Strategy, Business Model & Business Plan

1. Strategy, Business Model & Business Plan IEI Business Plan Workshops

2. Business plan outlinewww.sbm.temple.edu/IEI/word/planigenttemplateoutline_003.doc • Technology Plan • Management & Organization • Social Responsibility • Development & Milestones • Financials • Including Capital Requirements & Financial Statements • Appendix • 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

3. Environmental Trends Customer &Benefits IndustryStructure Segment,SizeChannels CompetitiveSpace Market Industry PerceptualSpace CompetitiveDynamics ValueProposition Strategic Positioning Strategy funnel Goal: Articulate and execute long-term, defensible offer of unique value to customers

4. Strategic Management • Strategic Position • Strategic Navigation What is strategy? • Plan • Process • Position • Pattern • Perspective • Procedure • Play • Ploy • Strategic Tactics

5. Environmental Scanning Mission Evaluation &Control StrategyFormulation StrategyImplementation Strategic management Vision • Disciplined, iterative process of driving towards vision, by finding or making and maintaining a defensible space or trajectory in a given businessenvironment.

6. Strategy checklist • Vision • Value proposition • Position or direction • Structure or resource base • Revenue & business model • Timeline or guidelines • Fit

7. Value proposition • Specific, concrete offer of benefits • Price, quality, convenience, choice, cost-savings, reliability, etc • To precisely defined customers • Who recognize that the offer solves a problem for the • EG: Our clients grow their business, large or small, typically by a minimum of 30-50% over the previous year. They accomplish this without working 80 hour weeks and sacrificing their personal lives.

8. 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

9. Vision exercise • Stable core • Mission: • Ideology: • Focused ambition • What success will look like – in the marketplace: • One audacious goal:

10. Position or navigation? • 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

11. Strategic positionsrequire niches • A niche includes the market the firm is uniquely qualified to serve External Opportunities& Threats Niche Internal Strengths & Weaknesses

12. Strategic situation Social, political, regulatory, technological & community Industry Attractive-ness, dynamics, & competition Unmet customer needs & desires External Factors Strategic Situation Resources (know-how, people, money, etc) Competitive position (through customers eyes & in industry) Vision, values & culture Internal Factors

13. Match SW to OT Internal Factors Strengths(S) Weaknesses (W) External Factors Opportunities (O) SO Strategies ------------------------- WO Strategies ------------------------ Use strengths to take advantage of opportunities Offset weaknesses to take advantage of opportunities ST Strategies -------------------------- WT Strategies ------------------------- Threats(T) Use strengths to avoid threats Min. weaknesses to avoid threats

14. Environment Industry Customer External Factors Strategic Situation Resources Competitive Position Culture Internal Factors OTSW exercise • Map SW to OT..

15. 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 narrowmarket segment

16. Examples • Cost (price) leadership • Dell Computers (logistics, volume) • Motel 6 (location, services, salespeople). • Southwest Airlines (corporate culture, service) • Differentiation • Quality (Mercedes) • Design (Apple) • Service (Nordstrom). • Image (Nike). • Special niches (Zitner’s candied apples; independent films)

17. Examples • Focus • Broad (Wal-Mart - rural) • Narrow (NSP - activists, NRI - network administrators) • Segmented (Computer security – spooks and commerce, Financial services – rich, poor and in-between.)

18. Elaborations • Penetrate new markets • Insurance in India. • Develop new markets • Ice hotels • Develop new products • Gillette. Intel. • Become indispensable • Microsoft. Best subcontractors. • Fortify • Borders wholesalers. B&N’s leases.

19. Value discipline positioning Product Leadership • (Differentiation) Operational Excellence • (Cost Leadership) Customer Intimacy • (Focus)

20. 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 redesignedfor efficiency

21. 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

22. Product Leadership • (Differentiation) Operational Excellence • (Cost Leadership) Customer Intimacy • (Focus) Position strategy exercise Choose a position strategy and explain how you will achieve it.

23. 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.

24. Fit: Entrepreneurial advantage • Possibility of crafting a perfect fit between specific opportunities and internal capabilities • Firms that fit opportunities extremely well have an advantage over bigger, stronger opponents… • Examples: • Dollar Express vs Dollar Tree • Youthbuild vs School District • Giovanni’s Room vs Borders

25. Human Resources Technology Infrastructure Procurement Margin Value chain After SalesService Marketing/Sales • 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. InboundLogistics OutboundLogistics Operations

26. 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.

27. Self-serviceSelection LimitedCustomerService ModularDesigns Low MfgCost High-traffic store layout Design focused on low cost Most items in stock Year-round stocking Flat packing kits Self-transport Limitedsales staff Customer loyalty Self -assembly Suburban Location On-site inventory Easy to make Wide variety Long-term suppliers Easy transport Impulse buying Explanatory labeling Ikea’s Activity System

28. 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

29. 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

30. Business model • 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 fit into wealth

31. Effective business models build & capture wealth • 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

32. Effective business models require hard choices • 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

33. Business models start with what the world gives 1.Describe the landscape: • Porter • 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

34. Business models are based on strategy 4. Identify stakeholders you must serve • Owners, family, workers, community 5. Identify the wealth you will capture • Capital, good life, family life, fameentrepreneurial effectiveness, social value 6. Choose a position or approach • And elaborate a strategy to realize this • Especially a revenue model

35. Business models define structure 7. Sketch a structure to 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 realizationof value

36. Build a business model exercise • Opportunity • Stakeholders • Wealth • Strategy • Model • Structural implications, timing, capital needs, etc

37. Good execution is more important than good strategy! • Seeing a position or approach is fundamentally creative • Immersion, scenarios, future search, • Constructing a strategy involves careful analysis and planning • Executing a strategy requires relentless discipline

38. 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…)

39. 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, 3rd 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, 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