Strategy, Strategy, Strategy…… What is it really and how can I use it to the best that one can.

Last updated: 21 Jan 2020  |  1438 Views  | 


Strategy, Strategy, Strategy…… What is it really and how can I use it to the best that one can.

Strategy, Strategy, Strategy……  What is it really and how can I use it to the best that one can.
 
            We hear, learnt and read about it so much but do we really know when and why we are using it? Where do we start?  What are we supposed to do?  You should start with your end goal and most of the end goal is to get a high return for those who invested in things, owners and shareholders. That return is called return on equity (ROE). Return on equity is the net income (after all deductions; cost of good sold, operating expenses, capital expenditures, interest and principles, and all tax related items) divided with what was invested from the equity side. Knowing just the net income will tell you facts but you need to go deeper in order to know why those facts or figures are like that, and thanks to the Dupont paint company we can do that. Drivers that were introduced by Dupont company, that are now known as the DuPont Model, are Net Profit Margins, Total Asset Turn Over, and Equity Multiplier. In this articles we will tackle one of the drivers and the later will come in following articles. Let’s start with net profit margin. If your aim and your strengths lies within the sub-drivers of the net profit margins, then you will need to find strategies to boost that net profit margins. For instance, net profit margins derives from two sides of business, one, the cash inflow and two, is the cash outflow.  

            Cash inflow is the total revenue in which can some from sales or other type of revenues and cash out flows being the cost of good sold, operating expense, reserve for replacements or capital expenditures, interest and principles paid and last but not least, tax. From this, we need to choose and prioritize which sub-drivers would we want to tackle, it can be the cash inflow or cash outflow. If it is the cash outflow, then we would need to find strategies on how to “Save” and save here can be saving one cost and/or saving on time used. I would like to emphasize that save does not mean 100% equity investment and no loans but rather save the interest payments and again I would like to emphasize that it is not finding the lowest interest rate but pay interest as an amount to the lowest as possible (pay the principle as soon as we can) but this again will be in following articles. If it is the cash inflow, then we would need to find strategies on how to “Make It Happen”. Before strategies, in which sometimes is forgotten but crucial is that we need to know where we stand and where we are going with the market, and this requires a very important analytical tool, a health check tool, the BCG matrix.

            It tells us where all of our products are in comparison to the market in regards to market share and growth, our product can be wither a dog in which is not doing much for us since no or declining growth and very small market share, a cash cow no or declining growth but still earning us a lot of income since shares a large part of the market share, a problem child or sometimes called question mark is somewhat a rising star with high growth but haven’t gain popularity of the market just yet and last the star itself with high growth and large market share. When you know where you stand in the market, it is time to get out the strategies and usually the first thing to do is what are we going to do with the dogs, the cash cows, the problem child ( I like to call it the rising star, it sounds more promising) and the star. At this stage, you will need another analytical tool called SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis in order know what we can do and later on how we can do it. You might also want to add in a 5 force analysis, looking at the external factors like barrier to entry, demand’s bargaining power and so forth.  A PESTLE (Political, Economical, Social, Technological, Legal and Environment factors)  analysis can also be used to get more outlook on the external environment.  An ERRC model/guideline is a good start. (Infor graphic here) You will need to decide (in corporation with the BCG matrix results) on what to Erase, Reduce, Raise and Create.  If you want to raise the amount or quality of you rising star or stars or create a new one, then of course there will be a need of more capital and capital can be raise two ways, equity or debts but you rather not raise any, then you will have to erase (sell or cease a product/services) or reduce it so that the money spent can be reallocated. 
 
            When the issue of capital is finally decided then we would need to ask ourselves on what to do next with products/services that we want to raise or create. This you would need to look at the products/services and the market in order to find the most suitable strategy. 
 
 
 
            For an example, if you choose to offer the market with your existing products/services with the existing market that you are in now, you will need a market penetration strategy and if competitors are high in the same product/services and market then you will need an either deeper or wider penetration strategy since it is of course, a red ocean. Once the strategy is set, we then move on to where are we going to put this strategy on the customer purchasing journey. If it is awareness that we need, then we will need to try to get to our potential market through as many channels as possible in order to “penetrate” in another word reaching out to them as much as we can.
(Source : Dreamwealthfilms)

Best,
Asst. Prof. Jittaporn Issarangkoon Na Ayuttaya Sriboonjit

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