Upgraded Process of Strategy Modeling for Technology New Ventures

Upgraded Process of Strategy Modeling for Technology New Ventures SIA TSOLOVA Faculty of Mathematics and Informatics Sofia University St. Kliment Ohridski 125 Tsarigradsko shose Blvd. BULGARIA s.valentinova@gmail.com Abstract: - This report aims offering an improved process of strategy modelling for technology new ventures, explaining the steps with a visual example of a model, developed by using the improved process of strategy modeling for technology new ventures. The process embraces all steps in the development of a strategy (strategy formulation) in a start-up technology company and gives an easy transition to the next step in strategic management strategic implementation of the developed strategy. The report also includes an improved basis for the development of strategy maps in the modeling of strategy for technology new ventures, which can be used as separate tool strategy canvas in the modeling of strategy for the technology start-up companies and a strategy modeling questionaire embracing the basic questions in front of the technology new ventures during their strategy modeling. The developed improved process of strategy modeling for technology new ventures, presented in this report, is used as a basis of further research by the author and further development of strategy models, as part of a framework on general strategies for technology new ventures. Key-Words: - process, modeling, strategy, start-up, technology, entrepreneurship, new venture, model, strategic formulation 1 Introduction With the development of entrepreneurship in the technology sector there is a bigger need for development of models of strategies for technology start-up companies, giving response to the quickly changing technological conditions. This is inevitably connected with developing of an applicable process for strategy modeling, due to the inapplicability of many of the tools from strategic management science based on the needs of developed grownup companies. This report aims presenting the current results from a research in the field of modeling of strategies for technology new venures by proposing a process for strategy modeling of technology start-up companies. The report presents an improved process of strategy modeling starting with an overview of the process of strategic management and the place of strategy modeling in it, followed by further detailed presentation of all steps of the process itself and presenting its structure visually by giving examples of modeling of strategy for technology new venture. The report also includes a strategic model questionaire on strategy modeling and a strategy map modeling canvas, which can be used separately for developing a strategy map of technology new venture. The presented strategy modeling process is visualised by a developed, according the presented process, strategy model for a technology new venture. 2 Problem Formulation Strategy modeling for technology new ventures is a question of extremely importance due to the dynamically changing environment in the field of technology development globally, combined with the development of technology entrepreneurship iniciatives and the increasing number of start-up companies and the imposibility to apply part of the instruments from classical strategic management to start-up technology companies due to their various specifics. However technology new ventures have many specifics and challenges, which lay the necessity for change and development of the current strategy management tools. Currently the most famous tool technology new ventures use in the beginning of their development is Business Model Canvas, which however is focused mainly on developing the product and developing the business model of the company. Strategy however is embracing activities which ISBN: 978-960-474-360-5 95

