Chapter 13 Strategic Growth In Entrepreneurship Introduction to Entrepreneurship, 8e Donald F. Kuratko

Chapter 13 Strategic Growth In Entrepreneurship

Chapter 13 Strategic Growth In Entrepreneurship

Introduction to Entrepreneurship, Introduction to Entrepreneurship, 8e8e

Donald F. KuratkoDonald F. Kuratko

© 2009 South-Western, a part of Cengage Learning. All rights reserved. 13–2

Chapter ObjectivesChapter Objectives

1.1. To introduce the importance of strategic To introduce the importance of strategic planning for an entrepreneurial ventureplanning for an entrepreneurial venture

2.2. To discuss some of the reasons entrepreneurs To discuss some of the reasons entrepreneurs do not carry out strategic planningdo not carry out strategic planning

3.3. To relate some of the benefits of strategic To relate some of the benefits of strategic planningplanning

4.4. To discuss the five stages of a typical venture To discuss the five stages of a typical venture life cycle: development, start-up, growth, life cycle: development, start-up, growth, stabilization, and innovation or declinestabilization, and innovation or decline

5.5. To explore the elements involved with an To explore the elements involved with an entrepreneurial firmentrepreneurial firm


Chapter Objectives (cont’d)Chapter Objectives (cont’d)

6.6. To examine the transition that occurs in the To examine the transition that occurs in the movement from an entrepreneurial style to movement from an entrepreneurial style to a managerial approacha managerial approach

7.7. To identify the key factors that play a major To identify the key factors that play a major role during the growth stagerole during the growth stage

8.8. To discuss the complex management of To discuss the complex management of paradox and contradictionparadox and contradiction

9.9. To introduce the steps useful for breaking To introduce the steps useful for breaking through the growth wallthrough the growth wall

10.10. To identify the unique managerial concerns To identify the unique managerial concerns with growth businesseswith growth businesses


The Nature of Planning in Emerging The Nature of Planning in Emerging FirmsFirms• Most entrepreneurs’ planning for their Most entrepreneurs’ planning for their

ventures is informal and unsystematic.ventures is informal and unsystematic.• The need for formal, systematic planning The need for formal, systematic planning

arises when:arises when: The firm is expanding with constantly increasing The firm is expanding with constantly increasing

personnel size and market operations personnel size and market operations A high degree of uncertainty existsA high degree of uncertainty exists There is strong competitionThere is strong competition There is a lack of adequate experience, either There is a lack of adequate experience, either

technological or businesstechnological or business


Strategic PlanningStrategic Planning

• Strategic PlanningStrategic Planning The formulation of long-range plans for the effective The formulation of long-range plans for the effective

management of environmental opportunities and management of environmental opportunities and threats in light of a venture’s strengths and threats in light of a venture’s strengths and weaknesses.weaknesses.

Includes:Includes:• Defining the venture’s missionDefining the venture’s mission• Specifying achievable objectivesSpecifying achievable objectives• Developing strategiesDeveloping strategies• Setting policy guidelines Setting policy guidelines


Strategic Planning (cont’d)Strategic Planning (cont’d)

• Basic Steps in Strategic Planning:Basic Steps in Strategic Planning:

1.1. Examine the internal and external environments of Examine the internal and external environments of the venture (strengths, weaknesses, opportunities, the venture (strengths, weaknesses, opportunities, threats).threats).

2.2. Formulate the venture’s long-range and short-range Formulate the venture’s long-range and short-range strategies (mission, objectives, strategies, policies).strategies (mission, objectives, strategies, policies).

3.3. Implement the strategic plan (programs, budgets, Implement the strategic plan (programs, budgets, procedures).procedures).

4.4. Evaluate the performance of the strategy.Evaluate the performance of the strategy.

5.5. Take follow-up action through continuous feedback.Take follow-up action through continuous feedback.


Figure13.1The Strategic Management Process

Source: Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson, Strategic Management: Competitiveness & Globalization, 8th ed. (Mason, OH: South-Western Publishing, 2009), 5. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com.


