Designing a Competitive Business Model and Building a Solid Strategic Plan

1Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing

Designing a Competitive Business Model and Building a Solid Strategic Plan


A Major Shift . . .A Major Shift . . .. . . From financial capital to . . . From financial capital to

intellectual capital.intellectual capital. HumanHuman StructuralStructural CustomerCustomer


Strategic ManagementStrategic Management Is crucial to building a successful Is crucial to building a successful

business. business. Involves developing a game plan to Involves developing a game plan to

guide a company as it strives to guide a company as it strives to accomplish its mission, goals , and accomplish its mission, goals , and objectives, and to keep it on its objectives, and to keep it on its desired course.desired course.


Strategic Management Strategic Management and Competitive and Competitive

AdvantageAdvantage Developing a strategic plan is Developing a strategic plan is

crucial to creating a crucial to creating a sustainable sustainable competitive competitive advantageadvantage, the aggregation of , the aggregation of factors that sets a company factors that sets a company apart from its competitors apart from its competitors and gives it a unique position and gives it a unique position in the market that is superior in the market that is superior to its competition.to its competition.

Example: Blockbuster VideoExample: Blockbuster Video


Key: Core CompetenciesKey: Core Competencies Unique set of capabilities a company Unique set of capabilities a company

develops in key areas, such as superior develops in key areas, such as superior quality, customer service, innovation, quality, customer service, innovation, team-building, flexibility, team-building, flexibility, responsiveness, and others that allow it responsiveness, and others that allow it to vault past competitors. to vault past competitors. They are what a company does best. They are what a company does best. Best to rely on a Best to rely on a natural advantage natural advantage (often (often

linked to a company’s “smallness”).linked to a company’s “smallness”). Examples: Netflix and Tom’s of MaineExamples: Netflix and Tom’s of Maine


Building a Sustainable Competitive AdvantageBuilding a Sustainable Competitive Advantage

Superior value for customers

Sustainable competitive advantage

Capabilities

Core competencies

Skills

Lessons learned


Strategic Management Strategic Management ProcessProcess

Step 1Step 1. Develop a vision and . Develop a vision and translate it into a mission translate it into a mission statement.statement.Step 2Step 2. Assess strengths and . Assess strengths and weaknesses.weaknesses.Step 3Step 3. Scan environment for . Scan environment for opportunities and threats.opportunities and threats.Step 4Step 4. Identify key success factors. Identify key success factors..


Strategic Management Strategic Management Process Process

Step 5.Step 5. Analyze competition Analyze competition.. Step 6Step 6. Create goals and objectives.. Create goals and objectives. Step 7Step 7. Formulate strategies. Formulate strategies.. Step 8Step 8. Translate plans into actions. Translate plans into actions.. Step 9Step 9. Establish accurate controls. Establish accurate controls..

(continued)(continued)


Step 1: Step 1: Develop a VisionDevelop a Vision andand

Create a Mission Create a Mission StatementStatement Vision – the result of an Vision – the result of an

entrepreneur’s dream of entrepreneur’s dream of something that does not exist yet something that does not exist yet and the ability to paint a and the ability to paint a compelling picture of that dream compelling picture of that dream for everyone to see. for everyone to see.

A clearly defined vision:A clearly defined vision: Provides directionProvides direction Determines decisionsDetermines decisions Motivates peopleMotivates people


Step 1: Develop a Vision Step 1: Develop a Vision andand

Create a Mission Create a Mission StatementStatement Addresses question: “What Addresses question: “What

business are we in?”business are we in?” The mission is a written The mission is a written

expression of how the company expression of how the company will reflect an entrepreneur’s will reflect an entrepreneur’s values, beliefs, and vision – more values, beliefs, and vision – more than just “making money.”than just “making money.”

Serves as a “strategic compass.” Serves as a “strategic compass.” Examples: Chick-fil-A and Examples: Chick-fil-A and

Starbucks. Starbucks.


Step 1: Develop a Vision Step 1: Develop a Vision andand

Create a Mission Create a Mission StatementStatement Survey of employees: 89 Survey of employees: 89

percent of employees say their percent of employees say their companies have a mission companies have a mission statementstatementbut…but…

Only 23 percent of workers Only 23 percent of workers believe their company’s believe their company’s mission statement has become mission statement has become a way of doing business!a way of doing business!


