Primary Care Veterinary EducatorsPurdue UniversityOctober 18, 2013

Strategic Thinking Overview

Questions we’ll try to answer

• What is the concept of strategy?• What are missions, visions and values?

• Why are they important?• What is the business environment?

• How do you frame and prioritize trends?• What is an industry? The Vet practice industry?

• How do you frame that perspective?• What is unique about the industry?

• What leads to an advantage in the marketplace?• How do you put all this together in a practice• How does this understanding help a practicing veterinarian?

So, what is strategy?

• What are your definitions of strategy?

• Porter:– Decisions that lead to a unique position– What you do and don’t do– A fit between firm actions and the environment.

• Robert– A “picture” of the products, customers, industry segments and

geography you will compete in. A future vision of the firm.

Another definition (James Bryan Quinn)

• A strategy is a pattern or plan that integrates an organization’s major goals, polices, and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competences and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents.

What I have found interesting

• Why do firms with access to the same resources and information have radically different outcomes?

Or said another way . . .

MissionVisionValues

The tie to culture and team …..“Culture eats strategy for lunch”

Elements necessary to craft a strategy

• Values– Your organization’s “belief” system

• Mission – Concept of the organization, nature of the business, reason

you exist, who you serve, and the principles and values you operate under.

• Vision– A short, inspiring, encompassing view of the organization

What do you think of this statement of values?

• Communication - We have an obligation to communicate. Here, we take the time to talk with one another… and to listen. We believe that information is meant to move and that information moves people.

• Respect - We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment.

• Integrity - We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it.

• Excellence - We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

Realize values show up everywhere

• Ethics• Quality• Safety• Innovation• Human Resources• Profitability• Fun• Responsive to customers• Image to the field• Image in the community

Are these factors

important, or are some more and some less

important?

Are these factors

important, or are some more and some less

important?

Just realize there are implicit tradeoffs in

managing.

Just realize there are implicit tradeoffs in

managing.

Vision and values show in many of the practice's decisions

• Expansion – grow organically or acquire?• Service diversity – broad or narrow?• Client diversity – broad or narrow?• Geographic scope – local or regional?• Service – standard or customized?• Ownership - narrow or broad?• Structure – centralized or decentralized?

The questions answered by the mission / vision.

• What is unique or distinctive about us as a practice?• Who should be our principal clients?• What should be our principal market segments?• What should be our principal services?• How are we different from 3 – 5 years ago?• How will we be different in 3 – 5 years?

So, what is strategy?

• Decisions about scale.• Decisions about scope.• Decisions about investments you make to develop

key competences and critical success factors.• Decisions about structure, integration and the fit

between the parts of your business model.• Decisions about financing.

A smidge of economics

• Scale Economies– Cost benefits accrue through the sheer size of the

organization. The firm is able to spread more service delivery or units of production across an existing asset base.

• Examples?

• Scope Economies– Cost benefits accrue through the addition of product and

service lines, since the products or services share significant elements of the same value chain.

• Examples?

Good strategies answer 3 questions

• How will we create value?– How will markets and technologies change?

• How will we deliver value?– What will our business model look like, and where in

the value chain will we compete?• How will we capture value?

– How will we allocate our resources to feed the core businesses and still seek growth opportunities?

Good Strategies

• Tell you what you will do, and what you will walk away from.

Two strategic lens

• External environment– Industrial organization view of the firm– Industry structure drives profitability

• Internal environment– Resource based view of the firm– Develop valuable resources and capabilities difficult for

others to imitate

The veterinary environmentThe veterinary environment

Analysis of the competitionAnalysis of the competition

The Key Success Factors (KSF)The Key Success Factors (KSF)

Each practice’s competitive positionEach practice’s competitive position

Core strategic issues

Core strategic issues

Plan of action

Plan of action

The architecture of strategic thinking

Compare and contrastCompare and contrast

The Environment

Making sense of the external environment

Can you think of examples and their impact on a veterinary practice?

