BUSINESS PLAN OUTLINE http www sbm temple eduieicompetitions

BUSINESS PLAN OUTLINE http: //www. sbm. temple. edu/iei/competitions. html • 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 Technology Plan Management & Organization Social Responsibility Development & Milestones Financials Including Capital Requirements & Financial Statements Appendix

STRATEGY FUNNEL Environmental Trends Customer & Benefits Market Segment, Size Channels Perceptual Space Value Proposition Industry Structure Competitive Space Industry Competitive Dynamics Strategic Positioning Goal: Articulate and execute long-term, defensible offer of unique value to customers

WHAT IS STRATEGY? • • Plan Process Position Pattern Perspective Procedure Play Ploy • Strategic Management • Strategic Position • Strategic Navigation • Strategic Tactics

STRATEGIC MANAGEMENT Environmental Scanning Evaluation & Control Mission Strategy Formulation Vision Strategy Implementation • Disciplined, iterative process of driving towards vision, by finding or making and maintaining a defensible space or trajectory in a given business environment.

STRATEGY CHECKLIST • Value proposition • Vision • Position or direction – Structure or resource base • Revenue & business model • Timeline or guidelines • Fit

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.

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

VISION EXERCISE • Stable core – Mission: – Ideology: • Focused ambition – What success will look like – in the marketplace: – One audacious goal:

POSITION OR NAVIGATION? • Position Strategies Unique, valuable, defensible position in a market or industry – Supported by a tightly integrated value chain / activity system – Good for relatively stable industries/markets – • Navigation Strategies Vision-driven nurturing and leveraging of core resources – Supported by tight culture and explicit learning – Good for dynamic industries/markets –

STRATEGIC POSITIONS REQUIRE NICHES • A niche includes the market the firm is uniquely qualified to serve External Opportunities & Threats Niche Internal Strengths & Weaknesses

STRATEGIC SITUATION External Factors Social, political, regulatory, technological & community Industry Attractiveness, dynamics, & competition Unmet customer needs & desires Strategic Situation Internal Factors Resources (know-how, people, money, etc) Competitive position (through customers eyes & in industry) Vision, values & culture

Match SW to OT Internal Factors External Factors Opportunities (O) Threats (T) Strengths (S) SO Strategies ------------- Weaknesses (W) WO Strategies ------------ Use strengths to take advantage of opportunities Offset weaknesses to take advantage of opportunities ST Strategies ------------- WT Strategies ------------- Use strengths to avoid threats Min. weaknesses to avoid threats

SWOT EXERCISE Environment Industry Customer External Factors Strategic Situation Internal Factors Resources • Map SW to OT. . Competitive Position Culture

TWO LEVELS OF STRATEGY • Corporate – Growth – Retrenchment – Stability • Business – Cost (price) Leadership – Differentiation – Focus

GROWTH STRATEGIES • Concentration – Vertical and Horizontal • Diversification – Concentric – Conglomerate

GROWTH THROUGH CONCENTRATION • Concentrate resources on a single business – Concentrate vertically, i. e. , backward or forward (supply or distribution) – Concentrate horizontally by growing geographically or by expanding product or service offering

MEANS TO ACCOMPLISH GROWTH · · · Mergers Acquisitions Internal Growth Strategic Alliances International

DIVERSIFICATION • Used if firm’s current product lines do not have much growth potential • Benefits – – Economies of Scope Increase market power Share infrastructure Maintain growth

CONCENTRIC (RELATED) DIVERSIFICATION • Outperform unrelated diversification • Best when – low industry attractiveness – strong business strengths – strong competitive position • Allows use of distinctive competence • Seek synergy

CONGLOMERATE (UNRELATED) DIVERSIFICATION • Best when – Firm operates in unattractive industry – Firm lacks abilities or skills easily transferable to related industry • Focus is financial & not core competence or synergy – Balance cash flows – Reduce risk

