Business Fundamentals

Business Fundamentals
By: Global Text Project
By: Global Text Project
Online: < http://cnx.org/content/col11227/1.4/ >
CONNEXIONS
Rice University, Houston, Texas
This selection and arrangement of content as a collection is copyrighted by Global Text Project. It is licensed under the Creative Commons Attribution 3.0 license (http://creativecommons.org/licenses/by/3.0/). Collection structure revised: October 8, 2010 PDF generated: August 16, 2011 For copyright and attribution information for the modules contained in this collection, see p. 298.
Table of Contents
1 The business eco-system: Your path to nding the pot of gold at the end of the rainbow!
he usiness eoEsystemX our pth to (nding the pot of gold t the end of the rinow3 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F I 1.2 he usiness eoEsystemX he usiness eoEsystem F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F Q 1.3 he sun rise of your new usiness eessing mrket opportunityX the initil rim of the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F S 1.4 lesX the essentil rim of the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F V 1.5 trtegyX the ttil rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IH 1.6 frnding will mke your lossoms loom3 F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F II 1.7 tkeholdersX the onnetive rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IR 1.8 ithisX the uthenti rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IU 1.9 ypertionsX the logistil rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PH 1.10 xew produtX the tngile rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PI 1.11 vet the fruits of your lor lossomX the new produtGservie lunh event pln F F F F F F F F F F F F F PR 1.12 uli reltionsX the senstionl rim on the wheel F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PS 1.13 wentor insightsX the here the uer weets the od spokes on the wheel F F F F F F F F F F F F F PT 1.14 eout this uthor nd knowledgements F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F QI
1.1 2 The mind of the entrepreneur: Your entrepreneurial journey begins by embarking on your own hero's journey! 2.1 2.2 2.3 2.4 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9
sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F QQ intrepreneur ssessment survey F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F QR intrepreneuril mindset enhning tivities F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F QV ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F QW
3 Business models and marketing:an overview
verning yjetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RI ht is usiness modelc F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RI uess ftors F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RR gonsumer mrketing models F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RS he mrketing model F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RT sdentifying mrket needs F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F RU fusiness to usiness mrketing models F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F RW ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F SR wrket reserh to determine the potentil mrket for funerl servies in wonterE reyD wexio F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ST 3.10 hisussion questions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F SU 3.11 eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F SV
4 How to organize and lead an entrepreneurial venture 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9
verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F SW sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F SW yrgniztionl issues F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F TH yrgniztionl stges of growth F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F TQ plt versus tll orgniztions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F TT gentrlized versus deentrlized orgniztions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F TU ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F TV hisussion questions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F UH eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F UH
5 Selecting and managing your team
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5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 5.13 5.14 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9.1 9.2 9.3 9.4 9.5 9.6 9.7
verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F UI gompetitive dvntge through humn resoure mngement F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F UI roviding employee voie nd in)uene F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F UP eruiting workers F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F US ivluting reruiting poliies F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F UU imployee trining F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F VH eligning employee reer development with orgniztionl growth F F F F F F F F F F F F F F F F F F F F F F F F F F VP erformne pprisl F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F VR hetermining se py F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F VV weningful jo design F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F WR ermintion F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F F WU hisussion questions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IHP ixerise F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IHP eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IHP verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IHW he(ning mrketing F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IHW he role of mrketing in the (rmX sis for lssi(tion F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IIH he(ning interntionl mrketing F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IIQ he interntionl mrketing pln F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IIV he interntionl mrketing environment F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IPR hisussion question F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IPW eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IPW verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IQI ht is opertions mngementc F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IQI he inputGoutput trnsformtion model F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IQQ ypertions deisions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IQR ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IQW peil topiX otl ulity wngement F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IRH peil topiX supply hin mngement F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IRR peil topiX justEinEtime nd len systems F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IRU verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ISI sntrodution to externl reltionships F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ISI wrketing exhnges nd prtnerships F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ISR ghoosing the right reltionship F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IST trtegies for externl reltionships F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ITH ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ITT ixerises F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ITT eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F ITU verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ITW sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F ITW hy n ounting system is importnt F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F ITW fsi types of ounts F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IUI ghrt of ounts F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IUP fsi (nnil sttements F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IUQ e short history of ounting nd douleEentry ookkeeping F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IUS
6 Marketing on a global scale
7 Operations management
8 Securing and managing external relationships
9 Financial and managerial accounting; nancing your organization
v
9.8 9.9 9.10 9.11 9.12 9.13
vedgers F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IUT edvned reports nd nlyses F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IVH fudgets F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IVQ ghpter ummry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IVU hisussion uestions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IVV eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IVV verning yjetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IWI sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IWI s tools for the trtEp yrgniztion F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IWP woving porwrd ith snformtion ystems F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F IWR unow ht our gustomers nt F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F IWV sing snformtion ehnology gompetitively F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PHH ht is s isk wngement F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PHT ghpter ummry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PHV hisussion questions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PHW eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PHW verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PII sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PII he(nition F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PII smportne nd gols of ompetitive intelligene F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PIQ snformtion olletion methods F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PIS he industry environment F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PIT orter9s S fores nd the nlysis of ompetitors F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PIV wethods of evluting ompetitors F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PPH ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PPI eferene F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PPP
10 Leveraging with information technology 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10
11 Competitive intelligence
12 Business ethics in a nutshell 12.1 ht is ethis F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PPQ 12.2 wngementX the met profession F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PPV 12.3 gorporte soil responsiility F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PQI 13 Adding products and services 13.1 13.2 13.3 13.4 13.5 13.6 13.7 13.8 13.9 13.10 14.1 14.2 14.3 14.4 14.5
verning ojetives F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PQS sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PQS here does innovtion ome fromc F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PQT snnovtion through usiness models F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRH ivluting new produts F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRQ hen innovtion filsX deleting produts F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRR ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PRV hisussion questions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRV gseX epplesX xewton nd ippin F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRW eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PRW sntrodution F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PSI qloliztionX opportunities nd threts to developing ountry usiness F F F F F F F F F F F F F F F F F F PSP rrnessing tehnology for glol usiness suess F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PST hoing usiness ross ultures F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PSV olitil nd legl risk in interntionl usiness F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PTI
14 International business for the entrepreneur
vi qlol mrketingX essessing potentil mrkets overses F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PTR qlol (nneX initil onsidertions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PTV yrgniztionl struture nd humn resoure mngement F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PUI gorporte oil esponsiility nd sustinle development in the glol enviE ronment F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PUU 14.10 gseX fuilt to vst y tim gollins F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PVH 14.11 ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PVP 14.12 eferenes F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PVP
14.6 14.7 14.8 14.9 15 Growth strategies for start-ups 15.1 15.2 15.3 15.4 15.5
verning ojetives nd overview F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PVS he(nition nd models F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PVS qrowth prolems F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PWH ghpter summry F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PWQ eferenesD nd further literture F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FF F F F F F F F F F F F PWQ
Index F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F PWS Attributions F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F F FPWV
Chapter 1
The business eco-system: Your path to nding the pot of gold at the end of the rainbow!
1.1 The business eco-system: Your path to nding the pot of gold at the end of the rainbow!
1
Exhibit 1.1: Striking gold
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
MBA Candidate at Pepperdine
University Class of 2009
1 This
content is available online at <http://cnx.org/content/m35298/1.4/>.
CHAPTER 1.
THE BUSINESS ECO-SYSTEM: YOUR PATH TO FINDING THE POT OF GOLD AT THE END OF THE RAINBOW!
Dedication: In Memory of Nancy Wachs who believed in everyone's Startup time!
here re mny wys to live your lifeF yne of the most exiting yet hllenging wys to live your life is to strt your own usiness or work for someone who hs their own strtupF eople who strt their own usinesses re known s entrepreneursF intrepreneurs throughout the world re extremely enthusisti individuls who devise visionry methods to omplish their new venture ides while simultneously onvining others to helpF
Merriam-Webster Online denes the term entrepreneur as follows:Etymology: French, from Old French, from entreprendre to undertake more at enterprise Date: 1852 : one who organizes, manages, and assumes the risks of a business or enterprise
1.1.1 Are entrepreneurs born or made?
here is longEstnding disussion throughout the world tht delves into whether you re orn predisposed to eome n entrepreneur or is it neessry for you to work nd study hrd to mke yourself into oneF here re mny exmples of individuls who were told they would never mount to nything nd yet they went on to eome very suessful entrepreneursF oD if you think tht you re unlikely to e n entrepreneurD plese relize it is possile for you to eome n entrepreneur nd toD potentillyD even eome very suessful oneF ith tht sidD there re hrteristis nd n overll mindset you n dopt tht will help predispose you to hving greter opportunity of eoming suessful entrepreneurF ome of the most ommon hrteristis of n entrepreneur inlude the following ttriutesX isionX ele to rete nd ommunite n esily understndle mission for wht the new venture does in order to suessfully lunh new usinessF his is omplished while inspiring others to join you in your new enterpriseF gretivityX eility to injet imgintion nd uniqueness into new usiness ventureF st tkes skill nd ingenuity to rete new venture equipped with strtegies to outsmrt the ompetitionF pousX ele to mintin the vision of the ompny with unwvering diligeneF st9s very esy to get sidetrked espeilly if you (nd it neessry to evolve the originl visionF sronillyD we hve enountered mny suessful entrepreneurs who get ored esilyFFF ssionX hesiring to sueed under your own stem inititive on usiness ventureFFF hriveX ossessing intrinsi energy to omplish the usiness gol even in the fe of dversityF erseverneX ele to keep going even when fed with seemingly insurmountle ostlesF ypportunisti xtureX ees the possiilities even efore they existF gn tke dvntge of n upoming trend or unite unrelted proesses to rete unique usiness ventureFFF rolem olving eilityX hrives on oming up with solutions to omplex hllengesFFF elfEdisiplineX ele to e orgnized nd regimented in pursuit of suessful usiness ventureF pruglityX unows how to streth every ent so tht expenditures re s low s possileF impthyX ele to put yourself in nother9s shoes nd therefore le to show sensitivity nd understnding of wht others re ommuniting in the strtup environmentFFF oil esponsiilityX ithisD ring nd humnitrinism re hrteristis tht re ommonly found in tody9s entrepreneursFFF piritulityX e hve found tht suessful entrepreneurs hve often devoted time to spiritulity developmentF wedittion nd positive 0rmtions re two ommon exmples of spiritulityF qood imingX ele to identify mrket opportunity nd know when it9s the optimum time to lunh new venture or expnsion of n existing enterpriseF
2 Merriam-Webster's
30, 2008). Online Dictionary, Merriam-Webster Online, http://www.merriam(Assessed, August webster.com/dictionary/entrepreneur (<http://www.merriam-webster.com/dictionary/entrepreneur>)
1.1: "The Mindset of an Entrepreneur"
Q vukX gn person e predisposed to e lukyX ss luk humn ehvior or krmi universl predispositionc 3
Read onX etion PFI is dedited to this topi nd Blog Back 1: Mindset Blog BackX ss n entrepreneur orn or mdec
delves deeply into he mind of n entrepreneurF
ht hrteristis re neessry for n entrepreneur to e suessful nd whyc ht dditionl entrepreneuril mindset hrteristis ould e dded to the list nd whyc qo toX httpXGGwwwFwentorogrphyFom4 nd mke your seF
1.2 The business eco-system: The business eco-system

1.2.1 The business eco-system
hether you possess the hrteristis of n entrepreneuril mindsetD or work for someone who doesD you n still e instrumentl in strting new venture y understnding the usiness eoEsystemF ht is usiness eoEsystemc e usiness eoEsystem is set of usiness omponents tht form the foundtion of new venture9s retionF pigurtivelyD the usiness eoEsystem is like wheel tht rolls your new venture forwrd whih is why we represent the usiness eoEsystem in wheelEshped model F
3 The
Mindset of an Entrepreneur is reprinted and adapted with permission from Mentorography, Inc. Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, introduction pages xxviii-xxx.
2008. All Rights
4 http://www.Mentorography.com 5 This content is available online at
<http://cnx.org/content/m35300/1.5/>.
CHAPTER 1.
Exhibit 1.2: Business eco-system wheel
The
Business
Eco-system
Wheel
is
reprinted
and
Wheel with permission from Mentorography, Inc.
Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Preface, page xxii.
adapted 2008.
from
the
Entrepreneurial
Marketing
All Rights Reserved.
Entrepreneurial
1.3 The sun rise of your new business Accessing market opportunity: the initial rim of the wheel
6
1.3.1 The sun rise of your new business Accessing market opportunity: the initial rim of the wheel
Exhibit 1.3: Rising sun
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
wrket ypportunity is positioned t the top of the fusiness ioEsystem heel for resonF ivery new venture strts with single seed or kernel of n ide to do something in usiness tht will result in money eing exhngedF ine there is lwys some risk ssoited with strting new usinessD you will hve to tke speil re to plnt the ide seeds of your new venture in wy tht llows these seeds to some dy loom into suessful ventureF
1.3.1.1 When to plant your market opportunity seeds
ithout dout it9s hllenging to know when to move forwrd nd plnt your new venture ides in the usiness grden where you wnt to grow your reerF intrepreneurs who re onsidering moving forwrd with new venture ide n utilize the following questions nd the top nd qo igns for eessing wrket ypportunity wtrixF 4ss there ustomer for this produt or serviec ss there someone who will uy the produt or servie you9re onsidering sellingc ou n9t e'etively nswer this question until you hve personlly spoken to the potentil ustomer nd sertined tht this person will uy your produtF ou need to know s muh out this ustomer s the ustomer knows out himselfX ht re
6 This
1.2: Stop and Go Signs for Accessing Market Opportunity Matrix
CHAPTER 1.
the demogrphis of this ustomerc ht in)uenes his uying ehviorc ht ftors ould led to this ustomer hnging his mind out uying the produt or serviesc ht will e the impt of risis during n emerging trendc What will it cost to make a sale to this customer? sf there is ommon pitfll for entrepreneurD it9s gretly underestimting the ost to quire nd repetedly sell to ustomerF he entrepreneuril mrketer must ount for every lst expense it will tke to mke the sleF gommonly missed expenses inludeX st' timeD trvel nd relted expensesD overhed for o0eD pyroll txesD soil seurity employer mthing expenses @whih ours in the nited ttes so your ountries9 equivlentDA unemployment pyroll relted expensesD mrketing expensesD nd the overll mount of time it tkes to mke sleF Is my timing right for this market opportunity? ou will hve rief window of opporE tunity to lunh your new venture or expnsion of n existing enterpriseF wisjudging your timing is often the di'erene etween suess nd filure with ssessing mrket opportunityF sf you re too erlyD you hve the right produt or servie ut your mrket is not redy for it yetF sf you re too lteD gint ompetitors my hve quired loyl followingD loking new entries to the mrketF Can I sell this product or service for a prot? iven if you hve n existing ustomerD nd hve urtely estimted wht it will ost you to quire tht ustomerY you might not hve sustinle usiness model until revenues outweigh the expensesFFFou need to (nd the inrementl steps you n tke to get to pro(tilityF his is not esyF eginD there is no rod mpD ut rememer tht ptiene is needed to reh pro(tilityF @yne solution tht is eoming ommon prtie throughout mny prts of the world is miroE(nningF wiroE(nning is where smll lon is mde ville to n entrepreneur in developing ountryF hile miroE(nning is rguly one form of (nning miroE(nning hs een doumented to e more sustinle form of (nning euse the mount of the lon is mde in suh smll @miroA mount tht the reipient of the lon does not hve to leverge the strtup9s est interests nd ssets in order to py the lon kF he smll mount of money loned to the entrepreneur n usully e pid k from the revenues tht the new venture is genertingF ghek out this miro (nning wesiteX httpXGGwwwFionForg7 FA fe open nd )exile nd reognize tht long the wy to pro(tility you might stumle on to produt or servie tht is in higher demnd thn the originl oneptF hen do s give up on my produt or serviec hen should s pull up the roots of my new venturec sn the hrteristis of n entrepreneurFFFperseverne ws listedF here is pointD howeverD where you need to pull the plug nd refous your energiesF ou know you hve rehed this point whenX ou hve run out of resoures nd n9t further leverge ny of the methods suggested in this ookF he ustomers who sid they would uy your produt during your reserh phse re no longer interestedF ou n9t e'etively mrket to your ustomerF st osts you more thn you mke to sell your produt or servieF huring mrket opportunity ssessmentD there re times when the entrepreneur needs to hit the rkes nd stopF xot stopping fst enough n led to filed usiness ndGor nkruptyF here re lso times when n entrepreneur should step on the elertor nd drive on to new mrket opportunity territoriesF unowing when to stop nd go in your new venture mrket opportunity ssessment isn9t esyF o help you deide when to move forwrd with nd when to forego n opportunityD plese see the top nd qo igns for essessing wrket ypportunity wtrixF4 st9s ommon for n entrepreneuril mrketer to get ught up in wht seems like gret ide or usiness oneptF his mtrix is oniseD esy to referene nd somewht simplisti wy to mke deisions on judging mrket
7 http://www.acion.org
U opportunityF his mtrix suggests four mjor uses for new venture to not (nd pro(tle mrket opportunityF eognizing when you re on the verge of going through top ign without rking is ritilF ou n refer k to these stop signs in this mtrix s onstnt reminders of when to turn your mrket opportunity strtegy in nother diretionF
Exhibit 1.4:
Stop and Go Signs for Assessing Market Opportunity Matrix When to Access Market
Opportunity text and Stop and Go Signs for Assessing Market Opportunity Matrix adapted and reprinted with permission from Mentorography, Inc. Assessing Market Opportunity, pages xxxix-xli. 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Mini Module on
sf you enounter ny of the four qo igns when you re ssessing mrket opportunityD don9t tke time out to pt yourself on the kF his is euse if you look over your shoulder you my see someone else relizing wht you hve disoveredF ueep driving on if you re enountering ll qo ignsF 8
Read onX etion QFI nd disuss Blog Back 2: Go Signs Blog BackX enlyze your new
mrket opportunity in greter detilF
venture9s mrket opportunityY do you hve ll qo signsc sf you hve ll or some top signs wht n you do to remove the rodloks tht re using your top signsc inter your strtegy for otining ll qo signs t httpXGGwwwFwentorogrphyFom9 F
8 When
to Access Market Opportunity text and Stop and Go Signs for Assessing Market Opportunity Matrix adapted 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and reprinted with permission from Mentorography, Inc.
and Survival Strategies by Molly Lavik and Bruce Buskirk, Mini Module on Assessing Market Opportunity, pages xxxix-xli.
9 http://www.Mentorography.com
CHAPTER 1.
1.4 Sales: the essential rim of the wheel

1.4.1 Sales: the essential rim of the wheel
10
Exhibit 1.5: The Business Eco-System Wheel and sales
1.4.1.1 What will I sell?
ou n sell produt or servieF e produt is physil item while servie is something you would implement or exeute on ehlf of someone elseF
Product ideas to consider selling
rndErfted rt nd rtifts for exporting pruit for selling t fruit stnd or using in the prodution of osmetis roney tht you produe s ee keeper wustrd ondiments produed from mustrd seeds rndrfted furniture intings y emerging rtists eyled goods mde into produts suh s purses mde from reyled juie nd sod ontiners
10 This
e resturnt tht o'ers food menus tht others enjoy eting ogurt served in ontiners tht re edile
Ideas for services to consider oering
roviding edution to hildren s well s dults in shool urifying wter t the site of wells tht my e tinted with rseni roviding guide servies to trvelers heveloping mrketing mpigns for lol usinesses unning food stnds for others roviding tiloring servies wnufturing furniture for usinesses nd residenes y'ering ooking servies to fmilies elling wireless phones for phone orportions roviding people to uild uildingsD housesD rods nd or ridges y'ering outEsoured from other ountries ll enter servies roviding omputer onsulting servies
1.4.1.2 Places for inspiration
4Kiva @wwwFkivForg11 A is the world9s (rst personEtoEperson miroElending wesiteD empowering individuls to lend diretly to unique entrepreneurs in the developing worldF 12 uiv provides list of entrepreneurs who seek lons nd desription of these entrepreneurs9 usiness oneptsF isit the uiv wesite to red the inspirtionl stories of these entrepreneursF httpXGGwwwFkivForgGppFphpcpgeausinessesF13 Aid to Artisans @eeAD @httpXGGwwwFidtortisnsForg14 A n interntionl nonpro(t orgniztionD is reognized leder of eonomi development for the rft industryF fy linking rtisns to new mrkets nd uyers to ulturlly meningful nd innovtive produtsD ee provides needed eonomi opportunities to rtisns while preserving the euty of glol hndmde rftsF 15
1.4.1.3 Financing: the fundamental rim on the wheel
yne of the gretest tlents tht most suessful entrepreneurs possess is the ility to persude others to invest funds nd resoures in strtup during the ide retion phse of new ventureF ou re not lone if you hve mjor onerns out ttrting the (nnes you need to get your strtup ide o' the groundF sf you re reding this nd thinking you do not know nyone who would onsider investing in your strtup we suggest trnsforming your thinking into more onstrutive thought proess in whih you elieve in yourself nd your own ility to hieve (nningF
Financing opportunities
Micro-nanciers @ho qoogle serh t wwwFgoogleFom using the key word 4miroE(nne4 to (nd potentil miroE(nniers tht you my wnt to reserh s one method of (nning your strtup ostsFA Family trditionlly is the (rst ple to look for funds to py for some of the strtup osts ssoited with new ventureF iven if your fmily hs no resoures to o'er you n still tlk to fmily memers out introduing you to people they know who might e le to helpF wore money then you n imgine hs een rised in this mnnerF
11 http://cnx.org/content/m35307/latest/www.kiva.org 12 Kiva, About: What is Kiva?, http://www.kiva.org/about (<http://www.kiva.org/about>) (Accessed January 11, 2009). 13 Kiva, Lend, http://www.kiva.org/app.php?page=businesses (<http://www.kiva.org/app.php?page=businesses>) (Accessed January 11, 2009).
14 http://www.aidtoartisans.org 15 Aid to Artisans, About Us, http://www.aidtoartisans.org (<http://www.aidtoartisans.org>) (Accessed January 12, 2009).
IH
CHAPTER 1.
FriendsD even sul quintnesD n t times provide (nning nd resoures for strtupF iven if friend is not le to diretly helpD you should sk eh friend or person you ontt for help to lso provide you with Q nmes of others they know who my e le to helpF Governmental support is lso possiilityF sf pplileD you n lso let the lol nonEgovernmentl geny ssoited with wht you re doing know your needs in se there is some support villeF Barter or trde is method y whih you ould provide needed servie suh s onsultE ingGmngement dvie in return for the resoures needed for your strtupF Savings tke long time nd e'ort to umulte in the mount most people need to strt new ventureF here re mny risks involved nd you my not ever e le to replenish the mount of money you took from your svings to invest in strtupF yn the positive side thoughD if you use your own svings you do not hve lon to py kF Bank loans re not usully ville to erlyEstge entrepreneurs unless you hve trk reord of previous suess ndGor the ssets to put up suh s home you own in return for seuring the nk lonF Networking refers to ttending eventsD onferenesD seminrsD nd ny tivity where y you n meet others who might e le to help your further your strtup9s developmentF Online networks re online wesites where you n onnet with people you know to ultimtely gin onnetions to people they knowF yne wellEknown online network is vinkedsn t wwwFlinkedinFom16 F eording to the eout vinkedsn wesiteD vinkedsn is n online network of more then QH million experiened professionls from round the worldD representing ISH industriesF 17 vinkedsn is ville in inglishD prenh nd pnishF ou n use the serh (eld t the top of every vinkedsn we pge to serh for people nd ompnies tht might e willing to (nne your strtupF ou n sign onto vinkedsn nd onnet with others tht would in turn potentilly e willing to onnet you to the people you re trying to meetF Memberships in ommunity orgniztions my e ple where you n meet likeEminded individuls interested in your strtup ideF se the opportunity to shre some informtion out your strtup with the people you meetF ou my (nd others who wnt to help you mke your strtup suessF
Read onX
etion IHFI ontins more mteril on (nning your usinessF

18
1.5 Strategy: the tactical rim on the wheel

1.5.1 Strategy: the tactical rim on the wheel
trtegy is the method you utilize to go out hieving the underlying gol of your strtupF st9s reomE mended tht prior to spending ny money on your new venture tht you (rst ome up with the strtegy or strtegies you pln to utilize to mke your strtup suessfulF hevising the right strtegy often requires gret del of mrket reserh on the history of your ompetitionD potentil ustomer needs nd wishes s well tking into onsidertion the eonomi limte nd ulturl ftors tht ould impt your strtupF
Examples of startup strategies:
Low cost leader y hrging less thn the ompetition Luxury cost leader y hrging more thn the ompetition First to market y hving your produt or servie in the mrket ple prior to nyone elseF his strtegy is often referred to s the (rst mover dvntgeF Creating sustainable growth for strtup mens tht the new venture will eventully mke more money then it tkes to operte the ompny nd tht the pro(tility of this venture is possile over n extended period of timeF
16 http://cnx.org/content/m35307/latest/www.linkedin.com 17 LinkedIn, About LinkedIn, http://www.linkedin.com/static?key=company_info&trk=hb_ft_abtli
(<http://www.linkedin.com/static?key=company_info&trk=hb_ft_abtli>) (Accessed August 15, 2008).
18 This
II
Creating societal wealth mens the ompny you re strting wnts to rete produt or servie tht will mke the world etter pleF he produt or servie you pln to rete will enhne soietl vlueF idutionl institutions nd shools re good exmplesF enother exmple is providing foods in the mrket ple tht re nutritionl in vlue n hve mjor positive impt on soiety9s helthF Paradigm shifting brand for strtup mens reting produt or servie tht revolutionizes the world3 ixmples inlude the (rst developers of irplnes tht not only mnuftured the irplne ut lso found wy to ommerilize the produt in the mrket pleF en emerging produt in this tegory is spe shipsF elthough it my sound frEfethed todyD there re severl orportions tody developing the design nd plns for the dy where y we get in our spe ship the wy we get in our r or on our iyleF ome welthy usiness owners re even tody dding spe ports to their grgesF
Read onX etion QFI nd etion Blog Back 3: Strategy Blog BackX smgine tht you
TFI oth ontin more informtion in setting your strtegyF
re strting new venture utilizing the strtegy of reting prdigm shifting rndF ht produt nd or servie might you develop to implement suh strtegyc qo toX httpXGGwwwFwentorogrphyFom19 nd shre your ide s well s post omment on wht you think of two other ides tht others shred regrding their prdigm shifting ideF
1.6 Branding will make your blossoms bloom!
20
Exhibit 1.6: Mid day
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
IP
CHAPTER 1.
1.6.1 Branding: The memorable rim on the wheel
frnding is the ore foundtion of your strtup tht is neessry to mke your produt or servie lossom nd growF frnding is ommonly used mrketing term tht refers to distintive imgeD usully in the form of logo or ompny mrk tht represents ompny or produtF sn reent yers ompny9s rnd hs eome n sset with (nnil worth known s rnd equityF he mrketing use of the word rnd9 is orrowed from the proess of urning rnher9s mrk into the hide of lf for identi(tion purposesF hen uilding your rndD the following heklist is helpful for mking your strtup loomF
1.6.1.1 Branding coaching What is the meaning behind the message your product and/or service represents?
gohingX ry writing the history of why you re strting this venture nd wht is the deeper mening ehind why you re doing this nd wht you hope the legy of the new venture will e in the mrket pleF eview the history nd pull out ny informtion tht seems relevnt towrd the meningF hen write up some drft messges you hope to ommunite when mrketing the produt or servieF
What is the brand essence of your new product or service?
gohingX he rnd essene of your venture is the hert nd soul ehind the produt nd servie you pln to developY the ore hxe of your produt or servieF he rnd essene is the foundtion of your rnds true identity nd the rnd essene typilly stys the sme over timeF en exmple of rnd essene is the medil orportion snterntionl tient essistne gentre hedqurtered in ingporeF e review of the orportion9s wesite @httpXGGwwwFipFsgGenGeoutG21 22 A leds one to elieve the rnd essene for the medil ompny is dedited nd experiened ptient re temsF sf you re not le to ome up with the rnd essene for your venture try reverse engineering the proess y sking yourself wht would you like the rnd essene of your venture to e nd then mke list of tion items you would hve to do to hieve reting ompny with this type of rnd esseneF gohingX ht sets our rnd prt from tht of the ompetitionc ry nswering the followingX ht is distintive out the rndc ht di'erentites this rnd from the ompetitor9sc row do ustomers pereive the rndc ht emotion does the rnd evokec ho ppreites the rndc hyc ht do ustomers get from the rndc here do ustomers go to (nd the rndc ht do ustomers see in the rnd tht the founders didn9tc 23 Source: nderstnding the issene of frnd edvntges questions reprinted with permission from wentorogrphyD snF PHHVF ell ights eservedF intrepreneuril wrketingY el tories nd urvivl trtegies y wolly vvik nd frue fuskirkD frnding tht orksD pge UWF
1.3: What is the brand advantage?
gohingX snvestigte wht the trdeEmrking regultions re for proteting your rndF ht re the governmentl proesses for seuring trdemrk for your rndc Trade marking is the proess one goes through to register with government entity the text nd or visul depition of your usiness nme ndD if pplileD the usiness mrk tht ompnies the ventureF e logo is the word utilized typilly to desrie the visul depition of the usiness nmeF
21 http://www.ipac.sg/en/About/ 22 IPAC, International Patient Assistance Care, www.ipac.sg/en/About/ (<http://cnx.org/content/m35310/latest/www.ipac.sg/en/About/>)
(Accessed January 2, 2009.)
What can you do from the start to make sure that others cannot use the mark or brand name?
23 Understanding
the Essence of Brand Advantages questions reprinted with permission from Mentorography, Inc.
All Rights Reserved.
Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk,
2008.
Branding that Works, page 79.
IQ sf you pln to trdemrk your logo or the text version of your usiness nme for protetion you n (nd out the neessry detils of this proess t the orld sntelletul roperty yrgniztion tX httpXGGwwwFwipoFintGportlGindexFhtmlFen24 25 y spei(lly utilizing the wdrid ystem for snternE tionl egistrtion wrks explined further tXhttpXGGwwwFwipoFintGmdridGenG26 F27 es of ytoer PUD PHHVD ountries9 sttuses re listed regrding the wdrid egreement gonerning the snterntionl egistrtion of wrks nd the rotool elting to the wdrid egreement gonerning the snterntionl egistrtion of wrksF iew this informtion tX httpXGGwwwFwipoFintGexportGsitesGwwwGtretiesGenGdoumentsGpdfGmdridmrksFpdf28 F29
1.6.1.2 Looking for inspiration?
ou n (nd mny exmples of logos in the proess of eing trdemrked in the nited ttes through the nited ttes rdemrk nd tent y0e wesite tht posts online he rdemrk qzetteF rere is n exmple of one issue of he rdemrk qzetteX httpXGGwwwFusptoFgovGweGtrdemrksGtmogGPHHVIPQHyqFpdf30 F31 yne you hve seured the trdemrk for your usiness nmeD you then proess legl stnding to protet ginst other usinesses using your ompny nme in the tegory you re doing usiness inF rdemrks re onsidered ssets to usiness nd hve monetry vlue if nd when you wnt to sell or merge your ventureF
The Brand Identity Guide: A blueprint toward success
yne you hve developed your usiness nme into logo nd re in the proess of trdeEmrking tht nmeD mny entrepreneurs egin widespred use of the logo in mrketing mterils to rise wreness of their produt or servie to their trgeted ustomersF ellEknown rnded usinesses ssign someone the tsk of mking sure the logo is properly utilizedD with the orret olor inkD in the orret sizeD in the orret lotion of the pge lyout espeilly when used in onjuntion with other logosF e style guide for the use of the logo is often lled rnd identity guideF of frnd sdentity quide to illustrte the use of your logo in ny mterils you or others rete to mrket the produt or servie you would like to reteF ht is your rnd essenec ht is your rnd dvntgec ht font nd font size will you utilize for your logoc ht if ny visul imgeGdrwingGillustrtion will ompny the text of your logoc ht olors will you utilize for your logoc sing the pntone olor hrtD selet the ext olor@sA you wish to utilizeF ill your logo e depited di'erently if it9s used in horizontl vs vertil pge ly outc ht is the smllest size your logo n pperc ht rules govern your logo9s use when it ppers with logos from other ompnies suh s my e the se with sponsorshipc sn wht ountries would you like to trdemrk your logoc
24 http://www.wipo.int/portal/index.html.en 25 World Intellectual Property 26 http://www.wipo.int/madrid/en/ 27 World Intellectual Property
Organization, http://www.wipo.int/portal/index.html.en
Blog Back 4: Brand Identity Blog BackX frinstorm the development
(<http://www.wipo.int/portal/index.html.en>) (Accessed January 11, 2009). Organization, Madrid System for International Registration Marks,
http://www.wipo.int/madrid/en/ (<http://www.wipo.int/madrid/en/>) (Accessed January 11, 2009).
28 http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf 29 World Intellectual Property Organization, Madrid Agreement Concerning

of Marks of and Protocol Relating to the Madrid Agreement Marks,
the the
International International
RegisReg-
tration istration
Concerning
http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf
(<http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf>) (Accessed January 11, 2009).
30 http://www.uspto.gov/web/trademarks/tmog/20081230_OG.pdf 31 United States Trademark and Patent Oce, The Trademark Gazette,
http://www.uspto.gov/web/trademarks/tmog/20081230_OG.pdf
(<http://www.uspto.gov/web/trademarks/tmog/20081230_OG.pdf>) (Accessed December 24, 2008).
IR
CHAPTER 1.
ss there nything else you would like to shre out the rnd you pln to retec qo toX httpXGGwwwFwentorogrphyFom32 nd shre n outline of your frnd sdentity quideF
1.7 Stakeholders: the connective rim on the wheel

1.7.1 Stakeholders: the connective rim on the wheel
33
our rnd nnot loom unless you ensure tht you develop your rnd in wy tht will plese everyone who omes into ontt with your usinessF he people who ome in ontt with your usiness9s rnd re known s your strtup9s stkeholdersF ho will e your strtup9s stkeholdersc ke im refully s you deideF gonsider estlishing ontts with some of the following suggested stkeholder tegories ommon to new venture enterprises mentioned in the trtup tkeholder errowF
Exhibit 1.7: Startup Stakeholder Arrow created by Molly Lavik, founder, Mentorography, Inc., Jan-
uary 12, 2009. Reprinted with permission from Mentorography, Inc.
2009. All Rights Reserved.
1.7.1.1 The stems of growing startups: denitions of startup stakeholder arrow selected terms
trtegistsX e strtegist is skilled person who my e dept t tking your overll vision for the usiness nd developing the pln of tion for hieving the overrhing golsF trtegists re experts t oming up
IS with the winning mneuvers for lying the foundtion of hving suessful ventureF he term strtegy ws originlly utilized to de(ne militry mneuver plnsF
Exhibit 1.8: Mid Day (Adapted)
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
Strategic advisorsX edvisors re people typilly with experiene in n re tht you wish to lern more outF edvisors imprt vlule wisdom tht you n utilize to lern vlule lessons regrding generting revenue nd pro(ts for your plnned ventureF Chambers of CommerceX ghmers of gommere re lrge memerships of usiness federtions representing hundreds nd sometimes thousnds of usiness ownersF NetworkX our usiness ontts tht n help you tody or in the future omplish your golsF intrepreneurs need vst networks of people9s ssistne to hieve the venture9s golsF FinanciersX pinniers re omprised of people or usiness entity tht provides (nnil resoures for your new usiness to utilizeF Micro-nanciersX hese re people who mke sh lons in very smll mounts to entrepreneurs in emerging ountries to people who hve very little if ny resouresF yften the people who reeive miroE (nned lons hve little to no experiene in usinessF e wesite where people n see miroE(nning in tion is loted tX httpXGGwwwFionForg34 F Venture capitalistsX hese re people who hve high net worth of resoures or re prt of n institution tht hs fund of high net worthF enture pitlists seek out entrepreneurs who re strting new ventures tht hve n opportunity to mke lrge nd fst return on the (nnil resoures investedF he min tegory tht venture pitlists hve previously invested in hs een the tehnology industryF e venture pitlist does not mke ny money until the new venture sellsD merges or mkes n initil puli o'ering known s n sy when for the (rst time tht usiness o'ers ommon stoks to the puliF intrepreneurs hve hd 4love nd hte4 reltionship with venture pitlists euse if the new venture doesn9t mke the ntiipted return on investment predited the venture pitlists usully hs the legl right to tke over prt or ll of the ownership of the new venture leving the entrepreneurship often out of
34 http://www.accion.org
IT
CHAPTER 1.
the venture from tht point forwrdF enture pitlists lso hve the ility to provide the sh s well s mentoring resoures needed for the new venture to thriveF Angel investorsX hese re privte individuls tht typilly hve lrge mounts of resoures to invest in your strtupF engel snvestors hoose to invest in your strtup euse they shre ommon interest in wht you re doingF ShareholdersX e person who owns or holds stok in usinessF VestingX esting ours when person ssoited with usiness venture is grnted leglly the right to possess stokEoptions if they work for spei(ed termF fy wy of exmple person9s stok options ould vest over three yer period with the person erning stokEoptions inrementlly nd fully vesting in ll the promised stokEoptions t the ompletion of the three yer termF MentorsX hese re role models who you n reeive instrutionD dvie nd ohing from regrding importnt lessons to follow to mke your new venture suessF MinistriesX hese re o0es tht provide servie to the ountry or stte of originF ConsulatesX hese re the o0il o0es of government ppointeeF hese o0es n e loted in the ountry of the government tht mde the ppointment nd or rod xqysX tnds for nonEgovernmentl orgniztion nd xqys re run y people who re not prt of the government lthough governments n prtilly fund n xqy s long s the funding government geny doesn9t retin ny type of representtive or ledership role in the xqyF sn the nited ttes type of xqy is referred to s nonEpro(t orgniztionF xqys typilly hve orgniztion missions nd gols tht re dedited to reting greter soietl vlue versus existing to sty solely foused on generting pro(tsF Ad agencyX his is ompny tht you hire to develop for py dvertisements to ensure tht your trgeted mrket is wre nd entied to purhse your produt or servieF PR agencyX e ompny tht you hire to generte fvorle puliity out your new usiness to people who hve een found through mrket reserh potentilly interested in uying your produt or servie eMarketersX e group of people tht you hire to implement your digitl medi strtegy for the online nd potentilly vi ell phone mrketing of your new usinessF ewrketers utilize ultimtely ny form of eletroni medi to promote nd dvertise your usinessF NetrootsX his word is newly oined termed tht omines portions of the words snternet nd grssE roots to de(ne type of mrketing tht trgets logs nd digitl medi in order to use powerful tion for hieving your new venture golsF he term originlly desried politil tion nd hs reently een utilized to desrie usiness tionF floggersX his term desries someone who keeps n online diryGjournlGlog of his or her tivities or omments on others9 tivitiesF yne of the most populr logs in the world is out entrepreneurs nd is kept y quy uwski lledD row to ghnge the orldX e prtil log for imprtil peopleF ghek it outX httpXGGlogFguykwskiFom35 F Social networksX hese re wesites dedited to fostering ommunity of individuls round topiF e mentioned vinkedsn erlierY peook is nother soil networking exmpleF eording to peook9s wesiteD 4willions of people use peook everydy to keep up with friendsD uplod n unlimited numer of photosD shre links nd videosD nd lern more out the people they meetF 36 eders of this hpter re invited to join my peook pge y registering to eome peook memer t httpXGGwwwFfeookFom37 @it is free nd soil networking siteA nd then enter wolly vvik into the serh (eld nd lik on my nmeF hen selet dd s friendF TextingX his is when you type in messge with photos or in some ses video vi ell phone GrassrootsX his is powerful movement of every dy people for useF gurrently there is grssroots movement to protet the environment throughout the worldF ViralX his hppens when mrketing messge is trnsmitted through people exitedly nd enthusistiE lly spreding the messge y telling others who tell others who tell others nd so forthF hen mrketing messge is spred vi 4wordEofEmouth4 the messge is visully depited s spreding in the sme wy old virus spreds nd multiplies through growing numer of people in the wintertimeF wrketers spend gret
35 http://blog.guykawasaki.com 36 Facebook, Molly Lavik, http://www.facebook.com 37 http://www.facebook.com
(<http://www.facebook.com>) (Accessed December 24, 2009).
IU del of money to ttempt to initite the spred of messges vi wordEofEmouthF roweverD it9s esier sid thn doneF en exmple of mrketing mpign tht ws spred vi wordEofEmouth ws the mrketing mpign for the (lm lumdog willionire whih is (lm out poor orphn from wumi sndi9s slums who is ndidte for winning millionsF InuencersX ersons who re opied for wering or emring prtiulr fshion or trendF ste mkers re often known s trend settersF Street teamsX his term is used to desrie group of often young people etween the ges of ISEPS yers oldD who trvel up nd down usully ity streets tively promoting the produt or servie they re pid to mrketF Membership organizationsX rde nd other forms of professionl ssoitionsD unionsD speil interest groups nd work relted lus tht one n joinF CommunityX he geogrphiD psyhogrphi s well s online neighorhood in whih your venture opertes on regulr sisF VirtualX ertining to your imge ppering in pereived mnnerD liveD somewhere other then where you tully re urrently lotedF he imge would pper vi digitl formt suh s through we merD simulted rti(il intelligent gent nd or three dimensionl imge suh s hologrm imgeF SuppliersX gompnies tht provide vlule resoures to your new usiness re true suppliersF VendorsX ypilly the vlule resoures re purhsed from ommeril resoures known s vendorsF ConsumersX hese re people who uy your produt or servieF EmployeesX hese re individuls tht work diretly for you nd re on your py rollF Read onX everl susequent hpters disuss the importne of stkeholders furtherF to tke im refully hereF ho will e on your trtup tkeholder errowc frinstorm ides for who spei(lly you would im to hve for your trtup tkeholder errowF fe sure to inlude ext nmes of usinesses nd people nd titles for this listF ry to utilize ll the spets mentioned in the provided tegories of the trtup tkeholder errowF qo toX httpXGGwwwFwentorogrphyFomG38 nd post drft of your trtup9s tkeholder errow listF
Blog Back 5: Stakeholder Blog BackX heide how you wnt
1.8 Ethics: the authentic rim on the wheel

1.8.1 Ethics: the authentic rim on the wheel
39
Ethics refers to the heart and soul of the activities you engage in while starting your businessF
row uthenti nd truthful you re during the strtup phse will set the stge for the future ethil threshold of your new ventureF es the founder nd hief visionry ehind the onept you re ringing to mrketD it is your responsiility to rete the vlues nd ompny ulture tht will e your usinessF yne ompny ulture is setD it is virtully impossile to lter the pth tht you hve set for your new venture to followF yne wy to try to ensure the ethil stndrds of your ompny is to (rst mke sure tht you hve good morl ompssF our morl ompss is the ethil stne you tke on deisions nd tions with your strtupF rere re some questions to onsider when developing your own morl ompssX
ht will the new venture9s ode of ethis sttec row will s mke deisions for the strtup tht will limit my revenue potentil ut will ultimtely e the orret tion to tke leglly nd ethillyc ht n s do to ensure tht the people s hire hve good vluesc ho will s go to for dvie when s hve morlGethil dilemmc ill s e ple of following the dvie tht s reeive for tking the right ethil tionc row will s know wht is ethil nd wht is notc
38 http://www.Mentorography.com/ 39 This content is available online at
IV
CHAPTER 1.
ht proesses will s put in ple to mke sure tht my st' nd the stkeholders s ssoite the strtup with re ting ethilly t ll timesc ht will s do if st' memer or key stkeholder s9m ssoiting with violtes my new venture9s ode of ethisc sn risis how will s ommunite to my stkeholders the sitution in the most ethil mnner possilec row often will s ross hek tht s9m following my new venture9s ode of ethisc ht seminrsD lsses nd guidne n s (nd to mke sure s9m ting ethilly when running the strtupc ht people n s go to in order to gin role modelGmentor for ting ethilly with my strtupc sf s end up doing something tht ws unethil wht will e my proess to orret the sitution nd to ommunite the sitution to my stkeholdersc ill s listen to my gut if s hve strnge ethil retion to someone or somethingc ss there nything else s should sk myself to develop my morl ompssc
st turns out in usiness tht selfEwreness of one9s tion is key omponent to understnding how to develop n ethil morl ompssF edditionllyD the trnsltion of n entrepreneur9s morl ompss into the development of new venture leds to the estlishment of the usinesses9 ompny ultureF he ompny ulture is the vlues you deide to instill in the new ventureF
1.8.1.1 Making good: elements of a values-based company culture
rovide sfe work ple nd len work environmentF y fir wges to ll employeesF rovide ene(ts of some kind for employees tht my inlude helth insurneD dentl insurneD vision insurneD retirement investment plnD pension of prtil slry to e pid one n employee retiresD nd reimursement for ontinuous lerningF rost employee ppreition eventsF fe respetful to ll employeesF ret ll stkeholders with respet nd firnessF rve suggestion ox or method where y employees nd stkeholders n mke suggestions tht you review nd onsiderF fe good orporte itizen y supporting some xqyGnonEpro(t entities either y pying your employE ees to volunteer for these nmed uses or mking sh dontions or sponsorships to (nnilly help support these orgniztionsF his type of tivity is known s g @gorporte oil esponsiilityFA en exmple of ompny tht hs een good orporte itizen nd routinely prties g is qrupo fimo whihD ording to the ompny9s wesiteD ws estlished in IWRS nd is onsidered one of the most importnt keries in the worldF sn PHHUD qrupo fimo9s net sles mounted to 6 TFU illion dollrsF sn keeping with the ompny9s soil responsiilityD qrupo fimo prtiiptes in importnt ommunity projets suh s the reforesttion of proteted nturl res in wexio s well s in series of di'erent projets for ommunity welfreF ou n red ll out qrupo fimo9s oil esponsiE ility work in helthD ommitment to the environmentD ommitment to ssoitesD nd ommitment to soiety tX httpXGGwwwFgrupoimoFomGdisplyFphpcsetionaT40 41 edopt triple ottom line philosophyF riple ottom line mens your ompny res eqully not only out mking pro(t ut lso out tking re of the people ssoited with your ompny nd onduting usiness in wy tht is good for sustining helthy environment for the plnetF o to summrizeD the triple ottom line philosophy mens you re eqully out peopleD plnet nd pro(tsF hevelop sustinle usiness prtiesF yne who res out the environment of his usiness goes to the troule nd expense to mke sure tht heX
40 http://www.grupobimbo.com/display.php?section=6 41 Grupo Bimbo, Social Responsibility,
http://www.grupobimbo.com/display.php?section=6
(<http://www.grupobimbo.com/display.php?section=6>) (Accessed December 28, 2009).
IW
hs reyling progrm for not only grge ut lso old eletroni devies nd toxi wste disposl from tteries nd printersF utilizes o0e lening supplies tht re environmentlly sfe nd don9t outgsF yutgssing is term tht refers to indoor ir qulity nd desries the slow relese of gs from mnuftured mteril suh s furniture or rpetsF yften the term is used to desrie the potentilly unhelthful ttriutes of newly mnuftured mteril s this gs is relesed indoorsF rries out o0e remodeling nd onstrution in sfe for the environment fshion y using low ygD @oltile orgni ompounds @ygsA re emitted s gses from ertin solids or liquidsF ygs inlude vriety of hemilsD some of whih my hve shortE nd longEterm dverse helth e'etsFA42 D pints tht do not out gs s well s insultion mde from reyled mterilsF reples ompny light uls nd lighting (xtures with energy e0ient light ulsF produes mrketing mterils tht use soyEsed ink nd re printed on reyled pper stokF re uses the reyled logo mrk on mterils to ommunite to stkeholders tht he is onerned with sustining the environmentF works with vendorsD suppliers nd ll of his stkeholders tht support environmentl protetion ttisF onserves energy nd resoures whenever possileF woving to four dy weekD ten hour dy shedule n y wy of exmple onserve energy nd ultimtely ut kilowtts to rete slender gs nd eletri illF rewrds employees for trveling to nd from work in sustinle wys suh s wlkingD riding iyleD tking puli trnsporttion nd when pproprite rEpoolingF if pplileD purhses ompny vehiles tht re eletri or eletri hyridsF stys urrent with environmentl literture to keep employee9s knowledge se strong on onservE ing energyF
1.8.1.2 Going green on a shoe string
ou my e wondering wht you re going to do tke the ethil stne on your ompny9s protive sustinility plns to protet the environment when you re in the strtup phse of your ventureF st hppens tht doing the right thing for the environment is not just good for the environment ut it lso n e pro(tle no mtter wht your soioEeonomi stte is tody with your usinessF he reommended energyEsving ttis listed ove will help you sve money on your eletri illF fy operting sustinlyE foused ompny you will e generting growing mount of good will for your ventureF end good will is something you n tke to the nk3 qoodwill is the di'erene etween wht your ompny is worth nd wht you re tully le to sell your venture for in the mrket pleF he more goodwill you generte the higher vlue of your ompny in omprison to your ompetitionF ome of the most environmentlly onsious people in the world live in severely eonomillyEhllenged neighorhoodsF ho not let your soioE eonomi sttus hllenge the entrepreneuril ethis ehind your strtupF he goodwill you re generting from tking re of the environment ould potentilly ome k to you in the form of good krm3 Read onX ou9ll (nd more disussion of soilly responsile orgniztion in etion IRFIF venture9s ode of ethis nd desription of your morl ompsses9 stnes inluding wht sustinle prties your venture will dopt to go green nd hve triple ottom line fousF qo toX httpXGGwwwFwentorogrphyFom43 nd post drft of your ode of ethisD desription of your morl ompsses9 stnes nd green sustinility prtiesF
42 U.S. Environmental Protection Agency, Indoor Air Quality:
2009). An Introduction to Indoor Air Quality: Organic Cases (Volatile Organic Compounds-VOCs), http://www.epa.gov/iaq/voc.html (<http://www.epa.gov/iaq/voc.html>) (Accessed January 16,
Blog Back 6: Moral Compass Blog backX rite drft of your new
43 http://www.Mentorography.com
PH
CHAPTER 1.
1.9 Operations: the logistical rim on the wheel
44
he opertions of your usiness re the ttis nd proesses you implement to run your usinessF
1.9.1 Water your plants: operations hydrate your startup
ypertions in strtup egin with the omposition of usiness plnF e new venture without usiness pln is like r without n engineY it exists ut nnot get nywhereF sn ftD reserhing nd drfting the new venture9s usiness pln is proly the most importnt nd neessry usiness prtie you will ever under tkeF fusiness plns re usully written to otin (nning for new ventureF roweverD the usiness doument nd plnning proess provides muh more importnt funtionF his doument will e your rod mp for getting your venture strtedF he (ndings of your reserh ontined in your usiness pln n tell you from the eginning with pretty good ertinty if your new usiness hs rel hne of eing suessful (nnilly nd sustinle in the long runF
Traditional sections contained in a business plan:
Company Description gives kground to the history of your strtup nd explins wht your venture will doF Statement of Mission or Mantra is short phrse tht explins the purpose of your new ventureF Products and or Services desrie wht you pln to sellF Target Markets elorte on whom you pln to sell toF Marketing Strategy explins wht unique mneuvers your venture will underEtke to omplish the usinesses golsF Competitive Analysis douments who your min ompetitors re in the mrket pleF Management Teams re the nmesD titles nd kgrounds of the people who will led your venture to suessF Operations for Investors explins wht ttis you will undertke to (nne the venture nd the exit strtegy you pln to utilize for the initil investors to mke pro(t on their investmentF Financials doument the forested sles nd expenses for the (rst (ve yers of the new ventureF he (nnils should e ompnied y detiled ssumption log whih summrizes where the numers entered in your (nnil spredsheets originlly me fromF wost investors wnt to see your (nnil douments inlude lne sheetsD sh )owsD inome sttements nd key rtios suh is when you ntiipte reking evenF Long-term Goals explin wht you hope to eventully omplish with the new ventureF Executive Summary whih goes t the eginning of your usiness pln ut is often written lst should ontin rief summry of eh of the ove mentioned usiness pln setionsF ixeutive summries should e limited to two or less pgesF he ixeutive ummry is often the most red portion of your usiness pln so it9s importnt to write nd reEwrite this setion until it9s solutely perfetF ome entrepreneurs reommend tht you drft the exeutive summry (rst nd use this doument s plnning doument to ross hek wht you need in order to omplete the usiness plnF
efter you hve ompleted drfting your new venture9s usiness pln it my e time to estlish the legl entity of your usinessF ghek with your lol government o0e to get direted to the rules nd regultions nd proesses you need to follow in order to properly estlish your usiness9s legl entity
Some of the most universal company establishments are:
sole proprietor privte limited ompny stteEowned enterprise puliElimited ompny xqy
44 This
PI
orportions
sf you n get the resoures from fmily nd friends to py for n ttorney to help you estlish your usiness legl entity you my lessen some of the risks ssoited with strting new ventureF he type of usiness entity you form will more thn likely impt the wy in whih you py txes on your produts nd servies nd (le your ountry9s inome tx (lingF he de(nitions for the di'erent forms of ompny estlishments vry from ountry to ountryF ou will wnt to hek with the portion of your government tht grnts ompny estlished entities for lri(tion ith drft usiness pln in hnd nd your legl ompny usiness entity estlished it9s time to fully mp out the opertionsGproesses you pln to utilize to implement your usiness plnF st9s highly reommend tht you mke qntt hrt to sty orgnized with the orret sequene nd timing of eh usiness tivityF ou n use wirosoft ixel nd setup olumns tht listX
tsks person@sA ssigned to omplete tsks dtes tht tsks must e ompleted y s well s proper tsk sequene n re to hek o' when tsk hs een e'etively ompleted omment setion to keep histori list of retions to the onsidered tsks nd given your unique plnsD you my hoose to hve dditionl olumnsF
st is highly reommended tht you post your new venture9s ypertions qntt ghrt on wll in visile lotion so tht s mny people s possile hve ess to this informtionF his will llow others to mke updtes s well s understnd wht you re working on when they re onsidering interrupting you during the dyF ueep n open mind s you implement your opertionl plns for the strtupF emin )exile to ontinE uous updtesF ememer strtup is n evolving opertionl proess tht will need (ne turning long the wyF Read onX ypertions is the sujet of etion UFI
1.10 New product: the tangible rim on the wheel

1.10.1 New product: the tangible rim on the wheel
45
he new produt n e physil produt nd or servie o'eringF heveloping new produt is n opertionl tsk tht goes ove nd eyond the ll of duty of utilizing the ypertions qntt hrt desried in the previous ypertions setionF snstedD we re reommending tht you rete roess wpping quide in order to e'etively develop your new produt o'eringsF he following setion desries in detil how to develop roess wpping quide for your new produt o'erings
1.10.1.1 A new product bud is blooming: introducing the New Venture Instructional Manual to Operational Excellence
trt y proess mpping ll of the orgniztion9s proesses y reting proess logF tilize word proessing softwre progrm whih hs uto shpes tht fetures )owhrtF his will give you the softwre neessry for developing your proess mpF st does tke long time to proess mp the funtions within n orgniztionD even newly formulted ventureF st9s time well spentF roess mpping guide here re mny ooks nd pulitions out proess mpping nd there re multiple wys to proess mpF e re going to fous here on showing you how to mp the proesses tht mke up new produt development nd mrketingF e suggest the followingX
45 This
1.4: New Venture Instructional Manual to Operational Excellence
PP
CHAPTER 1.
essemle the people who re involved in the development nd mrketing of new produt t your orgniztionF frinstorm list of the dyEtoEdy steps tht re tken to develop nd mrket new produtF eview the list with your ordD strtegi lline prtnersD mentorsD vendorsD nd fmily memE ers for items tht my hve een missedF ke the (nl list nd divide it into two tegoriesX repetitive proesses nd rre proessesF epetitive proesses re steps tht re tken repetedly when developing nd mrketing new produt suh s mnufturing the produtF re proesses our infrequentlyF enlyze the rre proesses list to see if ny of the items mentioned n e omined with or woven into the repetitive proessesF re proesses n drin resoures nd re often not udgeted forF sf you n omine rre proess with repetitive proessD you hve tken vlule step towrd improving the opertionl exellene of your usinessF wke )owhrt of the proesses within your orgniztion from the list tht ws prepred nd (neEtunedF his is where you tke wht might e explined in severl prgrphs of text nd drill it down to severl )owhrt ionsF ee ixhiit IFWF roess wpping higrm
Exhibit 1.9: The Process Mapping Diagram was developed by Molly Lavik, October 6, 2002
here is growing trend for orportions to orgnize their mngement systems y proesses insted of produtsF vrge nd midEsize orportions re mking this shift to hieve ost svingsF yne you hve ompleted your proess log you must repet the nlysis phseF qther your resident experts s well s some new mentors nd outside ord memers to nlyze the (rm9s proessesF vook for urrent proesses tht ould e stremlinedF
PQ feuse res to stremline re di0ult to seeD keep reEexmining wht hs een doumented in the proess logF pon exhustive exmintion of every possile stremlined senrioD the solution to hieving opertionl exellene will ome into fousF ty open nd )exile to these new idesF vog the new proess innovtionsF imre the new proesses nd pply them throughout the orgniztion with the ommitted support of top mngementF his n e the most hllenging step nd requires hnge mngement mpignF e hnge mngement mpign is the internl ommunition mpign tht is trgeted t venture9s employees regrding shift in the wy usiness is mngedF his mens you hve to tke hndsEon role in ommuniting the hnges throughout the orgniztionD mking sure tht everyone understnds the new gme plnD nd why it is neessryF snevitlyD some won9t e willing to go long with the new progrm nd you my need to help them (nd employment elsewhereF yne negtive person n dely the whole group9s trnsformtionF 46 Source X roess wpping quide text nd roess wpping smge reprinted with permisE sion from wentorogrphyD snF PHHVF ell ights eservedF intrepreneuril wrketingY el tories nd urvivl trtegies y wolly vvik nd frue fuskirkD wodule on vvy trtegies for wrketing xew rodutsD pges IVVEIWHF
efter your new produt ud hs loomed through the implementtion of proess mpping guide you re redy to lunh your new produt o'ering into the mrket pleF ou should onsider plnning xew rodut vunh iventF Read onX edding roduts or ervies is disussed further in etion IQFIF
46 Process
Mapping Guide text and Process Mapping Image reprinted with permission from Mentorography, Inc. All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk,
2008.
Module on Savvy Strategies for Marketing New Products, pages 188-190.
PR
CHAPTER 1.
1.11 Let the fruits of your labor blossom: the new product/service launch event plan
47
1.11.1 Let the fruits of your labor blossom: the new product/service launch event plan
Exhibit 1.10: Sunny day
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
our new usiness my e uilt round produt or servie or oth s we erlier disussedF e will disussD y wy of exmpleD new produt lunh event ut it9s worth noting tht the sme generl priniples pply whether you re plnning new produt or new servie lunh eventF ivents orgnized round new produtGservie lunh re typilly postponed or nelled euse the new produtGservie does not turn out s ntiiptedF fuild this senrio into ny plnned event so tht you n reoup some of the osts if the event needs to e nelledF ss the new produt going to e fully funtionl in time for the eventc ht is your kup plnc rve you ssemled wellEonneted ord of dvisers to help with the prodution of the eventc rve you determined your udget for the new produt lunh eventc ss there nyone you n ring in to osponsor the event to help defry the ostc rve you hired someone to e responsile for the myrid of detils tht must ome together in order for new produt lunh event to e lled suessc rve you prepred detiled spredsheetD with dedlinesD of ll the items tht need to tke ple for the event to ome together nd ssigned eh item to responsile personc
47 This
1.5: Checklist for a New Product Launch Event
PS rve you devised the est forum for the new produt lunh eventc ss the event sheduled during n industry trdeshow where everyE one will lredy e ssemled nd you n esily fold your event into the igger showD leverging ll the resoures ville t tht eventc rve you outlined how you re going to ommunite your new produt messge t the lunh eventc @here is nothing worse thn produing n expensive new produt lunh event tht everyone my enjoy ut ttendees leve not hving ny ide wht rnd ws eing promotedFA rve you invited your trgeted press to over the new produt eventc ho you hve ontingeny pln if few people respond to your invittion to the new produt lunh eventc ho you hve tkewy logo itemsD ommonly referred to s premiumsD for ttendees so they n e reminded of the new produtc rve you deided how you will mesure nd evlute your rnd uilding strtegyc 48 Source X xew rodut vunh ivent ln text reprinted with permission from wentorogrphyD snF PHHVF ell ights eservedF intrepreneuril wrketingY el tories nd urvivl trtegies y wolly vvik nd frue fuskirkD wodule on vvy trtegies for wrketing xew rodutsD pges IWIEIWPF
desription of the venue you pln to showse your new produt s well s detiled udget of the reserhed expenses nd forest of the medi overge you hope to gin during the lunh eventF qo toX httpXGGwwwFwentorogrphyFom49 nd post your new produt lunh plnF
Read onX vunhing your usiness is the topi of etion IFQD etion RFID etion Blog Back 7: Launch Plan Blog backX hevelop pln for your new produt lunhF snlude the nme nd
SFID nd etion TFIF
1.12 Public relations: the sensational rim on the wheel

