Good cost reduction also requires you to view your business from a larger perspective. You need to look at your business in a global sense and see how it compares to its competitors. You must figure out how to drain unnecessary expenses from your budget while not harming your company’s fiscal well-being.

The Effect of Globalization
Should your business be expanding, then you must look even more closely at competitors worldwide, as your competition is greater in scope and your operations, and thus costs, will increase in size. Cost reduction is beneficial even when your company is performing well.

There are always extra costs you need to eliminate, and a profitable company can still be overtaxed with unnecessary financial burdens. You must always remember that thriving businesses still need strict monitoring – you must cut necessary costs in order to for your company to operate in optimal conditions.

Remain Competitive through Technology
Because of the nature of globalization, your company has competition with others from around the world, many of whom may have fewer costs. The Internet has allowed customers to conduct their own research on companies throughout the world that have the goods they want at a price they can afford, and some of these businesses may be able to out price you due to fewer labor costs, supply costs, etc.

The Internet can also benefit your company – a good cost reduction plan will utilize the Internet to best market your group. Just as your customers can look for the cheapest goods by going to a website, you too can look for the cheapest vendors and suppliers with the same tool. With the Internet and other technology, you can develop ways to distribute products at cheaper costs.

Your cost reduction plan should discuss using these technological means to improve your company’s efficiencies: computerized sales and order fillings, improved delivery channel systems; and purchase consolidations. You may also take note that some businesses still do not utilize the Internet and other technology – these companies do not have cost reduction plans that address the benefits from these resources.

Take Advantage of Available Tools
Also, by taking advantage of online technologies, you can research other ideas that companies have tested and used. A business owner’s cost reduction plan should include research about why certain methods and ideas worked and failed. This could save a great deal of time and effort as you explore cost reduction options. The Internet, among other technological resources, is now required for you to stay competitive in the globalized world, and you can use these systems to your advantage.

For example, you can research ways of minimizing your cash outlays by looking at how other companies’ turn to equipment leasing – this is a clear instance of cost reduction. This practice is being used more and more because organizations want top notch equipment without the burdens of paying for these costly items. And now you know that equipment leasing is a beneficial means of saving money, something you may not have realized had you not used your technological tools.

Business planning could be described as part of an on-going continuous activity concerning the direction of the whole organisation. It contains the mission, objectives, strategies, tactics, and policies that will serve as a guide to the organisation in adapting to the environment for a specified period of time. A business plan is thus considered as the back bone of a business unit; an attempt to follow the vision to reach the corporate goal. However, a business planning should be flexible and accommodative so that it could be changed from time to time if need be to become adapted to the general environment not only the business environment. To get an effective business plan, a critical analysis of the industry and competitors’ analysis is inevitable.

Strategy is the determination of the basic long-term goals and objectives of an enterprise, the courses of action to be taken and the allocation of resources that would be needed for carrying out these goals. Thus, strategy is not an end in itself but rather a means to an end. It is this which makes it vital ‘must have’ ingredient in any business. It is normally included in the marketing and business plans of organisations.

It is also a process and normally considered under three broad aspects or stages namely strategy analysis, which is the stage where through analysis the strategist identifies the opportunities, strengths, weakness and threats in the environment; strategy formulation, which is the stage where a choice is made from among numerous and potential ones; and strategy implementation which is when the chosen strategy is translated into organisation action.

Strategy is, therefore, developing and shaping organisation’s goals and objectives providing the needed response to the environment (for competitive advantage) and providing good corporate governance. As had already been pointed out strategy and business planning are somewhat linked.

‘Strategy’ is normally part of the business and marketing planning processes.
Industry and competitive analysis form part of the first stages of business planning and strategy. However, there is some distinction between the two.

Industry analysis is trying to identify the forces which affect the level of competition in an industry. Research has proved that industry analysis is very effective at the strategic business unit level (SBU) because if it is done at a generalised level it reduces its value.

Thus, this analysis would be done at the SBU level still with the industry in mind applying Porter’s five forces – threat of entry, the power of buyers, the power of suppliers, and threat of substitutes and competitive rivalry – to show the effect of the environment on the industry as a whole.

The threat of entry: this is the extent to which other interested parties are able to enter the industry. It is dependent on the barriers or restrictions of entry into the industry. There are quite a number of examples here but few might be explained. Some of the examples are economies of scale, capital required in a business, access to distribution channels, expected retaliation (i.e. if a competitor fears the existing firm’s retaliation), legislation or government action and differentiation. In analysing the barriers, consideration is given to which barriers are prevalent, the extent of prevention, the organisation’s position and any loopholes.

The power of buyers: This analysis the influence buyers wield on the industry in question. Based on the organisation’s supply claim the power intensity is felt. For example in the grocery retailing in the UK where there is a concentration of buyers few retailers particularly the supermarkets dominate the market.

Also when the cost of changing suppliers does not involve high cost, buyers can manipulate the system. There is also the threat of backward integration if prices and quality from suppliers are considered unsatisfactory. It is gainsaying the fact that a good knowledge of such issues is a potential determinant of a firm’s strategy. Also when there is price-war (intense) between competitors, buyers can manipulate the system, e.g. low-cost carriers on Airbus and Boeing.

Relating somewhat to the above is the power of suppliers: when consumers of a particular supplier are scattered, the supplier can wield power in that industry. A brand name image can also assist a supplier to become powerful. In Ghana for example the brand name ”Graphic” has become a household name such that if anyone wants to buy any brand of newspaper, the word ”Graphic” is used. Like Gucci and Coca- Cola as well, most retailers stock these to enable them win over shoppers because of the brand.

