Strategy & Business Plans IEI Business Plan Workshops TL Hill thill @ sbm .temple. edu 215-204-3079
Business plan workshops
Matching Products and Services with Markets
Market and Sales
Monday, November 19, 2001 - 6:00 pm to 8:30pm
Monday, November 26, 2001 - 6:00 pm to 8:30pm
Feasibility plan outline
Product or Service
Marketing and Sales Functional Strategy
Production/Operating Functional Strategy
Intellectual Property Issues
Critical Risk Factors
Strategy can mean many things
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.
Disciplined iterative process … of pursuing a mission, while managing the relationship of the firm to its environment.
Evaluation & Control Strategy Implementation Strategy Formulation Mission Environmental Scanning
Strategic management starts with the situation External Factors Internal Factors Social, political, regulatory, & community considerations Industry attractiveness, industry dynamics, & competitive conditions Other opportunities and threats -- like new technologies Company’s Strategic Situation Firm’s strengths, weaknesses, & competitive market position Ambitions, philosophies, & ethical principles of key executives Shared vision, values and company culture
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... Vision Environmental Scanning Evaluation & Control Strategy Implementation Strategy Formulation Mission
Two basic strategic options
Unique, valuable, defensible position in a market or industry
Supported by a tightly integrated value chain / activity system
Good for relatively stable industries/markets
Vision-driven nurturing and leveraging of core resources
TOWS analysis Strengths (S) Internal Factors External Factors Opportunities (O) SO Strategies ------------------------- WO Strategies ------------------------ Threats (T) ST Strategies -------------------------- WT Strategies ------------------------- Use strengths to avoid threats Min. weaknesses to avoid threats Use strengths to take advantage of opportunities Offset weaknesses to 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.
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.
Inbound Logistics Operations Outbound Logistics Marketing/ Sales After Sales Service Margin Technology Infrastructure Procurement Human Resources
Value chain for NSP Small but steady Editorial Trade pb Galleys - review & hc Library rate UPS Direct mail Distributor Prepay vs Returns Green tax Desk-top, enterprise, email Land trust, warehouse, 501(c)3, friendly capital Prompt press, newsprint Cooperative: multiple skills, networks, low-cost, apprenticeship
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 Limited Customer Service Modular Designs Low Mfg Cost Self-service Selection Self-transport Limited sales 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
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
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
Rapid change erodes positions… leading to temporary opportunities
Competitive Edge Launch Exploitation Counterattack Strategic Window Time
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
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
Cintas: Ever better plants and routes
Aramark: Bought into corporate uniforms
Barriers to entry
New plants, sophisticated logistics, global reach
Slugging it out -- and sometimes buying out small fry
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)
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
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…
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
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
IV. Functional implications of the business model
Marketing and sales
People, management, governance
Marketing and Sales Finance
Next week: Marketing & Sales
Two weeks: Things Financial
Now: Miscellaneous thoughts on people, management, governance and operations
Employees, managers, stakeholders
More important even than cash
Most difficult resource to find, to keep and to manage
Business systems Ownership Pressures Managerial Pressures Family/Stakeholder Pressures
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)
The scope of their decisions
Their responsibility to each other
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-%
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
Vision, values, culture
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 InterventionC InterventionY
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
No low hanging fruit, no wild gambles
Brings data and analysis
To what is for most entrepreneurs, intuitive
Models a useful tool
Corporations are liability and task entities
With governance implications
ESOPs, cooperatives, joint ventures, community corporations
architected solution simplifies training and control and resource management
ties in with knowledge management
Key processes & strategy
Efficiency / cost control
Recruiting, training, evaluating strategy
Fit with overall strategy
Sketch out basic operational steps
Note cost assumptions
Create research list to confirm assumptions, fill in gaps, collect numbers
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
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 , 3 rd Edition (Prentice Hall, 1998).
Alex Moss, Praxis Consulting presentation on worker ownership, 1999
Sharon Oster, Modern Competitive Analysis, 2 nd 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
What was the most useful part of today’s workshop?