Strategy development model for innovation in entrepreneurship.

Taucean, Ilie Mihai ; Tamasila, Matei

1. INTRODUCTION

Entrepreneurs are dynamic persons (Dynamicbusiness.com, 2007) that must make many strategic innovative movements to be successful. They can be innovative regarding products and services that they sell, they can be innovative in markets that they decide to be in, or they can be innovative in their business that they runs.

Innovation here means that there is innovation in existing product or new product development, innovation in existing market or development of new market, innovation in existing used business model or new business model development. We based on that our proposed model and on the dynamism and many and necessary movement in entrepreneurship.

2. ANSOFF'S PRODUCT/MARKET MATRIX

The Ansoff Growth matrix is a tool that helps businesses decides their product and market growth strategy. Ansoff's product/market growth matrix suggests that a business' attempts to grow depend on whether it markets new or existing products in new or existing markets (Ansoff, 1957).

The output from the Ansoff product/market matrix is a series of suggested growth strategies that set the direction for business strategy. These are described below (tutor2u, 2008):

Market penetration refers to a growth business strategy focused on selling existing products into existing markets. Market penetration seeks to achieve four main objectives:

* maintain/increase the market share of current products can be achieved by a combination of competitive marketing mix;

* secure dominance of growth markets

* restructure a mature market by driving out competitors;

* increase usage by existing customers

A market penetration marketing strategy is very much about "business as usual". The business is focusing on markets and products it knows well. It is likely to have good information on competitors and on customer needs.

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. There are many possible ways of approaching this strategy, including:

* New geographical markets (for example exporting the product to a new country)

* New distribution channels

* Different pricing policies to attract different customers or create new market segments

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets.

Diversification is the name given to the growth strategy where a business markets new products in new markets. This is an inherently more risk strategy because the business is moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks.

3. NEW MODEL FOR ENTREPRENEURSHIP

Starting from the Ansoff's Matrix, we can develop two new matrixes using "business" as a third element (see table 2 and 3).

Here business means new model development of existing business or new model of business that it's imperative to be successful in entrepreneurship activity. "New" means new management model, new management method and techniques, new management functions (new organization, new decision model, new motivation and coordination of the business etc.).

New product means innovation in existing product (product modernizations, less or more functions, level of complexity or simplicity of the product etc.), or new product development (revolutionary new materials/technologies, new functions etc.).

[FIGURE 1 OMITTED]

New markets means innovation in existing market segments (development of the existing market segment, new combination of existing segment characteristics etc.) or new market creation (creation new demands, new wishes, new needs for and from the clients).

Figure 1 present the "cube" of the new model, that we called the PMB Model (Product/Markets/Business Model), by adding the business element to the Ansoff Model. The eight strategies resulting from the new models are presented in the table 4. Also we can evaluate the degree of risk for the strategies according to the innovation degree of the three elements: product, market and business innovation (see table 5).

Business risk depends on the nature of business and on managers/entrepreneurs. A business investment is usually riskier for a new business or for a start-up enterprise versus a business with a long history. But also an old and obsolete business or in decline stage business, from a point of view of product/markets/business matrix, could be riskier versus a new business or a start-up enterprise.

We should take into account the entrepreneur's attitude to risk and its influence on the final business decision. Entrepreneurs differ in their attitudes to risk. For serious/strategic business decision, entrepreneurs are usually defined as "risk seekers" (prefers a risky solution, see figure 2, curve c). This is an assumption about the utility (U) or satisfaction derived for money. A "risk seeker" entrepreneur is a person for whom utility function increases as his level of income (I) increases. The utility function of a "risk averter" entrepreneur declines as the level of income rises (see curve a). A "risk neutral" entrepreneur regard each increment of income as having the same value (curve b).

[FIGURE 2 OMITTED]

[FIGURE 3 OMITTED]

Friedman and Savage propose a utility function that combines attitudes to risk (Friedman & Savage, 1948), in order to explain a comportment that is at first a risk seeker and next is risk averter and so on (figure 3). Entrepreneurship is about taking risk (Drucker, 1970). The behavior of the entrepreneur reflects a kind of person willing to put his or her career and financial security on the line and take risks in the name of an idea, idea for a product, for a market or for a business.

From the nature of the entrepreneurship, we can say that entrepreneurs are innovators, but they have different degree of risk (as we saw in table 5). They persist on discovering new products and services, they create and developed new markets, and they run their business in a new way to reach the success.

4. CONCLUSIONS

The new model of strategy development for entrepreneurship involves key innovation indicators for entrepreneurs. The proposed PMB Model can be use in successful strategy positioning and development. We based that on the dynamism in entrepreneurship regarding products, markets and business. The model can give the risk awareness concerning innovation, defined by the each possible strategy position in the model (in the strategy "cube").

The model can be develop by a more detailed analysis of the three dimensions (product, market and business indicators which are very complex) and by adding new indicators that can be considered keys indicator for entrepreneurship success. In the last case, when using more than three dimensions, the model can lose the visual analysis advantages that are given by the three dimensional model (or the two dimensional model).

5. REFERENCES

Ansoff, I. (1957). Strategies for Diversification. Harvard Business Review, Vol. 35, Issue 5, Sep-Oct 1957, pp. 113-124, ISSN 0017-8012

Drucker, P. (1970). Entrepreneurship in Business Enterprise, Journal of Business Policy, vol. 1, 1970, pp. 3-12

Dynamicbusiness.com (2007). 50 Favourite Entrepreneurs, 28 June, Available from: http://www.dynamicbusiness.com/ articles/articles-entrepreneur-profiles/50-favourite-entrepre. .html, Accessed 2008-05-28

Friedman, M. & Savage, L.P. (1948). The Utility Analysis of Choices Involving Risk, Journal of Political Economy, Vol. 56, No. 4, January 1948, pp.279-304, ISSN 0022-3808

tutor2u (2008). Ansoff's Product/Market Matrix, Strategy Revision Notes, Available from: http://www.tutor2u.net/ business/ strategy/ansoff_matrix.htm, Accessed 2008-05-28

Table 1. Ansoff's Product/Market Matrix.

 Market/Product Existing products New products

Existing markets Market penetration Product development
 New markets Market development Diversification

Table 2. Product/Business Matrix

Product Existing New products
Business products

Existing Business Product
business penetration development

 New Business Diversification
business development

Table 3. Market/Business Matrix

 Market Business Existing market New market

Existing business Business penetration Market development
 New business Business development Diversification

Table 4. New model strategies

Strategies Products Markets Business

 1 Existing Existing Existing
 2 Existing Existing New
 3 New Existing Existing
 4 Existing New Existing
 5 New Existing New
 6 New New Existing
 7 Existing New New
 8 New New New

Table 5. Innovation and risk degree for new model strategies

Strategies Innovation Risk degree

 1 No innovation No risk
 2 Business innovation Low risk
 3 Product innovation Low risk
 4 Markets innovation Low risk
 5 Product & business innovation Medium risk
 6 Product & market innovation Medium risk
 7 Market & business innovation Medium risk
 8 Total innovation High risk