Strategy & Business Plans

1. Strategy & Business Plans IEI Business Plan Workshops TL Hill thill@sbm.temple.edu 215-204-3079

2. Business plan workshops • Matching Products and Services with Markets • First one • Competitive Analysis • Last week • Business Model • Tonight • Market and Sales • Monday, November 19, 2001 - 6:00 pm to 8:30pm • Financial Projections • Monday, November 26, 2001 - 6:00 pm to 8:30pm

3. Feasibility plan outline • Production/Operating Functional Strategy • Intellectual Property Issues • Regulation Issues • Critical Risk Factors • Timeline • Break-even Analysis • Executive Summary • Product or Service • Technology/Core Knowledge • Target Market • Competition • Industry • Strategy/Business Model • Marketing and Sales Functional Strategy

4. Strategy can mean many things • Strategic Management • Strategic Positioning • Strategic Navigation • Strategic Tactics • Plan • Process • Position • Pattern • Perspective • Procedure • Play • Ploy

5. Strategic management • Is a detailed pattern of decisions that describes in some detail what a company will do • in light of what it might do, • what it can do, • what its leaders want to do, and • what it should do. • Kenneth Andrews

6. Environmental Scanning Strategic management • Disciplined iterative process…of pursuing a mission, while managing the relationship of the firm to its environment. Evaluation &Control StrategyFormulation Mission StrategyImplementation

7. Industry attractiveness, industry dynamics, & competitive conditions Social, political, regulatory, & community considerations Other opportunities and threats -- like new technologies External Factors Company’s Strategic Situation Firm’s strengths, weaknesses, & competitive market position Shared vision, values and company culture Ambitions, philosophies, & ethical principles of key executives Internal Factors Strategic management starts with the situation

8. But pushes beyond the situation • Strategic management is all about chasing a dream • In a disciplined but opportunistic way • By developing your assets • To take advantage of opportunities the world (environment, industry, market) gives • While shaping the world when you can.

9. Environmental Scanning Evaluation &Control StrategyFormulation Mission StrategyImplementation Strategic management is about finding ways to grow... Vision

10. Two basic strategic options • Position Strategy • Unique, valuable, defensible position in a market or industry • Supported by a tightly integrated value chain / activity system • Good for relatively stable industries/markets • Resource/Navigation Strategy • Vision-driven nurturing and leveraging of core resources • Supported by tight culture and explicit learning • Good for dynamic industries/markets

11. I. Strategic positioning • A niche is typically the market the firm is uniquely qualified to serve External Opportunities& Threats Niche Internal Strengths & Weaknesses

12. Classic positional strategies • Cost (price) leadership • Differentiation • Quality, design, support/service, image • Always starts with the product • Focus • Broad or narrow • Always starts with a specific market segment

13. Examples of positional strategies • Cost (price) leadership • Crown, Cork & Seal (pennies, plants). Wal-mart (warehousing, negotiation). Motel 6 (location, services, salespeople). Cintas (plants, logistics). • Differentiation • Mercedes (quality). Apple (design). Nordstrom (service). Nike (image). G&K (clean rooms, radiation). Most entrepreneurs (Zitner’s, Prompt.) • Focus • Wal-mart (broad - rural). Specialty bookshops (narrow - Giovanni’s room, NSP). Some entrepreneurs (NRI - changing mix & services).

14. Elaborations of positional strategies • Penetrate new markets • Insurance in India. IMS. • Develop new markets • E-government. (Disruptive technologies.) • Develop new products • Gillette. Intel. • Become indispensable • Microsoft. Best subcontactors. • Fortify • Borders wholesalers, B&N’s leases.

15. TOWS analysis 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

16. TOWS analysis exercise • List 2 opportunities & 2 threats • List 2 strengths & 2 weaknesses • Match ‘em up • trying to use (or develop) strengths to take advantage of opportunities while offsetting weaknesses and defending against threats • avoiding strategies that put weaknesses in way of threats • Use classic strategies -- cost, differentiation, focus -- as prompts for ideas

17. Position strategies require fit • Fit refers to the niche a firm serves and the way its products or services are positioned • But fit also has to do with every other part of the internal structure of the firm. • A well positioned firm crafts itself to serve a niche better than anyone else • Starting a new firm offers the exciting, seductive, often advantageous opportunity to craft a perfect fitbetween specific opportunities and internal capabilities.

18. 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

19. Cooperative: multiple skills, networks, low-cost, apprenticeship Desk-top, enterprise, email Land trust, warehouse, 501(c)3, friendly capital Prompt press, newsprint Value chain for NSP Trade pbGalleys - review & hc Prepay vsReturnsGreen tax Direct mail Distributor Editorial Library rate UPS Small but steady

20. Activity system • Is a less linear way of thinking about the kind of internal fit that supports a strategy. • Map crucially interrelated features and functions that define a firm’s unique skills and strategy. • Supports competitive advantage with reinforcing patterns or systems.

