You are on page 1of 7


INTERNATIONAL STRATEGIC MANAGEMENT Business Definition Clarifying the mission and defining the business are the starting point of strategic planning. The business definition carries the blue print of the firms business, products and markets. Without a clear idea of the firms core purpose and the arena it prefers to play in, the firm cannot size up the multifarious development taking place in the environment; its choice of opportunities and strategies is impaired. Analysis shows that, in actual practice, many business firms fail to conceptualize and articulate the mission and business definition with the required clarity. And such firms seem to fumble in the selection of opportunities and choice of strategies. What Business We Are In? The well known management experts, Peter Drucker and Theodore Levitt were among the first to agitate this issue through their writings. They emphasized that as the first step in business planning endeavor, every business firms must clarify the corporate mission and define accurately the business the firm is engaged in. They also explained that towards facilitating this task, the firm should raise and answer certain basic questions concerning its business, such as: (i) What is our mission? (ii) What is our ultimate purpose? (iii) What do we want to become? (iv) What kind of growth do we seek? (v) Do we know our customer? (vi) Whom do we intend to serve? (vii) What human need do we intend to serve through our offer?

(viii) What brings us to this particular business? (ix) What should be the nature of this business in future? (x) In what business would we like to be in, in the future? At the time these two experts raised these issues, the business managers of the world did not fully appreciate the import of these questions. Those were days when business management was still a relatively simple process even in industrially advanced countries like the US. It was only the subsequent years that captains of industry all over the world understood the significance of seemingly simple questions raised by Peter Drucker and Theodore Levitt.

What Does Business Definition Mean? A Business definition is a clear-cut statement of business/ businesses the firm is engaged in or planning to pursue. It is an elaboration of the business arena it will play in. It prescribes the boundaries of firms business/ businesses. What Purpose Does a Business Definition Serve? Business definition clarifies for the firm opportunities it can pursue and the areas in which these opportunities are to be looked for. It also clarifies to the firm the various sources from which threats and competition can emanate. The firm understands its industry and its contours better. Business definition provides the blue print for choice of product market and changes thereof. By delimiting the boundaries of the business/ businesses, the business definition serves as the reference point for product market choices and corporate strategy of the firm. Generation of strategy alternatives and subsequent strategy choices gained better focus and clarity when the firm specifies the business it will pursue. The mission provides the clues for business definition. Because, it makes clear the nature of business the firm will pursue. The business definition carry the framework the product market prices. Within this

broad framework the variety of decision alternatives will emanate during the firms journey. At what level it will play, what strategy it will evolve, what kind of investment it will make, with whom it will compete etc., are all matters for subsequent decisions. What Does business look like? A company like Helen Curtis, makers of products like hair dye, cosmetics, and perfumes define its business as We are in the beauty enriching business. We will pursue ideas that we would generate products enriching beauty and youthfulness of men and women. Intel, the makers of microprocessor chips for computers define their business as We are in the business of computing technology and to consistently develop the artifice/ building block of computing technology for the entire computer industry of the world is our business. Ford Motor Company defines their business as We are in the business of automotive and auto related products and services. We will obtain a better understanding of the nature of business definition, when we look at it in conjunction with corporate mission. The mission of Unilever is; The mission of our company, is to make cleanliness commonplace, to lessen work for women, to foster health, and to contribute to personal attractiveness that life may be more enjoyable for the people who use our product. The mission of Unilever carries a broad indication of the business/ businesses the Unilever group proposes to engage it in. For instance, home cleanliness would be one area. Any number of products comes out of this basic business theme. It could be soaps, scouring powders, detergents, floor cleaning materials, etc. Similarly, fostering health opens the way for a long list of food products. Personal attractiveness is yet another area- cosmetic, perfume, facial make up and other lines can figure under this head. How To Define Ones Business

How to conceive and develop a business definition? What are the attributes of a proper business definition? What criteria should it fulfill?

