Thesis: Entrepreneurial Orientation and Firm Performance

The primary objective of this thesis is to determine whether firms who have a greater entrepreneurial orientation tend also to be more successful in terms of performance. In particular, I want to answer the following research question: “What is the relationship between the entrepreneurial orientation and the performance of a firm?”. This thesis is the result of a research project conducted on a set of 49 companies in the Consumer Goods sector listed on Borsa Italiana (the Italian Stock Exchange) during the year 2010. Entrepreneurial Orientation and Firm Performance - Giorgio Tomassetti The paper is composed of four parts. In the first chapter I introduce the subject of entrepreneurship. In particular, I describe the main findings and points of view on the topic of corporate entrepreneurship and entrepreneurial orientation. The research background in the first chapter allows the reader to gain a better understanding of the second chapter. Indeed, in the second chapter I describe the tools and the method used in this research project to gather the necessary data. In the third chapter, I explain the analysis I conducted on the information previously collected. Finally, the fourth chapter is about the results of my research. In this part of the paper I conclude that there is a moderate positive correlation between the level of entrepreneurial orientation and a firm’s performance and this result is coherent with previous research in the field of corporate entrepreneurship.

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The Smart Shopper: How Information Is Changing The Way We Buy

Posted by Unknown on 19:56 in , ,
Here are two videos that help us understand the magnitude of the changes happening right now among consumers. Those of us who research a product online before going into a store and those who use their smartphone inside a store to gather more information about a product know what I am talking about.

The Smart Shopper: Constantly Connected

The Mobile Movement: Understanding Smartphone Consumers

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The importance of trial and error in today's complex world

Posted by Unknown on 22:16
As Tim Harford points out in a recent TED Talk presentation, 10 percent of American businesses disappear every year. However the U.S. economy is still the world's greatest economy. How can this be? It turns out that the high failure rate that exists in America is actually a good thing for the economy because it forces American businesses to evolve faster than in other countries through a process of trial and error.

There are two ways to make a decision. One is to study a problem and then find a solution and the other one is to test different solutions in order to understand the problem. Harford believes that the reason why we tend use the first technique more often than the second one is because we are affected by the so called "God complex". In other words, our brain can be easily persuaded to believe that we actually understand the world around us and therefore we can make reasonable choices based on our knowledge. The only problem is that our understanding of the world can only function if we develop some basic assumptions that allow us to reduce the uncertainty that surrounds us and frame the problem more easily. And guess what? Assumptions are not always true.
If you think that it is often hard for teachers to control a class of more than 20 students, now imagine being able to predict what almost 7 billion people around the world will do tomorrow. How likely is it?

Through technology and research, today we have a better understanding of our world, but also of our limitations as human beings living in a complex system. Trial and error is often a great way to find out what works and what doesn't. As Tim Harford points out in his talk, research shows that the use of trial and error as a way to solve problems is actually a common characteristic of successful organizations. However, even if people today realize the importance of trial and error (and it might also seem obvious to talk about it), if we think about the way we actually make most decisions in our life we realize that we rarely use this method.

If you are interested in the subject, I suggest reading Freakonomics: A Rogue Economist Explores the Hidden Side of Everything and The Black Swan: The Impact of the Highly Improbable. These two books will teach you the importance of challenging the conventional wisdom.

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Lockitron: use your phone to open your door

Posted by Unknown on 23:28 in , ,
Lockitron is an interesting gadget that allows you to open the door of your house by using your phone. You can even allow your friends inside with a simple text message!

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Groupon Inc (Case Study)

Posted by Unknown on 06:35 in , ,
Groupon has the capacity to maintain its leadership position in the group-buying industry by creating sustainable competitive advantages, despite the numerous competitive threats.

Groupon Inc, the group shopping website that features a new local deal every day, is the fastest growing company in the history of the Internet (Steiner, 2010) and it is now the leading player in the group-buying industry. Founded in 2008 by Andrew Mason, Groupon grew from $0 to $500 million in sales in only 18 months and it is now in 500 cities (Saporito, The Groupon clipper, 2011). Given the high growth potential, the negative working capital, and the low barriers of entry that characterize this business (Chan, 2010), many similar companies around the world tried to gain a share in this attractive and growing industry. The group-buying industry is expected to grow 138% to $2.66 billion in 2011 (Local Offer Network, 2011).
Groupon’s business model is scalable, which means that it is relatively easy to expand in different markets because the company can still use the same code and resources. Groupon should therefore leverage scalability and expand in new markets at a faster pace than its competitors, because a scalable marketplace is also attractive to new entrants and is likely to increase rivalry among existing players. Once a market is entered, it is crucial for Groupon to grow a competitive subscriber base.

