Business Strategy and Entrepreneurship

8/10/2019 Business Strategy and Entrepreneurship

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STUDY Exam Prep Kit

ARU

BA (Hons) in Marketing

Business Strategy and Entrepreneurship


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Contents

Creating, designing and running an entrepreneurial venture 25%

Business behaviour and global environment 25%

Firms objectives, strategies, policies and factors affecting the new venture 25%

Corporate performance, measurement and economic analysis 25%


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Contents

1 Creating designing & running an entrepreneurial venture ................................................... 6

1.1 Entrepreneurial process ................................................................ ............................................ 6

1.1.1 The stages of an entrepreneurial venture ........................................................... ........... 6

1.1.2 Planning stage and implementation stage .......................................................... ......... 11

1.1.3 Managing stage ......................................................... ............................................................... 17

1.2 Opportunities & challenges .......................................................... .......................................... 26

1.2.1 Opportunities ............................................................ ............................................................... 26

1.2.2 Challenges ....................................................... ................................................................. ......... 30

1.3 Personal traits & behaviour .......................................................... .......................................... 31

1.3.1 Entrepreneurial personality traits .............................................................. .................... 32

1.3.2 Entrepreneurial behaviour....................................................... .......................................... 33

1.3.3 Entrepreneurial leadership attributes ....................................................... .................... 35

1.4 Entrepreneurial culture ................................................................. .......................................... 39

1.4.1 Culture .............................................................. ................................................................. ......... 39

1.4.2 Creating an entrepreneurial culture ........................................................... .................... 42

1.5 Creativity & innovation in entrepreneurship ......................................................... ......... 45

1.5.1 Creativity & innovation .............................................................. .......................................... 45

1.5.2 Challenges to entrepreneurial learning and understanding ................................. 47

2 Business behaviour & global environment ............................................................ .................... 54

2.1 Business behaviour of organisations & factors influencing behaviour ................. 54

2.1.1 Business behaviour ........................................................... .................................................... 54

2.1.2 Factors affecting general business behaviour ............................................................. 56

2.2 Resources, productivity & managerial competence ..................................................... 60

2.2.1 Resources & productivity .......................................................... .......................................... 60

2.2.2 Issues related to productivity ............................................................. ............................... 64

2.2.3 Overcoming productivity issues ........................................................ ............................... 66

2.3 Growth of companies ............................................................ .................................................... 67

2.3.1 Methods of growth ............................................................. .................................................... 67

2.3.2 Multinational enterprise ........................................................... .......................................... 70

2.3.3 Foreign direct investments ................................................................. ............................... 72

3 Firms objectives, strategies, policies & factors affecting the new venture .................... 79

3.1 Implementation of policies ........................................................... .......................................... 79


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3.1.1 Policies................................................... ................................................................. .................... 79

3.1.2 Government policies ......................................................... .................................................... 81

3.2 Objectives of organisations ........................................................... .......................................... 86

3.2.1 Objectives of firms and the government impact ........................................................ 863.3 Strategies of organisations ........................................................... .......................................... 89

3.3.1 Levels of strategy ............................................................... .................................................... 89

3.3.2 Strategies ......................................................... ................................................................. ......... 95

3.4 Alliances ............................................................... ................................................................. ...... 106

3.4.1 Corporate alliances ............................................................ ................................................. 106

3.4.2 Types of strategic alliances ................................................................. ............................ 108

4 Corporate performance, measurement & economic analysis .......................................... 1134.1 Analysis on the economy ................................................................ ...................................... 113

4.1.1 Economic analysis .............................................................. ................................................. 113

4.2 Company performance ......................................................... ................................................. 116

4.2.1 Factors influencing corporate performance ............................................................. 116

4.2.2 Analysing company performance through Gap analysis ..................................... 119

4.2.3 Analysing company performance through balanced scorecard ....................... 122

4.2.4 Financial performance ................................................................ ...................................... 125

4.3 Micro & macroeconomic policies .......................................................... ............................ 128

4.3.1 Micro economic policies ............................................................ ....................................... 128

4.3.2 Macroeconomic policies ............................................................ ....................................... 130

4.3.3 Economic reforms .............................................................. ................................................. 134

5 Warm up questions .............................................................. ...Error! Bookmark not defined.

6 Frequent questions............................................................... ............................................................ 145

7 Tough questions ......................................................... ................................................................. ...... 149


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Preface

About this Exam Prep Kit

We would like to take this opportunity to welcome you to the Business Strategy and

Entrepreneurship module of the BA (Hons) in Marketing programme and wish you

every success with your studies.

This Exam Prep Kit is designed to support students in revising the syllabus according to

module specifications. It will summarise the entire syllabus in a manner that will help

you grasp the areas you are expected to address in your studies in a thorough manner.

We hope that you will find the materials of this Exam Prep Kit useful in your learning

endeavours and we wish you the very best in not only achieving a pass, but passing with

distinction.

How to use this Exam Prep Kit?

This Exam Prep Kit has been divided into the main syllabus elements with each element

split into subsections. The theories and concepts pertaining to each sub section have

been covered through various illustrations. At the end of each subsection, you will be

given an activity, which will help you assess your understanding and knowledge.

Furthermore, examples have been provided to help you fully understand the theories

and concepts involved from a practical perspective.

However, whilst the material gives you a comprehensive outlook into the areas that you

are expected to address in your answer, it is important that you bear in mind that this is

only an outline in a context and that you are expected to elaborate your discussions

using your own understanding of the requirements.

Before you read this Exam Prep Kit

Please note that it is important to bear in mind that this Exam Prep Kit is only a broadoutline of the syllabus and should only be used as a revision aid in conjunction with

your studies. You are expected during your exams or assignments to elaborate your

discussions using your own understanding and knowledge gained from the

comprehensive study of the required syllabus elements.

To conclude, once again, we wish you all the very best indeed and hope you achieve a

rewarding career in entrepreneurial management.

LS Business Publishing Team


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To be a successful entrepreneur, it is vital to go through the above three phases as the

entrepreneurial process involves creating innovative products, methods and practices

by undertaking financial, environmental and psychological risks. In order to make the

new business venture successful, it is important to start with a business plan as it helps

to develop an appropriate business strategy thereby providing a roadmap for theventures success.The business plan should be prepared for three to five years ahead

explaining the operations of the venture and how it plans to generate revenue.

Under the implementation phase, the location of the business, purchasing of necessary

resources, obtaining business license if required and marketing of the business should

be taken into consideration. An implementation plan would provide investors a

roadmap about the business development.

Finally, the management of the entrepreneurial venture depends on the personality and

the leadership of the entrepreneur. Skills, various techniques and practices aremandatory to manage the growth of a new business venture in an uncertain business

environment.

Advantages of starting a new venture

When engaging in your own business venture, it helps to accomplish personal

benefits. By efficiently managing the new venture, benefits could be enjoyed by

the entrepreneur as the income is not limited to a monthly salary.

Achieving personal interests and satisfaction

Flexible working hours would be available and the entrepreneur could decide onthe work hours, place and the environment.

It facilitates career development through the enhancement of talents, creativity

and ability.

Freedom to take decisions is the greatest advantage that you experience when

starting and managing you own business venture.

