978-1259912191 Chapter 5 Solutions Manual Part 2

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Chapter Five: Business Mission and Strategy

Critical Thinking Exercises

Critical Thinking Exercise 5.1: Mission: Targeting Entrepreneurial Success

(LO 5.-1)

In Chapter Five, the authors emphasized that an effective mission statement guides the

organization to achieve its goals or objectives. A new small business owner considers

the competitive market of the firm, the broad geographic location of the business, and

the strategies that a business can implement to compete in the industry before the

owner establishes business operations.

Review the key characteristics that drive a new small business owner. Create a

hypothetical business and apply the key characteristics listed in the text to develop an

effective mission statement for its new small business.

1. Create a hypothetical business and design a mission statement for the new small

business.

2. Discuss how the mission statement is expected to impact the advertising,

location, and staffing of the new small business. Why?

3. Discuss how the mission statement for the new small business is consistent with

the goals for the business.Critical Thinking Exercise 5.1 Mission: Targeting

Entrepreneurial Success – Notes

Students are instructed to develop a new small business and create a mission

statement for this new small business. The characteristics of a mission statement that

they implement should include the following:

1. Keep it short

2. Keep it simple

3. Make it applicable

4. Be specific

5. Establish measurable goals

Ask students to present this mission statement as a group project or write it on a flip

chart in the class.

Follow up questions for students:

1. How does your mission statement impact the three domains (advertising,

location, and staffing) for the new small business?

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Chapter Five: Business Mission and Strategy

2. Discuss the competitors that you expect for your new small business. Discuss

how you might differentiate your product or service. Be specific.

Critical Thinking Exercise 5.2: Asset Evaluation Chart

(LO 5-3, 5-4, 5-5, 5-6)

As we learned in this chapter, evaluating a firm’s assets and capabilities is a critical

component that is necessary to identify a sustainable competitive advantage. A new

small business owner can focus on the outcome of this assessment to reveal a

competitive advantage for the new small business.

ASSET EVALUATION CHART

Step 1

Tangible Assets Intangible Assets

Step 2

Standard Assets Extraordinary Assets

Step 3

Rare

Non-Substutable

Durable

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Chapter Five: Business Mission and Strategy

Valuable

1. Step 1: Create a list of your business’s tangible and intangible assets and

capabilities that you expect to have when you initiate your new small business.

2. Step 2: Separate the tangible and intangible assets and capabilities from Step 1

and break that list into two groups: standard and extraordinary assets.

3. Step 3: Next, evaluate the extraordinary resources and capabilities that you

discovered from your analysis.

4. Summarize how you might develop a competitive advantage and develop a

strategy for your new small business based on this assessment.

Critical Thinking Exercise 5.2: Asset Evaluation Chart – Notes

In this lesson, students are expected to apply their skills and knowledge to develop a list

of the tangible and intangible assets associated with the new small business. Next, they

consider each item on this list and evaluate their resources to discover a competitive

advantage and strategy for their new small business.

1. In Step 1, students develop a list of their business’s assets and capabilities.

They are expected to list the tangible and intangible assets.

2. In Step 2, students are expected to separate the tangible and intangible assets

into standard and extraordinary. They are expected to discuss the first-mover

advantage to follow in their assessment.

3. In Step 3, students evaluate the resources and capabilities that provide a

competitive advantage over the competition. Students also discuss the economic

rents.

4. Students are expected to develop an effective strategy for the new business.

Follow up discussion for students

1. Ask students what their mission statement is for the new small business.

2. Ask the students to explain how their mission projects, or builds on, the strategy

for their new small business.

3. Ask the students to summarize the four logical steps in developing the firm’s

strategy.

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Chapter Five: Business Mission and Strategy

Critical Thinking Exercise 5.3: Mission Statements and Strategy

(LO 5-4, 5-5, 5-6)

The authors in the text revealed that the new small business owner creates a mission

statement that projects the strategic goals of the business. They also reviewed the four

steps that are involved to develop the firm’s strategy. The mission statement is concise;

and it directs all individuals and groups associated with the firm.

Discussion Questions:

Discuss the steps involved to identify a sustainable competitive advantage. Why is it

important for a new small business owner to evaluate them?

1. Discuss why a new small business owner might choose a first mover advantage

strategy. What are the advantages and disadvantages associated with this

strategy?

2. Discuss why a new small business owner might choose a follower strategy. What

are the advantages and disadvantages associated with this strategy?

3. What type of strategy will you implement to gain a competitive advantage when

you initiate your new small business?

Critical Thinking Exercise 5.3: Mission Statements and Strategy – Notes

The purpose of this lesson is for students to observe the steps associated with a new

small business owner when identifying a sustainable competitive advantage for the new

small business.

Students are expected to evaluate between a first mover advantage strategy and a

follower strategy and evaluate those strategies respectively.

Students will have a variety of answers here. They apply comprehensive analysis and

choose which strategy might be effective to implement when they initiate their new small

business.

Bonus Cases

Bonus Case 5.1: Substitutes in the Marketplace

(LO 5-5)

Many new small business owners evaluate the external environment to determine a

mission statement that directs the company to achieve its organizational goals and

objectives. In addition, new small business owners analyze the external environment to

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Chapter Five: Business Mission and Strategy

determine if the business will have a sustainable competitive advantage. This is

accomplished by consistent observation of the business’s product or service.

