Entrepreneurship Chapter 2

Strategic
Strategic Management
Management
and
and the
the Entrepreneur
Entrepreneur
Chapter 2: Strategic Mgt
Copyright 2003 Prentice Hall Publishing Company
A Major Shift . . .
. . . From financial capital to
intellectual capital.
Human
Structural
Customer
Strategic Management
Is crucial to building a successful business.

Involves developing a game plan to guide a
company as it strives to accomplish its mission,
goals , and objectives, and to keep it on its
desired course.
Is Strategic Planning Really That

Important?
Study of 500 small companies:

One of the most significant factors in
distinguishing growing companies from those
in decline: use of a written business plan.
Another study:
Only 12% of small companies had a longrange plan in writing.
Strategic Management and

Competitive Edge
Developing a strategic plan is crucial

to creating a competitive advantage,
the aggregation of factors that sets a
company apart from its competitors
and gives it a unique position in the
market.
Example: Adventurous Traveler
Bookstore
Key: Core Competencies
Unique set of capabilities a company develops

in key areas, such as superior quality, customer
service, innovation, team-building, flexibility,
responsiveness, and others that allow it to vault
past competitors.
They are what a company does best.
Best to rely on a natural advantage (often linked
to a companys smallness).
Strategic Management Process

Step 1: Develop a vision and translate it
into a mission statement.
Step 2: Assess strengths and weaknesses.
Step 3: Scan environment for
opportunities and threats.
Step 4: Identify key success factors.
Strategic Management Process ...

(continued)
Step 5: Analyze competition.

Step 6: Create goals & objectives.
Step 7: Formulate strategies.
Step 8: Translate plans into actions.
Step 9: Establish accurate controls.
Step 1: Develop a Vision and

Create a Mission Statement
Vision an expression of what an

entrepreneur stands for and believes in.
A clearly defined vision:
Provides direction
Determines decisions
Motivates people
Step 1: Develop a Vision and

Create a Mission Statement
Mission - addresses question:"What

business are we in?
A written expression of how the
company will reflect the owners
values, beliefs, and vision.
Sets the tone for the entire company
and guides the decisions people make.
Example: Fetzer Vineyards
http://www.fetzer.com/
10
Step 2: Assess Company Strengths

and Weaknesses
Strengths
Positive internal factors that
contribute to accomplishing the
mission, goals, and objectives.
Weaknesses
Negative internal factors that inhibit
the accomplishment of the mission,
goals, and objectives.
11
Step 3: Scan for Opportunities

and Threats
Opportunities
Positive external factors the company can
employ to accomplish its mission, goals, and
objectives.
Threats
Negative external factors that inhibit the firm's
ability to accomplish its mission, goals, and
objectives.
12
External Market Forces

Technological
Technological
Competitive
Competitive
Politicaland
and
Political
Regulatory
Regulatory
Economic
Economic
Socialand
and
Social
Demographic
Demographic
Step 4: Identify Key Success

Factors
Key success factors:

relationships between a
controllable variable and a
critical factor that influence a
companys ability to compete
in the market.
The keys to unlocking the
secrets of competing
successfully in a particular
market segment.
14
Step 5: Analyze Competitors

Analyzing key competitors allows an entrepreneur
to:
avoid surprises from existing competitors new
strategies and tactics.
identify potential new competitors and the
threats they pose.
improve reaction time to competitors actions.
anticipating rivals next strategic moves.
15

Techniques do not require unethical
behavior:
Monitor industry and trade publications.
Talk to customers and suppliers.
Listen to employees, especially sales
representatives and purchasing agents.
Attend trade shows and conferences.
16

Techniques do not require unethical
behavior:
Study competitors' literature and
"benchmark" their products and services.
Get competitors' credit reports.
Check out the local library.
Use the World Wide Web to learn more about
competitors.
Visit competing businesses to observe their
operations.
17
Sample Competitive Profile Matrix
Key Success Factors
Your Business
Weighted
(from Step 4)
Weight Rating
Score
Market Share
0.10
3
0.30
Price Competitiveness
0.20
1
0.20
Financial Strength
0.10
2
0.20
Product Quality
0.40
4
1.60
Customer Loyalty
0.20
3
0.60
Total
1.00
2.90
Competitor 1
Competitor 2
Weighted
Weighted
Rating
Score
Rating
Score
2
0.20
3
0.30
3
0.60
4
0.80
3
0.30
2
0.20
2
0.80
1
0.40
3
0.60
2
0.40
2.50
2.10
Knowledge Management
The practice of gathering, organizing, and