Disadvantages of starting a new venture

Risking money, energy, and time

Must be 100% dedicated and committed

Need to have good relations with suppliers and customers

Recruiting and selecting human resources can be a difficult task

Retention, utilisation, improvement and disposal of human resources will be a

crucial task

The entrepreneur should learn ways of managing funds, human resources and

new venture activities.

It can be stressful.


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1.1.2 Planning stage and implementation stage

Planning begins when new ideas are evolved and opportunities are identified. The

business plan becomes important as it describes the business goals, reasons and a plan

for achieving them. The business plan needs to be understandable, credible and

attractive to potential investors. Entrepreneurs can use the business plan to set out

specific details about the business. Once the planning is complete, implementation of

the venture begins.

Knowledge

In order to maximise the opportunities identified, the entrepreneur has to begin with a

business plan mentioning the business goals, how they are attainable and a plan for

achieving them. In addition, strategies for marketing, finance, operations, human

resources and legal plan are required. A good business plan should be understandable,credible and attractive to all the potential investors.

Diagram - Business plan

The business description should explain about the industry to which the business

venture belongs and its status and future possibilities. In addition, legal form of the

business, target customers, principal shareholders, product description, distribution

methods and the support systems should be taken into consideration.

Businessplan

Businessdescription

Marketstrategies

Competitiveanalysis

Design &development

palns

Operation &management

plans

Financialplans


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Market analysis will enable to establish pricing, promotional and distribution strategies

and under competitive analysis, Porters competitive forces can be used to determine

the state of competition.

According to Porter, a firms ability to make high economic profits is dependent on two

factors:

The profitability of the industry

The firms positioning within the industry through its choice of a generic strategy

The profitability of the industry does not depend on the nature of the product, but

rather combined effects of the five forces he refers to as the Rules of competition. How

favourable the forces are to the firm operating in the industry now determines

profitability.

Diagram - Porters five forces model

Existing rivalry

between firms

Threat of new

entry

Bargaining

power of

buyers

Threat of

substitutes

Bargaining

power of

suppliers


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Threat of new entry

New entrance to an industry could affect profitability for incumbent firms in several

ways.

By losing market share, economies of scale are lost Prices may fall

Increased advertising and promotion costs

Greater demand for factors of production push up production cost

The threat of entry however depends on the existence of barriers to entry. Barriers to

entry could be:

High capital investments

Legal barriers that include patents and government licenses

Brands and product differentiation

Access to distribution channels

Economies of scale - the new firm may find it difficult to match the existing firms

cost structure

Cost advantages independent of economies of scale

Barriers to exit - this could include long-term agreements, redundancy costs and

assets with no resale value

Bargaining power of buyers

It could relate to both consumers and industrial buyers. When buyer power is high, they

could force down prices, ask for improved quality, more favourable credit terms or even

play suppliers against each other. This power would be strong when:

there are a few large buyers

there are a large number of sellers and the supplying industry is fragmented

the switching cost to the buyer is low the product supplied is undifferentiated

buyers have the potential for backward integration

Bargaining power of suppliers

The bargaining power of suppliers is likely to be high when:

the supplying industry is concentrated

the product supplied is differentiated the supplier considers the buyer to be insignificant


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the component supplied is an integral part in the buyers business

the suppliers have the potential for forward integration

buyers have a high switching cost

Threat of substitutes

Substitutes could pose the following problems.

It places a limit on the companys pricing strategy

It forces product improvement and quality

Substitutes could make some industries technically obsolete

The threat of substitutes however depends on:

the degree of substitution

the switching cost to substitute

Existing rivalry between firms

The balance four forces could make this stronger or weaker. The stronger it is, the

competition would be cutthroat.

The existing rivalry would be strong when:

the market has matured competitors are of equal size

there are high exit barriers

the industry has high operational gearing

the industry has low potential for product differentiation

there is strategic stakes present - that is when the success in one market affects

the success in others.

The design and development plan should give a description of the product design to

investors, chart its development, and evaluate with the development budget. The

operations and management plan should specify management team responsibilities,

divisional tasks and capital and other expenditure required to run its operations.

Finally, at the end of the business plan, there appears the financial information.

Financial projections are also required as they are vital for investor decision making.

In order to implement the action plan, the entrepreneur needs to acquire necessary

resources. Primary resources include capital, human resources and time. Capital can be

financial, intellectual (patents, copyrights, brand names) and technical (innovation in

production, which competitors do not have).

Human resources include individuals who help to exploit opportunities.


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The entrepreneur should have the capability to manage all these resources in an

efficient and effective manner to bring benefits to the business. The entrepreneur can

make use of an implementation plan to provide a roadmap for the investors about the

business development.

Example- Planning & implementation stages

An entrepreneur is willing to start a new restaurant business and his business plan

should have the following:

Business idea - To start a new restaurant business

Business description - To offer high quality food to customers

Marketing strategy - to build a strong relationship with all stakeholders

Pricing strategy - To match revenue with costs and charge a reasonable price

Promotion strategy - Advertising in media

Funding strategy - To use personal savings and bank borrowings

Human resource strategy A rational and logical approach for recruiting, retaining and

utilising human resources and adequate training are provided as the business is in the

hospitality industry and key employees should be rewarded and retained.

Competitor analysis Porters five forces model is used to understand the state of

competition in the restaurant industry.

Competitive

rivalry is high as

many restaurants

are competing

with each other

Threat of new

entrants is very

high

Bargaining power

of customers is

medium

Bargaining

power of

suppliers is weak

Threat of

substitute product

is high


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Activity- Planning and implementation stage

What are the factors that entrepreneurs should consider when solving major issues?

Answer:

Entrepreneurs should ascertain if their goals are well defined. They need to consider

personal desires and aspirations, business size and sustainability and the level of risk

tolerance.

Moreover, entrepreneurs should focus on their strategy. It has to be clearly defined,

durable, profitable and the potential for growth.

Finally, entrepreneurs should identify if they could execute the strategy with the

resources and organisational infrastructure.

1.1.3 Managing stage

This is the last stage in the entrepreneurial venture. Managing the new entrepreneurial

venture is somewhat crucial, as the entrepreneur has to play different roles, i.e. the

creator, promoter and leader. If proper attention is not given to the management of the

venture, it could lead to the closure of the business. Therefore, the management strategy

becomes a vital factor in enhancing business performance.

Knowledge

The managing stage is the final phase of the entrepreneurial process. Efficient

management is essential to carry out business operations and to prosper in the long -

run. The following aspects should be taken into consideration for efficient management:

Making best use of resources available

Minimising wastage and failures

Maintaining of quality

Application of suitable control systems

Compensating and rewarding workers

Culture management

Leadership

Budgets

Economies of scale


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Various sources of information in managing an enterprise

Corporate annual report

market analyses

stock market data

governmental publications

Diagram - Different roles of an entrepreneur when managing the venture

Role of a creator

As the initiator of the entrepreneurial venture, the entrepreneur needs to set the

philosophy of the organisation and establish the strategic focus. In addition, he has to

educate employees about his vision, business goals and objectives in order to guide

them in the correct direction, which in turn helps to create the appropriate corporate

culture for the organisation.

Role of a promoter

The entrepreneur acts as a promoter by building and maintaining a strong relationship

with all the stakeholders.