1.12.1 Public relations: the sensational rim on the wheel
50
uli reltions re the tivities one engges in to generte exitement out your new venture so tht editoril overge will ourF iditoril overge is thought to e muh more vlule then dvertising in medi euse people pereive editoril overge s uthenti nd of interestF trtups need to generte gret del of exitement known s uzz in order to mke the se for medi overgeF feuse entrepreneurs normlly don9t hve muh if ny mrketing udgets to initilly lunh his or her new ventureD relying on puli reltions overge eomes essentil for the suess of new ventureF sn order to inrese your hnes for overge of the new venture you will wnt to mke sure tht ommunitions with the medi inlude informtion out your new venture tht is written in wht is known s tight mnner inludingD if possileD the following ttriutesX
oniseGrief summry strightEforwrd timely nd quite urrent (rst of its kind if possile ttentionEgring uthenti nd truthful tyingEin if possile with n emerging trend remrkle nd solutely urte
Product Launch Event Plan text reprinted with permission from Mentorography, Inc.
48 New
Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, Module on Savvy Strategies for Marketing New Products, pages 191-192.
2008. All Rights Reserved.
PT
CHAPTER 1.
1.12.1.1 The public relations practitioner's tool kit Press releasesX
xewsworthy text regrding the hoD htD hereD nd hen of the story you re pithing to the mediF Video News Releases (VNRs)X sully responsile for oordinting the video prodution of news nnounements known s xs whih re sent to televisionGrodsting sttions with the intention of gining news overge Newswire servicesX he uli eltions prtitioner works with ompny known s newswire servie to disseminte news nnounements to trgeted mediF yne exmple is gwire servie found tX httpXGGwwwFsrwireFom51 whih speilizes in disseminting news releses from orporte soilly responE sile ompnies often engged in mny g pursuitsF 52 News agenciesX he puli reltions prtitioner is in diret ontt with news servies tht over lrge thes of news hppenings in spei( regionsF wiwigyi is n exmple of news genyF eordE ing to this news geny9s wesiteD 4wigyi is news geny onentrting on werosur ountries whih opertes from wontevideoD ruguy nd inludes in its re of in)uene the outh etlnti nd insulr territoriesF453 por more informtion on wigyi visitX httpXGGwwwFmeropressFomGoutFdo54 F Media databasesX gontin detiled informtion on how to reh medi onttsF he more expnsive nd urrent the medi dtseD the more likely you re to hieve optimum press overge in trgeted pulitionsF Style guidesX rovide guidelines on the proper formtting of informtion to inlude when quoting from nother soure nd ttriuting in ittion the quoted soureF Extensive RolodexX uli reltions prtitioners re mjor networkers with vst ontts with the medi s well s key stkeholdersF TimelinesX uessful puli reltions prtitioners re known for keeping long timelines of heklists to mke sure events nd mpigns re rried out )wlessly in order to hieve the mximum mount of e'etive medi overge ArchivesX he puli reltions prtitioner usully is the one to mintin the press lipping (les doE umenting medi overge s well s the video nd imge (lesF smges re sometimes used y the medi so keeping wellEorgnized rhive (les is essentil to ny mrketing mpignF feuse puli reltions professionls re dedited to the tsks surrounding dissemintingD doumenting nd rhiving news overgeD these prtitioners re usully gret resoure to ny strtupF list of puli reltions plns you hve for your new ventureF snlude wht you will do to get puliity for your strtupF ht news soures will you trgetc fe spei( y nming newsppersD mgzinesD newslettersF ve)etsD signge nd other medi soures tht you pln to trgetF qo toX httpXGGwwwFwentorogrphyFom55 nd post your uli eltions lnF
Blog Back 8: PR Plan Blog BackX rite down
1.13 Mentor insights: spokes on the wheel

56
the Where the Rubber Meets the Road
1.13.1 Mentor insights: the Where the Rubber Meets the Road spokes on the wheel
wentor insights re the lessons lerned y the protgGmenteeF wentor insights re depited s spokes on the wheel euse they re the glue tht e'etively holds together everything elseF nderstnding your
51 http://www.csrwire.com 52 CSRwire, Home Page, http://www.csrwire.com (<http://www.csrwire.com>) (Accessed on August 15, 2008). 53 MERCOPRESS, About MERCOPRESS, http://www.mercopress.com/about.do (<http://www.mercopress.com/about.do>)
(Accessed January 2, 2009).
54 http://www.mercopress.com/about.do 55 http://www.Mentorography.com 56 This content is available online at <http://cnx.org/content/m35322/1.4/>.
PU mentor9s driving philosophies is essentil if you wnt to gin the wisdom tht your mentors possessF here is tremendous mount you n lern from mentor9s suesses s well s their setksF wentors ome literlly in ll stylesD shpes nd sizesF hen you re wy from home e sure to keep look out for people who might hve some usiness wisdom to shre with youF les you n go to (nd mentors potentilly idel for ohing you with your strtups inludeX
fulty t shools lirries seminrsGonferenesGworkshops town meetings mngement from other usinesses lssmtes fmily friends oEworkers religious institutions puli mrkets neighors nerEy ommunities reEquinting yourself with people you hven9t kept in ontt with entrepreneurs miroElon reipients
o keep trk of the insights tht you pik up from mentors try keeping journl of the lessons you re lerning tht re pplile to your strtupF wentor insights n ome from usiness exeutive or role model who you wnt to emulteF wentor insights n lso ome from oservtions of othersF s ws fortunte to meet student nmed ty wilrndt while tehing oil intrepreneurship ourse t epperdine niversity9s qrzidio hool of fusiness nd wngementF ty hd reently trveled to fngldesh nd kept journls of his (rstEhnd oservtions of meeting people who were prospering through miroE(nne lonsF s found these journl entries extremely inspirtionl nd we hope you will s wellF e enourge you to e on the lert for miroE(nne opportunities in your ountry s proven method for helping those tht re less fortunte thn yourselvesF fy reding these journl exerpts you n experiene how those less fortunte re (nding suess no mtter wht their eonomi situtionF wiroE(nned lons re imprting gret del of opportunity to those tht relly need it nd trnsforming the eonomies of developing ountries in remrkle wys3 he following re exerpts from the journl of ty wilrndtF he sher numers re impressiveF IFP illion people throughout the world live in extreme povertyF eordinglyD extreme poverty is de(ned y the orld fnk s living elow 6I per dy purhsing power prity thresholdF he nited xtions set the willennium ghllenge gol of eliminting extreme poverty y the yer PHPSF sn fngldeshD t lestD it ppers to e well on the wyF st9s esy to get lost in the numersF futD when you trvel through fngldesh meeting the miroredit orrowersD you relize tht ehind every numer is life"rel people nd rel fmiliesF uddenlyD the sttistis ome liveF s don9t know wht it9s like to live on less thn 6I per dyF s hveD howeverD met enough people to grner some detils out wht suh life is likeF imply putD you onsume in proportion to wht you growY when you nnot 'ord moreD you egF weet weerF he used to live on less thn 6I per dyF xowD she9s twentyEsix yer old usiness owner with two dughtersD eleven nd seven yers oldF rer husnd wlked out on her few yers goD leving her to fend for herselfF sn the ulture of fngldeshD she ws in very tough spotF o give irth to only dughters nd no sons is unlukyF vikewiseD for husnd to wlkout on his wife is looked down upon even moreF sn spite of thisD she eme one of the most suessful women in her villgeF hrough miroreditD she strted nd uilt lrge poultry frmD rising thousnds
1.6: Jay Milbrandt's Journal Entries from Bangladesh: Not Just Statistics
PV
CHAPTER 1.
of hikens nd selling them to mrketF efter showing us her frmD she invited us into her homeD whih ws onsidered nie home y villge stndrds"four wllsD two roomsD ement )oorD nd metl roofF rer home ws lso (nned through qrmeen57 miroredit home lonF endD est of llD she told us how hppy she ws nd how miroredit hnged her lifeF elthough weer holds the distintion s the (rst miroredit ustomer s metD tht9s the only numer ssoited with herF58 s9ve got this feeling of hopelessnessD s dmit to trveling ompnionF s9m here to see the hope tht miroredit hs roughtD ut our txi hs not even left hhk yet nd s9m surrounded y the most jet poverty s hve ever seenF s9m on sensory overlodF here re so mny people tht the ountry seems redy to urst t the semsF wore thn IRH million people re pked into this ountryD pproximtely the size of sowF sn hhkD grge is everywhere"in the streetsD in the dithesF sts ovious tht the ity does not possess the infrstruture to servie its IS million inhitntsF tudging y the integrity of the ity streetsD whih pper to hve een pved one left loneD s9m not the lest it surprisedF sf the hep of grge is freshD few people would e rummging through it"looking for melD s suspetF sf the grge ws oldD it served s edF eudilyD hhk pulses with the sound of nonEstop horns"there need e no reson to use itF hhk is lso ity of smellsF ivery street hs di'erent smellD mny of whih s (nd oth unfmilir nd unppelingF he streets re lyrinth"if s were lostD s ould never (nd my wy kF e round orner nd roll pst lot of wood nd metlF e slvge yrd myec hose re the slums of hhkD our guide explinsF yur txi omes to stopD witing for trin to pssF efter few seondsD there9s ng on the windowF st9s young oyD mye seven yers oldD egging for moneyF re9s yelling in fengli nd motioning to his mouth with his hndF sn hhkD people work together in n orgnized system of eggingD my guide explinsF re rks the window nd tells the hild to leveF e strt moving gin nd the hild runs long until he n no longer keep peF vittle did s know t this pointD tht over the sueeding two monthsD s would meet some of the most disdvntged people in the worldX the poorestEofEtheEpoorD vitims of tr0kingD prostituted womenD refugeesD nd the illiterteF hespite their perilous irumstnesD s9m (lled with more hope thn ever eforeF hyc he positiveD suessful hnge s would ome to witness"nd the gret potentil for ontinued hngeF wy hopelessnessD howeverD would e relievedF ht s sw in hhk ws proly piee of history for fngldesh. . . hue to urrent lwsD qrmeen fnk is restrited from operting in urn resF s hve hope euse of fngldeshF s wish s ould hve trveled here PH yers go to experiene the hngeF prom the desriptions of the people s metD the hnge hs een fngldesh" model for glol turn roundY the mn sitting next to me on the irplne ws onvined thtD given ten yers nd right ntionl ledershipD the ountry ould shine like wlysiF59
1.8: Jay Milbrandt's Journal Entries from Bangladesh: Moving the Mountains of Poverty 1.7: Jay Milbrandt's Journal Entries from Bangladesh: Why I Have Hope
row ome s hve never herd sermon prehed on the elimintion of povertyc ghristins frequently tlk out giving to those in need or feeding the hungryD ut s hve yet to her sermon lling for solutionF rere is one to strt withD s would like to ll it wiroredit nd the wustrd eedX yne evening just efore duskD we were riding rikshw down nrrow rod in the villge of lngF uddenlyD our guide stopped the driverD hd him turn the rikshw roundD nd pull up t smll metl uildingF snsideD the uilding ws dimly lit with n orgni smell nd the hum of
57 Grameen
Bank: Banking for the Poor, Home Page, http://www.grameen-info.org/ (<http://www.grameen-info.org/>) Journal Entries from Bangladesh, Pepperdine University JD/MBA alumni, Reprinted with Permission. (Accessed on December 10, 2007).
58 Jay Milbrandt's 59 Ibid
PW lrge engineF e met with the ownerD hmeenD who hd (nned his smll usiness through qrmeen mirolonF fefore qrmeenD he hd nothing"rely enough to feed his fmily"if tht yer9s rie hrvest ws plentifulF efter founding nd growing his usiness through qrmeen lonsD he strted generting inome on his ownD uilt etter houseD nd ould 'ord to send his kids to shoolF end his usinessc roessing mustrd seedsF wtthew IUXPH from he xew snterntionl ersionD xsD whih is the inglish trnsltion of the ghristin file tells us tht with the fith the size of mustrd seedD we n tell the mountins to moveF s took this verse literlly with good dose of skeptiism until this dyF rere ws mountin right in front of usX wore thn I illion people lenhed in the (st of povertyF sn fngldesh nd throughout the worldD millions of people re putting lot of fith in tiny lons"hmeen9s fithD ironillyD hppened to e mustrd seedF oonD the entire uilding ws )ooded with lol people wnting to gze t the foreignersF ih of these people ws miroredit orrowerF xone of them in the hins of povertyF his held true for prtilly everyone in the entire villgeD followed y millions more throughout fngldeshF wiroredit ws moving the mountin of poverty efore my very eyesF heuteronomy ISXUEV sys sf there is poor mn mong you. . . do not e . . . tight(stedF . . .ther e openhnded nd freely lend him whtever he needsF ss it oinidene tht the word lend is usedc s elieve miroredit is sermon tht every hurh should herF s elieve tht if ghristins were to join the wuslims nd rindus of fngldesh in the mustrd seed of miroreditD the mountin would move muh fsterF60 he mn string t me hs no shoes or shirtF his seems like the perfet opportunity to pture the fe of the humn ondition in rurl fngldeshF es s pull out my mer he mirrors me with none other thn mer phoneF s9m photogrphing him photogrphing me"something seems wrong hereF irlier in the dyD s spontneously wlked out into rie (eld to visit the (eld workersF hey were exited to show foreigner how fst they utD then give rief rie utting lessonF s just out took fengli mn9s leg o'"the sikle lde is shrper thn it looksF hey ut few sheths of rieD then tie the undle o' with one of the stlksF he whole proess tkes ut few seondsF ie hrvesting hs een done this wy here for hundreds of yerF ysionllyD s would see illord for trtor or modern griulturl onvenieneD ut s never sw ny of them in tionF hird world tehnology trnsfer is n interesting phenomenonF ss ell phone relly wht they needc row out drip irrigtion instedc yr mye rie hrvesterc qrmeen reted n interesting miroenterprise progrm throughout fngldesh with villge phone ldiesF e womn in eh villge is llowed to purhse ell phone through qrmeen lonF he phone ldies then sell use of their ell phone to other villgersF he result is tht the phone ldies hve very pro(tle usiness nd villges tht previously hd no phone line t ll now hve modern method of ommunitionF es trveling is di0ult for the poor of fngldeshD the villgers no longer hve to leve if they need to ommunite with reltive in nother villge or sk dotor questionF sn other villgesD the pro(tility of phone ldies hs diminished euse mjority of villgers now own personl ell phoneF st9s surprising how someone my not hve running wterD ut own nier ell phone thn s doF61 of the lessons lerned from your own strtup time mentor insightsF qo toX httpXGGwwwFwentorogrphyFom62 nd post n exerpt of one of your journl entries tht is prtiulrly pplile to someone on n entrepreneuril journeyF
60 Ibid 61 Ibid 62 http://www.Mentorography.com
1.9: Jay Milbrandt's Journal Entries from Bangladesh: What Third World?
Blog Back 9: Journal Blog backX ueep journl
QH
CHAPTER 1.
ith the wentor snsights providing strong spokesY this ompletes the desription nd elortion of the visul model of the fusiness ioEsystem heelF
QI
Exhibit 1.11: Striking gold
Image created by:
Taissia Belozerova,
Graphic Designer,
Artist,
irlyEstge entrepreneurs n rejoie when they invest the time nd energy to uild well thought out fusiness ioEsystemsF hese hrdEworkingD strtegiEthinking entrepreneurs inrese the hnes of reting strtup tht hs rel opportunity of potentilly striking gold t the end of the rinow3
1.14 About this author and acknowledgements

1.14.1 About this author and acknowledgements:
63
iditor nd euthorX wolly vvikD pounderD wentorogrphyD snF 8 trtupime gohD wollyFvvikdtrtupimeFom64 D rofessorD tel snterntionl fusiness hoolF ery speil thnks to the edemi eviewerX hei h frokD illim nd uy woore rofessor of intrepreneurship nd wnE gementD fere gollegeF peil hnks to wihel nenumD uushik hirhttiD nd umeet wlik my grdute ssistnts nd my former studentsD enn hfer nd vuiz wontoy from epperdine niversity9s qrzidio hool of fusiness nd wngement who ssisted y providing initil reserh on preliminry verE sions of this hpterF peil thnks to my former student ty wilrndt for providing his journlF peil thnks s well to issi felozerovD qrphi hesignerD ertistD wfe gndidte t epperdine niversity glss of PHHWF elsoD speil thnks to frue h fuskirkD hhD rofessor of wrketingD epperdine niE versity9s qrzidio hool of fusiness nd wngement who oEuthored the grtefully knowledged nd ppreited exerpts provided y wentorogrphyD snF from Entrepreneurial Marketing: Real Stories and Survival StrategiesF edditionllyD speil thnks to istelle rollowyF
63 This content is available online 64 Molly.Lavik@StartupTime.com
at <http://cnx.org/content/m35330/1.4/>.
QP
CHAPTER 1.
Chapter 2
The mind of the entrepreneur: Your entrepreneurial journey begins by embarking on your own hero's journey!
2.1 Introduction
1
sn this hpter we will explore wht ftors nd hrteristis re ommonly found in n entrepreneuril mindsetF hese my e hrteristis tht you n strive to possess nd emulteF erhps you my need to inherit from your prents ertin omintion of entrepreneuril hrteristis to eome n entrepreneur or perhps tht hs solutely nothing to do with if you re destined to eome n entrepreneurF ss n entrepreneur ultimtely orn or mdec ht question hs no de(nite nswerF e suggest you meet s mny entrepreneurs s you n to see if this is how you wnt to spend your lifeY then deide if you wnt to trin under these entrepreneurs s n pprentieF ou ontrol your own destiny nd your life9s journey is your own so you deide3 eviewX sn here2 we disussed the hrteristis of n entrepreneur s possessing the following ttriutesX VisionX ele to rete nd ommunite n esily understndle mission for wht the new venture does in order to suessfully lunh new usinessF his is omplished while inspiring others to join you in your new enterpriseF CreativityX eility to injet imgintion nd uniqueness into new usiness ventureF st tkes skill nd ingenuity to rete new venture equipped with strtegies to outsmrt the ompetitionF FocusX ele to mintin the vision of the ompny with unwvering diligeneF st9s very esy to get sidetrked espeilly if you (nd it neessry to evolve the originl visionF sronillyD we hve enountered mny suessful entrepreneurs who get ored esilyFFF PassionX hesiring to sueed under your own stem inititive on usiness ventureFFF DriveX ossessing intrinsi energy to omplish the usiness gol even in the fe of dversityF PerseveranceX ele to keep going even when fed with seemingly insurmountle ostlesF Opportunistic NatureX ees the possiilities even efore they existF gn tke dvntge of n upomE ing trend or unite unrelted proesses to rete unique usiness ventureFFF Problem Solving AbilityX hrives on oming up with solutions to omplex hllengesFFF Self-disciplineX ele to e orgnized nd regimented in pursuit of suessful usiness ventureF FrugalityX unows how to streth every ent so tht expenditures re s low s possileF
1 This content is available online at <http://cnx.org/content/m35333/1.3/>. 2 "empty" <http://cnx.org/content/m35295/latest/>
QQ
QR
EmpathyX
CHAPTER 2.
THE MIND OF THE ENTREPRENEUR: YOUR OWN HERO'S JOURNEY!
ENTREPRENEURIAL JOURNEY BEGINS BY EMBARKING ON YOUR
ele to put yourself in nother9s shoes nd therefore le to show sensitivity nd underE stnding of wht others re ommuniting in the strt up environmentFFF Social ResponsibilityX ithisD ring nd humnitrinism re hrteristis tht re ommonly found in tody9s entrepreneursFFF SpiritualityX e hve found tht suessful entrepreneurs hve often devoted time to spiritulity deE velopmentF wedittion nd positive 0rmtions re two ommon exmples of spiritulityF Good TimingX ele to identify mrket opportunity nd know when it is the optimum time to lunh new venture or expnsion of n existing enterpriseF LuckX gn person e predisposed to e lukyX ss luk humn ehvior or krmi universl predispositionc3 sn this hpter we egin y introduing you to gost oussosD young entrepreneur from the ountry of gypress who is reting glol musi empireF e will shre his story through n interview tht wolly vvik onduted with him nd look t his entrepreneuril tendenies nd ttriutesF hen it is your turn to tke the intrepreneur essessment urvey whih n e used s one indition of mesuring your own entrepreneuril mindsetF roweverD it should e noted tht true entrepreneur would never rely on survey to determine how worthy or redy they re to eome n entrepreneurF e true entrepreneur would simply egin implementing his or her strt up ideF rue storyX gost oussos ws one of my students severl yers go nd immeditely s notied something quite di'erent from gost nd tht ws his fous on strting musi ompnyF st seems to tke ertin type of person to strt new venture euse you do not hve the seurity nd struture of more estlished ompny not to mention the hllenges of inspiring others to join your unproven venture nd to help you meet their dedlines ssoited with new usinessF ho you hve the type of mindset tht gost seems to possess to get him through the mny setks nd hllenges tht fed him or ny entrepreneur in the mkingc sf you re not sure do not worryF hen the timing seems right you will know if n entrepreneuril journey is your destinyF end you might even eome hero to someone or mye even n entire group of people suh s how you will soon red gost is eoming hero to the independent musi rtist nd musi listening enthusistF his is your future we re tlking out nd it9s your deision if you hve hero9s journey hed3 es you red gost9s story py prtiulr ttention to the hrteristis desried s his entrepreneuril mindsetF ho you possess some of the sme hrteristisc ed gost9s story to (nd outF httpXGGwwwFstrtuptimeFomGostmusiusFhtml4 ho you possess ny of the entrepreneuril mindset hrteristis tht gost hsc nd post your own entrepreneuril mindset hrE teristisF till not sure if you re n entrepreneur or if you my some dy hve your own hero9s journey hedc ry tking the intrepreneur essessment urvey ut rememerD this does not men if you hve the tendeny or notD gin only you get to deide if you wnt to go on your own entrepreneuril journeyF xo one or no survey n tell you thtF
Blog Back 10: Your Mindset Blog BackX qo to httpXGGwwwFwentorogrphyFom5
2.2 Entrepreneur assessment survey

2.2.1 Entrepreneur assessment survey
hiretionsX lese irle your personl response to eh questionF lese e sure to go with the nswer tht is your (rst hoie if nd when you re in dout of how to respondF
3 The
Mindset of an Entrepreneur is reprinted and adapted with permission from Mentorography, Inc. Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce Buskirk, introduction pages xxviii-xxx.
2008. All Rights
4 http://www.startuptime.com/costamusicus.html 5 http://www.Mentorography.com 6 This content is available online at <http://cnx.org/content/m35340/1.4/>.
QS IA ho you hve n issue tht is mjor driving fore ehind your professionl gols in lifec es ndeided xo PA ould you desrie yourself s the type of person who gives up esily when fed with dversityc es ndeided xo QA ho people who hve known you sine hildhood desrie you s the type of person who gives up esily when fed with dversityc es ndeided xo RA rve you een suessful in the pst onvining others to help you to omplish your golsc es ndeided xo SA ho you hve desire to mke the world etter ple tht is stronger gol for you then your desire to ern moneyc es ndeided xo TA rve you onsidered eoming n entrepreneurc es ndeided xo UA rve you spent sustntil mount of time in your life onsidering wht type of legy you would like to levec es ndeided xo VA hen trying to rise support for n ideD do you ever strt y identifying people to form llines with who my e symptheti to your golc es ndeided xo WA sf you were usy with dedline for work nd or shool would you miss ompleting this dedline on time euse you gve your own new ventureGstrt upGnew produt ide higher priorityc es ndeided xo IHA ill you use your sore on this test to ultimtely help determine if you should eome n entrepreneurc es ndeided xo IIA row mny of the entrepreneuril mindset hrteristis do you possessc qive yourself I point for eh of the hrteristis you possess from the list elowF es ndeided xo otl ore for hrteristisX
2.2.1.1 Some key characteristics of an entrepreneurial mindset
sn here7 some hrteristis of n entrepreneuril mindset were shredY here re dditionl hrteristis nd or similr hrteristis to lso onsiderF wentor wethod P rumnitrin orth I oint edd I oint isionry orth I oint edd I oint
yrgnizing movements tht n tke mny forms inluding mpignsD drivesD gr rusdes for the express purpose of providing ltruisti or hritle supportF
ossessing the ility to potentilly de(ne the future y mking old unsustntit gret del of imgintion nd foresight in the proessF
7 "empty"
<http://cnx.org/content/m35295/latest/>
QT luesEentered orth I oint edd I oint ghngeEoriented orth I oint edd I oint elfErelint orth I oint edd I oint ersusive orth I oint edd I oint ryperEfoused orth I oint edd I oint ssion orth I oint edd I oint inergeti orth I oint edd I oint
CHAPTER 2.
hemonstrting worthwhile qulities of ledership tht re lwfulD ethilD onsiderteD
edopting ledership style tht ttempts to trnsform the sttus quo y reting n tsksF hepending on yourself to develop solutions for the prolem or hllenge t hndF
ele to onvine others tht the new orgniztions9 mission nd gols re vile nd
wintining uninterrupted ttention nd onentrtion direted t implementing the
rving tremendous mount of enthusism nd exitement over the mission nd go
hemonstrting n in(nite mount of drive nd n enterprising nture towrd omp hen strting new orgniztion espeilly when strting soil enterpriseD it requ ll the ojetives espeilly given tht soil enterprises usully require volunteer st eyond the stndrd needs of trditionlD longEestlished ompnyF
Table 2.1
IPA esk someone who hs known you sine you were hild how mny of the entrepreneuril mindset hrteristis they think you possessc qive yourself I point for eh of the hrteristis they feel you possessF otl ore for hrteristisX
2.2.1.2 Answer key
enswer key for entrepreneur ssessment survey hiretionsX lese irle your personl response to eh questionF lese e sure to go with the nswer tht is your (rst hoie if nd when you re in dout of how to respondF IA ho you hve n issue tht is mjor driving fore ehind your professionl gols in lifec es ndeided xo oreX en points for esD H points for ndeided nd xoF esonX yne of the (rst steps towrd reting new ompny is to hve mjor reson or issue for your new venture9s mission or golF PA ould you desrie yourself s the type of person who gives up esily when fed with dversityc es ndeided xo oreX en points for xo nd H points for es nd ndeidedF esonX ou hve to e le to ontinue through ll the setks to e suessful nd ultimtely enjoy eing soil entrepreneurF QA ho people who hve known you sine hildhood desrie you s the type of person who gives up esily when fed with dversityc es ndeided xo
QU oreX en points for xo nd H points for ndeided nd esF esonX st typilly tkes trk reord in life of deling suessfully with dversity to uild up the on(dene nd rediility tht omes with xo nswer for this questionF rve you een suessful in the pst onvining others to help you to omplish your golsc es ndeided xo oreX en points for es nd H points for ndeided nd xoF esonX xew ventures do not hve the funding to 'ord the st' to get work omplishedF esoureE fulness is the key to sueeding nd one must possess the ility to ttrt nd retin volunteers nd nonEpid experiened help t (rst to get the tsks ompletedF ho you hve desire to mke the world etter ple tht is stronger gol for you then your desire to ern moneyc es ndeided xo oreX en points for es nd H points for ndeided nd xoF esonX intrepreneurs re driven y their need to rete soietl welth vs selfEwelthF his desire tkes preedent nd priority over other golsF his does not men tht somedy you might not derive (nnil onnz for the work you hve een doing ssoited with the strt upF st just mens tht is not wht drives you todyF rve you onsidered eoming n entrepreneurc es ndeided xo oreX en points for es nd H points for ndeided nd xoF esonX iven if it ws suonsious or pssing thoughtD usully you hve to hve some propensity or interest towrd eoming n entrepreneur for it to e your destinyF rve you spent sustntil mount of time in your life onsidering wht type of legy you would like to levec es ndeided xo oreX en points for es nd H points for ndeided nd xoF esonX erhps your legy is something to e onsidered in lter yersF ith tht sid it is never too soon to egin onsidering wht type of footprint you my wnt to leveF sf you hve onsidered trying to leve legy of mking the world etter ple then you my hero9s journey s your entrepreneuril pth for futureF hen trying to rise support for n ideD do you ever strt y identifying people to form llines with whom mye symptheti to your golc es ndeided xo oreX en points for es nd H points for ndeided nd xoF esonX yne of the est wys to inrese your hnes of eing suessful entrepreneur is to enhne your rediility y forging strtegi llines nd prtnerships with othersF sf you were usy with dedline for work nd or shool would you miss ompleting this dedline on time euse you gve your own new ventureGstrtGnew produt ide higher priorityc es ndeided xo oreX en points for xo nd H points for es or undeidedF esonX his my pper to e trik questionF e vluesEentered leder would not sri(e one importnt ommitment for nother even if it ws to help soil enterpriseF rt of strting new ompny is demonstrting ethil nd honest usiness ledershipF ill you use your sore on this test to ultimtely help determine if you should eome n entrepreneur es ndeided xo oreX en points for xo nd H points for es nd ndeidedF esonX he truth of the mtter is tht if you re relly ment to e n entrepreneur you do not need test nd or survey to tell you thisF sn ftY true entrepreneur does not depend on others to mke their deisionsF ynly you know your destinyY do not let nyone tell you wht you n nd n9t omplish in life euse sttistilly speking they would not relly knowF row mny of the entrepreneuril mindset hrteristis do you possesscqive yourself I point for eh of the hrteristis you possessF otl ore for hrteristisX he gol is to sore ten for this questionF wny entrepreneurs emody these entrepreneuril mindset hrteristisF row mny of the entrepreneuril mindset hrteristis do you possessc qive yourself I point for eh of the hrteristis you possessF
RA
SA
TA
UA
VA
WA
IHA
IIA IPA
QV
CHAPTER 2.
otl ore for hrteristisX he gol is one gin to sore ten for this question s explined oveF sf it turns out tht you hve very di'erent sore for your selfEssessment of this question in omprison to wht someone who hs known you ll your life then you need to ome to n understnding why others pereive you di'erently then you pereive your own interestsF erhps you re repressing or mou)ging your true interests or mye you hve hngedF he reson for the di'erene isn9t s importnt s mking sure you re wre of your own interestsF ScoreX
e sore of IPHEIIH my men tht you know tht you wnt to eome n entrepreneur nd you should egin working out strtegi pln to mke your gols relity nd to egin your own hero9s journeyF e sore of IHWEWH my men tht you most likely wnt to eome n entrepreneur nd you should egin thinking of this possiility to give yourself further selfEssessment of your interestsF e sore of VW or lower my men tht you proly re not going to e n entrepreneur ut s mentioned eforeY do not let this ssessment e the (nl or even prtil determintionY the hoie is lerly your own to mkeF
Blog Back 11: Start-up Story Blog backX ost story or interview
with n entrepreneur who possesses some of the entrepreneuril mindset hrteristis you hope to develop in yourself tX httpXGGwwwFwentorogrphyFom8 F hether you possess on(dene in your own entrepreneuril mindset or hope to enhne or inspire further development there re resoures nd things you n do tody to uild your entrepreneuril mindset3
2.3 Entrepreneurial mindset enhancing activities

2.3.1 Entrepreneurial mindset enhancing activities
et up qoogle elert for the key wordsX entrepreneuril mindset t httpXGGwwwFgoogleFomGlerts10 F e qoogle elert is query of key words nd llows you to reeive in your eEmil inox list of ll the stories to e posted on the snternet tht dy ssoited with your key wordF ou n set the lert to ome to you immeditelyD dily or weeklyF hisuss with entrepreneurs wht ttriutes they possess tht mke these founders prtiulrly dept t strting new venturesF hen you tlk with these visionry individuls e on the look out for unique hrteristis tht they people possessF ke some time nd onsider tody wht you wnt your lsting legy to e nd who you will omplish those golsF ueep diry of this journey nd try when possile to hve journl entries out wht type of entrepreneuril hrteristis you re developing to help you hieve your legy golsF ho not let others de(ne your entrepreneuril journey3 ou know who you re nd who you wnt to eF he nysyers will lwys e round to try to prevent you from strting new ventureF vern to listen to your gutF eek out edutionl progrms nd literture tht will help you etter develop your own entrepreneuril hrteristisF wke list of the ttriutes you do not yet possess nd then develop pln of tion to hieve dding these entrepreneuril hrteristis to your own personlity tritsF hedule time every dy for QH minutes to keep re(ning your entrepreneuril hrteristis nd (guring out how to enhne your entrepreneuril personlityF wny people think tht wht you spend time thinking out will eome ultimtely your own relityF hile eh of you re from di'erent ountries nd ultures there re some ples tht often will provide resoures for (rstEtime entrepreneursF
hese ples inludeX
8 http://www.Mentorography.com 9 This content is available online at 10 http://www.google.com/alerts
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mll usiness ssoitions fnksD (nnil institutionsD nd miroEredit genies idutionl pilities fusiness relted xqys virries gommunity edevelopment egenies wost fmily nd friends for morl support he snternet when using the right serh terms ssoited with developing nd or enhning your entrepreneuril mindsetF
xow you re redy to go out nd potentilly rete your own hero9s journey
2.4 Chapter summary
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sn etion PFI titledD he mind of the entrepreneurD we reviewed the hrteristis of n entrepreneuril mindset tht were overed in ghpter ID shred the story nd entrepreneuril mindset ttriutes of gost oussos during his strt up journey with wusiFus followed y shring with you the intrepreneur essessment urvey nd nswer key ending etion PFI with list of entrepreneuril mindset enhning tivities so tht you n egin emrking on your own hero9s journeyF your journl regrding your thoughts out your own journeyF hen red wht others hve postedF ho you see nyone who you think is on his or her wy towrd eoming heroc ost your thoughts nd omments on entrepreneuril mindset hrteristis t httpXGGwwwFwentorogrphyFom12 F
Blog Back 12: Hero Post Blog backX ost entries from
11 This content is available online at 12 http://www.Mentorography.com
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CHAPTER 2.
Chapter 3
Business models and marketing:an overview

3.1 Learning Objectives

1
how to uild nd implement suessful usiness model understnd the importne of ompny to e mrket vs produt oriented in developing ountry how to identify onsumers9 wnts suessfully understnd orter9s S fores of sndustry ettrtiveness how to perform wrket eserh study
3.2 What is a business model?
fusiness models n e pprohed from two perspetivesF e generl perspetive de(nes usiness model s ny type of oneptul frmework explining how to orgnize nd evolve usiness ventureF yn the other hndD spei( irumstnes guide usiness modelingF por instneD industries suh s tourismD nking in the servies setorD or utomoile or shoe mnufturing demnd spei( models tht tke into ount ritil vriles found within the industry9s spei( environmentF yne de(nition from the generl perspetive is provide y elex ysterwlderX
A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specic rm. It is a description of the value a company oers to one or several segments of customers and of the architecture of the rm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate protable and sustainable revenue streams. (Osterwalder 2005, http://business-modeldesign.blogspot.com/2005/11/what-is-business-model.html
3 . Accessed November 25, 2007).
wodels re simpli(ed representtions of things in the rel worldF ou re lredy fmilir with mny kinds of modelsF ou hve plyed with model ir plne or ot when you were hildF ou my hve seen models of uildingsD dmsD or other onstrution projets uilt y rhitets to show the sponsors of projet how ompleted uilding will look fter it is uiltF sn the sme wyD usiness model lets n entrepreneur try out di'erent wys to put together the omponents of his or her usiness nd evlute vrious options
1 This content is available online at <http://cnx.org/content/m35341/1.4/>. 2 This content is available online at <http://cnx.org/content/m35353/1.4/>. 3 http://business-model-design.blogspot.com/2005/11/what-is-business-model.html
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CHAPTER 3.
BUSINESS MODELS AND MARKETING:AN OVERVIEW
efore implementing the one tht looks the estF his tehnique is espeilly importnt in tody9s usiness environmentD where tehnology gives usiness people so mny more options thn ever eforeF ysterwlder goes on to syX
For managers and executives this means that they have a whole new range of ways to design their businesses, which results in innovative and competing business models in the same industries. Before it used to be sucient to say in what industry you were for somebody to understand what your company was doing because all players had the same business model. Today it is not sucient to choose a lucrative industry, but you must design a competitive business model. In addition increased competition and rapid copying of successful business models forces all the players to continuously innovate their business model to gain and sustain a competitive edge.
fsed on his serh of the litertureD ysterwlder lists nine uilding loks for mngers to use in developing n innovtive nd e'etive usiness modelF e list themD long with some omments of our ownX
he value proposition of wht is o'ered to the mrketY e hve overed this issue erlier in the hpter in generlD nd with spei( referene to how orter9s nlytil tools n ssist mngers in generting vile vlue proposition tht onsumers pereive s one tht is superior to wht is o'ered y the ompetitionF he target customer segments ddressed y the vlue propositionY wngers soon lern tht they nnot e ll things to ll peopleD tht wht ppels to one segment of the mrket will not ppel to notherF e will disuss this in more detil lter in this hpterF he ommunition nd distribution channels to reh ustomers nd o'er the vlue propositionY his issue reltes to two of the four 9s @promotion nd pleA we disussed rie)y when we disussed the mrketing mixF por exmpleD do we promote the usiness y word of mouthD signs on storefrontD ds in newspperD ds on D ds on the snternetD or some omintion of ll of thesec le refers to where the produt or servie is mde ville to the ustomerF he three usul hoies re in storeD through milEorder tlogD or from n snternet wesiteF he relationships estlished with ustomersY sn generlD howeverD the importnt point is not just to quire ustomersD ut to serve them in wy tht your usiness retins them s ustomersF por exmpleD it is usully muh more expensive to ttrt new ustomer to your usiness thn it is for you to enourge previous ustomer to returnF he core capacities needed to mke the usiness model possileY his point refers to the neessity to de(ne the si pilities your usiness must hveF por exmpleD if you re opening n rt gllery to sell your own workD you hd etter hve some tlent s n rtist3 he conguration of activities to implement the usiness modelY enother wy of stting this is to de(ne the usiness proesses tht your usiness must hve in order to funtion properlyF he partners nd their motivtions of oming together to mke usiness model hppenY rtnerE ships nd llines re inresingly importnt in tody9s worldF he revenue streams generted y the usiness model onstituting the revenue modelY sn esseneD this is the rie omponent of the pour 9sF here does your revenue ome fromD wht re the projetions for the futureD nd wht re the plns to sustin the neessry revenue strem s usiness onditions hngec he cost structure resulting of the usiness modelF he di'erene etween revenues nd ostsD of ourseD is your pro(tF ithout pro(tD it will not e possile for you to sty in usiness very longF
3.2.1 Examples of successful business models
st my e helpful to illustrte the onept of usiness models with two exmplesD whonlds nd giwiF sn the se of whonldsD it opertes frnhises ll over the worldF prnhises re proven nd suessful usiness models whose usiness model presription4 is suessful within the ountry of origin nd even oversesF hominting the hmurger fst food mrketD whonlds9 frnhise model hs lso proven to e
RQ suessful sine it quikly dpts nd evolves ording to the environmentF por exmpleD whonlds e does not hve hot suesD ut in wexio where wexins like lot of spiy foodD they o'er hot sueD s well s spiy met put into the hmurgersF enother suessful exmple is the wexin ement mker giwi @the world9s third lrgest produer of ementA tht hs suessfully implemented nd tested stndrd usiness model lled the giwi y in ll the plnts nd usiness units it hs within more thn SH ountries round the worldF gonsidering it opertes in four di'erent ontinentsD exept yeniD with very di'erent ultures nd wys of thinkingY ountries suh s the vs hilndD or stly vs fngldeshY it llows giwi to hve very quik response mehnism to djust to the mrket demnds sine it hs stndrd opertionl pltformF his gives giwi ler ompetitive dvntge ginst its min rivl gints suh s rolim nd vfrgeF rving estlished wht usiness model isD it is importnt to seprte it from the design of model E tully implementing itD iFeF testing it nd putting it into prtieF he design is est de(ned s the strtegyF sf usiness model design is not well outlinedY the implementtion nd testing will lso filF king very simple frmework from elexnder ysterwlder @fusiness wodel hesign flogpostD tuneD PHHTA shown in ixE hiit QFID usiness model design is seprted from usiness model exeutionD preededD of ourseD y usiness exeution implementtion nd testingF gompnies in qudrnt f with sound usiness model designs nd e'etive exeution re suessful ompniesD nd they must fous on stying in tht qudrntF gompnies in qudrnt g need to reEexmine their usiness vision nd strtegyD while ompnies in qudrnt h do not hve good design ut re e'etive on its implementtionY this ltter usully hppens with the pperne of disruptive technologies tht shke up estlished industries nd usiness models muh the wy iunes nd the iod didF st is very ommon for ompnies to hve sound usiness model design ut fil to implement nd test it properly @qudrnt eAF
Exhibit 3.1: Success = Business model design and implementation
sf we seek to hve suessful test result from usiness model it is mndtory to hve ler vision s well s sound usiness model designF he rest is mtter of testing nd implementtionsD or exeution s it is often lledF tillD suessful exeution is sometimes the most di0ult tsk of llF
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CHAPTER 3.
he fous of the lne of this setion will e to review the min issues ompnies must onsider in order to suessfully implement nd test usiness modelF
3.2.2 Model implementation/testing pre-requisites
e model must hve the following preErequisites in order to implement nd test itX IF e ompny ownerGsponsorX yrgniztionl models must mnifest themselves s sding e'et emnting from top to ottomF hereforeD the sponsor must either e the hed of the ompny or other high level exeutiveF sully sponsors re identi(ed s the hed of ompny deprtmentF PF ound udgetX esting usiness model will lwys require fundsF he mount provided must e the one demnded y the model to test itD no more nd no lessF QF vederX his is espeilly importnt sine heGshe will e the uthority or responsile person who will get resultsF RF uli(ed humn resouresX he leder gets to hoose hisGher temF his n importnt point sine the leder must look for the key individuls who re up to the test nd hve the neessry expertise to suessfully implement nd test usiness modelF SF i'etive triningX ith ll the ove omplishedD the (nl prt of the preErequisites is triningF e usiness model utomted or mnully developedD must e operted y humn eingsD therefore these persons who will tully test nd operte the model must hve no douts nd e onvined out the model9s proesses nd the ene(ts of working ordingly to the usiness modelF
3.2.3 Real expectations outcome: benets
sully ompnies hve tendeny to e very optimisti out outomes when usiness model is testedF gompnies must e lned etween eing ggressive nd demnding out the model ene(ts nd e relisti when evluting outomes of the testF he min ene(ts to show when usiness model is tested must e outlined round the next three spetsF ionomilX hey must re)et tngile eonomil ene(tsD suh sX ost redutions or sles inresesF roessX hey must improve onnetions etween the ompny9s vlue hin tivities suh s produtionD mintenneD prourementD (nneD humn resouresD etF so they re etter oordinted nd deision mking proesses re more e'etive nd timelyF rtieX hey must improve the work )ow of how things re done in the ompnyF hese improvements n e trnslted into reting etter historil dt for ompny eFgF rel time inventory trnstions from plnt wrehouseD or omplete nd urte reording of mintenne jo performed on spei( item of plnt equipmentF his retes more urte dt setD lter used s importnt informtion to mke deisionsF
3.3 Success factors
yne the ene(ts hve een shownD the next step is to preserve themF sn order to do soD the following suess ftors must e kept in mindF IF rve the pproprite ledershipF erson@sA tht n mke well sed nd quik deisions to ssure the ontinuity of the model one it hs een implementedF PF grete n internl environment of quik nd )exile responseF ell deprtments of the ompny must e )exile nd djust quikly to events QF rve integrtive inditors nd mesurementsF his is model thermometerD one tht will indite if everything is going smoothly ording to expettions or notF he inditors will show wrning signs in order to tke orretive tionF
4 This
RS RF rve orretive tions or model djustmentsF vern from tul results y quikly djusting nd evolving the usiness model in n integrtive wyD eing oherentD sound nd ligned with the ompny visionF
3.3.1 Conclusions
efter seeing wht usiness model is nd the required issues involved in hving suessful usiness model test nd implementtionY ompnies must keep in mind tht there is no one time testing of model nd gurntees of suess in the usiness worldF sn our erD usinesses re dynmil propelled y tehnology tht hnge onstntly s we move more nd more into more glol worldF he keys for ompnies to sueed re to e lwys foused nd to e )exile enough to djust its usiness model quikly nd e'etively ording to the hnging demnds of ustomers nd mrketsF yne of the most importnt funtions tht ompnies n hve to ntiipte ompetitive threts nd to reognize evolving mrket opportunities is to hve ontinuing ompetitive intelligene funtion within the ompnyF wngement filures re frequently ssoited with the inility to ntiipte rpid hnges in the mrketsD respond to new nd proliferting ompetitionD or reEorient tehnologies nd the strtegi diretion of their usiness towrd hnging ustomer needs nd new industry stndrdsF gompetitive intelligene is n importnt funtion in tody9s rpidly hnging usiness environmentF
3.4 Consumer marketing models
he forml use of mrketing onepts is firly reent tivity in developing eonomiesF sn the pstD most ompnies foused on produing produts or o'ering servies without muh emphsis on ustomers nd wntsF nderstnding onsumer ehvior ws not onsidered to e importntF he emphsis ws on the produt or servie per seF qiven the emergene of glol eonomyD howeverD whih rought the opening of mrkets nd inresed ompetitionD the trditionl pproh hs hnged drmtillyF gompnies re inresingly fousing on wht ustomers need ndGor wntF wrketEoriented ompnies re eginning to emerge in every developing eonomy in the worldF he purpose of this setion is to introdue you to the importne of mrketing oriented ompnies in developing eonomiesD s well s identifying usiness models whih follow marketing model rther thn product modelF
3.4.1 The product model vs the marketing model
eording to hilip uotlerD the produt model is mngement orienttion tht ssumes tht if qulity produt is produedD nd o'ered to onsumers t prie they (nd to e eptleD the ompny will e suessful in the mrket pleF enother uthor who suessfully introdued mrketing orienttion is heodore vevittF ris orienttion is sometimes referred s mrketing myopi pproh sine ompnies de(ne their usiness in terms of produts nd not in terms of ustomer needs nd wntsF por exmpleD r mnufturer my think they re in the r usiness while they reD in ftD ompeting in the trnsporttion industryF nder the produt modelD mngement fouses on developing high qulity produts whih n e sold t the right prieD ut with insu0ient ttention to wht it is tht ustomers relly need nd wntF por exmpleD epple determined tht wht ustomers wnted ws the ility to purhse musi one song t time rther thn purhse n entire gh with IT trksD only three of whih were relly wntedF hey susequently developed nd introdued the iod nd iunes online store whih revolutionized the wy onsumers uy musiF sn the mentimeD trditionl produers of trditionl ghs lost mrket shre to eppleD whih hd muh etter understnding of how to stisfy onsumersF he premises impliit in the produt model reX
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CHAPTER 3.
gonsumers uy produts more thn solutionsF gonsumers re interested silly in produt qulityF gonsumers reognize produt qulity nd di'erenes in performne lterntive produtsF gonsumers hoose etween di'erent produts sed on getting the est qulity for the moneyF he min tsk of orgniztion is to keep improving qulity nd reduing ost s key ftors to mintin nd ttrt ustomersF
he produt model used to e pplied in developing or losed eonomies where fewD if ny hoies were villeF edvntges of the produt model re tht the ost of determining onsumer preferenes nd the development of new produts nd servies re minimized or eliminted euse onsumers re in some wy ptiveF fy wy of exmpleD ompre the utomoile industry in developed ountries to the utomoile industry in the oviet flo ountries prior to IWVWF gustomers hd wide vriety of utomoile models to hoose from while itizens in the istern flo hd fewF he ltter ws operting on produt model rther thn mrketing modelF hisdvntges of the produt model re tht s soon s ompny ould o'er produt more oriented to stisfy ustomers needs nd desires the ompnies oriented to produts will lose the most if not ll of its mrket shreF he trditionl gh ompnies referred to ove re good exmple of thisF sn summryD mrket orienttion is essentilly ustomer orienttionF nderstnding ustomer needs lies t the ore of the mrketing oneptF
3.5 The marketing model
he mrketing model is mngement orienttion whih mintins tht the fundmentl tsk of the orgE niztion is to determine needs nd wnts of ustomers in the trget mrket nd dpt the orgniztion s whole to stisfy their ustomers more e'etively nd e0ientlyF tisfying ustomers more e0iently nd e'etively thn ompetitive ompnies inreses the hnes of the orgniztion9s suessF he mrketing model is n pproh wherey ompnies rete vlue for their ustomersF his onept n e understood y pplying it in the so lled Value Chain Model introdued y wihel orterF en pplition on how this model is pplied in mrketing is shown ixhiit QFP elowF
Exhibit 3.2: Value chain of marketing
pirstD you need to know nd understnd your ustomers9 needs nd wntsF fsed on your understnding of their needsD through reserh nd development you must develop n pproprite produt or servie tht ful(lls those needsF fsed on your engineering pilities you must de(ne your mnufturing proess tht delivers the right produt in the most e0ient nd eonomil wyF pinllyD the produt or servie must e delivered t the right time nd pleF
e simple wy to understnd the retion of vlue to ustomers is y exmining the following equtionX lue a fene(ts G rie
6 This
RU lue is reted y inresing ene(ts to the ustomersF por this resonD ene(ts is spei(ed in the numertor of this eqution @the higher the ene(tsD the higher the pereived vlue y the ustomerAY on the other hndD prie is pled in the denomintor sine the higher the prie the lower the pereived vlueF xow you must understnd how vlue is reted for your ustomersF o do soD mngers use tehnique lled the Marketing Mix @ommonly lled the four sA
rodutX ht is the produtGstisftor tht est ful(lls my ustomer9s needsc rieX ht should e the pproprite prie for this produt tht re)ets not only its ost ut lso its ene(ts to ompete with other produts in the sme segment or sustitute produtsc leX sn wht mrkets should the ompny o'er the produtc romotionX row should the ompny promote the produt or stisftorc
yne of the min dvntges of the mrketing model pproh is tht the ompny tries to e ner the ustomer9s needs y understnding them nd therefore developing produts tht ful(ll or exeed them in the est possile wyF yn the other hndD nd espeilly in developing eonomiesD the min disdvntge of this model is the ost in otining the informtion needed to understnd the ustomerF
3.6 Identifying market needs
es mentioned previouslyD the essene of pplying the mrketing model lies in the (nding of needs nd (lling them wiselyF e will ssess this issue of sdentifying mrket needs y introduing oneptul frmework known s erhm wslow9s Hierarchy of NeedsF his model fouses in the psyhologil fetures tht explin the si dimensions of humn needsF
3.6.1 Maslow's Hierarchy of Needs
wslow9s rierrhy of xeedsD stple of soiology nd psyhology oursesD provides useful frmework for understnding how nd why lol produts nd rnds re eing seleted nd dditionlly how they n e extended eyond home ountry ordersF wslow hypothesized tht people9s desires n e rrnged into hierrhy of (ve needsF es n individul ful(ls needs t eh levelD he or she progresses to higher levels @see ixhiit Q wslow9s rierrhy of xeedsAF et the most si level of humn existeneD physiologil nd sfety needs must e metF eople need foodD lothingD nd shelterD nd produt tht meets these si needs hs potentil for introdution into spei( mrketF roweverD the si humn need to onsume food nd liquids is not the sme thing s wnting or preferring hmurger nd soft drinkF en dditionl onsidertion is tht preferenes re deeply emedded in lol ulturesF esponding to suh di'erenes hs required the retion of produts nd rnds for spei( regionl or ountry mrketsF widElevel needs in the hierrhy inlude selfErespetD selfEesteemD nd the esteem of othersF hese soil needsD whih n rete powerful internl motivtionD driving demnd for sttusEoriented produtsD ut ross the vrious stges of ountry developmentF vuxury goods mrketers re espeilly skilled t tering to esteem needs on glol sisF ome onsumers )unt their welth y uying expensive produts nd rnds tht others will notieF uh ehviour is referred to s conspicuous consumption or luxury badgingF eny ompny with premium produt or rnd tht hs proven itself in lol mrket y ful(lling esteem needs should onsider devising strtegy for tking the produt glolF
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CHAPTER 3.
Exhibit 3.3: Maslow's Hierarchy of Needs
Source: http://www.provenmodels.com/19/image
3.6.2 Identifying customer's wants successfully
e proess to determine the tul needs of onsumers requires the identi(tion of the mrket ftors tht produe themF sn this proess ompnies should (nd rel onsumption motivtors tht eventully evolve into produt o'eringsF purthermoreD orret usiness de(nition leds to nturl mrket orienttionY for instneD ghrles evson fmous quote in the ftory we mke osmetisY in the drug store we sell hope @wwwFthinkexistFomA mde possile for the ompny to develop osmeti produts sed on women9s hopes rther thn produt feturesF everl potentil pitflls should e voidedF pirstD the nturl tendeny to impose personl point of view when lunhing new produt or entering new mrketF eondD simple imittion out ompetitors9 movesF hirdD lk of su0ient reserh nd mrket knowledge to produe mrket proved idesF e frmework hs een proposed to lign ustomer9s needs nd wnts with ompnies pilitiesF his frmework ws introdued y herri horfmn in her PHHS mrketing rtile entitled ht do gustomers ellyD elly ntF sn the rtile forementionedD horfmn proposes threeEstep proess to develop nturl mrket orienE ttionX tep IF DiscoveryX pinding out wht ustomers relly need o lern out ustomer needs nd prioritiesD to identify opportunities in the ompny to ful(ll these needsD nd to rete new or enhned produt o'eringsF hese ides must e inorported in mrket reserh proess involving ustomers nd other lients nd suppliers in the lue ghinF tep PF DenitionX hping the o'erings to meet ustomer needs sn this stepD horfmn proposes prioritizing fetures nd ene(ts identi(ed y lientsD suppliersD nd ustomersF hi'erent qulittive reserh tehniques suh s inEdepth interviewsD ethnogrphiesD nd fous group sessions permit the identi(tion of the ore mrket needsF tep QF ValidationX snsuring your o'erings (t into your ustomer9s worldF purther ommunition with onsumers vlidte the (nl de(nition of mrket sed produt or servieF his vlidtion tkes ple s prototypes re ssessed y onsumers to identify potentil prolems nd to smooth out design issuesF
8 http://www.provenmodels.com/19/image
RW ell these models tke into ount the soElled end onsumer perspetiveD whih implies tht onsumers uyingD usingD or reommending the produts re the driving fore ehind suessful mrketing e'ortsF roweverD there re other mrketing perspetives tht ssume tht orgniztions of mny sortsD given their importne in the overll size of the glol eonomy re the rel fores ehind mrkets9 suessF his implies tht mrketing e'orts should e imed t understnding their ehviour s onsumption entitiesD nd use this knowledge to develop mrketing strtegiesF
3.7 Business to business marketing models
3.7.1 Models of industry attractiveness; the strategic perspective
sn order to e suessful in usinessD we must understnd wht our ustomer9s needs nd wnts re nd deliver them in n e0ient nd pro(tle mnnerF sn order to do soD we must lso understnd the industries in whih the ompnies re immersed nd wht mkes them ttrtive from the generl point of viewF sndustry ttrtiveness ws initilly desried y wihel orter in his ookD Competitive Strategy @orter IWVHAF orter9s wellEknown Five Forces Model is often used s n nlytil tool y ompnies when they re deiding whether or not to enter prtiulr industryF eording to orterD wht mkes n industry ttrtive or unttrtive is determined y S foresX IF ivlryX his fore is mesured y how intense the rivlryGompetition reltionship in n industry isF he ftors 'eting rivlry reX numer of ompetitorsD slow mrket growthD low levels of produt di'erentitionD how ggressive ompeting ompnies reD etF por exmpleD retiling hs lwys hd the reputtion of eing highly ompetitive industryD while the ril rod industry is thought to e less ompetitiveF PF hret of sustitutesX sn orter9s modelD sustitute produts refer to produts tht n e sustituted for your ownF ustitute produts n e found within own or other industriesF por exmpleD if you deide to strt n interEity us ompnyD you hve to onsider ll the other options your ustomers hve to get from one ity to notherD for instneD ity trinsD smll shuttle servieD shred privte rsD mong othersF QF fuyer powerX he power of uyers is the impt tht ustomers hve on produing industryF sn generlD when uyer power is strongD the uyer hs the ility to set the prie euse usully there re very few uyers nd mny suppliersF qrin frmers re often used s n exmpleF sn most ountriesD there re mny smll frmers who grow grinD ut few lrge uyers who hve the power to set the prie frmer reeivesF RF frriers to entryX frriers to entry re unique o'erings of ompnies in n industry tht ny ompny wishing to enter tht industry must e prepred to overomeF ixmples from developed eonomies re online nking nd ew servies for nks nd frequent )yer progrms for irlinesF sn mny sesD development of these expeted produts or servies is quite expensive for new entrntD ndD thusD it s rrier to entryF SF upplier powerX uppliers re powerful when there re few suppliers for ompny to purhse neesE sry items fromF sn sitution where there re few suppliersD it is typilly di0ult for uyer to get lower prie from nother supplierF en exmple is the oil industryD where they re mny uyersD ut reltively few suppliersD nd most of the suppliers re memers of the yig rtel whih sets ommon prodution quotsD therey ontrolling the mrket prie for oilF wihel orter developed two other tools tht re widely used y orgniztions in their pproh to mrketsX Three Generic Strategies nd the Value ChainF orter postulted tht (rm should dopt only one of three generi strtegiesF hey re illustrted in X
9 This
SH
CHAPTER 3.
Exhibit 3.4: Source: http://www.provenmodels.com/27/image
10
e (rm n hoose to e the low ost produer for wide segment of the mrketY it n o'er di'erentited produt for wide segment tht ustomers re willing to py more for euse of its pereived greter vlueY or it n fous on mrket nihe s low ost produer or with di'erentition strtegyF por exmpleD the originl olkswgen utomoile foused in rod lowEost mrketF es mtter of ftD the word in qermn mens eoples grD inditing it ws ment to e 'ordle y everyoneF e good exmple of di'erentited utomoile is the fwF eople py more for fw euse of the onspiuous onsumption or luxury dging spets they hve mnged to rete in peoples9 mindsD not neessrily euse the fw is tully worth QH per ent more thn omprle utomoile from gdill or xissnF en exmple of r positioned towrds low ost nihe is the wzd witD twoEset sports r tht osts muh less thn omprle rsF pinllyD you n onsider the rummer s r tht ppels to di'erentited mrket niheF orter9s other widelyEused tool is the lue ghinD whih is used to model the (rm s hin of vlueE reting tivities or proessesF orter identi(ed set of interrelted generi proesses ommon to wide rnge of (rmsF re divided them into primry tivities nd support tivitiesD s illustrted in ixhiit QFSF
10 http://www.provenmodels.com/27/image
SI
Exhibit 3.5: Value chain
Source: http://www.provenmodels/26/image
11
he primry tivities in the vlue hin reX inound logistisD opertionsD outound logistisD mrketing nd slesD nd servieF he support tivities re prourementD tehnology development nd reserh nd developmentD humn resoure mngementD nd (rm infrstruture @top mngementAF he primry vlue hin tivities re interreltedD to the extent tht they n e formed with high qulity nd low ostD the (rm will e le to hve vlueEdded tht will e returned to the (rm s pro(tF es n exmple of the wy tht primry vlue tivities re interreltedD suppose tht the inound logistis proess does not do well in identifying rw mterils of poor qulityF his will use prolems with the next proessD opertionsD nd it my use prolems s fr down the vlue hin s servie fter the sleF he vlue hin isD thusD useful tool for nlysing ompny9s usiness proesses nd serhing for wys to lower ostsD improve e0ieny or serh for proess innovtionsF
3.7.2 Other Strategic Models
here re mny other strtegi models used y ompnies to help them formulte their overll usiness nd mrketing strtegiesF hree of est known models re the foston gonsulting qroup @fgqA wtrixD the wuinsey wtrixD nd vrry howne three foresF ih of these models is desried elowF
11 http://www.provenmodels/26/image
SP
3.7.2.1 The BCG matrix
CHAPTER 3.
he fgq mtrix method is sed on the product life cycle theory tht n e used to determine wht priorities should e given in the produt portfolio of trtegi fusiness nit @fAF o ensure longEterm vlue retionD ompny should hve portfolio of produts tht ontins oth highEgrowth produts in need of sh inputs nd lowEgrowth produts tht generte lot of shF his model n e explined in two dimensionsX reltive mrket shre nd mrket growthF he si ide ehind this model is tht the lrger the mrket shre produt hs reltive to its ompetitors or the fster the produt9s mrket growsD the etter it is for the ompny in n eonomi senseF he key omponents of the mtrix re illustrted in ixhiit QFT nd disussed elowX
Exhibit 3.6: BDG Matrix
Source: http://www.quickmba.com/strategy/matrix/bcg/
12
IF trs @high mrket growthD high reltive mrket shreAF hese re produts tht require lrge mounts of sh nd re lso leders in the usiness nd therefore they should lso generte lrge mounts of shF hey re frequently roughly in lne on net sh )owF PF gsh gows @low mrket growthD high reltive mrket shreAF hese re produts tht generte high mounts of pro(t nd shD nd euse of the low growthD investments needed should e lowF QF qiven its hrteristisD ompnies should void nd minimize the numer of produts in this tegoryF sf the produt does not deliver shD it my e disontinuedF RF uestion wrks @high mrket growthD low reltive mrket shreAF hese produts hve the worst sh hrteristis of llD euse of high sh demnds nd low returns due to low mrket shreF sf nothing is done to hnge the mrket shreD question mrks will simply sor gret mounts of sh nd lterD s the growth stopsD it my eome dogF oD mngers should either invest hevily in order to improve mrket shreD or sell o'Ginvest nothing nd generte whtever sh is possileF
12 http://www.quickmba.com/strategy/matrix/bcg/
SQ
3.7.2.2 The McKinsey matrix
he wuinsey mtrix is lter nd more dvned form of the fgq wtrixF st hs severl di'erenes with fgq9s mtrixD s disussed elowF st is illustrted in ixhiit TF
Exhibit 3.7: McKinsey Matrix
Source: http://www.quickmba.com/strategy/matrix/bcg/
13
IF wrket @sndustryA ttrtiveness reples mrket growth s the dimension of industry ttrtivenessF wrket ttrtiveness inludes roder rnge of ftors other thn just the mrket growth rte tht n determine the ttrtiveness of n industryGmrketF por exmpleD mrket ttrtiveness ould e determined using orter9s (ve fores modelF PF gompetitive strength reples mrket shre s the dimension y whih the ompetitive position of eh trtegi fusiness nit is ssessedF gompetitive strength likewise inludes roder rnge of ftors other thn just the mrket shre tht n determine the ompetitive strength of trtegi fusiness nitF QF pinlly the wuinsey mtrix works with QxQ gridD while the fgq wtrix hs only PxPF his lso llows for more insight in the nlysis of the usinessF
3.7.2.3 Downes' three new forces
vrry hownes @IWWWA identi(es three new fores tht require totlly di'erent perspetive towrds strtegi frmework nd set of very di'erent nlyti nd usiness design toolsX digitliztionD gloliztionD nd deregultionF higitliztionX es the power of informtion tehnology growsD ll plyers in mrket will hve ess to fr more informtionF husD totlly new usiness models will emerge in whih even plyers from outside the industry re le to vstly hnge the sis of ompetition in mrketF hownes gives the exmple of the rise of eletroni shopping mllsD operted for instne y teleom opertors or redit rd orgniztionsF hose
13 http://www.quickmba.com/strategy/matrix/bcg/
SR
CHAPTER 3.
who use the pive pores wodel nd who se their thinking on tody9s industry struture would never see these hnges oming in timeF qloliztionX smprovements in distriution logistis nd ommunitions hve llowed nerly ll usiE nesses to uyD sellD nd ooperte on glol levelF gustomersD menwhileD hve the hne to shop round nd ompre pries glollyF es resultD even lolly oriented midEsized ompnies (nd themselves in glol mrketD even if they do not export or import themselvesF sn dditionD glol nd networked mrkets impose new requirements on orgniztions9 strtegiesF st is not enough ny more to position oneself s prieEleder or qulityEleder @s orter suggests in his qeneri trtegies modelAF therD ompetitive dvntges emerge now from the ility to develop lsting reltionships to more moile ustumers nd to mnge frErehing networks of prtners for mutul dvntgeF heregultionX he pst dede hs seen drmti shrinking of government in)uene in mny industries like irlinesD ommunitionsD utilitiesD nd nking in the nd in iuropeF pueled y the new opportunities provided y informtion tehnologyD orgniztions in these industries were le nd fored to ompletely restruture their usinesses nd to e on the lookout for new opportunities nd ompetitive thretsF por exmpleD trditionl lnd line telephone ompnies tht did not enter the wireless telephony mrket found themselves with shrinking ustomer seF his is euse young people frequently use only ell phones now nd do not other to hve lnd line phone in their homesF
3.8 Chapter summary
14
hile eh of these models @nd others we hve not overedA hve their own strengths nd weknessesD wht orgniztions must lern is how to est utilize eh of themF orter still is the est known uthority in strtegy models nd omplemented with hownes9 digitl ge model works well for mny ompniesF fgq9s wtrix nd wkinsey9s wtrix help dignose the dimensions in produt9s life yleF hey re ll toolsD nd just s workmn hs mny tools in his tool kitD so mngers must hve mny tools in theirsD nd know when to use the right tool in given situtionF nderstnding the mrket9s needsD ompetitors9 strtegiesD nd to otin informtion for deision mkingD it is impertive to do mrket reserhF xextD we will introdue se tht demonstrtes the vlue of mrket reserh to ny (rm willing to spend time nd resoures using itF efter this exmple is introduedD two setions re developedF yneD introduing the mrket reserh proessD nd seondD the generl guidelines on how to ondut mrket reserh studyF e gndy tore gompny with susidiries in xew ork nd other lrge ities in ws interE ested in opening store in wonterreyD wexioF he xew ork susidiry is loted in one of the most visited res of wnhttnF st is housed on three )oorsD huge lole foused on selling ll type of ndiesF ivery )oor hs themti deortionD hrtersD nd gmesD depending on the type of ndies sold on tht )oorF snside they even hve o'ee shopF hey employ high prie strtegyD nd most of their visitors re tourists @ di'erentited nihe in orter9s hree qeneri trtegies modelAF he pln for the store loted in wonterrey ws reently ompletedF st will e ig storeD lmost the sme size s the one in xew orkD with high pries nd foused on highEinome onsumersF edditionl to the themti res de(ned in the xew ork storeD this store will hve spe for old ndy rnds to ttrt older onsumersF he store will lso hve setion for lol rndsF e onsultnt ws hired for dvising the owners on how to hieve the plnF ris (rst dvie ws to do some mrket reserh to understnd the rel opportunityF he mrket reserh results were stonishingX there ws no mrket in wonterreyF gonsumers loved the ideD ut they were not willing to py the high pries or even to visit the store more thn one month nd eing wonterrey ity with smll mount of tourists there would not e enough revenue to mintin the usinessF
14 This
3.1: Establishing that a market exists: Market research
SS he investment for opening the store in wonterrey ws out h I million dollrsF he potentil entrepreneurs spent round h IH thousnd in mrketing reserhD whih kept them from mking d investmentF
The market research process
here is n inherent risk when trying to expnd the mrketD lunhing new produtD or strting new usinessF he(ning tht mrket exists for your usiness ide will help in reduing tht riskF ou my think tht with unh of olleted dt nd fts you will e le to deide whether or not to go forwrd with your ideF fut the hllenge is not just olleting the dtD ut how to trnsform it nd how to use itF wrket reserh will support you in olletingD trnsformingD nd getting mening from the dtF ome of the resons why mrket reserh is so importnt reX IF he ost of errorsF vunhing nd selling new produt tht is not suessful in the mrketE ple ould use you to lose your entire investmentF PF gonduting mrket reserh will help you identify new trendsD mrket segmentsD nd nihesF QF wrket reserh will end up sving you time y developing foused strtegies sed on etter understnding of your ustomersF wrket reserh involves ll the tivities tht llow the ompny to otin the required dt for deision supportF wrket reserh is olletingD interpretingD nd ommuniting the informtion used for strtegi mrketingF he most typil pprohes re to ondut tiloredD oneEtime mrket reserh study s desried elowD or to use redily ville informtion suh s the periodil informtion provided y ompnies like eg xielsenF his setion will desrie how to ondut mrket reserh studyF he min steps reX IF sdentify nd de(ne the prolemX he (rst step is de(ning the trget or prolem to solve for your mrket reserhF wost of the time it is more thn one prolem to solveD ut you should prioritizeF he right de(nition of the prolem should llow us to otin the needed dtF PF he(ne the ojetivesX he ojetive should nswer the question of wht you wnt to otin from the mrket reserhF sn this step you should de(ne the sope nd tion plnF hevelE oping the ojetives should onsist of estlishing udgetD understnding the environmentD developing the pproh to nlysisD nd formulting hypothesesF QF heveloping reserh plnX fsed upon wellEde(ned prolem nd ojetivesD the frmeE work for the reserh pln should e pprentF his step requires the gretest mount of thoughtD timeD nd expertiseF st inludes inorporting knowledge from seondry informE tionD nlysisD qulittive reserhD methodology seletionD question mesurement nd sle seletionD questionnire designD smple design nd sizeD nd determining the dt nlysis to e performedF RF golleting the dtX his is the point t whih the (nlized questionnire @survey instrumentA is used in gthering informtion mong the hosen smple segmentsF here re vriety of dt olletion methodologies to onsiderF por instneX gomputer essisted elephone snE terviewingD wil urveyD snternet urveyD wll intereptsD rditionl telephone interviewingD snternet pnelD home pnelD mong othersF SF erforming dt nlysisX his is the proess of nlyzing the olleted dtD nd trnsforming omplex to simple informtionF vess omplex nlysis on smller dt sets n e hndled with ny of numer of personl omputer o0e suite toolsD like spredsheetsD while more omplex nlysis nd lrger dt sets require dedited mrket reserh nlysis softwreF ypes of nlysis tht might e performed re simple frequeny distriutionsD rosst nlysisD multiple regression @driver nlysisAD luster nlysisD ftor nlysisD pereptul mpping @multidimensionl slingAD struturl eqution modeling nd dt mining TF eporting nd presenttionX his is one of the most importnt stepsF ell usiness ritil informtion nd knowledge tht omes from your mrket reserh investment re limited y
ST
CHAPTER 3.
how they re presented to deision mkersF here re s mny reporting styles s there re reserh reportsD ut some re de(nitely etter thn othersD nd there re de(nitely trends to e wre ofF st is importnt to mention tht mrket reserh y itself does not rrive t solutions or mrketing deisionsF st does not even gurntee your usiness suessF roweverD when onduting wellE exeuted mrket reserh study you n redue the unertinty in the deisionEmking proessD inresing t the sme time the proility nd mgnitude of suessF o illustrte these onepts in live situtionD we hve inluded disussion of how mrket reserh study ws performed to determine the potentil mrket for new onept for funerl servies in wonterreyD wexioF
3.9 Market research to determine the potential market for funeral services in Monterrey, Mexico
15
fkgroundX e group of investors thought out developing new enterprise onept of funerl servies in wonterreyD wexioF he min ide ws to o'er improved funerl serviesD stisfying need not yet overed in the ityF gonept of the projetX he ompny will o'er funerl servies to people of soioeonomi level e nd fCF he new funerl servies will inludeX le of o0ns or remtory urnsD luxury trnsporttionD memoril vigilsD hpelD )owers nd feteri serviesD religious eremoniesD wide prking with vlet prking servieD legl requirementsD ondolenes vi snternetD pulition of rief lettersD privte room for the fmily with foods t the request of the lient nd preErrnged funerl plnsF he rhiteture of the ple will inlude mny green resD ig spes nd quiet nd peeful tmoE sphereF he dded vlue will e to support the lient in his pinD reson why spei( exeutive will e in hrge of ll the proeedings nd proedures for the memoril vigil nd uril of his elovedF yjetivesX
o understnd if potentil mrket exists for funerl servies enterprise in wonterrey gityF sdentify urrent spei( needs for the setorF ivlute projet oneptF ivlute projet lotionF ivlute projet nme nd logoF wethodologyX
tge s ulittive studyX P sessions group with the following pro(leX ession IX wen etween QS nd SH yers of geD from soioeonomi level e nd Cf who experiene in the proess of hiring funerl servies in the lst yerF ession PX omen etween QS nd SH yers of ge from soioeonomi level e nd Cf who hd experiene with the proess of hiring funerl servies in the lst yerF tge ss untittive studyX he size of smple ws of RUP personl interviews to men nd women of soioeonomi level e nd CfD ges etween QS nd TH yers oldD who live in wonterrey nd its metropolitn reF win (ndings nd onlusionsX
15 This
SU sn this reserh we found n importnt opportunity t the funerl logistis servies sine UT per ent of the interviewed people onsider tht it is neessry to hve ompny of this type in the ityD sine t the moment the ompnies tht o'er these servies hve mny opportunity resF gedills del oroD the most importnt funerl servies enterprise up to dte show us some opportunity res sX lk of prkingD mentioned y IS per ent of the smpleY the lk of omfortle feteriD mentioned y IH per ent of the smpleY smll hpelD mentioned y U per ent of the smpleY nd the temperture of the very old limteD mentioned y U per ent of the smpleD mong othersF sn the qulittive studyD people interviewed mentioned wht they dislike out gedills del oro is tht the memoril vigils hve ommon re for visits in where you n not identify whom eh person is ompnyingD turning it very informlF he hllenges tht we found t the seond more importnt funerl servies ompny of the ityD gedills grmelo wereX high prie @PH per ent of mentionsAD lk of filities for hndips @rowded elevtingA @IS per ent of mentionsA nd poor vilility of hpels @only threeA @IH per ent of mentionsAD mong othersF he onept of the new funerl servies enterprise ws very well epted y most of the people interviewed @UH per entAD minly the ide of hving person who filittes ll the funerl proeedingsD seems to e very helpful nd importnt in those moments of griefF he proposed lotion for the new funerl servies enterprise hd n eptne of VH per ent of the people interviewedD minly euse they re ner the most importnt hurhes of the ity with esy essesF he options of nmes people interviewed preferred were gedills wrin or gedills de wri y RS per ent nd QH per ent respetivelyF he people interviewed in the qulittive study suggested some ides to improve the onept mentioned likeX o hve privte re with ll the omforts @telephoneD omputerD ir onditionD thA for the fmily who does not wish to reeive visitsD tht hve plesnt deortion @not funerlAD nd personl ttentionD mong othersF hnks to this mrket studyD the investors ould orroorte the ide tht funerl servie enterprise in wonterrey my e good usiness opportunityF sn ddition they ould delinete the onept ording to the mrketF he funerl usiness hs een n eonomi suess so frD thnks to its ler de(nition of its mission nd its mrket oriented philosophyX lwys serhing for nd delivering n exellent servie to its ustomersF
3.10 Discussion questions
16
hink of n industry with whih you re fmilirF hisuss the mjor elements of usiness model nd pply it to the industry hosenF ht fetures in the model pper to e stndrd ompred to other industriesc ht re the steps in the proess of ustomers9 needs nd wnts identi(ed in the hpter s de(ned y horfmnc yrX efer to the setion of this hpter entitled sdentifying ustomers9 wnts suessfullyF sn horfE mn9s frmework three steps led to the identi(tion of ustomers9 need nd wntsF his proess ends on the vlidtion of needsF ht would e further step gered to identify future needsc ed the se out the wrket reserh to determine the potentil mrket for funerl servies in wonterreyD wexioF ht ojetives would you propose for this studyc wethodology suggestedc ht poliies ould e derived from the informtion otined y the wrketing eserh studyc
16 This
SV
CHAPTER 3.
3.11 References
17
hireion de werdoteniF enlisisD plnein y ontrolF hilip uotlerD R ediionF ht ho our gustomers ellyD elly ntc herri horfmnF ctune UD PHHS ysterwlderD elexF uess a fusiness wodel hesign exh smplementtionF tune IID PHHTF <httpXGGusinessEmodelEdesignFlogspotFomGPHHTGHTGsuessEusinessEmodelEdesignEndFhtml>18 F giwi e siteF giwi FeF hi gFF epril PHHUF <httpXGGwwwFgiwiFom>19 F whonlds e siteF whonlds gorportionF epril PHHUF <httpXGGwwwFmdonldsFom>20 F ikipediF fusiness model de(nition y ysterwlderD igneur nd uiF PHHSF <httpXGGenFwikipediForgGwikiGfusinessmodel>21 F
17 This content is available online at <http://cnx.org/content/m35359/1.4/>. 18 http://business-model-design.blogspot.com/2006/06/sucess-business-model-design-and.html 19 http://www.CEMEX.com 20 http://www.mcdonalds.com 21 http://en.wikipedia.org/wiki/Business_model
Chapter 4
How to organize and lead an entrepreneurial venture

