Strategic Thinking Overview

1. Strategic Thinking Overview Primary Care Veterinary Educators Purdue University October 18, 2013

2. Questions we’ll try to answer • What is the concept of strategy? • What are missions, visions and values? • Why are they important? • What is the business environment? • How do you frame and prioritize trends? • What is an industry? The Vet practice industry? • How do you frame that perspective? • What is unique about the industry? • What leads to an advantage in the marketplace? • How do you put all this together in a practice • How does this understanding help a practicing veterinarian?

3. So, what is strategy? • What are your definitions of strategy? • Porter: • Decisions that lead to a unique position • What you do and don’t do • A fit between firm actions and the environment. • Robert • A “picture” of the products, customers, industry segments and geography you will compete in. A future vision of the firm.

4. Another definition(James Bryan Quinn) • A strategy is a pattern or plan that integrates an organization’s major goals, polices, and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organization’s resources into a unique and viableposture based on its relative internal competences and shortcomings, anticipated changes in the environment and contingent moves by intelligent opponents.

5. What I have found interesting • Why do firms with access to the same resources and information have radically different outcomes?

6. Or said another way . . .

7. MissionVisionValues The tie to culture and team ….. “Culture eats strategy for lunch”

8. Elements necessary to craft a strategy • Values • Your organization’s “belief” system • Mission • Concept of the organization, nature of the business, reason you exist, who you serve, and the principles and values you operate under. • Vision • A short, inspiring, encompassing view of the organization

9. What do you think of this statement of values? • Communication - We have an obligation to communicate. Here, we take the time to talk with one another… and to listen. We believe that information is meant to move and that information moves people. • Respect - We treat others as we would like to be treated ourselves. We do not tolerate abusive or disrespectful treatment. • Integrity - We work with customers and prospects openly, honestly and sincerely. When we say we will do something, we will do it; when we say we cannot or will not do something, then we won’t do it. • Excellence - We are satisfied with nothing less than the very best in everything we do. We will continue to raise the bar for everyone. The great fun here will be for all of us to discover just how good we can really be.

10. Realize values show up everywhere • Ethics • Quality • Safety • Innovation • Human Resources • Profitability • Fun • Responsive to customers • Image to the field • Image in the community Are these factors important, or are some more and some less important? Just realize there are implicit tradeoffs in managing.

11. Vision and values show in many of the practice's decisions • Expansion – grow organically or acquire? • Service diversity – broad or narrow? • Client diversity – broad or narrow? • Geographic scope – local or regional? • Service – standard or customized? • Ownership - narrow or broad? • Structure – centralized or decentralized?

12. The questions answered by the mission / vision. • What is unique or distinctive about us as a practice? • Who should be our principal clients? • What should be our principal market segments? • What should be our principal services? • How are we different from 3 – 5 years ago? • How will we be different in 3 – 5 years?

13. So, what is strategy? • Decisions about scale. • Decisions about scope. • Decisions about investments you make to develop key competences and critical success factors. • Decisions about structure, integration and the fit between the parts of your business model. • Decisions about financing.

14. A smidge of economics • Scale Economies • Cost benefits accrue through the sheer size of the organization. The firm is able to spread more service delivery or units of production across an existing asset base. • Examples? • Scope Economies • Cost benefits accrue through the addition of product and service lines, since the products or services share significant elements of the same value chain. • Examples?

15. Good strategies answer 3 questions • How will we create value? • How will markets and technologies change? • How will we deliver value? • What will our business model look like, and where in the value chain will we compete? • How will we capture value? • How will we allocate our resources to feed the core businesses and still seek growth opportunities?

16. Good Strategies • Tell you what you will do, and what you will walk away from.

17. Two strategic lens • External environment • Industrial organization view of the firm • Industry structure drives profitability • Internal environment • Resource based view of the firm • Develop valuable resources and capabilities difficult for others to imitate

18. The architecture of strategic thinking Plan of action Core strategic issues Each practice’s competitive position Compare and contrast The Key Success Factors (KSF) Analysis of the competition The veterinary environment

19. The Environment

20. Making sense of the external environment Can you think of examples and their impact on a veterinary practice? • Political issues • Economic reality • Social trends • Technological changes

21. The General Environment (Threats & Opportunities)

22. Prioritize these elements…

23. Steakholders? • These are not what I mean….

24. Stakeholders • What is a Stakeholder? • Those with power over your destiny • Those who can influence your success • Individuals, groups or organizations responsible for trends that impact you • Stakeholders can be either internal or external

25. Stakeholder Analysis

26. The power of a focus group

27. Clients

28. Cost / Value Matrix for clients 1 Value in Serving 5 C O S T T O S E R V E High Maintenance Lose ‘em If you have time Gravy 1

29. Client Segmentation • What is the client type? (Pet Lover, Shots, Casual) • Their definition of good service? • Visit frequency? • Average revenue? • Loyalty to practice? • Cost to serve in time demanded? • Cost to serve in fielding complaints?

