Strategic Thinking Overview

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Strategic Thinking Overview
Primary Care Veterinary Educators
Purdue University
October 18, 2013
Questions we’ll try to answer
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What is the concept of strategy?
What are missions, visions and values?
• Why are they important?
What is the business environment?
• How do you frame and prioritize trends?
What is an industry? The Vet practice industry?
• How do you frame that perspective?
• What is unique about the industry?
What leads to an advantage in the marketplace?
How do you put all this together in a practice
How does this understanding help a practicing veterinarian?
So, what is strategy?
• What are your definitions of strategy?
• Porter:
– Decisions that lead to a unique position
– What you do and don’t do
– A fit between firm actions and the environment.
• Robert
– A “picture” of the products, customers, industry segments and
geography you will compete in. A future vision of the firm.
Another definition (James Bryan Quinn)
• A strategy is a pattern or plan that integrates an
organization’s major goals, polices, and action
sequences into a cohesive whole. A wellformulated strategy helps to marshal and
allocate an organization’s resources into a
unique and viable posture based on its relative
internal competences and shortcomings,
anticipated changes in the environment and
contingent moves by intelligent opponents.
What I have found interesting
• Why do firms with access to the same
resources and information have radically
different outcomes?
Or said another way . . .
Mission
Vision
Values
The tie to culture and team …..
“Culture eats strategy for lunch”
Elements necessary to craft a strategy
• Values
– Your organization’s “belief” system
• Mission
– Concept of the organization, nature of the business, reason
you exist, who you serve, and the principles and values you
operate under.
• Vision
– A short, inspiring, encompassing view of the organization
What do you think of this statement of values?
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Communication - We have an obligation to communicate. Here, we take the
time to talk with one another… and to listen. We believe that information is
meant to move and that information moves people.
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Respect - We treat others as we would like to be treated ourselves. We do
not tolerate abusive or disrespectful treatment.
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Integrity - We work with customers and prospects openly, honestly and
sincerely. When we say we will do something, we will do it; when we say we
cannot or will not do something, then we won’t do it.
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Excellence - We are satisfied with nothing less than the very best in
everything we do. We will continue to raise the bar for everyone. The great
fun here will be for all of us to discover just how good we can really be.
Realize values show up everywhere
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Ethics
Quality
Safety
Innovation
Human Resources
Profitability
Fun
Responsive to customers
Image to the field
Image in the community
Are these
factors
important,
or are some
more and
some less
important?
Just realize there are
implicit tradeoffs in
managing.
Vision and values show in many of the practice's
decisions
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Expansion – grow organically or acquire?
Service diversity – broad or narrow?
Client diversity – broad or narrow?
Geographic scope – local or regional?
Service – standard or customized?
Ownership - narrow or broad?
Structure – centralized or decentralized?
The questions answered by the mission / vision.
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What is unique or distinctive about us as a practice?
Who should be our principal clients?
What should be our principal market segments?
What should be our principal services?
How are we different from 3 – 5 years ago?
How will we be different in 3 – 5 years?
So, what is strategy?
• Decisions about scale.
• Decisions about scope.
• Decisions about investments you make to
develop key competences and critical success
factors.
• Decisions about structure, integration and the fit
between the parts of your business model.
• Decisions about financing.
A smidge of economics
• Scale Economies
– Cost benefits accrue through the sheer size of the
organization. The firm is able to spread more service delivery
or units of production across an existing asset base.
• Examples?
• Scope Economies
– Cost benefits accrue through the addition of product and
service lines, since the products or services share significant
elements of the same value chain.
• Examples?
Good strategies answer 3 questions
• How will we create value?
– How will markets and technologies change?
• How will we deliver value?
– What will our business model look like, and where in
the value chain will we compete?
• How will we capture value?
– How will we allocate our resources to feed the core
businesses and still seek growth opportunities?
Good Strategies
• Tell you what you will do,
and what you will walk away
from.
Two strategic lens
• External environment
– Industrial organization view of the firm
– Industry structure drives profitability
• Internal environment
– Resource based view of the firm
– Develop valuable resources and capabilities difficult for
others to imitate
The architecture of strategic thinking
Plan of
action
Core strategic
issues
Each practice’s competitive position
Compare and contrast
The Key Success Factors (KSF)
Analysis of the competition
The veterinary environment
The Environment
Making sense of the external environment
Can you think of examples and their impact on a
veterinary practice?
• Political issues
• Economic reality
• Social trends
• Technological changes
The General Environment (Threats & Opportunities)
Environment
Political / Legal
Economic
Sociocultural
Technological
Demographic
Threat (& why?)
Opportunity (& why?)
Prioritize these elements…
Steakholders?
• These are not what I mean….
Stakeholders
• What is a Stakeholder?
• Those with power over your destiny
• Those who can influence your success
• Individuals, groups or organizations
responsible for trends that impact you
• Stakeholders can be either internal or
external
Stakeholder Analysis
Stakeholders
Wants/Needs?
Impact level on your
outcome *
The power of a focus group
Clients
Cost / Value Matrix for clients
5
C
O
S
T
1
Value in Serving
High Maintenance
Lose ‘em
Gravy
If you have time
T
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S
E
R
V
E
1
Client Segmentation
• What is the client type? (Pet Lover, Shots,
Casual)
• Their definition of good service?
– Visit frequency?
– Average revenue?
– Loyalty to practice?
• Cost to serve in time demanded?
• Cost to serve in fielding complaints?
Use the segmentation matrix
• Are there segments you want to grow?
• Are there segments you want to reduce?
• From a focus group
– what new can I do for a segment?
• Can you find an entirely new segment?
