Chapter 3

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

Designing a Competitive Designing a Competitive Business Model and Business Model and

Building a Solid Strategic PlanBuilding a Solid Strategic Plan

Designing a Competitive Designing a Competitive Business Model and Business Model and

Building a Solid Strategic PlanBuilding a Solid Strategic Plan

CHAPTER CHAPTER 33

Copyright © 2011 Pearson Education, Inc. Publishing as Prentice Hall 3 - 2Ch. 3: Business Model and Strategic Plan

A Major Shift . . .A Major Shift . . .

From financial capital to intellectual From financial capital to intellectual capitalcapital

HumanHuman StructuralStructural CustomerCustomer


Strategic ManagementStrategic Management

Is crucial to building a successful Is crucial to building a successful business. business.

Involves developing a game plan to Involves developing a game plan to guide a company as it strives to guide a company as it strives to accomplish its mission, goals, and accomplish its mission, goals, and objectives, and to keep objectives, and to keep it on its desired course.it on its desired course.


Strategic Management and Strategic Management and Competitive AdvantageCompetitive Advantage

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

Example: Shiftwise – temporary nursing Example: Shiftwise – temporary nursing


Building a Competitive Building a Competitive AdvantageAdvantage

Consider four aspects of a small Consider four aspects of a small company:company:

1.1. Products they sellProducts they sell

2.2. Service they provideService they provide

3.3. Pricing they offerPricing they offer

4.4. Way they sell Way they sell


Key: Core CompetenciesKey: Core Competencies

Unique set of capabilities a company develops Unique set of capabilities a company develops in key areas, such as superior quality, in key areas, such as superior quality, customer service, innovation, team-building, customer service, innovation, team-building, flexibility, responsiveness, and others that flexibility, responsiveness, and others that allow it to vault past competitors. allow it to vault past competitors. They are what a company does best. They are what a company does best. Best to rely on a Best to rely on a natural advantage natural advantage (often (often

linked to a company’s “smallness”). linked to a company’s “smallness”). Examples: Jobster and Advanced Composite Examples: Jobster and Advanced Composite

MaterialsMaterials


Building a Sustainable Building a Sustainable Competitive AdvantageCompetitive Advantage

Superior value for customersSuperior value for customers

Sustainable competitive advantage

Sustainable competitive advantage

CapabilitiesCapabilities

Core competencies

Core competencies

SkillsSkills

Lessons learned

Lessons learned


Strategic Management Strategic Management ProcessProcess

Step 1 Step 1 Develop a vision and translate it Develop a vision and translate it into a mission statementinto a mission statement

Step 2 Step 2 Assess strengths and Assess strengths and weaknessesweaknesses

Step 3 Step 3 Scan environment for Scan environment for opportunities and threatsopportunities and threats

Step 4 Step 4 Identify key success factorsIdentify key success factors


Strategic Management Strategic Management Process Process

Step 5Step 5 Analyze competitionAnalyze competition

Step 6Step 6 Create goals & objectivesCreate goals & objectives

Step 7Step 7 Formulate strategiesFormulate strategies

Step 8Step 8 Translate plans into actionsTranslate plans into actions

Step 9Step 9 Establish accurate controlsEstablish accurate controls

(continued)(continued)


Step 1: Step 1: Develop a VisionDevelop a Vision and and Create a Mission Statement Create a Mission Statement

Vision – the result of an entrepreneur’s Vision – the result of an entrepreneur’s dream of something that does not exist dream of something that does not exist yet and the ability to paint a compelling yet and the ability to paint a compelling picture of that dream for everyone to picture of that dream for everyone to see. see.

A clearly defined vision:A clearly defined vision: Provides directionProvides direction Determines decisionsDetermines decisions Motivates peopleMotivates people Allows for perseverance in the face of adversityAllows for perseverance in the face of adversity


Step 1: Develop a Vision andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

Addresses question: “What business Addresses question: “What business are we in?”are we in?”

