strategy, business model
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Strategy, Business Model & Business
Plan
IEI Business Plan Workshops
215-204-3079
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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
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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
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Strategy funnel
Customer &Benefits
CompetitiveDynamics
CompetitiveSpace
Segment,Size
Channels
Strategic Positionin
g
ValuePropositio
n
IndustryStructure
Environmental Trends
IndustryMarket
PerceptualSpace
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“Strategy” means many things
• Plan• Process• Position• Pattern• Perspective• Procedure• Play• Ploy
• Strategic Management
• Strategic Position
• Strategic Navigation
• Strategic Tactics
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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
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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.
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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
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Vision exercise
• Stable core– Mission: – Ideology:
• Focused ambition– What success will look like – in the
marketplace:– One audacious goal:
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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
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External Opportunities
& Threats
Niche
Internal Strengths & Weaknesses
Strategic positionsrequire niches
• A niche includes the market the firm is uniquely qualified to serve
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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)
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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)
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OTSW exercise
External Factors
Internal Factors
Strategic SituationStrategic Situation
Resources Competitive Position
Culture
Environment Industry Customer
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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
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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)
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Examples
• Focus– Broad (Wal-Mart, rural)– Narrow (NSP - activists, NRI - network
administrators)– Segmented (Financial services firm)
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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.
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Value discipline positioning
Product Leadership• (Differentiation)
Customer Intimacy•(Focus)
Operational Excellence
•(Cost Leadership)
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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
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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
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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
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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.
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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
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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
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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.
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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
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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
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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
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• 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
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• 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
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• 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
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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
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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
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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
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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
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Build a business model exercise
• Opportunity• Strategy • Stakeholders• Wealth• Model
– Structural implications, timing, capital needs, etc
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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…)
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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