Theoretical Frame Work of Strategic Entrepreneurship


By

Dr. V. Sailaja
MBA, Ph.D
Professor
Sri Ramakrishna P.G. College of Management
Nandyal
 


Firms create value by identifying opportunities in the market (or a new market) and developing competitive advantages. To exploit them small and new ventures are often effective at identifying opportunities but less effective at gaining and sustaining a competitive advantage. Larger established firms frequently are better at developing a strategy to gain a competitive advantage but less effective at identifying new opportunities. Both new ventures and established firms must practice Strategic entrepreneurship which emphasizes integration of entrepreneurial with strategic perspectives.

An entrepreneurial mindset is required for firms to compete successfully in the new competitive landscape through use of carefully selected and implemented entrepreneurial strategies. An entrepreneurial mindset denotes a way of thinking about business and its opportunities that capture the benefits of uncertainty. These benefits are captured as individuals search for and attempt to exploit high potential opportunities that are commonly associated with uncertain business environments1.

ENTREPRENEURSHIP – IN A STRATEGIC PERSPECTIVE:

Entrepreneurs create goods and services and managers seek to establish a competitive advantage with the goods and services created. Thus, entrepreneurial and strategic actions are complementary and can achieve the greatest wealth when integrated. Because entrepreneurship focuses on creation while strategic management focuses on building a competitive advantage (firm performance). Further it is to be noted that the Entrepreneurship has largely examined small businesses while strategic management concentrates on large businesses. Ultimately it can be inferred that they emphasize on creation and performance. And the relationship between creation and performance involves both opportunity-seeking and advantage-seeking actions, this integration of which is referred as strategic entrepreneurship. 2Michael E.Porter argues that most strategic management has emphasized administrative management. This conclusion is supported by the results of an analysis of journal publications that 3Meyer et al. They found little emphasis in the strategic management literature on entrepreneurial firms or on research questions important to them. Michael et al. argue that future strategic management research should emphasize entrepreneurial management because of its importance. Strategic management and entrepreneurship intersect in important areas and that the integration of theory and research in them is vital.

Jack Stack opined that entrepreneurs face a challenge in making people follow their great ideas. Those people include both investors and people working in the organization. Further he said entrepreneurs succeed because they are able to sell their ideas. They become leaders as they quickly inspire, motivate people working with him take his vision as the common vision and purpose.

Strategic planning is defined as process of visualizing a venture's future in accordance with the environment. This process of planning is purely based on logic and analysis. Generally most of the entrepreneurs are myopic as they lack a long term perspective in thinking or planning.

Strategic entrepreneurship is the fine blend of entrepreneurial spirit and strategic perspective in designing and implementing entrepreneurial strategies to create wealth. The entrepreneurial actions are opportunity seeking ones and those of strategic are advantage seeking.

Thus, it is valuable in dynamic and uncertain environments such as the new competitive landscape because entrepreneurial opportunities arise from uncertainty. Entrepreneurial action using a strategic perspective is helpful to identify the most appropriate opportunities to exploit and then facilitate the exploitation to establish competitive advantages (hopefully ones that are sustainable for a reasonable period of time). Because value to firms competing in a competitive landscape characterized by uncertainty, discontinuities, and rapid change. For example Polaroid was a leader in its industry and among the top 50 firms in the U.S. However it could not respond rapidly to the changes of environment, didn't identify, and exploit new opportunities. Polaroid neither had a proactive approach nor reactive approach. Meanwhile its competitors developed digital imaging technology and ultimately in 2001, Polaroid filed for bankruptcy. Another firm Priceline.com- entrepreneurial company was founded in 1996 using a "reverse auction" system to allow customers to name their own price to buy surplus airline seats. On any given day, major airlines had flights with empty seats—500,000—a perishable good ticket. Ticket sales launched in 1998 and 10,000 airline tickets were sold in first six weeks. It had $1.2 billion in revenue in 2000. In 1999, its stock price reached a high of $162.00/share. By the end of 2000, its stock price was $1.06/share.Its competitors were Travelocity.Com; Microsoft Expedia; Skyauction.Com; Hotwire; Orbitz.Com