Key Dimensions Influencing a Firm’s Key Dimensions Influencing a Firm’s Strategic Planning ActivitiesStrategic Planning Activities

• Demand on strategic managers’ timeDemand on strategic managers’ time• Decision-making speedDecision-making speed• Problems of internal politicsProblems of internal politics• Environmental uncertaintyEnvironmental uncertainty• The entrepreneur’s visionThe entrepreneur’s vision

Step 1: Commitment to an open planning process. Step 2: Accountability to a corporate conscience. Step 3: Establishment of a pattern of subordinate

participation in the development of thestrategic plan.


The Lack of Strategic PlanningThe Lack of Strategic Planning

• Reasons for the Lack of Strategic PlanningReasons for the Lack of Strategic Planning1.1. Time scarcityTime scarcity

2.2. Lack of knowledgeLack of knowledge

3.3. Lack of expertise/skillsLack of expertise/skills

4.4. Lack of trust and opennessLack of trust and openness

5.5. Perception of high costPerception of high cost


The Value of Strategic PlanningThe Value of Strategic Planning

• Findings of Strategic Planning StudiesFindings of Strategic Planning Studies Strategic planning is of value to a venture and that Strategic planning is of value to a venture and that

planning influences a venture’s survival.planning influences a venture’s survival.

• Benefits of Long-Range PlanningBenefits of Long-Range Planning Cost savingsCost savings More efficient resource allocationMore efficient resource allocation Improved competitive positionImproved competitive position More timely informationMore timely information More accurate forecastsMore accurate forecasts Reduced feelings of uncertaintyReduced feelings of uncertainty Faster decision makingFaster decision making Fewer cash-flow problemsFewer cash-flow problems


Strategic Planning Levels (cont’d)Strategic Planning Levels (cont’d)

• Strategic Planning Categories (Rue and Strategic Planning Categories (Rue and Ibrahim)Ibrahim) Category I: No written plan Category I: No written plan Category II: Moderately sophisticated planningCategory II: Moderately sophisticated planning Category III: Sophisticated planningCategory III: Sophisticated planning

• Results: More than 88% of firms with Category II or III planning Results: More than 88% of firms with Category II or III planning performed at or above the industry average compared with only performed at or above the industry average compared with only 40% of firms with Category I planning.40% of firms with Category I planning.

• All research indicates:All research indicates: Firms that engage in strategic planning are more Firms that engage in strategic planning are more

effective than those that do not.effective than those that do not. The planning process, rather than merely the plans, is a The planning process, rather than merely the plans, is a

key to successful performance.key to successful performance.


Fatal Visions in Strategic PlanningFatal Visions in Strategic Planning

• Fatal mistakes that entrepreneurs fall prey Fatal mistakes that entrepreneurs fall prey to in their attempt to implement a strategy:to in their attempt to implement a strategy: Fatal Vision #1:Fatal Vision #1: Misunderstanding industryMisunderstanding industry

attractivenessattractiveness Fatal Vision #2:Fatal Vision #2: No real competitive advantageNo real competitive advantage Fatal Vision #3:Fatal Vision #3: Pursuing an unattainable Pursuing an unattainable

competitivecompetitivepositionposition

Fatal Vision #4:Fatal Vision #4: Compromising strategy for Compromising strategy for growthgrowth

Fatal Vision #5:Fatal Vision #5: Failure to explicitly communicate Failure to explicitly communicate the the venture’s strategy to employeesventure’s strategy to employees


Figure13.2The Integration of Entrepreneurial and Strategic Actions

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


Strategic Positioning: Strategic Positioning: The Entrepreneurial EdgeThe Entrepreneurial Edge

• Strategic PositionsStrategic Positions Are often not obvious, and finding them requires Are often not obvious, and finding them requires

creativity and insight. creativity and insight.

Are unique positions that have been available but Are unique positions that have been available but simply overlooked by established competitors.simply overlooked by established competitors.