disseminating the collective wisdom and
experience of a companys employees for the
purpose of strengthening its competitive position.
Knowledge management involves:
Taking inventory of the special knowledge the people
in the company possess.
Organizing that knowledge and disseminating it to
those who need it.
19
Step 6: Create Company Goals

and Objectives
Goals - broad, long-range attributes to be

accomplished.
BHAGS one factor that sets apart successful
companies from unsuccessful ones.
Objectives - more detailed, specific targets of

performance that are S.M.A.R.T.
Specific
Measurable
Assignable
Realistic (yet challenging)
Timely
20
Step 7: Formulate Strategies
Strategy
A road map that guides a company through a
turbulent environment as it seeks to fulfill its mission,
goals, and objectives.
A game plan for winning.
Three basic strategies:

Cost
Cost leadership
leadership
Strategy?
Differentiation
Differentiation
Focus
Focus
Three Strategic Options

Competitive Advantage
Uniqueness Perceived Low Cost
Position
by the Customer
Industry
Differentiation
Differentiation Low
Low Cost
Cost
Target
Market
Niche
Differentiation
Differentiation
Focus
Focus
Cost
Cost
Focus
Focus
Cost Leadership
Goal: to be the low-cost producer in the industry

or market segment.
Advantages:
reaching buyers who buy on the basis of price.
power to set the industrys price floor.
Works well when:

buyers are sensitive to price changes.
when competing firms sell the same commodity
products.
when a company can benefit from economies of scale.
23
Differentiation
Company seeks to build customer loyalty by

positioning its goods or services in a unique or
different fashion.
Idea is to be unique at something customers
value.
Key: Build basis for differentiation on a core
competency, those things that the small
company is uniquely good at doing in
comparison to its competitors.
Example: East Bank Club
24
Focus
Company selects one or more customer segments

in a market, identifies customers special needs,
wants, or interests, and then targets them with a
product or service designed specifically for them.
Strategy builds on differences among market
segments.
Rather than try to serve the total market, the
company focuses on serving a niche (or several
niches) within that market.
Example: Clown Shoes and Props
25
Step 9: Translate Strategies

into Action Plans
Create projects by defining:

Purpose
Scope
Contribution
Resource requirements
Timing
26
Step 10: Establish Accurate Controls
The plan establishes the standards against

which actual performance is measured.
Entrepreneur must:
identify and track key performance
indicators.
Take corrective action.
27
Balanced Scorecards
A set of measurements unique to a company

that includes both financial and operational
measures
Gives managers a quick, yet comprehensive,
picture of a companys overall performance.
28
Balanced Scorecards
Four Perspectives:
Customer: How do customers see us?
Internal Business: At what must we excel?
Innovation and Learning: Can we continue
to improve and create value?
Financial: How do we look to shareholders?
29
The Balanced Scorecard Links Performance Measures.
How do we look
to shareholders?
Financial Perspective
Goals
Measures
How do customers
see us?
At what must
we excel?
Customer Perspective
Goals
Measures
Internal Business Perspective

Goals
Measures
Innovation and Learning Perspective
Goals
Measures
Can we continue to
improve and create
value?

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Strategic

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Is crucial to building a successful business.

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Is Strategic Planning Really That

Study of 500 small companies:

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Strategic Management and

Developing a strategic plan is crucial

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Key: Core Competencies

Unique set of capabilities a company develops

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Strategic Management Process

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Strategic Management Process ...

Step 5: Analyze competition.

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 1: Develop a Vision and

Vision an expression of what an

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 1: Develop a Vision and

Chapter 2: Strategic Mgt

Mission - addresses question:"What

Step 2: Assess Company Strengths

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 3: Scan for Opportunities

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

External Market Forces

Step 4: Identify Key Success

Key success factors:

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 5: Analyze Competitors

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 5: Analyze Competitors

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company

Step 5: Analyze Competitors

Copyright 2003 Prentice Hall Publishing Company

Sample Competitive Profile Matrix

Key Success Factors

The practice of gathering, organizing, and

Chapter 2: Strategic Mgt

Copyright 2003 Prentice Hall Publishing Company