Enterprise and Entrepreneurial Management - Assignment Example

? Enterprise and Entrepreneurial Management ABC 11/28 Contents Contents 2 Introduction: 3 Critical appraisal of the business planning process 3 Conclusion 7 Introduction 7 Characteristics of successful entrepreneurs 8 Characteristics of female entrepreneurs 9 Theories of entrepreneurship 10 Trait theory of entrepreneurship 10 Demographic theory of entrepreneurship 11 Theory of self – efficacy and effectuation 12 Conclusion: 12 Reference: 14 Introduction: A business plan is a formal written statement clearly documenting the objectives and goals of an organization, the steps to attain goals and the reason why the goals are achievable. This document contains details about the type of business conducted, the strategies adopted for marketing and sales, the financial background of the organization and a projection of the profit and loss statement. Most companies aim to make a business plan as it helps them in attaining stability and growth. Critical appraisal of the business planning process The business planning process itself has a lot of obstacles and this is one of the reasons many organizations do not make any business plans. These organizations in fact rely on the experience of entrepreneurs and top executives. Let us find out the obstacles faced in the business planning process. Idea generation The first step in a business planning process is to document which product or service the firm wants to sell. It is very relevant to find out and be clear on a business idea. Unfortunately, most business ideas may be implemented. This is because the top executives may not have conducted appropriate research on the customer market before coming out with a business idea. Another problem which individuals may face is the financial constraint. Most business ideas may not receive adequate financial funding. There are several problems which may lead to the failure of the idea. One is that the individuals who wish to launch a new product or service may lack the required skill and competence required, makes hurried decisions without making a thorough analysis of the consumer market or may be ignorant about what is to be done. Hence, most product or service ideas may miserably fail (Flint, 2002). Strategic objectives Once the product or the service has been finalized on, the top executives need to formulate a set of goals which needs to be attained in order to attain the final mission. These objectives need to be formulated in order to chalk out a path to attaining success. Individuals need to emphasize on certain aspects before formulating strategic objectives. These are monitoring alternatives solutions, future trends need to be predicted, problem areas need to be avoided and fixing both short term and long term goals (Ramanujam, Venkatraman & Camillus 1986). However, most planners may not be able to plan these objectives properly. This is because the above mentioned aspects need a lot of attention and lack of thorough research into these aspects may lead to wrong setting of goals. At times, the top management may set up unrealistic and unattainable goals. Market research and analysis Market research and analysis is a thorough analysis of the customer market and also seeks to find out the opportunities, strengths, weaknesses and threats. All in all in seeks to understand the product or the service market. All these aspects need to be researched in order to develop a thorough understanding of the customer’s needs and accordingly develop specific abilities and investment required for the necessary resources. Sometimes, lack of thorough product or service market understanding, may lead to the focus on the line of product or service be either too broad or too narrow (Slater & Olson 2001). Also the specifications relating to the performance of the product or service, the prices, and the complementary product or service line may affect market analysis and research. If any of these aspects, have not been thoroughly researched then it may lead to severe problem in the implementation of the business plan. According to the research conducted the line of advertising and market promotion activities need to be determined. Hence it is very necessary that a thorough understanding of the possible customer group and market is necessary in order to avoid possible pitfalls in planning. Competition This phase of the business plan witnesses through research by first identifying the immediate competitors and then collecting data and information about the strategies implemented by them to promote the product and the product itself. This means that the top executives need to focus on the features offered by the competitor. Accordingly, the business planners need to make a SWOT analysis of the product itself in order to devise market promotion and pricing techniques. Most often, the planners may not give adequate time in studying the competitor market and its products. The result is, it fails badly in the implementation phase. Also the strategies used by the rivals need to be studied and researched so that one may find alternate strategies to promote the product. There is a very positive link between quality and competition. The better is the quality of the product, the better the chance that the product matches the standards in the product market. This is one of the ways to beat competition (Banker, Khosla & Sinha 1998). However, there are very few