Step 2: Assess Company Step 2: Assess Company Strengths Strengths

and Weaknessesand Weaknesses StrengthsStrengths

Positive internal factors a Positive internal factors a company can draw on to company can draw on to accomplish its mission, goals, accomplish its mission, goals, and objectives.and objectives.

WeaknessesWeaknesses Negative internal factors that Negative internal factors that

inhibit a company’s ability to inhibit a company’s ability to accomplish its mission, goals, accomplish its mission, goals, and objectives.and objectives.


Step 3: Scan for Step 3: Scan for Opportunities Opportunities

and Threatsand Threats OpportunitiesOpportunities

Positive external factors the Positive external factors the company can exploit to accomplish company can exploit to accomplish its mission, goals, and objectives.its mission, goals, and objectives.

ThreatsThreats Negative external factors that Negative external factors that

inhibit the firm's ability to inhibit the firm's ability to accomplish its mission, goals, and accomplish its mission, goals, and objectives.objectives.

The Power of External The Power of External Market ForcesMarket Forces

Competitive Economic

Political and Regulatory

Technological

Social and Demographic


Step 4: Identify Key Step 4: Identify Key Success FactorsSuccess Factors

Key success factors: Key success factors: controllable variables that controllable variables that determine the relative determine the relative success of market success of market participants. participants.

The keys to unlocking the The keys to unlocking the secrets of competing secrets of competing successfully in a particular successfully in a particular market segment.market segment.

Example: John H. Daniel Example: John H. Daniel CompanyCompany

Identifying Key Success Identifying Key Success FactorsFactors

List the skills, characteristics, and core List the skills, characteristics, and core competencies that your business must possess if it is competencies that your business must possess if it is to be successful in its market segment.to be successful in its market segment.Key Success FactorKey Success Factor How Your Company How Your Company

RatesRates1.1. Low 1 2 3 4 5 6 7 8 9 Low 1 2 3 4 5 6 7 8 9

10 High10 High2.2. Low 1 2 3 4 5 6 7 8 9 Low 1 2 3 4 5 6 7 8 9

10 High10 High3.3. Low 1 2 3 4 5 6 7 8 9 Low 1 2 3 4 5 6 7 8 9

10 High10 High4.4. Low 1 2 3 4 5 6 7 8 9 Low 1 2 3 4 5 6 7 8 9

10 High10 High5.5. Low 1 2 3 4 5 6 7 8 9 Low 1 2 3 4 5 6 7 8 9

10 High10 HighConclusions:Conclusions:


Step 5: Analyze Step 5: Analyze CompetitorsCompetitors

NFIB study: Small business NFIB study: Small business owners believe they operate in a owners believe they operate in a highly competitive environment highly competitive environment and the level of competition is and the level of competition is increasing.increasing.

Yet, 97 percent of all U.S. Yet, 97 percent of all U.S. businesses do businesses do notnot systematically systematically track the progress of their key track the progress of their key competitors. competitors.

86.3% 83.4%

51.0% 48.5%39.7% 39.4% 37.7% 34.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%60.0%

70.0%

80.0%

90.0%

Perc

ent o

f Sm

all C

ompa

nies

C

iting

Eac

h El

emen

t as

a "S

igni

fican

t Por

tion"

of i

ts

Com

petit

ive

Stra

tegy

Provid

ing hi

ghes

t pos

sible

quali

ty

Offerin

g bette

r ser

vice

Maintai

ning m

inimal

overh

ead

Emplo

ying m

axim

um us

e of te

chno

logy

Targeti

ng m

issed

or poo

rly se

rved cu

stomer

s

Offerin

g more

choic

es an

d sele

ction

Using u

nique

mark

eting a

ppro

ache

s

Offerin

g low

er pr

ices

Competitive Strategy

How Small Businesses Compete



Analyzing key competitors allows an Analyzing key competitors allows an entrepreneur to:entrepreneur to: Avoid surprises from existing Avoid surprises from existing

competitors’ new strategies and competitors’ new strategies and tactics.tactics.

