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ENTREPRNEURIAL STRATEGIES

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Sohan B. Khatri - Three H Management

The Nature of Planning in Emerging Firms

Most entrepreneurs planning for their ventures is


informal and unsystematic.
The need for formal, systematic planning arises when:
The firm is expanding with constantly increasing personnel
size and market operations
A high degree of uncertainty exists
There is strong competition
There is a lack of adequate experience, either technological
or business

Key Dimensions Influencing a


Firms Strategic Planning Activities

Demand on strategic managers time


Decision-making speed
Problems of internal politics
Environmental uncertainty
The entrepreneurs vision
Step 1: Commitment to an open planning process.
Step 2: Accountability to a corporate conscience.
Step 3: Establishment of a pattern of subordinate
participation in the development of the strategic plan

Strategic Planning (contd)


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

Strategic Planning Levels


Strategic Planning Categories
Category I: No written plan
Category II: Moderately sophisticated planning
Category III: Sophisticated planning
All research indicates:
Firms that engage in strategic planning are more effective than those
that do not.
The planning process, rather than merely the plans, is a key to
successful performance.

Fatal Vision in Strategic Planning


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
ventures strategy to employees

Strategic Positioning:
The Entrepreneurial Edge

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.

The Integration of Entrepreneurial and


Strategic Actions

Source: R. Duane Ireland, Michael A. Hitt, S. Michael Camp, and Donald L. Sexton, Integrating Entrepreneurship and Strategic Management Actions to Create Firm
Wealth, Academy of Management Executive 15(1) (February 2001): 51.

The Strategic Mgmt Process

Implementing a Strategic Plan


Milestone Planning Approach
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 replanning, based on continuous feedback from
the environment

A Milestone Planning Approach


MILESTONE

DESCRIPTION

Formulation of the basic idea for the new venture

Completion of a prototype (in this case, a new product)

Raising the seed capital

Conducting a pilot operation

Market testing

Start-up of operations

Sale to first major account

Reaction to the competition

Redesign or redirection of strategy

The Entrepreneurial Strategy Matrix

Source: Matthew C. Sonfield and Robert N. Lussier, The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures. Business Horizons, May-June
1997, Indiana University, Kelley School of Business.

The Entrepreneurial Strategy Matrix:


Appropriate Strategies

Source: Matthew C. Sonfield and Robert N. Lussier, The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures. Business Horizons, May-June
1997, Indiana University, Kelley School of Business.

From Business Planning


to Business Discovery
Getting to Plan B

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Building Breakthrough Business


Models
Product / Service

What?

Market

Who?

Business Model

How?

It is the method by which a firm


Uses its resources
- To add value for its clients
- To capture value for itself
Five elements
- Revenue Model
- Gross Margin Model
- Operating Model
- Working Capital Model
- Investment Model

Models & Models & Models


Revenue Model:
- Who will buy?
- How often?
- How soon?
- At what cost to acquire them?
- How much money will you receive each time a customer
buys?

Gross Margin Model:


- How much of your revenue will be left over after paying the
direct costs of what you have sold?

Models (Contd.)

Operating Model:
- On what else other than the cost of the goods or services you have
sold must money be spent to support the sale?

Working Capital Model:


- How long will you have to wait for the customer to pay?
- Do you have to tie up money in lots of inventory waiting for customers
to buy?
- Can you pay your suppliers later, after the customer has paid?

Investment Model:
- How much cash must you spend up front before enough customers
discover you and give you enough business to cover your operating
costs?

Strategic Choices and Formulation

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Relationship between companys strategy


and business model
A company's business model explains the rationale
for why its business approach & strategy will be a
revenue generator. Absent the ability to deliver good
profits, the strategy is not viable & survival of
business are in doubt.
Company Strategy: relates broadly to competitive
initiatives & action plan for running business which
may or may not make profits.
Business Model: How & why business will generate
revenues to cover costs & product attractive profits
& return on investment.

