The Development of Business Plans - Essay Example

? Enterprise in Action Table of Contents Introduction 3 2. Describing and processing the opportunity 3 2 Effectual approach 4 2 1 Identification of the problem 4 2.1.2 Effectual principles involved 5 2.1.3 Process of discovering the opportunity 6 2.1.4 Development of the opportunity 8 2.1.4.1. Management of Resources 8 2.1.4.2 Literature 9 2.1.4.2 Handling of barriers/ delays 12 2.1.4.3 Evaluation of achievements 13 3. Conclusion 14 References 15 1. Introduction The development of business plans is a challenging process, not only in terms of the skills and the resources required but also in terms of the risks involved. The specific process needs to be developed in a series of phases, aiming to limit the chances of failures. However, in extremely turbulent market conditions, like the current ones, it is quite difficult for business opportunities to be identified and developed. The use of the effectual approach in the decision making process could help to manage such projects more effectively. Current paper presents the phases of the identification and the development of a business opportunity. Suggestions are made regarding the processes through which a business opportunity can be identified and developed. Appropriately literature has been also used for explaining the requirements and the challenges of the particular process. It is concluded that the use of appropriate techniques for identifying and developing the particular business opportunity can reduce the risks involved. However, it is necessary that all phases of the process are continuously monitored so that the chances for major losses to be eliminated. 2. Describing and processing the opportunity In order to identify and develop a business opportunity it is necessary to follow certain processes. These processes are analytically described below. At a first level, it is necessary to choose the approach on which the processes will be based. The effectual approach of decision-making has been chosen under the terms that the future conditions of the market involved cannot be precisely defined in advance – taking into consideration the strong market turbulences because of the global recession. Each of the phases of the processes is justified using relevant literature; additional literature is analytically presented in a separate section. 2.1 Effectual approach The effectual approach of the decision making process is based on the proposition that since certain elements of the future are known, there are measures that can be taken for controlling it, even if its precise characteristics are not known. In the terms of the business environment, the above approach means that the future performance of business plans can be guaranteed – at an important level - by taking measures which are appropriate in terms of the common market conditions. The above approach is not based on the perspective that the exact future conditions of the market can be known, a perspective accepted in the causal approach of decision making. For this reason, the effectual approach has been chosen as most appropriate for checking a business opportunity, since this approach has the following benefits: a) it does not require accurate decisions but just effective plans; emphasis is given on the construction of the business projects and not on the development of a series of decisions; this fact can help to save time in realizing the projects, b) it does not require precise goals or stable market environment; this fact is an advantage of the effectual approach taking into consideration the turbulences in the global market, c) it does not require extensive market research, a fact that could also save time/ resources in the completion of the business project involved(Doke et al. 2007). The principles and the rules of the effectual approach have been critically examined in order to decide on their use in the identification/ development of a business opportunity. The effectual principles that have been proved more effective in the identification/ development of the proposed business opportunity are analytically presented in section 2.1.2 below. 2.1.1 Identification of the problem The most important problem when having to identify/ develop a business opportunity is to find the resources through which the opportunity will be identified at a first place; then the rules on which its testing will be based (referring to the feasibility study) have to be evaluated. The literature published in this issue explains the necessary elements of a successful business opportunity – and the methodologies required for its identification/ development (see section 2.1.4.2 below). The identification of the business opportunity – at a first level – can be achieved through the following resources: business libraries and the Internet. The primary and secondary date published in regard to the business activities developed within the target market will be evaluated for identifying the business opportunity which will be – at a first instance – more feasible, a fact that will be tested using appropriate techniques, as explained below. 2.1.2 Effectual principles involved The effectual principles on which the testing of the particular business opportunity will be based are the following ones: The personal skills/ potential resources available will be the basis for identifying a business opportunity Potential loss will be estimated – as possible; the chosen business opportunity cannot be too risky, especially if there are no resources to cover the relevant loss The stakeholders of the particular business opportunity will be chosen in advance A mechanism will be developed especially for managing failures and controlling surprises The use of effectuation in testing the particular business opportunity is related to the following risks: a) the extensive control on the project’s uncertainties cannot guarantee the limitation of risks (Sarasvathy 2008, p.294), b) the selection of model for testing the feasibility of the business opportunity may be difficult when changes in the market/ organizational environment are continuous and significant (Sarasvathy 2008, p.294), c) the terms for ‘transforming the possibilities into opportunities can be difficult to be identified’ (Read et al. 2011, p.6). 