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1Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
Designing a Competitive Business Model and Building
a Solid Strategic Plan
2Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
A Major Shift . . .A Major Shift . . .
. . . From financial capital to intellectual . . . From financial capital to intellectual capital.capital. HumanHuman StructuralStructural CustomerCustomer
3Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
4Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
5Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
6Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
Building a Sustainable Competitive AdvantageBuilding a Sustainable Competitive Advantage
Superior value for customers
Sustainable competitive advantage
Capabilities
Core competencies
Skills
Lessons learned
7Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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..
8Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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)
9Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
10Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
11Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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!
12Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
13Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
15Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
17Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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%
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Competitive Strategy
How Small Businesses Compete
19Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
20Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
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.
21Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
Step 5: Analyze CompetitorsStep 5: Analyze Competitors
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.
23Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
24Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
25Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
26Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
28Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
29Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
30Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
31Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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
32Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
33Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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.
34Chapter 3: Strategic Plan Copyright 2008 Prentice Hall Publishing
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?