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Unit III

Entrepreneurial Strategy

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Entrepreneurial Strategy

Entrepreneurial Strategy:
Strategy is a primary building block of competitive
distinctiveness and advantage.

Classical arguments characterize strategy


formulation as an organizational-level process that
encompasses a range of activities firms engage in to
establish and sustain a competitive advantage.
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Entrepreneurial Strategy
Entrepreneurial strategy is the means through which an
organization establishes and re- establishes its fundamental
set of relationships with its environment. It is strategy
characterized by widespread and more-or-less simultaneous
change in the pattern of decisions taken by an
organization.
These activities include,
market and industry analysis,
product/service design and development,
operations and technology management,
customer development,
and other varied aspects of the new firm’s culture- shared
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value system.
Entrepreneurial Strategy
Entrepreneurial Strategy:

The set of decisions, actions, and reactions that


first generate, and then exploit over time, a new
entry in a way that maximizes the benefits of
newness and minimizes its costs.

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Entrepreneurial Strategy
New Entry: it refers to:

- Offering a new product to an established or new


market,
- Offering an established product to a new market,
- Or creating a new organization.

It is the essential acts of entrepreneur.


Newness is like a double-edged sword.
Newness is an opportunity or threats.
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Entrepreneurial Strategy
- Newness represents something rare, which can help
to differentiate a firm from its competitors,

- Newness create a number of challenges for


entrepreneurs.

- Newness can increase entrepreneurs’ uncertainty


over the value of new product.

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Entrepreneurial Strategy
Entrepreneurial strategy has three key stage.

1. The generation of new entry opportunity


2. The exploitation of new entry opportunity
3. A feed back loop from the culmination(conclusion)
of a new entry generation and exploitation back to
stage 1.

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Entrepreneurial Strategy

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Generation of New Entry Opportunity
• Resources: the input into the production process.
 Resources as a source of competitive advantages
• Resources(Machinery, financial capital and
skilled employees) 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. If
skilled workforce combined with Organizational
culture that enhance communication, teamwork
and innovativeness.
• A bundle of resources provides a firm its
capacity to achieve superior performance
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Generation of New Entry Opportunity
 Resources must be:
• Valuable: when it enables the firm to pursue
opportunities, neutralize threats, and offer
product and services that are valued by
customers.
• Rare: When it is possessed by few.
• Inimitable(very unusual or of very high quality
and therefore impossible to copy): Replication
is difficult for (potential)competitors.

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Generation of New Entry Opportunity
1. Where does this valuable, rare, and difficult to imitate bundle
of resources come from?
2. How can it best be exploited?
 Creating a resources bundle that is valuable, rare and inimitable
• Entrepreneurs need to draw from their unique experiences and
knowledge. Entrepreneurs ability to obtain and then recombine
resources into a bundle that is valuable, rare and inimitable.
• Marketing knowledge- Possession of information, technology,
know-how, and skills that provide insight into a market and
its customers.(market knowledge is deeper than the knowledge
that could be gained through market research).
• Technological knowledge- Possession of information,
technology, know-how, and skills that provide insight into
ways to create new knowledge. e.g., computer and software
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Generation of New Entry Opportunity
 Assessing the attractiveness of a new entry opportunity
• Depends on the level of information and the willingness
to make a decision without perfect information. Which
should be attractive and to be worth exploiting and
developing.
 Information on a new entry
• Prior knowledge and information used to create new entry.
• 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(the period of time when the
environment is favorable for entrepreneurs to exploit a
particular new entry)
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Generation of New Entry Opportunity
 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.
This dilemma involves a choice of which error
they prefer to commit.

• Error of commission- Negative outcome from


acting on the perceived opportunity.
• Error of omission – Negative outcome from not
acting on the new entry opportunity.
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Generation of New Entry Opportunity
 Decision to Exploit or Not to Exploit the New Entry:
• depends on whether the entrepreneur has what she or he
believes to be sufficient information to make a decision ,
and on whether the window of opportunity is still open for
this entry.
• It is important to realize that the assessment of a new
entry’s attractiveness is less about whether the
opportunity “really” exist or not.

