36 Strategic Entrepreneurship

1. Learning Outcome

2. Introduction

3. Strategic Planning in Small-Businesses

4. The Scope of Entrepreneurship

5. The Scope of Strategic Management

6. Integrating Entrepreneurship and Strategic Management

7. Model of Strategic Entrepreneurship

8. Summary

1.   Learning Outcome

After completing this module the students will be able to:

• Define strategic entrepreneurship
• Understand the model of strategic entrepreneurship
• Explain how strategic entrepreneurship helps the firms to create value
• Describe entrepreneurial mindset, entrepreneurial leadership & culture

2. Introduction

Strategic management is generally linked with the large, established corporations. However, the strategic issues in small businesses are not much talked about and cannot be ignored. Despite the overall success of small businesses, not much stress is laid on strategic planning at this level. One of the reasons, why small-businesses fail to implement strategic planning is their inability to cope up with the growth. Most firms would start with a single product and end up manufacturing the same product because they fail to engage themselves in innovative practices.

Exhibit 1: What distinguishes Entrepreneurial venture from a small-business

(Image Source: http://www.ambamalicanada.org/wp-content/uploads/2016/12/What-is-Entrepreneur.jpg)

It is this orientation that distinguishes a small-business owner from an entrepreneur. On the contrary, an entrepreneurial venture is any business that can be characterized by innovative strategic practices. Hence, it is the fundamental views on growth and innovation that distinguishes an entrepreneurial venture from a small-business firm (Exhibit 1). It is to be noted that both the entrepreneurship and strategic management are concerned with growth and wealth creation though their foci differ slightly. Therefore, it become imperative to understand that how the two disciplines of strategic management and entrepreneurship be best integrated, resulting in firm’s superior performance.

Moreover, with an attempt to build a strong eco-system for nurturing innovation, Government of India has taken a recent initiative through its ‘Startup India’ campaign to promote startups in the country (Exhibit 2) that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower startups to grow through innovation and design.

Exhibit 2: Start Up India campaign by Government of India to promote entrepreneurship

(Image Source: www.startupind.com)

3.   Strategic Planning in Small-Businesses

It is imperative to acknowledge that it is not the plan but the process of strategic planning that is the key for improving the business performance. However, the process of strategic planning remains more or less an informal exercise in small-business firms that may result to firm’s reduced performance. The common reason often cited for this apparent lack of strategic planning practices in the small- business firms are as following:

Time Constraint: Generally, the entrepreneurs are found busy with the day-to-day operating problems and could find little or no time to pursue the long-term planning. They are heavily engaged to perform daily activities and operational decisions of the business.

Unfamiliar with Strategic Planning: The owners of small-business may be unaware of strategic management as a functional area of a business or may view it as irrelevant at this operational level of the business.

Image Source: https://classconnection.s3.amazonaws.com/753/flashcards/895753/png/screen_shot_2014-03-07_at_33429_pm-1449FBB15364DB533AF.png

Lack of Skills: The owner/manager of the small-business firms often lack the skills required to undertake strategic management practices and moreover, they may not have or are not willing to spend money either to hire the services of an external consultant to implement such practices.

Lack of Trust and Openness: Generally, the small-business firms are family owned or managed by a single individual, mainly the owner. Since the businesses are closely held, the owner/managers are very sensitive to sharing of any information pertaining to the business. For this reason, the board of directors is often composed of only close friends and relatives of the owner, who are unlikely to put forward an objective view point or a professional advice.

