Selecting the Right Industry
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Environmental assessment of entrepreneurial ventures
Overview • Define sustainable competitive advantage • Explore environmental scanning • Discuss how to analyze competitive forces within an industry
Sustainable Competitive Advantage • Achieved when a venture has implemented a strategy that other companies do not duplicate • Can only be maintained until competitors are able to duplicate or develop a substitute • Pursuit of a sustainable competitive advantage requires a full complement of commitments, decisions, and actions by the entrepreneur
Environmental scanning involves examining the external and internal environments before making a decision. • General environment – Demographic, economic, political/legal, sociocultural, technological, and global segments
• Industry environment – New entrants, suppliers, buyers, product substitutes, intensity of rivalry among competitors
• Competitor environment – Position of the venture within the industry
The Regulatory Environment • Governmental regulations affect smaller ventures in a variety of ways: – – – –
Managerial regulations Technology regulations Price regulations Competitive regulations
Examining the Environment • Environmental Assessment – What is the structure of the industry? – How is it likely to evolve over time?
• Industry Characteristics – Technological uncertainty – Strategic uncertainty – First-time buyers
The Five Competitive Forces that Determine Industry Profitability Potential Entrants Threat of New Entrants Bargaining Power of Suppliers
Industry Competitors
Suppliers
Bargaining Power of Buyers Buyers
Rivalry Among Existing Firms
Threat of Substitute Products or Services Substitutes
Complementors Government Alliances
(1) Rivalry Determinants • • • • • •
Industry growth Fixed costs Product differences Brand identity Switching costs Concentration and balance
• Diversity of competitors • Exit barriers
(2) Determinants of Buyer Power • • • • • •
Bargaining Leverage Buyer concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products
• • • • • •
Price Sensitivity Price/total purchases Product differences Brand identity Impact on quality and performance Buyer profits Decision makers’ incentives
(3) 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
(4) Entry Barriers • • • • • • • •
Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Learning curve
• • • •
Access to necessary inputs Proprietary processes Government policies Expected retaliation
(5) Determinants of Substitution Threat • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute
Summary • Developing a sustainable competitive advantage is a key success factor for new ventures • Environmental scanning provides valuable insights into the industry and the market • Analyzing competitive forces within an industry is fundamental to positioning the new venture successfully
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Environmental assessment of entrepreneurial ventures
Overview • Define sustainable competitive advantage • Explore environmental scanning • Discuss how to analyze competitive forces within an industry
Sustainable Competitive Advantage • Achieved when a venture has implemented a strategy that other companies do not duplicate • Can only be maintained until competitors are able to duplicate or develop a substitute • Pursuit of a sustainable competitive advantage requires a full complement of commitments, decisions, and actions by the entrepreneur
Environmental scanning involves examining the external and internal environments before making a decision. • General environment – Demographic, economic, political/legal, sociocultural, technological, and global segments
• Industry environment – New entrants, suppliers, buyers, product substitutes, intensity of rivalry among competitors
• Competitor environment – Position of the venture within the industry
The Regulatory Environment • Governmental regulations affect smaller ventures in a variety of ways: – – – –
Managerial regulations Technology regulations Price regulations Competitive regulations
Examining the Environment • Environmental Assessment – What is the structure of the industry? – How is it likely to evolve over time?