STRATEGIC ENTREPRENEURIAL ACTIONS:

  • Developing an Entrepreneurial Mindset
  • Managing the Resource Portfolio
  • Building Entrepreneurial Networks
  • Encouraging Creativity and Innovation
  • Engaging in International Entrepreneurship

Developing an Entrepreneurial Mindset:

The success of strategic entrepreneurship requires proactive approach of entrepreneur. Entrepreneur must passionately seek new opportunities. He has to pursue opportunities and select the best opportunities and should act on them. He should emphasize execution and needs to be adaptive. Further he must be able to engage the energies of everyone to exploit the opportunity. For example, in the early 1990s, many of the movie theaters in Mexico city were in bad physical condition and unprofitable three Harvard classmates perceived an opportunity and founded Cinemex in 1994 they developed a business plan and obtained venture capital from J.P. Morgan with $22 million in capital, Cinemex built attractive theaters in Mexico city. Thus Entrepreneurs and entrepreneurial firms identify and exploit opportunities that rivals have not observed or have underexploited. An appropriate set of resources is required to identify entrepreneurial opportunities with the greatest potential returns and to use a disciplined approach to exploit them.

Managing the Resource Portfolio:

It is the process of identification and evaluation of resources by way of changing resources, bundling resources, leveraging capabilities thus gaining competitive advantage.

This would involve reconfiguration of new resources, acquisition of new resources and establishing superior positions in the markets through skillful management of relationships with competitors, customers, and suppliers. The doctrine of the resource-based view is applicable to both entrepreneurial ventures and established firms. The entrepreneurial and strategic actions linked to wealth creation are products of the firm's resources4 . To build and maintain a competitive advantage through which entrepreneu rial opportunities can be identified and exploited, firms must hold or have access to heterogeneous and idiosyncratic resources that current and potential rivals cannot easily duplicate5. Knowledge, which is justified true belief, is a critical intangible resource that helps firms to identify and especially exploit opportunities to establish competitive advantages. Entrepreneurs integrate disparate knowledge to accomplish these tasks (which include both entrepreneurial and strategic actions). They note that entrepreneurial knowledge includes where to obtain undervalued resources and how to exploit them. In effect, entrepreneurs bundle resources in new ways to create value. Entrepreneurs, then, exploit uncertainty about the true value of the bundle of resources6. As a result, they create disequilibrium in the market. For example Telefonica expanded its operations into 14 Countries in Europe, Latin America, and North America. Its Market capitalization is larger than its peer telecommunications firms in Europe. Dell has overtaken and is beating rivals with its effective indirect sales and service quality (capabilities) while industry sales fell by 9%, Dell's sales grew by 14% Dell is moving into new geographic markets (e.g., china) and Related Product Markets (e.g., Printers, Hand-held Computers, Cash Registers)

Entrepreneurs have to overcome an innate resource disadvantage to create wealth. One of the problems with firms having large resource endowments is that they may become less motivated to develop or seek new resources. Alternatively, entrepreneurial firms do so and thus create new resources or obtain and combine existing resources in unique ways to invent and innovate7 . As such, they create disequilibrium in the market, often reducing the value of the established and stable firm's resources. Microsoft CEO Steve Ballmer explains the problem in the following observation: "being big or small isn't the crucial issue. If you don't move, you don't move . . . Now what is interesting is that in pharmaceuticals, the company that leads a therapeutic category in one generation is very seldom the leader the next generation" 8.

Building Entrepreneurial networks and alliances:

Strategic alliances and strategic networks can help firms develop resources and capabilities that are difficult to imitate, leading to a competitive advantage. Alliances provide access to information, resources, technology, and markets. Sources of ideas for new ventures often generates from social net works. These networks are sources of entrepreneurial opportunities. The critical resources to create and operate a new venture are obtained through network ties.

