Entrepreneurial Business Innovation - Essay Example

Entrepreneurial Business Innovation Table of Contents Entrepreneurial Business Innovation Table of Contents 2 Understanding of Value Creation Influenced by the Experience of Business Venture Planning 3 Introduction 3 The role of Business Leaders in Value Creation 3 Role of Business Leader Visible in the Proposed Plan 5 Conclusion 7 Developing a Strategy with Five Practical Steps to Improve the Venture 8 References 13 Bibliography 14 Understanding of Value Creation Influenced by the Experience of Business Venture Planning Introduction According to the Boston Consulting Group, the reputed global management consulting and advising firm, in these turbulent times of global economy, value creation should be given more attention and should be the explicit part of the corporate strategy process. According to BCG, a company's corporate strategy must have a detailed layout of how it can integrate its resources and capabilities to create superior value for its investors and nowadays, even for its stakeholders (Missing Link, 2008). Today, definition of value creation has changed to a considerable extent from those of traditional methods in a business firm. The ultimate indicator of the value of a firm, the market price or the stock price, is being affected much less by the earnings or the asset base of the company. Rather, value creation in today's company is being increasingly represented by intangible factors like innovation, human capital, ideas, brands, corporate social responsibility initiatives, customer relations, technology, management capabilities and others (Creating Value, n.d.). The role of Business Leaders in Value Creation The leader has a huge role to play in the creation of value. Some of the major roles can be described as follows: To provide vision, mission and objectives and ethical position: At the very outset, the leader has to enumerate the purpose of the company's existence. It is the vision statement. It may also be referred as the dream of a company. The next step is to describe the mission statement. The mission statement deals with the ways to deal with the vision. In other words, it says about the path to achieve those dreams. The objective of a company describes the immediate steps that are to be taken to achieve the vision and the mission. Ethical position implies that the company should have certain social bindings and should not forego its moral nature for the purpose of its profit. Portfolio Management: The ultimate objective of any company is to earn profit. For the purpose, the company must invest in those sectors or fields which it thinks would generate more profit. Since we know that resources are scarce, so the management must take utmost care to fix proper allocation of resources for the generation of higher revenue. The portfolio of the company must be guided by financial indicators like ROCE (Return on Capital Employed). Where, ROCE = Profit before Interest and Tax / Capital Employed The company should essentially invest only in the fields where the ROCE is above the WACC (Weighted Average Cost of Capital), otherwise, it cannot generate revenue. Managing the Strategic Value Drivers: It is said there are three strategic value drivers. Namely, Quality and Differentiation - The company must have a differentiated product from its competitors in the industry. Also, it should be qualitatively superior. It is very tough to get into the mind of the market i.e. potential customers, if the company does not meet the basic requirements. Cost - As the saying goes, a penny saved is a penny earned. The cost for the company should be kept as minimum as possible. All the major business leaders are following this principle with due diligence. Intellectual Property - Of late, this value driver has been recognised. As we know, intellectual property deals with the rights on patent, trademark, copyrights, etc, so the management of the company should understand how crucial this value driver is. This could be a source of long term benefit. Role of Business Leader Visible in the Proposed Plan L-Brush has a very well defined set of mission, vision and objectives. They have thought of having a strategic alliance with any of the major player as soon as possible. They believe that this is crucial for their survival in the industry; otherwise, it could be a soft target for a big firm. Also, in order to increase the customer base in a short period of time, it plans to come up with the offer of giving one replacement brush free to the customer when he buys one. Portfolio management of the allocation of resources has been fine for L-Brush Company. Return on Capital Employed has been found to grow every quarter, as Profit increases before Interest and Tax. Though, ROCE is negative in the first two quarters yet it is perfectly all right for a start-up business. There is due degree of differentiation in the product line as L-Brush is said to combine the toothbrush, the mouthwash cartridge and the toothpaste together into one