The Strategic Planning Process


Enduring

Continuous, multi-level
activity with selection
made by management
Incremental & adaptive
decision-making to maintain
maximum flexibility

STRATEGIC
ANALYSIS
STRATEGY
FORMULATION
STRATGY
IMPLEMENTATION

Feedback loops

Continuous, multi-level activity,


informed by real-time, realistic
information

VISION

Phase I: Strategic Vision

Phase 2: Setting Objectives

Phase 3: Strategy Making, Strategy


Execution process

Phase 4: Implementation and


Execution

Phase 5: Strategic Evaluation

Tools

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SWOT ANALYSIS

Questions to be answered by SWOT


What are the dimensions of value customers care
about operational excellence, product leadership or
customer intimacy?
For each dimension, what proportion of customers
focus on it as their primary decision criteria?
Which competitors provide the best value in each
dimension?
How does the firm compare to these competitors?
Why does the firm fall short of the value leaders?

Tools of SWOT Analysis


Internal appraisal:
Benchmarking
Life cycle analysis
Portfolio analysis
Value Chains

External appraisal:
Market research
Economies of scale
SLEPT analysis
Porters Five Forces

Strategy Misfit Three Key Questions

1. What new types of customer benefits


should we seek to provide in 5, 10 or 15
years?
2. What new competencies will we need to
build or acquire to offer these benefits?
3. How will we need to reconfigure our
customer interface over the next few
years?

Tools of SWOT Analysis


Internal appraisal:
Benchmarking
Life cycle analysis
Portfolio analysis
Value Chains

External appraisal:
Market research
Economies of scale
SLEPT analysis
Porters Five Forces

SLEPT Analysis

Social
Legal
Economic
Political
Technological

Generic Marketing Strategies


Broad market
COMMODITY
SUPPLIER

OUTSTANDING
SUCCESS
High price

Low price
Low differentiation
MARKET
TRADER

High differentiation
NICHE
PLAYER
Focused market

Economies of scale
Average
cost per
unit

Technological
innovation
Big firm
minimum
cost
output
Output volume

Economies of small scale


Average
cost per
unit

Technological
innovation
Small firm
minimum
cost
output

Big firm
minimum
cost
output
Output volume

Growth Trajectory of a Market Trader


Average
cost per
unit

And how do you


compete at these
levels of output?
Small firm
minimum
cost
output

Big firm
minimum
cost
output
Output volume

We learned to identify our


core strengths.The idea of
building a business solely
on cost or price was not a
sustainable advantage
What was important was
sustaining loyalty among
customers.

Michael
Dell

Successful Entrepreneurial Strategies


Strategy should emphasise something that
makes your firm as unique as possible and
delivers as much value as possible to the
customer
The best chance of doing this comes from
differentiation with the aim of dominating
your market and to do this effectively and
quickly
Then to continue to innovate based upon
your differential advantage

When youve got single digit


market share and youre
competing with the big boys
you either differentiate or die

Michael
Dell

Cows, after youve seen them for a while, are boring.


They may be perfect cows, attractive cows, cows
with great personalities, cows lit by beautiful light,
but theyre still boring.
A Purple Cow, though. Now that would be
interesting. Seth Godin, 2002

Customer Loyalty Ladder


Advocate
Supporter

Customer
Prospect

INCREASING
LOYALTY

Regular
Customer

Dimensions of Differentiation
Functional Core
Aesthetics
Emotions

Strategic Development
Likely to be both deliberate and emergent
Strategic intent provides a strong common
vision which directs behaviour
Continuous strategising takes place
Development of multiple strategic options
Decisions based on opportunistic
circumstances at the time
Decentralisation is the response to turbulence

The strategy formulation cycle

GROWTH

Emergent
strategy
formulation

CONSOLIDATION

Deliberate
strategy
formulation
CRISIS

Finally.
Strategy should be clear and focused
Supported by
- a culture that aims high
- a structure that is flexible &
responsive
A good strategy is important but effective
strategy execution is vital (and often
ignored)

Rapid Strategies for Growth

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Rapid Strategies for Growth


Joint Ventures and Strategic Alliances
Mergers and Acquisitions
Franchising and Licensing

Why Growth is Necessary

Economics of Scale.
Expansion into other markets.
Acquiring new capabilities.
Survival
Less Vulnerable for acquisition or hostile
takeovers.
Increasing earnings.

THE END

Sohan B. Khatri - Three H Management

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