(dup) Glossary

Assumptions – In strategic planning, assumptions are suppositions that we use to build up a future scenario to provide an idea of what the end result may look like. For example, one assumption used in sales budgeting may be projected growth in demand for the company’s products.Balanced scorecard – First introduced by Robert S. Kaplan and David Norton, it is a representation of what is important for a business in terms of measurement of performance in relation to its vision and strategies. The usual model is holistic in approach, looking at four perspectives – financial, customer, process and development. It is a performance management tool that helps employees focus on what is key to helping the business succeed. Think of it as a report card for business.
Behaviour pattern – The behaviour pattern refers to the behavioural response of a typical customer or a group of customers that share certain common characteristics. The study of this is useful in deciding the best approach for sales. For example, retailers, from the study of typical behaviour pattern of consumers, know that putting items for sale that are usually bought on impulse, such as confectionery, when placed near the cashier, entices customers to purchase while queuing, thereby increasing sales.

Brand loyalty – Consumer’s continued commitment to the purchase or promoting (through for example word of mouth) of products or services bearing a particular brand. Brand loyalists tend to be more willing to attribute better values to the brand they are loyal to and therefore are more willing to pay a higher price than an equivalent product elsewhere. Thus, the branded shirt made by a manufacturer under licence sells for many times the value of an unbranded shirt by the same manufacturer.

Brand recall – Brand recall is what happens when a brand pops up in the consumer’s mind when thinking of purchasing a particular product or service.

Budget – The business plan depicted in financial numbers over a plan period. To produce a budget, assumptions (see definition) about the future need to be made.

Capital – Capital is a loosely used word. Speaking in terms of business and finance, capital is the wealth used (or funds put in) by the owners to start or maintain a business.

Category killer – One that has features that are so compellingly attractive to the market that it soon crowds out the competition.

Contribution – Theoretically, this is the amount remaining after deducting from revenue all costs that vary with the revenue. What you get then is called the contribution to determine if the product line is making a contribution and to what extent such contribution covers fixed costs and overheads. In practice, this may be more difficult to establish than it sounds because most costs are partly variable (varies with sales volume) and partly fixed (does not vary with sales volume). Contribution margin is the contribution expressed as a percentage of the sale amount. Thus, if the contribution of a product that sells for RM 100 is RM 20, then the contribution margin is 20%.

Core competencies – A core competency is an area that the people in a business are particularly good at (part of strategic strengths). Such a competency is hard for competitors to follow and can be used to advantage for other products, activities or markets. For example, a logistics company’s core competencies may be offered as outsourcing opportunities for manufacturers who want to distribute but are lacking in logistics capabilities.

Core values – Shared values are those that a company adopt as important beliefs, qualities and attributes that employees value. A company should have shared values that can serve as a glue for culture building, binding people together and imbuing them with a sense of belonging and purpose. Core values are those that are regarded as most important to the company for fulfilling its mission. For example, a core value of an airline business ought to be time consciousness.

Corrective action – An action required to correct, reduce or eliminate the cause of a problem. For example, if sales are not penetrating a market because of lack of awareness, the corrective action may be a marketing campaign that involves an introductory offer with attractive pricing and/or other attractions.

Cost of funding – The cost of obtaining the fund from a provider. This cost usually refers to the interest rate and related expenses. For example, the cost of funding to a company may be the borrowing rate it pays to its bank creditor comprising the BLR (base lending rate) plus say 2% margin.

Cost of goods/services – The cost of providing goods/services sold (or commonly referred to as the cost of sales) comprises all costs and overheads directly incurred to produce the goods/services sold. These costs would normally cover the cost of raw materials and the cost of manufacture.

Critical Mass – The volume of business that needs to be built to go past breakeven and start making profit.

Critical Success Factors (CSFs) – Critical Success Factors are the factors that are necessary for the organisation to survive and successfully achieve its mission. For example, one of the critical success factors for a news media company is getting and disseminating information of public interest on a timely basis.

Customer profiling – It is classifying the different demographic characteristics and/or behaviour patterns, in relation to your business, that typically describe the customers in your market. For example, if you are in the discount store business, profiling based on gender may be more important than profiling based on income levels. It would be the reverse if you were say in the financial planning business.

Demographics – The study of various characteristics of population, e.g. race, age, income, type of employment, etc. For example, a financial products company would be interested in classification of customers by income level so that it can target different products to offer for the different types.

Direct overheads – Overheads are the cost of resources used to sustain the business. In the short term, such costs are incurred regardless of sales. Direct overheads refers to those overheads that are directly attributed to the operation of the division or business unit, e.g. depreciation of the machine that is used only for the department.

Driving force – Defining your driving force helps you determine what goes into your strategic profile. The driving force helps give you the momentum in the direction that you want to go.

External factors – Factors that are external to the organisation, e.g. those regarding the environment, competitors, industry trends, many of which are not within the organisation’s control.

