Strategy & Business Plans

IEI Business Plan Workshops

TL Hill thill@sbm.temple.edu 215-204-3079

Business plan workshops

Matching Products and Services with Markets

Competitive Analysis Business Model Market and Sales

Tonight
Monday, November 19, 2001 - 6:00 pm to 8:30pm Monday, November 26, 2001 - 6:00 pm to 8:30pm Last week

First one

Financial Projections

Feasibility plan outline

Executive Summary Product or Service Technology/Core Knowledge Target Market Competition Industry Strategy/Business Model Marketing and Sales Functional Strategy
Production/Operating Functional Strategy Intellectual Property Issues Regulation Issues Critical Risk Factors Timeline Break-even Analysis

Strategy can mean many things

Plan Process Position Pattern Perspective Procedure Play Ploy
Strategic Management Strategic Positioning Strategic Navigation Strategic Tactics

Strategic management
Is a detailed pattern of decisions that describes in some detail what a company will do

in light of what it might do, what it can do, what its leaders want to do, and what it should do.

Kenneth Andrews

Strategic management
Environmental Scanning Disciplined iterative process of pursuing a mission, while Evaluation & Strategy Mission Control Formulation managing the relationship of the firm to its Strategy environment. Implementat ion

Strategic management starts with the situation

External Factors
Social, political, regulatory, & community considerations Industry attractiveness, industry dynamics, & competitive conditions Other opportunities and threats -like new technologies

Companys Strategic Situation

Firms strengths, weaknesses, & competitive market position Ambitions, philosophies, & ethical principles of key executives Shared vision, values and company culture

Internal Factors

But pushes beyond the situation

Strategic management is all about chasing a dream In a disciplined but opportunistic way By developing your assets To take advantage of opportunities the world (environment, industry, market) gives While shaping the world when you can.

Strategic management is about finding ways to grow...

Environmental Scanning

Evaluation & Control

Mission

Strategy Formulation Vision

Strategy Implementa tion

Two basic strategic options

Position Strategy

Resource/Navigation Strategy

Unique, valuable, defensible position in a market or industry Supported by a tightly integrated value chain / activity system Good for relatively stable industries/markets Vision-driven nurturing and leveraging of core resources Supported by tight culture and explicit learning Good for dynamic industries/markets

I. Strategic positioning
External Opportunities & Threats Niche Internal Strengths & Weaknesses
A niche is typically the market the firm is uniquely qualified to serve

Classic positional strategies

Cost (price) leadership Differentiation

Quality, design, support/service, image Always starts with the product Broad or narrow Always starts with a specific market segment

Focus

Examples of positional strategies

Cost (price) leadership

Crown, Cork & Seal (pennies, plants). Wal-mart (warehousing, negotiation). Motel 6 (location, services, salespeople). Cintas (plants, logistics). Mercedes (quality). Apple (design). Nordstrom (service). Nike (image). G&K (clean rooms, radiation). Most entrepreneurs (Zitners, Prompt.) Wal-mart (broad - rural). Specialty bookshops (narrow Giovannis room, NSP). Some entrepreneurs (NRI - changing mix & services).

Differentiation

Focus

Elaborations of positional strategies

Penetrate new markets

Insurance in India. IMS. E-government. (Disruptive technologies.) Gillette. Intel.

Develop new markets

Develop new products

Become indispensable

Microsoft. Best subcontactors. Borders wholesalers, B&Ns leases.

Fortify

TOWS analysis
Internal Factors External Factors

Strengths (S)
SO Strategies ------------------------Use strengths to take advantage of opportunities

Weaknesses (W)
WO Strategies ------------------------

Opportunities (O) Threats (T)

Offset weaknesses to take advantage of opportunities

ST Strategies -------------------------Use strengths to avoid threats

WT Strategies ------------------------Min. weaknesses to avoid threats

TOWS analysis exercise

List 2 opportunities & 2 threats List 2 strengths & 2 weaknesses Match em up

Use classic strategies -- cost, differentiation, focus -- as prompts for ideas

trying to use (or develop) strengths to take advantage of opportunities while offsetting weaknesses and defending against threats avoiding strategies that put weaknesses in way of threats

Position strategies require fit

Fit refers to the niche a firm serves and the way its products or services are positioned But fit also has to do with every other part of the internal structure of the firm. A well positioned firm crafts itself to serve a niche better than anyone else Starting a new firm offers the exciting, seductive, often advantageous opportunity to craft a perfect fit between specific opportunities and internal capabilities.

