summary innovation and entrpreneurship - strategic entrepreneurship 2011 (1)

Strategic Entrepreneurship by Philip A Wickham (4th

edition)

1 Innovation & Entrepreneurship

Chapter 1 Entrepreneurship is what the entrepreneur does. Entrepreneurial describes how the entrepreneur undertakes what he does. The entrepreneurial process in which the entrepreneur engages is the means through which new value is created as a result of the project: the entrepreneurial venture. The entrepreneur as a manager undertakes particular tasks

1. Owning organization Ownership lies with those who invest in the business and own its stocks – the principals – whereas the actual running is delegated to professional managers or agents.

2. Founding new organizations Task of bringing together different elements of the organization (people, property, productive resources and so forth) and giving them a separate legal identity.

3. Bringing innovation to market Schumpeter (creative destruction) saw innovation as fundamental to the entrepreneurial process of wealth creation. The entrepreneur’s task goes beyond simply inventing something new. It also includes bringing that innovation to the marketplace and using it to deliver value to consumers.

4. Identification of market opportunity Entrepreneurs must constantly scan the business landscape watching for the gaps left by existing players (including themselves) in the marketplace.

5. Application of expertise Entrepreneurs have the ability in deciding how to allocate scarce resources in situations where information is limited.

6. Provision of leadership

7. The entrepreneur as manager The entrepreneur as an economic agent generates particular economic effects

Combination of economic factors Value is created by combining raw materials, labor and capital. Innovation is simply finding new combinations of these economic factors. Providing market efficiency Efficient means that resources are distributed in an optimal way, that is the satisfaction that people can gain from them is maximized. Accepting risk If we know the probability of various possibilities then uncertainty becomes risk. Some suggest that the primary function of the entrepreneur is to accept risk on behalf of other people. Entrepreneurs provide a service by taking this risk off people’s hands. They are willing to buy it. Accepting the risk is actually something that investors do, not entrepreneurs.

� Personal risk: dangerous situations � climbing mountains � Economic risk: result from making an investment

Maximizing investors’ return Processing of market information They keep an eye out for information that is not being exploited. By taking advantage of this information, they make markets more efficient and are rewarded our of revenues generated.


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The entrepreneur as an individual of a particular personality. � The ‘great person’ � Social misfit

Economic survival and they are unable to fit into existing social situations. � Personality type � Personality trait

- Ability traits are – learnt and developed (problem solving, innovativeness) - Temperament traits – are concerned with public actions – how do what we do - Dynamic traits – are concerned with internal motivation – why we do what we do

� Social develop - Innate – factors such as intelligence, creativity, motivation, ambition etc. - Acquired – learning, training, mentoring, existence of motivating role models etc. - Social – birth order, experience in family life, culture etc.

� Cognitive The branch of psychology that attempts to develop an understanding of how we as humans obtain and process information and use it to make sense of the world.

Entrepreneurs are not born, they are made. Entrepreneurship: a style of management Characterized by: focus for change, focus for opportunity and organization-wide management. Leadership, power and motivation are interrelated and interdependent tools which the entrepreneur can use to control the venture and give it direction. Leadership is the power to focus and direct the organization. Entrepreneurial leadership is based on the communication of vision. Power is the ability to influence the course of actions within the organization. Power is based on the control of resources and the symbolic dimensions of the organization, particularly the vision which drives it. Motivation is the ability to encourage an individual to take a particular course of action. Motivation is based upon an understanding of drives a the ability to reward efforts.

� Self-motivation - Why am I doing this? - Learning from mistakes - Enjoying the rewards

� Motivation of others - Understanding personal drives - Setting goals - Offering support - Using rewards - A positive approach to sanctioning

Entrepreneurial management focuses on the whole organization, pursues opportunity and wants to create change.

Chapter 2

Classification of entrepreneurs is important because of research, government policy and investor analysis. There are 2 main approaches: classify entrepreneurs themselves or their ventures. At some point all entrepreneurs are nascent and then novice. Most start with a single business. Serial entrepreneurs start off as singular entrepreneurs. The successful entrepreneurial venture is usually based on a significant innovation. The small firm’s output is likely to be established and produced in an established way. So while a small business may be new to a locality, it is not doing anything essentially new in a global sense. Entrepreneurial venture usually have a great deal more potential growth than does a small business.


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Strategic objectives relate to such things as: growth targets, market development /share /position.

LOOK AT FIGURE 2.2, PAGE 40

Chapter 3 Instrumentalization refers to the methodological approach taken to defining, characterizing and measuring a variable that plays a part in some theoretical explanation. Using the way in which entrepreneurs are recognized by different schools of economic thinking might me more fruitful than unifying within a single personality type. Instrumentalization of personality Personality must be something that can be determined independently of the individual’s specific domain of entrepreneurial activity. Otherwise there is danger that the domain of activity predetermines personality allocations. Ontology is the branch of analytical philosophy that is concerned with the existence of concepts.

� Realism A concept has an actual existence in the world independent of our understanding of it.

� Positivism Proposes that only that which can be observed is real and that we should be suspicious of things we cannot observe.

� Instrumentalism Concepts exist only in the sense that they provide accounts of the world that lead to useful and correct predictions. A descriptive theory is based on independent observations of an individual’s personality and their entrepreneurial inclination, behavior and performance. It describes the correlation between the 2.

- Concerned with how the world is - Require that personality is something observable, measurable and independent of

entrepreneurial activity. A normative theory claims that certain aspects of personality are necessary for effective entrepreneurial behavior. Direct descriptive theories in a particular direction.

