UNIT- 3

Designing a Competitive Business Model and Building a Solid Strategic Plan

Building a Competitive Business Model and Building a Solid Strategic Plan

Strategic Management

Strategic Management is crucial to building a successful business. It involves developing a game plan to
guide a company as it strives to accomplish its mission, goals, and objectives, and to keep it on its desired
course.

Building a Competitive Advantage

Competitive advantage is the aggregation of factors that sets a small business apart from its competitors
and gives it a unique position in the market that is superior to its competition. Developing a strategic plan
is crucial to creating a sustainable competitive advantage. Consider five aspects of a small company:

1. Products they sell

2. Service they provide

3. Pricing they offer

4. Way they sell

5. Values to which they are committed

Key: Core Competencies

- Unique set of capabilities a company develops in key areas, such as superior quality,
customer service, innovation, team-building, flexibility, responsiveness, and others that allow
it to vault past competitors.
- They are what a company does best.
- Best to rely on a natural advantage (often linked to a company’s “smallness”).

Strategic Management Process

Step 1: Develop a Vision and Create a Mission Statement

Vision is the result of an entrepreneur’s dream of something that does not exist yet and the ability to paint
a compelling picture of that dream for everyone to see. The vision is future oriented and touches everyone
associated with the company, its employees, investors, lenders, customers, and the community. It is an
expression of what an entrepreneur stands for and believes in.

A clearly defined vision:

- Provides direction
- Determines decisions
- Inspires people
- Allows for perseverance in the face of adversity

ENTREPRENEURSHIP SUSHMA KARNA, LECTURER, EASCOLL

Mission addresses question: “What business are we in?” The mission is a written expression of how the
company will reflect an entrepreneur’s values, beliefs, and vision – more than just “making money.”It
serves as a “strategic compass.”

Elements of a mission statement:

- Purpose of the company: What are we in business to accomplish?

- Business we are in: How are we going to accomplish that purpose?
- Values of the company: What principles and beliefs form the foundation of the way we do
business?

Step 2: Assess Company Strengths and Weaknesses

Having defined the vision they have for their company and translated that vision into a meaningful
mission statement, entrepreneurs can turn their attention to assessing company strengths and weaknesses.
Building a successful competitive strategy requires a business to magnify its strengths and overcome or
compensate for its weaknesses.

Strengths are positive internal factors a company can draw on to accomplish its mission, goals, and
objectives. They might include special skills or knowledge, a superior proprietary product or process, a
positive public image, an experienced sales force, an established base of loyal customers, and many other
factors.

Weaknesses are negative internal factors that inhibit a company’s ability to accomplish its mission, goals,
and objectives. Lack of capital, a shortage of skilled workers, the inability to master technology, and an
inferior location are examples of weaknesses.

Step 3: Scan for Opportunities and Threats

Once entrepreneurs have taken an internal inventory of company strengths and weaknesses, they must
turn to the external environment to identify any opportunities and threats that might have a significant
impact on the business. These are the external forces that have direct impact on the behavior of the
markets in which the business operates the behavior of competitors, and the behavior of customers.

Opportunities are positive external factors the company can exploit to accomplish its mission, goals, and
objectives. The key is to focus on the most promising opportunities that fit most closely with the
company’s strengths and core competencies. Whereas, threats are the negative external factors that inhibit
the firm's ability to accomplish its mission, goals, and objectives.

The interactions of strengths, weaknesses, opportunities, and threats can be the most revealing aspects of
using a SWOT analysis as part of a strategic plan.

Step 4: Identify Key Success Factors

Key success factors (KSFs) also called key performance indicators, are the factors that determine the
relative success of market participants. These are the keys to unlocking the secrets of competing
successfully in a particular market segment. These factors determine a company’s ability to compete
successfully in an industry. Every company in an industry must understand the KSFs that drive the
industry. Many of these sources of competitive advantages are based on cost factors, superior product

ENTREPRENEURSHIP SUSHMA KARNA, LECTURER, EASCOLL

quality, superior customer service, a highly trained and knowledgeable sales force, readily available
customer credit, and many others.

Step 5: Analyze the Competition

Small business owners believe they operate in a highly competitive environment and the level of
competition is increasing.

