Section II Building the Business Plan: Beginning Considerations

Chapter 3
Strategic Management and The Entrepreneur (PPT 3.1, 3.2)
Part One: Learning Objectives
1. Understand the importance o strategic management to a small !usiness.
". E#plain $h% and ho$ a small !usiness must create a competiti&e ad&antage in
the mar'et.
3. (e&elop a strategic plan or a !usiness using the nine steps in the strategic
planning process.
). (iscuss the characteristics o three !asic strategies: lo$ cost* di+erentiation*
and ocus* and 'no$ $hen to emplo% them.
,. Understand the importance o controls such as the !alanced scorecard in the
planning process.
Part Two: Lesson Plan
I. Building a Competiti&e -d&antage (PPT 3.3 thru 3.5)
(e&eloping a strategic plan allo$s a compan% to create a competiti&e
ad&antage.. an aggregation o actors that sets a compan% apart rom
its competitors and gi&es it a uni/ue position in the mar'et. 0o
!usiness can !e e&er%thing to e&er%one. Creating a strategic plan
pre&ents a small !usiness rom ailing to di+erentiate itsel rom its
competitors.
-nother a&enue or a small !usiness see'ing a competiti&e ad&antage is
customer intimac%* ocusing on the goods and ser&ices that customer1s
$ant and &alue. 2hen it comes to de&eloping a strategic plan* small
companies ha&e a &ariet% o natural ad&antages o&er their larger
competitors: e$er product lines* a !etter de3ned customer !ase* a
speci3c geographical area* and closer customer contact.
0o !usiness can !e e&er%thing to e&er%one. The goal o de&eloping a
strategic plan is to create a competiti&e ad&antage or the small
!usiness.. the aggregation o actors that sets the small !usiness apart
rom its competitors and gi&es it a uni/ue position in the mar'et.
Strategic Management includes de&eloping a game plan to guide a
compan% as it stri&es to accomplish its &ision* goals* and o!4ecti&es and
to 'eep it rom stra%ing o+ its course.
Strategic Planning should include:
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Both a short. and long.term planning hori6on
Compan% goals and o!4ecti&es
Complete industr% and other rele&ant inormation
Customer and emplo%ee input
Customer ocus
II. The Strategic Management Process (PPT 3., 3.!)
Strategic planning is a continuous process that consists o nine steps:
Step 1: (e&elop a clear &ision and translate it into a meaningul mission
statement (PPT 3." thru 3.1#)
- &ision is the entrepreneur1s dream o something that does not %et e#ist. It
pro&ides direction* a !asis or decision.ma'ing and a source o moti&ation. -
compan%1s &ision statement incorporates the &alues o its o$ner and is a!out
more than 4ust ma'ing mone%. - clearl% de3ned &ision leads to a compan%1s
mission statement that includes a description o the !usiness* its products* its
mar'ets and customers* its competiti&e distinction and its e+ects on the
communit% at large.

Step ": -ssess the compan%1s strengths and $ea'nesses (PPT 3.11)
Strengths are positi&e internal actors that a compan% can use to accomplish
its mission. 2ea'nesses are potentiall% negati&e actors that could inhi!it
those e+orts. This on.paper anal%sis allo$s the entrepreneur to ha&e a !etter
perspecti&e o the o&erall &enture* to esta!lish a oundation to !uild on
7strengths8 and to meet and remo&e the challenges and o!stacles standing in
the $a% o success 7$ea'nesses8.
Step 3: Scan the en&ironment or signi3cant opportunities and threats acing
the !usiness (PPT 3.12, 3.13)
2ith the internal in&entor% complete* the 3rm no$ searches or e#ternal
opportunities such as speci3c mar'et niches that match up $ell $ith internal
resources. The 'e% to success is to ta'e action and to sta% a step ahead o the
competition. E#ternal threats ma% come rom competitors* go&ernment
agencies* rising interest rates and so on. The 3rm must ha&e a plan or
shielding itsel rom those threats.
9:U BE T;E C:0SU<T-0T Something 0e$* Something Blue
2hile the airline industr% has al$a%s !een accustomed to change* the recent
e&ents o terrorism* $ar and recession ha&e created the most challenging o times or
e#ecuti&es $ho must ha&e a solid strategic plan in place in order to succeed.
