Entrepreneur 4: Business Strategies & Rapid Growth Strategies

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The 4th lecture focus on business strategy and models, rapid growth strategies (franchising, mergers & acquisitions), and an introduction to Moore's "Crossing the Chasm", Gartner's Hype Cycle and Porter's 5 Forces.


  • 1. Lecture 4: Business Strategies &Rapid Growth StrategiesDr Bernard Leong CTO & Co-founderMPS 812 Course Taught in:1

2. A companys Strategy consists of the competitive moves & business approaches that the managers are employing to grow the business,attract and please customers, compete successfully, conduct operations & achieve the targeted levels of organizational performance 2 3. Sustainable Competitive Advantage A company achieves sustainable competitive advantage when an attractivenumber of buyers prefers it products or services over the offerings ofcompetitors and when the basis for this preference is durable. Four Strategic Approaches: Industry low cost provider - cost based advantage over rivals. Outcompeting rivals based on differentiating features (higher quality, widerselection, added performance, value-added services, more attractivestyling, technological superiority, goodvalue). Focusing on a narrow market niche & winning a competitive edge by doinga better job than rivals of serving the special needs & tastes of buyerscomprising the niche. Developing expertise & resource strengths that give the companycompetitive capabilities that rivals cant easily imitate or trump withcapabilities of their own. 3 4. Identify a companys strategy - What to look for Actions to gain sales & market shareAction to diversifyvia lower prices, more performance features, more appealing design, Actions to the companysbetter quality or customer service,respond to earnings &wider production, selection or other changing marketrevenues by such actions.conditions & otherentering into new external factors. businessesActions toActions to enter a strengthenThe patterns of new geographic competitivecapabilities &actions & businessor product markets or exit correctapproaches that dene existing onesweaknesses a companys Actions & Actions to Actions to approaches used strengthenActions to capturestrengthen marketin managing R&D,competitivenessemerging marketstanding & production, salesvia strategic opportunities & competitiveness & marketing,alliances & defend against by merging ornance and key collaborativeexternal threats.acquisition activities.partnerships 4 5. Strategy Evolution Changing circumstances &ongoing management efforts toimprove the strategy cause acompanys strategy to evolveover time - a condition makesthe task of crafting strategy awork in progress, not an onetime event. Shaped by managementanalysis & necessity ofadapting and learning by doing.5 6. Abandoned Strategy ElementsProactive Strategy Elements New initiatives plus ongoing strategyelements continued from prior periods. Prior version of Latest version ofcompany strategy company strategy Adaptive reactions to changing circumstances Reactive Strategy ElementsA companys strategy is a blend of proactive initiatives & reactiveadjustments.6 7. Strategy & Ethics A strategy is ethical only if: It does not entail actions & behaviorsthat cross the line from should do toshould not do (unsavory,unconscionable or harmful to otherpeople). Allows management to fulll its ethicalduties to its shareholders/owners,employees, customers, suppliers, thecommunities in which it operates &society in large.7 8. Relationship between a companysStrategy & Business model A companys business model explains therationale for why its business approach &strategy will be a revenue generator.Absent the ability to deliver good prots,the strategy is not viable & survival ofbusiness are in doubt. Company Strategy: relates broadly tocompetitive initiatives & action plan forrunning business which may or may notmake prots. Business Model: How & why business willgenerate revenues to cover costs &product attractive prots & return oninvestment. 8 9. What makes a strategy a winner? How well does the strategyts in a companyssituation? Is the strategy helping thecompany achieving asustainable competitiveadvantage? Is that strategy resulting inbetter companyperformance?9 10. Microsoft products:Red Hat Products: Openproprietary code and employ Product and Labour Source collaboration witha cadre of highly skilleddevelopers all over the world.programmers Sell operating system and Sells subscription models for Revenue Modelsoftware packages and large enterprises. keeping services free Capitalize on specialized expertise required to use Sales ModelLarge volume salesLinux and also target largeenterprises. Prot Margins> US$B> US$100M(by order of magnitude) Case Study: Microsoft & Red Hat - Contrasting Business Models 10 11. Strategy-Making, Strategy ExecutingProcessPhase 1 Phase 2 Phase 3Phase 4 Crafting aDeveloping a strategy to Implementing Settingstrategic achieve & executingobjectives vision objectives &the strategyvision Phase 5 Monitoring developments Revise as needed in light of actual performance, changing, evaluatingconditions, new opportunities & new ideas.performance& making correctiveadjustments 11 12. Phase 1: Strategic Vision A strategic vision describes theroute a company intends to takein developing and strengtheningits businesses. It lays out thecompanys strategic course inpreparing for the future. It delineates managementaspirations for the business andprovide the answer to Whereare we heading towards? 