Business Planning and The Organizational Environment – Part IV

I've been
writing this about the importance of a company's organizational environment in
the business planning process.    While the organizational
environment should be considered when the founders and managers sit down to
write the initial strategic business plan, the process does not end
there.  In fact, managing the various environmental factors that make
up the organizational domain of any company is a constant challenge since
conditions will change continuously and management itself will be pushed by
competitive factors to reconfigure and expand the organizational domain of the
company as the original windows of opportunity close, new opportunities emerge,
and unforeseen threats begin to loom on the horizon.  For example,
customer tastes and requirements change the company must make changes in its
products and services in order to retain customers and continuing growing and
execution of these changes may require adjustments in certain parts of the
company’s stakeholder network—new suppliers and/or distributors.  Also,
as the domestic market for the products and services of a company begins to
mature the company must typically look to foreign markets to expand its pool of
the most valuable scarce resource—customers—and take advantage of its core
competencies in order to continue to create new value for its owners and other
stakeholders.  At that point the original network of stakeholders
will be transformed to include new distributors and suppliers that can execute
the design changes necessary for the company’s products to meet different
expectations of foreign customers.  Changes will also occur in the
employment area as the company recruits foreign employees who understand the
company’s new markets and can provide services at lower costs to allow the
company to remain competitive on a global basis.  In addition,
expanding business activities of any type (e.g., manufacturing, sales or
information technology) into a foreign country means that management in the US
must learn to understand and respect the vagaries of new legal and regulatory
systems and local business practices.

Company
managers must understand the concept of the specific environment and the roles
that external stakeholders will play in designing and strengthening the
company’s organizational domain.  During the business planning
process managers should explicitly consider each of the key stakeholder groups
and incorporate strategies for relating to those groups into the company’s
overall business plan.  In addition, however, managers should
anticipate in advance the need to execute changes in the organizational design
as time goes by in order to ensure that the company is able to continue growing
in the future and take advantage of opportunities to reduce costs and increase
production efficiencies.  One example of how this might be done is in
the design of the product development process.  If the managers know
there will be a need at some point in the future to expand manufacture and sale
of products into foreign markets they can design those products so that it is
relatively simple to make any additional changes or enhancements that may be
necessary in order to customize the products for new foreign markets.  Managers
should also consider when and how changes might be made in manufacturing and
distribution strategies.  For example, a company may start by
manufacturing all of its products in order to retain control over costs and
quality; however, as volumes increase and products need to be delivered on a
timely basis to customers in foreign countries it may become more efficient to
rely more heavily on outside suppliers and manufacturing partners.  Similarly,
reliance on direct sales communications with end users in the early days of the
company may eventually give way to creation of a network of outside dealers and
distributors.  Finally, outsourcing of many other functions,
including management of internal communications networks and customer service
operations, has become a common business strategy and created an entirely new
group of external stakeholders.

Recognition
during the business planning process that the company will need to change its
organizational domain in the future and address new environmental challenges
does not mean that the company will be successful in adapting when the time
actually comes to make changes. Whenever there is a need to change the size
and scope of the organizational domain management must be prepared to identify
the transactions that must be completed with various stakeholders in order to
move forward and have the skills necessary to negotiate the best terms and
conditions for the company and its various stakeholders.  As noted
above, one way in which companies change their organizational domain is by
reaching out to attract new customers.  In order to be successful in
these efforts the company must be prepared to negotiate the terms of engagement
with those customers and realign its network of suppliers and distributors in
order to provide these new customers with products and services that meet their requirements.  Interactions with key external stakeholders have been
so important that companies are beginning to emphasize transactional skills and
experiences as essential characteristics for candidates for senior manager
positions.  Of course, the ability of the company to successfully
negotiate with external stakeholders depends on a variety of factors.  For
example, US companies certainly will be better placed to exert influence on
local and national governmental agencies in the US than on foreign
governments.  Similarly, leverage with customers, suppliers and
distributors will depend on the volume of business and how important the
relationship with the company is to those stakeholders.

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