Strategy, Business Model Business Plan

1. Strategy, Business Model & Business Plan

2. Business plan outlinewww.sbm.temple.edu/IEI/word/planigenttemplateoutline_003.doc 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 We’re in the midst of working on the context of your business -- on the environment, industry, competition -- on what the world gives you to work with. Before this we looked a little at what you bring to the table: your vision, skills, idea, networks. The next step is to combine the two. To take stock of what the world offers and what you bring and to fit them together into a strategy in which you use your strengths to take advantage of opportunities, shore up weaknesses, stave off threats, etc. Your strategy is summarized as a business model -- the gist of your plan to take advantage of an opportunity. This is the heart of your plan. Once you have the model, it’s a matter of working out the details of how you will implement the model. And then reassuring the investors that you’ve thought through the risks.We’re in the midst of working on the context of your business -- on the environment, industry, competition -- on what the world gives you to work with. Before this we looked a little at what you bring to the table: your vision, skills, idea, networks. The next step is to combine the two. To take stock of what the world offers and what you bring and to fit them together into a strategy in which you use your strengths to take advantage of opportunities, shore up weaknesses, stave off threats, etc. Your strategy is summarized as a business model -- the gist of your plan to take advantage of an opportunity. This is the heart of your plan. Once you have the model, it’s a matter of working out the details of how you will implement the model. And then reassuring the investors that you’ve thought through the risks.

3. Strategy funnel By now you should have a pretty good picture of Customers – who are, how organized, what problem product solves for them, what else they see, how to reach ‘em…thus value proposition Industry space – rules and drivers, competitors and how they operate, space that is left…thus a position Goal of strategy is: Goal: Articulate and DELIVER long-term, defensible offer of unique value to customers… By now you should have a pretty good picture of Customers – who are, how organized, what problem product solves for them, what else they see, how to reach ‘em…thus value proposition Industry space – rules and drivers, competitors and how they operate, space that is left…thus a position Goal of strategy is: Goal: Articulate and DELIVER long-term, defensible offer of unique value to customers…

4. What is strategy? Plan Process Position Pattern Perspective Procedure Play Ploy First, clarification…what is strategy? First, clarification…what is strategy?

5. Strategic management What is strategic management? Disciplined process Fed by scanning – like you just did Anchored by mission Pulled by vision Built on resources Shaped by external and competitive forces REQUIRES constant attention…What is strategic management? Disciplined process Fed by scanning – like you just did Anchored by mission Pulled by vision Built on resources Shaped by external and competitive forces REQUIRES constant attention…

6. Strategy checklist Vision Value proposition Position or direction Structure or resource base Revenue & business model Timeline or guidelines Fit When develop strategy, develop lot of things…here is checklist Vision… Value prop (done…will do more) Position or direction (depending on change) Structure or resource base (always both but which emphasize depends on change) Revenue model – cf Sid and future…gotta see and realize value concretely Timelines or guidelins – timing matters (see later) FIT – most important, pieces have to fit together and reinforce, esp when smallWhen develop strategy, develop lot of things…here is checklist Vision… Value prop (done…will do more) Position or direction (depending on change) Structure or resource base (always both but which emphasize depends on change) Revenue model – cf Sid and future…gotta see and realize value concretely Timelines or guidelins – timing matters (see later) FIT – most important, pieces have to fit together and reinforce, esp when small

7. Value proposition Specific, concrete offer of benefits Price, quality, convenience, choice, cost-savings, reliability, etc To precisely defined customers Who recognize that the offer solves a problem for the EG: Our clients grow their business, large or small, typically by a minimum of 30-50% over the previous year. They accomplish this without working 80 hour weeks and sacrificing their personal lives. Company A provides a new-generation process historian that helps pharmaceutical and other batch process firms prevent bad batches by analyzing and adjusting batches in real time. Because each batch can cost between $250,000 and $1 million, the $100,000 cost of A-RS will be paid off within a year. As important, because A-RS is fully compliant with regulation xyz, it provides a cost-effective, painless way to fulfill companies’ reporting requirements. “A-RS is the only product we found that truly fulfills the FDA’s requirement for paperless reporting and record-keeping without any additional programming or work-arounds.” Alan A, GSK. Company A provides a new-generation process historian that helps pharmaceutical and other batch process firms prevent bad batches by analyzing and adjusting batches in real time. Because each batch can cost between $250,000 and $1 million, the $100,000 cost of A-RS will be paid off within a year. As important, because A-RS is fully compliant with regulation xyz, it provides a cost-effective, painless way to fulfill companies’ reporting requirements. “A-RS is the only product we found that truly fulfills the FDA’s requirement for paperless reporting and record-keeping without any additional programming or work-arounds.” Alan A, GSK.