Role of a leader

The entrepreneur should be a role model or a mentor to others in the organisation. He

has to be a manager as well as a visionary leader to build up the organisation. The

entrepreneur should have the talent to handle the activities of a leader as well as

managerial duties. It needs to introduce new products, new methods, new markets and

new practices throughout the life of the organisation to prosper. In addition, the policies

of the venture should be flexible and support innovation.

Role of a Creator

Set the philosophy

Strategic focus

Educate newemployees

Role of a promoter

Maintain goodrelations with

employees, bankers,customers andsuppliers

Role of a leader

Making strategicdecisions

Be a role model


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Further, it is imperative for the entrepreneur to have a clear vision without interfering

too much in the details of management.

Leadership is vital in motivating and encouraging employees to proceed in the desired

direction and therefore the entrepreneur should build trust and confidence among

workforce and take action to improve communication among the workforce.

Classical theories on leadership

Trait based theories

These theories attempt to identify the personal qualities and characteristics

leaders possess. They argue that leaders are born and not made. However, the

weakness of the trait-based theory is that not all leaders possess all traits and

many non-leaders possess most of them. The trait based approach gives no

guidance as to how much of any trait a person should have. Starting with the

Great Man Theory, researches have attempted to identify the physical, mental

and personality traits of various leaders. Traits identified include energy,

appearance, height, adaptability, aggression, enthusiasm, self-confidence,

intelligence, persistence, initiative and inter-personal skills.

Style based theories

These are concerned with the behaviour leaders adopt towards their followers.

They attempt to identify what style is most appropriate in motivating followers.

The chosen style is greatly influenced by the personality of the leader.

Contingency theories

These argue that there is no one best style or approach to leadership but it is

dependent on situational characteristics in which leadership occurs. They

suggest that just because a leader is successful in one situation, it does not

guarantee success in another. However, effective leaders adapt their behaviour

to the specific situation.

To exploit opportunities available, an entrepreneurial leader would blend

creative ideas to add value to operations and use innovative methods andpractices.

Stakeholder management

Stakeholder management is imperative, as stakeholders are the people who have an

interest in an organisationsactivities. They can also be defined as groups of people who

have an interest in the activities and strategy of the organisation.


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Diagram - Stakeholders

Stakeholders could also be classified as primary and secondary. Primary stakeholders

are capable of being influenced by the firm because there could be some form of

operational relationship.

Analysing stakeholders prior to strategy development is vital as:

They can influence the mission and objectives of the firm;

They can be antagonists or protagonists for a particular strategy;

Meeting stakeholder needs should also be in line with social responsibility and

governance.

Internal

Employees

Management

Connected

Suppliers

Distributors

Creditors/lenders

Customers

Shareholders

Competitors

External national

government

Local government

Super national

bodies

Pressure

groups

Industry

regulators


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Diagram - Managing stakeholders

Mandelows Matrix can be used to map the stakeholders.

Diagramme- Stakeholder mapping

Identifythem

Identify theirsources of

power

Identify thestakeholder'svalues,concerns &interests

Map thestakeholders

Determine thecourse of action todeal with them

Managing

stakeholders

Low High

Minimal effort Keep informed

Keep satisfied Key players

Vertical Matrix = Stakeholder level of power

Horizontal Matrix = Stakeholder level of interest

Low

High


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Example- Managing stage

To perform responsibly, Tesco always listens to its stakeholders and ensures that their

concerns are addressed. Tesco obtains customer views on how it serves its customers.

The company treats its suppliers the way it would be like to be treated. The investor

relations team of Tesco often meets the firms shareholders. Tesco also conducts

meetings on a regular basis with non-governmental organisations to identify and act

upon matters of concern.

Activity- Managing stage

Explainthe important characteristics of a leadership role.

Answer:

A good leader would always be clear and consistent in his/her directions to

subordinates. If not, the subordinates would be confused of what they should actually

achieve.

Further, performance reviews should take place on a timely basis with constructive

feedback.

A leader should possess a good understanding of what his/her team should achieve.Measurement and monitoring of objectives should take place on a continuous basis.

Good leaders should be capable of creating personal relationships with the

subordinates. It makes them feel appreciated and accepted.

A leader should be capable of building trust and loyalty in the minds of the

subordinates. Good leaders would always engage in effective communication and share

knowledge, thereby encouraging subordinates to spend their time and effort to realise

the targets.


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Stages of developing a new Entrepreneurial Venture

1. Idea generation

Ideas are generated through the following steps:

Observation of a need or difficulty. Analysis of the need

A survey of all available information

A formulation of all objective solutions

A critical analysis of these solutions- Rigorous analysis of the technical and

commercial feasibility of surviving solutions.

The birth of the new idea

Experimentation to test and refine the most promising solution.

Every new venture begins with an idea. In our context, we take an idea to be adescription of a need or problem of some constituency coupled with a concept of

a possible solution

Brainstorming is the key to concept creation. You must also keep track of all the

ideas that are generated.

At this point all the ideas will be varied and potentially relevant. You must then

review each idea to determine its appropriateness. Evaluate each idea and

determine which one is most valuable and will generate the most profits.

Concept assessment involves market research where information about your

idea is collected and analyzed to determine whether the concept is viable. The

owner must understand his target market, what the market needs and is looking

for. You must assess all aspects of the idea before moving on to the next stage.

2. Opportunity evaluation

Once entrepreneurs have developed the idea(s) for the new ventures, they must

begin the process of assessing whether or not the idea is in fact a viable businessOpportunity.

This is the step where you ask the question of whether there is an opportunity

worth investing in.

Investment is principally capital, whether from individuals in the company or

from outside investors, and the time and energy of a set of people. But you

should also consider other assets such as intellectual property, personal

relationships, physical property, etc.


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it is important to assess feasibility as early as possible to avoid the much costlier

effects of failed implementation.

3. New product/ service planning

Once you have decided on an opportunity, you need a plan for how to capitalize

on that opportunity. A plan begins as a fairly simple set of ideas, and then

becomes more complex as the business takes shape.

In the planning phase you will need to create two things: strategy and operating

plan.

You must create a thorough business plan. Within your business plan, you must

clearly identify your businesss goals. A well-defined business plan will steer the

business in the right direction and will increase the chances of having a

successful product launch.

4. Marketing launch

Once there is a sufficiently compelling opportunity and a plan, the

entrepreneurial team will go through the process of choosing the right form of

corporate entity and actually creating the venture as a legal entity

A successful product launch should address whether the appropriate number of

products exists, whether you have correctly planned and executed your

marketing activities, whether all of the appropriate documentations have been

developed and whether your employees are properly trained and ready to

support the product.


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5. Implementation

An implementation stage is where necessary resources are acquired to start the

business and where the business is actually started.

Once the planning is completed, entrepreneurs are ready to begin implementingtheir plans by gathering the necessary resources. After entrepreneurs have the

necessary resources, they can start operating their businesses. Without a

sufficient supply of resources the opportunity might never be turned into a

business that makes money for the entrepreneur. In the resource gathering stage

entrepreneurs begin to assemble the tools that they will need to profit from the

opportunity. In order to create a viable organization an individual entrepreneur

has to be ready and able to manage the resources at his or her disposal, bringing

them together in ways that are advantageous and efficient

6. Growth

After launch, the company works toward creating its product or service,

generating revenue and moving toward sustainable performance. The emphasis

shifts from planning to execution.

