Strategy and Business Model

Strategy,Business Model&Business PlanBusiness Plan OutlineExecutive Summary Company DescriptionIncluding product/service&technology/core knowledgeIndustry Analysis&TrendsTarget MarketCompetition Strategy/Business ModelMarketing and Sales Plan Production/Operations PlanTechnology PlanManagement&Organization Social ResponsibilityDevelopment&MilestonesFinancialsIncluding Capital Requirements&Financial Statements AppendixStrategy FunnelCustomer&BenefitsCompetitiveDynamicsCompetitiveSpaceSegment,SizeChannelsStrategic PositioningValuePropositionIndustryStructureEnvironmental TrendsIndustryMarketPerceptualSpaceGoal:Articulate and execute long-term,defensible offer of unique value to customersWhat is Strategy?PlanProcessPositionPatternPerspectiveProcedurePlayPloyStrategic ManagementStrategic PositionStrategic NavigationStrategic TacticsStrategic ManagementEnvironmental ScanningEvaluation&ControlStrategyImplementationStrategyFormulationMissionVisionDisciplined,iterative process of driving towards vision,by finding or making and maintaining a defensible space or trajectory in a given business environment.Strategy ChecklistValue propositionVisionPosition or directionStructure or resource baseRevenue&business modelTimeline or guidelinesFit Value PropositionSpecific,concrete offer of benefitsPrice,quality,convenience,choice,cost-savings,reliability,etcTo precisely defined customersWho recognize that the offer solves a problem for theEG: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.VisionStable coreMission:Central audience+core product/service Ideology:Values,principles,cultureFocused ambitionConcrete picture of successful impactSerious,scary stretch goalsDisciplined experimentationVision ExerciseStable coreMission:Ideology:Focused ambitionWhat success will look like in the marketplace:One audacious goal:Position or Navigation?Position StrategiesUnique,valuable,defensible position in a market or industrySupported by a tightly integrated value chain/activity systemGood for relatively stable industries/marketsNavigation StrategiesVision-driven nurturing and leveraging of core resourcesSupported by tight culture and explicit learningGood for dynamic industries/marketsExternal Opportunities&ThreatsNicheInternal Strengths&WeaknessesStrategic Positions Require NichesA niche includes the market the firm is uniquely qualified to serveStrategic Situation External FactorsInternal FactorsStrategic SituationStrategic SituationResources(know-how,people,money,etc)Vision,values&cultureSocial,political,regulatory,technological&communityIndustryAttractive-ness,dynamics,&competitionUnmet customer needs&desiresCompetitive position(through customers eyes&in industry)Match SW to OT Strengths(S)InternalFactorsExternalFactors Opportunities(O)SO Strategies-WO Strategies-Threats(T)ST Strategies-WT Strategies-Use strengths toavoid threatsMin.weaknesses to avoid threatsUse strengths to take advantage of opportunitiesOffset weaknessesto take advantage of opportunities Weaknesses(W)SWOT ExerciseExternal FactorsInternal FactorsStrategic SituationStrategic SituationResourcesCompetitive PositionCultureEnvironmentIndustryCustomerMap SW to OT.Two Levels of StrategyCorporateGrowthRetrenchmentStabilityBusinessCost(price)LeadershipDifferentiationFocusGrowth StrategiesConcentrationVertical and HorizontalDiversificationConcentricConglomerateGrowth Through ConcentrationConcentrate resources on a single businessConcentrate vertically,i.e.,backward or forward(supply or distribution)Concentrate horizontally by growing geographically or by expanding product or service offering Means to Accomplish GrowthMergersAcquisitionsInternal GrowthStrategic AlliancesInternational DiversificationUsed if firms current product lines do not have much growth potentialBenefitsEconomies of ScopeIncrease market powerShare infrastructureMaintain growthConcentric(Related)DiversificationOutperform unrelated diversificationBest whenlow industry attractivenessstrong business strengthsstrong competitive positionAllows use of distinctive competence Seek synergyConglomerate(Unrelated)DiversificationBest whenFirm operates in unattractive industryFirm lacks abilities or skills easily transferable to related industry Focus is financial¬ core competence or synergyBalance cash flowsReduce riskStability StrategiesPause and Proceed with CautionNo ChangeProfitRetrenchment StrategiesTurnaroundCaptive CompanySell out or DivestmentSpin-offManagement buyout(MBO)Bankruptcy or LiquidationBusiness Level StrategiesCost(price)leadershipEfficiency and scaleDifferentiationQuality,design,support/service,image-that make a product or service specialFocusExplicit tie to a broad or narrowmarket segmentExamplesCost(price)leadershipDell Computers(logistics,volume)Motel 6(location,services,salespeople).Southwest Airlines(corporate culture,service)DifferentiationQuality(Mercedes)Design(Apple)Service(Nordstrom).Image(Nike).Special niches(Zitners candied apples;independent films)ExamplesFocusBroad(Wal-Mart-rural)Narrow(NSP-activists,NRI-network administrators)Segmented(Computer security spooks and commerce,Financial services rich,poor and in-between.)Value Discipline PositioningProduct Leadership(Differentiation)Customer Intimacy(Focus)Operational Excellence(Cost Leadership)Value DisciplinesProduct Leadership-Compete on SpeedGood design,great executionEducate&lead the market Ad hoc,risk oriented culture Organization designed for innovationOperational