21. 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

22. 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

23. Value chain or activity chart 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

24. II. Strategic navigation • In a hypercompetitive world, all advantages are very temporary • Competition escalates rapidly along certain dimensions • Cost/Qualty, Timing/Know-how, Barriers to entry, Deep pockets • Leading to sudden shifts in the rules • as competition jumps to new arenas, along new ladders

25. Strategic navigation depends on timing Competitive Edge • Rapid change erodes positions…leading totemporaryopportunities Strategic Window Launch Exploitation Counterattack Time

26. Strategic navigation requires vision • Vision pulls firms forward • Strategic intent is vision manifest as focused ambition: • 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 • Tends to motivate

27. Strategic navigation builds on core assets • Flexible strategies require core assets • plus a commitment to developing them • Assets are sources of future value • Tangible, intangible • Owned or not (but available) • Often with a useful life • Often people: customers, employees, organizational knowledge • Especially core competencies: special knowledge and skills embedded in employees and systems

28. Four arena analysis • Trace escalating competition along ladders • Trying to predict shifts to new areas • Cost/Quality • Cintas: Ever better plants and routes • Timing/Know-how • Aramark: Bought into corporate uniforms • Barriers to entry • New plants, sophisticated logistics, global reach • Deep pockets • Slugging it out -- and sometimes buying out small fry

29. Navigational strategies • Find loose bricks • Stake out undefended territory, fly low, cherry pick…looking for a beachhead, not a niche (Honda) • Change the terms of engagement • Sidestep barriers to entry (Canon) • Collaborate • License, outsource, joint venture to gain information and knowledge and advantage as go (lamp shades to ceiling fans)

30. Navigational strategy exercise • What is the rate of change in your industry or market? • What is driving change? • In what arenas is competition focused? Cost/Quality, Timing/Know-how, Barriers to Entry, Deep Pockets? • How might you take advantage of flux in your field?

31. III. Business models • 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, fit, etc (or vision and resources) into wealth • Start-ups offer the opportunity to craft a perfect fit between specific opportunities and internal capabilities.

32. Business models build & capture wealth for stakeholders • Build Wealth • Through an alchemical transformation of inputs into something that customers value enough to pay for at more than cost • Or through developing enough potential to be bought: valuable positions, know-how, customers… • Capture Wealth • Private or public sale • Profit: Revenues plus cost control • Plus: The good life, a rich family life, entrepreneurial success, social impact

33. Business models start with strategy 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 4.Choose a position/strategy

34. Business models enclose wealth 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. Sketch a structure that will operationalize the strategy • Value chain or activity system

35. Business models define structure 6. Work out the implications • Functional strategies • Timelines: Ie., the path to profitability, sale or other realization of value • Financial projections & capital needs

36. Build a business model exercise • Strategy • Stakeholders • Wealth • Model • Structural implications • Revise model

37. IV. Functional implications of the business model • Marketing and sales • People, management, governance • Operations • Finances

38. Marketing and SalesFinance • Next week: Marketing & Sales • Two weeks: Things Financial • Now: Miscellaneous thoughts on people, management, governance and operations

39. People • Employees, managers, stakeholders • More important even than cash • Effectiveness, pleasantness • Most difficult resource to find, to keep and to manage

40. Business systems OwnershipPressures Family/StakeholderPressures ManagerialPressures

41. Business systems dynamics • Each system has its own logic, its own bottom line • Ownership: Wealth creation & maintenance • Family & Stakeholders: Relationships • Management: Efficiency & replicability • Each has its own time horizon • Ownership: Ten years or one working life • Family & Stakeholders: Reproduction of generations • Management: Quarterly or annual results

42. Governance defines the circles and the relationships • Who decides what • Owners, key employees, key customers, family members, professional advisors • The decision makers for each circle • Owners (board of directors) • Managers (management team) • Family/stakeholders (council) • The scope of their decisions • Their responsibility to each other • Conflict resolution

43. Governance example • Company with strong family ties & 3 sons • Owner’s retirement needs drive succession • Two sons buy business (not land) from father • CEO-in-training - 50.+%; Sales manager 50-% • Board advisors • Family needs led to side business: • Graphic artist, co-owned by CEO-in-training and serving main business • Management needs turn alliance into new web-based business

44. Governance structures • Direction • Vision, values, culture • Formal visioning • Cultural maintenance • Agreements • Contracts, bylaws • Support • Facilitators, advisors, models

45. Sharing the vision • Vision provides both energy and stability. • Core Ideology anchors the team • Dynamic Envisioned Future draws the team forward • Long-term, audacious goals • Concrete, vivid description of the future

46. Value driver analysis [Time Frame] H InterventionZ InterventionB InterventionC Impact InterventionY InterventionX InterventionA L H Probability of Success

47. Value driver analysis • Work with teams (management, boards, stakeholders) to • List possible projects or initiatives • Rank each by magnitude of impact • Rank each by probability of success • Place them on the matrix • Concentrate on high value/high probability options

48. Value of the analysis • Focus • No low hanging fruit, no wild gambles • Process • Generates commitment • Builds trust • Brings data and analysis • To what is for most entrepreneurs, intuitive • Models a useful tool

49. Legal structures • Corporations are liability and task entities • With governance implications • Sole proprietorships • S corporation • Partnerships • C Corporations • LLC • Stakeholder Corporations • ESOPs, cooperatives, joint ventures, community corporations

50. Support structures • Boards of advisors • Next size up, pay • Professional team • Accountant, lawyer, coach, tie-breaker, insurance?