Module: Special Topics in Strategy

MODULE: SPECIAL TOPICS IN STRATEGY

TEXT OUTLINE
STRATEGIES FOR ENTREPRENEURIAL VENTURES AND SMALL BUSINESSES
A. What Is an Entrepreneurial Venture and What Is a Small Business? (Table 1)
1. Entrepreneurial Venture
a) Characterized by innovative practices
b) Has proitability and gro!th as its goals
c) See"s out ne! opportunities
d) #illingness to ta"e ris"s
$. Sall Bu!ine!!
a) %ndependently o!ned& operated and inanced
b) 'e!er than ()) e*ployees
c) +oesn,t necessarily e*phasize ne! or innovative practices
d) Has little i*pact on its industry
-. Why Are These Types of Organizations Important?
1. .ob Creation
a) Accepted /!isdo*0 is that s*all businesses create *ore 1obs
b) 2esearch *ay suggest other!ise
c) S*all ir*s tend to be *ore stable& despite the econo*ic ti*e
$. 3u*ber o 3e! Start4ups
a) S*all business and entrepreneurial ventures are oten better able to respond 5uic"ly to
changes in the e6ternal environ*ent than larger& less le6ible organizations
b) Many o the cost advantages that large organizations traditionally had because o their
size have been eroded and di*inished by advances in technology
7. %nnovation
Inn"#ati"n is the process o creating& changing& e6peri*enting& transor*ing and
revolutionizing.
a) 8ne o the "ey distinguishing characteristics o entrepreneurial ventures
b) 9ntrepreneurial ir*s are an essential source o ne! and uni5ue ideas that *ight
other!ise go untapped
(1) 3e! entrepreneurial organizations generate $: ti*es *ore innovations per 2;+
dollar spent than do Fortune ()) organizations
($) 8ver <(= o ne! and /radical0 product develop*ents are ro* entrepreneurial
ir*s
(7) S*all ir*s produce 17 to 1: ti*es *ore patents per e*ployee than large patenting
ir*s in a $))> report
C. The Strategic Management rocess in Entrepreneurial Ventures and Small Businesses
$% ?alue o @lanning
a) Strategy research on the value o general planning and on the value o pre4start4up
planning in particular in these types o organizations has sho!n *i6ed results. Several
studies have sho!n positive lin"ages bet!een planning and business peror*ance.
8thers have not uncovered any such relationship bet!een planning and peror*ance or
have sho!n that the relationship depends on the industry.
b) 9ntrepreneurship researchers suggest not spending a lot o ti*e !riting a business plan
!ithout "no!ing !hether you have actual custo*ers.
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Module: Special Topics in Strategy
c) Although preparing a start4up business plan *ay not be as critical as once thought&
strategic planning is.
$. The Overall Approach to the Strategic Planning Process
a) Bess or*ality and rigidity to encourage crucial le6ibility
b) More valuable in the /doing0 the process than the outco*e (i.e.& the or*al plan)
c) ?alue in /doing0 co*es ro* analyzing the e6ternal and internal environ*ents: steps
i*portant in eective strategic planning.
A&ti#e Learnin' (int
Have each student tea* o t!o to three students contact a local entrepreneur. Have each tea* as" the
selected entrepreneur to identiy "ey challenges o running hisCher business. As" i the entrepreneur
!ants hisCher business to gro! ne6t year and by ho! *uch. #hat is the entrepreneur doing to pro*ote
gro!th or to prevent lossD Have tea*s report to the class on their intervie!s including pictures o the
business& its products or services and 5uotes ro* the entrepreneur.
Teaching 3otes:
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7. External and Internal Environmental Analysis
a) 96ternal:
(1) %nluences peror*ance& particularly in ne! entrepreneurial ventures
($) @rovides inor*ation or developing a sustainable co*petitive advantage
(7) %nor*s about changes and trends in:
(a) Custo*er e6pectations
(b) Co*petitors and their actions
(c) 9cono*ic actors
(d) Technological advances
(e) 8ther *ar"etplace eatures
() @otential opportunities and threats
b) %nternal:
(1) Assesses the organization,s strengths and !ea"nesses
($) -eing totally ob1ective is necessary
c) Boiled Frog PhenomenonFe*ployees need to analyze both the e6ternal and internal
environ*ents to detect subtle& but potentially da*aging& changes in their organization,s
co*petitive advantage.