4.1 Learning objectives

1
di'erentite etween the growth stges of usiness orgniztions understnd how usinesses n orgnize their tsks nd responsiilities ompre the dvntges nd disdvntges of tll versus )t orgniztion strutures distinguish etween the vrious types of usiness legl entities @see skill hedD legl issuesA
4.2 Introduction
his hpter disusses orgniztionl issues owners fe while operting nd ttempting to grow their usiE nessesF e exmine four stges of orgniztionl growth nd the hoies usiness owners fe when deiding how to mnge tsks nd responsiilitiesF hose mngement deisions shpe n orgniztion9s strutureD whih in turn in)uenes lines of ommunition nd deisionEmking proessesF he end of the hpter inludes short desription of usiness legl entitiesF elsoD you will (nd exerises to help you etter grsp these onepts nd to determine wht type of orgniztionl struture nd legl entity might est suit your ventureF
4.2.1 Moving from a one-person band to an orchestra
wost usinesses strt like oneEperson ndF he owner plys ll the instrumentsD some etter thn othersD ut ll out of neessityF vike ny musil ensemleD smll usiness inludes mny rolesF sn the eginningD the owners re often the est t mking or delivering the produt or servieF ine they hve the most t stkeD they often ssume wide vriety of rolesD inluding slesD ountingD nd muh moreF hrough omintion of skillD plnningD tlentD nd perhps lukD some usinesses mnge to growF his growth leds to new nd hnging roles in the usiness for everyoneD inluding the ownerF yf ll the roles n owner hs in the usinessD perhps the most importnt one is to e the designer for the usinessF sn the role of hief designerD usiness owners hve three ritil dutiesX
1 This 2 This
content is available online at <http://cnx.org/content/m35364/1.4/>. content is available online at <http://cnx.org/content/m35369/1.4/>.
SW
TH
CHAPTER 4.
HOW TO ORGANIZE AND LEAD AN ENTREPRENEURIAL VENTURE
Provide the vision and direction for the companyF ywners set the diretion for the vlues of the ompnyD develop its produt nd servie strtegiesD nd set the tone for its reltionships with ustomersF Develop and rene processes and procedures. ywners design the usiness modelD or the ig piture formuls nd proesses of doing usinessF henD they must (ll in the detils y nlyzing proesses nd (nding ottleneksF Create the organization's human resource structureF ywners identify the positions nd types of people the usiness needsD nd then they (nd the people to (ll those rolesF sn the words of tim gollinsD uthor of the estseller Good to GreatD qet the right people on the usD the wrong people o' the usD nd get everyone in the right setsF
he pyo' for wellEdesigned usiness is immenseF ith lrity of visionD expettions nd proessesD nd with the right people pulling togetherD there is strong foundtion for growthF snsted of grim never tke dy o' grindD the usiness owner n now enjoy the ride"nd mye tke dy o' from time to timeF st is lso now possile for the owner to think out pro(tle exitD euse usiness tht n run without the owner is worth lot more thn one tht flls prt when he or she is not t the ontrolsF ywners of growing usiness eventully hve to deide how to orgnize employees nd delegte uthorityF hoing so n e frustrting tsk for mny entrepreneursF wost would rther onentrte on losing slesD produing produtD or mnging shF roweverD they do so t the peril of putting o' plnning for the future needs of their enterpriseF
4.3 Organizational issues

4.3.1 Organizational issues
intrepreneurs typilly know when their ompny needs struturl overhulF he owner n no longer juggle ll the ritil dyEtoEdy tivitiesF smportnt deisions re delyedD ustomer ontt su'ersD emE ployees feel overwhelmed nd onfused out their nd others9 roles in the orgniztionF es the employee ount risesD someone other thn the owner hs to mnge nd e empowered to mke ritil deisionsF he stress generted y these vrious dysfuntionl symptoms eventully rehes point where the owner hs to deide to either ontinue growing the usiness @ut in more mnged wyA or to restrit its growth to e'etively mnge the (rm singleEhndedlyF eme eurity gompny9s @the nme hs een hnged to mintin its nonymityA originl orgniztionl struture used mny prolems for the ompnyD espeilly s its ustomer se egn to expndF
The company provides security and re alarm systems for high rise buildings and large corporate and government customers. It had grown to more than 40 employees in a short time, but was nding it increasingly dicult to provide the service customers expected. The company's organizational structure had evolved to meet the needs of the many family members that worked in the company, but not the needs of the customers.
he ompny hd produtEsed strutureF he deprtments inluded snspetionD wintenneD nd elrm snstlltionF ih deprtment hd mngerD sles mngerD (eld rews nd dministrtive supportF iven though most ustomers needed nd purhsed ll of the ompny9s serviesD no one ws responsile for meeting the totl needs of the ustomerF ih deprtment foused on getting its work doneF he lk of ommunition nd oordintion resulted in sheduling snfus nd invoiing prolemsF e growing numer of petty detils quikly uried the giy nd prevented her from fousing on the importnt strtegi nd (nnil issues fing the ompnyF he ws lso ottlenek tht ontriuted to ustomer servie prolemsF xo wonder she kept ndy dish (lled with ntids on her desk3
3 This
TI
Exhibit 4.1: A product-based organization
From the customer's point of view, working with Acme Security was akin to entering a restaurant and having to order the appetizer from the appetizer waiter, entre from the entre waiter, and dessert from the dessert waiter. In this scenario, each waiter is only concerned with getting his or her order complete and delivered. The dessert might arrive before the entre or appetizer. And if the entre is delivered cold, the other waiters cannot help. Finally, once the meal is over, all the waiters have to get together to gure out the bill. Like Acme Security, the restaurant's structure made it dicult, if not impossible, to deliver quality service.
ith the ultimte gol of improving ustomer servieD wht should the new nd improved eme eurity orgniztionl struture look likec por this ompnyD funtionEsed rther thn produtEsed struture ws more ppropriteF he most importnt hnge ws to ssign one person s the primry ontt for eh eme eurity ustomerF his eount wnger would report to the les wngerF he new ompny struture fetures two other key mngement positionsD n ypertions wnger nd n y0e wngerF hese three key mngers report to the giyF he hllenge for the giy ws to delegte responsiility nd uthority to these three mngersF felow we will disuss the omposition nd responsiilities of these three funtionl deprtmentsX
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CHAPTER 4.
Exhibit 4.2: A Function-based organization
Sales:
includes the Sales Manager, the account managers and estimators. Account Managers are assigned
by building or a major corporate account. This way everyone in the company, and more importantly the customer, knows who is responsible for a question or problem. The Account Manager's primary task is to meet the customer's total needs, and to make sure the invoices for work performed are issued in a timely manner.
Operations:
includes the operations manager and the eld crews. This department includes a position
responsible for scheduling all operations work and a position responsible for collecting and entering all job cost information. Operations' primary task is to meet the needs of the Account Manager and the needs of the Oce Manager with respect to information required to process invoices and payroll. The department maintains a centralized scheduling system that is accessible to everyone. They notify the Account Manager that a job is complete, provide the necessary job costing and billing information so that the Account Manager can notify accounting that an invoice should be issued.
Administration
is led by the Oce Manager. This department includes the receptionist, Accounting
Manager, and Human Resources. This department's primary task is to issue invoices and manage payables, receivables, and to provide management with timely nancial reports. With improved structure and communication, the CEO of Acme Security can focus on more strategic issues and replace the bowl of antacids with chocolate!
TQ
4.4 Organizational stages of growth
es n orgniztion growsD it generlly progresses through four stges of inresingly forml mngement struturesF5 Stage 1X sn oneEperson opertionD the owner does everythingX slesD ookkeepingD mrketingD produE tion nd so onF wny (rms remin oneEperson opertions inde(nitely due to the owner9s fmily oligtionsD (nnil onstrintsD or ontentment with the sttus quoF Stage 2X es more people join n orgniztionD the usiness owner eomes plyerEohF he enE trepreneur ontinues to perform dyEtoEdy tsksD ut long with other employeesF o the owner ssumes dditionl employee mngement duties suh s hiringD shedulingD supervisingD nd pyrollF Stage 3X pirms reh mjor milestone in orgniztionl development when they dd n dditionl level of supervisionF he owner relinquishes some diret ontrol nd egins working through n intermediry lyer of professionl mngersF Stage 4X es ompny dds more lyers of mngement nd proessesD it lso dopts written poliiesD udgetsD stndrdized personnel prtiesD orgniztionl hrtsD jo desriptionsD nd ontrol protoolsF
4.4.1 Departmentation
xew usiness owners do not sk themselves how they should orgnize their usinessF therD they orgnize y ojetiveX wht does it tke to get jo doneD meet gol or rete welthF row owners orgnize ompny depends on multitude of ftorsX for exmpleD re ertin tsks performed inEhouse or outEsouredc ere people @st' nd mngementA with the neessry skills villec fusiness sholrs hve tegorized vrious orgniztionl strutures s desried elowF roweverD do not ssume tht growing usiness must t one point or nother ssume one of these struturesF therD smrt entrepreneurs onstntly twek their orgniztions to remin gile to tke dvntge of new opportunities or respond to new hllengesF ometimes the hnges neessry to move from smll to lrger usiness require gut wrenhing deisionsX for exmpleD personnel tht might hve plyed key roles in estlishing new usiness might not e the right (t for lrgerD more strutured orgniztionF es the usiness growsD its orgniztionl struture is hevily in)uened y funtion @people grouped with similr responsiilitiesAD proess @people involved in similr proessesAD produt @people uilding spei( produtA or projets @memers of projetAF6 e (rm9s struture might e in)uened y some or ll of these types of deprtmenttionF vrge (rms usully employ vriety of deprtmenttion stylesD seleting the most pproprite form for eh susystemF
4.4.1.1 Departmentation by function
qrouping tivities y funtion is the most widely used form of deprtmenttionF imilr tivities re housed in deprtment or under single hin of ommndF por exmpleD slesD dvertisingD puli reltionsD nd promotion might e grouped in mrketing deprtmentY employee ene(tsD employee trining nd employee regultory ompline my e housed in the humn reltions deprtment nd so onF puntionl deprtmenttion tkes dvntge of employees9 speiliztionF imployees with similr trinE ingD edutionD skillsD or equipment work together nd under supervisor responsile for tht deprtment9s tivitiesF feuse one supervisor typilly oversees mjor re of tivityD funtionl deprtmenttion lso filittes oordintionF por instne in lrger retil opertionD one mrketing deprtment supervisor would ontrol nd oordinte the work of uyersD merhndisers nd the sles fore so tht informtion nd tivities of eh funtion would e more e0ient nd produtiveF
4 This content is available online at <http://cnx.org/content/m35367/1.4/>. 5 Longenecker, Justin Gooderl, Moore, Carlos W.; Petty, J. William; Palich,
An Entrepreneurial Emphasis. South-Western College Publishing. Mason, OH. Leslie. (1991). Small Business Management:
6 Entrepreneurial
Firms: An Examination of Organizational Structure and Management Roles Across Life Cycle Stages,
Watson, Kathleen M., Plascha, Gerhard R., paper presented at U.S. Association for Small Business and Entrepreneurship annual conference, Baltimore, Maryland, October 1993)
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CHAPTER 4.
Exhibit 4.3: Departmentation by function
he proess or equipment used in produing produt or servie my e the sis for determining deprtmentl unitsF ine ertin mount of expertise or trining is required to hndle omplited proesses or omplex mhineryD tivities tht involve the use of speilized equipment my e grouped into seprte deprtmentF his form of deprtmenttion is similr to funtionl deprtmenttionF he grouping of ll milling mhines into one deprtment or the pling of lthes in nother deprtment is illustrtive of deprtmenttion y equipment or proessF es further exmpleD lrge food produts (rm my e deprtmentlized y proesses suh s mnufturingD pkge designD distriutionD nd shippingFQ
Exhibit 4.4: Departmentation by process
4.4.1.2 Departmentation by products
gompnies with diversi(ed produt lines frequently rete deprtmentl units sed on the produtF o deprtmentlize on produt sis mens to estlish eh mjor produt in produt line s n independent unit within the overll struture of the ompnyF por instneD retil stores my orgnize their opertions to meet the needs of spei( ustomer groups y forming speil deprtments to ter to house wresD menswerD hildren9s lothing nd so forthF rodut deprtmenttion n e useful guide for grouping tivities in servie usinesses s wellF wny nks hve seprte deprtments for mortggesD heking ounts nd ommeril lonsF
TS
Exhibit 4.5: Departmentation by product
4.4.1.3 Departmentation by projects
rojet orgniztions re spei(lly designed to del with hnging environmentsF e projet in this sense is series of relted tivities required to omplish work outomeD suh s the development of new produtF rojets nd tsk fores or tems re generlly unique"designed to work on nonreurring projetF hey re tightly orgnized units under the diretion of mnger with rod powers of uthorityF e tem is given projet with spei( tsks or opertionl onernsF his tem is omposed of employees from the (rm who hve expertise or skills tht n e pplied diretly to the projetF he memers of the tem mnge the projet without diret supervision nd ssume responsiility for the resultsF hen work tems funtion wellD the need for lrge numer of supervisors deresesF
4.4.1.4 Departmentation by matrix
ome (rms re orgnized y using mix of deprtmenttion types @mtrix orgniztionAF st is not unusul to see (rms tht utilize the funtion nd projet orgniztion omintionF he sme is true for proess nd projet s well s other omintionsF por instneD lrge hospitl ould hve n ounting deE prtmentD surgery deprtmentD mrketing deprtmentD nd stellite enter projet tem tht mke up its orgniztionl strutureF
yne the ses for deprtmenttion re determinedD nother prolem of struture immeditely rises onerning how mny deprtments or how mny individul workers should e pled under the diretion of one mngerF his is referred to s spn of mngement or spn of ontrol issueF e numer of ftors should e onsidered when deiding upon spn of ontrolX
the the the the the omplexity of the suordintes9 jos nd need for intertion with mngement omplexity of the supervisors9 jos ompetene of the supervisors nd suordintes numer nd nture of the supervisors9 other intertions with nonEsuordintes extent to whih st' ssistnts provide supportF
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CHAPTER 4.
4.5 Flat versus tall organizations
fy de(nitionD smll usiness is typilly )tD entrlized orgniztionF he founderGowner is the oss nd mkes ll the ritil deisionsF roweverD s the personnel ount growsD the (rm9s struture typilly expnds either horizontlly @)tA or vertilly @tllAF eginD vrious ftors inluding the owner9s mngement styleD might 'et wht type of struture usiness ssumesF
4.5.1 Flat organizations
plt orgniztions follow the deentrlized pprohD or orgni systemF here re fewer levels of mngeE ment whih retes n environment for fster growth nd response etween ll levelsF yrgniztions tht follow this type of struture hve wider spns of supervisory ontrol nd hve more horizontl ommunitionF his type of struture promotes tsk interdependene with less ttention to forml proeduresF wore deisions re mde t the middle levels of the orgniztionF hey re less ureurti nd less struturedF ixternllyD the orgniztion s whole eomes more dptle to its mrket nd n quikly ret to hngesF snternllyD the orgniztion s whole enourges more prtiiption etween ll levels of the orgniztionF es resultD ll levels hve the potentil of working more losely together whih enhnes loser working environment with etter ommunition nd retivityF
Exhibit 4.6: Flat organization
4.5.2 Tall organizations
e tll struture is more formlD ureurti orgniztion or mehnisti systemF sn this environmentD multiple levels of mngement ontrol deision mking proesses nd employees within the orgniztionF hen numerous levels eome involved in dily opertionsD deisionEmking tends to e more impersonlF ine this type of struture hs more levelsD the division of lor is muh more speilizedF heprtments n eome more omprtmentlizedD whih inreses the ommunition within themD ut does not lend itself to ommunition with other deprtmentsF
7 This
TU
Exhibit 4.7: Tall organization
4.6 Centralized versus decentralized organizations
gommunition is essentil to disseminte informtion throughout orgniztions nd n tke ple t mny levelsF here re two ommunition models tht re utilized"entrlized nd deentrlizedF eginD eh style n e e'etive depending on the environment nd eh hs its dvntges nd disdvntgesD s re outlined elowF
4.6.1 Centralized
gentrlized orgniztions require ommunitions )ow through entrl person or lotionF ingle leders re prominent nd hve gret del of deisionEmking powerF hese persons hve ess to more informtion nd n therefore exerise gret del of in)uene over group memers y ontrolling the )ow of ritil informtionF yne disdvntge to entrlized ommunition is tht s the orgniztion growsD the mount of informE tion n overwhelm the entrl hu @person or deprtmentA tht proesses this informtionF yne dvntge to the entrlized pproh is tht it enourges stndrdized proesses tht typilly result in ost svings nd etter qulity ontrolF
4.6.2 Decentralized
heentrlized orgniztions tend to utilize mny hnnels of informtion )owD llowing for more open omE munition etween group memersF his model is more onduive to solving omplex prolemsF yne of the mjor dvntges to deentrlized ommunition is tht prolems nd proesses n e solved nd hnged in timely mnnerF elsoD the needs of ustomers nd employees re more esily nd quikly met euse fewer levels of mngement re involvedF e mjor disdvntge to deentrlized orgniztion is tht deprtments n esily lose sight of the orgniztion9s ommon missionF o ensure orgniztions sty on tskD upper mngement should mintin open lines of ommunition with lol mngementF
8 This
TV
CHAPTER 4.
4.7 Chapter summary
o how does n owner egin to digest nd pik etween ll the hoies @funtionD produtD proessD projet or mtrix strutureD )t versus tllD entrlized versus deentrlizedA ville when it omes to orgnizing usinessc o design etter usinessD owners should tke these stepsX
hedule time to work on the usinessF his pplies to strtEups nd estlished usinessesF here is n old syingD sf you re hopping woodD you need to tke some time to shrpen the xeF rite everything downF houment ll jo desriptionsD proessesD nd proeduresD nd then re(ne the proesses so the result is relile nd high qulity outputF sn his ook he iEwythD wihel qerer mkes the se tht entrepreneurs should uild nd doument their usiness s if it were the (rst of SDHHH lotionsD even if they never pln to expndF ry to eome unimportnt to the dyEtoEdy opertionsF e usiness tht would ese if something hppened to the owner hs very little vlue to potentil uyerF sf the usiness is turnEkey opertion with doumented nd relile proessesD it hs muh greter vlue to the urrent owner nd future uyersF fe prepred to hnge roles s the usiness growsF es time goes onD the mount of time n owner spends working in the usiness should dereseF re or she should emre the role of giy who is working on the usinessF
sn the introdution of this hpter we likened the usiness owners9 role to musiinF sn the erly stges of the usinessD the owner hd to ply every instrumentF fut if the usiness is to grow nd prosperD the owner must eome the ondutor of n evolving orhestrF sf n orhestr hs good musiinsD exellent sheet musiD nd tlented ondutorD the result is eutiful musiF feuse lws regulting usiness vry gretly y ountry nd loleD entrepreneurs should pik legl entity for their usiness in onsulttion with lol ttorney tht speilizes in usiness lwF he legl issues disussed elow re)et generl prties in the nited ttes where lws governing usiness vry not only y stteD ut y lol jurisditions within sttesF fusinesses tivities re orgnized either y individulsD ouples or groups of peopleF fusinesses with one owner @the most ommon nd referred to s sole proprietorships in the nited ttesA n e lunhed without ny legl ssistneD nd depending on the lotionD with or without ertin permitsF fusinesses with multiple owners typilly write out expliit guidelines regrding investment nd mngement issues using one of severl types of legl greements designed spei(lly for usiness orgniztionsF husD one of the (rst deisions fing new usiness owners is deiding wht legl entity to use for their usinessF ht deisionEmking proess typilly weighs the following issuesX @A @A @A @dA @eA how muh time or involvement in the usiness is required wht skills re required degree of risk ssoited with the usiness mount of pitl needed tx regultions on lor nd inome erned y the usiness
4.1: US legal issues
sn the nited ttesD there re four si types of usiness opertionsX IF Sole proprietorships e sole proprietorship is n individul owner of usiness @with or without employeesAF his type of opertion is the simplest to formD nd the single ownerD or sole proprietorD my work s muh or s little time s desiredF he sole proprietor is generlly held ountle for ll produts ndGor servies produed y the usinessD s well
9 This
TW s dets nd liilities of the usinessF ine the owner9s personl liility extends well eyond mounts invested in the usiness or even eyond ssets purhsed y the usinessD this type of opertion is onsidered high riskF he mount of pitl required to strt sole proprietorship is generlly minimlF sn ddition to sole ownership of ll ssets nd liilitiesD the proprietor ene(ts y reeiving ll pro(tsD whih in the nited ttes re txed s prt of the owner9s totl personl inomeF he sole proprietor my employ workers or engge independent ontrtors to inrese skills villeD ut the usiness eses to exist upon the owner9s dethF e sole proprietor usiness n e orgnized t ny time into di'erent legl entityF he owner often deides to reorgnize when pro(ts sustntilly inrese the individul9s tx liilityF PF Partnership hen two or more fmily memers or people join together in usiness opE ertionD they my hoose to estlish prtnership whih n tke the form of generl or limited liility prtnershipF qenerl prtnerships re similr to the omintion of group of sole proprietorships in tht the prtners shre worklodsD pro(tsD nd liilitiesF vimited viility rtnershipsD howeverD usully inlude one or more prtners who mnge dily opE ertions nd re generlly lile for the dets of the usiness while other limited prtners risk their investment in ntiiption of pro(tsF snitil greement is essentil onerning how the prtnership will operteD who will mnge dily opertionsD how pro(ts will e disursedD nd who ssumes liilities nd detsF uh n greement is normlly formlized in writing nd is known s rtnership egreementF rtnershipsD like sole proprietorshipsD re generlly dissolved upon the deth of prtnerF ro(ts re shred in ordne with terms of the rtnership egreement nd reported to txing uthorities on personl tx returns of the prtnersF QF Corporations sn the nited ttesD orportions re onsidered seprte legl entities tht re hrtered nd regulted y n uthority in eh stteD suh s the eretry of tteF edditionllyD seprte gent who ts on ehlf of the orporte entity is identi(ed in the initil pplition proess to reeive legl noti(tionsF gorportions must lso sumit identiE (tion nd governing douments suh s ertiles of snorportion nd fyEvwsF gorporte entities re generlly required to e kept in tive sttus through nnul updtes to reguE ltory uthorityF es resultD this type of entity is deemed slightly more omplex to form nd mngeF gorportions require investment y one of more owners who re known s shreholders or stokholdersD nd the mount of investment vries depending on the needs of the usinessF ine this form of entity provides protetion @widely known s the orporte veilA for the personl ssets of owners ginst ertin types of limsD it is generlly of lower riskF gorporte entities my vry in numers of owners from single shreholder to n unlimited numerF ttes nd federl genies regulte (nnil tivities nd reporting requirements tht re tegorized y the numer of shreholders nd whether their shres re ville to purhse nd sell on puli stok exhngesF por exmpleD orportions with pulily trded shres re regulted y the eurities nd ixhnge gommissionF he orportion my employ workers nd engge independent ontrtors s needed to inE rese skills villeF gorportions re requiredD howeverD to knowledge formlly @in written doumentA the individuls who re pproved to engge in (nnil trnstions on ehlf of the entityF sn the nited ttesD the snternl evenue ervie regultes federl tx odesF here re two txing options for ernings of orportionsX progressive struture on pro(ts for the trdiE tionl orportion nd nother tht llows owners to )owEthrough pro(ts to their personl tx returnsF RF The Limited Liability Company (LLC) sn the nited ttesD the vimited viility gompny @vvgA is the entity of hoie for the owner or owners who prefer the limited liility 'orded y orportion nd tx tretment tht llows pro(ts to )ow from the usiness to
UH
CHAPTER 4.
the owner or ownersF he vvg must lso e registered with tte uthorityD ut requires less doumented strutureF ywnership is knowledged y perentge s opposed to numer of shres nd protetion for the owners is similr to tht of orportionF
10
hesrie the hrteristis of eh of the four stges of growth usiness orgniztion might experiE enec hesrie the dvntges nd disdvntges of )t versus tll orgniztionl strutureF qiven your personlity nd pst experieneD do you prefer working in )t or tll orgniztion nd whyc ht re the hrteristis of the four types of usiness legl entitiesc
4.9 References
11
gollinsD timF @PHHIAF qood o qretF rrpergollinsD xew orkD xF qererD wihel iF @IWWSAF iEwyth evisitedX hy wost mll fusinesses hon9t ork nd ht to ho eout stF rrpergollins ulishersD snF xew orkD xF
10 This 11 This
Chapter 5
Selecting and managing your team

1
to understnd the (eld of rumn esoure wngement nd its potentil for reting nd sustining ompetitive dvntge to understnd how n orgniztion n e'etively reruitD mngeD nd terminte its employeesF to know the si pprohes to reting e'etive rewrd systems through se pyD ene(tsD nd py for performne to understnd the reltionship etween work design nd employee motivtion to show fmilirity with mehnisms to rete employee voie nd in)uene
5.2 Competitive advantage through human resource management

An introduction, by Cynthia V Fukami
e gret del of reent reserh hs undersored the strtegi dvntge to e gined from mnging employees s if they re ssets rther thn ommoditiesF gonsider the ommodities usiness employs"pds of pperD llpoint pens"things tht you purhseD use upD nd then disrdF snvesting in ommodity is never onsidered"re(lling llpoint penD for simple exmple"euse it simply is not worth the expenditure of time nd resouresF e return on tht investment is not expetedF yn the other hndD onsider the ssets employed in usiness"the physil plntD the equipmentD nd the money"things tht re mintined nd developedF hen the pint peels on the o0e wllsD one does not throw wy the uilding nd uild new oneY new ot of pint is su0ientF wking investments in usiness9s ssets mkes gret del of senseD euse these investments will ring returnF e growing numer of ompniesD reognizing tht their employees re mong their most vlule ssetsD re king up tht reognition with solid investmentF sn n importnt reent ookD rofessor te'rey fe'er of tnford niversity identi(ed seven mngement prties tht hve een ssoited with produing sustined ompetitive dvntge for the ompnies tht hve dopted themF hese prties reX employment seurityD seletive hiringD selfEmnged tems with deentrlized uthorityD high py ontingent on orgniztionl performneD triningD redued sttus di'erenesD nd shring informtionF ut togetherD these prties form the foundtion of wht is lled highEommitment or highEperformne mngement systemF he evidene on the results of implementing highEommitment mngement system is striking nd strongF eserh hs een onduted in mny industriesD from nking to utomotive to semiondutors to servieF ome reserh hs foused on one industry while others hve looked ross industriesF ome
1 This 2 This
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UP
CHAPTER 5.
SELECTING AND MANAGING YOUR TEAM
reserh hs inluded ompnies from the nited ttes nd others hve studied ompnies rodF yverllD the onlusions of these studies re remrkly similrF righEommitment mngement systems produe higher orgniztionl performneF fe'er summrizes the results into three tegoriesF pirstD people work hrder euse they hve more ontrol over their work from the highEommitment mngement prtiesF eondD people work smrter euse they hve stronger skills nd greter ompetene from the investments of highEommitment mngement prtiesF hirdD ompnies sve dministrtive overhed nd the osts y reduing the liention of their workfore nd the dversril reltionship with mngementF sn study of (rms representing ll mjor industriesD wrk ruselid found tht one stndrdEdevition inresed the use of highEommitment prties ws ssoited with UFHS per ent derese in employee turnoverD h PUDHRR perEemployee inrese in slesD h IVDTRI more in mrket vlue per employeeD nd h QDVIR more in pro(ts per employeeF hen he repeted the study severl yers lterD he found tht similr inrese in the use of highEommitment mngement prties ws ssoited with h RIDHHH inrese in shreholder vlue per employeeF enother noteworthy study exmined the mngement prties of initil puli o'erings or sys to see if there ws reltionship etween highEommitment mngement prties nd the (veEyer survivl rte of sysF his study onluded tht the tretment of employees s ssets nd the use of stok optionsD pro(t shring nd gin shring progrms for ll employees @versus limiting the progrms to key exeutivesA were signi(ntly relted to the survivl of the sy to the (veEyer milestoneF hese studiesD nd mny others like themD hve put onventionl wisdom on its erF ypillyD we hve ssumed tht suess ws relted to ftors suh s sizeD or eing glolD or leding your mrketD or eing in prtiulr industries suh s high tehD or pursuing rillint strtegyF etD reserh shows there is virtully no onnetion etween industry nd suessF es lEwrt nd outhwest eirlines hve shown usD n individul usiness n e very suessful in terrile industryF imilrlyD there is little or no onnetion etween suess over time nd ompny size or mrket dominneF snstedD ompetitive dvntge omes from the wy usiness is ondutedD nd employees re the keys to thisF he most suessful ompnies mnge their workfore e'etively s ssets not ommoditiesF o why re more ompnies not dopting highEommitment mngement prtiesc hy re their exeuE tives proliming employees to e their most vlule ssetsD while ontinuing to tret them s ommoditiesc erhps it is ontinul ulturl emphsis on short run performne nd stok pries"n emphsis tht mkes it seem more pro(tle to ly o' employees or to ut trining when times re toughF erhps it is preouption with systems tht ontrol rther thn delegteF erhps it is our overwhelming tendeny to teh future mngers tehnil tools t the expense of peopleEmngement toolsF htever the resonsD the hllenge reminsF sf usiness is le to meet tht hllengeD the odds re tht ompetitive dvntges will followF
5.3 Providing employee voice and inuence

By Liz Evans
imployees re the resoures of n orgniztion in the sme wy s mteril ssets ut they re lso the (rm9s stkeholdersF he onept of employees as stakeholders refers to the interest employees hve in the suess of the ompny nd the ft tht tions tken y the orgniztion diretly 'et the employees @ylsonD PHHQAF imployees9 stkes in the ompny re eonomi in the ft tht their livelihood omes from the (rmD psyhologil in tht they derive pride from their workD nd politil in terms of their rights s employees nd itizensF hough employees re the stkeholders who re rguly most visile to mngement on dyEtoEdy sisD they do not often ommnd the mjority of ttention in terms of deisionEmking in)uenesF he shortEtermD eonomi duties to stokholders often ommnd more mngeril ttention in the deision mking proess thn employee opinion @etersonD PHHSAF eording to tonesD the est wy to inorporte employees9 stke to improve (rm performne is through employee prtiiption nd in)uene @imployees s tkeholdersD IWWUAF
3 This
UQ eprt from unioniztionD employees n otin in)uene in orgniztionl deisions in severl wysF llow employees to ddress grievnes nd to rgue their point if they feel they re wronged y mngement or nother employeeF Participation Systems provide employees with in)uene in the orgniztionl or mngeril deision mking proessesF his suhpter will disuss the wys employees re given voie nd in)uene in nonEunionized workplesD with prtiulr ttention pid to in)uene in deisionEmking nd orgniztionl suessF his will inlude the ene(ts of employee input to the (rmD the di'erene etween voie nd in)ueneD nd the mny prtiiption mehnisms mngement n use to hrness employee in)uene into deisionEmkingF here re ene(ts to (rm for providing employee in)ueneF por oneD strong employee voie nd in)uene mehnisms re n importnt prt of High-Performance Human Resource System in whih the humn resoures of the (rm re oordinted nd designed to mximize the qulity of humn pitl in the orgniztion @feker 8 ruselidD PHHIAF oie nd in)uene mehnisms llow employees to give input nd to ontriute their expertise to usiness suessY these mehnisms llow (rms to get the most ene(t from the skills of their humn pitlF husD (rms with employee in)uene mehnisms get higher (nnil return from their employee ssetsY highEperformne r systems improve the (nnil ottom line of the (rm @feker 8 ruselidD PHHIAF hespite the mny ene(tsD there re vrious resons not to implement voie nd in)uene mehnisms pereived y employees nd mngementF oie nd in)uene n ene(t employees y helping them to protet their rights nd most employees wnt voie in their workple @etersonD PHHSAF roweverD employees my e hesitnt to orgnize into employee ssoitions or push for voie mehnisms for fer of retriution due to pereived opposition to in)uene y mngement @etersonD PHHSAF imployers ene(t from the inresed trust tht omes from shring informtion nd giving employees in)uene @fe'er 8 iegD utting eople pirst for yrgniztionl uessD IWWVAF roweverD mngers who re used to hving ontrol often (nd it disonertingD di0ult nd even impossile to shre power in the form of in)uene in exhnge for the mny orgniztionl ene(ts @wrkenD PHHRAF oie nd in)uene re di'erentD ut oth re neessry to grner the ene(ts to the (rmF wny mngers reognize the importne of giving their employees voiceD ut often this open ommunition does not result in uthenti employee involvement or in)uene on the tul deision mking proess @qolnD PHHQAF rering employee voie is not the sme s giving consideration to the reeived informtionY onsidertion is wht gives employees in)uene in the orgniztion @qrvin 8 oertoD PHHIAF isile action is s importnt to in)uene s onsidertion @olnikD PHHTAF etion provides the follow up tht llows mngement to mke it pprent to employees tht they hve in)ueneY it lso llows mngement to see rel hnge nd ene(t from the insight provided y employeesF oie without onsidertion nd tion retes little ene(t for employees or the (rmF wny di'erent prtiiption systems n e implemented to uthentilly get employee input nd to pE itlize on the ene(ts ssoited with employee in)ueneF Open book management empowers employees with the informtion they need to see the relity of the orgniztionl sitution nd to give relevnt nd helpful input @gseD IWWUAF imilr to open ook mngement re open-door policiesD where mngement mkes it ler tht employees n informlly rise issues or give input t ny timeF he openEdoor poliy pge on the gentrl rking gorportion wesite provides n exmple of suh poliy nd the proedures employed y the ompny for sumitting nd reeiving employee input @gentrl rking gorportionD PHHRAF Feedback programsD sometimes implemented in the form of employee surveys or through diret employeeE mngement intertionD n e less expensive wy to get feedk from employees onerning spei( progrms or poliies @olnikD PHHTAF urveys re prtiulrly eonomilD espeilly when done online using free survey progrms suh s urveywonkeyFom4 @urvey wonkeyD PHHUAF em mehnisms suh s quality circles, work teams, and total quality management teams provide employees with the ility to synthesize their individul input into etter solution to orgniztionl prolemsF sn onlusionD there re mny possile ene(ts to (rm ssoited with providing employees with voie nd in)uene within the orgniztionF roweverD in order for these ene(ts to e relizedD mngement must not only provide employees with n outlet to spekD ut must lso tke the informtion into onsidertion
Grievance and Due Process Systems
4 http://cnx.org/content/m35392/latest/www.surveymonkey.com
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CHAPTER 5.
nd follow up with visile tionF sn this wyD n orgniztion n ttend to its most importnt stkeholdersD the employeesD nd grner return on its investment in its humn pitlF
5.3.1 Managing dierences in organizations
By Hanoi N Soto Garcia and Nora Martin
sn tody9s usiness environmentD n inresing trend towrds temworkD lrger presene of women nd ethni minorities in the workpleD nd greter exposure to interntionl usinesses nd ultures re onstntly hllenging employees from vriety of industries in ll prts of the worldF his posts greter opportunity for people to lern from ulturl nd personl di'erenes nd rete more produtive work environmentF homs v priedmnD in The World is FlatD mkes the following omment fter one of his trips to fngloreD sndiX st is now possile for more people thn ever to ollorte nd ompete in rel time with more people on more di'erent kinds of work from more di'erent orners of the plnet nd on more equl footing thn t ny previous time in the history of the world @PHHTAF hue to the importne of mnging di'erenes e'etively in orgniztionsD there is need to identify the types of di'erenes enompssed in orgniztionsD the e'ets of di'erenes in work temsD nd the importne of understnding nd dignosing di'erenes to mximize orgniztionl performneF yrgniztions usully tke one of two pths in mnging diversityX @IA they enourge people of diverse kgrounds to lend in for the ene(t of firness nd equlityY or @PA they set them prt in jos tht relte spei(lly to their kgroundsD ssigning themD for exmpleD to res tht require them to interfe with lients or ustomers of the sme identity groupF efrin emerin wfes often (nd themselves mrketing produts to innerEity ommunitiesY vtino emerins re frequently positioned to mrket to vtinos or work for vtin emerin susidiriesF sn those kinds of sesD ompnies re operting on the ssumption tht the min virtue identity groups hve to o'er is knowledge of their own peopleF his ssumption is limited nd detrimentl to diversity e'ortsF hiversity goes eyond inresing the numer of di'erent identityEgroup 0litions on the pyrollF uh n e'ort is merely the (rst step in mnging diverse workfore for the orgniztion9s utmost ene(tF hiversity should e understood s the vried perspetives pprohes to work tht memers of di'erent identity groups ring @homs 8 ilyD IWWTAF veders relize tht inresing demogrphi vrition does not in itself inrese orgniztionl e'etiveE nessF hey relize tht it is how ompny de(nes diversity nd what it does with the experienes of eing diverse orgniztion tht delivers on the promiseF Group diversity refers to the mount of heterogeneity within group determined y severl hrE teristis derived from informtionlD visileD nd vlue di'erenes @romnD fordiD 8 qlloisD PHHQAF Informational dierences refer to di'erent professionl kgrounds nd experienesY visible dierences refer to things tht eome more physilly pprentD suh s geD genderD ethniityD etFY nd value dierences re shped y eh individul9s set of eliefsD golsD nd vluesF hese three tegories of difE ferenes hve mjor impt on tem performne euse they n eome the use for multiple types of on)its within temF hen pprohing tsksD di'erent memers of the tem will hve di'erent ehviors sed on their own set of informtionlD visileD nd vlues hrteristisF imployees with di'erent views of the sme sitution my hve totlly di'erent wys of responding to itF efter the pperne of on)itD tem memers n rete true lerning environment where they n perform fr eyond expettions y leverging their di'erenesF romnD fordiD nd qlois highlight the wys in whih group diversity n foster higher orgniztionl performneD st hs een noted tht diversity n led to higher performne when memers understnd eh otherD omine nd uild on eh others9 idesF his suggests tht intertion proesses within diverse tem re ruil to the integrtion of diverse viewpointsF por exmpleD ermson found tht orgniztions tht hd tems with high diversity nd integrtion hd the est performne @gonsequenes of peeling hissimlr from ythers in ork emD PHHQAF elong these linesD diverse groups hve higher ility to overome initil di0ulties y identifying the multiple ngles of prolem nd generting retive solutionsF he more openly they re reognized nd disussedD the etter hne there is for di'erenes to eome prt of orgniztionl suessF oms nd ily elieve in the notion tht more diverse workple will inrese orgniztionl e'etivenessF st will lift morleD ring greter ess to new segments of the mrket
US pleD nd enhne produtivity @wking hi'erenes wtterY e xew rdigm for wnging hiversityD IWWTAF fy truly emring diversityD leverging the tlent within multiulturl temsD nd pprohing diversity s mens to higher knowledge nd produtivityD orgniztions will e'etively mnge di'erenesD to hieve ompetitive dvntge suessfullyF
Paradigms of diversity Paradigm Focus Key success factors
hisrimintionEndEfirness
iqul opportunityD fir tretE mentD reruitmentD nd ompliE ne with federl iqul imE ployment ypportunity requireE ments veders work towrds reE struturing the mkeup of the orE gniztion to re)et more losely tht of soiety xeed of more diverse workfore to help ompnies gin ess to the di'erentited segmentsE wthes the demogrphis of the orgniztion to those of ritil onsumer or onstituent groups snorportes employee9s perspeE tives into the min work of the orgniztion inhnes work y rethinking primry tsks nd rede(ning mrketsD produtsD strtegiesD missionsD usiness prtiesD nd even ultures
i'etiveness in its reruitment nd retention gols rther thn y the degree to whih ompnies llow employees to drw on their personl ssets nd perspetives to do their work more e0iently
eessEnd legitimy
hegree to whih leders in orgE niztions understnd nihe pE ilities nd inorporte them into di'erentited tegories ligned to their usiness strtegy he promotion of equl opportuE nity nd knowledgment of ulE turl di'erenes yrgniztionl lerning nd growth fostered y internlizing di'erenes mong employees
verningEndEe'etiveness
ind golX veders should thrive to shift to the verningEndEe'etiveness prdigm to pproh diversity s mens to higher knowledge nd produtivityF
Table 5.1
5.4 Recruiting workers