Features – Items of usefulness or benefit or perceived value offered with the purchase of a product. For example, automatic transmission is a standard feature of almost all cars nowadays. A feature by itself is not effective unless it can be perceived as of use or of benefit to the customer.

Fixed cost – Such costs are incurred as fixed costs over time and do not vary with sales, e.g. rent.

Front line staff – Staff that interact directly with customers, e.g. counter service staff.

Gaps – These are the missing or weak areas in resources that prevent a business from realising its vision. For example, an ice cream manufacturer who wants to expand nationwide may have a gap if it does not have a fleet of ice cream trucks.

Gaps analysis – An analysis to identify the strategic gaps that prevent a business from realising its vision.

General Overheads – See overheads

Goal – An aim to be achieved for the short term, as opposed to a long-term objective.

High gearing – Gearing compares the amount of borrowings a business has taken against its net worth (or what represents the owners’ funds). High gearing refers to the situation where the business relies more on borrowed funds than capital funds to finance its business. This may be dangerous if the cost of borrowing fluctuates a lot and there is not much cushion because profitability is low. Low gearing is the converse, i.e. when there are more capital funds than borrowed funds.

High profitability – Characteristics of a business that enjoys a high profit margin that is sufficient to cover all costs and expenses and provide a higher than normal return to shareholders.

Indirect cost – A cost that does not contribute directly to sales e.g. office rental. If you are a division head, you may not have control over such costs. E.g. share of cost of developing a company-wide accounting system charged to your division.

Indirect overheads – Overheads are the cost of resources used to sustain the business. In the short term, such costs are incurred regardless of sales. Indirect overheads refers to those overheads that, while not directly attributed, are incurred partly for the operation of the division or business unit, e.g. share of central audit costs.

Innovation – For an organization, innovation means something new or different that is introduced to the features of a product/service or the way it is made, sold or delivered or supported after the sale, that improves customers’ perception of its value.

Internal factors – Factors within the organisation that need to be considered for planning, e.g. sales by segments, resources, processes, many of which are within the organisation’s control.

Investor – One who invests (commits money or equivalent value) by subscribing for or purchasing shares in a company or an interest in a business for the purpose of earning a return. The difference between an investor and a creditor is that the former cannot claim back his money as a debt should the company or business fail.

Key Performance Areas (KPAs) ( also refer to KRA – Key Results Area ) – An area that is key in assessing performance in relation to what management hopes to achieve strategically.

Key Performance Indicators (KPIs) – A measurement indicator of how one performs in a key performance area.

Lead indicator – A leading indicator is data that indicates change ahead of the underlying key activity being monitored. For example, the orders that a company have in hand can be considered a leading indicator of sales in the future. Enquiries that come in can also be considered another leading indicator of sales. Though not necessarily accurate, such indicators are useful for assessing trends early.

Margin – In business, the word margin is loosely used. Generally, it means the difference (representing the profit) arrived at after deducting certain costs and expenses from revenue, stated as a percentage of revenue or as an absolute amount, but one has to understand in what context it is meant. Thus, gross profit margin would represent the difference between revenue and all direct cost of sales, contribution margin would be the difference between gross profit and all overheads attributable to the generation of revenue for a particular business and the net profit margin would be the difference between contribution and central overheads and those costs that cannot be directly attributed to each business.

Matrix – Arrangement of connected things: an arrangement of parts that shows how they are interconnected, in the example, how price and quality are interconnected that results in particular type of products.

Milestones – Events which when achieved represent markers of progress towards an objective or objectives spelt out in a strategic roadmap.

Mission – The purpose for which the business was set up. The ever-present, never-ending objective.

Objective – An aim to be achieved for the long term.

Outsourcing – Essentially this refers to contracting out of functions normally performed by employees within a business. This happens when the organization recognizes that it is better to focus on its own core competencies and let outsiders, who have the capability, handle the non-core activities better.

Overheads – Overheads are the cost of resources used to sustain the business and may be classified in various ways, such as direct and indirect or fixed and variable (see definitions).

Performance goals and targets – These are specific objectives that management or staff aim to achieve over a given time frame. In organisations, this is an effective tool for tracking progress, like milestones to a driver, by ensuring that staff are clearly aware of what is expected from them, if an objective is to be achieved. Targets are goals that are measurable and are normally given along with performance incentives to drive employee performance. Thus, having a motivated and happy workforce may be a performance goal while having a low staff turnover of below 5% per annum may be a target.

Performance management – Performance management encompasses activities that motivate employees and track and reward their performance in achieving a company’s desired objectives and goals.

Point-of-sale – Or commonly known as POS means at the point of transaction with the customer. This can mean a retail shop, a checkout counter in a shop, or a mobile unit, or any location (including virtual sites) where a transaction occurs.