firms which focus on optimizing the quality of the product as a tactics to beat competition. The result is that these plans fail miserably. Financial projections in a business plan A business plan must have a lot of financial projections based on which it will go ahead with the plan. It is very necessary that a projection of the funds required for future needs to be calculated by the finance manager. The finance manager must find out whether the funds obtained are adequate for the promotion and sale of the product. An estimate of the profit and loss for a certain period of time needs to be calculated. Also a thorough research into the assets and liabilities of the firm needs to be done by the finance department. If, at any point of time, the finance manager feels that the firm may need more funds, then alternate ways to garner funds has to be devised by the finance manager. Hence a thorough insight into the cash flow, profit and loss and balance of statement needs to be formulated by the finance manager. Accordingly, a finance budget needs to be chalked out. Firms assume that uses of cash should be equal to sources of cash (Gatchev, Pulvino & Tarhan 2010). If the projection in the flow of cash which comes in and out of the business is not conducted accurately, then the equilibrium is disrupted and this may lead to severe problems. Again projection in the profit and loss statement and balance of payments conducted is a mirror about the performance of the firm. These projections are very necessary as they provide guidance to investors whether to invest in the stocks and shares of the firm. However, these projections may always not be true as they are affected by many external factors. The stage of economic development and the personal incomes of the people are two demographic determinants which may affect such financial projections. Other than these, market conditions are prone to changes and a sudden recession, war or any natural disaster may adversely hit the market. Under such circumstances, the financial forecasts may not hold good (Cahn 1959). Competitive strategy and scenario analysis This is the last step in a business planning process. Here, the firm conducts a thorough analysis of the competitor’s strategies in order to outperform and outmaneuver both current and future strategies designed and implemented by the competitor. Accordingly, the firm designs its own strategies. However firms may be surprised by new strategies which are initiated by competitors. At times, firms may not be know about a particular strategy adapted by a competitor and hence may fall off guard. Sometimes, the response of the competitor to the strategic moves of the firm may considerably impact the firm and may force them to rethink their competitor strategy and scenario analysis (Fahey 1997). Conclusion All in all, business planners need to make their plans flexible so that they can keep on modifying the plans as per the situation. Planners need to emphasize on making an excellent plan, identify the key features of a formal management planning process and optimize the performance of the organization as a whole. In fact the traditional planning process is severely criticized as it is extremely rigid and follows processes and principles. In reality, implementation of such process runs into several barriers due to the uncertain business conditions. For a business plan to be successful, certain benchmarks must be followed. The firm must draw a balance between control and creativity. The business plan must be supported by all the members of the organization and the top management must be involved in the plan. A lot of attention must be paid to internal factors in the organization, SWOT analysis and the past performance of the firm. The functions of the organization must be integrated in order to fulfill the requirements of the business plan. Lastly, a lot of emphasis must be paid to the techniques employed in planning in order to restructure improper, strategic and messy problems (Ramanujan & Venkatraman 1988). Introduction An entrepreneur is an individual who acts as a role model by creating and imitating economic opportunities within given constraints. Joseph Schumpeter, the renowned Australian economist holds that an entrepreneur is an individual who focuses on innovation. Let us try to explain what an entrepreneur does. An entrepreneur is an individual who tries to create value by means of innovation, perseverance and time, takes a certain amount of risks with reference to financial, social and psychic constraints and receives the reward which may be in the form of personal and monetary satisfaction. Characteristics of successful entrepreneurs Nowadays, research scholars are focusing to get a better understanding of the psychological nature of successful entrepreneurs. They are trying to measure and identify the personality traits of individuals who have successfully spearheaded a new venture. McClelland is among the earlier scholars who employed to specifically measure an individual’s need for achievement. According to him the need for achievement is one of the principal characteristics and studies should consider even by excluding other factors. However present researchers studying entrepreneurial characteristics predicted two assumptions. The first is that the selection system should be objective and structured so that it could be administered by non – psychologists. The second assumption is that