entrepreneurial strategy 2
TRANSCRIPT
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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)
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TODAYS TOPIC
Introduction and central question
General surroundings for businesses
The industry environment- Porters 5 Forces
- Blue Ocean Strategy
Conclusion
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Central Question
What are the important factors
for businesses in analysing theexternal environment
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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?
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SWOT
SW found within the internal
environment of the firmOT found in the external environment of
the firm
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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
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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).
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Most outer level of analysis: PESTEL
Political Economic
Legal Socio-cultural
Environ
mental Technological
PESTEL
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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)
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Porters five forcestheoretical framework for analysing competition in
industries
Potential entrantsPotential entrants
Industry competitorsIndustry competitors
Rivalry among existing firmsRivalry among existing firms
buyersbuyerssupplierssuppliers
substitutessubstitutes
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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
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EVALUATIONOFTHE5 FORCESMODEL
Arguably the first comprehensive approach
Most influential work in Strategic Management
Popular reference in practice
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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.
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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
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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
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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)
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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
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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)
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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
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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
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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
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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.
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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
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Entrepreneurial Resources and
Capabilities
core competencies
strategic capabilities
strategic resources
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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.
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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.).
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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.
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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
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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.
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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.
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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.
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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