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Business Development

Business development is the activities, ideas, or initiatives that a company takes to improve its business over time. It aims at creating long-lasting value for the company from its markets, customers, and other relationships. Business development initiatives may be taken to increase revenue, sales, profit, or form strategic partnerships. A business development, when successfully implemented, affects all the business departments of a company such as marketing, finance, sales, production, product development, and so on. Let's examine business development in further detail.

Business Development Strategy

A business development strategy is a plan the business will follow to reach the business development goals.

Businesses adopt different strategies based on their goals. Business development strategies include business growth and scaling, innovation, internationalisation, or the use of digital technology.

Examples of Business Development Strategies and their Benefits

Business development strategies may vary depending on the business goal. Each strategy benefits the company in its own way. A few of the strategies commonly adopted by companies are:

Business Growth and Scaling

Business growth strategies focus on expanding the business as a whole through organic or inorganic growth methods to increase profits.

Growth strategies include vertical integration (forward or backwards), horizontal integration, and conglomerate integration, which focuses on making various types of strategic partnerships. (These strategies will be further explained under "Business Growth").

When a business grows, it scales in terms of economy. This is commonly known as economies of scale. Economies of scale are the decrease in production costs and the parallel increase in production volume. This production volume increases when the demand increases, and the business grows.

Benefits:

  • Increase in profits

  • Reduction in costs

  • More market share and assets

  • More attractive for financial investors

  • More skilled management and their expertise

Innovation

Innovation strategies help to better an organisation’s existing products or services, or generate ideas for new ones.

It helps organisations to add value to their offerings and stand out in the market.

Benefits:

  • Helps the organisation to stay relevant in the market

  • Competitive advantage

  • Improve market position

Internationalisation

Internationalisation is the process of adapting an organisation’s offering so that it can be consumed internationally.

This involves understanding every target market: the needs and requirements of the consumer, the legal requirements, pricing techniques, packaging, etc.

Benefits:

  • Diversification

  • New markets

  • Foreign investment opportunities

  • Competitive advantage

  • Access to more talent

Digital Technology

Companies adopt strategies related to digital technology when they want to improve the customer experience, add value to the business models, and simplify core business processes.

Benefits:

  • Improved efficiency and increased productivity

  • Improved customer experience

  • Digital security

Business Development Plan

A business development plan is a roadmap to achieve the company’s goals.

Creating a business development plan

As a business developer, these are some steps that you can take to create a business development plan.

Defining the goals: define a goal that is relevant and attainable by the business. Having a specific goal is very important in knowing what step to take next. Using the SMART technique can help businesses set achievable goals for the future.

Developing profiles: the target market and potential customers should be clearly defined to generate a business strategy and marketing plan.

Understanding marketing channels: a well-established marketing plan is crucial for successful business development. The plan is dependant on the budget and the type of target group. It is important to constantly re-evaluate the established marketing plans.

Setting KPIs: KPIs or Key Performance Indicators help to analyse and quantify the business performance. You should choose KPIs wisely depending on the specific requirements of the development plan. That way, you will be able to monitor the progress.

Evaluating customer service: providing excellent customer service to both old and new clients is important for any business as it is the building block of customer loyalty. It significantly influences business growth.

Analysing resources: you can create a successful development plan only after analysing the business’ resources. A development plan that doesn't take into consideration the available resources, can not be successfully implemented.

Components of a Business Development Plan

A successful business development plan should include:

Growth opportunities: it is crucial to understand the business’ growth potential. It may be from venturing into new markets, forming strategic partnerships, product innovation, improved services, or from a combination of these.

Funding: understanding the current financial situation and analysing how much capital will be required for the completion of the process is very important. You should know how the plan will be funded.

Financial goals: set financial goals for the business based on the current numbers, and analyse how the business should grow in order to reach those goals.

Operational needs: a business development will require more supplies in terms of people, materials, machinery, etc. All the needs and requirements should be noted and met to achieve the goal.

Sales and marketing: you should set up a strong sales and marketing plan that can effectively support the growing business. This will help to promote and inform the market about the business developments.

Team building: as the business grows, it is important to build an efficient team that understands the tasks and can carry them out responsibly. The effective delegation of tasks, and hiring the right people can go a long way.

Example of a business development plan

Business Development Example of the business development plan, StudySmarterExample Business Development Plan, StudySmarter

Skills Required for Business Development

Business developers require certain skills in order to successfully implement the development goals. The business’ improvements should be properly and efficiently communicated, marketed, and sold to make the plan successful.

Communication skills: when the company is undergoing an important change, the ability to listen to feedback and concerns of both customers and employees, maintain long-term relationships, and effectively convey all the necessary information to the stakeholders is fundamental.

Marketing skills: a business developer must promote and market the business’ new improvements to the right potential or existing customers. Business developers analyse the market, the target customers, and the competitors, similarly to a marketing team.

Sales skills: much like a sales team, the members of a business development project take care of updating the databases of customer relationships and sales activities, finding qualifying leads, etc.

What are the challenges of business development?