:. Strategy Choices
a) 'unctional strategies )@roduction& hu*an resource *anage*ent& inancing& etc.)
(1) The *ain dierence in the unctional strategies o s*all businesses and
entrepreneurial ventures and large businesses is the e6tent or range o the possible
strategies.
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Module: Special Topics in Strategy
b) Co*petitive strategy: li*ited to ocus strategies (either lo! cost or dierentiation
ocus). S*all businesses that *i6 eiciency (lo! cost) and le6ibility (dierentiation)
strategies signiicantly underperor* those ir*s that used one strategy or the other.
c) Corporate strategy: direction or the organization
(1) Most entrepreneurial ventures !ill choose to gro! using the concentration strategy
because vertical integration& horizontal integration& or diversiication *ay not be
inancially or operationally easible.
d) @rocess o strategy choices boils do!n to strategic *anager deciding:
(1) #hat business to be in
($) #hat co*petitive advantages are needed to be successul in that business
(7) #hat strategies are necessary to get there
(:) This enco*passes the !hole range o strategic activities
(a) 'ro* developing organizational resources& capabilities and core co*petencies
(b) To building or e6ploiting a sustainable co*petitive advantage ro* these
(c) To *ove the ir* in the desired direction
(. Strategy Evaluation
Si*ilar to !hat !ould be used in large organizations
a) Strategy evaluation *ight
(1) Measure peror*ance by attain*ent o goals or ob1ectives at the various levels
($) %nclude an assess*ent o certain peror*ance trends and a co*parison o the
organization to its co*petitors
b) Managers need to "no! !hether the i*ple*ented strategy is !or"ing
G. Su**ary o the strategic *anage*ent process or s*all businesses and entrepreneurial
ventures ('igure 1)
+. Specific Strategic Issues !acing Small Businesses and Entrepreneurial Ventures
1. Human esource !anagement Issues
a) 9*ployees are one o a co*pany,s *ost valuable resources and co*petitive advantages
b) S*aller organizations usually don,t have as *any options as larger organizations& but
they should realize the i*portance o recruiting& selecting& training& appraising& and
co*pensating e*ployees
c) Co**it !hatever ti*e and other resources necessary to develop appropriate strategies
or attracting and "eeping good people
$. Innovation and Flexi"ility Considerations
a) 8ne o the pri*ary co*petitive advantages that s*all businesses and entrepreneurial
ventures can develop is a co**it*ent to being le6ible and innovative.
b) Barge organizations usually produce large 5uantities o products to ta"e advantage o
econo*ies o scale and can,t be as le6ible as s*all organizations. Also resource
co**it*ents oten prevent large organizations ro* responding to ne! and 5uic"ly
changing *ar"ets as eectively as s*all& ni*ble businesses can.
c) Strategic *anagers at s*all businesses and entrepreneurial ventures need to capitalize
on this le6ibility advantage and be a!are o and open to environ*ental changes
(another good reason or doing an e6ternal analysis).
d) Creati#e *e!tru&ti"nFprocess in !hich e6isting products& processes& ideas and
businesses are replaced !ith better ones
(1) Barger organizations tend to concentrate on i*proving products they already have
to 1ustiy large e6penditures on acilities and e5uip*ent.
($) S*all businesses and entrepreneurial ventures
(a) Have the potential to develop real innovations in technology& *ar"ets&
products& and ideas.
(b) Are the driving orce o change in the process o creative destruction
Learnin' Re#ie+:
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Module: Special Topics in Strategy
Contrast entrepreneurial ventures and small "usinesses#
H A !all ,u!ine!! is independently o!ned& operated& and inancedI has e!er than 1)) e*ployeesI
doesn,t engage in any ne! *ar"eting or innovative practicesI and has relatively little i*pact on its
industry.
