Main Features of Enterprise and Entrepreneurial Management - Essay Example

? Enterprise and entrepreneurial management BY YOU YOUR SCHOOL INFO HERE HERE Enterprise and entrepreneurial management Generating ideas and strategic objectives Most entrepreneurs operate in environments that have considerable competition. It is necessary for the business to establish its own products or services and then differentiate them from competition. According to Boone and Kurtz (2007), differentiation is one of the most primary competitive elements that helps position the business against competition and establish a unique brand that customers recognise. This is why generating ideas is important, to identity potential innovations in either advertising or actual product development. Certain products and services have limited life cycles, meaning that they move from launch to growth to maturity in shorter periods of time (Keegan and Green, 2009). In order to maintain competitiveness, an entrepreneur must always develop new concepts in order to create products or services with longer sales potential and keep the business distinctive and original from competing firms. Strategic objectives are defined as “short-term statements that detail specifically how an organisation will achieve its long-term goals” (Nickels, McHugh and McHugh, 2005: 215). Once ideas have been generated about how the business will position itself, it is necessary to set-up and identify the steps required to achieve long-term strategy. This might include conceiving how to establish an organisational structure (vertical or horizontal), how to focus on human resources for people development, or determine advertising strategy. Objectives are important as they serve as a framework for how the business will achieve long-term market position or growth. Market analysis and market research Boone and Kurtz (2005) again identify the importance of market analysis, which is understanding what consumers value, their purchasing preferences and their lifestyle or family trends. A business must conduct either qualitative or quantitative research to determine how to segment customers for marketing and also how to target them effectively with promotions, pricing and advertising. The company can perform surveys or questionnaires, as two examples, in order to determine how it will provide effective products and services that will be appreciated and adopted by selected target customers. It is necessary for the entrepreneur to understand these consumer attitudes in a variety of different dimensions for the business to be able to compete successfully. Market analysis is about gaining knowledge of buyer behaviour and then applying customer service principles that will best satisfy customer needs. Market analysis is also about understanding the different forces that impact business success or will contribute to its failure. Michael Porter developed a framework known as the Five Forces Model that describes risk of competition, supplier and buyer power in the market, and threat of substitute products (Porter, 2011). A business needs to understand the volume of competition in the industry in order to develop a risk management model. Since entrepreneurs will also be procuring inventories from various vendors, the business needs to conduct market analysis to understand how much leveraging power it will have against suppliers and how to establish an efficient supply and value chain framework. It is vital to have knowledge of how the external market operates and this can only be accomplished through market analysis processes, such as PEST analyses. Understanding competition “To differentiate means to create a benefit that customers perceive as being of greater value to them than what they can get elsewhere” (Zwierzynski, 2009: 1). An entrepreneur must understand what competition is doing in terms of product delivery, service principles, or even advertising in order to create a unique market positioning strategy. Without knowledge of what competition is performing in the industry, it will be impossible to innovate to make differentiated products and services. According to Bessant and Tidd (2007) innovation is about being able to see opportunities and take advantage of them. The entrepreneur needs to scan the external industry environment and look at all of the competitive activities being performed by rivals, determine whether they can be benchmarked and incorporated into best practice or innovate based on observed competitive failures. The goal is to establish a brand that will gain customer loyalty to build market share for profitability. According to O’Dell and Pajunen (2000), customers are not loyal to any particular product or service and will be loyal only until the next best product or service comes along. Therefore, competitive analysis helps to set-up proper pricing, advertising and customer service systems. Financials: cash flow, profit and loss, and balance sheet projections An entrepreneur must understand the financial position of the business in order to create new products and services, receive financing and determine its economic health. The cash flow provides a snapshot of the current capital available to the business, how the company receives its cash resources and where capital is being spent. A business owner needs to have hard data about how it is paying its bills and how much sales revenue or investment revenue is being received in order to make proper strategic decisions. Understanding the importance of operating income versus expenses can be a measure of credit worthiness to investors or lenders as well and can also assist in future asset purchase planning. The profit and loss (or income statement) shows the profit associated with business earnings over a specific period of time. It is determined by the equation of sales – expenses = profitability. The income statement gives the entrepreneur a picture of the cost of goods sold (such as raw material costs) versus the sales revenue. This can show the business owner that new pricing needs to be established on products and services to offset cost of goods sold or reduce expenses on advertising if it is eroding profits and not bringing enough sales volume or consumer interest. The balance sheet shows a business’ total liabilities, equity and assets available at a given time. It will show the value of current inventories, cash or equipment versus the debts, such as long-term bank loans that erode profitability each month. If the business has stock, it will also show investors the total financial health of the business related to liquidity or return on investment as well as the current value of dividends. The balance sheet is one of the most important tools for gaining