Chapter 3: Strategic Management
and The Entrepreneur
Objectives |
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Upon completion of this chapter, you will be able to:
- Explain why and how a small business must build a competitive advantage in
the market.
- Create a strategic plan for a business using the ten steps in the strategic
management process.
- Know why and how to write a meaningful mission statement.
- Understand how to identify a company’s SWOT—strengths, weaknesses,
opportunities, and threats.
- Establish meaningful goals and objectives.
- Discuss the three basic strategies--low-cost, differentiation, and focus—and
know when and how to employ them.
- Understand the importance of controls such as the balanced scorecard in the
planning process.
Chapter 3: Strategic Management
and The Entrepreneur
Chapter Overview
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- Explain why and how a small business must create a competitive
advantage in the market.
- The goal of developing a strategic plan is to create for the small company a
competitive advantage--the aggregation of factors that sets the small business
apart from its competitors and gives it a unique position in the market. Every
small firm must establish a plan for creating a unique image in the minds of its
potential customers.
- Develop a strategic plan for a business using the ten steps in the
strategic planning process.
- Small businesses need a strategic planning process designed to suit their
particular needs. It should be relatively short, be informal and not structured,
encourage the participation of employees, and not begin with extensive objective
setting. Linking the purposeful action of strategic planning to an
entrepreneur's little ideas can produce results that shape the future.
- Step 1: Develop a clear vision and translate it into a meaningful
mission statement. Highly successful entrepreneurs are able to communicate their
vision to those around them. The firm's mission statement answers the first
question of any venture: What business am I in? The mission statement sets the
tone for the entire company.
- Step 2: Define the firm's core competencies and its target market
segment(s), and position the business to compete effectively. Core competencies
are a unique set of capabilities that a company develops in key operational
areas, such as quality, service, innovation, team-building, flexibility,
responsiveness, and others that allow it to vault past competitors. They are
what the company does best and are the focal point of the strategy. This step
must identify target market segments and determine how to position the firm in
those markets. The owner must identify some way to differentiate her business
from its competitors.
- Step 3: Assess the company's strengths and weaknesses. Strengths are
positive internal factors; weaknesses are negative internal factors.
- Step 4: Scan the environment for significant opportunities and
threats facing the business. Opportunities are positive external options;
threats are negative external forces.
- Step 5: Identify the key factors for success in the business. In
every business, key factors that determine the success of the firms in it, and
so they must be an integral part of a company' strategy. Key success factors are
relationships between a controllable variable and a critical factor influencing
the firm's ability to compete in the market.
- Step 6: Analyze the competition. Business owners should know their
competitors almost as well as they know their own. A competitive profile matrix
is a helpful tool for analyzing competitors’ strengths and weaknesses.
- Step 7: Create company goals and objectives. Goals are the broad,
long-range attributes that the firm seeks to accomplish. Objectives are
quantifiable and more precise; they should be specific, measurable, assignable,
realistic, timely, and written down. The process works best when managers and
employees are actively involved.
- Step 8: Formulate strategic options and select the appropriate
strategies. A strategy is the game plan the firm plans to use to achieve its
objectives and mission. It must center on establishing for the firm the key
success factors identified earlier.
- Step 9: Translate strategic plans into action plans. No strategic
plan is complete until the owner puts it into action.
- Step 10: Establish accurate controls. Actual performance rarely, if
ever, matches plans exactly. Operating data from the business assembled into a
comprehensive scorecard serves as an important guidepost for determining how
effective a company’s strategy is. This information is especially helpful when
plotting future strategies.
The strategic planning process does not end with these ten steps; rather, it
is an ongoing process that an entrepreneur will repeat.
- Know how and why to create a meaningful mission statement.
- Highly successful entrepreneurs are able to communicate their vision to
those around them. A firm’s mission answers the first question of any venture:
What business am I in?
- Understand how to identify a company’s SWOT—strengths, weaknesses,
opportunities, and threats.
- Developing a sound strategy requires quality information. Strengths are
positive internal factors; weaknesses are negative internal factors.
Opportunities are positive external options; threats are negative external
factors.
- Establish meaningful goals and objectives.
- Goals are broad, long-range attributes a company seeks to accomplish;
objectives are quantifiable and more precise. They should be specific,
measurable, assignable, realistic, timely, and in writing.
- Discuss the characteristics of three basic strategies: low-cost,
differentiation, and focus.
- Three basic strategic options are cost leadership, differentiation, and
focus. A company pursuing a cost leadership strategy strives to be the
lowest-cost producer relative to its competitors in the industry.
- A company following a differentiation strategy seeks to build customer
loyalty by positioning its goods or services in a unique or different fashion.
In other words, the firm strives to be better than its competitors at something
that customers value.
- A focus strategy recognizes that not all markets are homogeneous. The
principal idea of this strategy is to select one (or more) segment(s), identify
customers special needs, wants, and interests, and approach them with a good or
service designed to excel in meeting these needs, wants, and interests. Focus
strategies build on differences among market segments.
- Understand the importance of controls such as the balanced scorecard
in the planning process.
- Just as a pilot in command of a jet cannot fly safely by focusing on a
single instrument, an entrepreneur cannot manage a company by concentrating on a
single measurement. The balanced scorecard is a set of measurements unique to a
company that includes both financial and operational measures and gives managers
a quick yet comprehensive picture of the company's total performance.
Chapter 3: The Foundations of
Entrepreneurship
Small Business
Assignments |
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Answer all of these questions:
1. What is a competitive advantage? Why is it important for you
to establish competitive advantage?
2. What are the steps in the strategic management process?
3. What are strengths, weaknesses, opportunities, and threats?
Give an example of each for your business.
4. Explain how a company can gain a competitive advantage using each of
the three strategies described in this chapter: cost leadership,
differentiation, and focus. Give an example of a company that is using
each strategy.
5. What is a balanced scorecard? What value does it offer
entrepreneurs who are evaluating the success of their current strategies?
Complete the following appendix:
Appendix E: Marketing Analysis
Chapter 3: Strategic Management
and The Entrepreneur
Small Business Links
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