Chapter 1:
Entrepreneurship
4 Key ideas when starting an entrepreneurial small business
A small business has around 1-50 people and its owner manages the business daily.
-
Believe that you can do it.
o Self-efficacy – a person’s belief in their belief to achieve a goal.
Plan before implementing action.
Ask for help from other entrepreneurs.
Do well & do good for others.
An entrepreneur is someone who notices opportunities and decides how to mobilize the resources
necessary to produce new and improved goods and services.
Firms’ typical start-up processes:
-
Feel – entrepreneur has a feeling about starting a business or creating a product.
Check - check the likelihood for success in their idea through analysis.
Plan – making a business plan or business modelling.
Do – approach refinement until they have a successful firm.
Entry competencies
4 elements needed to start a business (brie model)
The Entrepreneurial process
Opportunity
-
Consider market readiness, consumer trends & behaviors that seek
Page 1 of 41
Products or services
Resources
-
Let opportunity guide you towards the level of resources needed (move away from
bootstrapping).
Minimize and control rather than maximize and experience cash flow problems.
Entrepreneur/ Team
-
A good team can unlock higher potential with any opportunity and manage growth related
pressures.
Creativity, communication & leadership
-
Entrepreneur needs to be able to create balance by applying creativity, leadership and
maintaining effective communications.
Business plan
-
Where opportunity, resources and teamwork are integrated into a complete strategic plan for
business.
Small businesses and the economy
Provide new jobs
-
Small businesses are more likely to offer jobs to people with atypical work histories or needs,
new people to the workforce, people with uneven employment histories and people wanting
part-time work. This makes them more attractive to local and state governments.
Innovative
-
Small businesses offer a special environment in which the new can come into being.
New opportunities
-
People who own their own business are presented with tremendous opportunities – to improve
their life, wealth, help them move upward economy and society.
Small businesses offer communities the opportunity to enjoy goods and services.
Two Aspects of Global Entrepreneurship
-
-
-
-
A factor driven economy is a nation where the major forces for revenue, jobs and taxes come
from farming or extractive industries.
o Pakistan, Jamaica & Venezuela.
Efficiency driven economy is a nation where industrialization becomes the major force of
providing jobs, revenue and taxes while minimizing cost and maximizing productivity.
o Russia, Brazil & China.
Innovation driven economy is a nation where the major forces for jobs, revenues and taxes
come from high value-added production based on new ideas from professional services based
on higher education.
o Germany & US.
Opportunity driven entrepreneurship is creating a firm to improve one’s income or a products
or service.
Page 2 of 41
-
Necessity driven entrepreneurship is creating a firm as an alternative to unemployment.
CSI Entrepreneurship
CSI – corporate, social and independent.
-
-
3 aspects differ on what they focus on.
o Creating – looks at making new entities.
o Customer-focus – being in tune with the market
o Efficiency – doing the most work with the least resources.
o Innovation – looks at a new thing or way of doing things.
Independent entrepreneurship (form of entrepreneurship where a person or group owns a for
profit business) focusses on all 4.
Corporate entrepreneurship (takes place in existing businesses around new products, services or
markets) focusses on customer-focus, efficiency and innovation.
Social entrepreneurship is solving the creation of self-sustaining charitable and civic
organisations. It focusses on creation, customer-focus and efficiency.
Sustainable entrepreneurship is an approach or operating a firm that does things that minimizes
the depletion of natural resources and maximizes use of recycled material to improve the
environment.
5 Aspects the most successful entrepreneurs display
-
-
Passion – an intense positive feeling the entrepreneur has toward the business.
Perseverance
Promotion-Prevention Focus – balancing maximizing gains and minimizing losses.
Planning style
o Comprehensive planners – develop long term plans for all business aspects.
o Critical-point planners plan around most important business aspect first they consider if
more plans are needed.
o Opportunistic planners – start with a goal & look for opportunities to complete it.
o Reactive planners – passive, wait for cues to determine what action to take.
o Habit-based planners – actions dictated by their routines.
Professionalism – the extent which a firm meets or exceeds standard business practices.
o Expert business personalization when all major functions of the firm are conducted
according to the standard business practices.
o Specialized business professionalization when owners are passionate about certain key
business functions and pursues them in a professional manner.
o Minimalized business professionalization when entrepreneur does everything the
simplest way possible than professional.
Entrepreneurial Operational Competencies
-
Competencies are forms of business-related expertise.
o Industry specific knowledge – activities, knowledge and skills specific to businesses in an
industry.
Page 3 of 41
o
o
o
Resource competencies – the ability to find expendable components necessary to the
operation of the business.
Determination competencies – skills identified with the energy and focus to start a
business.
Opportunity competencies – skills necessary to identify and exploit elements of the
business environment that can lead to a profitable & sustainable business.
The entrepreneurial life cycles
1.
2.
3.
4.
5.
Business life cycle – the sequence of developmental stages businesses goes through during its
life span.
Emergence – entrepreneur moves from thinking about to starting the business.
Existence – business in operation but not stable in terms of markets, operations and finances.
a. Liability of newness – risks faces due to owner’s lack of knowledge about their
businesses.
Success – firm being established in its market, operation and finances.
a. Slack resources are profits that can be used to satisfy how the owner runs the business.
Resource maturity – stable or slowly rising profits over several years.
Takeoff occurs after the success stage where rapid growths occur.
Ideas, opportunities and businesses
-
Opportunity recognition is searching and capturing new ideas that lead to business
opportunities.
Entrepreneurial alertness is a set of observational and thinking skills that help entrepreneurs
identify good opportunities.
Causal mode of entrepreneurship is where you want to create a product or service that does
not exist yet.
From ideas to opportunities using creativity
-
Creativity – a decision makers ability to discover original and novel ideas that lead to feasible
alternative courses of action.
Substitute – think of what you need to substitute for something else for a new idea to form.
Combine – think of possible combinations you can make that result in something entirely
different.
Adapt- think of what could be adapted from already existing products and services.
Magnify/ modify – change an existing products appearance or add more features.
Put to other uses - think of ways you can generate a high number of opportunities for your
product or service to go beyond what it is traditionally used for.
Eliminate - search for opportunities that arise when you get rid of something.
Reverse/ rearrange
Graham Wallis’s process of organizing creative thinking:
-
Preparation - exploring the opportunity from all directions
Incubation – thinking about the problem in a non-conscious way
Page 4 of 41
-
Illumination - ideas begin to flow
Verification – testing the idea and reducing it to its most exact form.
Screen ideas
-
RBI screen is a fast technique for making initial assessments of prospective business ideas based
on 5 ideas.
o who are you?
o what are you offering?
o Whom are you offering it to?
o Why do they care?
o Do you have any key or core science/technology or feature?
Make sure an idea is feasible
Feasibility is the extent to which you are aware of internal and external forces that could affect your
business.
Business model canvas approach
Business models are a way to identify and organize key information on a business and how it achieves its
goals.
-
Customer segments are groups of potential purchasers that can be approached in a coherent
manner.
Pain is any sort of problem, annoyance etc. customers or potential customers face.
Gain is any sort of outcome customers or potential customers would like to encounter or depend
on.
Solution – how to plan to solve pains or create gains.
Value proposition are small business owners unique selling points that customers can expect
from your goods or services.
Channels is how you will get your product to the customer. Directly can be more expensive or
hard to get going.
Customer relationships
Revenues is how you will make money. Freemium is an approach to pricing that connects free
and premium products are offered.
Key resources are what your firm has that no one else does.
Key activities are what will be the most important activities in making your firm successful.
Key partners are individuals or organizations that help make your firm successful.
Costs
A pilot test is a preliminary run of a business, program etc. that assesses how well the overall approach
works and what problems it might have.
Conversion rate is the measure of how many visitors to your website are willing to make a commitment
to the promoted product or service.