• Industry Characteristics – Technological uncertainty – Strategic uncertainty – First-time buyers
The Five Competitive Forces that Determine Industry Profitability Potential Entrants Threat of New Entrants Bargaining Power of Suppliers
Industry Competitors
Suppliers
Bargaining Power of Buyers Buyers
Rivalry Among Existing Firms
Threat of Substitute Products or Services Substitutes
Complementors Government Alliances
(1) Rivalry Determinants • • • • • •
Industry growth Fixed costs Product differences Brand identity Switching costs Concentration and balance
• Diversity of competitors • Exit barriers
(2) Determinants of Buyer Power • • • • • •
Bargaining Leverage Buyer concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products
• • • • • •
Price Sensitivity Price/total purchases Product differences Brand identity Impact on quality and performance Buyer profits Decision makers’ incentives
(3) 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
(4) Entry Barriers • • • • • • • •
Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Learning curve
• • • •
Access to necessary inputs Proprietary processes Government policies Expected retaliation
(5) Determinants of Substitution Threat • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute
Summary • Developing a sustainable competitive advantage is a key success factor for new ventures • Environmental scanning provides valuable insights into the industry and the market • Analyzing competitive forces within an industry is fundamental to positioning the new venture successfully
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Types of innovations
Objectives • Define “innovation” • Discuss different types of innovations • Explore enabling factors for innovative ventures
What is innovation? • The act of introducing something new (The American Heritage Dictionary) • A new idea, method or device (MerriamWebster Online) • The successful exploitation of new ideas (Department of Trade and Industry, UK) • Change that creates a new dimension of performance (Peter Drucker)
What is innovation? • We will use commercializable improvements as our definition. – May be an invention – May be an improvement of an existing product or service – In either case, we desire a market to buy the product or service (e.g. to commercialize concept)
Innovation exists in multiple degrees Basic Design Concepts Overturned Reinforced
Linkages Between Modules
Unchanged
Incremental Innovation
Component Innovation
Changed
Architectural Innovation
Disruptive Innovation
Types of innovations? 1. Product Innovation – Introduction of a product that is new or substantially improved – May include improvements in functional characteristics, technical abilities, ease of use, or any other dimension
• Herman Miller sought to solve the problem of • • • • •
outdated foam backrests and seats manipulated by numerous adjustment controls Tilt mechanism provides a balanced ride, cradling the sitter by mirroring the natural pivot points Built-in flex zones provide support to the entire back Breathable suspension follows the body contours and distributes pressure equally Features a competitive price point in its category of executive commercial chairs 96% recyclable
Source: IDSA Awards
Types of innovations? 2. Service Innovation – Similar to product innovation except that the innovation relates to services rather than to products
3. Process Innovation – Implementation of a new or significantly improved production or delivery method
Apple’s first innovation was not the iPhone • iTunes + iPod Mini in early 2000s – “Don't just make it smaller, reinvent it!” seems to have been the thought behind the iPod Mini – 3.6 oz. is half the original weight – 1,000 songs with an 8-hour battery life – Footprint of a business card – Click wheel provides ease of use and saves space with the integrated button – Available in 5 colors Source: wired.com
Types of innovations? 4. Business Model Innovation – Changing the way business is done in terms of capturing value
5. Supply Chain Innovation – Occur in the sourcing of input products from suppliers and the delivery of output products to customers
Types of innovations? 6. Marketing Innovation – Development of new marketing methods with improvement in product design or packaging, product promotion, or pricing
7. Organizational Innovation – Creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation
Source: fastcodesign.com
Types of innovations? 6. Marketing Innovation – Development of new marketing methods with improvement in product design or packaging, product promotion, or pricing
7. Organizational Innovation – Creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation Source: fastcodesign.com
Summary • Innovations do not have to be radical and disruptive in order to be viable for new venture creation – Incremental changes can be great opportunities
• Innovations can be developed in products – And in business models, processes, packaging, and many other areas
Strategic Positioning
Objectives • Define strategy • Discuss the nature of strategic positioning • Introduce the merits of strategic planning
What is Strategy? At general management’s core is strategy: • Defining a company’s position • Making trade-offs, and • Forging fit among activities.
Principle #1 of Strategic Positioning • Strategy is the creation of a unique and valuable position, involving a different set of activities: – Serving few needs of many customers – Serving broad needs of few customers
Principle #2 of Strategic Positioning • Strategy requires you to make trade-offs in competing to choose what not to do. – You cannot be all things to all people. – Focus on developing a solution and a brand that is meaningful and consistent to customers. – Emphasize serving one market well and explore growth opportunities later.
Source: www.b2binternational.com
Principle #3 of Strategic Positioning • Strategy involves creating a “fit” among a company’s activities. – Company activities must interact and reinforce one another • Wal-Mart’s low cost is supported through minimal personalized customer service and limited ambiance in its stores • Nordstrom’s higher cost are consistent with personalized service
– Fit drives competitive advantage and sustainability – Competitors struggle to imitate well-developed activities
Strategic positioning should uncover new opportunities • Strategic Positions – Are often not obvious, and finding them requires creativity and insight. – Entrepreneurs often discover unique positions that have been available but simply overlooked by established competitors.