• Political issues

• Economic reality

• Social trends

• Technological changes

The General Environment (Threats & Opportunities)

Environment Threat (& why?) Opportunity (& why?)

Political / Legal

Economic

Sociocultural

Technological

Demographic

Prioritize these elements…

Steakholders?

• These are not what I mean….

Stakeholders

• What is a Stakeholder?

• Those with power over your destiny• Those who can influence your success• Individuals, groups or organizations

responsible for trends that impact you • Stakeholders can be either internal or

external

Stakeholder Analysis

Stakeholders Wants/Needs? Impact level on your outcome *

The power of a focus group

Clients

Cost / Value Matrix for clients

Value in ServingValue in Serving

COST

TO

SERVE

COST

TO

SERVE

55

11

11

High MaintenanceHigh Maintenance Lose ‘emLose ‘em

GravyGravy If you have timeIf you have time

Client Segmentation

• What is the client type? (Pet Lover, Shots, Casual)

• Their definition of good service?– Visit frequency?– Average revenue?– Loyalty to practice?

• Cost to serve in time demanded?• Cost to serve in fielding complaints?

Use the segmentation matrix

• Are there segments you want to grow?• Are there segments you want to reduce?• From a focus group

– what new can I do for a segment?• Can you find an entirely new segment?

The Industry

Porter’s Five Force Analysis

Rivalry Among Competing Firms

in Industry

Rivalry Among Competing Firms

in Industry

Threat of Threat of New New

EntrantsEntrants

Bargaining Bargaining Power of Power of SuppliersSuppliers

Bargaining Bargaining Power of Power of BuyersBuyers

Threat of Threat of Substitute Substitute ProductsProducts

A Power game

• Supplier power increases as …– Fewer suppliers exist, – they become a large % of your cost, – it becomes harder for you to switch providers,– a chance exists for them to integrate forward, and

move into your business

A Power game

• Buyer power increases as ….– There are fewer clients to choose from, – they become larger, – their switching costs become lower,– they have ample substitutes for your good or service

A Threat Game

• Threat of new entrants increases with …– Low client loyalty, – low switching costs, – low initial investment, – the presence of few economies of scale, – the lack of ways to differentiate a service or product, – the lack of regulatory restriction, – no need exists for elaborate distribution channels.

A Threat Game

• Threat of substitutes increases with– Aggressive selling of the substitute good or service, – the existence of ample numbers of potential

substitutes, – low switching costs, – The substitutes provide options that offer a higher

profitability or lower cost to the consumer

A competitive game

• Rivalry (cut throat competition) among established players increases as …..– Players lack differentiation– Barriers to exit exist– Few barriers to entry exist– Demand slows– Rivals reach similar size and capability– High fixed costs exist– The strategic “diversity” increases (new players enter the market that are

previously unknown and untested; they try new things and approach the market in a new way – and as such you never quite know what to expect)

Examples of Porter’s Forces Applied to Veterinary Profession

• Threat of new veterinary practices and new consolidators entering into the traditional competitive environment - Banfield

• Suppliers’ ability to demand higher prices, especially when selling small lots to many outlets versus large orders for bigger groups. Pharma consolodation

• Clients’ ability to choose from a variety of practices and the freedom to move from one practice to another.

• Substitute products and services becoming available through changes in regulation or technology – PetMed Express; alternative medicine

• Traditional competition increasing due to slower demand – Feline visit trends

• Forward integration, or economies of scope – VCA Antech

Veterinary service is a fragmented industrySo, what is a fragmented industry?

• An industry where no one player holds a dominant position in the market place.

• They are generally composed of a lot of small to mid size businesses.

• An industry can have a few large players, and yet still be fragmented

Competition in Fragmented Industries

• Classic examples of fragmented industries– Dentists– Lawyers– Restaurants– Dry Cleaners– Retailers– Farmers– Lumber yards– Real Estate– Ophthalmologists– Pharmacists– Veterinarians

What industry factors facilitate industry fragmentation?