"=
(a&id 0eeleman* a ormer South$est -irlines e#ecuti&e* ormed >etBlue in the
%ear "???. 0eeleman de&ised a strategic plan some$hat similar to South$est1s in
that his planes @% onl% point.to.point as opposed to the traditional hu!.and.spo'e
s%stem used !% its larger ri&als. 0eelman uses onl% one t%pe o 4et to minimi6e
training and maintenance costs* @ies longer than a&erage routes* and has a non.
union $or'orce that cooperates $ith one another* ocuses on customer ser&ice and
has a sta'e in the compan% through emplo%ee stoc' options. - num!er o other cost.
cutting and re&enue.enhancing eatures are !uilt into the compan%1s operations that
com!ine to distinguish the >etBlue !rand rom others.
0eeleman and >etBlue ace a num!er o longer.term challenges 7la!or* aircrat
cost and maintenance and so on8 that re/uire ne&er.ending attention to strategic
management issues.
A1. Bo online to the >etBlue 2e!site or to !usiness maga6ine $e!sites to learn more
a!out >etBlue. Prepare an anal%sis o the compan%1s strengths* $ea'nesses*
opportunities* and threats.
A". Identi% the sources o >etBlue1s competiti&e ad&antages. -re these sources
sustaina!leC
A3. 2hat strategic ad&ice can %ou o+er (a&id 0eeleman to ensure >etBlue1s uture
successC
-1 D -" D -3. Students should connect the strategic management concept and steps
presented in the te#t $ith the speci3c circumstances surrounding >etBlue.
Step ): Identi% the Ee% Factors or Success in the Business (PPT 3.1$, 3.15)
E&er% !usiness has a certain degree o control o&er 'e% &aria!les such as production
capa!ilities* mar'et opportunities* its la!or orce* access to ra$ materials* in&entor%
and so on. Success comes rom the a!ilit% to recogni6e and to capitali6e on those
opportunities* and to ma#imi6e re&enues andGor minimi6e costs accordingl%.
Step ,: -nal%6e the Competition (PPT 3.1 thru 3.2#)
-nal%6ing all orms o competition must !e a ne&er.ending process or all companies.
Mar'ets and competitors come and go &er% /uic'l%. Heaction time is oten relati&el%
slo$* so the entrepreneur must ha&e the a!ilit% to anticipate changes in the
mar'etplace. There is an a!undance o inormation a&aila!le through man% sources
7pu!lic inormation* $e!sites* mar'et researchers8. Eno$ledge management is the
process o collecting inormation* anal%6ing it* and ta'ing action in an e+ecti&e
manner.
9:U BE T;E C:0SU<T-0T Sno$ and Soda: - Pro3ta!le Mi#
There is an unlimited amount o useul 'no$ledge and inormation to gain
rom an% compan% in an% industr%. The Cro$le% amil% has pro&ed that man% times
o&er !% !orro$ing techni/ues used in their !ottling plant 7Polar Be&erages8* appl%ing
those to their s'i area 72achusett Mountain8 and &ice.&ersa.
3?
- 'e% actor or the success o !oth operations is 3lling unused capacit%. -n
hour o unused or ineIcient production time in the !ottling plant has the same e+ect
as an hour o unused or ineIcient time on the s'i slopes. The s'i area $as a!le to 3ll
its idle capacit% !% targeting a num!er o di&ersi3ed mar'ets that use the slopes at
di+erent times o the da% and $ee'. The !ottling plant $as a!le to 3ll its idle capacit%
!% reshaping the si6e o its !ottles to !etter pac' truc's.
:n the surace* companies in di+erent industries ma% appear to ha&e little in
common. The entrepreneur recogni6es the opportunities o technolog% transer..
appl%ing the lessons learned in one !usiness and appl%ing those same principles to
assorted others.
A1. E#plain the core competencies that 2achusett Mountain has !uilt. 2hat is the
source o its core competenciesC
A". Identi% 2achusett Mountain1s strengths* $ea'nesses* opportunities* and threats.