Can help entrepreneurial ventures prosper by Can help entrepreneurial ventures prosper by occupying a position that a competitor once held but occupying a position that a competitor once held but has ceded through years of imitation and straddling.has ceded through years of imitation and straddling.


Table13.1Strategic Approaches: Position, Leverage, Opportunities

Source: Reprinted by permission of Harvard Business Review from “Strategy as Simple Rules,” by Kathleen M. Eisenhardt and Donald N. Sull (January 2001): 109. Copyright © 2001 by the Harvard Business School Publishing Corporation; all rights reserved.

Position Leverage Opportunities

Strategic Logic Establish position Leverage resources Pursue opportunities

Strategic Steps Identify an attractive market Locate a defensible position Fortify and defend

Establish a vision Build resources Leverage across markets

Jump into the confusion Keep moving Seize opportunities Finish strong

Strategic Question Where should we be? What should we be? How should we proceed?

Source Of Advantage Unique, valuable position with tightly integrated activity system

Unique, valuable, inimitable resources

Key processes and unique simple rules

Works Best In Slowly changing, well-structured markets

Moderately changing, well-structured markets

Rapidly changing, ambiguous markets

Duration Of Advantage Sustained Sustained Unpredictable

Risk It will be too difficult to alter position as conditions change

Company will be too slow to build new resources as conditions change

Managers will be too tentative in executing on promising opportunities

Performance Goal Profitability Long-term dominance Growth


Figure13.3The Entrepreneurial Strategy Matrix: Independent Variables

Source: Matthew C. Sonfield and Robert N. Lussier, “The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.” Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.


Figure13.4The Entrepreneurial Strategy Matrix: Appropriate Strategies

Source: Matthew C. Sonfield and Robert N. Lussier, “The Entrepreneurial Strategic Matrix: A Model for New and Ongoing Ventures.” Reprinted with permission from Business Horizons, May/June 1997, by the trustees at Indiana University, Kelley School of Business.


Venture Development StagesVenture Development Stages

• Life-Cycle Stages of an Enterprise Life-Cycle Stages of an Enterprise (Chandler)(Chandler)

1.1. Initial expansion and accumulation of resourcesInitial expansion and accumulation of resources

2.2. Rationalization of the use of resourcesRationalization of the use of resources

3.3. Expansion into new markets to assure the continued Expansion into new markets to assure the continued use of resourcesuse of resources

4.4. Development of new structures to ensure continuing Development of new structures to ensure continuing mobilization of resourcesmobilization of resources


Figure13.5A Venture’s Typical Life Cycle


The Entrepreneurial Company in the The Entrepreneurial Company in the Twenty-First CenturyTwenty-First Century

• Major Challenges:Major Challenges: Building dynamic capabilities that are differentiated Building dynamic capabilities that are differentiated

from those of emerging competitorsfrom those of emerging competitors

Internal—utilization of the creativity and knowledge Internal—utilization of the creativity and knowledge from employeesfrom employees

External—the search for external competencies to External—the search for external competencies to complement the firm’s existing capabilities. complement the firm’s existing capabilities.


Figure13.6The Entrepreneurial Mindset


Table13.2The Managerial versus the Entrepreneurial Mind-Set

Managerial Mind-Set Entrepreneurial Mind-Set

Decision-makingassumptions

The past is the best predictor of the future.Most business decisions can be quantified.

A new idea or an insight from a unique experience is likely to provide the best estimate of emerging trends.

Values The best decisions are those based on quantitative analyses.Rigorous analyses are highly valued for making critical decisions.

New insights and real-world experiences are more highly valued than results based on historical data.

Beliefs Law of large numbers: Chaos and uncertainty can be resolved by systematically analyzing the right data.

Law of small numbers: A single incident or several isolated incidents quickly become pivotal for making decisions regarding future trends.

Approach to problems Problems represent an unfortunate turn of events that threaten financial projections. Problems must be resolved with substantiated analyses.

Problems represent an opportunity to detect emerging changes and possibly new business opportunities.

