Entrepreneurial 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-upsCurrent or past work experiencesHobbies that grow into businesses or

lead to inventionsSuggestions by friends or familyChance eventsChange

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Entrepreneurial Opportunities

Established firmsNeeds of existing customersSuggestions by suppliersTechnological developments that lead to new

advancesChange

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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 withA. Bank financingB.Public financing C.Venture capital financingD.Personal savings and the contributions of family and friends

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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 customersDiscuss it with production or logistics managersConduct feasibility analysis

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Characteristics of Good Opportunities

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Sources of Capital for Start-Up Firms

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Exhibit 8.5

Entrepreneurial Resources

Human capitalSocial capitalGovernment 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 nicheStay on top of news that

affects your clientsCommunication is keyCapitalization is crucial

Communicate unwavering honesty and integrity

Stay on top of the curveTake ownership in your

clients’ successNever stop marketing

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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 spaceMake the competition irrelevantCreate and capture new demandBreak the value/cost tradeoffPursue 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 positionCapitalize on growing demandExpand production capacityProvide an innovative new solutionObtain 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 commonalityResource similarity

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Question

Aircraft makers Boeing and Airbus have a high degree of __________ because they make very similar products and have many buyers in common. A.Dynamic capabilitiesB.Market commonalityC.First mover advantagesD.Equity funding

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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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