Charlottesville Venture Group May 18, 2004

1. A Framework For Strategic Thinking Thinking Charlottesville Venture Group May 18, 2004 Learning Planning Doing Strategic Management

2. A Framework for Strategic ThinkingThe Art of Business Business is more an Art than Science. Market competition demonstrates characteristics of both art and science. Owing to the vagaries of human behavior and the countless other intangible factors which contribute to it, there is far more to the conduct of market competition than can be explained by science…We thus conclude that the conduct of it is ultimately an art, an activity of human creativity and intuition powered by the human will. Strategic Thinking

3. A Framework for Strategic ThinkingThe Art of Business We call the artist an entrepreneur Crafting Strategy is an exercise in Entrepreneurship A Definition of an Entrepreneur “The art of business requires the intuitive ability to grasp the essence of a unique market situation, the creative ability to devise a practical solution, and the strength of purpose and skillto execute the act.” Warfighting. Strategic Thinking

4. A Framework for Strategic ThinkingThe Art of Business Seeking new strategic opportunities Collection of hard data (the scientific skills) Collection of soft data (the perceptual skills) The Intuitive The Rational Accumulation of facts and evaluation of probabilities Accumulation of uncertainties and ambiguities Use of intuition to define the opportunities Use of analytical models to define the opportunities Unique interpretation of the strategic opportunity Making choices about the future on inadequate information Strategic Thinking

5. A Framework for Strategic ThinkingThe Art of Business • Strategic Management is a complex process, much like putting together a jigsaw puzzle • But with missing pieces • And with extra, irrelevant pieces • Involves many people • The situation is very dynamic Strategic Thinking

6. A Framework for Strategic ThinkingThe Role of Strategy • Sustained superior performances should be the goal of every business • How is sustained superior performance attained? Strategic Thinking

7. A Framework for Strategic ThinkingThe Role of Strategy A combination of effective strategies and excellent execution Strategy Effective Ineffective Long Term Success Success Unlikely Excellent Execution Maybe successful For a while Failure Poor Strategic Thinking

8. A Framework for Strategic ThinkingThe Role of Strategy • Behind every successful company, there is a strategy – A Business Concept • There is an underlying logic, even if clear only in retrospect. • Can be developed by formal analysis, trial and error, intuition or pure luck. Strategic Thinking

9. A Framework for Strategic ThinkingThe Role of Strategy Industry Dominant Traditional Strategic Competitor Competitor Innovator US Airlines American Delta, United, Northwest Southwest Car Rental Hertz Avis, Europcar, National Enterprise TV Networks NBC CBS, ABC CNN Earth Moving Caterpillar John Deere, Case Komatsu Steel US Steel Bethlehem, Inland Nucor Coffee Maxwell House Folger’s, Nescafe Starbucks Photocopier Xerox IBM, Kodak Canon Computer IBM DEC, NCR Microsoft Sloan Mgmt Review Spring 1999 Strategic Thinking

10. A Framework for Strategic ThinkingThe Role of Strategy ROI % Market Share Rank Strategic Thinking

11. A Framework for Strategic Thinking The Hedgehog Concept From Good to Great, By Jim Collins What are you deeply passionate about? BHAG What can you be the best in the world at? What drives your economic engine? Strategic Thinking

12. A Framework for Strategic ThinkingThe Hedgehog Concept • Passion • Pick a good business for your organization • Select an appropriate direction (Vision) • Develop a Competitive Advantage • Excellence • Become excellent in the skills that are critical for success • Economic Engine • Have a valid Economic Model • Have an appropriate capital structure Strategic Thinking

13. A Framework for Strategic ThinkingPick a Good Business Strategic Thinking 2001 BizStats.com

14. A Framework for Strategic ThinkingPick a Good BusinessGood to Great Cumulative Stock Returns 1926-1999 1965-2000 73 years 35 years General Market: $415 $56 Comparison $955 $93 Companies: +130% +66% Visionary $6,356 $471 Companies: + 1,432% +741% Built to Last Good to Great Strategic Thinking

15. A Framework for Strategic ThinkingPick a Good BusinessHaveClarity of Purpose • Be clear about. • who the customers are. • What their needsare. • What value you add in meeting those needs. • What skills are required to add that value. • Articulated in the Mission Statement. Strategic Thinking

16. A Framework for Strategic ThinkingHow do you apply these steps to your situation? • Confront the brutal facts of your situation • Ask yourself the tough questions • Be willing to make major changes Strategic Thinking

17. A Framework for Strategic ThinkingHow do you apply these steps to your situation?Change “It may be hard for an egg To turn into a bird: it would be a jolly sight harder for it to learn to fly while remaining an egg. We are like eggs at present. and you cannot go on indefinitely Being just an ordinary decent egg. We must be hatched or go bad.” --C.S. Lewis Strategic Thinking

18. A Framework for Strategic ThinkingHow do you apply these steps to your situation? Where are you? Soaring In The Box Of Mediocrity Poor trying to become good Faltering Strategic Thinking

19. A Framework for Strategic ThinkingHow do you apply these steps to your situation? Finding the Starting Point • Is the business meeting your revenue goals? • Are revenues growing, flat or declining? • Is the business profitable? • Is the business adequately capitalized? What is the story behind the financials Strategic Thinking

20. A Framework for Strategic ThinkingHow do you apply these steps to your situation? Finding the Starting Point • Is there clarity of purpose? • Is the direction realistic? • Does the business have a competitive advantage? • Does the business have distinctive competency in the skills critical for success? • The four wheels must all be pumped up Strategic Thinking