Copyright © 2011 Pearson Education Designing a Competitive Business Model and Building a Solid Strategic Plan CHAPTER 3

Copyright © 2011 Pearson Education

Designing a Competitive Business Model and Building a Solid Strategic Plan

Designing a Competitive Business Model and Building a Solid Strategic Plan

CHAPTER CHAPTER 33

A Major Shift . . .

Ch. 3: Business Model and Strategic Plan

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From financial capital to intellectual capital

Human Structural Customer

Strategic Management


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Is crucial to building a successful business.

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

Strategic Management and Competitive Advantage


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

Example: Shiftwise – temporary nursing

Building a Competitive Advantage


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Consider four aspects of a small company:

1. Products they sell

2. Service they provide

3. Pricing they offer

4. Way they sell

Key: Core Competencies


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

company’s “smallness”).

Examples: Jobster and Advanced Composite Materials

Building a Sustainable Competitive Advantage


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Superior value for customersSuperior value for customers

Sustainable competitive advantage

Sustainable competitive advantage

CapabilitiesCapabilities

Core competencies

Core competencies

SkillsSkills

Lessons learned

Lessons learned

Strategic Management Process


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Step 1 Develop a vision and translate it into a mission statement

Step 2 Assess strengths and weaknesses

Step 3 Scan environment for opportunities and threats

Step 4 Identify key success factors

Strategic Management Process

Step 5 Analyze competition

Step 6 Create goals & objectives

Step 7 Formulate strategies

Step 8 Translate plans into actions

Step 9 Establish accurate controls

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(continued)(continued)

Step 1: Develop a Vision and Create a Mission Statement


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

A clearly defined vision: Provides direction Determines decisions Motivates people Allows for perseverance in the face of adversity



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Addresses question: “What business are we in?”

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

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



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Elements of a mission statement: Purpose of the company: What are we in

business to accomplish? Business we are in: How are we going to

accomplish that purpose? Values of the company: What principles and

beliefs form the foundation of the way we do business?

Step 2: Assess Company Strengths and Weaknesses


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Strengths Positive internal factors a company can draw

on to accomplish its mission, goals, and objectives.

Weaknesses Negative internal factors that inhibit a

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

Step 3: Scan for Opportunities and Threats


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Opportunities Positive external factors the company can

exploit to accomplish its mission, goals, and objectives.

Threats Negative external factors that inhibit the

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

The Power of External Market Forces


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Competitive

Competitive

EconomicEconomic

Political and Regulatory

Political and Regulatory

Technological

Technological

Social and Demographic

Social and Demographic

Step 4: Identify Key Success Factors


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Key success factors (KSFs): factors that determine the relative success of market participants.

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

Example: John H. Daniel Company

Identifying Key Success FactorsList the skills, characteristics, and core competencies List the skills, characteristics, and core competencies

that your business must possess that your business must possess to be successful in its market segment.to be successful in its market segment.

Key Success FactorKey Success Factor How Your Company RatesHow Your Company Rates

1.1. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

2.2. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

3.3. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

4.4. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

5.5. Low 1 2 3 4 5 6 7 8 9 10 HighLow 1 2 3 4 5 6 7 8 9 10 High

Conclusions:Conclusions:


Step 5: Analyze Competitors

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

Yet, 97 percent of all U.S. businesses do not systematically track the progress of their key competitors.



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FIGURE 3.3 How Small Businesses CompeteBased on: William J. Dennis, Jr., National Small Business Poll: Competition

(Washington, DC: National Federation of Independent Businesses, 2003), Vol. 3, Issue 8, p. 1.

Competitor Analysis


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Direct competitors Offer the same products and services Customers often compare prices, features and

deals among these competitors when they shop Significant competitors

Offer some of the same or similar products or services

Product or service lines overlap but not completely Indirect competitors

Offer same or similar products in only a small number of areas



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

strategies and tactics. Identify potential new competitors and the threats

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



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Techniques do not require unethical behavior: Monitor industry and trade publications. Talk to customers and suppliers. Debrief employees, especially sales

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

competitors’ sales literature. Watch for competitor’s employment ads. Conduct patent searches for patents

competitors have filed. Get EPA reports for the factories of competing

manufacturers.



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Techniques do not require unethical behavior: Learn about the kinds of equipment and raw

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

Buy competitors’ products and “benchmark” them.

Get competitors’ credit reports. Check out the reports publicly-held competitors

must file with the SEC. Investigate UCC reports. Check out the resources in your local library. Use the Internet to learn more about competitors. Visit competing businesses to observe their

operations.

(continued)


Competitive Profile Matrix

Step 6: Create Company Goalsand Objectives Goals: Broad, long-range attributes to be

accomplished. “BHAGs”

Objectives: More detailed, specific targets of performance that are S.M.A.R.T.

SpecificMeasurableAssignableRealistic (yet challenging)Timely


Step 7: Formulate Strategies


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

Step 7: Formulate Strategies


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Three basic strategies:

Strategy?

Cost Leadership

Cost Leadership

Differentiation

Differentiation

Focus

Focus


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FIGURE 3.4 Three Strategic Options

Cost Leadership


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Goal: to be the low-cost producer in the industry (or market segment).

Low-cost leaders have advantages: Reaching buyers who buy on the basis of price

The power to set the industry’s price floor.

Cost Leadership


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Cost Leadership works well when: Buyers are sensitive to price changes.

Competing firms sell the same commodity products.

A company can benefit from economies of scale.

Example: Anytime Fitness

Differentiation


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Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion.

Idea is to be special at something customers value.

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

Examples: Vosges-Haut Chocolate, Ice Hotel, and Indigenous Designs

Focus


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

Strategy builds on the differences among market segments.

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

Example: American Plume and Fancy Feather

Step 8: Translate Strategies into Action Plans


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

Create projects by defining: Purpose Scope Contribution Resource requirements Timing

Step 9: Establish Accurate Controls


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Plan establishes the standards against which actual performance is measured.

Entrepreneur must: Identify and track key performance

indicators. Take corrective action.

Balanced Scorecards


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

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

Balanced Scorecards


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Five Perspectives:1. Customer: How do customers see us?2. Internal Business: At what must we excel?3. Innovation and Learning: Can we continue

to improve and create value?4. Financial: How do we look to shareholders?5. Corporate Citizenship: Do we meet our

responsibility to society as a whole, the environment, the community, and other external stakeholders?

3 - 37Ch. 3: Business Model and Strategic Plan

ConclusionConclusion

The strategic planning process:The strategic planning process:

BeginsBegins with the nine steps. with the nine steps.

BecomesBecomes more efficient each time. more efficient each time.

TeachesTeaches entrepreneurial entrepreneurial discipline for a higher discipline for a higher chance of survival.chance of survival.

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Copyright © 2011 Pearson Education Designing a Competitive Business Model and Building a Solid Strategic Plan CHAPTER 3