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 firm’s business, products and markets. • Without a clear idea of the firm’s 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?
It prescribes the boundaries of firm’s business/ businesses. in the future? At the time these two experts raised these issues. The firm understands its industry and its contours better. • Business definition provides the blue print for choice of product market and changes thereof. Those were days when business management was still a relatively simple process even in industrially advanced countries like the US.
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.2
(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. the business definition serves as the reference point for product market choices and corporate strategy of the firm. Within this
. • The mission provides the clues for business definition. The business definition carry the framework the product market prices. It also clarifies to the firm the various sources from which threats and competition can emanate. Because. It is an elaboration of the business arena it will play in. it makes clear the nature of business the firm will pursue. the business managers of the world did not fully appreciate the import of these questions. 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. By delimiting the boundaries of the business/ businesses. • 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. • Generation of strategy alternatives and subsequent strategy choices gained better focus and clarity when the firm specifies the business it will pursue.
• At what level it will play. detergents.” • We will obtain a better understanding of the nature of business definition. 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. Any number of products comes out of this basic business theme. what strategy it will evolve. 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. perfume.. “home cleanliness” would be one area.” • Ford Motor Company defines their business as “We are in the business of automotive and auto related products and services. • Similarly. to lessen work for women. scouring powders. • The mission of Unilever is. We will pursue ideas that we would generate products enriching beauty and youthfulness of men and women. when we look at it in conjunction with corporate mission. cosmetics. is to make cleanliness commonplace. It could be soaps. What Does business look like? • A company like Helen Curtis. etc. and perfumes define its business as “We are in the beauty enriching business. facial make up and other lines can figure under this head. “fostering health” opens the way for a long list of food products. How To Define One’s Business
How to conceive and develop a business definition? What are the attributes of a proper business definition? What criteria should it fulfill?
. “The mission of our company. to foster health.3
broad framework the variety of decision alternatives will emanate during the firm’s journey. what kind of investment it will make. with whom it will compete etc. floor cleaning materials.cosmetic. “Personal attractiveness” is yet another area.” • Intel. For instance. makers of products like hair dye. are all matters for subsequent decisions.
• Business definition masterminds the search for product and market. 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. through his classic work. Such a view often shattered the future of the firm. moved with the changing times and stayed in the business.
. 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. a firm has to ensure that business definition envisaged do not spoil the focus and lead the search into unmanageable product market choices. the vision and the opportunities will also be narrow. Therefore. in addition to many other industries. It resulted in concentrating on what was happening in a very limited circle and planning all activities with a limited vision..There are other examples of companies that have been and are now endangering their futures by improperly defining their purpose…. • At the same time. • Levitt explained that if railroads had defined their business as “transportation” rather than as ‘railroads”.” He adds that a wrong definition of one’s business finally becomes fateful. the assessment of the competition will be narrow. It also led to the closure of the option for a wider search and larger choice of opportunities. He cited..The failure is at the top…They defined their industry wrong…. The Marketing Myopia forcefully brought out the tragic flaw in viewing one’s business from a narrow product. larger is the probability of its losing out on growth and profits. • To quote Levitt. • This narrower view prevented the firm from seeing the latent sources of competition for the firm’s product. “…. quite naturally. When the definition of the business is narrow. • Traditionally. the case of American railroad industry which lost its fortunes to the other newly emerging transportation. they would have strategize accordingly.oriented perspective instead of a broader need oriented perspective. • Theodore Levitt. • The narrower a company defines and perceives its business.
It must be wide enough to embrace new opportunities and provide a vision of latent source of competition. • Michael porter. beyond the immediate competitors. beyond the immediate market boundaries. • It must go beyond the immediate product. too. • Derek Abell in his mastery work “Defining The Business: The starting point of strategic planning.5
Business To Be Defined In Terms Of Human Needs They Serve • A company has to define its business as broadly as possible. as many related functions/ benefits as possible. customer needs. the main functions it performs and the benefits it provides. immediate competitors. and immediate market boundaries. customer groups and technology. But they are now discovering that one of their major tasks is to clarify the business they are engaged in.” 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.
. gave a good elaboration of the idea. • It must be related to the basic benefits the product offers • It must encompass in its fold. • Abell showed that a business can be defined along three factors. • It must relate the definition to the basic needs the product seeks to satisfy. to go beyond the natural boundaries to potential international competition and to go beyond the ranks of one’s competitors of today to those that may become competitors tomorrow. viz. • These arguments of Levitt were irresistible to the management practitioners of the world at one point of time. it has to go beyond its immediate product. 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.
In such a discontinuous environment. altering existing business boundaries. product categories that flourished in the past are altogether vanishing from the scene. become obsolete over time. when necessary. markets. • It must be wide enough to give a vision of latent sources of competition from say. are part and parcel of the growth process of a firm • For instance. • In the present day world. The assumptions a company makes about environment. a world leader in automotive and auto related products and services will from now additionally pursue the lines of aerospace. as well as its own mission and business.6
• It must be wide enough to embrace new opportunities. they are getting extended. products and customer preference. In some cases. new and substitute products keep invading the market. understanding the boundaries of one’s business and defining it properly are extremely important. • Product. 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. in the wake of its diversification:“Ford Motor Company. its business definition is getting recast. In some other cases. • To cite an example. when a firm diversifies into entirely new businesses. • Over and above this. technology. substitute products. Defining The Business Has Become An Exacting Exercise.
. originally in the business of automotive and auto related products and services revised its business definition as follows.market boundaries are no longer the same as in the past. they are dynamic ideas and their changes. product categories which were distinct in yesteryears are now merging together. communications and financial services. customers and competitors. As Business Boundaries Keep Changing. to avail of emerging growth opportunities.” • Both Levitt and Drucker have come out with the view that mission and business definition cannot be fixed ideas. defining one’s business has become an exacting exercise because of the rapid changes taking place in the fields of technology. Ford Motor Company.
is an integral part of strategic management. Source: Strategic Planning. Planning for the changes required in the mission and business definition and preparing the organization for these changes.7
• Any organization that doubles or triples itself within a short period of time has necessarily outgrown its originally adopted assumptions. it is a cause for fresh thinking. Macmillan Business Books
. Formulation of Corporate Strategy By V. Ramaswamy. Moreover. is not a cause for celebration. S. Namakumari. • Attaining one’s objectives then. the assumptions invariably become obsolete once an organization attains its original objectives. S.