BUSINESS PLAN OUTLINEhttp://www.sbm.temple.edu/iei/competitions.html

• 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 PlanManagement & Organization Social ResponsibilityDevelopment & MilestonesFinancials

Including Capital Requirements & Financial Statements

Appendix

STRATEGY FUNNEL

Customer &Benefits

CompetitiveDynamics

CompetitiveSpace

Segment,SizeChannels

Strategic Positioning

ValueProposition

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

StrategyImplementati

on

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

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, technologic

al&

community

IndustryAttractivenes

s,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 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

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

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

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

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

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

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

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, fame entrepreneurial

effectiveness, social value

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

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 realization

of value

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

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

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• Hamermesh, Marshall & Piromohamed, “Note on Business Model Analysis for the

Entrepreneur,” Harvard Business School, 2002.