Identify potential new competitors and Identify potential new competitors and the threats they pose.the threats they pose.

Improve reaction time to competitors’ Improve reaction time to competitors’ actions.actions.

Anticipate rivals’ next strategic moves. Anticipate rivals’ next strategic moves.



Techniques do Techniques do notnot require unethical require unethical behavior:behavior: Monitor industry and trade publications.Monitor industry and trade publications. Talk to customers and suppliers.Talk to customers and suppliers. Regularly debrief employees, especially sales Regularly debrief employees, especially sales

representatives and purchasing agents.representatives and purchasing agents. Attend trade shows and conferences and study Attend trade shows and conferences and study

competitors’ sales literature.competitors’ sales literature. Watch for employment ads from competitors to Watch for employment ads from competitors to

get an idea about their plans for the future. get an idea about their plans for the future. Conduct patent searches for patents Conduct patent searches for patents

competitors have filed. competitors have filed. Get EPA reports that provide information Get EPA reports that provide information

about the factories of competing about the factories of competing manufacturers.manufacturers.



Techniques do Techniques do notnot require unethical behavior: require unethical behavior: Learn about the kinds of equipment and raw Learn about the kinds of equipment and raw

materials competitors are importing from the materials competitors are importing from the Journal of Commerce Port Import Export Reporting Journal of Commerce Port Import Export Reporting ServiceService..

Buy competitors’ products and “benchmark” them. Buy competitors’ products and “benchmark” them. Get competitors’ credit reports.Get competitors’ credit reports. Check out the reports publicly held competitors Check out the reports publicly held competitors

must file with the SEC. must file with the SEC. Investigate UCC reports. Investigate UCC reports. Check out the resources in your local library.Check out the resources in your local library. Use the World Wide Web to learn more about Use the World Wide Web to learn more about

competitors.competitors. Visit competing businesses to observe their Visit competing businesses to observe their

operations.operations.


Knowledge ManagementKnowledge Management The practice of gathering, organizing, The practice of gathering, organizing,

and disseminating the collective and disseminating the collective wisdom and experience of a company’s wisdom and experience of a company’s employees for the purpose of employees for the purpose of strengthening its competitive position. strengthening its competitive position.

Knowledge management involves:Knowledge management involves: Taking inventory of the special knowledge Taking inventory of the special knowledge

the people in the company possess. the people in the company possess. Organizing that knowledge and Organizing that knowledge and

disseminating it to those who need it. disseminating it to those who need it.


Is Setting Goals and Is Setting Goals and ObjectivesObjectives

Really Important?Really Important?““Would you tell me, please, which way I Would you tell me, please, which way I

ought to go from here?” said Alice.ought to go from here?” said Alice.““That depends a good deal on where you That depends a good deal on where you

want to get to,” said the Cheshire cat.want to get to,” said the Cheshire cat.““I don’t much care care where.…” said I don’t much care care where.…” said

Alice.Alice.‘‘Then it doesn’t matter which way you Then it doesn’t matter which way you

go,” said the cat.go,” said the cat. - Lewis Carroll’sAlice in Wonderland


Step 6: Create Step 6: Create Company GoalsCompany Goalsand Objectivesand Objectives Goals - broad, long-range Goals - broad, long-range

attributes to be accomplished. attributes to be accomplished. ““BHAGs”BHAGs”

Objectives - more detailed, specific Objectives - more detailed, specific targets of performance that are targets of performance that are S.M.A.R.T.S.M.A.R.T. SSpecificpecific MMeasurableeasurable AAttainablettainable RRealistic (yet challenging)ealistic (yet challenging) TTimelyimely


Step 7: Formulate Step 7: Formulate StrategiesStrategies

Strategy - a road map of the actions Strategy - a road map of the actions an entrepreneur draws up to achieve an entrepreneur draws up to achieve a company’s mission, goals, and a company’s mission, goals, and objectives. It is the company’s game objectives. It is the company’s game plan for gaining a competitive plan for gaining a competitive advantage.advantage.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadership

Differentiation

Focus

Three Strategic Three Strategic OptionsOptions

Competitive AdvantageCompetitive Advantage

Target Target MarketMarket

IndustryIndustry

NicheNiche

Uniqueness PerceivedUniqueness Perceived by the Customerby the Customer

Low CostLow CostPositionPosition

Differentiation

Low Cost

Differentiation Focus

CostFocus


Cost LeadershipCost Leadership Goal: to be Goal: to be thethe low-cost producer in the low-cost producer in the

industry (or market segment).industry (or market segment). Low-cost leaders have an advantage in Low-cost leaders have an advantage in

reaching buyers who buy on the basis of reaching buyers who buy on the basis of price, and they have the power to set the price, and they have the power to set the industry’s price floor.industry’s price floor.