occur in the time before, during and after the usage of Business Model Canvas. Formulation of a strategy for a company gives answer on How to achieve success and leads to answers in many important topics. The currently available tools are widely focused on the needs of big developed corporations and hardly reflect the needs of the technology start-up companies, which need both simple, but powerful tools, as well as simplified process and space for creativity within a process. The start-up technology companies are essentially self-learning organisations with shallow hierarchical structure with many more specifics in their needs and functioning. This leads to a need of research and analysis of these specifics and development of processes, frameworks and models, which support the strategic management of technology new ventures, and specifically the strategic modeling process, a proposal of which is presented in this article. 3 Problem Solution The article proposes solution for supplemented strategic formulation process, which includes an additional questionaire canvas tool for strategic modeling, as well as a developed new balanced scorecard model, based on the research of the needs, specifics and categories for easier applicability of the methodology in the strategy formulation of the technology new ventures. 3.1. Overall process Strategy modeling is part of the following process of strategic management for developed companies (Harvard Business Press, 2006), generally applicable also for technology new ventures (technology start-up companies). (see picture 1) The following structure is slightly more detailed view on the strategy management process, which we use as basis of our research. 1. Defining Mission and basic values of the company. 2. Defining Vision vision for the future development of the company 3. Strategic analysis analysis of the micro and macro environment by using the tools: SWOT, PEST, 5 Porter s Forces, Unique Selling Proposition, Core Competences, Niche/Gap analysis, etc. 4. Strategy formulation (at all levels and according the sub-divisions for developed companies, which is different for technology startup companies due to their different organisational structure) - analysis, formulating key factors for success, strategic goals, etc. 5. Strategy implementation and strategy execution. 6. Strategy control and evaluation. The focus of this article is the process of Strategy formulation which is between Strategy analysis and Strategy implementation steps. For this reason we are going to offer an easy transition between these steps and present the structure of the process of strategic formulation itself. 3.2. Strategic modeling canvas After defining company mission and basic values, the company has to define its vision about the future of the selected field and implement strategic analysis of the micro- and macro environment. At this step we offer a strategic modeling questionaire, which is a compilation of the most essential questions during the analysis of the micro and macro environment of the technology new venture. This strategic modeling questionaire canvas goal is a classification of basic questions during strategic analysis, inspired by the Business Model Canvas of Osterwalder and aiming to give entrepreneurs a clearer image on the environment and company s strategic priorities. Its place in the process is at the point between strategic analysis and strategy formulation, which makes an easy transition to the strategy formulation step. A screenshot of the canvas is presented in the following picture. (see picture 2) This questionaire canvas aims providing answers in several important for the strategic formulation directions: Mission, Goals, Value proposition, Customer segment, Scope of the Market, Channels, Key resources, Key partners, Key Competitors, Key Competences, Pricing and Revenue streams. It represents a blank canvas, which is filled in by the technology new venture s team, following specific leading questions for each of the directions in the canvas. Here is a description of the fields and questions attached to each of the fields: 1. Mission - Describe the Mission, Vision, Values, Priorities and Aspirations of the Company 2. Goals - What are the Strategic general goals, the company wants to achieve 3. Value Propositions - How is our product adding value to customers? Why customers buy our product?; How our product outperforms those of the clients?; Towards which group of clients is our product pointed at?; How our products create culture amongst clients? JTBD; Design; Unique ISBN: 978-960-474-360-5 96

selling proposition of the product; Which level of quality is enough to gain competitive advantage? 4. Customer segments - Who are our checked customers?; What is the scope of the market?; What is the maturity of the market?; Towards which group of customers is pointed out product customers, users?; What is customer s main motivation to buy our product?; How can we get, keep, grow our customers?; What is the most valuable feature of our product for our customers? 5. Scope of the market - What is the scope of our business? (geographical and professional and people group, focus or global); How we can have advantage based on the scope we are in? 6. Channels - What channels are we going to use? What are preferred by the clients?; How used channels of distribution are giving us advantage?; Which channels are giving us higher advantage own or foreign? 7. Key Partners - How do the key partners add value to our product and gives us advantage?; Who are our key partners? (Suppliers, distributors, other companies), etc.; What partnerships in the channel of distribution can give us an advantage? 8. Key Competitors - How competitors are threatening our success?; Who are our competitors/substitutions?; In what field are they better at? Is this the core competence and key reason for customers to buy such a product? 9. Key Resources - How Key resources give us advantage? -financial;material;human;technological (innovation, patents, licenses); What are the technological capabilities of our company?; What resources do we need now and in future? 10. Key competences - What key (core) competences do we need to have/acquire?; How do these competences raise the motivation of customers to buy our product? 11. Pricing and revenue streams - What is our price category?; How does our business model give us advantage?; How are our revenue streams giving us advantage? This questionaire canvas aims also providing answers to the essential questions about market scope and maturity, and also the technological strengths of the company, according which we have developed further types of strategies, using the process of strategic formulation described below. After research and analysis on the factors, which influence the formulation of a successful strategy, the most important, which also are included in this canvas are: - the technological capabilities for innovation of the company; - the range (scope) of the target market; - the maturity of the market. These three basic factors define the directions in formulation of a successful strategy for technology new ventures. For this reason the proposed in this report process is applied over a developed according these factors framework for strategy classification and is using one of the models developed in this framework according the described in this report process for visual illustration of the process. 3.3. Strategy formulation process and updated balanced scorecard model The preparatory step towards strategy formulation consists of the strategic analysis and making an easy transition to strategic formulation using the strategic identifying and analysing modeling canvas (strategic questionaire canvas), which was described in the previous paragraph. The process of strategy formulation continues in the following sequence: after answering the questions with the strategy modeling questionaire canvas and also using standard tools, such as SWOT, PEST, 5 Porter s Forces, Unique Selling Proposition, Core Competences, Niche/Gap analysis (which are the tools used most often) for strategic analysis of a technology new venture, next step is defining key success factors. 3.3.1. Key success factors Key success factors are derived from the vision the company has for the future development, also in technology and business direction, and also key success factors are the driving force for all strategic goals the company chooses based on its strategic analysis. The structure of the proposed process is as follows. (see picture 3) The proposed process structure of strategy modeling for technology new venture is presented at the following diagram. (see picture 4) Strategy formulation starts with deriving of the Key success factors (KSF) from the Vision of the company and the implemented strategic analysis. The skill for successful strategy formulation is directly connected with the skill to correctly define the key success factors in the given activity on the market. In order to support technology new ventures in the process of strategic development we consider usage of balanced scorecard methodology very useful. And also for this reason we divide key ISBN: 978-960-474-360-5 97

