BUSINESS PLAN OUTLINEhttp://www.sbm.temple.edu/iei/competitions.html

• Executive Summary • Company Description

– Including product/service & technology/core knowledge

• Industry Analysis & Trends• Target Market• Competition • Strategy/Business Model• Marketing and Sales Plan • Production/Operations Plan

Technology PlanManagement & Organization Social ResponsibilityDevelopment & MilestonesFinancials

Including Capital Requirements & Financial Statements

Appendix

STRATEGY FUNNEL – INDUSTRY SIDE

Customer &Benefits

CompetitiveDynamics

CompetitiveSpace

Segment, SizeChannels

Strategic Positioning

ValueProposition

IndustryStructure

Environmental Trends

IndustryMarket

PerceptualSpace

INDUSTRY-SIDE GOAL

Describe, in detail, the competitive, industry, and environmental landscape in which your firm will operate…to find a defensible

space you might occupy.

0

10

20

30

40

50

60

70

Return on Equity (%)

Business Landscape

BUSINESS AS A SUPPLY CHAIN

Suppliers Suppliers Company Customers Customers

• Technology / Purchasing / Product

• People / Management

• Infrastructure / Logistics / Distribution

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

BUSINESS AS A VALUE CHAIN

SuppliersValue Add

SuppliersValue Add

CompanyValue Add

CustomersValue Add

CustomersValue Add

• Purchasing Value Add

• Product Value Add

• Distribution Value Add

• 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

Value Suppliers Company Customers

• 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

Market Structure

Seller Entry Barriers

Seller Number

Buyer Entry Barriers

Buyer Number

Perfect Competition No Many No Many

MonopolisticCompetition No Many No Many

Oligopoly Yes Few No ManyOligopsony No Many Yes FewMonopoly 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

Author

Publisher Wholesaler

ReaderRetailer

Agent

Sales groups

Direct marketing

Packager

Paper

Produce

r

Printe

r

Fore

st

Product

s

BOOK SELLING VALUE CHAIN

Author

Publisher

Wholesaler ReaderRetailer

Agent

Sales groupsPackager

Printe

r$0.50

Promotions

$0.05

$0.45

$1.00

$0.375

$5.50

$1.25

$0.375

$12.00$3.50

• 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

Author

Publisher Wholesaler

ReaderRetailer

Agent

Sales groups

Direct marketing

Packager

AmazonBorders

Harper & Row

Bookpeople or IngramConsortium

Bertelsmann

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-environment

Firm/Organizati

onStructureCulture

Competencies Resources

OperatingEnvironment

Trade Association

Regulators

Union/employees

Competitors

Creditors Suppliers

Customers

Communities

Stockholders

EconomicForces

EcologicalForces

Socio-culturalForces

TechnologicalForcesPolitical

Forces

STAKEHOLDERS SHAPE THE OPERATING ENVIRONMENT

Macro-environment

Firm/Organizati

onStructureCulture

Competencies Resources

OperatingEnvironment

Trade Association

Regulators

Union/employees

Competitors

Creditors Suppliers

Customers

Communities

Stockholders

EconomicForces

EcologicalForces

Socio-culturalForces

TechnologicalForcesPolitical

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

Macro-environment

Firm/Organizati

onStructureCulture

Competencies Resources

OperatingEnvironment

Trade Association

Regulators

Union/employees

Competitors

Creditors Suppliers

Customers

Communities

Stockholders

EcologicalForces

Socio-culturalForces

TechnologicalForcesPolitical

Forces

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

Substitutes

Suppliers’ Power

Threat from New

Entrants

Buyers’ Power

Rivalryof

Firms

Power of other

Stakeholders

INDUSTRY POWER: BOOKSTORES

Threat from Substitutes:

High: multimedia, web distribution

Suppliers’ Power: Reduced

but still significant

Threat from New Entrants

Minimal at scale – eg. warehousing, leases

Buyers’ Power: Mild – local

monopoly but options

Rivalry:

Oligopoly

Other Stakeholders:

Minimal domestic, some 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

Ope

ratin

g M

argi

n

Acquisition Funding Servicing 100%

0

20%

Share of Industry Revenue

Banking

Ope

ratin

g M

argi

n

Funding Servicing100%

0

20%

Share of Industry Revenue

Banking

Acquisition

• 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 Substitutes

Suppliers’ Power

Threat from New Entrants

Buyers’ Power

Rivalryof

Firms

Power of other 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

Future GoalsVision statement

Managerial behavior

Critical Assumptions

Key beliefsBlind spots

Response ProfileSatisfied or ambitious?

Likely next moves?Vulnerabilities?Sensitive spots?

(What will provoke retaliation?)

Current StrategyPrice, quality, distribution,

resources

CapabilitiesStrengths & weaknesses

Drivers Abilities

COMPETITORS TABLE

• Organizes competitors using crucial dimensions of competition, plus effectiveness, power, trajectory, likely changes...

Market Share

Quality

CostEffective

-nessAggres-siveness

Competitor 1 15% H H M

Competitor 2 25% L L H very

Competitor 3 5% M M L

Competitor 4 20% L L H slipping

Competitor 5 15% M M H

Power

M

H

L

H

L

STRATEGIC GROUPSP

rice

Selection

Fast Food

Upscale Chains

Diners/Family Style

• 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