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Looking inwards at your business

Looking inwards at your business

Your strategy must help you to provide something your customers want, in a way that makes you money. You also need to make best use of the business’ skills and resources so everyone in the business is motivated by their ability to contribute.

Looking inwards at your business helps you identify where the value is, where the costs are, and which business activities are most critical. Use the five steps on this page to look at your business and find the value that sets you apart or the costs that hold you back. Ensure you’re making the most of your resources and everyone’s on board.

1. Determine the value in your business

Your business activities add value

Your business is made up of activities that contribute to the value of your product or service. Some activities add more value than others. You can find out the value your activities add to your product or service. This is the difference between the price your customer is willing to pay and the inputs and effort it takes for you to create it.

Let’s say you want to start delivering your products to your customers to add more value. The maximum price you can charge for delivery depends on what your customer is willing to pay for the new service. If you estimate that your average customer spends $5 to get to your store, the maximum you can charge for delivery is also $5. If you charge anything more, your customer would be better off picking up the product in-store.

Every activity also has a cost

All your activities cost time and money. For example, if you deliver your products using a company car, the cost of deliveries will include:

  • the fuel used on deliveries
  • a percentage of car maintenance costs
  • the employee time it takes to deliver things to different customers.

By finding the cost of all your activities, you’ll be able to see where most of your cost comes from. Following the same example above, if the cost of each delivery would be $5 or more, then introducing the new service wouldn’t offer any added value for you or your customer.

Use the strategy planning worksheet to note some of the key activities in your business.

Strategy planning worksheet

Strategy planning worksheet

Here’s a worksheet to help you figure out which strategy is right for you at the moment. As you read about each approach, make some notes in the worksheet.

2. Find your unique activities that make or cost money

To understand the value and cost of each part of your business, you first need to identify all the unique and valuable activities that go into your products or services. Together, these activities are known as your value chain. You need to make sure that your business has that special something — that if your business disappeared, someone in your network of suppliers and customers would miss your offering and no one could replace you completely.

Primary activities create your products or services

Your business’s primary activities contribute directly to the products or services you sell. They usually include:

  • inbound logistics — receiving, storing, handling materials
  • operations — building or developing your product, or putting together your product or service
  • outbound logistics — distributing your product or service
  • marketing and sales — branding, advertising, promoting, pricing, and quoting
  • post-sales service — providing support for your product or service.

For example, consider inbound logistics. If you own a pie shop that makes pies from scratch, you’ll need ingredients. Butter, flour, and eggs must be on hand for when you need them. This is a primary activity because without ingredients, you’d have no product.

Think about what each type of primary activity involves in your business. You’ll probably have several specific activities that fit each category.

Supporting activities keep your business running

Your business’s supporting activities only contribute indirectly to the products or services you sell, but they are still important enough to justify their cost. They include:

  • infrastructure — services like gas, electricity, internet and business banking
  • staff — hiring, training, paying and motivating your people
  • technology — keeping on top of tech to support your business better
  • procurement — getting what you need to produce your product or service.

For example, on-the-job training for staff members at your pie shop may improve their performance. But it doesn’t have a direct link to actually producing your pies, so it’s a supporting activity. On the other hand, when your staff member is baking pies, they’re doing an activity that directly creates your product. Baking is a primary activity and training isn’t.

You may find it tricky to identify the costs associated with the supporting activities in your business. But analysing them as part of your value chain helps to give you a fuller picture of your business. It will help you to identify your strengths, weaknesses, and opportunities. It’s the difference between a narrower operations focus and a broader business strategy approach. Don’t panic if you can’t find all your secondary activities — the key is to identify the most important and understand your value chain better. Capture all your important activities in the strategy planning worksheet.

Find out which activities are unique and valuable

The value chain for your business focuses on the activities that are unique to you and contribute value or cost. They can be unique because you do something your competitors don’t, because you don’t do something your competitors do, or because you do something in a different way. These unique activities are the most important for strategic change. You’re less likely to focus on the activities that you and your competitors do in a similar way. They don’t lead to a value or cost advantage, so they are less likely to be the key to a winning strategy.

Once you identify key activities in your value chain, think about the key resources you need to perform those activities better than your competitors. These resources could be finances, staff, skills, physical assets, or even your company culture. For example, your social media presence could be a key marketing activity, made possible by your skilled staff who manage your social media accounts. This makes your staff a key resource for this activity.

Use the strategy planning worksheet to note some of the key activities in your business.

Case study

Case study

Cheaper ingredients and customised cakes

Chrissy owns a café in Wellington and wants to find out which of her business activities are the most valuable and which ones she could improve. She breaks down her primary and supporting activities into two lists.

Chrissy’s primary activities include:

  • Inbound — buying ingredients from the local farmers’ market every week
  • Operations — baking bread and cakes, making sandwiches
  • Outbound — selling food and drinks
  • Marketing and sales — letting the café’s Facebook followers know about the latest treats
  • Post-sales service — for example, Chrissy has recently started a loyalty card scheme.

Her supporting activities include:

  • Infrastructure — keeping the café décor fresh and taking care of the banking
  • Human resources — hiring through word of mouth and training employees
  • Technology development — keeping the website updated and maintaining the café’s social media presence
  • Procurement — making sure she’s getting the best long-term deal on supplies.

