This document summarizes key concepts from Chapter 3 of the textbook about entrepreneurial strategy for new entries. It discusses generating new entry opportunities by creating valuable, rare, and inimitable resource bundles. It also covers assessing new opportunities and deciding whether to exploit them. Additionally, it outlines strategies for exploiting new entries such as being a first mover, reducing environmental uncertainty, and reducing customer uncertainty. Risk reduction strategies like market scope strategies and imitation strategies are also summarized.
CHAPTER 3EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT.docxwalterl4
CHAPTER 3
EVALUATING A COMPANY’S
EXTERNAL ENVIRONMENT
McGraw-Hill/Irwin
Copyright ®2012 The McGraw-Hill Companies, Inc.
3–*
Gain command of the basic concepts and analytical tools widely used to diagnose the competitive conditions in a company’s industry.Learn how to diagnose the factors shaping industry dynamics and to forecast their effects on future industry profitability.Become adept at mapping the market positions of key groups of industry rivals.Understand why in-depth evaluation of a business’s strengths and weaknesses in relation to the specific industry conditions it confronts is an essential prerequisite to crafting a strategy that is well-matched to its external situation.
3–*
3.1
From Thinking Strategically about the Company’s Situation to Choosing a Strategy
Chapter 3
Chapter 4
Thinking
strategically
about a firm’s
external
environment
Thinking
strategically
about a firm’s
internal
environment
Forming a
strategic
vision of
where the
firm needs
to head
Identifying
promising
strategic
options
for the firm
Selecting the
best strategy
and business
model for
the firm
3–*
3.2
The Components of a Company’s Macro-Environment
3–*
3.1
The Seven Components of the Macro-EnvironmentComponentDescriptionDemographicsThe size, growth rate, and age distribution of different sectors of the population. It includes the geographic distribution of the population, the distribution of income across the population, and trends in these factors.Social forces Societal values, attitudes, cultural factors, and lifestyles that impact businesses. Social forces vary by locale and change over time. Political, legal, and regulatory factors Political policies and processes, as well as the regulations and laws with which companies must comply—labor laws, antitrust laws, tax policy, regulatory policies, the political climate, and the strength of institutions such as the court system.Natural environment Ecological and environmental forces such as weather, climate, climate change, and associated factors like water shortages.Technological
factors The pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering, the rise of the Internet, changes in communication technologies, and knowledge and controlling the use of technology, Global forces Conditions and changes in global markets, including political events and policies toward international trade, sociocultural practices and the institutional environment in which global markets operate.General economic
conditions Rates of economic growth, unemployment, inflation, interest, trade deficits or surpluses, savings, per capita domestic product, and conditions in the markets for stocks and bonds affecting consumer confidence and discretionary income.
3–*
THINKING STRATEGICALLY ABOUT A COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Does the industry offer attractive opportunities for growth?
What k.
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Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
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2. 3-2
New Entry
New entry refers to:
Offering a new product to an established or new
market.
Offering an established product to a new
market.
Creating a new organization.
Entrepreneurial strategy – The set of
decisions, actions, and reactions that first
generate, and then exploit over time, a new
entry.
3. 3-3
Figure 3.1 - Entrepreneurial Strategy:
The Generation and Exploitation of New Entry
Opportunities
4. 3-4
Generation of a New Entry
Opportunity
Resources as a Source of Competitive
Advantage
Resources are the basic building blocks to a
firm’s functioning and performance; the inputs
into the production process.
They can be combined in different ways.
A bundle of resources provides a firm its capacity to
achieve superior performance.
Resources must be:
Valuable.
Rare.
Inimitable.
5. 3-5
Creating a Resource Bundle That Is
Valuable, Rare, and Inimitable
Entrepreneurs need to draw from their unique
experiences and knowledge.
Market knowledge - Information, technology,
know-how, and skills that provide insight into a
market and its customers.
Technological knowledge - Information,
technology, know-how, and skills that provide
insight into ways to create new knowledge.
Generation of a New Entry
Opportunity (cont.)
6. 3-6
Generation of a New Entry
Opportunity (cont.)
Assessing the Attractiveness of a New Entry
Opportunity
Depends on the level of information and the
willingness to make a decision without perfect
information.
