Crafting a Business Plan and

Building a Solid Strategic Plan

 Learning Objective
• Upon completion of this chapter the students will
be able to
– Understanding the importance of strategic management
to a small business.
– Explain why and how a small business must create a
competitive advantage in the market
– Develop a strategic plan for a business using the steps
in the strategic management process.
– Discuss the characteristics of low-cost, differentiation,
and focus strategies and know when to employ them.
– Understand the importance of control as the balanced
scorecard in the planning process
The Elements of Business Plan
• Title page and table of content
• The executive summery
• Mission and vision statement
• Description of firms product or services
• Business and industry profile
• Competitor analysis
• Market entry strategy
• Marketing strategy
• Entrepreneur’s and Manager’s Resume
• Plan of operation
• Pro-forma financial statement
• The loan or investment proposal
 A Major Shift. . .

• Without strategic plan a company can have

success for a short time.
• Shift in the world economy from a base of
financial capital to intellectual capital.
– Human- talent, skill, ability
– Structural- accumulated knowledge and
experience
– Customer- customer base, positive
reputation, ongoing relationship and
goodwill.
 Strategic Management

• Is crucial to building a successful

business.
• Involves developing a game plan to
guide a company as it strives to
accomplish its mission, goals , and
objectives, and to keep it on its desired
course.
 Strategic Management and
Competitive Advantage
• The goal of developing a strategic
plan is to creating a competitive
advantage,
– the aggregation of factors that sets a
company apart from its competitors and
– gives it a unique position in the market.
• Example: Blockbuster Video
– Inventory cost is one tenth of the
inventory
– Greater collection
Building a Competitive Advantage
• Products they sell
• Service they provide
• Pricing they offer
• Way they sell
• Values to which they are committed
 Key: Core Competencies

• Only building competitive advantage is not

enough sustainable competitive advantage
can be built by developing set of core
competencies
– Unique set of capabilities a company develops in
key areas, (such as superior quality, customer
service, innovation, team-building, flexibility,
responsiveness, and others) that allow it to vault
past competitors.
– They are what a company does best.
– Best to rely on a natural advantage (often
linked to a company’s smallness).
• Examples: Netflix – online DVD rental Service
 Strategic Management 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.
Step 5. Analyze competition.
Step 6. Create goals & objectives.
Step 7. Formulate strategies.
Step 8. Translate plans into actions.
Step 9. Establish accurate controls.
 Step 1:
Develop a Vision and Create a Mission Statement
• Vision –
– Purpose is to focus everyone’s attention on
the same target and to inspire them to reach it
– An expression of what an entrepreneur stands
for and believes in.
• A clearly defined vision:
– Provides direction – determine the path
– Determines decisions – influence decision
– Motivates people.- inspire people for action
• Mission statement
– Addresses question:" What business are we
in?”
 Step 2:
Assess Company Strengths and Weaknesses

• Strengths
– Positive internal factors that contribute
to accomplishing the mission, goals,
and objectives.
– Important skills, knowledge, resources
that contribute to the firms success
• Weaknesses
– Negative internal factors that slow
down the accomplishment of the
mission, goals, and objectives.
 Step 3:
Scan for Opportunities and Threats
• Opportunities
– Positive external factors the company can employ
to accomplish its mission, goals, and objectives.
– Restaurant industry analysis
– Big Toys Coach Works
• Threats
– Negative external factors that inhibit the firm's
ability to accomplish its mission, goals, and
objectives.
– Competitor, government regulation, economic
recession, interest rate raise, technological
advances
– Wal-Mart
 The Power of External Market Forces

Technological

Competitive Economic

Political and Social and

Regulatory Demographic
 Step 4:
Identify Key Success Factors
• Key success factors: relationships
between a controllable variable and
a critical factor that influence a
company’s ability to compete in the
market.
• The keys to unlocking the secrets
of competing successfully in a
particular market segment.
– Cost factors
– Product quality
– Solid relationship
 Step 5:
Analyze Competitors