7. Commercialisation

Commercialization is the process or cycle of introducing a new product or

production method into the market.

1.2 Opportunities & challenges

Entrepreneurship is exposed to many opportunities and challenges. To manage aventure successfully, the entrepreneur should recognise the right opportunity and take

steps to exploit it while overcoming the challenges ahead. This section will help tounderstand the opportunities and challenges that entrepreneurs face.

1.2.1 Opportunities

Opportunity can be defined as a situation that exists or which we bring into existence ora situation that could occur in the future. Opportunities enable entrepreneurs to comeup with new products/services, markets, innovative methods, styles and new ways ofmanaging an enterprise, which can be sold at a profit. It becomes important to recogniseopportunities and take steps to exploit them, as they are the most critical aspect

(identifying the right opportunity) in the entrepreneurial process.


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Knowledge

Opportunity is a situation in which new products, services or methods can be offered ata profit. To exploit an opportunity, it becomes essential to identify it before rivals.Opportunities display positive trends in the external environment, which can beexploited to gain competitive advantage over rivals.

Opportunities occur:

When there is a mismatch between demand and supply of products and services;

When there is a gap in the market;

When a problem can be solved by the application of new methods;

When applying new technology and innovative methods.

An entrepreneur can work on an opportunity when such opportunity matches his skills,interests, talents and capabilities. A SWOT analysis could enable the entrepreneur todetermine the strategies to be used for the entrepreneurial venture. After havingperformed the SWOT analysis, strategy will attempt to achieve the following.

Matching strengths to opportunities

Converting weaknesses to strengths or threats to opportunities

Remedy- Removing weaknesses that lead the firm exposed to threats

Diagramme- SWOT matrix

Internal forces

External forces

Strengths(S)

Weaknesses(W)

Opportunities(O)

SO strategiesWays to use strengths tograsp opportunities(Matching)

WO StrategiesAttempting to takeadvantage ofopportunities byaddressing weaknesses(Converting)

Threats(T)

ST StrategiesWays to use strengths toneutralise threats(Remedy)

WT StrategiesDefensive strategies tominimise weaknessesand threats(Remedy)


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Once the opportunities have been identified, the entrepreneur should decide as towhether to act upon it or not. If he decides to act upon such opportunity, it will beessential to narrow it down to the most profitable customers.

When exploiting an opportunity, the following should be taken into consideration:

Observe and study the action you plan to make;

Ensure that opportunities are in line with your business objectives and goals;

Ensure that your interests, skills and capabilities match the opportunity.

To obtain the maximum benefit from the opportunities available, it would be much vitalto monitor the actions of competitors so that you could identify the areas where they donot operate as well as their target customers and evaluate whether such customerscould be potential customers to your business.

Diagramme- Taking advantage of new opportunities

Obtaining theadvantage of

newopportunities

Monitor your

competitors

Look beyondthe present

market

Possibility ofworking inpartnership

Looking forchanges thatrequire the

need fornew product

or service


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Example- Opportunities

A SWOT analysis would enable to determine whether opportunities could be exploited

with the available strengths. The following is the SWOT analysis of Coca Cola:

Activity - Opportunities

Identifythe factors that affect the international business opportunities.

Answer

International business opportunities depend on a number of factors. In some countries,

it would be much easier to start up a business and continue than in others countries.

Further, flexible trade policies would enhance the process of buying and selling among

the willing parties. Economic growth is another important factor that affects

international business opportunities. A high economic growth would enhance the

purchasing power of buyers and increase the number of suppliers.

Strengths Weaknesses

Best global brand Focus on carbonated drinks

Largest market share Negative public image

Strong marketing & advertising Massive debt levels

Extensive distribution channel Failure in brands

Customer loyalty Undiversified product portfolio

S W

O T

Opportunities Threats

Growth in bottled water usage Changes in customer preferences

Great demand for Nourishing food & drinks Scarcity of water

Growth through acquisitions Legal requirements

Competition from Pepsi


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1.2.2 Challenges

Creating the appropriate environment is very important when designing and running anenterprise. The enterprise should be designed in a manner that encourages the needs ofthe environment as well as the entrepreneurial behaviour. When starting a new

entrepreneurial venture, the entrepreneur faces many challenges that have to be takeninto consideration when designing and running an entrepreneurial venture.

Knowledge

When starting an entrepreneurial venture, there may be several challenges to

overcome. Especially when moving from idea generation to implementation, the

entrepreneur face many challenges.

Challenges in designing It requires lot of hard work in planning and conducting research on the

entrepreneurial venture;

It should have favourable access to capital, human and technological resources;

It involves high risks in terms of time, money and energy;

It is a time consuming exercise.

Challenges in running

Ability to handle the entrepreneurial experience

Management of cash and time Creation of a conducive environment for the enterprise

Greater responsibility in managing the enterprise

Adaptation of an appropriate marketing strategy

Be aware of competitor's actions

Transforming a business problem into a business opportunity is a challenge for new

entrepreneurs.

Identifying a problem

Looking for a opportunity in the problem

Solution

Building the opportunity in to a business idea

Integrate solutions to a business plan


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Example- Challenges

When creating a new business venture from scratch, entrepreneurs face many

challenges, which include:

Developing the enterprise vision and business idea

Financing the venture

Finding an appropriate business location

Finding right workforce

Attracting customers

Coping with competition

Tracing and keeping up business changes and trends

Activity- Challenges

Identifythe global trends that exist around the world.

Answer

Social technologies shape both personal and work life of people all over. Companies

create and deliver value to their customers through social networks.

The use of smart machines and robots has brought an industrial revolution. Robots are

now positioned to perform the work of professionals.

Retaining control over knowledge and information becomes a major challenge due to

mobility of societies.

Financial systems require reforms and redesigning, as customers require alternatives,

businesses require new methods of financing and regulators require change.

1.3 Personal traits & behaviour

As the environment in which entrepreneurs have to deal is uncertain and complex, theorganisation and its environment have to be designed in a way, which encouragesentrepreneurial behaviour. This section aims to give the students an understanding ofvarious personal traits and behaviours required to design and run an entrepreneurialventure.


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1.3.1 Entrepreneurial personality traits

The organisation and the environment have to be designed in a manner that encourageseffective entrepreneurial behaviour. The environment in which entrepreneurs deal isuncertain and complex. Therefore, entrepreneurs should possess certain traits and

behaviours to cope up with uncertainty and complexity. Entrepreneurial personalitytraits will help to determine the individual characteristics of entrepreneurs.

Knowledge

Entrepreneurial behaviour can be defined as the way in which you uplift the lives ofindividuals through the work performance of the organisation, which in turn helps theorganisation to rise. Entrepreneurial behaviour has to be morally and ethically acceptedby the society and such behaviour should help organisations as well as individuals toaccomplish their objectives.

Personal traits include:

Self confidence Self belief Self sufficiency Motivation to achievement Creativity Hard work

Commitment

No entrepreneur holds similar personalities, which vary from one individual to another.However, they should have important inbuilt personality traits if they are to succeed inthe industry. Such personality traits include ambition, being passionate and creative,perspiration, optimism and leadership.