other factors other than the need for achievement should be measured. In comparison with ordinary individuals, entrepreneurs have higher need for achievement, leadership skills and higher need for independence. However the need for leaning on support is considerably low for entrepreneurs. Other personality traits displayed by entrepreneurs was having a higher inner drive, good character, perseverance, pleasing personality, ability to work with a group of individuals, absolute focus on goals and honesty (Hornaday & Aboud 1971). Another important factor which prompts individuals to become entrepreneurs is autonomy. The freedom or autonomy enjoyed at work is one of the pivotal factors. In fact, autonomy is directly proportional to job satisfaction. Variety is the degree to which a particular job requires diverse activities to be performed. Entrepreneurs are actively engaged in a number of different tasks like business planning and idea generation, organization creation, building a management team, developing and selling customers, services and products, manage and acquire resources and employees, conduct work process of employees and employ problem solving tactics with relation to services, products, suppliers, operations, employees and customers. The entrepreneur should display an intuitive style because the individual has to work under uncertain conditions prevailing in the environment. Some of the features an entrepreneur works under are ambiguity, incomplete information, uncertainty and time pressure. In high potential organizations, entrepreneurs can be distinguished by their urge for garnering higher growth and profit of the firm. Other entrepreneurs, who manage an expanding organization, are more adventurous, adjust to change, pursue openings, proactive, creative, restless and innovative. The intuitive style of the entrepreneur helps an individual to identity the opportunities which will help in creating more wealth. In fact, an entrepreneur recognizes future openings which others may not recognize. They use their information in a different manner and are always alert to find out and recognize new opportunities. The entrepreneur uses intuition in order to judge which opportunity to pursue. Given a set of opportunities, the entrepreneur will always pick up the opportunity from which he gets maximum growth and profits. In fact this quality helps an entrepreneur to take decisions given the person has a complex problem with inadequate data and a time constraint. Characteristics of female entrepreneurs In a study conducted they observe the personality traits of female entrepreneurs, it was observed that such individuals were more aggressive, better leadership qualities, independent and more autonomous than their male counterparts. On the other hand, female entrepreneurs placed low focus on the value of family over profession, conformity and benevolence and leaning on to others for support. Research scholars have found that most female entrepreneurs were the first born in their family and at least one of the parents played the most powerful role in establishing the credibility and desirability for becoming an entrepreneur. Another study on female entrepreneurs found that one of the principal reason for choosing entrepreneurship as an occupation is negative displacement in the previous job. Another study conducted by Reece and Pelligrino found that broadly speaking female entrepreneurs faced problems in areas related to finance, advertising, managing and in business planning. Most female entrepreneurs associated with the banking sector, lacked accounting and financial skills and in general were less self – confident than their male counterparts (Bowen & Hisrich 1986). Theories of entrepreneurship There may be three broad factors which influences the behavior of an entrepreneur. These are social, environmental and individual factors. The model looking into social factors takes into consideration the experiences in early life, family and personal backgrounds of the entrepreneur, the environment for growth and the stage of career of the entrepreneur. Environmental factors look into contextual aspects like reduction in tax, wealth value, opportunity timing in career path, indirect benefits, social upheaval, support with reference to economic and social culture and impact of the conditions in the market. Trait theory of entrepreneurship The individual factors look into the personal characteristics which distinguishes an entrepreneur from ordinary individuals. This is widely known as the trait model. This model assumes that entrepreneurs display certain personality traits, values and attitudes. Certain scholars have examined the tendency of an entrepreneur to take risks, innovation and the need for achievement; whereas others have tried to study the entrepreneurs’ achievement need, control locus and tolerance to work under the uncertainty of the market. The trait model examines the entrepreneurial characteristics of the locus of control, achievement need, ambiguity for tolerance, self confidence, inclination to take risks and innovation (Gurol & Atsan 2006). However the trait theory has been criticized by several researchers. This is because the methods for personality approach were not intended to measure the entrepreneurial behavior. These were borrowed from psychology and applied to entrepreneurship. The second argument against trait theory is that the different areas employed