Potential problems – Problems that may occur in future based on assumptions made. In business planning, we analyse potential problems in order to arrive at contingency plans to address a problem, should it occur. For example, the stopping of a production line costs money and this could be a potential problem if a new factory is planned in an area prone to power outages.

Productivity – Productivity is the amount of output created, whether in terms of goods produced or services rendered, per unit input used. For e.g. labour productivity can be measured as output per labour-hour or per staff. Productivity is normally measured as a ratio of output per unit of input over time, therefore it can be considered a measurement of efficiency.

Resources and constraints – Resources refer to the means available to an organization to increase its business and would include plant and equipment, goods, money and manpower. Constraints refer to the existing limitations on the resources that are available for use.

Return on Capital Employed (ROCE) – Return on capital employed is a financial term to measure the return that a company gets from the use of its capital (i.e. capital employed). This rate measures the efficiency of the capital utilised to generate income and can be used for comparison purpose in terms of measuring performance of different companies or business units. Can also be used to assess if the company is generating enough return to pay for its cost of capital.

Return on Investment (ROI) – Returns on investment is a financial term to measure or compare money earned or lost (returns or negative returns) against the money invested on a particular project, business venture or the company overall.

Risk – Anything that has a potentially adverse impact on the business. But do not go paranoid about it. Business is all about taking risks to earn reward. Not all risks need to be covered. Some are inherent and cannot be avoided. Some can be removed or mitigated by taking appropriate action (by taking insurance for example). Some are too insignificant or remote to be considered. Good management identifies and classifies risks and define the action (or inaction) for each type.

Roadmap – An overall implementation plan of the agreed strategy or strategies. A summary showing the strategy/strategies, initiatives, milestones and timelines for implementation.

Semi-variable Cost – A cost that is generally fixed but will vary with business volume over the longer term. For example, technical support staff cost goes up as sales go up because of more after-sales support service is now needed.

Shared values – See core values.

Shareholder – One who owns a share in a company representing his interest in the company. Thus, if you own 10 shares out of the company’s total issued capital of 100 shares, you are said to have an interest of 10% in the company’s equity.

Short term & long term – Short, medium and long term – in the context of strategic planning, such a term refers to a period of time. If short, this may be several months, 1 year or even 2 years. People generally refer to medium term as 2 to 5 years and long term as over 5 years. Thus, a short term goal is an objective to be achieved over a short period of time set by the organization. In the short term, it is difficult to change committed costs that are fixed in nature (e.g. payroll, rent) whereas in the long term, most committed costs can be varied.

Situational analysis – An in-depth analysis, as part of an organisation’s strategic planning process, that involves research and gathering of data about internal as well as external factors that are important in planning for the future. This is the prelude to strategising.

Start-ups – A start-up is a business that has recently been started but is not established yet. Typically, there would be low awareness and low customer acceptance for its products and services. If its revenue is not yet sufficient to cover its costs and expenses, then it has not reached breakeven.

Strategic direction – What has been defined by management as the direction that the company should head for as the long-term strategy. For example, the strategic direction of a consumer products company may be to move from a cost competitive but low quality end to a high quality position.

Strategic profile– A set of strategically important characteristics, such as business model and shared values that identifies a business and distinguishes it from others.

Strategic thinking process – A process of visualisation on how strategies impact us, taking into account all relevant factors that we are aware of. While most internal actions ultimately have an impact on the organisation’s dealings with the outside world, strategic thinking is concerned about the big picture – strategies that have major and long-term impacts.

Strategy – What has been agreed by management as the course to take for the planning period. For example, a company may be looking at an acquisition strategy for this year to gain market share.

Strengths and weaknesses – Significant factors or elements within an organisation that are considered strong (strengths) or weak (for weaknesses) that affect the competitiveness and ultimately the financial performance of the organization. For example, one of the strengths of McDonalds is the brand loyalty they have cultivated among children.

SWOT analysis – An analysis of the strengths and weaknesses of an organisation as well as the opportunities and threats outside. This is part of situational analysis done as part of the strategic planning process.

Target – A goal that can be stated in quantifiable terms and measured.

Unique Selling Point (USP) – A unique selling proposition (or unique selling point) represents the most prominent feature that sets the product or service apart from its competitors, whether real or perceived. It can be price but in most competitive situations, the USP is not price but quality, delivery, after sales service, special product features and so on, factors that are either not offered or not offered so well by other competitors. For example, one of Citroen’s USPs is its unique suspension system. USP is important in business planning. It gives users an idea of how your products appeal to the market and how this may translate to growth.

Variable cost and expenses – Costs and expenses incurred directly to generate sales. Such costs vary with sales volume. Examples of variable expenses are sales commission and delivery expenses which are incurred only when a sale is made. If there is no sale, there is no expense.

Vision – A snapshot of what the business is envisaged to look like in x years’ time if mission is followed.

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