Example- Entrepreneurial personality traits

Great entrepreneurs possess unique personality traits. They provide opportunities for

others and revolutionise the ways of doing business. Their spirit, determination,

ingenuity, self-belief and commitment are important traits that make them the best in

their field. The names of great entrepreneurs are Henry Ford (From1863-1947), J.P.

Morgan (From 1837-1913), Bill gates and Steve jobs.


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Activity- Entrepreneurial personality traits

Identifythe skills that most entrepreneurs lack.

Answer

Most entrepreneurs fail to manage themselves and their time. It is due to focusing on

major organisational goals. Entrepreneurs require assistants in their day-to-day

activities.

Entrepreneurs often make quick decisions. They may not have enough time to obtain

and analyse data. Entrepreneurs possess a vision but require employees to execute the

strategy.

Furthermore, entrepreneurs find it difficult to plan and organise organisational

activities due to time limitations.

1.3.2 Entrepreneurial behaviour

Entrepreneurial behaviour refers to the ways of practicing as to how such behaviourcan enrich the lives of individuals as well as the life of firms. Personal traits come fromthe individual personality while entrepreneurial behaviours are observed and skills are

developed.

Knowledge

The organisation and the environment have to be designed in a manner that encourageseffective entrepreneurial behaviour. Complexity and uncertainty prevailing in theenvironment has made it difficult for the entrepreneurs to understand as to how theyshould behave. Therefore, entrepreneurs should possess certain traits and behavioursto cope up with uncertainty and complexity.


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Diagramme- Personal behaviour

In addition, the following skills can be developed to enhance entrepreneurial behaviour.

Negotiation

Persuasion

Selling

Proposing

Time management

Creative problem solving risk measurement and management

coping with uncertainty,

social networking

A highly uncertain and a complex environment create a challenge for individuals and

organisations to learn and enhance knowledge and understanding so that they could

build up confidence to tackle uncertainty.

Personalbehaviour

Looking foropportunities

Graspingopportunities

Strategicthinking

Perseverance

Being ableto handle

risk


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In order to achieve this, you have to move from the narrow paradigm of

entrepreneurship to a wider notion of entrepreneurial behaviour (Allan Gibb, 2002).

Further, he stated that a conducive environment for entrepreneurship and learning

could be developed through stakeholders. Understanding the needs of each stakeholder

would reduce the transaction cost and increase the organisational efficiency that wouldintern enhances the future of the organisation.

Example- Entrepreneurial behaviour

The act of creating something new leads to entrepreneurial behaviour. Creating a novel

product, bringing up innovative ideas, application of new methods and creation of a new

computer programme are examples of entrepreneurial behaviour. The desire for change

motivates trendsetters and there is great interest to be different and to change the

status quo. The key to innovation is the behaviour of entrepreneurs.

Activity- Entrepreneurial behaviour

Identifythe characteristics of an entrepreneurial process.

Answer

An entrepreneurial process arises at an individual firm level. It is a result of a human

desire. An entrepreneurial process involves a change of status quo. It is a discontinuing

process with dynamism. Each entrepreneurial process is unique from one another.

1.3.3 Entrepreneurial leadership attributes

Entrepreneurial leadership is vital in managing an entrepreneurial venture. It is about

directing, communicating goals, motivating, inspiring and energising subordinates.

Knowledge

According to Kotter, leadership is about creating a sense of direction, communicating

the goals and motivating, energising and inspiring subordinates.

An entrepreneurial leader should have a good understanding of the market in order to

satisfy the needs of customers, which would in turn help in realising the organisational

goals.


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Entrepreneurial leaders possess certain leadership attributes. They would take the

initiative, risk, responsibility and demonstrate entrepreneurial creativity to set the

appropriate path for the organisation to succeed.

Sometimes leaders could also be considered as transformational leaders.

Transformational leaders see their role as inspiring and tend to motivate others

towards achievement of goals. It is said that only transformational leadership is able to

change team/organisational cultures and create a new direction.

A transformational leader can be an entrepreneurial leader, as he/she does not see

his/her relationship in terms of a trade where followers are rewarded in exchange of

their services rendered.

The entrepreneurial leader would try to maximise opportunities by applying:

Creative ideas to add value to the business operations

Innovative methods

Diagramme- Path-goal theory

Leadership style

Directive

Supportive

Achievement

oriented

Participative

Leadereffectiveness

Situational contingencies

1. Subordinate

Ability, experience

Self confidence

Locus of control

2. Environment

Task structure

Work group

Authority


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Example- Entrepreneurial leadership attributes

Michael Marks is the founder of Marks & Spencer. Simon Marks is the son of Michael

Marks who subsequently took over the business. Marks & Spencer appeared as a familyrun business for many years and dominated by the personality and power of the

founder. Simon Marks had an aggressive attitude towards the business. Simon brought

in new ideas by studying other markets and set strategies for the business. He gave due

consideration to customer needs and trends. Simon was meticulous and gave attention

to detail. Further, he possessed a strong sense of personal control. Simon ideally

followed a top-down approach.

Activity- Entrepreneurial leadership attributes

Explainthe importance of inner passion of an entrepreneur for his/her business.

Answer

The passion and enthusiasm are key features of successful entrepreneurship. Inner

passion cannot be taught or learnt through training and development programmes.

Each entrepreneur should possess, maintain and enhance the desire and concern

towards his/her business. It would in turn lead to successful management and growth

of the business.

Activity- Entrepreneurial leadership attributes

What is the difference between an autocratic leader and a democratic leader?

An autocratic leader commands and expects compliance. He/she is dogmatic, positive

and leads by the ability to withhold reward and give punishment. Communication of

such leaders may be primarily top-down in the form of instructions.

A democratic leader consults subordinates on proposed actions and decisions and

encourages participation from them. Such leaders could range from the person who

does not take action without subordinates views to one who makes decisions but

consults subordinates before doing so.


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1.4 Entrepreneurial culture

Paying attention to entrepreneurial culture becomes important as it a vital factor in

enhancing an entrepreneurial venture. This section would brief out the importance ofan entrepreneurial culture.

1.4.1 Culture

Culture is a system that shares values and beliefs and guides the behaviour of the

members of a firm. Entrepreneurial culture is important to guide the behaviour of

individuals. The culture begins from the first day on which the entrepreneur starts the

business. It is part of the organisational strategy, which helps it to meet the expectations

of stakeholders.

Knowledge

The culture of the organisation provides a clear vision of what the organisation is

attempting to achieve. The core culture of an organisation comprises values, beliefs and

taken for granted assumptions by the people in that culture. This would therefore,

determine why things are done this way. It could emphasise on values of performance,

excellence, innovation, social responsibility, integrity, customer service and team

working.

The internal culture of an organisation has the potential to:

Shape attitudes

Reinforce common beliefs

Direct behaviour

Establish performance expectations

Motivate employees


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Symbols

Symbols could include the use of language and other non-verbal expressions to

communicate important themes of an organisationslife.

Diagramme Culture, environment and strategy

Culture is able to sort out and interpret important information of the environment.

Furthermore, it filters a variety of strategic choices.

