Strategic Thinking Overview

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Strategic Thinking Overview
Primary Care Veterinary Educators Purdue
University October 18, 2013
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Questions well try to answer

• 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?

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So, what is strategy?

• What are your definitions of strategy?
• Porter
• Decisions that lead to a unique position
• What you do and dont 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.

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Another definition (James Bryan Quinn)

• A strategy is a pattern or plan that integrates
  an organizations major goals, polices, and
  action sequences into a cohesive whole. A
  well-formulated strategy helps to marshal and
  allocate an organizations 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.

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What I have found interesting

• Why do firms with access to the same resources
  and information have radically different outcomes?

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Or said another way . . .
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MissionVisionValues

• The tie to culture and team ..
• Culture eats strategy for lunch

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Elements necessary to craft a strategy

• Values
• Your organizations 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

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What do you think of this statement of values?

• 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.
• Respect - We treat others as we would like to be
  treated ourselves. We do not tolerate abusive or
  disrespectful treatment.
• 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 wont do
  it.
• 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.

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Realize values show up everywhere

• 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.
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Vision and values show in many of the practice's
decisions

• 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?

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The questions answered by the mission / vision.

• 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?

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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.

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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?

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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?

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Good Strategies

• Tell you what you will do, and what you will walk
  away from.

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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

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The architecture of strategic thinking
Plan of action
Core strategic issues
Each practices competitive position
Compare and contrast
The Key Success Factors (KSF)
Analysis of the competition
The veterinary environment
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The Environment
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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

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The General Environment (Threats Opportunities)
Environment Threat ( why?) Opportunity ( why?)
Political / Legal
Economic
Sociocultural
Technological

Demographic
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Prioritize these elements
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Steakholders?

• These are not what I mean.

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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

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Stakeholder Analysis
Stakeholders Wants/Needs? Impact level on your outcome



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The power of a focus group
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Clients
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Cost / Value Matrix for clients
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Value in Serving
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C O S T T O S E R V E
High Maintenance
Lose em
If you have time
Gravy
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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?

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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?

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The Industry
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Porters Five Force Analysis
Threat of New Entrants
Rivalry Among Competing Firms in Industry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
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A Power game

• Supplier power increases as
• 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

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A Power game

• Buyer power increases as .
• There are fewer clients to choose from,
• they become larger,
• their switching costs become lower,
• they have ample substitutes for your good or
  service

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A Threat Game

• Threat of new entrants increases with
• 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.

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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

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A competitive game

• Rivalry (cut throat competition) among
  established players increases as ..
• 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)

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Examples of Porters Forces Applied to Veterinary
Profession

• Threat of new veterinary practices and new
  consolidators entering into the traditional
  competitive environment - Banfield
• Suppliers ability to demand higher prices,
  especially when selling small lots to many
  outlets versus large orders for bigger groups.
  Pharma consolodation
• Clients ability to choose from a variety of
  practices and the freedom to move from one
  practice to another.
• Substitute products and services becoming
  available through changes in regulation or
  technology PetMed Express alternative medicine
• Traditional competition increasing due to slower
  demand Feline visit trends
• Forward integration, or economies of scope VCA
  Antech

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Veterinary service is a fragmented industrySo,
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

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Competition in Fragmented Industries

• Classic examples of fragmented industries
• Dentists
• Lawyers
• Restaurants
• Dry Cleaners
• Retailers
• Farmers
• Lumber yards
• Real Estate
• Ophthalmologists
• Pharmacists
• Veterinarians

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What industry factors facilitate industry
fragmentation?

• New industry
• No scale economies
• Low entry barrier
• High exit barrier
• High transportation costs
• Need for specialization
• High Product differentiation
• Local or Govt Regulation
• Customer Preference

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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

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How do you manage in the fragmented industry ?

• Dont 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.
• Dont forget broader strategies can attempt to
  erode the niche.

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From what has come before

• External Environment
• Five Forces
• Industry Trends
• What a practice might do

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From here on

• Internal Environment
• Resources
• Capabilities / skills
• What a practice can do

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Inside the practice
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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.

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It is not just resources, it is how they are put
together.
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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

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What do you feel are the KSFs in the future?

• Given the environment
• Given the Industry
• Given the clients
• Given the opportunities
• What attributes would worry you the most?

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KSF Examples from past programs

• Human Resource Systems
• train, motivate, recruit, retain
• 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

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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)
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Be aware of strategic fit Porters map for
Southwest Airlines
Source Michael E. Porter What is Strategy
Harvard Business Review, Nov-Dec 1999
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The architecture of strategic thinking
Plan of action
Core strategic issues
Each practices competitive position
Compare and contrast
The Key Success Factors (KSF)
Analysis of the competition
The veterinary environment
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Thinking, then the doing