part
2
Entrepreneurial Strategy
2
Strategies That
Capture
Opportunities
PowerPoint Presentation by Charlie Cook
12e
Copyright © 2003 South-Western College Publishing.
All rights reserved.
Looking Ahead
After studying this chapter, you should be able to:
1. Define competitive advantage.
2. Describe the factors that comprise external
environments.
3. Describe the factors that comprise internal environments.
4. Identify and compare broad-based strategy options for
the entrepreneurial venture.
5. Explain the focus strategy concept and its importance to
small business.
6. Discuss the importance of the sustainability of
competitive advantage.
Copyright © by South-Western College Publishing. All rights reserved.
2–2
The Path to Competitive Advantage
• Strategy
–A plan of action that coordinates the resources
and commitments of an organization to achieve
superior performance.
• Competitive Advantage
–A benefit that exists when a firm has a product or
service that is seen by its target market as better
than those of competitors.
Copyright © by South-Western College Publishing. All rights reserved.
2–3
The Path to Competitive Advantage
Identify
Opportunities
Select Strategies
That Capture
Opportunities
Manage the
Outcomes
from
Exploiting
Opportunities
Fig. 2.1
Copyright © by South-Western College Publishing. All rights reserved.
2–4
Bases for Competitive Advantage
Unique Service
Features
Price/Value
Competitive
Advantage
Notable Product
Attributes
Customer
Convenience
Customer
Experience
Fig. 2.2
Copyright © by South-Western College Publishing. All rights reserved.
2–5
Identifying Entrepreneurial Opportunities
• Types of Evaluation
–External Analysis
 Understanding the nature of the external environment
by studying the general trends and dynamics of
competition (what business potentials exist)
–Internal Analysis
 Identifying the firm’s competitive capabilities and
strengths (what the firm can do)
Copyright © by South-Western College Publishing. All rights reserved.
2–6
A Model of Competitive Advantage
Results
Reinvestment
•
•
•
•
Profits
Market Share
Customer Satisfaction
Survival
Reinvestment
Strategies
• Cost-Based Strategies
• Differentiation-Based Strategies
Foundations
Environmental Assessment
Organizational Assessment
Fig. 2.3
Fig. 2.3
Copyright © by South-Western College Publishing. All rights reserved.
2–7
Assessing The External Environment
• The General Environment
–A broad environment, encompassing factors that
influence most businesses in a society
• Industry Environment
–The combined forces that
directly impact a given firm
and its competitors
Copyright © by South-Western College Publishing. All rights reserved.
2–8
Segments of
the General
Environment
General Environment
Sociocultural
Political/Legal
Technological
Macroeconomic
Ecological
Global
Fig. 2.4
Copyright © by South-Western College Publishing. All rights reserved.
2–9
Major
Factors
Offsetting
Market
Attractiveness
Threat of New
Competitors
Threat of Substitute
Products or Services
Intensity of Rivalry
Among Existing
Products
Attractiveness and
Profitability of a
Target Market
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Fig. 2.5
Copyright © by South-Western College Publishing. All rights reserved.
2–10
Competitor Analysis
• Who are the new venture’s current competitors?
• What resources do they control?
• What are their strengths and weaknesses?
• How will they respond to the new venture’s
decision to enter the industry?
• How can the new venture respond?
• Who else might be able to observe and exploit
the same opportunity?
• Are there ways to co-opt potential or actual
competitors by forming alliances?
Copyright © by South-Western College Publishing. All rights reserved.
2–11
Market Attractiveness
Attractive
Competitive Force
Unattractive
Weak
Overall Competitive Forces
Strong
Weak
Threat of New Competitors
Strong
Weak
Threat of Substitute
Products/Services
Strong
Weak
Intensity of rivalry among
competitors
Strong
Weak
Bargaining Power of Suppliers
Strong
Weak
Bargaining Power of Buyers
Strong
Copyright © by South-Western College Publishing. All rights reserved.
2–12
Response to Change as an Opportunity
• Innovation
–is “the means by which the entrepreneur either
creates new wealth-producing resources or
endows existing resources with enhanced
potential for creating wealth.” (Drucker)
• Paradox of Attraction
–The concept that an attractive industry
opportunity is likely to draw multiple new entrants,
diminishing its attractiveness.
Copyright © by South-Western College Publishing. All rights reserved.
2–13
Change-based Sources of
Entrepreneurial Opportunities
Industry Factors
Change Factor
Definition
The unexpected
Unanticipated events lead to either enterprise
success or failure.
The incongruous
What is expected is out of line with what will
work.
Process needs
Current technology is insufficient to address
an emerging challenge.
Structural change
Change in technology, markets, etc., alter
industry dynamics.
Table 2.1a
Copyright © by South-Western College Publishing. All rights reserved.
2–14
Change-based Sources of
Entrepreneurial Opportunities
Human and Economic Factors
Change Factor
Definition
Demographics
Shifts in population size, age structure,
ethnicity, and income distribution impact
product demand.
Changes in
perception
Perceptual variations determine product
demand.
New knowledge
Learning opens the door to new product
opportunities with commercial potential.
Table 2.1b
Copyright © by South-Western College Publishing. All rights reserved.
2–15
Organizational Assessment
• Organizational Resources and Capabilities
–Basic inputs that a firm uses to conduct its
business
 Tangible and intangible resources
 Organizational capabilities
• Core Competencies
–Those resources and capabilities that provide a
firm with a competitive advantage over its rivals.
Copyright © by South-Western College Publishing. All rights reserved.
2–16
Examples of SWOT Factors
Internal
External
• Strengths
• Opportunities
– Core Competencies
– Financial strength
– Well-planned strategy
– Skilled management
• Weaknesses
– Production inefficiencies
– Inadequate financial
resources
– Poor management
– Poorly planned strategy
Copyright © by South-Western College Publishing. All rights reserved.
– Untapped market potential
– Favorable shift in market
– Emerging technologies
– New product
• Threats
– New competition
– Rising demand
– Increased government
regulations
2–17
Strategies that Capture Opportunities
• Broad-Based Strategy Options
–Seek an advantage in cost or competition.
• Cost-Based Strategy and Options
–Requires the firm to be the lowest-cost producer.
• Differentiation-Based Strategy
–Emphasizing the uniqueness of the firm’s product
or service
• Focus strategy
–Targeting a specific market segment (niche)
Copyright © by South-Western College Publishing. All rights reserved.
2–18
Implementation of Focus Strategies
• Restricting focus to a single subset of
customers.
• Emphasizing a single product or service.
• Limiting the market to a single geographical
region.
• Concentrating on superiority of product or
service.
Copyright © by South-Western College Publishing. All rights reserved.
2–19
Segmented Markets
• Focus markets can quickly erode if:
–The focus strategy is imitated.
–The target segment is structurally unattractive.
–The target segment’s differences from other
segments narrow.
–New firms subsegment the industry.
Copyright © by South-Western College Publishing. All rights reserved.
2–20
Strategic Terms
• Strategic Decision
–A decision regarding the direction a firm will take
in relating to its customers and competitors.
• Sustainable competitive advantage
–A value-creating industry position that is likely to
endure over time.
Copyright © by South-Western College Publishing. All rights reserved.
2–21
The Competitive Advantage Life Cycle
Deploy
Develop
Stage 1
Decline
Stage 2
Stage 3
Time
Fig. 2.6
Copyright © by South-Western College Publishing. All rights reserved.
2–22
Sustaining Competitive Advantage
Advantage Advantage Advantage Advantage
#1
#2
#3
#4
Time
Fig. 2.7
Copyright © by South-Western College Publishing. All rights reserved.
2–23