- Aspire to make predictions - Are not so dependent on observable counterparts of personality

Prescriptive theories suggest that if one wants to be a successful entrepreneur then one should have (or adopt/develop) a particular personality type.

- Suggest pathways of development to entrepreneurs - Limit themselves to aspects of personality that can be developed through conscious action.

Personality: a relatively stable pattern or profile of thoughts, feelings and actions that characterize a particular individual. What makes us unique. Personality is: organized, active, physical, causal, regular and manifest.

Three primary processes in the anatomy of the mind (Freud): The Id relates to basic biological urges and impulses. The Superego manages social behavior and graces. Maintains an individual’s moral beliefs and is imparted by parents and socialization processes. The Ego helps the Superego keep the Id in check while making sure that the Superego is informed of the person’s deeper wants and needs within the Id. Is rational and calculated plans ahead.


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Not in harmony? � neurotic anxiety, the belief that one’s base instincts would take control � moral anxiety, about taken actions (guilt, regret, embarrassment etc.) � reality anxiety, justified beliefs that one is in some sort of danger. Two key traits: introvert – extrovert dimension and the emotionally stable – unstable dimension Combining these 2 independently gave rise to four basic personality types:

� Phlegmatic: stable introverts � Melancholic: unstable introverts � Sanguine: stable extroverts � Choleric: unstable extroverts

Power, love, work, affect (emotionally) and intellect relate to the individual’s characterization. Evolutionary psychology is based on the premise that modern human cognitive skills are the result of evolution through selective forces. Phenomenological approaches

1. Humans are endowed with free will, the possibility of making choices for themselves. 2. Humans are self-perfecting, drawn towards the ‘good’ in terms of health, welfare and

personal maturity. Personality testing has been used as both a practical and research tool for evaluating and studying entrepreneurs. However, it is premature to suggest that such testing is unambiguously able to distinguish entrepreneurs from non-entrepreneurs. Cognitive approaches consider how human acquire, store and process information in order to make decisions. Whether entrepreneurs are distinct from non-entrepreneurs in their cognitive style and strategy is not yet clear, but it is the subject of extensive research. Attribution-based approaches They looked at Consistency in the way in which an individual reacts � we always expect entrepreneurs to react positively and embrace new opportunities Distinctiveness in that the individual reacts differently in different situations � entrepreneur is tough negotiator in business, but not in his family life Consensus in that entrepreneurs act differently from non-entrepreneurs Entrepreneurs are decision makers. The experimental study of human decision making is a fast-growing area that promises area to illuminate the way in which entrepreneurs think. Psychometric tests aim to discover something about an individual’s mental architecture by having him or her answer a specific series of questions..

- Rorschach test: what do you see in a random pattern of ink blots? The questions must be relevant, responses must be correlated to particular personality factors, the subject must give honest answers, subjects must answer like they’re in real life, aspects of personality revealed must be stable over time. � challenges Popular tests: proactive personality disposition (PPD) and the entrepreneurial-orientation (EO)

Chapter 4 Cognitive psychology is very much an experimental science, with its findings based on repeatable experiments and the testing of hypotheses. Cognitive processes are split into: Perception processes How we see the works and gather information about it. � Complexity-simplicity, leveling – sharpening, verbalizing - visualizing


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Problem-solving processes How entrepreneurs address immediate challenges and bring creativity to bear. � scanning – focusing, serialism – holism, adaptation - innovation Task processes How entrepreneurs approach and undertake actions and related performance issues. � constricted – flexible, impulsive – reflective, uncertainty accepting – cautious Cognitive styles and strategies may be linked to, and provide a basis for, what we consider to be personality. They are, however, distinct from it. Entrepreneurship and human decision making Three types of theory that aim to explain and predict decision making:

1. Normative theories Identify what is the best (optimal) decision in a particular situation and the process for making it. “Humans are rational”

2. Descriptive theories Provide accounts of decisions people actually make. What people really do, rather than what they should do. May take mathematical form and are expressed in psychological terms.

3. Prescriptive theories Suggest ways individuals can improve their decision-making practice. Expressed in pedagogical terms.

Biases are consistent, prevalent and difficult to eliminate. 1. Anchoring bias

Rely heavily (“anchor”) on one piece of information when making decisions 2. Availability bias

When confronting with a decision, humans’ thinking is influenced by hat is personally relevant, recent or dramatic. � afraid of airplane crash, but it’s less common than car crash

3. Representativeness bias Involves judging a sample or event as being more or less likely because it is felt to be more or less typical of a population or process.

4. Base-rate neglect bias Ignoring background information in making judgments

Other biases include framing effects – judgment changing on the basis of how information is contextualized. Cognitive psychologist have suggested that these biases arise because individuals use deep-seated heuristics or practical ‘rules of thumb’ to make judgments rather than normative methods. Expected utility theory The normative approach to risk behavior is referred to as expected utility theory. Deals with the analysis of choices among risky projects with outcomes. It does a poor job of predicting and explaining real human risk behavior. Entrepreneurial confidence and overconfidence A positive bias is said to occur when we make a judgment about ourselves that result in a view of ourselves that is more positive than statical rules, or indeed basal experience, deems to be proper or hold to a view of the world that is overly optimistic.

- Can distort the decision making or entrepreneurs and their supporters. Syntactic (formal) use of risk & Pragmatic (everyday) use of risk Prospect theory One of the best, and most successful, descriptive approaches to human risk behavior. Increasingly influenctial in the study of managerial risk taking generally and in the study of entrepreneurial risk taking. Human decision makers:

- Are concerned about gains and losses - Make decisions for an initial reference point - Find that losses hurt more than gains bring pleasure - Avoid risk when winning, but take risks when losing - Distort probabilities – at low probabilities feel lucky when winning, unlucky when losing. - Are susceptible to framing – whether the + or – perspective on a problem is emphasized.


