Strategy & Business Plans

IEI Business Plan Workshops

TL Hillthill@sbm.temple.edu

215-204-3079

Business plan workshops

• Matching Products and Services with Markets – First one

• Competitive Analysis– Last week

• Business Model– Tonight

• Market and Sales – Monday, November 19, 2001 - 6:00 pm to 8:30pm

• Financial Projections– Monday, November 26, 2001 - 6:00 pm to 8:30pm

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

Evaluation &Control

StrategyImplementat

ion

StrategyFormulationMission

• Disciplined iterative process…of pursuing a mission, while managing the relationship of the firm to its environment.

Strategic management starts with the situation

External Factors

Internal Factors

Social,political,

regulatory,& community

considerations

Industryattractiveness,

industry dynamics, &competitiveconditions

Other opportunitiesand threats --

like new technologies

Company’s Strategic SituationCompany’s Strategic Situation

Firm’s strengths,

weaknesses,& competitive

market position

Ambitions,philosophies,

& ethical principles

of key executives

Shared vision, values

and companyculture

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

StrategyImplementa

tion

StrategyFormulationMission

Vision

Two basic strategic options

• Position 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

• Resource/Navigation Strategy– Vision-driven nurturing and leveraging of core

resources– Supported by tight culture and explicit learning– Good for dynamic industries/markets

External Opportunities

& Threats

Niche

Internal Strengths & Weaknesses

I. Strategic positioning

• 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

• Focus– Broad or narrow – Always starts with a specific market

segment

Examples of positional strategies

• Cost (price) leadership– Crown, Cork & Seal (pennies, plants). Wal-mart

(warehousing, negotiation). Motel 6 (location, services, salespeople). Cintas (plants, logistics).

• Differentiation– Mercedes (quality). Apple (design). Nordstrom

(service). Nike (image). G&K (clean rooms, radiation). Most entrepreneurs (Zitner’s, Prompt.)

• Focus– Wal-mart (broad - rural). Specialty bookshops (narrow -

Giovanni’s room, NSP). Some entrepreneurs (NRI - changing mix & services).

Elaborations of positional strategies

• Penetrate new markets– Insurance in India. IMS.

• Develop new markets– E-government. (Disruptive technologies.)

• Develop new products– Gillette. Intel.

• Become indispensable – Microsoft. Best subcontactors.

• Fortify– Borders wholesalers, B&N’s leases.

TOWS analysis

Strengths(S)

InternalFactors

ExternalFactors

Opportunities

(O)

SO Strategies-------------------------

WO Strategies------------------------

Threats(T)

ST Strategies--------------------------

WT Strategies-------------------------

Use strengths toavoid threats

Min. weaknesses to avoid threats

Use strengths to take advantage of opportunities

Offset weaknessesto take advantage of opportunities

Weaknesses (W)

TOWS analysis exercise

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

– 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

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

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

• 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.

MarginTechnology

InboundLogistics

Operations Outbound

Logistics

Marketing/Sales

After SalesService

Infrastructure

Procurement

Human Resources

Value chain for NSP

Small but

steadyDesk-top, enterprise, email

Editorial

Trade pbGalleys - review &

hc

Library rateUPS

Direct mailDistributor

Prepay vs

ReturnsGreen

tax

Land trust, warehouse, 501(c)3, friendly capital

Prompt press, newsprint

Cooperative: multiple skills, networks, low-cost, apprenticeship

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 firm’s unique skills and strategy.

• Supports competitive advantage with reinforcing patterns or systems.

