The owners of small & medium businesses in ordinary life rarely give due consideration to complex economic categories such as business idea, business life cycle, functional principle of activity, strategic planning, innovation. These terms look too "scientific" and their application in current life of specific business is so dim. Most businessmen are only interested in general laws of marketing, in their intuition and also in simple and usual economic concepts that illustrate current condition of their business — revenue, expenses, profits and losses. When making important business decisions, in the invisible competition between scientific categories and opinions of the close circle, the "family consulting" often wins. For example, according to the National Federation of Independent Business and Well Fargo (USA), 56 % of small business owners make the most important business decisions by exclusively asking the members of their family, for advice 16% of businessmen go to the business partners for advice, 14 % — to professional consultants and 7 % — to their colleagues. The smaller the firm is, the more frequently its owner asks the members of his or her household for advice. Among the family members, the wives or the husbands are the highest authority for the business owner. They tell business owners what to do and how to do in 62 % of cases. In 11 % of cases the business owners ask the son, in 9.5 % — the father, 8.8 percent — the brother for advice (Kadyev, 2003).
How does family consulting achieve success?
This success is most likely assured by a few circumstances:
an opportunity to receive obvious arguments in a confiding talk, worded in a simple and easily understood language;
an opportunity to discuss these arguments frankly, without fearing to damage the image; an opportunity to check by self-intuition the trustworthiness of the obtained advice without hurry and in convenient time.
Hence, in order to make a businessman "friend" of the complex economic categories, it is necessary, firstly, to tell him about the matter simply, intelligibly and in a confiding manner; and secondly, to show him that his intuition is closely related to these categories. Why should it be done precisely now? Because at the present uneasy time a competent use of these economic categories both in organisation of day-to-day work and in strategic planning and management of the business, can play a decisive role in its success or failure.
This is life
Multiple researches show that businesses, products or services live and develop in conformity with certain common laws. For example, the product or service becomes obsolete with time. In economics this phenomenon is called product life cycle (1). Out-of-date products and services require replacement. Product or service replacement leads to substantial expenses for acquisition of new equipment, technology, and re-training of personnel. Moreover, the replacement of a product/service is always a risk.
It is also considered that the business itself, as its products and services, "ages", and "dies". In this case, it's a question of business life cycle (2). What will happen to the business when its life cycle ends? Would it then be necessary to start a new business? Will the expenses for new business starting be compensated? What if it is too early to talk about "ageing" of the business? What if these are just temporary difficulties? Questions, questions... Answers to these questions constitute an important part of everyday life of a business owner.
Each businessman knows that his product, service or the business itself will "get old» one fine day. This is not a secret. But the ascertaining of the fact of "ageing" is usually unexpected for the business owner. The first signs of business ageing appear just when the time has come for its flourishing. Moral and physical wear-and-tear of the equipment, progressive loss of products and services saleability, necessity of the personnel further training ...Should your business really die and will your well-being end? There are many answers to this question. You, certainly, want to receive one more optimistic answer.
Business idea and its implementation
The optimistic answer is that the situation with the business life cycle does not have to be necessarily "deadly". You should know that it is not the business itself that "ages and dies", but its initial business idea (3). Business idea is the initial vision of the founders of what the future business should represent. When organizing a new business, you were certain that the choosing of this particular type of activities would by all means contribute to your well-being. And you were right! Today you've made your business exactly the same as you imagined it to be at the beginning. But the time goes by. As soon as the potential of the business idea begins to become exhausted, hard-to-solve problems appear. Due to various objective and subjective reasons the volume of production can significantly decrease. Therefore, one of the main ways of preserving business is the ability to manage the process of transformation of initial business idea.
An important economic category called functional principle of activity (4) helps understand how to manage effectively the process of business idea transformation. Underneath the complicated, at first sight, definition is hidden a well-known way of practical implementation of a business idea. In other words, the matter is what assets, equipment and personnel you're going to utilize for your business carrying out and managing? If the first part of the functional principle of activity is clear, the second related to the business management is not so clear. Why?