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Chapter 5 Inventor: someone who has developed an innovation and who has decided to make a career out of presenting that innovation to the market. Poor track of building successful businesses. Unfulfilled manager: Desire to make a mark on the world, to leave a lasting achievement, to stretch their existing managerial talents to their limit and to develop new ones. Displaced manager, young professional. The excludes: nothing else is open to them. One of the main challenges faced by ethnic entrepreneurs is making the move from running a small business to starting a full-blown entrepreneurial venture. Hard work, self starting, setting of personal goals, resilience, confidence, receptiveness to new ideas, assertiveness, information seeking, eager to learn, attuned to opportunity, receptive to change, commitment to others, comfort with power � entrepreneurial characteristics. Four primary types of individual become entrepreneurs: Personal achiever Clear objectives, hard work and dedication. Driven to succeed Emphatic super salesperson Well-developed ability to understand customer needs. Real manager Having an organization large enough to put demands on their

managerial abilities. Expert-idea generator Platform to develop and market an innovation. Entrepreneurial performance: general management skills, industry knowledge, personal motivation and human relationship skills. General management skills:

- Strategy skills - Planning skills - Marketing skills - Financial skills - Project management skills - Time management skills

Human relationship skills

- Leadership skills - Motivation skills - Delegation skills - Communication skills - Negotiation skills

Supply of entrepreneurs is determined by: pull factors, push factors and inhibitors. Pull factors are those which encourage managers to become entrepreneurs by virtue of the attractiveness. Push factors are those which encourage entrepreneurs by making the conventional option less attractive. The supply of entrepreneurs will still be limited if inhibitors are operating. Inhibitors are factors which prevent the potential entrepreneur from following an entrepreneurial route, no matter how attractive an opinion it might appear.


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� An inability to secure start-up capital, high costs of start-up capital, risks presented by the business environment, legal restrictions on business activity, lack of training for entrepreneurs, feeling that the role of entrepreneurs has a poor image, lack of suitable human resource.

Satisfaction in conventional job Satisfaction from entrepreneurship Personal development needs Knowledge Personal development needs

Social needs Possibility Social needs Economic needs Valence Economic needs

Valence: the way in which the potential entrepreneur is willing to play off different needs against each other. Knowledge: must know that the entrepreneurial option exists and they must be aware of its potential. Possibility: of pursuing that option, no legal restrictions, access to necessary resources. Valence � multi-criteria problem: requires that a wide range of factors be taken into consideration Venture initiation:

- Opportunity’s equilibrium - Inducements (balance rewards) - Contributions (opportunities forgone and personal efforts)

The initiation process The nascent entrepreneur must have first engaged in a number of ‘pre-launched preparation’ task such as gathering and processing information, identifying a new opportunity, imaging (and perhaps designing) an innovation to take advantage of it, evaluation and valuation of the opportunity, initial contract with key supporters, acquisition of start-up capital, and legal and contractual agreements. 4-stage model

1. Proof-in-principle stage in which the technology is demonstrated to have potential. 2. Prototype stage in which a working form of the technology is developed. 3. Model shop stage in which early production runs are undertaken 4. Start-up stage where the product is produced in commercial quantities and delivered.

Also extended into the post-start-up phase: conception and development, commercialization, early growth and stability in market phase.

Chapter 6 Neo-classical school Supply and demand for goods is a function of their price. Markets are costless to set up and run: transactions are ‘free’ and ‘frictionless’. – no notion of time, but economies change! Austrian School Competition is an ongoing process rather than a force that sustains an economy at a static equilibrium (evenwicht).

� Theories prioritized the role of the firm’s external environment: Heterogeneous demand theory points out that firms within a particular industry do not offer homogeneous products at a market dictated price.

Differences between products offered within an industry depended on 5 things: knowledge of markets, production process, resources, product research and development capabilities and quality control standards. Differential advantage theory Firms might sacrifice short-term profits for a variety of reasons, e.g. survival of the firm.


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Industrial organization economics (IOE) Based on the idea that excess profits arise due to market imperfections which occur when classical assumptions fail to occur. Three stages of development:

1. Competitive context presets a different mix of market imperfections. Structure-conduct-performance relationship.

- Entrepreneur perceives opportunities to acquire, mould and manage resources 2. Managers might seek out unexploited structures – Porter’s Five Forces - Entrepreneur seeks opportunities presented by available market imperfections. 3. Change in both perspective and methodology

1 suggest that if you are feeling cold, put on a coat; 2 suggests moving to somewhere warmer.

� Theories prioritized the role of the firm’s internal aspects: Resource-based theory: resource bundles, resource heterogeneity, resource immobility Competence-based theory places less emphasis on resource inimitability and more on the dynamic replenishment o quickly erodible advantage. If resource-based theory sees the winners as those who reach mountain peaks before others competence-based theory sees tem keeping ahead in a (never-ending) race. Transaction cost theory: when we pay a price for a good, that price must include the cost of transaction, not just the final value of the good. Evolutionary theories are inspired by Darwinism. Economic sociology: concerned with the structure of populations of firms within industries.