4.   The Scope of Entrepreneurship

The word entrepreneur originates from the French word, entreprendre, which means “to undertake”. Therefore, an entrepreneur is a person who has an ability to sense and seize entrepreneurial opportunities better than most people. Entrepreneurship is thus the process through which an entrepreneur identifies the entrepreneurial opportunities without being immediately constrained or restricted by the resources at hand. However, the discipline of entrepreneurship development answers the basic tenets of entrepreneurship such as, why, when and how the opportunities to do business surface; why, when and how some people are able to sense and exploit these opportunities while other are unable to do so; why, when and how different modes of actions are used to capsulate the entrepreneurial opportunities. The following are the entrepreneurial characteristics that confirm an entrepreneur to run a business successfully:

Image Source: http://www.vistage.com/blog/wp-content/uploads/2017/05/17_222_1045-BLog-_1024x686-2-520×360.png

Opportunity recognition: Opportunity recognition is the most important entrepreneurial characteristics and is at the heart of entrepreneurship. Entrepreneurs are goal oriented and have the ability to envision the future business trends thus enabling them to give strategic direction to the business.

A sense of urgency: The speed at which the ideas are put to action make the entrepreneur stand-out from others. Moreover, to prioritize the tasks i.e. to distinguish between the most urgent tasks and those that may wait help an entrepreneur to successfully execute its business.

Collaboration: Entrepreneurs are open to the need of collaboration. They may seek outside help to supplement their skills, knowledge and abilities so as to enhance the firm’s performance and take on to their rivals.

Image Source: http://www.pmc-team.com/wp-content/uploads/2011/05/Entrepreneurcharacteristics.jpg

5. The Scope of Strategic Management

Michael Porter of Harvard Business School has made invaluable contributions to the area of strategic management as a discipline. To understand performance differentials amongst the firms in the industry, he opines that it is through the creative and unique positioning, the firm is being able to differentiate itself from rivals. The company that is strategically positioned performs different activities from rivals or performs similar activities in different ways. He emphasized a resource-based view where a firm utilizes its resources and capabilities to create a sustained competitive advantage that ultimately results in superior value creation and enhances their ability to create wealth. Henceforth, for a company to attain competitive advantage it needs to have resources that are more valuable, rare, imperfectly imitable, and non-substitutable than those held by competitors. Figure 1 illustrates that how and when a firm is able to acquire competitive advantage having a resource-based view.

6.  Integrating Entrepreneurship and Strategic Management

The work by Hitt, Ireland and Camp, et al. (2001, 2002) concludes that strategic entrepreneurship results from the integration of entrepreneurship and strategic management knowledge. However, the primary research undertaken to identify the dimensions of wealth creation in new ventures and established firms remained the basis of establishing the strategic entrepreneurship concept. Hitt, Ireland, Camp, et al. (2001, 2002) argued that strategic entrepreneurship involves taking entrepreneurial actions using a strategic perspective. Firms that are able to identify the opportunities in their external environment but are incapable of exploiting them may fail to realize their true potential as wealth creator. Similarly, the firms having attained competitive advantages but lack the ability to sense new opportunities despite of its current advantages may pose a disadvantageous position for its stakeholder as any change in the market phenomena may diminish the rate of wealth creation or may erode the already created wealth. Hence, it is to be noted that wealth creation only takes place when a firm combines its effective opportunity-seeking outlook (i.e. entrepreneurship) with that of advantage-seeking outlook (i.e. strategic management).

Generally, the entrepreneurial and the start-up ventures tend to excel at opportunity-seeking behavior as they have been skilled to identify the entrepreneurial opportunities but are less effective at building and sustaining the competitive advantage. On the other hand, the large or established companies typically excel at advantage-seeking behavior as they demonstrate enhanced skills needed to develop and sustain competitive advantages but may lack the ability to recognize entrepreneurial opportunities that can be exploited with the help of their resources and capabilities. Alternatively, a firm pursuing strategic entrepreneurship would seek new opportunities either through creative or disruptive innovation or would create a new market space taking advantage of their resources and capabilities to create wealth for its stakeholders.

Suguna Foods (Exhibit 3) and Mukunda Foods (Exhibit 4) are the perfect examples of strategic entrepreneurship that identified the entrepreneurial opportunity in their external environment and exploited them through innovation to create competitive advantages, finally resulting in wealth creation.