Summary • Strategy is the creation of a unique and valuable position • Strategy requires you to make trade-offs in competing to choose what not to do • Strategy involves creating a “fit” among a company’s activities
Strategic Planning
Objectives • Introduce the importance of strategic planning • Discuss the nature of strategic planning • Explore how entrepreneurs can carry out effective strategic planning
Strategic planning is: • The formulation of long-range plans for the effective management of environmental opportunities and threats in light of a venture’s strengths and weaknesses. Defining the venture’s mission Specifying achievable objectives Developing strategies Setting timelines and measures
Benefits of strategic planning • • • • • • • •
Cost savings Fewer cash-flow problems Faster decision making More efficient resource allocation Improved competitive position More timely information More accurate forecasts Reduced feelings of uncertainty
No Strategic Planning? • Reasons for the Lack of Strategic Planning – – – – –
Time scarcity Lack of knowledge Lack of expertise/skills Lack of trust and openness Perception of high cost
Basic Steps in Strategic Planning 1. Examine the internal and external environments of the venture (strengths, weaknesses, opportunities, threats) 2. Formulate the venture’s long-range and short-range strategies (mission, objectives, strategies, policies) 3. Implement the strategic plan (programs, budgets, procedures) 4. Evaluate the performance of the strategy 5. Take follow-up action through continuous feedback
Fatal mistakes that entrepreneurs fall prey to in their attempt to implement a strategy Flaw 1: Misunderstanding industry attractiveness Flaw 2: No real competitive advantage Flaw 3: Pursuing an unattainable competitive position Flaw 4: Compromising strategy for growth Flaw 5: Failure to explicitly communicate the venture’s strategy to employees
Implementing a Strategic Plan • The use of incremental goal attainment that takes a new venture from start-up through strategy reformulation. • Advantages of milestone planning are: – the use of logical and practical milestones – the avoidance of costly mistakes caused by failure to consider key parts of the plan – a methodology for re-planning, based on continuous feedback from the environment.
Summary • Strategic planning requires near-term commitment for long-term benefits • Value exists in the plan, but more so in the process of planning • Regular evaluate and update the strategic plan
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Environmental assessment of entrepreneurial ventures
Overview • Define sustainable competitive advantage • Explore environmental scanning • Discuss how to analyze competitive forces within an industry
Sustainable Competitive Advantage • Achieved when a venture has implemented a strategy that other companies do not duplicate • Can only be maintained until competitors are able to duplicate or develop a substitute • Pursuit of a sustainable competitive advantage requires a full complement of commitments, decisions, and actions by the entrepreneur
Environmental scanning involves examining the external and internal environments before making a decision. • General environment – Demographic, economic, political/legal, sociocultural, technological, and global segments
• Industry environment – New entrants, suppliers, buyers, product substitutes, intensity of rivalry among competitors
• Competitor environment – Position of the venture within the industry
The Regulatory Environment • Governmental regulations affect smaller ventures in a variety of ways: – – – –
Managerial regulations Technology regulations Price regulations Competitive regulations
Examining the Environment • Environmental Assessment – What is the structure of the industry? – How is it likely to evolve over time?
