Entrepreneurship & Innovation MGMT8608

Transcription

1 BUSINESS SCHOOL Entrepreneurship & Innovation MGMT8608 TOPIC 7: PLANNING & STRATEGY IN ENTREPRENEURIAL FIRMS

2 Learning Outcomes Understand the role and relevance of planning Understand how to integrate analysis and vision Understand the fundamentals of building a business model Identify skill requirements/matches for new ventures Understand the planning process within an entrepreneurial venture Understand the nature and role of entrepreneurial risk perception in the planning process Apply the planning process to a case analysis

3 Introduction If you always know where you are and where you want to be you ll always get there. - Kevin Inkster, inventor, founder and CEO Arbortech

4 Case Study: Comfort Homes How would you profile James? Shopkeeper Salesman Administrator CEO If James were to prepare a strategic plan for the future of his business what key things should he consider?

5 Business Model Innovation

6 Discussion What is business model innovation? Why do companies seek to change their business model? What are the four things that should be considered in assessing a business model?

7 The Value of Planning in Entrepreneurial Ventures Value of Planning (49 empirical studies) Small firms gain benefits from planning Specific nature of this remains unclear Entrepreneur remains the key element Past management experience Education Entrepreneurial orientation Most entrepreneurs don t formally plan Formality not linked to performance More support for sophisticated planning Used by entrepreneurs to mitigate risk Source: Mazzarol & Reboud (2009)

8 The Value of the Business Plan A business plan ranks no higher than 2 on a scale from 1 to 10 as a predictor of a new venture s success. A common misconception is that the most important thing in a business plan is a detailed financial analysis. But: Most business plans waste too much ink on numbers and devote too little information that really matters to the intelligent investor numbers should appear mainly in the form of a business model that shows the entrepreneurial team has thought through the key drivers of the venture s success or failure Source: Sahlman (1997)

9 What is a Business Model A business model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams. Source: Pigneur & Tucci (2005)

10 Elements of the Business Model Customer Value Proposition (CVP) Target Customer Characteristics Target Market Segments The Revenue Model Cost Structure Margin Model Resource Velocity (e.g. break-even, cash cycle, cost-profit-volume) PRODUCT PROFIT FORMULA KEY PROCESSES KEY RESOURCES Distribution Channels Customer relationships Value configuration HRM systems & Culture Operational management Rules, policies, metrics The Core Competencies Required Partnerships & Alliances Required Team structure Physical facilities needed Sources: Osterwalder, Pigneur & Tucci (2005) & Johnson, Christensen & Kagermann (2008)

11 The Lean Canvas for Business Model Design

12 The Lean Canvas for Business Models Strategic Partners Key Activities Value Proposition Customer Relations Customer Segments Key Resources Channels Cost structure (how much it cost?) Revenue Stream (Monetizing) Sources: Osterwalder (2010)

13 The Lean Canvas for Business Models Strategic Partners Key Activities Operations management CRM systems Financial control systems HRM Systems Value Proposition Customer Relations Customer Segments What are the customers : Acquisition costs? Retention costs? Switching costs? Life time value? Do you need to work with others or can you proceed alone? If you need others who are the: Lead customers? Key suppliers? Resource network actors? Rules, policies, metrics Key Resources Core competencies? Team structure? Physical resources? Financial resources? How does the product or service help the customer : Save money Save time Add value Increase profits Channels How do you reach your customers? How can you deliver value to them? Can you do this directly or do you need to work via others? Who is the customer? What are their main problems or needs? What goals do they have? Demographics? Psychographics? Cost structure (how much it cost?) What are the main over head (fixed) costs? What are the anticipated variable costs? What is the anticipated gross profit margin? When will the business break even? Revenue Stream (Monetizing) How much is the customer willing to pay? How many customers will pay? How frequently will they pay? Cash cycle & cost-profit-volume analysis Sources: Osterwalder (2010)

14 Operational Management Framework Task Environment dynamic & turbulent munificent complexity industry characteristics Organisational Configuration size structure strategy strategic planning processes resources (e.g. financial & human) culture Managerial Characteristics Entrepreneurial Orientation Innovative Achievement focused Autonomy driven Risk taking profile Proactive & Competitive Strategic capacity Firm s Performance stakeholder satisfaction sales growth market share profitability Source: D Amboise & Muldowney, 1988

15 Planning and Entrepreneurial Risk Perception Planning is a response to perceived risk RISK = (Probability of an event) x (Possible Loss) Risk is not the same as Uncertainty Risk can be quantitatively measured; Uncertainty cannot: Uncertainty = condition of having insufficient knowledge to accurately describe or predict the outcome of a future action The components of risk: Outcome Uncertainty due to a lack of control or information Outcome Expectations the gap between the expected and anticipated outcomes Outcome Potential the level of positive or negative outcome (e.g. how bad can it get?)

