BUSINESS PLAN OUTLINE

http://www.sbm.temple.edu/iei/competitions.html

• Executive Summary Technology Plan

• Company Description Management & Organization
– Including product/service & Social Responsibility
technology/core knowledge Development & Milestones
• Industry Analysis & Trends Financials
• Target Market Including Capital Requirements &
Financial Statements
• Competition
Appendix
• Strategy/Business Model
• Marketing and Sales Plan
• Production/Operations Plan
 STRATEGY FUNNEL – INDUSTRY SIDE

Environmental Trends

Customer & Industry

Benefits Structure

Market Segment, Size Competitive Industry

Channels Space

Perceptual Competitive
Space Dynamics

Value Strategic
Proposition Positioning
 INDUSTRY-SIDE GOAL

Busine ss Landscape

70
60
50

Return on 40
Equity (%) 30

20
10
0

Describe, in detail, the competitive, industry, and environmental landscape in which

your firm will operate…to find a defensible space you might occupy.
BUSINESS AS A SUPPLY CHAIN

The supply chain traces processes and transformations. As these become more complex, they tend to
differentiate into various functions.
 BUSINESS AS A VALUE CHAIN

• The value chain maps value added and captured onto the supply chain. Each step in the supply chain
contributes different amounts of value.
• Effective management involves both identifying new sources of value and tying together pieces to
create more than the sum of the parts.
• Do not confuse value with cost!
 FROM VALUE CHAINS TO MARKETS

Suppliers Company Customers Value

• As underlying processes become more complex, supply chains often evolve

into chains of firms that interact through negotiated transactions or markets
- rather than chains of functions managed internally
• Note how the margin divides (and multiplies)
MARKET STRUCTURE

Seller Buyer
Market Seller Buyer
Entry Entry
Structure Number Number
Barriers Barriers

Perfect
No Many No Many
Competition

Monopolistic
No Many No Many
Competition

Oligopoly Yes Few No Many

Oligopsony No Many Yes Few
Monopoly Yes One No Many

Monophony No Many Yes One

 MARKETS & INDUSTRIES

• Each cluster of competitors is an industry, industry segment or strategic

group
• Supply chains and industries evolve over time – as do their rules, cultures,
technologies and sources of value
 BOOK SELLING COMMERCE CHAIN

Packager Sales groups

Author Agent Publisher Wholesaler Retailer Reader

Direct marketing
t e r
in
Pr

p er r
Pa duce
o
Pr
t
r e s ts
Fo duc
o
Pr
 BOOK SELLING VALUE CHAIN
$0.375
Promotions
$0.375
$0.45 Sales groups
Packager $3.50 $1.00 $5.50 $12.00
Author Agent Publisher Wholesaler Retailer Reader
$0.50 $0.05
$1.25
nt er
i
Pr
• From trade sales, a publisher might keep 7% for salaries etc – though the amounts and
percentages do increase with print runs and cover prices.
• From direct mail, a publisher might keep 12.5% or so, but without as many economies of scale
(since so much goes to logistics).
 BOOK SELLING INDUSTRY STRUCTURE

Packager Sales groups

Author Agent Publisher Wholesaler Retailer Reader

Direct marketing
Harper & Row

Borders Bertelsmann Amazon

Consortium Bookpeople or Ingram

 EXERCISE:
DRAW THE CHAIN, IDENTIFY YOUR INDUSTRY

• Who sells what to whom?

– Ask industry informants
– Look at customer and supplier lists
– Look at industry magazines
• Draw what you see
• Circle your industry
– The related functional cluster of firms
• Identify sources of competition
– direct competitors from within the industry
– indirect competitors from related supply chains
• Note the supply market
• Note the demand market
 I. ENVIRONMENTAL SCANNING:
STEEP ANALYSIS
Macro- Socio-cultural
environment Forces

Operating
Environment

Communities Union/
Firm/ employees Technological
Organization Forces
Political Regulators Trade
Structure
Forces Culture
Association
Competencies
Stockholders Resources Competitors

Creditors Suppliers Ecological

Economic Forces
Customers
Forces
 STAKEHOLDERS SHAPE THE
OPERATING ENVIRONMENT
Macro- Socio-cultural
environment Forces

Operating
Environment

Communities Union/
Firm/ employees Technological
Organization Forces
Political Regulators Trade
Structure
Forces Culture
Association
Competencies
Stockholders Resources Competitors