Page 5 of 41
A/B testing is a way to check customer reaction to websites describing your products or services. 2
versions of the site are posted and served up randomly to prospective customers. The least attractive
site is revised, and the sites are tested until one gets consistently superior customer reactions.
Leadership
Leadership is the process by which an individual exerts influence over other people and inspires,
motivates and directs their activities to help achieve group or organizational goals
A leader is an individual who can exert influence over other people to help achieve group or
organizational goals
Managers are organizational member who establish and implement processes and procedures to ensure
smooth functioning and are accountable for goal accomplishment.
Servant leaders have a strong desire to serve and work for the benefit of others, they share power with
their followers and work to ensure that their needs are met, that they’re able to develop as individuals
and their wellbeing is enhanced and they focus on the least well off in society.
Leadership styles across cultures
-
European managers tend to be more humanistic
Japan places emphasis on group rather than individual
US is more profit orientated
Differences also occur in time horizons
Sources of managerial power
-
Legitimate power is the authority a manager has by virtue of his or her position in an
organisations hierarchy.
Reward power is the ability to withhold tangible and intangible rewards.
Coercive power is the ability of the manager to punish others.
Expert power is based on a special knowledge, skills and expertise a leader possesses
Referent power is power that comes from subordinates or coworkers respect, admiration and
loyalty.
Empowerment
Empowerment is the expansion of an employee’s knowledge, tasks and decision-making responsibilities.
-
Increases managers abilities to get things down as there is now additional support.
Increases worker’s involvement, motivation and commitment which ensures that they work
towards organizational goals.
Gives managers more time to focus on pressing concerns rather than day to day supervision.
The trait model of leadership
-
Intelligence – helps managers understand complex issues and solve problems
Page 6 of 41
-
Knowledge and expertise – help increase efficiency and effectiveness
Dominance – influence their subordinates to achieve organizational goals
Self-confidence – contributes to managers effectively influencing subordinates to achieve
organizational goals
High energy – help deal with many demands they face
Tolerance for stress – help deal with uncertainty and make difficult decisions
Integrity and honesty – help managers work ethically and earn subordinates trust and
confidence
Maturity – helps managers avoid acting selfishly, controlling their feelings and admit when
they’ve made a mistake
Behavior model
-
Consideration – behavior indicating that manager trusts, respects and cares about subordinates.
Initiating structure is behavior that managers engage in to ensure that work gets done,
subordinates perform their jobs acceptably and the organisation is efficient and effective
Fielders contingency model
Leader style
-
Relationship orientated leaders primary concern is to develop good relationships with their
subordinates and to be liked by them
Task orientated leaders primary concern is to ensure that subordinates perform at a high level
Situational characteristics
-
Leader member relations is the extent to which followers like, trust and are loyal to their leader,
a determinant of how favorable a situation is for leading.
Task structure is the extent to which the work to be performed is clear cut so that a leader’s
subordinates know what needs to be done and how to go about doing it
Positional power is the amount of legitimate, reward, and coercive power that a leader has by
virtue of his or her position in an organisation
Path goal theory is a contingency model of leadership proposing that leaders can motivate subordinates
by identifying their desired outcomes, rewarding them for high performance and the attainment of work
goals with these desired outcomes and clarifying for them the paths leading to the attainment of work
goals.
3 guidelines to being effective leaders:
-
Find out what outcomes your subordinates are trying to obtain from their jobs and the
organisation
Reward subordinates for high performance and goal attainment with the outcomes they deserve
Clarify the paths to goal attainment for subordinates, removes any obstacles to high
performance and express confidence in subordinates’ capabilities
4 kinds of leadership behaviors that motivate subordinates
-
Directive behaviors
Supportive behaviors
Page 7 of 41
-
Participative behaviors
Achievement orientated behaviors
Leadership substitute is a characteristic of a subordinate or of a situation, or context, that acts in place
of influence of a leader and makes leadership unnecessary
Transformational leadership is leadership that makes subordinates aware of the importance of their
jobs and performance to the organisation and aware of their own needs for personal growth and that
motivates subordinates to work for the good of the organisation
Charismatic leaders are an enthusiastic, self-confident leader who can clearly communicate his or her
vision of how good things could be
Intellectual stimulation is behavior a leader engages in to make followers aware of problems in new
ways, consistent with the leader’s vision
Developmental consideration is behavior a leader engages in to support and encourage followers and
help them develop and grow on the job.
Transactional leadership is leadership that motivates subordinates by rewarding them for high
performance and reprimanding them for low performance
Gender and leadership - female and male managers do not differ in their leadership behaviors they
perform. Female managers are sometimes more participative than male managers. Research has shown
and men and women make equally effective managers and leaders.
Emotional intelligence and leadership – the moods and emotions leaders experience on the job, and
their ability to effectively manage these feelings, can influence their effectiveness as leaders. It can
encourage and support creativity among followers.
Bootstrapping refers to using low-cost or free techniques to minimize cost of doing business.
Page 8 of 41
The manager as a
person
Personality traits
Personality traits are enduring tendencies to feel, think and act in a certain way.
The big 5 personality traits
-
-
-
Extraversion is the tendency to experience positive emotions and moods and to feel good about
oneself and the restvL of the world. Tend to be social, affectionate, outgoing and friendly.
Introverts are less social and have a less positive outlook.
Negative affectivity is the tendency to experience negative emotions and moods, feel distressed
and be critical of oneself and others. It might help improve performance.
Agreeableness is the tendency to get along well with others. Likeable, tend to be affectionate
and care about other people. Low on agreeableness are somewhat distrustful, unsympathetic,
uncooperative, and even antagonistic.
Conscientiousness is the tendency to be careful, scrupulous and persevering. High
conscientiousness – organized & self-disciplined.
Openness to experience is the tendency to be original, have broad interests, be open to a wide
range of stimuli, be daring and take risks. High openness – take risks and be innovative
Other personality traits that affect managerial behavior
-
-
-
Locus of control
o Internal locus of control believes they themselves are responsible for their own fate,
they see their actions and behaviors as being major decisive determinants of important
outcomes.
o External locus of control believe that outside forces are responsible for what happens to
and around them; they don’t think their actions make much of a difference.
Self-esteem is the degree to which individuals feel good about themselves and their capabilities.
High self-esteem – competent, deserving and capable of handling most situations. Low selfesteem – unsure of their capabilities.
Need for achievement, affiliation and power. The need for achievement is the extent to which
an individual has a strong desire to perform challenging tasks well and to meet personal
standards for excellence. Need for affiliation is the extent to which an individual is concerned
about establishing and maintaining good interpersonal relations. Need for power is the extent to
which an individual desire to control or influence others.
Values, attitudes, moods and emotions:
Values
-
Values describe what managers are trying to achieve through work and how they think they
should behave.
Page 9 of 41
o
o
Terminal value is a personal conviction about lifelong goals or objects. Lead to formation
of norms which are inwritten, informal codes of conduct that prescribe how people
should act situations and that are considered importantly by most member of a group or
organisation.
Instrumental value is a person conviction about desired modes of conduct or ways of
behaving.
Attitudes
-
-
An attitude is a collection of feelings or beliefs.
o Job satisfaction is the collection of feelings and beliefs that managers have about their
current jobs. High – generally like their jobs, feel they are fairly treated, believe it has
many desirable features.
o Organizational commitment is the collection of feelings and beliefs that managers have
about their organisations. Likely to help managers perform some figurehead and
spokesperson roles.
Organizational citizenship behaviors are behaviors that are not required of organizational
members but contribute to and are necessary for organizational efficiency, effectiveness and
competitive advantage.
Moods and emotions
-
A mood is a feeling or state of mind.
Emotions are more intense feelings than moods and are often directly linked to whatever caused
the emotion, shorter lived.