Organisation Environment

Strategy

Organisation Environment

Information

StrategyCulture

limits

choice of

strategy

Culture filters

information


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Example- Culture

Novelis offers unique rolled aluminum products and is the market leader. The corporate

culture of Novelis guides all what the company does. The products of Novelis representthe unique characteristics of their corporate culture. The corporate culture of Novelis

provides evidence on the value created for customers. Furthermore, the corporate

social responsibility towards the employees and society proves the same. Novelis

believes in continuous innovation in quality products for future success. The company

attempts to create leaders who would make that happen.

Activity- Culture

Identifythe weaknesses that could exist in an entrepreneurial culture.

Answer

Inadequate motivation would lead to a poor entrepreneurial culture. Generating

financial returns should not be the only motivation for an enterprise. Apart from

financial success, the employees require other types of motivation to be proud of what

they do.

Lack of focus is another weakness that could exist within an entrepreneurial culture.

Such enterprises do not have and or do not follow a formal business plan. As a result,

the employees would not be aware of the priorities of the business and its goals.

Departmental autonomy would lead to a poor entrepreneurial culture. When

departments become independent from one another, employees of each department fail

to realise that they thrive to achieve a common goal.

1.4.2 Creating an entrepreneurial culture

Culture is a very much essential component for any organisation to prosper. As culture

guides the behaviour of individuals, it is imperative to share right attitudes and values

among all the people in the organisation. The entrepreneur should have the ability to

create a culture, which is entrepreneurial to remain successful.


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Knowledge

An entrepreneurial culture is a system that shares values, attitudes, beliefs, norms and

expects every member to behave accordingly in case of environmental uncertainties

and competitor threats. Culture reflects the values of the entrepreneur and helps to

socialise the workforce of the business venture. Further, it teaches as to how the

business should deal with customers, how to treat each other, job responsibilities and

how to fit in and be a successful employee to the organisation.

For the culture to be entrepreneurial, the following have to develop within the entity.

Treat every individual with respect

Each individual of the organisation should be treated equally and trust should bedeveloped for the creation of a proper base for a sustainable corporate culture.

Health of employees

It is necessary to encourage employees to be healthy, e.g. the organisation could provide

health insurance to employees.

Effective communication

It is important to create an environment where the people could interact with each

other.

Conducting off-site meetings to discuss the progress of the organisation and to

share business plan

Once a healthy culture is created, it has to be closely monitored. To maintain the

entrepreneurial culture, the following steps could be taken.

Allow employees to grow together so that they could share their knowledge and

learning; Allow the culture to grow without trying to control it;

Employees should be appreciated and treated well. Politeness and friendly

atmospheres could make them feel that they are part of the organisation.

Benefits of having an entrepreneurial culture

The organisation would have an efficient and a loyal set of employees. When the

employees are treated with respect, they tend to give their level best to the

organisation.


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Greater innovations by letting the workforce grow in a comfortable, open

environment that gives the freedom to come up with creative and innovative

ideas.

The workforce would be motivated towards achieving their goals as they are

rewarded for their performance. Autonomy could be enjoyed by leaders and managers.

People in the organisation have the opportunity to interact, share and support

each other in generating positive returns.

Example - Creating an entrepreneurial culture

Chrysler had a bad period during 1990s with out of date products and poor customer

service. Further, the company was facing high costs and the market share was falling.

The president of the company during that time had a clear vision to be the technologyand quality leader in trucks and cars. The cultural change of Chrysler provided for a

clear vision of what the organisation was attempting to accomplish allowing individuals

to rally around the vision and work hard to support and achieve it. The new ideas and

values brought in by the employees of a small company acquired by Chrysler assisted in

its recovery. After a period of four years, Chrysler was able to make profits. The

company made use of the same employees but used different ways to work.

Example - Challenges

When creating a new business venture from scratch, entrepreneurs face many

challenges, which include:

Developing the enterprise vision and business idea

Financing the venture

Finding an appropriate business location

Finding right workforce

Attracting customers

Coping with competition

Tracing and keeping up business changes and trends


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Activity- Creating an entrepreneurial culture

Identifythe difficulties in developing an entrepreneurial culture.

Answer

In most instances, people fail to recognise the importance of entrepreneurship. Some

entrepreneurs are reluctant to take risks. Some societies always require assistance to

perform tasks from various bodies such as the government, tax authorities etc. There

could be cultural and religious barriers that may hinder the development of an

entrepreneurial culture.

1.5 Creativity & innovation in entrepreneurship

The number of entrepreneurs have increased over the years and they have been

identified as the creative destructionists of products or services. Entrepreneurs bring

about new innovative ideas and methods thereby making the previous ideas or methods

obsolete. This could results in the closure of some companies working with old ideas

and methods.

1.5.1 Creativity & innovation

Creativity and innovation help entrepreneurs to bring novelty to products and services.

Innovation begins with creative ideas. Creativity is the ability to bring something new

through imaginative skills. New ideas would be generated by combining, evaluating,

changing and reapplying current ideas. It is an attitude, which accepts change and

newness.

Knowledge

Creativity is an ability that enables individuals to think differently by imagining or

inventing something. New ideas would be generated by combining, evaluating, changing

and reapplying current ideas. It is an attitude that accepts change and newness. In

addition, a long process involves a lot of hard work, dedication and commitment.Moreover, ideas should be continually improved to develop solutions and come up with

better products or services. Essential componenets of creativity includes expertise,

motivation and creative thinking skills.

Creative results could be generated from the following methods.

Evolution

Evolution involves making improvements to the product or service through previous

experiences, e.g. the automobile industry, which brings systematic improvements to

new models based on previous models.


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Activity- Creativity & innovation

How would an enterprise overcome the barriers to creativity and innovation?

Answer

The first step should be to identify the barriers to creativity and innovation. Most often,

old guidelines and procedures would suppress new idea generation. Entrepreneurs

should always welcome new ideas and encourage change to take place. An enterprise

should establish an environment that would value, consider and execute new ideas. It

would generate trust and passion for creativity. Moreover, the capacity for innovation

and creativity should have a measuring system. The leaders of the enterprise should

always have positive attitudes towards innovation and creativity.

1.5.2 Challenges to entrepreneurial learning and understanding

There is a challenge to individuals and organisations to learn and enhance knowledge

and understanding so that they could build up confidence to tackle uncertainty. In order

to achieve this, you have to move from the narrow paradigm of entrepreneurship to a

wider notion of entrepreneurial behaviour (Allan Gibb, 2002).

Knowledge

Learning could be facilitated through better relationships with stakeholders. It gives an

opportunity to the entrepreneur to learn from customers, suppliers, banks, peers,

competitors and the government. Furthermore, there are challenges related to the

entrepreneurial approach to learning.

Challenge one is related to the entrepreneurial approach to learning (Allan Gibb,

2002) which includes creating the learning environment to learn key aspects of

how entrepreneurs way of life would change.When starting your own business

venture, you would have to move from present employment to self-employment,

which would bring greater freedom, autonomy and responsibility.

Challenge number two would be sharing of cultures and values. Therefore,

different actions are required to suit the situations. Hence, relationship building

becomes important in building up trust and confidence.

Challenge number three requires behaviours, skills and attitudes to be enhanced.