product and so is expected to be a hit. The proposed plan has also taken care of the cost factor as it offers the manufacturers with the opportunity to build the production units in China as it would save a huge amount of capital investment of our company. After considering the value creation strategy as enacted by L-Brush business initiative, we are sure that it has employed the strategy based on marginal intensity and not on capital intensity. This can be said because capital intensive strategy essentially involves huge capital investment in the way of plant, machinery and others. However, L-Brush has thought of outsourcing the products from China. They have proposed to invest in rentals for warehousing, office equipments, van leasing, insurance premium and their likes. Also, the company plans to have a strategic alliance with a big player of the industry like Colgate or Oral-B to avoid itself from becoming a soft target. This also proves that it has a marginal intensive strategy. If it would have a strategy based on capital intensity, it would be considered to be a competitor to the big brands. Also, L-Brush does not have plans to invest in research and development. Rather, they believe in skills of segmenting the market in such a way that it gets to reach the unsatisfied customers. This fact also justifies that the company prefers marginal intensive value creation. Conclusion In today's business scenario, much emphasis is being given to sustainable growth. Unless the company has obtained growth in terms of sustainability, it is sure to become extinct. Though L-Fresh has defined its course of business plan in very distinct terms, still it did not talk about sustainable development. Also, the company wishes to make exit from the market after earning a considerable return by selling it off to a big brand of the industry. Though the company has a perfect blend of segmentation (to enter in to the market), innovation (product range), marketing strategies (e-marketing and international marketing to the customers of China and India), we still cannot comment upon its long term perspective of value creation. Also, the business plan of L-Brush has maintained astonishing silence over another important aspect of value creation - corporate social responsibility. Developing a Strategy with Five Practical Steps to Improve the Venture While, analysing value creation as the key activity of the entrepreneur, it was observed that though the business plan of L-Brush had certain explicit measures on its credit to create value, it was still far from being enough. Inspite of having a clear set of objectives, range of product differentiation and cost reducing measures by outsourcing the product from China, L-Brush has to bring in more initiatives to create value. But it was evident from studying the business plan that it missed the core objective of sustainability. In today's highly competitive market it is very tough to grow without sustainability. Even a business initiative will find it very harsh to exist within the industry without sustainable development. As Colorado College defines," sustainability as commitments and behaviors that are ecologically viable, economically sound, and socially just; now and for future generations" (Sustainability Vision, n.d.). In simple words, sustainability can be defined as the obligation of a company to initiate certain measures and approaches whose purpose will be the greater good of the economy and the society as a whole, for the present as well as the future. A Native American proverb says, "We do not inherit the land from our ancestors, we borrow it from our children." The proverb implies that the business houses should take enough measures to care for the future. It should have the 'giving back' approach to the society. The sustainable development essentially includes the basic factors like conservation of resources and improvement of the standard of living of the stakeholders. It can do so by following five practical measures: One of the prominent ways to inculcate sustainable development is to have proper framework of corporate social responsibilities (CSR). There can be 4 positions of CSR to a firm namely Strategic, Altruistic, Legal and Ethical & Legal. If there is no legal requirement of CSR, the company should ideally strive for Altruistic position. To be in this position the company takes CSR initiatives by option and tries to take measures to satisfy the stakeholders. This theory deals with 'Giving Back' to the society by the more fortunate persons to the less fortunate ones. This theory was followed by a wave of debate. It has certain principles like charity principle or steward ship principle, etc. Apart from initiating CSR measures, L-Brush, should have strived to make itself a brand in the arena of toothbrush. It has an innovative product and should explore all business opportunities. Rather, it is found that the company is considering an exit strategy by selling of its business to some rival company. It has a very fruitful strategy of