Chapter 03 - Designing A Competitive Business Model and Building A Solid Strateg

ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT ● 6E
Chapter 3: Designing a Competitive Business Model and Building a Solid Business Plan
Entrepreneurship
Mladen Turuk, MA
Room: 328
Office hours:
Monday: 10-12 am
Wednesday: 10-12 am
E-mail: mturuk@efzg.hr
Web: http://www.efzg.unizg.hr/mturuk/
Ch. 3: Business Model and Strategic Plan Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-1
CHAPTER 3
Designing a Competitive
Business Model and
Building a Solid Strategic Plan
Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall
1
A Major Shift . . .
From financial capital to intellectual

capital
Human
Structural
Customer
Strategic Management
Involves developing a „game plan” to
guide a company as it strives to
accomplish its vision, mission, goals,
and objectives, and to keep it on its
desired course.
Is crucial to building a successful
business.
2
Strategic Management and

Competitive Advantage
Developing a strategic plan is crucial to
creating a sustainable competitive
advantage, the aggregation of factors
that sets a company apart from its
competitors and gives it a unique
position in the market that is superior to
its competition.
Key: Core Competencies

Unique set of capabilities a company
develops in key areas, such as: superior
quality, customer service, innovation,
flexibility, responsiveness, and others that
allow it to overcome its competitors.
They are what a company does best.
Best to rely on a natural advantage.
3
Process
Step 1 Develop a vision and translate it
into a mission statement
Step 2 Assess strengths and
weaknesses
Step 3 Scan environment for
opportunities and threats
Step 4 Identify key success factors
Process
(continued)
Step 5 Analyze competition

Step 6 Create goals & objectives
Step 7 Formulate strategies
Step 8 Translate plans into actions
Step 9 Establish accurate controls
4
Step 1: Develop a Vision and

Create a Mission Statement
Vision – the result of an entrepreneur’s
dream of something that does not exist
yet (and the ability to paint a compelling
picture of that dream for everyone to
see).
A clearly defined vision:
Provides direction
Determines decisions
Motivates people

The mission statement addresses
question: “What business are we in?”
The mission is a written expression of
how the company will reflect an
entrepreneur’s values, beliefs,
and vision.
Ch. 3: Business Model and Strategic Plan Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3 - 10
5

Elements of a mission statement:
Purpose of the company: What are we
in business to accomplish?
Business we are in: How are we going
to accomplish that purpose?
Values of the company: What principles
and beliefs do we have?
Some mission examples

„McDonald's mission is to be our customers'
favorite place and way to eat and drink. We are
committed to continuously improving our
operations and enhancing our customers'
experience. ”
„The mission of The Walt Disney Company is to
be one of the world's leading producers and
providers of entertainment and information.
Using our portfolio of brands to differentiate our
content, services and consumer products, we
seek to develop the most creative, innovative
and profitable entertainment experiences and
related products in the world.”
6
Step 2: Assess Company

Strengths and Weaknesses
Strengths
Positive internal factors a company
can draw on to accomplish its mission,
goals, and objectives.
Weaknesses
Negative internal factors that inhibit a
company’s ability to accomplish its
mission, goals, and objectives.
Step 3: Scan for Opportunities

and Threats
Opportunities
Positive external factors the company
can exploit to accomplish its mission,
goals, and objectives.
Threats
Negative external factors that inhibit
the firm's ability to accomplish its
mission, goals, and objectives.
7
Step 4: Identify
Key Success Factors
Key success factors (KSFs): factors that determine
the relative success of market participants.
Every business has a certain degree of control over
key variables such as: production capabilities,
market opportunities, its labor force, access to raw
materials etc.
Success comes from the ability to recognize and to
capitalize on those opportunities, and to maximize
revenues and/or minimize costs accordingly.
Identifying Key Success Factors

List the skills, characteristics, and core competencies
that your business must possess
to be successful in its market segment.
Key Success Factor How Your Company Rates
1. Tight cost control Low 1 2 3 4 5 6 7 8 9 10 High
2. Friendly service Low 1 2 3 4 5 6 7 8 9 10 High
3. High food quality Low 1 2 3 4 5 6 7 8 9 10 High
4. Careful site selection Low 1 2 3 4 5 6 7 8 9 10 High
5. Consistency Low 1 2 3 4 5 6 7 8 9 10 High
Conclusions:
8
Step 5: Analyze Competitors

Small business owners believe they
operate in a highly competitive
environment and the level of
competition is increasing.
Yet, 97 percent of all U.S. businesses
do not systematically track
the progress of their key competitors
(source: National Federation of
Independent Businesses).
FIGURE 3.3 How Small Businesses Compete

Based on: William J. Dennis, Jr., National Small Business Poll: Competition (Washington, DC: National
Federation of Independent Businesses, 2003), Vol. 3, Issue 8, p. 1.
9
Competitor Analysis
Direct competitors
Offer the same products and services
Customers often compare prices, features and
deals among these competitors when they shop
Significant competitors
Offer some of the same or similar products or
services
Product or service lines overlap but not completely
Indirect competitors
Offer same or similar products in only a small
number of areas

Analyzing key competitors allows an
entrepreneur to:
Avoid surprises from existing competitors’
new strategies and tactics.
Identify potential new competitors and the
threats they pose.
Improve reaction time to competitors’
actions.
Anticipate rivals’ next strategic moves.
10

Techniques do not require unethical behavior:
Monitor industry and trade publications.