30. Use the segmentation matrix • Are there segments you want to grow? • Are there segments you want to reduce? • From a focus group • what new can I do for a segment? • Can you find an entirely new segment?

31. The Industry

32. Porter’s Five Force Analysis Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

33. A Power game • Supplier power increases as … • Fewer suppliers exist, • they become a large % of your cost, • it becomes harder for you to switch providers, • a chance exists for them to integrate forward, and move into your business

34. A Power game • Buyer power increases as …. • There are fewer clients to choose from, • they become larger, • their switching costs become lower, • they have ample substitutes for your good or service

35. A Threat Game • Threat of new entrants increases with … • Low client loyalty, • low switching costs, • low initial investment, • the presence of few economies of scale, • the lack of ways to differentiate a service or product, • the lack of regulatory restriction, • no need exists for elaborate distribution channels.

36. A Threat Game • Threat of substitutes increases with • Aggressive selling of the substitute good or service, • the existence of ample numbers of potential substitutes, • low switching costs, • The substitutes provide options that offer a higher profitability or lower cost to the consumer

37. A competitive game • Rivalry (cut throat competition) among established players increases as ….. • Players lack differentiation • Barriers to exit exist • Few barriers to entry exist • Demand slows • Rivals reach similar size and capability • High fixed costs exist • The strategic “diversity” increases (new players enter the market that are previously unknown and untested; they try new things and approach the market in a new way – and as such you never quite know what to expect)

38. Examples of Porter’s Forces Applied to Veterinary Profession • Threat of new veterinary practices and new consolidators entering into the traditional competitive environment - Banfield • Suppliers’ ability to demand higher prices, especially when selling small lots to many outlets versus large orders for bigger groups. Pharma consolodation • Clients’ ability to choose from a variety of practices and the freedom to move from one practice to another. • Substitute products and services becoming available through changes in regulation or technology – PetMed Express; alternative medicine • Traditional competition increasing due to slower demand – Feline visit trends • Forward integration, or economies of scope – VCA Antech

39. Veterinary service is a fragmented industrySo, what is a fragmented industry? • An industry where no one player holds a dominant position in the market place. • They are generally composed of a lot of small to mid size businesses. • An industry can have a few large players, and yet still be fragmented

40. Competition in Fragmented Industries • Classic examples of fragmented industries • Dentists • Lawyers • Restaurants • Dry Cleaners • Retailers • Farmers • Lumber yards • Real Estate • Ophthalmologists • Pharmacists • Veterinarians

41. What industry factors facilitate industry fragmentation? • New industry • No scale economies • Low entry barrier • High exit barrier • High transportation costs • Need for specialization • High Product differentiation • Local or Gov’t Regulation • Customer Preference

42. Prescribed ways to compete in a fragmented industry • Cost • Low cost / no frills / tight controls • Tightly managed decentralization / formula facilities • Focus • By geography • Specialize by customer type • Professionals / dual career; retirees • Increase the “value add” • Pick up and delivery; boarding; • hours; bundled services • Specialize by product type or service segment • Exotics; Emergency; LAC; SAC; Cat; Dog; Internal

43. How do you manage in the fragmented industry ? • Don’t try to out scale a scaled operation • Focus and differentiation are key • Couple focus on specialization with customer type or bundled services • Be careful to not focus so tightly that the market cannot support the niche. • Don’t forget broader strategies can attempt to erode the niche.

44. From what has come before • External Environment • Five Forces • Industry Trends • What a practice might do

45. From here on… • Internal Environment • Resources • Capabilities / skills • What a practice can do

46. Inside the practice

47. The road to competitiveness • Resources • Tangible and Intangible • Capabilities • How the resources are brought together • Core Competence • A critical competence in the industry; a KSF • Competitive advantage – superior skill • And above average returns • It is not just resources; it is what you do with the resources; how you put them together.

48. It is not just resources, it is how they are put together.

49. The most critical competences ?Key Success Factors • Critical Factors to succeed in an Industry • Attributes of your ideal practice or firm • Attributes of your most feared competitor

50. What do you feel are the KSFs in the future? • Given the environment • Given the Industry • Given the clients • Given the opportunities • What attributes would worry you the most?