Works well when:Works well when: Buyers are sensitive to price changes.Buyers are sensitive to price changes. Competing firms sell the same commodity Competing firms sell the same commodity

products.products. A company can benefit from economies of scale.A company can benefit from economies of scale.

Example: JetBlue AirlinesExample: JetBlue Airlines


DifferentiationDifferentiation Company seeks to build customer loyalty Company seeks to build customer loyalty

by positioning its goods or services in a by positioning its goods or services in a unique or different fashion.unique or different fashion.

Idea is to be special at something Idea is to be special at something customers value.customers value.

Key: Build basis for differentiation on a Key: Build basis for differentiation on a distinctive competence, something that distinctive competence, something that the small company is uniquely good at the small company is uniquely good at doing in comparison to its competitors. doing in comparison to its competitors.

Examples: Urban Outfitters and the Ice Examples: Urban Outfitters and the Ice Hotel Hotel


FocusFocus Company selects one or more customer Company selects one or more customer

segments in a market; identifies customers’ segments in a market; identifies customers’ special needs, wants, or interests; and then special needs, wants, or interests; and then targets them with a product or service targets them with a product or service designed specifically for them.designed specifically for them.

Strategy builds on Strategy builds on differencesdifferences among market among market segments.segments.

Rather than try to serve the total market, Rather than try to serve the total market, the company focuses on serving a niche (or the company focuses on serving a niche (or several niches) within that market. several niches) within that market.

Examples: Cereality and Flutter Fetti Fun Examples: Cereality and Flutter Fetti Fun Factory Factory


Step 8: Translate Step 8: Translate StrategiesStrategies

into Action Plans into Action Plans Survey of senior executives: Survey of senior executives:

Companies achieved only 63 percent Companies achieved only 63 percent of the results in their strategic plans. of the results in their strategic plans.

Create projects by defining:Create projects by defining: PurposePurpose ScopeScope ContributionContribution Resource requirementsResource requirements TimingTiming


Step 9: Establish Step 9: Establish Accurate ControlsAccurate Controls

Plan establishes the standards Plan establishes the standards against which actual against which actual performance is measured. performance is measured.

Entrepreneur must:Entrepreneur must: identify and track key identify and track key

performance indicators.performance indicators. take corrective action.take corrective action.


Balanced ScorecardsBalanced Scorecards A set of measurements unique to a A set of measurements unique to a

company that includes both financial company that includes both financial and operational measuresand operational measures

Gives managers a quick, yet Gives managers a quick, yet comprehensive, picture of a comprehensive, picture of a company’s overall performance.company’s overall performance.


Balanced ScorecardsBalanced Scorecards Four Perspectives:Four Perspectives:

Customer: How do customers see us?Customer: How do customers see us? Internal Business: At what must we Internal Business: At what must we

excel?excel? Innovation and Learning: Can we Innovation and Learning: Can we

continue to improve and create value?continue to improve and create value? Financial: How do we look to Financial: How do we look to

shareholders? shareholders?

The Balanced Scorecard Links Performance The Balanced Scorecard Links Performance MeasuresMeasures

Financial PerspectiveGoals Measures

Customer PerspectiveGoals Measures

Internal Business PerspectiveGoals Measures

Innovation and Learning PerspectiveGoals Measures

How do customersHow do customerssee us?see us?

How do we lookHow do we lookto shareholders?to shareholders?

At what must weAt what must weexcel?excel?

Can we continue toCan we continue toimprove and createimprove and createvalue?value?

Designing a Competitive Business Model and Building a Solid Strategic Plan

Documents