Encouraging Creativity and Innovation:

Innovation is a hallmark for the success of business organisation in today's business environment. Implementation of corporate entrepreneurship strategies is important and can play a major role in the success (or lack thereof) of efforts to produce innovation in firms.9 Many companies have presumed innovation as their key success factor, for example Samsung completed a rapid turnaround with efficient management of resources and an emphasis on innovation. It has become the benchmark for excellence in making and marketing things people want to own. Samsung has 16 research centers, 10 distributed across the globe. It employs 19,700 researchers, 34% of its employees. Cemex has expanded internationally with operations in four continents emphasizes continuous innovation and providing novel, client- focused solutions using its know-how and know-why.

Engaging in International Entrepreneurship and Strategic leadership:

There is substantial global competition in most economically developed markets. Large firms a part from their domestic market potential are generating an increasing amount of sales revenue from international markets. For example, approximately 50 percent of Toyota's sales come from markets outside of Japan. Because large firms of economically developed markets and CEOs who remains in this position for a longer period and top managers with more experience in the firm are better able to coordinate and link its diverse internal groups. They encompass strong internal networks and relationships and thus these will act as their internal strengths which exploit the opportunities available in the external business environment. The CEO and top management team play a critical role in terms of wealth creation in all business organisations. The leadership style plays a vital role in strategic entrepreneurship. Moreover growth of the organisation is a critical indicator of performance in new business enterprise. Leadership in fundamentally new business activities is a long-term risk that requires a long-term strategic vision.

Strategic leaders are experts in identifying, managing risks and enable themselves extremely comfortable in environments of high risk. It is their ability to develop an effective strategy to deal risk and uncertainty that makes them distinguished winners. Drucker emphasized that these entrepreneurs are the people with rare intelligence, daring and possess creative skills. At the same time it is their visionary approach, self-confidence, strong passion to realize whatever dreamt, die-hard nature, and communicative skills keep them outstanding.

Strategic Entrepreneur needs to be Generalist or Specialist:

An interesting question that needs to be considered is whether strategic entrepreneur should be a generalist or a specialist. Small and large Business enterprises should espouse principle of Specialization. It should specialize in a sector of the market that they are in rather than generalize. A good example of this is a manufacturer who produces baby soaps rather than for all kinds of customers. But often people believe that if they concentrate on one specific area and stay committed to it that they will have to turn away potential customers. This is something that worries many small business owners especially when they're getting started. Principle of specialization helps to give more focus on the target market. Hence when a business owner tries to be all things to all people they're really not being very helpful to anybody. 10 Business owners should write their mission statement based on purpose of their business. They must define business in terms of customer groups, customer functions, and alternative technologies. The majority of successful businesses stick with a very narrow niche. The principle of specializing applies to large organisations as well as small. The following are the examples of few such companies

  • Microsoft has been successful by mainly sticking to its Windows operating packages.
  • In Cyprus, Charalambides has been very successful by concentrating on milk.
  • British Airways are now realising that their needs to be more focus on its core operations.

A generalist does not have a plan that enables in sustenance long-term business growth because they never create an identity that can sustain them. It will just like ship with out captain .If an entrepreneur wants to act as a generalists he should act in a systematic manner. They should obtain data from their current customers through a questionnaire; they must constantly try to find firm's strengths and weaknesses. It is important to understand its mission .Organisation needs to put its best efforts on the firm's largest, most loyal and long-time customers.

Role Strategic Entrepreneurship from emerging economies in the Global markets:

Firms from emerging economies need to balance their opportunity seeking behaviour with that creates sustainable competitive positions in the market. Firms which do not mitigate risks are likely to fail in their efforts in building sustainable competitive positions. Firms from emerging economies when they compete in advanced global markets have to face unique challenges like resource constraints, adverse perceptions, powerful incumbents, and lack of business models which make their internationalization strategies much riskier when compared with the firms which come from developed countries. Thus firms from emerging economies need to adopt strategic entrepreneurial behaviour like being innovative, proactive, and aggressive in order to face these unique challenges.