A3. E#plain ho$ 2achusett Mountain uses 'no$ledge management to !uild a
competiti&e ad&antage. 2hat other steps $ould %ou suggest the compan% ta'e in
this areaC
-1. Core competencies are primaril% in the areas o production and mar'eting. The
source is top management1s &ision and a!ilit% to ta'e actions that enhance re&enues
and cut costs.
-". Students $ill generate a $ide.ranging list in each categor% o their S2:T
anal%sis.
-3. The process o 'no$ledge management is a $a% o lie or the mangers o !oth
companies. Both ha&e an acti&e program o constantl% gathering and assessing
inormation that could !e applied to either operation. Students $ill again generate
man% $a%s in $hich !oth companies can e#pand their !ase o 'no$ledge.
Step J: Create compan% goals and o!4ecti&es (PPT 3.21)
- compan% 7or person or that matter8 $ith no goals $anders aimlessl% into the
uture. Setting goals pro&ides ocus and direction or a compan% and its people.
:!4ecti&es are the speci3c targets o perormance re/uired to achie&e goals* such as
production* mar'eting* 3nancing and pro3t standards. Boals and o!4ecti&es should !e
measura!le* reacha!le* and in $riting.
Step K: Formulate Strategic :ptions and Select the -ppropriate Strategies
(PPT 3.22 thru 3.2)
- strateg% is a road map o the actions an entrepreneur dra$s up to a compan%1s
mission* goals* and o!4ecti&es. - strateg% is the master plan that incorporates all o
the parts 7mar'eting* 3nance* personnel* operations8 to ma'e up the $hole.
Step 5: Translate Strategic Plans into -ction Plans (PPT 3.2!)
Entrepreneurs must con&ert strategic plans into operating 7tactical8 plans that guide
their companies on a dail% !asis. In&ol&ing and empo$ering emplo%ees throughout
the entire process is oten a 'e% to successul outcomes. I an organi6ations people
31
ha&e a &ision or the uture direction and goals o a compan%* and i the% are gi&en a
sta'e in the compan%* the% are more li'el% to $or' in unison to achie&e those goals.
9:U BE T;E C:0SU<T-0T :ne.o.a.Eind Chip Ma'er
The stor% o entrepreneurs Mar' and Stace% -ndrus is similar to man% others
in that the% started small 7$ith a pushcart selling hot dogs* then pita.$rapped
sand$iches8* disco&ered a uni/ue mar'et niche 7turning da% old !read into pita
chips8* and 3nall% esta!lished and gre$ their compan% rom rags to riches.
Their ma4or strateg% or success is in the cost control area. E&en as sales gre$
rom L",*??? to L),?*???* Mar' and Stace% 'ept their operation simple* lo$ cost and
sel.suIcient. Their inclination is al$a%s to 3nd the cheapest and most practical $a%
to produce and sell a high /ualit% product $ith a strong mar'et !ase.
The couple also recogni6ed the need or outside capital in order to gro$ their
compan% and implemented their strateg% !% preparing a sound and proessional
!usiness plan that allo$ed them to secure 3nancing and turn their dreams into
realit%.
A1. 2hich o the three !asic strategies descri!ed in this chapter are Mar' and Stac%
-ndrus usingC E#plain. ;o$ e+ecti&e is itC
A". 2hen it comes to implementing their strateg%* ho$ do the -ndruses use their
si6e to their ad&antageC ;o$ $ould %ou rate the le&el o creati&it% the% e#hi!it in
managing their !usinessC
A3. 2hat suggestions $ould %ou o+er the -ndruses to impro&e the compan%1s
utureC
-1. The -ndruses implemented the cost leadership strateg% !% $or'ing to !ecome
the lo$est cost producer $ithin their industr%. Their no.rills* do.it.%oursel* second.
handGmodi3ed e/uipment strategies ha&e $or'ed $ell.
-". Their relati&el% lo$.cost* high.&olume production and sales techni/ues* along
$ith their high le&el o creati&it% are 'e% contri!utors to their success.
-3. Students $ill generate man% good ideas or uture gro$th.
Step =: Esta!lish -ccurate Controls (PPT 3.2" thru 3.31)
2ith a &ision* mission statement* strategic and tactical plan no$ in place* managers
must constantl% measure and assess the actual production* sales* costs and other
perormances o their departments and people* and e+ect an% changes necessar% to
sta% on schedule and on !udget.