The Industry
Porter’s Five Force Analysis
Threat of
New
Entrants
Bargaining
Power of
Buyers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
Bargaining
Power of
Suppliers
A Power game
• Supplier power increases as …
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Fewer suppliers exist,
they become a large % of your cost,
it becomes harder for you to switch providers,
a chance exists for them to integrate forward, and
move into your business
A Power game
• Buyer power increases as ….
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There are fewer clients to choose from,
they become larger,
their switching costs become lower,
they have ample substitutes for your good or service
A Threat Game
• Threat of new entrants increases with …
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Low client loyalty,
low switching costs,
low initial investment,
the presence of few economies of scale,
the lack of ways to differentiate a service or product,
the lack of regulatory restriction,
no need exists for elaborate distribution channels.
A Threat Game
• Threat of substitutes increases with
– Aggressive selling of the substitute good or service,
– the existence of ample numbers of potential
substitutes,
– low switching costs,
– The substitutes provide options that offer a higher
profitability or lower cost to the consumer
A competitive game
• Rivalry (cut throat competition) among established players
increases as …..
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Players lack differentiation
Barriers to exit exist
Few barriers to entry exist
Demand slows
Rivals reach similar size and capability
High fixed costs exist
The strategic “diversity” increases (new players enter the market that are
previously unknown and untested; they try new things and approach the
market in a new way – and as such you never quite know what to expect)
Examples of Porter’s Forces Applied to
Veterinary Profession
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Threat of new veterinary practices and new consolidators entering into the
traditional competitive environment - Banfield
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Suppliers’ ability to demand higher prices, especially when selling small lots to
many outlets versus large orders for bigger groups. Pharma consolodation
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Clients’ ability to choose from a variety of practices and the freedom to move from
one practice to another.
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Substitute products and services becoming available through changes in
regulation or technology – PetMed Express; alternative medicine
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Traditional competition increasing due to slower demand – Feline visit trends
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Forward integration, or economies of scope – VCA Antech
Veterinary service is a fragmented industry
So, what is a fragmented industry?
• An industry where no one player holds a
dominant position in the market place.
• They are generally composed of a lot of small to
mid size businesses.
• An industry can have a few large players, and
yet still be fragmented
Competition in Fragmented Industries
• Classic examples of fragmented industries
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Dentists
Lawyers
Restaurants
Dry Cleaners
Retailers
Farmers
Lumber yards
Real Estate
Ophthalmologists
Pharmacists
Veterinarians
What industry factors facilitate industry fragmentation?
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New industry
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No scale economies
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Low entry barrier
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High exit barrier
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High transportation costs
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Need for specialization
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High Product differentiation
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Local or Gov’t Regulation
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Customer Preference
Prescribed ways to compete in a fragmented industry
• Cost
– Low cost / no frills / tight controls
– Tightly managed decentralization / formula facilities
• Focus
– By geography
– Specialize by customer type
• Professionals / dual career; retirees
– Increase the “value add”
• Pick up and delivery; boarding;
• hours; bundled services
– Specialize by product type or service segment
• Exotics; Emergency; LAC; SAC; Cat; Dog; Internal
How do you manage in the fragmented industry ?
• Don’t try to out scale a scaled operation
• Focus and differentiation are key
– Couple focus on specialization with customer type or bundled
services
• Be careful to not focus so tightly that the market cannot
support the niche.
• Don’t forget broader strategies can attempt to erode the
niche.
From what has come before
• External Environment
– Five Forces
– Industry Trends
• What a practice might do
From here on…
• Internal Environment
– Resources
– Capabilities / skills
• What a practice can do
Inside the practice
The road to competitiveness
• Resources
– Tangible and Intangible
• Capabilities
– How the resources are brought together
• Core Competence
– A critical competence in the industry; a KSF
• Competitive advantage – superior skill
– And above average returns
• It is not just resources; it is what you do with the
resources; how you put them together.
It is not just resources, it is how they are put together.
The most critical competences ?
Key Success Factors
• Critical Factors to succeed in an Industry
• Attributes of your ideal practice or firm
• Attributes of your most feared competitor
What do you feel are the KSFs in the future?
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Given the environment
Given the Industry
Given the clients
Given the opportunities
• What attributes would worry you the most?
KSF Examples from past programs
• Human Resource Systems
– train, motivate, recruit, retain
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A well differentiated practice
Protocols / standards of service
Customer service delight
Use of social networks and web 2.0 technologies
Marketing plans
Compliance
Good communication systems
– both internal and external
The “ideal” practice
• Excellent performance
on the factors suggested
by the industry and
environment to be critical
to above average returns
in the future.
“Can You Say What Your Strategy Is?”
by David J. Collis and Michael G. Rukstad,
Harvard Business Review, April 2008, page 89)
Be aware of strategic fit:
Porter’s map for Southwest Airlines
No baggage
transfers
No meals
No seat
assignments
Frequent,
reliable
departures
High
compensation
of employees
Flexible
union
contracts
15-minute
gate
turnarounds
Lean, highly
productive
ground and
gate crews
High level
of employee
stock
ownership
Limited
passenger
amenities
Limited use
of travel
agents
No
connections
with other
airlines
Standardized
fleet of 737
aircraft
Short-haul,
point-to-point
routes between
midsize cities
and secondary
airports
Automatic
ticketing
machines
Very low
ticket prices
High
aircraft
utilization
“Southwest,
the low-fare
airline”
Source: Michael E. Porter “What is Strategy” Harvard Business Review, Nov-Dec 1999
The architecture of strategic thinking
Plan of
action
Core strategic
issues
Each practice’s competitive position
Compare and contrast
The Key Success Factors (KSF)
Analysis of the competition
The veterinary environment
Thinking, then the doing…
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