978-1259912191 Chapter 5 Lecture Notes

Chapter Five: Business Mission and Strategy

Table of Contents

Brief Chapter Outline…………………………………………………………………………………..2

Chapter Outline and Lecture notes………………………………………………………………..3

Key Terms………………………………………………………………………………………….

….12

Suggested Text Responses……………………………………………………………………….

…..13

Class Activities and Sample Assignments…………………………………………………….15

Discussion Questions for Online/Hybrid classes…………………………………………….16

Lecture Links…………………………………………………………………………………………… 19

Lecture Link 5.1: Government Promotes Small Business Initiatives……………….19

Lecture Link 5.2: U.S. Current Population Survey………………………………………..21

Lecture Link 5.3: State and Local Governments on the Net (Government, State

and Local Government on the Net: A Directory of O)cial State, 2009)………….23

Bonus Internet Exercises…………………………………………………………………………… 25

Bonus Internet Exercise 5.1: Exploring the Mission Statement……………………..25

Bonus Internet Exercise 5.2: Assessing the Broad Strategies……………………….26

Bonus Internet Exercise 5.3: Sustainable Competitive Advantage…………………27

Critical Thinking Exercises…………………………………………………………………………. 28

Critical Thinking Exercise 5.1: Mission: Targeting Entrepreneurial Success…….28

Critical Thinking Exercise 5.2: Asset Evaluation Chart…………………………………30

Critical Thinking Exercise 5.3: Mission Statements and Strategy…………………..33

Bonus Cases……………………………………………………………………………………………. 35

Bonus Case 5.1: Substitutes in the Marketplace…………………………………………35

Bonus Case 5.2: Competition in a Monopolistic Environment?………………………36

Bonus Case 5.3: Niche Markets: Sustainable Competitive Advantage……………38

Endnotes………………………………………………………………………………………………… 40

IM 5-1

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

Brief Chapter Outline

I. Learning Objectives (text page 81)

Recognize how mission statements guide a new business.

Explain what constitutes a sustainable competitive advantage.

Identify a new business’s assets and capabilities.

Distinguish which of those assets and capabilities are standard and which are

unique.

Apply a resource-based analysis approach to arrive at a list of competitive

advantages.

Determine a strategy to match the new business mission.

II. Mission Statements (text pages 82 and 83)

Learning Objective 5-1: Recognize how mission statements guide a new

business

III. Sustainable Competitive Advantage. (text pages 88 and 89)



Learning Objective 5-2: Explain what constitutes a sustainable competitive

advantage

IV. Step 1: Develop a List of Your Business’s Assets and Capabilities (text page 89)



Learning Objective 5-3: Identify a new business’s assets and capabilities.

V. Step 2: Split the List into Standard and Unique Assets (text pages 89 through 91)



Learning Objective 5-4 Distinguish which of those assets and capabilities are

standard and which are unique

VI. Step 3: Evaluate Competitiveness of Unique Resources or Capabilities (text

pages 91 through 93)



Learning Objective 5–5: Apply a resource-based analysis approach to arrive at a

list of competitive advantages

VII. Strategy



Learning Objective 5–6: Determine a strategy to match the new business

mission

(text pages 94 through 97)

IM 5-2

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

VIII. Review Questions (text page 98)

Chapter Outline and Lecture notes

1. Learning Objectives (text page 81)

Recognize how mission statements guide a new business.

Explain what constitutes a sustainable competitive advantage.

Identify a new business’s assets and capabilities.

Distinguish which of those assets and capabilities are standard and which are

unique.

Apply a resource-based analysis approach to arrive at a list of competitive

advantages.

Determine a strategy to match the new business mission.

2. Mission Statements

Learning Objective 5-1: Recognize how mission statements guide a new

business

A. Mission Statement defined

i. A brief statement that summarizes the purpose of the firm and in

what markets it competes (text page 82)

1. It is used to create goals for an organization

2. A mission statement helps the new small business specify

what the business does best in the industry

3. A mission statement filters unfocused business activities or

goals away from the objectives of the business

4. Terms used to describe mission

a. Company mission

b. Vision

c. Overall strategy

d. Goals

e. Simple rules

f. Statement of purpose

5. A mission statement targets the firm’s activities

ii. Strategy

1. The broad approaches a small business will use to

accomplish its mission

IM 5-3

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

iii. A mission statement and a well-defined strategy provide direction

for the employees of a small business to ensure they achieve the

organizations objectives

iv. Entrepreneurs who fail to provide a well-defined mission and

strategy will not have successful firms

v. A clear mission statement helps the new business person focus on

the expertise of the company

vi. A entrepreneurs who ignores the mission and strategy of the

business after its inception are likely to fail

1. i.e. Circuit City

vii. An effective mission statement and a sustainable competitive

advantage are inseparable

viii. A new small business must conserve resources

1. Focus resources on areas that maximize the firm’s success

ix. Capabilities defined

1. The resources that combine to allow a firm to do things

better than its competitors (text page 85)