2.1.3 Process of discovering the opportunity The discovering of the opportunity will be based on an appropriately customized feasibility study (meaning not the opportunity as an idea, but on its feasibility and value, which have to be tested before proceeding to the next phase, which is the development of the opportunity). The feasibility study on which the discovering of the opportunity will be based can be described as follows (using the relevant model of Mullins 2006, p.217): Introduction (or Executive Summary) Micro Level assessment (part of the target market addressed, - size, needs, trends) Macro Level assessment (target market, as a whole, in terms of size, needs, trends) Macro Level industry assessment (use of Porter Five Forces model) Micro Level Industry assessment (potential revenue, capital required) Identification and evaluation of the team Summary Graph 1 – Suggested Feasibility study for discovering opportunity At this point, the following issue should be highlighted: the feasibility study presented above is general, being able to be applied on the identification of any business opportunity. The above study/ graph needs to be appropriately customized for emphasizing on particular elements of the business opportunity involved. For instance, in order to examine the technical elements of a business opportunity, a technical feasibility study should be developed, which should address the following issues: ‘location of the project, the material and the size of the building involved, the availability of raw materials’ (Naidu et al. 2009, p.238). Moreover, in accordance with Allen (2008) the last part of the feasibility test needs to include the identification – even at the average level – of the cost of the opportunity. Efforts should be made in order to estimate the level of capital required until the business project to start generating profits; in other words, the period of time required for the initial profits of the project to be generated should be estimated; then the cost of the project for this period could be calculated (Allen 2008, p.96). From another point of view, Beard et al. (2001) noted that the key element of a feasibility study would be the availability of resources, or else the acquisition of the resources required for the completion of the project (Beard et al. 2001, p.30), in terms that without the necessary resources, the realization of the business opportunity would be impossible, even if the opportunity could add value, i.e. generate profit over its cost. The feasibility study, as described above, should be combined with a SWOT analysis, through which details on the internal and the external environment related to the specific opportunity could be revealed. The SWOT analysis for discovering the opportunity should refer to: a) Strengths/ weaknesses: ‘unfilled customer need, intellectual property rights, reputation value’ (Leach et al. 2008, p.55) and b) Opportunities/ threats: ‘competitors, market size, substitute products’ (Leach et al. 2008, p.56); this part of the SWOT analysis could be developed using the Five Forces model of Porter (Fayolle 2010). 2.1.4 Development of the opportunity The development of the opportunity involves in the development of the activities through which the activity will be realized; in practice, this phase is also known as the development of the Action Plan, which usually includes the following phases (as in Gartner et al. 2008, p.194): Identification of the risks involved Design of a response plan Introduction of a mechanism for controlling risks and responses Graph 2 – Action plan for developing the business opportunity The risks involved in the action plan of the business opportunity, could be classified as follows: ‘business concept risks, business model risks and business feasibility risks’ (Gartner et al.2008, p.194). 2.1.4.1. Management of Resources As noted above, the first effectuation principle on which the discovering of the opportunity is based will be the self-assessment, i.e. the identification of the personal skills and competencies. Therefore, the management of resources employed in the discovering of the business opportunity will be primarily involved in the examination of the personal skills, meaning the ability to complete the particular project successfully. However, because the completion of the project requires more resources, the management of resources, as part of the business discovering process should also refer to: a) the potential contribution of people of the close social environment, b) the establishment of the principles on which the commitment of the stakeholders will be based (as also in Figure 1 of Lecture Notes); at this level the potential use of people out of the close social environment (referring to the environment of the project’s initiator) may be decided – especially in case that there is need for specialized skills and competencies which are not available in the close social environment. 