Emotional intelligence is the ability to understand and manage one’s own moods and emotions and the
moods and emotions of other people. High – more likely to understand how they are feeling and why
and are more able to effectively manage their feelings.
Organizational culture comprises the shared set of beliefs, expectations, values, norms and work
routines that influence how members of an organisation relate to one another and work together to
achieve organizational goals.
-
Organizational culture is maintained and transmitted to organizational members through the
values of the founder, the process of socialization, ceremonies and rites and stories and
language.
o Organizatmotqmhiional socialization is the process by which newcomers learn an
organisations values and norms and acquire the work behaviors necessary to perform
jobs effectively. Member behave in accordance with them because they think they must
and because they describe the proper way to behave.
o Rites of passage determine how individuals enter, advance within and leave the
organisation.
o Rites of integration such as office parties build and reinforce common bonds among
organizational members.
o Rites of enhancement such as award dinners let organisations publicly recognize and
reward employees’ contributions and thus strengthen their commitment to
organizational values which reinforces values and norms.
Page 10 of 41
o
Organizational stories about heroes, villains and their actions provide important clues
about values and norms. The concept of organizational language encompasses not only
language but how people dress, the offices they occupy, the cars they drive and the
degree of formality they use when they address one another.
Benjamin Schneider’s Attraction-selection-attrition (ASA) framework
Says that when founders hire employees, they tend to choose employees which similar personalities to
theirs. As a result of these attraction, selection and attrition processes, people in the organisation tend
to have similar personalities and the dominant personality profile of organizational members determines
and shapes organizational culture.
Managers and
managing
-
Organisations are collections of people who work together and coordinate their actions to
achieve a wider variety of goals or desired future outcomes.
Management is the planning, organizing, leading and controlling of human and other resources
to achieve organizational goals efficiently and effectively.
One of the key goals that organisation try to achieve is to provide goods and services that
customers value and desire.
Organizational performance is a measure of how efficiently and effectively managers use
available resources to satisfy customers and achieve organizational goals.
Efficiency is a measure of how productively resources are used to achieve a goal.
Effectiveness is a measure of the appropriateness of the goals that managers have selected the
organisation to pursue and the degree to which the organisation achieves those goals.
4 essential managerial tasks
-
-
-
Managers at all levels and in all departments are responsible for performing those 4 tasks.
Planning is identifying and selecting appropriate goals.
o Which goals the organisation will pursue
o Deciding what strategies to adopt to attain those goals
o Deciding how to allocate organizational resources
Organizing is structuring working relationships so organizational members interact and
cooperate to achieve organizational goals.
o This created organizational structure – a formal system of task and reporting
relationships that coordinates and motivates members, so they work together to achieve
organizational goals.
Leading is articulating a clear vision for the organisations member to accomplish and they
energize and enable employees so everyone understands the part he or she plays in achieving
organizational goals. Outcome is a highly motivated and committed workforce. Involves using
power, personality and influence skills to coordinate people and groups so their activities and
efforts are in harmony.
Page 11 of 41
-
-
Controlling is evaluating how well an organisation has achieved its goals and to take any
corrective actions needed to maintain or improve performance.
o Outcome is the ability to measure performance accurately and regulate organizational
efficiency and effectiveness.
Henry Mintzberg shows that management is often chaotic, marked by quick decisions in a tense
and sometimes emotional environment. Quick immediate reactions rather than thoughtful ones
are an important aspect of managerial action.
Levels and skills of managers
-
-
A department is a group of managers and employees who work together because they possess
similar skills and experience or use the same kind of knowledge, tools or techniques to perform
their jobs.
Levels of managements.
o First line managers/ supervisors
Page 12 of 41
Responsible for daily supervision of the non-managerial employees who
perform the specific activities necessary to produce goods and services.
 Work in all department or functions of an organisation.
Middle managers
 Responsible for finding the best way to organize human and other resources to
achieve organizational goals.
 Supervise first line managers.
 To increase efficiency, they find ways to help supervisors and employees better
use resources to improve manufacturing costs and improve customer service.
 To increase effectiveness, they evaluate whether the organisations goals are
appropriate and suggest to top managers how goals should be changed
Top managers
 A manager who establishes organizational goals, decides how departments
should interact and monitors performance of middle managers.
 Cross department responsibility.
A top management team is a group consisting of the CEO and directors and managers
most responsible for achieving organizational goals,

o
o
o
Managerial skills:
-
conceptual skills are the ability to analyse and diagnose a situation and to distinguish between
cause and effect. Top managers need this for planning and organizing.
Humans skills include the general ability to understand, alter, lead and control the behavior of
other individuals and groups.
Technical skills are the job specific skills required to perform a work or occupation at a high
level.
Core competency refers to the specific set of departmental skills, knowledge and experience that allows
one organisation to outperform its competitors.
Changes in management practices
-
Restructuring is downsizing an organisation by eliminating the jobs of large numbers of job,
middle- and first-line managers and nonmanagerial employees.
Outsourcing involves contracting with another company, usually a low cost one abroad to
perform a work activity the organisation previously performed itself. It increases efficiency as its
lower operating costs.
Global organisations are organisations that operate and compete in one or more countries.
5 challenges for management in a global environment
Building competitive advantage
o
o
The ability of one organisation to outperform other organisations because it produces
desired goods and services more efficiently and effectively than its competitors
4 building blocks:
 Efficiency
Page 13 of 41
Quality (a product or services fitness for use, measured by durability, reliability,
survivability, style, ease of use and dependability.)
 Innovation (the process of creating new or improved goods and services that
customers want or developing better ways to produce or provide goods and
services).
 Responsiveness to customers (being alert and aware of the needs of your
customers and to act fast in providing a value solution to the need that will
ensure that your customers don’t become former customers.)
Maintaining ethical and socially responsible standards
Managing a diverse workforce
Utilizing technology and e-commerce
Practicing global crisis management

o
o
o
o
~Decision making and
creativity
Decision making is the process by which managers respond to opportunities or threats by analyzing
options and making determinations about specific organizational goals and courses of action.
Programmed decision making
Programmed decision making is a routine, virtually automatic decision making that follows established
rules or guidelines.
Non programmed decision making
Nonprogrammed decision making is non routine decision making which occurs in response to unusual,
unpredictable opportunities and threats.
-
Managers rely on their intuition – feelings that come readily to mind, require little effort and
information gathering and results in on the spot decisions.
They could also make reasoned judgements – a decision that requires time and effort from
careful information gathering, generjob ation of alternatives and evaluation of alternatives
The classical model
The classical model is a prescriptive approach to decision making based on the assumption that the
decision maker can identify and evaluate all possible alternatives and their consequences and rationally
choose the most appropriate course of action.
-
They make optimum decisions – the most appropriate decision considering what managers
believe to be the desirable consequences for the organisation.
Page 14 of 41
The administrative model
The administrative model is an approach to decision making that explains why decision making in
inherently uncertain and why managers usually make satisfactory rather than optimum decisions.
3 important concepts
o
o
o
Bounded rationality – cognitive limitations that constrain one’s ability to interpret,
process and act on information.
Incomplete information
 Risk and uncertainty
 Risk is the degree of probability that the possible outcomes of a course
of action will occur.
 Ambiguous information – information that can be interpreted in
multiple and often conflicting ways
 Time constraints and information costs
Satisficing – searching for and choosing an acceptable or satisfactory response to
problems and opportunities, rather than trying to make the best decision.
6 Steps in the decision-making process:
-
-
Recognize the need for a decision
Generate alternatives
Assess alternatives
o Legality
o Ethicalness
o Economic feasibility
o Practicality
Choose among alternatives
Implement the chosen alternative
Learn from feedback
Cognitive biases and decision making
Systematic errors are errors that people make over and over that result in poor decision making
Four sources of bias
-
Prior hypothesis bias – a cognitive bias resulting from the tendency to base decisions on strong
prior beliefs even if evidence shows that those beliefs are wrong.
