Entrepreneurship and Innovation Management

Program Title: Post Graduate Diploma in Management

Course Title: Entrepreneurship and Innovation
Management
Number of Sessions: 32
Session Duration: 75 minutes
Total Class Hours: 40 hours
Credit: 3
Part Unit Topic
I ENTREPRENEURSHIP AND YOU
Understanding Entrepreneurship: Concept of Entrepreneur and
I Entrepreneurship, Characteristics of entrepreneurs, Functions of
entrepreneurs, Types of entrepreneurs, Reasons for growth of
entrepreneurs, Reasons for entrepreneurial failure, Concept of
Intrapreneurs, Difference between Intrapreneurs and Entrepreneurs
II Doing Business in India: Problems to do the business in India, Types of
ownership, Regulations follow to do the business in India

III Entrepreneurs and Their World: Business eco-system, Entrepreneurial

environment, Importance of network, Entrepreneurial network
II BUILDING THE BUSINESS
IV Idea Generation and Creating the Concept Statement:
Sources for generating ideas for new ventures,
Innovations in business
V Making a Business Plan: What is business plan? Uses of
business plan, Steps in writing business plan, Kinds of
business plan
VI Entrepreneurial Strategies: Defy Competition and Enter
the Market: Product or service innovation, Process and
concept innovation, Risk associated with various
entrepreneurial strategies
VII Creating New Products and Services: Common reason
to fail the new product or service
III EXTERNAL ENVIRONMENT AND COMPETITIVE
LANDSCAPE
VIII Building a Strategy: Understand the Industry and Competition

IX The Market and Customer Groups

IV GROWTH AND EXIT STRATEGIES
X Growth: Diversification, Joint Ventures, Acquisitions, Mergers,
Franchising

XI Exit Strategies: Reason for exit

V Practical: The student can perform the following according to the
instruction of the faculty in charge: Do the idea generation exercise and
make a business plan and make group presentations in the class.
15 Grand Strategies
 Grand Strategies
• Grand strategy
• A master long-term plan that provides basic
direction for major actions for achieving long-
term business objectives
 Grand Strategies (contd.)
• Indicate the time period over which long-range
objectives are to be achieved
• Any one of these strategies could serve as the basis
for achieving the major long-term objectives of a
single firm
• Firms involved with multiple industries, businesses,
product lines, or customer groups usually combine
several grand strategies
 Concentrated Growth
• Concentrated growth is the strategy of the firm that
directs its resources to the profitable growth of a
dominant product, in a dominant market, with a
dominant technology
• Concentrated growth strategies lead to enhanced
performance
• Specific conditions favor concentrated growth
• The risks and rewards vary
Specific Options -- Concentration
 Market Development
• Market development commonly ranks second only
to concentration as the least costly and least risky of
the 15 grand strategies
• It consists of marketing present products, often with
only cosmetic modifications, to customers in related
market areas by adding channels of distribution or
by changing the content of advertising or promotion
• Frequently, changes in media selection, promotional
appeals, and distribution are used to initiate this
approach
Ex. 7.4 Specific Options – Market Development
 Product Development
• Product development involves the
substantial modification of existing
products or the creation of new but
related products that can be
marketed to current customers
through established channels
Specific Options – Product Development
 Innovation
• These companies seek to reap the initially high profits
associated with customer acceptance of a new or
greatly improved product
• Then, rather than face stiffening competition as the
basis of profitability shifts from innovation to
production or marketing competence, they search for
other original or novel ideas
• The underlying rationale of the grand strategy of
innovation is to create a new product life cycle and
thereby make similar existing products obsolete
 Horizontal Acquisition
• When a firm’s long-term strategy is based on
growth through the acquisition of one or more
similar firms operating at the same stage of the
production-marketing chain, its grand strategy is
called horizontal acquisition
• Such acquisitions eliminate competitors and
provide the acquiring firm with access to new
markets
 Vertical Acquisition
• When a firm’s grand strategy is to acquire firms
that supply it with inputs (such as raw materials)
or are customers for its outputs (such as
warehouses for finished products), vertical
acquisition is involved
• The main reason for backward vertical
acquisition is the desire to increase the
dependability of the supply or quality of the raw
materials used as production inputs
Concentric Diversification
• Concentric diversification involves the acquisition
of businesses that are related to the acquiring firm
in terms of technology, markets, or products
• With this grand strategy, the selected new
businesses possess a high degree of compatibility
with the firm’s current businesses
• The ideal concentric diversification occurs when
the combined company profits increase the
strengths and opportunities and decrease the
weaknesses and exposure to risk
Conglomerate Diversification
• Occasionally a firm, particularly a very large one,
plans acquire a business because it represents the
most promising investment opportunity available.
This grand strategy is commonly known as
conglomerate diversification.
• The principal concern of the acquiring firm is the
profit pattern of the venture
• Unlike concentric diversification, conglomerate
diversification gives little concern to creating
product-market synergy with existing businesses
 Turnaround
The firm finds itself with declining profits
• Among the reasons are economic recessions,
production inefficiencies, and innovative
breakthroughs by competitors
• Strategic managers often believe the firm can survive
and eventually recover if a concerted effort is made
over a period of a few years to fortify its distinctive
competences. This is turnaround.
• Two forms of retrenchment:
 Cost reduction
 Asset reduction
 Elements of Turnaround
• A turnaround situation represents absolute and relative-to-
industry declining performance of a sufficient magnitude to
warrant explicit turnaround actions
• The immediacy of the resulting threat to company survival is
known as situation severity
• Turnaround responses among successful firms typically
include two stages of strategic activities: retrenchment and
the recovery response
• The primary causes of the turnaround situation have been
associated with the second phase of the turnaround process,
the recovery response
 Divestiture
• A divestiture strategy involves the sale of a firm or
a major component of a firm
• When retrenchment fails to accomplish the desired
turnaround, or when a nonintegrated business
activity achieves an unusually high market value,
strategic managers often decide to sell the firm
• Reasons for divestiture vary
 Liquidation
• When liquidation is the grand strategy, the firm
typically is sold in parts, only occasionally as a
whole—but for its tangible asset value and not
as a going concern
• Planned liquidation can be worthwhile
 Bankruptcy
• Liquidation bankruptcy—agreeing to a
complete distribution of firm assets to
creditors, most of whom receive a small
fraction of the amount they are owed
• Reorganization bankruptcy—the managers
believe the firm can remain viable through
reorganization
• Two notable types of bankruptcy
– Chapter 7
– Chapter 11
 Joint Ventures
• Occasionally two or more capable firms lack a
necessary component for success in a particular
competitive environment
• The solution is a set of joint ventures, which are
commercial companies (children) created and
operated for the benefit of the co-owners
(parents)
• The joint venture extends the supplier-consumer
relationship and has strategic advantages for both
partners
 Strategic Alliances
• Strategic alliances are distinguished from joint
ventures because the companies involved do not
take an equity position in one another
• In some instances, strategic alliances are
synonymous with licensing agreements
• Outsourcing arrangements vary
Exit Strategies in business
 What is an Exit strategy