Excellence-Compete on ScaleLow price,limited options,ultimate convenienceManaged customer expectationsMeasurement cultureProcesses&transactions continually redesignedfor efficiencyValue disciplinesCustomer Intimacy-Compete on ScopeOfferings tailored to customers&segmentsDeep insight into customer needsProblem solving service cultureFull range of services,so customers stayBreakthrough thinking,unique solutionsPosition Strategy ExerciseProduct Leadership(Differentiation)Customer Intimacy(Focus)Operational Excellence(Cost Leadership)Choose a position strategy and explain how you will achieve it.Strategic Positions Require FitFit 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.Fit:Entrepreneurial Advantage Possibility of crafting a perfect fit between specific opportunities and internal capabilitiesFirms that fit opportunities extremely well have an advantage over bigger,stronger opponents Examples:Dollar Express vs Dollar TreeYouthbuild vs School DistrictGiovannis Room vs BordersValue 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.MarginTechnologyInboundLogisticsOperationsOutboundLogisticsMarketing/SalesAfter SalesServiceInfrastructureProcurementHuman ResourcesActivity SystemA less linear way of thinking about the internal fit that supports strategy.Map crucially interrelated features and functions that define a firms unique skills and strategy.Support competitive advantage with reinforcing patterns or systems.Ikeas Activity SystemLimitedCustomerServiceModularDesignsLow MfgCostSelf-serviceSelectionSelf-transportLimitedsales staffCustomer loyaltySelf-assemblySuburban LocationMost items in stockDesign focused on low costExplanatory labelingEasy transportFlat packing kitsWide variety Long-term suppliersYear-round stockingOn-site inventoryImpulse buyingHigh-traffic store layoutEasy to make Experience CurveFor positional strategies,experience is the ultimate source of advantage.Experience fuels the tacit knowledge that drives productivity improvements,innovations,elaborations of strategy,etcSuccessful firms are especially good at creating the social and institutional structures that support the shared development of such tacit knowledgeFit ExerciseDraw the value chain for your firmNote reinforcing(and jarring)pieces Try to create more reinforcementsORJot down functions and featuresLook for patterns and connectionsTry to crystallize patternsA business model describes what a firm will do,and how,to build and capture wealth for stakeholdersEffective business models operationalize good strategies-turning position and fit into wealthBusiness ModelFour Aspects of Business ModelsRevenue SourcesCost DriversInvestment SizeCritical Success FactorsRevenue SourcesSubscription/MembershipFixed amount at regular intervals prior to receiving product/serviceVolume/Unit-basedFixed price in exchange for product/serviceAdvertising-basedExempt from fee or pays fraction of the valueLicensing&SyndicationOne time feeTransaction feeFixed fee or percentage of total value of transactionCost DriversFixed:item costs do not vary with volumeSemi-variable:variable&fixed costsVariable:item costs vary with volumeNon-recurring:item of cost occurs infrequentlyInvestment SizeMaximizing finance needsPositive cash flowCash BreakevenCritical Success FactorsAn operational function or competency that a company must possess in order to be sustainable&profitablePerform sensitive analysisBuild wealth:By efficiently(profitably)transforming inputs into something that customers value enough to pay for again and again and againBy supporting growthCapture wealth:By siphoning off some of the accumulated wealth for stakeholdersAnd by developing recognizable value strategic positions,know-how,customers,free cash flow,lifestyles,social impact that can be capturedEffective Business Models Build&Capture WealthAbout who mattersOwners,investors,family,workers,communityAbout what kind of wealth mattersFinancial capital,social capital,intellectual capital.ie.,cash,good life,rich family life,entrepreneurial impact,social impactAbout the strategy that will deliver the wealth that matters to the stakeholders that matterAbout the structure that supports strategyEffective Business Models Require Hard Choices1.Describe the landscape:PorterEnvironment,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&weaknessesVision,skills,core technologiesBusiness Models Start with What the World Gives4.Identify stakeholders you must serveOwners,family,workers,community 5.Identify the wealth you will captureCapital,good life,family life,fame entrepreneurial effectiveness,social value6.Choose a position or approachAnd elaborate a strategy to realize thisEspecially a revenue modelBusiness Models are Based on Strategy7.Sketch a structure to operationalize the strategy Value chain,activity system,culture,simple rules8.Work out the implicationsFunctional strategiesTimeline and milestonesFinancial projections&capital needs Path to profitability,sale,or other realizationof valueBusiness Models Define StructureBuild a Business Model ExerciseOpportunityStakeholdersWealthStrategy Revenue SourcesCost DriversInvestment SizeCritical Success FactorsModel-Structural implications,timing,capital needs,etc.Good Execution is More Important than Good Strategy!Seeing a position or approach is fundamentally creativeImmersion,scenarios,future search,Constructing a strategy involves careful analysis and planningExecuting a strategy requires relentless discipline