having a tie-up with a hotel chain since its prime target is to attract the tourists. Along with this, the company can also think of having collaborations with some of the prominent tour and travel companies. While providing the ticket and other details to the traveler, he may also be given a product of L-Brush. Analysing the business strategy, we find L-Brush to avoid investments in research and development. But this cannot hold good for long term purposes. L-Brush has a plan to leverage its skills of market segmentation to reach the deprived customer. This is perfect for a new comer in to the industry where companies like Colgate or Oral-B are ruling for years but if L-Brush wishes to stay in the market and be successful, they have to resort to continuous innovation, research and development. If the company does not do so then its competing brands will soon invade the niche market leading L-Brush into trouble. The marketing strategy of L-Brush seems all right for the time being but if it is to stay in to the industry for long, the management has to look for untapped market. It will be a perfect idea if the company can venture into such a market where toothbrush seems distant reality. As per the business plan it seems that they have plans to enter the markets of India and China, which is fine since these two countries are the hunting grounds for most of the multi-national companies. However, it would be greater if they could also do so in Africa. Considering the economic condition in Africa, L-Brush can come up with special pricing in the Dark Continent as there is every possibility that a part of the African population do not use toothbrush. If they do so, it would benefit the company in both ways - corporate social responsibilities as well as profitability and would contribute to the sustainable development. Another major concern of the L-Brush management is that of its relationship with its employees and the customers. They should strive to have a cordial and just relationship with its customers, who can in turn be the salesperson for the company (reference selling, word of mouth and others). Also the company should maintain good work relationship with the employees, not only in Birmingham but also in the factory of China. As the business plan suggests that there are possibilities of strikes and lock-outs in the manufacturing unit of China, it would be prudent to have more manufacturing units in some other low-cost countries like India. The management should also take measures to ensure that there is no employee resentment in the factories in the foreign countries. For this purpose, instead of having the products made by foreign (Chinese) manufactures, L-Brush can itself set up a factory at the low-priced destination. By incorporating the above mentioned five steps L-Brush can definitely expect to have sustainable development. This in turn will result in the attainment of the ultimate objective of value creation along with other core and quantifiable measures of profitability like Return on Investment (RoI) and Return On Capital Employed (ROCE), Economic Value Added (EVA), and much more. References Creating Value, No Date, Value Based Management, [Online], Available: http://www.valuebasedmanagement.net/methods_valuecreationindex.html [May 5, 2009] Missing Link, 2008, The 2008 Value Creators Report, The Boston Consulting Group, [Online], Available: http://www.bcg.com/impact_expertise/publications/files/2008_Value_Creators_Missing_Link_Sep_2008.pdf [May 5, 2009] Sustainability Vision, No Date, Colorado College, [Online], Available: http://sustainability.coloradocollege.edu/Core_Values [May 5, 2009] Bibliography Alexander J., 2006, Performance Dashboards And Analysis For Value Creation, Published by John Wiley and Sons, ISBN 0470047976, 9780470047972 Corporate Social Responsibility, No Date, University of Miami, [Online], Available: http://www6.miami.edu/ethics/pdf_files/csr_guide.pdf [May 5, 2009] Lantos G. P., June 2001, The Boundaries of Corporate Social Responsibility, [Online], Available: http://faculty.stonehill.edu/glantos/Lantos1/PDF_Folder/Pub_arts_pdf/Strategic%20CSR.pdf [May 5, 2009] Mission : Solutions for Sustainable Development, No Date, The Earth Institute at Columbia University, [Online], Available: http://www.earth.columbia.edu/articles/view/1791 [ May 5, 2009] Mwale H., February 2002, A Reflective Account on the ways of Achieving Sustainable Development Given The Weakness OF Democracy in Africa and the very High Levels of Poverty - Working Group Two, [Online], Available: http://unpan1.un.org/intradoc/groups/public/documents/idep/unpan004221.pdf [May 5, 2009] Value Creation Tool Kit, No Date, McDONOUGH School Of Business - Georgetown University, [Online], Available: http://faculty.msb.edu/murphydd/CRIC/Readings/Lazslo--SustainableCompany-ch10-toolkit-2003.pdf [May 5, 2009] What is Sustainable Development', April 2005, Harvard Kennedy School, [Online], Available: http://www.hks.harvard.edu/sustsci/ists/docs/whatisSD_env_kates_0504.pdf [May 5, 2009] Read More