success factors in the categories of balanced scorecard methodology, but with a little change which is allowed in the definition of the balanced scorecard. 3.3.2. Updated balanced scorecard model According Kaplan and Norton, for the correct and balanced strategic management of each company it is necessary to take an account of the factors in four basic perspectives, described in the Balanced Scorecard. - Financial perspective - Clients/Users perspective - Internal processes perspective - Education and growth perspectve The authors of Balanced Scorecard point out that for different situations different perspectives may be needed. What we discovered in the process of research on the current topic was that the basic most general type of balanced scorecard seems difficult for application in a technology start-up company partially because the team s knowledge specifics (mostly technological-oriented), partially due to the higher complexity of this methodology, partially due to the focus on the product in the early stages of creating a technology start-up company and partially due to the nature of a self-learning organisation which the start-up company is and which makes many of the classic tools of strategic management for developed companies inapplicable to new ventures. What was proven in the process of this research is that teams needed a way to influence their product/service development and connect it with business model development (using business model canvas) in the process of starting up a company, which is an essential part of each technology new venture development. After the interviews with different young entrepreneurs an addition of the classic balanced scorecard was made which to fill in the gap of understanding between the second and third perspective and to link in the same time the strategy modeling with the work on business model canvas which the teams are mainly working on in the beginning. The revised and updated balanced scorecard includes the following five perspectives/directions: - Financial perspective - Clients/Users perspective - Product perspective - Internal processes perspective - Education and growth perspective The Product perspective connects on one side - how the company is answering to Clients needs with its product and on the other - how the company will optimise its internal processes to meet the clients needs by improving the offering of this product. The information filled in the Product perspective is largely connected with what is developed in the value proposition segment of the business model canvas development. Next step in the the strategy modeling is building of Strategy map of the Key success factors according the five balanced scorecard perspectives, showing the interconnections and interdependancies between the factors. (see picture 5) 3.3.3. Strategic goals The next step is connecting key success factors to Strategic goals of the company, also according the offered five perspectives withs the balanced scorecard methodology. The company developes at this stage the strategic goals for each of the key success factors according the perspectives of the upperly described balanced scorecard. For each key success factor there can be defined several strategic goals. This is implemented by creating a table of correpondance. (see picture 6) As with the Key success factors, a Strategy map for the Strategic goals should also be built. Building of a strategic map of the strategic goals will show the interconnections and interdependancies between the strategic goals. 3.3.4. Indicators for success For measuring the level of success in reaching the Strategic goals the company chooses Indicators for measuring of results in achieving the goals by defining of the types of indicators of results and encountering the level of achieving of the goals towards each of the defined Strategic goals. The next step in the process is setting the goal levels for the Indicators to reach for each of the chosen indicators, according to which the company success will be measured. These levels are different for each company. 3.3.5. Strategic activities The next step in the defining of the strategy formulation is preparing the company for an easy transition towards the strategy implementation step of the strategic management of the company. Defining Activities for achieving the Strategic goals, which progress and effect can be tracked by the different indicators, is a basic step which will ISBN: 978-960-474-360-5 98

