Strategy, Business Model & Business Plan

Business Plan Outlinewww.sbm.temple.edu/IEI/word/planigenttemplateoutline_003.doc

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 Plan• Management &

Organization • Social Responsibility• Development &

Milestones• Financials

– Including Capital Requirements & Financial Statements

• Appendix

Strategy Funnel

Customer &Benefits

CompetitiveDynamics

CompetitiveSpace

Segment,Size

Channels

Strategic Positionin

g

ValuePropositio

n

IndustryStructure

Environmental Trends

IndustryMarket

PerceptualSpace

Goal: Articulate and execute long-term, defensible offer of unique value to customers

What is Strategy?

Plan Process Position Pattern Perspective Procedure Play Ploy

• Strategic Management

• Strategic Position

• Strategic Navigation

• Strategic Tactics

Strategic Management

Environmental Scanning

Evaluation &Control

StrategyImplementat

ion

StrategyFormulationMission

Vision

• Disciplined, iterative process of driving towards vision, by finding or making and maintaining a defensible space or trajectory in a given business environment.

Strategy Checklist

Value proposition Vision Position or direction

Structure or resource base

Revenue & business model Timeline or guidelines Fit

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.

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:

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

External Opportunities

& Threats

Niche

Internal Strengths & Weaknesses

Strategic Positions Require Niches

• 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

IndustryAttractive-

ness,dynamics, &competition

Unmet customer needs & desires

Competitive position (through

customers eyes & in industry)

Match SW to OT

Strengths(S)

InternalFactors

ExternalFactors

Opportunities

(O)

SO Strategies-------------------------

WO Strategies------------------------

Threats(T)

ST Strategies--------------------------

WT Strategies-------------------------

Use strengths toavoid threats

Min. weaknesses to avoid threats

Use strengths to take advantage of opportunities

Offset weaknessesto take advantage of opportunities

Weaknesses (W)

SWOT Exercise

External Factors

Internal Factors

Strategic Situation

Resources Competitive Position

Culture

Environment Industry Customer

• Map SW to OT..

Two Levels of Strategy

Corporate Growth Retrenchment Stability

Business Cost (price) Leadership Differentiation Focus

Growth Strategies

Concentration Vertical and Horizontal

Diversification Concentric Conglomerate

Growth Through Concentration

Concentrate resources on a single business Concentrate vertically, i.e., backward or

forward (supply or distribution) Concentrate horizontally by growing

geographically or by expanding product or service offering

Means to Accomplish Growth

Mergers Acquisitions Internal Growth Strategic Alliances International

Diversification

Used if firm’s current product lines do not have much growth potential

Benefits Economies of Scope Increase market power Share infrastructure Maintain growth

Concentric (Related) Diversification

Outperform unrelated diversification Best when

low industry attractiveness strong business strengths strong competitive position

Allows use of distinctive competence Seek synergy

Conglomerate (Unrelated) Diversification

Best when Firm operates in unattractive industry Firm lacks abilities or skills easily transferable

to related industry Focus is financial & not core competence

or synergy Balance cash flows Reduce risk

Stability Strategies

Pause and Proceed with Caution No Change Profit

Retrenchment Strategies

Turnaround Captive Company Sell out or Divestment

Spin-off Management buyout (MBO)

Bankruptcy or Liquidation

Business Level 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 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)

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.)

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 redesignedfor 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

Product Leadership• (Differentiation)

Customer Intimacy

• (Focus)

Operational Excellence

• (Cost Leadership)

Choose a position strategy and explain how you will achieve it.

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.

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

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.

MarginTechnology

InboundLogistics

Operations Outbound

Logistics

Marketing/Sales

After SalesService

Infrastructure

Procurement

Human Resources

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

LimitedCustomer

Service

ModularDesigns Low Mfg

Cost

Self-service

Selection

Self-transport

Limitedsales 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 fit into wealth

Business Model

Four Aspects of Business Models

Revenue Sources Cost Drivers Investment Size Critical Success Factors

Revenue Sources

Subscription/Membership Fixed amount at regular intervals prior to receiving

product/service Volume/Unit-based

Fixed price in exchange for product/service Advertising-based

Exempt from fee or pays fraction of the value Licensing & Syndication

One time fee Transaction fee

Fixed fee or percentage of total value of transaction

Cost Drivers

Fixed: item costs do not vary with volume

Semi-variable: variable & fixed costs

Variable: item costs vary with volume

Non-recurring: item of cost occurs infrequently

Investment Size

Maximizing finance needs

Positive cash flow

Cash Breakeven

Critical Success Factors

An operational function or competency that a company must possess in order to be sustainable & profitable

Perform sensitive analysis

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 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. 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. Choose a position or approach And elaborate a strategy to realize this Especially a revenue model

Business Models are Based on Strategy

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 realization

of value

Business Models Define Structure

Build a Business Model Exercise

Opportunity Stakeholders Wealth Strategy

Revenue Sources

Cost Drivers

Investment Size

Critical Success Factors

•Model

-Structural implications, timing, capital needs, etc.

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