Strategy, Business Model & Business

Plan

IEI Business Plan Workshops

TL Hilltl.hill@temple.edu

215-204-3079

Business plan workshops

• Matching Products and Services with Markets– September 22

• Competitive Analysis– September 29

• Strategy & Business Model– October 6

• Financial Analysis I: Using Financial Statements for Management– October 20

• Financial Analysis II: Using Ratio Analysis for Management– October 27

• Marketing and Sales Strategies– November 3

• Management & Ownership– November 10

• Professional Presentations– November 17

Thursdays4:30 - 6:00

Feasibility plan outline• Executive Summary • Company Description

– Including product/service & technology/core knowledge

• Target Market • Industry Analysis & Trends• Competition • Strategy/Business Model• Marketing & Sales Sketch • Production & Operations

Sketch

• Development & Milestones

• Basic Financials– Revenue model– Rough costs– Break even

• Appendix

Strategy funnel

Customer &Benefits

CompetitiveDynamics

CompetitiveSpace

Segment,Size

Channels

Strategic Positionin

g

ValuePropositio

n

IndustryStructure

Environmental Trends

IndustryMarket

PerceptualSpace

“Strategy” means many things

• Plan• Process• Position• Pattern• Perspective• Procedure• Play• Ploy

• Strategic Management

• Strategic Position

• Strategic Navigation

• Strategic Tactics

Entrepreneurial advantage

• Entrepreneurship offers the exciting, seductive opportunity to craft a perfect fit between specific opportunities and internal capabilities

• Firms that fit opportunities extremely well, often have advantage over bigger, stronger opponents…

• Examples: Youthbuild, Dollar Express

Vision pulls strategy

Environmental Scanning

Evaluation &Control

StrategyImplementat

ion

StrategyFormulationMission

Vision

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

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:

Strategic options

• 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 positionsrequire niches

• A niche includes the market the firm is uniquely qualified to serve

Strategic situation

External Factors

Internal Factors

Strategic SituationStrategic 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)

OTSW exercise

External Factors

Internal Factors

Strategic SituationStrategic Situation

Resources Competitive Position

Culture

Environment Industry Customer

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 narrow

market segment

Examples

• Cost (price) leadership– Crown, Cork & Seal (pennies, plants). – Motel 6 (location, services, salespeople). – Cintas (plants, logistics).

• Differentiation– Quality (Mercedes) – Design (MacIntosh) – Service (Nordstrom). – Image (Nike). – Special niches (G&K clean rooms; Zitner’s candied

apples; Prompt folding)

Examples

• Focus– Broad (Wal-Mart, rural)– Narrow (NSP - activists, NRI - network

administrators)– Segmented (Financial services firm)

Elaborations

• Penetrate new markets– Insurance in India.

• Develop new markets– KPMG e-government. (Disruptive technologies.)

• Develop new products– Gillette. Intel.

• Become indispensable – Microsoft. Best subcontractors.

• Fortify– Borders wholesalers, B&N’s leases.

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)

Re-write your value proposition: The unique benefits your firm provides and

to whom

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.

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

Small but

steady

Technology: Desk-top, enterprise, email, web

EditorialNewslett

erRights

ProductionPrinting

ShippingIn-houseLibrary

rate

Sales:DM,

Reps, Distribut

or

PrepayPrepay disc.

Green tax

Infrastructure: Land trust, warehouse

Financial: 501(c)3, friendly capital

HR: Cooperative: multiple skills, networks, low-cost, apprenticeship

Social Network: Audience, authors, rights, co-printing, Prompt

Value chain for NSP

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 fitinto wealth

Business model

• 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 + 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

Business models start with what the world gives

4.Choose a position or approach - and build a strategy to take advantage– Seeing the position or approach is

fundamentally creative• Immersion, scenarios, future search,

dreams– Building strategy involves discipline and

analysis

Business models are based on strategy

5. Identify stakeholders you must serve– Owners, family, workers, community

6. Identify the wealth you will capture– Capital, good life, family life, fame

entrepreneurial effectiveness, social value

Business models enclose wealth

7. Sketch a structure that will 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• Strategy • Stakeholders• Wealth• Model

– Structural implications, timing, capital needs, etc

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…)

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