In economic science it is accepted to divide management into two types — tactical management (5) and strategic management (6). Every business owner is familiar with tactical management because it is used for organisation and support of current production activity. Here, every successful businessperson is a professional! Tactical management allows a business owner to hold in his field of vision all elements of the business — turnover, equipment and technology, personnel, product or service, advertising and sales. The calendar limits of tactical management are usually a month, a quarter, a half-year, a financial year. The duration of these spaces of time is not long, but simple and clear. But looking closely at the financial year's existing organisation, it will become clear that it creates more comfortable conditions of work for the governmental control and tax authorities, than for carrying out specific business. For example, how could the condition of two identical businesses be evaluated at the end of the financial year, if one of them was organized at the beginning of the year, and the other — at the end? Besides, evaluation of the condition of the business receives a true value when it provides an opportunity to see its long-term perspectives. In this case the business owner has to "look ahead in the future".
However, in practice even the most successful businessmen rarely get a glimpse in the future further than three or five years. Do you? Experienced businessmen do not recommend doing it without assistance. There are too many external and internal factors that should be considered for drawing a truthful scenario of long-term business development. In very difficult cases they recommend to resort to the help of professional consultants. But before you turn to these specialists you should know their secret...
Secret of business consulting
Economists deal with strategic management (long-term planning and forecasting of business development) for the last two hundred years. Up to this day, the managerial science gave birth to twelve major schools that interpret and describe in their own ways the concept of "strategy" (Kadyev 2000). Are you certain that a business consultant will use as basis of analysis the methods of just the school that will consider all the individual peculiarities of your business? We are not certain and you should know why.
All the schools of managerial science consider (with non-principal additions) that the major and necessary stages of business life cycle are "introduction, growth, maturity, decline and death". These stages are the elements of the basic model, on which the entire process of strategic management is built on. Therefore, such basis of strategic management prescribes indispensable death of the business. In this case, the business consultants' advice to undertake partial changes i. e. to change the technology and/or the range of goods, to retrain the personnel, will just extend certain stages of business life cycle, for example, "maturity stage", but not the business life cycle in whole. This is a very important note! Agree if to follow the logic of the generally accepted life cycle model, after the artificially extended maturity stage will come a short stage of rapid decline and instantaneous stage of business "death". Will the business owner be ready for such turn of the events?
Existing theoretic attempts to ground the possibility to lift the business development from the "decline" stage to the next "maturity" stage are very tempting, but will not help to solve the problem. Because these attempts also contradict the logic of the generally accepted life cycle model and serve only as a theoretical aspiration, a wish. In such context the existing strategic management faces a difficult and sometimes unsolvable problem. It is really hard to organize planning, organisation, motivation and control in business, when its development will be influenced in the "far future" by the hard-to-predict, multiple social and natural factors. How to get strategic management to be as effective, simple and clear, as tactical? How to provide for the business its "deserved old age" or to breathe a second life into it? What do you prefer?
Second Life of the Business
Let's look at the strategic management from a new point of view. The economic science is not intended for the direct studying of multiple natural and social factors influencing business development. That is why the time has come to bring transdisciplinary aspect in the theory of strategic management. The major tasks of transdisciplinarity in this case will be determining the general condition of the business; general objective regularities of its development; reaction on the possible complex influence of natural and social factors and avoidance of the "decline" stage and its "death". Considering transdisciplinary aspect, a new model of life cycle acquires normative organisation and pre-determined calendar duration. For the specific business, its normative duration is set by the potential of its initial business idea, and its real duration is set by the potential of the staff and complex influence of internal and external conditions.
By adding transdisciplinary aspect, strategic (long-term) management appears as a preparation and implementation of successive transformation of business owner's views on his business and its organisation, and his internal readiness to implement these views.