Lukhvinder Rai
eruitment of tlented employees is n essentil prt of ny ompny9s ility to mintin suess nd ensure the hievement of stndrds within n orgniztionF eruiting workers onsists of tively ompiling diverse pool of potentil ndidtes whih n e onsidered for employmentF e good reruitment poliy will do this in timelyD ostEe0ient mnnerF he ultimte gol of ny humn resoures reruitment poliy is to develop reltionships with potentil employees efore they my tully e needed while remining ogniznt of the osts of doing soF sn di'erent industriesD the onstnt need for tlent retes highly ompetitive mrketple for individulsD nd it is importnt for ny mnger to e wre of these ftors s they develop reruitment progrms nd poliiesF es retirement mong y oomers eomes inresing prevlentD vitory in the wr for tlent will depend gretly on reruitment poliiesF
5 This
UT
5.4.1 Methods of recruitment
CHAPTER 5.
here re two prinipl wys to reruit workersX internlly nd externllyF wost ompnies will tively use oth methodsD ensuring opportunities for existing employees to move up in the orgniztion while t the sme time (elding new tlentF hepending on the time frme nd the speiliztion of the position to (llD some methods will e more e'etive thn othersF sn either seD the estlishment of omprehensive jo desription for every position for whih the ompny reruits will help to nrrow the sope of the serhD nd o'er more quli(ed ndidtesD iding in serh e0ienyF Internal recruitment is often the most ost e'etive method of reruiting potentil employeesD s it uses existing ompny resoures nd tlent pool to (ll needs nd therefore my not inur ny extr ostsF his is done in two prinipl wysX
edvertising jo openings internllyX his is the t of using existing employees s tlent pool for open positionsF st rries the dvntge of relloting individuls tht re quli(ed nd fmilir with the ompny9s prties nd ulture while t the sme time empowering employees within the orgniztionF st lso shows the ompny9s ommitment toD nd trust inD its urrent employees tking on new tsksF sing networkingX his method n e used in vriety of di'erent wysF pirstD this reruitment tehnique simply posts the question to existing employees on whether nyody is wre of quli(ed ndidtes tht they know personlly whih ould (ll positionF unown s employee referrlsD this method often gives onuses to the existing employee if the reommended pplint is hiredF enother method uses industry ontts nd memership in professionl orgniztions to help rete tlent poolD through simple wordEofEmouth informtion regrding the needs of the orgniztionF
fouses resoures on looking outside the orgniztion for potentil ndidtes nd expnding the ville tlent poolF he primry gol of externl reruitment is to rete diversity mong potentil ndidtes y ttempting to reh wider rnge of individuls unville through internl reruitE mentF elthough externl reruitment methods n e ostly to mngers in terms of dollrsD the ddition of new perspetive within the orgniztion n rry mny ene(ts whih outweigh the ostsF ixternl reruitment n e done in vriety of wysX
External recruitment
rditionl dvertisingX his often inorportes one or mny forms of dvertisingD rnging from newsE pper lssi(eds to rdio nnounementsF st is estimted tht ompnies spend h PFIV illion nnully on these types of ds @uulikD PHHRAF fefore the emergene of the snternetD this ws the most populr form of reruitment for orgniztionsD ut the deline of redership of newsppers hs mde it onsiderly less e'etive @reth(eldD se the e for eruitingX eruiting ynlineAF to firs nd mpus visitsX to firs re designed to ring together omprehensive set of employers in one lotion so tht they my gther nd meet with potentil employeesF he osts of onduting jo fir re distriuted ross the vrious prtiipntsD nd n o'er n extremely diverse set of pplintsF hepending on the proximity to ollege or universityD mpus visits help to (nd ndidtes tht re looking for the opportunity to prove themselves nd hve minimum quli(tionsD suh s ollege edutionD tht (rm seeksF redhunters nd reruitment serviesX hese outside servies re designed to essentilly ompile tlent pool for ompnyY however they n e extremely expensiveF elthough this servie n e extremely e0ient in providing quli(ed pplints for speilized or highly demnded jo positions the rte for the servies provided y hedhunters n rnge from PH to QS per ent of the new reruit9s nnul slry if the individul is hired @reth(eldD eruiting trsX op en sdes for eruiting qret gndidtesAF ynline reruitmentF he use of the snternet to reruit tlent pool is quikly eoming the preferred wy of doing soD due to its ility to reh suh wide rry of pplints extremely quikly nd heplyF here re mny wys to turn the snternet into reruitment tool for your ompnyF
pirstD the use of the ompny wesite n llow usiness to ompile list of potentil pplints whih re supremely interested in the ompny while t the sme time llowing them exposure to your ompny9s
UU vlues nd missionF sn order to e suessful using this reruitment methodD ompny must ensure tht postings nd the proess for sumitting resumes re s trnsprent nd simple s possileF enother populr use of online reruiting is through reer wesites @eFgF wonsterFom or greerE uilderFomAF hese sites hrge employers set fee for jo posting whih n remin on the wesite for n greed mount of timeF hese sites lso rry lrge dtse of pplints nd llow lients to serh their dtse to (nd potentil employeesF elthough extremely e'etiveD mny ompnies prefer to use their own wesites to eliminte the )ood of resumes whih my result from these serviesF pinllyD mny professionl ssoitions my hve wesites on whih ompny my post jo openingsF por instneD the xgee llows ll of its memer shools nd onferenes to post jos on their wesite t miniml ostD llowing for more speilized seletion of ndidtesF st my lso e in ompny9s interest to ontt re shools to see if they o'er reer servies site for their students for posting openingsD further expnding the reh of reruitment e'ortsF o lern more out the growth of internet jo postingsX httpXGGwwwFlikzFomGshowgeFhtmlcpgeaQRRQVSI6 o lern how to rete n e'etive online jo postingX httpXGGwwwFyourhrexpertsFomGpostingFhtml7
5.5 Evaluating recruiting policies
o evlute reruitment poliiesD the onept of yield ratio is often usedF his lultes the e0ieny of reruitment prties y tking the numer of hirle individuls resulting from reruitment poliy divided y the totl numer of individuls reruited y the sme poliy @uulikD PHHRAF his eqution is outlined elowX of hirable individuals ield rtio = Number Total number of recruits por mny ompniesD this numer n vry enormouslyD depending on the imgeD size nd usiness of the ompnyF roweverD it is still n extremely useful mesure s it o'ers insight into the ility of reruitment poliy nd whether it needs to e modi(edF e ompny like wirosoft my reeive thousnds of pplints simply sed on the imge tht the (rm rriesD distorting its yield rtio without telling nything out the e'etiveness of their reruitment strtegiesF xo mtter how ompny deides to reruitD the ultimte test will remin the ility of reruitment strtegy to produe vile pplintsF ih mnger will fe di'erent ostles in doing thisY howeverD it is importnt to remin onise nd ojetive when serhing for potentil pplintsF st is importnt to rememer tht reruiting is not simply done t time of need for n orgniztion ut rther is yerlong proess tht onstntly mintins tlent pool nd frequent ontt with ndidtesF
5.5.1 Selective hiring
By Kristen Giacchino and Emily Gray
sn reruitingD it is ene(il to ttrt not only lrge quntity of pplints ut group of individuls with the neessry skills nd requirements for the positionF efter otining lrgeD quli(ed pplint se mngers need to identify those pplints with the highest potentil for suess t the orgniztionF eording to fe'er nd eigD seleting the est person for the jo is n extremely ritil piee of the humn resoures in)ow proess @fe'er 8 iegD utting eople pirst for yrgniztionl uessD IWWVAF eletive hiring helps prevent the ostly turnover of st' nd inreses the likeliness of high employee morle nd produtivityF sn order to evlute the (tD it is importnt for mngers to rete list of relevnt riteri for eh position efore eginning the reruitment nd seletion proessF ih jo desription should e ssoited with list of ritil skillsD ehviors or ttitudes tht will mke or rek the jo performneF hen
6 http://www.clickz.com/showPage.html?page=3443851 7 http://www.yourhrexperts.com/posting.html 8 This content is available online at <http://cnx.org/content/m35397/1.4/>.
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CHAPTER 5.
sreening potentil employeesD mngers need to selet sed on ulturl (t nd ttitude s well s tehnil skills nd ompeteniesF here re some ompniesD suh s outhwest eirlines9 D sed out of the nited ttesD who hire primrily sed on ttitude euse they espouse the philosophy tht you hire for ttitudeD trin for skill10 F eording to former giy rer uelleherD e n hnge skill levels through triningF e n9t hnge ttitude @y9eilly 8 fe'erAF efter determining the most importnt quli(tionsD mngers n design the rest of the seletion proess so tht it is in lignment with the other humn resoure proessesF wngers must strive to identify the est pplints t the lowest ostF gompnies hve vriety of proesses ville to sreen potentil employeesD so mngers must determine whih system will generte the most urte resultsF he methods of seletion vry oth in levels of e'etiveness nd in ost of pplitionF sn ddition to iogrphil informtionD ompnies n ondut personl interviewsD perform kground heksD or request testingF feuse of the osts ssoited with these mesuresD ompnies try to nrrow down the numer of pplints in eh round of hiringF sn some ountriesD suh s the nited ttesD the seletion proedures re sujet to iqul imployment ypportunity11 guidelines @eruitmentAF hereforeD the ompnies lso need to ensure tht the proess is urteD with high level of vlidityD relile nd relted to ritil spets of the joF rotively tking these mesures will help ompnies void litigtion relted to disrimintion in the seletion proessF
5.5.2 Interviews
es mentionedD it is importnt to (rst de(ne the skills nd ttriutes neessry to sueed in the spei(ed positionD then develop list of questions tht diretly relte to the jo requirementsF he est interviews follow strutured frmework in whih eh pplint is sked the sme questions nd is sored with onsistent rting proessF rving ommon set of informtion out the pplints upon whih to ompre fter ll the interviews hve een onduted llows hiring mngers to void prejudies nd ll interviewees re ensured fir hne @mith qFAF wny ompnies hoose to use severl rounds of sreening with di'erent interviewers to disover dditionl fets of the pplint9s ttitude or skill s well s develop more well rounded opinion of the pplint from diverse perspetivesF snvolving senior mngement in the interview proess lso ts s signl to pplints out the ompny ulture nd vlue of eh new hireF here re two ommon types of interviewsX ehviorl nd situtionlF
5.5.2.1 Behavioral interview12
sn ehviorl interviewD the interviewer sks the pplint to re)et on his or her pst experienes @tnzD IWVPAF efter deiding wht skills re needed for the positionD the interviewer will sk questions to (nd out if the ndidte possesses these skillsF he purpose of ehviorl interviewing is to (nd links etween the jo9s requirement nd how the pplint9s experiene nd pst ehviors mth those requirementsF ixmples of ehviorl interview questionsX
hesrie time when you were fed with stressful situtionF row did you hndle the situtionc qive me n exmple of when you showed inititive nd ssumed ledership rolec
@pree mple fehviorl snterview uestionsAF
5.5.2.2 Situational interview 13
e situtionl interview requires the pplint to explin how he or she would hndle series of hypothetil situtionsF itutionlEsed questions evlute the pplint9s judgmentD ilityD nd knowledge @vthm 8 riD IWVRAF fefore dministering this type of interviewD it is good ide for the hiring mnger to onsider
9 http://www.southwest.com/careers/?ref=job_fgn 10 http://www.fastcompany.com/magazine/04/hiring.html 11 http://www.eeoc.gov/ 12 http://careerplanning.about.com/od/jobinterviews/a/beh_int_lng.htm 13 http://www.thelia.org/download.cfm?le=81429
UW possile responses nd develop soring key for evlution purposesF ixmples of situtionl interview questionsX
ou nd ollegue re working on projet togetherY howeverD your ollegue fils to do his greed portion of the workF ht would you doc e lient pprohes you nd lims tht she hs not reeived pyment tht supposedly hd een sent (ve dys go from your o0eF he is very ngryF ht would you doc
@greting itutionl snterviews nd ting lesA
5.5.3 Selection tests
hen mking hiring deisionD it is ritil to understnd the pplint9s personlity styleD vluesD nd motivtions @mith qFAF ehnil ptitude is importntD ut ttitude is often more importntF he relity is tht tehnil skills n e lernedD ut interpersonl work ttitudes re usully more di0ult to hnge @heferAF fehviorl ssessments nd personlity pro(les re good wy for hiring mngers to lern how the individul will intert with their oworkersD ustomersD nd supervisors @mith qFAF ests suh s the wyers friggs14 nd hFsFFg ro(le15 ssessments re populr tools tht provide n urte nlysis of n pplint9s ttitudes nd interpersonl skillsY howeverD it is ritil tht the tests re dministeredD sored nd interpreted y liensed professionlF yther seletion tests used in hiringD my inlude ognitive16 D whih mesure generl intelligeneD work smple tests17 tht demonstrte the pplint9s ility to perform spei( jo dutiesD nd integrity tests18 D whih mesure honesty @uulikD PHHRAF
5.5.4 Background checks
fkground heks re wy for employers to verify the ury of informtion provided y pplints in resumes nd pplitionsF snformtion gthered in kground heks my inlude employment historyD edutionD redit reportsD driving reordsD nd riminl reordsF imployers must otin written onsent from the pplint efore onduting kground hekD nd the informtion gthered in kground hek should e relevnt to the joF
5.5.5 Evaluation
imployers my hoose to use just one or omintion of the sreening methods to predit future jo performneF st is importnt for ompnies to ssess the e'etiveness of their seletive hiring proess using metrisF his provides enhmrk for future performne s well s mens of evluting the suess of prtiulr methodF gompnies n ontinuously improve their seletion prties to ensure good (t for future employees tht will suessfully omplish ll tht the jo entils s well s (t into the orgniztionl ultureF sf ompnies re not suessful in their hiring prtiesD high turnover or low employee morleD deE resed produtivity will resultF eserh shows tht the degree of ulturl (t nd vlue ongruene etween jo pplints nd their orgniztions signi(ntly predits oth susequent turnover nd jo performne @fe'er 8 iegD utting eople pirst for yrgniztionl uessD IWWVAF husD ompnies need to ssess their hiring in terms of tehnil suess s well s ulturl (tF ivluting the hiring proess will help ensure ontinuing suess euse humn pitl is often ompny9s most importnt ssetF
14 http://myersbriggs.org 15 http://onlinediscprole.com 16 http://www.hr-guide.com/data/G314.htm 17 http://www.hr-guide.com/data/G316.htm 18 http://ndarticles.com/p/articles/mi_m3495/is_n7_v37/ai_12787161/
VH
CHAPTER 5.
5.6 Employee training

By Peter Wright
19
por yersD employee trining ws viewed s neessry evil something unplesnt ut neededF roweverD with time it ws relized tht trining ould e used to the dvntge of the ompnyF hen used e'etivelyD trining provides the employee with skill nd knowledge with reltion to the jo tsksD whih then retes ompetitive dvntge for the ompny @fe'er 8 iegD utting eople pirst for yrgniztionl uessD IWWVAF Training is generlly de(ned s the t of tehing skill or ehviorF roweverD wht does this men in usiness termsc imply putD trining in usiness is the investment of resoures in the employees of ompny so tht they re etter equipped to perform the tsks of their joF he type of resoures invested my inlude time to lernD money to rete progrms nd develop trining mterilsD trining e'etiveness evlution systemsD etF @pukmiD trtegi rumn esouresX riningD PHHUAF here re mny trining methods from whih ompny my hooseY these will e overed in the rining wethods setion of this rtileF
5.6.1 Benets of training
rining n e soure of ompetitive dvntge for ompnyF he primry ene(t to the ompny is the result of n umultion of smller ene(tsF rining provides greter skill nd knowledge to the employeesD whih trnslte into ny numer of improved jo performnesF he elief is tht providing employees with trining will result in inresed pro(ts"the improved performne or error redution of the employees results in ost redution for the ompny @fe'er 8 iegD utting eople pirst for yrgniztionl uessD IWWVAF he ompny is not the only ene(iry of employee triningY the employee ene(ts quite it s wellF he wellEtrined employee retes n dvntge for him or herselfF fy ttending trining sessionsD employees n deepen their existing skill setD inrese their overll skill set nd inrese their understnding of the orgniztionF edditionllyD the trined employee eomes more mrketle in the event tht he or she serhes for nother jo"more nd etter skills will often led to etter or higher pying jos @uulikD PHHRAF hese re not the only ene(ts tht the ompny nd employee enjoy s result of utilizing ompny9s trining systemsF felow is list of other ene(ts tht oth my enjoyX inresed jo stisftion nd morle mong employees inresed employee motivtion inresed e0ienies in proessesD resulting in (nnil gin inresed pity to dopt new tehnologies nd methods inresed innovtion in strtegies nd produts redued employee turnover enhned ompny imgeD eFgF onduting ethis trining @note tht this is not good reson for ethis trining3A risk mngementD eFgF trining out sexul hrssmentD diversity trining @huening 8 svnevihD PHHQA
5.6.2 Need for training
he need for trining vries depending on the type of orgniztion tht is eing disussedY mnufturing ompny hs di'erent trining needs thn n insurne (rmF fut regrdless of the type of ompny eing disussedD pproprite trining systems n gretly ene(t the ompnyF roweverD how does one deide on trining systemc he nswer to this question stems from the exmple ove"it depends on the type of
19 This
VI orgniztion tht is eing disussed s well s wht the ompny wishes to ddress in the triningF he proess egins with trining needs ssessmentF his ssessment ought to e systemti nd ojetive nlysis of the trining needs in three min res"orgniztionlD joD nd personF yrgniztionl needs del mostly with the skills the ompny is looking forD the lor foreD etF wheres the jo needs fous on the skills tht the ompny views s neessry for spei( positionF hen there re the person needsD nd these re the most vrile needsF yften these needs rise fter gp is seen in the expeted performne ompred to the tul performne of the employeeF e lrge gp needs to e ddressed nd is often delt with through trining or termintion @see the Termination and Downsizing setionA @pukmiD trtegi rumn esouresX riningD PHHUAF yther resons for the person issues in regrds to trining my inlude trining to develop skill set tht is lking ut not 'eting performne or tht the employee feels need to developF rining n lso e prt of young employee9s explortion stgeD where trining n e used to fous the employee9s interest nd development towrds spei( re @uulikD PHHRAF pei( irumstnes my lso rete the need for triningF hese irumstnes usully our rther suddenly nd infrequentlyD reting need for spei( nd highly direted trining mehnismF ixmples of suh irumstne re shifts in n orgniztions ethis @keeping the employees nd orgniztion in lignE mentAD new legl requirements @suh s rnesEyxley ompline in the nited ttesAD or during sttes of hnge within the orgniztion @huening 8 svnevihD PHHQAF sf ompnyD regrdless of the irumstnes surrounding tht needD deems trining neessry method for onduting this trining needs to e developed nd implementedF
5.6.3 Training methods
hesigning nd implementing the trining systems requires the ompny to onsider numer of thingsY the method of triningD the mteril the trining will del withD who will provide the triningD how to evlute the e'etiveness of the triningD etF @pukmiD trtegi rumn esouresX riningD PHHUAF here re lso numer of other items tht n impt the trining systemD things like wht the trining progrm is lledF feuse of the negtive view tht trining hs hd for so longD some orgniztions re shying wy from the term trining nd repling it with things suh s @verning 8 hevelopment 20 A in order to emphsize the importne of lerning for the individul nd the orgniztionF sn other orgniztionsD the term rumn esoure hevelopment is used @rining nd hevelopmentD PHHUAF wo of the lrgest issues tht ompny fes with developing these trining systems reX @IA wht type of trining to useD nd @PA how to evlute the e'etiveness of the triningF st is importnt tht these trining systems nd evlution proedures remin inEline with the ulture nd poliies of the rest of the ompnyF felow is prtil list of ommon trining systemsX
veturesX imilr to shool lssroomD the session is led y trinerGteher who overs spei( topi suh s how to use new omputer progrmF eudioEvisul medi 8 omputerEsed triningX ith the dvnement of tehnologyD ompnies n invest in videoD udio nd omputer sed lerning suh s instrutionl tpesD reorded letures or podstsD or omputer mterils suh s plsh presenttionsF he ene(t of these methods is tht they re reltively inexpensive nd n e utilized y the employee t their disretion @rining nd hevelopmentD PHHUAF ynEtheEjoX trining method tht relies on the employee to reognize the skills nd knowledge he or she will need s they perform their workD nd then develop those skills on his or her ownF ehnil triningX speilized trining tht fouses on spei( need of spei( employeesF his typilly pplies to mnufturing sed ompnies in reltion to trining their employees on the mhinery nd methods usedF wentoring 8 ohingX wentoring systems pir younger or less experiened employee with n individE ul tht hs experiene nd suess within the ompny who n o'er guidneD id nd insight to the
20 http://en.wikipedia.org/wiki/Learning_%26_Development
VP
CHAPTER 5.
youngerGless experiened employees @grumerD PHHIAF gohing systems re slightly di'erentF hey inE volve the mnger o'ering developmentl ssistne to the employee through oservtionD ssessmentD providing feedkD questioningD etF @urmD IWVSA yutdoor progrmsX the use of physil nd mentl tivities suh s ropes ourses or prolemEsolving tsks tht enourge the use of tem workF efter the trining system hs een developed nd implementedD the e'etiveness of the system needs to e evlutedD nd there re multiple wys to do thisF gommon methods inludes surveys given to the employees who hve used the systemD n ys nlysis nd test t the end of the session @pukmiD trtegi rumn esouresX riningD PHHUAF
5.6.4 Training in the context of global business
hen exmining the need for nd type of trining in the ontext of glolGinterntionl usinessD trining eomes even more neessryF he trining of n employee who will e working in ountry other thn his or her own n e roken into three segments"preEdeprtureD onEsiteD nd reptritionF he pre-departure trining onsists of forml lnguge triningD trining with respet to the lol ulE ture @ulture sensitivityAD edution out the ountry @historyD geogrphyD governmentD etFAD nd edution out the ompnies opertion in the foreign ountryF uh trining llows for esier ssimiltion of the employee into the ountry nd the ompny9s o0e thereF yne on siteD trining tkes the shpe of trining t ny other rnh of the ompny @see rining methods setionAF hen the employee rod returns to his or her home ountry it is eqully importnt tht the ompny o'er some form of reptrition progrmF uh progrms re designed to redue ulture shok upon return nd to integrte the experiene rod into the employees overll reer plns nd developmentF hese progrms re often most e'etively rried out through mentor progrms @esheghin 8 irhimiD PHHSAF
5.7
Aligning
21
employee
career
development
with
organizational
growth
By Rahul Choudaha Work is such a cozy place that it's sometimes dicult for Google employees to leave the oce. . .
@vshinskyD PHHUAF e ll n predit t lest one thing out the future of usinesses"ompetition will inreseF roweverD the diretion of ompetition will not only e for ustomersD ut lso for tlentF tis(ed tlent will ttrt more ustomers nd in turn will keep them stis(edF vosing tlent in n er of tlent srity is the lst thing n orgniztion wntsF ispeilly for smll nd medium enterprisesD ritility nd dependility on the tlent is muh higherF hweyer mkes se for improving the retention strtegies within the orgniztion euse winning the internl wr for tlent is s ritil s losing top performer nd leds to generl employee disstisftionF uessful tlent mngement inside n orgniztion sets in motion virtuous yleF hrough word of mouth it eomes known s gret ple to workF his redues the externl wr for tlent to mere skirmishes in whih tlent will lmost lwys hoose the top employer @en snternl r for lentD PHHTAF eruiting nd seleting the right tlent is the (rst stgeD nd identifying tlent whih (ts into omE pny9s needs nd vlues is ritilF usequentlyD the hllenge for the orgniztion is to keep the tlent nd onsistently motivte them to over deliverF fruh exmines trnsforming models of reer mngeE mentD rguing tht there is generl shift in reer trjetories from liner to multidiretionl trjetories @rnsforming greers from viner to wultidiretionl greer thsD PHHRAF sn this new modelD workers9
21 This
VQ experiene of reer development nd progression does not follow trditionl liner model of moving up orE gniztionl hierrhiesF he multidiretionl reer model suggests tht s the individul reer trjetories gin multiple diretion nd possiilitiesD workers re exposed to greter diversity of reltionshipsD involving rossEfuntionlD interE nd intrEorgniztionl nd multiElevel enounters whih trnsform the lndspe of reltionships involved in reer experienesF qoogle ws rnked numer I in the portune IHH fest gompnies to ork porF qoogle reeives lmost IDQHH resumes every dyF he iggest hllenge for qoogle is not how to ttrt the est tlent ut how to retin them nd keep them exitedF qoogle provides innumerle perks t the o0e like free melsD free professionl dvie on helth nd (nneD hildreD shuttle serviesD gym etF qoogle provides two key opportunities for reer developmentF pirstD engineers re required to devote PH per ent of their time to pursuing projets of their interests whih re in lignment with orgniztionl golsF eondD qoogle is exploring stil progrm nd moility within the ompny for the developing nd retining tlentF g ws rnked the numer I tehnology ompny in the hEshg sndi urveyX fest imE ployersF his is not n esy hievement onsidering size of g nd its philosophy of eing one of the moderte py mstersF g hs over UHDHHH employeesD nd erned glol revenue of h RFQ illion @PHHTEHUAF he key to suess is the lerning ulture tht the orgniztion promotesF he orgniztion hs dopted twoEprong strtegy for developing tlentF pirstD ontinuous lerning through tehnologyX g hs lunhed igevwD n integrted ompeteny nd lerning mngeE ment systemF eondD providing glol ssignments to employees nd hene enling route for professionl nd (nnil growth @htquestD PHHTAF he reer development progrms should provide exitement nd stisftion t vrious stges of employee developmentF wrshll highlighted tht ledership development progrms for smll orgniztions should identify the tlent erly on nd provide multiple opportunities of lerning y jo rottion @vedership hevelopment for mll yrgniztionsD PHHPAF hese development progrms should lso leverge the internl tlentD who re lredy experts in their (elds for reting inspirtion nd developing the next hin of ledersF uomisr shred his experienes nd mentioned tht pssionEdriven reer hs mjor virtues nd mple lerning opportunitiesF his is good for the orgniztion s they know tht employee is enjoying the workD nd (nlly it provides )uidity nd )exiility in the everEhnging lndspe of the new eonomy @qoodye greerD rello uessD PHHHAF he hnging nture of reers nd orgniztions hs inresed the signi(ne of mentoringF st ene(ts nd strengthens employerEemployee reltionshipF wentoring n e omplished y immedite superiorsD peers within one9s own orgniztionD individuls outside of one9s orgniztionD suordintesD nd ny numer of other individuls @fugh 8 ullivnD PHHSAF wihelsD rnd(eldEtonesD nd exelrod in their ook The War for Talent mentions tht tlent development is ritil for orgniztions nd mny think development mens triningD ut trining is only smll prt of the solution @PHHIAF hey suggest tht development primrily hppens through sequene of streth josD ohingD nd mentoringF roweverD orgniztions re not leverging the development opportunitiesF gompnies need to dopt nd elerte development y improving the frequeny nd ndor of feedk nd institutionlizing mentoringF ivery leder t ll levels n nd should e responsile for people developmentF rymowitz sys tht mngers re not spending dequte time in understnding their tem memers nd providing them with opportunities to lern nd grow on the jo @hen wngers xeglet to goh heir lentD PHHUAF his is leding to employees feeling lientedD underutilized nd ignoredD nd my e serhing for new jos elsewhereF wngers who fous on tlent ssign their employees to jos tht ply to their strengthsD mke sure they hve the resoures they need to perform wellD respet their opinions nd push them to dvne @rymowitzD PHHUAF he people mnger should develop reltionships nd n environment tht is onduive to developmentF pive skill res tht suessful developers of people hve mstered reX
5.1: Best of East and West
enourging n open limte for dilogue with employees providing employees with onEgoing feedk regrding performne
VR
CHAPTER 5.
helping employees understnd the strtegies of the orgniztion helping employees identify multiple nd relisti options for their reer growth nd development within the enterprise helping employees ompile meningfulD usinessEdriven personl development plns @uye 8 ultggioD PHHRA
. . .sn the new reer modelD employees mke mjor shifts within the sme ompnyD or exit nd reenter the ompny t di'erent reer stges @uulikD PHHRAF yrgniztions need to relize tht tlent is preious nd dynmiF yrgniztions need to rete tion strtegies nd provide fvorle environment to help tlent grow in line with the orgniztionl golsF
5.8 Performance appraisal

By Adam Ruberg
22
5.8.1 Purpose of appraisals
ristorillyD performne pprisls hve een used y ompnies for vriety of di'erent purposesD inluding slry reommendtionsD promotion nd lyo' deisionsD nd trining reommendtions @uulikD PHHRAF sn generlD performne elements tell employees wht they hve to do nd stndrds tell them how well they hve to do it @nited ttes heprtment of the snteriorD PHHRAF his rod de(nitionD howeverD n llow for pprisls to e ine'etiveD even detrimentlD to employee performneF eond only to (ring n employeeD mngers ite performne pprisl s the tsk they dislike the mostD nd employees generlly hve similr disposition @reth(eldD erformne epprisls hon9t orkAF yne key item tht is often forgotten during the pprisl proess @y mngers nd employees likeA is tht the pprisl is for improvementD not lme or hrsh ritiism @flD IWWWAF
5.8.2 Creating an appropriate appraisal process
yne signi(nt prolem in reting n pprisl proess is tht no single performne pprisl method will e perfet for every orgniztion @uulikD PHHRAF istlishing n pproprite proess involves signi(nt plnning nd nlysis in order to provide qulity feedk to the employeeF he most ruil tsk in the proess is determining proper jo dimensions tht n e used to guge the employee ginst epted stnE drds tht 'et the performne of the temD usiness unitD or ompny @pukmiD erformne epprislD PHHUAF eter hruker developed method termed wngement y yjetives9 or wfyD in order to ddress the retion of suh jo dimensionsF hruker suggests tht the ojetives of ny employee n e vlidted if they pss the following six tests @wngement y yjetives"weD PHHUAX
Spei( Mesurle Ahievle Relisti TimeErelted
sf n ojetive meets these riteriD it is onsidered vlid dimension on whih to guge performneF he stndrds on whih the ojetive is ompred with should lso e vlidted using the we methodF
22 This
VS
5.8.3 Appraisal methods
xumerous methods exist for guging n employee9s performneD nd eh provides strengths nd weknesses for given environmentsF he following outlines some of the more ommonly used methodsD s well s some reently developed ones tht n e useful for vrious feedk situtionsX qrphi rting slesX his method involves ssigning some form of rting system to pertinent tritsF tings n e numeril rnges @IESAD desriptive tegories @elow vergeD vergeD ove vergeAD or sles etween desirle nd undesirle trits @poor exellentAF his method n e simple to setup nd esy to followD ut is often ritiized for eing too sujetiveD leving the evlutor to de(ne rod trits suh vedership ility or gonformne with stndrds @uulikD PHHRAF fehviorl methodsX e rod tegory enompssing severl methods with similr ttriutesF hese methods identify to wht extent n employee displys ertin ehviorsD suh s sking ustomer to identify the usefulness of sles representtive9s reommendtionF hile extremely useful for jos where ehvior is ritil to suessD identifying ehviors nd stndrds for employees n often e very time onsuming for n orgniztion @uulikD PHHRAF PCPX e reltive newomer in performne pprisl methodologyD the PCP feedk system demonstrtes how pprisls n e used primrily for improvement purposesF fy o'ering employees two ompliments nd two suggestions for improvement foused round highEpriority resD retors hougls nd hwight ellen suggest tht orgniztions n eome more plesntD more dynmiD nd more produtive @pormul PCPD PHHRAF sf the gol of the performne pprisl is employee improvementD this system n provide signi(nt ene(tsY howeverD if the gols re more kin to ompenstion hnges nd rnkingsD the system provides little ene(tF epprisl methodologies depend gretly on the type of work eing doneY n ssemly worker will require onsiderly di'erent pprisl system thn usiness onsultntF igni(nt plnning will e required to develop pproprite methods for eh usiness unit in n orgniztion in order to otin mximum performne towrds the pprisl golsF
5.8.4 Performing the appraisal
erforming n pprisl on employees n e nerve rking for oth prties if the sitution is not hndled orretlyD nd is thus seen s one of the most di0ult tsks mngers feF here re mny ts mnger n perform to mke the proess esier on oth prtiesD nd hopefullyD mutully ene(ilF wny ssume tht performne pprisls re ment to identify weknesses to e worked onD nd exposing these weknesses n e pinful for employeesF wrth grumer suggests tht orgniztions should e leverging the strengths of eh employee rther thn fousing on their weknessesF fy enourging nd developing wht people do well nturlly. . .the orgniztion ould eome more e0ient y llowing their people to do wht they do est @grumerD PHHIAF he frequeny of pprisl n e notle ftor in ongoing developmentF erly performne reviews re eoming inresingly rre s ompnies egin to see the ene(ts of frequent pprislF usn reth(eld suggests tht qurterly performne development meetings n llow for ler diretion towrds performne gols @reth(eldD erformne wngement is xy n ennul epprislAF gonstnt tuning of performne n e muh more e'etive thn nnul overhulsF eny individul dministering performne pprisls must relize the twoEwy onverstion tht is oE urringF snviting feedk nd listening to retions nd onerns from the employee during the pprisl proess eomes very importnt to estlishing trust with the employee @nited ttes heprtment of the snteriorD PHHRAF sf the ppriser provides ny negtive feedk or improvement pointsD suggestions should e mde to help resolve the prolem to develop the person9s performneF ith the suggestions mdeD followEup should our to ssist with ny prolems with the development nd to trk progressD rther thn witing until the next performne review @pukmiD erformne epprislD PHHUAF yften eing seen s stritly hierrhil feedk toolD performne pprisls n e less sry if employees hve the opportunity to pprise their mngers s well s their peersF ith this QTHEdegree feedk proessD employees nd mngers will see multiple vntges of their performne nd n prtiipte
VT
CHAPTER 5.
on n even plying (eldD ultimtely providing greter ility to work together to hieve orporte gols @uulikD PHHRAF erformne pprisls should not e looked upon s neessry evilD ut rther proess tht hs the ility to develop nd improve the people within the ompnyF fy tking the time to rete pproprite performne mesuresD nd dministering them ordinglyD the resulting system n provide longEterm gin for the ompnyF por further investigtionX por disussion of why mny people think of feedk s ritiism visitX httpXGGwwwFselfhelpmgzineFomGrtilesGgrowthGfeedkFhtml23 por disussion of di'ering views on feedk nd spei( exmples on how to give feedk visitX httpXGGhomeFttFnetGnikolsGfeedkFhtm24
5.8.5 Giving and receiving feedback
By Kristin Hamilton and Tiani Willis
sn rod senseD feedback is simply verl or nonverl ommunition etween two or more prtiesF oD why re so mny of us frid of the word feedkc eople often think of feedk s eing synonymous with ritiism euse feedk is givenD in most irumstnesD when expettions hve not een met @ihAF es humnsD we ll hve the desire to (t in with our soiety9s soil norms nd plese those within our ommunity y meeting expettionsF es shown in ixhiit SFID we re onstntly surrounded y feedk s we see the onsequenes of our tions nd how our tions 'et the impressions of those round us @tossey nd fssD IWWSAF peedk is n essentil prt of our personl life nd our work environmentD mkingD giving nd reeiving feedk suessfully ritilF
Exhibit 5.1: Feedback
5.8.6 Giving feedback
wny re not wre tht giving suessful feedk is 'eted y more thn just the words used to ommuE niteF ords used to tell ides re only U per ent of your ommunitionD your tone of voie omes out to QV per ent nd your gestures re equivlent to SS per ent of your totl ommunition @rthwyAF es
23 http://www.selfhelpmagazine.com/articles/growth/feedback.html 24 http://home.att.net/nickols/feedback.htm
VU resultD the e'etiveness of ommunition is relted to how well one mirrors the ulture nd ehviors of the person to whih one is tlkingF wthing person9s voie toneD tempoD ody postureD movementsD nd gestures retes feedk environment where the ides eing ommunited re esily understoodF sn ddition to mirroring the person you re ommuniting withD there re nine esy steps tht n e followed when giving feedkF pirstD e ler out wht you hve to syF eondD emphsize the person9s ility to hnge in positive wyF hirdD void generl omments nd lrify pronouns suh s it nd tht so the person understnds extly wht you re ttempting to ommuniteF pourthD mke sure to pik the right timeF pifthD fous on the ehvior tht n e hnged rther thn the person or your opinions @weisterAF ixthD e desriptive rther thn evlutiveF eventhD own the feedk y using s sttements tht lrify your feelings relted to the person you re giving feedk toF iighthD void generliztion words suh s llD neverD lwys etFY rtherD use more spei( exmples of the ehvior you re trying to hnge or enourge in the futureF xinthD to ensure mutul understnding fter giving feedkD sk the person you re ommuniting with to restte their understnding of the issue eing disussed @wqill 8 fettyD IWWRAF hen thinking out feedk in n orgniztionD it is likely person will think of performne reviewsF yne ommon prolem tht mngers overlook when reviewing performne is rememering tht feedk is not ll out formsF rditionl performne reviews hve heklistsD rtings or reports tht re used s tools to nlyze feedk in the orgniztionF hile these forms re useful in doumenting nd pprising person9s performneD feedk should not e ditted y the type of form n orgniztion usesF erformne pprisls re often given t enhmrked times throughout the yerF es resultD feedk is often delyedF snresed mounts of time tht pss etween the time the ehvior took ple nd the time the reipient reeives the feedk gretly 'ets the reipients ility to ept the feedk s useful informtionF sn one9s personl life nd in the work environmentD it is importnt to understnd tht feedk is something tht n e sked forF es suhD the giver nd reeiver of feedk re eqully ountle for ommuniting the need nd desire to give nd reeive feedkF pinllyD it is importnt to sk for omment on the wy one gives feedk euse most humns re gret t selfEdelusionF st is muh esier to think tht our suggestions re useful to nother person thn to tully understnd how our feedk is eing interpreted y notherF sn the endD feedk is ontinuous proess whih ensures gols nd expettions re eing met through ommunition etween two prtiesF
5.8.7 Receiving feedback
hile giving feedk is extremely importntD reeiving feedk nd hnging one9s hrteristis to re)et tht feedk is just s importntF yftenD employees eome defensive when they re reeiving feedk on their performneF uen flnhrdD oEuthor of he yne winute wnger sttesD the reson lot of people get defensive with feedk is they don9t distinguish feedk from retionF hile they re listening to the feedkD they hve retion to the demnd for tion tht your feedk implies @flnhrdD IWWTAF por exmpleD when oss is telling n employee the spets of the jo the employee needs to work onD he my only fous on the negtive points nd not the positiveF eeiving feedk should not only e looked t from downwrd point of viewD suh s oss giving his employees ritiquesY ut it should lso e studied in n upwrd wyF eording to ihrd eillyD tmes mitherD nd xihols silopoulosD uthors of e vongitudinl tudy of pwrd peedkD upwrd feedk @tht isD suordintes rting the performne of their immedite supervisorA is growing in importne s tool for the individul nd orgniztionl development @IWWTAF pwrd feedk llows mngement to see the e'ets they hve on their employeesF st is then up to the mngers to t on tht feedkF etwterD oush nd pishthl found tht follower rtings of student leders improved fter feedk ws given to leders nd tht leders reeiving 9negtive9 feedk @de(ned s selfErtings tht were onsiderly higher thn follower rtingsA improved the most @he sn)uene of pwrd peedk on elf nd pollower tings of vedershipD IWWSAF his shows tht there is igger retion when the upwrd feedk is negtive insted of positiveF sn order to e'etively reeive feedkD person hs to e redy to understnd tht they my her ritiques tht they do not wnt to herF tn fF uingD the former resident nd giy of werritt ulishing
VV
CHAPTER 5.
sttes tht n individul is redy to reeive feedk when heX
wnts to know him s others see him nd he is ler tht this is their pereptionD net neessrily wht is true out you insideF trusts his oEworkers to re enough out his development to risk hering their opinionF hs ple outside work where you n tlk it throughF rs opportunities for dditionl feedk so he gets vlidtion of the hnges he hs mde @eeiving peedk qrefully is gritil greer killAF
sf n individul is not redy to onstrutively reeive feedkD then the feedk he does reeive will not e e'etiveF uing ontinues to stte tht individuls must rememer this out feedkD it is one opinion oming from nother individul9s unique perspetive @eeiving peedk qrefully is gritil greer killAF tust euse one person views nother individul in prtiulr wy does not men tht the rest of world views tht person in the sme wyD ut it is good wy for n individul to (nd out wht others think of himGher tht is not knownF here re severl tips tht n individul n use when reeiving feedkF hese tips inludeX
ry to show your ppreition to the person providing the feedkF hey will feel enourged nd elieve it or notD you do wnt to enourge feedkF iven your mnger or supervisor (nds providing feedk sryF hey never know how the person reeiving feedk is going to retF sf you (nd yourself eoming defensive or hostileD prtie stress mngement tehniques suh s tking deep reth nd letting it out slowlyF pousing on understnding the feedk y questioning nd restting usully defuses ny feelings you hve of hostility or ngerF sf you relly disgreeD re ngry or upsetD nd wnt to dissude the other person of their opinionD wit until your emotions re under ontrol to reopen the disussion @reth(eldD row to eeive peedk with qre nd hignityAF
hese tips re helpful in eoming etter reeiver for feedkD ut they will only work s long s they re prtied on regulr sisF ith the ove fts nd (gures workers n see tht giving nd reeiving feedk does not hve to e sryF es long s people give nd reeive feedk in onstrutive wy nd prtie their feedk skills it will eventully eome seond nture to the employeesF st will lso show tht feedk provides ene(ts for oth the individuls tht work for the ompnyD nd the ompny itselfF por further investigtionX por informtion on uen flnhrdD his fook One Minute ManagerD nd vrious fts on feedk visitX httpXGGwwwFnswersFomGtopiGkenElnhrd25 por more informtion on the (ndings of e longitudinl study of upwrd feedk visitX httpXGGwwwFlkwellEsynergyFomG doiG sGIHFIIIIGjFIURRETSUHFIWWTFtHISVTFx26 vink your knowledgeX glik on this link to (nd n exerise to prtie e'etive wys to reeive feedkX httpXGGhumnresouresFoutFomGsGommunitionGhtGreeivefeedkFhtm27
5.9 Determining base pay

By Cynthia V Fukami
28
25 http://www.answers.com/topic/ken-blanchard 26 http://www.blackwell-synergy.com/ doi/ abs/10.1111/j.1744-6570.1996.tb01586.x 27 http://humanresources.about.com/cs/communication/ht/receivefeedback.htm 28 This content is available online at <http://cnx.org/content/m35406/1.4/>.
VW rve you ever wondered how ompny deides how muh to py for prtiulr joc smgine tht you hve seen jo posted on the snternetF st redsD y0e essistnt ntedF ill nswer the phone nd greet visitorsF ome word proessing dutiesF yther duties s ssignedF trt t h VFHH n hourF row did the mnger deide to py h VFHH per hourc hy did she deide tht ws firc sn this suhpterD we will over the two types of firness importnt in designing se py systemF
5.9.1 Internal equity
he (rst onsidertion is tht the se py system needs to e internally equitableF his mens tht the py di'erentils etween jos need to e ppropriteF he mount of se py ssigned to jos needs to re)et the reltive ontriution of eh jo to the ompny9s usiness ojetivesF sn determining thisD the mnger should sk his or herselfD row does the work of the o0e ssistnt desried ove ompre with the work of the o0e mngerc enother question to e sked isD hoes one ontriute to solutions for ustomers more thn notherc snternl equity implies tht py rtes should e the sme for jos where the work is similr nd di'erent for jos where the work is dissimilrF sn dditionD determining the pproprite di'erentil in py for people performing di'erent work is key hllengeF gompenstion speilists use two tools to help mke these deisionsX jo nlysis nd jo evlutionF Job analysis is systemti method to disover nd desrie the di'erenes nd similrities mong josF e good jo nlysis ollets su0ient informtion to dequtely identifyD de(neD nd desrie the ontent of joF ine jo titles my in nd of themselves e misledingD for exmpleD systems nlyst does not revel muh out the joY the ontent of the jo is more importnt to the nlysis thn the titleF sn generlD typil jo nlysis ttempts to desrie the skillD e'ortD responsiilityD nd working onditions of eh joF Skill refers to the experieneD triningD edutionD nd ility required y the joF Eort refers to the mentl or physil degree of e'ort tully expended in the performne of the joF Responsibility refers to the degree of ountility required in the performne of joF Working conditions refer to the physil surroundings nd hzrds of joD inluding dimensions suh s inside versus outside workD hetD oldD nd poor ventiltionF e job description summrizes the informtion olleted in the jo nlysisF ee httpXGGenFwikipediForgGwikiGtonlysis29 for more informtion out jo nlysisF Job evaluation is proess tht tkes the informtion gthered y the jo nlysis nd ples vlue on the joF to evlution is the proess of systemtilly determining the reltive worth of jos sed on judgment of eh jo9s vlue to the orgniztionF he most ommonly used method of jo evlution in the nited ttes nd iurope is the point methodF he point method onsists of three stepsX @IA de(ning set of ompensle ftorsD @PA reting numeril sle for eh ompensle ftorD nd @QA weighting eh ompensle ftorF ih jo9s reltive vlue is determined y the totl points ssigned to itF ee httpXGGwwwFhrEguideFomGjoevlutionFhtm30 for more informtion out jo evlution nd the point systemF he result of the jo nlysis nd jo evlution proesses will e py struture or queueD in whih jos re ordered y their vlue to the orgniztionF
5.9.2 External equity
he seond onsidertion in reting se py system is externl equityF External equity refers to the reltionship etween one ompny9s py levels in omprison to wht other employers pyF ome employers set their py levels higher thn their ompetitionD hoping to ttrt the est pplintsF his is lled leding the mrketF he risk in leding the mrket is tht ompny9s osts will generlly e higher thn its ompetitors9 ostsF yther employers set their py levels lower thn their ompetitionD hoping to sve lor ostsF his is lled lgging the mrketF he risk in lgging the mrket is tht the ompny will e unle to ttrt the est pplintsF wost employers set their py levels the sme s their ompetitionF his is lled mthing the mrketF wthing the mrket mximizes the qulity of tlent while minimizing lor ostsF
29 http://en.wikipedia.org/wiki/Job_analysis 30 http://www.hr-guide.com/jobevaluation.htm
WH
CHAPTER 5.
en importnt question in externl equity is how you de(ne your mrketF rditionllyD mrkets n e de(ned in one of three wysF yne wy to de(ne your mrket is y identifying ompnies who hire employees with the sme ouptions or skillsF por exmpleD if ompny hires eletril engineersD it my de(ne its mrket s ll ompnies tht hire eletril engineersF enother wy to de(ne mrket is y identifying ompnies who operte in the sme geogrphi reF por exmpleD if the ompny is in henverD golordoD the mrket would e de(ned s ll ompnies in henverD golordoF e third wy to de(ne ompny9s mrket is y identifying diret ompetitorsD tht isD those ompnies who produe the sme produts nd serviesF por exmpleD hdy eres eterinry glini my de(ne its mrket s ll other veterinry linisF xotie tht these three hrteriztions n intertD tht isD hdy eres might de(ne its mrket s ll veterinry linis in henverD golordo tht employ veterinry tehniinsF yne you hve de(ned your mrketD the next step is to survey the ompenstion pid y employers in your mrketF urveys n e done in vriety of wysF pirstD there re pulily ville dt through the fureu of vor ttistis in the nited ttesF eondD there re pulily ville dt through the snternetD from sites suh s wwwFslryFom31 or wwwFhypynetFom32 F hirdD slry informtion n e otined from third prty soureD suh s n industry group or employer orgniztionD whih hs olleted generl informtion for geogrphi region or industryF pourthD the ompny n hire onsulting orgniztion to ustom design surveyF pinllyD one n ondut survey one9s selfF ee httpXGGwwwFhrE guideFomGdtGqRURFhtm33 for more informtion out slry surveysF
5.9.3 Combining internal and external equity
e ompny tht hs performed pproprite reserh hs two sets of dtF he (rst is pay structureD the output from the jo evlutionF he seond is market dataD the output from the mrket surveyF he next step will e to omine these two sets of dtD to rete pay policy lineF he py poliy line n e drwn freehndD y grphing tul slries nd onneting the dotsF elterntivelyD sttistil tehniques suh s regression nlysis re used to rete py poliy lineF Regression genertes stright line tht est (ts the dt y minimizing the vrine round the lineF sn other wordsD the stright line generted y the regression nlysis will e the line tht est omines the internl vlue of jo @from jo evlution pointsA nd the externl vlue of jo @from the mrket surveyAF ou n lso ent poliy of leding the mrket y rising the lineD nd the poliy of lgging the mrket y lowering the lineF row do ompnies deide the py ssoited with eh joc pirstD they nlyze the ontent of eh joF eondD they ssess the vlue eh jo ontriutes to the ompnyF hirdD they prie eh jo in the mrketF pinllyD they look t the reltionship etween wht they vlue internlly nd wht the mrket vlues externllyF fy following eh of these stepsD ompny will hve fir se py systemD whih will led to ttrting nd retining the est employeesF
5.9.4 Benets and non-monetary compensation
By Julie Wells
sn order for most usinesses to funtionD employees must e provided with pyment in exhnge for their serviesF gsh is one wy to ompenste employeesD ut sh lone is rrely enough pymentF gompenstion is eoming more vrile s ompnies se greter proportion of it on stok options nd onuses nd smller proportion on se slryD not only for exeutives ut lso for people further nd further down the hierrhy @fe'erD ix hngerous wyths eout yD PHHHAF fene(ts nd other forms of nonEmonetry ompenstion re eoming more pproprite forms of ompenstion for employees in tody9s workpleF e benet is generlD indiret nd nonEsh ompenstion pid to n employee tht is o'ered to t lest VH per ent of st' @imployee fene(ts he(nitionAF yn vergeD RH per ent of pyroll is dedited to nonEsh ene(ts @uulikD PHHRAF sn order to ttrtD retinD nd motivte the est employeesD ene(ts nd other soures of nonEmonetry ompenstion should e onsideredF here re three things ompny must
31 http://cnx.org/content/m35406/latest/www.salary.com 32 http://cnx.org/content/m35406/latest/www.haypaynet.com 33 http://www.hr-guide.com/data/G474.htm
WI fully onsider efore determining if nd how they will issue employee ene(tsX the industry strutureD the strengths of the ompny nd its ompetitorsD nd the wge strutureF e ompny should not issue ene(ts to employees if they hve not onsidered the implitions of these ftorsD spei(lly the wge strutureF sf ompny o'ers employees extremely high wges ompred to other usinesses in the industry in ddition to nonEmonetry ompenstionD osts my inrese t fster rte thn pro(tF fene(ts re lso relted to the type of industry in whih the ompny does usinessF sf the ompny hs n understnding of wht they n o'er to employees nd how those o'erings will e reeived in the industryD ene(ts n inrese ompny9s workfore qulity nd generl hppiness of employeesF
Types of non-monetary compensation Employee Benets Fringe Benets Perks (perquisites)
relotion ssistne medil ndGor dentl insurne plns )exile spending ounts retirement plns life nd longEterm insurne legl ssistne plns doption ssistne nd hild re plns misellneous employee disounts
sik leve inome protetion vtion pro(t shring edution funding
ompny rs hotel stys pro(tEshring leisure tivities on work timeD inE o0e exerise filities sttionryD usiness rdsD perE sonlized o0e supplies (rst hoie t jo ssignments
Table 5.2
5.9.5 The benet of benets
fene(ts n e required y governmentD o'ered willingly y employersD or rise from pressures within the ompnyF sn the D the government requires tht usinesses dedut pederl snome gontriution et @FICAA txes from employee pyheksD whih py for oil eurity nd wedire @snternl evenue ervieAF Workers' Compensation is pid to employees if they re injured while performing work neessry for their jo funtionY this n inlude reking oneD getting into r identD or pyments mde to the fmily of someone killed on the joF Unemployment insurance provides wges to unemployed personsD generlly only if they re registered s unemployed nd tively seeking joF sn eustrliD these ene(ts re pid through the inome txesD ut pyments re issued y gentrelinkD governmentl o0e tht seeks to support unemployed individuls nd help them eome selfEsupporting @gentrelinkAF he pmily wedil veve et @FMLAA llows individuls to leve work for semiEextended period of time in order to re for n iling fmily memerD new hildD or personl illnessF his leve is unpidD ut it gurntees tht employees will not lose their jos if they leve under these irumstnesF imployee ene(ts tht re not required y lw re often providedF hese re ttrtive to usinesses s well s employees euse they provide oth with some tx dvntgesF por exmpleD if ompny o'ers employees )exile spending ountD money tht employees reeive in this ount my e deduted from totl ernings on employees9 tx returnsF imployees n use preEtx dollrs to py for eligile helth re nd dependent re expensesD however ny money tht remins in the ount t the end of the yer will e forfeited @rAF his is ene(t to employees euse individuls will reeive portion of their inome txEfreeF imployers lso ene(t from o'ering these types of progrms euse they lso reeive tx ene(ts nd they retin hppy employees y providing progrms tht meet their needsF
WP
CHAPTER 5.
fene(ts re lso o'ered to employees s inentivesF hese re designed to ttrtD keepD nd improve life for employeesF hey re not usully required y the government ut ompnies my reeive tx ene(ts for some types of these nonEmonetry pymentsF here re plethor of servies tht n e o'eredD inluding omplementry gym memershipsD onEsite dyreD ompny rsD nd pid vtionsF gompnies o'er suh these ene(ts in order to rete ulture for their employeesD whih hve the ility to promote soil intertionD mke life esier for working prentsD or improve employees9 qulity of lifeF hepending on the industryD ene(ts my e more ttrtive thn slry (guresY this ould llow ompnies to py lower wges to employeesD thus reduing the totl mount spent in pyrollF sn situtions like theseD ompny my wnt to e extremely retive in devising their ene(t pkgesF
5.9.6 Detriments of benets
fene(ts n provide ompnies with wys to ttrt high qulity employees nd help retin them espeilly if the ene(ts o'ered re signi(ntly di'erent or etter thn the ene(ts o'ered y ompetitorsF roweverD there re negtive situtions tht n rise from o'ering too mny or the wrong kind of ene(ts to employeesF hese n e etter understood in the ontext of the following se studyF fy ttrting employees who desire strong workGlife lneD the e snstitute hs the potentil to rete n overly homogenous ultureF his n led to lk of dissent in the ompnyY if someone disgrees with poliy or prtieD they my e less likely to voie their opinions for fer of demonstrting di'erent opinions thn their friends nd oEworkersF his n lso foster n environment tht lks ulturlD ethniD or soil diversityD whih n led to n inility to dopt hnge within the ompnyF gseD he e snstitute he e snstituteD sed in the southern nited ttesD is softwre development ompny tht ompetes ginst glol softwre gintsD suh s wirosoftF sn order to ttrt employees tht (t their unique ompny ultureD e hs developed n extensive employee ene(t progrm tht is o'ered to ll employees t the ompnyF lries pid to e employees re not signi(ntly higher thn ompetitors in the industryD ut they do mintin ompetitive py rteF por the idel employeeD howeverD the ene(ts more thn ompenste for n unimpressive slryF fene(ts t e inludeX privte o0es for ll employeesY ontriutions of IS per ent into employee pro(t shring plnsY PHH re nturl mpus setting with onEsite hiking trils nd pini resD sulpturesD nd rtworkY the ltest tehnology nd equipmentY QS hour work weekY onEsite medil fility @inluding nursesD dotorsD physil therpistD mssge therpistD nd mentl helth prtitionerAD (ve minute witing time for ppointmentsD nd free helthre for employees nd their fmiliesY helth plns tht over most si needs nd o'er ost ountle servies for servies tht re more extensiveY onEsite wontessori dyre t QQ per ent of the ost of norml dyreY onEsite privte junior nd senior high shoolsD open to students from outside of eD with high teh lortories nd equipmentY free onEsite gym for employees nd fmilies with poolD exerise lssesD yogD weight roomD etFY feteri with high qulity food t low priesD live pino musiD nd the option of dining with your hildren if they ttend the onEsite shoolsY susidized memerships o'ered for helth lus nd dyre o' propertyY ompny owned ountry lu memerships t signi(ntly low osts for employees nd their fmiliesY nd moreF e is unique exmple of ompny tht hires employees who desire strong workGlife lneF xot ll softwre engineers would desire this lifestyleD ut e reognizes tht they hire from unique nihe of employees nd seek to ttrt these individulsF his hs een very suessfulY e is ertinly mong the lowest turnover in the industry"less thn R per ent nnullyF por ompny of more thn SDHHH employeesD this is quite n hievementD nd muh of their suess n e linked to their unique rw prties @eAF
5.9.7 Pay for performance
By Bonggi Yim and Chanakiat Art Samarnbutra
WQ
5.9.7.1 Compensation techniques
eording to uulikD it is importnt for ompnies to ttrt qulity jo pplintsD motivte employees to e high performersD nd enourge longEterm employee retention @rumn esoures for the xonEr wngerD PHHRAF hoing these things n inrese ompnies9 ompetitive power todyF gompenstion systems usully onsist of three tegoriesX se slryD shortEterm inentive systemsD nd longEterm inentive systems @uulikD PHHRAF ewrd systems relly 'et work performneF ewrd systems n e pplied to employees with di'erent formulF oorly designed nd dministered rewrd systems n do more hrm thn goodF st is importnt to design rewrd systems refullyD tking into onsidertions se slry nd inentives ording to the di'erent tsks of spei( employeesF gompnies should hve wellEdesigned se slriesF xowdysD mny wesites @eFgF slryFom34 D joE strForg35 D wgeweFom36 A provide detiled informtion to employees ording to ompny mission @uulikD PHHRAF hen ompny designs se slryD they hve to onsider the ompny9s unique spetsX lotions nd quisition period of skills nd so onF hepending on rnking system of the ompnyD employees need to e evluted di'erentlyF e giy9s evlution is di'erent from tht of mngement nd evlution of mngement is di'erent from tht of employeesF gompnies lso provide short term inentives to employeesF wost ompnies9 ompenstion systems inlude vrile py @uulikD PHHRAF hepending on work performneD mny ompnies rewrd their emE ployees without 'eting se slryF o hieve set golD mny ompnies use onusesF por exmpleD xuor set its se py t out hlf of the ompetition9sF fy emphsizing onus systemD xuor hs shifted the risk onto the employee9s shoulders @uulikD PHHRAF gompnies should hve ext evlution systems tht support onus pyF wny ompnies suh s qiD rD nd un wirosystems re using softwre tht diretly evlutes employees9 ehvior with respet to ustomer servieF vongEterm inentives re lso prt of rewrd systemsF tok options nd pro(tEshring plns re representtive longEterm rewrd systems @uulikD PHHRAF iven though employees re motivted y these inentivesD they do not reeive ene(ts until fter few yersF por exmpleD employees nnot sell stok options until fter few yers fter they reeive stok optionsF sn pro(tEshring plnD employees re promised pyment eyond se py tht is sed on ompny pro(ts @uulikD PHHRAF
5.9.8 Components of pay for performance
eording to hr gynthi pukmiD professor from the niversity of henverD these re the min omponents of py for performne @pukmiD ewrd ystemsD PHHUAX IF he ompny pys the employee eyond his or her jo vlueF PF wny forms for improving the py system re villeF QF he ompny n divide up the py into Q levels tht re individulD temD nd ompnyEwideF
5.9.9 Pay secrecy
fesides the ompenstion tehniquesD the ompnies should onsider whether the ompenstion system should e seretF ristorillyD employees nd usinesses oth expressed onerns out the puli disussion of slryY howeverD suh disussions should not e prohiited @uulikD PHHRAF gompnies need to onlude wht informtion they should revel in their py systemsF ome ompnies selet to nnoune slry rngesF por exmpleD for eh position emerin ixpress posts the mrket py rnges so tht its employees n ompre them with their slriesF ome ompnies dislose the formul nd the ftors they my use to lulte slriesD suh s edution nd experieneF
34 http://cnx.org/content/m35406/latest/salary.com 35 http://cnx.org/content/m35406/latest/jobstar.org 36 http://cnx.org/content/m35406/latest/wageweb.com
WR
CHAPTER 5.
5.9.10 Good outcomes of paying for performance
hr gynthi pukmi notes tht rewrd system is powerful tool if py links with performne @pukmiD ewrd ystemsD PHHUAX IF PF QF RF trtegi ojetives of the orgniztion will e hievedF he rewrd system will support the orgniztionl ultureF imployees9 working performne will e improved from the right py prtieF gompetitive dvntges hve inresed ontinuouslyF
5.9.11 Folly of reward systems in dierent organizations

