ENTREPRENEURSHIP DEVELOPMENT Strategic Management and the Entrepreneur

Few activities in the life of a business are as vital or as overlooked – as that of developing a strategy for success. Too often, entrepreneurs overflowing with optimism and enthusiasm launch their businesses destined for failure because their founders never stop to define a workable strategy that sets them apart from their competitions.

Companies lacking clear strategies may achieve some success in the short run, but as soon as competitive conditions stiffen or an unanticipated threat arises, they usually “hit the wall” and fold.

A Major Shift….  Without strategic plan a company can have success for a short time.  Shift in the world economy from a base of financial capital to intellectual capital.  Human  Human- talents, skills, abilities of a company’s workforce.  Structural- accumulated knowledge and experience such as processes, patents, copyrights, knowledge and experience of the people in the company.  Customer  Customer- customer base, positive reputation, ongoing relationship and goodwill a company builds up over time with its customers.

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. strengths  The idea is to give the owner a blueprint for matching the company’s strengths and weaknesses to the opportunities and threats in the environment.

Strategic Management and Competitive Advantage The goal of developing a strategic plan is to create for the small company a competitive advantage, the aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market.

Key: Core Competencies  Only building competitive advantage is not enough sustainable competitive advantage can be built by developing set of 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 company’s smallness).

THE STRATEGIC MANAGEMENT PROCESS Step # 1 Step # 1 Develop a clear vision and translate it into a mission statement. Step # 2 Step # 2 Assess strengths and weaknesses. Step # 3 Step # 3 Scan environment for opportunities and threats. Step # 4 Step # 4 Identify key success factors. Step # 5 Step # 5 Analyze competition. Step # 6 Step # 6 Create goals & objectives. Step # 7 Step # 7 Formulate strategies. Step # 8 Step # 8 Translate plans into actions. Step # 9 Step # 9 Establish accurate controls.

Step # 1 - Develop a clear Vision and Create a Mission Statement  Vision  Vision –  Purpose is to focus everyone’s attention on the same target and to inspire them to reach it  An expression of what an entrepreneur stands for and believes in.  A clearly defined vision:  Provides Direction  Provides Direction – focus everyone’s attention on the future and determine the path the business will take to get there.  Determines Decisions  Determines Decisions – influence the decisions of the owners, managers and employees make every day in a business.  Motivates People  Motivates People.- excites and inspires people to take action  Mission Statement  Addresses question:" What business are we in?”

Step # 2 – Assess the Company’s Strengths and Weaknesses  Strengths  Positive internal factors that contribute to accomplishing the mission, goals, and objectives.  Important skills, knowledge, resources that contribute to the firms success.  Weaknesses  Negative internal factors that slow down the accomplishment of the mission, goals, and objectives.

Step # 3 – Scan the Environment for Significant Opportunities and Threats Facing the Business  Opportunities  Positive external factors the company can employ to accomplish its mission, goals, and objectives.  Restaurant industry analysis  Threats  Negative external factors that inhibit the firm's ability to accomplish its mission, goals, and objectives.  Competitor, government regulation, economic recession, interest rate raise, technological advances  Wal-Mart can posses threats to small retailers.

The Power of External Forces Political and Regulatory Social and Demographic TechnologicalEconomic

Step # 4 – Identify the Key Factors for Success in the Business Every business is characterized by controllable variables that determine the relative success of market participants. Identifying and manipulating these variables is how a small business gains a competitive advantage. Key success factors come in a variety of different patterns depending on the industry. Many of these sources of competitive advantages are based on cost factors such as:  manufacturing cost per unit  distribution cost per unit  development cost per unit  superior product quality  solid relationships with dependable suppliers

Step # 5 – Analyze the Competition 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.  Anticipate rivals’ next strategic moves.

Step # 6 – Create Company Goals and Objectives  Goals and objectives give them target to aim for and provide a basis for evaluating performance.  Goals  Goals - broad, long-range attributes to be accomplished.  Objectives S.M.A.R.T.  Objectives - more detailed, specific targets of performance that are S.M.A.R.T.  Specific  Measurable  Attainable  Realistic (yet challenging)  Timely

Step # 7 – Formulate Strategies  Strategy - a road map of the actions an entrepreneur draws up to fulfill a company’s mission, goals, and objectives. It is the company’s game plan for gaining a competitive advantage.  Three basic strategies: Strategy? Focus Differentiation Cost Leadership

Three Strategic Options Competitive Advantage Target Market Industry Niche Uniqueness Perceived by the Customer by the Customer Low Cost Position Differentiation Low Cost Differentiation Focus Differentiation Focus Cost Focus

Cost Leadership  Goal: to be the low-cost producer in the industry (or market segment).  Low-cost leaders have an advantage in reaching buyers who buy on the basis of price, and they have the power to set the industry’s price floor.  Works well when:  Buyers are sensitive to price changes.  Competing firms sell the same commodity products.  A company can benefit from economies of scale.

Differentiation  Company seeks to build customer loyalty by positioning its goods or services in a unique or different fashion.  Idea is to be special at something customers value.  Key: Build basis for differentiation on a distinctive competence, something that the small company is uniquely good at doing in comparison to its competitors.

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.

Step # 8 – Translate Strategic Plans into Action Plans  Create projects by defining:  Purpose  Scope  Contribution  Resource requirements  Timing

Step # 9 – 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.

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 company’s overall performance.  Four Perspectives:  Customer: How do customers see us? ▪Time : how long it takes to deliver ▪Quality :reliability, durability accuracy of the product ▪Performance : performance and expectation ▪Service : how well it meets customer expectation of value?  Internal Business: At what must we excel? ▪Quality, cycle time, productivity, cost, other that employees directly influence  Innovation and Learning: Can we continue to improve and create value? ▪Continuous improvement  Financial: How do we look to shareholders? ▪Profitability, growth and shareholder value.

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