Source: Mike Wright, Robert E. Hoskisson, and Lowell W. Busenitz, “Firm Rebirth: Buyouts as Facilitators of Strategic Growth and Entrepreneurship,” Academy of Management Executive 15(1): 114.


Building the Adaptive FirmBuilding the Adaptive Firm

• An Adaptive FirmAn Adaptive Firm One that Increases opportunity for its employees, One that Increases opportunity for its employees,

initiates change, and instills a desire to be innovative.initiates change, and instills a desire to be innovative.

• How to remain adaptive and innovative:How to remain adaptive and innovative: Share the entrepreneur’s visionShare the entrepreneur’s vision Increase the perception of opportunityIncrease the perception of opportunity Institutionalize change as the venture’s goalInstitutionalize change as the venture’s goal Instill the desire to be innovative:Instill the desire to be innovative:

• A reward systemA reward system• An environment that allows for failureAn environment that allows for failure• Flexible operationsFlexible operations• The development of venture teamsThe development of venture teams


The Transition from an Entrepreneurial The Transition from an Entrepreneurial Style to a Managerial ApproachStyle to a Managerial Approach

• Impediments to Transition:Impediments to Transition: A highly centralized decision-making systemA highly centralized decision-making system An overdependence on one or two key individuals,An overdependence on one or two key individuals, An inadequate repertoire of managerial skills and An inadequate repertoire of managerial skills and

trainingtraining A paternalistic atmosphereA paternalistic atmosphere


Table13.3The Entrepreneurial Culture versus the Administrative Culture

Entrepreneurial Focus Administrative Focus

Characteristics Pressures Characteristics Pressures

Strategic Orientation

Driven by perception of opportunity

Diminishing opportunitiesRapidly changing technology, consumer economics, social values, and political rules

Planning systems and cycles

Social contractsPerformance measurement criteria

Commitment to Seize Opportunities

Revolutionary, with short duration

Action orientationNarrow decision windowsAcceptance of reasonable risksFew decision constituencies

Evolutionary, with long duration

Acknowledgement of multiple constituenciesNegotiation about strategic courseRisk reductionCoordination with existing resource base

Commitment of Resources

Many stages, with minimal exposure at each stage

Lack of predictable resource needsLack of control over the environmentSocial demands for appropriate use of resourcesForeign competitionDemands for more efficient use

A single stage, with complete commitment out of decision

Need to reduce risk Incentive compensationTurnover in managersCapital budgeting systemsFormal planning systems

Control of Resources

Episodic use or rent of required resources

Increased resource specializationLong resource life compared with needRisk of obsolescenceRisk inherent in the identified opportunityInflexibility of permanent commitment to resources

Ownership or employment of required resources

Power, status, and financial rewardsCoordination of activityEfficiency measuresInertia and cost of changeIndustry structures

Management Structure

Flat, with multiple informal networks

Coordination of key noncontrolled resourcesChallenge to hierarchyEmployees’ desire for independence

Hierarchy Need for clearly defined authority and responsibilityOrganizational cultureReward systemsManagement theory

Source: Reprinted by permission of the Harvard Business Review. An exhibit from “The Heart of Entrepreneurship,” by Howard H. Stevenson and David E. Gumpert, March/April 1985, 89. Copyright © 1985 by the President and Fellows of Harvard College; all rights reserved.


Balancing the Focus—Entrepreneurial Balancing the Focus—Entrepreneurial versus Manager (Stevenson and versus Manager (Stevenson and Gumpert)Gumpert)

• The Entrepreneur’s The Entrepreneur’s Point of ViewPoint of View

Where is the opportunity?Where is the opportunity? How do I capitalize on it?How do I capitalize on it? What resources do I need?What resources do I need? How do I gain control over How do I gain control over

them?them? What structure is best?What structure is best?

• The Administrative The Administrative Point of ViewPoint of View

What resources do I What resources do I control?control?

What structure determines What structure determines our organization’s our organization’s relationship to its market?relationship to its market?