Business development can be challenging not only because it brings about major changes within the organisation, but also because of the continuous changes taking place in the external environment. Some of the commonly faced challenges are:

Staying relevant: the market and customer demands are always changing. Therefore, an organisation should carry out continuous market research and product innovations to stay relevant in the market.

Inventory management: when the business grows, demand increases, meaning you stock more items. You are at the risk of losing customers to competitors if you fail to meet their demands. But overstocking affects the cash flow negatively. Therefore, you should have a Just-in-time inventory management to deal with the rising demands.

Growing workforce: as the company grows, it becomes necessary to increase the workforce to avoid burdening the existing employees. However, more employees mean more challenges, as many tasks, especially the administration and management tasks, become increasingly complex.

Diverse customer needs: as the company enters new markets, the customer needs and requirements vary. Therefore, you should make sure that you collect and analyse customer data continuously to meet their demands, and also maintain customer relationships.

Using the right systems: when an organisation continuously expands, it becomes difficult to maintain and track productivity and efficiency. You should be able to find the right software package for your company's needs from the many available.

Welcoming change: this can be difficult, as a change in an organisation can have a different impact on each employee. This will affect employee performance and reflect poorly on the company. You should introduce change management for employees to deal with the change and the problems they face as a consequence.

Business Strategy Definition

A business strategy explains how a business plans to compete in the market and achieve its objectives. Every business organisation needs to have a vision that shows what the organisation stands for and aims to achieve. A business strategy outlines the plan of action that will help a company achieve its major goals and objectives. It guides the decision-making process and helps gain a competitive advantage.

Examples of a Business Strategy

Business strategies may be set up to achieve many objectives. The most common examples of business strategies are shown below:

  • Grow sales from new products

  • Increase customer satisfaction

  • Produce better and more innovative products

  • Cross-sell more products

  • Product differentiation

  • Change pricing strategy

  • Sustainability

  • Technical advancement

Business Development - Key Takeaways

  • Business development is the activities, ideas, or initiatives taken up by a company to better its businesses over time.

  • A business development strategy is a plan the business will follow in order to reach the business development goal.

  • Business development strategies include business growth and scaling, innovation, internationalisation, use of digital technology, etc.

  • A business development plan is a roadmap to achieve the company’s goals.

  • A business developer should possess good communication, marketing, and sales skills.

  • Staying relevant, inventory management, growing workforce, diverse customer needs, using the right systems, and welcoming change are a few challenges of business development.

  • A business strategy explains how a business plans to compete in the market and achieve its objectives.

Frequently Asked Questions about Business Development

A business development strategy is a plan the business will follow to reach the business development goals. Businesses adopt different strategies based on their goals. Business development strategies include business growth and scaling, innovation, internationalisation, or the use of digital technology. 

Final Business Development Quiz

Question

What is global sourcing?

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Global sourcing is the act of buying raw materials or product components from other foreign countries.

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What are the two types of global sourcing? 


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Suppliers abroad may have the capacity and infrastructure to produce the material and product components at a faster rate than the company themselves.

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What are the two types of global sourcing? 


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Two types of global sourcing are sole sourcing and multi-sourcing.  

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What are some incentives for global sourcing?


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Low production costs, advanced technology, more efficient logistics, transportation, and infrastructure.

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How do you define market entry?


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 Market entry is the case when the company decides to sell its products and services to a foreign market.

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What is not a benefit of market entry? 


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Higher profit margin


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What is licensing? 


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Licensing is the case where the company (Licensor) grants permission to a licensee to distribute its products or services under a trademark.

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What is the benefit of exporting?


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Lower resource commitment, less financial risks, less human resources are required.

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Why is franchising based on reciprocity?


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The franchisor is responsible for improving the performance of the franchise and provides assistance to the franchisee to market the product successfully. In return, the franchisee pays the franchisor a fee.

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Explain the concept of wholly-owned ventures


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Wholly-owned ventures is a market entry mode where the firm establishes its own subsidiaries in the host country or merge with an existing business.

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What is the greenfield strategy?


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Greenfield strategy means building a subsidiary in the host country to market the company’s product.

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What are the types of acquisitions and mergers. 


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  • Horizontal M&A: the merger of companies in the same industry. 

  • Vertical M&A: the merger of companies that complement each other in the supply chain.

  • Conglomerate M&A: the merger of companies in unrelated industries. 

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What are the six types of entry modes?


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foreign trade investment, exporting, licensing, franchising, greenfield strategy, mergers, and acquisitions.

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What is the least risky market entry approach?

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Exporting

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Name an example of horizontal M&A

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The merger of Facebook, Instagram, Whatsapp, and Messenger into one big social media company.

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Innovation is: 

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All the above answers are correct.

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What is innovation?


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Innovation is a creative process that is undertaken by a firm to create new or develop existing ideas, processes and products - to add value.

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What is disruptive innovation?

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Disruptive innovation is a form of innovation that makes very expensive or sophisticated products accessible to a larger number of people.

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What are the two types of innovation?


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Product and process innovation.

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What is process innovation?


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Process innovation includes improving existing processes to improve the efficiency of the business.

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What is product innovation?


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When a company develops a completely new product or improves an existing product by adding value.

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What is intrapreneurship?