III. Conclusion
The strategic planning process is ne&er.ending. It pro&ides structure and discipline
and re/uires the entrepreneur to pa% close attention to the details o !oth the
internal and e#ternal actors that determine success.
3"
Part Three: %uggeste& 'nswers to (iscussion )uestions
1. 2h% is strategic planning important to a small compan%C
Firms must continuall% stri&e or strategic and operational e#cellence. Failing to thin'
strategicall% a!out a !usiness is in&iting disaster. Strategic planning creates a
!lueprint or !usiness o$ners to ollo$ to achie&e speci3c o!4ecti&es.
". 2hat is a competiti&e ad&antageC 2h% is it important or a small compan% to
esta!lish oneC
- competiti&e ad&antage is an aggregation o actors that sets a compan% apart rom
its competitors and that gi&es it a uni/ue position in the mar'et. 0o !usiness can !e
e&er%thing to e&er%one. (e&eloping a strategic plan helps the small !usiness
di+erentiate itsel rom other companies .. a common pitall or man% small 3rms.
Smaller 3rms ha&e an ad&antage o&er larger 3rms !ecause the% are $ell suited to
concentrate on niche mar'ets. (e&eloping a strategic plan allo$s the small compan%
to meet the customersM needs toda%* $hile loo'ing one step ahead to $hat the% $ill
need tomorro$.
3. 2hat are the nine steps in the strategic management processC
Step 1. Develop a clear vision and translate it into a meaningful mission statement.
Step 2. Assess the company's strengths and weaknesses.
Step 3. Scan the environment for significant opportunities and threats facing the business.
Step 4. Identify the key factors for success in the business.
Step 5. Analyze the competition.
Step 6. Create company goals and obectives.
Step 7. !ormulate strategic options and select the appropriate strategies.
Step 8. "ranslate strategic plans into action plans.
Step 9. #stablish accurate controls.
). N:ur customers don1t 4ust li'e our ice cream*O $rite Ben Cohen and >err%
Breen3eld* co.ounders o Ben and >err%1s ;omemade Inc. NThe% li'e $hat our
compan% stands or. The% li'e ho$ doing !usiness $ith us ma'es them eel.O
2hat do the% meanC
Ben D >err%1s mission statement e#presses the 3rm1s character* identit% and
scope o operations. The organi6ation and its emplo%ees li&e it each da% and
translate it each time the% come into contact $ith their customers. It has !ecome
a true natural part o the organi6ation* em!odied in the minds* ha!its* attitudes
and decisions o e&er%one in the compan% e&er% da%.
,. 2hat are strengths* $ea'nesses* opportunities and threatsC Bi&e an e#ample o
each.
Strengths: positi&e internal actors that contri!ute to a compan%Ms a!ilit% to
achie&e its mission* goals* and o!4ecti&es. E#amples include: a committed
$or'orce and /ualit% products.
2ea'nesses: negati&e internal actors that inhi!it a compan%Ms a!ilit% to achie&e
33
its mission* goals* and o!4ecti&es. E#amples include: high rates o emplo%ee
turno&er and poor customer ser&ice.
:pportunities: positi&e e#ternal options that a !usiness could e#ploit to
accomplish its mission* goals* and o!4ecti&es. E#amples include: e#panding
glo!al mar'ets and changes in customer tastes.
Threats: negati&e e#ternal orces that inhi!it a !usinessM a!ilit% to accomplish its
mission* goals* and o!4ecti&es. E#amples include: e#panding glo!al mar'ets and
changes in customer tastes.
J. E#plain the characteristics o e+ecti&e o!4ecti&es. 2h% is setting o!4ecti&es
importantC
Characteristics o e+ecti&e o!4ecti&es include:
They are specifc: /uanti3a!le and precise.
They are measurable: $ell.de3ned reerence point rom $hich to start and use as
a measuring point.
They are attainable: does not mean eas% to accomplish* !ut diIcult enough to
re/uire moti&ation to achie&e.
They are realistic and challenging: must !e $ithin the organi6ationMs reach. The
higher the o!4ecti&es* the higher perormance $ill !e.