In politics X
olitiins re seprted from the generl popultion when they spek only of o0il gols tht re purposely vgue nd generlizedF sn ontrstD the eletorte will punish the ndidte who frnkly informs out the soure of fundF In universities X eording to teven uerrD oiety hopes tht professors will not neglet their tehing responsiilities ut rewrds them lmost entirely for reserh nd pulitions @pF WAF hile it is esy to reognize those professors who reeive wrdsD quntifying dedition to tehing is more di0ultF o resolve this prolemD it is essentil tht university ledership should emphsize tehing nd doing reserh equllyF In sport X gohes tlk out temworkD not individulsF glerlyD in rewrd systemD the est plyer will reeive the iggest rewrdF hereforeD plyers normlly think of themselves (rst nd their tem seondF o orret this prolemD the tem mnger needs to redue the gps of py mong tem plyersF
5.9.12 Cautions for introducing a pay system
@uerrD IWWSAF wny exeutives lern tht the employees will ertinly work more e'etively in se tht the ompny gives them higher ompenstionF fe'er sid tht the exeutives my not e spending s muh time nd e'ort s it should on the work environmentEon de(ning its josD on reting its ultureD nd mking work fun nd meningful @ix hngerous wyths eout yD PHHHAF ometimesD ompnies py well to rete protive work environment nd get new innovtive ides in returnF his poliy does not surely workD espeilly when the top exeutives nd employees re lking of trust with eh otherF Pay systems need to align with the company culture. he top mngement should djust the py system when it is not (t with the urrent usiness strtegyF roweverD hnging the internl ulture is wrong ide euse it is emedded in the employees9 mindsF he onfusion n mke the growth of the ompny stgnntF Implementing the reward system is hard and takes management time wost ompnies elieve tht employees will work e'etively when they get rewrds for their e'ortsF feuse of this onernD the r mngers nnot mintin the poliy in ompenstionF prom werer surveyD nerly threeEqurters of ll the ompnies surveyed hd mde mjor hnges to their py plns in just the pst two yers @fe'erD ix hngerous wyths eout yD PHHHAF sn dditionD n exmple of hnging rewrd system ourred in ersF ers hd to eliminte its ommission system euse ers9s employees wnted high ommissionD so they o'ered unneeded servies to ustomersF
Much advice about pay is wrong
5.10 Meaningful job design

By Ryan Brown and Mike McClain
37
37 This
WS to design is ritil to the suess of ny orgniztionF por our purposes job design is de(ned s the llotion of spei( work tsks to individuls nd groups @hermerhornD to hesign elterntivesD PHHTAF elloting jos nd tsks mens speifying the ontentsD method nd reltionships of jos to stisfy tehnologil nd orgniztionl requirements s well s the personl needs of joholdersF sf suessful jo design is not implementedD thn the ompnies generl strtegy nd diretion will e strongly divertedF weningful jos must lso exemplify the ompny9s gols nd ultureF
5.10.1 Elements to job design
sn order to etter understnd jo design it is helpful to de(ne some key elements nd their reltionship with jo design proessesF e task n e est de(ned s piee of ssigned work expeted to e done within ertin timeF st is importnt to stritly nd thoroughly identify tsks tht need ompletionF sn ddition individuls need to e ompelledD exitedD nd pssionte to do their workF reneD it is essentil to design jos tht motivte employeesF Motivation desries fores within the individul tht ount for the levelD diretionD nd persistene of e'ort expended t work @hermerhornD to hesign elterntivesD PHHTAF sn jo design it is neessry to identify nd struture jos in wy so tht the ompny9s resoures re eing e0iently usedF Resource Allocation ours when orgniztions deide to pproprite or llote ertin resoures to spei( josD tsks or dilemms fing the orgniztionF tos need to e onstruted so tht e0ieny of the worker or deprtment is mximizedF yrgniztions need to use the resoures nd retivity of their employees e'etively nd e0ientlyF epproprite resoure llotion llows lrge orgniztions to foster nd develop innovtion in their workfore @horenoshD vn ingenD 8 erhgenD PHHSAF ewrd systems lso ply role in jo designF ewrd systems inlude ompenstionD onusesD risesD jo seurityD ene(tsD nd vrious other methods of rewrd for employeesF en outline or desription of rewrd pkges needs to e estlished while onstruting josF
5.10.2 Brief history of traditional approaches to job design
TaylorismD
lso known s sienti( mngementD is foundtion for mngement nd mngeril deisionsF prederik ylor developed this theory in n e'ort to develop siene for every jo within n orgniztion @ylorismAF
Taylorism Taylorism principles
grete stndrd method for eh joF uessfully selet nd hire proper workersF i'etively trin these workers upport these workersF
Table 5.3
rertzerg9s wotivtionErygiene theory ttempts to unover psyhologil needs of employees nd enhne employee stisftionF sn regrds to this theory employers re enourged to design jos tht enhne nd motivte employees eyond simply meeting dily or weekly quotF his theory highlights the importne of rewrds systems nd monitoring when nd how employees re rewrdedF imple reognition is often enough to motivte employees nd inrese jo stisftion @rerzerg9s wotivtionErygiene heoryAF wore e'etive jos n e reted when spei( gols re estlishedF Goal setting theory s desried y idwin voke minly fouses on the motivtionl properties of tsk gols @hermerhornD to hesign elterntivesD PHHTAF sk gols n e highly motivting when set nd mnged properlyF yne of the
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CHAPTER 5.
prolems with gol setting theory in jo design is tht individuls re more strongly motivted y estlishing or setting their own personl golsF sf orgniztions set these gols for their employees the e'etiveness of this tehnique is diminishedF woreoverD individuls re often times ine'etive t setting personl gols @qodwinD xekD 8 roughtonD IWWWAF sf ompny wnts to implement gol setting theory with regrds to jo design thn resonle jo riteri nd desription must e estlishedF
5.10.3 Current approaches to job design
ehnology nd the )ttening of the glol eonomy hve ontriuted gretly to the hnges we now see in jos nd jo ontent ross the worldF his shift is signl for employers to meet hnging jo demnds nd expettions @whonld 8 yenhinD PHHQAF e now reognize tht person presented with qulity meningful work is more likely to do tht work wellF feuse of this insightD jo design now presently tkes ouple of prominent formsF he (rst of whih is designed round the evolution from individul work to workEgroupsF his jo design prtie is lled soioEtehnil systems @A pprohF his pproh hs the following guiding priniplesX
he design of the orgniztion must (t its golsF imployees must e tively involved in designing the struture of the orgniztionF gontrol of vrines in prodution or servie must e undertken s lose to their soure s possileF usystems must e designed round reltively selfEontined nd reognizle units of workF upport systems must (t in with the design of the orgniztionF he design should llow for high qulity of working lifeF ghnges should ontinue to e mde s neessry to meet the hnging environmentl pressures @eel emA
glik here38 to red more out soiEtehnil systems pproh to jo designF enother modern jo design theory is the to ghrteristis wodel @JCMAD whih mintins (ve imporE tnt elements tht motivte workers nd performneX skill vrietyD tsk identityD tsk signi(neD utonomyD nd jo feedkF he individul elements re then proposed to led to positive outomes through three psyhologil sttesX experiened meningfulnessD experiened responsiilityD nd the knowledge of results @rker 8 urnerD PHHPAF e further evolution of this theory is Psychological Empowerment Theory @preitzerD IWWSAF his theory posits tht there is distintion etween empowering prties nd ognitive motivtionl sttesF hen person is wre of the impt tht they re hvingD they ene(t more thn if they nnot relte positive impt to ny of their ehviors or prtiesF here re mny more itertions of jo design theory tht hve evolved from the prties of previous genertionsD ut one generl trend n e identi(ed mong themY the move towrds utonomous work tems nd the importne pled upon the mening derived from the individulF
5.10.4 Steps to eective job design
uey to e'etively rfting meningful jo for n employee is strting the thought proess y looking t the vlues nd strtegy of the orgniztionF fy frming the jo in these ontexts the jo design proess is more likely to lign potentil employees with the purpose of the ompnyF yne you hve this ontext the following steps39 will ensure oth meningful nd e'etive jo designX IF PF QF RF essess skillsD needsD ilitiesD nd motivtions of employees nd the orgniztionF hesign the jo to meet those needsD ilities nd motivtionsF smplement the new jo designF eudit the suess of the jo design nd egin with step one periodilly s well s when prolems hve een identi(edF
38 http://www.accel-team.com/work_design/wd_03.html 39 http://www.ccohs.ca/oshanswers/hsprograms/job_design.html
WU
5.10.5 How meaningful job design can impact an organization
he gol of jo design is to positively 'et the performne of n orgniztionF st @jo designA 'ets how well employees oordinte their workD the degree to whih they re ommitted to the gols of the orgniztionD the extent to whih their ilities re tppedD nd the extent to whih their psyhologil nd ergonomi needs re met @feerD petorD vwreneD willsD 8 ltonD IWVRAF es this quote showsD jo design is the se element for produing e'etive work orgniztionsD nd without meningful jo designD n orgniztion will never operte to its potentilF
5.11 Termination
By James Frasche
40
he termintion of n employee is n unomfortle event for ll prties involvedF yviouslyD the employee losing his or her jo will e distrught for mny resonsD nd in mny ses the mnger responsile for mking the termintion deision nd the employee hve formed personl reltionship during the employee9s tenureD therey mking the mnger9s responsiility of letting someone go n undesirle oneF roweverD there re wys tht mnger n lessen the unplesntness of the termintion proessF here re mny ftors to tke into onsidertion when terminting n employeeF pirst nd foremostD n employer must tke into ount the nture of the reltionship tht exists etween the orgniztion nd the employee in order to ssess the leglity of the termintionF sn the nited ttesD pproximtely UH per ent of employers nd employees mintin n t will reltionship with one notherD tht isD n employee my quit their jo for ny resonD t ny timeD or n employer my (re n employee for ny resonD t ny timeF he other QH per ent of the workfore is employed under individul employment ontrts or union ontrts tht speify the length of n employment reltionshipD how the reltionship n e severedD nd how the reltionship n e extended @uulikD PHHRAF en t will reltionship my give the impression tht termintion deision my never e hllengedF sndeedD (ring n employee for use is mde even esier when n t will reltionship is presentF frodly spekingD n employer n typilly (re n employee for use when their ehvior flls under the following tegories @ploneD PHHPAX IF PF QF RF oliy nd proedure violtions ustndrd jo performne snpproprite workple ondut ettendneGtrdiness prolems
roweverD there re some instnes in whih employees n e wrongfully dishrged or (red for resons tht re not legitimteD typilly either euse they re unlwful or euse they violte the terms of n employment ontrt @vetri vw virryAF ome of the illegitimte resons for terminting employees inludeD mong mny othersD disrimintion nd violtions of puli poliyF por more omplete list of illeE gitimte resons for terminting employees in the D visitX httpXGGsmllusinessF(ndlwFomGemploymentE employerGemploymentEemployerEendingGemploymentEemployerEendingEwrongfulEresons@IAFhtml41 F here re severl lws tht hve een ented in the nited ttes in order to protet employees from unfir termintion in the workple sed on disrimintionD the most prevlent of whih re itle ss of the Civil Rights Act of 1964D the Age Discrimination and Employment Act of 1967 @ADEAA nd the Americans with Disabilities Act of 1990 @ADAAF itle ssD the rodest of these sttutesD protets employeesD pplintsD nd union memers from termintion nd disrimintion in the workple sed on reD olorD religionD genderD nd ntionl originD regrdless of the nture of the employment reltionship @t willD unionD etFA @glrksonD PHHRAF por instneD if n efrin emerin or wuslim individul n prove in ourt of lw tht he or she ws (red euse of re or religious preferenesD tht employee is entitled to oth
40 This content is available online at <http://cnx.org/content/m35413/1.4/>. 41 http://smallbusiness.ndlaw.com/employment-employer/employment-employer-ending/employment-employer-endingwrongful-reasons(1).html
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CHAPTER 5.
ompenstory nd punitive dmges under itle ssF yrgniztions tht employ IHH people or less re lile for h SHDHHH nd orgniztions tht employ IHH or more employees re lile for h QHHDHHH in punitive nd ompenstory dmges under itle ss @glrksonD PHHRAF por more informtion on itle ssD inluding the lims proessD on (de ouptionl quli(tion defenseD nd who is protetedD visit the iqul imployment ypportunity gommission9s @EEOCA wesite tX httpXGGwwwFeeoFgovGpoliyGviiFhtml42 F eording to est9s fusiness vwD it is quite possile tht disrimintion sed on ge is the most widespred form of disrimintionD eing tht nyoneD regrdless of genderD ntionl originD etF my (nd themselves vitim t some point in their life @glrksonD PHHRAF he prtie of lyingEo' older employees nd hiring youngerD less expensive ones in order to ut osts is ommon ourrene mongst orgniztions tht operte in the nited ttesF eF TPI @etion PA of the ehie sttesD in the fe of rising produE tivity nd 1ueneD older workers (nd themselves disdvntged in their e'orts to retin employmentD nd espeilly to regin employment when displed from josF sn n e'ort to promote employment of older persons sed on their ility rther thn geD gongress ented the ehieD whih prohiits employment disrimintion on the sis of ge ginst individuls forty years of age or older @he iqul imployment ypportunity gommissionAF sn order for the ehie to pply to spei( employer @under federl lwAD tht employer must employ twenty or more peopleD nd the employer must engge in interstte ommereF hould plinti' suessfully prove tht ge disrimintion hs ourredD the remedies under the ehe stipulte tht the employee my e wrded k pyD ttorney9s feesD liquidted dmges @when willful violtion hs een provenAD front py @whih is designed to ompenste the vitim for future lossesAD nd injuntive relief @whih my inlude reinsttementAF nlike itle ssD punitive nd ompenstory dmges re not wrded under the ehie @glrksonD PHHRAF o view the ehie in its entiretyD visit the iiyg9s wesite tX httpXGGwwwFeeoFgovGpoliyGdeFhtml43 F eording to the gongressD RQDHHHDHHH emerins hve one or more mentl or physil disilitiesF sn IWWHD gongress ented the Americans with Disabilities ActD whih mde it illegl for privte employersD stte nd lol governmentsD employment geniesD lor orgniztionsD nd lorEmngement ommittees to disriminte ginst individuls sed on disility @he iqul imployment ypportunity gommissionAF purthermoreD the ehe ws spei(lly ented in order to @IA provide ler nd omprehensive mndte for the elimintion of disrimintion ginst individuls with disilitiesD @PA provide lerD strongD onsistentD enforele stndrds ddressing disrimintion ginst individuls with disilitiesD @QA to ensure tht the pederl qovernment plys entrl role in enforing the stndrds estlished in this et on ehlf of individuls with disilitiesD nd @RA to invoke the sweep of ongressionl uthorityD inluding the power to enfore the fourteenth mendment nd to regulte ommereD in order to ddress the mjor res of disrimintion fed dyEtoEdy y people with disilities @ heprtment of vorAF es of IWWRD the ehe is pplile to ompnies tht employ IS or more employees nd prohiits suh ompnies from disriminting sed on disility in ll employment prties suh s reruitE mentD pyD hiringD (ringD promotionD ene(tsD etF por more informtion on the ehe inluding remeE dies under the t nd the plinti'9s urden of proofD visit the heprtment of vor9s wesite tX httpXGGwwwFdolFgovGesGregsGsttutesGofpGdFhtm44 F wost sttes in the prohiit employers from (ring n employee in violtion of puli poliyD tht isD for resons tht most people would (nd morlly or ethilly wrong suh s terminting n employee for @IA refusing to ommit n illegl t suh s refusing to flsify insurne lims or lie to government uditors @PA omplining out n employer9s illegl ondut suh s the employer9s filure to py minimum wgeD or @QA exerising legl right suh s voting or tking fmily leve @pindvwFom45 AF he mnner in whih n orgniztion termintes n employee n send powerful messge to the orgE niztion9s remining st' @reth(eldD row to pire n imployeeAF wngers must e wre tht seemingly unfir or hrsh termintions my use some of the orgniztions est workers to eome less e'etive or seek new employment for fer of the sme tretmentF sn some sesD it is pproprite for mngers to enE
42 http://www.eeoc.gov/policy/vii.html 43 http://www.eeoc.gov/policy/adea.html 44 http://www.dol.gov/esa/regs/statutes/ofccp/ada.htm 45 http://cnx.org/content/m35413/latest/FindLaw.com
WW gge in progressive disipline efore terminting n under performing employeeF rogressive disipline is proess for deling with joErelted ehvior tht does not meet expeted nd ommunited performne stndrdsF he primry purpose for progressive disipline is to ssist the employee to understnd tht perE formne prolem or opportunity for improvement exists @reth(eldD hisipline @rogressive hisiplineAAF fy ttempting to ssist n employee in (xing ny prolems tht they re experiening in the workple efore terminting themD the orgniztion ommunites strong ommitment to its employeesD whih n go long wy in regrds to retentionD turnoverD nd other res of onernF hould the deision e mde to move forwrd with the termintion proess fter ll other options hve een exhustedD it is importnt for mngers to know howD whenD nd where to rek the news to the employeeF upervising mngers should generlly e responsile for terminting n employeeD nd it is generlly improper to pss this responsiility o' to upper mngement or to the humn resoures deprtmentF wost mngers postpone telling n employee out their termintion until the end of the weekF roweverD this my e grve mistkeD s the employee will hve the entire weekend to omplin out their tretment to their oworkers nd friendsD therey trnishing the reputtion of the orgniztionF en lterntive is for mngers to rek the news of termintion to employees t the eginning of the weekF his will give the employee time to ool o' nd think out their next move efore they hve the opportunity to soilly intert with former oworkers during the weekend @uulikD PHHRAF he termintion interview is n importnt spet of the exit proessF he following re guidelines for the termintion interview provided y the experts t ry essoites s seen in prmework for rumn esoure wngementF
Plan the interview carefully.
wke sure the employee keeps the ppointment timeF xever inform n employee over the phoneF ellow IH minutes s su0ient time for the interviewF se neutrl siteD never your own o0eF rve employee greementsD the humn resoures (leD nd relese nnounement @internl nd externlA prepred in dvneF fe ville t time fter the interview in se questions or prolems riseF rve phone numers redy for medil or seurity emergeniesF
es soon s the employee enters the meetingD give the person moment to get omfortle nd then inform him or her of your deisionF Describe the situation. frie)y explin why the person is eing (redF ememer to desrie the sitution rther thn ttk the employee personllyF Listen. gontinue the interview until the person ppers to e tlking freely nd resonly lmly out the resons for termintionF Review all elements of the severance package. hesrie severne pymentsD ene(tsD ess to o0e support peopleD nd the wy referenes will e hndledF roweverD under no onditions should ny promises or ene(ts eyond those lredy in the support pkge e impliedF Identify the next step. he terminted employee my e disoriented nd unsure of wht to do nextF ixplin where the employee should go nextD upon leving the interviewF
Get to the point.
he ove is rief summry of some of the issues surrounding the termintion proess in the nited ttes ndD due to spe onstrintsD in no wy tkes into ount ll of the ftors tht mngers should onsider while terminting n employeeF eders re enourged to explore the outside referene mteril noted ove s well s other literture tht will provide more insight into the termintion proessD s well s onsulting with pproprite legl ounselF
note:
5.11.1 Downsizing
By Logan Price
IHH
CHAPTER 5.
he gol of ny ompny is to supply produt or servie tht ustomers re willing to py forF sf ompny provides good tht onsumers re willing to py lot of money forD the ompny will similrly ern lot of moneyF es long s the mount of money the ompny rings in is more thn the mount they spend to mke the good the ompny will pro(t nd growF o fuel this growth ompnies must invest in dditionl resoures nd must inrese its numer of workersF huring times of growth few employees re lid o' nd the ompny is mking moneyF roweverD ompny9s produt or servie my no longer e desired y onsumers over timeF ome resons this might our re euse the good hs gone out of dte or ompetitor my hve reted etter produt or my o'er etter servieF voss of demnd hppens ll the time in ompetitive usiness environmentF ith so mny ompnies trying to sell their produts or servies it eomes essentil for ompnies to ontinully improve upon existing o'erings so they do not fll ehind ompetitorsF fut ompnies do fll ehindD nd s result growth nd pro(ts quikly turn to lyo's nd lossesF ometimes losses re so d tht the ompny nnot survive nd simply loses downF yther times the lost revenue is not enough to shut down the ompnyF sn this instne the ompny uts some resoures nd workers in order to survive the downturn in usinessF hen ompnies deide to do this it is lled downsizingF o downsizeD s de(ned y the werrimEester hitionryD is to (re @employeesA for the purpose of downsizing46 usinessF he resons for downsizing usinesses vryD ut the min reson for doing this is euse the produt@sA or servie@sA tht the ompny o'ers is not s suessful s it one wsF es result revenues dereseD nd expenses @osts like mterils nd employeesA must e ut to ounter the lost revenueF yviouslyD employees do not like it when they get lid o'F roweverD downsizing is something tht neither the ompny nor the employees wnt to see hppenF ine oth sides su'er @the ompny loses money nd the worker loses joA downsizing is often not met with strong resistne from employeesF yne reson for this lk of resistne is tht employees understnd tht they re not eing (red for doing d joF imployees tend to e more understnding if ompny is fored to redue its lor foreF elsoD the employees tht re lid o' during downturn re normlly the (rst ones to e rehired if usiness piks k upF fusiness will lwys hve ompnies tht re growing nd ompnies tht re dyingD nd downsizing nd lyo's re nturl prt of tht yleF ine downsizing is norml prt of usiness it n often e seen s neessry nd resonleF here is one other min reson why ompnies would downsizeF sf ompny oserves tht they ould e getting the sme mount of output from fewer workers it mkes eonomi sense to let the exess workers goF es n exmpleD imgine jo tht it would tke three workers n hour to doF xowD if fourth worker ws dded the jo re would get rowded so everyone worked slowly nd it took the four of them over n hour to ompleteF glerlyD the fourth worker is not dding vlue to the jo nd the ompny should downsize y (ring the fourth workerF his prtie is somewht ommonD s most usinesses ontinully review their proesses to look for res of the usiness tht ould run more e0iently with fewer expensesF por exmpleD y evluting nd hnging mnufturing proess ould e stremlined resulting in redued lorD mterilD ndGor time osts while produing the sme outputF sn order to ontinue growth nd void the need for downsizingD produts nd servies must onstntly e mde etterD heperD ndGor fster thn wht is eing o'ered y the ompetitionF e ompny tht does this suessfully will enjoy inresed revenues nd most likely growthF gompnies tht fil to o'er produts nd servies tht re etterD heperD ndGor fster thn their ompetition will not sueedF gompnies re onstntly ttling with eh other for mrket shreD nd downsizing nd growth re two results of how e'etively ompnies rete demnd for their goodF
5.11.2 HR Metrics
By Ronald Tam
por ny ompny tht is implementing new humn resoure progrms or djusting existing onesD these hnges n quikly eome sustntil ompny projetF he roles of humn resoure progrms re to mnge the employees of ompnies to inrese the human capital in ompnyF roweverD the spei(
46 http://www.m-w.com/dictionary/downsizing
IHI gols or strtegies tht r seeks to hieve my e di'erent for eh ompny or situtionF hereforeD there is no set stndrd for mesuring the suess of rF he usiness world is dominted y people who look t metrisD nd the r world needs to ply in tht spe. . .if you n mesure mnufturing e0ieny with ix igmD why not use similr nlytis to mesure humn pitl performne @qrossmnD PHHTAF st is suggested tht the usiness world is foused on metris in determining suessF imilr pprohes must e tken to vlue r in order for it to e widely eptedD ut were the r poliies nd prties relly worth the time nd e'ortc r thought soD sed on overll ompny performneF fut osesD who lso hd served s (nnil nlyst t elliedignlD wnted moreF re wnted sustntive proofD vlidtion tht his r investments were pying o' @qrossmnD PHHTAF his is the most ommon view of ompnies when it omes to rD so the metris sought out here is (nnil mesureF he (rst pproh to r metris would e the pproh in mesuring the (nnil suess of the ompny s result of the r implementtionsF ivlutions n e viewed s ompny projets or investments in this seF he (rst mesurement is just simple rtio of hnge in pro(ts due to new r divided y ost of the new rF his mesure will give n ide of how well the new hnges pid o' reltive to how muh ws spent on itF enother mesure is pyk periodD he pyk period of n investment is the period of time required for the umultive sh in)ows @net sh )owsA from projet to equl the initil sh outly @net investmentA @woyerD wquignD 8 uretlowD PHHTAF he pyk period is mesured y the net investment divided y the nnul sh in)ows s result of tht investmentY this mesure will give ompny n ide of how long it tkes the projet to ern y its ostF he (nl mesure for (nnil metris of r is net present vlueD he net present vlue of pitl expenditure projet is de(ned s the present vlue of the strem of net @opertingA sh )ows from the projets minus the projet9s net investment @woyerD wquignD 8 uretlowD PHHTAF his is done y tking the present vlue of ll future expeted sh )ows from the r hnge nd sutrting it from the ost of the projetF his will put the vlue of the r projet in monetry terms like ny other investment for the ompnyF hese re ll mesures tht n e used to express the r progrm or hnges in terms of reltionship etween its (nnil returns nd ostsF here re no spei( stndrds for determining whether n r projet ws good investment or notD ut the ompny should relte their results with industry results or histori resultsF he other pproh to r metris is more towrds opertions spet of the ompnyF he old r mesuresD suh s hed ountD the ost of ompenstion nd ene(tsD time to (llD nd turnoverD no longer ut it in this new world of ountilityF hey don9t go fr enough to rete shreholder vlue nd lign people deisions with orporte ojetives @hneiderD PHHTAF ine the purpose of r is to improve n opertionl spet of the ompnyD it should lso e mesured in tht ontextF wny ompnies re forging hed on e'orts to rete new set of metris tht the trditionl r funtions like reruitingD triningD nd performne review relte to overll orporte gols @hneiderD PHHTAF wesurements here n inlude vriety of trditionl mesurements suh s employee turnoverD verge sty of employeesD e0ieny of emE ployeesD etF hese mesures ll 'et the opertion spets of ompny nd re stndrdized informtion urrentlyF e new mesure tht n e introdued is the mesurement of humn pitlY humnEpitl metE ris n provide meningful orreltions tht help predit ehvior nd humnEpitl investment demnds well hed of the nnul udgetF enother new r metri n e diretly relted to the opertionl spets of the ompnyF r metris might mesure e0ienyD or the time nd ost of tivitiesY humnEpitl metris mesure the e'etiveness of suh tivitiesF ime to (ll eomes time to produtivityY turnover rte eomes turnover qulityY trining osts eome trining return on investment @hneiderD PHHTAF he tke from nonE(nnil r metris is tht there is no limit to ny mesurements or tehniquesF hey n rnge from something simple nd stndrd suh s employee turnover to something retive tht mesures the e'ets of humn pitl inresesD ustomer stisftion inresesD etF rumn resoures should e treted like ny other projets tht ompny n undertkeF st n e mesured oth with (nnil results or opertionl resultsF he (nnil results re mesures to ompre the ost ginst the return from rF he opertionl mesure n look t stndrds or more omplex nd retive mesuresF ltimtely r metris re vlued nd judged ginst the gols or strtegies of the ompny nd how well they re ligned with the resultsF hereforeD ompny should not limit themselves
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CHAPTER 5.
on how they re evluting their r suess nd uild tehniques round how they feel they feel they should vlue itF
47
rovide three resons for ompny to implement highEommitment work systemF xme nd desrie three exmples of mehnisms ompny ould use to inrese employee prtiiE ptionF hisuss the four di'erent tegories of diversityF qive one reson why eh would e importnt to ompnyF hisuss the pros nd ons of internl nd externl reruitingF hih one do you preferD nd whyc hould tests e used to selet employeesc hyc hy notc ht re the primry ene(ts of trining employeesc ht is the reltionship etween reer development systems nd employee retentionc sdentify the ritil prts of n e'etive performne pprislF rovide two lessons for givingD nd for reeivingD feedk e'etivelyF he(ne internl nd externl equity in estlishing se py systemF rovide three resons to provide employees ompenstion in the form of ene(tsF xme nd desrie two exmples of ehX shortEterm inentives nd longEterm inentivesF xme the (ve hrteristis of the tgw pproh to jo designD nd provide n exmple of ehF ht re the four min resons why n employee is termintedc row n ompny void downsizingc sdentify two wys to mesure the e'etiveness of your rumn esoure wngement poliiesF
5.13 Exercise
48
IF ed the desription of e snstitute in the setion on imployee fene(tsF ho some reserh on e snstituteF fsed on the desription nd your reserhD e prepred to dete the following issueX ss e smrt to provide these undnt ene(ts to its employeesD orD re they spending too muh money on their employeesc
5.14 References
49
eel emF @nFdFAF to hesignF etrieved wy IUD PHHUD from eel emX httpXGGwwwFelE temFomGworkdesignGwdHQFhtml50 edmsD F @PHHPAF hilertF etrieved wy IVD PHHUD from httpXGGpgFsilFmitFeduGdonovnGdilertGshowFphpcdyaIU8monthaHQ8yeraPHHP51 ellenD hFD 8 ellenD hF @PHHRAF pormul PCPF n prnisoX ferrettEuoehler ulishersD snF esheghinD FD 8 irhimiD fF @PHHSAF qlol fusinessX invironmentsD trtegiesD nd ypertionsF n fernrdinoD geX qloe edemi ressF etwterD vFD oushD FD 8 pishthlD eF @IWWSAF he sn)uene of pwrd peedk on elf nd pollower tings of vedershipF ersonnel syhologyD QSESWF
47 This content is available online at <http://cnx.org/content/m35411/1.4/>. 48 This content is available online at <http://cnx.org/content/m35414/1.4/>. 49 This content is available online at <http://cnx.org/content/m35417/1.4/>. 50 http://www.accel-team.com/work_design/wd_03.html 51 http://pag.csail.mit.edu/adonovan/dilbert/show.php?day=17&month=03&year=2002
IHQ flD F @IWWWAF en tupid hings wngers ho to rew p erformne epprislF etrieved wy IVD PHHUD from orkWIIFomX httpXGGwwwFworkWIIFomGperformneGprtilesGstupmnFhtm52 fruhD F @PHHRAF rnsforming greers from viner to wultidiretionl greer thsF greer hevelE opment snterntionlD SVEUQF fughD FD 8 ullivnD F @PHHSAF wentoring nd greer hevelopmentF greer hevelopment snterntionlD RPSERPVF fekerD fFD 8 ruselidD wF @PHHIAF he trtegi smpt of rF feerD wFD petorD fFD vwreneD FD willsD hFD 8 ltonD F @IWVRAF wnging rumn essetsF xew orkX he pree ressF flnhrdD uF @IWWTAF peedk ptsF snentive D SWF gndin gentre for yuptionl relth 8 fetyF @PHHPAF ht is 4to hesignc4F etrieved wy IUD PHHUD from ggyrX httpXGGwwwFohsFGoshnswersGhsprogrmsGjodesignFhtml53 gseD tF @IWWUAF ht gn ou vern from ypenEfook wngementc rrvrd wngementD QESF genter for edvned rumn esoure tudiesF @IWWWAF ging the r for lentF r petrumD IERF gentrl rking gorportionF @PHHRAF gommunition oliyF etrieved wy IUD PHHUD from gentrl rkingX httpXGGwwwFprkingFomGpeopleGommunitionpoliyFspx54 gentrelinkF @nFdFAF gentrelinkF etrieved wy PHHUD from gentrelinkX httpXGGwwwFentrelinkFgovFuG55 glrksonD uF @PHHRAF est9s fusiness vwF wsonX hompson verningF grumerD wF @PHHIAF row to goh our imployeesF rrvrd wngement gommunition vetter F greting itutionl snterviews nd ting lesF @nFdFAF etrieved wy ISD PHHUD from httpXGGwwwFhrtoolkitFgovFFGst0ngGst0ngstepsGssessmethodsGorlinterviewsGsitutionlsmplesFhtm56 htquestF @PHHTAF he op IHX IEgX e qint on opF etrieved wy QD PHHUD from htquestX httpXGGdqindiFiolFommkesetionsFspGHTHWHTIWFsp57 hesslerD qF @PHHRAF prmework for rumn esoure wngementF pper ddle iverX erson rentie rllF horenoshD vFD vn ingenD wFD 8 erhgenD wF @PHHSAF ynEtheEto snnovtionX he smpt of to hesign nd rumn esoure wngement hrough rodution ywnershipF sn gretivity nd snnovtion wngement @ppF IPWEIRIAF flkwell ulishing vimitedF hueningD FD 8 svnevihD tF @PHHQAF wnging yrgniztionsF gininntiD yrX etomi hog ulishingF imployee fene(tF @nFdFAF etrieved wy PHHUD from ikipediX httpXGGenFwikipediForgGwikiGimployeeene(t58 imployee fene(ts he(nitionF @nFdFAF etrieved PHHUD from fusinesshitionryFomX httpXGGwwwFusinessditionryFomGde(nitionGemployeeEene(tsFhtml59 imployee fene(ts wgzineF @nFdFAF etrieved wy PHHUD from httpXGGwwwFemployeeene(tsFoFukG60 imployee eruitmentX row to rire the ight eopleF @IWWWAF etrieved IR PHHUD wyD from httpXGGwwwFtrukstoptrvelplzFom61 imployment gse vw redlinesF @nFdFAF etrieved wy IWD PHHUD from iiy xewsX httpXGGwwwFeeonewsFomGnewsGdeGindexFhtml62 ploneD F @PHHPAF he riring nd piring uestion nd enswer fookF xew orkX ewegywF pindvwFomF @nFdFAF sllegl esons for piring imployeesF etrieved wy IVD PHHUD from pindvwX httpXGGsmllusinessF(ndlwFomGemploymentEemployerGemploymentEemployerEendingG63
52 http://www.work911.com/performance/particles/stupman.htm 53 http://www.ccohs.ca/oshanswers/hsprograms/job_design.html 54 http://www.parking.com/people/communicationpolicy.aspx 55 http://www.centrelink.gov.au/ 56 http://www.hrtoolkit.gov.bc.ca/stang/stang_steps/assess_methods/oral_interviews/situational_samples.htm 57 http://dqindia.ciol.commakesections.asp/06090619.asp 58 http://en.wikipedia.org/wiki/Employee_benet 59 http://www.businessdictionary.com/denition/employee-benets.html 60 http://www.employeebenets.co.uk/ 61 http://www.truckstoptravelplaza.com 62 http://www.eeonews.com/news/adea/index.html 63 http://smallbusiness.ndlaw.com/employment-employer/employment-employer-ending/
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pree mple fehviorl snterview uestionsF @nFdFAF etrieved wy ISD PHHUD from uintgreersFomX httpXGGwwwFquintreersFomGsmpleehviorlFhtml64 priedmnD F @PHHTAF he orld is pltF xew orkX prrrD trusD nd qirouxF pukmiD gF @PHHUD wy IAF erformne epprislF vetureF henverD gyD eX niversity of henverY hniels gollege of fusinessF pukmiD gF @PHHUAF ewrd ystemsF vetureF henverD gyD eX niversity of henverY hniels gollege of fusinessF pukmiD gF @PHHUD eprilAF trtegi rumn esouresX riningF glss veturesF henverD gyD eX niversity of henver"hniels gollege of fusinessF qrvinD hFD 8 oertoD wF @PHHIAF ht ou hon9t unow eout wking heisionsF rrvrd fusiness eviewF qhemwtD F @PHHUAF wnging hi'erenesY he gentrl ghllenge of qlol trtegyF rrvrd fusiness eviewD SWETVF qodwinD tFD xekD gFD 8 roughtonD tF @IWWWAF he smpt of hought elfEvedership on sndividul qol erformneF tournl of wngement hevelopmentD IVD ISQEIUHF qolnD F @PHHQAF ell lk fut xo oieX imployee oie t the iurotunnel gll gentreF ionomi nd sndustril hemoryD SHWESRIF qrhmD F @PHHTAF hiversityX veders not velsF xew orkX pree ressF qrossmnD F @PHHTD heemerAF wesuring the lue of rF r wgzineD ppF RRERWF rthwyD F @nFdFAF owerful gommunition kills tht qet esults3 etrieved wy PID PHHUD from httpXGGwwwFthehngegentFomGommunitionFhtml65 reth(eldD F @nFdFAF hisipline @rogressive hisiplineAF etrieved wy IVD PHHUD from eoutFomX httpXGGhumnresouresFoutFomGodGdisiplineGGdisiplineFhtm66 reth(eldD F @nFdFAF row to pire n imployeeF etrieved wy IVD PHHUD from eoutFomX httpXGGhumnresouresFoutFomGodGdisiplineGG(reemployeeFhtm67 reth(eldD F @nFdFAF row to eeive peedk with qre nd hignityF etrieved wy ITD PHHUD from eoutFomX httpXGGhumnresouresFoutFomGsGommunitionGhtGreeivefeedkFhtm68 reth(eldD F @nFdFAF erformne epprisls hon9t orkF etrieved wy PID PHHUD from eoutFomX httpXGGhumnresouresFoutFomGodGperformneevlsGGperfpprislFhtm69 reth(eldD F @nFdFAF erformne wngement is xy n ennul epprislF etrieved wy PID PHHUD from eoutFomX httpXGGhumnresouresFoutFomGodGperformneevlsGGperfpprislFhtm70 reth(eldD F @nFdFAF eruiting trsX op en sdes for eruiting qret gndidtesF etrieved from eoutFomX httpXGGhumnresouresFoutFom71 reth(eldD F @nFdFAF se the e for eruitingX eruiting ynlineF etrieved from eoutFomX httpXGGhumnresouresFoutFom72 rerzerg9s wotivtionErygiene heoryF @nFdFAF etrieved wy PHHUD from ghngingwindsForgX httpXGGinstrutIFitFornellFeduGoursesGdeRSQTSQGideookIGthompsonjonesGylorismFhtm73 romnD iFD fordiD FD 8 qlloisD gF @PHHQAF gonsequenes of peeling hissimlr from ythers in ork emF tournl of fusiness nd syhologyD QHIEQPSF rumn esouresF @nFdFAF etrieved epril ISD PHHUD from ikipediX httpXGGenFwikipediForg74
64 http://www.quintcareers.com/sample_behavioral.html 65 http://www.thechangeagent.com/communication.html 66 http://humanresources.about.com/od/discipline/a/discipline.htm 67 http://humanresources.about.com/od/discipline/a/re_employee.htm 68 http://humanresources.about.com/cs/communication/ht/receivefeedback.htm 69 http://humanresources.about.com/od/performanceevals/a/perf_appraisal.htm 70 http://humanresources.about.com/od/performanceevals/a/perf_appraisal.htm 71 http://humanresources.about.com 72 http://humanresources.about.com 73 http://instruct1.cit.cornell.edu/courses/dea453_653/ideabook1/thompson_jones/Taylorism.htm 74 http://en.wikipedia.org
IHS rymowitzD gF @PHHUD wrh PHAF hen wngers xeglet to goh heir lentF etrieved wy QD PHHUD from he ll treet tournl ynlineX httpXGGwwwFreerjournlFomGolumnistsGintheledGPHHUHQPHE intheledFhtml75 snternl evenue ervieF @nFdFAF ht re imployment xesc etrieved wy PHHUD from snternl evenue ervieX httpXGGwwwFirsFgovGusinessesGsmllGrtileGHidaWVVSVDHHFhtml76 tnzD F @IWVPAF snitil gomprisons of tterned fehvior hesription snterviews ersus nstrutured snterviewsF tournl of epplied syhologyD SUUESVHF tonesD hF @IWWUAF imployees s tkeholdersF fusiness trtegy eviewD PIEPRF tossey nd fssF @IWWSAF peedk eout peedkF etrieved wy PID PHHUD from httpXGGhomeFttFnetGnikolsGfeedkFhtm77 uyeD fFD 8 ultggioD F @PHHRAF he hevelopmentEwinded wngerF etrieved wy QD PHHUD from httpXGGwwwFreersystemsintlFomGord per entPHpilesGhe per entPHhevelopmentEwinded per entPHwngerFdo78 uerrD F @IWWSAF en edemy glssiX yn the polly of ewrding eD hile roping for fF edmy of wngement ixeutivesD UEIRF uingD tF @nFdFAF eeiving peedk qrefully is gritil greer killF etrieved wy ITD PHHUD from httpXGGwwwFsiderodFomGgreeredvieGreeivingEfeedkFhtml79 uomisrD F @PHHHAF qoodye greerD rello uessF rrvrd fusiness eviewD ITHEIURF urmD uF @IWVSAF wentoring t orkX hevelopmentl eltionships in yrgniztionl vifeF qlenviewD svX ottD poresmnF uulikD gF @PHHRAF rumn esoures for the xonEr wngerF xew terseyX vwrene irlum essoE itesD snF vshinskyD eF @PHHUD tnury PWAF qoogle9s imployment osterF portune F vthmD qFD 8 riD vF @IWVRAF ho eople ho ht hey yc wore tudies of the itutionl snterviewF tournl of epplied syhologyD STWESUQF vetri vw virryF @nFdFAF etrieved wy PID PHHUD from vetri vw virryX httpXGGwwwFletlwFomGdefPGwHPSFhtm80 vokwoodD xF @PHHSAF orkple hiversityX veverging the ower of hi'erene for gompetitive edvnE tgeF r wgzine F wngement y yjetives"weF @PHHUD wy IAF etrieved wy IVD PHHUD from lues fsed wnE gementX httpXGGwwwFvluesedmngementFnetGmethodssmrtmngementyojetivesFhtml81 wrkenD qF @PHHRAF gollortionX wngers ho hre owerD rve wore owerF etrieved IV PHHUD wyD from interprise xetworks nd irversX httpXGGwwwFenterprisenetworksndserversFomGmonthlyGrtFphpcTWR82 wrshllD F @PHHPAF vedership hevelopment for mll yrgniztionsF ChD SPESSF whonldD qFD 8 yenhinD uF @PHHQAF row does informtion tehnology 'et ommunitionD deision mkingD jo designD nd power within n orgniztionc sn hF vueD 8 F mmutoD fusiness hriven snformtion ehnologyX enswers to IHH gritil uestions for ivery wngerF tnfordX tnford fusiness fooksF wqnnD F @PHHRAF ynline to ites yvershdow xewspper glssi(edsF etrieved wy IRD PHHUD from glikzFomX httpXGGwwwFlikzFom83 wqillD 8 fettyF @IWWRAF etion verningX e rtitioner9s quideF vondonX uognF
75 http://www.careerjournal.com/columnists/inthelead/20070320-inthelead.html 76 http://www.irs.gov/businesses/small/article/0id=98858,00.html 77 http://home.att.net/nickols/feedback.htm 78 http://www.careersystemsintl.com/Word per cent20Files/The per cent20Development-Minded 79 http://www.sideroad.com/Career_Advice/receiving-feedback.html 80 http://www.lectlaw.com/def2/w025.htm 81 http://www.valuebasedmanagement.net/methods_smart_management_by_objectives.html 82 http://www.enterprisenetworksandservers.com/monthly/art.php?694 83 http://www.clickz.com
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weisterD wF @nFdFAF row to qive peedkF etrieved wy PID PHHUD from pstgompnyX httpXGGwwwFfstompnyFomGmgzineGVHGsgodinFhtml84 wihelsD iFD rnd(eldEtonesD rFD 8 exelrodD fF @PHHIAF he r for lentF fostonX rrvrd fusiness hool ressF woyerD F FD wquignD tFD 8 uretlowD F @PHHTAF pinnil wngementF hompson outhEesternF ylsonD hF @PHHQD epril PPAF tkeholderF etrieved wy IUD PHHUD from ix igmX httpXGGwwwFisixsigmFomGditionryGtkeholderEIPUFhtm85 y9eillyD gFD 8 fe'erD tF outhwest eirlinesX sing rumn esoures for gompetitive edvntgeF tnford niversity qrdute hool of fuinessF rkerD FD 8 urnerD xF @PHHPAF yrgniztionl hesign nd yrgniztionl hevelopment s reonditions for qood to hesign nd righ to erformneF sn F onnentgD syhologil wngement of sndividul erformneF sndinpolisX tohn iley 8 onsD vhF etersonD F @PHHSD epril PIAF ho peks por imployeesc st9s gerE tinly xot wngementF etrieved wy IWD PHHUD from he ettle imesX httpXGGsettletimesFnwsoureFomGhtmlGopinionGPHHPPRUUPRpetersonPIFhtml86 fe'erD tF @PHHHAF ix hngerous wyths eout yF rrvrd fusiness eview F fe'erD tFD 8 iegD tF @IWWVAF utting eople pirst for yrgniztionl uessF eruitmentF @nFdFAF etrieved wy ISD PHHUD from ikipediX httpXGGenFwikipediForgGwikiGeruitment87 eillyD FD mitherD tFD 8 silopoulosD xF @IWWTAF e vongitudinl tudy of pwrd peedkF ersonnel syhology D SWWETIPF ihD F @nFdFAF qiving nd eeiving peedkF etrieved wy PID PHHUD from httpXGGwwwFselfhelpmgzineFomGrtilesGgrowthGfeedkFhtml88 itergerD gF @PHHUAF ips on wnging the hi'erenes emong yroll t'F yroll wnger9s eportD ppF IIEIRF eF @nFdFAF greersF etrieved wy PHHUD from eX httpXGGwwwFssFomGjosGorporteGindexFhtml89 heferD F @nFdFAF row to evoid riring piluresX essess snterpersonl kills nd wotivtion vevelsF etrieved wy ISD PHHUD from httpXGGwwwFusinessknowhowFomGmngeGhiringEfilureFhtm90 hermerhornD tF @PHHTAF to hesign elterntivesF sn F ileD ersonl wngement Vth iditionF rookenX tohn iley nd onsD snF hermerhornD tF @IWWQAF ylorismc etrieved wy IWD PHHUD from wngement for rodutivityX httpXGGinstrutIFitFornellFeduGoursesGdeRSQTSQGideookIGthompsonjonesGylorismFhtm91 hneiderD gF @PHHTD peruryAF he xew rumnEgpitl wetrisF gpyD ppF PPEPUF hweyerD eF @PHHTAF en snternl r for lentF etrieved wy QD PHHUD from snX httpXGGwwwFinFomGresouresGreruitingGrtilesGPHHSHRHIGtlentwrsFhtml92 himD tFD iegelD tFD 8 imonD eF @PHHRAF he est oket wfeF vondonX enguin fooksF rF @nFdFAF rogrm snformtionF etrieved wy PHHUD from pepihX httpsXGGwwwFfsfedsFomGfsfedsGlitertureFsp93 mithD qF @nFdFAF row to snterview nd rire op eople ih nd ivery imeF etrieved wy ISD PHHUD from fusiness unowhowFomX httpXGGwwwFusinessknowhowFomGmngeGhiretopFhtm94 mithD FD 8 wzinD F @PHHRAF he r enswer fookF xew orkX hivision of emerin wngementF
84 http://www.fastcompany.com/magazine/80/sgodin.html 85 http://www.isixsigma.com/dictionary/Stakeholder-127.htm 86 http://seattletimes.nwsource.com/html/opinion/2002247724_peterson21.html 87 http://en.wikipedia.org/wiki/Recruitment 88 http://www.selfhelpmagazine.com/articles/growth/feedback.html 89 http://www.sas.com/jobs/corporate/index.html 90 http://www.businessknowhow.com/manage/hiring-failure.htm 91 http://instruct1.cit.cornell.edu/courses/dea453_653/ideabook1/thompson_jones/Taylorism.htm 92 http://www.inc.com/resources/recruiting/articles/20050401/talentwars.html 93 https://www.fsafeds.com/fsafeds/literature.asp 94 http://www.businessknowhow.com/manage/hiretop.htm
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95 http://ndarticles.com/p/articles/mi_qn4189/is_20060414/ai_n16167375 96 http://www.surveymonkey.com 97 http://instruct1.cit.cornell.edu/courses/dea453_653/ideabook1/thompson_jones/Taylorism.htm 98 http://www.eeoc.gov/facts/ada17.html 99 http://yourhrexperts.com 100 http://en.wikipedia.org/wiki/Training_ per cent26_Development 101 http://www.usdoj.gov/crt/ada/adahom1.htm 102 http://www.doi.gov/hrm/guidance/370dm430hndbk.pdf
IHV
CHAPTER 5.
Chapter 6
Marketing on a global scale