12 13. External ConsiderationsInternal Considerations Is the outlook for the company promising if itsimply maintains its product/market/customer/What are the companys ambitions? Whattechnology focus? Does sticking to its currentindustry standing should the company have? strategic course present attractive growth opportunities? Are changes under way in the market &Will the companys present business generate competitive landscape acting to enhance orsufcient growth & protability in the years weaken the companys prospects?ahead to placate shareholders?What if any new customer groups or/andWhat organizational strengths ought to begeographical markets should the company get leveraged in terms of adding new products orin position to serve?services & getting into new businesses?Which emerging market opportunities should Is the company stretching its resources thinthe company pursue? Which ones should notby trying to compete in too many markets orbe pursued?segments?Should the company plan to abandon any of Is the companys technological focus toothe markets, market segments, or customerbroad or too narrow? Are any changesgroups it is currently servingneeded? 13 14. Characteristics of an effectively worded Strategic Vision Paints a picture of the kind of company that management is trying toGraphiccreate & the market position(s) the company is striving to stake out.Is forward-looking, describes the strategic course that management hasDirectionalcharted and the kinds of product/market/customer/technology changesthat will help the company prepare for the future.Is specic enough to provide management guidance in making Focuseddecisions & allocating resources. Is not a once and for all time statement - directional course has to beFlexible adjusted as product/customer/market/technology changes with time. Is within the realm of what the company can reasonably expect to Feasbible achieve in due time. Indicates why the chosen path makes good business sense and is in Desirablethe long term interests of the stakeholders (especially shareholders, employees and customers)Easy to communicate Can be expressed in 5-10 minutes and reduced to a memorable slogan. 14 15. CompanyStrategic VisionTo extend our position as the most trusted Linux &open source provider to the enterprise. We intend togrow the market for Linux through a complete rangeof enterprise Red Hat Linux Software, a powerfulmanagement platform & associated support andservicesBe the global Leader in customer value.Provide a global trading platform where practicallyanyone can trade practically anything. 15 16. Phase 2: Setting Objectives To convert the strategic visioninto specic performance targets- results & outcomes thecompanys management wantsto achieve. Ideally, managers adopt theobjective setting exercise as atool for stretching anorganization at its full potentialand deliver best possible results. 16 17. What kind of objectives to set: Balanced Scorecard Financial Objectives Strategic ObjectivesAn x% increase in annual revenues.Winning an x% market share.Annual increases in after-tax prots of x Achieving lower overall costs than rivals%Overtaking key competitors on productAnnual increases in earnings per shareperformance or quality or customerof x%service.Annual dividend increases Deriving x% of revenues from the saleLarget prot marginsof new products introduced within theAn x% return on capital employed or past 5 years.return on equity (ROE) Achieving technological leadershipIncreased shareholder value - in theHave better product selection thanform of an upward trending stock price rivalsand annual dividend increases. Strengthening company brand nameStrong bond and credit ratings. appealSufcient cash ows to fund new capital Have stronger national or global salesinvestment.and distribution capabilities than rivalsStable earnings during periods of Consistently getting new or improvedrecession. products.17 18. Examples ofCompanyCompany ObjectivesIncrease sales to 4.2M cars and trucks by2008 (up to 3M in 2003); cut purchasingcosts 20% and half number of suppliers,have zero net debt, maintain a return oninvested capital of 20%; maintain 10% orbetter prot margin.To achieve long term sales growth of 5-8%organic plus 2-4% acquisitions, annualgrowth in earnings per share of 10% orbetter, a return on stockholders equity of20-25%; double number of qualied 3Mproducts. 18 19. Phase 3: Strategy Making,Strategy Execution Process Masterful strategies comes partly bydoing things differently fromcompetitors when it counts: out-innovating them, being more efcientand imaginative, adapting faster andnot follow the herd. Senior executives together with theCEO craft the strategies for thecompany. Corporate Intrapreneurs are createdby top management to encourageteams and individuals to create newproduct lines and business ventures. 