- Population ecology theory

The number (and total capacity) of firms within the sector is limited by its carrying capacity: the level of resources made available, including, critically, the capita customer will provide through purchases. Ability to change firms Ability to High Low Change High Industrial community theory New institutional economics environmment Low Organization evolution theoryPopulation ecology theory New institutional economics: maintains that firms are limited in the degree to which they are able to modify their internal constitution, but does suggest that firms can modify their environments. Organizational evolutional theory regards the unit of evolution as the individual firm, rather than the industry of population ecology. The environment is a given, managers cannot change it in any way. New institutional economics is the most general evolutionary theory in that it allows for firms to change both themselves and their environments. Whether the behavior of entrepreneurs is ’hard wired’ and determined by evolutionary forces or is learnt within a social and cultural setting is controversial. Ethical judgments about entrepreneurs are sensitive to whether we are taking a motivist a deontological or a consequentialist position on moral value. Classical economics: everyone has the same knowledge. Informational economics has revolutionized thinking about contracts when one party knows something the other does not. – information asymmetry, which leads to:

� Moral hazard: may look different but they are in fact variations on a theme


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� Adverse selection: we are concerned with the agent having information on his abilities, that is not shared with the principal.

� Signaling: agent knows something the principal doesn’t know and shares it.

Economist refer to 4 features as information being: frictionless, perfect, symmetric and common. Utility can be defined as being the usefulness of a resource of situation or the degree of satisfaction

Chapter 7 Developmental economics address how and why the we get wealthier, more democracy etc.

- Theoretical branch that considers why productivity grows and how this leads to wealth creation - Empirical branch which calls upon economic techniques to develop an insight into how input

factors are connected with economic growth. - Policy branch sets out to advice local, government ad supraanationaal-agencies.

There is lack of clarity as to the entrepreneur’s exact role due to

- What is an entrepreneur? - Function of the entrepreneur in an economic system - Knowledge about how entrepreneurs interact with other aspect of the economic system such

as government, existing commercial bureaucracy, social networks. - Difficulty in identifying the direction of causality

The government should:

- Provide a supportive legislative environment - Restraint on the size of the public - Low and non-distorting taxation - Support for open and free international trade - Non-discrimination against ethnic and religious minorities - A zero-tolerance attitude towards corruption

National culture: Differing cognitive scripts*, language, religious beliefs, personal relationships (power distance, uncertainty avoidance, collectivity, masculinity), attitude towards innovation and networks. *Arrangement scripts relate to knowledge of contracts, relationships, and asset and resource availability Ability scripts relate to the individual’s assessment of their own technical/general managerial abilities Willingness scripts relate to the individual’s commitment to starting or developing a venture.

Chapter 10

The entrepreneurial process is the creation of new value through the entrepreneur identifying new opportunities, attracting the resources needed to pursue those opportunities and building an organization to manage those resources. The entrepreneur identifies the potential for change for the better and exists in a state of tension between the actual and the possible. What is – might be. 3 dimensions:

1. The financial dimension: the potential to create new value

2. The personal dimension: the potential to achieve personal goals

3. The social dimension: the potential for structural change The approach to the entrepreneurial process is based on 4 interacting contingencies. �


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The process is dynamic with the entrepreneur and the entrepreneurial organization learning through success and failure. The entrepreneur must be single-minded and focus those resources definitely and unambiguously on to the opportunity that has been identified since the performance of the entrepreneurial organization depends on how well the contingencies of opportunity, organization and resources are linked together.

Chapter 11 Entrepreneurs decide not only how to create wealth but also how to distribute it to the venture’s stakeholders. Classical economics suggest that the optimal organization is one in which individuals work to maximize their own satisfaction from the goods available and freely exchange those goods between themselves. – economically rational. Key stakeholders: employees, investors, suppliers, customers, the local community and government. Innovation is a means of exploiting a business opportunity.

� New products � New services � New production techniques – JIT, TQM � New operating practices � New ways of delivering the product or service to the customer � New means of informing the customer about the product � New ways of managing relationships within/between the organization(s). � Multiple innovation – a combination of the above

� Opportunity must take priority over innovation Entrepreneurs turn uncertainty into risk on behalf of investors, rather than take on risk themselves. High pioneering-innovativeness (PI) – low pioneering-innovativeness

- Based on a variety of strategic characteristics: idea management, management of autonomy, management of competition, growth strategy, HRM, risk management, network development. �Table 11.1, page 241

Role of wealth creation in the entrepreneurial process Reinvestment Rewarding

stakeholders Investment in other ventures

Personal reward Keeping the score

Decision types are based on knowledge of three information sets:

Set of states of the world eventualities that the world may throw up in the future, outside control. Set of acts choices the entrepreneur can make and has control over. Set of outcomes payoff expected to happen if the entrepreneur does this and that occurs. Type of decisions

- Decisions under certainty / uncertainty - Decisions under risk - Decisions under ambiguity (dubbelzinnigheid) � most common - Decisions under ignorance


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Chapter 12 Resources occur at 3 levels: assets, organizational processes and organizational learning.

- They are consumer, there is competition to get hold of them and they have a cost. - Cost: opportunity costs and cost of capital (cost of having an overdraft e.g. interest)

Financial resources: cash in hand (least productive, does not create new value), overdraft facilities, loans, outstanding debtors, investment capital, investment in other businesses. Operating resources: premises, motor vehicles, production machinery, raw materials, storage facilities, office equipment. Human resources

� To be successful as an entrepreneur, you must learn to use yourself as a resource.

Organizational learning

Organizational processes

Tangible assets

Intangible assets

Profits must be considered in relation to 2 other factors: opportunity costs and risk.

- How well is an entrepreneur using resources?

The entrepreneur must compete with other businesses to get hold of resources by offering a good return from using them. Competitive advantage

� Cannot be imitated � Difficult to trade

Dedicating resources to a particular venture exposes investors to risk, namely the possibility that the return gained will be less than expected. Entrepreneurs stretch and leverage their resources to make them work harder in the face of resource-richer competitors. 10 interlinked processes:

1. Convergence 2. Focus 3. Extraction 4. Borrowing 5. Blending

6. Balancing 7. Recycling 8. Co-option 9. Shielding 10. Recovery

Chapter 13 Organizations are best understood through the use of metaphors: the things they are like.

