Transcript Slide 1

BUSINESS PLAN OUTLINE
http://www.sbm.temple.edu/iei/competitions.html
• 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
STRATEGY FUNNEL – INDUSTRY SIDE
Environmental Trends
Customer &
Benefits
Market
Segment, Size
Channels
Perceptual
Space
Value
Proposition
Industry
Structure
Competitive
Space
Competitive
Dynamics
Strategic
Positioning
Industry
INDUSTRY-SIDE GOAL
Busine ss Landscape
70
60
50
Return on 40
Equity (%) 30
20
10
0
Describe, in detail, the competitive, industry, and environmental
landscape in which your firm will operate…to find a defensible space
you might occupy.
BUSINESS AS A SUPPLY CHAIN
Suppliers
Suppliers
Company
Customers
•
Technology / Purchasing / Product
•
People / Management
•
Customers
Infrastructure / Logistics / Distribution
The supply chain traces processes and transformations. As these become more
complex, they tend to differentiate into various functions.
BUSINESS AS A VALUE CHAIN
Suppliers
Suppliers
Company
Customers
Customers
Value Add
Value Add
Value Add
Value Add
Value Add
•
Purchasing Value Add
•
Product
•
Distribution Value Add
Value Add
•
The value chain maps value added and captured onto the supply chain. Each step
in the supply chain contributes different amounts of value.
•
Effective management involves both identifying new sources of value and tying
together pieces to create more than the sum of the parts.
•
Do not confuse value with cost!
FROM VALUE CHAINS TO MARKETS
Suppliers
Company
Customers
Value
• As underlying processes become more complex, supply chains
often evolve into chains of firms that interact through
negotiated transactions or markets - rather than chains of
functions managed internally
• Note how the margin divides (and multiplies)
MARKET STRUCTURE
Market
Structure
Seller
Seller
Entry
Number
Barriers
Buyer
Entry
Barriers
Buyer
Number
Perfect
Competition
No
Many
No
Many
Monopolistic
Competition
No
Many
No
Many
Oligopoly
Yes
Few
No
Many
Oligopsony
No
Many
Yes
Few
Monopoly
Yes
One
No
Many
Monophony
No
Many
Yes
One
MARKETS & INDUSTRIES
• Each cluster of competitors is an industry, industry segment or
strategic group
• Supply chains and industries evolve over time – as do their
rules, cultures, technologies and sources of value
BOOK SELLING COMMERCE CHAIN
Packager
Author
Agent
Sales groups
Publisher
Wholesaler
Retailer
Direct marketing
Reader
BOOK SELLING VALUE CHAIN
$0.375
Promotions
$0.375
$0.45
Packager
Author
Agent
$0.50
$0.05
Sales groups
$3.50
$1.00
$5.50
Publisher
Wholesaler
Retailer
$12.00
Reader
$1.25
•
•
From trade sales, a publisher might keep 7% for salaries etc – though the
amounts and percentages do increase with print runs and cover prices.
From direct mail, a publisher might keep 12.5% or so, but without as many
economies of scale (since so much goes to logistics).
BOOK SELLING INDUSTRY STRUCTURE
Packager
Author
Agent
Sales groups
Publisher
Wholesaler
Retailer
Reader
Direct marketing
Harper & Row
Borders
Consortium
Bertelsmann
Amazon
Bookpeople or Ingram
EXERCISE:
DRAW THE CHAIN, IDENTIFY YOUR INDUSTRY
• Who sells what to whom?
– Ask industry informants
– Look at customer and supplier lists
– Look at industry magazines
• Draw what you see
• Circle your industry
– The related functional cluster of firms
• Identify sources of competition
– direct competitors from within the industry
– indirect competitors from related supply chains
• Note the supply market
• Note the demand market
I. ENVIRONMENTAL SCANNING:
STEEP ANALYSIS
Macroenvironment
Socio-cultural
Forces
Operating
Environment
Communities
Political
Forces
Regulators
Stockholders
Economic
Forces
Firm/
Organization
Structure
Culture
Competencies
Resources
Creditors
Union/
employees
Trade
Association
Competitors
Suppliers
Customers
Technological
Forces
Ecological
Forces
STAKEHOLDERS SHAPE THE
OPERATING ENVIRONMENT
Macroenvironment
Socio-cultural
Forces
Operating
Environment
Communities
Political
Forces
Regulators
Stockholders
Economic
Forces
Firm/
Organization
Structure
Culture
Competencies
Resources
Creditors
Union/
employees
Trade
Association
Competitors
Suppliers
Customers
Technological
Forces
Ecological
Forces
STAKEHOLDER ANALYSIS
• Who matters, how much
– Customers, suppliers, owners, workers, community groups,
government
– At core, strategic, or environmental levels
• What matters, why and when
– What is at stake for the stakeholders? Why do they care?