2.1.4.2 Literature Business opportunities are rather easy to identified; in fact, a wide range of sources – including the media, the press, the professional and social environment – can be used for identifying these opportunities. However, there is always the risk of their misinterpretation, i.e. of a false evaluation regarding the potential requirements and the benefits of these opportunities (Iandoli et al. 2007). In this way, it is easy that the initial targets set – on the basis of using these opportunities – are not achieved. For this reason, it is necessary for the identification of a business opportunity to be followed by verification, i.e. testing, aiming to check whether the particular opportunity is feasible (Hitt et al. 2001). In accordance with Naidu et al. (2009) two are the main characteristics of a business opportunity that has many prospects for success: a) an extensive market research, meaning that the opportunity is appropriately tested using relevant market data and b) that it is feasible, meaning that the resources required for its development are available; the availability of resources may refer to the time point of the identification of the business opportunity or later on; in any case, it is necessary for these resources to be in place when testing the particular opportunity, otherwise, it will not be possible to evaluate whether its completion is feasible or not (Naidu et al. 2009, p.236). At this point, reference should be made to the process followed for testing the business opportunity; this process is part of the development phase of the business opportunity – on the basis that each business opportunity has two major phases: a) identification and b) development; it is during the first phase that a decision is developed regarding the feasibility and the viability of the opportunity – which is further realized through a series of activities included in the development process, i.e. the second phase of the relevant project. It should be also noted that the identification process of the business opportunity includes a series of activities; specific activities have to take place, aiming to ensure that the particular business opportunity is feasible. These activities are described in the study of Naidu et al. (2009) as follows: a) identification of the legal environment in which the specific opportunity will be developed; this task is particularly important since it can lead to the cancellation of the relevant project, even at this phase, b) SWOT analysis of the opportunity; in this phase, the internal environment of the opportunity is tested, c) a detailed feasibility study in terms of the technical, market, financials and social requirements of the particular opportunity (Naidy et al. 2009, p.236). Apart from the common problems that the identification and the development of a business opportunity have to face, there are also certain other issues that need to be taken into consideration when being involved in such activities: a) under certain terms, having being prepared on the processes is not an advantage; even if the theoretical implications of a business opportunities have been studied, still there may be practical issues that are unresolved. This problem is highlighted in the study of Gartner et al. (2009) where reference is made to the lack of value of preparation on such activities (meaning the identification and the development of a business opportunity) when the competitor is more experienced; it is explained that in many cases, experience is most critical from knowledge in order to overcome important barriers when working on the identification/ development of a business opportunity (Gartner et al. 2009, p.242). In this context, the existence of a detailed business plan cannot guarantee the success of a business project; even if business opportunity has been proved to have many prospects and an effective business plan is developed, still there are chances for failure in realizing the specific opportunity, b) under certain terms, the type of preparation made regarding the realization of a business opportunity may not be appropriate; for instance, when a feasibility study has been developed regarding a business project but this study is not adequate – because of the practical implications of the project – then the need for a business plan is emergent (Gartner et al. 2009, p.242). In the above case, it is possible that the realization of the business opportunity may not be feasible; the time/ resources required for the development of the business plan which is necessary for the realization of the business opportunity may not be available, a fact that can lead to the cancellation of the whole project. Leach et al. (2008) have emphasized on the economic value of a business opportunity, meaning the economic benefits that the particular idea is expected to have for the entrepreneur – and the stakeholders involved (Leach et al. 2008, p.54). The value of the opportunity is a necessary prerequisite so that the opportunity to be characterized as feasible. In accordance with the above researcher, the feasibility of the opportunity can be tested using specific tools: a) the first tool of this type is the SWOT analysis, in the context of which the strengths, weaknesses, opportunities and threats of a business projects are explored; the SWOT analysis covers all elements of both the internal and the external organizational environment (strengths and weakness are parts of the internal environment while opportunities and threats are part of the external environment) (Leach et al. 2008, p.55) b) the second technique of this kind is the ‘screening of venture opportunities’ (Leach et al. 2008, p.57); through the above technique the potential commercial benefits of a business opportunity are identified and evaluated. The findings of the literature, as presented above, have been used in the identification and the development of the business opportunity evaluated in this paper. Additional literature has been also used in the relevant activities at the level that it has been necessary for describing with accuracy the processes involved. 