entrepreneurial strategy 2

8/9/2019 Entrepreneurial Strategy 2

1/33

Literature

Analui, F. and Karami, A. StrategicManagement in Small and MediumEnterprises Thompson, 2003 (chapter 4).

Lasher, W. Strategic Planning for a GrowingBusiness Thomson, 2005 (chapter 5).

Kim, Chan W. and Mauborgne, Rene. BlueOcean Strategy, Harvard Business Review

October 2004: 76-84 Michael E. Porter, Competitive Strategy:

Techniques for Analysing Industries andCompetitors (New York: Free Press, 1980)


2/33

TODAYS TOPIC

Introduction and central question

General surroundings for businesses

The industry environment- Porters 5 Forces

- Blue Ocean Strategy

Conclusion


3/33

Central Question

What are the important factors

for businesses in analysing theexternal environment


4/33

The environmental analysis

aim of the analysis: mapping the firms

SWOT

S what are the firms strengths vis--visthe competitors?

W what are the firms weaknesses vis--

vis the competitors?

O what are the firms opportunities?

T what are the firms threats?


5/33

SWOT

SW found within the internal

environment of the firmOT found in the external environment of

the firm


6/33

DIVISION

Changes such as fashion shifts, lower

acceptable levels of pollution, hike in fuel

prices, changes in governmentregulations, etc., are examples of OT

What is the impact of such changes on the

firm? SW


7/33

Environmental scanning

Pressing need to scan the environment in

order to provide an environmental analysis

external environment of the firm beyondthe control of the firm (but may be

influenced)

internal environment of the firm within

the control of the firm (but may be

misjudged).


8/33

Most outer level of analysis: PESTEL

Political Economic

Legal Socio-cultural

Environ

mental Technological

PESTEL


9/33

Industry Profile

Important indicators

Industry definition

Market size (value and volume)

Life cycle (introduction, growth, maturity, decline)

Average profitability level

Market structure (concentration, fragmentation)

Level of vertical integration (backward, forward)

Barriers to entry (capital, econ of scale, technological, distributionchannels, brand loyalty, switching costs)

Importance of scale

Capacity utilisation Level of product differentiation

Technological change (to products and/or production)


10/33

Porters five forcestheoretical framework for analysing competition in

industries

Potential entrantsPotential entrants

Industry competitorsIndustry competitors

Rivalry among existing firmsRivalry among existing firms

buyersbuyerssupplierssuppliers

substitutessubstitutes


11/33

THE 5 FORCES MODEL

Potential entrants threat of new entrants

Suppliers bargaining power of suppliers

Buyers bargaining power of buyers Substitutes threat of substitute

products/services

Rivalry among existing firms


12/33

EVALUATIONOFTHE5 FORCESMODEL

Arguably the first comprehensive approach

Most influential work in Strategic Management

Popular reference in practice


13/33

EVALUATIONOFTHE5 FORCESMODEL

but also criticised..

Role of government underplayed (if not absent)

Not as universally applicable as claimed

Most importantly: internal resources issue

The approach underestimated the internal

resources issues

External strengths are not sustainable whileinternal resources are.


14/33

Moreover.

How useful to SMEs?

Premise: rationality and analysis of data1.Liberate resources for data gathering

2.For SMEs reliable data challenge (determine

assess competition, new entrants)

3.Buyer/supplier power

Hence perception three: call for new paradigms


15/33

Porters five forces and globalisation

alternative approachalternative approach

HYPERHYPER--COMPETITIONCOMPETITION

Increasingly focused approach, relentlessIncreasingly focused approach, relentless

differentiation, cutdifferentiation, cut--throat and or corporate failuresthroat and or corporate failures


16/33

Introducing Blue Ocean Strategy

Too much concentration on beating the

competitor, military legacy of strategy, line

extensions rather than creation of Blue Oceans

Kim and Mauborgne (2005)


17/33

Competition

Currrent markets

Existing demand

Value or cost

(which relates to)

Differentiation or costleadership strategy

Basic premise of

Chan and

Mauborgne --

Uncontested market

Market to createNew demand

No value/cost

tradeoff

Differentiation andcost leadership

Red Oceans are too

bloody but all

too common

Get your Oceans right!Get your Oceans right!

In the RED Corner!In the RED Corner! and in the BLUEand in the BLUE

CornerCorner


18/33

Drop benchmarking!