Over a period of 25 years, Suguna has gone from strength to strength and has become a Rs. 5480 crore company that makes it India’s No. 1 broiler producer. Suguna ranks among the top ten poultry companies worldwide. With operations in 16 states across India, it offers a range of poultry products and services. The fully integrated operations cover broiler and layer farming, hatcheries, feed mills, processing plants, vaccines and exports.

Chairman Mr. B.Soundararajan and Managing Director Mr. G.B.Sundararajan saw potential in growing the Indian Poultry Industry through integration, which later came to be known as Contract Farming. This led Suguna Poultry to pioneer contract farming in India.

In 1986, Mr. B.Soundararajan and Mr. G.B.Sundararajan set up a poultry farm with 200 layer birds at Udumalpet. During 1989 – 90, when chicken prices crashed because of an over-supply of birds in the local market, Suguna saw an opportunity for business growth by helping the poultry farmers who had bought feed and medicines on credit and could not clear their dues. To help them recover their money, these visionaries began to provide feed and health support to indebted farmers in return for the end product – eggs. The success of this exercise gave birth to the Suguna Integration Model.

The poultry integration model has set a win-win situation for both the farmer and the integrator. Farmers are provided with day-old chicks, feed and health support. Performance is monitored on a daily basis with Suguna field staff visiting the farms to check on the health of the birds, feed intake, growth and mortality levels. In six weeks time, the birds are weighed and are ready to be sold by Suguna. Farmers are paid a handsome growing charge for the birds at the end of this period. Thus, Suguna takes this success model to the next level vision of energising rural India benefiting the country, farmer and the company. A constant and relentless drive has taken the company’s growth and expansion which covers over 23,000 farmers from 8,000 villages in 16 Indian states.

Two foodies, Eshwar K Vikas and Sudeep Sabat felt that the Indian cuisine was losing ground to the fast food chains that were catching fast with the metropolitan lifestyle of the people. The question that hover their minds was, “When the process of making burgers and wraps can be standardized, then why not Indian dishes like dosa?” They observed that though dosa has travelled well across India, making it one of the most popular south Indian dishes in the country but its pricing differs across the country. A dosa in south may cost a consumer just Rs. 40 but the prices escalate as one travels to north. The duo realized that this difference was largely because preparing dosa requires a certain set of skills and the unavailability of skilled manpower in different parts of the country pushes the price of the dish up.

‘Making a dosa is an art and not everyone can master it’ became the very basic idea that inspired the duo to devise a way in which dosa-making becomes a standardized process and could help bringing down the prices of the dish. Realizing an opportunity, both felt that automation was the answer to the problem.

With the support of their engineering friends and Goggle Sketch Up, the duo worked out a design for the prototype. Moreover, the funding to the project was done with help of their small savings, a grant of 1.2 lacs from their college and other non-financial assistance from the Chennai-based storage equipment manufacturer – Amarsons (where they did their internship) and by end of 2011, they came up with the prototype – a machine that was of a size of a four-seater dinning table.

The journey never stopped here. Realizing that the commercial model needs to be compact in order to take-up the competition from the existing industrial-size models, Vikas and Sabat founded Mukunda Foods in 2012 and continued their search for a better prototype. Ultimately, with their fourth and final prototype in 2013, they succeeded to build a table-top dosa-making machine that was of a size of a microwave oven. This model was more robust, commercially viable and scalable and was priced at INR 1 lakh. The 50-Kg machine sported three separate containers for batter, water and oil. At the press of the button, it piped and spread the batter into the shape of dosa, sprinkled oil on it and roasted it. The machine could make dosas of thickness between 1mm to 6mm and that could be set manually.

Mukunda Foods received its first order from a dosa café from Rishikesh who was facing the trouble of getting a skill person for preparing dosa at its café and soon the company went to amass 50 clients that included big names like Adani group, the Swaminarayan temple in Gujarat and Nimhans hospital in New Delhi. The company also started to receive order from abroad, mostly were NRIs who owned or ran Indian restaurants abroad. It is important to note that currently 30% of the company’s revenue comes from overseas.