H An entrepreneurial #enture is a business that is characterized by innovative strategic practices
and !hich has proitability and gro!th as its *ain goals.
H The pri*ary dierence is their perspective on gro!th and innovation. These dierences are
su**arized in Table 1.
$hy are these organi%ations important to the &#S# and glo"al economies'
H S*all businesses represent over <<= o all e*ployers& e*ploy over hal o the private non4ar*
!or"orce& and are responsible or ()= o the private sector.
(escri"e the strategic management process )or these organi%ations#
H The process is very si*ilar to that used in larger organizations. 'igure 1 illustrates this process.
The *ain dierences !ill be in ter*s o /ho! *uch0 the s*all business or entrepreneurial
venture can do these things. -ecause o their li*ited resources and capabilities& strategic
*anagers in these organizations oten ind their strategic options and actions li*ited.
(iscuss the speci)ic strategic issues that )ace entrepreneurial ventures and small "usinesses#
H The strategic *anage*ent process or s*all business and entrepreneurial ventures is virtually
identical to that or larger organizations& but these s*aller organizations do ace so*e uni5ue
strategic issues. These issues include global international opportunities and challenges& hu*an
resource *anage*ent issues and innovation and le6ibility considerations.
Teaching 3otes:
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STRATEGIES FOR NOT-FOR-PROFIT AND PUBLIC SECTOR ORGANI.ATIONS
A. What Are "ot#!or#rofit Organizations?
A public4sector organization is a not4or4proit organization. Here it is deined separately because o
its uni5ue i*portance to the econo*ic syste*.
1. N"t-/"r-pr"/it "r'ani0ati"n (3'@) is an organization !hose purpose is to provide so*e service
or good !ith no intention or goal o earning a proit. (3'@ doesn,t *ean /no revenue.0)
a) 3'@ 2evenue ('igure $)
(1) An organization can,t e6ist !ithout so*e *eans o covering the e6penses associated
!ith providing a good or service
($) Typical sources: ta6esI duesI donations o ti*e or *oneyI product (good or service)
salesI per*its& user ees& chargesI and grants
(7) -ecause an 3'@ can,t earn a proit and retain its not4or4proit status& usually any
e6cess o revenues over e6penses is used to i*prove the goods or services it,s providing
or to reduce the price or ee charged or those goods or services. (%t,s not unco**on or
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Module: Special Topics in Strategy
an 3'@ to set aside a speciied a*ount o unds in so*e type o reserve accounts to be
used !hen revenues don*t *eet e6penses.)
$. Pu,li&-!e&t"r "r'ani0ati"n is an 3'@ created& unded and regulated by the public sector or
govern*ent.
a) Types o public4sector organizations
(1) Jovern*ental units& oices& depart*ents& agencies
($) +ivisions at all levels (ederal& state& and local)
b) @rovides public services that a society needs to be able to e6ist and operate
(1) @olice protection
($) @aved roads and other transportation needs
(7) 2ecreation acilities
(:) Care and help or needy and disabled citizens
(() Ba!s and regulations to protect and enhance lie
c) The *any dierent types o 3'@s include ('igure 7):
(1) Educational (public schools& colleges and universities)
($) Charita"le (Knited #ay& A*erican Cancer Society& Children,s Miracle 3et!or"& etc.)
(7) eligious (churches& synagogues and other religious associations)
(:) Social service (A*erican 2ed Cross& Ca*p 'ire& Habitat or Hu*anity& -ig -rothers4
-ig Sisters& Mothers Against +run" +rivers& etc.)
(() Cultural and recreational (theaters& *useu*s& dance troupes& sy*phonies& par"s& zoos
and other arts4 or recreation4oriented organizations)
(G) Health service (hospitals& *edical clinics and other health care4related organizations)
(>) Pro)essional mem"ership associations (A*erican -ar Association& Acade*y o
Manage*ent& etc.)