Value chain
Marketing/ Sales Inbound Logistics Operations Outboun d Logistics After Sales Service

Human Resources Technology Infrastructure Procurement

Margin

A strong value chain is a cross-linked net of activities that affects the cost or performance of the whole. Supporting a strategy by optimizing both individual functions and the links between them to support a strategy yields a powerful, durable, hard-to-duplicate advantage.

Value chain for NSP

Prepay vs Returns Green tax Cooperative: multiple skills, networks, low-cost, apprenticeship Direct mail Distributor Editoria l Library rate UPS Desk-top, enterprise, email Land trust, warehouse, 501(c)3, friendly capital Prompt press, newsprint Trade pb Galleys review & hc

Small but stead y

Activity system
Is a less linear way of thinking about the kind of internal fit that supports a strategy. Map crucially interrelated features and functions that define a firms unique skills and strategy. Supports competitive advantage with reinforcing patterns or systems.

Ikeas Activity System

Explanato ry labeling Selftransport Suburban Location Hightraffic store layout Impulse buying

Easy transport Self -assembly Flat packing kits Wide variety

Limited Customer Service

Limited sales staff

Selfservice Selection
On-site inventory

Most items in stock

Modular Designs

Customer loyalty

Low Mfg Cost

Long-term suppliers

Yearround stocking

Easy to make

Design focused on low cost

Experience curve
For positional strategies, experience is the ultimate source of advantage. Experience fuels the tacit knowledge that drives productivity improvements, innovations, elaborations of strategy, etc Successful firms are especially good at creating the social and institutional structures that support the shared development of such tacit knowledge

Value chain or activity chart exercise

Draw the value chain for your firm Note reinforcing (and jarring) pieces Try to create more reinforcements OR Jot down functions and features Look for patterns and connections Try to crystallize patterns

II. Strategic navigation

In a hypercompetitive world, all advantages are very temporary Competition escalates rapidly along certain dimensions

Cost/Qualty, Timing/Know-how, Barriers to entry, Deep pockets as competition jumps to new arenas, along new ladders

Leading to sudden shifts in the rules

Strategic navigation depends on timing

Strategic Window
Rapid change erodes positions leading to temporary opportunities

Competitive Edge

Launc h

Exploitation

Counterattack

Time

Strategic navigation requires vision

Vision pulls firms forward Strategic intent is vision manifest as focused ambition:

Lengthens organizational horizon Promotes focus on ends Encourages creative means Promotes consistency between evolving short-term goals and more stable long-term ones Promotes focused resource allocation Tends to motivate

Strategic navigation builds on core assets

Flexible strategies require core assets

plus a commitment to developing them

Assets are sources of future value

Tangible, intangible Owned or not (but available) Often with a useful life Often people: customers, employees, organizational knowledge Especially core competencies: special knowledge and skills embedded in employees and systems

Four arena analysis

Trace escalating competition along ladders

Trying to predict shifts to new areas

Cost/Quality

Cintas: Ever better plants and routes Aramark: Bought into corporate uniforms New plants, sophisticated logistics, global reach Slugging it out -- and sometimes buying out small fry

Timing/Know-how

Barriers to entry

Deep pockets

Navigational strategies
Find loose bricks

Stake out undefended territory, fly low, cherry picklooking for a beachhead, not a niche (Honda) Sidestep barriers to entry (Canon) License, outsource, joint venture to gain information and knowledge and advantage as go (lamp shades to ceiling fans)

Change the terms of engagement

Collaborate

Navigational strategy exercise

What is the rate of change in your industry or market? What is driving change? In what arenas is competition focused? Cost/Quality, Timing/Know-how, Barriers to Entry, Deep Pockets? How might you take advantage of flux in your field?

