every peso of capital put in by investors. The ROE is computed as follows:

Net income, as some of us may know, is the number at the bottom of the income statement (and in case you didn’t know, this is why it is also referred to as the “bottom line”) while total equity is a figure in the balance sheet indicating how much capital the investor or investors have put into the company. As the general manager, we might generate a historical graph of the company’s ROE to determine if it’s making good money for its investors. We might also compare the company’s historical ROE against the historical ROE of its closest competitor. Provided, of course, that we have access to the latter. Still, ROE, by itself, only tells part of the story. It can tell whether the company is doing good or bad, but it cannot tell us the the reason. To know the latter, we have to break ROE down into its constituent ratios:

How to Measure a Firm’s Innovativeness

We all know that a firm must innovate to remain competitive, especially in this day and age. But how do we know that a firm is innovative? Specifically, what tools can we use to measure a firm’s level of innovativeness?

Much work has been done among practitioners and academics alike to come up with an innovation audit tool. In fact, searching for ‘Innovation Audit’ brings up a few websites that offer such a tool, but for a price. In this post (and in a couple of follow ups), I will attempt to describe one of those tools (free of charge, of course). I’ll start by describing the key dimensions that the tool will measure. Afterwards, I will show how findings on each dimension can be collated to form an ‘innovativeness profile’ of the organisation.

A Focus on the Incubator as an Enterprise (part 2)

Key Points

• The incubation program must be tailored to local needs;
• The incubator manager and staff must be well equipped to manage present tenants.

Tailor-fitting to Local Community Needs
Many scholars agree that the general ‘fit’ of the incubator with the needs of the community to which it belongs is critical to its success (Allen and Rahman 1985; Campbell 1989; Scot-Kemmis et al. 2004; Hackett and Dilts 2004a). The NBIA provides the following advice to those planning on setting up an incubator:

Study the entrepreneurial climate in your community. The most successful business incubators match their services to the needs of local entrepreneurs. You can measure your community’s business development needs through feasibility studies, which identify potential incubator clients and the businesses they operate. This information can help you determine the optimal size, location and scope of your program — or help you recognize when a project has little chance for success (2006a).

Incubator Manager
The importance of the incubator manager’s role in the success of incubatees cannot be denied. Rice (2002) states “the incubator managers with higher impact invest more hours in co-production [of business assistance], invest more time on average in each co-production episode, and engage in a broader range of co-production modalities.” Even though Allen and McCluskey (1990) state that 50% of the variation in incubation outcomes is explained by the incubator’s age, this may have something to do with the findings of Allen (198 that an incubator goes through three different stages in its lifetime and that in the first three to five years of an incubator’s life, the manager’s tendency is to focus on filling up the vacant units so much so that existing tenants do not get the attention that they need. Aside from intensity of business assistance, Rice (2002) also states that the incubator manager’s knowledge in the various aspects of business development (e.g. financing, sales, marketing, distribution, team building) also plays a key role and thus must be present if he or she is to be an effective influence.

For a backgrounder on the incubator-incubation concept and for a complete set of references, see my earlier post.