Active metaphors Created consciously and explicitly as a strategy for developing understanding.

Dormant metaphors Those that are clear when we think about them, but we do not often do so.� The word ‘organization’

Extinct metaphors Those that are deeply embedded in our thinking that we only rarely challenge them.

� ‘to see an opportunity’ we don’t actually see it The organization as: a co-coordinator of actions; an independent agent; a network of contracts; A collection of resources; a system; a processor of information Controlling the resources in the organization means controlling the actions of the people in the organization. To delegate you have to consider size, expertise and complexity.

Guides the development of

Guides the use of


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Control mechanisms: directed action, routines and procedures, organizational strategy, organizational culture, communicated vision and the hierarchy of resource control devices. The open market and the closed hierarchy are pure forms of organization. The entrepreneurial organization is best thought of as a network of relationships defined through markets and formal hierarchies. The network lies somewhere between the two pure forms.

- Network formation and the entrepreneurial start-up may include breaking relations of the key competitor with other organizations.

Extended organization is one which used the resources of other organizations in its network to achieve its goal. Access to these resources is gained by building long-term, supportive and mutually beneficial relationships. Hollow organizations is one which exists not so much to do things itself but to bring other organizations together. In effect it creates value by building a new network or making an existing one more efficient.

� Internet is encouraging the development of hollow organizations. e-commerce: the use of the internet as an adjunct to selling and promotional activities. e-business: the use of the internet to enhance the performance of the organization’s entire operational stance.

Chapter 14 Intrapreneurship is the possibility of entrepreneurial dynamism with the stability and market power of the proven firm. The intrapreneur is an entrepreneur who works within the confines of an established organization. Intrapreneurship can operate at several levels:

� Managing specific projects � Setting up new business units � Reinvigorating the organization � Reinventing industries

The potential for intrapreneurship is limited by:

� Existing manager’s comfort with rule-breaking intrapreneurs Letting go of some degree of control. Existing managers may not feel comfortable with this.

� Keeping the intrapreneur aligned with the organization’s strategy Unlike the entrepreneur, however, the intrapreneur must operate within some sort of organizational decision-making framework.

� The ability to provide the effective intrapreneur with sufficient reward Economic, social and developmental.

Chapter 15 While an entrepreneur may be a chief executive officer, the chief executive is not necessarily an entrepreneur. The entrepreneur provides a bridge between the small business manager and the chief executive of a large firm. Entrepreneurial management is concerned with the whole organization. -> Entrepreneur may underestimate the value of the management of particular functions � underestimate contribution specialist � suspicious of the need for experts � difficulties giving specialist sufficient room.

Entrepreneurs Chief executives � Radical change � Incremental change


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The roles of the entrepreneur and the chief executive are subtly different, although they overlap in many ways. The entrepreneur is more interested in creating change, and may be more willing to take risks than the role of chief executive properly calls for. This can expose the mature venture to unnecessary risk. Consolidation gives entrepreneurs an opportunity to specialize their roles within their organizations. Important types of specialization:

� Chief executive � Visionary leader

Avoid making decisions personally, leave it to managers. � Manager of business development � Technical specialist � Promoter of the venture

Effective entrepreneurs manage the process of succession (handing over power) positively and effectively when it is time for them to move on.

Chapter 16 Vision

- Can be defined and articulated as a management tool. - Can be used as the basis of a powerful leadership strategy. - Entrepreneurs are managers with a vision - Is a picture of the new and better world that the entrepreneur wishes to create. - Specifies a destination rather than a route to get there. (page 322)

Vision is the starting point for giving shape and direction to the venture. Some sense of vision must exist before strategy development and planning can start. Visionary leadership demands communication of the vision in a way which draws stakeholders towards the venture and motivates them to work for its success. Approaches to communicating vision

� Describing the better world just as they see it � Talking specific goals � Talking strategy � Story-telling

1. Personal stories (a) Founding stories – autobiographical accounts of why the venture was started (b) Vision stories – stories about innovation and breakthrough

2. Generic stories (a) Marketing stories (b) Strategy stories

3. Situational stories (a) Historical stories (b) Conventional stories – about beliefs and attitudes of industry players and customers

� Why things can be better (emphasize wrong things in world) � What’s in it for you

Strategic foresight is a skill in or capability for anticipating the future and predicting the long-term effects of decisions made now. Effective strategic foresight may play a role in entrepreneurial success.

Chapter 17 A mission is a positive statement which defines what a particular venture is about and what it aims to achieve. Developing a formalized mission can be valuable to the entrepreneurial venture because:


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1. It articulates the entrepreneur’s vision 2. It encourages analysis of the venture 3. If defines the scope of the business 4. It provides a guide for setting objectives 5. It clarifies strategic options 6. It facilitates communication about the venture to potential investors 7. It draws together disparate internal stakeholder groups 8. It provides a constant point of reference during periods of change 9. It acts as an aide-mémoire for customers and suppliers.

The mission statement can include a definition of the venture’s market scope, what it aims to do for its stakeholders, its ambition and values. Entrepreneurs can use development of the venture’s mission as part of their leadership strategy. Mission Strategic component: what the business aims to achieve

- Product/service scope - Customer groups served

Philosophical component: values it will uphold Both product/service scope and customer groups need to be specified with three things in mind:

- Total market, the market it currently serves and the niches it aspires to serve. Other elements that might be included in a mission statement are: benefits offered and customer needs served; the innovation on which the business is based and the sources of sustainable competitive advantage; the aspirations of the business. Developing a mission statement: relevant, stretch business, consistent with its ambitions, realistic with opportunities, compatible with capabilities. How will the mission be generated?