Behaviours such as looking for opportunities, grasping these opportunities,

strategic thinking and risk taking could be observed while skills are developed.


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Mini test

MCQs

1. Which of the following factor is not considered under the planning stage?

a. Identifying and evaluating opportunities

b. Preparation of a business plan

c. Analysis as to how the business gives a competitive edge

d. Gathering of resources

Answer

Correct answer - d

Only answer d is not taken into consideration under the planning stage. Gathering ofresources is considered at the beginning of implementation stage once the planning

stage is complete.

2. An important factor in creating an entrepreneurial culture is:

a. Recruitment of young employees

b. Treating every individual of the organisation with respect

c. Allocation of multi-tasks to employeesd. Encouraging long working hours

Answer

Correct answer - b

Answer b is animportant factor in creating an entrepreneurial culture as it helps the

organisation to develop a sustainable corporate culture.

3. Which of the following statement is not true?

a. Successful entrepreneurs are inspirational and motivational leaders.

b. An entrepreneurial leader maximises opportunities by applying innovative

methods.

c. To prosper, an entrepreneurial leader should be risk averse.

d. Leadership attributes differ from one person to another.


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Answer

Correct answer - c

Statement c is not true as an entrepreneurial leader should have the ability to take

risks when developing, managing and enhancing the entrepreneurial venture.

Short questions

1. Explainthe importance of developing a business plan.

Answer

A business plan is a document used by organisations to plan the specific details of their

activities. The main purpose of a business plan is to provide a clear direction as to what

the business intends to achieve over time.

Importance of a business plan:

It helps to understand what improvements are required for the business.

It helps the organisation to adapt to the changes in the market place as well as

trends.

It gives the organisation a sense of direction. It provides boundaries for the firms direction.

It helps to attract finances for the business as it provides information as to

whether the organisation has the potential to make profits.

The business plan gives the opportunity for investors to review data and

information to get a better view of the business.

It could be used to create motivation as it gives the possibilities of reaching the

desired vision.

It helps the entrepreneur to develop a cohesive strategy.

It helps the entrepreneur to review weekly the tasks and activities to be done sothat he/she could be on the right track.


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2. What factors should be taken into consideration when identifying business

opportunities?

Answer

An opportunity is a situation that exists or which we bring into existence or a situation

that could occur in the future. There are many opportunities in the market place and it

is essential to identify which opportunity would give us better results than the rest of

opportunities.

Following are some of the factors that could be taken into consideration when

identifying good business opportunities.

Stability of the company in associating such business opportunity

Assessing the products or services offered by the company

Seeing whether the opportunity is related to the business offering

Evaluating whether such opportunity helps the organisation to offer

something that is demanded or desired by consumers

Assessing whether business opportunities have well defined systems for

reaching target customers

The return expected

It is also important to assess the return you would receive by exploiting

particular business opportunities.


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Scenario based question

Tec Inc. is a business that manufactures fabric paint. The company was formed some

years ago. It purchases all its raw materials from local suppliers. Due to infrastructure

development in that particular region, it has now become a popular residential area.

Until recent past, Tec Inc. was able to manage its waste and garbage successfully

without any damage to the environment.

Excessive demand for fabric paint has resulted in more production of various types of

paint. However, Tec Inc. has now failed to manage its waste successfully. In the recent

past, the residents of the area had made a complaint with respect to the waste and

garbage being dumped to the environment.

Tec Inc. is in the growth stage of its business with great amounts of cash and profits

flowing into the business. A member of the trade union of Tec Inc. is also a member of

the local environmental council in the area where Tec Inc is situated. Customers of Tec

Inc. place great value to the products offered by the company.

Required:

Assume that you are an external consultant to Tec Inc. and you are required to analyse

the key stakeholders of Tec Inc. and recommendstrategies to be taken into

consideration with respect to stakeholder analysis.


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Answer

The key stakeholders of Tec Inc. could be analysed with the use of Mendelows Power

interest matrix.

The trade union representative would have a great interest in the business with respectto job security. Further, he would have high power due to his membership in the local

environmental council.

As the trade union representative has high power and high interest, he should

participate and involve in discussion and decision making with respect to the views of

both employees and the local environmental council.

The residents around Tec Inc. have high interest as the dumping of waste and garbageto the environment has resulted in pollution. However, they have low power to affect

Tec Incs operations.

The residents should be kept informed through education and communication to ensure

that their interest does not allow them to gain power.

The customers would have high power as they could switch to other suppliers if they

are unsatisfied with the products of Tec Inc. However, it is unlikely that the customers

would have high interest in the activities of Tec Inc. as long as they are happy with the

quality and the price of the product.

The customers should be kept satisfied by communicating to them the future expansion

of the business and hence, how it would add value to product range. This would avoid

the customers taking more interest in the business activities even if they hear of any

pollution.


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2 Business Behaviour & Global Environment

This section of the module will focus on the factors, which affect general business

behaviour in a constantly changing global environment. To survive in the industry, it is

crucial for a business to behave ethically and responsibly.

2.1 Business behaviour of organisations & factors influencing behaviour

This section highlights the importance of having good business practices and the factors

influencing general business behaviour. It is important to have an in depth knowledge in

these key areas when managing an organisation.

2.1.1 Business behaviour

Business behaviour can be defined as the way in which the business acts in the

environment in pursuing its goals and objectives. In order to gain public respect and

confidence, business organisations have to behave in a responsible manner.

Knowledge

To exist in the environment, it is imperative for businesses to behave in an ethical

manner. Application of favourable business practices involves the use of appropriate

codes of conduct with respect to the environment, labour and the public. Codes ofconduct have been introduced to set rules for good business behaviour. The behaviour

of the organisation has to be transparent to all stakeholders. Further, many

organisations have been formed to monitor the behaviour of companies. In addition,

there are organisations that provide their information through an environmental

report.

Stakeholders pay more attention to the following areas where businesses could behave

in an unethical manner. Labour/employee issues

Environmental issues

Preservation of natural resources

Ethics and social responsibility

Ethics is concerned with morally right or wrong decisions made by individuals and

organisations. Society, based on its prevailing values, would judge the behaviour oforganisations.


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Social responsibility is the need for an organisation to think beyond its immediate

shareholders when making decisions. It calls for organisations to maximise all the

positive impact on stakeholders while minimising negative impact.

An organisations approach towards social responsibility would be judged by the extent,

to which it makes:

Its economic duties - contribution towards GDP (Gross Domestic Product),

employment;

Its legal duties - being in line with the law of the land;

Its ethical duties;

Its philanthropic duties - donations and social welfare

Benefits of being socially responsible include the creation of a sustainable enterprise. It

also helps the organisation to carry out its activities continuously. In addition, it builds

reputation and support of stakeholders. By gaining support from all the stakeholders,

the organisation could perform better. Moreover, it attracts socially conscious

customers who are willing to pay a premium price as well as socially conscious

investors. Further, it could be used as a marketing tool and as a way of differentiating

product offering.

However, there are drawbacks of being socially responsible. These include higher coststructures as the organisation would have to incur additional costs to engage in socially

responsible activities.

It also results in lesser returns to shareholders as money is diverted to social projects,

which makes it difficult to maximise shareholders wealth.

In addition, the firm may keep away from markets for ethical reasons or price their

products to be more accessible for customers, which would in turn give the firm lesser

returns.