Representativeness bias – a cognitive bias resulting from the tendency to generalize
inappropriately from a small sample or from a single vivid event or episode
Illusion of control – a source of cognitive bias resulting from the tendency to overestimate one’s
own ability to control activities and events.
Escalating commitment – a source of cognitive bias resulting from the tendency to commit
additional resources to a project even if evidence shows that the project is failing.
Page 15 of 41
Group decision making
The perils of groupthink
-
Groupthink is a pattern of faulty or biased decision making that occurs in groups whose
members strive for an agreement amongst themselves at the expense of accurately assessing
information relevant to a decision.
2 methods that counteract groupthink
-
-
Devils advocacy is a critical analysis of a preferred alternative, made in response to challenges
raised by a group member who, defends unpopular or opposing alternatives for the sake of
argument
Dialectical inquiry is a critical analysis of 2 preferred alternatives in order to find an even better
alternative for the organisation to adopt.
Organizational learning and creativity
-
-
Organizational learning is the process through which managers seek to improve employees
desire and ability to understand and manage the organisation and its task environment.
Learning organisation is an organisation in which managers try to maximize the ability of
individuals and groups to think and behave creatively and thus maximize the potential for
organizational learning to take place.
Creativity is a decision makers ability to discover original and novel ideas that lead to feasible
alternative courses of action.
Creating a learning organisation
-
Develop personal mastery
Build complex and challenging mental models
Promote team learning
Build shared vision
Encourage systems thinking
Promoting group creativity
-
-
Brainstorming - a group problem solving technique in which managers meet face-to-face to
generate and debate a wide variety of alternatives from which to decide
The nominal group technique is a decision-making technique in which group members write
down ideas and solutions, read their suggestions to the whole group and discuss and then rank
the alternatives.
The Delphi technique is a decision-making technique in which group member do not meet face
to face but respond in writing to questions posed by the group leader.
Entrepreneurship and creativity
-
An entrepreneur is an individual who notices opportunities and decides how to mobilize the
resources necessary to produce new and improves goods and services.
Social entrepreneur is an individual who pursues initiatives and opportunities and mobilizes
resources to address social problems and needs in order to improve society and wellbeing
through creative solutions.
Page 16 of 41
-
Intrapreneur is a manager, scientist or researcher who works inside an organisation who notices
opportunities to develop new or improved products and better ways to make them.
Intrapreneurship and organizational learning
-
Product champions – a manager who takes ownership of a project and provides the leadership
and vision that take a product from the idea stage to the final customer.
Skunkworks – a group of intrapreneurs who are deliberately separated from the normal
operation of an organisation to encourage them to devote all their attention to developing new
products.
Page 17 of 41
Groups and Teams
Groups, Teams and organizational effectiveness:
-
A group is two or more people who interact with each other to accomplish certain goals or meet
certain needs. Minimum of 2
A team is a group whose members work intensely with one another achieve a specific common
goal or objective.
Groups and teams gain competitive advantage because they can:
o Enhance performance
o Increase responsiveness to customers
o Increase innovation
o Increase employees motivation and satisfaction
Groups and Teams as Performance enhancers:
-
Advantage - groups obtain synergy (performance gains that result when individuals and
departments coordinate their actions.)
Teams and Innovation
-
Innovation – the creative development of new products, new technologies, new services, or new
organizational structures.
Types of groups and teams:
-
Formal groups are those that managers establish to achieve organizational goals. They are cross
functional teams composed of members from difference departments and cross-cultural teams
composed of members from difference cultures or countries.
The top management team:
-
The top management team is a group composed of the CEO and directors and managers most
responsible for achieving organizational goals.
Research and developments teams
-
A team whose members have the expertise and experience needed to develop new products.
E.g. pharmaceuticals, computers, electronics etc.
Command groups:
-
A group composed of subordinates who report to the same supervisor.
Also called a department or unit.
Self-Managed work teams:
-
A group of employees who supervise their own activities and monitor the quality of the goods or
services they provide.
Steps managers take to ensure self-managed reams are effective:
o
Give teams enough responsibility and autonomy to be truly self-managing.
Page 18 of 41
Make sure a team’s work is sufficiently complex so that it entails a number of procedures
that must be performed.
o Carefully select the appropriate members. Should have diversity of skills required, the
ability to work with others and be a team player.
o Realize that your role is for guidance and coaching, not supervising.
o Analyse what type of training team members need. They need more extensive technical
and interpersonal skills.
Disadvantages: members may be reluctant to discipline one another.
o
-
Virtual Teams
-
A team whose members rarely or ever meet face-to-face but, Rather, interact by using various
forms of information technology.
Advantage: They perceive their projects as meaningful, interesting, and important to promote
and sustain their motivation.
Friendships groups:
-
An informal group of employees who enjoy one another’s company and socialize with one
another.
Satisfies need for interpersonal interaction, provide stress support, and increase job satisfaction.
Interest groups:
-
An informal group of employees seeking to achieve a common goal related to their membership
in an organisation.
Group Dynamics:
Groups Size, Tasks, and Roles:
-
-
Group size
o Advantages of small groups
 Interact more with each other and find it easier to coordinate their efforts.
 More motivated, satisfied and committed.
 Easier to share information.
 Better able to see the importance of their personal contributions for group
successes.
o Disadvantages for small groups:
 Fewer resources available to accomplish goals.
o Advantages of large groups:
 Division of labour – splitting the work to be performed into particular tasks and
assigning tasks to individual workers.
o Disadvantages of large groups
 Communication problems
 Less motivation and satisfaction.
Group tasks
o Task interdependence is the degree to which the work performance by one member of
a group influences the work performed by other members.
Page 19 of 41
Pooled task interdependence is the task interdependence that exists when group
members make separate and independent contributions to group performance.
o Sequential task interdependence is the task interdependence that exists when group
members must perform specific tasks in a predetermined order.
o Reciprocal task interdependence exists when the work performed by each group
members is fully dependence on the work performed by other group members.
 Managers are advised to reward group members bases on group performance.
Group Roles
o A group role is a set of behaviors and tasks that a member of a group is expected to
perform because of his or her position in the group.
o Role making is taking initiative to modify an assigned role by assuming additional
responsibilities.
 Managers need to clearly communicate expectations
 They also need to realize group roles often change and evolve.
o
-
Group development over time
-
Forming – members try to get to know another and reach a common understanding of what the
group is trying to accomplish
Storming – group members experience conflict and disagreements.
Norming – close ties develop and feeling of friendship and camaraderie emerge.
Performing - the real work of the group gets accomplished
Adjourning - group is dispersed (only certain groups like task forces)
Group Norms
-
Group norms are shared guidelines or rules for behaviors that most group members follow.
Reasons for Conformity
o
o
o
They want to obtain rewards and avoid punishments
They want to imitate group members whom they like and admire
They have internalized the norms and believe they are the proper way to behave.
How groups respond to defiant members
o
o
o
They might try to change his or her ways to conform
Expel the member
Change the norm to be consistent with members behavior
Steps managers can take to ensure adequate tolerance of deviance:
o
o
o
When managers accept suggestions, they signal to groups members that conformity
should not come at the expense of needed changes and improvements
Managers should let employees know that there are always ways to improve group
processes and performance levels
Managers should encourage members of groups and teams to periodically assess the
appropriateness of their norms.
Group cohesiveness
-
Group cohesiveness is the degree to which members are attracted to or loyal to their group
Page 20 of 41
-
Increased group cohesiveness -> increased level of group participation, increased conformity to
group norms and an increased emphasis is placed on group goal accomplishment.