B. Designing a Mission Statement

i. Key characteristics to drive the new business founder

1. Short

a. A short direct statement that is designed to guide the

organization each and every day

b. Understandable and memorable for employees,

clients, and suppliers

i. The mission isn’t to make money

2. Simple

a. Everybody can understand the mission statement

b. It can be applied in the everyday activities of the firm

c. The words and concepts in the mission statement are

straightforward and have a clear meaning

d. Objectives or descriptive language about how the

company will accomplish its mission are avoided

3. Applicable

a. Guides the entire organization each day

b. Is applicable to all employees

c. Helps employees to make their own decisions without

having to refer to others for direction

d. An advantage of a well-developed mission statement

is that it is able to guide everyone in the organization

toward the goals set by the owner(s)

IM 5-4

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

e. Ensures that everyone in the organization is headed

in the same direction

i. Individual decisions are made in the best interest

of the firm

4. Specific

a. The mission statement tells everyone what not to do

b. The limitations of the businesses stated in the mission

statement are clear to everyone every day

c. A strong focus on the mission statement keeps

everyone in the organization constantly striving to

achieve the goals of the owners

5. Establish measurable goals

a. Metrics or measureable goals should be developed

for every part of the statement

i. Metric is a measure to evaluate whether a

person or firm is meeting stated goals

b. New small business owners should develop a set of

metrics used to judge whether or not the mission

statement accomplishes the goals of the business

c. New small business owners should develop between

five and eight measures of success for their new

small business venture

i. Two categories of measures include quantitative

measures and qualitative measures

1. Quantitative measures

a. Tied to the financial or strategic

goals of the organizations

b. Easily measured

2. Qualitative measures

a. Those that are tied to the

strategic goals of the organization

but have more to do with the feel

of the organization

ii. Metrics are established at the founding of the

business

iii. Metrics are evaluated on a recurring basis

iv. The baseline of the metrics is not as important

as the direction and level of change that the

metrics are taking.

v. Metrics should provide positive direction for the

new small business

IM 5-5

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

vi. Metrics are the direct measure of the business’s

mission

vii. Business should show improvement as a result

of metrics

1. Improvement reveals if the firm is

getting closer to its mission

C. Mission Statement Impact

i. New small business owners are clear about their competitive

strategies before they open the new small business

1. Three domains import a mission statement

a. Advertising

b. Location of the business

c. Staffing

2. The specific competitive market where the firm will compete

must be clarified

3. The specific geographic area where the firm will compete

must be clarified

ii. Failure to clarify competitive strategies result in an inconsistent

business

3. Sustainable Competitive Advantage (text page 88)

Learning Objective 5-2:Explain what constitutes a sustainable competitive

advantage

A. Sustainable Competitive Advantage (text page 84)

i. An advantage that others cannot immediately copy

1. Provides an opportunity to make money where other

businesses cannot easily copy your advantages.

ii. Competitive advantages eventually disappear as industries change

and competitors adapt.

iii. Businesses should seek to maintain an advantage as long as

possible.

iv. Sustainable competitive advantage is not achieved unless the new

small business owners understands the customers’ needs

v. The best source of a sustainable competitive advantage is the

personal relationships that a business develops with its customers

vi. It is difficult for large firms to develop personal relationships with

their customers

vii. A new business develops sustainable competitive advantages by

acknowledging its customers and catering to their specific needs

1. Use the customer’s name

2. Have personalized service

IM 5-6

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

a. i.e. Call customer when the order arrives

viii. Long-term difficulty for small firms is setting expectations initially

that can be maintained in the future

B. Identifying a Sustainable Competitive Advantage

i. Entrepreneurs develop lists that detail what constitutes a

competitive advantage before they develop their mission statement

ii. Three steps are used to identify a sustainable competitive

advantage

1. Develop a list of the business’s assets and capabilities

2. Break that list into two groups

a. Standard

b. Unique

3. Evaluate those unique resources and capabilities

iii. Ask students to pick a business and develop a list of what

constitutes its competitive advantage

4. Step 1: Develop a List of Your Business’s Assets and Capabilities

Learning Objective 5–3: Identify a new business’s assets and capabilities

A. Successful entrepreneurs develop lists of all tangible and intangible assets

they expect to have when they open their business

i. Develop a list of all the tangible and intangible assets that the firm

is expected to have when it opens for business (inventory process)

