BUSINESS PLAN OUTLINE sbm.temple/iei/competitions.html

2. 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 Plan • Management & Organization • Social Responsibility • Development & Milestones • Financials • Including Capital Requirements & Financial Statements • Appendix

3. STRATEGY FUNNEL – INDUSTRY SIDE Environmental Trends Customer &Benefits IndustryStructure Market Industry Segment, SizeChannels CompetitiveSpace PerceptualSpace CompetitiveDynamics ValueProposition Strategic Positioning

4. INDUSTRY-SIDE GOAL • Describe, in detail, the competitive, industry, andenvironmental landscape in which your firm will operate…to find a defensible space you might occupy.

5. BUSINESS AS A SUPPLY CHAIN The supply chain traces processes and transformations. As these become more complex, they tend to differentiate into various functions.

6. BUSINESS AS A VALUE CHAIN • The value chain maps value added and captured onto the supply chain. Each step in the supply chain contributes different amounts of value. • Effective management involves both identifying new sources of value and tying together pieces to create more than the sum of the parts. • Do not confuse value with cost!

7. FROM VALUE CHAINS TO MARKETS Suppliers Company Customers Value • As underlying processes become more complex, supply chains often evolve into chains of firms that interact through negotiated transactions or markets - rather than chains of functions managed internally • Note how the margin divides (and multiplies)

8. MARKET STRUCTURE

9. MARKETS & INDUSTRIES • Each cluster of competitors is an industry, industry segment or strategic group • Supply chains and industries evolve over time – as do their rules, cultures, technologies and sources of value

10. Printer Paper Producer Forest Products BOOK SELLING COMMERCE CHAIN Packager Sales groups Author Agent Publisher Wholesaler Retailer Reader Direct marketing

11. BOOK SELLING VALUE CHAIN $0.375 Promotions $0.375 $0.45 Sales groups Packager $3.50 $1.00 $5.50 $12.00 Author Agent Publisher Wholesaler Retailer Reader $0.50 $0.05 $1.25 Printer • From trade sales, a publisher might keep 7% for salaries etc – though the amounts and percentages do increase with print runs and cover prices. • From direct mail, a publisher might keep 12.5% or so, but without as many economies of scale (since so much goes to logistics).

12. Packager Sales groups Author Agent Publisher Wholesaler Retailer Reader Direct marketing Borders Bertelsmann Bookpeople or Ingram Amazon Harper & Row Consortium BOOK SELLING INDUSTRY STRUCTURE

13. EXERCISE: DRAW THE CHAIN, IDENTIFY YOUR INDUSTRY • Who sells what to whom? • Ask industry informants • Look at customer and supplier lists • Look at industry magazines • Draw what you see • Circle your industry • The related functional cluster of firms • Identify sources of competition • direct competitors from within the industry • indirect competitors from related supply chains • Note the supply market • Note the demand market

14. OperatingEnvironment Communities Union/employees Firm/Organization StructureCultureCompetencies Resources Trade Association Regulators Stockholders Competitors Creditors Suppliers Customers I. ENVIRONMENTAL SCANNING: STEEP ANALYSIS Macro-environment Socio-culturalForces TechnologicalForces PoliticalForces EcologicalForces EconomicForces

15. OperatingEnvironment Communities Union/employees Firm/Organization StructureCultureCompetencies Resources Trade Association Regulators Stockholders Competitors Creditors Suppliers Customers STAKEHOLDERS SHAPE THE OPERATING ENVIRONMENT Macro-environment Socio-culturalForces TechnologicalForces PoliticalForces EcologicalForces EconomicForces

16. STAKEHOLDER ANALYSIS • Who matters, how much • Customers, suppliers, owners, workers, community groups, government • At core, strategic, or environmental levels • What matters, why and when • What is at stake for the stakeholders? Why do they care? When and how might they act? • What is at stake for the firm? What are the likely impacts on the firm? Why? When? • Response options • Cooperate, compete, coopt, cut out...