support afterwards the strategi implementation of the strategy of the company. This is followed by Summarising of the information in complete tables describing the model of strategy and including the following information: key success factors, strategic goals, indicators for success, levels to achieve and activities for the achievement of the strategic goals. (see picture 7) 3.3.6. Prioritisation After having the complete information about the strategy of the company a Prioritisation of the activities should be implemented. For implementing a prioritisation of the activities, a link between the activities and the key success factors is made and the company is ordering activities according their priority, which is formed as a result of the following formula: (1) Priority(AG) * Priority(KSF) = Priority(AO) Priority(AG) - Priority of the activity in general Priority(KSF) - Priority of the key success factors Priority(AO) - Priority for the specific activity described formula explanation: (The marked level of importance (priority) of the activity in general) * (The level of importance (priority) of the key success factors) = The overall level of importance (priority) for the specific activity described) This prioritisation is followed by sorting of the activities according their priority and defining of people responsible for the future implementing of the strategy in the next step of strategy implementation. (see picture 8) This is an important step due to the fact that in their essence technology start-up companies are self-learning organisations with shallow hierarchical structure, where people are responsible for various tasks, and generally departments are missing at this first stage of development. This should be considered in order to avoid overlapping activities in time. The final step in the process is a description of the strategy model according the perspectives in the balanced scorecard, as activities are grouped by the people responsible for the different activities, which description is also implemented in a table format. With this step the strategy formulation process is finished and an easy transition towards the strategy implementation is made. At this stage of strategic management the technology new ventures will have all strategic information available and will be fully prepared for entering the next step strategy implementation, which will then be followed by strategy execution stage. The strategy formulation process is a key moment of strategic management for every company, but for the technology new ventures it is essentially important due to the limitation of resources and the fact that starting with an unsuitable strategy (or without a strategy) will make technology new ventures task for success much harder. 4 Conclusion The quickly changing environment in the field of operation of technology new ventures and the increasing number of technology new ventures worldwide in the last several years is leading to the need for developing more and more tools and processes for the successful start-up of technology new ventures. This, also due to their numerous spefcifics, leads to the need for further research, analysis and experimentation in the field of technoogy new ventures strategic management and strategy modeling. The proposed in this article updated process for strategy formulation at technology new ventures is developed as a result of a research in the field of strategy modeling for technology new ventures and includes also a strategy modeling questionaire canvas and an updated balanced scorecard model, developed by the author, which aim reflecting the nature of startup companies, which is self-learning organisations with low hierarchical structures. The proposed process for strategy modeling of technology new ventures is a subject for further research and experimentation by the author and is connected with a further developed framework of strategies for technology new ventures, where it is used as a basis for modeling of general types of strategies technology new ventures. References: [1] A.Haberberg, A.Rieple, Strategic Management: Theory and Application, Oxford University Press, 2008. [2] M. Panova and T. Panov, Strategic management, 2008. [3] Harvard Business Essentials: Strategic management, Harvard Business Press, 2006. [4] Steve Blank and Bob Dorf, Startup Owners Manual: The Step by Step Guide to Building a Great Company, 2012. [5] R. Kaplan and D. Norton, The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, 1996. [6] Jeffry Timmons, New Venture Creation: Entrepreneurship in the 21st Century, 2006. ISBN: 978-960-474-360-5 99