Factors leading to group cohesiveness
o Group size - smaller is better
o Effectively managed diversity
o Group identity and healthy competition
o Success
Reducing social loafing in groups
-
Social loafing is the tendency of individuals to put forth less effort when they work in groups
than when they work alone.
Make individual contributions to a group identifiable
Emphasize the valuable contribution of individual members
Keep group size at an appropriate level.
Ethics and social
responsibility
The Nature of Ethics
Ethical Dilemma
-
Ethics are the inner guiding moral principles, values, and beliefs that people use to analyse or
interpret a situation and then decide what is the right or appropriate way to behave.
Ethical dilemma is the quandary people find themselves in when they have to decide if they
should act in a way that might help another person or group even though doing so might go
against their own self interest.
Ethics and the Law
-
Ethical beliefs and laws both change as time passes.
As ethical beliefs change over time, some people may begin to question whether existing laws
that make specific behaviors illegal are still appropriate.
While ethical beliefs lead to the developments of laws and regulations to prevent certain
behaviors or encourage others, laws themselves change or disappear as ethical beliefs change.
Stakeholders and ethics
-
Stakeholders are people and groups that supply a company with its productive resources and
have a claim on and a stake in the company.
They can be directly benefitted or harmed by a company’s ethics.
Stockholders
-
Stockholders have a claim on a company because when they buy its stock or shares, they
become its owners.
Page 21 of 41
Managers
-
Vital stakeholders because they are responsible for using a company’s financial, capital, and
human resources to increase its performance and thus its stock price.
They decide which goals an organisation should pursue to most benefit stakeholders and how to
make the most efficient use of resources to achieve those goals.
They expect a good reward (good salaries, benefits, promotion, stock options bonuses etc.) by
investing their human capital to improve a company’s performance.
Customers
-
Most critical stakeholder group because if a company cannot attract them to buy its products, it
cannot stay in business.
Managers and employees must work to increase efficiency and effectiveness in order to create
loyal customers and attract new ones.
Rules for ethical decision making
-
Utilitarian rule is that an ethical decision that produces the greatest good for the greatest
number of people.
Moral rights rule: an ethical decision is one that best maintains and protects the fundamental or
inalienable rights and privileges of the people affected by it.
Justice rule is an ethical decision distributes benefits and harms among people and groups in a
fair, equitable, or impartial way.
Practical rule is an ethical decision is one that a manager has no reluctance about
communicating to people outside the company because the typical person in a society would
think it is acceptable.
Why should managers behave ethically?
-
The time and effort that could be spent improving product quality or customer service are lost to
negotiating and bargaining, thus unethical behavior ruins business commerce.
Trust is the willingness of one person or group to have faith or confidence in the goodwill of
another person, even though this puts them at risk.
Unethical behavior causes few resources to be available to produce goods and services.
Reputation is the esteem or high repute that individuals or organisations gain when they behave
ethically.
Ethics and Social Responsibility
Societal ethics
-
Societal ethics are standards that govern how members of a society should deal with one
another in matters involving issues such as fairness, justice, poverty, and the rights of the
individual.
Occupational Ethics
-
Occupational ethics are standards that govern how members of a profession, trade, or craft
should conduct themselves when performing work-related activities.
Page 22 of 41
Individual ethics
-
-
Individual ethics are personal standards and values that determine how people view their
responsibilities to others and how they should act in situations when their own self-interests are
at stake.
Organizational ethics are the guiding practices and beliefs through which a particular company
and its managers view their responsibility toward their stakeholders.
Approaches to Social Responsibility
-
Social Responsibility is the way a company’s managers and employees view their duty or
obligation to make decisions that protect, enhance, and promote the welfare, and wellbeing of
stakeholders and society as a whole.
Four approaches
-
Obstructionist approach: companies and their managers choose not to behave in a socially
responsible way and instead behave unethically and illegally
Defensive approach: companies and their managers behave ethically to the degree that they
stay within the law and strictly abide by legal requirements.
Accommodative approach: companies and their managers behave legally and ethically and try
to balance the interests of different stakeholders as the need arises
Proactive approach: companies and their managers actively embrace socially responsible
behavior, going out of their way to learn about the needs of different stakeholders’ groups and
using organizational resources to promote the interests of all stakeholders.
-
Company credos are meant to deter self-interested, unethical behavior, to demonstrate to
managers and employees that a company will not tolerate people who, because of their own
poor ethics, put their personal interests above the interests of others.
-
Ethical ombudsperson is a manager responsible for communicating and teaching ethical
standards to all employees and monitoring their conformity to those standards.
Managing in a
multicultural
environment
Page 23 of 41
The increasing diversity of the workforce and the environment
-
-
Diversity are the differences among people due to age, gender, race, ethnicity, religion, sexual
orientation, socioeconomic background, education, experience, physical appearance,
capabilities/disabilities, and any other characteristics used to distinguish between people.
The glass ceiling is a metaphor alluding to the invisible barriers that prevents minorities and
women from being promoted to top corporate positions.
Age
-
Major equal employment opportunity legislation that prohibits
discrimination among diverse groups.
Gender
-
Research suggests female executives outperform their male colleagues in skills such as
motivating others, promoting good communication, turning out high-quality work.
Religion
-
Guidelines require that employers make reasonable accommodations for religious practices,
such as observances of holidays, as long as doing so does not entail major costs or hardships.
A key issue for managers in religious diversity is recognizing and being aware of different
religions and their beliefs, with particular attention being paid to when religious holidays fall.
Capabilities/ Disabilities
-
Discrimination against disabled persons are prohibited and employees make reasonable
accommodations to enable these people to effectively perform their jobs.
Socioeconomic background
-
Socioeconomic background refers to a combination of social class and income-related factors.
Page 24 of 41
-
It requires that managers be sensitive and responsive to the needs and concerns of individuals
who might not be as well off as others.
In a strong economy, it is easier for poor people with few skills to find jobs
In a weak company, when companies lay off employees in hard times, people who need their
incomes the most are the ones who first lose their jobs.
Sexual Orientation
-
Workplace discrimination on the grounds of sexual orientation is illegal.
More organisations recognize the minority status of LGBT employees, affirm their rights to fair
and equal treatment and provide benefits to same-sex partners of gay and lesbian employees.
Management of Diversity
Critical Managerial Roles
-
When managers support diversity, their authority, positions of power and status influence other
members of an organisation to make a similar commitment.
The ethical imperative to manage diversity effectively
Distributive Justice
-
A moral principle calling for fair distribution to pay, promotions, and other organizational
resources based on meaningful contributions that individuals have made and not personal
characteristics over which they have no control.
Procedural Justice
-
A moral principle calling for the use of fair procedures to determine how to distribute outcomes
to organizational members
Page 25 of 41
Effectively managing diversity makes good business sense
-
-
Diverse organizational members can be a source of competitive advantage, helping an
organisation provide customer with better goods and services. The variety of points of view and
approaches to problems and opportunities that diverse employees provide can improve
managerial decision making.
Management of diversity can improve profitability is by increasing retention of valued
employees, which decreases the costs of hiring replacements for those who quit as well as
ensures that all employees are highly motivated,
Perception
-
Perception is the process through which people select, organize, and interpret what they see,
hear, touch, smell, and taste to give meaning and order to the world around them.
Factors that influence managerial perception
-
Schemas are abstract knowledge structures stored in memory that allow people to organize and
interpret information about a person, an event, or a situation.
Perception as a determinant of unfair treatment
-
-
-
A stereotype is a simplistic and often inaccurate belief about the typical characteristics of
particular groups of people.
A bias is the systematic tendency to use information about others in ways that result in
inaccurate perceptions.
The similar-to-me effect (“Birds of a feather flock together”) can lead to unfair treatment of
diverse employees simply because they are different from the managers who are perceiving
them, evaluating them, and making decisions that affect their future in the organisation.
