Tag: Basic engine

Early Signals from Other Sub-Environments

Expand the knowledge base for strategy development by capturing environmental trends.

Early Warning from Other Sub-environments like the technological, social and nature-related environmental spheres should be continuously evaluated. New findings and developments can become opportunities and risks for the company’s own success.

From the wide range of information available in print or electronically it is important to filter out reports and news that could lead to a change in strategic direction or even to an adjustment of the company’s purpose.

In order to limit the amount of data that potentially could be generated, a topic structure should be created to facilitate structured retrieval of the information collected. The search areas should be structured according to the analysis areas of the respective company.

Early Warning Examples
Early Warning, search areas and examples

It is advisable to regularly consult the resulting knowledge base in order to relate the findings to the company’s own strengths. This can lead to successful new applications or products.

Example: Auto emission of CO2 and other pollutants argue in favor of purely electrically powered vehicles. However, their range is still too small for a market breakthrough and it takes too long for the batteries of these vehicles to be fully charged again. New devices are needed that can force the current into the batteries quicker, as well as connecting cables that can transmit the high voltage without short-circuiting. Various companies have developed new products for this purpose and have thus opened up new areas of business.

The complete network for structuring the knowledge base

Starting from the “basic engine”, the network for the development of the company-specific early warning system was created in the previous posts.  The terms of the areas to be monitored are on the outside of the network. The task is to adapt these terms to the specific needs of the company and to fill them with analytical data. In a later post we will discuss how early warning indicators for the search areas are developed.

Early Warning from Other Sub-environments
The complete network

Early Warning and Planning

Create the internal network to derive the main external influencing factors.

The partial environments of a company or an organization are constantly changing, see the post Environmental Changes are crucial for Management Control. These changes generate opportunities and risks for the continued existence and development of the company. Consequently, managers must regularly find out which changes in the relevant sub-environments could possibly occur or have already happened. The knowledge gained in this process should lead to decisions and, if necessary, to adjustments in strategic and operational plans. Since the variety of available data is immense and hardly completely manageable, it is necessary to determine, based on the existing internal situation, from which information sources relevant early warning information can be obtained for one’s own organization.

Early Warning and Planning

We follow the approach of creating a “basic engine” for the operation of one’s own company in the form of a network. Based on the interface between the company and the environmental areas, the external search areas can subsequently be derived. This approach is intended to channel the data search and thus help to manage the flood of data to be analyzed.

The basic engine represents the data, quantity and value flows of operational planning and control (one-year and medium-term). The processing areas from the revenue generation to the final result are connected by arrows. Arrows with a “+ sign” (blue) mean that the increase of the initial value also causes an increase of the subsequent value.

Example: Increasing sales quantities lead to higher production quantities and these again to higher material consumption. Increasing proportional production and fixed structure costs reduce the result as well as increasing sales deductions and are marked with “- sign” (orange). A proper network always contains positive (+) and negative (-) relationships. If one of the two relationships would be missing, the system would either explode or implode.

Early Warning and Planning
The basic engine for developing an early warning system

The basic engine can be further detailed to be company specific. From the picture it can be deduced which variables (green) at the outer edge of the network are significantly determined by external influences. These should be taken as a starting point when setting up an early warning system.

Order intake depends on internal conditions such as the offered assortment and the sales conditions, but more on external factors such as customer benefit or disposable income. Cost-determining factors are also driven by external developments (personnel costs, raw material prices, investment/plant requirements).

An early warning system should provide and keep up to date a forward-looking knowledge base on these developments in the sub-environments so that managers can draw on this information when setting the course for the future (cf. Bossler, A.,2010, p. 639 ff.).