MG647
Innovation and Entrepreneurship
Issues at Hand
What is Strategy ?
Entrepreneurial Strategy - 13
Role of Strategy in the New Economy
Prof . Rajendra K Lagu
School of Management
IIT Bombay
Prof . R.K.Lagu
Entrepreneurial Strategy
Relevance of Strategy for a Start-up
Modifications of the Relevant Frameworks
13.1
Prof . R.K.Lagu
What is Strategy ?
Strategic issues
Consider competitors and industry as a whole
Long term impact
Take a bird s eye view
Tactical Issues
Short tem impact
Decide about operational matters
Concerned with parameters inside the company
Take grass roots view
Strategy is always almost equal to Competitive Strategy
Strategy is concerned with the ecosystem in which the
firm operates and the other players coexisting in the
system
Entrepreneurial Strategy
13.3
Prof . R.K.Lagu
Competitive Strategy
Entrepreneurial Strategy
Protected markets
Dominant market position
Own / purchased IP
Team composition
National / geographic advantages
Virtual monopolies
The core competency gives it competitive advantage
if it chooses the right strategy
Government protection through licenses and
permits
Strategic thinking done at the BOD level
High entry barriers due to critical importance
of physical assets
Entrepreneurial Strategy
13.4
Old Industrial Environment
Each firm has a core competency which it gains
through
Prof . R.K.Lagu
13.2
Strategic vs. Tactical Issues
Vision, Mission, Goals, Strategy, Policy, Tactics
Achievements, Deliverables, Milestones
How is the strategy of a large organization such as HLL
different from a start-up -- established player, baggage,
entrenched position, defending the turf, large size
Prof . R.K.Lagu
Entrepreneurial Strategy
13.5
Prof . R.K.Lagu
Entrepreneurial Strategy
13.6
1
Traditional Company s Asset Structure
Current Industrial Environment
Liberalized regimes
Brand Capital
Fast pace of technology changes
Near perfect markets due to easy availability of
information (Internet)
Human capital
Working Capital
Global competition
WIP, Finished goods
Decreasing margins
Physical Assets: Land, building
Demanding customers
Prof . R.K.Lagu
Entrepreneurial Strategy
13.7
Modern Knowledge Based Company
Prof . R.K.Lagu
Entrepreneurial Strategy
13.8
Michael Porter s Five Force Framework
Brand Capital: Patents, IP,
Designs, Customer Relationships
Threat of new entrants
Company
Example
Bargaining power
of suppliers
Human Capital
Bargaining power
of customers
CISCO
Physical Assets
Prof . R.K.Lagu
Threat of
substitute products
Outsourcing
partner
Entrepreneurial Strategy
13.9
Prof . R.K.Lagu
Strategy s Imperatives
Entrepreneurial Strategy
13.10
Strategic Choices
Differentiation
Creating entry barriers
Big Market
Low Cost
High Value
Achieving sustainable competitive advantage
Small Market
Offering unique selling proposition
Niche
Creating a defensible position
Guarding your turf
Prof . R.K.Lagu
Entrepreneurial Strategy
13.11
Prof . R.K.Lagu
Entrepreneurial Strategy
13.12
2
Product Innovation Emphasis
Strategic Choices
Incur high expenses in R&D
Product innovation
Hire good scientists / technologists and retain them
Beat competitors by quick and successive
introduction of new products
Operational
excellence
Customer
loyalty
Prof . R.K.Lagu
Entrepreneurial Strategy
13.13
Customer Loyalty Emphasis
Accept frequent product obsolescence so as to avoid
product cannibalizing
Examples: Nike, Sony, Nokia, Intel
Prof . R.K.Lagu
Reduce costs and inventories
Examples: Home Depot, IBM
Examples: Wal-Mart, Cosco, Toyota
Entrepreneurial Strategy
Employ industrial engineering and operations
research staff
Implement ERP and similar packages
Monitor working capital, work in progress material
Run an efficient operation
13.15
Prof . R.K.Lagu
BCG Growth-Share Matrix
High
Low
Milk
Dog
Cash Cow
Low
Stars: large market share in a fast growing market.
Needs investment to achieve growth and maintain
the lead. May become a cash cow as market
saturates
High
Relative Position (Market Share)
Prof . R.K.Lagu
Entrepreneurial Strategy
13.16
Cash cows: large market share in a mature, slowly
growing (probably saturated) market. Don t invest
anymore, generate cash and invest in other product
lines
Star
Liquidate
Entrepreneurial Strategy
BCG Growth-Share Matrix
Invest
??
13.14
Operational Excellence Emphasis
Assemble a good marketing team
Spend on brand building and getting mind
share
Retain your existing customers
Announce aggressive deals and discounts,
often linked with customer loyalty
Prof . R.K.Lagu
Market
Growth
Rate
Entrepreneurial Strategy
13.17
Dogs: Small market share in a mature market. New
investment may not help. Liquidate unless there is
some other strategic purpose.
Prof . R.K.Lagu
Entrepreneurial Strategy
13.18
3
References
Entrepreneurial Strategy -- Two Camps of Thinkers
Corporate Strategists -- Adapt the established
strategy frameworks to the peculiarities of a
small start-up venture
Michael Porter s Five Force Framework
Strategy Mavericks For entrepreneurs,
strategy is a hustle
Entrepreneurial Strategy
Amar Bhide, How entrepreneurs craft
strategies that work , HBR, March 1994
Amar Bhide, Hustle as strategy , HBR,
September 1988
BCG Matrix
Prof . R.K.Lagu
Kathleen Eisenhart and Don Null, Strategy as
simple rules , HBR, January 2001
John Hamm, Why entrepreneur don t scale ,
HBR, December 2002
13.19
Prof . R.K.Lagu
Strategy as a Hustle
Hustle
rush through fast with energy
Businesses characterized by ease of entry and
service intensity are like poker, not chess
Play each hand as it is dealt and quickly vary tactics
to suit conditions.
Move fast, get it right most of the time and do things
well operational excellence and good execution
Take advantage of transitionary opportunities
Exhibit vigour and nimbleness
High profits stem largely from superior execution and
forceful opportunism, not structural competitive
barriers
Entrepreneurial Strategy
13.21
Design, produce and sell a timely and cost-effective
product that works
Integrate action and analysis
Prof . R.K.Lagu
Strategy as Simple Rules
13.22
When business landscape is complex
strategy is a few straightforward rules that just
vaguely define a direction
Capture unanticipated, fleeting opportunities to
succeed
When business landscape is simple,
companies can afford to have complex
strategies
Entrepreneurial Strategy
Entrepreneurial Strategy
Strategy as Simple Rules
Paradox of complexity theory simple
systems can have complex control strategies.
Complex systems have too many states and
multiple transition paths between states and
so only simple strategies give predictable
results
Prof . R.K.Lagu
13.20
Strategy as a Hustle
Conventional paradigm outflank competitors with
big plays
Prof . R.K.Lagu
Entrepreneurial Strategy
Rules grow not out of clever thinking, but out
of experience, especially msitakes
13.23
Prof . R.K.Lagu
Entrepreneurial Strategy
13.24
4
Strategy as Simple Rules
Akamai s rule for customer support: Every question
must be answered on the first call or e-mail
Intel s rule for capacity allocation: Sort products on
gross margin
Cisco s rule on acquisition: Acquire companies which
have less than 75 employees, 75% of whom are
engineers
Nortel s rule on product development: Proceed if the
product can be developed in less than 18 months
Prof . R.K.Lagu
Entrepreneurial Strategy
13.25
5
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