How can I minimize the How can I minimize the impact of others on my impact of others on my ability to perform?ability to perform?

What opportunity is What opportunity is appropriate?appropriate?


Understanding the Growth StageUnderstanding the Growth Stage

• Key Factors During the Growth StageKey Factors During the Growth Stage ControlControl

• Does the control system imply trust?Does the control system imply trust?• Does the resource allocation system imply trust?Does the resource allocation system imply trust?• Is it easier to ask permission than to ask forgiveness?Is it easier to ask permission than to ask forgiveness?

ResponsibilityResponsibility• Creating a sense of responsibility that establishes flexibility, Creating a sense of responsibility that establishes flexibility,

innovation, and a supportive environment.innovation, and a supportive environment.

Tolerance of failureTolerance of failure• Moral failureMoral failure• Personal failurePersonal failure• Uncontrollable failureUncontrollable failure

ChangeChange


Understanding the Growth Stage Understanding the Growth Stage (cont’d)(cont’d)• Managing Paradox and ContradictionManaging Paradox and Contradiction

Bureaucratization versus decentralizationBureaucratization versus decentralization Environment versus strategyEnvironment versus strategy Strategic emphases: Quality versus cost versus Strategic emphases: Quality versus cost versus

innovationinnovation


Confronting the Growth WallConfronting the Growth Wall

• Successful growth-oriented firms have exhibited Successful growth-oriented firms have exhibited consistent themes:consistent themes:

The entrepreneur is able to envision and anticipate the firm as a The entrepreneur is able to envision and anticipate the firm as a larger entity.larger entity.

The team needed for tomorrow is hired and developed today.The team needed for tomorrow is hired and developed today.

The original core vision of the firm is constantly and zealously The original core vision of the firm is constantly and zealously reinforced.reinforced.

““Big-company” processes are introduced gradually as Big-company” processes are introduced gradually as supplements to, rather than replacements for, existing supplements to, rather than replacements for, existing approaches.approaches.

Hierarchy is minimized.Hierarchy is minimized.

Employees hold a financial stake in the firm.Employees hold a financial stake in the firm.


Unique Managerial Concerns of Growing Unique Managerial Concerns of Growing VenturesVentures

CommunityCommunityPressuresPressures

CommunityCommunityPressuresPressures

DistinctionDistinction of Small Size of Small Size

DistinctionDistinction of Small Size of Small Size One-Person-Band One-Person-Band

SyndromeSyndrome

One-Person-Band One-Person-Band SyndromeSyndrome

TimeTime Management Management

TimeTime Management Management

Growing Growing VentureVenture

Growing Growing VentureVenture

Continuous Continuous LearningLearning

Continuous Continuous LearningLearning


The International Environment:The International Environment:Global OpportunitiesGlobal Opportunities

• Global EntrepreneursGlobal Entrepreneurs Rely on global networks for resources, design, and Rely on global networks for resources, design, and

distribution.distribution. Are adept at recognizing opportunities that require Are adept at recognizing opportunities that require

agility, certainty, and ingenuity with a global agility, certainty, and ingenuity with a global perspective.perspective.

Must be global thinkers in order to design and adopt Must be global thinkers in order to design and adopt strategies for different countries.strategies for different countries.


Figure13.7Share of the World Population Engaged in Entrepreneurship

Source: Niels Bosma, Kent Jones, Erkko Autio, and Jonathan Levie, Global Entrepreneurship Monitor (Babson College, Babson Park, MA, and London Business School, London, 2007).


Achieving Entrepreneurial LeadershipAchieving Entrepreneurial Leadershipin the New Millenniumin the New Millennium

• Entrepreneurial LeadershipEntrepreneurial Leadership Arises when an entrepreneur attempts to manage the Arises when an entrepreneur attempts to manage the

fast-paced, growth oriented company.fast-paced, growth oriented company.