• Industry Characteristics – Technological uncertainty – Strategic uncertainty – First-time buyers
The Five Competitive Forces that Determine Industry Profitability Potential Entrants Threat of New Entrants Bargaining Power of Suppliers
Industry Competitors
Suppliers
Bargaining Power of Buyers Buyers
Rivalry Among Existing Firms
Threat of Substitute Products or Services Substitutes
Complementors Government Alliances
(1) Rivalry Determinants • • • • • •
Industry growth Fixed costs Product differences Brand identity Switching costs Concentration and balance
• Diversity of competitors • Exit barriers
(2) Determinants of Buyer Power • • • • • •
Bargaining Leverage Buyer concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products
• • • • • •
Price Sensitivity Price/total purchases Product differences Brand identity Impact on quality and performance Buyer profits Decision makers’ incentives
(3) 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
(4) Entry Barriers • • • • • • • •
Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Learning curve
• • • •
Access to necessary inputs Proprietary processes Government policies Expected retaliation
(5) Determinants of Substitution Threat • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute
Summary • Developing a sustainable competitive advantage is a key success factor for new ventures • Environmental scanning provides valuable insights into the industry and the market • Analyzing competitive forces within an industry is fundamental to positioning the new venture successfully
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Environmental assessment of entrepreneurial ventures
Overview • Define sustainable competitive advantage • Explore environmental scanning • Discuss how to analyze competitive forces within an industry
Sustainable Competitive Advantage • Achieved when a venture has implemented a strategy that other companies do not duplicate • Can only be maintained until competitors are able to duplicate or develop a substitute • Pursuit of a sustainable competitive advantage requires a full complement of commitments, decisions, and actions by the entrepreneur
Environmental scanning involves examining the external and internal environments before making a decision. • General environment – Demographic, economic, political/legal, sociocultural, technological, and global segments
• Industry environment – New entrants, suppliers, buyers, product substitutes, intensity of rivalry among competitors
• Competitor environment – Position of the venture within the industry
The Regulatory Environment • Governmental regulations affect smaller ventures in a variety of ways: – – – –
Managerial regulations Technology regulations Price regulations Competitive regulations
Examining the Environment • Environmental Assessment – What is the structure of the industry? – How is it likely to evolve over time?
• Industry Characteristics – Technological uncertainty – Strategic uncertainty – First-time buyers
The Five Competitive Forces that Determine Industry Profitability Potential Entrants Threat of New Entrants Bargaining Power of Suppliers
Industry Competitors
Suppliers
Bargaining Power of Buyers Buyers
Rivalry Among Existing Firms
Threat of Substitute Products or Services Substitutes
Complementors Government Alliances
(1) Rivalry Determinants • • • • • •
Industry growth Fixed costs Product differences Brand identity Switching costs Concentration and balance
• Diversity of competitors • Exit barriers
(2) Determinants of Buyer Power • • • • • •
Bargaining Leverage Buyer concentration Buyer volume Buyer switching costs relative to firm switching costs Buyer information Ability to backward integrate Substitute products
• • • • • •
Price Sensitivity Price/total purchases Product differences Brand identity Impact on quality and performance Buyer profits Decision makers’ incentives
(3) 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
(4) Entry Barriers • • • • • • • •
Economies of scale Proprietary product differences Brand identity Switching costs Capital requirements Access to distribution Absolute cost advantages Learning curve
• • • •
Access to necessary inputs Proprietary processes Government policies Expected retaliation
(5) Determinants of Substitution Threat • Relative price performance of substitutes • Switching costs • Buyer propensity to substitute
Summary • Developing a sustainable competitive advantage is a key success factor for new ventures • Environmental scanning provides valuable insights into the industry and the market • Analyzing competitive forces within an industry is fundamental to positioning the new venture successfully
Selecting the Right Industry
Overview • Success depends a great deal on selecting the right industry in which to launch a new firm • Important to focus on identifying the attributes that make an industry favorable to new firms
Looking at Evidence • Examine how favorable different industries are to new firms • Understand the characteristics of industries that make some of them better for starting firms than others
Dying Businesses? • Pay phones • Coin-operated arcades • Record stores • Bookstores • Newspapers • What’s next?
Source: payphone.com
Top Industries to Start and Grow a Business by Inc. Magazine • Mobile app design • Exam preparation and tutoring • Home health care • Tea and healthy beverages • Safety and quality testing
(1) Knowledge Conditions • Amount and/or type of knowledge creation that is required to generate the industry’s products/services. – R&D (Research and Development)
• Do you need specific expertise, or is success based more on financial capabilities, location, relationships, etc.?
Knowledge Condition: Example
(2) Demand Conditions • Refers to the nature of customer preferences • Three aspects of demand conditions – The magnitude of customer demand for products and services, – The rate of growth of that demand, – The heterogeneity of that demand across customer segments.
Segmentation presents an opportunity for entrepreneurs to specialize. • Degree of segmentation – The degree to which the customer base of an industry wants different features in the products or services it demands.
