Strategic Planning Institute of Management Accountants NorthEast Regional Council 10th Annual Fall Conference Thomas A. Barron, Jr., Ed.D. Director, M.S. in Organizational Effectiveness & Leadership Charter Oak State College

Agenda The Nature of Strategic Planning Value Proposition & Business Model Strategic Analysis Models Strategic Formulation Models Strategic Plan Conclusion

The Nature of Strategic Planning

The Strategic-Management Model Where are we now? Where do we want to go? How are we going to get there? Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Decisions Long-term in nature (> 1 year) Rare: Unusual and have no precedent to follow Consequential: Commit substantial resources & demand a great deal of commitment from people at all levels Directive: Set precedents for lesser decisions & future actions throughout the organization

Pitfalls in Strategic Planning Doing strategic planning only to satisfy accreditation or regulatory requirements Failing to communicate the plan to employees Failing to involve key employees in all phases of planning Top managers not actively supporting the strategic-planning process Failing to use plans as a standard for measuring performance Thinking tactically instead of strategically Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Value Proposition & Business Model

Value Proposition An innovation, service, or feature intended to make a company or product attractive to potential customers. Focus: What problem or need is not being addressed in the market? What product or service can you provide that will add more value or better solve a problem than current offerings in the market?

Value Proposition Competitive advantage Anything that a firm does especially well compared to rival firms Goal: Utilize a firm’s competitive advantage to create economic value for both the firm and its customer

Value Proposition

Value Proposition Value Map Customer Profile Products & Services List of products & services a value proposition is built around Gain Creators Describe how your products & services create customer gains Pain Relievers Describe how your products & services alleviate customer pain Customer Jobs Describe what customers are trying to get done in their work & in their lives (their own words) Pains Describe bad outcomes, risks & obstacles related to customer jobs Gains Describe the outcomes customers want to achieve or the concrete benefits they are seeking

Value Proposition Steps: Step 1: Create the Customer Profile Step 2: Create the Value Map Step 3: Determine the Fit

Customer Profile: Identify Jobs The types of things your customers are trying to get done in their work or personal lives Functional Jobs- Customers attempt to complete a specific task or solve a specific problem Social Jobs- How customer wants to be perceived by others Personal / Emotional Jobs- Customer seeks a specific emotional state

Customer Profile: Types of Pains Undesired Outcomes, Problems, & Characteristics Functional- Doesn’t work well Social- I look bad doing this Emotional- Feel bad doing this Ancillary- Annoying, inconvenient Risks Undesired potential outcomes Important negative consequences Obstacles Prevent a customer from starting a job or that slow them down Cost, time, resources

Customer Profile: Types of Gains Describe the outcomes / benefits your customer wants Required Gains Solution will not work unless these gains are achieved Expected Gains Basic gains that we expect from a solution, even if it could work without them Desired Gains Gains that go beyond what we expect from a solution but would love to have if we could (customer can identify) Unexpected Gains Gains that go beyond customer expectations (customer does not identify).

Customer Profile Prioritization Prioritize Jobs, Pains, & Gains Jobs Pains Gains Important Extreme Essential Insignificant Moderate Nice to Have

Customer Profile- Management Tips One Value Proposition Canvas for each different customer segment Do not mix jobs & outcomes Focus on all three job types (Functional, Social, & Emotional) Focus on the customer & facts, dig deep, really understand what is going on with your customer Brainstorming is key Be specific

Value Map Steps: Step 1: List Products & Services Step 2: Identify Pain Relievers Step 3: Identify Gain Creators Step 4: Rank Products & Services, Pain Relievers, & Gain Creators

Value Map: Products & Services List all the products and services that you offer Helps customers complete jobs Functional Social Emotional Customer segment focus

Value Map: Pain Relievers Describe exactly how your products & services alleviate specific customer pains Savings (time & money) Make customers feel better; eliminate concerns Fix underperforming solutions Eliminate obstacles Eliminate negative social consequences Eliminate / minimize risks Eliminate processing / customer errors Eliminate barriers that keep customers from adopting your value proposition

Value Map: Gain Creators Describe exactly how your products & services will produce outcomes and benefits that your customer expects Savings (time & money) Outcomes that customers are specifically looking for or exceed expectations Outperform current value propositions; makes adoption of value proposition easier Make work / life easier; Create positive social consequences Achieve customer dreams / aspirations

Value Map Prioritization Products & Services Pain Relievers Gain Creators Essential Essential Essential Nice to Have Nice to Have Nice to Have

Fit Achieved when customers get excited about your value proposition Address important jobs Alleviate extreme pain Create essential gains Based on what the customer cares about Ongoing, continuous challenge for businesses

Great Value Proposition Characteristics Align with how customers measure success Focus on jobs, pains, & gains that a lot of people have or will pay a lot of money for Differentiate from competition on jobs, pains, & gains that customers care about Outperform competition substantially on at least one dimension Are difficult to copy Embedded in great business models Focus on jobs, pains, & gains that matter most to the customer Focus on unsatisfied jobs, unresolved pains, & unrealized gains Target few jobs, pains, & gains but do so extremely well Address functional, social, & emotional jobs

Competitive Advantage Core Competency Identification Collection of competencies the corporation does exceedingly well Provides access to a wide variety of markets Make a significant contribution to the perceived customer benefits of the end product / service Difficult for competitors to duplicate 5 to 6 core competencies at most Core Competencies + Strong Value Proposition = Competitive Advantage

Business Model A business model describes a rationale of how an organization creates, delivers and captures value

Business Model Customer Segments: Value Proposition: Require / justify a distinct offer Reached through different distribution channels Require different types of relationships Substantially different profit generation levels Willingness to pay for different aspects of the offer Value Proposition: An innovation, service, or feature intended to make a company or product attractive to potential customers.

