Case Analysis *
Hind David
Chap008.pptEntrepreneurial Strategy and Competitive Dynamics
Chapter Eight
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
After reading this chapter, you should have a good understanding of:
LO8.1 The role of new ventures and small businesses in the U.S. economy.
LO8.2 The role of opportunities, resources, and entrepreneurs in successfully pursuing new ventures.
LO8.3 Three types of entry strategies—pioneering, initiative, and adaptive—commonly used to launch a new venture.
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Learning Objectives (cont.)
LO8.4 How the generic strategies of overall cost leadership, differentiation, and focus are used by new ventures and small businesses.
LO8.5 How competitive actions, such as the entry of new competitors into a marketplace, may launch a cycle of actions and reactions among close competitors.
LO8.6 The components of competitive dynamics analysis— new competitive action, threat analysis, motivation and capability to respond, types of competitive actions, and likelihood of competitive reaction.
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Recognizing Entrepreneurial Opportunities
Entrepreneurship
the creation of new value by an existing organization or new venture that involves the assumption of risk.
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Recognizing Entrepreneurial Opportunities
New value can be created in:
Start-up ventures
Major corporations
Family-owned businesses
Non-profit organizations
Established institutions
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Entrepreneurial Opportunities
Start-ups
Current or past work experiences
Hobbies that grow into businesses or lead to inventions
Suggestions by friends or family
Chance events
Change
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Entrepreneurial Opportunities
Established firms
Needs of existing customers
Suggestions by suppliers
Technological developments that lead to new advances
Change
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U.S. Small Companies by Industry
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Exhibit 8.1
Entrepreneurial Opportunities
Opportunity recognition
the process of discovering and evaluating changes in the business environment, such as a new technology, socio-cultural trends, or shifts in consumer demand, that can be exploited.
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Opportunity Analysis Framework
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Exhibit 8.3
QUESTION
The majority of entrepreneurial start-ups are financed with
Bank financing
Public financing
Venture capital financing
Personal savings and the contributions of family and friends
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Answer: D. Personal savings and the contributions of family and friends
Entrepreneurial Opportunities
Discovery phase
the process of becoming aware of a new business concept.
May be spontaneous and unexpected
May occur as the result of deliberate search for new venture projects or creative solutions to business problems
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Opportunity Recognition Process
Opportunity evaluation phase
involves analyzing an opportunity to determine whether it is viable and strong enough to be developed into a full-fledged new venture.
Talk to potential target customers
Discuss it with production or logistics managers
Conduct feasibility analysis
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Characteristics of Good Opportunities
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• Attractive. The opportunity must be attractive in the marketplace; that is, there must
be market demand for the new product or service.
• Achievable. The opportunity must be practical and physically possible.
• Durable. The opportunity must be attractive long enough for the development and
deployment to be successful; that is, the window of opportunity must be open long
enough for it to be worthwhile.
• Value creating. The opportunity must be potentially profitable; that is, the benefits
must surpass the cost of development by a significant margin.
Sources of Capital for
Start-Up Firms
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Exhibit 8.5
Entrepreneurial Resources
Human capital
Social capital
Government resources
Small Business Administration
Government contracting
State and local governments
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Entrepreneurial Leadership
Launching a new venture requires a special kind of leadership
Courage
Belief in one’s convictions
Energy to work hard
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Entrepreneurial Leadership
Three characteristics
Vision
Dedication and drive
Commitment to excellence
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Entrepreneurial Leadership
Vision may be entrepreneur’s most important asset
Ability to envision realities that do not yet exist
Exercise a kind of transformational leadership
Able to share with others
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Entrepreneurial Leadership
Dedication and drive are reflected in hard work
Patience
Stamina
Willingness to work long hours
Internal motivation
Intellectual commitment to the enterprise
Strong enthusiasm for work and life
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Entrepreneurial Leadership
To achieve excellence, entrepreneurs must
Know the customer
Provide quality products and services
Pay attention to details
Continuously learn
Surround themselves with good people
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Example: 10 Management Lessons
It’s all about perseverance
Understand the value of mentorship and teamwork
Stick to your niche
Stay on top of news that affects your clients
Communication is key
Capitalization is crucial
Communicate unwavering honesty and integrity
Stay on top of the curve
Take ownership in your clients’ success
Never stop marketing
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Source: Pierce, Sarah. “10 Management Lessons From a Young Entrepreneur,” www.entrepreneur.com. December 17, 2003.
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Entrepreneurial Strategy
Best strategy for the enterprise will be determined to some extent by
A viable opportunity, sufficient resources, and skilled and dedicated entrepreneurial team
Other conditions in the business environment
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Entry Strategies
Pioneering new entry
a firm’s entry into an industry with a radical new product or highly innovative service that changes the way business is conducted.
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Entry Strategies
Imitative new entry
a firm’s entry into an industry with products or services that capitalize on proven market successes and that usually has a strong marketing orientation.
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Entry Strategies
Adaptive new entry
a firm’s entry into an industry by offering a product or service that is somewhat new and sufficiently different to create value for customers by capitalizing on current market trends.
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Examples of Adaptive New Entrants
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Exhibit 8.6
Elements of a Blue Ocean Strategy
Create uncontested market space
Make the competition irrelevant
Create and capture new demand
Break the value/cost tradeoff
Pursue differentiation and low cost simultaneously.
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Generic Strategies
Overall cost leadership
Simple organizational structures
More quickly upgrade technology and integrate feedback from the marketplace
Make timely decisions
that affect cost
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Generic Strategies
Differentiation
Use new technology
Deploy resources in a radical new way
Focus
Niche strategies fit the small business mold
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Combination Strategies
Entrepreneurial firms are often in a strong position to offer a combination strategy
Combine best features of low-cost, differentiation, and focus strategies
Flexibility and quick decision-making ability of a small firm not laden with layers of bureaucracy
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Competitive Dynamics
Competitive dynamics
Intense rivalry, involving actions and responses, among similar competitors vying for the same customers in a marketplace.
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Model of Competitive Dynamics
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Exhibit 8.7
Why Do Companies Launch New Competitive Actions?
Improve market position
Capitalize on growing demand
Expand production capacity
Provide an innovative new solution
Obtain first mover advantages
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Threat Analysis
Threat analysis
A firm’s awareness of its closest competitors and the kinds of competitive actions they might be planning.
Market commonality
Resource similarity
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market commonality
the extent to
which competitors
are vying for the
same customers in
the same markets.
resource similarity
the extent to which
rivals draw from the
same types of strategic
resources.
Question
Aircraft makers Boeing and Airbus have a high degree of __________ because they make very similar products and have many buyers in common.
Dynamic capabilities
Market commonality
First mover advantages
Equity funding
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Answer: B. Market commonality
Five “Hardball” Strategies
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Types of Competitive Actions
Strategic actions
Major commitments of distinctive and specific resources to strategic initiatives.
Tactical actions
Refinements or extensions of strategies usually involving minor resource commitments.
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Likelihood of Competitive Reaction
How a competitor is likely to respond will depend on three factors
Market dependence
Competitor’s resources
The reputation of the firm that initiates the action (actor’s reputation)
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Choosing Not to React
Forbearance
a firm’s choice of not reacting to a rival’s new competitive action.
Co-opetition
A firm’s strategy of both cooperating and competing with rival firms.
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