Creditors Suppliers Ecological

Economic Forces
Customers
Forces
 STAKEHOLDER ANALYSIS

• Who matters, how much

– Customers, suppliers, owners, workers, community groups,
government
– At core, strategic, or environmental levels
• What matters, why and when
– What is at stake for the stakeholders? Why do they care? When and
how might they act?
– What is at stake for the firm? What are the likely impacts on the firm?
Why? When?
• Response options
– Cooperate, compete, coopt, cut out...
 EXERCISE:
STEEP OR STAKEHOLDER BRAINSTORM
Socio-cultural
Macro- Forces
environment
Operating
Environment

Communities Union/
Firm/ employees Technological
Organization Forces
Political Regulators Trade
Structure
Forces Culture
Association
Competencies
Stockholders Resources Competitors

Creditors Suppliers Ecological

Forces
Customers
 II. INDUSTRY STRUCTURE

• Industries are clusters of firms that serve the same function in a

commerce chain. These sets of firms operate in the same space and
compete to control enough space to capture value.
• Industries all have structure, history, trajectories and competitive
dynamics that constrain entry options – and are shaped in part by
macro-environmental conditions.
 INDUSTRY POWER

Threat from
New Entrants

Rivalry
Suppliers’ Buyers’
of
Power Power
Firms

Threat from Power of other

Substitutes Stakeholders
 INDUSTRY POWER: BOOKSTORES

Threat from New Entrants

Minimal at scale – eg.
warehousing, leases

Suppliers’ Power: Rivalry: Buyers’ Power:

Reduced but still Oligopoly Mild – local monopoly
significant but options

Threat from Substitutes: Other Stakeholders:

High: multimedia, web Minimal domestic, some
distribution international, financial
concerns
 1. ENTRY

• Industries that are hard to enter are cozy for insiders, but also
often attractive to outsiders longing for the value being shared
by so few.
• Barriers to entry make it harder for newcomers to play.
– Fierce reaction by incumbents.
– Size of payoff/relation of supply to demand.
– Economies of scale:
• minimum efficient scale of production
• distribution or sales networks
– Pioneering brand advantages.
– Experience curve.
– Licenses or patents.
– Cost of exit.
 2. SUBSTITUTES

• Industries with few substitute products are more attractive than

those with many substitutes.
• Effective substitutes can often provide ways in for upstarts.
• The threat of substitutes is often the weakest of the forces --
except during times of high demand or fast change, when
interlopers may see opportunities.
• Substitutes can be industry killers (Video Rentals)
 3. BUYER POWER

• Attractive industries feature disorganized, small customers,

with little purchasing and negotiating power.
• Buyers gain power when:
– They are large, relative to the seller (superstores).
– They are organized (eg., a coop).
– It is easy to switch to another supplier (eg., when products are
standard).
– They could integrate backwards and so take over a supplier.
 4. SUPPLIER POWER

• Attractive industries feature small and disorganized suppliers.

• Suppliers gain power when:
– They are large, relative to the buyers. (Alcoa).
– It is difficult for buyers to switch to competing suppliers. (Custom
products, proprietary information).
– They pose a credible threat of integrating forward and taking over the
buyers’ functions.
 5. RIVALRY

• Attractive industries are controlled by monopolies or

gentlemanly oligopolies.
– On the other hand, the more the players, and the more equally matched,
the closer the industry approximates “perfect competition” and
minimum profits.
• Rivalry is reduced when:
– Power is concentrated
– Competitors can truly differentiate.
– It is easy to exit.
– Demand is stable and predictable.
– Regulation takes the edge off.
 6. STAKEHOLDER POWER

• Governments (if not in the environmental scan), unions,

creditors (if not a supplier), advocacy groups (eg.,
environmentalists) can all constrain industries.
– Regulated industries
– Unions
– Institutional investors
– Bottle bills
• Rivalry is reduced when governments or other stakeholders
limit access to the industry – and so limit competition.
 PROFIT POOLS

20% Banking 20% Banking

Operating
Operating
Margin

Margin
0 100 0 100
Acquisition Funding Servicing % Acquisition Funding Servicing %
Share of Industry Revenue Share of Industry Revenue

• Operating margin: Industry reports, interviews

• Share: Profit amount x total sales in sub-segment
 INDUSTRY DYNAMICS

• While useful, the five forces, value chain and profit pool
models are essentially static.
• It is critical to make guesses about the future -- especially
about when trends might stop and the existing power structure
shift. STEEP and technology life cycle analyses can help with
this.
 EXERCISE:
INDUSTRY POWER STRUCTURE

