BUSINESS STRATEGY 1
THE FUNDAMENTAL ELEMENTS OF THE DEFINITION OF A BUSINESS STRATEGY The Mission of the Business • Definition of business scope: products, markets, and geographies Identification of unique competencies Internal Scrutiny at the Environmental Scan at the Business Level Business Level (Past performance and future (Past performance and future projections) projections) • Identification of internal critical ?Identification of external factors factors to achieve competitive contributing to industry attractiveness advantage ?Overall assessment of industry ?Overall assessment of attractiveness competitive position Definition of Strengths and Identification of Opportunities and Weaknesses Threats Formulation of the Business Strategy A set of multiyear broad action programs Strategic Programming Definition and evaluation of specific action programs (covering 6- to 18- months) Budgeting Strategic funds programming and operational budgets 2
THE DELTA MODEL – AN INTEGRATIVE STRATEGIC FRAMEWORK The Triangle SLI TCS BP Customer Segmentation and Customer Value Proposition Mission of the Business ?Business Scope ?Core Competencies Competitive Positioning Industry Structure ?Activities that drive ?External factors determining profitability industry attractiveness Business The Strategic Agenda I OE CT Adaptive Processes Strategic Agenda Aggregate and Granular Metrics Experimentation and Feedback The changes introduced by the Delta Model ? Add the Triangle to decide on the strategic positioning ? Add the Adaptive Processes to expand the implementation tasks 3
The primary outputs of the Business Strategy process are: Managerial Consensus Customer Segmentation and Customer Value Proposition The Mission of the Business (supported by Industry Structure and Competitive Positioning Analyses) The Strategic Agenda of the Business The Strategic Agenda of the Adaptive Processes (Operational Effectiveness, Customer Targeting, and Innovation) The Budget and Metrics 4
MANAGERIAL CONSENSUS Saturn definition: 70% Agreement/ 100% Buy-In 5
CUSTOMER SEGMENTATION AND CUSTOMER VALUE PROPOSITION 6
CUSTOMER SEGMENTATION Customer Tier Description
BUSINESS DIMENSION OF THE CUSTOMER TIER Customer Dimension Customer Tier: ________________________ Products Services Customers Channels End Users Complementors Unique Competencies 8
VALUE PROPOSITION Customer Tier: ___ Value Proposition Elements Set of experiences we will provide to the tier Set of value delivery systems needed to provide the experiences Value appropriation Value gained by the customer Value gained by us Value shared by both 9
THE MISSION OF THE BUSINESS 10
THE MISSION OF THE BUSINESS A statement of the current and future expected product scope, market scope, and geographical scope, as well as the unique competencies of the business must develop to achieve its desired competitive position. 11
THE MISSION OF THE BUSINESS Now Future Product/Services Scope Customer Scope End User/Consumer Scope Channel Scope Complementor Scope Geographical Scope Unique Competencies 12
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Existing Product-Services Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Product-Services Scope -- - E + ++ • • • • • • • • • • 14
Challenges from Changes in Product-Services Scope 15
Existing Customer Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Customer Scope -- - E + ++ • • • • • • • • • • 16
Challenges from Changes in Customer Scope 17
Existing End User/Consumer Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New End User/Consumer Scope -- - E + ++ • • • • • • • • • • 18
Challenges from Changes in End User/Consumer Scope 19
Existing Channel Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Channel Scope -- - E + ++ • • • • • • • • • • 20
Challenges from Changes in Channel Scope 21
Existing Complementor Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Complementor Scope -- - E + ++ • • • • • • • • • • 22
Challenges from Changes in Complementor Scope 23
Existing Geographical Scope -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Geographical Scope -- - E + ++ • • • • • • • • • • 24
Challenges from Changes in Geographical Scope 25
Existing Unique Competencies -- - E + ++ • • • • • • • • • • • • • • • • • • • • • • • • • New Unique Competencies -- - E + ++ • • • • • • • • • • 26
Challenges from Changes in Unique Competencies 27
Mission Statement Product Product/Services Scope Now: Future: Customer Scope Now: Future: End User/Consumer Scope Now: Future: Channel Scope Now: Future: Complementor Scope Now: Future: Geographical Scope Now: Future: Unique Competencies Now: Future: 28