2.1.4.2 Handling of barriers/ delays Even if the identification and the development parts of the proposed business opportunity are carefully planned and monitored, barriers and delays may appear. This problem could be effectively faced as follows: a. By introducing an effective monitoring mechanism which will monitor all phases of the relevant processes; in this way, any potential problem will be identified early, allowing its early resolution b. By checking in advance its task of the process, reviewing the performance of similar projects; after studying the performance/ barriers of other projects with similar characteristics it would be possible to foresee any potential failure or barrier which is likely to appear up to the project’s completion c. By ensuring the skills/ motivation of all participants; reference is made to the individuals who will contribute in this project’s completion. Regarding this part of the project (which is incorporated in the identification phase of business opportunity), it would be necessary to ensure that the individuals involved in the project’s completion have the necessary competencies; otherwise, the development of the project would be quite risky. d. By having in place a plan for handling problems (including technical/ legal or social problems) that could appear during the development of the project. At this point, the following issue should be made clear: such plan could not be prepared in advance, i.e. during the identification phase of the business opportunity. However, it should be prepared before the development phase of the business opportunity; this plan could help keep the project within its cost/ time borders. 2.1.4.3 Evaluation of achievements After the completion of the identification and the development processes, the business opportunity should be evaluated; by that time, the opportunity should start to produce its benefits, so its evaluation could be feasible, even at a preliminary level. The evaluation of the success of the particular opportunity should be developed in two phases: a. After the end of the identification/ development processes, the success of these processes should be evaluated; at this point, any major failure would be reviewed and evaluated; it should be made clear whether the damage caused because of this failure should lead to the cancellation of the relevant project or not; also, the needs of these processes should be reviewed and evaluated; reference is made to the time/ cost/ resources of the processes; the issue whether these processes were completed within the time/cost framework set in the beginning of the project should be examined. Also, the volume of resources employed in the project should be reviewed and evaluated. Changes would be possibly required regarding the structure of the business plan under evaluation – aiming to ensure that it will be more effective. b. After the realization of the business opportunity, its performance should be reviewed; reference is made to the initial results related to the performance of the particular business opportunity. These results could show, even as indicators, the potentials of the specific opportunity to meet its targets – referring especially to the benefits expected, especially the short term ones. At this point, it would be valuable to compare the performance of the specific business opportunity with the performance of other business projects with similar characteristics. The difference of this second phase of evaluation of the project – compared to the first one, that related with the identification and development processes – is the following one: after the realization of the business opportunity, its evaluation would be continuous, i.e. it should be repeated periodically, ensuring the alignment of the project with the terms set by the project’s initiators. 3. Conclusion The identification and the development of a business opportunity can be characterized as a challenging task, taking into consideration the challenges highlighted above. However, the whole process could be handled more effectively if measures are taken in advance for limiting the relevant risks, as described in the previous section. At this point, the following issue should be highlighted: as also revealed through the literature, the chances for failures in entrepreneurial projects cannot be eliminated. In fact, it is always possible for such projects to face delays and barriers – even if measures have been taken in advance. This fact should be taken into consideration when evaluating the performance of the particular project. The above fact could also lead to the following assumption: the time/ cost of a business project cannot be precisely estimated in advance. Even if the business opportunity involved is proved to be feasible and with prospects for significant benefits, still there is always the chance for differentiations in the project’s time/ cost. In the same context, additional resources may be needed for the completion of the relevant project, an issue that should be also taken into consideration by the project’s initiators. It is concluded that the identification and the development of a business opportunities are multi-dimensional activities, being related to a wide range of challenges and barriers. However, the benefits expected may be significant, a reason that would justify the time/ resources spent on the identification and the development of a business opportunity. References Allen, K. (2008) Launching New Ventures: An Entrepreneurial Approach. Belmont: Cengage Learning Beard, J., Loulakis, M., Wundram, E. (2001) Design-build: planning through development. New York: McGraw-Hill Professional Doke, L., Hatton, E., Smortfitt, R. (2007) Entrepreneurship. Cape Town: Pearson South Africa Fayolle, A. (2010) Handbook of Research in Entrepreneurship Education. Cheltenham: Edward Elgar Publishing Gartner, W., Bellamy, M. (2009) Enterprise. Belmont: Cengage Learning Gartner, W., Bellamy, M. (2008) Creating the Enterprise. Belmont: Cengage Learning Hitt, M., Freeman, E., Harrison, J. (2001) The Blackwell handbook of strategic management. Oxford: Wiley-Blackwell Iandoli, L., Landstrom, H., Raffa, M. (2007) Entrepreneurship, competitiveness and local development: frontiers in European entrepreneurship research. Cheltenham: Edward Elgar Publishing Leach, C., Melicher, R. (2008) Entrepreneurial Finance. Belmont: Cengage Learning Mullins, J. (2006) The new business road test: what entrepreneurs and executives should do before writing a business plan. Essex: Pearson Education Naidu, N., Rao, T. (2009) Management and Entrepreneurship. New Delhi: I. K. International Pvt Read, S., Sarasvathy, S., Dew, N. (2011) Effectual Enterpreneurship. Oxon: Taylor & Francis Sarasvathy, S. (2008) Effectuation: elements of entrepreneurial expertise. Cheltenham: Edward Elgar Publishing Read More