(L) Cause+related (Save the #hales& 2epublican or +e*ocratic 3ational @arties& 3ature
Conservancy& A*erican Association o 2etired @ersons& etc.)
(<) Foundations (2oc"eeller 'oundation& -ill and Melinda Jates 'oundation& college or
university alu*ni oundations& 'oundation or the Health and Saety o A*erican
'ireighters& etc.)
(1)) Pu"lic Sector (discussed later)
7. 3'@s are i*portant to the 5uality o lie in society
a) @rovide or *any o society,s essential needs that either can,t be or shouldn,t be provided
by or4proit businesses.
b) @lay a signiicant role in *aintaining an econo*ic& social and political syste* that
encourages& acilitates and protects the develop*ent and continued e6istence o or4proit
organizations.
c) @rovide a signiicant portion o the gross national product.
d) 9*ploy a large nu*ber o individuals !ho& in turn& have inco*e to pay ta6es and to spend
on goods and services.
-. The Strategic Management rocess in "ot#for#rofit Organizations
3'@s are co*peting or resources and custo*ers& !hich *a"es strategic *anage*ent a
necessity
1. External and Internal Environmental Analysis
3'@s are acing increasingly dyna*ic environ*ents 1ust as business organizations are.
a) External analysis provides an assess*ent o the positive and negative environ*ental
trends and changes that *ight i*pact the 3'@,s strategic decisions and actions& 1ust as
it does or the or4proit organizations.
(1) 'or instance& econo*ic trends *ight positively or negatively inluence the a*ount
o ta6 revenues or the level o private and corporate donations an 3'@ or public
sector organization *ight e6pect.
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Module: Special Topics in Strategy
($) Changing societal attitudes to!ard respect or others and individual responsibility
can inluence the !illingness o individuals to volunteer ti*e and !or" or to *a"e
contributions to a particular cause.
(7) 3'@s ace opportunities and threats 1ust as or4proit organizations do.
b) Internal analysis provides an assess*ent o the 3'@,s resources and capabilities and its
strengths and !ea"nesses in speciic areas.
(1) Mno!ing the resources and capabilities and !hich ones are inade5uate or absent&
lets strategic *anagers chec" to see !hat distinctive capabilities& core co*petencies
and co*petitive advantage(s) the 3'@ *ight have or *ight need to develop.
($) Analyzing the dierent unctional areas o an 3'@ is si*ilar to analyzing those o a
or4proit organization.
(7) The product or service o an 3'@ *ust be produced and delivered to the
/custo*er&0 and revenues *ust be accounted or.
(:) Ater the S#8T analysis& strategic *anagers use this inor*ation to assess their
various strategy options and choices or creating or e6ploiting a co*petitive
advantage.
Teaching 3otes:
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$. Strategy Choices
3'@s, strategic *anagers *ust *a"e so*e decisions about strategies the organization is
going to use to ulill its vision and *ission(s). The strategic options that a 3'@ or a public
sector organization has are si*ilar in *any respects to those available to businesses.
a) 'unctional strategies
(1) 3'@s *ust have strategies that allo! it to do !hat it,s set up to do.
($) The *ain dierence bet!een the unctional strategies o business organizations and
3'@s are that 3'@s can,t choose ro* a !ide variety o strategic alternatives
because o scarce and li*ited resources or because o e6ternal constraints.
b) Co*petitive Strategies
(1) 3'@s co*pete or resources (inancial and hu*an) and custo*ers (clients& users&
*e*bers& etc.) to ensure their e6istence.
($) %n spite o an insigniicant a*ount o research on speciic co*petitive strategies in
3'@s and public4sector organizations& these organizations *ust develop and e6ploit
a sustainable co*petitive advantage.
c) Corporate Strategies
(1) Should the organization gro!& stabilize& or rene!D
($) The *ain dierence bet!een corporate strategies or business organizations and or
3'@s and public sector organizations is the li*ited range o strategic options. 'or
instance& concentration is a re5uently used gro!th strategy or 3'@s& but
diversiication !ould be rare& i not none6istent.