Ikea’s Activity System

LimitedCustomer

Service

ModularDesigns Low Mfg

Cost

Self-service

Selection

Self-transport

Limitedsales staff

Customer loyalty

Self -assembly

Suburban Location

Most items in

stock

Design focused on

low cost

Explanatory labeling

Easy transport

Flat packing

kits

Wide variety

Long-term suppliers

Year-round

stocking

On-site inventory

Impulse buying

High-traffic store

layout

Easy to make

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

• Leading to sudden shifts in the rules– as competition jumps to new arenas, along

new ladders

Strategic navigation depends on timing

CompetitiveEdge

Launch

Exploitation Counterattack

Strategic Window

Time

• Rapid change erodes positions…leading totemporaryopportunities

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

• Timing/Know-how– Aramark: Bought into corporate uniforms

• Barriers to entry– New plants, sophisticated logistics, global reach

• Deep pockets– Slugging it out -- and sometimes buying out small fry

Navigational strategies

• Find loose bricks– Stake out undefended territory, fly low, cherry

pick…looking for a beachhead, not a niche (Honda)

• Change the terms of engagement – Sidestep barriers to entry (Canon)

• Collaborate– License, outsource, joint venture to gain

information and knowledge and advantage as go (lamp shades to ceiling fans)

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?

• 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.

III. Business models

• 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…

• Capture Wealth– Private or public sale– Profit: Revenues plus cost control – Plus: The good life, a rich family life,

entrepreneurial success, social impact

Business models build & capture wealth for stakeholders

1.Describe the landscape:– Porter + OT. – Environment, industry, and relevant trends.

2. Paint in competitors:– Competitor table. Perceptual maps.– What do you need to play? How do competitors

compete? What opportunities exist?

3. Identify strengths & weaknesses– Vision, skills, core technologies

4. Choose a position/strategy

Business models start with strategy

4. Identify stakeholders you must serve– Owners, family, workers, community

5. Identify the wealth you will capture– Capital, good life, family life, fame

entrepreneurial effectiveness, social value

6. Sketch a structure that will operationalize the strategy – Value chain or activity system

Business models enclose wealth

6. Work out the implications– Functional strategies– Timelines: Ie., the path to profitability,

sale or other realization of value– Financial projections & capital needs

Business models define structure

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 SalesFinance

• 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

OwnershipPressures

ManagerialPressures

Family/StakeholderPressures

Business systems dynamics

• Each system has its own logic, its own bottom line– Ownership: Wealth creation & maintenance– Family & Stakeholders: Relationships– Management: Efficiency & replicability

• Each has its own time horizon– 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• Owner’s 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

• Agreements– Contracts, bylaws

• Support– Facilitators, advisors, models

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

Probability of Success

Impact

[Time Frame]

L

H

H

InterventionB

InterventionZ

InterventionA

InterventionX

InterventionCIntervention

Y

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 – No low hanging fruit, no wild gambles

• Process– Generates commitment– Builds trust

• Brings data and analysis – To what is for most entrepreneurs,

intuitive• Models a useful tool

Legal structures

• Corporations are liability and task entities– With governance implications

• Sole proprietorships – S corporation

• Partnerships • C Corporations

– LLC

• Stakeholder Corporations– ESOPs, cooperatives, joint ventures, community

corporations

Support structures

• Boards of advisors– Next size up, pay

• Professional team– Accountant, lawyer, coach, tie-breaker,

insurance?

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

• Strategy– Environmental scanning – Strategy – Measurable objectives

• Resources – Tools, systems, education

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.

DECISION:

Roles Involved

CEO Oper. Sales Fin.

Approve

Responsible

Consult

Informed

Typ

es o

f P

arti

cip

atio

n

Responsibility chart

Responsibility chart details

• Approve– Sign off on decisions– Veto power– Final responsibility to commit resources– Shares accountability

• Responsible– Takes the initiative, develops alternatives,

recommends, implements. – Accountable for results

Responsibility chart details

• Consult– Input but no veto power

• Inform– Notify

Management team section

• Names & Experience– Resumes

• Missing members– Recruiting plan

• Advisors & roles– Recruiting plan

Operations

• What you do• How you do it• Cost implications

Operations Examples

• Arbill– computerized information, pay

incentives, training, culture, evidence

• Anderson– architected solution simplifies training

and control and resource management

– ties in with knowledge management

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 D’Aveni, 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 CEO’s 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 Management-Long 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, May-June, 1990.• Pamela Tudor, Notes on responsibility charting, 1999

Evaluation

• What was the most useful part of today’s workshop?

• Least useful?• What should I definitely keep the

same?• What should I change -- and how?