A significant benefit to be culled from this in formulating any strategy is to attack the brand name or increase marketing cost based on the knowledge gained here.

The next force is threat of substitutes coming into the industry. These could come in one or more of these product- by-product (e.g. fax for postal service, and email for fax, substitution as need by a new product, generic substitution (i.e. products competing for need) and doing without e.g. beer, tobacco, cannabis.

In planning a business or formulating a strategy, therefore, there is the need to find out how risky is the substitute on the product or service of the organization; can the service or product stand the threat posed by the substitutes? or how easily can consumers switch to these substitutes.

Intensity of rivalry: This concerns the possible entry of competitors into the industry; availability of substitutes and buyers and suppliers control. When this position of the existing organization changes. How can it be affected by the competition? The following must also be considered. Competition is intense where competitors are of equal size e.g. the computer engine search industry until Google emerged. Market growth rates and global customers may increase competition. Also where there is little or no differentiation customers can be easily swayed; acquisition and mergers also enhance a firm’s grip in an industry and thus give it a competitive edge. High fixed cost in an industry through high capital intensity result in competitors cutting prices e.g. Boeing and Airbus.

Like the other analysis a good grasp of the information here is a starting point for successful strategy formulation and business planning.

Whereas industry analysis concerns itself with the issues pertaining in the industry which affects the industry, competitive analysis looks at the marketing and financial indicators, mission statements, R& Ds, and product developments to ascertain where competitors are focusing their priorities and resources.

Some of the marketing aspects to consider under the competitive (competitor) analysis may include finding out how competitors are meeting customer needs in the range of goods or services on offer, affordable pricing, unique features. Consideration must also be sought on the quality and reliability of services and goods provided by competitors. For example Toyota has recently slashed engineering cost for Camry by 30% and was able to launch a new longer wider Sienna Mivan that has a fold-flat rear seat and priced it $1,000 less than its predecessor. Others may include obtaining information either by intelligence or through annual reports, as information are not easily disclosed (for fear of capitalizing on by competitors) over all market share whether that is growing declining or stable, share of specific markets e.g. the UK or US Market; launch of new brands or product – Toyota launched a new brand in the US in 2003; ‘Scion’ aimed at younger buyers, other aspects which might provide relevant marketing information on competitor analysis are changes in promotional tactics, distribution channels and not the least addition of new production or service facilities to improve efficiency and cut cost. A good and recent example is Asda installing radio frequency identification (RFID), a device which would be used to scan bar codes of incoming goods which could save Asda $8.35 billion annually. Fortune, ‘Wal-Mart keeps the change’, November 10,2003 pp 23.

Financial analysis will need to consider the performance of competitors. The competitors’ investment programme in relation to R&D, diversification (mergers and acquisitions as well as staff training and development must also be assessed and analysed. R&D is especially vital in the big companies; it is a key to their survival despite its usually long-term results. Microsoft for example is spending billions to develop its own search engine that will be incorporated in both its online service MSN and its new operating system due in 2006 to combat Google’s dominance in the search engine industry. Fortune, 22 December 2003 pp

To make easier analysis, Porter developed a model, a matrix, which compares the five forces against three levels of intensity, low, medium and high (see fig 1 below). Based on the experience of a well-known retail group in the UK, the illustration portrays one of intense competition from rivals and a high need to maintain its customer base against them. In business planning and strategy, industry analysis helps in the positioning of the business and in the right environment (i.e. getting adapted to the environment and the formulation of strategy. Competitor analysis on the other hand influences business planning and strategy by providing the marketing, financial and other key information about competitors which will help in the business planning and formulating a strategy that will give the organisation the needed competitive advantage.

Before and even when you are in business, understanding who you are competing with is paramount to your enduring business success. You cannot operate your business in a vacuum. You have to know everything – and I mean everything – about your competitors – they’ll be watching you, I promise.

Before you start working on your business plan, you have to observe what your competition is doing. Sit outside and watch:

* Who is going into their business?
* How long on average do they stay?
* Are the majority buying or just browsing?
* How do you rate the customer experience?

If you are going to attempt to steal a share of their business away from them, you are going to have to capitalize on what they do poorly. You also have to be better than they are in those areas where they excel. It is no use being “just as good as everyone else” – you have to be better.

You should be constantly ranking the competition in the key areas:

* Product
* Service
* Cleanliness
* Marketing
* Staffing

A business is made up of a number of different components and it is your job to identify them and decide whether you can do better than your competition in any or all of them. You should be evaluating your own business once you open to see if there are weaknesses in your operation. Don’t fool yourself. Be brutally honest. You must always be objective about your own business. If you are having trouble with objectivity, then hire someone to tell you what they think.

You have to be aware of your own weaknesses and move to eliminate them. If you are having supply issues, you should change your suppliers. If you are having employee issues, then you should find new ones. If your training program is inefficient, then you should modify it. Knowing that you have a weakness and not doing something about it makes you very vulnerable.

You should always be looking for opportunities to help distance yourself from your competition. These opportunities may be short-term or maybe long-term. No matter, when you see an opportunity to dominate a market, capitalize on it by moving swiftly and decisively. Seize the moment for he who hesitates is lost. Let’s say, for example, that your major competitor has little or no social media presence. Jump on it immediately and always stay ahead of them as they attempt to catch up.

Having a healthy relationship with your competition is also a good idea. Maybe you don’t want to deal in a particular segment of the industry and he does. Send business his way. He’ll remember. He might return the favor if given the chance. You never want to have an adversarial relationship with your competition – it just isn’t healthy. As they say, keep your friends close and your enemies closer.