Talk to customers and suppliers.
Debrief employees, especially sales
representatives and purchasing agents.
Attend trade shows and conferences and study
competitors’ sales literature.
Watch for competitor’s employment ads…
Step 5: Analyze Competitors (continued)
Techniques do not require unethical behavior:
Learn about the kinds of equipment and raw

materials competitors are importing.
Buy competitors’ products and “benchmark” them.
Get competitors’ credit reports.
Use the Internet to learn more about competitors…
11
Step 6: Create Company Goals

and Objectives
Goals: Broad, long-range attributes to be
accomplished.
Objectives: More detailed, specific targets

of performance that are S.M.A.R.T.
Specific
Measurable
Assignable
Realistic (yet challenging)
Timely (…and written down)
Step 7: Formulate Strategies
A strategy is the master plan that

incorporates all of the parts (marketing,
finance, personnel, and operations) to
make up the whole.
Strategy - a road map of the actions an
entrepreneur draws up to achieve a
company’s mission, goals, and objectives.
It is the company’s „game plan” for
gaining a competitive advantage.
12
Step 7: Formulate Strategies
Three basic strategies:

Cost
Leadership
Strategy? Differentiation
Focus
Cost Leadership
Goal: to be the low-cost producer in the

industry (or market segment).
Low-cost leaders have advantages:
Reaching buyers who buy on the basis of price
The power to set the industry’s price floor.
13
Cost Leadership
Cost Leadership works well when:
Buyers are sensitive to price changes.

Competing firms sell the same commodity
products.
A company can benefit from production scale.
Differentiation
Company seeks to build customer loyalty
by positioning its goods or services in a
unique or different fashion.
Idea is to be special at something
customers value.
Key: Build basis for differentiation on a
distinctive competence, something that the
small company is uniquely good at doing in
comparison to its competitors.
14
Focus
Company selects one or more customer
segments in a market, identifies customers’
special needs, wants, or interests, and then
targets them with a product or service
designed specifically for them.
Strategy builds on the differences among
market segments.
Rather than try to serve the total market, the
company focuses on serving a niche (or
several niches) within that market.
Step 8: Translate Strategies

into Action Plans
Survey of senior executives:
Companies achieved only 63% of the
results in their strategic plans.
Create projects by defining:
Purpose
Scope
Contribution
Resource requirements
Timing
15
Step 9: Establish Accurate

Controls
Entrepreneur must:
Identify and track key performance
indicators.
Take corrective action.
Balanced Scorecards
A set of measurements unique to a
company that includes both financial and
operational measures
Gives managers a quick,
yet comprehensive,
picture of a company’s
overall performance.
16
Balanced Scorecards
Five Perspectives:
1. Customer: How do customers see us?
2. Internal Business: At what must we excel?
3. Innovation and Learning: Can we continue
to improve and create value?
4. Financial: How do we look to shareholders?
5. Corporate Citizenship: Do we meet our
responsibility to society as a whole, the
environment, the community, and other
external stakeholders?
17
Conclusion
The strategic planning process:
Begins with the nine steps.
1. Develop a vision and translate it into a mission statement
2. Assess strengths and weaknesses
3. Scan environment for opportunities and threats
4. Identify key success factors
5. Analyze competition
6. Create goals & objectives
7. Formulate strategies
8. Translate plans into actions
9. Establish accurate controls
Becomes more efficient each time.

Teaches entrepreneurial discipline for
a higher chance of survival.
All rights reserved. No part of this publication may be

reproduced, stored in a retrieval system, or transmitted, in any
form or by any means, electronic, mechanical, photocopying,
recording, or otherwise, without the prior written permission of
the publisher. Printed in the United States of America.
18

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ESSENTIALS OF ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT ● 6E

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall

From financial capital to intellectual

Strategic Management and

Key: Core Competencies

Step 5 Analyze competition

Step 1: Develop a Vision and

Step 1: Develop a Vision and

Step 1: Develop a Vision and

Some mission examples

Step 2: Assess Company

Step 3: Scan for Opportunities

Identifying Key Success Factors

Step 5: Analyze Competitors

FIGURE 3.3 How Small Businesses Compete

Step 5: Analyze Competitors

Step 5: Analyze Competitors

Monitor industry and trade publications.

Step 5: Analyze Competitors (continued)

Techniques do not require unethical behavior:

Learn about the kinds of equipment and raw

Step 6: Create Company Goals

Objectives: More detailed, specific targets

Step 7: Formulate Strategies

A strategy is the master plan that

Step 7: Formulate Strategies

Three basic strategies:

Goal: to be the low-cost producer in the

Buyers are sensitive to price changes.

Step 8: Translate Strategies

Step 9: Establish Accurate

Becomes more efficient each time.

All rights reserved. No part of this publication may be

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