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Strategy, Business Model
 

Strategy, Business Model

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  • Last week tried to get you to think about who might want the product or service you provide -- and how you might serve them. This week, I will try to help you learn some concepts and tools that will help you think about the competitive context in which you will operate. I want to talk about the industry, the environment in which the industry operates, the structure of the industry itself, and your actual competitors… Next week, we will turn to strategy and business models...
  • We’re in the midst of working on the context of your business -- on the environment, industry, competition -- on what the world gives you to work with. Before this we looked a little at what you bring to the table: your vision, skills, idea, networks. The next step is to combine the two. To take stock of what the world offers and what you bring and to fit them together into a strategy in which you use your strengths to take advantage of opportunities, shore up weaknesses, stave off threats, etc. Your strategy is summarized as a business model -- the gist of your plan to take advantage of an opportunity. This is the heart of your plan. Once you have the model, it’s a matter of working out the details of how you will implement the model. And then reassuring the investors that you’ve thought through the risks.
  • Strategic management is about building a company to chase a dream in a disciplined but opportunistic way… By leveraging or developing and structuring key assets To take advantage of opportunities in the environment, industry and marketplace While shaping these opportunities, when possible.
  • The philosophy is that of tai chi – listening so carefully, balanced so well, that 4 ounces of pressure sends an opponent sprawling… Examples: NSP – training/market to books. Hire writers and activists…work closely…live closely. Money from community served. Direct mail and conferences to keep in touch, test. Bookstores and courses to rake in big bucks. Youthbuild. Visionary + nerd + street boy + construction head. Nonprofit + school + charter + HUD. Teacher/ caseworker/foreman teams in 4 pods of 100. OCS – electrical engineer + electronic music + macintosh subculture. Early warehouse scene and culture. Garage to high-end with marketing clout to Shockwave. Dollar Express – Big format, careful locations, small HQ to control buying and costs, decentralized customer service:
  • Vision pulls firms forward Strategic intent is vision manifest: 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 Motivates But effective strategic management also REQUIRES constant attention…
  • 27
  • 27
  • 27
  • 14
  • 27 Fill out situation… S by strengths W by weaknesses O by opportunities T by threats Connect up…with arrows and lines (football plays…)
  • Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...
  • Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...
  • Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...
  • Lead with product? Cost? Focus? Value proposition? Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...
  • 27 As value disciplines implied, position requires fit, not just niche. As important as finding a niche is fitting into it…building mountain and/or fortification by becoming special.
  • The steps to building a business model
  • The steps to building a business model

