Designing a Competitive Business Model and Building a Solid Strategic Plan chapter 03

business education

1. Copyright 2008 Prentice Hall Publishing 1Chapter 3: Strategic Plan
Designing a Competitive
Business Model and Building
a Solid Strategic Plan

2. Copyright 2008 Prentice Hall Publishing 2Chapter 3: Strategic Plan
A Major Shift . . .A Major Shift . . .
. . . From financial capital to intellectual . . . From financial capital to intellectual
capital.capital.

HumanHuman

StructuralStructural

CustomerCustomer

3. Copyright 2008 Prentice Hall Publishing 3Chapter 3: Strategic Plan
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.

4. Copyright 2008 Prentice Hall Publishing 4Chapter 3: Strategic Plan
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.

5. Copyright 2008 Prentice Hall Publishing 5Chapter 3: Strategic Plan
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.

6. Copyright 2008 Prentice Hall Publishing 6Chapter 3: Strategic Plan
Building a Sustainable Competitive AdvantageBuilding a Sustainable Competitive Advantage
Superior value
for customers
Sustainable
competitive
advantage
Capabilities
Core
competencies
Skills
Lessons
learned

7. Copyright 2008 Prentice Hall Publishing 7Chapter 3: Strategic Plan
Strategic Management ProcessStrategic Management Process
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..

8. Copyright 2008 Prentice Hall Publishing 8Chapter 3: Strategic Plan
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)

9. Copyright 2008 Prentice Hall Publishing 9Chapter 3: Strategic Plan
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

10. Copyright 2008 Prentice Hall Publishing 10Chapter 3: Strategic Plan
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.”

11. Copyright 2008 Prentice Hall Publishing 11Chapter 3: Strategic Plan
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 statement
but…but…

Only 23 percent of workers believe their Only 23 percent of workers believe their
company’s mission statement has company’s mission statement has
become a way of doing business!become a way of doing business!

12. Copyright 2008 Prentice Hall Publishing 12Chapter 3: Strategic Plan
Step 2: Assess Company Strengths Step 2: Assess Company 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.

13. Copyright 2008 Prentice Hall Publishing 13Chapter 3: Strategic Plan
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.

14. The Power of External Market ForcesThe Power of External Market Forces
Competitive Economic
Political and
Regulatory
Technological
Social and
Demographic

15. Copyright 2008 Prentice Hall Publishing 15Chapter 3: Strategic Plan
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.

16. Copyright 2008 Prentice Hall Publishing 16Chapter 3: Strategic Plan
Step 5: Analyze CompetitorsStep 5: Analyze Competitors

Small business owners believe they operate Small business owners believe they operate
in a highly competitive environment and the in a highly competitive environment and the
level of competition is increasing.level of competition is 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.

17. Copyright 2008 Prentice Hall Publishing 17Chapter 3: Strategic Plan
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
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.

18. Copyright 2008 Prentice Hall Publishing 18Chapter 3: Strategic Plan
Step 6: Create Company GoalsStep 6: Create Company Goals
and Objectivesand Objectives

Goals - broad, long-range attributes to be Goals - broad, long-range attributes to be
accomplished. accomplished.

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

19. Copyright 2008 Prentice Hall Publishing 19Chapter 3: Strategic Plan
Step 7: Formulate StrategiesStep 7: Formulate Strategies

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

20. Copyright 2008 Prentice Hall Publishing 20Chapter 3: Strategic Plan
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 reaching Low-cost leaders have an advantage in reaching
buyers who buy on the basis of price, and they buyers who buy on the basis of price, and they
have the power to set the industry’s price floor.have the power to set the 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 products.Competing firms sell the same commodity products.

A company can benefit from economies of scale.A company can benefit from economies of scale.

21. Copyright 2008 Prentice Hall Publishing 21Chapter 3: Strategic Plan
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.

22. Copyright 2008 Prentice Hall Publishing 22Chapter 3: Strategic Plan
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.

23. Copyright 2008 Prentice Hall Publishing 23Chapter 3: Strategic Plan
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

24. Copyright 2008 Prentice Hall Publishing 24Chapter 3: Strategic Plan
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.

25. Copyright 2008 Prentice Hall Publishing 25Chapter 3: Strategic Plan
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.

26. Copyright 2008 Prentice Hall Publishing 26Chapter 3: Strategic Plan
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?

27. The Balanced Scorecard Links Performance MeasuresThe Balanced Scorecard Links Performance Measures
Financial Perspective
Goals Measures
Customer Perspective
Goals Measures
Internal Business Perspective
Goals Measures
Innovation and Learning Perspective
Goals Measures
How do customersHow do customers
see us?see us?
How do we lookHow do we look
to shareholders?to shareholders?
At what must weAt what must we
excel?excel?
Can we continue toCan we continue to
improve and createimprove and create
value?value?