That is why the expression "to give the business second life" means solving four main tasks:
to transform correctly the initial business idea (i. e. to change in due time views on his business),
to determine correctly current stage of business development (to change in time the management style),
to formulate a new business idea in time (where at how to develop the business),
to switch in time from the old business idea to the new one and start its realization.
To do everything "correctly" and "in time" normative business parameters (7) are required. The main peculiarity of these parameters consists in that they do not change in the course of the business development.
The essential normative business parameters are:
Pre-determined calendar duration of business's life cycle
Principal business development stages (conservative and innovative)
Critical points of business development;
Principal periods of business development;
Control points of business development;
Calendar terms of stages, periods, critical and control points of business development;
Indicators of innovations;
Procedure of transformation of initial business idea and functional principle of activity.
Normative business parameters take their beginning from the universal laws of natural processes. This fact gives them special significance. Based on the normative parameters, the business owner receives real opportunity to organise long-term stable and predictable business development. This pattern of business development permits to avoid such seemingly obvious development stages as "ageing" and "death".
How it becomes possible without breaking the generally-accepted life cycle model? The point is that seen from transdisciplinarity position such concepts as "introduction, growth, maturity, ageing, decline and death" are real business indicators of business condition. That is why they can illustrate current business condition, but they shouldn't serve as the necessary stages of its development. Business of successful people doesn't age and die, but dynamically transforms according to its normative parameters and individual peculiarities. The internal perception of normative business parameters represents the basis of the successful businessmen intuition. And the organisation of a due operational business management in accordance with the results of intuitive analysis is an insurance of a successful business prosperity. But what shall, those businessmen whose intuition is not sufficiently developed and who have no enough practical experience do? The Transdisciplinary Innovation Map will help them.
The Transdisciplinary Innovation Map
To obtain normative business parameters, the "Transdisciplinary Innovation Map" (8) is used. The Transdisciplinary Innovation Map is a normative model of business life cycle transformation. Its main purpose is to determine normative calendar terms and general duration of concrete business life cycle. Or simply speaking, to help the businessman to find answers to the questions what? where? when? and why?
Duration of business life cycle
The duration of business life cycle is a basic parameter for the organization of strategic management. When it is determined, it becomes possible to calculate calendar terms of all the stages, periods, and dates of control and critical points of concrete business development. The ordinary method of strategic management does not offer this kind of information.
The life cycle duration can be of two types: preset or arbitrary. Business founders establish the preset duration from the very beginning of the business (for example, if the business is seasonal or when the business duration directly depends on the duration of the contract or on the credit length). Arbitrary duration automatically prescribes one of the optimal fixed terms corresponding to the development and synchronization of natural phenomena. Why natural phenomena? Because people with their needs, raw material base of the business are finally ordinary natural phenomena and all their parameters, including temporal, should be synchronized.
Another important condition of synchronization of various businesses in the framework of specific market is the internal organisation of their life cycles.
Quantitative and qualitative business stages
(Conservatism and Innovation)
The basis of organisation of the normative model of business life cycle is composed of two mutually complementing stages — Quantitative and Qualitative.
Quantitative stage (9) is the business establishment period. All the material resources during this time are directed toward increasing the production volumes of chosen products or services. During that stage, as a rule, introducing new types of products or services is not necessary. The main goal of that stage is a maximal increase of production and a maximal sale of the initially chosen assortment of products or services. There are no radical changes in business organization and in the methods of running the business. These are, as a rule, simple organizational changes in order to improve the established order of business running and the tactical management. That is why Quantitative stage is called Conservative stage of development or self-restrictive stage. The importance of this period is especially great for the initially created business.