1
es you red this hpterD you should develop n understnding of the following key mrketing oneptsX
the importnt role mrketing n ply in the suess of n orgniztion the vrious kinds of mrketing the strtegi workings of mrketing omponents understnd the vrious ses for mrket segmenttion understnd the role of mrketing reserh understnd the ehvior of the individul onsumer in the mrketple understnd the primry tools ville to mrketers nd how they re used
6.2 Dening marketing
xoted rrvrd rofessor of fusiness heodore vevittD sttes tht the purpose of ll usiness is to 4(nd nd keep ustomers4F purthermoreD the only wy you n hieve this ojetive is to rete ompetitive dvntgeF ht isD you must onvine uyers @potentil ustomersA tht wht you hve to o'er them omes losest to meeting their prtiulr need or wnt t tht point in timeF ropefullyD you will e le to provide this dvntge onsistentlyD so tht eventully the ustomer will no longer onsider other lterntives nd will purhse your produt out of hitF his loyl ehvior is exhiited y people in the who drive only pordsD rush their teeth only with grestD uy only hell omputersD nd hve their pluming (xed only y 4mson luming"yn gll PR hoursD U dys week4F greting this lind ommitment"without onsidertion of lterntives"to prtiulr rndD storeD personD or ide is the drem of ll usinessesF st is unlikely to ourD howeverD without the support of n e'etive mrketing progrmF sn ftD the spei( role of mrketing is to provide assistance in identifying, satisfying, and retaining customersF hile the generl tsks of mrketing re somewht strightforwrdD tthing n eptle de(nition to the onept hs een di0ultF e textook writer one notedD 4wrketing is not esy to de(neF xo one hs yet een le to formulte lerD onise de(nition tht (nds universl eptne4F et de(nition of some sort is neessry if we re to lyout the oundries of wht is properly to e onsidered 4mrketing4F row do mrketing tivities di'er from nonEmrketing tivitiesc ht tivities should one refer to s mrketing tivitiesc ht institutions should one refer to s mrketing institutionsc wrketing is dvertising to dvertising geniesD events to event mrketersD knoking on doors to slesE peopleD diret mil to diret milersF sn other wordsD to person with hmmerD everything looks like
1 This 2 This
IHW
IIH
CHAPTER 6.
MARKETING ON A GLOBAL SCALE
nilF sn relityD mrketing is wy of thinking out usinessD rther thn undle of tehniquesF st is muh more thn just selling stu' nd olleting moneyF st is the onnetion etween people nd produtsD ustomers nd ompniesF vike orgni tissueD this kind of onnetion"or reltionship"is lwys growing or dyingF st n never e in stedy stteF end like tissue pperD this kind of onnetion is frgileF gustomer reltionshipsD even long"stnding onesD re ontingent on the lst thing tht hppenedF ring the evolution of the vrious de(nitions of mrketing proposed during the lst thirty yers revels two trendsX @IA expnsion of the pplition of mrketing to nonEpro(t nd nonEusiness institutionsY eFgF hritiesD edutionD or helth reY nd @PA expnsion of the responsiilities of mrketing eyond the personl survivl of the individul (rmD to inlude the etterment of soiety s wholeF hese two ftors re re)eted in the o0il emerin wrketing essoition de(nition pulished in IWVVF
Marketing is the process of planning and executing the conception. and organizational objectives. pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual (customer)
hile this de(nition n help us etter omprehend the prmeters of mrketingD it does not provide full pitureF he(nitions of mrketing nnot )esh out spei( trnstions nd other reltionships mong these elementsF he following propositions re o'ered to supplement this de(nition nd etter position mrketing within the (rmF IF he overll diretive for ny orgniztion is the mission sttement or some equivlent sttement of orgniztionl golsF st re)ets the inherent usiness philosophy of the orgniztionF PF ivery orgniztion hs set of funtionl res @eFgF ountingD produtionD (nneD dt proessingD mrketingA in whih tsks tht re neessry for the suess of the orgniztion re performedF hese funtionl res must e mnged if they re to hieve mximum performneF QF ivery funtionl re is guided y philosophy @derived from the mission sttement or ompny golsA tht governs its pproh towrd its ultimte set of tsksF RF wrketing di'ers from the other funtionl res in tht its primry onern is with exhnges tht tke ple in mrketsD outside the orgniztion @lled trnstionAF SF wrketing is most suessful when the philosophyD tsksD nd mnner of implementing ville tehE nology re oordinted nd omplementryF
6.3 The role of marketing in the rm: a basis for classication
wrketing is n individulized nd highly retive proessF hespite the vilility of highEpowered omputE ers nd sophistited softwre ple of nlyzing mssive mounts of dtD mrketing is still more of n rt rther thn sieneF ih usiness must ustomize its mrketing e'orts in response to its environment nd the exhnge proessF gonsequentlyD no two mrketing strtegies re extly the smeF his requirement of mrketing to ply slightly di'erent rolesD depending upon some set of situtionl riteriD hs in turn provided us with division of mrketing into numer of di'erent tegoriesF his is not to implyD howeverD tht there re not generl mrketing priniples tht work in most usinesses"there reF here is right nd wrong wy to design pkgeF here re ertin dvertising strtegies tht tend to work more often thn othersF therD we re sying tht euse of ertin ftorsD usiness9s pproh towrd mrketing nd the ensuing strtegy will require some modi(tion from the si plnF hown in le I re the most ommon types of mrketing tegoriesF ine these vrious types of mrketing will e disussed throughout this textD rief introdution is provided t this pointF
3 This
III
6.3.1 Macromarketing versus micromarketing
he division of mrketing into mromrketing nd miromrketing is firly reent oneF snitillyD the division ws result of the ontroversy onerning the responsiility of mrketingF hould mrketing e limited to the suess of the individul (rmD or should mrketing onsider the eonomi welfre of whole soietyc eepting the lterD or 4mro4D point of view drmtilly hnges the wy mrketing is rried outF sn this lightD every mrketing deision must e evluted with regrd to how it might positively or negtively 'et eh person nd institution operting in tht soietyF sn IWVPD runt nd furnett surveyed the demi ommunity in order to de(ne more preisely the distintion etween mroE nd miromrketingFpF IPW heir (ndings suggest tht the seprtion depends upon 4wht is eing studied4D 4whether it is eing viewed from the perspetive of soiety or the (rm4D nd 4who reeives the onsequenes of the tivity4F ixmples of mromrketing tivities re studying the mrketing systems of di'erent ntionsD the onsequenes on soiety of ertin mrketing tionsD nd the impt of ertin tehnologies on the mrketing trnstionF he use of snners in supermrkets nd utomti teller mhines in nking illustrtes the lst exmpleF wiromrketing exmples inlude determining how xikon teel should segment its mrketD reommending how henver golordo9s xtionl tewish rospitl in the should prie their produtsD nd evluting the suess of the 4tust y xo4 ntiEdrug mpignF
6.3.2 Service marketing versus goods marketing
he distintion etween servies nd goods produts is not lwys lerEutF sn generlD servie produts tend to e intngileD re often onsumed s they re produedD re di0ult to stndrdize euse they require humn lorD nd my require the ustomer to prtiipte in the retion of the servie produtF qoods produts tend to e just the opposite in terms of these riteriF gonsequentlyD mrketers of servie produts usully employ mrketing strtegy quite di'erent from tht of goods mrketersF por exmpleD lol fmily physiin retes tngiility y providing n environmentX witing room exmintion roomsD diploms on the wllsD tht onvines ptients tht they re reeiving good helth reF gonverselyD o'ee produers rete intngiility in order to pper di'erent from ompetitorsF his is done through olorful pkging nd dvertisements showing people who re suessful euse they strt eh dy with up or two or ten of truk9s o'eeF
Kinds of marketing
glssi(tion wromrketing wiromrketing qoods wrketing ervie mrketing porEpro(t mrketing xonpro(t mrketing
ixmple he devlution of the yen e priing strtegy for lEwrt xiso snterntionl ghse wnhttn fnk ytis ilevtor xew ork wuseum of ert
ptors imphsis of study erspetiveD reeiver of onseE quenes ngiilityD stndrdiztionD storgeD produtionD involvement gonerns for pro(ts x sttus
continued on next page
IIP wss mrketing hiret mrketing snternet mrketing vol mrketing egionl mrketing xtionl mrketing snterntionl mrketing qlol mrketing gonsumer goods mrketing fusinessEtoEusiness mrketing ony
CHAPTER 6.
xture of ontt snformtion roess for purhsing nd delivE ery roximity of ustomers qeogrphi re ixtent of distriution xetworkD mrketing vrition ommitment to ountry xture of onsumer rodut funtion
Table 6.1
ime wgzine tripFom6 smperil qrden esturnt ylympi frewery emerin ed gross pord wotor gompny west urft poods sfw
6.3.3 For-prot marketing versus nonprot marketing
es the terms onnoteD the di'erene etween forEpro(t nd nonpro(t mrketing is in their primry ojetiveF porEpro(t mrketers mesure suess in terms of pro(tility nd their ility to py dividends or py k lonsF gontinued existene is ontingent upon level of pro(tsF xonpro(t institutions exist to ene(t soietyD regrdless of whether pro(ts re hievedF feuse of the impliit ojetives ssigned to nonEpro(tsD they re sujet to n entirely di'erent dditionl set of lwsD notly tx lwsF hile they re llowed to generte pro(tsD they must use these monies in spei( wy in order to mintin their nonEpro(t sttusF here re severl other ftors tht require djustments to e mde in the mrketing strtegies for nonpro(tsF
6.3.4 Mass marketing, direct marketing, and Internet marketing
wss mrketing is distinguished from diret mrketing in terms of the distne etween the mnufturer nd the ultimte user of the produtF wss mrketing is hrterized s hving wide seprtion nd indiret ommunitionF e mss mrketerD suh s xikeD hs very little diret ontt with its ustomers nd must distriute its produt through vrious retil outlets longside its ompetitorsF gommunition is impersonlD s evidened y its ntionl television nd print dvertising mpignsD ouponingD nd pointEofEpurhse displysF he suess of mss mrketing is ontingent on the proility tht within the huge udiene exposed to the mrketing strtegy there exist su0ient potentil ustomers interested in the produt to mke the strtegy worthwhileF hiret mrketing estlishes somewht personl reltionship with the ustomer y (rst llowing the ustomer to purhse the produt diretly from the mnufturer nd then ommuniting with the ustomer on (rstEnme sisF his type of mrketing is experiening tremendous growthF epprentlyD mrketers hve tired of the wste ssoited with mss mrketing nd ustomers wnt more personl ttentionF elsoD modern mehnisms for olleting nd proessing urte miling lists hve gretly inresed the e'etiveness of diret mrketingF gtlogue ompnies @piegelD tFgF enneyAD teleommunitions ompnies @printAD nd diret mil ompnies @ulishers glering rouseA re exmple of diret mrketersF e modi(ed type of diret mrketing is represented y ompnies tht llow ordering of produt y lling tollEfree numer or miling in n order rd s prt of n dvertisementF elthough @o0illyAD snternet mrketing is type of diret mrketingD it hs evolved so quikly nd demnded the ttention of so mny ompnies tht seprte setion here is wrrntedF issentillyD snternet
6 http://www.trip.com/
IIQ tehnology @whih hnges y the momentA hs reted new wy of doing usinessF sn the snternet geD the wy onsumers evlute nd follow through on their purhse deisions hs hnged signi(ntlyF 4gll now34 is no longer n e'etive pithF gonsumers hve ontrol over howD whenD nd where they shop on the snternetF he snternet hs ll ut eliminted the urgeny of stisfying the need when the opportunity is presentedF
6.3.5 Local, regional, national, international, and global marketers
es one would expetD the size nd lotion of ompny9s mrket vries gretlyF vol mrketers re onerned with ustomers tht tend to e lustered tightly round the mrketerF he mrketer is le to lern gret del out the ustomer nd mke neessry hnges quiklyF xturllyD the totl potentil mrket is limitedF here is lso the possiility tht new ompetitor or environmentl ftor will put lol mrketer out of usinessF egionl mrketers over lrger geogrphi re tht my neessitte multiple prodution plnts nd more omplex distriution networkF hile regionl mrketers tend to serve djoining itiesD prts of sttesD or entire sttesD drmti di'erenes in demnd my still existD requiring extensive djustments in mrketing strtegyF xtionl mrketers distriute their produt throughout ountryF his my involve multiple mnufE turing plntsD distriution system inluding wrehouses nd privtely owned delivery vehilesD nd di'erent versions of the mrketing 4mix4 or overll strtegyF his type of mrketing o'ers tremendous pro(t potentilD ut lso exposes the mrketer to newD ggressive ompetitorsF snterntionl mrketers operte in more thn one ountryF es will eome ler lter in this ookD mssive djustments re normlly mde in the mrketing mix in vrious ountriesF vegl nd ulturl di'erenes lone n gretly 'et strtegy9s outomeF es the mrket eomes more nd more sturted with Emde produtsD the ontinued expnsion into foreign mrkets ppers inevitleF qlol mrketing di'ers from interntionl mrketing in some very de(nite wysF heres interntionl mrketing mens ompny sells its goods or servies in nother ountryD it does not neessrily men tht the ompny hs mde ny further ommitmentsF sully the produt is still mnuftured in the home ountryD sold y their peopleD nd the pro(ts re tken k to tht ountryF sn the se of rond wotorsD for exmpleD it mens uilding mnufturing plnts in the D hiring lol employeesD using lol distriution systems nd dvertising geniesD nd reinvesting lrge perentge of the pro(ts k into the F
6.3.6 Consumer goods marketing and business-to-business (industrial) marketing
gonsumer goods mrketers sell to individuls who onsume the (nished produtF fusinessEtoEusiness mrE keters sell to other usinesses or institutions tht onsume the produt in turn s prt of operting the usinessD or use the produt in the ssemly of the (nl produt they sell to onsumersF fusinessEtoE mrketers engge in more personl selling rther thn mss dvertising nd re willing to mke extensive djustments in ftors suh s the selling prieD produt feturesD terms of deliveryD nd so forthF por the onsumer goods mrketerD the vrious mrketing omponents re reltively (xedF sn dditionD onsumer goods mrketers might employ emotionl ppels nd re fed with the onstnt ttle of getting their produt into retil outletsF
6.4 Dening international marketing
xow tht the world hs entered the next millenniumD we re seeing the emergene of n interdependent glol eonomy tht is hrterized y fster ommunitionD trnsporttionD nd (nnil )owsD ll of whih re reting new mrketing opportunities nd hllengesF qiven these irumstnesD it ould e rgued tht ompnies fe deeptively strightforwrd nd strk hoieX they must either respond to the hllenges posed y this new environmentD or reognize nd ept the longEterm onsequenes of filing to do soF his
7 This
IIR
CHAPTER 6.
need to respond is not on(ned to (rms of ertin size or prtiulr industriesF st is hnge tht to greter or lesser extent will ultimtely 'et ompnies of ll sizes in virtully ll mrketsF he pressures of the interntionl environment re now so gretD nd the ses of ompetition within mny mrkets re hnging so fundmentllyD tht the opportunities to survive with purely domesti strtegy re inresingly limited to smllEnd mediumEsized ompnies in lol nihe mrketsF erhps prtly euse of the rpid evolution of interntionl mrketingD vst rry of terms hve emerged tht suggest vrious fets of interntionl mrketingF glri(tion of these terms is neessry (rst step efore we n disuss this topi more thoroughlyF vet us egin with the ssumption tht the mrketing proess outlined nd disussed in ghpters IER is just s pplile to domesti mrketing s to interntionl mrketingF sn oth mrketsD we re golE drivenD do neessry mrketing reserhD selet trget mrketsD employ the vrious tools of mrketing @iFeF produtD priingD distriutionD ommunitionAD develop udgetD nd hek our resultsF roweverD the unontrollle ftors suh s ultureD soilD leglD nd eonomi ftorsD long with the politil nd ompetitive environmentD ll rete the need for myrid of djustments in the mrketing mngement proessF et its simplest levelD international marketing involves the (rm in mking one or more mrketing deisions ross ntionl oundriesF et its most omplexD it involves the (rm in estlishing mnufturing nd mrketing filities overses nd oordinting mrketing strtegies ross mrketsF husD how interntionl mrketing is de(ned nd interpreted depends on the level of involvement of the ompny in the interntionl mrketpleF hereforeD the following possiilities existX his involves the ompny mnipulting series of ontrollle vrilesD suh s prieD dvertisingD distriutionD nd the produtD in lrgely unontrollle externl environment tht is mde up of di'erent eonomi struturesD ompetitorsD ulturl vluesD nd legl infrstruture within spei( politil or geogrphi ountry oundriesF International marketingF his involves the ompny operting ross severl mrkets in whih not only do the unontrollle vriles di'er signi(ntly etween one mrket nd notherD ut the onE trollle ftor in the form of ost nd prie struturesD opportunities for dvertisingD nd distriutive infrstruture re lso likely to di'er signi(ntlyF hegree of ommitment is expressed s followsX
Domestic marketingF
@A @A
Export marketingF
Multinational marketingF rere the mrketing tivities of n orgniztion inlude tivitiesD interestsD or opertions in more thn one ountryD nd where there is some kind of in)uene or ontrol of mrketing tivities from outside the ountry in whih the goods or servies will tully e soldF ih of these mrkets is typilly pereived to e independent nd pro(t enter in its own rightF @A Global marketingF he entire orgniztion fouses on the seletion nd explortion of glol mrketing opportunities nd mrshls resoures round the gloe with the ojetive of hieving glol ompetitive dvntgeF he primry ojetive of the ompny is to hieve synergy in the overll opertionD so tht y tking dvntge of di'erent exhnge rtesD tx rtesD lor rtesD skill levelsD nd mrket opportunitiesD the orgniztion s whole will e greter thn the sum of its prtsF
oundriesF
sn this se the (rm mrkets its goods ndGor servies ross ntionlGpolitil
hus oyot wotors strted out s domesti mrketerD eventully exported its rs to few regionl mrE ketsD grew to eome multintionl mrketerD nd tody is true glol mrketerD uilding mnufturing plnts in the foreign ountry s well s hiring lol lorD using lol d geniesD nd omplying to tht ountry9s ulturl moresF es it moved from one level to the nextD it lso revised ttitudes towrd mrketing nd the underlying philosophy of usinessF ltimtelyD the suessful mrketer is the one who is est le to mnipulte the ontrollle tools of the mrketing mix within the unontrollle environmentF he prinipl reson for filure in interntionl mrketing results from ompny not onduting the neessry reserhD nd s onsequeneD misunE
IIS derstnding the di'erenes nd nunes of the mrketing environment within the ountry tht hs een trgetedF
6.4.1 Standardization and customization
sn IWVQD rrvrd mrketing professor heodore vevitt wrote n rtile entitledD 4he qloliztion of wrkets4D nd nothing out mrketing hs een the sme sineF eording to vevittD new eonomi relityEthe emergene of glol onsumer mrkets for single stndrd produtsEhs een triggered in prt y tehnologil developmentsF orldwide ommunitions ensure the instnt di'usion of new lifestyles nd pve the wy for wholesle trnsfer of goods nd serviesF edopting this glol strtegy provides ompetitive dvntge in ost nd e'etivenessF sn ontrst to multintionl ompniesD stndrdized @glolA orportions view the world or its mjor regions s one entity insted of olletion of ntionl mrketsF hese world mrketers ompete on sis of pproprite vlueX iFeF n optiml omintion of prieD qulityD reliilityD nd delivery of produts tht re identil in design nd funtionF ltimtelyD onsumers tend to prefer good prieGqulity rtio to highly ustomized ut less ostEe'etive itemF vevitt distinguished etween produts nd rndsF hile the glol produt itself is stndrdized or sold with only minor modi(tionsD the rndingD positioningD nd promotion my hve to re)et lol onditionsF gritis of vevitt9s perspetive suggest tht his rgument for glol stndrdiztion is inorret nd tht eh mrket strtegy should e ustomized for eh ountryF uotler notes tht one study found tht VH per ent of exports required one or more dpttionsF puthermoreD the verge produt requires t lest four to (ve dpttions out of set of eleven mrketing elementsX lelingD pkgingD mterilsD olorsD nmeD produt feturesD dvertising themesD mediD exeutionD prieD nd sles promotionF uotler suggests tht ll eleven ftors should e evluted efore stndrdiztion is onsideredF o dteD no one hs empirilly vlidted either perspetiveF hile ritis of vevitt n o'er thousnds of nedotes ontrditing the vlidity of stndrdiztionD more reful red of vevitt9s ides indite tht he o'ers stndrdiztion s strtegi optionD not ftF elthough glol mrketing hs its pitfllsD it n lso yield impressive dvntgesF tndrdized produts n lower operting ostsF iven more importntD e'etive oordintion n exploit ompny9s est produt nd mrketing idesF oo oftenD exeutives view glol mrketing s n eitherGor propositionEeither full stndrdiztion or lol ontrolF fut when glol pproh n fll nywhere on spetrumEfrom tight worldwide oordintion on progrmming detils to loose greements on produt idesEthere is no reson for this extreme viewF sn pplying the glol mrketing onept nd mking it workD )exiility is essentilF he ig issue tody is not whether to go glolD ut how to tilor the glol mrketing onept to (t eh usiness nd how to mke it workF
6.4.2 Reasons for entering international markets
wny mrketers hve found the interntionl mrketple to e extremely hostileF e study y fker nd uynkDR for exmpleD found tht less thn PH per ent of (rms in exs with export potentil tully rried out usiness in interntionl mrketsF fut lthough mny (rms view in mrkets with trepidtionD others still mke the deision to go interntionlF hyc sn one studyD the following motivting ftors were given for inititing overses mrketing involvement @in order of importneAX IF PF QF RF SF TF UF lrge mrket size stility through diversi(tion pro(t potentil unsoliited orders proximity of mrket exess pity o'er y foreign distriutor
IIT VF inresing growth rte WF smoothing out usiness yles
CHAPTER 6.
yther empiril studies over numer of yers hve pointed to wide vriety of resons why ompnies initite interntionl involvementF hese inlude the sturtion of the domesti mrketD whih leds (rms either to seek other less ompetitive mrkets or to tke on the ompetitor in its home mrketsY the emergene of new mrketsD prtiulrly in the developing worldY government inentives to exportY tx inentives o'ered y foreign governments to estlish mnufturing plnts in their ountries in order to rete josY the vilility of heper or more skilled lorY nd n ttempt to minimize the risks of reession in the home ountry nd spred riskF
6.4.3 Reasons to avoid international markets
hespite ttrtive opportunitiesD most usinesses do not enter foreign mrketsF he resons given for not going interntionl re numerousF he iggest rrier to entering foreign mrkets is seen to e fer y these ompnies tht their produts re not mrketle oversesD nd onsequent preouption with the domesti mrketF he following points were highlighted y the (ndings in the previously mentioned study y frker nd uynkD who listed the most importnt rriersX IF PF QF RF SF TF UF VF WF IHF IIF too muh red tpe trde rriers trnsporttion di0ulties lk of trined personnel lk of inentives lk of oordinted ssistne unfvorle onditions overses slow pyments y uyers lk of ompetitive produts pyment defults lnguge rriers
st is the omintion of these ftors tht determines not only whether ompnies eome involved in interntionl mrketsD ut lso the degree of ny involvementF
6.4.4 The stages of going international
irlier in our disussion on de(nitionsD we identi(ed severl terms tht relte to how ommitted (rm is to eing interntionlF rere we expnd on these onepts nd explin the rtionle ehind this proessF wo points should e notedF pirstD the proess tends to e rnked in order of 4lest risk nd investment4 to 4gretest involvementF eondD these re not neessrily sequentil stepsD even though exporting is pprently most ommon s n initil entryF pirms typilly pproh involvement in interntionl mrketing rther utiouslyD nd there ppers to exist n underlying lifeyle tht hs series of ritil suess ftors tht hnge s (rm moves through eh stgeF por smllEnd mediumEsized (rms in prtiulrD exporting remins the most promising lterntive to fullElooded interntionl mrketing e'ortD sine it ppers to o'er degree of ontrol over riskD ostD nd resoure ommitmentF sndeedD exportingD espeilly y the smller (rmsD is often initited s response to n unsoliited overses orderEthese re often pereived to e less riskyF
6.4.5 Exporting
sn generlD exporting is simple nd low riskEpproh to entering foreign mrketsF pirms my hoose to export produts for severl resonsF pirstD produts in the mturity stge of their domesti life yle my (nd new growth opportunities oversesD s errier hose to do in the F eondD some (rms (nd it less
IIU risky nd more pro(tle to expnd y exporting urrent produts insted of developing new produtsF hirdD (rms who fe sesonl domesti demnd my hoose to sell their produts to foreign mrkets when those produts re 4in seson4 thereF pinllyD some (rms my elet to export produts euse there is less ompetition oversesF e (rm n export its produts in one of three wysX indiret exportingD semiEdiret exportingD nd diret exportingF sndiret exporting is ommon prtie mong (rms tht re just eginning their exportingF lesD whether foreign or domestiD re treted s domesti slesF ell sles re mde through the (rm9s doE mesti sles deprtmentD s there is no export deprtmentF sndiret exporting involves very little investmentD s no overses sles fore or other types of ontts need e developedF sndiret exporting lso involves little riskD s interntionl mrketing intermediries hve knowledge of mrkets nd will mke fewer mistkes thn sellersF sn semiEdiret exportingD n emerin exporter usully initites the ontt through gentsD merhnt middlemenD or other mnufturers in the F uh semiEdiret exporting n e hndled in vriety of wysX @A omintion export mngerD domesti gent intermediry tht ts s n exporting deprtment for severl nonompeting (rmsY @A the mnufturer9s export gent @wieA opertes very muh like mnufturer9s gent in domesti mrketing settingsY @A eEomerene ixport essoition my hoose to limit oopertion to dvertisingD or it my hndle the exporting of the produts of the ssoition9s memers ndY @dA piggyk exportingD in whih one mnufturer @rrierA tht hs export filities nd overses hnnels of distriution hndles the exporting of nother (rm @riderA nonompeting ut omplementry produtsF hen direct exporting is the mens of entry into foreign mrketD the mnufturer estlishes n export deprtment to sell diretly to foreign (lmF he exporting mnufturer onduts mrket reserhD estlishes physil distriutionD nd otins ll neessry export doumenttionF hiret exporting requires greter investment nd lso rries greter riskF roweverD it lso provides greter potentil return nd greter ontrol of its mrketing progrmF
6.4.6 Licensing
nder liensing greementD (rm @liensorA provides some tehnology to foreign (rm @lienseeA y grnting tht (rm the right to use the liensor9s mnufturing proessD rnd nmeD ptentsD or sles knowledge in return for some pymentF he liensee otins ompetitive dvntge in this rrngementD while the liensor otins inexpensive ess to foreign mrketF e liensing rrngement ontins riskD in tht if the usiness is very suessfulD pro(t potentils re limited y the liensing greementF elterntivelyD liensor mkes longEterm ommitment to (rm nd tht (rm my e less ple thn expetedF yrD the liensee my e unwilling to invest the neessry resoures s needed to e suessfulF viensing my e the lest pro(tle lterntive for mrket entryF re pitlD import restritionsD or government restritions my mke this the only fesile mens for selling in nother ountryF Franchising represents very populr type of liensing rrngement for mny onsumer produts (rmsF rolidy snnD rertz gr entlD nd whonld9s hve ll expnded into foreign mrkets through frnhisingF
6.4.7 Joint ventures
e joint venture is prtnership etween domesti (rm nd foreign (rmF foth prtners invest money nd shre ownership nd ontrol of prtnershipF toint ventures require greter ommitment from (rms thn liensing or the vrious other exporting methodsF hey hve more risk nd less )exiilityF e domesti (rm my wish to engge in joint venture for vriety of resonsY for exmpleD qenerl wotors nd oyot hve greed to mke suompt r to e sold through qw delers using the idle qw plnt in gliforniF oyot9s motivtion ws to void import quots nd txes on rs without ny Emde prtsF
IIV
6.4.8 Direct investment
CHAPTER 6.
wultintionl orgniztions my hoose to engge in fullEsle prodution nd mrketing rodF husD they will invest in wholly owned susidiriesF en orgniztion using this pproh mkes direct investment in one or more foreign ntionsF yrgniztions engging in liensing or joint ventures do not own mnufturing nd mrketing filities rodF fy estlishing overses susidiriesD multintionl orgniztion n ompete more ggressively euse it is 4in4 the mrketpleF roweverD susidiries require more investment s the susidiry is responsile for ll mrketing tivities in foreign ountryF hile suh opertions provide ontrol over mrketing tivitiesD onsiderle risk is involvedF he susidiry strtegy requires omplete understnding of usiness onditionsD ustomsD mrketsD lorD nd other foreign mrket ftorsF
6.4.9 US commercial centers
enother method of doing usiness overses hs ome in the form of US Commercial CentersF e gommeril genter serves the purpose of providing dditionl resoures for the promotion of exports of goods nd servies to host ountriesF he gommeril genter does so y fmilirizing exporters with industriesD mrketsD nd ustoms of host ountriesF hey re filitting genies tht ssist with the three rrngements just disussedF gommeril genters provide usiness filities suh s exhiition speD onferene roomsD nd o0e speF hey provide trnsltion nd leril serviesF hey hve ommeril lirryF hey hve ommeril lw informtion nd trde promotion filitiesD inluding the filittion of ontts etween uyersD sellersD nkersD distriutorsD gentsD nd government o0ilsF hey lso oordinte trde missions nd ssist with ontrts nd export nd import rrngementsF
6.4.10 Trade intermediaries
mll mnufturers who re interested in uilding their foreign sles re turning to trde intermediries to ssist them in the sle nd distriution of their produtsF hese entrepreneuril middlemen typilly uy Eprodued goods t IS per ent elow mnufturer9s est disount nd then resell the produts in overses mrketsF hese trde intermediries ount for out IH per ent of ll exportsWF he trde intermediry provides vlule servie to smll ompniesD whih often do not hve the resoures or expertise to mrket their produts oversesF he trde intermediries hve developed reltionships with foreign ountriesY these reltionships re timeEonsuming nd expensive to developF
6.4.11 Alliances
reinekenD the premium huth eerD is onsumed y more people in more ountries thn ny other eerIHF st is lso the numerEone imported eer in emeriF willer nd fudweiserD the two lrgest emerin eer produersD hve entered into glol ompetition with reinekenD prtly euse the emerin eer mrket hs een )tF hey re doing so y forming llines with glol reweries suh s wolsonD goronD nd hos iquisF reineken hs responded to the hllengeD hevily promoting produts suh s emstel vight nd wurphy9s srish toutF reineken hs lso egun developing n lline with esi i( freweriesD the mker of iger feerF
6.5 The international marketing plan
st should e pprent y now tht ompnies nd orgniztions plnning to ompete e'etively in world mrkets need ler nd wellEfoused interntionl mrketing pln tht is sed on thorough understndE ing of the mrkets in whih the ompny is introduing its produtsF he hllengeD thenD of interntionl
8 This
IIW mrketing is to ensure tht ny interntionl strtegy hs the disipline of thorough reserhD nd n unE derstnding nd urte evlution of wht is required to hieve the ompetitive dvntgeF es suhD the deision sequene in interntionl mrketing @see ixhiit TFIA is muh lrger thn tht of domesti mrketsF es noted in the next sntegrted wrketing oxD it is lso more omplitedF ee elowF
Exhibit 6.1: The decision sequence in international marketing
6.5.1 The corporate level
e egin t the orporte levelD where (rms deide whether to eome involved in interntionl mrkets nd determine the resoures they re willing to ommitF husD this stge is primrily onerned with the nlysis of interntionl mrketsF heisions here will e dependent on mthing the results of tht nlysis with the ompny9s ojetivesF hese ojetivesD in turnD will e determined y the mny motivting ftors we hve disussed in the erlier setionsF he level of resoures tht the ompny is willing to ommit should e determined y the strtegy tht is needed to hieve the ojetives tht hve een setF
IPH
6.5.2 The business level
CHAPTER 6.
fusinessElevel onsidertions egin with the ssessment of the stkeholders involved in the usinessF st is importnt to lerly identify the di'erent stkeholder groupsD understnd their expettionsD nd evlute their powerD euse the stkeholders provide the rod guidelines within whih the (rm opertesF sn the se of interntionl mrketingD it is prtiulrly importnt to ddress the onerns of the stkeholders in the host ompnyF he sitution nlysis onerns thorough exmintion of the ftors tht in)uene the usinesses9 ility to suessfully mrket produt or servieF he results led to relisti set of ojetivesF gonduting sitution nlysis in n interntionl setting is it more extensiveF st not only inludes the norml ssessment of external environmental ftors nd resources/capabilitiesD it lso inludes determintion of the level of commitment exhiited y the usinessD s well s possile methods of entryF hese lst two ftors re interrelted in tht ompny9s level of ommitment to interntionl mrkets will diretly in)uene whether they employ exportingD joint ventureD or some other method of entryF sn turnD level of ommitment nd method of entry re in)uened y the evlution of environmentl ftors s well s resoures nd pilitiesF he ltter udits not only the weknesses of the ompnyD ut lso the strengths of the ompnyD whih re often tken for grntedF his is prtiulrly importnt in interntionl mrketsY for exmpleD ustomer rnd loylty my e muh stronger in ertin mrkets thn othersD nd produts my e t the end of their life in the domesti mrket ut my e idel for less sophistited mrketsF st is importntD tooD to evlute the pity of the (rm to e )exileD dptleD nd protiveD s these re the ttriutes neessryD for suess in highly ompetitive nd rpidly hnging worldF ndoutedlyD environmentl ftors hve reeived the most ttention from mrketers onsidering interE ntionl mrketsF
6.5.2.1 Marketing objectives
rving identi(ed stkeholder expettionsD rried out detiled sitution nlysisD nd mde n evlution of the pilities of the ompnyD the overll mrketing gols n e setF st is importnt to stress tht there is need for relism in thisD s only too frequently orporte plns re determined more y the desire for shortEterm rediility with shreholders thn with the likelihood tht they will e hievedF he proess dopted for determining longEterm nd shortEterm ojetives is importnt nd vries signifE intlyD depending on the size of the usinessD the nture of the mrket nd the ilities nd motivtion of mngers in di'erent mrketsF et n opertionl levelD the ntionl mngers need to hve n hievle nd detiled pln for eh ountryD whih will tke ount of the lol situtionD explin wht is expeted of themD nd how their performne will e mesuredF ixmples of ojetives might eX
(nnil performneD inluding return on investment nd pro(tility mrket penetrtionD inluding sles @y volume nd vlueAD mrket shre y produt tegory ustomer growthD y volume nd pro(tility distriutionD inluding strength in supply hinD numer of outlets rnd wreness nd vlue new produt introdutions nd di'usion ompny imgeD inluding qulity nd dded vlue @or servieA
6.5.3 The functional level
rving set the ojetives for the ompnyD oth t the orporte level nd the usiness levelD the ompny n now develop detiled progrm of funtionl tivities to hieve the ojetivesF pollowing the integrted pproh employed throughout this textD eh of the funtionl elements @eFgF (nneD humn resouresD reserhA must e onsidered jointlyF he interntionl mrketing strtegy is doomed to filure if humn resoures n not (nd nd trin the pproprite employeesD or reserh n not modify the produt so tht
IPI it is eptle to onsumers in nother ountryF ltimtelyD this oordintion etween usiness funtions is ontingent on the mrket entry strtegy employed s well s the degree of stndrdiztion or ustomiztion deemedF rving integrted t the funtion levelD we next onsider integrtion of the mrketing mix elementsF
6.5.3.1 Product/promotion
ueegn hs highlighted the key spet of mrketing strtegy s omintion of stndrdiztion or dptE tion of produt nd promotion elements of the mix nd o'ers (ve lterntive nd more spei( pprohes to produt poliyX IF PF QF RF SF
One product, one message, worldwide X
hile numer of writers hve rgued tht this will e the strtegy dopted for mny produts in the futureD in prtie only hndful of produts might lim to hve hieved this lredyF Product extension, promotion adaptationX hile the produt stys the sme this strtegy llows for the dpttion of the promotionl e'ort either to trget new ustomer segments or to ppel to the prtiulr tstes of individul ountriesF Product adaptation, promotion extensionX his strtegy is used if promotionl mpign hs hieved interntionl ppelD ut the produt needs to e dpted euse of lol needsF Dual adaptationX fy dpting oth produts nd promotion for eh mrketD the (rm is dopting totlly di'erentited pprohF Product inventionX pirmsD usully from dvned ntionsD tht re supplying produts to less wellE developed ountries dopt produt inventionF
enother ritil element tht is losely ligned with the produt nd promotion is the rndF enthony y9eillyD ghirmn of rFtF reinzD elieves tht the ommunitions revolution nd the onvergene of ultures hve now set the stge for truly glol mrketingF he ge of the glol rnd is t hndF por exmpleD reinz ws looking to expnd its W vives t food rnd nd worris the gt logo into wosowF elthough it is stle nd suessful rnd in the D testing nd reserh done y himitri ipimovD lol mrketing mnger in wosowD led reinz exeutives to mke mrketing hnge to ensure the produt9s suess in ussiF xmelyD ftterElooking worris ws reted for pkgingF enother disoveryX hile emerins tend to tret their kitties with tunD ussin tElovers prefer to serve eefE)vored foodF es disussed erlierD produt positioning is key suess ftor nd re)ets the ustomer9s pereptions of the produt or servieF roweverD in ountries t di'erent stges of eonomi developmentD the ustomer segments tht re likely to e le to purhse the produt nd the osions on whih it is ought my e signi(ntly di'erentF por exmpleD while upg nd whonld9s resturnts im t everydy eting for the mss mrket in the developed ountriesD in lessEdeveloped ountries they re pereived s ples for speilEosion etingD nd re eyond the reh of the poorest segments of the popultionF he produt positioningD thereforeD must vry in some dimensionsF sn on(rming the positioning of produt or servie in spei( mrket or regionD it is therefore neessry to estlish in the onsumer pereption extly wht the produt stnds for nd how it di'ers from existing nd potentil ompetition y designing n identity tht on(rms the vlue of the produtF
6.5.3.2 Pricing
riing produts in foreign ntions is omplited y exhnge rte )ututionsD tri'sD governmentl interE ventionD nd shipping requirementsF e ommon strtegy involves mrketer setting lower prie for their produts in foreign mrketsF his strtegy is onsistent with the low inome levels of mny foreign ountriesD nd the lower prie helps to uild mrket shreF riing strtegies re lso strongly in)uened y the nture nd intensity of the ompetition in the vrious mrketsF por these resonsD it is importnt to reognize t the outset tht the development nd implementtion of priing strtegies in interntionl mrkets should follow the following stgesX
IPP
CHAPTER 6.
IF nlyzing the ftors tht in)uene interntionl priingD suh s the ost struturesD the vlue of the produtD the mrket strutureD ompetitor priing levelsD nd vriety of environmentl onstrints PF on(rming the impt the orporte strtegies should hve on priing poliy QF evluting the vrious strtegi priing options nd seleting the most pproprite pproh RF implementing the strtegy through the use of vriety of ttis nd proedures to set pries SF mnging pries nd (nning interntionl trnstions erhps the most ritil ftor to e onsidered when developing priing strtegy in interntionl mrketsD howeverD is how the ustomers nd ompetitors will respondF xgle hs suggested nine ftors tht in)uE ene the sensitivity of ustomers to priesD nd ll hve implitions for the interntionl mrketerF rie sensitivity reduesX he more distintive the produt isX
the greter the pereived qulity the less wre onsumers re of sustitutes in the mrket if it is di0ult to mke omprisons if the prie of produt represents smll proportion of totl expenditure of the ustomer s the pereived ene(t inreses if the produt is used in ssoition with produt ought previously if osts re shred with other prties if the produt nnot e stored
pinllyD there re severl inherent prolems ssoited with priing in interntionl mrketsF yften ompnies (nd it di0ult to oordinte nd ontrol pries ross their tivities in order to enle them to hieve e'etive (nnil performne nd their desired prie positioningF implyD how n pries e oordinted y the ompny ross the vrious mrkets nd still mke the neessry pro(tc hi0ulty nswering this question hs led to two serious prolemsF Dumping @when (rm sells produt in foreign ountry elow its domesti prie or elow its tul ostsA is often done to uild ompny9s shre of the mrket y priing t ompetitive levelF enother reson is tht the produts eing sold my e surplus or nnot e sold domestilly nd re therefore lredy urden to the ompnyF hen ompnies prie their produts very high in some ountries ut ompetitively in othersD they engge in gry mrket strtegyF e gray marketD lso lled parallel importingD is sitution where produts re sold through unuthorized hnnels of distriutionF e gry mrket omes out when individuls uy produts in lowerEpried ountry from mnufturer9s uthorized retilerD ship them to higherEpried ountriesD nd then sell them elow the mnufturer9s suggested prie through unuthorized retilersF gonsiderle prolems rise in foreign trnstions euse of the need to uy nd sell produts in di'erent urreniesF uestions to onsider reX ht urreny should ompny prie its produtsc row should ompny del with )ututing exhnge rtesc pinllyD otining pyment promptly nd in suitle urreny from less developed ountries n use expense nd dditionl di0ultiesF row should ompny del with selling to ountries where there is risk of nonpymentc row should ompny pproh selling to ountries tht hve shortge of hrd urrenyc
6.5.3.3 Distribution and logistics
re the mens y whih goods re distriuted from the mnufturer to the end userF or physil distriution mngementD is onerned with the plnningD implementingD nd ontrol of physil )ows of mterils nd (nl goods from points of origin to points of use to meet ustomer needs t pro(tF issentilly there re three hnnel links etween the seller nd uyerF he (rst link is the seller9s hedqurters orgniztionD whih is responsile for supervising the hnnelD nd ts s prt of the hnnel itselfF ghnnels etween ountries represent the seond linkF hey re responsile for getting produts to overses mrkets nd pyment in returnF pinllyD the third link is the hnnel struture @logistisA within ountriesD whih distriutes the produts from their point of entry to the (nl onsumerF
Distribution channels LogisticsD
IPQ histriution strtegies within overses mrkets re 'eted y vrious unontrollle ftorsF pirstD wholesling nd retiling struture di'ers widely from one ntion to the nextF oD tooD does the qulity of servie providedF hi'erenes in the size nd nture of retilers re even more pronounedF etilers more losely re)et the eonomi onditions nd ulture of tht ountryY mny smll retilers dominte most of these ountriesF hysil distriution to overses mrkets often requires speil mrketing plnningF wny ountries hve indequte doking filitiesD limited highwysD vrious rilrod trk gugesD too few vehilesD nd too few wrehousesF wnging produt inventories requires onsidertion of the vilility of suitle wrehousingD s well s the osts of shipping in smll quntitiesF
6.5.3.4 The budget
wrketing mix omponents must e evluted s prt of n overll mrketing strtegyF hereforeD the orgE niztion must estlish mrketing udget sed on the required mrketing e'ort to in)uene onsumersF he mrketing udget represents pln to llote expenditures to eh of the omponents of the mrketing mixF por exmpleD the (rm must estlish n dvertising udget s prt of the mrketing udget nd llote expenditures to vrious types of dvertising medi"televisionD newsppersD mgzinesF e sles promotion udget should lso e determinedD lloting money for ouponsD produt smplesD nd trde promotionsF imilrlyD udgets re required for personl sellingD distriutionD nd produt developmentF row muh should e spentc gonsider the following exmpleF e ommon question tht mrketers frequently sk isD 4ere we spending enough @or too muhA to promote the sle of our produtsc4 e resonle nswer would revolve round nother onsidertionX 4ht do we wnt to omplishc ht re our golsc4 he disussion should next turn to the methods for hievement of gols nd the removl of ostles to these golsF his step is often skipped or voidedF sullyD when the question is skedD 4ere we spending enoughc4 n utomti nswer is givenD in terms of wht others spendF unowing wht others in the sme industry spend n e importnt to n orgniztion whose performne lgs ehind the ompetition or to n orgniztion tht suspets tht its expenditures re higher thn they need to eF fut generllyD knowing wht others spend leds to n unprodutive 4keepingEupEwithEtheEtoneses4 ttitudeF st lso ssumes tht the others know wht they re doingF
6.5.3.5 Evaluating results
xo mrketing progrm is plnned nd implemented perfetlyF wrketing mngers will tell you tht they experiene mny surprises during the ourse of their tivitiesF sn n e'ort to ensure tht performne goes ording to plnsD mrketing mngers estlish ontrols tht llow mrketers to evlute results nd identify needs for modi(tions in mrketing strtegies nd progrmsF urprises ourD ut mrketing mngers who hve estlished sound ontrol proedures n ret to surprises quikly nd e'etivelyF wrketing ontrol involves numer of deisionsF yne deision is wht funtion to monitorF ome orgniztions monitor their entire mrketing progrmD while others hoose to monitor only prt of itD suh s their sles fore or their dvertising progrmF e seond set of deisions onerns the estlishment of stndrds for performneY eFgF mrket shreD pro(tilityD or slesF e third set of deisions onerns how to ollet informtion for mking omprisons etween tul performne nd stndrdsF pinllyD to the extent tht disrepnies exist etween tul nd plnned performneD djustments in the mrketing progrm or the strtegi pln must e mdeF yne pln is put into tionD mrketing mnger must still gther informtion relted to the efE fetiveness with whih the pln ws implementedF snformtion on slesD pro(tsD retions of onsumersD nd retions of ompetitors must e olleted nd nlyzed so tht mrketing mnger n identify new prolems nd opportunitiesF
IPR
CHAPTER 6.
6.6 The international marketing environment
e numer of ftors onstitute the interntionl environmentX soilD ulturlD politilD leglD ompetitiveD eonomiD plus tehnologyF ih should e evluted efore ompny mkes deision to go interntionlF
6.6.1 The social/cultural environment
he ulturl environment onsists of the in)uene of religiousD fmilyD edutionlD nd soil systems in the mrketing systemF wrketers who intend to mrket their produts overses my e very sensitive to foreign ulturesF hile the di'erenes etween our ulturl kground in the nited ttes nd those of foreign ntions my seem smllD mrketers who ignore these di'erenes risk filure in implementing mrketing progrmsF pilure to onsider ulturl di'erenes is one of the primry resons for mrketing filures oversesF his tsk is not s esy s it sounds s vrious fetures of ulture n rete n illusion of similrityF iven ommon lnguge does not gurntee similrity of interprettionF por exmpleD in the we purhse 4ns4 of vrious groery produtsD ut the fritish purhse 4tins4F e numer of ulturl di'erenes n use mrketers prolems in ttempting to mrket their produts oversesF hese inludeX @A lngugeD @A olorD @A ustoms nd toosD @dA vluesD @eA esthetisD @fA timeD @gA usiness normsD @hA religionD nd @iA soil struturesF ih is disussed in the following setionsF
6.6.2 Language
he importne of lnguge di'erenes nnot e overemphsizedD s there re lmost QDHHH lnguges in the worldF vnguge di'erenes use mny prolems for mrketers in designing dvertising mpigns nd produt lelsF vnguge prolems eome even more serious one the people of ountry spek severl lngugesF por exmpleD in gndD lels must e in oth inglish nd prenhF sn sndiD there re over PHH di'erent diletsD nd similr sitution exists in ghinF
6.6.3 Colors
golors lso hve di'erent menings in di'erent ulturesF por exmpleD in igyptD the ountry9s ntionl olor of green is onsidered uneptle for pkgingD euse religious leders one wore itF sn tpnD lk nd white re olors of mourning nd should not e used on produt9s pkgeF imilrlyD purple is uneptle in rispni ntions euse it is ssoited with dethF gonsider how the following exmples ould e used in development of interntionl mrketing progrmsX
sn ussiD it is eptle for men to greet eh other with kissD ut this ustom is not eptle in the F qermns prefer their sld dressing in tueD while emerins prefer it in ottleF sn prneD wine is served with most melsD ut in emeriD milkD teD wterD nd soft drinks re populrF
whonlds9s gorportion hs opened PH resturnts in sndiF ine VH perent of sndins re rinduD wE honld9s will use noneef met sustitute for its trditionl hmurgerF he likely eef sustitute will e lmD very populr met in sndiF sn ntiiption of its resturnt openingsD whonld9s onduted extensive mrket reserhD site seletion studiesD nd developed reltionship with sndi9s lrgest hiken supplierF whonld9s hs opted to mrket its produt in sndiD lrgely euse sndi9s popultion of more thn WHH million represents one sixth of the world9s popultionF
9 This
IPS
6.6.4 Values
en individul9s vlues rise from hisGher morl or religious eliefs nd re lerned through experienesF por exmpleD in emeri we ple very high vlue on mteril wellEeingD nd re muh more likely to purhse sttus symols thn people in sndiF imilrlyD in sndiD the rindu religion forids the onsumption of eefD nd fstEfood resturnts suh s whonld9s nd furger uing would enounter tremendous di0ulties without produt modi(tionF emerins spend lrge mounts of money on sopD deodorntD nd mouthwsh euse of the vlue pled on personl lenlinessF sn stlyD slespeople ll on women only if their husnds re t homeF
6.6.5 Aesthetics
he term aesthetics is used to refer to the onepts of euty nd good tsteF he phrseD 4feuty is in the eye of the eholder4 is very pproprite desription for the di'erenes in esthetis tht exist etween ulturesF por exmpleD emerins elieve tht suntns re ttrtiveD youthfulD nd helthyF roweverD the tpnese do notF
6.6.6 Time
emerins seem to e fntil out time when ompred to other ulturesF untulity nd dedlines re routine usiness prties in the F roweverD slespeople who set de(nite ppointments for sles lls in the widdle ist nd vtin emeri will hve lot of time on their hndsD s usiness people from oth of these ultures re fr less ound y time onstrintsF o mny of these ulturesD setting dedline suh s 4s hve to know next week4 is onsidered pushy nd rudeF
6.6.7 Business norms
he norms of onduting usiness lso vry from one ountry to the nextF rere re severl exmples of foreign usiness ehvior tht di'er from usiness ehviorX
sn prneD wholeslers do not like to promote produtsF hey re minly interested in supplying retilers with the produts they needF sn ussiD plns of ny kind must e pproved y seemingly endless string of ommitteesF es resultD usiness negotitions my tke yersF outh emerins like to tlk usiness 4nose to nose4F his desire for lose physil proximity uses emerin usiness people to k wy from the onstntly forwrdEmoving outh emerinsF sn tpnD usinesspeople hve mstered the tti of silene in negotitionsF emerins re not preE pred for thisD nd they pni euse they think something hs gone wrongF he result is tht emerins eome imptientD push for losureD nd often mke usiness onessions they lter reE gretF
hese norms re re)eted in the di0ulty of introduing the e into iurope @see the next sntegrted wrketing oxAF
6.6.8 Religious beliefs
e person9s religious eliefs n 'et shopping ptterns nd produts purhsed in ddition to hisGher vluesD s disussed erlierF sn the nited ttes nd other ghristin ntionsD ghristmstime is mjor sles periodF fut for other religionsD religious holidys do not serve s populr times for purhsing produtsF omen do not prtiipte in household uying deisions in ountries in whih religion serves s opposition to women9s rights movementsF ivery ulture hs soil strutureD ut some seem less widely de(ned thn othersF ht isD it is more di0ult to move upwrd in soil struture tht is rigidF por exmpleD in the D the twoEwge erner
IPT
CHAPTER 6.
fmily hs led to the development of more 1uent set of onsumersF fut in other ulturesD it is onsidered uneptle for women to work outside the homeF
6.6.9 The political/legal environment
he politilGlegl environment rod is quite di'erent from tht of the F wost ntions desire to eome selfErelint nd to rise their sttus in the eyes of the rest of the worldF his is the essene of ntionlismF he ntionlisti spirit tht exists in mny ntions hs led them to engge in prties tht hve een very dmging to other ountries9 mrketing orgniztionsF por exmpleD foreign governments n intervene in mrketing progrms in the following wysX
ontrts for the supply nd delivery of goods nd servies the registrtion nd enforement of trdemrksD rnd nmesD nd leling ptents mrketing ommunitions priing produt sfetyD eptilityD nd environmentl issues
6.6.9.1 Political stability
fusiness tivity tends to grow nd thrive when ntion is politilly stleF hen ntion is politilly unstleD multintionl (rms n still ondut usiness pro(tlyF heir strtegies will e 'eted howeverF wost (rms proly prefer to engge in the export usiness rther thn invest onsiderle sums of money in investments in foreign susidiriesF snventories will e low nd urreny will e onverted rpidlyF he result is tht onsumers in the foreign ntion py high priesD get less stisftory produtsD nd hve fewer josF
6.6.9.2 Monetary circumstances
he exchange rate of prtiulr ntion9s urreny represents the vlue of tht urreny in reltion to tht of nother ountryF qovernments set some exhnge rtes independently of the fores of supply nd demndF he fores of supply nd demnd set othersF sf ountry9s exhnge rte is low ompred to other ountriesD tht ountry9s onsumers must py higher pries on imported goodsF hile the onept of exhnge rtes ppers reltively simpleD these rtes )utute widely nd oftenD thus reting high risks for expHrters nd importersF
6.6.9.3 Trading blocs and agreements
ompnies mke oneEthird of their revenues from produts mrketed rodD in ples suh s esi nd vtin emeriF he xorth emerin pree rde egreement @xepeA further oosts export sles y enling ompnies to sell goods t lower pries euse of redued tri'sF egionl trding los represent group of ntions tht join together nd formlly gree to redue trde rriers mong themselvesF xepe is suh loF sts memers inlude the D gndD nd wexioF xo tri's exist on goods sold etween memer ntions of xepeF roweverD uniform tri' is ssessed on produts from ountries not 0lited with xepeF sn dditionD xepe seeks ommon stndrds for leling requirementsD food dditivesD nd pkge sizesF yne of the potentilly interesting results of trde greements like xepe is tht mny produts preE viously restrited y dumping lwsD lws designed to keep out foreign produtsD would e llowed to e mrketedF he prtie of dumping involves ompny selling produts in overses mrkets t very low priesD one intention eing to stel usiness from lol ompetitorsF hese lws were designed to prevent priing prties tht ould seriously hrm lol ompetitionF he lws were designed to prevent lrge produers from )ooding mrkets with very low pried produtsD gin monopolyD nd then rise pries to
IPU very high levelsF sn IWWQD out RH ntionsD ounting the iuropen gommunity s oneD hd ntiEdumping legisltionF hose in fvor of greements rgue tht ntiEdumping lws penlize those ompnies who re ple of ompeting in fvor of those ompnies tht re not ompetitiveF elmost ll the ountries in the estern hemisphere hve entered into one or more regionl trde greeE mentsF uh greements re designed to filitte trde through the estlishment of free trde re ustoms union or ustoms mrketF pree trde res nd ustoms unions eliminte trde rriers etween memer ountries while mintining trde rriers with nonmemer ountriesF Customs Unions mintin ommon tri's nd rtes for nonmemer ountriesF e common market provides for hrmonious (sl nd monetry poliies while free trde res nd ustoms unions do notF rde greements re eoming growE ing fore for trde lierliztionY the development of suh greements provides for tremendous opportunities for ompnies doing usiness in vtin emeri nd xorth emeriF he retion of the single iuropen mrket in IWWP ws expeted to hnge the wy mrketing is done worldwideF st ment the irth of mrket tht ws lrger thn the nited ttesD nd the introdution of iuropen gurreny nits @iurosA in ple of the individul urrenies of memer ntionsF ixperiene in multilingul mrketing would help nonEiuropen ompnies sueed in this gignti mrketF ith new tehnologies suh s multilingul proessing progrmsD it would e possile to trget potentil ustomers nywhere in iuropeD in ny lngugeD nd in the sme mrketing mpignF rogress towrd iuropen uni(tion hs een slowEmny dout tht omplete uni(tion will ever e hievedF roweverD on I tnury IWWWD II of the IS memer ntions took signi(nt step towrd uni(tion y dopting the iuro s the ommon urrenyF hese II ntions represent PWH million people nd h TFS trillion mrketF tillD with IR di'erent lnguges nd distintive ntionl ustomsD it is unlikely tht the i will ever eome the 4nited ttes of iuropeF
6.6.9.4 Taris
wost ntions enourge free trde y inviting (rms to invest nd to ondut usiness thereD while enourging domesti (rms to engge in overses usinessF hese ntions do not usully try to stritly regulte imports or disriminte ginst foreignEsed (rmsF here reD howeverD some governments tht openly oppose free trdeF por exmpleD mny gommunist ntions desire selfEsu0ienyF hereforeD they restrit trde with nonEgommunist ntionsF fut these restritions vry with istEest reltionsF he most ommon form of restrition of trde is the tri'D tx pled on imported goodsF rotetive tri's re estlished in order to protet domesti mnufturers ginst ompetitors y rising the pries of imported goodsF xot surprisinglyD ompnies with strong usiness trdition in foreign ountry my support tri's to disourge entry y other ompetitorsF
6.6.9.5 Expropriation
ell multintionl (rms fe the risk of expropritionF ht isD the foreign government tkes ownership of plntsD sometimes without ompensting the ownersF roweverD in mny expropritions there hs een pymentD nd it is often equitleF wny of these filities end up s privte rther thn government orgE niztionsF feuse of the risk of expropritionD multintionl (rms re t the mery of foreign governmentsD whih re sometimes unstleD nd whih n hnge the lws they enfore t ny point in time to meet their needsF
6.6.10 The technological environment
he level of tehnologil development of ntion 'ets the ttrtiveness of doing usiness thereD s well s the type of opertions tht re possileF wrketers in developed ntions nnot tke mny tehnologil dvnes for grntedF hey my not e ville in lesser developed ntionsF gonsider some of the following tehnologilly relted prolems tht (rms my enounter in doing usiness oversesX
poreign workers must e trined to operte unfmilir equipmentF
IPV
CHAPTER 6.
oor trnsporttion systems inrese prodution nd physil distriution ostsF wintenne stndrds vry from one ntion to the nextF oor ommunition filities hinder dvertising through the mss mediF vk of dt proessing filities mkes the tsks of plnningD implementingD nd ontrolling mrketing strtegy more di0ultF
6.6.11 The economic environment
e ntion9s eonomi sitution represents its urrent nd potentil pity to produe goods nd serviesF he key to understnding mrket opportunities lies in the evlution of the stge of ntion9s eonomi growthF e wy of lssifying the eonomi growth of ountries is to divide them into three groupsX @A industriE lizedD @A developingD nd @A lessEdeveloped ntionsF he industrialized nations re generlly onsidered to e the nited ttesD tpnD gndD ussiD eustrliD nd most of estern iurope he eonomies of these ntions re hrterized y privte enterprise nd onsumer orienttionF hey hve high literyD modem tehnologyD nd higher per pit inomesF Developing nations re those tht re mking the trnsition from eonomies sed on griulturl nd rw mterils prodution to industril eonomiesF wny vtin emerin ntions (t into this tegoryD nd they exhiit rising levels of edutionD tehnologyD nd per pit inomesD pinllyD there re mny less developed ntions in tody9s worldF hese ntions hve low stndrds of livingD litery rtes re lowD nd tehnology is very limitedF sullyD the most signi(nt mrketing opportunities exist mong the industrilized ntionsD s they hve high levels of inomeD one of the neessry ingredients for the formtion of mrketsF roweverD most industrilized ntions lso hve stle popultion sesD nd mrket sturtion for mny produts lredy existingF he developing ntionsD on the other hndD hve growing popultion sesD nd lthough they urrently import limited goods nd serviesD the longErun potentil for growth in these ntions existsF heE pendent soieties seek produts tht stisfy si needsEfoodD lothingD housingD medil reD nd edutionF wrketers in suh ntions must e edutorsD emphsizing informtion in their mrket progrmsF es the degree of eonomi development inresesD so does the sophistition of the mrketing e'ort foused on the ountriesF
6.6.12 The competitive environment
intering n interntionl mrket is similr to doing so in domesti mrketD in tht (rm seeks to gin di'erentil dvntge y investing resoures in tht mrketF yften lol (rms will dopt imittion strtegiesD sometimes suessfullyF hen they re suessfulD their own ntion9s eonomy reeives good oostF hen they re not suessfulD the multintionl (rm often uys them outF tpnese mrketers hve developed n pproh to mnging produt osts tht hs given them omE petitive dvntge over ompetitorsF e typil emerin ompny will design new produtD then lulte the ostF sf the estimted ost is too highD the produt will e tken k to the drwing ordF sn tpnD ompny typilly strts with trget ost sed on the prie tht it estimtes the mrket is most willing to eptF rodut designers nd engineers re then direted to meet the ost trgetF his pproh lso enourges mngers to worry less out produt osts nd more out the role it should ply in gining mrket shreF frie)yD t tpnese ompnies like xigD xissnD hrpD nd oyotD tem hrged with ringing produt ide to mrket estimtes the prie t whih the produt is most likely to ppel to the mrketF prom this (rst importnt judgmentD ll else followsF efter deduting the required pro(t mrgin from the selling prieD plnners develop estimtes of eh element tht mke up the produt9s ostX engineeringD mnufturing slesD nd mrketingF (rms tend to uild produtsD (gure how muh it osts to uild the produtD nd then sk whether the produt n e sold t pro(tle prieF ompnies tend not to ssess wht the mrket will e willing to pyF
IPW
6.7 Discussion question
10
ht is ompetitive dvntgec row does mrketing ontriute to the retion of ompetitive dvntgec hesrie the resons for studying mrketingF ht djustments re neessry s you pply mrketing priniples to vrious ulturesGountriesc vist the steps in the mrket segmenttion proessF ht is the vlue in onduting forml mrketing reserhc hisuss severl resons why mrketers ontinue to hve di0ult time understndingD preditingD nd explining onsumer ehviorF resent digrm of the onsumer deision proessF ht is the role of mrketing in eh stge of this proessF frie)y desrie the mjor strtegies (rm might use to enter foreign mrketF row does the ulturl environment 'et interntionl mrketing tivitiesc hy is mrketing ritil to the suess of usinessc
6.8 References
11
I hitionry of wrketing ermsD eter hF fennettD idFD emerin wrketing essoitionD IWVV pF SRF PF hely hF runt nd tohn tF furnettD 4he wromrketingGwiro mrketing hihotomyX e xoE nomil wodelD4 tournl of wrketingD ummerF IWVP ppF IIEPTF Q e xew eipe for the pmily hinnerD4 edweekD epril PUF IWWPD pF RT R heodore vevittD 4wrketing wyopiD4 rrvrd fusiness eviewD tulyEeugustD IWTHD ppF RSETTF wore referenes Issoel hooleD oin voweD nd ghris hillipsD snterntionl wrketing trtegyD snterntionl hompson fusiness ressX vondonD IWWWD ppF IREISF Pheodore vevittF 4he qloliztion of wrketsF4 rrvrd fusiness eviewF wyEtune IWVQD ppF WPEIHPF Qhilip uotlerD 4qlol tndrdiztionEgourting hngerD4 tournl of gonsumer wrketingD olF QD xoFPD pringD IWVTD ppF IQEPHF RF frker nd iF uynkD 4en impiril snvestigtion of the hi'erenes fetween snititing nd gonE tinuing ixportersD4 iuropen tournl of wrketersD olF PTD xoFQD IWWPF SsidF Tenne ghen nd wlt riksD 4qoing qlo evoid gulture glshesD4 g eekD epril QD PHHHD ppF TVETWF Ufrker nd uynkD opF itF Viileen gssidy smhD 4 gommeril gentersX he puture of hoing fusiness erodD4 fusiness emeriD xovemerD IWWRD ppFPSEPTF Wwihel elzD 4wore mll pirms ere urning to rde sntermediriesD4 he ll treet tournlD perury PD IWWSD pF fPF IHtuli plunn nd eF welherD 4reineken9s fttle to ty op fottleD4 fusiness eekD eugust ID IWWVD ppF THETPF IIrren tF ueegnD 4goneptul prmework for wultintionl wrketingD4 golumi tournl of orld fusinessD olF UD xovemer IWUQD pFTUF IP xgleD he trtegies nd tis of riingD rentieErnD snF inglewood gli'sD xFtFD IWWWF
10 This 11 This
IQH
CHAPTER 6.
Chapter 7
Operations management