16 Sales and Profits Over a Product s Life Sales and profits ($) Sales Profits 0 Time Product development stage Losses/ investment ($) Introduction Growth Maturity Decline

17 The Innovation Process is about reducing Risk Risk Information Acceptable level of risk to launch product An information assembly line

18 How Entrepreneurs Perceive Risk Sources: Simon, Houghton & Aquino (2000)

19 Task Environment [Level of uncertainty & risk] High The Role of Planning for Entrepreneurs High Planning Propensity & Value of Planning Low risk Acceptable level of risk to proceed information Low Low Managerial Characteristics [Level of owner-manager knowledge & competence] High Source: Mazzarol & Reboud (2009) Source: Mazzarol & Reboud 2008

20 Task Environment [Level of uncertainty & risk] The Impact of EO on Planning High Low Planning Propensity & Value of Planning High information RP2 Lo EO RP0 RP1 risk Low Hi EO Low PR1 PR0 PR2 Managerial Characteristics [Level of owner-manager knowledge & competence] High Source: Mazzarol & Reboud (2009)

21 Factors influencing the Value of Planning Task Environment Environmental turbulence surrounding the firm Uncertainty in knowledge relating to new products Uncertainty in knowledge relating to markets Perceived risks associated with future investment decisions Environmental munificence in future target markets Organisational Configuration Managerial Characteristics The age & maturity of the firm resulting in stability in its processes Complexity of the firm as it grows larger in scale & scope Size of firm s financial resources available for future investments Size & complexity of firm s human resource needs The level of entrepreneurial orientation of management team The level of industry competency of management team The level of planning competency of the management team Source: Mazzarol & Reboud (2009)

22 Strategy as a Process Developing Entrepreneurial Strategy Strategic Choice Strategic Analysis Strategy Implementation

23 Strategy v Planning Strategy & Planning STRATEGY = DOUBLE LOOP PLANNING = SINGLE LOOP At the Individual Level A holistic understanding of the firm & its environment Creativity A vision for the future of the firm At the organisational level Foster on-going strategic dialogue within the top team Take advantage of ingenuity & creativity in each individual employee Source: Heracleous (1998)

24 Strategic Analysis Strategic Analysis Framework Vision Where are you going? What is the business of the business? What key resources do you need for success? Mission CSFs Strategic Choice What must be done, how, by when and by who? Develop the plan Objectives Process Management Implementation Project Planning Consultation & Participation Change Process analysis Performance measurement

25 3 Generic Strategic Options STASIS EXIT GROWTH consolidation of firm focus on efficiency maintenance of existing products & markets more inward focused common among firms that have experienced rapid growth or that have reached maturity preparation of the firm for sale, succession or closure focus on valuation building systems team building grooming a successor financial control & reporting focus on innovation new products or new markets vision for future capacity for growth market opportunities alliances & networks leadership business model Source: Mazzarol & Reboud (2009)

26 Evidence from Research Sample 204 high performing small firms Stasis firms stronger in terms of: Clarity & formalisation of mission Security of key resources & human resources Capacity to delight customers via problem solving & timeliness Strength of customer commitment & understanding customer needs Growth firms stronger in terms of: Ability to set vision to guide employee behaviour & action Ability to set premium pricing Ability to differentiate via value adding Capacity to take action when required Source: Mazzarol & Reboud (2009)

27 4 Strategic Environments 3 complex 4 Complex-Certain Complex-Uncertain Complex product technologies Predictable commercialization pathway Multiple contracts from many customers Moderate competition certain Simple-Certain Complex product technologies Strong competition Uncertain customer behaviour Supplies from a variety of sources High rate of technological change Simple-Uncertain uncertain Steady market Low levels of competition Long term contracts Assured suppliers Straightforward product technologies Uncertain customer behaviour Strong competition Orders fluctuate Supplies not guaranteed Straightforward product technologies 1 simple 2 Source: Mazzarol & Reboud (2009)

28 Organisational Configuration [Level of complexity, scale & scope] 4 Strategic Environments & Risk Formal 3 complex 4 Risk Complex-Certain Complex-Uncertain certain uncertain Simple-Certain Simple-Uncertain Informal Low 1 simple 2 Task Environment [Level of uncertainty & risk] High Source: Mazzarol & Reboud (2009)

29 Organisational Configuration [Level of complexity, scale & scope] 4 Strategic Planning Responses Formal 3 complex 4 Risk Structured Operational Planning Structured Strategic Planning certain uncertain Unstructured Operational Planning Intuitive Strategic Planning Informal Low 1 simple 2 Task Environment [Level of uncertainty & risk] High Source: Mazzarol & Reboud (2009)