Till date Mukunda Foods has been targeting the quick service restaurants (QSR) in India and abroad but it plans to enter the consumer market and make DosaMatic a household name. For which Vikas and Sabat have to work out a price point at which anyone can afford to buy the machine. Moreover, they have an idea of entering the office pantries, where one could make a dosa for him/herself just like one makes a cup of cappuccino from the coffee vending machine. It is this entrepreneurial mindset that keeps the duo going.

7.   Model of Strategic Entrepreneurship

Hitt, Ireland and Sirmon (2003) have outlined a model of strategic entrepreneurship that highlights how combining the opportunity-seeking behavior and advantage-seeking behavior leads to wealth creation. The model unfolds the four distinctive dimensions that a firm pursing strategic entrepreneurship should focus. These four dimensions of strategic entrepreneurship (SE) model: an entrepreneurial mindset,entrepreneurial culture and leadership, managing resources strategically, and applying creativity and developing innovation as argued are present in Figure 2.

The entrepreneurial mindset is referred to as the ability to notice new opportunities. An entrepreneurial mindset is both taken as an individualistic and group phenomena that means entrepreneurial mindset is important to individuals as entrepreneurs and to managers and professional in case of a established firms to think and act entrepreneurially. Entrepreneurial mindset is the growth-oriented perspective through which individuals promotes creativity, flexibility, continuous innovation and creates new values. Moreover, it is this cognitive ability that helps an individual to overcome the ambiguous and fragmented situations in the times of uncertainty and stimulates the entrepreneurial alertness. It is thus, necessary to be alert to the new opportunities so as to exploit them for wealth creation. Secondly, the Entrepreneurial leadership and entrepreneurial culture are the vital aspects of SE. It is the entrepreneurial leader in the organization who promotes and encourages entrepreneurial behavior and culture within the organization. The leaders encourage its people to be open and transparent in their communication so as to create a cohesive environment for creativity and new ideas to surge. In an entrepreneurial culture, the leader persuades its people to be creative and innovative, their failures are tolerated, risk taking is encouraged and continuous change is viewed as continuum of opportunities.

Strategic resource management is crucial for developing competitive advantage. The resource-based view of the firm is used to identify and explain the performance differences among the firms and provides the understanding that how the resources can be managed strategically. These resources are tangible and intangible assets of a firm that it uses to choose and implement its strategies. Financial capital, human capital and social capital are the most important resources involved. When the resources are valuable, rare, imperfectly imitable, and non-substitutable, they lead to a sustainable competitive advantage. Thus, from the strategic viewpoint, competitive advantages are a function of the resources developed or acquired by the firm.

Lastly, developing an eco-system for applying creativity and nurturing innovation is an important domain of SE. Firms must be creative to develop innovation. Creativity is increasingly important for the firms to distinguish their products in a market with multiple opportunities, while innovation resulting from the new combinations of production factors is decisive in the firm’s effort to create value and subsequently wealth for its stakeholders.

Figure 2: A model of strategic entrepreneurship

Source: Hitt, Ireland and Sirmon (2003)

8. Summary

Strategic entrepreneurship has emerged over the last decade and has resulted from the integration of entrepreneurship and strategic management knowledge. Strategic entrepreneurship is taking entrepreneurial actions using a strategic perspective. It focuses on exploiting entrepreneurial opportunities to take temporary advantages rather than only searching for the conditions of sustainable competitive advantages to create wealth for its stakeholders. Moreover, it is to be noted that wealth creation only takes place when a firm combines its effective opportunity-seeking outlook (i.e. entrepreneurship) with that of advantage-seeking outlook (i.e. strategic management).

Hitt, Ireland and Sirmon (2003) have outlined a model of strategic entrepreneurship that highlights how combining the opportunity-seeking behavior and advantage-seeking behavior leads to wealth creation. The model unfolds the four distinctive dimensions that a firm pursing strategic entrepreneurship should focus. These four dimensions of strategic entrepreneurship (SE) model are an entrepreneurial mindset, entrepreneurial culture and leadership, managing resources strategically, and applying creativity and developing innovation.