The mission is a written expression of The mission is a written expression of how the company will reflect an how the company will reflect an entrepreneur’s values, beliefs, entrepreneur’s values, beliefs, and vision – more than just and vision – more than just “making money.”“making money.”

Serves as a “strategic compass.” Serves as a “strategic compass.” Example: Chick-fil-AExample: Chick-fil-A


Step 1: Develop a Vision andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

Elements of a mission statement:Elements of a mission statement: PurposePurpose of the company: What are we of the company: What are we

in business to accomplish?in business to accomplish? BusinessBusiness we are in: How are we going we are in: How are we going

to accomplish that purpose?to accomplish that purpose? ValuesValues of the company: What principles of the company: What principles

and beliefs form the foundation of the and beliefs form the foundation of the way we do business? way we do business?


Step 2: Assess Company Step 2: Assess Company Strengths and WeaknessesStrengths and Weaknesses

StrengthsStrengths Positive internal factors a company Positive internal factors a company

can draw on to accomplish its mission, can draw on to accomplish its mission, goals, and objectives.goals, and objectives.

WeaknessesWeaknesses Negative internal factors that inhibit a Negative internal factors that inhibit a

company’s ability to accomplish its company’s ability to accomplish its mission, goals, and objectives.mission, goals, and objectives.


Step 3: Scan for Opportunities Step 3: Scan for Opportunities and Threatsand Threats

OpportunitiesOpportunities Positive external factors the company Positive external factors the company

can exploit to accomplish its mission, can exploit to accomplish its mission, goals, and objectives.goals, and objectives.

ThreatsThreats Negative external factors that inhibit Negative external factors that inhibit

the firm's ability to accomplish its the firm's ability to accomplish its mission, goals, and objectives.mission, goals, and objectives.


The Power of External The Power of External Market ForcesMarket Forces

Competitive

Competitive

EconomicEconomic

Political and Regulatory

Political and Regulatory

Technological

Technological

Social and Demographic

Social and Demographic


Step 4: Identify Step 4: Identify Key Success FactorsKey Success Factors

Key success factors (KSFs): factors that Key success factors (KSFs): factors that determine the relative success of market determine the relative success of market participants. participants.

The keys to unlocking the secrets of The keys to unlocking the secrets of competing successfully in a competing successfully in a particular market segment.particular market segment.

Example: John H. Daniel CompanyExample: John H. Daniel Company


Identifying Key Success FactorsIdentifying Key Success Factors

List the skills, characteristics, and core competencies List the skills, characteristics, and core competencies that your business must possess that your business must possess

to be successful in its market segment.to be successful in its market segment.

Key Success FactorKey Success Factor How Your Company RatesHow Your Company Rates

1.1. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

2.2. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

3.3. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

4.4. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

5.5. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

Conclusions:Conclusions:


Step 5: Analyze CompetitorsStep 5: Analyze Competitors

NFIB study: Small business owners NFIB study: Small business owners believe they operate in a highly believe they operate in a highly competitive environment and the competitive environment and the level of competition is increasing.level of competition is increasing.

Yet, 97 percent of all U.S. businesses Yet, 97 percent of all U.S. businesses do do notnot systematically track systematically track the progress of their key competitors. the progress of their key competitors.


FIGURE 3.3 How Small Businesses CompeteBased on: William J. Dennis, Jr., National Small Business Poll: Competition

(Washington, DC: National Federation of Independent Businesses, 2003), Vol. 3, Issue 8, p. 1.

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

Competitor AnalysisCompetitor Analysis Direct competitorsDirect competitors

Offer the same products and servicesOffer the same products and services Customers often compare prices, features and Customers often compare prices, features and

deals among these competitors when they shopdeals among these competitors when they shop

Significant competitorsSignificant competitors Offer some of the same or similar products or Offer some of the same or similar products or

servicesservices Product or service lines overlap but not completelyProduct or service lines overlap but not completely

Indirect competitorsIndirect competitors Offer same or similar products in only a small Offer same or similar products in only a small

number of areasnumber of areas

3 - 20Ch. 3: Business Model and Strategic Plan



Analyzing key competitors allows an Analyzing key competitors allows an entrepreneur to:entrepreneur to: Avoid surprises from existing competitors’ Avoid surprises from existing competitors’

new strategies and tactics.new strategies and tactics. Identify potential new competitors and the Identify potential new competitors and the

threats they pose.threats they pose. Improve reaction time to competitors’ Improve reaction time to competitors’

actions.actions. Anticipate rivals’ next strategic moves. Anticipate rivals’ next strategic moves.



