part 2 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing. All rights reserved. All rights reserved. Strategies That Capture Opportunities 2 Entrepreneurial Strategy 12e

Copyright © by South-Western College Publishing. All rights reserved. 2–22–2 Looking Ahead After studying this chapter, you should be able to: 1. Define competitive advantage. 2. Describe the factors that comprise external environments. 3. Describe the factors that comprise internal environments. 4. Identify and compare broad-based strategy options for the entrepreneurial venture. 5. Explain the focus strategy concept and its importance to small business. 6. Discuss the importance of the sustainability of competitive advantage.

Copyright © by South-Western College Publishing. All rights reserved. 2–32–3 The Path to Competitive Advantage Strategy –A plan of action that coordinates the resources and commitments of an organization to achieve superior performance. Competitive Advantage –A benefit that exists when a firm has a product or service that is seen by its target market as better than those of competitors.

Copyright © by South-Western College Publishing. All rights reserved. 2–42–4 The Path to Competitive Advantage Fig. 2.1 Identify Opportunities Select Strategies That Capture Opportunities Manage the Outcomes from Exploiting Opportunities

Copyright © by South-Western College Publishing. All rights reserved. 2–52–5 Bases for Competitive Advantage Fig. 2.2 Unique Service Features Notable Product Attributes Customer Experience Customer Convenience CompetitiveAdvantage Price/Value

Copyright © by South-Western College Publishing. All rights reserved. 2–62–6 Identifying Entrepreneurial Opportunities Types of Evaluation –External Analysis  Understanding the nature of the external environment by studying the general trends and dynamics of competition (what business potentials exist) –Internal Analysis  Identifying the firm’s competitive capabilities and strengths (what the firm can do)

Copyright © by South-Western College Publishing. All rights reserved. 2–72–7 A Model of Competitive Advantage Fig. 2.3

Copyright © by South-Western College Publishing. All rights reserved. 2–82–8 Assessing The External Environment The General Environment –A broad environment, encompassing factors that influence most businesses in a society Industry Environment –The combined forces that directly impact a given firm and its competitors

Copyright © by South-Western College Publishing. All rights reserved. 2–92–9 Segments of the General Environment General Environment Sociocultural Macroeconomic Ecological Political/Legal Technological Global Fig. 2.4

Copyright © by South-Western College Publishing. All rights reserved. 2–10 Major Factors Offsetting Market Attractive- ness Bargaining Power of Buyers Threat of Substitute Products or Services Bargaining Power of Suppliers Intensity of Rivalry Among Existing Products Threat of New Competitors Attractiveness and Profitability of a Target Market Fig 2.5 Fig. 2.5

Copyright © by South-Western College Publishing. All rights reserved. 2–11 Competitor Analysis Who are the new venture’s current competitors? What resources do they control? What are their strengths and weaknesses? How will they respond to the new venture’s decision to enter the industry? How can the new venture respond? Who else might be able to observe and exploit the same opportunity? Are there ways to co-opt potential or actual competitors by forming alliances?

Copyright © by South-Western College Publishing. All rights reserved. 2–12 Market Attractiveness

Copyright © by South-Western College Publishing. All rights reserved. 2–13 Response to Change as an Opportunity Innovation –is “the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.” (Drucker) Paradox of Attraction –The concept that an attractive industry opportunity is likely to draw multiple new entrants, diminishing its attractiveness.

Copyright © by South-Western College Publishing. All rights reserved. 2–14 Change-based Sources of Entrepreneurial Opportunities Table 2.1a

Copyright © by South-Western College Publishing. All rights reserved. 2–15 Change-based Sources of Entrepreneurial Opportunities Table 2.1b

Copyright © by South-Western College Publishing. All rights reserved. 2–16 Organizational Assessment Organizational Resources and Capabilities –Basic inputs that a firm uses to conduct its business  Tangible and intangible resources  Organizational capabilities Core Competencies –Those resources and capabilities that provide a firm with a competitive advantage over its rivals.

Copyright © by South-Western College Publishing. All rights reserved. 2–17 Examples of SWOT Factors Internal Strengths –Core Competencies –Financial strength –Well-planned strategy –Skilled management Weaknesses –Production inefficiencies –Inadequate financial resources –Poor management –Poorly planned strategy External Opportunities –Untapped market potential –Favorable shift in market –Emerging technologies –New product Threats –New competition –Rising demand –Increased government regulations

Copyright © by South-Western College Publishing. All rights reserved. 2–18 Strategies that Capture Opportunities Broad-Based Strategy Options –Seek an advantage in cost or competition. Cost-Based Strategy and Options –Requires the firm to be the lowest-cost producer. Differentiation-Based Strategy –Emphasizing the uniqueness of the firm’s product or service Focus strategy –Targeting a specific market segment (niche)

Copyright © by South-Western College Publishing. All rights reserved. 2–19 Implementation of Focus Strategies Restricting focus to a single subset of customers. Emphasizing a single product or service. Limiting the market to a single geographical region. Concentrating on superiority of product or service.

Copyright © by South-Western College Publishing. All rights reserved. 2–20 Segmented Markets Focus markets can quickly erode if: –The focus strategy is imitated. –The target segment is structurally unattractive. –The target segment’s differences from other segments narrow. –New firms subsegment the industry.

Copyright © by South-Western College Publishing. All rights reserved. 2–21 Strategic Terms Strategic Decision –A decision regarding the direction a firm will take in relating to its customers and competitors. Sustainable competitive advantage –A value-creating industry position that is likely to endure over time.

Copyright © by South-Western College Publishing. All rights reserved. 2–22 The Competitive Advantage Life Cycle Fig. 2.6 Develop Deploy Decline Stage 1Stage 2Stage 3 Time

Copyright © by South-Western College Publishing. All rights reserved. 2–23 Sustaining Competitive Advantage Fig. 2.7 Advantage #1 Advantage #2 Advantage #3 Advantage #4 Time