ENVIRONMENTAL SCAN • Different approaches - Summary of Porter’s Five Foroces (. Fig. 5-5, p. 79) - Detailed Five Forces Analysis (. Figures 5-7 through 5-15) • External Forces Analysis (. Figures 5-17 through 5-24). • You can apply an environmental scan to different constituencies - Your industry (Best Product) - Your customers and suppliers industry (Total Customer Solutions) - Your complementors industry (System Lock-In) • Conclude the environmental scan with a summary of Opportunities and Threats. 29
INTERNAL SCRUTINY ? Different approaches - Summary of Value Chain (. Figure 6-3, p. 122). -Detailed Value Chain Analysis ( 6-8 through 6-19). ? You can apply an internal scrutiny to differentconstituencies- Your business (Best Product) -Your customer and suppliers businesses(Total Customer Solutions) -Your complementor business (System Lock-In)? Conclude the internal scrutiny with asummary of Strengths and Weaknesses 30
STRATEGIC AGENDA OF THE BUSINESS 31
THE STRATEGIC AGENDA IS EXPRESSED BY MEANS OF THE STRATEGIC THRUSTS ? Strategic thrusts are the primary action-oriented issues the firm has to address in order to achieve its desired strategicpositioning.? The statement of strategic thrusts shouldinclude:? Specific planning challenges - theassignment of responsibilities at thecorporate, business, and functional levelsfor the formulation and implementation ofstrategic programs addressing eachstrategic thrust. ? Relevant measurements of performance -Identification of appropriate indicators tomonitor the operational and strategicresults associated with each thrust. 32
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STRATEGIC AGENDA Organizational Units Performance Strategic Thrusts Measurements 1 -Key role in formulation and implementationB - Business Model 2 -Important role of support and concurrenceOE - Operational effectiveness 1- Identifies the 'Champion', who takes leadership for the strategic thrust execution CT - Customer Targeting I – Innovation 34BusinessProcesses
ASSIGNMENT OF PRIORITIES TO STRATEGIC THRUSTS Priorities StrategicThrustsABCWeight A - Absolute first priority (postponement will hurt competitive position significantly). B - Highly desirable (postponement will affect competitive position adversely). C - Desirable (if funds were available, competitive position could be enhanced). 35
DEFINITION OF STRATEGIC THRUSTS NameDescriptionResponsible Manager Other Key Participants Other Important Contributors Key Indicators for Management Control and Targets First Major Milestone Description First Major Milestone Date Resources Required Statement of Benefits 36
TESTS TO EVALUATE THE QUALITY OF THE STRATEGIC AGENDA . Stretch and Control- Ease of Implementation - Quality of Working Environment
THE BUDGET 38
BUDGETING AND STRATEGIC FUNDS Strategic funds are expense items required for theimplementation of strategic action programs whosebenefits are expected to be accrued in the long term,beyond the current budget period. 39
There are 3 major components of strategic funds: 1. Investment in tangible assets, such as newproduction capacity, new machinery and tools,new vehicles for distribution, new office space,new warehouse space, and new . Increases (or decreases) in working capitalgenerated from strategic commitments, such asthe impact of increases in inventories andreceivables resulting from an increase in sales; theneed to accumulate larger inventories to providebetter services; increasing receivables resultingfrom a change in the policy of loans to customers,and so on. 3. Development expenses that are over and above theneeds of existing business, such as advertising tointroduce a new product or to reposition anexisting one; R&D expenses of new products;major cost reduction programs for existingproducts; introductory discounts, salespromotions, and free samples to stimulate firstpurchases; development of management systemssuch as planning, control, and compensation;certain engineering studies, and so on. 40
SPLITTING THE PROFIT AND LOSS STATEMENT OF A DIVISION IN TERMS OF OPERATIONAL AND STRATEGIC EXPENSES Conventional OperationalStrategic*StatementExpensesExpenses Net sales 100100-Less:Variable mfg. costs 3030-Depreciation2020-Other fixed mfg. costs 10 5 5 Gross margin 4045-Less:Marketingexpenses1510Admin. expenses 1055Research expenses 0 Division margin 10 Operating margin 35 Total strategic expenses 25* Also called Development Expenses
STRATEGIC FUNDS PROGRAMMING AND OPERATIONAL BUDGETS – AN ILLUSTRATION