• New industry

• No scale economies

• Low entry barrier

• High exit barrier

• High transportation costs

• Need for specialization

• High Product differentiation

• Local or Gov’t Regulation

• Customer Preference

Prescribed ways to compete in a fragmented industry

• Cost– Low cost / no frills / tight controls – Tightly managed decentralization / formula facilities

• Focus– By geography– Specialize by customer type

• Professionals / dual career; retirees– Increase the “value add”

• Pick up and delivery; boarding; • hours; bundled services

– Specialize by product type or service segment• Exotics; Emergency; LAC; SAC; Cat; Dog; Internal

How do you manage in the fragmented industry ?

• Don’t try to out scale a scaled operation• Focus and differentiation are key

– Couple focus on specialization with customer type or bundled services

• Be careful to not focus so tightly that the market cannot support the niche.

• Don’t forget broader strategies can attempt to erode the niche.

From what has come before

• External Environment– Five Forces– Industry Trends

• What a practice might do

From here on…

• Internal Environment– Resources– Capabilities / skills

• What a practice can do

Inside the practice

The road to competitiveness• Resources

– Tangible and Intangible• Capabilities

– How the resources are brought together• Core Competence

– A critical competence in the industry; a KSF• Competitive advantage – superior skill

– And above average returns• It is not just resources; it is what you do with the resources;

how you put them together.

It is not just resources, it is how they are put together.

The most critical competences ?Key Success Factors

• Critical Factors to succeed in an Industry• Attributes of your ideal practice or firm• Attributes of your most feared competitor

What do you feel are the KSFs in the future?

• Given the environment• Given the Industry• Given the clients• Given the opportunities

• What attributes would worry you the most?

KSF Examples from past programs

• Human Resource Systems– train, motivate, recruit, retain

• A well differentiated practice• Protocols / standards of service• Customer service delight• Use of social networks and web 2.0 technologies• Marketing plans• Compliance• Good communication systems

– both internal and external

The “ideal” practice

• Excellent performance on the factors suggested by the industry and environment to be critical to above average returns in the future.

“Can You Say What Your Strategy Is?” by David J. Collis and Michael G. Rukstad, Harvard Business Review, April 2008, page 89)

Be aware of strategic fit: Porter’s map for Southwest Airlines

LimitedLimitedpassengerpassengeramenitiesamenities

Short-haul,Short-haul,point-to-pointpoint-to-pointroutes betweenroutes betweenmidsize citiesmidsize cities

and secondaryand secondaryairportsairports

HighHighaircraftaircraft

utilizationutilization

Frequent,Frequent,reliablereliable

departuresdepartures

Lean, highlyLean, highlyproductiveproductiveground andground andgate crewsgate crews

Very lowVery lowticket pricesticket prices

No mealsNo meals

No seatNo seatassignmentsassignments

No baggageNo baggagetransferstransfers

No No connectionsconnectionswith otherwith other

airlinesairlines

15-minute15-minutegategate

turnaroundsturnarounds

Limited useLimited useof travelof travelagentsagents

AutomaticAutomaticticketingticketingmachinesmachines

StandardizedStandardizedfleet of 737fleet of 737

aircraftaircraft

FlexibleFlexibleunionunion

contractscontracts

High levelHigh levelof employeeof employee

stockstockownershipownership

““Southwest,Southwest,the low-farethe low-fare

airline”airline”

HighHighcompensationcompensationof employeesof employees

Source: Michael E. Porter “What is Strategy” Source: Michael E. Porter “What is Strategy” Harvard Business ReviewHarvard Business Review, Nov-Dec 1999, Nov-Dec 1999

The architecture of strategic thinking

The veterinary environmentThe veterinary environment

Analysis of the competitionAnalysis of the competition

The Key Success Factors (KSF)The Key Success Factors (KSF)

Each practice’s competitive positionEach practice’s competitive position

Core strategic issues

Core strategic issues

Plan of action

Plan of action

Compare and contrastCompare and contrast

Thinking, then the doing…