Why have a mission statement?
– Informs all stakeholders why the company exists
– Helps to resolve disputes about its future direction
– Inspiring for employees and managers
Google’s mission is to organize the world’s information and make it universally accessible and useful.
What makes a good mission statement?
– Emphasize creation of customer or social value, not being the best or simply making money
– Focus on important needs or problems to address, not products or services
– Actually live and practice the mission in the company
– Keep it short, inspiring and memorable
An aspirational statement about the future direction and impact of a company
Google: “To provide access to the world’s information in one click.”
May change occasionally (unlike missions)
Strategic Intent: A stretch vision, with a strategic plan for getting there
Canon: “Beat Xerox”
Some companies also lay down values they hold and expect to adhere to A “code of conduct” for the company and its employees
Google lists 10 beliefs that it holds
#6: You can make money without doing evil
A Business Model comprises of four main interrelated elements – THE VARS MODEL
Four Main Interrelated Elements
1. Value Proposition
Goal => Increase Economic Value Added (EVA)
2. Activities – Resources – Capabilities
How does the firm create EVA?
3. Realization (Revenue model)
How do you convert EVA into a revenue stream?
– Sale for cash, credit, or installments
– Sale for services
– Leasing or Subscription models (Netflix)
– Product and complements (Razorblade)
– Freemium (free + added premium services)
– Two-sided markets (Google; E-Bay)
– Platforms and Ecosystems (Facebook)
4. Scope of Enterprise
– Customer Segments
Which market segments are being addressed?
Which customer segment(s)?
– Horizontal Scope
Products or services
– Vertical Scope
Integration versus outsourcing or partnering
A pragmatic theory (or design) that explains how an enterprise generates and realizes (superior) value
A mental / abstract representation
A set of (testable) hypotheses
What a business model is not …
Detailed operational or tactical plans
A complete strategy for sustainable performance/competitive advantage
Specific to a particular firm
A firm’s strategy must be consistent and integrate across all parts of its organization. Strategy’s central is to align the internal elements of the firm with its external environment.
Early strategy framework
Incorporates core ideas of coherence and fit
Still widely used
Intuitive and easy to understand
Module 2 – External Analysis
The PESTEL Framework
- Local, state, national and regional
- Public policy sensitivities
- Stability, security, corruption
- Growth, employment, inflation
- Interest and exchange rates
- Economic inequality
- Demographic trends
- Values and culture
- Aspirations and Expectations
- Trends in R&D and Innovation
- Disruption and new business models
- Process and operational innovation
- Pollution, sustainability
- Climate change
- Courts (multiple jurisdictions)
- Antitrust, labor, liability (tort)
- International treaties and laws
Industry analysis systematically examines different actors and structural features in an industry. Aims to explain and predict industry profitability. Industry effects explain about 21% of “explained profitability”, on average. US Airlines is the least profitable and US Pharmaceutical is the most profitables industries.
What is systematically different between the Airline and Pharmaceutical industries that drives their (low and high) profitability?
Porter’s Five Forces
Competitive Rivalry. This looks at the number and strength of your competitors.
Supplier Power. This is determined by how easy it is for your suppliers to increase their prices.
Buyer Power. Here, you ask yourself how easy it is for buyers to drive your prices down.
Threat of Substitution. This refers to the likelihood of your customers finding a different way of doing what you do.
Threat of New Entrants. Your position can be affected by people’s ability to enter your market.
HOW TO USE THE 5-FORCES FRAMEWORK?
- Clearly identify the industry, and “who” are the 5 forces
- Examine structural attributes of each force
- Develop an assessment of the “strength” of each force e.g. strong, moderate, weak
- Combine analysis of all 5 forces for overall assessment of profitability
- Examine dynamics: changes in structural attributes over time
COMBINING ANALYSIS OF ALL 5 FORCES
How to combine the 5 forces …Simply average the impacts?
Concrete Example: Forces rated as weak, moderate, strong (in favor of profitability)
Industry 1: All 5 forces are moderate
Industry 2: One weak force, all other forces are moderate to strong
Which industry would be more profitable – industry 1 or industry 2?
COMPLEMENTS: A SIXTH FORCE?
In many industries, complements play a vital role in the success of a product or service. e.g. Hardware-software, OS-Apps, Consoles-Games, Cars-gasoline
Complements as the conceptual opposite of substitutes. Industry profits increase with low-cost, high-quality complements. Potential for “coopetition”. Consider both benefits from and bargaining with complementors.