Information on a New Entry
Prior knowledge and information search
More knowledge ensures a more efficient search
process.
Search costs include time and money.
The viability of a new entry can be described in
terms of a window of opportunity.
7. 3-7
Comfort with Making a Decision under
Uncertainty
The trade-off between more information and the
likelihood that the window of opportunity will
close provides a dilemma for entrepreneurs.
Error of commission - Negative outcome from acting
on the perceived opportunity.
Error of omission - Negative outcome from not acting
on the new entry opportunity.
Generation of a New Entry
Opportunity (cont.)
8. 3-8
Figure 3.2 - The Decision to Exploit or Not
to Exploit the New Entry Opportunity
9. 3-9
Entry Strategy for New Entry
Exploitation
Being a first mover can result in a number
of advantages that can enhance
performance. These include:
Cost advantages.
Less competitive rivalry.
The opportunity to secure important supplier
and distributor channels.
A better position to satisfy customers.
The opportunity to gain expertise through
participation.
10. 3-10
Environmental Instability and First-Mover
(Dis)Advantages
The entrepreneur must first determine the key
success factors of the industry being targeted
for entry; are influenced by environmental
changes.
Environmental changes are highly likely in emerging
industries.
Demand uncertainty - Difficulty in estimating the
potential size of the market, how fast it will
grow, and the key dimensions along which it will
grow.
Entry Strategy for New Entry
Exploitation (cont.)
11. 3-11
Technological uncertainty - Difficulty in
assessing whether the technology will perform
and whether alternate technologies will emerge
and leapfrog over current technologies.
Adaptation - Difficulty in adapting to new
environmental conditions.
Entrepreneurial attributes of persistence and
determination can inhibit the ability of the
entrepreneur to detect, and implement, change.
Entry Strategy for New Entry
Exploitation (cont.)
12. 3-12
Customers’ Uncertainty and First-Mover
(Dis)Advantages
Uncertainty for customers - Difficulty in
accurately assessing whether the new product or
service 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 and
documentation.
Entry Strategy for New Entry
Exploitation (cont.)
13. 3-13
Lead Time and First-Mover (Dis)Advantages
Lead time – The grace period in which the first
mover operates in the industry under conditions
of limited competition.
Lead time can be extended if the first mover can
erect barriers to entry by:
Building customer loyalties.
Building switching costs.
Protecting product uniqueness.
Securing access to important sources of supply and
distribution.
Entry Strategy for New Entry
Exploitation (cont.)
14. 3-14
Risk Reduction Strategies for
New Entry Exploitation
Risk is derived from uncertainties over
market demand, technological
development, and actions of competitors.
Two strategies can be used to reduce these
uncertainties:
Market scope strategies - Focus on which
customer groups to serve and how to serve
them.
Imitation strategies - Involves copying the
practices of others.
15. 3-15
Market Scope Strategies
Narrow-scope strategy involves offering a small
product range to a small number of customer
groups to satisfy a particular need.
Focuses on producing customized products, localized
business operations, and high levels of craftsmanship.
Leads to specialized expertise and knowledge.
High-end of the market represents a highly profitable
niche.
Reduces some competition-related risks but increases
the risks associated with market uncertainties.
Risk Reduction Strategies for
New Entry Exploitation (cont.)
16. 3-16
Broad-scope strategy involves offering a range
of products across many different market
segments.
Strategy emerges through the information provided by
a learning process.
Opens the firm up to many different “fronts” of
competition.
Reduces risks associated with market uncertainties but
increases exposure to competition.
Risk Reduction Strategies for
New Entry Exploitation (cont.)
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 in
the 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 exist
and attempting to build an advantage through minor
variations.
Risk Reduction Strategies for
New Entry Exploitation (cont.)
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 for
New Entry Exploitation (cont.)
19. 3-19
Managing Newness
Liabilities of newness arise from unique
conditions:
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 and
a functional corporate culture.
Risk Reduction Strategies for
New Entry Exploitation (cont.)
20. 3-20
Assets of Newness
Lack of established routines, systems, and processes
provide a learning advantage.
A heightened ability to learn new knowledge in a
continuously changing environment is an important
source of competitive advantage.
Risk Reduction Strategies for
New Entry Exploitation (cont.)