Social status is a person’s real or perceived position in a society or an organisation can be the
source of another bias.
The social status effect is the tendency to perceive individuals with high social status more
positively than we perceive those with low social status.
o A high-status person may be perceived as smarter and more believable, capable,
knowledgeable and responsible.
The salience effect is the tendency to focus attention on individuals who are conspicuously
different from others in a group, it results in extra attention being focused on a person who
stands out from the group mold.
Overt discrimination
-
Overt discrimination is knowingly and willingly denying diverse individuals access to
opportunities and outcomes in an organisation.
How to manage diversity effectively


Secure top management commitment
Strive to increase the accuracy of perceptions
o Managers should consciously attempt to be open to other points of view and
perspectives, seek them out, and encourage their subordinates to do the same.
Page 26 of 41

Increase diversity skills
o Encourage flexibility
o Pay close attention to how organizational members are evaluated
o Consider the numbers
o Empower employees to challenge discriminatory behaviors, action, and remarks
o Reward employees for effectively managing diversity
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Human Resource
management
Strategic Human resource management
-
-
-
Human resource management are activities that managers engage in to attract and retain
employees and to ensure that they perform at a high level and contribute to the
accomplishment of organizational goals
Strategic human resource management is the process by which managers design the
components of an HRM system to be consistent with each other, with other elements of
organizational architecture and with the organizations strategy and goals.
o Objective: development of an HRM system that enhances an organisation efficiency,
quality, innovation, and responsiveness to customers.
Organizational architecture – combination of organisation structure, control systems, culture,
and a human resource management system that managers develop to use resource efficiently
and effectively.
Overview of the Components of HRM
-
-
-
-
Recruitment and selection: Managers use this to attract and hire
new employees who have the abilities, skills, and experiences
that will help an organization achieve its goals.
Training and development: ensure that organizational members
develop the skills and abilities that will enable them to perform
their jobs effectively in the present and future.
Performance and feedback: gives managers the information they
need to make good human resource decisions and serves a
developmental purpose for members of an organization.
Labor relations - they encompass the steps that managers take
to develop and maintain good working relationships with the
labor unions that may represent their employees interests.
Page 27 of 41
The legal environment of HRM
-
Equal employment opportunity (EEO): the equal right of all citizens to the opportunity to obtain
employment regardless of their gender, age, race, country of origin, religion, or disabilities.
Recruitment and selection
-
Recruitment includes all the activities managers engage in to develop a pool of qualified
candidates for open positions.
Selection is the process by which managers determine the relative qualifications of job
applicants and their potential for performing well is a particular job.
Human Resource Planning
-
Human resource planning: activities that managers engage in to forecast their current and
future needs for human resources.
Outsource is to use outside suppliers and manufacturers to produce goods and services.
o 2 Reasons to outsource is to give managers increased flexibility and human resource
needs at a lower cost.
o Disadvantages: managers may lose control over the quality of goods and services.
Outsourcers may have less knowledge of organizational practices.
Job Analysis
-
Job analysis is identifying the tasks, duties and responsibilities that make up a job and the
knowledge, skills and abilities needed to perform the job.
It can be done by observing current employees as they perform the job or interviewing them.
External recruitment
-
Managers look outside the organization.
Disadvantages: high costs, they lack organisations knowledge and may need more training.
Internal recruitment
-
It is either promotion or lateral moves (a job change that entails no major changes in
responsibility or authority levels).
Advantages
-
Applicants are already familiar with organisation
Managers know the candidates
It can boost levels of employee motivation and morale
Disadvantages
-
Limited pool of candidates
Candidates seem set in organizational ways
Realistic job preview is an honest assessment of the advantages and disadvantages of a job and an
organisation.
Page 28 of 41
The selection process:
Interviews
-
Structured interview – managers ask everyone the same
standard questions.
Situational interview questions – interviewees are given a
relevant scenario and asked how they would act.
Unstructured interview – it is more like a conversation.
Paper-and-pencil tests
-
Ability tests assess the extent to which applicants possess the
skills necessary for job performance.
Personality tests measure personality traits and characteristics
relevant to job performance.
Performance tests
-
Performance tests measure job applicant’s performance on actual job tasks.
Reliability is the degree to which a tool or test measures the same thing each time it is used.
Validity is the degree to which a tool or test measures what it purports to measure.
Training and development
-
Training is teaching organizational members how to perform their current jobs and helping them
acquire skills they need to be effective performers
Development is building the knowledge and skills of organizational members so they are
prepared to take on new responsibilities and challenges.
Needs assessment is an assessment of which employees need training or development and
what type of skills or knowledge they need to acquire.
Types of Training
Classroom instruction
-
Videos can demonstrate appropriate and inappropriate job behaviors
Role-playing – trainees either directly participate in or watch others perform actual job activities
in a simulates setting.
Simulations – requires an extensive amount of learning and a high cost. Key aspect of work
situation and job tasks are duplicated as closely as possible in an artificial setting.
Page 29 of 41
On-the-job training
On-the-job training is training that takes place in the work setting as employees perform their job tasks.
Performance appraisal and feedback
-
Performance appraisal is the evaluations of employees job performance and contributions to
their organization.
Performance feedback is the process through which managers share performance appraisal
information with their subordinates, give subordinates an opportunity to reflect on their own
performance and develop with subordinates plans for the future.
Types of performance appraisal
-
Trait appraisal – managers assess subordinates on personal characteristics that are relevant to
job performance
Behavior appraisal – managers assess how workers perform their jobs.
Results appraisals – managers appraise performance by the results of work behaviour.
Objective appraisal is an appraisal that is based on facts and is likely to be numerical.
Subjective appraisal – an appraisal based on perceptions of traits, behvaiours or results.
Who appraises performances?
369-degree performance appraisal is a performance
appraisal by peers, subordinates, superiors, and sometimes
clients.
Effective performance feedback
-
-
Formal appraisal – conducted at a set time during
the year and based on performance dimensions
and measures that were specified in advantance.
Informal appraisal- an unscheduled appraisal of
ongoing progress and areas for improvement.
Guidelines for effective performance feedback
- Be specific and focus on behvaiors or outcomes that are correctable within a workers ability to
improve.
- Approach performance appraisal as an exercise in a problem solving and solution finding, not
criticizing
- Express confidence in a subordinates ability to improve
- Provide performance feedback both formally and informally
- Praise instances of high performance and areas of a job in which a worker excels
- Avoid persona; criticisms and treat subordinates with respect
- Agree to a timetable for performance improvements
Pay and benefits
-
Pay includes base salaries, pay raises and bonuses.
Page 30 of 41
Pay level
-
Pay level is the relative position of an organisations pay incentives in coparison with those of
other organistions in the same industry employing similar kinds of workers.
Pay structure is the arrangement of jobs into categories, reflecting their relative importance and
its goals, levels of skill required and other characteristic.
Cafeteria style benefit plan is a plan from which employees can choose the benefits they want.
Labour relations
Labour relations are the activities managers engage in to ensure that they have effective working
relationships with the labour unions that represent their employees interests.
Unions represent workers interests in organisations.
Hiring Employees
-
Employee fit: the match between the needs, expectations, and culture of the small business with
the expectations and the skills of the individual employee.
Probationary period is the trial period in which an employee has temporary status before a
formal offer to work full time is presented.
Attracting Employees
-
-
Internet recruiting is the method of recruiting that allows you to search a resume database or
post a job description to the web; a small business owner who knows exactly what he or she
wants can use filters to search vast numbers of resumes with pinpoint accuracy.
Employee referral is an underused, loc-cost method for finding workers that rewards your
employees for recommending potential candidates who would be a great employee fit.
Outsourcing can be used if you’re not ready to hire employees but need to meet workload
demand.