They are timely: must speci% not onl% $hat is to !e accomplished* !ut $hen it is
to !e achie&ed as $ell.
They are written down: ma'es o!4ecti&es more concrete* less a!stract.
Setting o!4ecti&es is important !ecause it gi&es the entire organi6ation Pspeci3csP
on $hat target7s8 it is mo&ing to$ard. :!4ecti&es o a small !usiness are the
directions $hich guide the !usiness to its destination.
K. 2hat are !usiness strategiesC
Business strategies are road maps o the tactics and actions an entrepreneur
dra$s up to ul3ll
the 3rmMs mission* goals* and o!4ecti&es. The 3rmMs mission* goals* and o!4ecti&es
de3ne the ends the compan% $ants to achie&e* and the strateg% is the means or
reaching them.
5. (escri!e the three !asic strategies a&aila!le to small companies. Under $hat
conditions is each successulC
Three strategies a&aila!le to small companies include:
1. Cost leadership: stri&e to !e the lo$.cost leader. The most successul
conditions are $hen !u%ers are sensiti&e to price changes* competing 3rms sell
the same commodit% products* and companies can !ene3t rom economies o
scale.
". (i+erentiation: see's to !uild customer lo%alt% !% positioning goods or
ser&ices in a uni/ue or di+erent ashion. Ee% concept is to !e special at
something important to the customer.
3. Focus: select one 7or more8 segments7s8* identi% customersM special needs*
$ants* and interests* and approach them $ith a product or ser&ice speci3call%
designed to e#cel in meeting these needs* $ants* and interests. Ee% concept is to
3)
create the perception o value in the customer1s e%es.
=. E#plain ho$ a compan% can gain a competiti&e ad&antage using each o the three
strategies descri!ed in this chapter: cost leadership* di+erentiation* and ocus.
Bi&e an e#ample o a compan% that is using each strateg%.
1. Cost leadership: !% containing costs* lo$er prices $ill net suIcient pro3t
margins. E#ample: 2al. Mart
". (i+erentiation: positioning one1s product or ser&ice apart rom the competition
!uilds lo%al customers that are not easil% pulled a$a% !% the competition.
E#ample: Mercedes Ben6* Cadillac.
3. Focus: select one 7or more8 segments7s8* identi% customersM special needs*
$ants* and interests* and approach them $ith a good or ser&ice speci3call%
designed to e#cel in meeting those needs* $ants* and interests. E#amples:
E#ercise e/uipment* tall men1s clothing* Tele&ision 0et$or's such as 7BET8 Blac'
Entertainment.
1?.;o$ is the controlling process related to the planning processC
Most oten* the actual results o a small !usiness $ill de&iate rom the compan%Ms
plan. Thus* controlling procedures must !e esta!lished to measure perormance
and ma'e corrections as changes occur.
11.2hat is a !alanced scorecardC 2hat &alue does it o+er entrepreneurs $ho are
e&aluating the success o their current strategiesC
- set o measurements uni/ue to a compan% that includes !oth 3nancial and
operational measures and gi&es a manager a /uic' %et comprehensi&e picture o
the compan%1s total perormance. Hather than stic'ing solel% to the traditional
3nancial measures o a compan%1s perormance* the scorecard gi&es a manager a
&ie$ rom !oth a 3nancial and operational perspecti&e. The comple#it% o
managing a !usiness demands that an entrepreneur is a!le to see perormance
measures in se&eral areas simultaneousl%.
Part *our: Lecture or +ritical Thin,ing +ase %tu&ies-.ot /n %tu&ent Te0t
SEBME0T* C:0CE0TH-TE* -0( (:MI0-TE
SUCCESS I0 T;E <:2 E0( :F T;E M-HEET
SEBME0T* C:0CE0TH-TE -0( (:MI0-TE
T%son Foods* Inc. is the nationMs leading poultr% producer* processing J3,*???
!irds per hour and o+ering some t$o thousand chic'en.!ased products. CE: (on
T%son e#plains* P9ou 4ust donMt $ant to !e num!er t$o. IM&e tried !oth sides* and
num!er oneMs the onl% place to !e.P T%sonMs ather* >ohn* ounded the compan% to
raise chic'ens during the Breat (epression. In the 1=,?s* he !uilt the compan%Ms
3rst processing plant and !rought son (on into the !usiness. In 1=J3* T%son Foods
$ent pu!lic.