Qualitative stage (10) is a stage of development of the already established business. Its characteristics are principally different from those of the Quantitative stage of development. With the beginning of this stage, signs of rapid "ageing" of business idea appear. In other words, with the beginning of Qualitative stage, a significant difference appears between businessman's initial vision of what his business should be and what it has become. That is why the necessity to carry out serious innovations (11) becomes urgent. Most probably it will require conducting consecutive and substantial replacements or expansion of the initial range of products and services, of used technology, conducting radical changes to the initial principle of the activity, and also replacement or re-training of the personnel. Preparation and implementation of innovations will require new ideas for further business development, new versions of its organisation and practical carrying out. That is why Qualitative stage is also called Innovative stage of business development.
The development periods and indications of innovations
Apart from above two major periods, eight principal development periods (12) could be set off in the normative model of business life cycle. There are four periods in each stage of development. A major purpose of periods is to mark a time segment of the development in the framework of which the business and its tactical management are predisposed, by force of natural reasons, to realize the strictly defined innovations.
Each life cycle period has a corresponding and strictly specified indication of innovation (13). Indication of innovation determines the level of radicalism or intensity of innovation activities, that business and its tactical management are predisposed to. The number of indication of innovations and the development periods are determined according to the classification of innovations, existing in the economic science. The information about business development period and indication of innovation could have a decisive role for increasing the effectiveness of traditional methodology of strategic management. As a matter of fact, the indication of innovation determines the necessary level of changes of the initial business-idea and its functional principle of activity. A development period determines optimal calendar terms for implementing these changes. That is why the knowledge of calendar terms of the beginning and ending of individual development periods permits to avoid financial losses appearing due to artificial delay of business development or while conducting a premature re-organisation.
Information about the business' development periods and its predisposition to innovations also can serve as a basis for conducting risk-analysis of previously developed innovation strategy and of existing Business Plan.
Critical and control points of development
From the outside the development of the business looks uninterrupted. In reality this is not so. In real life any type of the business would have pre-determined "generally accepted" control points. In tactical management the role of such "points", as a rule, is played by the deadlines of submitting the documents to the tax authority. However it is obvious that these "points" are meaningful only for the preparation of the general insight about the economics of the city, state, country. Usually they have no direct relation to the business development and don't consider its peculiarities. That is why the businessman relies on his intuition in relation to the business development, condition of the business, and its calendar terms for the beginning of innovation activities.
Life experience shows that in some cases intuition can let down. That is why today, in order to avoid mistakes in preparation of tactical and strategic management, each businessman (manager) may take advantage of the normative life cycle model of their business (Informological Innovation Map of the Business). This model allows determining specific dates of two types of points — Critical and Control. Each point has its own peculiarities. The knowledge of these peculiarities allows organizing tactical business management taking into consideration its individual peculiarities.
The date of transition of business development from the quantitative stage into the qualitative stage is called critical point of business development (14). A crisis in this case will appear between the wish of a businessperson to preserve an established order of business organisation and the necessity of its changing and correction according to the existing development stage.
With time business and its tactical management become complicated. That is why strategic management is forced to use a system representation of the critical points of business development. What does a system representation mean? It means that the entire business life cycle, each stage and period of business development would have a critical point. Along the business life cycle there are 15 critical points and each of them has its individual peculiarity. The knowledge of these peculiarities will allow a businessman (manager) changing timely and purposefully his/her attitude towards the existing business organisation and its tactical management. Such character of changes guarantees establishment of the balance between the conservative and innovative ways of business organisation.
The date of completion of each period in the life cycle is called control point of business development (15). These points were given such a name because they complete either a specific period or stage of business development. That is why these dates should be used for evaluation of business condition, its real indicators, and the effectiveness of the conducted innovational activities. Especially it should be noted that at the control point, an analysis of the achieved goal should be undertaken, and a new goal is established for the next development period. The goal of the forthcoming stage of development will correspond to its indication of innovation. The goal of the impending stage of development corresponds to its indication of innovation. The achievement of the goal will coincide with the correction of the consecutive functional principle of activity (16). System representation of the development control points allows setting off, along the whole business life cycle, of 15 control points.