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The Decision to Exploit or Not to Exploit the New Entry Opportunity

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Entrepreneurial Strategy

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Generation of New Entry Opportunity
.

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Entry Strategies for New Entry Exploitation
 Being a first mover can result in a number of advantages
that can enhance performance. These include:
• Cost advantages: volume of production/ less production cost
• Less competitive rivalry
• The opportunity to secure important supplier and
distributor channels.
• A better position to satisfy customers. –1. select and
secure the most attractive segments of market and -2.
positioned themselves at the center of the market,
providing an increased ability to recognize and adapt to
changes in market and -3. established their products as
the industry standards.
• The opportunity to gain expertise through participation.
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Entry Strategies for New Entry Exploitation
 Environmental instability and First-Mover (Dis) Advantages.
The performance of a firm depends on the fit between its
bundle of resources and the external environment.

• 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 ( industries that have been newly form and are
growing).

• Demand uncertainty - Difficulty in estimating the potential


size of the market, how fast it will grow, and the key
dimensions along which Puspa
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will grow.
Entry Strategies for New Entry Exploitation
 Technological uncertainty – Difficulty in assessing
whether the technology will perform and whether
alternate technologies will emerge and leapfrog over
current technologies.
 Adaptation – changes in market demand and technology
do not necessarily mean that first mover cannot
prosper. Difficulty in adapting to new environmental
conditions.
• Entrepreneurial attributes of persistence and
determination, which are so beneficial when the new
venture is on the “right course” can inhibit
/reduce the ability of the entrepreneur to detect,
and implement, change.
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Entry Strategies for New Entry Exploitation
 Customers’ Uncertainty and First-Mover(Dis)
Advantages
• Uncertainty for customers – customers may have
considerably 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
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documentation.
Entry Strategies for New Entry Exploitation
 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 create
barriers to entry by:
• Building customer loyalties.
• Building switching costs ( reward program for
frequent buyer).
• Protecting product uniqueness. Legalizing the
product.
• Securing access to important sources of supply and
distribution. Puspa Adhikari_BIC_2018
Risk Reduction Strategies for New Entry Exploitation
• A new entry involves considerable risk for
entrepreneur and his/her firm.
 Risk refers to the probability, and magnitude, of
downside loss.
 Which could result in bankruptcy.

 It’s scope is a choice by the entrepreneur about


which customer groups to serve and how to serve
them.

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Entrepreneurial Strategy

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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.

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Risk Reduction Strategies for New Entry Exploitation
 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(range of product) of the market represents
a highly profitable position.
• Reduces some competition-related risks but increases
the risks associated with market uncertainties.
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Risk Reduction Strategies for New Entry Exploitation
 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.

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Risk Reduction Strategies for New Entry Exploitation
 Imitation Strategy: Copying the practices of other
firms.
• Why do it(R & D)? Better Research and Copy.
• 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.

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Risk Reduction Strategies for New Entry Exploitation
• Types of imitation strategies
• Franchising - A business system created by a
contract between a parent company, called
Franchisor, and the acquiring business owner, called
the Franchisee, giving the acquiring owner the right
to sell goods or services, to use certain products,
names, or brand or to manufacturer certain brands.
• 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. e.g., “Taste before you buy”

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Risk Reduction Strategies for New Entry Exploitation
 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.

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Managing Newness- Organization
 Managing Newness
 Liabilities of newness(Negative implications arising
from an organization’s newness) arise from unique
conditions:
• Incur 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 functional corporate culture.
Risk Reduction Strategies for New Entry Exploitation
 Assets of Newness: Positive implications arising
from an organization’s newness.
• Lack of established routines, systems, and
processes provide a learning advantage.
• A heightened (intensified) ability to learn
new knowledge in a continuously changing
environment is an important source of
competitive advantage.

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