Chrissy understands she can’t compete with bigger cafés on things like marketing or technology. She finds out from social media that customers love her cakes. She has a chance to improve her business by focusing on her supplies and operations.

Chrissy discovers that her supplier from the market is located nearby, and she enters into a long-term deal to get supplies at a discount. She starts customising cakes, taking ideas from her loyal customers on Facebook. Her big competitors can’t do this because their strategy is based on providing standard cakes. Chrissy’s sales of cakes double in the next month, and she gets 20% more customers enrolled in her loyalty programme.

3. Find your key resources

Your business activities depend on the resources you use to do them. Reflect on whether the resources are key to your business success. Think about whether each resource is valuable, rare, hard to imitate, and fully used. Based on your answers, we’ll give you some tips to make the most of each resource.

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Use the strategy planning worksheet to write down some of the opportunities you identify.

4. Improve your bottom line

Once you’ve examined your business’s unique activities and resources, you can identify your current advantages and possible future advantages. Future advantages might be:

  • competing better with other businesses on costs — this will involve finding your cost advantage
  • creating better products or services that give you an advantage over other businesses — this will involve increasing the value you create or capture.

You could use either of these advantages to increase your profit margin. For example, you could improve profit margin by increasing the gap between the cost of producing your product or service and the price your customers are willing to pay for it.

Adding value to your product or service can increase your customers’ willingness to pay. This helps you to widen the gap between your costs and the price you charge customers.

Diagram with two pairs of stacked bar charts representing two ways to increase profit. Each bar adds profit to cost, labelling the total as price. The first pair of bars is labelled ‘increase price’. Increasing price without increasing cost means the profit increases. The second pair of bars is labelled ‘reduce cost’. Reducing cost without reducing price also means the profit increases.

Find your cost advantage

To find your cost advantage, examine the costs associated with each activity in your business. You should also explore your competitors’ activities to understand their costs. Finally, compare the costs of your competitors’ activities with the costs of the activities in your value chain.

You may not be able to find out exactly what competitors do, or what costs they have. But you may be able to see clues that suggest how they do things differently. For example, if your competitor requires orders well in advance, they might do it to help them to plan their work and reduce the number of people they need to meet demand.

Find your value advantage

Each activity will have a value to your customer which is different to what it costs you in money. Consider how each activity contributes to your customers’ willingness to pay for your product or service and the price you can charge. You can do this by asking customers what they value about your product or service. For example, you might give your customers a survey, or ask them directly what they like about your product or service.

You can also look at what your competitors do. How do they do things differently to you, or to each other? How do their activities relate to their customers’ willingness to pay? Do they do something better that makes their customers willing to pay more?

Analyse how each activity creates value for customers, and study differences in competitors’ activities to examine why their customers are willing to pay more. For example, Chrissy in our case study might look at her business’s activities and find that people value the artistic foam creations one of her baristas specialises in. She might consider training other staff in this skill so she can increase her value advantage over her competitors.

Use the strategy planning worksheet to note your cost or value advantage, and what you could do to improve it.

“A lean business, one that focuses only on its key strengths, can fight off competition better and for longer.”

“A lean business, one that focuses only on its key strengths, can fight off competition better and for longer.”

Victor Bennett, Associate Professor (Strategy), Duke University

5. Get the business on board

If you do decide to make a strategic change, think about how it might affect the rest of the company. For example, you might need new skills to operate high-tech new equipment. Or if you have high demand for your product at some times, but not at others, you might need to be able to call on extra staff at short notice. Here’s how to spot the factors that will support or oppose your strategic change.

Seven factors influence your ability to change

Your business’s ability to change depends on:

  • strategy — the actions a business might take to get a competitive advantage
  • structure — the way tasks and people are organised and coordinated within a business
  • systems — the formal and informal procedures used to manage a business
  • staff — employees and how the organisation recruits, trains, and promotes them
  • skills — the abilities of the business and what it does best in each area
  • style — the culture of a business including widely held beliefs and the actions of managers and other leaders
  • shared values — things like the business’s vision, mission and values that give employees a sense of purpose.

Get better at change by following three steps to match up the factors.

  1. Start with your shared values. Are they consistent with your business’s structure, strategy, and systems? If they aren’t consistent, consider what needs to change.
  2. Examine your strategy, structure, and systems. How well does each one support the others? Identify where you need to make changes.
  3. Finally, focus on staff, skills and style. Do they support the strategy, structure, and systems you want? Do they support each another? If not, consider what needs to change.

For example, let’s say you are moving away from a strategy focused on cost to a strategy focused on adding value. This means you need to improve your staff and skills to provide this new added value. It could also mean changes to the structure and systems you use to run your business. Previous choices that emphasised cost-cutting over value and quality might not fit any more.

Try out your changes. You may need to adjust things in a few stages, each time making adjustments and then looking at how everything fits together. Change can be time-consuming, but the end result of better performance will be worth it. Use the strategy planning worksheet to capture the changes you’d like to make internally and how these changes would affect your business.

Involve your staff

You are more likely to get your employees to support change if they feel involved in decisions. Your employees can also help create shared goals. This is part of the reason why giving your employees some responsibility for strategy work can work well. For example, you might invite everyone to discuss how planned changes affect the values shared within your business. This will help them to have a say and feel involved.

Use the strategy planning worksheet to explore how strategic change will affect the rest of your business.

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