Business Model Channels: Key Resources: Physical Intellectual Awareness- How do we raise awareness of company’s products & services? Evaluation- How do we help customers evaluate our Value Proposition? Purchase- How do we allow our customers to purchase the products and services? Delivery- How do we deliver a value proposition to our customers? After Sales- How do we provide post-purchase customer support? Key Resources: Physical Intellectual Human Capital Financial

Business Model Customer Relationships: Customer acquisition Customer retention Boosting sales (upselling) Key Activities: Most important things a company must do to make its business model work Production Problem solving Platform / network

Business Model Revenue Streams: Cost Structures: Revenues from one-time or recurring customer payments Asset sales Subscription fees Renting / Leasing Licensing Brokerage Fees Advertising How do we price our product or service??? Cost Structures: Cost-driven (Focus on minimizing costs) Value-driven (Focus on value creation) Cost Characteristics: Fix Costs Variable Costs Economies of Scale (Unit Output) Economies of Scope (Scope of Operations)

Business Model Key Partnerships Motivations: Optimization and economies of scale Reduction of risk and uncertainty Acquisition of particular resources and activities Types of Partnerships: Strategic alliances (non-competitors) Coopetition (strategic partnerships between competitors) Joint ventures to develop a new business Supply chain relationships to assure reliable supplies

Strategic Analysis Models

Strategic Analysis Management Tips # 1: Everything we do related to strategic management revolves around reacting to or acting in anticipation of external environmental conditions # 2: Assign measures / quantify everything

SWOT Analysis External Analysis: Opportunities & Threats Economic Social, Cultural, Demographic, & Environmental Political, Legal, & Governmental Competitors Technological

Porter’s Five-Forces Model of Competition Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

SWOT Analysis Internal Analysis: Strengths & Weaknesses Management Marketing Finance/Accounting Production/Operations Research & Development Management Information Systems Human Resources

Internal Analysis Focus Competency = Capability Core Competency Collection of competencies spread across the organization that the business does exceedingly well Distinctive Competency Core competencies that are superior to the competition

Value Chain Profit Margin Primary Activities Firm Infrastructure General Mgt., Accounting, Finance, Strategic Planning Support Activities Profit Margin Human Resource Management Recruiting, Training, Development Technology Development R&D, Process Improvement Procurement Purchasing of raw materials, machines, supplies Inbound logistics Operations Outbound logistics Marketing & Sales Service Primary Activities

Strategy Formulation Models

SWOT Matrix- Four Types of Strategies SO Strategies Use a firm’s internal strengths to take advantage of external opportunities ST Strategies Use a firm’s strengths to avoid or reduce the impact of external threats WO Strategies Aim at improving internal weaknesses by taking advantage of external opportunities WT Strategies Defensive tactics directed at reducing internal weakness and avoiding external threats Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

SWOT Matrix Example Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

SWOT Matrix Example Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Strategic Plan

Mission Statement “What is our business or our reason for being?” Broadly outlines the organization’s future direction. Expresses values or expectations of stakeholders. Short , concise, clear, & easy to remember. Galvanize all employees to focused action

Mission Statement Broad enough to allow for creative growth Be limited enough to exclude non-congruent ventures Serve as a framework for evaluating both current and prospective activities Value proposition focused

Strategic Plan Objectives Strategies Tactical Plan

Strategic Plan Objectives: Common Examples: Overarching goals identified as most important to the current and future health of the business Limited in number Abstract, serves as the framework for identifying and categorizing strategies Common Examples: Achieve growth Profit maximization Efficiency Leverage technology Customer service

Strategic Plan Example Objective: Achieve Growth Strategies: High-level plan for purposes of achieving an organization’s business objective Must use SMART criteria Identifies Key Performance Measures Example Objective: Achieve Growth In the next 3 years remodel and expand 15 existing stores In the next 3 years build 5 new stores, at least 75,000 sq. ft. in Massachusetts

Strategic Plan Example Objective: Achieve Growth Tactical Plan: Annual operating plan Based on identified Objectives and Strategies SMART criteria Utilizes Key Performance Measures to evaluate level of success Allocate required resources Example Objective: Achieve Growth Remodel 2 stores in Sturbridge and Worcester Massachusetts remodel and expand 2 existing stores in Boston by December 31 Build 1 new store in Hyannis, Massachusetts with 75,000 sq. ft. by October 31

Strategic Plan Key Performance Measures / Key Performance Indicators Organizations should identify key performance indicators that will drive organizational success that will assess achievement of objectives and strategies If these measures are achieved the organization should achieve its plan Limit the number of KPM / KPI of “total company-based” measures to be focused on by senior management (10-12) Financial as well as operational measures are required

Competitive Companies Characteristics Market share matters, growth matters Whether it’s broke or not, fix it & make it better Innovate or evaporate People (more specifically the talents and skills they contribute that provide a value-add to an organization) make a difference Cost, quality, and speed of delivery are expected by customers Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall

Conclusion- Key Concepts Understand and remember precisely what business you are in- VALUE PROPOSITION !!! Strategic environmental analysis is a critical aspect of the strategic planning process. A quality effort in this phase is a prerequisite for future strategic planning & implementation success. People love to plan, but it is the “DO”, the achieving of results that matters. Everyone must be held accountable to the achievement of the plan.

References David, F. R., & David, F. R. (2015). Strategic management: A competitive advantage (15th ed.). Upper Saddle River, NJ: Pearson. Osterwalder, A., & Pigneur, Y. (2010). Business model generation. Hoboken, NJ: John Wiley & Sons Osterwalder, A., Pigneur, Y., Bernarda, G., & Smith, A. (2014). Value proposition design. Hoboken, NJ: John Wiley & Sons