Competitor Analysis

Sizing up the competition gives a business owner a realistic view of the market and his or her company’s
position in it.

• Direct competitors: offer the same products and services, and customers often compare prices,
features, and deals from these competitors as they shop.
• Significant competitors: offer some of the same products and services. Although their product or
service lines may be somewhat different, there is competition with them in several key areas.
• Indirect competitors: offer the same or similar products or services only in a small number of
areas, and their target customers seldom overlap yours.

Entrepreneurs should monitor closely the actions of their direct competitors, maintain a solid grasp of
where their significant competitors are heading, and spend only minimal resources tracking their
indirect competitors.

Analyzing key competitors allows an entrepreneur to:

• Avoid surprises from existing competitors’ new strategies and tactics.

• Identify potential new competitors and the threats they pose.
• Improve reaction time to competitors’ actions.
• Anticipate rivals’ next strategic moves.

Step 6: Create Company Goals and Objectives

Before entrepreneurs can build a comprehensive set of strategies, they must first establish business goals
and objectives, which give them targets to aim for and provide a basis for evaluating their companies’
performance. Without them, it is impossible to know where a business is going or how well it is
performing. Goals are broad, long-range attributes to be accomplished. Objectives are more detailed,
specific targets of performance that are specific, measurable, assignable, realistic, and timely.

Step 7: Formulate Strategic Options and Select the Appropriate Strategies

The next step is to evaluate strategic options and then prepare a game plan designed to achieve the stated
mission, goals, and objectives. A strategy is a road map of the actions an entrepreneur draws up to
accomplish a company’s mission, goals, and objectives. In other words, the mission, goals, and objectives
spell out the ends, and the strategy defines the means for reaching them. A strategy is the master plan that
covers all the major parts of the organization. An entrepreneur must build a sound strategy based on the
preceding steps that uses the company’s core competencies and strengths.

ENTREPRENEURSHIP SUSHMA KARNA, LECTURER, EASCOLL

Three Strategic Options

1. Cost Leadership
Cost leadership is a strategy in which a company strives to be the low cost producer relative to its
competitors in the industry. Many companies attempt to compete by offering low prices, but low
costs are a prerequisite for success. Low-cost leaders have a competitive advantage in reaching
buyers whose primary purchase criterion is price, and they have the power to set the industry’s
price floor. This strategy works well when buyers are sensitive to price changes.
2. Differentiation
Differentiation is a strategy in which a company seeks to build customer loyalty by positioning its
goods or services in a unique or different fashion. A company following a differentiation strategy
seeks to build customer loyalty by selling goods or services that provide unique attributes and that
customers perceive to be superior to competing products. That, in turn, enables the business to
command higher prices for its products or services than competitors.
3. Focus
Focus strategy is a strategy in which a company selects one or more market segments; identifies
customers’ special needs, wants, and interests; and approaches them with a good or service
designed to excel in meeting those needs, wants, and interests. A focus strategy recognizes that
not all markets are homogeneous. In fact, in any given market, there are many different customer
segments, each having different needs, wants, and characteristics. Businesses with a focus
strategy sell to these specific segments rather than try to sell to the mass market.

Step 8: Translate Strategic Plans into Action Plans

No strategic plan is complete until it is put into action; planning a company’s strategy and implementing
it go hand in hand. Entrepreneurs must convert strategic plans into operating plans that guide their
companies on a daily basis and become a visible, active part of the business. Implementing a strategy
successfully requires both a process that fits a company’s culture and the right people committed to
making that process work. Getting the right people in place starts with the selection process but includes
every other aspect of the human resources function from job design and training to motivational methods
and compensation.

Step 9: Establish Accurate Controls

So far, the planning process has created company objectives and has developed a strategy for reaching
them, but rarely, if ever, will the company’s actual performance match stated objectives. Entrepreneurs
quickly realize the need to control actual results that deviate from plans. Plan establishes the standards
against which actual performance is measured. Entrepreneur must identify and track key performance
indicators and take corrective action. To judge the effectiveness of their strategies, many companies are
developing balanced scorecards, a set of multidimensional measurements that are unique to a company
and that incorporate both financial and operational measures to give managers a quick yet comprehensive
picture of the company’s overall performance.

ENTREPRENEURSHIP SUSHMA KARNA, LECTURER, EASCOLL