Realistically, an analysis might reveal a unique or extraordinary resource and capability

of a product. For example, a new small business owner will determine if the product is

rare or if it can be easily substituted.

Substitutes are popular in the marketplace. To illustrate this concept, consider that

individuals who smoke realize that cigarette smoke is an unhealthy habit. In fact, an

increasing number of individuals use tobacco alternatives “smokeless tobacco”,

“electronic cigarettes”, and other “pharmaceutical (Phillips)i” substitutes to reduce the

health risks associated with smoking cigarettes. A new small business owner evaluates

the market to determine if the substitute product or service is unique, and then

determines if it can be easily copied. The owner determines the amount of time it would

take a competitor to imitate the product or service.

Discussion Questions:

1. Discuss how consumers utilize substitutes that are available in the marketplace.

2. Have you identified a substitute for a product or service in your industry?

3. Discuss how the amount of time needed for a competitor to mimic your new

product or service is a factor to consider

4. Discuss the competitive advantage that you would have in your industry when a

new small business owner develops a substitute for your product or service.

4. Summarize the substitutes that are in your industry. Do they enhance the

opportunity to earn economic rents? Why or why not.

Bonus Case 5.2: Competition in a Monopolistic Environment?

New small business owners achieve a sustainable competitive advantage when they

establish a niche product or service. Consider a new small business owner who

establishes a new small business that has no competitors. Traditionally, a business is

considered a monopoly when only one business sells the product in a specific industry.

Competitors do not have the ability to develop a substitute that permits them to compete

in that industry. As a result, the business does not have any competitors because the

firm is the only producer or seller of that product or service.

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Chapter Five: Business Mission and Strategy

A firm that has no competitors can charge any price they desire for their products and

services. With our industries becoming more competitive, new small business owners

get creative when they analyze the industry where they expect to implement their new

small business. A thorough analysis of their markets, their customers, and their

competitors will reveal unique products and services for the new small business to sell

or produce. The concern is that a small business can’t afford to compete with larger

companies in a monopolistic environment.

The United States Justice Department recently implemented changes to assure that

small businesses can compete in the marketplace. For example, recent changes in

legislation occurred when “Christine Varney, the new assistant attorney general in

charge of antitrust, rejected the previous administration’s policy that concluded that

most big companies make markets more efficient, and the Justice Department should

only act if there’s a big negative impact on consumers (Faircloth, 2009).ii” Results of

these changes benefit the new small business owner because the Justice Department

will prosecute any company that creates a monopoly in a particular industry.

Discussion Questions:

1. What is your opinion of a business that creates a monopoly in an industry?

2. In your opinion, should there be laws against monopolistic firms? Why or why

not?

3. Identify an industry where there are no competitors. What could a new small

business owner accomplish when pricing its own products or services?

Bonus Case 5.2: Competition in a Monopolistic Environment – Notes

There can be an interesting class discussion around this topic, especially when there

are laws or regulations that prevent monopolistic firms in an industry. In this lesson,

students are expected to analyze a business environment where there are no

competitors. Can the company charge the prices they want in that industry?

Bonus Case 5.3: Niche Markets: Sustainable Competitive Advantage

(LO 5-2)

One of the major obstacles for a new small business owner is to discover and maintain

a sustainable competitive advantage in the local industry. New small businesses owners

can establish a new small business and work to achieve the goals and objectives they

set forth in their mission statement. Consider the competitive risk that a new small

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Chapter Five: Business Mission and Strategy

business owner encounters in order to achieve a competitive advantage in with the

small business. Recall that a niche product is one that is rare or unique in the industry.

Raven Rock Workwear, LLC, was considered a niche retail store that provides its

customers with a “one-stop shop (Southerly, 2009)iii” for all the work apparel and

accessories for their jobs. From its original stores, the company grew to sixteen stores.

They now have closed all their stores in 2015. Consider the retail industry and discuss

the following questions.

Discussion Questions

1. Why do you think that this small business experienced success in its industry?

What do you attribute to its success for several years?

2. Why didn’t the company survive?

3. Why would a company reduce its brick and mortar stores?

Bonus Case 5.3: Niche Markets: Sustainable Competitive Advantage

(LO 5-2) – Notes

Discussion Questions

1. Why do you think that this small business experienced success in its

industry? What do you attribute to its success? This business achieved

2. Why didn’t the company survive? High leasing costs and disappointing sales

3. Why would a company reduce its brick and mortar stores? The greatest

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i Phillips, C. and Rodu, G. Cigarettes kill, but it’s not the nicotine or the tobacco. It’s the smoke!

TobaccoHarmReduction.org. (2009). http://www.tobaccoharmreduction.org/index.htm. Retrieved

on October 23, 2009.

iiFaircloth, K. (May 27, 2009). Justice department gets tough on monopolies: New administration

overturns relaxed Bush-era policy. Inc.com.

http://www.inc.com.news/articles/2009/05/monopolies.html. Retrieved on October 22, 2009.