For example two major Indian pharmaceutical companies Ranbaxy laboratories limited and Dr.Reddys decided to undertake risky process of internationalization. They could succeed in the highly competitive international market through their innovations, proactive, and aggressive behaviour. Of course the contexts in which Ranbaxy and Dr.Reddys laboratories operated were similar, but their approaches toward internationalization were different. DRL's were very aggressive towards their strategy, whereas Ranbaxy's strategy can be characterized by its proactive and systematic planned behaviour.

Thus it is critically important for the Top management teams to exercise strategic entrepreneurship. Organizations are reflections of their top managers.11 Furthermore, top executives play a critical role in the development and implementation of the firm's strategy.12 Top managers represent a unique resource for the firm. In fact, recent research has found this resource to be positively related to firm performance.13 Entrepreneurial organizations depend even more strongly on their top managers for success. The top management team is critically important in internationally diversified firms. In fact, the internationally diversified firms require well-developed social networks and the capability to process substantial amounts of information to be critical to top executives' efforts to act entrepreneurially. Managing a large, internationally diversified firm is highly complex and challenging. These managers must decide which and how many international markets to enter. Top managers in internationally diversified firms facilitate the horizontal flow of vast streams of people and information often across unit, region, and country boundaries. They must monitor and manage a variety of subsidiaries in many countries and cultures.

Strategic Entrepreneurship plays a vital role in a highly turbulent environment. It integrates strategic functions with the entrepreneurial actions. The goal of strategic entrepreneurship is to continuously create competitive advantages that lead to maximum wealth creation. The various components of strategic entrepreneurship are developing an entrepreneurial mindset, managing the resource portfolio, building entrepreneurial networks, encouraging creativity and innovation, engaging in international entrepreneurship.

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(1) McGrath, R. G. and Macmillan, I. 2000. The entrepreneurial mindset. Boston: Harvard Business School Press.
(2) Porter, M. E. 2001. Strategy and the Internet. Harvard Business Review, 79(3): 62–78.
(3) Meyer, G. D. and Heppard, K. A. 2000. Entrepreneurship as strategy: Competing on the entrepreneurial edge. thousand Oaks, CA: Sage Publications.
(4) Hitt, M. A., Bierman, L., Shimizu, K., and Kochhar, R. 2001b. Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management Journal, 44: 13–28.
(5) Amit, R. and Schoemaker, P. J. H. 1993. Strategic assets and organizational rent. Strategic Management Journal, 14: 33–46.
(6) Poppo, L. and Weigelt, K. 2000. A test of the resource-based model using baseball free agents. Journal of Economics and Management Strategy, 9: 585–614.
(7) Schumpeter, J. A. 1934. The theory of economic development. Cambridge, MA: Harvard University Press.
(8) Anders, G. 2001. Steve Ballmer's Big Moves. Fast company, March, 142–8.
(9) Hitt, M. A., Nixon, R. D., Hoskisson, R. E., and Kochhar, R. 1999, corporate entrepreneurship, and cross-functional fertilization: Activation, process, and disintegration of a new product design team. Entrepreneurship Theory and Practice, 23(3): 145–67.
(10) www.4-small-businesses-bizz.com/strategic-entrepreneur.html
(11) Hambrick, D. C. and Mason, P. 1984. Upper echelons: The organization as a reflection of its top managers. Academy of Management Journal, 14: 401–18.
(12) Finkelstein, S. and Hambrick, D. 1996. Strategic leadership. St. Paul: West Publishing Co.
(13) Hitt, M. A., Bierman, L., Shimizu, K., and Kochhar, R. 2001b. Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Academy of Management Journal, 44: 13–28.
 


Dr. V. Sailaja
MBA, Ph.D
Professor
Sri Ramakrishna P.G. College of Management
Nandyal
 

Source: E-mail March 15, 2007

       

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