Column Analogy

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 intellectual . . . From financial capital to intellectual capital.capital. HumanHuman StructuralStructural CustomerCustomer


Strategic ManagementStrategic Management Is crucial to building a successful business. Is crucial to building a successful business. Involves developing a game plan to guide a Involves developing a game plan to guide a

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


Strategic Management and Strategic Management and Competitive AdvantageCompetitive Advantage

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

Example: Blockbuster VideoExample: Blockbuster Video


Key: Core CompetenciesKey: Core Competencies

Unique set of capabilities a company develops in Unique set of capabilities a company develops in key areas, such as superior quality, customer key areas, such as superior quality, customer service, innovation, team-building, flexibility, service, innovation, team-building, flexibility, responsiveness, and others that allow it to vault responsiveness, and others that allow it to vault past competitors. 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 linked to (often linked to

a company’s “smallness”).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 translate it . Develop a vision and translate it into a mission statement.into a mission statement.

Step 2Step 2. Assess strengths and weaknesses.. Assess strengths and 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 Process Strategic Management 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 and and Create a Mission Statement Create a Mission Statement

Vision – the result of an entrepreneur’s Vision – the result of an entrepreneur’s dream of something that does not exist yet dream of something that does not exist yet and the ability to paint a compelling picture and the ability to paint a compelling picture of that dream for everyone to see. of that dream 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 andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

Addresses question: “What business are we Addresses question: “What business are we in?”in?”

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

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


Step 1: Develop a Vision andStep 1: Develop a Vision and Create a Mission StatementCreate a Mission Statement

Survey of employees: 89 percent of Survey of employees: 89 percent of employees say their companies have a employees say their companies have a mission statementmission statementbut…but…

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


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

and Weaknessesand Weaknesses StrengthsStrengths

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

WeaknessesWeaknesses Negative internal factors that inhibit a Negative internal factors that inhibit a

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


Step 3: Scan for Opportunities Step 3: Scan for Opportunities and Threatsand Threats

OpportunitiesOpportunities Positive external factors the company can Positive external factors the company can

exploit to accomplish its mission, goals, and exploit to accomplish its mission, goals, and objectives.objectives.

ThreatsThreats Negative external factors that inhibit the firm's Negative external factors that inhibit the firm's

ability to accomplish its mission, goals, and ability to accomplish its mission, goals, and objectives.objectives.

The Power of External Market ForcesThe Power of External Market Forces

Competitive Economic

Political and Regulatory

Technological

Social and Demographic


Step 4: Identify Key Success Step 4: Identify Key Success FactorsFactors

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

List the skills, characteristics, and core competencies that your business must possess if it is to be successful in its market segment.

Conclusions:

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

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

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

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

Low 1 2 3 4 5 6 7 8 9 10 High1.

How Your Company RatesKey Success Factor


Step 5: Analyze CompetitorsStep 5: Analyze Competitors

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

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

Per

cen

t o

f S

mal

l Co

mp

anie

s C

itin

g E

ach

Ele

men

t as

a

"Sig

nif

ican

t P

ort

ion

" o

f it

s C

om

pet

itiv

e S

trat

egy

Provid

ing

high

est p

ossib

le q

uality

Offe

ring

bette

r ser

vice

Mai

ntai

ning

mini

mal

overh

ead

Emplo

ying

max

imum

use

of t

echno

logy

Targe

ting m

issed

or p

oorly

ser

ved cu

stom

ers

Offe

ring

more

cho

ices

and

selec

tion

Using

uniq

ue m

arke

ting

appr

oach

es

Offe

ring

lower

pric

es

Competitive Strategy

How Small Businesses Compete



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

strategies and tactics.strategies and tactics. Identify potential new competitors and the Identify potential new competitors and the

threats they pose.threats they pose. Improve reaction time to competitors’ actions.Improve reaction time to competitors’ actions. Anticipate rivals’ next strategic moves. Anticipate rivals’ next strategic moves.



Techniques do Techniques do notnot require unethical behavior: require unethical 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 get an Watch for employment ads from competitors to get an

idea about their plans for the future. idea about their plans for the future. Conduct patent searches for patents competitors have Conduct patent searches for patents competitors have

filed. filed. Get EPA reports that provide information about the Get EPA reports that provide information about the

factories of competing manufacturers.factories of competing manufacturers.



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

competitors are importing from the competitors are importing from the Journal of Journal of Commerce Port Import Export Reporting ServiceCommerce Port Import Export Reporting Service..

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 must Check out the reports publicly held competitors must

file with the SEC. 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 operations.Visit competing businesses to observe their operations.


Knowledge ManagementKnowledge Management

The practice of gathering, organizing, and The practice of gathering, organizing, and disseminating the collective wisdom and disseminating the collective wisdom and experience of a company’s employees for the experience of a company’s employees for the purpose of strengthening its competitive position. purpose of strengthening its competitive position.

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

in the company possess. in the company possess. Organizing that knowledge and disseminating it to Organizing that knowledge and disseminating it to

those who need it. 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 ought to Would you tell me, please, which way I ought to

go from here?” said Alice.go from here?” said Alice.

““That depends a good deal on where you want to That depends a good deal on where you want to get to,” said the Cheshire cat.get to,” said the Cheshire cat.

““I don’t much care care where.…” said Alice.I don’t much care care where.…” said Alice.

‘‘Then it doesn’t matter which way you go,” said Then it doesn’t matter which way you go,” said the cat.the cat.

- Lewis Carroll’sAlice in Wonderland


Step 6: Create Company Step 6: Create Company GoalsGoals

and Objectivesand Objectives Goals - broad, long-range attributes to be Goals - broad, long-range attributes to be accomplished. accomplished. ““BHAGs”BHAGs”

Objectives - more detailed, specific targets of Objectives - more detailed, specific targets of performance that are S.M.A.R.T.performance that are 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 an Strategy - a road map of the actions an entrepreneur draws up to achieve a company’s entrepreneur draws up to achieve a company’s mission, goals, and objectives. It is the company’s mission, goals, and objectives. It is the company’s game plan for gaining a competitive advantage.game plan for gaining a competitive advantage.

Three basic strategies:Three basic strategies:

Strategy?

Cost leadership

Differentiation

Focus

Three Strategic OptionsThree Strategic Options

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 price, reaching buyers who buy on the basis of price, and they have the power to set the industry’s and they have the power to set the industry’s price floor.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 products.Competing firms sell the same commodity 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 by Company seeks to build customer loyalty by

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

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

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

Examples: Urban Outfitters and the Ice Hotel Examples: Urban Outfitters and the Ice 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 designed targets them with a product or service designed specifically for them.specifically for them.

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

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

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


Step 8: Translate StrategiesStep 8: Translate Strategies into Action Plans into Action Plans

Survey of senior executives: Companies Survey of senior executives: Companies achieved only 63 percent of the results in their achieved only 63 percent of the results in their strategic plans. strategic plans.

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


Step 9: Establish Accurate Step 9: Establish Accurate ControlsControls

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

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

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


Balanced ScorecardsBalanced Scorecards

A set of measurements unique to a company that A set of measurements unique to a company that includes both financial and operational measuresincludes both financial and operational measures

Gives managers a quick, yet comprehensive, Gives managers a quick, yet comprehensive,

picture of a company’s overall performance.picture of a 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 excel?Internal Business: At what must we excel? Innovation and Learning: Can we continue to Innovation and Learning: Can we continue to

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

The Balanced Scorecard Links Performance MeasuresThe Balanced Scorecard Links Performance Measures

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?

Column Analogy

Documents

Transcript of Column Analogy