19 20. Corporate StrategyOrchestrated by the CEO(Company wide game plan for managing a set& senior executives of businesses) In each case of a single business company, thesetwo levels of strategy making hierarchy merge into one level - business strategy that is orchestrated by theOrchestrated by general companys CEO & other managers of each Business Strategy (One for each business the executives.different lines ofcompany has diversied into) businesses with advice - Strengthen Market Position & build from the heads of competitive capabilitiesfunctional area activitiesCrafted by heads ofmajor functional activities Functional area strategies within eachwithin a particular business business - in- Relevant details for managing activity for the collaboration with other business units key people. Crafted by brandmanagers, operatingOperating Strategies within each businessmanagers of plants,- Low-echelon activities with strategicdistributing centers, signicance geographic units20 21. Phase 4: Implementation & Execution Staff organization with needed skills& expertise. Allocating ample resources (cash,materials and distribution channels) Policies & procedures in a systemto have effective execution. Best practices to perform corebusiness functions and pushing forimprovement.21 22. Phase 4: Implementation & Execution Installing information & operatingsystems for each level to carry outtheir roles and responsibilities. Motivating people to pursue targetobjectives and awards & incentives(healthcare, exi-benets). Company Culture Exerting internal leadership ifstumbling obstacles turn up.22 23. Phase 5: Evaluation Monitoring externaldevelopments, evaluatingcompanys progress & makingcorrective adjustments. Requires corporategovernance in the form ofboard of directors to monitorand evaluate the execution &implementation of strategy.23 24. Board of Directors Role: To exercise strong oversight andsee that the tasks for strategicmanagement are done to benetshareholders & stakeholders. Be inquiring critics & overseecompanys direction, strategy &business approaches. Evaluate the caliber of seniorexecutives strategy making andexecution. Compensation Plan for top executives. Oversee companys nancialaccounting and nancial reportingpractices24 25. The real-world benets of the technology are demonstrated and accepted. Tools and methodologies are increasingly stable as they enter their second and a phase of overenthusiasm and third generation. The nal unrealistic projections during whichheight of the plateau a urry of publicized activity by varies according to technology leaders results in somewhether the technology is successes but more failures as thebroadly applicable or only technology is pushed to its limits. benets a niche market.Visibility Focused experimentation and solid hard work by an increasingly diverse range of organizations lead to a true understanding of the technologys applicability, risks and benets. Commercial off- the-shelf methodologies and tools become available to ease the development process. The point at which the technology becomes unfashionable and the press abandons the topic, because the technology did not live up to its A breakthrough, publicoverinated expectations. demonstration, product launch or other event that generates signicant press and industry interest.Time 25 26. 26 27. Hype Cycle Investment CycleHow investments can be affected by how mainstream technologies are in the marketplace.27 28. Moores Crossing the Chasm Theory28 29. 29 30. 30 31. Rapid Strategies for Growth Joint Ventures and StrategicAlliances Mergers and Acquisitions Franchising and Licensing 31 32. Why Growth is necessary? Economics of Scale. Expansion into other markets. Acquiring new capabilities. Survival Less Vulnerable for acquisition orhostile takeovers. Increasing earnings. 32 33. Motivation to Go Global33 34. How toexpand?34 35. How to assemble opportunity for a franchise Primary TargetAudience Demographic Proles PsychographicProles: Lifestyles,social class andpersonality traits Geographic Proles35 36. Advantages of Franchising: Franchisee Entrepreneur does not have to incur all therisks associated with creating a newbusiness. Product acceptance: has an accepted name,product, or service. Management expertise: managerialassistance provided by the franchisor. Capital requirements: up-front support cansave entrepreneur signicant time and capital. Knowledge of the market: offers experience inbusiness and market. Operating and structural controls: help instandardization and administrative controls. 36 37. Disadvantages of Franchising Inability of the franchisor toprovide services, advertising,and location. Franchisors failing or beingbought out by another company. Difculty in nding qualityfranchisees. Poor management. 37 38. Categories of Franchises 3 available types of franchises: Dealership: act as re...


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