17. OperatingEnvironment Communities Union/employees Firm/Organization StructureCultureCompetencies Resources Trade Association Regulators Stockholders Competitors Creditors Suppliers Customers EXERCISE: STEEP OR STAKEHOLDER BRAINSTORM Socio-culturalForces Macro-environment TechnologicalForces PoliticalForces EcologicalForces

18. II. INDUSTRY STRUCTURE • Industries are clusters of firms that serve the same function in a commerce chain. These sets of firms operate in the same space and compete to control enough space to capture value. • Industries all have structure, history, trajectories and competitive dynamics that constrain entry options – and are shaped in part by macro-environmental conditions.

19. INDUSTRY POWER Threat from New Entrants RivalryofFirms Suppliers’ Power Buyers’ Power Threat from Substitutes Power of other Stakeholders

20. INDUSTRY POWER: BOOKSTORES Threat from New EntrantsMinimal at scale – eg. warehousing, leases Rivalry: Oligopoly Suppliers’ Power: Reduced but still significant Buyers’ Power: Mild – local monopoly but options Threat from Substitutes:High: multimedia, web distribution Other Stakeholders:Minimal domestic, some international, financial concerns

21. 1. ENTRY • Industries that are hard to enter are cozy for insiders, but also often attractive to outsiders longing for the value being shared by so few. • Barriers to entry make it harder for newcomers to play. • Fierce reaction by incumbents. • Size of payoff/relation of supply to demand. • Economies of scale: • minimum efficient scale of production • distribution or sales networks • Pioneering brand advantages. • Experience curve. • Licenses or patents. • Cost of exit.

22. 2. SUBSTITUTES • Industries with few substitute products are more attractive than those with many substitutes. • Effective substitutes can often provide ways in for upstarts. • The threat of substitutes is often the weakest of the forces -- except during times of high demand or fast change, when interlopers may see opportunities. • Substitutes can be industry killers (Video Rentals)

23. 3. BUYER POWER • Attractive industries feature disorganized, small customers, with little purchasing and negotiating power. • Buyers gain power when: • They are large, relative to the seller (superstores). • They are organized (eg., a coop). • It is easy to switch to another supplier (eg., when products are standard). • They could integrate backwards and so take over a supplier.

24. 4. SUPPLIER POWER • Attractive industries feature small and disorganized suppliers. • Suppliers gain power when: • They are large, relative to the buyers. (Alcoa). • It is difficult for buyers to switch to competing suppliers. (Custom products, proprietary information). • They pose a credible threat of integrating forward and taking over the buyers’ functions.

25. 5. RIVALRY • Attractive industries are controlled by monopolies or gentlemanly oligopolies. • On the other hand, the more the players, and the more equally matched, the closer the industry approximates “perfect competition” and minimum profits. • Rivalry is reduced when: • Power is concentrated • Competitors can truly differentiate. • It is easy to exit. • Demand is stable and predictable. • Regulation takes the edge off.

26. 6. STAKEHOLDER POWER • Governments (if not in the environmental scan), unions, creditors (if not a supplier), advocacy groups (eg., environmentalists) can all constrain industries. • Regulated industries • Unions • Institutional investors • Bottle bills • Rivalry is reduced when governments or other stakeholders limit access to the industry – and so limit competition.

27. Banking 20% 20% Operating Margin Operating Margin 100% 0 Acquisition Funding Servicing 0 100% Acquisition Funding Servicing Share of Industry Revenue Share of Industry Revenue PROFIT POOLS Banking • Operating margin: Industry reports, interviews • Share: Profit amount x total sales in sub-segment

28. INDUSTRY DYNAMICS • While useful, the five forces, value chain and profit pool models are essentially static. • It is critical to make guesses about the future -- especially about when trends might stop and the existing power structure shift. STEEP and technology life cycle analyses can help with this.