[7] Steven Gary Blank, The Four Steps to The Epiphany Successful Strategies to Products that Win, 2006. [8] R. Kaplan, D. Norton, The Strategy-focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment, Harvard Business Press, 2001. [9] M. Hitt, R. Ireland, Competing For Advantage, Cengage Learning, 2008 [10] Strategy: Create and Implement the Best Strategy for Your Business, Harvard Business Press, 2005. [11] J. Thompson (2005), Strategic management: Awareness and change, Cengage Learning EMEA, 2005. [12] Harvard Business Essentials: Strategy: Create and Implement the Best Strategy for Your Business, Harvard Business Press, 2005 [13] A. Osterwalder, I. Peigner, Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Wiley, John & Sons Inc., 2010 [14] M. Panova and T. Panov (2005), Theory of organisation, 2005. Appendix 1: Pictures from text. (Picture1. (below) Strategy management structure, Harvard Business Press) (Picture 2. (below) Strategy identifying and analysing modelling canvas developed by the author) ISBN: 978-960-474-360-5 100

(Picture 3. (below) Place of Strategy modeling questionaire canvas in Strategy formulation process) Implementation of Internal and External analysis (using standard tools) Usage of Strategy Modeling Questionaire Canvas (Strategy Modeling Questionaire Canvas is used at beginning of Strategy Formulation Process, after implementing Strategy Analysis) to help Formulation of Company Strategy Formulating Company Strategy process (according the Strategy formulation process - described structure in picture 4) (screenshot below: strategy modeling questinaire canvas, Strategy map, Detailed vision of strategic goals and their indicators and performance) ISBN: 978-960-474-360-5 101

(Picture 4. (below) Structure of the strategy formulation process) Key success factors + Strategy map Strategic goals + Strategy map Indicators of success + Goal levels Activities + Responsibility Summary of strategic information Prioritisation (Picture 5. (below) Balanced Scorecard perspectives in strategy formulation for technology new ventures; strategy map) ISBN: 978-960-474-360-5 102

(Picture 6. (below) Table with Strategic goals and Key success factors connection - example) Key factors for success Good brand image of the company Stable functioning of the product Suitable choice of product's basic components Adaptation of product to the local market Quality service to the clients Strategic goals Building a sustainable brand of a stable company offering specialised products and services at the local market Stable functioning of the product or service Product updates and actualisations on time High level of customer satisfaction Positive outcome by the customers on the chosen components Translation of the product to the local language Legal and currency compatibility of the product with the local environment Quality service at purchase Quality support service Product updates and actualisations on time High level of customer satisfaction (Picture 7. (below) Summarised table overview - example) Key success factors Financial stability (high financial results) Increasing number of clients Strategic goals Indicators Goal levels of the indicators Financial perspective Increasing company's profit Increasing number of clients volume of sales profit level costs level Clients' perspective number of clients number of new clients number of returning clients *company defines values to achieve *company defines values to achieve Activities Application of marketing strategies for increasing volume of sales Lowering amount ot indirect costs Implementing a commercial compaign Applying of optimal price policy Widening of product line ISBN: 978-960-474-360-5 103

Good brand image of the company Building a sustainable brand of a stable company offering specialised products and services at the local market level of customer satisfaction number of pledges *company defines values to achieve Receiving of feedback from the clients and evaluation Applying public relationships and social responsibility policies (Picture 8. (below) Prioritisation table overview - example) Key success factors Financial stability (high financial results) Financial stability (high financial results) Increasing clients number Activities KSF priority (max 4, min 1) Activity general priority (max 4, min 1) Actual priority (max 16, min 1) Financial perspective Application of marketing 4 4 16 strategies for increasing volume of sales Lowering amount ot 4 3 12 indirect costs Clients' perspective Widening of product line 4 2 8 ISBN: 978-960-474-360-5 104