Entrepreneurship Chap 3


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Entrepreneurship Chap 3

  1. 1. HisrichPetersShepherdChapter 3Entrepreneurial Strategy:Generating and ExploitingNew EntriesCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 3-2New Entry New entry refers to: Offering a new product to an established or newmarket. Offering an established product to a newmarket. Creating a new organization. Entrepreneurial strategy – The set ofdecisions, actions, and reactions that firstgenerate, and then exploit over time, a newentry.
  3. 3. 3-3Figure 3.1 - Entrepreneurial Strategy:The Generation and Exploitation of New EntryOpportunities
  4. 4. 3-4Generation of a New EntryOpportunity Resources as a Source of CompetitiveAdvantage Resources are the basic building blocks to afirm’s functioning and performance; the inputsinto the production process. They can be combined in different ways. A bundle of resources provides a firm its capacity toachieve superior performance. Resources must be: Valuable. Rare. Inimitable.
  5. 5. 3-5 Creating a Resource Bundle That IsValuable, Rare, and Inimitable Entrepreneurs need to draw from their uniqueexperiences and knowledge. Market knowledge - Information, technology,know-how, and skills that provide insight into amarket and its customers. Technological knowledge - Information,technology, know-how, and skills that provideinsight into ways to create new knowledge.Generation of a New EntryOpportunity (cont.)
  6. 6. 3-6Generation of a New EntryOpportunity (cont.) Assessing the Attractiveness of a New EntryOpportunity Depends on the level of information and thewillingness to make a decision without perfectinformation. Information on a New Entry Prior knowledge and information search More knowledge ensures a more efficient searchprocess. Search costs include time and money. The viability of a new entry can be described interms of a window of opportunity.
  7. 7. 3-7 Comfort with Making a Decision underUncertainty The trade-off between more information and thelikelihood that the window of opportunity willclose provides a dilemma for entrepreneurs. Error of commission - Negative outcome from actingon the perceived opportunity. Error of omission - Negative outcome from not actingon the new entry opportunity.Generation of a New EntryOpportunity (cont.)
  8. 8. 3-8Figure 3.2 - The Decision to Exploit or Notto Exploit the New Entry Opportunity
  9. 9. 3-9Entry Strategy for New EntryExploitation Being a first mover can result in a numberof advantages that can enhanceperformance. These include: Cost advantages. Less competitive rivalry. The opportunity to secure important supplierand distributor channels. A better position to satisfy customers. The opportunity to gain expertise throughparticipation.
  10. 10. 3-10 Environmental Instability and First-Mover(Dis)Advantages The entrepreneur must first determine the keysuccess factors of the industry being targetedfor entry; are influenced by environmentalchanges. Environmental changes are highly likely in emergingindustries. Demand uncertainty - Difficulty in estimating thepotential size of the market, how fast it willgrow, and the key dimensions along which it willgrow.Entry Strategy for New EntryExploitation (cont.)
  11. 11. 3-11 Technological uncertainty - Difficulty inassessing whether the technology will performand whether alternate technologies will emergeand leapfrog over current technologies. Adaptation - Difficulty in adapting to newenvironmental conditions. Entrepreneurial attributes of persistence anddetermination can inhibit the ability of theentrepreneur to detect, and implement, change.Entry Strategy for New EntryExploitation (cont.)
  12. 12. 3-12 Customers’ Uncertainty and First-Mover(Dis)Advantages Uncertainty for customers - Difficulty inaccurately assessing whether the new product orservice provides value for them. Overcome customer uncertainty by: Informational advertising. Highlighting product benefits over substitutions. Creating a frame of reference for potential customer. Educating customers through demonstration anddocumentation.Entry Strategy for New EntryExploitation (cont.)
  13. 13. 3-13 Lead Time and First-Mover (Dis)Advantages Lead time – The grace period in which the firstmover operates in the industry under conditionsof limited competition. Lead time can be extended if the first mover canerect barriers to entry by: Building customer loyalties. Building switching costs. Protecting product uniqueness. Securing access to important sources of supply anddistribution.Entry Strategy for New EntryExploitation (cont.)
  14. 14. 3-14Risk Reduction Strategies forNew Entry Exploitation Risk is derived from uncertainties overmarket demand, technologicaldevelopment, and actions of competitors. Two strategies can be used to reduce theseuncertainties: Market scope strategies - Focus on whichcustomer groups to serve and how to servethem. Imitation strategies - Involves copying thepractices of others.
  15. 15. 3-15 Market Scope Strategies Narrow-scope strategy involves offering a smallproduct range to a small number of customergroups to satisfy a particular need. Focuses on producing customized products, localizedbusiness operations, and high levels of craftsmanship. Leads to specialized expertise and knowledge. High-end of the market represents a highly profitableniche. Reduces some competition-related risks but increasesthe risks associated with market uncertainties.Risk Reduction Strategies forNew Entry Exploitation (cont.)
  16. 16. 3-16 Broad-scope strategy involves offering a rangeof products across many different marketsegments. Strategy emerges through the information provided bya learning process. Opens the firm up to many different “fronts” ofcompetition. Reduces risks associated with market uncertainties butincreases exposure to competition.Risk Reduction Strategies forNew Entry Exploitation (cont.)
  17. 17. 3-17 Imitation Strategy Why do it? It is easier to imitate the practices of a successful firm. It can help develop skills necessary to be successful inthe industry. It provides organizational legitimacy. Types of imitation strategies Franchising - A franchisee acquires the use of a“proven formula” for new entry from a franchisor. “Me-too” strategy - Copying products that already existand attempting to build an advantage through minorvariations.Risk Reduction Strategies forNew Entry Exploitation (cont.)
  18. 18. 3-18 An imitation strategy can potentially: Reduce the entrepreneur’s costs associated with R&D. Reduce customer uncertainty over the firm. Make the new entry look legitimate from day one.Risk Reduction Strategies forNew Entry Exploitation (cont.)
  19. 19. 3-19 Managing Newness Liabilities of newness arise from uniqueconditions: Costs in learning new tasks. Conflict arising from overlap or gaps in responsibilities. Unestablished informal structures of communication. A new firm needs to: Educate and train employees. Facilitate conflict over roles. Promote activities that foster informal relationships anda functional corporate culture.Risk Reduction Strategies forNew Entry Exploitation (cont.)
  20. 20. 3-20 Assets of Newness Lack of established routines, systems, and processesprovide a learning advantage. A heightened ability to learn new knowledge in acontinuously changing environment is an importantsource of competitive advantage.Risk Reduction Strategies forNew Entry Exploitation (cont.)