29. EXERCISE: INDUSTRY POWER STRUCTURE Threat from New Entrants RivalryofFirms Suppliers’ Power Buyers’ Power Threat from Substitutes Power of other Stakeholders

30. III. COMPETITIVE ANALYSIS • Competitors are the firms that compete to serve the same customers in the same marketplace. • Competitors can compete directly (cars) or indirectly (bicycles, mass transit). • Competition happens on two levels: • Product or service competition • Competition at the level of the value proposition and marketing (covered in the first workshop) • Company competition • Competition at the level of company strategy

31. COMPANY COMPETITIVE ANALYSIS • How does each firm compete? • Quality, service, low price, something else? • How effective is each? • How well designed are they to compete as they do? • How powerful? • What resources do they control? Money, people, influence... • How aggressive? • How hard do they compete? What’s their trajectory?

32. Future GoalsVision statementManagerial behavior Current StrategyPrice, quality, distribution, resources Critical AssumptionsKey beliefsBlind spots CapabilitiesStrengths & weaknesses COMPETITOR RESPONSE PROFILE Drivers Abilities Response ProfileSatisfied or ambitious?Likely next moves?Vulnerabilities?Sensitive spots? (What will provoke retaliation?)

33. Effective-ness Aggres-siveness Market Share Power Quality Cost M Competitor 1 15% H H M H very Competitor 2 25% L L H L Competitor 3 5% M M L H slipping Competitor 4 20% L L H L Competitor 5 15% M M H COMPETITORS TABLE • Organizes competitors using crucial dimensions of competition, plus effectiveness, power, trajectory, likely changes...

34. STRATEGIC GROUPS Upscale Chains Price Diners/Family Style Fast Food Selection • Groups of firms that pursue similar strategies with similar resources

35. GARTNER MAGIC QUADRANT Gartner rates vendors upon two criteria: completeness of vision and ability to execute. Leaders score higher on both criteria; the ability to execute and completeness of vision. Typically larger industry developed businesses with vision and potential for expansion. Challengers score higher the ability to execute and lower on the completeness of vision. Typically larger, settled businesses with minimal future plans for that industry. Visionaries score lower on the ability to execute and higher on the completeness of vision. Typically smaller companies that are unloading their planned potential. Niche players score lower on both criteria: the ability to execute and completeness of vision. Typically new additions to the Magic Quadrant, or market fledglings.

36. Example: Variation on Gartner’s Magic Quadrant

37. DYNAMIC COMPETITOR ANALYSIS • While useful, the competitor table and the strategic groups are essentially static. • It is critical to make guesses about the future -- especially about when trends might stop and the ground might shift, and when new competitors might rise, or existing ones die.

38. EXERCISE:COMPETITOR ANALYSIS • Make a competitors table, including: • market share • how they stack up on crucial dimensions of value • effectiveness (star the most competent ones) • resources (underline richest ones) • aggressiveness (arrows to indicate trajectories) • Note any natural groupings • Note any likely changes • New entrants, mergers, exits?

39. BIBLIOGRAPHY • Andersen Business Consulting interview, Summer 2001. • Richard D’Aveni, Hypercompetition (Free Press: 1994). • Craig Fleisher & BabetteBensoussan, Strategic & Competitive Analysis: Methods & Techniques for Analyzing Business Competition (Upper Saddle River, NJ: Prentice Hall, 2003) • Jay Galbraith, “Strategy & Organization Planning” in Human Resource Management (Spring-Summer 1983) for Supply Chain. • PankajGhemawat, Strategy and the Business Landscape (Prentice Hall, 2001). • 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 • TL Hill lecture notes, 1999, 2001, 2002. • J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001). • Philip Kotler, Marketing Management, 9th Edition, (Prentice Hall, 1997). • Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994), for Porter and other economics-based strategy. • Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition (Prentice Hall, 1998). • Michael Porter, Competitive Advantage (Free Press, 1985). • Michael Porter, “What is Strategy?” Harvard Business Review (November-December 1996). • Wikipedia, Gartner Magic Quadrants, Market Definitions February 2011