1. Development through consensus (overeenstemming) Getting the whole (many parts) of the organization to contribute towards the development of the mission. Aim: gather information, create ideas and gain as many insights as possible. Allow people to be involved.

2. Development by imposition Develop mission themselves, or with a small group, and then impose the organization as a whole.

Chapter 18 A strategy is the means by which the venture will achieve its aims. Strategy content defines the products the venture will offer, the customer groups to be targeted and the way in which the venture will compete within its markets. Which strategy to adopt? Deliberate (planned) approach to strategy is one in which the entrepreneur sets out to define a strategic policy for the venture in which the future goals and competitive approach of the business are clearly defines and translated into specific objectives. An emergent approach to strategy creation is one in which future goals and strategic approach are left more ambiguous. The entrepreneur concentrates on managing the venture’s short-term capabilities and exploiting opportunities that present themselves as the business moves forward. The traditional approach to strategic management emphasized the deliberate approach. Planning for the future was the primary responsibility. Of late, there has been a reaction against this belief.


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Analysis

Gathering and processing

information (environment

& situation)

Communication

Gaining stakeholders'

support

Action

Definition of projects and

objectives

Synthesis

Creating an original

strategy (content and

process)

Succes

Criticism planning approach: - No correlation business performance and formal planning activity. - It only works if the future can be predicted with some certainty. - It suggest managers can control everything: not possible.

Become aware of the desired strategy content

� The entrepreneur’s communication of their vision � The definition of a mission � The setting of objectives � Through informal discussion

The way in which entrepreneurs control the organization and ensure that it delivers that strategy content they desire is dependent on: personal leadership style, ownership of resources, the way they control resources, technical expertise, access to information, the way they set objectives. Page 357 The entrepreneur must make decisions, relates to the development of the mission; the development of strategy; the control of resources; the way objectives will be set, monitored and rewarded. Entrepreneurial entry strategies Product-market domain Focused entry Addressing a single well-defined product-market domain. Product spread Offering a wide range of products to a single well-defined market. Customer spread Delivering a single or narrow range of products to a wide base of

customers. Adjacency Offering a wide range of products to a broad customer base. Scatter A variety of different product are offered to a variety of different customers.

No adjacent (nabijheid) segments. Competitive approach

- Offering a new product or service - Offering greater value - Creating new relationships - Being more flexible - Being more responsive

� Table 18.1, page 365 A well-defined strategy aids the venture by defining the means by which it will achieve its goals in the marketplace. A strategy acts as a guide for decision making and provides a common language for the venture’s stakeholders. Entrepreneurs often express their venture’s strategy in the form of heuristics.

Chapter 19 – Business plan There is no simple correlation between investment in planning and business performance, although there is evidence that planning may be important in small business survival. A business plan should include: mission, overview of key objectives, market environment, strategy, financial forecasts, activity and people. Page 378


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Pyramid Principle can be adopted to produce impactful and influential business plans. Main heading: Introduction

Main heading: Supporting question 1

Sub-heading: Argument 1 – Evidence 1



Main heading: Support question 2

“ “ � Table 19.1, page 384

The right sort of strategy can make the business more responsive:

- Focus on ends rather than means - Challenge assumptions - Model scenarios

- Create flexibility - Leave space to learn

The level of formality in planning will be influenced by the level of investment in the start-up, the involvement of external stakeholders (especially, but not exclusively, investors), the availability and cost of information, external support, and the entrepreneur’s personal style.

Chapter 20 Sources ad types of financial investment

- Entrepreneur’s own capital - Informal investors - Internal capital networks - Retained capital - Business angels (individuals/small groups who offer up their own capital) - Retail banking - Corporate banking - Venture capital (seek investment opportunities with high rate of return >$250.000) - Public flotation (raising capital by offering shares >$5 million - Government - Commercial partnerships - Micro-finance

How backers select investment opportunities

Deal origination The way the entrepreneur and the investor make contact Deal selection Initial evaluation to make sure the deal is right for the investor Deal evaluation Detailed evaluation to assess risk and return Deal structuring Investor’s entry and exit strategy Post-deal activity Monitoring, control and support given by investor The questions that investors need answering 1. Is the venture of the right type? 2. How much investment is required? 3. What return is likely? 4. What is the growth stage of the venture? 5. What projects will the capital be used for?

6. What is the potential for the venture? 7. What are the risks for the venture? 8. How does the investor get in/out? 9. What post-investment monitoring procedures

are there? 10. What control mechanism will be available?

� The vast majority of investment proposals are rejected. Effective entrepreneurs approach investors with an understanding of the questions for which they will need answers before they decide to support the venture. Professional investors are acute to, and dismissive of, extravagant claims in business plans.


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The prisoners’’ dilemma provides an illuminating game-theoretical model of entrepreneur-investor interactions and can explain why entrepreneurs and investors can sometimes fail to agree to mutually rewarding deals.

- Players are rational

Chapter 21 Why existing businesses leave gaps in the market?

1. Established businesses fail to see new opportunities. Organizational inertia: resistance to change in response to changing circumstances

2. New opportunities are thought to be too small. 3. Technological inertia (sloomheid) 4. Cultural inertia 5. Internal politics 6. Anti-trust actions by government 7. Government intervention to support the new entrant

� tax incentive, moral liberal employment laws, cheap loans and credit Economic perspectives on entrepreneurial gaps Arend (1999): under some circumstances, established businesses may leave gaps for new entrepreneurial entrants (who will become competitors) even though they are aware of the entrepreneurial opportunity that is available and act rationally to exploit it. Competing firms have only one optimal strategy if they wish to maximize profits.