STABILITY STRATEGIES • Pause and Proceed with Caution • No Change • Profit

RETRENCHMENT STRATEGIES • Turnaround • Captive Company • Sell out or Divestment – Spin-off – Management buyout (MBO) • Bankruptcy or Liquidation

BUSINESS LEVEL 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 narrow market segment

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)

EXAMPLES • Focus – Broad (Wal-Mart - rural) – Narrow (NSP - activists, NRI - network administrators) – Segmented (Computer security – spooks and commerce, Financial services – rich, poor and inbetween. )

VALUE DISCIPLINE POSITIONING Product Leadership • (Differentiation) Operational Excellence • (Cost Leadership) Customer Intimacy • (Focus)

VALUE DISCIPLINES Product Leadership - Compete on Speed • • Good design, great execution Educate & lead the market Ad hoc, risk oriented culture Organization designed for innovation Operational Excellence - Compete on Scale • • Low price, limited options, ultimate convenience Managed customer expectations Measurement culture Processes & transactions continually redesigned for efficiency

VALUE DISCIPLINES Customer Intimacy - Compete on Scope • • • Offerings tailored to customers & segments Deep insight into customer needs Problem solving service culture Full range of services, so customers stay Breakthrough thinking, unique solutions

POSITION STRATEGY EXERCISE Product Leadership • (Differentiation) Operational Excellence • (Cost Leadership) Customer Intimacy • (Focus) Choose a position strategy and explain how you will achieve it.

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.

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

VALUE CHAIN Marketing/ Sales Inbound Logistics Operations Outbound Logistics After Sales Service Human Resources Margin Technology Infrastructure Procurement • • 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-toduplicate advantage.

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.

IKEA’S ACTIVITY SYSTEM Explanator y labeling Selftransport Limited Customer Service Easy transport Hightraffic store layout Suburban Location Limited sales staff Selfservice Selection Self assembly Wide variety Most items in stock On-site inventory Modular Designs Flat packing kits Impulse buying Easy to make Customer loyalty Yearround stocking Low Mfg Cost Design focused on low cost Long-term suppliers

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

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

BUSINESS MODEL • 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

FOUR ASPECTS OF BUSINESS MODELS • • Revenue Sources Cost Drivers Investment Size Critical Success Factors

REVENUE SOURCES • Subscription/Membership – Fixed amount at regular intervals prior to receiving product/service • Volume/Unit-based – Fixed price in exchange for product/service • Advertising-based – Exempt from fee or pays fraction of the value • Licensing & Syndication – One time fee • Transaction fee – Fixed fee or percentage of total value of transaction

COST DRIVERS • Fixed: item costs do not vary with volume • Semi-variable: variable & fixed costs • Variable: item costs vary with volume • Non-recurring: item of cost occurs infrequently

INVESTMENT SIZE • Maximizing finance needs • Positive cash flow • Cash Breakeven

CRITICAL SUCCESS FACTORS • An operational function or competency that a company must possess in order to be sustainable & profitable • Perform sensitive analysis

EFFECTIVE BUSINESS MODELS BUILD & CAPTURE WEALTH • Build wealth: – By efficiently (profitably) transforming inputs into something that customers value enough to pay for – 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 REQUIRE HARD CHOICES • 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

BUSINESS MODELS START WITH WHAT THE WORLD GIVES 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 ARE BASED ON STRATEGY 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 DEFINE STRUCTURE 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 realization of value

BUILD A BUSINESS MODEL EXERCISE • • Opportunity Stakeholders Wealth Strategy • • Revenue Sources Cost Drivers Investment Size Critical Success Factors • Model -Structural implications, timing, capital needs, etc.

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

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 (Harper. Business, 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, (Harper. Business 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

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, 3 rd 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, 2 nd 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 Hamermesh, Marshall & Piromohamed, “Note on Business Model Analysis for the Entrepreneur, ” Harvard Business School, 2002.