• Components of Entrepreneurial LeadershipComponents of Entrepreneurial Leadership Determining the firm’s purpose or vision.Determining the firm’s purpose or vision. Exploiting and maintaining the core competencies.Exploiting and maintaining the core competencies. Developing human capital.Developing human capital. Sustaining an effective organizational culture.Sustaining an effective organizational culture. Emphasizing ethical practices.Emphasizing ethical practices. Establishing balanced organizational controls.Establishing balanced organizational controls.


Table13.4Strategic, Visionary, and Managerial Leadership

STRATEGIC LEADERS

synergistic combination of managerial and visionary leadership

emphasis on ethical behavior and value-based decisions

oversee operating (day-to-day) and strategic (long-term) responsibilities

formulate and implement strategies for immediate impact and preservation of long-term goals to enhance organizational survival, growth, and long-term viability

have strong, positive expectations of the performance they expect from their superiors, peers, subordinates, and themselves

use strategic controls and financial controls, with emphasis on strategic controls

use, and interchange, tacit and explicit knowledge on individual and organizational levels

use linear and nonlinear thinking patterns

believe in strategic choice, that is, their choices make a difference in their organizations and environment


Table13.4Strategic, Visionary, and Managerial Leadership

Visionary Leaders Managerial Leaders

are proactive, shape ideas, change the way people think about what is desirable, possible, and necessary

are reactive; adopt passive attitudes toward goals; goals arise out of necessities, not desires and dreams; goals based on past

work to develop choices, fresh approaches to long standing problems; work from high-risk positions

view work as an enabling process involving some combination of ideas and people interacting to establish strategies

are concerned with ideas; relate to people in intuitive and empathetic ways

relate to people according to their roles in the decision-making process

feel separate from their environment; work in, but do not belong to, organizations; sense of who they are does not depend on work

see themselves as conservators and regulators of existing order; sense of who they are depends on their role in organization

influence attitudes and opinions of others within the organization influence actions and decisions of those with whom they work

concerned with insuring future of organization, especially through development and management of people

involved in situations and contexts characteristic of day-to-day activities

more embedded in complexity, ambiguity, and information overload; engage in multifunctional, integrative tasks

concerned with, and more comfortable in, functional areas of responsibilities

know less than their functional area experts expert in their functional area

more likely to make decisions based on values less likely to make value-based decisions

more willing to invest in innovation, human capital, and creating and maintaining an effective culture to ensure long-term viability

engage in, and support, short-term, least-cost behavior to enhance financial performance figures

focus on tacit knowledge and develop strategies as communal forms of tacit knowledge that promote enactment of a vision

focus on managing the exchange and combination of explicit knowledge and ensuring compliance to standard operating procedures

utilize nonlinear thinking utilize linear thinking

believe in strategic choice, that is, their choices make a difference in their organizations and environment

believe in determinism, that is, the choices they make are determined by their internal and external environments

Source: W. Glenn Rowe, “Creating Wealth in Organizations: The Role of Strategic Leadership,” Academy of Management Executive 15(1) (2001): 82.


Key Terms and ConceptsKey Terms and Concepts

• adaptive firmadaptive firm• entrepreneurial leadershipentrepreneurial leadership• entrepreneurial strategy entrepreneurial strategy

matrixmatrix• global entrepreneurglobal entrepreneur• growth stagegrowth stage• growth wallgrowth wall• innovationinnovation• lack of expertise/skillslack of expertise/skills• lack of knowledgelack of knowledge• lack of trust and opennesslack of trust and openness• life-cycle stageslife-cycle stages• moral failuremoral failure

• new-venture developmentnew-venture development• one-person-band syndromeone-person-band syndrome• perception of high costperception of high cost• personal failurepersonal failure• stabilization stagestabilization stage• start-up activitiesstart-up activities• strategic planningstrategic planning• strategic positioningstrategic positioning• SWOT analysisSWOT analysis• time scarcitytime scarcity• uncontrollable failureuncontrollable failure

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Chapter 13 Strategic Growth In Entrepreneurship Introduction to Entrepreneurship, 8e Donald F. Kuratko