Techniques do Techniques do notnot require unethical behavior: require unethical behavior: Monitor industry and trade publications.Monitor industry and trade publications. Talk to customers and suppliers.Talk to customers and suppliers. Debrief employees, especially sales Debrief employees, especially sales

representatives and purchasing agents.representatives and purchasing agents. Attend trade shows and conferences and study Attend trade shows and conferences and study

competitors’ sales literature.competitors’ sales literature. Watch for competitor’s employment ads.Watch for competitor’s employment ads. Conduct patent searches for patents competitors Conduct patent searches for patents competitors

have filed. have filed. Get EPA reports for the factories of competing Get EPA reports for the factories of competing

manufacturers.manufacturers.



Techniques do Techniques do notnot require unethical behavior: require unethical behavior: Learn about the kinds of equipment and raw Learn about the kinds of equipment and raw

materials competitors are importing from the materials competitors are importing from the Journal of Commerce Port Import Export Reporting Journal of Commerce Port Import Export Reporting ServiceService..

Buy competitors’ products and “benchmark” them. Buy competitors’ products and “benchmark” them. Get competitors’ credit reports.Get competitors’ credit reports. Check out the reports publicly-held competitors Check out the reports publicly-held competitors

must file with the SEC. must file with the SEC. Investigate UCC reports. Investigate UCC reports. Check out the resources in your local library.Check out the resources in your local library. Use the Internet to learn more about competitors.Use the Internet to learn more about competitors. Visit competing businesses to observe their Visit competing businesses to observe their

operations.operations.

(continued)


Competitive Profile MatrixCompetitive Profile Matrix


Is Setting Goals & ObjectivesIs Setting Goals & ObjectivesReally Important?Really Important?

““Would you tell me, please, which way I ought Would you tell me, please, which way I ought to go from here?” said Alice.to go from here?” said Alice.

““That depends a good deal on where you That depends a good deal on where you want to get to,” said the Cheshire cat.want to get to,” said the Cheshire cat.

““I don’t much care where.…” said Alice.I don’t much care where.…” said Alice.

‘‘Then it doesn’t matter which way you go,” Then it doesn’t matter which way you go,” said the cat.said the cat.

- Lewis Carroll’s- Lewis Carroll’s Alice in WonderlandAlice in Wonderland


Step 6: Create Company GoalsStep 6: Create Company Goalsand Objectivesand Objectives

GoalsGoals: Broad, long-range attributes to be : Broad, long-range attributes to be accomplished. accomplished.

““BHAGs”BHAGs” ObjectivesObjectives: More detailed, specific targets : More detailed, specific targets

of performance that are S.M.A.R.T.of performance that are S.M.A.R.T. SSpecificpecific MMeasurableeasurable AAssignablessignable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely


Step 7: Formulate StrategiesStep 7: Formulate Strategies

Strategy - a road map of the actions Strategy - a road map of the actions an entrepreneur draws up to achieve an entrepreneur draws up to achieve a company’s mission, goals, and a company’s mission, goals, and objectives. objectives.

It is the company’s game plan for It is the company’s game plan for gaining a competitive advantage.gaining a competitive advantage.


Step 7: Formulate StrategiesStep 7: Formulate Strategies

Three basic strategies:Three basic strategies:

Strategy?

Cost Leadership

Cost Leadership

Differentiation

Differentiation

Focus

Focus


FIGURE 3.4 Three Strategic Options


Cost LeadershipCost Leadership

Goal: to be Goal: to be thethe low-cost producer in the low-cost producer in the industry (or market segment).industry (or market segment).