Strategy, Business Model Strategy, Business Model Presentation Transcript

  • Strategy, Business Model & Business Plan IEI Business Plan Workshops TL Hill tl .hill @temple.edu 215-204-3079
  • Business plan workshops
    • Matching Products and Services with Markets
      • September 22
    • Competitive Analysis
      • September 29
    • Strategy & Business Model
      • October 6
    • Financial Analysis I: Using Financial Statements for Management
      • October 20
    • Financial Analysis II: Using Ratio Analysis for Management
      • October 27
    • Marketing and Sales Strategies
      • November 3
    • Management & Ownership
      • November 10
    • Professional Presentations
      • November 17
    Thursdays 4:30 - 6:00
  • Feasibility plan outline
    • Executive Summary
    • Company Description
      • Including product/service & technology/core knowledge
    • Target Market
    • Industry Analysis & Trends
    • Competition
    • Strategy/Business Model
    • Marketing & Sales Sketch
    • Production & Operations Sketch
    • Development & Milestones
    • Basic Financials
      • Revenue model
      • Rough costs
      • Break even
    • Appendix
  • Strategy funnel Customer & Benefits Competitive Dynamics Competitive Space Segment,Size Channels Strategic Positioning Value Proposition Industry Structure Environmental Trends Industry Market Perceptual Space
  • “Strategy” means many things
    • Plan
    • Process
    • Position
    • Pattern
    • Perspective
    • Procedure
    • Play
    • Ploy
    • Strategic Management
    • Strategic Position
    • Strategic Navigation
    • Strategic Tactics
  • Entrepreneurial advantage
    • Entrepreneurship offers the exciting, seductive opportunity to craft a perfect fit between specific opportunities and internal capabilities
    • Firms that fit opportunities extremely well, often have advantage over bigger, stronger opponents…
    • Examples: Youthbuild, Dollar Express
  • Vision pulls strategy Vision
    • Strategy: disciplined, iterative process of driving towards vision, by finding or making and maintaining a defensible space or trajectory in a given business environment.
    Environmental Scanning Evaluation & Control Strategy Implementation Strategy Formulation Mission
  • Vision
    • Stable core
      • Mission: central audience + core product/service
      • Ideology: Values, principles, culture
    • Focused ambition
      • Concrete picture of successful impact
      • Serious, scary stretch goals
      • Disciplined experimentation
  • Vision exercise
    • Stable core
      • Mission:
      • Ideology:
    • Focused ambition
      • What success will look like – in the marketplace:
      • One audacious goal:
  • Strategic options
    • Position Strategies
      • Unique, valuable, defensible position in a market or industry
      • Supported by a tightly integrated value chain / activity system
      • Good for relatively stable industries/markets
    • Navigation Strategies
      • Vision-driven nurturing and leveraging of core resources
      • Supported by tight culture and explicit learning
      • Good for dynamic industries/markets
  • Strategic positions require niches External Opportunities & Threats Niche Internal Strengths & Weaknesses
    • A niche includes the market the firm is uniquely qualified to serve
  • Strategic situation External Factors Internal Factors Strategic Situation Resources (know-how, people, money, etc) Vision, values & culture Social, political, regulatory, technological & community Industry Attractive-ness, dynamics, & competition Unmet customer needs & desires Competitive position (through customers eyes & in industry)
  • Match SW to OT 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 )
  • OTSW exercise External Factors Internal Factors Strategic Situation Resources Competitive Position Culture Environment Industry Customer
  • Classic position strategies
    • Cost (price) leadership
      • Efficiency and scale
    • Differentiation
      • Quality, design, support/service, image -- that make a product or service special
    • Focus
      • Explicit tie to a broad or narrow market segment
  • Examples
    • Cost (price) leadership
      • Crown, Cork & Seal (pennies, plants).
      • Motel 6 (location, services, salespeople).
      • Cintas (plants, logistics).
    • Differentiation
      • Quality (Mercedes)
      • Design (MacIntosh)
      • Service (Nordstrom).
      • Image (Nike).
      • Special niches (G&K clean rooms; Zitner’s candied apples; Prompt folding)
  • Examples
    • Focus
      • Broad (Wal-Mart, rural)
      • Narrow (NSP - activists, NRI - network administrators)
      • Segmented (Financial services firm)
  • Elaborations
    • Penetrate new markets
      • Insurance in India.
    • Develop new markets
      • KPMG e-government. (Disruptive technologies.)
    • Develop new products
      • Gillette. Intel.
    • Become indispensable
      • Microsoft. Best subcontractors.
    • Fortify
      • Borders wholesalers, B&N’s leases.
  • Value discipline positioning
    • Product Leadership
    • (Differentiation)
    • Customer Intimacy
    • (Focus)
    • Operational Excellence
    • (Cost Leadership)
  • Value disciplines
    • Product Leadership - Compete on Speed
    • Good design, great execution
    • Educate & lead the market
    • Ad hoc, risk oriented culture
    • Organization designed for innovation
    • Operational Excellence - Compete on Scale
    • Low price, limited options, ultimate convenience
    • Managed customer expectations
    • Measurement culture
    • Processes & transactions continually redesigned for efficiency
  • Value disciplines
    • Customer Intimacy - Compete on Scope
    • Offerings tailored to customers & segments
    • Deep insight into customer needs
    • Problem solving service culture
    • Full range of services, so customers stay
    • Breakthrough thinking, unique solutions
  • Position strategy exercise Re-write your value proposition: The unique benefits your firm provides and to whom
    • Product Leadership
    • (Differentiation)
    • Customer Intimacy
    • (Focus)
    • Operational Excellence
    • (Cost Leadership)
  • Strategic positions require fit
    • Fit refers to the integration of every part of firms’ internal structures to better serve a niche.
    • Well-positioned firms craft themselves to serve niches better than others.
  • 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.
    Inbound Logistics Operations Outbound Logistics Marketing/ Sales After Sales Service Margin Technology Infrastructure Procurement Human Resources
  • Value chain for NSP Small but steady Technology: Desk-top, enterprise, email, web Editorial Newsletter Rights Production Printing Shipping In-house Library rate Sales: DM, Reps, Distributor Prepay Prepay disc. Green tax Infrastructure: Land trust, warehouse Financial: 501(c)3, friendly capital HR: Cooperative: multiple skills, networks, low-cost, apprenticeship Social Network: Audience, authors, rights, co-printing, Prompt
  • Activity system
    • A less linear way of thinking about the internal fit that supports strategy.
    • Map crucially interrelated features and functions that define a firm’s unique skills and strategy.
    • Support 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
  • 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
  • Fit 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
    • 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 and fitinto wealth
    Business model
    • Build wealth:
      • By efficiently (profitably) transforming inputs into something that customers value enough to pay for – again and again and again
      • By supporting growth
    • Capture wealth:
      • By siphoning off some of the accumulated wealth for stakeholders
      • And by developing recognizable value – strategic positions, know-how, customers, free cash flow, lifestyles, social impact – that can be captured
    Effective business models build & capture wealth
    • About who matters
      • Owners, investors, family, workers, community
    • About what kind of wealth matters
      • Financial capital, social capital, intellectual capital...ie., cash, good life, rich family life, entrepreneurial impact, social impact
    • About the strategy that will deliver the wealth that matters to the stakeholders that matter
    • About the structure that supports strategy
    Effective business models require hard choices
    • 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
    Business models start with what the world gives
    • 4. Choose a position or approach - and build a strategy to take advantage
      • Seeing the position or approach is fundamentally creative
        • Immersion, scenarios, future search, dreams
      • Building strategy involves discipline and analysis
    Business models are based on strategy
    • 5. Identify stakeholders you must serve
      • Owners, family, workers, community
    • 6. Identify the wealth you will capture
      • Capital, good life, family life, fame entrepreneurial effectiveness, social value
    Business models enclose wealth
    • 7. Sketch a structure that will operationalize the strategy
      • Value chain, activity system, culture, simple rules
    • 8. Work out the implications
      • Functional strategies
      • Timeline and milestones
      • Financial projections & capital needs
      • Path to profitability, sale, or other realization of value
    Business models define structure
  • Build a business model exercise
    • Opportunity
    • Strategy
    • Stakeholders
    • Wealth
    • Model
      • Structural implications, timing, capital needs, etc
  • 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).
    • Craig Fleisher & Babette Bensoussan, Strategic and Competitive Analysis (Prentice Hall, 2003).
    • 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
    • (more…)
  • Bibliography (continued)
    • TL Hill lecture notes, 1999, 2001, 2002
    • 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).
    • Henry Mintzberg & Joseph Lampel, “Reflecting on the Strategy Process,” Sloan Management Review , Spring, 1999.
    • 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