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Module: Special Topics in Strategy
7. Strategy Evaluation
a) 9valuate !hether or not the i*ple*ented strategy has had the intended eect& i not
ta"e corrective action.
b) @robably the *ost diicult part o the strategic *anage*ent process or 3'@ and public
sector organizations because there,s not a single peror*ance *easure (li"e proit).
Clearly stated peror*ance standards (goals and ob1ectives) are not easy to develop or
these types o organizations. #ithout clearly stated goals& strategy evaluation is *ore
diicult.
(1) %n these types o organizations there,s not one si*ple *easure o peror*ance li"e
the proit standard used or business organizations. %nstead& strategic *anagers *ay
have to loo" at several dierent *easures o strategic peror*ance.
($) 8ten it,s easier or strategic *anagers o not4or4proit organizations to *easure
the resources co*ing into the organization (inputs) than the services or goods being
provided (outputs) or on ho! these resources are being usedFthat is& ho! the
organization is peror*ing.
C. Specific Strategic Issues !acing "ot#for#rofit Organizations
1. !isperception a"out the &se)ulness o) Strategic !anagement
a) #hen /proit0 is involved& the beneits o the strategic *anage*ent process are clear.
b) Many people 5uestion the useulness o the strategic *anage*ent process or 3'@s.
(#e,re not a business& so !hy should !e be !orried about *anaging the organization
li"e a businessD)
$. !ultiple Sta,eholders
a) @ublic4Sector 8rganizations
(1) The issue o coping !ith *ultiple sta"eholders is *agniied or strategic *anagers
in 3'@s& and particularly in public4sector organizations. @ublic4sector organizations
are best described as all levels o the govern*ent doing its !or" *eaning that
public4sector organizations are closely intert!ined !ith politics and the political
process.
($) Strategic *anagers *ay ind that their:
(a) @lans and strategies are ignored by political leaders !ho *ay be interested only
in getting reelected
(b) +ecisions and actions are *ore closely *onitored because public4sector
organizations are /o!ned0 by all citizens
(c) Actions are scrutinized by oversight agencies such as courts& legislative bodies
and political co**issions
(d) Strategic decisions are /second4guessed0 by individuals !ho eel they have the
right to voice their opinion
b) 3ot4or4@roit 8rganizations
Strategic *anagers in other types o not4or4proit organizations *ay ind the*selves
dealing !ith *ultiple sta"eholders !ho have dierent agendas to push& 1ust as strategic
*anagers in public4sector organizations ace *ultiple and oten4conlicting sta"eholder
de*ands.
c) The challenge o coping !ith these *ultiple sta"eholders is co*pounded i the not4or4
proit organization relies on these dierent sta"eholders or revenues. Multiple
sta"eholders do represent a uni5ue strategic issue !ith !hich 3'@ and public4sector
decisions *a"ers have to deal.
7. &ni-ue Strategies (eveloped "y .ot+)or+Pro)it Organi%ations
-ecause 3'@s oten rely on variable and unpredictable revenue sources& *any have
developed so*e uni5ue strategies to cope !ith the changing environ*ental conditionsF
both e6ternal and internal. Three o these uni5ue strategies ollo!:
a) Cau!e-relate* ar1etin' is a strategic practice in !hich or4proit businesses lin" up
!ith a social cause that its in !ell !ith the co*pany,s product or service. 96a*ple:
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Module: Special Topics in Strategy
Avon @roducts sponsors progra*s that support !o*en,s health (i.e.& Avon -reast
Cancer Crusade)
(1) 'unds a good cause that is *eaningul to target custo*ers
($) -eneits 3'@s through public e6posure and corporate donations
(7) 9nhances the i*age o the supporting co*pany (pri*ary intent o the strategy)
(:) +esigned or the strategic advantage o the sponsoring corporation
(() -eneits 3'@s ro* the *ar"eting lin"
b) N"t-/"r-pr"/it ar1etin' allian&e! are strategic partnerships bet!een a not4or4proit
organization and one or *ore corporate partners in !hich the corporate partner(s)
agrees to underta"e a series o *ar"eting actions that !ill beneit both the 3'@ and the
corporate partner(s).