III. Business models

A business model describes what a firm will do, and how, to build and capture wealth for stakeholders Effective business models operationalize good strategies -- turning position, fit, etc (or vision and resources) into wealth Start-ups offer the opportunity to craft a perfect fit between specific opportunities and internal capabilities.

Business models build & capture wealth for stakeholders

Build Wealth

Through an alchemical transformation of inputs into something that customers value enough to pay for at more than cost Or through developing enough potential to be bought: valuable positions, know-how, customers Private or public sale Profit: Revenues plus cost control Plus: The good life, a rich family life, entrepreneurial success, social impact

Capture Wealth

Business models start with strategy

1. Describe the landscape:

2. Paint in competitors:

Porter + OT. Environment, industry, and relevant trends. Competitor table. Perceptual maps. What do you need to play? How do competitors compete? What opportunities exist? Vision, skills, core technologies

3. Identify strengths & weaknesses

4. Choose a position/strategy

Business models enclose wealth

4. Identify stakeholders you must serve

Owners, family, workers, community Capital, good life, family life, fame entrepreneurial effectiveness, social value

5. Identify the wealth you will capture

6. Sketch a structure that will operationalize the strategy

Value chain or activity system

Business models define structure

6. Work out the implications

Functional strategies Timelines: Ie., the path to profitability, sale or other realization of value Financial projections & capital needs

Build a business model exercise

Strategy Stakeholders Wealth Model Structural implications Revise model

IV. Functional implications of the business model

Marketing and sales People, management, governance Operations Finances

Marketing and Sales Finance

Next week: Marketing & Sales Two weeks: Things Financial Now: Miscellaneous thoughts on people, management, governance and operations

People
Employees, managers, stakeholders More important even than cash

Effectiveness, pleasantness

Most difficult resource to find, to keep and to manage

Business systems
Ownership Pressures Family/Stakeholder Pressures

Managerial Pressures

Business systems dynamics

Each system has its own logic, its own bottom line

Each has its own time horizon

Ownership: Wealth creation & maintenance Family & Stakeholders: Relationships Management: Efficiency & replicability Ownership: Ten years or one working life Family & Stakeholders: Reproduction of generations

Management: Quarterly or annual results

Governance defines the circles and the relationships

Who decides what

Owners, key employees, key customers, family members, professional advisors

The decision makers for each circle

Owners (board of directors) Managers (management team) Family/stakeholders (council)

The scope of their decisions Their responsibility to each other Conflict resolution

Governance example
Company with strong family ties & 3 sons Owners retirement needs drive succession

Two sons buy business (not land) from father CEO-in-training - 50.+%; Sales manager 50-% Board advisors

Family needs led to side business:

Graphic artist, co-owned by CEO-in-training and serving main business

Management needs turn alliance into new web-based business

Governance structures
Direction

Vision, values, culture Formal visioning Cultural maintenance Contracts, bylaws Facilitators, advisors, models

Agreements

Support

Sharing the vision

Vision provides both energy and stability. Core Ideology anchors the team Dynamic Envisioned Future draws the team forward

Long-term, audacious goals Concrete, vivid description of the future

Value driver analysis

H Intervention B Impact Intervention Y Intervention X L Probability of Success [Time Frame] Intervention Z Intervention C

Intervention A H

Value driver analysis

Work with teams (management, boards, stakeholders) to

List possible projects or initiatives Rank each by magnitude of impact Rank each by probability of success

Place them on the matrix Concentrate on high value/high probability options

Value of the analysis

Focus

Process

No low hanging fruit, no wild gambles Generates commitment Builds trust

Brings data and analysis Models a useful tool

To what is for most entrepreneurs, intuitive

Legal structures
Corporations are liability and task entities

With governance implications S corporation

Sole proprietorships

Partnerships C Corporations

LLC

Stakeholder Corporations

ESOPs, cooperatives, joint ventures, community corporations

Support structures
Boards of advisors

Next size up, pay Accountant, lawyer, coach, tie-breaker, insurance?

