© 2002 by Prentice Hall 3-1 The New Venture’s Environment New Venture Industry Environment Ecological TechnologicalEconomic Political Socio-demographic

© 2002 by Prentice Hall 3-2 Five Segments of Macroenvironment  Technology  Economy  Political  Sociodemography  Ecology

© 2002 by Prentice Hall 3-3 Tasks of Environmental Analysis  Scanning: detect changes  Monitoring: track events that affect business  Forecasting: make plausible projections  Assessing: most difficult, “What does it all mean?”

© 2002 by Prentice Hall 3-4 Technology  Pure Invention: creation of something radically different from existing technologies or products.  Process Innovation: incremental and evolutionary with the purpose of making existing industries more efficient.

© 2002 by Prentice Hall 3-5 Economy  Global  National  Regional  Local

© 2002 by Prentice Hall 3-6 Political  Stakeholders Seven Dimensions  Global Trade Tariffs and Agreements Risks  National Taxes Regulations Patents Governments  State and Local Licensing Securities and Incorporation Laws Incentives

© 2002 by Prentice Hall 3-7 Sociodemographic  Demographics  Social Trends and Values

© 2002 by Prentice Hall 3-8 Ecology Current state of ecology Cuts across all other environmental areas

© 2002 by Prentice Hall 3-9 Quantitative and Judgemental Forecasting Methods Method Sales force estimate Juries of executive opinion Customer surveys: Market research focus groups Scenario development Delphi method Brainstorming Description A bottom-up approach that aggregates unit demand Forecasts jointly prepared by experts in a functional area Learning about intentions of potential customers and final users Effects of anticipated conditions imagined by forecasters Experts guided to consensus Idea generation in a non-critical group situation Cost Low Medium Low Complexity Low Medium Low Medium

© 2002 by Prentice Hall 3-10 Sources of Entrepreneurial Opportunities  The unexpected  The incongruous  The process need  Industry and market structures  Demographics  Changes in perception  New knowledge

© 2002 by Prentice Hall 3-11 Elements of Industry Structure New Entrants Substitutes Buyers Industry Competitors Intensity of Rivalry Suppliers Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitutes Threat of New Entrants

© 2002 by Prentice Hall 3-12 Entry Barriers:  Economies of scale  Proprietary product differences  Brand identity  Switching costs  Capital requirements  Access to distribution  Absolute cost advantages Proprietary learning curve Access to necessary inputs Proprietary low-cost product design  Government policy  Expected retaliation Elements of Industry Structure

© 2002 by Prentice Hall 3-13 Rivalry Determinants:  Industry growth  Fixed (or storage) costs / value added  Intermittent overcapacity  Product differences  Brand identity  Switching costs  Concentration and balance  Informational complexity  Diversity of competitors  Corporate stakes  Exit barriers Elements of Industry Structure

© 2002 by Prentice Hall 3-14 Determinants of Supplier Power:  Differentiation of inputs  Switching costs of suppliers and firms in the industry  Presence of substitute inputs  Supplier concentration  Importance of volume to supplier  Cost relative to total purchases in the industry  Impact of inputs on cost or differentiation  Threat of forward integration relative to threat of backward integration by firms in the industry Elements of Industry Structure

© 2002 by Prentice Hall 3-15 Bargaining Leverage:  Buyer concentration versus firm concentration  Buyer volume  Buyer switching costs relative to firm switching costs  Buyer information  Ability to backward integrate  Substitute products  Pull-through Elements of Industry Structure

© 2002 by Prentice Hall 3-16 Elements of Industry Structure Price Sensitivity:  Price / total purchases  Product differences  Brand identity  Impact on quality performance  Buyer profits  Decision makers’ incentives

© 2002 by Prentice Hall 3-17 Determinants of substitution threats:  Relative price performance of substitutes  Switching costs  Buyer propensity to substitute Elements of Industry Structure

© 2002 by Prentice Hall 3-18 Political and Governmental Issues Effecting Entrepreneurs GlobalNationalState and RegionalLocal Trade barriersTaxationTaxationTaxation Trade agreements RegulationSecurities lawZoning Tariffs and duties Antitrust issuesLicensing Political riskPatent issuesIncentives Gov’t spending

© 2002 by Prentice Hall 3-19 Entry Barriers Structural Barriers  Economies of scale  Excess capacity  Product differentiation core  Specific assets  Capital requirements  Switching costs  Access to distribution channels  Non-size cost disadvantages

© 2002 by Prentice Hall 3-20 Entry Barriers Retaliatory Barriers  Competitors' reputation  Industry history  Attack competitors  Slow industry growth rate  Competitors with substantial resources  Price cutting  Legal challenges

© 2002 by Prentice Hall 3-21 Factors Affecting Retaliatory Pricing Encouraging Factors Discouraging Factors Elastic demand Inelastic demand Cost advantages No cost advantages Excess capacity Tight capacity Small competitors Large competitors New competitors Long-time rivalries Single-product markets Mkt. interdependence

© 2002 by Prentice Hall 3-22 Industry Environment Issues  Competitive analysis  Industry analysis  Buyer power  Supplier power  Threat of substitutes  Entry barriers  Rivalry between firms

© 2002 by Prentice Hall 3-23 The Sweet Spot  Attractive Opportunity  Interest, Passions and Commitment  Capabilities and Skills

© 2002 by Prentice Hall 3-24 Characteristics of an Attractive Opportunity  Timely: a current need or problem  Solvable: a problem that can be solved in the near future with accessible resources  Important: customer deems the problem or need important  Profitable: customer will pay for the solution and allow it to be profitable  Context: a favorable regulatory and industry situation

© 2002 by Prentice Hall 3-25 Characteristics of Interests and Passions  Like to do the tasks  Like the challenge  Committed to do what is necessary

© 2002 by Prentice Hall 3-26 Capabilities and Skills  Good at the needed tasks  Willingness to learn

© 2002 by Prentice Hall 3-27 The Firm  Clear about its vision and mission  Must know customers, suppliers and competitors  Understand Intellectual Capital  Understand environment

© 2002 by Prentice Hall 3-28 Firm’s Intellectual Capital  Human Capital (HC): skills, capabilities and knowledge of firm’s people  Organizational Capital (OC): patents, technologies, processes and networks  Social Capital (SC): quality of relationships with customers, suppliers, and partners IC = HC + OC + Sc

© 2002 by Prentice Hall 3-29 Competitor Resource Analysis Resource TypeOwn Firm#1#2#3#4#5 Financial Physical Human Technical Reputational Organizational Total Scores Grand Mean +/- from Mean Evaluate each resource base from : Firm has no advantage in this area. 4: Firm’s capabilities are about the same as other competitors. 7: Firm possesses an absolute advantage in this area.