8. 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 Example: Riskforce…Active preparation for risk management…concrete and specific…per company (maybe not wider yet) Two-ten…control dental…Example: Riskforce…Active preparation for risk management…concrete and specific…per company (maybe not wider yet) Two-ten…control dental…

9. Vision exercise Stable core Mission: Ideology: Focused ambition What success will look like – in the marketplace: One audacious goal:

10. Position or navigation? 2 kinds of strategy2 kinds of strategy

11. Strategic positionsrequire niches

12. Strategic situation

13. Match SW to OT Automsoft example… SO-low-end historian WT-weak CEO, threat from size of market + competitors…so remove CEO ST – CEO + tech…reposition to turn size market to opportunity, keep edge on competitors WO – still no money, small staff…so marketing mind share: white papers, industry standards group (with CEOs) Captive insurance example W & T: Loss of 65% of business…owner/managers hurting… big firms 50,000 vs their 200 S: Sales, experience, location (Cayman & Bahama), desperation, IT Min W by saying: No DIS economies of scale…3 vs 12, very focused (one industry – oil and gas) Emphasize S: owners vs peons, fun to do business with (parties), edgy & aggressive + built IT support to deliver Attack T – in very specific way: one vertical, focused product, as good as cheap, better service and attention Opportunity…growth! Suisse Re… Automsoft example… SO-low-end historian WT-weak CEO, threat from size of market + competitors…so remove CEO ST – CEO + tech…reposition to turn size market to opportunity, keep edge on competitors WO – still no money, small staff…so marketing mind share: white papers, industry standards group (with CEOs) Captive insurance example W & T: Loss of 65% of business…owner/managers hurting… big firms 50,000 vs their 200 S: Sales, experience, location (Cayman & Bahama), desperation, IT Min W by saying: No DIS economies of scale…3 vs 12, very focused (one industry – oil and gas) Emphasize S: owners vs peons, fun to do business with (parties), edgy & aggressive + built IT support to deliver Attack T – in very specific way: one vertical, focused product, as good as cheap, better service and attention Opportunity…growth! Suisse Re…

14. OTSW exercise Fill out situation… S by strengths W by weaknesses O by opportunities T by threats Connect up…with arrows and lines (football plays…)Fill out situation… S by strengths W by weaknesses O by opportunities T by threats Connect up…with arrows and lines (football plays…)

15. 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 narrowmarket segment

16. Examples Cost (price) leadership Dell Computers (logistics, volume) Motel 6 (location, services, salespeople). Southwest Airlines (corporate culture, service) Differentiation Quality (Mercedes) Design (Apple) Service (Nordstrom). Image (Nike). Special niches (Zitner’s candied apples; independent films)

17. Examples Focus Broad (Wal-Mart - rural) Narrow (NSP - activists, NRI - network administrators) Segmented (Computer security – spooks and commerce, Financial services – rich, poor and in-between.)

18. Elaborations Penetrate new markets Insurance in India. Develop new markets Ice hotels Develop new products Gillette. Intel. Become indispensable Microsoft. Best subcontractors. Fortify Borders wholesalers. B&N’s leases.

19. Value discipline positioning Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...

20. Value disciplines Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...

21. Value disciplines Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...Get into this in two weeks as push strategy… Consulting group example… Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...

22. Position strategy exercise Lead with product? Cost? Focus? Value proposition? Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...Lead with product? Cost? Focus? Value proposition? Thought it was thought leader…analysis showed that it was on intimacy/operational effectiveness border…and should focus on operational effectiveness…using intimacy (from main consulting), using others inventions to produce semi-automatic change management consulting tools...

23. 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. As value disciplines implied, position requires fit, not just niche. As important as finding a niche is fitting into it…building mountain and/or fortification by becoming special. As value disciplines implied, position requires fit, not just niche. As important as finding a niche is fitting into it…building mountain and/or fortification by becoming special.

24. Fit: Entrepreneurial advantage Possibility of crafting a perfect fit between specific opportunities and internal capabilities Firms that fit opportunities extremely well have an advantage over bigger, stronger opponents… Examples: Dollar Express vs Dollar Tree Youthbuild vs School District Giovanni’s Room vs Borders Entrepreneurs have one distinct advantage: the ability to build to suit…The philosophy is that of tai chi – listening so carefully, balanced so well, that 4 ounces of pressure sends an opponent sprawling… Examples: OCS – electrical engineer + electronic music + macintosh subculture. Early warehouse scene and culture. Garage to high-end with marketing clout to Shockwave. Dollar Express – Big format, careful locations, small HQ to control buying and costs, decentralized customer service: Youthbuild. Visionary + nerd + street boy + construction head. Nonprofit + school + charter + HUD. Teacher/ caseworker/foreman teams in 4 pods of 100. Entrepreneurs have one distinct advantage: the ability to build to suit…The philosophy is that of tai chi – listening so carefully, balanced so well, that 4 ounces of pressure sends an opponent sprawling… Examples: OCS – electrical engineer + electronic music + macintosh subculture. Early warehouse scene and culture. Garage to high-end with marketing clout to Shockwave. Dollar Express – Big format, careful locations, small HQ to control buying and costs, decentralized customer service: Youthbuild. Visionary + nerd + street boy + construction head. Nonprofit + school + charter + HUD. Teacher/ caseworker/foreman teams in 4 pods of 100.

25. 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.

26. 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.

27. Ikea’s Activity System

28. 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

29. 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

30. 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 fit into wealth Business model

31. 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

32. 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

33. 1.Describe the landscape: Porter 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 The steps to building a business modelThe steps to building a business model

34. 4. Identify stakeholders you must serve Owners, family, workers, community 5. Identify the wealth you will capture Capital, good life, family life, fame entrepreneurial effectiveness, social value 6. Choose a position or approach And elaborate a strategy to realize this Especially a revenue model Business models are based on strategy The steps to building a business modelThe steps to building a business model

35. 7. Sketch a structure to 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 realizationof value Business models define structure

36. Build a business model exercise Opportunity Stakeholders Wealth Strategy Model Structural implications, timing, capital needs, etc

37. Good execution is more important than good strategy! Seeing a position or approach is fundamentally creative Immersion, scenarios, future search, Constructing a strategy involves careful analysis and planning Executing a strategy requires relentless discipline

38. 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…)

39. 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