1. Tangible assets

a. Hard assets such as equipment or location

b. Physical assets

2. Intangible assets

a. Things that are not physical but are just as critical to

success, such as a relationship with a key supplier

b. Non-physical assets

3. A list of the assets helps the new small business owner with

the steps to develop an effective and focused mission for the

organization

a. This list encompasses the breadth of knowledge

within the founding team

b. This list is long and includes everything that the

company has now or will have by the time it opens

for business

i. Ask students to develop a list of both

tangible assets and intangible assets that

they expect to have when they open their

business

5. Step 2: Split the List into Standard and Unique Assets

IM 5-7

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

Learning Objective 5-4: Distinguish which of those assets and capabilities are

standard and which are unique

A. Tangible and intangible assets are separated into two categories that

permit the firm to operate

a. Unique

i. Firm’s location

ii. Motivation to drive change

b. Standard

i. Building

ii. Business license

iii. Computer systems

iv. Majority of assets are standard

c. Most of the assets listed from the firm will be standard in the industry

d. New small business owners can gain a competitive advantage

i. First-mover advantage (text page 90)

1. The benefit of gaining customer loyalty by being the

first firm to the market

ii. Followers

1. Firms that enter the market after the first mover

2. The advantage of being a follower is that the owner of

the business can learn from the mistakes of the

first-mover

3. The disadvantage of being a follower is not being able

to gain customer loyalty

e. New businesses can gain competitive advantages by their

i. Relationship with suppliers

ii. Business location

iii. Having a product or service that cannot be easily matched or

provided by a substitute

6. Step 3: Evaluate Competitiveness of Unique Resources/Capabilities (text page

91)

Learning objective 5-5:Apply a resource-based analysis approach to arrive at a

list of competitive advantages

A. Economic rents

i. The financial gains garnered from an asset or capability that are in

excess of the ordinary returns in that particular industry (text page

91)

1. The new business exceeds industry’s average performance

2. The new business can charge more than the norm but still

be below any additional costs

IM 5-8

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

B. Is it Rare?

i. Entrepreneur must evaluate each resource and capability relative

to that of their competitors

ii. The entrepreneur must evaluate whether or not the product or

service can be copied

1. If it can be copied, compare the durability of their products or

services

iii. The entrepreneur must consider the uniqueness of the product or

service from the perspective of the customer

C. Is it Easily Substituted?

i. A substitute is not provided by a direct competitor.

ii. The entrepreneur must evaluate whether or not each unique

resource and capability of the business can have a substitute

iii. A substitute satisfies the same need

iv. The entrepreneur must estimate how well any substitute compares

v. An entrepreneur strives for a competitive advantage of which has

no great substitute in the market

vi. The entrepreneur evaluates any substitute to determine whether or

not it is a good substitute.

D. Is it Durable?

i. Determining that your business’s unique resource or capability is

rare and there are no substitutes the entrepreneur determines how

long the business will have those advantages

ii. The time between the development of the competitive advantage

and the point when a competitor matches your advantage is the

window where the small business can earn extraordinary returns

1. Estimate the amount of time you believe it would take for a

competitor to match your advantage

2. The estimate of this time is critical because the benefits of a

unique advantage is a critical element in the evaluation

E. Is it valuable?

i. The entrepreneur evaluates whether or not the customer is willing

to pay extra for the unique resource or capability

ii. The entrepreneur determines which resource or capability the

customer is willing to pay extra to receive

iii. The business must be able to attain value in one or more of three

characteristics

1. Charge more to generate more profit

2. Obtain more customers

3. Reduce costs relative to the competition

7. Strategy (text page 94)

IM 5-9

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

Learning Objective 5-6: Determine a strategy to match the new business mission

A. Strategy

i. A mission statement is the foundation for an effective strategy

formulation

ii. A strategy is the broad approaches a small business will use to

accomplish its mission.

iii. Michael Porter suggests three broad means to view one’s business

strategy.

1. Low cost

a. The business is to be the lowest-cost competitor in

the industry.

2. Differentiation

a. The business can be differentiated from its

competitors by its rare or unique location, product, or

service

3. Focus

a. The business seeks to craft itself around a small set

of customers, specialty products, or a small

geographic area.

iv. Value strategy

1. This is some combination of cost and differentiation which is

used to focus on a specific population.

v. New businesses should have a differentiation focus strategy

vi. Entrepreneurs use four steps to develop a firm’s strategy

1. Step 1: The firm’s mission statement is employed to specify

where the firm is to compete and how.

2. Step 2: A detailed strategic plan is laid out specifying a

series of resources or capabilities that will be used to meet

each part of the mission and strategy.

3. Step 3: The strategy needs to focus on those activities that

are defendable.

a. The firm’s strategy should provide economic returns

above the industry average.

b. The firm needs to excel in at least two to three

competitive advantages.

4. Step 4: The firm’s strategy needs to be constantly

reevaluated.

B. Applying the Strategy

i. The entrepreneur needs to assure that the strategy of the business

is consistent with its goals.

IM 5-10

written consent of McGraw-Hill Education.

Chapter Five: Business Mission and Strategy

ii. The entrepreneur must seek out a consistent set of activities that

focus on the differentiation strategy of the business.

8. Summary (text page 97)

IM 5-11

written consent of McGraw-Hill Education.