Classical approach of

lowering costs,

improving quality to

current customers orfocus on a segment

within the market

merely leads to RED

Oceans

Draw a strategy canvas (1)Draw a strategy canvas (1)


19/33

Formulating the BOS

Six ways to reconstruct market boundaries

(rather than taking the classic school route)Look across alternative industries (Southwest Airline)

Look across strategic groups within industries (Lexus, Curves)

Look across the chain of buyers (purchasers, users, influencers)

Look across complementary product or service offerings

Look across functional or emotional appeal to buyers (Swatch and

The Body Shop)

Look across time


20/33


21/33

Maximisation of BOS

Concentrate on existing customers and improve value

through differentiation

Drive for finer segmentation to accommodate buyerdifferences hyper-competition can lead to companies

leaving wide scope for focus

Look for differences rather than concentrate on wide

range of commonalities

The dontsThe donts


22/33

Barriers to imitation

Possible safeguards for BOS

Competitors grappling with conventional logic (CNN,

Channel and other networks)

Conflicting competitors brand image (The Body Shop) Natural monopolies

Intellectual property (patents, etc)

High volume and rapid costs reductions (Wal-Mart)

Network externalities (Ebay) Political or cultural revolutions (corporate)

Brand buzz and customer loyalty


23/33

Criticism towards BOS

Where is the marketing?

Descriptive more than prescriptive? True Blue?

some of the examples they gave are not true Blue rather

they may be said to be purple.


24/33

Conclusion

A good start for any overall environmental analysis (i.e including the

internal one) isSWOT

T external analysis contains two levels: the outer ring or general

surroundings and the industry environment

For the outer level PESTEL analysis can be used The industry level analysis can contain many indicators

Porters Five Forces orders most of those indicators and provides a

comprehensive overview.

However criticism towards the approach has led to alternative

approaches

One such approach is Blue Ocean Strategy

This is a combination of a competitive strategy and an alternative

analysis of the external environment for firms

This approach could be valuable for SMEs and NVCs


25/33

Entrepreneurial Resources and

Capabilities

core competencies

strategic capabilities

strategic resources


26/33

Internal Business Environment

just as the external business environment is

important, managers need to understand the internal

firm environment: the unique strengths andweaknesses of their firm relative to their

competitors.


27/33

Core competences

Core competences refer to the combination of

individual technologies and production skills that

underlie a companys multiple production lines andcritically underpin the firms competitive advantage.

Core competencies are about communication,

involvement and a deep commitment to working

across organisational boundaries ( this refers to the

firms interactions with clients, suppliers,

competitors, etc.).


28/33

Core Competences

Contribute significantly to the end-product benefits,

and

Provide access to a wide variety of markets, and Be difficult for competitors to imitate. This implies

that your product can be distinguished from that of

competitors.


29/33

Assessing Core Competences

C K Prahalad and Gary Hamel argue that organisations should constantly

assess their source of competitive advantage using 4 criteria:

o Durability

the rate at which they become obsolete

o Transparency

the rate at which they can be understood by competitors

o Transferability

the ease with which they can be be copied by competitors

o Replicabilty

the extent to which copying will lead to similar results


30/33

Capabilities

Capabilities are complex bundles of skills and

collective learning, exercised through organisational

processes, that ensure superior coordination of

functional activities. Capabilities are about the firms ability to integrate

different tangible and intangible resources in order

to provide products or services to customers that

are valued.


31/33

Resources

Resources are all assets, capabilities, organisational

processes, firm attributes, information, knowledge

etc. controlled by a firm that enable the firm to

conceive and implement strategies that improve its

efficiency and effectiveness.

This relates to every input you invest in your business to

enable you produce and delver your products. They are

inputs that generate value-added.


32/33

The Resource-based View of the Firm

Firms differ in fundamental ways because each firm

possesses a unique bundle of resources tangible and intangible assets and organisational

capabilities to make use of the assets.


33/33

The Three Basic resources

Tangible assets

easiest to identify and often found on a firms balance sheet

includes physiacal and financial assets

examples: production facilities, raw materials, financial resources

Intangible Assets

cannot be seen or touched

often critical in creating competitive advantage

examples: brand names, company reputation, company morale

Organisational capabilities

involve skills ability to combine assets, people, and processes used to

transform inputs into outputs

entrepreneurial strategy 2

Documents