30 Organisational Configuration [Level of complexity, scale & scope] 4 Strategic Planning Types Operational Formal Managerial Characteristics [Level of owner-manager knowledge & competence] 3 complex 4 The Administrator The CEO Strategic Structured Operational Planning Divisionalised structure Focus - Operational Efficiency certain The Shopkeeper Structured Strategic Planning Adhocracy structure Focus - Strategic Transformation The Salesman uncertain Informal Low Unstructured Planning Simple Structure A Focus - Fine tuning the business 1 simple 2 Task Environment [Level of uncertainty & risk] Intuitive Strategic Planning Simple Structure B Focus - Market Development High Source: Mazzarol & Reboud (2009)

31 The Strategic Framework of the Shopkeeper Entrepreneurial Leadership Low to moderate level of entrepreneurial orientation, vision is short term focused and leadership is more transactional in nature. Innovation Incremental with low sales volume, modest profitability and short lifecycles. Strategic Networking Outside assistance is best focused on enhancing financial and information management reporting systems (for example accountants, IT specialists). Any strategic networking is limited and supplychain related. The Growth Vector Principally focused on the consolidation of existing product and market combinations, and following a stasis strategy. Competitive positioning will be developed from cost leadership in niche markets. Key Focus Fine Tuning the Business

32 The Strategic Framework of the Salesman Entrepreneurial Leadership Moderate to high level of entrepreneurial orientation, vision is long-term focused and leadership is more transformational in nature. Innovation Innovations will have good profit margins and be focused on niche markets. Strategic Networking Outside assistance is best focused on enhancing marketing and sales capacity. Strategic networking is focused on targeted niche markets. The Growth Vector Strategy is growth focused with competitiveness driven by differentiation of either existing products or services to new customers or new products and services to existing customers. Key Focus Market Development.

33 The Strategic Framework of the Administrator Entrepreneurial Leadership Low to moderate entrepreneurial orientation, vision is short term focused and leadership is more transactional in nature. Innovation Innovations will have large market sales volume, but a low to modest profit margin, with a strong focus on process innovation. Strategic Networking Outside assistance is best focused on quality management, operational control and process engineering. The Growth Vector Growth is achieved via new products sold into established markets, or new markets offered existing products. However, strategy is focused on cost leadership within mass markets. Key Focus Operational Efficiency.

34 The Strategic Framework of the CEO Entrepreneurial Leadership Moderate to high entrepreneurial orientation, vision is long term focused and leadership is more transformational in nature. Innovation Innovations will have a large market sales volume, high profit margins and long lifecycles. Likely to be radical or technological product innovations. Strategic Networking Outside assistance is best focused on formal strategic planning and the commercialisation of major new products. The Growth Vector Growth is achieved via differentiation within mass markets and potentially a diversification strategy. New products offered to new markets in highly dynamic and turbulent task environments. Key Focus Strategic Transformation.

35 New Product Product Market Growth RISK Growth by New Product Development Growth by Diversification Existing Market New Market Consolidation Growth by New Market Development Existing Product Source: (Ansoff, 1965)

36 Organisational Configuration [Level of complexity, scale & scope] Operational Formal 4 Strategic Planning Types Managerial Characteristics [Level of owner-manager knowledge & competence] 3 complex 4 The Administrator The CEO Strategic Risk certain uncertain The Shopkeeper The Salesman Informal Low 1 simple 2 Task Environment [Level of uncertainty & risk] High Source: Mazzarol & Reboud (2009)

37 Dynamic Capabilities Theory Processes Coordination & Integration inside/outside organization Reconfiguration & transformation of the organization Learning within the organization Positions Technological, financial and physical assets Organizational boundaries Institutional authority Paths Path dependencies (History) Technological opportunities Mazzarol 2013 all rights reserved Source: Teece, Pisano & Shuen (1997) 37

38 What is a Capabilities System?

39 Threats Business Model Analysis Opportunities Competitive rivalry New market entrants Substitutions Regulatory Supplier power Buyer power Social & demographic Environmental Lean Canvas Products & Services Customer Value Proposition Lean Start-Up Distinctive Competencies Unmet market needs Ability to add value Ability to reduce cost Niche or mass-market Product innovation Process innovation Market innovation Dynamic Capabilities VRIO framework Process weaknesses: Management Organisation Learning Positional weaknesses: Technical, financial & physical assets Systems Path weaknesses: History, culture Paths Path dependencies Positions Processes Coordination & Learning Valuable Rare Difficult to copy No substitutes Organisational ability Types of assets: Tangible - Intangible Isolating mechanisms Weaknesses Gaps in knowledge & resources Technical, financial & Physical assets Strengths Mazzarol 2014 all rights reserved