financing/lender interest for credit distribution or loan generation. Competitive strategy An entrepreneur must have a strategy that will outperform competition in the industry. Through market analysis and competitor analysis, the business determines how to position the organisation against competition and then develops the internal competencies to achieve strategic goals. For example, competitor analysis might indicate that competitors are weak in achieving interactive customer service solutions. This gives the entrepreneur the ability to establish technology as a competitive tool, thereby investing in software packages or information technology support teams for website development. According to Aziz and Yasin (2004) today’s business environment requires organisations to interact with customers and various business partners with technology as a means to create relationships and provide better service. A competitive strategy might be to build linkages to social networking sites in order to give the business more visibility with consumers or achieve real-time feedback about their concerns or praises about the business. Competitive strategy consists of the resources, both human-based or product-based, that gives the entrepreneur a distinctive edge against competition. Laffey and Gandy (2009) identify that buyers will evaluate their decision to make a purchase based on price, service and reliability. Therefore competitive strategy can involve establishing quality pricing, everyday low pricing structures or any tool based on market research that will give consumers incentive to select the entrepreneur’s business over that of industry rivals. Scenario analysis The business must understand how it will operate in certain scenarios as they occur in real-time or might occur both short- and long-term. For example, a business that is seeing its sales reduced due to limited consumer spending during a short-term recession needs to have a contingency plan in place to ensure that the business does not get into financial trouble. This is part of risk management. “Risk managers are advised to be on the solvency alert” (Peterson, 2001: 27). Scenario analysis might establish new investment potential as a means to gain capital during periods where sales volumes have decreased, such as hedge funds or maybe even taking the company public with stock offerings. The business must recognise how it will operate during certain environmentally-driven scenarios or related to internal operations so that it is prepared during crisis or even during times of profitability and success. Having back-up plans or the ability to change the existing operational framework in relatively short notice can be the output of scenario analysis to ensure that business continues to thrive or grow. This is necessary to avoid complacency and also to avoid being impacted negatively by external situations that are largely out of the control of the entrepreneur. Entrepreneurial characteristics There are many different characteristics that determine a competent and successful entrepreneur. Two of these traits are interactivity and focus, such as those related to developing strategic purpose, vision and mission, and taking an active role in leadership and management. Fiore and Lussier (2009) consider the role of entrepreneur as one that is always involved in conceptual planning processes, determining how to transform the mission and values into actual business operations. This means understanding how to build a successful supply chain, purchase the right equipment, understand the financial health of the business, and also how to establish controls over employees for productivity and efficiency. My personal skill set provides me with the knowledge needed to become interactive in system design and how to understand the total value chain associated with entrepreneurship. The business must understand how to develop an efficient system of procurement and also be able to manage employees using a blend of authoritarianism and softer human resources focus. According to Sandoff (2005) human capital is one of the most important factors to ensuring quality service production. They are “sensitive, reflect upon what they experience, and respond to their inner feelings and individual interpretations” (Sandoff: 530). In order to gain employee motivation, necessary to achieve service and operational success, the entrepreneur must be able to develop relationships with employees and model behaviours associated with integrity and human development. My educational learnings associated with human resources, sociology and psychology have given me the foundation required to take a leadership role and also motivate employees. One of the most fundamental theories in psychology deals with building a sense of personal belonging in order to gain motivation and cooperation and also to develop self-confidence in employees. Gurol and Atsan (2006) describe two of the most important entrepreneurial traits as maintaining a high locus of control along with self-confidence. In psychology, locus of control is the level to which an employee or business owner believes they are in charge of their own destiny or whether they believe they are being controlled by external forces (Treven and Potocan, 2005). An entrepreneur must fully understand what drives their employee motivations and then either control them with authority strategies or give them empowerment based on how they perceive their role in the organisation and with their peers. If the business is to gain loyalty from employees and ensure they remain cooperative related to job performance and meeting strategic goals, there must be some appeal to their emotions. Why is this, necessarily? Carter, Bishop and Kravits (2007) suggest that in order for a business owner to be successful, they must establish a framework for teamwork. “The more attuned you are to abilities and personality traits, the better you will be a supervision” (Carol, et al.: 52). Since employee motivation, attitude and self-perceptions will play a role in their ability to provide excellence in customer service and job role function, the academic lessons learned with psychology will be of significant benefit in the entrepreneurial leadership role. Some employees should be developed when they are high-performers to give them the sense of affiliation they require and the self-esteem needed to work independently. Since the entrepreneur cannot always accomplish all tasks alone, they require individuals with a high locus of control who can be coached and mentored by a leader who understands their inherent emotional drives and needs. Some of these skills I have earned through social systems, peer relationships developed over time, that can easily