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Intrapreneurship is a type of internal innovation - coming from within the organization.

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Which of the following methods encourages incremental innovation?

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Kaizen

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What is the process behind the Kaizen approach to innovation?


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The approach assumes that since employees are the most familiar with the day-to-day processes of the firm, they are most likely to notice issues. Therefore Kaizen method encourages employees to be creative in how to fix existing problems and come up with new ideas and processes.

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What type of innovation is R&D most often associated with?


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Product development and innovation.

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Describe the process behind R&D innovation.


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  1. Market research

  2. Development

  3. Testing

  4. Place and promotion

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Name two ways in which intellectual property can be protected.


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Patents and trademarks.

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What is a patent?


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A patent is granted to the inventor of an idea, process, design or invention for a period of time in exchange for the full disclosure of the invention.

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Name an example of a trademark.


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A logo or a phrase representative of a company (example: Apple logo).

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What is copyright?


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Copyright is used to protect artistic creations like music, videos, photography, writing, etc. 

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Define diseconomies of scale.

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Diseconomies of scale are defined as the increase in average cost per unit in a firm when the company output grows above a certain point.


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Briefly explain the concept of economies of scale.


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Economies of scale are the decrease in average cost per unit as the output volume increases. This can be observed when the production becomes efficient and is mainly seen in large companies, as they have a high output volume. A high output volume helps to distribute fixed costs among the produced units, thereby decreasing the average cost per unit. Learning, efficient capital, specialisation, and negotiation power are factors affecting economies of scale. 

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What are the different types of external diseconomies of scale?

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There are mainly three types of external diseconomies of scale - diseconomies of pollution, limited natural resources, and infrastructure diseconomies.  

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What is the diseconomy of pollution?


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When firms grow and set up factories, they impose costs on the local population in the form of pollution in the local surroundings, as this can lead to several health issues. Poor health is one of the main results of this type of diseconomy. 

Poor health: Pollution caused by factories have long-lasting damaging effects on different human organs, causing innumerable health issues.

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Explain the results of the diseconomy of scale caused by the limited natural resources.


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High prices:  Prices of the end product increase as the resources to produce the product becomes higher due to its scarcity. 


Higher salaries: Labourers that possess a talent or skill not known to a lot of others can negotiate for a higher salary.

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 Briefly explain infrastructure diseconomies.

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Infrastructure diseconomy is when a company grows to the point that it puts a strain on the local infrastructure. For example, if all the companies were to increase the number of trucks to decrease the delivery, this would lead to traffic blocks on roads, putting a strain on the local infrastructure. Moreover, this increases the delivery time due to traffic, leading to more costs, as costs increase as the delivery time increases.

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What are the different internal diseconomies of scale?


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Technical, organisational, purchasing, competitive/monopoly, and financial diseconomies are the types of internal diseconomies of scale.   


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What are the results of technical diseconomies of scale?


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Overcrowding: This is the increase in production beyond reasonable capacities. This could be having too many factory workers or employees in a store. Too many employees end up duplicating each other’s work and increasing the company’s overall cost.


Scalability: When a firm is functioning very efficiently in some locations and decides to expand but the new outlets turn out to be inefficient. This also increases the overall cost of production drastically.



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Name the results of the organisational diseconomies of scale.


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Inefficient communication, demotivation, and employee health

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 Which of the following are the results of purchasing diseconomies?

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Higher costs, greater waste, and deadlock.


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___________ and ___________ are the results of a competitive/monopoly diseconomy of scale.


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Higher cost and more competition.

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Why is high levels of interest a result of financial diseconomy of scale?

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If the funding to purchase the asset were not organically funded by the company and the firm borrows from external sources, it will then have to pay high levels of interest to the banks and lenders, as the company is at a higher financial risk.


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Name a few examples of diseconomies of scale.


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Higher cost of materials, poor communication and inefficient management are some examples of diseconomies of scale.

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Briefly explain poor communication as a result of diseconomies of scale.


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As the company grows and employs more people, communication among the staff can become very difficult and inefficient. You might not know who the right contact person is in an international organisation. Sending emails rather than direct communication becomes a usual practice, which can sometimes cause important details to be overlooked.


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Explain the higher cost of materials as an example of diseconomies of scale. 


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As companies grow as their demand for resources increase. Firms in the same industry have similar resource requirements and the resources become scarce as their demand increases. This, in turn, increases the cost of materials.


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Explain inefficient management as an example of diseconomies of scale.


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Inefficient management is a result of rapid growth in an organisation. The management fails to understand that the rapid growth in a company can lead to a decrease in employee morale due to the increase in employees and workload. The lack of training does not allow managers to properly look after their employees as a result of which, they do not perform as much as they can.


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Define business development.

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Answer

The activities, ideas, or initiatives taken up by a company to better its businesses over time.

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What should a successful business development plan include?


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Growth opportunities, funding, financial goals, operational needs, sales and marketing, and team-building strategies.

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Name the skills required for business development.

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A business developer should possess good communication, marketing, and sales skills.

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 Define a business strategy.

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 A business strategy explains how a business plans to compete in the market and achieve its objectives.

Show question

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