Writing a Job description
-
-
Job descriptions define and discusses all the essential knowledge, skills, and abilities that are
needed to fill a position.
Needs to cover:
o The job itself
o The task of the job
o The critical tasks
o The critical competencies.
Start with a title. Underneath needs to state exempt or nonexempt.
o Exempt: a federal government descriptor of employees who are exempt from the Fair
Labor Standards Act and are generally paid salaries.
o Nonexempt: a federal government descriptor of employees under the Fair Labor Act
who get an hourly wage and time-and-a-half overtime.
Initial and Ongoing Training Methods
Page 31 of 41
-
On-job-training is delivered to employees while they perform their regular jobs; techniques
include orientations, job instruction training, apprenticeships, internships and assistantships, job
rotation, and coaching.
Rewarding Employees
-
-
-
Factors most valuable to employees:
o Teamwork
o Recognition
o Training
o Empowerment
o Contribution
o Communication
Open-book policy is a concept that key employees should be able to see and understand a firm’s
financials, that they should have a part in moving the numbers in the right direction, and that
they should have a direct stake in the strategy and success of the firm.
Psychological contract refers to employee’s beliefs about the promises between the employee
and the firm. These beliefs are based on the perception that promises have been made in
exchange for certain employee obligations such as giving of their energy, time and technical
skills.
Performance review
-
Occurs once a year to monitor your employee’s job satisfaction, overall performance, and set
career objectives.
Goal: identify employee skills, formally recognize performance, set goals to utilize the skills
identifiable areas.
Pay review
-
Goal: reward employees your employees if they have performed all duties and met general
requirements as discussed in initial job description conversations.
Living wage is the amount needed for a person/ household to meet the basic necessities of life
from a single job.
Perks
-
Perks (short for perquisite) refers to the privileges, services, or even tangible items given to
employees as part of the overall compensation and benefits package. Provide
Collective bargaining is the negotiation between labour unions and managers to resolve conflicts and
disputes about issues such as working hours, wages, benefits, working conditions, and job security.
Financial management
-
Finance is the function in a business that acquires funds for the firm and manages them within
the firm.
Financial management is the job of managing a firm’s resources to meet its goals and objectives.
Page 32 of 41
-
2 key responsibilities are to obtain funds and to effectively control the use of those funds.
Financial Planning
Forecasting financial needs
o
o
o
Short term forecast predicts revenues, costs, and expenses for a period of one year or
less.
Cash flow forecast predicts the cash inflows and outflows in future periods, usually
months or quarters.
A long-term forecast predicts revenues, costs, and expenses for a period longer than 1
year.
Working with the budget process
o
o
A budget is a financial plan for the future based on a single level of operations; a
Quantitive expression of the use of resources necessary to achieve a business’s strategic
goals.
3 types of budgets:
 A capital budget highlights a firm’s spending plans for major asset purchase that
often require large sums of money.
 A cash budget identifies when, how, and why cash is expected to come into the
business, and when, how, and why it is expected to leave.
 Operating/ master budget ties together the firm’s other budgets and
summarized its proposed financial activities.
Establishing financial control
o
Financial control is a process in which a firm periodically compares its actual revenues,
costs, and expenses with its budget.
Making capital expenditures
-
Capital expenditures are major investments in either tangible long-term assets such as land,
buildings, and equipment, or intangible assets such as patents, trademarks, and copyrights.
Alternative sources of funds
-
Debt financing are funds raised through various forms of borrowing that must be repaid.
Equity financing is money raised from within the firm, from operations or through the sale of
ownership in the firm. (stock or venture capital)
Trade Credit
-
Trade credit is the practice of buying goods or services now and paying them for later.
Most widely used source of short-term funding, least expensive and most convenient.
Different forms of short-terms loans
-
A secured loan is backed by collateral, something valuable like property.
Accounts receivable are company assets often used as collateral for a loan; this is called
pledging.
Page 33 of 41
A percentage of the value of a firm’s accounts receivable pledged is advanced to the
borrowing firm. As customers pay off their accounts, the funds received are forwarded
to the lender in repayment of the funds that were advances.
An unsecured loan is a load that does not require any collateral.
A line of credit is a given amount of unsecured short-term funds a bank will lend to a business,
provided the funds are readily available.
If a business is unable to secure a short-term loan from a bank, they might seek funds from
commercial finance companies.
o They make short term loans to borrowers who offer tangible assets like property,
equipment etc. as collateral.
o They assume higher degrees of risk than commercial banks and charge higher interest
rates.
A factor is a market intermediary that agrees to the buy the firm’s accounts receivable.
o Discount depends on accounts age, nature of the business and economy’s condition.
o More popular thank bank loan, even with higher rates because small businesses don’t
qualify for a bank loan.
o
-
-
Commercial Paper
-
Commercial paper consists of unsecured promissory notes, $100 000 and up, that mature or
come due in 270 days or less.
Commercial paper states a fixed amount of money the business agrees to repay to the lender on
a specific date at a specified rate of interest.
Debt Financing
Debt financing by borrowing from lending institutions
-
A term-loan agreement is a promissory note that requires the borrower to repay the loan with
interest in specified monthly or annual installments.
Risk/Return trade-off is the principle that they greater the risk a lender takes in making a loan,
the higher the interest rate required.
Debt financing by issuing bonds
-
A bond is like an IOU with a promise to repay the amount borrowed, with interest on a certain
date.
Indenture terms are the terms of the agreement in a bond issue.
A secured bond is issued with some form of collateral, such as real estate, equipment, or other
pledged assets. If the bonds indenture terms are violated, the bondholder can issue a claim on
collateral.
Equity financing
Equity financing by selling stock
o
The key thing to remember about stock is that stockholders become owners in the
organization. Generally, the corporations board of directors decides the number of
shares of stock that will be offered to investors for purchase.
Page 34 of 41
Equity financing from retained earnings
o
o
Retained earnings are the profits a company keep investing in the firm.
Major source of long-term funds.
Equity financing from venture capital
o
o
Start-up businesses usually have few assets and no market rack record so the chances of
borrowing money from the bank are slim.
Venture capital is money invested in new or emerging companies that some investors
believe have great profit potential.
Comparing debt and equity financing
-
Leverage is raising needed funds through borrowing to increase a firm’s rate of return is referred
to as leverage.
Though debt increase risk, it also increases ability to increase profits.
In a public corporation, the ownership is held by stockholders.
The cost of capital is the percentage cost of obtaining future funds.
Careful control of inventory costs allows a firm to maintain correct levels of stock and product
Marketing
Management
Page 35 of 41
What is marketing
-
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and society
at large.
Core aspects of marketing:
1. Marketing is about satisfying customer needs and wants:
- The market place refers to the world of trade and is divided into groups of people who are
pertinent to an organisation for particular reasons.
- If you manufacture a certain item, you want to know which marketplace segments your product
is most relevant, then make sure you build a marketing strategy that targets those groups.
2. Marketing Entails an exchange:
- An exchange is the trade of things of value between the buyer and the seller so that each is
better off as a result.
3. Marketing requires product, price, place, and promotion decisions
- The marketing mix (four Ps) are product, price, place and promotion - the controllable set of
activities that a firm uses to respond to the wants of its target markets.
4. Marketing can be performed by individuals and oragnisations
5. Marketing affects various stakeholders
6. Marketing helps create value
a. Production-orientated era: build a good product and it will sell itself
b. Sales-orientated era: lots of advertising and personal selling are the keys to success
c. Market-orientated era: a growing focus on meeting customer needs and wants
d. Value-based marketing era there is more to marketing than just meeting needs and
wants; consumers also expect a fair return for the price they pay
Why is marketing important?
1. Marketing expands firms global presence
2. Marketing is pervasive across marketing channel members
a. Supply chain is a way to think about the line of distributions of a product from its start
as materials outside the target firm, to its handling by sellers, with placement into the
hands of customers.