1
understnd the role of opertions mngement in orgniztions di'erentite etween strtegi nd ttil opertions deisions desrie the key opertions mngement deisions fed y mngers understnd three of the most importnt opertions mngement prtiesX otl ulity wngementD upply ghin wngementD nd tustEinEimeGven ypertions
7.2 What is operations management?
Operations management is the mngement of proesses tht trnsform inputs into goods nd servies
tht dd vlue for the ustomerF he gol of opertions mngement is to mximize e0ieny while produing goods nd servies tht e'etively ful(ll ustomer needsF por exmpleD if n orgniztion mkes furnitureD some of the opertions mngement deisions involve the purhsing of wood nd friD the hiring nd trining of workersD the lotion nd lyout of the furniture ftoryD nd the purhse of utting tools nd other frition equipmentF sf the orgniztion mkes good opertions deisionsD it will e le to produe 'ordleD funtionlD nd ttrtive furniture tht ustomers will purhse t prie tht will ern pro(ts for the ompnyF sn nother exmpleD the owners of resturnt must mke importnt deisions regrding the lotionD lyoutD nd seting pity of the resturntD the hiringD triningD nd sheduling of hefs nd serversD the suppliers of fresh food t the right priesD nd the purhse of stovesD refrigertorsD nd other food preprtion equipmentF sf the resturnt owners mke good opertions deisionsD they will e le to meet their ustomers9 needs for deliious nd 'ordle food tht is served in plesing tmosphereF he owners in turn will e le to hrge prie tht erns pro(t nd llows the resturnt to sty in usinessF
7.2.1 One of three strategic functions
of omplishing the orgniztion9s strtegy nd ensuring its longEterm survivlF he other two res of strtegi importne to the orgniztion re marketing nd nanceF por exmpleD ompny tht mkes tem jerseys for sport tems must hve strong marketing ility to identify groups of ustomersD understnd their needsD nd ommunite with them to win their usinessF he ompny must lso mnge its nances so it n py for uilding nd equipment expensesD nk lonsD worker wgesD nd suppliesF pinllyD the
1 This 2 This
Operations is one of the three strtegi funtions of ny orgniztionF his mens tht it is vitl prt
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CHAPTER 7.
OPERATIONS MANAGEMENT
ompny must hve strong operations skills so it n provide ustomized tem jerseys tht re ttrtiveD durleD 'ordle nd delivered on time to the ustomerF he opertions strtegy should support the overll orgniztion strtegyF por exmpleD tetflue irlines is suessful irline tht hs n orgniztion strtegy of providing highEvlue ir trnsporttion servie to trvelersF tetflue strives to provide funD omfortleD nd sfe ir servie to populr destintions t prie tht middleEinome pssengers n 'ordF qiven tetflue9s orgniztion strtegyD tetflue fetures n opertions strtegy tht fouses on low ostsD ompetent nd servieEoriented employeesD nd relile irrftF tetflue9s opertions strtegy is driven y its orgniztion strtegyF por exmpleD tetflue lotes @loE tion is n opertions deision reA its min trnsporttion hu in xew ork gityD ity of IW million people tht helps ensure tht tetflue9s plnes )y t full pityF sn the re of equipment deisionsD tetflue opertes only one type of irrftD the eirus QPHF he eirus QPH hs high pssenger rrying pity @to mximize revenueAD provides good fuel eonomy nd requires only two pilots @versus threeA to operteF rving one type of irrft redues trining osts for pilots nd mehnisD redues investments in prts inventoriesD nd enles tetflue to negotite greter disounts on highEvolume purhses from eirusF sn nother key opertions reD tetflue pys reful ttention to hiringD triningD nd ompensting employees who n deliver exellent servieD loyltyD nd high levels of produtivityF sn ddition to n opertions strtegyD tetflue lso hs (nnil nd mrketing strtegies tht support its orgniztion strtegyF yne prt of its (nnil strtegy is seuring su0ient mounts of pitl to help the strtEup irline estlish relile servie nd gin loyl lienteleF tetflue9s mrketing strtegy keeps dvertising osts under ontrol y ttrting free medi puliity tht emphsizes its fun nd 'ordle irline servieF
7.2.2 Strategic versus tactical operations decisions
ypertions deisions inlude deisions tht re strategic in ntureD mening tht they hve longEterm onseE quenes nd often involve gret del of expense nd resoure ommitmentsF Strategic opertions deisions inlude fility lotion deisionsD the type of tehnologies tht the orgniztion will useD determining how lor nd equipment re orgnizedD nd how muh longEterm pity the orgniztion will provide to meet ustomer demndF por exmpleD the leders of new hospitl must deide where to lote the fility to e essile to lrge numer of potentil ptientsF rospitl dministrtors must evlute the performne nd ost of wide vriety of helth equipmentF edministrtors must lso ssess nd purhse informtion tehnologies to keep ptient reordsD ful(ll government regultionsD provide urte nd timely ommunitionsD nd trk (nnil performneF hotorsD nursesD nd st' must e hired nd vrious deprtments @xEryD lD phrmyD physil therpyD etFA must e rrnged to mximize oth e0ieny nd e'etiveness in ptient reF Tactical opertions deisions hve short to medium term impt on the orgniztionD often involve less ommitment of resouresD nd n e hnged more esily thn strtegi deisionsF til deisions inlude workfore shedulingD estlishing qulity ssurne proeduresD ontrting with vendorsD nd mnging inventoryF sn the hospitl exmpleD sheduling the workfore to mth ptient dmissions is ritil to oth providing qulity re nd ontrolling ostsF eleting food servie vendor is importnt to serving oth employees nd ptientsF insuring tht the right drugs nd supplies re on hnd is hieved y working losely with vendors in the supply hinF
7.2.3 Operations management provides competitive advantage!
trtegi nd ttil opertions deisions determine how well the orgniztion n omplish its golsF hey lso provide opportunities for the orgniztion to hieve unique ompetitive dvntges tht ttrt nd keep ustomersF por exmpleD nited rel ervieD n interntionl pkge delivery servieD formed prtnership with its ustomerD oshi omputersF oshi needs to provide repir servie to its lptop omputer ustomersF
IQQ he old pproh of providing this servie ws umersome nd timeEonsumingX @IA gustomers hd pik up their omputersD @PA delivered the omputers to oshiD @QA oshi repired the omputersD @RA piked up the repired omputers nd delivered them k to the ustomersF nder this trditionl pprohD the totl time to get lptop omputer repired ws two weeks" long time for people to e without their lptop3 hen they me up with n innovtive ide for oshi to provide etter servie to its ustomersF nited rel ervie hiredD trinedD nd erti(ed its own employees to repir oshi lptop omputersF he new repir proess is muh more e0ientX @IA piks up omputers from oshi ownersD @PA repirs the omputersD @QA delivers the omputers k to their ownersF he totl time to get omputer repired is now out two dysF wost oshi ustomers think tht oshi is doing gret jo of repiring their omputersD when in ft oshi never touhes the omputers3 he result of this opertions innovtion is etter servie to oshi ustomers nd strong nd pro(tle strtegi prtnership etween nd its ustomerD oshiF
7.3 The input/output transformation model
ypertions mngement trnsforms inputs @lorD pitlD equipmentD lndD uildingsD mterils nd inforE mtionA into outputs @goods nd serviesA tht provide dded vlue to ustomersF ixhiit UFI summrizes the trnsformtion proessF he rrow leled rnsformtion ystem is the ritil element in the model tht will determine how well the orgniztion produes goods nd servies tht meet ustomer needsF st does not mtter whether the orgniztion is forEpro(t ompnyD nonEpro(t orgniztion @religious orgE niztionsD hospitlsD etFAD or government genyY ll orgniztions must strive to mximize the qulity of their trnsformtion proesses to meet ustomer needsF
Exhibit 7.1: Example of typical transformation process
he Qw gompny is good exmple of the strtegi importne of trnsforming inputs into outputs tht provide ompetitive dvntge in the mrketpleF Qw mnuftures topEqulity dhesive tpe lled wgi peF wgi pe is used for everydy tping pplitionsD ut it o'ers ttrtive fetures tht
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CHAPTER 7.
most other tpes do notD inluding smooth removl from the tpe rollD n dhesive tht is stiky enough to hold items in ple @ut not too stiky tht it n not e removed nd redjusted if neessry3AD nd nonEre)etive surfeF por severl dedesD Qw hs enjoyed sustntil pro(t mrgin on its wgi pe produt euse Qw engineers mke the mnufturing equipment nd design the mnufturing proesses tht produe wgi peF sn other wordsD Qw enjoys ommnding ompetitive dvntge y ontrolling the trnsformtion proesses tht turn rw mteril inputs into the high vlueEdded wgi pe produtF gontrolling the trnsformtion proess mkes it extremely di0ult for ompetitors to produe tpe of the sme qulity s wgi peD llowing Qw to rep signi(nt pro(ts from this superior produtF en opposite exmple of the strtegi implitions of the inputGoutput trnsformtion proess is Qw9s deision in the IWVHs to stop mnufturing r tpe for video plyers nd reordersF sn the r tpe mrket Qw hd no proprietry mnufturing dvntgeD s there were mny esin ompetitors tht ould produe highEqulity r tpe t lower ostF ine Qw hd no proprietry ontrol over the trnsformtion proess for r tpe tht would llow the ompny to protet its pro(t mrgins for this produtD it dropped r tpe from its o'eringsF he two Qw exmples of wgi pe nd r tpe show how importnt the trnsformtion proess nd opertions mngement n e to providing nd proteting n orgniztion9s ompetitive dvntgeF e servie exmple of the strtegi importne of the trnsformtion proess is sxq fnkD nking ompny tht onduts ll nking trnstions through the snternetD phoneD nd milF sxq mintins no trditionl nk filitiesD exept for the uildings tht house the employees tht exeute remote trnstions with sxq9s ustomersF his strtegy results in tremendous ost svings nd ompetitive dvntge to sxq y not hving to spend pitl resoures on lnd nd uildings tht trditionl nks must spendF gonsequentlyD sxq n o'er its ustomers higher interest rtes on svings ounts nd lower interest rtes on lonsF
7.4 Operations decisions
gountless opertions deisions tht hve oth longEterm nd shortEterm impts on the orgniztion9s ility to produe goods nd servies tht provide dded vlue to ustomers must e mdeF sf the orgniztion hs mde mostly good opertions deisions in designing nd exeuting its trnsformtion system to meet the needs of ustomersD its prospets for longEterm survivl re gretly enhnedF wjor opertions deisions res inlude inventoryD pityD qulityD shedulingD proess typeD tehnologyD lotionD lyoutD nd supply hin mngementF ih of these nine deision res will e disussed in this setionF
7.4.1 Inventory decisions
he key question tht must e nswered for inventory is row muhc nderstnding the est inventory levels to rry is ritil to the orgniztion euse too muh inventory nd too little inventory re oth ostly to the orgniztionF snventory tht exeeds wht is needed to stisfy ustomer demnd imposes unneessry osts suh s storgeD deteriortionD osoleseneD theftD nd money tied up in inventory tht nnot e used for other purposesF oo little inventory mens the orgniztion nnot meet IHH per ent of its ustomer demnd nd sles revenues re delyed or lostF por exmpleD resturnt tht speilizes in serving fresh (sh needs to mke reful purhsing deisions so it hs enough fresh (sh eh dy to serve its ustomersD ut not so muh tht unsold (sh must e severely disounted or disrded t the end of the dyF gomputer ompnies suh s hell must refully mnge its omputer hip inventory so it n meet urrent ustomer ordersD ut not e stuk with too muh inventory if new omputer hip omes out or if vendors redue priesF
7.4.2 Capacity decisions
he question mngers must nswer for the pity deision re is the sme s the question for inventoryX row muhc hetermining the orgniztion9s pity to produe goods nd servies involves oth longEterm
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IQS nd shortEterm deisionsF Long-term pity deisions involve filities nd mjor equipment investmentsF sn PHHUD eirus introdued its uper tumo tet tht rries up to VSH pssengers nd osts h Q illionF he uper tumo provides huge mounts of pssenger rrying pityD ut efore n irline purhses this jetD it needs to deide if it hs enough pssengers to generte the revenue to py for the plne nd ern pro(ts for the irlineF e lrge single irplne like the uper tumo my not e the right pity deision for n irline tht serves numerous medium sized itiesF yn the other hndD n irline tht serves pssengers trveling etween xew ork gityD e nd hnghiD ghin might (nd the uper tumo to e perfet hoie for meeting demnd euse of the lrge popultions in eh ityF gpity deisions lso involve short-term situtionsF sn groery storeD the numer of ustomers tht need to py for their groeries t ny one point during the dy will vry signi(ntlyF o provide good ustomer servieD mngers must mke sure tht su0ient sh registers nd employees re on hnd to meet hekEout demndF imilrlyD hotels must mke sure tht they hve enough employees to register rriving guestsD to len hotel roomsD nd to provide food nd everges to ustomersF hese deisions must e mde refully to void exessive lor osts from hving too mny employees for the numer of ustomers eing servedF
7.4.3 Quality decisions
he deision relting to qulity is not how muh qulity to hveF sf sked whether they support high qulity in their orgniztionD virtully ll mngers will respond enthusistilly tht they fully support high qulity3 therD the qulity of goods nd servies is determined y numerous deisions throughout the orgniztion tht hve oth longEterm nd shortEterm onsequenes for the orgniztion9s qulity performneF por exmpleD while ll mngers my sy they support qulityD how mny will support the pitl expenditure to purhse new equipment tht n meet tighter tolerne requirements more onsistentlyc row mny mngers will spend money to send their engineers out into the (eld to tlk to ustomers to etter understnd neessry produt performne stndrdsc row mny mngers will send tems of qulity engineers to supplier filities to ssist suppliers with their qulity progrmsc row muh ttention nd resoures does mngement give to employee skill development nd trining in the use of qulity tools nd in the philosophy of defet preventionc he outome of these deisions will most ertinly 'et n orgniztion9s ility to produe outstnding qulity in produts nd serviesF por exmpleD in the ir trnsporttion industryD the prevention of rshes is oviously something tht everyone supportsF etD for the pst two dedes in the nited ttesD the press hs reported on the weknesses nd neglet of the ir tr0 ontrol tehnology tht plys ritil role in ir trvel sfetyF yne might onlude tht lthough everyone supports sfety in ir trvelD more investment in modern tehnology nd etter deision mking is needed to ensure the longEterm sfety of ir trnsporttionF irtully ll orgniztions re fed with similr deisionEmking senrios when it omes to the ftors tht determine qulity performneF enother exmple is in the helth re industry where one ritil mesure is the numer of surgeries where foreign ojets @spongesD instrumentsD etFA re left in surgery ptientsF uh inidents re onsidered to e serious oversight nd totlly uneptleF sn reent yersD hospitls hve developed proesses for preventing these mistkesF sn one pprohD memer of the surgil st' trks every ojet tht enters the ody vity during surgeryD then heks tht ojet o' when it is removed from the vityF eny ojet tht n not e ounted for triggers n inspetion of the vityD nd perhps n xEry to help (nd the item efore the inision is losedF ulity improvement e'orts require gret del of nlysis nd temworkD s well s determined e'ort to mke qulity top priority in the orgniztionF smproving qulity requires everyone to dopt ontinuous improvement philosophyD where everyone pprohes their work with the view tht there re lwys opportunities to improve on the orgniztion9s key performne mesuresF gontinuous improvement e'orts re omplexD multidimensionlD nd require prtnerships mong workersD mngementD suppliersD nd ustomersF
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7.4.4 Scheduling decisions
CHAPTER 7.
heduling is n opertions deision tht strives to provide the right mix of lor nd mhines to produe goods nd servies t the right time to hieve oth e0ieny nd ustomer servie golsF por exmpleD hotel must ntiipte the peks nd vlleys in demnd tht my our during dyD during the weekD nd t di'erent times of the yerF vor @front desk lerksD room servie personnelD housekeepersD ellhopsD etFA must e sheduled refully to meet ustomer demnd t ny given timeD without sheduling exess employees tht would impose unneessry osts on the hotelF sn hospitl settingD sheduling surgeries is very importnt tivityF urgeonsD nursesD support st'D equipmentD suppliesD nd operting rooms must e sheduled refully so ptient surgeries n e onduted e'etively nd e0ientlyF et olleges nd universitiesD sheduling the right ourses with the right numer of lssroom sets t the right times is ritil to llowing students to grdute on timeF
7.4.5 Process decisions
wngers must deide how to orgnize equipment nd lor to hieve the ompetitive gols of the orE gniztionF here re two si hoies for orgnizing the workple to produe goods nd serviesX @IA intermittent proessesD nd @PA repetitive proessesF Intermittent proesses orgnize lor nd equipment into deprtments y similrity of funtion to serve wide vriety of prodution requirementsF por exmpleD helth re lini must ter to the individul needs of every ptient who enters the lini for tretmentF yne ptient my hve roken nkleD while nother ptient my e pregnnt womn who needs prentl re hekupF yne ptient my e y with feverD while nother ptient my e getting presription medition re(lledF he primry orgniztionl gol for helth lini is eectiveness in treting the individul needs of eh ptientD nd n intermittent proess is often the most suitle wy to orgnize lor nd equipment to provide ustomized tretment for eh individul ptientF Ery equipment nd tehniins re orgnized into n Ery heprtmentF yther deprtments re reted for peditrisD lD gyneologyD phrmyD physil therpyD nd mny moreF tients re routed only to the deprtments tht re needed for their prtiulr tretment requirementsF his prodution proess is lled n intermittent proessD euse the tivity of eh deprtment hppens intermittently t irregulr intervlsD depending on the prtiulr needs of di'erent ptients @ustomersA t di'erent points in timeF sntermittent proesses re lso used in mnufturing opertions where wide vriety of produts re mnufturedD or where produts re mde to ustomer spei(tionsF iquipment nd lor n e orgnized into deprtments suh s drillingD punh pressD ltheD mhiningD pintingD het tretingD moldingD etF w mterils nd omponents re routed through the fility ording to the type nd order of mnufturing tivities neessry to produe the (nished itemsF ixhiit UFP illustrtes how two di'erent produtsD eTQ nd fS mke their wy through n intermittent proess lyoutF
Exhibit 7.2: Intermittent process ows
Repetitive proesses re used to produe identil or very similr produts in high volumesF iquipment nd lor re orgnized in line )ow rrngement to meet very spei( ustomer or produt proessing requirementsF ixmples inlude ssemly lines tht produe produts suh s omputersD rsD hmurgersD
IQU utomti r wshesD nd feteri linesF sn ll of these sesD the produts or ustomers follow the sme prodution steps to produe stndrdized outomeF ine the prodution requirements to produe eh unit of output re so well understoodD there re mny opportunities to hieve high levels of e0ieny in repetitive proess environmentsF Eciency is key gol in repetitive proess environmentsF snvestments in utomtion nd tehnology re (nnilly justi(ed euse the high volume of prodution spreds out the investment ost over more itemsGustomersF e pper mill is good exmple of repetitive proessF he mnufturing requirements re wellE understoodD pitl investment in utomtion is highD nd prodution volume is extremely high to keep unit prodution osts s low s possileF ixhiit UFQ represents n exmple of repetitive proess for produing produt suh s smll pplineD where rw mterils nd omponents re ssemled to eh unit t di'erent stges of produtionF he units )ow through the fility in uniform pttern until they re ompleted nd shipped to the ustomerF
Exhibit 7.3: Product ow in a repetitive process
he two min di'erenes etween the intermittent nd repetitive proesses re produt vriety nd produt volumeF sntermittent proesses re very )exile in meeting the individul requirements of di'erent produts or ustomersD ut they tend to e very ine0ientD with high mounts of witing timeD work in proess inventoriesD nd spe requirementsF epetitive proesses re very e0ient t reduing unit prodution ostsD witing timeD nd inventoriesD ut they re not very )exile in ommodting high produtGustomer vrietyF e ompromise solution is the cellular proess lyout tht ptures the dvntges of oth intermittent nd repetitive proessesF e ellulr proess rrnges dissimilr mhines nd equipment together in line tht is dedited to produing spei( fmily of produts tht hve similr proessing requirementsF fy setting up multiple dedited ellsD the fility n e0iently produe wide vriety of produts @ixhiit UFRAF ine the produts within fmily hve similr prodution requirementsD equipment setup timesD inventoriesD nd lot sizes n e kept to minimumF he ellulr pproh llows eh produt to e sent through the mnufturing proess one piee t timeD ording to the immedite set of ustomer ordersF st provides workers the )exiility to hnge produt or ustomize it in some wy in response to spei( ustomer requirementsF he ells re usully rrnged in shpeF his enles one worker to view multiple mhines simultneously nd puts ll mhines within esy rehing distneF gellulr proesses minimize yle times nd enle the orgniztion to mintin higher levels of produt volumesD vrietyD nd ustomiztionF
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CHAPTER 7.
Exhibit 7.4: Cellular Layouts
7.4.6 Technology decisions
here re mny ene(ts tht tehnology n ring to n opertions environmentF eutomted mhineryD progrmmle equipmentD nd mngement informtion systems n provide speedD low unit proessing ostsD lor ost svingsD inresed ury nd onsistenyD nd sophistited trking nd deision support systems to inrese opertions e0ieny nd e'etiveness for oth mnufturing nd servie environmentsF he min drwk in mny tehnology deisions is the high (xed ost of purhsing nd implementing the new systemsF sf mistkes re mde in tehnology purhsesD it n severely impt the fortunes of the ompnyF wngers re often ised in fvor of dopting leding edge tehnologyD espeilly if they see their ompetitors dopting itF pinnil justi(tions for purhsing new tehnology re often overly optimisti in estimtions of pyk periodsD the osts of implementtionD nd the tul gins in overll produtivity the (rm will enjoyF he hllenge for mngers in tehnology is seleting the right tehnology for the right pplitionF por exmpleD if mnufturing ompny elieves tht utomtion will inrese the (rm9s )exiility to dpt to hnging ompetitive environmentD questions should e skedD suh sX
ht type of )exiility does the ompny need to thrivec hoes it need to quikly swith prodution ross wide vriety of produts @produt mix )exiilityAc hoes it need to quikly produe new produts for rpidly hnging mrketple @produt development )exiilityAc hoes it need to e le to quikly rmp up prodution during times of high demndD nd quikly sle down prodution when ylil or sesonl demnd hits downturns @volume )exiilityAc
heere 8 go mnuftures mhinery for the highly ylil griulturl nd onstrution industriesF yne of the resons for heere9s suess over the mny dedes is its ility to keep its tehnology expenditures under ontrol so it n wether the inevitle delines in demnd for its produtsF heere mngers use mix of low tehnologyGlor intensive prodution methods nd utomtedGprogrmmle tehnologies in its mnufturing plntsF greful tehnology deision mking is mjor reson why heere 8 go ontinues to thrive in spite of its highly voltile mrketsF
7.4.7 Location decisions
here re mny ftors tht n determine where n orgniztion will lote its filitiesF por ny given situtionD some ftors eome more importnt thn others in how fility lotion 'ets n orgniztion9s e0ieny nd e'etivenessF
IQW
Proximity to sources of supplyX pirms tht proess ulk rw mterils usully lote lose to the soure of supply to redue trnsporttion ostsF per mills lote lose to forestsD nneries re uilt lose to frming resD nd (sh proessing plnts re loted lose to the hrors where the (shing vessels dokF Proximity to customersX here re severl resons why n orgniztion would lote lose to end ustomersF ervie (rms need to e lose to ustomers to e onvenientD s is the se for groery storesD gs sttionsD fst food resturntsD nd hospitlsF rnsporttion osts n lso require proximity to ustomersD s in the se of onrete mnufturingF erishle produts often require tht they e produed lose to the (nl mrketD s is the se for keries nd fresh )owersF Community factorsX gommunities my o'er numer of inentives to entie ompniesD inluding wiving or reduing txesD nd providing ess rodsD wter nd sewer onnetionsD nd utilitiesF gommunity ttitudes n lso ply role in n orgniztion9s lotion deisionF ome ommunities my tively disourge ompnies tht might ring more pollutionD noiseD nd tr0 to the reF ome ommunities my not wnt prison to e loted in their ommunityF yther ommunities my welome suh (rms euse of the josD tx revenuesD nd eonomi diversity they promiseF Labor factorsX eserh shows tht the mjority of lotion deisions re lrgely sed on lor ftorsD sine lor is ritil vrile for mny (rmsF vor ftors inlude the previling wge rte in ommunity for similr josD the supply of quli(ed workersD nd the verge edution level of the lol popultion @perentge of high shool grdutesD etFAF yther lor ftors n inlude the degree of union orgnizing nd the generl work ethi of ommunityD s well s other mesures of senteeism nd worker longevity in jo n ply strong roles when (rm mkes lotion deisionF Other factorsX wny other ftors n ply role in the lotion deisionD inluding qulity of life @rime rtesD good shoolsD limteD nd reretion optionsAD ess to mjor trnsporttion rteriesD onstrution ostsD proximity of the ompetitionD nd opportunities for future expnsionF es mentioned erlierD the importne of ny lotion ftor n vry gretlyD depending on the irumstnes of the deisionF
sn the IWWHsD wgsD mjor teleommunitions ompnyD deided to relote its engineering servies division from wgs9s hedqurters in shington hg to golordo pringsD golordo to redue lor nd fility ostsF he deision ws lrgely unsuessful due to the high osts of employee relotion nd the ft tht muh of the ethnilly diverse engineering workfore did not wnt to live in golordo pringsF nlike shington hgD golordo prings did not hve ulturl diversity to mth with its diverse nd highly eduted workforeD it lked employment options for spousesD nd the work ethi ws more relxed due to the eutiful nturl setting tht provided unlimited options for outdoor reretionF sn shortD if wgs hd put more e'ort into reserhing how well the golordo prings lotion mthed its strtegi requirementsD it proly ould hve sved itself millions of dollrs nd gret del of internl disruption to the orgniztionF
7.5 Chapter summary
ypertions mngement is strtegi funtion of the orgniztion tht produes the goods nd servies tht re o'ered to the ustomerF ypertions deisions determine how well these goods nd servies meet the needs of the orgniztion9s trget mrketD nd onsequentlyD whether the orgniztion will e le to survive over the long termF his hpter onludes with disussions of three peil topis in opertions mngement tht deserve speil ttention euse they re widely knowledged s est prties for suessful orgniztionsF hey inlude otl ulity wngementD upply ghin wngementD nd tustEsnEimeGven ypertionsF
5 This
IRH
CHAPTER 7.
7.6 Special topic: Total Quality Management
otl ulity wngement @wA is the orgniztionEwide mngement of qulity tht inludes filitiesD equipmentD lorD suppliersD ustomersD poliiesD nd proeduresF w promotes the view tht qulity improvement never endsD qulity provides strtegi dvntge to the orgniztionD nd zero defets is the qulity gol tht will minimize totl qulity ostsF hile this speil topi on w is not omprehensive disussion of ll spets of wD severl key onepts will e disussedF
7.6.1 Quality costs
en importnt sis for justifying w prtie is understnding its impt on totl qulity ostsF w is rooted in the elief tht preventing defets is heper thn deling with the osts of qulity filuresF sn other wordsD totl qulity osts re minimized when mngers strive to reh zero defets in the orgniztionF he four mjor types of qulity osts re preventionD pprislD internl filureD nd externl filureF Prevention costs re the osts reted from the e'ort to redue poor qulityF ixmples re designing the produts so tht they will e durleD trining employees so they do good joD ertifying suppliers to ensure tht suppliers provide qulity in produts nd serviesD onduting preventive mintenne on equipmentD nd doumenting qulity proedures nd improvementsF sn trditionl orgniztion tht does not prtie wD prevention osts typilly omprise the smllest perentge of totl qulity ostsF e good exmple of good produt design ours in ll rond produtsF rond produes wide vriety of items inluding utomoilesD esD enginesD genertorsD motorylesD outord motorsD snow lowersD lwn nd grden equipmentD nd even more itemsF o sy the lestD rond engines lst long timeF por exmpleD rond eords typilly run for well over PHHDHHH milesF imployee trining is lso very importnt prevention ostF por instneD employees in vegetleGfruit pkging wrehouse need to know wht d vegetleGfruit looks likeD sine ustomers will not wnt to (nd spoiled produe in the storeF vifegurds t swimming pool must know proper proedures for keeping swimmers sfeF sn mny irumstnes in oth mnufturing nd servie usinessesD the trining of employees n mke n enormous di'erene in preventing defetsF upplier seletion nd erti(tion re ritil prevention tivitiesF e produt or servie is only s good s the suppliers who prtner with n orgniztion to provide the rw mterilsD prts nd omponentsD nd supporting servies tht mke up the (nl produts nd servies tht the end ustomers reeiveF por exmpleD home furnishings store might use n outside suontrtor to instll rpetingD ut if the suontrtor fils to show up on timeD trks mud into the ustomer9s homeD or ehves in rude mnnerD the store9s reputtion will su'erF imilrlyD r mnufturer who purhses defetive tires from supplier risks inurring high osts of rells nd lwsuits when the defets re disoveredF reventive mintenne is neessry for preventing equipment rekdownsF wny mnufturing ompE nies use sophistited softwre to trk mhine usgeD nd determine optiml shedules for regulr mhine mintenneD overhulsD nd replementF houmenting qulity is neessry prevention ost euse it helps the orgniztion trk qulity perforE mneD identify qulity prolemsD ollet dtD nd speify proedures tht ontriute to the pursuit of zero defetsF houmenttion is importnt to ommuniting good qulity prtie to ll employees nd suppliersF Appraisal costs re seond mjor type of qulity ostF epprisl osts inlude the inspetion nd testing of rw mterilsD workEinEproessD nd (nished goodsF sn dditionD qulity uditsD smplingD nd sttistil proess ontrol lso fll under the umrell of pprisl ostsF snspetion nd testing of rw mterils is very importntD sine sustndrd rw mterils led to suE stndrd produtsF w mterils used for ridge determine the strength of the ridgeF por exmpleD soft steel will erode wy fster thn hrdened steelF woreoverD the onrete ridge deking needs to e solidD s onrete with ir pokets will erode nd rumle fster reting n unsfe ridgeF pinished goods nd workEinEproess inventory lso need inspeting nd testingF por exmpleD worker error is quite ommon in the home onstrution industryD nd this is why inspetions our frequently on
6 This
IRI newly onstruted homes during nd fter the onstrution proess is ompleteF fuilding inspetors ensure tht the house hs the proper frmingD eletrilD plumingD hetingD nd so forthF ulity udits nd smpling re lso importnt pprisl ostsF ulity udits re heks of qulity proedures to ensure tht employees nd suppliers re following proper qulity prtiesF ith smplingD ompny n ensure with on(dene tht th of produts is (t for useF por exmpleD wooden sell t mnufturer my test IH out of every IHH ts to hek tht they meet strength stndrdsF yne wek t n signl tht qulity prolems re presentF ttistil proess ontrol @gA is the (nl type of pprisl ostF g trks onEgoing proesses in mnufturing or servie environments to mke sure tht they re produing the desired performneF por exmpleD resturnt might sttistilly trk ustomer survey results to mke sure tht ustomer stisftion is mintined over timeF sn mnufturing windshields for utomoilesD g might e used to trk the numer of mirosopi ir ules in the glss to mke sure the proess is performing to stndrdF Internal failure costs re third tegory of qulity ostsF his ost ours when qulity defets re disovered efore they reh the ustomerF ixmples of internl filure osts inlude srpping produtD reworking the produtD nd lost produtivity due to mhine rekdowns or lor errorsF snternl filure osts re typilly more expensive thn oth prevention nd pprisl osts euse gret del of mteril nd lor often hs een invested prior to the disovery of the defetF sf ook pulisher prints IHDHHH ooksD then disovers tht one of the hpters is missing from every opyD the ost of reworking or srpping the ooks represents mjor loss to the ompnyF st would hve een muh heper to hve proedures in ple to prevent suh mistke from hppening in the (rst pleF sn the se of internl filure ost due to mhine filuresD pedixD nd other ourier servies nnot keep up with demnd when onveyor elt reks down in the pkge distriution enterF wjor delys nd osts our when suh inidents ourF yther exmples inlude rod onstrution ompny hving rod grder rek downD tool nd die shop hving gxg mhine rek downD nd frmer hving omine rek down during hrvest timeF External failure costs re the fourth mjor ost of qulityF ixternl filure osts when the defet is disovered fter it hs rehed the ustomerF his is the most expensive tegory of qulity ostsF ixmples inlude produt returnsD repirsD wrrnty limsD lost reputtionD nd lost usinessF yne spetulr exmple of externl filure ost ws when the ruell telesope ws lunhed into spe with mirrors tht were ground improperlyF hen the telesope ws turned onD insted of mgni(ent view of strsD plnetsD nd glxiesD the sientists ould see only lurred imgesF he prie of orreting the prolem ws over h I illionF ixternl filure osts lso our when the wrong mel is delivered to resturnt ustomerD when omputer reks down shortly fter it ws purhsedD when the wrong kidney is removed from ptientD nd when poorly designed utomoile uses the deth of drivers nd pssengersF feuse of the enormous osts of internl nd externl filuresD ll ompnies should strive for zero defetsF uessful w prtie dittes tht pursuing zero defets will result in the minimiztion of totl qulity osts y spending more on prevention nd pprisl tivities in order to redue the muh higher osts of internl nd externl filureF
7.6.2 TQM's seven basic elements
uessful prtie of otl ulity wngement involves oth tehnil nd people spets tht over the entire orgniztion nd extend to reltionships with suppliers nd ustomersF even si elements pture the essene of the w philosophyX ustomer fousD ontinuous improvementD employee empowermentD qulity toolsD produt designD proess mngementD nd supplier qulityF
Customer focusX heisions of how to orgnize resoures to est serve ustomers strts with ler understnding of ustomer needs nd the mesurement of ustomer stisftionF por exmpleD the ed gross surveys its lood donors to determine how it n mke the lood dontion experiene more plesnt nd onvenientF st ollets informtion on the pleD dte nd time donors me inD nd sks donors questions of whether the dontion time ws onvenientD whether they were treted with respet nd grtitudeD how long they hd to wit to donteD nd whether prking ws dequteF
IRP
CHAPTER 7.
fy understnding donors9 needs nd experienesD ed gross mngers n determine strengths nd weknesses of the dontion servie proess nd mke djustments if neessryF Continuous improvementX en orgniztionl ulture tht promotes ontinuous lerning nd proE lem solving is essentil in the pursuit of zero defetsF he oyot rodution ystem @A is universl ontinuous improvement system tht hs een e'etively pplied to mny di'erent types of orgniztionsD inluding the helth re industryF issentil elements of the ulture inlude studying proess )owD olleting dtD driving out wsteful nonEvlueEdded tivitiesD nd mking everyone responsile for qulity improvementF sn the se of helth reD the pproh enled one hospitl to nlyze the uses of ptient infetions from theters nd pneumoni in ptients on ventiltorsF ith simple hnges in proedures tht prevented ptients from getting these seondry illnessesD the hospitl ws le to sve h RHDHHH per ptient in these sesF Employee involvementX imployees in w environment hve very di'erent roles nd responE siilities thn in trditionl orgniztionF hey re given responsiilityD triningD nd uthority to mesure nd ontrol the qulity of the work they produeD they work together in tems to ddress qulE ity issuesD they re rossEtrined to e le to perform multiple tsks nd hve greter understnding of the totl prodution proessD nd they hve more intimte understnding of the opertion nd mintenne of their equipmentF imployees re essentil to the uilding of ontinuous improvement orgniztionF Quality toolsX hisussion of the detils of qulity tools extends eyond the sope of this hpterD ut there re seven si qulity tools tht re used y frontEline workers nd mngers in monitoring qulity performne nd gthering dt for qulity improvement tivitiesF hese tools inludeX useE ndEe'et @(shoneA digrmsD )owhrtsD heklistsD ontrol hrtsD stter digrmsD reto nlysisD nd histogrmsF he euty of these tools is tht they re esy to understnd nd pply in onEgoing qulity e'ortsF Product designX rodut design is key tivity to void ostly internl nd externl filure ostsF por exmpleD when dentl o0e designs the servie proessD it might hve ptients (ll out form tht overs importnt informtion on generl helth issuesD llergiesD nd meditionsF his helps to void future omplitions nd prolemsF t'D hygienistsD nd dentists re highly trined to follow proper proeduresD the fility is oth funtionl nd plesntD nd the equipment nd tools re stte of the rt to ensure tht the ptient9s desired outome is hievedF sn mnufturing settingD produts should e designed to mximize produt funtionlityD reliilityD nd mnufturilityF Process managementX ulity t the oure is n importnt onept in wF st mens tht mngers nd employees should e foused on the detiled tivities in proess where good or d qulity is retedF por exmpleD in oyot plnt in the nited ttes in qeorgetownD uentukyD one of the work sttions ws responsile for instlling set elts nd visors in every vehile tht me long the ssemly lineF here were IP possile omintions of visors nd set elts tht would go into ny prtiulr vehile nd the worker hd to selet the right omintion nd instll the items in the vehile in SS seondsF iven the est workers mde severl errors during shift on this tivityF efter studying the proessD the workers me up with n ide to put ll the items for prtiulr vehile model in lue plsti toteF ith this hngeD the worker only hd to mke one deision per vehileF elmost ll the errors from the previous system were eliminted with this simple solutionF Supplier qualityX he fous on qulity t the soure extends to suppliers9 proesses s wellD sine the qulity of (nished produt is only s good s the qulity of its individul prts nd omponentsD regrdless of whether they ome from internl or externl souresF hring your qulity nd engineerE ing expertise with your suppliersD hving forml supplier erti(tion progrmD nd inluding your suppliers in the produt design stge re importnt mesures to tke to ensure tht qulity t the soure extends to the supplier networkF
IRQ
7.6.3 Quality awards and standards
here re severl qulity wrds nd stndrds tht re ville for orgniztions to essF he lrge mjority of orgniztions tht use these progrms use them s tools to help improve their qulity proesses nd move towrd implementing nd suessfully prtiing wF he wlolm fldrige ewrd is nited ttes qulity wrd tht overs n extensive list of riteri tht re evluted y independent judges if n orgniztion hooses to ompete for the wrdF sn mny sesD orgniztions use the fldrige riteri s guide for their internl qulity e'orts rther thn ompete diretly for the wrdF he riteri n e essed from the snternet tX httpXGGwwwFldrigeFnistFgovGrnet7 F he snterntionl yrgniztion for tndrdiztion @syA sponsors erti(tion proess for orgnizE tions tht seek to lern nd dopt superior methods for qulity prtie @sy WHHHA nd environmentlly responsile produts nd methods of prodution @sy IRHHHAF hese erti(tions re inresingly used y orgniztions of ll sizes to ompete more e'etively in glol mrketple due to the wide eptne of sy erti(tion s riterion for supplier seletionF sy WHHH nd sy IRHHH re desried on the sy we pge tX httpXGGwwwFisoForgGisoGhomeFhtm8 F
The ISO 9000 family addresses "quality management". This means what the organization does to fulll:
the customer's quality requirements, and
applicable regulatory requirements, while aiming to
enhance customer satisfaction, and
achieve continual improvement of its performance in pursuit of these objectives.
The ISO 14000 family addresses "environmental management". This means what the organization does to:
minimize harmful eects on the environment caused by its activities, and to
achieve continual improvement of its environmental performance.
enother populr qulity wrd is the heming rizeD whih is tpnese qulity wrd for whih orgniE ztions from ny ountry n pplyF he heming rize ws nmed fter F idwrds hemingD n emerin sttistiinD uthorD nd onsultnt who helped improve nited ttes prodution pilities during orld r ssD ut is est known for his work in postEwr tpnF re is widely redited with ssisting the tpnese in reuilding their ntion9s prodution infrstruture in the res of produt designD produt qulityD nd testing through the pplition of sttistil methodsF plorid ower nd iletri ws the (rst emerin ompny to win the heming rizeD due to its metiulous use of forml pprohes to qulity improvementD dtEsed deision mkingD qulity improvement temsD nd the reful doumenttion of proesses nd proeduresF wore informtion on the heming rize n e found tX httpXGGwwwFjuseForFjpGeGdemingGindexFhtml9
7 http://www.baldrige.nist.gov/rnet 8 http://www.iso.org/iso/home.htm 9 http://www.juse.or.jp/e/deming/index.html
IRR
CHAPTER 7.
7.7 Special topic: supply chain management
10
upply hin mngement is the usiness funtion tht oordintes nd mnges ll the tivities of the supply hinD inluding suppliers of rw mterilsD omponents nd serviesD trnsporttion providersD inE ternl deprtmentsD nd informtion systemsF ixhiit UFS illustrtes supply hin for providing pkged milk to onsumersF
Exhibit 7.5: Illustration of a supply chain
sn the mnufturing setorD supply hin mngement ddresses the movement of goods through the supply hin from the supplier to the mnufturerD to wholeslers or wrehouse distriution entersD to retilers nd (nlly to the onsumerF por exmpleD eppleD sn uses sophistited informtion systems to ept orders for ustomEuilt omputers from individul ustomers ll over the worldF epple ssemles the omputers in hnghiD ghinD to the ustomers9 spei(tionsF st uses prts nd omponents tht re provided y outside suppliers who n deliver the right prts in the right quntity in timely wy to stisfy the immedite prodution sheduleF he ompleted omputers re )own from hnghi y pedixD rehing the endEuser ustomers only few dys fter the orders were pledF epple9s supply hin llows it to provide fst delivery of highEqulity ustom omputers t ompetitive priesF upply hin onepts lso pply to the servie setorD where servie (rms must oordinte equipmentD mterilsD nd humn resoures to provide servies to their ustomers in timely mnnerF por exmpleD retil store tht sells eletroni produts my ontrt with n outside usiness to provide instlltion servies to its ustomersF sn mny sesD the ustomer does not even know the instlltion ws done y n outside ontrtorF snformtion nd ommunition tehnologies suh s glol positioning systems @qAD rode tehnologyD ustomer reltionship mngement @gwA dtsesD nd the snternet llow servie usinesses to oordinte externl nd internl servie suppliers to e0iently nd e'etively respond to ustomer demndF he supply hin is not just one wy proess tht runs from rw mterils to the end ustomerF elthough goods tend to )ow this wyD importnt dt suh s forestsD inventory sttusD shipping shedulesD nd sles dt re exmples of informtion tht is onstntly eing onveyed to di'erent links in the supply hinF woney lso tends to )ow upstrem in the supply hin so goods nd servie providers n e pidF
10 This
IRS
7.7.1 Bullwhip eect
e mjor gol in supply hin mngement strtegy is to minimize the ullwhip e'etF he ullwhip e'et ours when inurte or distorted informtion is pssed on through the links in the supply hinF es the d informtion gets pssed from one prty to the nextD the distortions worsen nd use poor ordering deisions y upstrem prties in the supply hin tht hve little pprent link to the (nl endEitem produt demndF es informtion gets frther from the end ustomerD the worse the qulity of informtion gets s the supply hin memers se their guesses on the d guesses of their prtnersF he results re wsteful inventory investmentsD poor ustomer servieD ine0ient distriutionD misused mnufturing pityD nd lost revenues for ll prties in the supply hinF por exmpleD ypen nge tens @ (titious ompnyA re sold in populr retil store hinF he retil hin deides to promote ypen nge tens nd redue the prie to oost ustomer tr0 in its storesD ut the hin does not tell the ypen nge mnufturer of this promotion plnF he mnufturer sees n inrese in retil ordersD forests longEterm growth in demnd for its jensD nd ples orders with its suppliers for more friD zippersD nd dyeF uppliers of friD zippers nd dye see the inrese in orders from the jens mnufturer nd oost their orders for rw ottonD hemilsD etF wenwhileD the retil hin hs ended its ypen nge promotionD nd sles of the jens plummet elow norml levels euse ustomers hve stoked up to tke dvntge of the promotion priesF tust s endEustomer demnd fllsD new jens re eing mnufturedD nd rw mterils re eing sent to the jens ftoryF hen the flling endEustomer demnd is (nlly relizedD mnufturers rush to slsh produtionD nel ordersD nd disount inventoriesF xot wnting to get urned twieD mnufturers wit until (nished goods jen inventories re drwn down to miniml levelsF hen sesonl demnd inreses jens purhsesD the retil stores order more ypen nge jensD ut the mnufturers nnot respond quikly enoughF e stokout ours t the retil store level just s ustomers re purhsing jens during the kEtoEshool sles sesonF etil ustomers respond to the stokout y purhsing the jens of mjor ompetitorD using longEterm dmge to ypen nge9s mrket shreF
7.7.1.1 Causes of the bullwhip eect
he ullwhip e'et is used y demnd forest updtingD order thingD prie )ututionD nd rtioning nd gmingF
Demand forecast updating is done individully y ll memers of supply hinF ih memer updtes its own demnd forest sed on orders reeived from its downstrem ustomerF he more memers in the hinD the less these forest updtes re)et tul endEustomer demndF Order batching ours when eh memer tkes order quntities it reeives from its downstrem ustomer nd rounds up or down to suit prodution onstrints suh s equipment setup times or truklod quntitiesF he more memers who ondut suh rounding of order quntitiesD the more distortion ours of the originl quntities tht were demndedF Price uctuations due to in)tionry ftorsD quntity disountsD or sles tend to enourge usE tomers to uy lrger quntities thn they requireF his ehvior tends to dd vriility to quntities ordered nd unertinty to forestsF Rationing and gaming is when seller ttempts to limit order quntities y delivering only perentge of the order pled y the uyerF he uyerD knowing tht the seller is delivering only frtion of the order pledD ttempts to gme the system y mking n upwrd djustment to the order quntityF tioning nd gming rete distortions in the ordering informtion tht is eing reeived y the supply hinF
7.7.1.2 Counteracting the bullwhip eect
o improve the responsivenessD uryD nd e0ieny of the supply hinD numer of tions must e tken to omt the ullwhip e'etX
IRT
CHAPTER 7.
wke relEtime endEitem demnd informtion ville to ll memers of the supply hinF snformtion tehnologies suh s eletroni dt interhnge @ihsAD r odesD nd snning equipment n ssist in providing ll supply hin memers with urte nd urrent demnd informtionF iliminte order thing y driving down the osts of pling ordersD y reduing setup osts to mke n ordered itemD nd y loting supply hin memers loser to one nother to ese trnsporttion restritionsF tilize pries y repling sles nd disounts with onsistent everyEdy low pries t the onsumer stge nd uniform wholesle priing t upstrem stgesF uh tions remove prie s vrile in determining order quntitiesF hisourge gming in rtioning situtions y using pst sles reords to determine the quntities tht will e delivered to ustomersF
7.7.2 Other factors aecting supply chain management
sn ddition to mnging the ullwhip e'etD supply hin mngers must lso ontend with vriety of ftors tht pose onEgoing hllengesX
snresed demnds from ustomers for etter performne on ostD qulityD deliveryD nd )exiilityF gustomers re etter informed nd hve roder rry of options for how they ondut usinessF his puts dded pressure on supply hin mngers to ontinully improve performneF qloliztion imposes hllenges suh s greter geogrphi dispersion mong supply hin memersF qreter distnes rete longer led times nd higher trnsporttion ostsF gulturl di'erenesD time zonesD nd exhnge rtes mke ommunition nd deisionEmking more di0ultF foeing nd eirus hve disovered the downside of souring from glol suppliersF wuh smller suppliers of kithen glleysD lvtoriesD nd pssenger sets hve een unle to ful(ll orders from foeing nd eirusD leving the ltter unle to deliver plnes to its irline ustomersF qovernment regultionsD tri'sD nd environmentl rules provide hllenges s wellF por exmpleD mny ountries require tht produts hve minimum perentge of lol ontentF feing environmentlly responsile y minimizing wsteD properly disposing of dngerous hemilsD nd using reylle mterils is rpidly eoming requirement for doing usinessF
7.7.3 Supplier selection
ghoosing suppliers is one of the most importnt deisions mde y ompnyF he e0ieny nd vlue supplier provides to n orgniztion is re)eted in the end produt the orgniztion produesF he supplier must not only provide goods nd servies tht re onsistent with the ompny9s missionD it must lso provide good vlueF he three most importnt ftors in hoosing supplier re prieD qulityD nd onEtime deliveryF e ompny must not only hoose who it wnts s supplierD it must lso deide how mny suppliers to use for given good or servieF here re dvntges to using multiple suppliers nd there re dvntges to using one supplierF hether to singleEsoure or multipleEsoure often depends on the supply hin struture of the ompny nd the hrter of the goods or servies it produesF sf ompny uses single supplierD it n form prtnership with tht supplierF e prtnership is longE term reltionship etween supplier nd ompny tht involves trustD informtion shringD nd (nnil ene(ts for oth prtiesF hen oth prties ene(t from prtnershipD it is lled winEwin situtionF st is esy to see how hoosing suppliers is one of the most importnt deisions ompny mkesF here re dvntges nd disdvntges to using one supplierF yne dvntge is tht the supplier might own ptents or proesses nd e the only soure for the produtF ith one supplierD priing disounts my e grnted euse purhses over the longEterm re lrge nd unit prodution osts for the supplier re lowerF he supplier my e more responsive if you re the only purhser of n itemD resulting in etter supplier reltionsF tustEinEtime ordering is esier to implementD nd deliveries my e sheduled more esilyF pinllyD using single supplier is neessry to form prtnershipF yne disdvntge is tht if tht one
IRU supplier experienes disster t its wrehouse like (re or torndoD or its workers go on strikeD there is no other redy soure for the produtF enother possile disdvntge is tht single supplier my not e le to supply very lrge quntity if it is suddenly neededF elsoD sometimes the government requires the use of multiple suppliers for government projetsF here re lso dvntges nd disdvntges to using multiple suppliersF uppliers might provide etter produts nd servies over time if they know they re ompeting with other suppliersF elsoD if disster hppens t one supplier9s wrehouseD other suppliers n mke up the lossF sf ompny uses multiple suppliersD there is more )exiility of volume to mth demnd )ututionsF yne disdvntge with multiple suppliers is tht it is more di0ult to forge longEterm prtnershipsF snformtion shring eomes riskierD lower volumes for eh supplier provide fewer opportunities for ost svingsD nd suppliers tend to e less responsive to emergeny situtionsF rtnerships re longEterm reltionships etween supplier nd ompny tht involve trust nd shring nd result in ene(ts for oth prtiesF e good exmple of prtnership is the prtnering etween heere 8 goF frm equipment ftory nd its suppliersF heere deided to outsoure its sheet metlD r stokD nd stings prt fmiliesF hen heere sent requests for ids to IPH ompniesD PR ompnies responded to sy they were interestedF heere then sent tem of engineersD qulity speilistsD nd supply hin mngers to evlute eh ompnyF yne supplier ws hosen for eh of the three prt fmiliesF ell three of the suppliers tht were hosen were loted less thn two hours of driving time from the heere plntF por mny yersD ll three suppliers hve ontinued to provide outstnding qulityD deliveryD nd ost performne to heereF he suppliers ene(ted y gining longEterm ustomer with lrge mount of pro(tle usinessF heere relized SH per ent drop in prodution osts on the three prt fmilies nd ws le to etter fous on its mission of mnufturing frm equipmentF
7.7.4 Conclusion
upply hin mngement onerns the development of ommunition nd informtion systems to link suppliers together in oopertive prtnerships tht promote dvntge for ll prtiipntsF fene(ts inlude fster response timesD redued inventory ostsD inresed uryD nd improved qulityF
7.8 Special topic: just-in-time and lean systems
11
tustEinEtime @tsA is mngement philosophy tht originted in the IWUHsF iihi yhno is redited with developing ts nd perfeted it for oyot9s mnufturing plnts in tpnF he min gol of ts is to eliminte nything tht does not dd vlue from the ustomer9s perspetiveF xonEvlueEdded tivities re referred to s wste in tsF ixmples of wste inludeX
overprodution eyond wht is needed to stisfy immedite demnd witing time @workEinEproessD ustomer witingA unneessry trnsporttion @mteril hndlingD ustomer trvel through filityD etFA proessing wste @yield rtesD strtEup ostsA inventory storge wste @speD deteriortionD osoleseneD etFA unneessry motion nd tivity @wste in work tehniquesD etFA wste from produt nd servie defets @reworkD srpD wrrntyD etFA
here re three essentil elements tht ontriute to the suessful prtie of tsX
ts mnufturing priniples otl ulity wngement @wA employee empowerment

11 This
IRV
7.8.1 JIT manufacturing principles
CHAPTER 7.
sn mnufturing settingD there re six mjor wys to pursue ts golsX inventory redution to expose wsteD use of demndEpull prodution systemD quik setups to redue lot sizesD uniform plnt lodingD )exile resouresD nd ellulr )ow lyoutsF
7.8.1.1 Inventory reduction to expose waste
snventory overs up lot of wsteful prties @poor equipmentD wek vendorsD d qulityD long setup timesD etFAF fy grdully lowering inventoryD the weknesses of the prodution system n e reveled nd ddressed one y oneF whines n e repled or etter mintinedD vendors qulity nd delivery n e improvedD mhine setup proedures n e stremlinedD qulity prties n e implementedD nd lor nd equipment n e lid out more e0ientlyF hese improvements permit the orgniztion to operte with less inventoryD less ostsD nd fster response times in meeting ustomer needsF
7.8.1.2 Demand-pull production system
he trditionl pproh to mnufturing mngement promotes strong fous on mhine nd lor utiliztionF he view ws tht if mngers mke sure tht workers nd mhines re lwys usyD then surely the ftory will e produtive nd e0ientF his pproh is lled the push system of mnufturingD where rw mteril nd workEinEproess is ontinuously pushed through the ftory in the pursuit of high utiliztionF he prolem with this pproh is tht it usully produes high levels of inventoriesD long led timesD overtime ostsD high levels of potentil reworkD nd workers who re ompeting with one nother rther thn working oopertivelyF sn ontrst to the push systemD ts espouses demndEpull system tht opertes on the rule tht work should )ow to work enter only if tht work enter needs more workF sf work enter is lredy oupied with work tivityD the upstrem work enter should stop prodution until the downstrem work enter ommunites need for more mterilF he emphsis on mintining high utiliztion is removed in ts environmentF he fous of ts environment is on ddressing the hllenges tht 'et the overll e'etiveness of the ftory @setup time redutionD qulity improvementD enhned prodution tehniquesD wste elimintionD etFA in meeting its strtegi golsD rther thn llowing exess inventory to over up ine0ienies tht redue the ftory9s ompetitivenessF
7.8.1.3 Quick setups to reduce lot sizes
he longer it tkesD nd the more expensive it is to setup equipment nd lor to produe n itemD the greter the quntity of items tht hve to e produed in given prodution runF rditionl prodution mngement philosophy promoted the notion tht long prodution runs of the sme item were the key to driving down unit ostsF he prolem ws tht lrge prodution runs reted lrge quntities of s nd (nished goods inventory tht fr exeeded the demndF hese items would onsequently use high levels of inventory ostsD long led timesD high potentil reworkD low )exiility in responding to ustomer needsD etF hriving down setup osts nd setup times re key to drmtilly improving ftory ompetitiveness in ts environmentF sn the IWVHsD the Qw ompny onverted ftory tht mde few dhesive produts in long prodution runs into ftory tht mde over SHH dhesive produts in smll prodution runsF o keep unit prodution osts under ontrolD Qw studied the setups on its oting mhinesF ine the ost of hemil wste disposl ws mjor prt of the ost of hnging over oting mhine to mke nother produtD Qw shortened the length of hoses tht needed purging nd redesigned the shpe of the dhesive solution holding pn on the oting mhine to e shllowerF Qw lso used quikEonnet deviesD disposle (ltersD nd work tems to speed up setupsF he result ws tht Qw ould mintin low unit osts on its oting mhines while produing smll lots of hundreds of produts to meet mrket demnd quiklyF
IRW
7.8.1.4 Uniform plant loading
he suessful prtie of ts mens hving the right quntities of the right produts in the right ple t the right timeF hriving down setup times enles the ompny to produe the produt mix nd quntities tht re demnded in the present time periodF
7.8.1.5 Flexible resources
he enemy of ts is unertintyF e ts environment thrives on preditility in ustomer demndD proE dution proessesD suppliersD nd workersF yf ourseD unertinty nnot e ompletely eliminted in most orgniztionl environmentsF he defense ginst unertinty tht nnot e driven out is to implement )exile resoures tht n dpt esily to hnging irumstnesF qenerlEpurposeD movele equipment tht n ful(ll wide vriety of prodution requirements is one wy to improve )exiilityF por exmpleD drilling mhines with quikEhnge its whih n e wheeled into position to form new work ells llows the ftory to mximize e0ieny while produing extly wht is needed to stisfy immedite demndF enother exmple is oyot9s use of pint nisters tht tth to pint spryersF eny r n e pinted ny olor without hving to purge hoses in swithing from one olor to notherF wultifuntionl workers re nother wy to ring )exiility to the work environmentF et roneywell9s heting nd ooling ontrols plntD workers re trined to operte ll the mhines on their work lineF he )exiility tht omes from multifuntionl workers hnges the nture of how work gets doneF snsted of workers eing trined on one mhine nd working independently of one notherD multifuntionl workers hve ig piture view of the prodution lineD where every worker understnds ll spets of the line nd how to work together to meet qulity nd shedule gols regrdless of the irumstnesF
7.8.1.6 Line/cellular ow layouts
irlier in this hpterD we desried the e0ienies tht repetitive proess lyouts provideF epetitive proess lyouts re perfetly suited for driving out nonEvlueEdded tivities nd trnsitioning to ts environmentF sntermittent lyouts feture dozens or even hundreds of di'erent pths through the filityF hey re (lled with omplexityD unertintyD nd low visiilityF orkers tend to hve speilized skillsD work independently of other deprtmentsD nd hve little sense of ownership of the produts they work onF sn ontrstD ell lyouts promote ts gols y feturing unidiretionl produt )owsD high visiilityD nd fst throughput timesF orkers with multifuntionl skills re ssigned to individul ells nd hve responsiility nd ontrol of the produts they produeF orkers in ell environment tend to hve greter sense of ownership nd pride in their work euse they hve ig piture view of the produt s it is onverted from rw mteril to (nished goodF his deeper understnding of the prodution proess inreses the opportunities for workers to ontriute ides for proess improvementsF
7.8.2 Total Quality Management
w ws disussed in detil erlierF w goes hnd in hnd with the ts philosophy euse qulity is mjor soure of unertinty nd nonEvlueEdded tivities in n orgniztion with poor qulity prtiesF w promotes ontinuous improvementD doing it right the (rst timeD designing qulity into produts nd proessesD nd estlishing n overll fous on prevention s the primry qulity tivityF
7.8.3 Employee empowerment
prontEline employees ply ritil role in suessful ts prtieF hey work in prtnership with mnE gement nd eh other in the ontinuous pursuit of exelleneF here re severl wys in whih frontEline employees ontriute to ts suessX
ISH
CHAPTER 7.
imployees work together in prolemEsolving tems to gther dt nd uild onsensus on how to improve work proessesF imployees re responsile for understnding the qulity mesures of their work nd wht they need to do to meet the needs of internl nd externl ustomersF ih employee is empowered to tke tion to orret prolemsF imployees hve rossEfuntionl skill sets tht llow them to e ssigned to res whih need helpD nd to help them dopt roder @ig pitureA view of the prodution proessF nlike trditionl push environment where line workers re reltively independent of one nother in their work tivitiesD ts employees re onneted y the demnd pull disiplineD where work is not produed unless the downstrem work enter needs itF hemndEpull promotes the interEonnetedness of workersF prontEline employees re responsile for the si mintenne of their mhinesF his helps employees hve etter understnding of the ondition of their equipment nd its ility to meet qulity nd prodution requirementsF
wngement works with employees y eing ohes nd filittors rther thn uthorittive supervisorsF wngers re hrged with hiring employees who n work in protive tem environmentD nd provide the trining nd inentives to uild work ulture tht is foused on ontinuous improvementF
7.8.4 Conclusion: The evolution of JIT into lean operations
he ts philosophy hs evolved from mnufturingEfoused mngement pproh to set of mngement priniples tht n e pplied to ny orgniztionF ven opertions is term tht is repling tsD espeilly in servie environmentsF ven opertions ptures the true essene nd power of how ulture uilt round ontinuous improvement nd the pursuit of vlueEdded tivities leds diretly to ompetitive dvntge in the mrketpleF ven opertions is mngement philosophy for ny orgniztion to hieve higher qulityD inresed produtivityD improved delivery speedD greter responsiveness to hnging mrketsD nd inresed ustomer stisftionF
Chapter 8
Securing and managing external relationships