Business definition masterminds the search for product and market. Therefore, to arrive at the correct business definition is to choose one that will facilitate the strategic search for products and markets in such a way that the baskets of opportunities that could be tapped is enlarged to the maximum. At the same time, a firm has to ensure that business definition envisaged do not spoil the focus and lead the search into unmanageable product market choices. Traditionally, firms had viewed their businesses as one of producing some goods or the other and had set their future plans around production of more of these goods and increasing profits. Such a view often shattered the future of the firm. It resulted in concentrating on what was happening in a very limited circle and planning all activities with a limited vision. This narrower view prevented the firm from seeing the latent sources of competition for the firms product. It also led to the closure of the option for a wider search and larger choice of opportunities. Theodore Levitt, through his classic work, The Marketing Myopia forcefully brought out the tragic flaw in viewing ones business from a narrow product- oriented perspective instead of a broader need oriented perspective. He cited, in addition to many other industries, the case of American railroad industry which lost its fortunes to the other newly emerging transportation. Levitt explained that if railroads had defined their business as transportation rather than as railroads, they would have strategize accordingly, moved with the changing times and stayed in the business. To quote Levitt, .The failure is at the topThey defined their industry wrong..There are other examples of companies that have been and are now endangering their futures by improperly defining their purpose.. He adds that a wrong definition of ones business finally becomes fateful. The narrower a company defines and perceives its business; larger is the probability of its losing out on growth and profits. When the definition of the business is narrow, quite naturally, the assessment of the competition will be narrow; the vision and the opportunities will also be narrow.

Business To Be Defined In Terms Of Human Needs They Serve A company has to define its business as broadly as possible; it has to go beyond its immediate product, immediate competitors, and immediate market boundaries. It must relate the definition to the basic needs the product seeks to satisfy, the main functions it performs and the benefits it provides. It must be wide enough to embrace new opportunities and provide a vision of latent source of competition. These arguments of Levitt were irresistible to the management practitioners of the world at one point of time. But they are now discovering that one of their major tasks is to clarify the business they are engaged in. Derek Abell in his mastery work Defining The Business: The starting point of strategic planning, gave a good elaboration of the idea. Abell showed that a business can be defined along three factors, viz, customer needs, customer groups and technology. Michael porter, too, took the cue from the very same idea and laid great emphasis on accurate definition of business. He says there is a great need to look beyond the product and grasp the function while defining a business, to go beyond the natural boundaries to potential international competition and to go beyond the ranks of ones competitors of today to those that may become competitors tomorrow. Attributes Of a Good Business Definition A good business definition should meet the following requirements: It must be related to the basic human need which the product seeks to satisfy and should not be limited to just the product It must be related to the functions performed by the product and not limited to just the product. It must be related to the basic benefits the product offers It must encompass in its fold, as many related functions/ benefits as possible. It must go beyond the immediate product, beyond the immediate competitors, beyond the immediate market boundaries.

It must be wide enough to embrace new opportunities. It must be wide enough to give a vision of latent sources of competition from say, substitute products. As Business Boundaries Keep Changing, Defining The Business Has Become An Exacting Exercise. In the present day world, defining ones business has become an exacting exercise because of the rapid changes taking place in the fields of technology, products and customer preference. Product- market boundaries are no longer the same as in the past; they are getting extended. In some cases, product categories which were distinct in yesteryears are now merging together. In some other cases, product categories that flourished in the past are altogether vanishing from the scene. Over and above this, new and substitute products keep invading the market, altering existing business boundaries. In such a discontinuous environment, understanding the boundaries of ones business and defining it properly are extremely important. Corporate Mission And Business Definition Are not Static Ideas: They may Need Recasting Overtime While the mission and business definition are not to be tinkered with every now and then, they are dynamic ideas and their changes, when necessary, are part and parcel of the growth process of a firm For instance, when a firm diversifies into entirely new businesses, to avail of emerging growth opportunities, its business definition is getting recast. To cite an example, Ford Motor Company, originally in the business of automotive and auto related products and services revised its business definition as follows, in the wake of its diversification:Ford Motor Company, a world leader in automotive and auto related products and services will from now additionally pursue the lines of aerospace, communications and financial services. Both Levitt and Drucker have come out with the view that mission and business definition cannot be fixed ideas. The assumptions a company makes about environment, technology, markets, customers and competitors, as well as its own mission and business, become obsolete over time.

Any organization that doubles or triples itself within a short period of time has necessarily outgrown its originally adopted assumptions. Moreover, the assumptions invariably become obsolete once an organization attains its original objectives. Attaining ones objectives then, is not a cause for celebration; it is a cause for fresh thinking. Planning for the changes required in the mission and business definition and preparing the organization for these changes, is an integral part of strategic management. Source: Strategic Planning, Formulation of Corporate Strategy By V. S. Ramaswamy, S. Namakumari, Macmillan Business Books