strategic entrepreneurship

STRATEGIC ENTREPRENEURSHIP

PEKKA LEHTONEN Ph.D. Copyright

Source: Hamel, Gary, Leading the Revolution, 2000. Lehtonen,Pekka, Strategic Entrepreneurship, 1999

CORE STRATEGY

Business Mission

Product / Market Scope

Basis for Differentiation

STRATEGIC RESOURCES

Core Competencies

Strategic Assets

Core Processes

EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS

VALUE NETWORK

Suppliers

Partners

Coalitions

CUSTOMER BENEFITS CONFIGURATION COMPANY BOUNDARIES


CUSTOMER INTERFACE

Fulfilment & support

Information & Insight

Relationship Dynamics

Pricing Structure



UNPACKING THE BUSINESS CONCEPT (Hamel)

• Business concept innovation starts with unpacking the business concept

• A business concept comprises four major components:



1. CORE STRATEGY

• the essence of how the firm chooses to competeelements:1.1 The Business Mission: what the business concept

is designed to accomplish or deliver.1.2 Product / Market Scope: where the firm competes

(which customers, which geographies, what product segments) and where, by implication it does no compete.

1.3 Basis for Differentiation: how the firm competes differently from its competitors.



2. STRATECIG RESOURCES

• The unique firm-specific resources:2.1 Core Competencies: the skills and

unique capabilities of the firm that are valuable to customers and transferable to new opportunities.

2.2 Strategic Assets: the rare and valuable things that the firm owns, including e.g brands and customer data.

2.3 Core Processes: methodologies and routines used in the firm.



3. CUSTOMER INTERFACE

3.1 Fulfilment & Support: how the firm actually “goes to market”, how it actually “reaches” its customers – which channels it uses, what kind of customer support it offers and what level of service it provides.

3.2 Information & Insight: the information content of the customer interface (all the knowledge that is collected from and utilized on behalf of customers) and the ability of a company to extract insights from this information.

3.3 Relationship Dynamics: the nature of the interaction between the producer and the customer, including both emotional and transactional elements.

3.4 Pricing Structure: what the company charges for.



4. VALUE NETWORK

• Complements and amplifies the firm´s own resources

• Elements:4.1 Suppliers: typically reside ”up the value chain” from

the producer. Companies can off-load noncore activities to suppliers.

4.2 Partners: typically supply critical ”complements” to a final product or solution. The company can “borrow” the assets and competencies of its partners and link them with its own.

4.3 Coalitions: like-minded competitors joined together.



The four core components are linked together by three ”bridge”

components1. CONFIGURATION• intermediates between a company´s core strategy and strategic

resources• is the unique way in which competencies, assets and processes

are combined and interrelated in support of particular strategy2. CUSTOMER BENEFITS• intermediates between the core strategy and the customer

interface• the bundle of benefits that is actually being offered to the

customer3. COMPANY BOUNDARIES• intermediates between a company´s strategic resources and its

value network• the decisions that have been made about what the firm does and

what it contracts out to the value network



There are four factors to consider in determining the wealth potential (how the business concept will

generate new wealth) of any business concept:

1. The extent to which the business concept is an EFFICIENT way of delivering customer benefits

2. The extent to which the business concept is UNIQUE

3. The degree of FIT among the elements of the business concept (all the elements must work together for the same end goal)

4. The extent to which the business concept exploits PROFIT BOOSTERS that have the potential to generate above-average returns:



4.1 Increasing returns: denotes a fly-wheel effect that tends to perpetuate early success, leaving those who are behind, falling farther behind. To benefit from increasing returns a business concept must harness one of three underlying forces: network effects (the value of a network increases as the number of e.g. members in the network grows), positive feedback effects (using market feedback), learning effects (learning faster than the rivals do).

4.2 Competitor lock-out: through pre-emption (being first), choke point (e.g. a patent or a prime location)control or customer lock-in (e.g. trough long-term supply contracts).



4.3 Strategic economies: come from building scale advantages (getting bigger), having a business concept with a sharp focus or using economies of scope (sharing things – brands, facilities, best practice and so on – across business units and countries).

4.4 Strategic flexibility: comes from portfoliobreadth (having a broad offering of products, businesses etc.), operating agility (the company’s ability to refocus its operations) and lower breakeven (a business concept with a low breakeven point is more flexible, both financially and strategically, than the one with a higher breakeven point).



CORE STRATEGY

Business Mission

Product/market Scope

Basis for Differentiation

STRATEGIC RESOURCES

Core Competencies

Strategic Assets

Core Processes

EFFICIENT / UNIQUE / FIT / PROFIT BOOSTERS

VALUE NETWORK

Suppliers

Partners

Coalitions

CUSTOMER INTERFACE

Fulfilment & support

Information & Insight

Relationship Dynamics

Pricing Structure

timepast present future

closed (not open anymore)

open closed (not open yet)

Creativity Market imitation Process effectiveness Omega- entrepreneurship

CUSTOMER BENEFITS CONFIGURATION COMPANY BOUNDARIES



WINDOW OF OPPORTUNITY IN A START-UP -CONTEXT

• The window of opportunity can be:

1. CLOSED: the window is not open ANYMORE

2. OPEN

3. CLOSED: the window is not open YET



When the window of opportunity is OPEN, the start-up has following opportunities:

1. CREATIVITY: – Entrepreneurship equals INNOVATION. According to Hamel,

innovation should be BUSINESS CONCEPT INNOVATION, starting from seeing the business concept in its entirety, then unpacking the business concept and finally seeing opportunities for innovation in all the parts of the business concept

2. MARKET IMITATION– Utilizing the innovator’s accomplishments through market

information and copying or otherwise utilizing the innovative solution (e.g. core technology)

– Requires market and technology knowledge based on experience3. PROCESS EFFECTIVENESS

– Using the existing resources as effectively as possible4. OMEGA-ENTREPRENEURSHIP

– As a result of bankruptcies, etc., the opportunity costs go down, creating a cost-effective business opportunity for another entrepreneur



THE TEN COMMANDMENTS OF THE GREATEST COMPANIES

1. The product has to be competitive: it has to meet customer needs and expectations.

2. When creating this competitive product, competence, product development and market knowledge are needed.

3. The greatest companies focus on their own special competence area.

4. In order to achieve this, the product range has to be narrow.

5. When specializing, the company has to go global - local markets are not enough (especially in a small national economy).



6. For a small national economy, it is not so common to create an active marketing network. Creating the network requires own local presence: not only local agencies but often acquisitions as well.

7. When going international, the purchasing has to be effective and internationally orientated. The purchasing and the manufacturing process has to be integrated.

8. The leaders have to be both inspired and inspiring (in order to motivate the whole organization) as well as hard-facts-analyzing (in order to keep the resources in balance).

9. The whole system and the whole organization has to be able to meet customer needs in all the situations in all its market areas.

10. A growing company needs to take care of its financing: financing from operations has to be used to develop the company.