Raw material -> manufacturer -> retailer -> consumer
3. Marketing can be entrepreneurial
4. Marketing enriches society
Social and mobile marketing
The 4E framework for social media
-
social media is the online and mobile technologies that distribute content to facilitate
interpersonal interactions.
Excite the customer
Page 36 of 41
-
Marketer use apps and games to get the customers excites about an idea, product, brand, or
company.
Location-based software and apps help bring the offer to customers when they are making a
purchasing decision.
Educate the customer
-
Well-designed social media marketing offers a clear call to action to draw customers through
their computing devices into their websites or stores. Once they’re there the marketer can
educate them about its value proposition and offered benefits.
Experience the product or service:
-
Being able to experience a bit of a product or service before buying greatly expands the market.
Engage the customer
-
Through social media tools like micro-blogging, customers engage with firms and their own
social networks. Positively engage consumers tend to be more profitable.
The wheel of social media engagement
-
-
-
The information effect is the outcome of social media in which relevant information is soead by
firms or individuals to other members of its social network.
The connected effect is an outcome of social media that satisfied humans’ innate need to
connect with other people.
Network effect is the outcome of social media engagement in which every time a firm or person
posts information, it is transferred to the posters vast connections across social media, causing
the information to spread instantaneously.
The dynamic effect describes the way in which information is exchanged to network participants
through back and forth communications in an active and effective manner. It also expands the
impact of the network effect by examining how people flow in and out of networked
communities as their interests change.
The timeliness effect is concerned with the firm being able to engage with the customer at the
right place/time – their ability to do so 24/7 from any location.
Categories of Social Media
Social Network Sites
-
Create excitement.
E.g. Facebook, LinkedIn
Media- sharing sites
-
YouTube, Instagram
Though sharing sites
-
Blogs – personal, corporate, or professional.
Microblogs – Twitter.
Page 37 of 41
Going mobile
-
Showrooming: customers visit a store to touch, feel, and even discuss a product’s features with
a sales associate, and then purchase it online from another retailer at a lower price.
App pricing models
-
Ad-supported app – apps that are free to download, but place ads on the screen when using the
program to generate revenue.
Freemium apps are free to download but include in-app puchases
In-app purchase is made on a freemium app that enables the user to enhance the app or game.
Paid app charge the customer an upfront price to download the app but offer full functionality
once downloaded.
How do firms engage their customers using social media?
-
-
Listen
Analyse
o The conversion rate is the measure of how many visitors to your website are actually
willing to make a purchase.
o Sentiment analysis is a technique that allows marketers to analyze data from social
media sites to collect consumer comments about companies and their products
o Hit is a request file made by web browsers and search browsers.
o Page view is the number of time an internet page gets viewed by any visitor.
o Bounce rate is the percentage of time a visitor leaves the website almost immediately.
o Click path shows how users proceed through the information on a website – not unlike
how grocery stores try to track the way shoppers move through their aisles.
o Keyword analysis is an evaluation of what keywords people use to search on the
internet for their products.
Do
How do marketing firms become more value driven?
-
They share information
They try balance customers benefits and costs.
Concentrate on building relationships with customers
They take advantage of new technologies to connect with customers.
Value Chain
Management
Page 38 of 41
Functional Strategies, the Value chain, and Competitive
advantage
Managers can pursue a lower cost strategy (lower the costs of creating value to attract customers by
keeping product prices low) or differentiation strategy (find ways to make a product superior)
4 ways to lower cost and/or increase differentiation
-
-
Achieve superior efficiency: Efficiency is a measure of the amount of inputs required to produce
a given amount of outputs. Fewer inputs = higher efficiency and lower cost.
Achieve superior quality: Quality means producing goods and services that have attributes that
customers perceive as being superior. Higher quality -> enhanced brand name reputation -> can
charge higher prices.
Achieve superior innovation, speed and flexibility.
Attain superior responsiveness to customers.
Functional strategies and Value Chain Management
-
-
-
Functional-level strategy is a plan of action to improve the ability of each of an organisations
functions to perform its task-specific activities in ways that add value to an organisations goods
and services.
Value chain are the coordinated series or sequence of functional activities necessary to
transform inputs such as new product concepts, raw materials, component parts, or professional
skills into the finished goods or services customers value and want to buy.
Value chain management is the developmental set of functional-level strategies that support a
company’s business level strategy and strengthen its competitive advantages.
Improving responsiveness to customers
-
Focus on customers needs it satisfying rather than the type of product itss makes
What do customers want?
-
A lower price
High quality goods
Quick service and good after-sales service
Products with many useful or valuable features
Products that are customized to their unique needs
-
The more desired product attributes a company’s value chain builds into its products, the high
the price that must be charged to cover the costs of developing and making the products.
-
Do not offer a level of responsiveness to customers that results in cost becoming too high – it
can threaten an organisations future performance and survival.
Page 39 of 41
Customer relationship managements
-
CRM is a technique that uses IT to develop an ongoing relationship with customers to maximise
the value an organisation can deliver to them over time,
3 component: sales, after-sales service, and marketing.
It processes information about changing customers needs which improves marketing by better
identifying customers and the specific product attributes they desire.
Total Quality management
-
TQM is a management technique that focuses on improving the quality of an organisations
products and services.
You must set goals and create incentives.
It pushes managers to find defects, trace defects to their source and understand why defects
occurred.
The challenges of focusing on the customer are to identify what customers want, to identify
what the company actually provides and the quality gap,
Successful implementations of TQM require substantial cooperation between the different value
chain functions. E.g. materials managers have to cooperate with manufacturing managers to find
high quality inputs that reduce manufacturing costs.
Improving efficiency
-
The fewer input resources required to produce a given volume of output, the high the efficiency
of the operating system.
Just-in-Time Inventory and efficiency
-
Great cost savings can result from increasing inventory turnover and reducing inventory holding
costs such as storage costs.
Process Reengineering and efficiency
-
Process reengineering is the fundamental rethinking and radical redesign of businesses
processes to achieve dramatic improvement in critical measures of performance such as cost.
Information systems, the Internet and efficiency
-
Information systems function is moving to center stage for operating efficiencies and a lower
cost structure.
Improving Innovation
1. Quantum product innovation is the development of new, often radically different, kinds of foods
and services because fundamental shifts in technology brough about by pioneering discoveries.
a. Relatively rare
2. Incremental product innovation is the gradual improvement and refinement of existing products
that occur over time as existing technologies are perfected.
Strategies to promote innovation and speed product development
-
Product development is the management of the value chain activities involved in bringing new
or improved goods and services to the market.
Page 40 of 41
-
-
Successful product development requires inputs from more than just an organisations members;
also needed are inputs from customers and suppliers.
Stage-gate development funnel is a planning model that forces managers to choose among
competing projects so organisation resources are not spread thinly over too many projects.
o At stage 1 the developmental funnel has a wide mouth, so top managers initially can
encourage employees to come up with as many new product ideas as possible.
o New product ideas are written up as brief proposals and are submitted to a crossfunctional team who consider its fit and feasibility.
o Product development plan is a plan that specifies all of the relevant information that
mangers need in order to decide whether to proceed with a g=full-blown product
development effort.
 It should include strategic and financial objectives, an analysis of the products
market potential, alist of desired product features, a llist of technological
requirements, alist of financial and human resource features, a detailed
development budget.
 Takes about 3 months.
 It is reviewed by a senior managements committee to see if it is attractive and
viable. (at gate 2)
o Cross-functional teams ensures a high level of coordination and communication among
managers in different functions. It must have good leadership and effective
management.
The 3 strategies that managers use to develop innovative products are: establish a stage-gate
development funnel, establish cross-functional teams and involve both customers and supplier.
Page 41 of 41