- Exogenous: all competitors have equal access to the technology - Stable technology: fixed, does not change

Static efficiency strategy: Ignore the technological advance, not face the cost of integrating it, and so maintain short-term profitability. Dynamic efficiency strategy: Integrate technology, which increases short-term costs but offers the promise (with some risks) of increasing long-term profitability. Large business often undervalue new opportunities, are complacent (zelfingenomen) about them and are unresponsive owing to internal inertia.

(1) Spotting (2) Locating (3) Measuring (4) Opening (5) Moving through (6) Closing Phase 1: Scan the business environment and find out where the gaps, the windows are. Phase 3: Measure it, make sure the opportunity is big enough to justify the investment needed to open it. Phase 6: Closing the window. If not, competitors will be able to follow the entrepreneur through and exploit the opportunity themselves. Closing builds in competitive advantage.

Chapter 22

Stage 1 – Spot, screen and select opportunities

� New product � New service � New means of production

� New distribution route � Improved service � Relationship building

Methods of spotting opportunities Some are so straightforward the entrepreneur may not even realize that they are using them. They may be articulated in the form of a (1) heuristic or rule of thumb.


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� Analysis heuristics Cognitive strategies that entrepreneurs adopt in order to gain and integrate new information about the world, to understand the patterns in this information and to spot market gaps.

� Synthesis heuristics Using cognitive strategy to bring ideas developed from analysis back together again in a new and creative way, generating a new perspective on customer needs and how they might be addressed. (2) Problem analysis starts by identifying the needs that individuals or organizations have and the problems that they face. � What could be better? How might this be solved? (3) Customer proposals (4) Creative groups (5) Market mapping, involves identifying the dimensions defining a product category. The map may be used to identify gaps in the market and to specify the type of product that might be used to fill them. (6) Features stretching involves identifying the principal features which define a particular product or service and then seeing what happens if they are changed in some way. (7) Features blending involves identifying features which define particular products. Instead of just changing individual features, however, new products are created by blending together features from different product of services. � hi-fi system with features of CD player, tuner and amplifier Screening and selecting opportunities Entrepreneur’s decisions should be based on the answers to the following questions:

� How large is the opportunity? � What investment will be necessary if the opportunity is to be exploited properly? � What is the likely return? � What are the risks?

Entrepreneurial innovation

Market knowledge

- Concerned with customers, needs, demands Technological knowledge

- Effective development and production of the product or service aimed at the customers.

Capability knowledge - Venture’s understanding of what it does and

why it does it well.

Chapter 23

Stage 2 – Locating Positioning provides a framework for locating the venture in relation to its competitors.

� Exploit a gap in a profitable way

Potential impact High New insight innovation ‘New world’ innovation in market Low Incremental innovation Specialist innovation Established Technology New


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An effective positioning means that the business will be able to develop a competitive advantage in serving this niche. This makes the niche defendable against competitors. Strategic positioning looks at the way in which the business’s approach to delivering value to its customers is distinct from that of its competitors. – located in competitive spave

Competitive space can be defined along 4 dimensions: 1. Stage in value addition

Value addition chain: the process whereby the outputs of one business provides the inputs for the next business along.

2. Customer segments addressed - Geographical location - Industry - Demographics of buyer - Buying process - Psychographics – buyer’s attitude towards the product category

3. Customer needs addressed Success depends on gaining customer commitment, and the best way to do that is to genuinely serve the needs and to solve the problems that customers have.

4. Means of addressing needs (technology)

Market positioning describes the way its outputs, products and services are located in the marketplace relative to those of competitors. First stage: develop an understanding of the criteria by which buyers distinguish among the different products on offer and the extent to which they consider them to be sustainable. General factors:

- Price - Perceived quality - Demographic imagery - Performance

- Number and type of features - Branding imagery - Service and support - Attitude towards supplier

Features of product/service which actually deliver its functional benefits.

Design and branding elements which make the product/service attractive to use.

Aspects of the product/service which appeal directly to the consumer’s emotional and spiritual needs rather than to their purely functional ones.

Effective positioning is a critical success factor for the new venture. A business opportunity is analyzed by qualitative methods which answer what and why questions and quantitative methods which answer how much and how many questions. Information can be expensive. Effective entrepreneurs weigh the value of information against the cost of obtaining it. Information is regarded as an investment in the business. There are a number of issues about which the entrepreneur must be informed if they are to make effective decisions in relation to their venture.

1. Existing market conditions and the opportunity they present 2. The way in which entrepreneurs might innovate and offer something of value to market 3. The way in which the entrepreneur can get the venture started 4. The way in which competitors are likely to responds to the venture.


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Some specific information requirements: general market conditions, attractiveness of the innovation, the way the new ventures can be initiated and positioned in the market place and the way in which competitors might react to the new venture. A number of factors drive the extent to which the entrepreneur engages in formal as opposed to informal market analysis and planning.

- Cost of start-up - Involvement of external stakeholders - Availability and cost of information

- Perceptions of business risk and ambiguity - External support with planning activities - Entrepreneur’s personal style

Chapter 24

Stage 4 - Opening The key commitments are financial support from investors, productive support from employees and network contacts; agreements to provide inputs by suppliers; and agreement to purchase outputs by customers. Competition generates an overall increase in value for all entrepreneurs: By defining opportunity costs it provides a strong signal as to which opportunities are worth pursuing and which are not. By offering investors a good return, it generates capital that can be used to make further investments. Gaining financial investment Money is likely to take first place on the list of priorities.

