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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
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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)
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Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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)
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Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
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Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
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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
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Copyright © McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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
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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)
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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.
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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)
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