(on T%son too' o&er the compan% in 1=JK ater his atherMs death. T%son
3,
!egan pouring millions into e#panding the compan%* primaril% !% ma'ing
ac/uisitions. -long the $a%* he learned a &alua!le lesson a!out selling chic'en: 9ou
can get higher prices !% di+erentiating %our products and adding &alue to them.
-ter $atching the price o generic chic'en !ounce up and do$n or a decade* T%son
decided to tr% something di+erent: eeding a small $hole chic'en so that its meat is
4uicier and then selling it in an indi&idual plastic !ag. The PHoc' Cornish game hen*P
as T%son called the product* caught on so $ell that the compan% could charge a
higher price.
T%son 'ne$ a good thing $hen he sa$ it. ;e !egan to create a @oc' o other
specialt% chic'en products* di+erentiating them rom the usual commodit% chic'ens
and adding &alue in a &ariet% o $a%sQde.!oning* s'inning* !reading* !ite si6ing* and
so orth. In 1=KJ* T%sonMs :6ar' Fr% !ecame the 3rst mass.mar'eted chic'en !reast
patt%. In 1=5?* the compan% re&olutioni6ed the ast.ood industr% $ith the Chic'en
Mc 0ugget* no$ a staple in Mc(onaldMs menu. B% the end o 1=5?* T%son Foods $as
selling t$o do6en di+erent chic'en products $hile most o its competitors $ere still
selling 4ust oneQold ashioned processed chic'ens. The compan%Ms mar'eting theme
!ecame segment* concentrate* and dominate.
0ot all o T%sonMs di+erentiation ideas $ere high.@%ing successes. - gi!let
!urger made rom surplus gi66ards $as a ma4or @op se&eral %ears ago. E&en the
-r'ansas prison s%stem $ouldnMt !u% gi!let !urgers or its inmates. T%sonMs entries
into the tur'e% mar'et ha&enMt ared &er% $ell either.
But more oten than not* T%sonMs di+erentiated products ha&e pro&ed to !e
huge successes. -s -mericans ha&e /uadrupled their consumption o chic'en o&er
the past decade* T%son has continued to churn out ne$ products..rom precoo'ed
chic'ens to those ethnicall% prepared ..to 'eep up $ith changing liest%les and tastes.
The compan% has responded to the gro$ing num!er o -mericans lea&ing the 'itchen
and going out to eat* !% di&ersi%ing into the oodser&ice segment..restaurants*
hotels* schools* and hospitals. T%son sells chic'en to eight% o the one hundred
largest ast.ood chains* and in poultr% ood ser&ice* T%son commands KK percent o
the mar'et.
(on T%son* $ho graces Forbess list o the our hundred richest -mericans*
$ears standard.issue 'ha'i $or' clothes $ith P(onP em!roidered on the !reast
poc'et. ;is dress is indicati&e o the compan%Ms laid.!ac' corporate culture.
Emplo%ees o$n "? percent o T%son Foods stoc' through an emplo%ee stoc'
o$nership plan 7ES:P8. 9et (on T%sonMs plain appearance hides his !usiness acumen.
P(on T%son sees the !igger picture*P sa%s a long.time counselor. P;eMs concerned
$ith $hat happens 3&e %ears rom no$* ten %ears rom no$.P That long.term &ie$
led T%son to !u% out ri&al ;oll% Farms Corporation in 1==?. It also ga&e him the
&ision to see the opportunities in di+erentiating $hat most people see as a
commodit%.
1. ;o$ has T%son Foods di+erentiated its chic'en productsC
". ;as T%sonMs strateg% !een successulC Under $hat conditions does a
di+erentiation strateg% $or' !estC
3. 2hat are the ris's and re$ards o pursuing such a strateg%C
3J
Source: -dapted rom (ic' -nderson* P(on T%son Hules the Hoost*P Southpoint*
March 1==?* pp. 1J."?.
SUCCESS I0 T;E <:2 E0( :F T;E M-HEET
Man% !usiness ad&isers claim that lo$.cost strategies are outdated.