Threat from New

Entrants

Rivalry
Suppliers’ Buyers’
of
Power Power
Firms

Threat from Power of other

Substitutes Stakeholders
 III. COMPETITIVE ANALYSIS

• Competitors are the firms that compete to serve the same

customers in the same marketplace.
• Competitors can compete directly (cars) or indirectly
(bicycles, mass transit).
• Competition happens on two levels:
1. Product or service competition
• Competition at the level of the value proposition and marketing (covered
in the first workshop)
2. Company competition
• Competition at the level of company strategy
 COMPANY COMPETITIVE ANALYSIS

• How does each firm compete?

– Quality, service, low price, something else?
• How effective is each?
– How well designed are they to compete as they do?
• How powerful?
– What resources do they control? Money, people, influence...
• How aggressive?
– How hard do they compete? What’s their trajectory?
 COMPETITOR RESPONSE PROFILE
Drivers Abilities
Future Goals Current Strategy
Vision statement Price, quality,
Managerial distribution,
behavior Response Profile resources
Satisfied or ambitious?
Likely next moves?
Vulnerabilities?
Sensitive spots?
(What will provoke
Critical retaliation?) Capabilities
Assumptions Strengths &
Key beliefs weaknesses
Blind spots
 COMPETITORS TABLE

• Organizes competitors using crucial dimensions of

competition, plus effectiveness, power, trajectory, likely
changes...

Market Effective- Aggres-

Quality Cost Power
Share ness siveness

Competitor 1 15% H H M M

Competitor 2 25% L L H H very

Competitor 3 5% M M L L

Competitor 4 20% L L H H slipping

Competitor 5 15% M M H L
 STRATEGIC GROUPS

Upscale Chains
Price

Diners/Family Style

Fast Food

Selection
• Groups of firms that pursue similar strategies with similar
resources
 GARTNER MAGIC QUADRANT

Gartner rates vendors upon two criteria: completeness of vision and ability to
execute.
Leaders score higher on both criteria; the ability to execute and completeness
of vision. Typically larger industry developed businesses with vision and
potential for expansion.
Challengers score higher the ability to execute and lower on the completeness
of vision. Typically larger, settled businesses with minimal future plans for that
industry.
Visionaries score lower on the ability to execute and higher on the
completeness of vision. Typically smaller companies that are unloading their
planned potential.
Niche players score lower on both criteria: the ability to execute and
completeness of vision. Typically new additions to the Magic Quadrant, or
market fledglings.
Example: Variation on Gartner’s
Magic Quadrant
 DYNAMIC COMPETITOR ANALYSIS

• While useful, the competitor table and the strategic groups are
essentially static.
• It is critical to make guesses about the future -- especially
about when trends might stop and the ground might shift, and
when new competitors might rise, or existing ones die.
 EXERCISE:
COMPETITOR ANALYSIS

• Make a competitors table, including:

– market share
– how they stack up on crucial dimensions of value
– effectiveness (star the most competent ones)
– resources (underline richest ones)
– aggressiveness (arrows to indicate trajectories)
• Note any natural groupings
• Note any likely changes
– New entrants, mergers, exits?
 BIBLIOGRAPHY
• Andersen Business Consulting interview, Summer 2001.
• Richard D’Aveni, Hypercompetition (Free Press: 1994).
• Craig Fleisher & Babette Bensoussan, Strategic & Competitive Analysis: Methods & Techniques for Analyzing
Business Competition (Upper Saddle River, NJ: Prentice Hall, 2003)
• Jay Galbraith, “Strategy & Organization Planning” in Human Resource Management (Spring-Summer 1983) for
Supply Chain.
• Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001).
• 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 Management-Long Range Planning, Vol. 31, No. 3, pp. 406-417,
1998
• TL Hill lecture notes, 1999, 2001, 2002.
• J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001).
• Philip Kotler, Marketing Management, 9th Edition, (Prentice Hall, 1997).
• Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994), for Porter and other
economics-based strategy.
• Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition (Prentice Hall, 1998).
• Michael Porter, Competitive Advantage (Free Press, 1985).
• Michael Porter, “What is Strategy?” Harvard Business Review (November-December 1996).
• Wikipedia, Gartner Magic Quadrants, Market Definitions February 2011