CHAPTER 3 Designing a Competitive Business Model and Building a Solid Strategic Plan Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall
A Major Shift... From financial capital to intellectual capital n Human n Structural n Customer Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-2
Strategic Management n Is crucial to building a successful business. n Involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired course. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-3
Strategic Management and Competitive Advantage n Developing a strategic plan is crucial to creating a sustainable competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market that is superior to its competition. n Example: Shiftwise temporary nursing Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-4
Key: Core Competencies n Unique set of capabilities a company develops in key areas, such as superior quality, customer service, innovation, teambuilding, flexibility, responsiveness, and others that allow it to vault past competitors. n They are what a company does best. n Best to rely on a natural advantage (often linked to a company s smallness ). n Examples: Jobster and Advanced Composite Materials Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-5
Building a Sustainable Competitive Advantage Capabilities Lessons learned Core competencies Sustainable competitive advantage Superior value for customers Skills Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-6
Strategic Management Process Step 1 Develop a vision and translate it into a mission statement Step 2 Assess strengths and weaknesses Step 3 Scan environment for opportunities and threats Step 4 Identify key success factors Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-7
Strategic Management Process (continued) Step 5 Analyze competition Step 6 Create goals & objectives Step 7 Formulate strategies Step 8 Translate plans into actions Step 9 Establish accurate controls Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-8
Step 1: Develop a Vision and Create a Mission Statement n Vision the result of an entrepreneur s dream of something that does not exist yet and the ability to paint a compelling picture of that dream for everyone to see. n A clearly defined vision: n Provides direction n Determines decisions n Motivates people n Allows for perseverance in the face of adversity Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-9
Step 1: Develop a Vision and Create a Mission Statement n Addresses question: What business are we in? n The mission is a written expression of how the company will reflect an entrepreneur s values, beliefs, and vision more than just making money. n Serves as a strategic compass. n Example: Chick-fil-A Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-10
Step 1: Develop a Vision and Create a Mission Statement n Elements of a mission statement: n Purpose of the company: What are we in business to accomplish? n Business we are in: How are we going to accomplish that purpose? n Values of the company: What principles and beliefs form the foundation of the way we do business? Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-11
Step 2: Assess Company Strengths and Weaknesses n Strengths n Positive internal factors a company can draw on to accomplish its mission, goals, and objectives. n Weaknesses n Negative internal factors that inhibit a company s ability to accomplish its mission, goals, and objectives. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-12
Step 3: Scan for Opportunities n Opportunities and Threats n Positive external factors the company can exploit to accomplish its mission, goals, and objectives. n Threats n Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-13
The Power of External Market Forces Technological Competitive Economic Political and Regulatory Social and Demographic Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-14
Step 4: Identify Key Success Factors n Key success factors (KSFs): factors that determine the relative success of market participants. n The keys to unlocking the secrets of competing successfully in a particular market segment. n Example: John H. Daniel Company Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-15
Identifying Key Success Factors List the skills, characteristics, and core competencies that your business must possess to be successful in its market segment. Key Success Factor How Your Company Rates 1. Low 1 2 3 4 5 6 7 8 9 10 High 2. Low 1 2 3 4 5 6 7 8 9 10 High 3. Low 1 2 3 4 5 6 7 8 9 10 High 4. Low 1 2 3 4 5 6 7 8 9 10 High 5. Low 1 2 3 4 5 6 7 8 9 10 High Conclusions: Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-16
Step 5: Analyze Competitors n NFIB study: Small business owners believe they operate in a highly competitive environment and the level of competition is increasing. n Yet, 97 percent of all U.S. businesses do not systematically track the progress of their key competitors. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-17
FIGURE 3.3 How Small Businesses Compete Based on: William J. Dennis, Jr., National Small Business Poll: Competition (Washington, DC: National Federation of Independent Businesses, 2003), Vol. 3, Issue 8, p. 1. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-18
Competitor Analysis n Direct competitors n Offer the same products and services n Customers often compare prices, features and deals among these competitors when they shop n Significant competitors n Offer some of the same or similar products or services n Product or service lines overlap but not completely n Indirect competitors n Offer same or similar products in only a small number of areas Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-19
Competitive Profile Matrix Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-20
Is Setting Goals & Objectives Really Important? Would you tell me, please, which way I ought to go from here? said Alice. That depends a good deal on where you want to get to, said the Cheshire cat. I don t much care where. said Alice. Then it doesn t matter which way you go, said the cat. - Lewis Carroll s Alice in Wonderland Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-21
Step 6: Create Company Goals and Objectives n Goals: Broad, long-range attributes to be accomplished. n BHAGs n Objectives: More detailed, specific targets of performance that are S.M.A.R.T. n Specific n Measurable n Assignable n Realistic (yet challenging) n Timely Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-22
Step 7: Formulate Strategies Strategy - a road map of the actions an entrepreneur draws up to achieve a company s mission, goals, and objectives. It is the company s game plan for gaining a competitive advantage. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-23
Step 7: Formulate Strategies Three basic strategies: Cost Leadership Strategy? Differentiation Focus Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-24
FIGURE 3.4 Three Strategic Options Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-25
Cost Leadership n Goal: to be the low-cost producer in the industry (or market segment). n Low-cost leaders have advantages: n Reaching buyers who buy on the basis of price n The power to set the industry s price floor. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-26
Cost Leadership n Cost Leadership works well when: n Buyers are sensitive to price changes. n Competing firms sell the same commodity products. n A company can benefit from economies of scale. n Example: Anytime Fitness Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-27
Differentiation n Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion. n Idea is to be special at something customers value. n Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors. n Examples: Vosges-Haut Chocolate, Ice Hotel, and Indigenous Designs Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-28
Focus n Company selects one or more customer segments in a market, identifies customers special needs, wants, or interests, and then targets them with a product or service designed specifically for them. n Strategy builds on the differences among market segments. n Rather than try to serve the total market, the company focuses on serving a niche (or several niches) within that market. n Example: American Plume and Fancy Feather Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-29
Step 8: Translate Strategies into Action Plans n Survey of senior executives: Companies achieved only 63% of the results in their strategic plans. n Create projects by defining: n Purpose n Scope n Contribution n Resource requirements n Timing Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-30
Step 9: Establish Accurate Controls n Plan establishes the standards against which actual performance is measured. n Entrepreneur must: n Identify and track key performance indicators. n Take corrective action. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-31
Balanced Scorecards n A set of measurements unique to a company that includes both financial and operational measures n Gives managers a quick, yet comprehensive, picture of a company s overall performance. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-32
Balanced Scorecards Five Perspectives: 1. Customer: How do customers see us? 2. Internal Business: At what must we excel? 3. Innovation and Learning: Can we continue to improve and create value? 4. Financial: How do we look to shareholders? 5. Corporate Citizenship: Do we meet our responsibility to society as a whole, the environment, the community, and other external stakeholders? Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-33
Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-34
Conclusion The strategic planning process: n Begins with the nine steps. n Becomes more efficient each time. n Teaches entrepreneurial discipline for a higher chance of survival. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-35
Business Model n Value proposition n Revenue generation n Capabilities and processes n Position in the value chain Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-36
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright 2011 Pearson Education, Inc. Publishing as Prentice Hall 3-37