to measure entrepreneurial behavior have poor correlation and does not have adequate convergent validity. Thirdly, personality theories may hold good for broad situations but may not be applicable to specific domains like entrepreneurship. Lastly, trait models do not consider the interactive aspect of human behavior (Robinson et al. 1991). Demographic theory of entrepreneurship Many research scholars depended upon the demographic approach to identify entrepreneurs. This approach assumed that people hailing from similar backgrounds possessed similar traits. This approach used demographic variables like family background, order of birth, age, role models, marital and socioeconomic status, education of parents and self, work habits and prior work experience. This effect has also been criticized because it gives a lot of importance to experience. However, psychologists maintain that people learn from the conclusions drawn from experiences and not from experience alone. Demographic features cannot serve as surrogates for personality traits. Moreover the demographic approach does not qualify the established criteria to evaluate social science theory and research. It does not help to predict whether a person will be an entrepreneur or not. In order to understand the desire as to why experts perform scholars have conducted research in various areas like psychology, decision making, cognition and have also explored the discrepancies between novices and experts. Entrepreneurial studies have also experienced difference in personality traits due to difference in gender and aversion towards risk. The impact of biases and heuristics has also been examined. Theory of self – efficacy and effectuation One of the recent theories which have tried to observe entrepreneurial characteristics is the theory of self – efficacy and effectuation. The theory of self – efficacy and effectuation has a set of heuristics such as the control logic or affordable loss norm applicable only for the creation of new markets or organizations. Effectuation theory is inversely proportional to the theory of rational choice. In fact this theory helps to develop the basics of expert entrepreneurs. Especially in case of situations where resources are scarce, entrepreneurs may adapt effectuation strategies. Effectuation is used in order to better the chances of growth, success and survival of new organizations. However, effectuation thought is minimized once the entrepreneur and the firm achieve these primary objectives. The entrepreneurial expertise in terms of effectuation is seen only in the early stages of the new venture. However once the organization has attained success the effectuation element in the entrepreneur also starts lessening and the individual now depends on the rational choice approach (Read & Saraswathy 2005). Conclusion: To conclude, an entrepreneur should be a self – reliant and a confident person who is ready to take up certain risks in order to explore new products and new markets. The need for achievement is the highest motive which makes a person to become a path breaker and a role model. It is this motive that prompts an individual to venture out in order to explore new ideas and markets. According to me, an entrepreneur should have the qualities of effectuation, leadership and overall the individual should successfully establish himself or herself as a role model. The entrepreneur should use his or her intuition and experience in taking decisions and to solve complex problems given the uncertain environment. Reference: Banker, R.D., Khosla, I. & Sinha, K.K., 1998, ‘Quality and competition’, Management Science, 44(9), 1179 – 1192. Bowen, D.D. & Hisrich, R.D., 1986, ‘The female entrepreneur: a career development perspective’, The Academy of Management Review, 11(2), 393 – 407. Cahn, B.D., 1959, ‘Capital for small business: sources and methods’, Law and Contemporary Problems, 24(1), 27 – 67. Fahey, L., 1997, ‘Using scenarios to beat out the competition’, National Productivity Review, 39 – 50. Flint, D.J., 2002, ‘Compressing new product success-to-success cycle time: deep customer value understanding and idea generation’, Industrial Marketing Management, 31, 305 – 315. Gatchev, V.A., Pulvino, T. & Tarhan, V., 2010, ‘The interdependent and intertemporal nature of financial decisions: an application to cash flow sensitivities, The Journal of Finance, 725 – 763. Gurol, Y. & Atsan, N., 2006, ‘Entrepreneurial characteristics among university students: some insights for entrepreneurial education and training in Turkey’, Education + Training, 48(1), 25 – 28. Ramanujan, V. & Venkatraman, N., 1988, ‘Excellence, planning, and performance’, Strategic Management Planning, 18(3), 23 – 31. Ramanujam, V., Venkatraman, N. & Camillus, J.C., 1986, ‘Multi-objective assessment of effectiveness of strategic planning: a discriminant analysis approach’, Academy of Management Journal, 29(2), 347 – 372. Read, S. & Saraswathy, S.D., 2005, ‘Knowing what to do and doing what you know: effectuation as a form of entrepreneurial expertise’, Journal of Private Equity, 45 – 62. Robinson, P.B., Stimpson, D.V., Huefner, J.C. & Hunt, H. K., 1991, ‘An attitude approach to the prediction of entrepreneurship, Entrepreneurship Theory and Practice, 13 – 31. Slater, S.F. & Olson, E. M., 2001, ‘Marketing’s contribution to the implementation of business strategy: an empirical analysis’, Strategic Management Journal, 22, 1055 – 1067. Read More