Customers* the% sa%* $ant more than 4ust lo$ pricesR ser&ice* /ualit%* and other
sources o &alue are more important. These da%s* price ma% !e one o the least
e+ecti&e $eapons in a compan%Ms competiti&e arsenal* !ut or some !usinesses*
price competition is a $a% o lie. To compete successull% on price* companies must
!e smart* tough* and consistent. The decision to !e a lo$.price competitor must
dri&e e&er% other strategic decision the compan% ma'es.
>an Bell Mar'eting* Inc.* a 4e$elr% manuacturer and distri!utor* is one o the
!est pla%ers in the lo$.price game. <o$ prices and cost control are essential to >an
BellMs success* gi&en its primar% customer !ase..most o the nationMs $holesale clu!s.
The compan% manages to sell gold chains and earrings* tennis !racelets* and rings to
these $holesalers or a!out one third o $hat other manuacturers charge.
;o$ does >an Bell do itC ThereMs no one !ig secret. Instead* at e&er% step o
the manuacturing and distri!ution process* the compan% does at least one little
thing to 'eep costs do$n. For instance* $hen !u%ing ra$ materials* >an Bell
purchases in !ul' directl% rom the source. The compan% !%passes middle people to
minimi6e the prices o gold* sil&er* diamonds* and other precious stones. In addition*
>an Bell al$a%s pa%s cash or its purchases. PI %ou donMt as' %our suppliers to !e %our
!an'er* the% $ill !e $illing to sha&e some$here !et$een 3 percent and , percent o+
the purchase price*P sa%s coounder Isaac -rguett%.
>an Bell also spreads its purchases throughout the %ear* unli'e most 4e$elers*
$hich concentrate their purchases in -ugust or Septem!er in anticipation o the
Christmas holida% season. 2eMre pro!a!l% a!le to sa&e 1? percent or 1, percent !%
!eing in the mar'et %ear round*P sa%s coounder -lan ;. <ipton.
The compan% also stri&es to minimi6e its in&entor% costs !% manuacturing
4e$elr% that $ill sell /uic'l% and not 4ust at Christmas. There are no one.o.a.'ind
items sitting in in&entor% pumping up carr%ing costs. P2eMre going or tonnage*P sa%s
<ipton. That decision rules out much o the 4e$elr% mar'et* so >an Bell concentrates
on high.&olume consumers. SamMs Clu!* Pace Mem!ership 2arehouse* and other
$holesale clu!s ma'e up 5? percent o the compan%Ms sales.
>an Bell also stri&es to 'eep o&erhead costs lo$. The !usiness contracts out
a!out =" percent o its assem!l% $or'. PB% doing some o the $or' oursel&es* $e
'no$ $hat it costs to produce the product*P sa%s -rguerr%. PThis $a% $e 'no$ e#actl%
$hat outside contractors should !e charging us.P In addition* the compan% maintains
no truc'ing @eets. Finished goods rom contractors are logged in* inspected* and
shipped out !% Federal E#press $ithin ort%.eight hours o their arri&al. -n% ra$
materials that pile up are sold /uic'l% to other 4e$elr% ma'ers at cost plus 1,
percent.
-lthough a lo$.cost strateg% lea&es little room or error* >an Bell ma'es it
$or'..e#tremel% $ell. The si# %ear.old compan% has seen its sales and pro3ts clim!
3K
each %ear. B% allo$ing price to go&ern e&er% aspect o its strateg%* >an Bell has ound
success in the lo$ end o the mar'et.
1. 2hat actors allo$ >an Bell to 'eep its costs ar !elo$ those o competitorsC
". Under $hat conditions does a lo$.cost strateg% $or' !estC
3. 2hat are the ad&antages o pursuing a successul lo$.cost strateg%C 2hat are the
disad&antagesC
Source -dapted From Paul B. Bro$n* P;o$ to Compete on Price*P Inc.* Ma% 1==?*
pp.1?,.1?K.