be applied to a business organisation. This is also linked with the concept of self-efficacy, or the level to which employees feel positively engaged to the organisation and perceive their role within it. Entrepreneurs also need to conduct market research in order to develop knowledge of the socio-cultural traits of consumers in the regions where the business operates. Shriberg and Kumari (2008, p.20) offers that in order to be effective and provide quality services, the entrepreneur must “develop an awareness of the different dimensions of culture that will be most central to their customers and followers”. This shows, again, the importance of conducting market research to gain these perspectives. For example, it would not benefit the company operating in an environment with high collectivism (group-minded with values related to social traditions) to create advertising that promotes individual self-expression. Instead, this entrepreneur would develop family-based advertising or work to develop interpersonal relationships with the customers through corporate social responsibility or attending community functions. Many of the lessons I have learned through marketing courses have taught me the important fundamentals of market analysis and research as well as identifying with different socio-cultural characteristics. I have come to learn the importance of positioning strategies in marketing, such as focusing on price or quality, in order to create a sort of bookmark about the company’s value in the minds of consumers. These lessons have provided me with understanding that knowing one’s customers is one of the most fundamental aspects of being a successful business owner. I have learned how to successfully carry out surveys and questionnaires as part of market research and also provide incentives to customers based on their cultural characteristics. As one example, Geert Hofstede provides an excellent template of international cultural dimensions to help entrepreneurs understand issues of power distance, individualism versus collectivism, etc. to build quality advertising content and service provision. Entrepreneurs must also have advanced knowledge of financial analysis in order to be successful. Financials provide knowledge of the current equity of the firm as well as how to plan for future or current asset purchases. An entrepreneur must understand issues of depreciation for liquidity purposes and the total equity existing in the company if they want to establish lines of credit or gain financing from reputable lenders. According to Danielson and Scott (2006), 23 percent of firms involved in a study frequently invest financial capital in new product line development and launch. In order to successfully expand or purchase assets that will actually contribute to entrepreneurial success, the business must understand the day-to-day and long-term financial position of the business. The skills provided in accounting courses have provided me with the knowledge needed to handle capital investments and budgeting required as an entrepreneur. I have learned in other courses how to read balance sheets, cash flow analyses and other financial data and also to prepare them using software. An entrepreneur must understand the databases that hold financial data and be able to manipulate them successfully. Many different information technology lessons have been learned over the years to gain proficiency in software usage and budgeting systems. These will be crucial as a future entrepreneur to prepare statements that will lead to interest from lenders or independent investors that will provide capital for growth or improvements to the business model. Smith (2006) also describes the entrepreneur as requiring the prowess to adopt risk in their business ventures. This means making decisions that could possibly lead to negative outcomes if the entrepreneur believes that risky moves could bring long-term benefit. For example, the entrepreneur might take on a very high bank loan requiring high monthly payments in order to expand to additional facilities of operation. This could, potentially, put the business at risk of the expansion project meets with low sales volume or other failures. However, the gains achieved if the expansion project is successful will absorb the costs of the loans and provide much higher liquidity (assets) to gain even more lender interest in future innovations or growth opportunities. This is one area where I need improvement as it relates to willingness to accept risk. I am generally very risk-averse and tend to make decisions based on hard data or where results are guaranteed. However, the literature provides suggests that to be successful as an entrepreneur, I need to shed some of these protectionism emotions and values and be willing to leap into situations that might provide potential negative consequences. It seems that most great leaders are willing to take creative risks in order to create a successful entrepreneurial business venture. I have decided to conduct secondary research into the psychology of emotional intelligence or self-exploration, whilst also doing comparative studies to the personality profiles of successful entrepreneurs as a means to change some of this about myself. I tend to, proverbially, play it safe when it comes to decision-making and I do not think, after reviewing literature on entrepreneurship, that this will necessarily provide me with a successful organisation in the event that one is launched personally. I think by conducting certain personality inventories available online and gaining new understanding about the factors that drive my tendency to avoid risky decision-making will help me to become a better entrepreneur. Therefore, self-examination, emotionally, is one area where growth is needed. I will also continue to learn about human resources and examine theories of motivation as it relates to teamwork as a means to improve my interpersonal skills, especially since I am very focused on working independently. To be a success, I need to be more socially-minded for team loyalty. References Aziz, N. and Yasin, N. (2004) The influence of market orientation on marketing competency and the effect of internet-marketing integration, Asia Pacific Journal of Marketing and Logistics 16(2), 3. Bessant, J. and Tidd, J. (2007) Innovation and Entrepreneurship. Chichester: John Wiley & Sons. Boone, L. and Kurtz, D. (2007) Contemporary Marketing, 13th ed. Thomson South-Western. 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(2009) Differentiation – smart marketing strategies for the solo entrepreneur [online] Available at: http://www.selfemployedweb.com/differentiation-marketing-strategy.htm [accessed December 1, 2011] Read More