• Market segmentation – How can you, as the entrepreneur, carve out a niche for you that is sizeable enough to reach your goals, yet small enough to be unattractive to large companies?
Demand Condition: Example Who does the tutoring? Tutoring is done by University of Maryland students with at least a 3.5 GPA, previous tutoring experience, and weekday evening and weekend availability. Where does the tutoring take place? Tutors will travel within 15 minutes of campus to meet with high school students. If the student lives within that radius, the tutor will meet him at his home; otherwise, the student may meet the tutor at a library or café convenient to both.
(3) Industry Life Cycles • Stage of development of the industry affects new ventures’ performance in the market • Dependent on customer adoption of new products and services – Beginning, middle, or end (causing a deceleration in the market)
• New firms perform better in younger markets, as it’s easier to attract customers when demand growth is highest
Young industries are most favorable to new ventures • In young industries, there is substantially less competition vs. established industries • Competing companies are operating on a more level playing field – Learning curve allows firms to use their experience operating in an industry to improve their efforts to meet customer demand.
• Little to no dominant design or technical standard
Industry Life Cycle: Example Source: mychargepoint.net
Coulomb produces ChargePoint Network stations to scale to the national level as electricity-powered vehicles become popular. Each Smartlet station would cost between $1,000 and $2,000 for a business or municipality.
(4) Industry Structure • Refers to the nature of barriers to entry & competitive dynamics in the industry – – – –
Capital intensity Advertising intensity Firm concentration Average firm size
Industry Structure: Example Source: rapidvaluesolutions.com
The number of U.S. developers paying the $99 annual fee to register with Apple is over 275,000. Online marketplaces like elance.com and odesk.com provide matchmaking opportunities for developers and clients.
Key questions on industry structure • Are you trying to enter a capital intensive industry? • Is the advertising intensity high in your chosen industry? • Are you trying to enter a concentrated market?
• Is the average sized firm large in the industry?
Summary • Is the industry that I am planning to enter a good one for starting a new company? • Are the knowledge conditions in the industry favorable to a start-up? • Are demand conditions in the industry favorable to a start-up? • Is the industry at the right stage of the life cycle for a start-up? • Is the industry structure favorable for a start-up?
Types of innovations
Objectives • Define “innovation” • Discuss different types of innovations • Explore enabling factors for innovative ventures
What is innovation? • The act of introducing something new (The American Heritage Dictionary) • A new idea, method or device (MerriamWebster Online) • The successful exploitation of new ideas (Department of Trade and Industry, UK) • Change that creates a new dimension of performance (Peter Drucker)
What is innovation? • We will use commercializable improvements as our definition. – May be an invention – May be an improvement of an existing product or service – In either case, we desire a market to buy the product or service (e.g. to commercialize concept)
Innovation exists in multiple degrees Basic Design Concepts Overturned Reinforced
Linkages Between Modules
Unchanged
Incremental Innovation
Component Innovation
Changed
Architectural Innovation
Disruptive Innovation
Types of innovations? 1. Product Innovation – Introduction of a product that is new or substantially improved – May include improvements in functional characteristics, technical abilities, ease of use, or any other dimension
• Herman Miller sought to solve the problem of • • • • •
outdated foam backrests and seats manipulated by numerous adjustment controls Tilt mechanism provides a balanced ride, cradling the sitter by mirroring the natural pivot points Built-in flex zones provide support to the entire back Breathable suspension follows the body contours and distributes pressure equally Features a competitive price point in its category of executive commercial chairs 96% recyclable
Source: IDSA Awards
Types of innovations? 2. Service Innovation – Similar to product innovation except that the innovation relates to services rather than to products
3. Process Innovation – Implementation of a new or significantly improved production or delivery method
Apple’s first innovation was not the iPhone • iTunes + iPod Mini in early 2000s – “Don't just make it smaller, reinvent it!” seems to have been the thought behind the iPod Mini – 3.6 oz. is half the original weight – 1,000 songs with an 8-hour battery life – Footprint of a business card – Click wheel provides ease of use and saves space with the integrated button – Available in 5 colors Source: wired.com
Types of innovations? 4. Business Model Innovation – Changing the way business is done in terms of capturing value
5. Supply Chain Innovation – Occur in the sourcing of input products from suppliers and the delivery of output products to customers
Types of innovations? 6. Marketing Innovation – Development of new marketing methods with improvement in product design or packaging, product promotion, or pricing
7. Organizational Innovation – Creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation
Source: fastcodesign.com
Types of innovations? 6. Marketing Innovation – Development of new marketing methods with improvement in product design or packaging, product promotion, or pricing
7. Organizational Innovation – Creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation Source: fastcodesign.com
Summary • Innovations do not have to be radical and disruptive in order to be viable for new venture creation – Incremental changes can be great opportunities
• Innovations can be developed in products – And in business models, processes, packaging, and many other areas
Strategic Positioning
Objectives • Define strategy • Discuss the nature of strategic positioning • Introduce the merits of strategic planning
What is Strategy? At general management’s core is strategy: • Defining a company’s position • Making trade-offs, and • Forging fit among activities.