When and how might they act?
– What is at stake for the firm? What are the likely impacts on
the firm? Why? When?
• Response options
– Cooperate, compete, coopt, cut out...
EXERCISE:
STEEP OR STAKEHOLDER BRAINSTORM
Socio-cultural
Forces
Macroenvironment
Operating
Environment
Communities
Political
Forces
Regulators
Stockholders
Firm/
Organization
Structure
Culture
Competencies
Resources
Creditors
Union/
employees
Trade
Association
Competitors
Suppliers
Customers
Technological
Forces
Ecological
Forces
II. INDUSTRY STRUCTURE
• Industries are clusters of firms that serve the same
function in a commerce chain. These sets of firms
operate in the same space and compete to control
enough space to capture value.
• Industries all have structure, history, trajectories and
competitive dynamics that constrain entry options – and
are shaped in part by macro-environmental conditions.
INDUSTRY POWER
Threat from
New Entrants
Suppliers’
Power
Rivalry
of
Firms
Threat from
Substitutes
Buyers’
Power
Power of other
Stakeholders
INDUSTRY POWER: BOOKSTORES
Threat from New Entrants
Minimal at scale – eg.
warehousing, leases
Suppliers’ Power:
Reduced but still
significant
Rivalry:
Oligopoly
Threat from Substitutes:
High: multimedia, web
distribution
Buyers’ Power:
Mild – local
monopoly but
options
Other Stakeholders:
Minimal domestic,
some international,
financial concerns
1. ENTRY
• Industries that are hard to enter are cozy for insiders,
but also often attractive to outsiders longing for the
value being shared by so few.
• Barriers to entry make it harder for newcomers to
play.
– Fierce reaction by incumbents.
– Size of payoff/relation of supply to demand.
– Economies of scale:
• minimum efficient scale of production
• distribution or sales networks
– Pioneering brand advantages.
– Experience curve.
– Licenses or patents.
– Cost of exit.
2. SUBSTITUTES
• Industries with few substitute products are more
attractive than those with many substitutes.
• Effective substitutes can often provide ways in for
upstarts.
• The threat of substitutes is often the weakest of the
forces -- except during times of high demand or fast
change, when interlopers may see opportunities.
• Substitutes can be industry killers (Video Rentals)
3. BUYER POWER
• Attractive industries feature disorganized, small
customers, with little purchasing and negotiating
power.
• Buyers gain power when:
– They are large, relative to the seller (superstores).
– They are organized (eg., a coop).
– It is easy to switch to another supplier (eg., when products
are standard).
– They could integrate backwards and so take over a
supplier.
4. SUPPLIER POWER
• Attractive industries feature small and disorganized
suppliers.
• Suppliers gain power when:
– They are large, relative to the buyers. (Alcoa).
– It is difficult for buyers to switch to competing suppliers.
(Custom products, proprietary information).
– They pose a credible threat of integrating forward and
taking over the buyers’ functions.
5. RIVALRY
• Attractive industries are controlled by monopolies or
gentlemanly oligopolies.
– On the other hand, the more the players, and the more
equally matched, the closer the industry approximates
“perfect competition” and minimum profits.
• Rivalry is reduced when:
–
–
–
–
–
Power is concentrated
Competitors can truly differentiate.
It is easy to exit.
Demand is stable and predictable.
Regulation takes the edge off.
6. STAKEHOLDER POWER
• Governments (if not in the environmental scan),
unions, creditors (if not a supplier), advocacy
groups (eg., environmentalists) can all constrain
industries.
–
–
–
–
Regulated industries
Unions
Institutional investors
Bottle bills
• Rivalry is reduced when governments or other
stakeholders limit access to the industry – and so
limit competition.
PROFIT POOLS
0
Banking
Acquisition
Servicing
Share of Industry Revenue
100
%
0
Margin
Operating
Funding
Banking
20%
Margin
Operating
20%
Acquisition
Funding
Servicing
Share of Industry Revenue
• Operating margin: Industry reports, interviews
• Share: Profit amount x total sales in sub-segment
100
%
INDUSTRY DYNAMICS
• While useful, the five forces, value chain and profit
pool models are essentially static.