Using the system representation of the Critical and Control points permits to get maximum closer the goals and the tasks of tactical and strategic management. In turn it makes it possible to unite in tactical management the real indications and the normative parameters of the business.
X‑Factors of Business Stability
Business Sensitivity Periods
Each businessman knows that free-of-worry development of the business is sometimes interrupted by a short-range periods, where the unforeseen negative events and situations occur. For example, conflicts among the staff, problems with production or sales of products or services and decrease of their quality, and sudden revisions by controlling organisations. The intensity of these negative events can be sometime so high that it can threaten the existence of the business. It is considered that such periods couldn't be predicted. That is why in economic science they were called unpredictable situations. Accordingly, their appearance is usually described to an unpredictable coincidence (or force majeure). But to what extent are those circumstances unpredictable?
Using in strategic management the technology of Informological Innovational Map permitted to answer this question and to study the mechanism of formation of "unpredictable" situations. It was determined that the basis of these situations is the difference between the existing business organisation and that organisation that is prescribed to put into practice by the normative parameters.
In the technology of Informological Innovation Map the unpredictable situations were called — business sensitivity periods (17).
After determining the calendar duration of business life cycle, special methods then allow to estimate their dates and the duration.
In addition to this information an opportunity appears to determine the character of possible negative situations and their supposed intensity. Complete information about the sensitivity periods will permit the experienced businessman (manager) to undertake in time necessary measures for the prevention of negative situations. But what should those businessmen (managers) who don't have sufficient practical experience do? The help will come from the information about the periods of prophylactic activities.
Periods of carrying out prophylactic activities (correction periods). For the preservation of its stability, a business requires carrying out of periodic prophylactic activities. In tactical management the term "prophylactic" is used to describe periodic servicing of equipment and machinery. Transdisciplinary aspect permitted to apply this term to the actual business, for prophylactics of its general condition. That is why prophylactic activities in strategic management presume a complex influence applied to the business in general. The objects for prophylactic activities include organisation of the business, its tactical management and relationships among the staff. Preparation of the package of special activities is conducted according to the requirements of the current stage and the period of business development. The terms of the beginning and ending of prophylactic activities are calculated on the basis of the normative model of business life cycle. For carrying out the prophylactic activities those periods are selected where the business (for objective reasons) is maximally predisposed to correction. That is why for each business the correction periods have individual dates and duration.
Well-timed and a quality carrying out the prophylactic activities allows 80 % decreasing of the risk of negative events and situations due to unpredictable circumstances.
What novelty does the Informological Innovation Map give the businessman? First of all, it increases the professionalism of a businessman in the domain of tactic and strategic management.
The information about the predisposition of the business to certain innovations permits a businessman to organize a correct transformation of the initial business idea, to undertake precise corrections of the functional principle of activity in time. In addition, depending on the type of business, the Innovation Map will give the possibility to determine whether the chosen activity will stay major during all the life cycle of the business or in a few years it should be changed. In other words, owing to the Innovation Map the strategic management of a concrete business becomes as clear and efficient as the tactic management; and in whole, the business is protected against errors and material losses especially in this period when Russia enters the WTO.
To order elaboration of the Innovation Map for your business, please, contact the Initiative Committee under the GOLDEN PLAZA magazine at the address and phone numbers indicated in the magazine.
"How the most important business decisions are made". Science and Technology. November 10, 2003 Source: Washington Post.
[Available: http://www.n‑t.ru/nv/20031110.htm Accessed: 18 December 2003]
Kadyev T. (2002) "Metastrategy of company development or where do the "legs grow" from strategic ideas". Conference "Management in Russia — giving up the illusions". Moscow. [Available: http://www.itrealty.ru/analit/18–19.html Accessed: 18 December 2003]
Vodachek L, Vodachkova O. (1989) Economics. Strategy of managing innovations on enterprise. Translated from Slovak, Moscow, pp. 32–34, 167.
By V. Mokiy, T. Lukyanova