Strategy, Business Model and Business plan
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Strategy, Business Model & Business Plan
IEI Business Plan Workshops
February 11, 2010
Presented by:
Bernard Rudnick, CEO, CapGenic Advisors
Presentation Updated by Carl Lupke
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Business Plan Outlinewww.sbm.temple.edu/IEI/word/planigenttemplateoutline_003.doc
• 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
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Strategy Funnel
Customer &
Benefits
Competitive
Dynamics
Competitive
Space
Segment,Size
Channels
Strategic
Positioning
Value
Proposition
Industry
Structure
Environmental Trends
IndustryMarket
Perceptual
Space
Goal: Articulate and execute long-term, defensible
offer of unique value to customers
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What is Strategy?
• Plan• Process• Position• Pattern• Perspective• Procedure• Play• Ploy
• Strategic Management
• Strategic Position
• Strategic Navigation
• Strategic Tactics
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Strategic Management
Environmental Scanning
Evaluation &Control
StrategyImplementation
StrategyFormulationMission
Vision
• Disciplined, iterative process of driving towards vision, by
finding or making and maintaining a defensible space or
trajectory in a given business environment.
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Strategy Checklist
• Value proposition
• Vision
• Position or direction
– Structure or resource base
• Revenue & business model
• Timeline or guidelines
• Fit
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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.
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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
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Vision Exercise
• Stable core
– Mission:
– Ideology:
• Focused ambition
– What success will look like – in the marketplace:
– One audacious goal:
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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
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External Opportunities
& Threats
Niche
Internal Strengths & Weaknesses
Strategic Positions Require Niches
• A niche includes the market the firm is uniquely qualified to serve
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Strategic Situation
External Factors
InternalFactors
Strategic Situation
Resources (know-how,
people, money, etc)
Vision, values
&culture
Social,political,
regulatory, technological& community
IndustryAttractive-
ness,dynamics, &competition
Unmet customer needs & desires
Competitive position (through
customers eyes & in industry)
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Match SW to OT
Strengths(S)
InternalFactors
ExternalFactors
Opportunities (O)
SO Strategies-------------------------
WO Strategies------------------------
Threats(T)
ST Strategies--------------------------
WT Strategies-------------------------
Use strengths toavoid threats
Min. weaknesses to avoid threats
Use strengths to take advantage of opportunities
Offset weaknessesto take advantage of opportunities
Weaknesses (W)
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SWOT Exercise
External Factors
InternalFactors
Strategic Situation
Resources Competitive Position
Culture
Environment Industry Customer
• Map SW to OT..
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Two Levels of Strategy
• Corporate– Growth
– Retrenchment
– Stability
• Business– Cost (price) Leadership
– Differentiation
– Focus
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Growth Strategies
• Concentration
– Vertical and Horizontal
• Diversification
– Concentric
– Conglomerate
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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
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Means to Accomplish Growth
Mergers
Acquisitions
Internal Growth
Strategic Alliances
International
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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
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Concentric (Related) Diversification
• Outperform unrelated diversification
• Best when
– low industry attractiveness
– strong business strengths
– strong competitive position
• Allows use of distinctive competence
• Seek synergy
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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
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Stability Strategies
• Pause and Proceed with Caution
• No Change
• Profit
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Retrenchment Strategies
• Turnaround
• Captive Company
• Sell out or Divestment
– Spin-off
– Management buyout (MBO)
• Bankruptcy or Liquidation
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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 narrowmarket segment
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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)
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Examples
• Focus
– Broad (Wal-Mart - rural)
– Narrow (NSP - activists, NRI - network administrators)
– Segmented (Computer security – spooks and commerce, Financial services – rich, poor and in-between.)
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Value Discipline Positioning
Product Leadership
•(Differentiation)
Customer Intimacy
•(Focus)
Operational Excellence
•(Cost Leadership)
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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
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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
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Position Strategy Exercise
Product Leadership
•(Differentiation)
Customer Intimacy
•(Focus)
Operational Excellence
•(Cost Leadership)
Choose a position strategy and explain how you
will achieve it.
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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.
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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
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Value Chain
• 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-to-duplicate advantage.
MarginTechnology
InboundLogistics
Operations OutboundLogistics
Marketing/Sales
After SalesService
Infrastructure
Procurement
Human Resources
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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.
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Ikea’s Activity System
Limited
Customer
Service
Modular
DesignsLow Mfg
Cost
Self-
service
Selection
Self-
transport
Limited
sales staff
Customer
loyalty
Self -
assembly
Suburban
Location
Most
items in
stock
Design
focused
on low
cost
Explanato
ry labeling
Easy
transport
Flat
packing
kits
Wide
variety
Long-term
suppliers
Year-
round
stocking
On-site
inventory
Impulse
buying
High-
traffic
store
layout
Easy to
make
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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 creatingthe social and institutional structures that support the shared development of such tacit knowledge
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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
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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
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Four Aspects of Business Models
• Revenue Sources
• Cost Drivers
• Investment Size
• Critical Success Factors
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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
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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
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Investment Size
• Maximizing finance needs
• Positive cash flow
• Cash Breakeven
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Critical Success Factors
• An operational function or competency that a company must possess in order to be sustainable & profitable
• Perform sensitive analysis
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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 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
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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...i.e.., 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
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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
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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
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Business Models Define Structure
7. Sketch a structure tooperationalize 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 realizationof value
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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.
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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
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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 (HarperBusiness, 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, (HarperBusiness 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
(more…)
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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, 3rd 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, 2nd 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.