Entrepreneurship for MBA Students Business Plan Lecture 6

[Company Name] Business Plan

Mission Statement A clear statement of your company’s long-term mission. Try to use words that will help direct the growth of your company, but be as concise as possible.

The Team List CEO and key management by name Include previous accomplishments to show these are people with a record of success Summarize number of years of experience in this field

Market Summary Market: past, present, & future: Review those changes in market share, leadership, players, market shifts, costs, pricing, or competition that provide the opportunity for your company’s success.

Opportunities Problems and opportunities: State consumer problems, and define nature of product/service opportunities created by those problems.

Business Concept Summarize key technology, concept or strategy on which your business is based

Competition Summarize competition Outline your company’s competitive advantage

Goals & Objectives Five-year goals State specific measurable objectives State market share objectives State revenue/profitability objectives

Financial Plan High-level financial plan that defines pricing assumptions, and reviews yearly expected sales and profits for the next three years.

Resource Requirements Technology requirements Personnel requirements Resource requirements Financial, distribution, promotion, etc. External requirements Products/services/technology required to be purchased outside company

Risks & Rewards Risks Addressing risk Rewards Summarize risks of proposed project Addressing risk Summarize how risks will be addressed Rewards Estimate expected pay-off, particularly if seeking funding

Key Issues Near term Long term Isolate key decisions and issues that need immediate or near-term resolution Long term Isolate issues needing long-term resolution State consequences of decision postponement If you are seeking funding, state specifics

PLANNING AND STRATEGY

Organizational Goals Purposes of Goals Provide guidance and a unified direction for people in the organization. Have a strong effect on the quality of other aspects of planning. Serve as a source of motivation for employees of the organization. Provide an effective mechanism for evaluation and control of the organization.

Kinds of Goals By Level Mission statement is a statement of an organization’s fundamental purpose. Strategic goals are goals set by and for top management of the organization that addresses broad, general issues. Tactical goals are set by and for middle managers; their focus is on how to operationalize actions to strategic goals. Operational goals are set by and for lower-level managers to address issues associated with tactical goals.

Different Goal Setting Processes in Organizations Source: Barney, Jay B. and Ricky W. Griffin. The Management of Organizations. Copyright © 1992 by Houghton Mifflin Company. Used with permissions.

Kinds of Plans Strategic Plans A general plan outlining resource allocation, priorities, and action steps to achieve strategic goals. The plans are set by and for top management. Tactical Plans A plan aimed at achieving the tactical goals set by and for middle management. Operational Plans Plans that have a short-term focus. These plans are set by and for lower-level managers.

The Nature of Strategic Management Strategy A comprehensive plan for accomplishing an organization’s goals. Strategic Management A way of approaching business opportunities and challenges–a comprehensive and ongoing management process aimed at formulating and implementing effective strategies.

The Components of Strategy Distinctive Competence Something an organization does exceptionally well. Scope Range of markets in which an organization will compete. Resource Deployment How an organization will distribute its resources across the areas in which it competes.

Types of Strategic Alternatives Business-level Strategy The set of strategic alternatives that an organization chooses from as it conducts business in a particular industry or a particular market. Corporate-level Strategy The set of strategic alternatives that an organization chooses from as it manages its operations simultaneously across several industries and several markets.

Types of Strategic Alternatives (cont’d) Strategy Formulation The set of processes involved in creating or determining the organization’s strategies; it focuses on the content of strategies. Strategy Implementation The methods by which strategies are executed within the organization; it focuses on the processes through which strategies are achieved.

The Relationships of Strategies by Organizational Level

SWOT Analysis Strengths Weaknesses Opportunities Threats Mission An organization’s fundamental purpose Best Strategies SWOT Analysis To formulate strategies that support the mission Those that support the mission and • exploit opportunities and strengths neutralize threats avoid (or correct) weaknesses Internal Analysis Strengths (distinctive competencies) Weaknesses Threats External Analysis Opportunities SWOT Analysis Strengths Weaknesses Opportunities Threats Figure 3.2

Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating Organizational Weaknesses Organizational weaknesses are skills and capabilities that do not enable an organization to choose and implement strategies that support its mission. Weaknesses can be overcome by: investments to obtain the strengths needed. modification of the organization’s mission so it can be accomplished with the current workforce.

Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating Organizational Weaknesses (cont’d) Competitive disadvantage is a situation in which an organization fails to implement strategies being implemented by competitors.

Using SWOT Analysis to Formulate Strategy (cont’d) Evaluating an Organization’s Opportunities and Threats Organizational opportunities are areas in the organization’s environment that may generate high performance. Organizational threats are areas in the organization’s environment that make it difficult for the organization to achieve high performance.

Porter’s Generic Strategies Differentiation strategy An organization seeks to distinguish itself from competitors through the quality of its products or services. Overall cost leadership strategy An organization attempts to gain competitive advantage by reducing its costs below the costs of competing firms. Focus strategy An organization concentrates on a specific regional market, product line, or group of buyers.

Strategies Based on Product Life Cycle The Product Life Cycle Introduction Time Stages Growth Maturity Decline High Low Sales Volume Figure 3.3

Formulating Corporate-Level Strategies Diversification The number of businesses an organization is engaged in and the extent to which these businesses are related to one another. Single Product Strategy A strategy in which an organization manufactures one product or service and sells it in a single geographic market.

Related Diversification A strategy in which an organization operates in several different businesses, industries, or markets that are somehow linked.

Related Diversification (cont’d) Advantages of Related Diversification Reduces organization’s dependence on any one of its business activities and thus reduces economic risk. Reduces overhead costs associated with managing any one business through economies of scale and economies of scope. Allows an organization to exploit its strengths and capabilities in more than one business.

Formulating Corporate-Level Strategies (cont’d) Unrelated Diversification A strategy in which an organization operates multiple businesses that are not logically associated with one another. Advantages Stable corporate-level performance over time due to business cycle differences among the multiple businesses. Resources can be allocated to areas with the highest return potentials to maximize corporate performance.

Formulating Corporate-Level Strategies (cont’d) Unrelated Diversification (cont’d) Disadvantages Strategy does not usually lead to high performance due to the complexity of managing a diversity of businesses.

Managing Diversification Major Tools for Managing Diversification Portfolio management techniques Methods that diversified organizations use to make decisions about what businesses to engage in and how to manage these multiple businesses to maximize corporate performance. One important portfolio management technique The BCG Matrix

Managing Diversification (cont’d) BCG Matrix A method of evaluating businesses relative to the growth rate of their market and the organization’s share of the market. The matrix classifies the types of businesses that a diversified organization can engage as: “Dogs” have small market shares and no growth prospects. “Cash cows” have large shares of mature markets. “Question marks” have small market shares in quickly growing markets. “Stars” have large shares of rapidly growing markets.

The BCG Matrix Relative market share Cash cows Dogs High Low Question marks Stars Market growth rate Source: Perspectives, No. 66, “The Product Portfolio,” Adapted by permission from The Boston Consulting Group, Inc., 1970. Figure 3.4