Strategic Business Management

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PUT YOUR MONEY WHERE YOUR STRATEGY IS

Two easy ways for executive teams to attempt to raise profits is to lay off employees to cut costs or to lower prices to take away market share from their competitors. However these merely are short-term fixes. An organisation cannot endlessly reduce its costs and prices to achieve long-term sustained prosperity.

Entrepreneurs know the age-old adage ‘you need to spend money to make money.’ However, reigning in an organisation’s spending can be haphazard. Rather than evaluating where the company can cut costs, it is more prudent to ask where and how the organisation should spend money to increase long-term sustained value. This involves budgeting for future expenses, but the budgeting process has deficiencies.

A BUDGETING PROBLEM

Companies cannot succeed by standing still. If you are not continuously improving, then others will soon catch up. This is one reason why Professor Michael E. Porter, author of the seminal 1970 book on competitive edge strategies, Competitive Strategy: Techniques for Analyzing Industries and Competitors, asserted that an important strategic approach is continuous differentiation of products and services to enable premium pricing. However some organisations so firmly believed in their past successes that they went bankrupt because they had become risk-adverse to changing what they perceived to be effective strategies.

Strategy implementation is considered one of the major failures of executive teams. At a recent conference ...