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.
Sample Competitive Profile Matrix

Key Success Factors Your Business Competitor 1 Competitor 2

Weighted Weighted Weighted
(from Step 4) Weight Rating Score Rating Score Rating Score
Market Share 0.10 3 0.30 2 0.20 3 0.30
Price Competitiveness 0.20 1 0.20 3 0.60 4 0.80
Financial Strength 0.10 2 0.20 3 0.30 2 0.20
Product Quality 0.40 4 1.60 2 0.80 1 0.40
Customer Loyalty 0.20 3 0.60 3 0.60 2 0.40
Total 1.00 2.90 2.50 2.10
 Step 6:
Create Company Goals and Objectives
• Goals and objectives give them target to
aim for and provide a basis for evaluating
performance.
• Goals - broad, long-range attributes to be
accomplished.
• Objectives - more detailed, specific targets
of performance that are S.M.A.R.T.
– Specific
– Measurable
– Attainable
– Realistic (yet challenging)
– Timely
 Step 7:
Formulate Strategies
• Strategy - a road map of the actions an
entrepreneur draws up to fulfill a company’s
mission, goals, and objectives. It is the
company’s game plan for gaining a competitive
advantage.
• Three basic strategies:
Cost
Cost leadership
leadership

Strategy? Differentiation
Differentiation

Focus
Focus
Three Strategic Options
 Cost Leadership

• Goal: to be the low-cost producer in the

industry (or market segment).
• Low-cost leaders have an advantage in
reaching buyers who buy on the basis of price,
and they have the power to set the industry’s
price floor.
• Works well when:
– Buyers are sensitive to price changes.
– Competing firms sell the same commodity
products.
– A company can benefit from economies of scale.
 Cost Leadership

• Example: McDonald's has been extremely

successful with this strategy by offering basic fast-
food meals at low prices. They are able to keep
prices low through a division of labor that allows it
to hire and train inexperienced employees rather
than trained cooks. It also relies on few managers
who typically earn higher wages. These staff
savings allow the company to offer its foods for
bargain prices.
 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.
• Examples:
– Federal Express with superior service;
– Caterpillar with high spare parts availability
 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 differences among
market segments.
 Focus

• Rather than try to serve the total

market, the company focuses on
serving a niche (or several niches)
within that market.
– Example, if you operate a bakery that only
prepares wedding cakes, you would aim to be
the cheapest producer of wedding cakes,
although your competitors might produce
cheaper cakes of other varieties.
– Examples: It’s A Wrap! Production Wardrobe Sales .
Sell wardrobe, props and equipments from
several of the studios recent movies for the
customers who wanted to wear what the stars
had worn.
 Step 8:
Translate Strategies into Action Plans

• Create projects by defining:

– Purpose
– Scope
– Contribution
– Resource requirements
– Timing
 Step 9:
Establish Accurate Controls
• The plan establishes the standards against
which actual performance is measured.
• 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.
• Four Perspectives:
– Customer: How do customers see us?
– Internal Business: At what must we excel?
– Innovation and Learning: Can we continue to
improve and create value?
– Financial: How do we look to shareholders?
 Balanced Scorecards

• Four Perspectives:
– Customer: How do customers see us?
• Time : how long it takes to deliver
• Quality :reliability, durability accuracy of the product
• Performance : performance and expectation
• Service : how well it meets customer expectation of value?
– Internal Business: At what must we excel?
• Quality, cycle time, productivity, cost, other that employees
directly influence
– Innovation and Learning: Can we continue to improve
and create value?
• Continuous improvement
– Financial: How do we look to shareholders?
• Profitability, growth and shareholder value.
The Balanced Scorecard Links Performance Measures.
Financial Perspective How do we look
Goals Measures to shareholders?

How do customers At what must we

see us? excel?

Customer Perspective Internal Business Perspective

Goals Measures Goals Measures

Innovation and Learning Perspective

Goals Measures

Can we continue to
improve and create
value?