Part *ive: +ha1ter 3 20ercise
C:MP-09 MISSI:0 ST-TEME0T ESEHCISE
This e#ercise ma% !e used as an in.class group discussion e#ercise or as a ta'e.
home sel.stud% handout $ith suggested e#amples. 7Heer to Ta!le 3.18
1. Indi&idual students or small groups should !egin !% selecting a particular
!usiness or industr% t%pe. For e#ample: -n indi&idual or group could de&elop t$o
di+erent mission statements or 3rms in the inant and toddler da% care industr%.
:ne $ould ocus on an inno&ati&e da% care center in an upscale neigh!orhood*
$hile the other could ocus on a communit% da% care center in an inner cit%
neigh!orhood. The idea is to search or the correct $ords that pro&ide an image
or &ision* and ma'e each !usiness distinctl% di+erent. This could also !e done
or other industries such as la$n care D maintenance 7one could use onl%
en&ironmentall% riendl% products8* espresso stands 7one on a college campus
compared to one at the airport8 or retail outlets etcT
". Students should use $ords that con&e% a sustaina!le image or &ision that
accuratel% re@ects the 3rm1s competiti&e ad&antage. Head aloud* $ithout
identi%ing the speci3c 3rm or industr%* it should still pro&ide a clear idea o $hat
!usiness the 3rm is in* $ho its customers are* and its purpose.
3. :nce the students ha&e completed their mission statements read them out loud
$ithout mentioning the industr% or compan% name. -n accurate mission
statement $ill pro&ide a clear idea o the t%pe o !usiness and its purpose. It
should not* ho$e&er* !e a complete !usiness description.
SUBBESTE( ES-MP<ES -0( C:MME0TS
Correct $pscale Day Care Center #%ample
The mission o the ;oll%$ood (a% Care Center is to pro&ide an inno&ati&e* creati&e*
learning en&ironment or inants and toddlers in a secured en&ironment a$a% rom
home. :ur sta+ is highl% /uali3ed and ocused on meeting %our child1s e&er% need.
Correct Inner City Day Care #%ample
The mission o the 0eigh!orhood (a%care Center is to pro&ide a riendl% $arm
en&ironment or inants and toddlers. :ur multicultural sta+ prides itsel on meeting
the needs o the communities $or'ing parents $hile pro&iding an a+orda!le secure
en&ironment or the communities precious children.
35

Incorrect $pscale Day Care Center #%ample &
The mission o the ;oll%$ood da% care center is to care or inants and toddlers in a
&er% special en&ironment $ith a choice o di+erent language classes* artistic
e#pressions and an%thing else %ou $ant to pa% or. :ur hours are rom ,:3? -M to
midnight Monda% through Frida% and rom J to = PM on Saturda% and Sunda%. 2e
also ha&e a nurse and special sic' rooms or those times $hen %our child is ill. -t
an% time* %ou can tune in to %our child1s da% !% signing onto the Internet $ith %our
special parent1s pass$ord.
Incorrect $pscale Day Care Center #%ample '
:ur mission is to pro&ide an inno&ati&e en&ironment $ith a num!er o di+erent
choices to meet %our e&er% need. :ur high tech computers $ill pro&ide %ou $ith a
sense o securit% $hen %our lo&ed ones are a$a% rom home. 9our e&er% need $ill
!e met.
Note: NTo ma'e a pro3t.O -lthough a mission statement o this t%pe has $or'ed or
amous companies li'e Coca.Cola* !ecause /ualit% and attention to customer
preerences are implied* it is not normall% enough to pro&ide &ision and direction to
most small !usiness &entures.
Part %i0: %u11le3ent 4ea&ings
Chanes'i* 2a%ne S. PHecogni6ing and responding to threats in %our industr%.P
Modern Machine Shop. >ul% 1==J &J= n" p.)J7"8.
Bird* -nat. PEe%s to corporate culture: &ision* @e#i!ilit%* consistenc%.P American
an!er. >ul% 1?* 1==J &1J1 n13? p.1K718.
Pa%ne* Blac'!ourn* ;amilton* and (a&id 2. Co#. PMa'e a &ision statement $or' or
%ou.P The "ournal #or $uality and %articipation. (ec. 1==) &1K nK p.,"7"8.
Shepard* >ames F. PHene$ing the corporation.P &anadian usiness 'eview. -utumn
1==J &"3 n3 p.",738.
3=