� What level of investment is required? � Where is the investment come from? (Ch11) � What is the capital structure of the investment to be?

Capital structure: the mix of different investment sources that are used “Equity of debt” � How will the investors be approached?

1. Identify suitable sources of investment – WHO 2. Consider the HOW of the contact, formal/informal, written/verbal proposal? 3. Consider WHAT to tell the investor.

� What proposition is to be made to the investors? � amount, degree of risk, degree of control, level of return, nature

Gaining human commitment What human skills are required and how do we obtain them? What can we offer them, besides a salary. How will we contact and evaluate potential employees? (When) Should we outsource? Establishing a presence with distributors Distributors create real economic value: They provide logistic efficiency; they provide information to compare; can offer support with promotion of goods; provide producers with liquidity.

Concern when max. profit: margin on goods ↑, rate of sale (how much sold) ↑, cost of storing ↓

Chapter 25

Stage 6 – Closing Closing the window means creating a competitive advantage so that the venture can go on exploiting the opportunity in the face of competitive pressures. A full delivery of competitive advantage demands decisions at 3 levels:

1. Competitive advantage – what will be offered that is unique and valuable? Types: low price, features, service, branding, brand imagery, access and distribution

2. Source competitive advantage – how that offering will be maintained by business John Kay sees competitive advantage having sources in one of four distinct capabilities:

- Architecture (internal structure) - Reputation (stakeholders view)

- The way business innovates - Strategic assets


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Sources of competitive advantage:

Cost sources Knowledge sources Lower input cots Economies of scale Experience curve economies Technological innovation

Product knowledge Market knowledge Technical knowledge

Considerations: Important?

Considerations: How to gain? Outsource? Patents?

Sustaining cost advantages Sustaining knowledge advantages Low profit margin, cost control. Cost leadership strategy is expensive on short-term.

Patens should be used tactically to provide initial advantage which can then be used to develop other advantages based on cost and relationships.

Relationship sources Structural sources A relationship established trust and trust adds value by reducing the need for contracting and monitoring.

How the business organizes itself. Business-coordinated by strong leader Emphasize tasks rather than roles

Considerations: Risk? Sense of trust? Reputation?

Considerations: Decision-making process? Leadership style?

Sustaining relationship advantages Sustaining structural advantages Trust: experience, communication, reputation Must have 3 interlocking aspects: Management of expectations Management of outcomes Management of communication

Invest in human and communication systems, change.

3. Way it will be sustained – protected from imitation

Chapter 26 Growth is dependent on the venture’s ability to attract new resources. The larger a firm, the less risk it is exposed to. Size reflects success and the larger the firm, the more resources it will have. Using resources to fuel growth is an investment. Financial growth Development of the business as a commercial entity.

� Growth in income, assets and capital are equally important � Expenditure and profits (balance sheet, profit and loss account)

Strategic growth Changes that take place in the way in which the organization interacts with its environment as a coherent, strategic whole. � centre stage

� Growth in market � Competitive advantage

Growth and cost advantages The main source of cost advantages are experience effects. Cost advantages have not already been established in the market. Potential volume outputs make entry into the market worthwhile. To avoid substitutes, innovation in the entrepreneurial success is important. The entrepreneur is looking towards distributors as the basis for developing a non-cost competitive advantage. Cost leadership is only an option for business which is an industry makes and which aims to deliver its output to a wide/global market. Growth and knowledge advantages

- How significant is the knowledge advantage? – how valuable? - How will the knowledge advantage be eroded (verslechteren)?

Market research and product development have priority.


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Growth and relationship advantages When a company growths, the entrepreneur cannot longer represent the organization to all the parties who have an interest in it. New individuals must develop the organization’s relationship on a specialist basis.

Growth and structural advantages Structural growth Changes in the way the business organizes its internal systems. One well-explored approach to understanding how the particular situation of an organization defines its structure is provided by contingency theory. Dependent on 5 types of factor: organizational size, operational technology is uses to create value, the strategy it adopts, the environment and the way power is utilized.

- Company with repetitive task have more formal structures, well-defined roles & responsibilities � Table 26.3, page 534

Organizational growth Changes in the organization’s processes, culture and attitudes as it grows and develops. Also changes that must take place in the entrepreneur’s role and leadership style as the business grows.

� Growth in the organization’s culture and attitudes. Information: technical knowledge and market intelligence Capital: customer goodwill, investor goodwill People: employee goodwill The resource acquisition approach

1. Entrepreneur attracts all resources 2. Ad hoc delegation of resource acquisition 3. Entrepreneur delegates resource acquisition to management team 4. Resource acquisition managed by specialist functions coordinated by entrepreneur

The desirability of growth must be reflected in the entrepreneur’s vision, the potential for growth must be recognized in the venture’s mission, the direction must be indicated by the venture’s strategy and the management demands resource flows. Effective entrepreneurs recognize that the growth of the venture provides all of its stakeholders with an opportunity for personal growth and development. Evolutionary growth emphasizes changing pattern of competition and cooperation with other organizations and stakeholders. Dialectical growth emphasizes changing pattern of alignment, conflict and resolution of different stakeholder interest. Trialectical growth emphasizes different possible futures and their differing attractiveness. Teleological growth emphasizes role off entrepreneur’s vision in shaping the venture’s future. Chaotic growth emphasizes unpredictability of future, limited control of outcomes and controllability of situations. � Figures on page 541-545

summary innovation and entrpreneurship - strategic entrepreneurship 2011 (1)

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