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Example - Business behaviour

Starbucks practices corporate social responsibility by taking action to reduce water, by

using a dipper well, which runs at a very low pressure. This has helped the company to

balance water conservation. It also offers a ten cent discount to customers who bringtheir own reusable cups and provide free coffee grounds for those who wish to use

them for compost that would in turn encourage their customers to be more

environmentally conscious.

The commitment of the Body Shop towards human rights has influenced how the

company deals with their suppliers all over the world. The Body Shop builds up close

relationships with the suppliers to ensure that both the company and their suppliers

give top priority to ethical trading. The Body Shop strongly believes that ethics is the

way to carry out business. Through the ethical trade programme, the Body Shop workswith suppliers to enhance the working conditions of the employees who make their

products. The Body Shop attempts to implement their supplier code of conduct at the

workplaces of the suppliers.

Activity- Business behaviour

Explainthe relationship between business ethics and corporate responsibility.

Answer

Business ethics is all about applying ethical values and corporate responsibility is the

expression of those ethical values with respect to key business strategies, loyalty and

duties towards stakeholders. Corporate responsibility focuses on what the organisation

is responsible for, to whom and why it is responsible. Corporate responsibility is

supported by the ethical values, policies and procedures designed.

2.1.2 Factors affecting general business behaviour

Many factors affect the general business behaviour of organizations. They include

include consumer behaviour, cultural, economic, political and environmental factors.

Before making business decisions, it is imperative for organisations to be aware of the

factors affecting their business behaviour so that it would help them adopt a pro-active

approach to changes taking place.

Knowledge

In order to practice good business behaviour, it is essential for organisations to identify

the factors affecting their general business behaviour.


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Economic factors

Economic conditions differ from one country to another. For example, when there is an

economic recession in a country, businesses would not focus on luxury needs. Rather

they would try to offer basic needs at a reasonable price. Changes in interest rates,

inflation and wage rates also affect business performance.

Political factors

Political factors would facilitate certain industries while discouraging some others.

Political instability would discourage business persons to engage in business activities.

For businesses to flourish, political stability is necessary. Some governments would

bring favourable policies to encourage certain industries. For example, a policy could

discourage imports in a bid to protect local business activities.

Environmental factors

Natural resources are a significant factor in determining business behaviour. For

example, an entrepreneur would build a hotel where there is natural beauty. Thus, it

becomes important to know about the environmental trends to make business

decisions. Environmental factors affecting businesses could be either internal or

external. Internal factors could be leadership, culture of the organisation and

manufacturing. However, these internal factors are within the control of the entity when

compared to the external factors like resources in the economy, political stability of the

country, social environment, government rules and regulations and actions of

competitors.

Example- Factors affecting general business behaviour

Social trends could influence the behaviour of business through an impact on the

demand for the organisations products. Ageing population is a known fact in the UK,

and this has caused to increase the costs for organisations that are committed to

pension payments. On the other hand, the demand for toys is decreasing while the

demand for sheltered accommodation and medicine are increasing.

The EU takes many different initiatives to improve the social environment. They design

schemes to improve health and safety of working environments, improving health,

creating better jobs, promoting research and ensuring social benefits to people who

travel between countries. An important objective of the EU health strategy is to reduce

health inequalities. The EU attempts to develop a health information system to provide

a better understanding of health inequalities.


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Activity- Factors affecting general business behaviour

1. Explainthe importance of an environmental analysis for a business.

Answer

A business needs to understand the current position of its environment and how it may

develop in the future so that a strategy could be developed to help it achieve a strategic

fit within its environment.

Understanding the environment is crucial as it is both a source of threats and

opportunities. The strategy should ideally use the firms resources and competencies to

capilalise on opportunities and neutralise threats.

2. Explainthe meaning of scenario planning and list out the steps involved in it.

Answer

Scenario planning helps firms develop future orientation of their business

environments. In doing so, strategy could be developed well in advance.

Scenario planning involves:

Defining the scope of the scenario, i.e the extent of the products and markets to be

considered.

Identifying the major stakeholders. The stakeholders in this case are likely to drivechange in the future and would have the greatest influence on events.

Identifying the trends. Looking at the past and the present, the kind of trends

developing in the PESTEL factors.

Identifying key uncertainties. These events or points cause trends to alter their basic

patterns.

Construction of initial future scenarios based on the trends and uncertainties. These are

often given catchy names by strategists.

Checking for consistency and plausibility. This is the process of re-examining the initial

scenarios constructed to assess if they make sense. For example, in a single scenario, it

may not be possible for there to be high interest rates and low inflation.

Developing learning scenarios. Out of the remaining scenarios, management attempts to

understand the scenarios better. This could involve doing future research to flesh out

the scenario.

Developing mathematical models to understand and forecast the scenarios.


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Developing strategic courses of action and contingency plans to be prepared in case the

scenarios materialise.

2.2 Resources, productivity & managerial competence

Resources are scarce (land, labour and capital) and have to be used effectively to satisfy

unlimited needs and wants of people. This section deals with the role of resources,

productivity and managerial competence in enhancing business performance.

2.2.1 Resources & productivity

To enhance business performance, the business should use scarce resources efficiently.

Productivity is the output per unit of input. When productivity grows, organisations are

able to generate more returns so that they will be in a position to satisfy their

customers, suppliers, employees, bankers, shareholders and government.

Knowledge

Productivity is a major determinant of the living standards and explains as to how the

available resources are used in an economy. High productivity generates many benefits:

it enhances business and trade performance, improves competitiveness, decreases

average costs, brings greater profits and ensures economic growth.

The economy grows when productivity grows. Production performance could be

measured from the productivity ratio (real output/real input).

Diagramme - Benefits of increasing national productivity

Benefits ofincreasednational

productivity

Improves

livingstandards

Contributes tosocial and

environmentalprogramms

Improvesbusiness

profis


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Efficient production generates greater income. It is measured by the following formula:

Formula Real income

Real income = Real output - Real input

Due to the increase in national productivity, the living standards of people go up as

better real income improves their ability to purchase more goods and services,

education, housing and enjoy leisure.

Human resource is an important component of any business, which should be managed

tactfully as it is a crucial resource for the success of the venture. Human resource

management is necessary as it facilitates training and development, provides expertise

in managing change, recruitment, selection and rewarding employees.

Management competence

To obtain a competitive edge over rivals, it is vital to have a competent management.

Moreover, corporate entrepreneurship is also essential in enhancing organisational

performance as entrepreneurial activities help the firm to come up with innovations,

products and methods.

For the management to be competent, new knowledge and skills have to be learnt and

the policies of the organisation should encourage innovations. Technical, human and

conceptual skills are essential to be competent.

Technical skills - Technique knowledge and proficiency

Human skills - The ways of managing people

Conceptual skills - The ways of formulating ideas to solve problems

Any organisation could acquire or develop resources and competencies over time.

However, those who already possess it would have a competitive advantage over

others. Thus, strategy should now be developed taking into account those existingresources and competencies. Organisations should ideally look for environments in

which they could stretch their resources and competencies. This could also refer to an

inside out view.


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Example - Resources & productivity

Many compani

Business Strategy and Entrepreneurship

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