Acquisitions and partnerships are additional competitive tools that Groupon can use to rapidly expand and establish a leadership position in a new market. For instance, Groupon’s purchase of the CityDeal allowed them to dominate the European market (Underwood, 2010). However, the company should not use acquisitions as a primary tool for growth because acquisitions tend to be more expensive than other approaches, and would also encourage new players to enter the industry. In countries in which cultural differences are a major issue, Groupon should seek to build partnerships as it did in China with Tencent and Yunfeng Capital (Saporito, Groupon heads to China, 2011).

The strategies outlined above will allow Groupon to continue to grow, but they cannot be successful unless Groupon develops true competitive advantages. In the period February-March 2011, for instance, revenues dropped 32% in major North American cities. One reason for this drop in revenue is the growing level of competition from companies such as LivingSocial, which during the same period experienced a 59% increase in revenue (Riley, 2011). In order for Groupon to maintain its leadership position in the group-buying industry, the company has to differentiate itself from the competition by focusing on a few key success factors. The success of Groupon is directly related to both the success of the merchants who run offers on the site and the satisfaction of those who buy the deals. According to a recent study 32% of the merchants surveyed were not profitable with the offer run on Groupon, and 40% said that they would not run a similar promotion again (McMahan, 2010).

Groupon should therefore continuously improve the quality of its service for both merchants and final customers. The company can achieve this goal by analyzing previously collected data to create a sophisticated model that can determine the optimal quantity for each deal at a certain price point.

In conclusion, Groupon should focus on expanding its customer base and maintaining its leadership position to reduce the competitive threats that characterize this industry and ensure long-term profitability for the company.

Case Study - Groupon

Photo: Duane_Brown

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Case Study - Fiat/Chrysler

Posted by Unknown on 05:44 in , , ,
Despite their different background, the partnership between Fiat and Chrysler has the potential of being successful if the right mix of products is delivered in the different marketplaces and the resources are managed efficiently.
The pdf file can be found here.
Case Study - Fiat/Chrysler

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Analyzing Policy: Efficiency

Posted by Unknown on 21:48 in , ,
This is a summary of chapter three of  the book Analyzing Policy: Choices, Conflicts, and Practice” by Munger, which is about the efficiency of the market.

The author defines a market as a set of institutions, rules or informal norms, that promote exchange. In order for a market to exist, people have to have diverse preferences and diverse endowments. Also, economies of scale and specialization should be a reality.
The reason why markets have been very successful in organizing complex human activities is because they are usually very efficient. Also, markets allow a reduction of transaction costs and the gains from trade result in improved welfare for all participants.
As Aristotle points out, money doesn’t necessarily mean wealth, but money represent all other commodities and they are efficient because they reduce transaction costs of the exchange.
When talking about markets it is important to consider the concept of opportunity cost, which is the benefits you could have received by taking an alternative action. In the chapter Munger discusses a case study in which students have to choose between selling some tickets they found on the sidewalk, or use them and go to the concert. To answer this question we need to consider not much the real price of the ticket, but the its opportunity cost. Another important concept in this unit is scarcity, which implies a desire for a good or service. Without scarcity there would not be trade.

Munger also identifies the sources of market inefficiency, one of which is the so called “Pingou’s conjecture”; here the inefficiency derives from the overuse or underuse of the resource. The solution would be having the opportunity cost as close as possible to the price of the resource. The other source of market inefficiency is the “Coases’s counter-conjecture”.

According to the author there are four mechanisms for dealing with scarce resources.

  • Price system (markets). Markets are considered very efficient mainly because they offer information through prices and they are able to align the self-interest of the individual with the collective interest of the society by using incentives. Also, they are able to maximise the value of resources.
  • Queing. Queing favor those who have time to spend in line and ultimately wastes these people’s time. It is also not an efficient system.
  • Chance. Everyone is traded the same and this might feel fair to some people, but the allocation of the resources is random and this usually results in inefficiency.
  • Authority. This system favors those who are in power and those who are close to them and this means that corruption and favoritism are very likely.

In terms of information, prices are able to signal scarcity and determine wealth.
Munger also describes in this chapter the advantages of a simple barter economy and he does that with the use of the Edgeworth Box where the indifference curves represent people’s preferences. The equilibrium point is where the indifference curves are tangent to each other, even though all points on the contract curve (the set of potential equilibrium points) are Pareto optima.
After stating the advantages of a barter economy, Munger introduces the function and the advantages of using money as an accepted medium of exchange. First of all, the use of money reduces transaction costs. Indeed money are both a unit of account and a store of value since they do not easily deteriorate.
In the last part of the chapter the author lists the characteristics of a good currency, such as being widely accepted and durable.

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Three Visions for Books in the Digital Age

Posted by Unknown on 21:40 in
IDEO made this very interesting video on the future of book. Definitely worth watching.

The Future of the Book. from IDEO on Vimeo.

From: fastcodesign.com

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100 Things to Watch in 2011

Posted by Unknown on 02:09 in
JWT: 100 Things to Watch in 2011
From: Kedrosky

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