Professional team

Governance section
Key stakeholders and how and why they count Legal structure Key agreements that distribute power and responsibility

Management responsibilities
Vision

Blends personal & organizational visions Fosters common culture Environmental scanning Strategy Measurable objectives Tools, systems, education

Strategy

Resources

Management responsibilities
Systems

Efficient, effective processes Fit between systems

Relationships Staff development

Responsibility charting
Provides a language and forum for discussing decision making -- at governance, management or staff level. Creates greater clarity about how decisions are to be made and who will be accountable for those decisions. Allows for a discussion of the difficult issues of power and authority.

Responsibility chart

DECISION: Roles Involved CEO

Types of Participation

Oper.

Sales

Fin.

Approve Responsible Consult Informed

Responsibility chart details

Approve

Sign off on decisions Veto power Final responsibility to commit resources Shares accountability Takes the initiative, develops alternatives, recommends, implements. Accountable for results

Responsible

Responsibility chart details

Consult

Input but no veto power Notify

Inform

Management team section

Names & Experience

Resumes Recruiting plan Recruiting plan

Missing members Advisors & roles

Operations
What you do How you do it Cost implications

Operations Examples
Arbill

computerized information, pay incentives, training, culture, evidence architected solution simplifies training and control and resource management ties in with knowledge management

Anderson

Operations section
Key processes & strategy Efficiency / cost control Recruiting, training, evaluating strategy Fit with overall strategy Continuous improvement

Operations exercise
Sketch out basic operational steps Note cost assumptions Create research list to confirm assumptions, fill in gaps, collect numbers

Bibliography
Verna Allee, Reconfiguring the Value Network, The Journal of Business Strategy, 21 (4), PP 36-39. R Boulton, B Libert, S Samek, A Business Model for the New Economy, The Journal of Business Strategy, 21 (4), July-August 2000, pp 29-35. James Collins & Jerry Porras, Built to Last (HarperBusiness, 1994). Richard DAveni, Hypercompetition (Free Press: 1994). Kathleen Eisenhardt & Donald Sull, Strategy as Simple Rules, Harvard Business Review, January 2001. Mark Feldman & Michael Spratt, PWC, Five Frogs on a Log: A CEOs Guide to Accelerating the Transition in Mergers, Acquisitions and Gut Wrenching Change, (HarperBusiness 1999). Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001). G. Hamel & C. K. Prahalad, Strategic Intent, Harvard Business Review, May-June 1989. Robert Hamilton lecture notes, 1998. Robert Hamilton, E. Eskin, M. Michael, "Assessing Competitors: The Gap between Strategic Intent and Core Capability", International Journal of Strategic ManagementLong Range Planning, Vol. 31, No. 3, pp. 406-417, 1998

Bibliography, cont.
TL Hill lecture notes, 1999, 2001. J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001). Ivan Lansberg, Succeeding Generations (Harvard Business School Press, 2000). B. Mahadevan, Business Models for Internet-based E-Commerce, California Management Review, 42 (4), Summer 2000, pp 55-69. Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition (Prentice Hall, 1998). Alex Moss, Praxis Consulting presentation on worker ownership, 1999 Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994). Michael Porter, Competitive Advantage (Free Press, 1985). Michael Porter, What is Strategy?, Harvard Business Review, November-December 1996. Jim Portwood lecture notes, 1998. C.K, Prahalad & G. Hamel, The Core Competence of Corporations, Harvard Business Review, MayJune, 1990. Pamela Tudor, Notes on responsibility charting, 1999

Evaluation
What was the most useful part of todays workshop? Least useful? What should I definitely keep the same? What should I change -- and how?