(1) These *ar"eting alliances are an e6tension o cause4related *ar"eting& !ith the
*ain dierence being that the not4or4proit organization is the one that proposes
and initiates the alliance. 'igure : illustrates the three dierent types o *ar"eting
alliances that ollo!:
(a) Transaction+"ased promotion: The corporate partner donates a speciic a*ount
o cash& ood& or e5uip*ent in direct proportion to sales revenues& typically up
to a certain li*it.
(b) /oint+issue promotion: The partners agree to tac"le a social proble* through
actions such as advertising and distributing products and pro*otional *aterials.
(c) 0icensing: The na*es and logos o not4or4proits are licensed in return or a
ee or percentage o revenues.
($) These not4or4proit *ar"eting alliances can be an e6cellent !ay or not4or4proits
to cope !ith the uncertainties o revenue sources.
(7) 3'@ strategic *anagers do need to ensure that the *ar"eting alliance
(a) doesn,t !aste scarce organizational resources&
(b) reduce other types o donations&
(c) brings about restricted le6ibility in decision *a"ing& or
(d) does not establish partnerships !ith unethical or 5uestionable corporate
partners.
c) Strate'i& pi''2,a&1in' is the develop*ent o a ne! activity that !ould generate
revenue or the 3'@ organization.
(1) Special 8ly*pics organization selling clothing
($) Sy*phony selling coo"boo"s to supple*ent revenue ro* its *e*berships
(7) 3'@s *ust use caution as they could lose their ta64e6e*pt status i they engage in a
business /not substantially related0 to its e6e*pt purposes as deined by the %2S
Learnin' Re#ie+:
0ist the typical sources o) revenues )or .FPs#
H The typical sources o revenue are ta6esI duesI donationsI product salesI per*its& ees& and
charges& and grants.
$hat are the main types o) .FPs'
H The *ain 3'@ types include educationalI charitableI religiousI social serviceI cultural and
recreationalI health serviceI proessional *e*bership associationsI cause4relatedI and
oundations.
(escri"e the strategic management process )or these organi%ations#
External analysis provides an assess*ent o the positive and negative environ*ental trends and
changes that *ight i*pact the 3'@,s strategic decisions and actions& 1ust as it does or the or4
proit organizations.
Internal analysis provides an assess*ent o the 3'@s, resources and capabilities and its strengths
and !ea"nesses in speciic areas.
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Module: Special Topics in Strategy
3'@s, strategic *anagers *ust *a"e so*e choices a"out strategies the organization is going to
use to ulill its vision and *ission(s).
Evaluate !hether or not the i*ple*ented strategy has had the intended eect& i not ta"e
corrective action.
Explain ho1 )unctional2 competitive and corporate strategies might "e used in .FPs and pu"lic+
sector organi%ations#
H Fun&ti"nal !trate'2: Collecting ta6esI i*prisoning or rehabilitating convicted elonsI developing
and sho!casing co**unity art& dance& and *usicI or providing regional
ho*e health care assistance to elderly individuals.
H C"petiti#e !trate'2: Co*pete or resources (inancial and hu*an) and custo*ers (clients&
users& *e*bers& etc.).
H C"rp"rate !trate'2: Concentration strategy is re5uently used& but diversiication is rare.
(iscuss the speci)ic strategic issues that )ace .FPs#
Misperception about the Kseulness o Strategic Manage*ent as the beneits o the strategic
*anage*ent process are clear as proit isn,t involved.
Multiple Sta"eholders: The issue o coping !ith *ultiple sta"eholders is *agniied or
strategic *anagers in 3'@s& and particularly in public4sector organizations. @ublic4sector
organizations are best described as all levels o the govern*ent doing its !or" *eaning that
public4sector organizations are closely intert!ined !ith politics and the political process.
3UESTIONS4

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