• It is critical to make guesses about the future -especially about when trends might stop and the
existing power structure shift. STEEP and technology
life cycle analyses can help with this.
EXERCISE:
INDUSTRY POWER STRUCTURE
Threat from New
Entrants
Suppliers’
Power
Rivalry
of
Firms
Threat from
Substitutes
Buyers’
Power
Power of other
Stakeholders
III. COMPETITIVE ANALYSIS
•
•
•
Competitors are the firms that compete to serve
the same customers in the same marketplace.
Competitors can compete directly (cars) or
indirectly (bicycles, mass transit).
Competition happens on two levels:
1. Product or service competition
•
Competition at the level of the value proposition and
marketing (covered in the first workshop)
2. Company competition
•
Competition at the level of company strategy
COMPANY COMPETITIVE ANALYSIS
• How does each firm compete?
– Quality, service, low price, something else?
• How effective is each?
– How well designed are they to compete as they do?
• How powerful?
– What resources do they control? Money, people,
influence...
• How aggressive?
– How hard do they compete? What’s their trajectory?
COMPETITOR RESPONSE PROFILE
Drivers
Abilities
Future Goals
Vision statement
Managerial
behavior
Current Strategy
Price, quality,
distribution,
resources
Critical
Assumptions
Key beliefs
Blind spots
Response Profile
Satisfied or ambitious?
Likely next moves?
Vulnerabilities?
Sensitive spots?
(What will provoke
retaliation?)
Capabilities
Strengths &
weaknesses
COMPETITORS TABLE
• Organizes competitors using crucial dimensions of
competition, plus effectiveness, power, trajectory,
likely changes...
Market
Share
Quality
Cost
Effectiveness
Power
Competitor 1
15%
H
H
M
M
Competitor 2
25%
L
L
H
H
Competitor 3
5%
M
M
L
L
Competitor 4
20%
L
L
H
H
Competitor 5
15%
M
M
H
L
Aggressiveness
very
slipping
STRATEGIC GROUPS
Price
Upscale Chains
Diners/Family Style
Fast Food
Selection
• Groups of firms that pursue similar strategies with
similar resources
GARTNER MAGIC QUADRANT
Gartner rates vendors upon two criteria: completeness of vision and ability to
execute.
Leaders score higher on both criteria; the ability to execute and completeness
of vision. Typically larger industry developed businesses with vision and
potential for expansion.
Challengers score higher the ability to execute and lower on the completeness
of vision. Typically larger, settled businesses with minimal future plans for that
industry.
Visionaries score lower on the ability to execute and higher on the
completeness of vision. Typically smaller companies that are unloading their
planned potential.
Niche players score lower on both criteria: the ability to execute and
completeness of vision. Typically new additions to the Magic Quadrant, or
market fledglings.
Example: Variation on Gartner’s
Magic Quadrant
DYNAMIC COMPETITOR ANALYSIS
• While useful, the competitor table and the strategic
groups are essentially static.
• It is critical to make guesses about the future -especially about when trends might stop and the
ground might shift, and when new competitors
might rise, or existing ones die.
EXERCISE:
COMPETITOR ANALYSIS
• Make a competitors table, including:
–
–
–
–
–
market share
how they stack up on crucial dimensions of value
effectiveness (star the most competent ones)
resources (underline richest ones)
aggressiveness (arrows to indicate trajectories)
• Note any natural groupings
• Note any likely changes
– New entrants, mergers, exits?
BIBLIOGRAPHY
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Andersen Business Consulting interview, Summer 2001.
Richard D’Aveni, Hypercompetition (Free Press: 1994).
Craig Fleisher & Babette Bensoussan, Strategic & Competitive Analysis: Methods &
Techniques for Analyzing Business Competition (Upper Saddle River, NJ: Prentice Hall,
2003)
Jay Galbraith, “Strategy & Organization Planning” in Human Resource Management
(Spring-Summer 1983) for Supply Chain.
Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001).
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
TL Hill lecture notes, 1999, 2001, 2002.
J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001).
Philip Kotler, Marketing Management, 9th Edition, (Prentice Hall, 1997).
Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994), for
Porter and other economics-based strategy.
Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition
(Prentice Hall, 1998).
Michael Porter, Competitive Advantage (Free Press, 1985).
Michael Porter, “What is Strategy?” Harvard Business Review (November-December 1996).
Wikipedia, Gartner Magic Quadrants, Market Definitions February 2011