Low-cost leaders have advantages:Low-cost leaders have advantages: Reaching buyers who buy on the basis of priceReaching buyers who buy on the basis of price

The power to set the industry’s price floor.The power to set the industry’s price floor.


Cost LeadershipCost Leadership

Cost Leadership works well when:Cost Leadership works well when: Buyers are sensitive to price changes.Buyers are sensitive to price changes.

Competing firms sell the same commodity Competing firms sell the same commodity products.products.

A company can benefit from economies of scale.A company can benefit from economies of scale.

Example: Anytime FitnessExample: Anytime Fitness


DifferentiationDifferentiation Company seeks to build customer loyalty by Company seeks to build customer loyalty by

positioning its goods or services in a unique positioning its goods or services in a unique or different fashion.or different fashion.

Idea is to be special at something customers Idea is to be special at something customers value.value.

Key: Build basis for differentiation on a Key: Build basis for differentiation on a distinctive competence, something that the distinctive competence, something that the small company is uniquely good at doing in small company is uniquely good at doing in comparison to its competitors. comparison to its competitors.

Examples: Vosges-Haut Chocolate, Ice Hotel, Examples: Vosges-Haut Chocolate, Ice Hotel, and Indigenous Designsand Indigenous Designs


FocusFocus Company selects one or more customer Company selects one or more customer

segments in a market, identifies customers’ segments in a market, identifies customers’ special needs, wants, or interests, and then special needs, wants, or interests, and then targets them with a product or service targets them with a product or service designed specifically for them.designed specifically for them.

Strategy builds on the Strategy builds on the differencesdifferences among among market segments.market segments.

Rather than try to serve the total market, the Rather than try to serve the total market, the company focuses on serving a niche (or company focuses on serving a niche (or several niches) within that market. several niches) within that market.

Example: American Plume and Fancy Example: American Plume and Fancy FeatherFeather


Step 8: Translate StrategiesStep 8: Translate Strategies into Action Plans into Action Plans

Survey of senior executives: Survey of senior executives: Companies achieved only 63% of the Companies achieved only 63% of the results in their strategic plans.results in their strategic plans.

Create projects by defining:Create projects by defining: PurposePurpose ScopeScope ContributionContribution Resource requirementsResource requirements TimingTiming


Step 9: Establish Accurate Step 9: Establish Accurate ControlsControls

Plan establishes the standards Plan establishes the standards against which actual performance is against which actual performance is measured. measured.

Entrepreneur must:Entrepreneur must: Identify and track key performance Identify and track key performance

indicators.indicators. Take corrective action.Take corrective action.


Balanced ScorecardsBalanced Scorecards

A set of measurements unique to a A set of measurements unique to a company that includes both financial and company that includes both financial and operational measuresoperational measures

Gives managers a quick, Gives managers a quick, yet comprehensive, yet comprehensive, picture of a company’s picture of a company’s overall performance. overall performance.


Balanced ScorecardsBalanced Scorecards

Five Perspectives:Five Perspectives:1.1. Customer: How do customers see us?Customer: How do customers see us?

2.2. Internal Business: At what must we excel?Internal Business: At what must we excel?

3.3. Innovation and Learning: Can we continue Innovation and Learning: Can we continue to improve and create value?to improve and create value?

4.4. Financial: How do we look to shareholders?Financial: How do we look to shareholders?

5.5. Corporate Citizenship: Do we meet our Corporate Citizenship: Do we meet our responsibility to society as a whole, the responsibility to society as a whole, the environment, the community, and other environment, the community, and other external stakeholders? external stakeholders?


ConclusionConclusion

The strategic planning process:The strategic planning process:

BeginsBegins with the nine steps. with the nine steps.

BecomesBecomes more efficient each time. more efficient each time.

TeachesTeaches entrepreneurial entrepreneurial discipline for a higher discipline for a higher chance of survival.chance of survival.


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Chapter 3

Small Business & Entrepreneurship

Transcript of Chapter 3