Principle #1 of Strategic Positioning • Strategy is the creation of a unique and valuable position, involving a different set of activities: – Serving few needs of many customers – Serving broad needs of few customers
Principle #2 of Strategic Positioning • Strategy requires you to make trade-offs in competing to choose what not to do. – You cannot be all things to all people. – Focus on developing a solution and a brand that is meaningful and consistent to customers. – Emphasize serving one market well and explore growth opportunities later.
Source: www.b2binternational.com
Principle #3 of Strategic Positioning • Strategy involves creating a “fit” among a company’s activities. – Company activities must interact and reinforce one another • Wal-Mart’s low cost is supported through minimal personalized customer service and limited ambiance in its stores • Nordstrom’s higher cost are consistent with personalized service
– Fit drives competitive advantage and sustainability – Competitors struggle to imitate well-developed activities
Strategic positioning should uncover new opportunities • Strategic Positions – Are often not obvious, and finding them requires creativity and insight. – Entrepreneurs often discover unique positions that have been available but simply overlooked by established competitors.
Summary • Strategy is the creation of a unique and valuable position • Strategy requires you to make trade-offs in competing to choose what not to do • Strategy involves creating a “fit” among a company’s activities
Strategic Planning
Objectives • Introduce the importance of strategic planning • Discuss the nature of strategic planning • Explore how entrepreneurs can carry out effective strategic planning
Strategic planning is: • The formulation of long-range plans for the effective management of environmental opportunities and threats in light of a venture’s strengths and weaknesses. Defining the venture’s mission Specifying achievable objectives Developing strategies Setting timelines and measures
Benefits of strategic planning • • • • • • • •
Cost savings Fewer cash-flow problems Faster decision making More efficient resource allocation Improved competitive position More timely information More accurate forecasts Reduced feelings of uncertainty
No Strategic Planning? • Reasons for the Lack of Strategic Planning – – – – –
Time scarcity Lack of knowledge Lack of expertise/skills Lack of trust and openness Perception of high cost
Basic Steps in Strategic Planning 1. Examine the internal and external environments of the venture (strengths, weaknesses, opportunities, threats) 2. Formulate the venture’s long-range and short-range strategies (mission, objectives, strategies, policies) 3. Implement the strategic plan (programs, budgets, procedures) 4. Evaluate the performance of the strategy 5. Take follow-up action through continuous feedback
Fatal mistakes that entrepreneurs fall prey to in their attempt to implement a strategy Flaw 1: Misunderstanding industry attractiveness Flaw 2: No real competitive advantage Flaw 3: Pursuing an unattainable competitive position Flaw 4: Compromising strategy for growth Flaw 5: Failure to explicitly communicate the venture’s strategy to employees
Implementing a Strategic Plan • The use of incremental goal attainment that takes a new venture from start-up through strategy reformulation. • Advantages of milestone planning are: – the use of logical and practical milestones – the avoidance of costly mistakes caused by failure to consider key parts of the plan – a methodology for re-planning, based on continuous feedback from the environment.
Summary • Strategic planning requires near-term commitment for long-term benefits • Value exists in the plan, but more so in the process of planning • Regular evaluate and update the strategic plan