• Exiting/harvesting : is the process used by

entrepreneurs and investors to reap the value
of a business when they get out of it.
Longenecker,J.G.et.al.(2003),p.347.
• From a small business point of view, a viable
exit strategy is a plan that allows the owners
or investors in a small business to walk away
with what they want to walk away with.
Ward, S. (n.d.)
 When do entrepreneurs exit their
business
• When a business is declining i.e. Bankruptcy, rendered
obsolete, etc.
• Other reasons (Four D’s for exiting the business):
• Death: entrepreneurs just think about it when it is
requested by the insurance agencies.
• Disability: it creates financial strains that will adversely
affect the business.
• Divorce: it can ruin both parties (financially, etc).
• Departure: in case of partnership.
• To seize the full value of a reduce
business; risk and create future
options;
•• To
To appeal to investors;
easily transfer ownership to next
the generations;
• To be prepared for change in life
style.
Source: Longenecker,J.G…….et.al;(2003),p.349
• Motivation
• Challenge

Source: Longenecker,J.G…….et.al;(2003),p.349
6
“a purchase in which the value of the
business is based on both the firm stand-
alone characteristics and the synergies that
the buyer think can be created”.

Longenecker,J.G…….et.al;(2003),p.349
The critical issue here is the strategic fit between the
business to be exited and a potential buyer:

The buyer : synergies

The entrepreneur: value

If the buyer is a current rival and the acquisition would

provide sustainable competitive advantage the buyer
may be willing to pay a premium for the seller.
The buyer is interested in a value that stimulates future
sales growth and reduced costs.
The entrepreneur : business source of value is its cash
generating potentials.

The buyer will often make change in the business

operations, pressures on personnel resulting in layoffs
that the current owner might find intolerable.
Employee stock ownership plan
ESOP: “a method by which a firm is
sold either in part or in total to its
employees”, Longenecker,J.G, et.al; (2003),p.350
A buyer is interested in preserving
employment. ESOP provide them a way to
acquire ownership interest in the business.
Owner: provide a way to cash out.
It is the orderly withdrawal of the owners’ investment in the form
of cash flows: selling firm assets and ceasing operations.

Disadvantage:
Reducing reinvestment when the business is at growth result in
lost value creation and inability to sustain competitive advantage;

Advantages:
Owners can retain control of their business while they harvest
investment;
They don’t have to seek out a buyer or incur sales expenses.
• It is the first sale of shares of a company stock to
the public, Longenecker,J..et.a;(2003),p.352.
• Reasons for going public:
• To raise capital to repay outstanding debt;
• To support future growth;
• To find future acquisitions;
• To create a liquid market for the company stock;
• To broaden the company’s shareholder base;
• To create ongoing interest in the company and its
continued development.
• Private equity is money provided by
venture capitalists or private
investors,
Longenecker,J.G.et.al;(2003),p 354.
• Difficulties facing family businesses:
Trying to meet owners’ need for cash and the
firm need for growth capital, while retaining
control; Transferring ownership to next
generation; Capital and liquidity needs and
properties.
Business Valuation & Methods of
Payment:
• Business Valuation:
- Although, “Business valuation is part science
and part art, so there is no precise formula
for determining the price of a private
company”. (Longenecker, J.G. et.al.(2003), p.356)
- Valuation is very important in different stages
of business lifecycle(i.e.
introduction
the stage, growth stage, mature
decline stage).and
stage,