1
understnd the fundmentl elements of externl reltionships know the type of ommon reltionships nd the phses of developing reltionships use the hrteristis of the usiness sitution to hoose the right type of reltionship understnd the reltionship etween types of externl reltionship nd usiness strtegies understnd the risks ssoited with vrious usiness strtegies
2
8.2 Introduction to external relationships
sn tody9s usiness worldD orgniztions inresingly depend upon developing externl reltionships to remin ompetitiveF his trend ours for two resonsF pirstD orgniztions hve ome to relize tht they nnot e (rstErte in every phse of their usiness @eFgF mrketingD produtionD informtion systemsD etAF snstedD they reognize tht etter strtegy is one in whih they fous on ore ompeteniesD or the things they do estD nd estlish reltionships with other ompnies to perform those funtions where they do not hve outstnding pilitiesF por exmpleD emzonFom o'ers wide vriety of produts nd even reommends personlized suggestions to its ustomersF st relizesD howeverD tht other ompnies suh s pedix nd hve worldElss ompetene in delivering goodsF ht is why emzonFom3 ustomers hve their purhses delivered y pedixD or ountry9s postl servieF ou do not see emzon delivery truks nd likely never willF eondlyD informtion nd ommunition tehnologies mke it muh esier to opertionlly rete semless reltionshipsF snstnt ommunitions etween two seprte ompnies enle them to mnge usiness proess s if the two ompnies were single ompnyF foth ompnies nd the ustomers ene(t from reltionships tht workF he entire usiness proess of ordering nd delivering is world lss for emzonFomF edditionllyD pedix or reeives more usinessD nd ustomers ene(t from reeiving superior servieF ixternl reltionships provide ess to dditionl informtion nd (nnil resouresD whih idelly results in inresed pro(tility nd suessF etD forming reltionships involves ssoited risksD nd dete ontinues out how to est relize ene(ts nd minimize osts @treet nd gmeronD PHHUAF xeverthelessD mny mngers now gree tht strtegies for estlishing nd mnging externl reltionships re neessry for ll orgniztions in the urrent nd future glol usiness environmentF
1 This content is available online 2 This content is available online 3 http://www.Amazon.com
at <http://cnx.org/content/m35462/1.4/>. at <http://cnx.org/content/m35453/1.4/>.
ISI
ISP
CHAPTER 8.
SECURING AND MANAGING EXTERNAL RELATIONSHIPS
his hpter desries the omponents of externl reltionships to provide the kground needed to understnd nd form the right reltionships for orgniztions of ll sizesF hese inlude the types of ommon reltionshipsD the phses of reltionship developmentD ritil ftors for suessful reltionships nd the skills needed to perform these essentil tsksF veverging externl reltionships requires strtegi perspetive tht rnges from otining relile supplies of rw mterils for internl prodution proesses to outsouring entire usiness proessesF ixhiit VFI shows tht developing the right reltionships depends on implementing expliit strtegies tht re uilt upon n understnding of reltionship fundmentlsF
Exhibit 8.1: Developing relationships
en externl reltionship is de(ned s ommerilly oriented link etween two usiness institutions with the intent of inresing tngile ndGor intngile ene(ts for one or oth of the orgniztions inE volved @treet nd gmeronD PHHUAF wo ommon types of externl reltionships re mrket exhnges nd prtnershipsD whih we will disuss lter in this hpterF
8.2.1 Trends in management
he glol usiness environment requires mngers to integrte outside soures nd usiness prtners to inrese e0ienyF ehnology hs een proven to e key ftor in improving good reltionshipsD while lso providing pilities to evlute nd eliminte poor reltionships @nnell nd ullivnD PHHHAF gompnies re prtnering together to form virtul orgniztionl unitsD whih work to the ene(t of ore usinesses s we illustrted with the emzonFom exmple in the introdution to this hpterF wngers must hve usiness mngement skillsD tehnil skillsD nd thorough knowledge of externl reltionship mngement in order to tke optiml dvntge of opportunities nd leverge the skills nd knowledge of other orgniztions to mximize returns on investmentF
8.2.2 Trust: the foundation for a successful relationship
yne of the most importnt elements in developing suessfulD longEterm reltionship is trustF rust 'ets the qulity of every reltionshipD every ommunitionD nd every projetF Trust n e de(ned s the elief
ISQ tht one prty will ful(ll its oligtionsF eording to tim furkeD former hirmn nd giy of tohnson 8 tohnsonD ou n9t hve suess without trustF he word trust emodies lmost everything you n strive for tht will help you to sueed @goveyD PHHTAF his key ftor must e mutul etween ll orgniztions involvedD whether they re suppliers of mterils or providers of outsouring pilitiesF sf mutul trust is estlished erly onD ll orgniztions will ene(t through greter willingness to shre idesD golsD nd work together to solve prolemsF irrorX eferene soure not found revels trust is funtion of (ve di'erent dimensionsF
Exhibit 8.2: Dimensions of trust
DependabilityX ss one prty mking nd ful(lling promises to nother @goveyD PHHTAF hependility n lso e exempli(ed vi third prty on(rmtionsF por exmpleD redile soure n vouh for (rm when dependility hs een proven through pst experienesF rodut demonstrtions nd plnt tours re other wys ompnies n illustrte the pility to e dependleF CompetenceX ss when n orgniztion ppers knowledgeleF hemonstrting ompetene n e the fstest wy to inrese trust @goveyD PHHTAF e thorough understnding of suppliersD ustomersD produtsD ompetitorsD nd the industry demonstrtes ompeteneF sf mnger understnds the reltionships they developD the orgniztion will e pereived s ompetentF Relationship orientationX ss the degree to whih the ompny puts the prtner (rst @eitzD gstleE erryD nd nnerD PHHSAF e ompny nnot e suessful if mngers re only onerned out their own pro(ts within trnstionF he ompny hs to mke their prtner feel vlued nd n omE plish this y tiloring produt or servie spei(lly for its prtnerF greting feeling of individulity usully results in loylD relile prtnerF HonestyX snorportes truthfulnessD sinerityD nd dependilityF por exmpleD if seller hs estE lished dependle reputtionD the ompny is usully pereived to e honestF roweverD illustrting honesty hs mny other fets s wellF e good prtner orgniztion should provide ll spets of the truthD whether it is positive or negtive informtionF greting reltionship sed on foundtion of lies is one of the iggest mistkes n orgniztion n mkeF rtners typilly disover the liesD whih my result in the loss of ritil supplies ndGor highly pro(tle opportunitiesF yne wy to omt this is to rete ulture tht vlues nd enourges honestyF tudies hveD in ftD shown tht telling the truth strengthens temEuilding e'orts nd inreses morle nd produtivity @mithD PHHUAF LikeabilityX ss (nding ommonD friendly ground etween the prtnersF he reltionships you selet should e ones where you would like to inrese trustD nd whereD y improving trustD you would get fr etter results professionlly @goveyD PHHTAF his is likely the lest importnt of the (ve dimensions of trustY however it is still noteworthy in the formtion of n externl reltionshipF
ISR
CHAPTER 8.
8.3 Marketing exchanges and partnerships
sn PHHSD frton e eitzD tephen f gstleerryD nd tohn p nner pulished their ook ellingX fuilding eltionships in whih they disuss mny of the spets of modern usiness reltionshipsD inluding mrket exhnges nd prtnershipsF eording to their ookD mrket exhnge is de(ned s reltionship where eh prty is only onerned with their own welfreF e prtnershipD onverselyD is sed on reting mutully ene(il 0lition for oth of the orgniztionsF wrket exhnges nd prtnerships oth generte ommerilly oriented onnetionsD whih lssi(es the two reltionships s externl @eitzD gstleerryD nd nnerD PHHSAFwrket exhngeX e market exchange is type of reltionship etween uyer nd seller in whih eh prty is only onerned out tht prtiulr prty9s ene(t @eitzD gstleerryD nd nnerD PHHSAF
Exhibit 8.3: Market exchange
e solo exchange is trnstion tht ours etween the uyer nd seller where eh pursues9 their own individul selfEinterest @eitzD gstleerryD nd nnerD PHHSAF uppose you re trveling to visit reltives in nery town on wrm nd sunny turdy morningF es you pss smll store tht is hving sle you see wooden enhD muh like one your grndmother hdD with h PS selling prieF et this point you might py the h PS for the enhD hggle for lower prieD or wlk wy from the trnstionF ou deide to mke the seller n o'er of h IH for the enhF efter miniml negotitions the rgin prie of h IS is greed uponF his trnstion is n exmple of solo exhngeF he two prties re not interested in or onerned out the wellEeing of the other prtyF xeither youD nor the sellerD expet to engge in future trnstionsD nd oth prties re suessful in pursuing their individul golsF he onsumer reeives the enh for the lowest possile prieD while the seller hrges the highest eptle prieF e solo exhnge should not e onsidered n ethil deisionD merely n unomplitedD oneEtime hoieF
8.3.1 Two basic relationship types
he two si reltionship types of mrket exhnge nd prtnerships re divided further sed on eight ftors shown in olumn I of le VFIX ypes of reltionshipsF rying vlues of these ftors represent situtions where the orgniztions reh greter levels of integrtion nd provide greter returns to oth sides of the reltionshipF
Types of relationships
4 This
ISS @IA wrket exhnges ptors involved in the reltionship ime horizon gonern for the prty rust snvestment in relE tionship xture of reltionE ship isk in reltionE ship otentil ene(ts olo exhnge short term low low low on)itD ing low low rginE puntionl tionship long term low low low oopertion medium medium
Table 8.1
@PA rtnerships relE eltionl nership long term medium high low ommodtion high high prtE trtegi prtnerE ship long term high high high oordintion high high
8.3.1.1 Functional relationship
e functional relationship is longEterm mrket exhnge hrterized y loylty @eitzD gstleerryD nd nnerD PHHSAF his type of reltionship portrys the uyer purhsing produt out of routine or ptternF sn funtionl reltionshipD previous purhses will often in)uene lter purhsesF ypillyD the uyer will ontinue to purhse from their seleted seller s long s the prie nd the produt sty reltively onsistent to the originl trnstionF fuyers often illustrte this loylty for severl resonsF yne reson uyer remins loyl is simply onvenieneF st is esier for the uyer to void the rduous tsk of serhing nd negotiting for produt every time reurring purhse needs to e mdeD espeilly when they re likely to ome to the sme onlusion nd uy gin from the previous supplierF por exmpleX e uyer for shool is in hrge of purhsing ll items tht will e neessry for the feteri to funtionF essume the shool in question is smll elementry shool with only out one hundred studentsF he uyer must purhse snksD ndyD metD nd drinksD just to nme fewF his prtiulr uyer uses wholesler to purhse ll neessry itemsF his wholesler hs no desire to estlish prtnership with the shoolY it merely wishes to sell s mny items s possileF imilrlyD the suess of this reltionship will not mke or rek the shool9s suess s n edutionl institutionF his 0lition is estlished out of onvenieneF roweverD if the vendor egins to hve poor servie or in)ted priesD the purhser will simply hoose omprle wholesler with little nxietyF ith funtionl reltionshipD oth prties re interested in their own pro(tsD thereforeD prie is usully the most importnt ftor in the deision mking proessF he reltionship estlished etween the uyer nd seller is not permnentF fuyers will often hnge suppliers to try nd get the est possile delY howeverD when deiding on supplier other ftors re often weighed into the eqution suh s qulityD reliilityD trustD nd ommitmentF
8.3.2 Partnerships
e partnership is two prties onerned out the welfre of eh other in developing winEwin reltionship @wohrD IWWRAF here re two types of prtnershipsX reltionl nd strtegi prtnershipF
IST
CHAPTER 8.
8.3.2.1 Relational partnership
e relational partnership is prtnership tht develops on the premise of loseD personl reltionship uilt on trust @wohrD IWWRAF ith this type of prtnership there is n open line of ommunitionD nd the prties work together in order to overome ny potentil prolemsF foth sides of the prtnership re trying to mke moneyD ut the more importnt ftor is developing longEtermD working reltionship tht will ontinue to generte money over timeF hen reltionl prtnerships re suessfulD it is often not neessry to hve more thn miniml negotitions out prieF sn dditionD minor detils will not e llowed to deril or end the reltionships euse the gol is to estlish n ongoing mutully ene(il exhngeF eltionl prtnerships my develop euse of personl tiesD ut more often they our due to profesE sionl neessityF por exmpleD every yer lrge usinesses reruit new employees using ooths t reer firs ross the ountryF uh reer fir progrm is not signi(nt enough for the ompny to enter into strtegi prtnership with n employment servie to perform hiring t reer firsD ut (nding employees with the neessry skills is still very importntF egionl mngers will likely e responsile for this jo nd they my form reltionl prtnership with the orgniztions tht host the jo firs in their re to ensure tht when the jo firs re plnned the representtive ompny will e inludedF e reltionl prtnership is more similr to friendship thn to mrket exhngeF ther thn showing onern only for their own self interestsD prtners will o'er their time nd resoures to ontinue the reltionshipD euse of the expeted future ene(ts of ontinuing intertionsF tmes gsh enneyD the founder of the deprtment store hin tgenneyD elieved tht ll gret usinesses re uilt on friendshipF sf this idel is ppliedD strong foundtion n e formed through reltionl prtnershipsF
8.3.2.2 Strategic partnership
e strategic partnership is longEterm usiness reltionship in whih the prtner orgniztions mke signi(nt investments to improve the pro(tility of oth prties @wohrD IWWRAF trtegi prtnerships re reted to unover nd exploit joint opportunities while minimizing joint weknessesF foth prties will ontriute (nnillyD nd onsequently tke signi(nt risks in order to provide the prtnership with strtegi dvntgeF his type of prtnership is founded on the sis tht oth memers re dependent on eh otherF he prtners will hve the sme golsD s well s gree on the est ourse of tion to hieve those golsF sn order to hieve the trget ojetiveD prtnerships must e sed on n openEdoor poliyY the prtnership nnot e suessful if informtion is kept on(dentil or there is lk of willingness to ept risk equllyF en exmple of strtegi prtnership ws evident in PHHU when ime rner9s eyv strengthened their strtegi prtnership with qoogleF qoogle invested one illion dollrs for (ve per ent stke in eyvF he greement reted glol online dvertising prtnershipD whih hs mde more of eyv9s industry leding ontent ville to qoogle usersF hese strtegi prtnerships tend to e very suessful euse produts nd servies re reted tht re not o'ered y ompetitorsF fefore entering into ny prtiulr type of prtnershipD eh ompny should onsider ll of the potentil ene(ts nd onsequenesF he next setion of this hpter will help weigh the vrious osts nd ene(ts relted to hoosing reltionshipF
8.4 Choosing the right relationship
wngers re responsile for estlishing the type of reltionship tht is pproprite for eh situtionF ivery sitution should e onsidered inherently di'erentF he dynmis of every reltionship re unique nd mngers must ustomize their greements to the situtionF hereforeD efore deiding wht type of reltionship to develop severl ftors need to e onsidered @eitzD gstleerryD nd nnerD PHHSAF hese ftors inlude mrket issues @eFgF mturityD sizeD nd rriersAD the potentil returns of the reltionshipD nd
5 This
ISU the pilities provided y the prtners @eFgF experiene with tehnology or ess to innovtionsAF sn ddiE tionD mngers must ssess the likelihood of suess nd other risksF hese items inlude oth quntittive nd qulittive mesures tht require mnger9s omplete ttention when designing reltionshipsF sn the previous exmpleD the strtegi prtnership formed etween ime rner9s eyv nd qoogle ws justi(edD euse the ompny expets return gret enough to justify the investmentF ime rner9s eyv ws suitle prtner for qoogle euse the ompny ws lrge enough to meet qoogle9s produt demndsF gonverselyD qoogle would not hve entered into strtegi prtnership with smllD lol snternet providerD euse smller ompny would not hve enough prodution pility to meet qoogle9s demndF he ide is tht s prtnerships re suessfulD the ompnies will mke more moneyD iFeF qoogle elieves ene(ts will exeed osts s does ime rner9s eyvF trtegi prtnerships my e estlished in order to gin ess into spei( nihe or mrketF he reltionship etween qoogle nd eyv my e n exmple of this type of reltionshipF yther prtnerships my e formed in n e'ort to improve ompny9s imgeF por exmpleD lrge oil ompnies reeive signi(nt mount of d press due to pollution nd environmentl onernsF hereforeD it my e in their est interest to prtner with ompnies ttempting to develop lterntive energy souresD eFgF solr or wind powerD to gin goodwill mong onsumersF e prtnership my e developed in order to gin ess to tehnologil innovtionF e ompny my (nd reltionship with led user ene(ilF e lead user is someone who hs invented or resolved ustomer issue months or even yers hed of ompetitors in the mrketpleF hey provide informtion nd give ompnies the ility to oEdevelop novel produtsD whih provide ompetitive edge over other mrket prtiipntsF he key to every suessful prtnership is ommunition ndD s resultD tehnology should e used s mens of inresing ommunition linesF his my men using eEmil to intert with ustomersD or in muh more omplex mnnerD using ongoing dt exhnge enled y informtion tehnologies designed to inrese e0ienyF lEwrt is perfet exmple of ompny using tehnology in highly sophistited mnnerF lEwrt hs reted ompetitive dvntge through mnging their inventory systemF heir inventory is systemtilly progrmmed to replenish ommon items s they reh minimum levelF his inventory ontrol system hs een entrl to lEwrt mintining low operting osts nd providing ompetitive dvntge through produt vililityF
8.4.1 Foundations of successful relationships
irlier we disussed the importne of trust in reltionshipF rustD howeverD is only one uilding lok of severl involved in the retion of strtegi prtnershipsF his setion will rie)y introdue (ve foundtionl elements nd present how they form longEtermD suessful reltionshipsF hese elements inludeX
mutul trust open nd truthful ommunition mesurle mutul gols orgniztionl support ommitment to mutul gin
ISV
CHAPTER 8.
Exhibit 8.4: Elements of successful relationship
Mutual trustX
xot ll uilding loks re reted equllyY the most importnt of the (ve foundtionl elements is mutul trustF es previously mentionedD trust is the on(dene one prty hs in nother to perform n tion s greedF sn order for prtnership to e suessfulD trust must e mutulF es mutul trust grows etween prtnersD prties will not limit themselves to ontrtul requirements ut tully go to gret lengths in order to stisfy the other prtnerD s well s strengthen the reltionshipF Open and truthful communicationX en dditionl element in uilding longEtermD suessfulD reltionE ships is estlishing open nd truthful ommunition linesF rties tht ommunite openly nd truthfully hve etter understnding of eh others9 visionsD missions nd gols in the reltionshipF yne wy this n e omplished is y lwys reting environments where eh prty feels omfortle speking upF yne oth prtners gin strong understnding of wht motivtes the other prtnerD deling with hnging usiness onditions eomes signi(ntly esierF gommunitions often inlude the exhnge of mesures of the e0ieny of shred usiness proessesF Measurable, mutual goalsX e key element neessry for reltionships to e suessful is hving oth prties shre mesurleD mutul golsF wutul gols llow prties to pool together ompny resoures nd strengthsF sn order to ensure gols re eing metD they must e mesurle nd qunti(leF ome exmples of mesurle mutul gols inlude sles revenueD return on ssetsD or some performne inditor of ustomer stisftionF wesures my lso inlude prodution levelsD errorErtesD or other items tht enle integrtion of the usinesses proesses of the prtnersF egreeing on the items to e mesured nd estlishing ontinuous mesurement progrm is neessry to provide optiml oopertion mong prtners nd sustntive ontriutor to estlishing mutul trustF Organizational supportX he support of employees throughout the orgniztion is nother key eleE ment in reting suessful reltionshipsF he orgniztion s wholeD from front line memers to lol nd orporte o0esD must support the ide of prtnershipF truture nd ulture re the underlying roots tht rete orgniztionl supportF elthough it is expeted tht employees support mngement deE isionsD it is neessry for mngers to ojetively understnd nd evlute the struture nd ulture of the orgniztion when designing prtnership reltionshipsF roposed prtnerships pereived s ontrry to the existing struture or ultures re ndidtes for enhned srutinyF yne prtnership is entered into it is neessry to develop progrms suh s trining nd rewrds to estlish the desired prtnership ehviorsF
ISW istlishing these types of progrms will inrese the frequeny of nd improve the dynmis within the intertions of oth prtnersF rining tehes ehviors whih re needed to hieve prtnership gols nd rewrds enourge the support of the previously tught ehviorsF Commitment to mutual gainX he (nl uilding lok in the foundtion of suessful reltionships reltes to the level of ommitment eh prtner hs in reting mutul ginF imply putD prtners look out for one nother nd do not tke dvntge of eh otherF sf one prty hs more resoures or more e0ient operting proedures thn the otherD this should not impt the reltionshipF sf prolems rise within the prtnershipD oth prties need to onsider the mutul investment eh hs ontriuted to the reltionshipF Mutual investmentsD or relationship-specic assetsD re the tngile investments nd resoures tht re spei( to the reltionship in ntureF elthough mutul investments strengthen mutul ginD they nnot e esily trnsferred if prtner wishes to leve the reltionshipF husD it is importnt to evlute the level of intrinsi gin tht hs een estlished through the prtnershipF sdellyD suh n nlysis is performed efore entering the prtnershipD lthough it requires the mnger to mke sustntil numer of ssumptionsF hese foundtions of reltionships omprise the rod rnge of ftors mngers must onsider when developing nd implementing durle reltionshipsF sn dditionD developing reltionships onsist of series of phses tht explins how they re identi(ed through how the prtners eome ommitted to ontinuous improvement of the reltionshipF he next setion presents these phses of reltionship developmentF
8.4.2 Phases of relationship development
trtegi prtnerships experiene four mjor developmentl phses ixhiit VFS represents the life yle of reltionshipF he length of phses nd trnsitions etween phses will vry due to ulturl ndGor soil di'erenesF wngers should e wre of the urrent phse of the reltionship nd evlute deisions sed upon how they impt the development of the reltionshipF hissolution n our t ny time when inomptiilities exist etween prtners s the reltionship developsF
Exhibit 8.5: The relationship development process
ITH
CHAPTER 8.
he wreness phse egins efore ny trnstions tully ourF huring this phseD prtners re lotingD identifying nd qulifying vrious prospetsF ine no trnstions tke pleD ompny imge nd reputtion re weighed hevily during this phseF ewreness mens ssessing the usiness reltionships needed to dvne orgniztionl golsD evluting potentil res tht would ene(t from prtnershipD nd identifying potentil prtnersF rtnerships n hve vrious types of reltionshipsY some res my only need to e funtionlD wheres others my seek to e strtegiF gonsequentlyD identifying whih type of reltionship would most ene(t the (rms is impertive nd primry responsiility of mngers he explortion phse is onsidered the test for oth prtiesF huring this phseD prties engge in exhnges to explore potentil prtnership osts nd ene(tsF elthough neither side hs ommitted to reltionship t this pointD eh trnstion etween the two prties tests eh of their pilitiesF wngers evlute the trnstions in terms of the foundtions of reltionships disussed oveD eFgF identifying potentil mesures tht indite suessful trnstions or estimting the impt on orgniztionl ulture should the reltionship eome estlishedF efter oth prties prove tht they re ple of performing s neededD the prtnership will move to the expnsion phseF sn this phseD dditionl usiness intertions foused on longEterm reltionship re investigtedF he expnsion phse my e time onsuming euse it requires extensive reserh to e onduted oth internlly nd externllyF he primry tivity of this phse is ompring the results of series of (nnil nlyses of vrious possile intertions nd reltionship typesF e ontrtD or t lest verl ommitmentD for ertin period of time must tke ple for the omE mitment phse to eginF his stge is usully the (nl nd most omplex stge of strtegi reltionshipF huring this phseD the detils of the trnstions re deidedD inluding initil investments tht will e mde into the prtnership nd spei(tion of how returns will e divided mong the prtnersF he dissolution phse is the deision to end the prtnershipF his my our during ny of the vrious phses of the relE tionship development proessF hissolution my rise for numer of resonsD inluding rising ostsD poor performneD or hnges in orporte golsF he deision to end the prtnership should not e tken lightlyD ut when ll other options hve een exerised it my e the orret hoieF hile reltionships will follow this development life yleD mnger9s skills will sustntilly impt how the reltionship develops nd the suess of the greements for the orgniztionF rining nd development progrms for mngers should expliitly inlude skills for developing reltionshipsF
8.4.3 Skills for building positive relationships
wo key skills tht promote positive reltionships re negotition nd filittionF Negotiation skills n ssist with prolem solving nd on)it resolution with prtner orgniztionsF Facilitation skills del with the understnding of group proesses nd feedkF xegotition skills re neessry for mngers to ensure they understnd the gols nd ttis of othersF xegotition involves understnding gols nd the impts of the rnge of possile outomes on n orgnizE tionF edept negotitors must e le to identify ompromises suh tht oth prtners re supportive of the resulting greementsF pilittion involves listening to the views of ll prties nd ensuring tht ritil issues re herdD regrdless of their originF etive filittion rings ojetivity to group proesses nd results in shred understndings of potentil opportunities nd the osts of pursuing those opportunitiesF ehnology n id mngers in filitting group disussions nd reording group intertionsF sn some situtionsD professionl filittion my e pproprite if either side hs rehed point where rehing mutul understnding is di0ultF
8.5 Strategies for external relationships
he rpid hnge in tehnology nd the development of the snternet hs hnged the trditionl de(nitions of mnufturersD suppliersD nd ustomersF Supply Chain Management @gwA is the integrtion of
6 This
ITI key usiness proesses tht dd vlue for ustomers nd other stkeholdersF his dded vlue is reted through the integrtion of networks of suppliers tht provide produtsD serviesD nd informtionF upply hin mngement llows this network of ooperting gents to perform one or more supply hin funtionsD potentilly reduing osts nd resulting in ompetitive dvntge for the orgniztionF
Exhibit 8.6: Movement through a supply chain
he ove (gure illustrtes the movement of produts through supply hin networkF he supply hin egins when suppliers send rw mterils to ftoryF he ftory my use the mterils in numer of wysF hey n either mnufture suomponents or ssemle the mterils into (nished produts to e sent to the wrehouse or distriution enter where ustomers n get the produtsF sn order for the supply hin to e suessfulD orgniztions must reognize tht they re ut one plyer in the long hin tht strts with suppliers nd lso inludes trnsportersD distriutorsD nd ustomersF he orgniztions must intert oopertively with their hnnel prtners @qndhiD PHHQAF en importnt issue relting to the development of ollortive supply hin is following spei(ed ordering nd replenishment poliiesF en exmple of gollortive upply ghin lnning @ggA is endor wnged snventory @wsAF Vendor Managed Inventory llows the supplier to reeive eletroni dt to mintin onstnt inforE mtion out the mnufturer9s sles nd stok levelsF he supplier is then responsile for reting nd mnging the inventory replenishment sheduleF ws is de(ned s proess where the supplier genertes orders for ustomers sed on demnd informtion sent y the ustomer @qndhiD PHHQAF ws leds to hnges in oth the uyers9 nd suppliers9 inventory mngement tivitiesF ws hs not eome stnE drd wy of mnging the replenishment proess in the supply hin due to some prtil issues tht hve slowed down its implementtion in mny orgniztionsF yne prolem my exist euse the supplier nd mnufturer re unwilling to shre informtion euse of lk of trustF sn order for ws to e e'etiveD it hs to produe oservle ene(tsD espeilly in the redution of inventory ostsF ome of the ene(ts of ws inludeX
lower ustomer inventories etter forests redued osts improved servies strengthening ompetitive dvntge strengthening uyerEsupplier reltionships
imilr to gw nd wsD gollortive lnningD porestingD nd eplenishment @gpA ws developed to llow etter ommunition of ontrol informtionD whih enles oordintion nd optimiztion of shred
ITP
CHAPTER 8.
usiness proessesF gp is de(ned s n inititive mong ll prtiipnts in the supply hin intended to improve the reltionship mong them through jointly mnged plnning proesses nd shred informtion @eifertD PHHQAF hen suessfulD it lso improves reltionships etween produers nd retilersF yne of the (rst gp projets ws initited y lEwrt nd rnerEvmertD whih merged with (zer in PHHHF his projet ws intended to redue inventories ross the supply hinF st provided omprisons of sles nd order forests of eh trding prtner nd highlighted ny visile forest di'erenes erly enough for the prtners to resolve ny potentil issuesF rnerEvmert pplied gp to the visterine mouthwsh produts y shring of forests nd responding to inonsistenies etween the ollortion prtners9 foreE stsF sn rnerEvmert9s seD lEwrt9s promotions reted lrge swings in onsumer demndD whih rnerEvmert ws unwre of prior to gpF rnerEvmert mintined sustntil inventory s hedge in order to prevent supplies from running out of stokF lEwrt nd rnerEvmert independently lulted the demnd they expeted six months in dvneF he prtners shred this informtionD s well s the weekly forestD nd they worked together to resolve vritions etween their forests on weekly sisF lEwrt egn pling orders six months in dvneD insted of nine dysD so tht rnerEvmert ws le to onstrut smoother prodution plnF his llowed rnerEvmert to mintin prodution sed on onsumer demnd for visterine rther thn mintining su0ient stokF lEwrt9s inEstok position improved nd sles inresedD while inventories droppedF edditionllyD rnerEvmert9s supply mngeE ment improved sustntillyF yptiml pplitions of gp our whenD for exmpleD mny other retilers join lEwrt in shring their projeted demnd with rnerEvmertF gomining demnd forests from mny retil ustomers mkes it possile for rnerEvmert9s prodution plns to e muh etter ligned with totl mrket demndsF fene(ts of using gp reX
drstilly improved retion times to onsumer demnd higher preision of sles forests diret nd lsting ommunition improved sles inventory redution redued osts
he gp proess model is divided into three phsesX plnningD forestingD nd replenishmentF he exhiit elow provides n overview of the phses nd tivities in the gp modelF
ITQ
Exhibit 8.7: PFR Process Model
Source: 2008
http://www.scdigest.com/images/misc/Original-CPFRModel.
jpg .
Accessed 30 December
lnning onsists of identifying n opportunity for ollortionD then developing n greement to olE lorteD s well s forming ollortive usiness plnF poresting is the most importnt prt of the modelF st provides the mehnism through whih needs re determinedF st is improvement of this spet of the supply hin through whih ll of these strtegies provide dvntges over more trditionl methodsF eplenishment involves mking nd delivering the produt onsistent with the needs shedule developed y the forestF wore urte forests led to prodution of only the needed produtsD whih smooths the prodution shedule nd results in prie stilityF his llows for existing pity to e used to enle other produts or to develop mrkets for dditionl produtionF wny of the proesses repled y gwD wsD nd gp strtegies involve merely produing the verge of this month over the lst Q threes plus smll perentgeF uh d ho strtegiesD lthough widely employedD ontin sustntil ine0ieniesF ixploiting these ine0ienies is the inentive for pursuing these progrmsF enother reson suh progrms re populr with mngers is tht svings relized go diretly to the ottom line s ustomer needs re met while using less orgniztionl resouresF en e'etive supply hin mngement progrm is one tht develops proesses shred mong ll the supply hin memers in order to minimize the wste of time nd enle fst nd relile retions to hnges in demndF ehnology hs exponentilly inresed the trnsfer of informtion etween orgniztionsD resulting in improved supply hin performneF wo ommon prtiesD tustEsnEime @tsA nd gile inventory pprohesD re used to llow suppliers to ret more quikly to hnges in ustomer demndF Just-In-Time emphsizes minimizing inventory nd smoothing the )ow of mterils to ensure dequte nd prompt delivery of omponentsF roduts nd mterils re ordered nd delivered just in time s they re needed reduing inventory osts nd ensuring unneeded mterils re not orderedF ts egn t oyot wotor gompny ut it evolved into system for ontinuous improvement of ll spets of the mnufturing opertionsF
7 http://www.scdigest.com/images/misc/Original-CPFRModel.
jpg
ITR
CHAPTER 8.
ven prodution is philosophy sed upon olletion of mngement methods nd tehniques @ussellD PHHTAF orkers nd mhines re multifuntionl in len systemsF orkers re required to perform vrious tsks nd help in the improvement proessF he mhines re rrnged in smllD Eshped work ellsY this struture enles prts to e proessed in ontinuous )owF orkers produe prts one t time nd trnsport them etween the ells in smll lotsF he only shedules prepred re for the (nl ssemly lineF his shedule pulls suEomponents through prodution y mking requests to sttions tht sde to prodution linesF xothing is done until requested y the next sttionF he system is est implemented when suppliers re few in numer nd re relileF he suppliers9 mnufturing system must e )exileD euse multiple deliveries my e requested of the sme item in the sme dyF ven prodution produes items in neessry quntities t neessry timesF gonsequentlyD qulity must e extremely highD s there is little u'er inventory etween worksttions nd prodution shedules inlude only requested produtsF ven systems n produe high qulity servie quikly t low ostF elsoD the system responds to hnges in ustomer demndF wny retilers use len systems suh s r nd flokusterF fene(ts of using len prodution reX
redued inventory improved qulity lower osts redued spe requirements shorter led time inresed produtivity greter )exiility etter reltions with suppliers simpli(ed sheduling nd ontrol tivities inresed pity etter use of humn resoures greter produt vriety
8.5.1 Outsourcing
Outsourcing is ontrtul reltionship where n externl orgniztion tkes responsiility for performing ll or prt of ompny9s funtions @itD PHHTAF yutsouring is the term used to designte reltionship in whih prtner ompny performs usiness funtionsF gommon exmples of outsoured funtions for ompnies in the developed world re softwre development nd ll entersF he priniple justi(tion for outsouring funtions like these fromD for exmpleD the to sndi is tht previling wge rtes for these kinds of tsks re muh lower thn in the nd the sndin prtner ompnies hire nd trin employees who spek inglish nd re skilled t their josF here9s di'erene etween outsouring nd o'EshoringF hen vendor in nother ountry performs n outsoured funtionD o'Eshoring is the orret terminology for desriing the reltionshipF he jos eing outsoured in n orgniztion do not neessrily hve to e outsoured to nother ountryF y'Eshoring n result in signi(nt svings due to wge nd urreny disrepnies mong ountriesF roweverD qulity ontrols must e mintined to ensure tht the produts nd servies provided re returning the expeted resultsF Outsourcing is typilly done y orgniztions who outsoure nonEore proesses tht re ine0ientD di0ult to mngeD or too ostlyF ghoosing supplier to meet n orgniztion9s outsouring needs depends on the usiness proess eing outsouredD the sope of the projet to e outsouredD s well s geogrphi ftorsF fusiness proesses tht re often onsidered good ndidtes to outsoure inludeD ut re not limited toX
dministrtion @uditD txA sset nd property mngement (nne @ountingD illingD ounts pyleD ounts reeivleA
ITS
humn resoures @ene(ts dministrtionD pyrollA informtion systems @development nd opertionsA misellneous @energy serviesD ustomer servieD milroomD food proessingA prourementGlogistis
fusiness proess outsouring is eoming inresingly importntF he mngement of one or more proesses or funtions y third prty is mens for the orgniztion to redue ostsF he key ene(ts of outsouring re relized y orgniztions tht outsoure usiness proesses y trnsferring the entire funtion outEofE houseF his enles ess to speilized knowledge nd expertise in the reY shring of new methodologiesD tehnologies nd other resouresY nd stndrdizing proesses ross the orgniztionF en orgniztion needs to outline the ene(ts nd risks of outsouring when deiding whether to outsoureF he ene(ts need to outweigh the risks in order for outsouring to e e0ient nd e'etive @rlveyD PHHHAF e typil ene(tGrisk nlysis isX fene(tsX
ost svings inresed )exiility etter ustomer or employee servie higher produtivity ility to onentrte on the ore usiness implementtion of wide inititives movement of ssets o' ooks more resoures vriety of skills ess to new methodologies nd tehnologies trining expense redution greter )exiility
isksX
loss of ontrol di0ulty in mnging osts dditionl liility di0ulty in ringing the usiness proess k inEhouse redued )exiility
nertinty in outsouring ours when n orgniztion is not sure whih usiness proess funtion to outE soureF yrgniztions should e overly inlusive with wht needs to e outsouredF snluding n unundled requirement where the vendor provides seprte priing for ertin funtions n e helpfulF elsoD deiE phering through the omplexity of outsouring n e esier one determining where the servies will e providedF he next step in ssessing outsouring is to identify potentil vendors tht hve the desired resouresD pilitiesD nd experieneF he following will provide ene(il informtion to help mke n informed deisionX
vendor informtion from industry reportsGsurvey looking t industry pulitions tlking to other outsouring ustomers shring gols nd onerns with hosen vendors
ITT
CHAPTER 8.
8.5.2 Potential external relationship obstacles
yutsouring o'ers numer of potentil ene(ts for ompniesY however they nnot ignore the ostles tht ome long with outsouringF ome ountries hve not hieved the desired ene(ts from outsouringD euse they hve not relized the expeted ost redutions ntiipted from outsouring their usiness proesses to third prtyF he lk of ple suppliers nd servie providers is mjor prolemF vosing ontrol over the outsoured proess is not unommonF edditionllyD prolems nd issues my emerge due to the integrtion of servies nd systems provided y the vendorF rolems within the networked orgniztion usully rise due to the filure in identifying ll stkeholders nd network prtnersF ell nodes nd prtners in the networked orgniztion hve to know nd reognize ll the stkeholders involvedF enother potentil prolem n result from hving dominnt nodesD whih must e eliminted in the erly stges of the reltionshipF ell nodes within reltionship must fully understnd the mission nd golsF rving inomptile missions nd gols will destroy reltionship nd no ene(ts will e hievedF elsoD prolems my rise from lshing ompny ulturesF hereforeD when hoosing supplier or prtner in the networked orgniztionD hving similr golsD missionsD nd similr wys of performing the usiness proesses re vitl for the suess of the reltionshipF
8.6 Chapter summary
his hpter presents the sis neessry for developing reltionships mong orgniztionsF hese inlude the ommon types of externl reltionshipsD phses of reltionship developmentD the uilding loks of suessful reltionshipsD nd the skills neessry for developing vriety of reltionshipsF everl strtegies for mnging externl reltionships were presented tht fous on the integrtion of the proesses of multiple orgniztions to rete virtul suppliers tht ene(t from rpid informtion exhnge nd justEinEtime djustment of sles forests nd prodution pitiesF wngers must onsider the mny ftors of eh sitution nd design unique reltionship or set of reltionships tht enle the orgniztion to omplish its gols in the most e0ient mnner possileF et e0ieny is not enoughD s the needs for )exiility nd qulity ssurne led to ever more integrted networks of orgniztionsD whih require strtegi perspetives for mximizing pro(tilityF st is expeted tht every orgniztion e involved in vriety of externl reltionshipsD where eh reltionship is justi(ed ording to ost nd qulityF
8.7 Exercises
vist nd desrie the four dynmis tht should e onsidered in order to hoose the right reltionshipF ht re the two si reltionship typesc ht is the di'erene etween funtionl reltionship nd strtegi prtnershipc vist the (ve foundtionl elements involved in the development of longEtermD suessful reltionshipsF ss ny element more signi(nt thn notherc sf soD whih one nd whyc vist the four mjor phses involved in the reltionship development proessF hen in the reltionship development proess does dissolution ourc he(ne upply ghin wngement nd stte its golsF elet ompny nd determine the di'erent suppliers it hsF ht riteri does the ompny most proly use for its suppliersc WF hesrie how lEwrt hs used ws to improve its supply hin mngementc IHF yn wht sis does ompny deide whether to outsoure or notc IIF ht re some potentil risks to outsouringc
8 This 9 This
IF PF QF RF SF TF UF VF
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8.8 References
10
he itD qluo nd gtherine vF ngF 4hevelopment if yutsouring heory nd rtieF4 sde qroup snFD PHHTF qndhiD jvlF 4endor wnged snventoryX e xew epproh to upply ghin wngementF4 irgini olytehni snstitute nd tte niversityF PHHQF rlveyD tohn nd frr welyF 4fusiness roess yutsouringX roessD trtegiesD nd gontrtsF tohn iley 8 onsD snF PHHHF wohrD tkkiF 4ghrteristis of rtnerships uessX rtner ettriutesD gommunition fehviorD nd gon)it esolution ehniquesF4 trtegi wngement tournl ISFIWWR IQSEISPF IP he PHHUF ussellD oert nd fernrd F ylor sssF 4ypertions wngementX ulity nd gompetitiveness in qlol invironmentF4 tohn iley 8 onsD snF PHHTF nnellD id nd om ullivn F 4eining in externl reltionE snfo orld wedi qroup IV i PHHH PHF PW i PHHU shipsF4 httpXGGinfotrFglegroupFomFezproxyFliFvtFeduXVHVHGitwGinfomrkGUWUGVQRGIQSPRVWVwIVGpurlarIfswHeTSPVTSTP8 eifertD hirkF 4gollortive lnningD porestingD nd eplenishmentX row to grete upply ghin edvntgeF4 ewegyw fooksF PHHQF mithD wihelF 4ronesty s ore vlueF4 rtil trtegies xewsletter IP he PHHU <httpXGGwwwFmihelhsmithphdFomGhonestyFhtml>12 F treetD ghristopher nd ennEprnes gmeronF 4ixternl reltionships nd the smll usinessX review of smll usiness lline nd network reserhF4 tournl of mll fusiness wngementF epr PHHU PQWEPSRF HW i PHHUF
10 This content is available online at <http://cnx.org/content/m35465/1.4/>. 11 http://infotrac.galegroup.com.ezproxy.lib.vt.edu:8080/itw/infomark/797/834/13524898w18/purl=rc1_BIM_0_A65286562&dyn=33!xrn_14_ 12 http://www.michaelhsmithphd.com/honesty.html
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CHAPTER 8.
Chapter 9
Financial and managerial accounting; nancing your organization


1
to ppreite the importne of n ounting system to di'erentite etween (nnil ounting nd mngeril ounting to understnd the si types of ounts nd their hrteristis lern to set up hrt of ounts for your orgniztion understnd the dvntges of douleEentry ookkeepingY types of ledgers nd si reports to lern how to selet nd use ounting softwre to understnd ommon options for funding strtEup
9.2 Introduction
sn this hpterD we will disuss the priniples of ounting s well s some of the options you hve for designing nd instlling n ounting system for your usinessF here re mny omputerEsed ounting systems ville nowD for reltively low ostD tht mke it esier for n entrepreneur to use softwre on g or the snternet to run n ounting systemF e disuss some of the softwre options you my wnt to onsider in etion IHFID veverging with informtion tehnologyF elthough it is possile to keep essentil ounting reords mnullyD or perhps on series of spredsheetsD you will (nd tht it is muh esier nd more relile to simply use ounting softwre from the eginningF ou my need the dvie of n ounting professionl to work with you in setting up your ounting reords nd helping you selet nd implement suitle ounting pkgeF yn the other hndD you my e le to hndle the tsk yourselfF sn ny eventD strting your usiness with wellEdesigned ounting system tilored to the needs of your usiness will e worth the e'ortF
9.3 Why an accounting system is important
rofessionl ountnts look t the ounting reords nd reports of usiness from two perspetivesF he term they use to desrie these two perspetives is nancial accounting nd managerial accountingF
1 This 2 This 3 This
content is available online at <http://cnx.org/content/m35497/1.4/>. content is available online at <http://cnx.org/content/m35476/1.4/>. content is available online at <http://cnx.org/content/m35479/1.4/>.
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CHAPTER 9.
FINANCIAL AND MANAGERIAL ACCOUNTING; FINANCING YOUR ORGANIZATION
ikipedi hs good de(nitions of oth perspetives in order to help you understnd the di'erene etween the twoF
5 6 7 preparation of nancial statements for decision makers, such as stockholders , suppliers , 8 9 banks , employees, government agencies , owners, and other stakeholders. The fundamental
need for nancial accounting is to reduce principal-agent problem Financial accountancy (or nancial accounting) is the eld of accountancy
4 concerned with the
10 by measuring and monitoring
agents' performance and reporting the results to interested users.
Financial accountancy is used to prepare accounting information for people outside the organization or not involved in the day to day running of the company.
In short, Financial Accounting is the process of summarizing nancial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benet of people outside the organization.
Financial accountancy is governed by both local and international accounting standards. (Wikipedia 2009a). In addition, nancial accounting records and nancial statements are essential sources of information for the preparation of tax returns.
Management (or managerial) accounting, on the other hand, is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.
In contrast to nancial accountancy information, management accounting information is:
usually condential and used by management, instead of publicly reported forward-looking, instead of historical pragmatically computed using extensive management information systems and internal controls, instead of complying with accounting standards
This is because of the dierent emphasis: management accounting information is used within an organization, typically for decision-making. p. 189
ou will not need to e terrily onerned out (nnil ounting when your usiness is just eE ginningD insmuh s the kinds of informtion you will need flls into the tegory of internl mngement informtion rther thn informtion for externl stkeholdersF elsoD note tht (nnil ounting reE ports must e prepred in ordne with ntionl nd interntionl ounting stndrdsF sn the nited ttes the pinnil eounting tndrds ford @pefA hs een the designted independent entity for estlished ounting reporting stndrds sine IWUQF sndependent uditors of n orgniztion9s (nnil sttements must provide written ssurne in their report tht suh sttements were prepred in ordne with qenerlly eepted eounting riniples @qeeAF hileD in theoryD there n e mny supportle
4 http://en.wikipedia.org/wiki/Accountancy 5 http://en.wikipedia.org/wiki/Financial_statements 6 http://en.wikipedia.org/wiki/Shareholder 7 http://en.wikipedia.org/wiki/Vendor_(supply_chain) 8 http://en.wikipedia.org/wiki/Bank 9 http://en.wikipedia.org/wiki/Government_agencies 10 http://en.wikipedia.org/wiki/Principal-agent_problem
IUI wys of presenting ounting informtion on suh topis s usiness omintionsD susequent events fter the dte of n uditD the fir vlue of (nnil instruments nd the likeD pef will typilly speify the wys suh informtion should e reportedF ou n (nd more informtion on pef on their wesite t httpXGGwwwFfsForg11 F12 ine so mny orgniztions re glol in sopeD reltively new entityD the snterntionl eounting tndrds ford @sefA hs ome upon the seneF eording to their wesiteD their mission is to developD in the puli interestD single set of high qulityD understndle nd interntionl (nnil reporting stndrds @spsA for generl purpose (nnil sttements @sef PHHWAF pinllyD when your usiness rehes the point where you need to issue (nnil sttements to externl stkeholdersD @eFgF nksD stokholdersD regultory geniesD etFAD your ountnt will need to e fmilir with ndD idelly memer ofD the ntionl ssoition of ountnts in your ountryF he reson for this is tht there my e ntionl stndrds for generlly epted stndrds tht reD in some wysD unique to your ountryF ixmples of ntionl ssoitions re the snstitute of gerti(ed uli eountnts of ueny @httpXGGwwwFipkFomG13 AD the wlysin snstitute of gerti(ed uli eountnts @httpXGGwwwFmipFomFmyG14 AD nd the outh efrin essoition of ghrtered eountnts @httpsXGGwwwFsiFoFzA15 F eordinglyD the lne of this hpter is foused on how you n use wellEdesigned ounting system s the sis for generting useful informtion to help you run your usinessF
9.4 Basic types of accounts
16
he six si types of ounts used in typil ounting systemD ording to ikipedi reX
sset ounts liility ounts equity ounts revenue or inome ounts expense ounts ontr ounts
ih type of ount is disussed elow @dpted from pF IVWAF sn susequent setions of this hpter we will disuss how they re used in n ounting systemF
Asset accountsX represent the di'erent types of eonomi resoures owned y usinessD ommon exmples of sset ounts re shD sh in nkD equipmentD uildingD inventoryD prepid rentD goodE willD ounts reeivleF essets re usully roken down into three tegoriesX gurrent ssetsD (xed ssetsD nd intngile ssetsF gurrent ssets re ssets whih ould e onverted to sh firly quikly if neessryD ertinly in less thn yerF ixmples of urrent ssets inlude shD sh in nkD inE ventoryD prepid rentD nd ounts reeivleF pixed ssets re ssets of more permnent nture like mnufturing equipmentD uildings ownedD nd the likeF sntngile ssetsD like goodwillD re monetry vlues ssigned to intngiles like rnd nmeF st is typilly used when ountnts need to justify the purhse prie of one ompny y nother when the prie nnot e justi(ed y the monetry vlue of the purhsed ompny9s ssets minus liilitiesF sntngile ssets re eyond the sope of this hpter s they pply more to lrger orportions thn to strtEup usinessF Liability accountsX represent the di'erent types of eonomi oligtions y usinessD suh s ounts pyleD nk lonD onds pyleD rued interestF gurrent liilities re liilities whih re sheduled to e pid within short period of timeD usully less thn yerF ixmples of urrent
11 http://www.fasb.org/ 12 http://www.fasb.org/ 13 http://www.icpak.com/ 14 http://www.micpa.com.my/ 15 https://www.saica.co.za/ 16 This content is available online
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CHAPTER 9.
liilities inlude ounts pyle to reditorsD like suppliersD urrent mounts pyle to employees @pyrollA nd interest due on short term lonsF vongEterm liilities @sometimes lled (xed liilitiesA re liilities of more permnent nture like lons tht re not due in the urrent yer @longEterm detAD nd the likeF Equity accountsX represent the residul equity of usiness @fter deduting from ssets ll the liilitiesAF sn the se of strtEup ompny totlly (nned y the founderD it is often lled owner9s equity nd represents the pitl provided y the ownerF sf the ompny is orportion nd stok hs een issued to the owner nd to othersD it is often lled stokholders9 equityF Revenue accounts or incomeX represent the ompny9s gross inome efore expenses re dedutedF gommon exmples inlude slesD servie revenueD ommissionsD nd interest inomeF Expense accountsX represent the ompny9s expenditures to enle itself to operteF gommon exmples re employee osts @pyroll nd fringe ene(tsAD suppliesD softwreD telephone illsD eletriity nd wterD rentlsD depreitionD d detD interestD nd insurneF Contra-accountsX from the term iiD mening to dedutD these ounts re opposite to the other (ve ove mentioned types of ountsF por instneD ontrEsset ount is umulted depreitionF his lel represents dedutions to reltively permnent sset like uildingF st umultes n nnul hrge in reognition tht (xed sset like uilding is not used up over the ourse of yerD ut tht it hs useful life mesured in multiple yersF ine in ertin ountries nd under ertin eonomi onditions rel estte tends to stedily rise in prieD perhps etter exmple is truk purhsed for use in the usinessF sts vlue is more likely to ontinue to derese over the yersF iven though the mrket vlue of uilding might inrese rther thn derese over the yersD ountnts will still redue its vlue y n nnul depreition hrge eh yerF his is good exmple of how (nnil ounting di'ers from mngeril ounting from the owner9s perspetiveF hepreition on uilding or truk redues inome for tx purposes in most ountriesD so it is to the owner9s dvntge to re)et depreition hrges in the ompny9s ounting reordsF yn the other hndD you n et tht the owner knows the true mrket vlue of the uilding when it omes time to sell it3
9.5 Chart of accounts
17
etting up n pproprite hrt of ounts will tke some reful thought on your prt euse you wnt to e sure tht ounts re set up in eh tegory @iFeF ssets liilitiesD etFA tht will enle you to umulte ounting trnstions in meningful wyF es strting pointD you should onsider the kinds of informtion you will need in order to run your usinessF ou my then go on to onsider other types of informtion tht my e required for (nnil reportingD s we disussed erlierF etting up hrt of ounts is est understood if we wlk through n exmpleF vet us suppose young entrepreneur plns to strt men9s lothing store nd needs to develop hrt of ountsF ypillyD ounts in hrt of ounts eh hve n ount numerF his is no di'erent thn you hving unique ount numer for ompnies you del withD suh s nk or telephone ompnyF e numer uniquely identi(es you from nother ustomer tht might hve extly the sme nme nd is esier to use in omputerized ustomer ounting systemF sn the sme wyD n ount numer in hrt of ounts uniquely identi(es n ount nd is esier to use in omputerized generl ounting systemF st is ommon to ssign rnge of numers to eh type of ountF yne ommon wy is illustrted in le WFIX
17 This
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eount ype esset ounts viility ounts iquity ounts snome ounts ixpense ounts gontr ounts
Table 9.1
eount xumer nge IHHEIWW PHHEPWW QHHEQWW RHHERWW SHHESWW THHETWWD or in the rnge to whih they relte
X nge of ount numers in smple hrt of ounts
he next step is to deide the rekdown of ounts you need so tht you set up n ount for the detiled informtion you need for eh ount typeF por exmpleD strting with the sset ount tegoryD you my deide tht you need to egin your usiness with t lest the following ountsX eount xumer IHH IHS IIH IIS IPH
Table 9.2
eount xme gsh on rnd @etty shA gsh in fnk eounts eeivle snventory for resle y0e equipment
X ixmples of urrent sset ounts in hrt of ounts
he sme proess is followed with ll of the ount types until your hrt of ounts is ompleteD nd ontins ll of the tegories you elieve will e needed in order to umulte ounting informtion in meningful tegoriesF portuntelyD there re mny soures where you n otin sample hrts of ounts y type of usiness tht you n use s guide nd strting pointF yne soure of suh informtion n e the ntionl ssoitions @or institutesA of professionl ountnts we referred to previously in this hpterF enother soure is the providers of ounting softwre we will disuss lter in this hpter nd in ghpter IHF yne other option is to do n snternet serh for smple hrt of ounts for your type of usinessF por exmpleD we did simple qoogle serh for fed nd frekfst @f8fA smple hrt of ounts nd found WV pge doument tht disusses lmost every issue someone who wnts to strt f8f needs to knowD inluding smple hrt of ountsD eginning on pge WH @pF IVVAF
9.6 Basic nancial statements
18
vter in this hpter we will disuss some of the other types of reports you will wnt to e le to produe in order to pln nd ontrol your usiness (nnesD ut for nowD let us onentrte on the two most fundmentl sttements of llX he snome ttement nd the flne heetF he Income Statement is importnt euse it will tell you if your usiness ws pro(tle or not for ny given period of timeF he Balance Sheet will show you the (nnil ondition of your usinessD wht you ownD wht you oweD nd the owners9 (nnil interestF ou will sometimes her the snome ttement referred to s the ro(t nd voss ttement nd the flne heet lled the ttement of pinnil gonditionF
18 This
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CHAPTER 9.
rere9s simple exmple of n snome ttementX snome ttement E fill9 s fiyle hop E er PHHW les gost of goods sold qross wrgin yroll gosts ent yther expenses
$20, 000 8000 $12, 000 6000 2000 1000
xet snome $3, 000.00 he only items tht need dditionl explntion re Cost of goods sold nd gross marginF he ost of goods sold is the totl ost the owner of usiness pid for produts soldF sf the owner of fill9s fiyle hop simply uys iyles from the mnufturer nd hs them shipped to the shopD the ost of iyle is whtever ill pid the mnufturer plus the ost of shipping it to the shop nd ny lor ost tht might e involved in ssemling the iyle efore putting it on disply for ustomers to seeF he gost of goods sold shown on the snome ttement @h VDHHHA is the totl osts ssoited with ll of the iyles sold y fill in the yer PHHWF his is the ounting onept of mthingF @he les (gure of h PHDHHH is the totl of the pries pid y ll of the ustomers who ought iyles from fill during the yerAF qross mrgin is simply the di'erene etween les nd the gost of goods soldF st is n importnt (gure for owners to wthD nd you will sometimes her usiness owners tlk out their mrgins or mnging their mrginsF he greter the gross mrgin is the more pro(tle usiness is likely to eF por exmpleD see if you n determine wht fill9s gross mrgin nd pro(t would e if he hd to sell his iyles t disount euse of ompetitive pressure nd his sles revenue for the yer mounted to h IUDHHH insted of h PHDHHHF his isD of ourseD reltively simple exmple to illustrte the generl outline of n snome ttementD ut it should give you n ppreition of why the snome ttement is importnt to the owner of ny usinessF em s mking money or notc end if notD why notc rere9s simple exmple of flne heetX
Assets
gsh on hnd nd in nk eounts eeivle snventory ! xew fiyles rts snventory y0e iquipment epir iquipment
Total Assets Liabilities
h VDHHH QHHH IPHHH RHHH PHHH IHHH

USD 30,000
eounts yle von from fnk

Total Liabilities Owner's Equity Total Liabilities and Owner's Equity
h IHDHHH ISDHHH
25000 5000 USD 30,000
IUS
Table 9.3
X flne heet !fill9s fiyle hop! QI heemer PHHW
ou n see why it is lled flne heetF st is euse the sum of the sset ounts must equl the sum of the liility nd owner9s equity ountsF sn other wordsD they must e in lneF ou n lso see why it is sometimes lled sttement of (nnil positionF st shows the ondition of the usinessD in (nnil termsD s of spei( dteF xextD we will disuss short history of ounting nd the invention of douleEentry ookkeepingD tehnique tht is of gret ssistne to ountnts nd ookkeepers in ssuring the ury of ounting reords nd the reports tht re prepred from themF
9.7 A short history of accounting and double-entry bookkeeping
19
here re mny stories of how ounting egnD ut most writers gree tht it hs long historyD going k SDHHH yers or soF vegend hs it tht welthy individulsD wnting to keep trk of their possessions @ttleD stores of grinD gold ornments nd so forthAD hired sries to keep reords of dditions nd deletions to their lists of possessions s they oughtD soldD or trded themF yne supposes tht tht they wnted to e sure tht ny hnges were legitimteY tht losses were not due to theftD nd tht if IHH ttle were purhsed tht the herd inresed y IHHF prom time to timeD ount of possessions would e mde nd ompred to the reords mintined y the srieF eny unexplined losses would e signl tht something ws miss nd worthy of investigtionF wodern ookkeeping is generlly thought to hve een invented during the stlin enissne @round IRWR ehD ording to one versionX
Formal accounting was invented by a Franciscan friar named Luca Pacioli in 1494 in his paper "Summa de Arithmetica, Geometria, Proportioni et Proportionalita" ("Everything About Arithmetic, Geometry and Proportion").The treatise described double-entry bookkeepingthat for every credit entered into a ledger there must be a debit, a concept created by Florentine merchants and hailed by Goethe as "one of the most beautiful discoveries of the human spirit". Three traits shared by successful merchants, Mr. Pacioli wrote, were access to cash, a constantly updated accounting system and a good bookkeeper. His contemporary Christopher Columbus apparently knew that: On his voyage to the New World, he took a royal accountant to track his "swindle sheet when he started to gure the cost of gold and spices he would accumulate", according to Alistair Cooke's 1973 book "America." (p. 189)
sn my opinionD qoethe eutiful disoveries of the ut s the old sying goesX t hertF et ny rteD the ikipedi explinsX
ws exggerting when he lled doule entry ookkeeping 4one of the most humn spirit4F s n think of mny other disoveries tht re more eutifulD feuty lies in the eye of the eholder nd perhps qoethe ws ookkeeper disovery of douleEentry ookkeeping ws undenily importntD euseD s
Double-Entry Bookkeeping is a system that ensures the integrity of the nancial values recorded in a nancial accounting system. It does this by ensuring that each individual transaction is recorded in at least two dierent (sections) nominal ledgers of the nancial accounting system and so implementing a double checking system for every transaction. It does this by rst identifying values as either a Debit or a Credit value. A Debit value will always be recorded on the debit side (left hand side) of a nominal ledger account and the credit value will be recorded on the credit side (right hand side) of a nominal ledger account
20 . A nominal ledger has both a Debit
(left) side and a Credit (right) side. If the values on the debit side are greater than the value of the credit side of the nominal ledger then that nominal ledger is said to have a debit balance.
19 This content is available online at <http://cnx.org/content/m35488/1.4/>. 20 http://en.wikipedia.org/wiki/General_ledger
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CHAPTER 9.
Each transaction must be recorded on the Debit side of one nominal ledger and that same transaction and value is also recorded on the Credit side of another nominal ledger hence the expression Double-Entry (entered in two locations) one debit and one credit (p. 189).
rere is simple exmple to give you feel for the wy tht doule entry ookkeeping worksX
Example 9.1
vet us ssume tht the owner of fill9s fiyle hopD whih we disussed oveD ought some new iyles on reditD for inventoryF his is how the ounts would e 'etedX heit the inventory E new iyles ountX h PDHHH gredit the ounts pyle ountX h PDHHH xext let us ssume tht the owner hd some extr sh nd deided to py down some of our nk lonF his is how the ounts would e 'etedX heit the lon from the nk ountX h IDHHH gredit the sh ountX h IDHHH xote two thingsF pirstD single trnstion 'ets two ounts @ douleEentryAF eondlyD note tht deit to n sset ount inreses the vlue of the ount nd deit to liility @or owner9s equityA ount dereses its vlueF oD when h IDHHH is pid to the nkD the deit to the lon from nk ount redues the mount we owe to the nkD nd the redit to sh dereses the lne in our sh ountF
9.8 Ledgers
21
he version quoted ove sttes tht deits nd redits must e entered into ledgerD so it is importnt tht you understnd wht this term mensD s it my e new to youF es you will see from some of the dditionl soures we quoteD oftentimes journal nd ledger re used to desrie the sme thingF oD wht is ledgerc e ledger is simply olletion of the ounts of your usiness where trnstions re reorded using the douleEentry ookkeeping methodF sf you re operting with ompletely mnul systemD your ledgers @you will hve more thn oneD s disussed in momentA re on pperD usully in ound volume preEprinted in speil wy to ommodte the reording of trnstionsF sf you re using preEoded pplition softwre pkge on g for your ounting systemD your ledgers will e on the omputerF
9.8.1 Types of ledgers
wost orgniztions operte with two types of ledgersD the qenerl vedger nd one or more susidiry ledgersF he qenerl vedger ontins minimum of one pge for eh ount in the hrt of ountsF eording to one uthorittive soureX
It is also known as G/L and The Final Book of Entry. It is a collection of all balance sheet, A General Each company has income, and expense accounts used to keep the accounting records of a company. Ledger is a perpetual record of the activity and balances of the accounts. only one General Ledger (p. 189)
roweverD some ountsD like ounts reeivle or ounts pyleD re omprised of the sum of numer of individul mountsF vet us look t ounts reeivle s n exmpleF uppose we hve lne @iFeF totlA mount of h QDPSH in our ounts reeivle ount in the qenerl vedgerF ememerD ounts reeivle re mounts our ustomers owe usF hereforeD the h QDPSH lne we hve in our ounts reeivle is the sum totl of mounts owed to us y severl individul ustomersF por the ske of onvenieneD we keep susidiry ledger of individul ounts reeivle s illustrted in ixhiit WFI elowF
21 This
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Exhibit 9.1: Accounts Receivable Subsidiary Ledger example
he eounts eeivle usidiry vedger hs one pge for eh ustomer who hs erned the right to e extended reditD nd is expeted py o' their outstnding lne eh monthF he sum of the ustomer lnes in the eounts eeivle usidiry vedger must equl the eounts eeivle lne in the ompny9s qenerl vedgerF sn the se of the eounts eeivle exmpleD when sle is entered in the ledgerD orresponding entry is mde in les tournlF endD when pyment is reeived nd posted to ustomer9s ount in the eounts eeivle ledgerD orresponding entry is mde in gsh eeipts tournlF imilr susidiry ledgers re reted ny time there is su0ient numer of detil ounts to wrrnt itF hetiled ounts my e employee ounts for pyrollD or produt numers for inventoryD for exmE pleF etting up susidiry ledgers nd journls for speil purposes like this shields the qenerl vedger from n exessive mount of detil ndD t the sme timeD preserves the priniple of douleEentry ountingD mkes reonilitions esier ndD in generlD promotes ury in ompny9s ounting reordsF sn rel lifeD of ourseD things n get more omplitedD ut this is the si pproh tht is followedF
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CHAPTER 9.
sn etion IHFID we disuss the mny opportunities tht smll usinesses hve to use omputer softwre to set up nd mintin reords of ll sorts for their usinessD from ountingD pyrollD ustomer reltionship mngementD inventory ontrol nd the likeF qoing muh eyond this is eyond the sope of this hpterF ou n expet the most populr ounting softwre pkges to ssume you do not know lot out ountingF hereforeD most o'erings will led you through the proess of setting up hrt of ounts tht is pproprite for your usiness nd help you deide whih si reports you should hveF yver nd ove thtD most will permit you to prepre the dvned reports nd nlyses disussed in the following setionD s well s ustom reports tilored to your spei( needsF here re severl soures on the snternet tht ompre the funtionsD feturesD nd pries of softwre pkges for ounting to help you mke the proper seletionF yne espeilly good one is eounting oftwre eview PHHW ! openisi @pF IVVAFuoting from their wesiteX
Opening a small business in today's fast-paced economic climate can be an exciting, complicated and expensive endeavor. On the surface, it seems simplejust make sure you're selling your goods for more than it costs to produce them, right? Wrong. Without proper bookkeeping, your blooming company can take an abrupt dive towards bankruptcy.
This is why accounting is a key component in any small business's success. increasing production, stocking inventory and determining salaries.
It should play a
role in every nancial decision you makefrom purchasing vehicles, equipment and supplies to
But if you, like most people, lack an extensive background in accounting, where do you begin? Today's accounting software has the solutiongiving you the tools and the information you need to keep your nancial records in check, while aiding you in making the most of your company's cash ow.
Unfortunately, there are about as many software packages for accounting as there are types of small businesses and determining which one best meets the needs of your company can be a tricky transactionbut that's where we can help.
Within this site, you'll nd articles on accounting
22 and comprehensive reviews23 to help you
make an informed decision on which accounting software is right for your business. At TopTenREVIEWS, we do the research so you don't have to! system.
If you have access to the Internet, we
highly recommend exploring this site for ideas on how to move forward with your accounting
rere is n exerpt from the wesite where they ompre ten softwre pkges feture y fetureF sn the tle reprodued hereD we only show the nmes of the pkges nd their priesF por more detil you will need to visit the eounting oftwre eview PHHW wesite itself @httpXGGountingEsoftwreE reviewFtoptenreviewsFomG24 AF
22 http://accounting-software-review.toptenreviews.com/accounting-for-beginners.html 23 http://accounting-software-review.toptenreviews.com/peachtree-review.html 24 http://accounting-software-review.toptenreviews.com/
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kge xme ehtree gomplete wyf fusiness issentils uikooks ro xetuite mll fusiness gougr wountin fookkeeper imply eounting gwe seounting for indows hisy fottom vine eounting
Table 9.4
yverll nking ixellent ery qood lus ery qood ery qood ery qood ery qood qood lus qood lus qood lus qood
rie in hollrs 6PRWFWW 6WWFHH 6IUVFWS 6IIVVFHH 6IRWWFHH 6PWFWW 6IRWFWW 6SWSFHH 6RWWFWW 6QWWFHH
X PHHW eounting oftwre eview rodut gomprisons
es you n seeD there is wide rnge of priesD from h PWFWW to h IRWWFHHD nd the pkge whih sells for h PWFWW is rted the sme s the one tht sells for h IRWWFHHF glerlyD this shows tht some nlysis is neessry efore settling on spei( ounting softwre pkgeF ou my need to engge the servie of professionl ountnt orD t lestD ollegue who hs studied ounting nd ounting softwre pkges to help you mke the right seletion for your usinessF rere is some good dvie from the eounting oftwre eview PHHW wesiteX
With all the accounting software available, it's hard to know which program is the best t for your business nances. Below are the criteria TopTenREVIEWS used to evaluate small business accounting software.
Ease of Use We look for nance software that is simple to install, set up, and understand.
The best accounting programs make navigating intuitive, so you never have to guess where
Accounting Modules
you are or what to do next. Accounting modules are categories required to successfully maintain your business nances (such as Accounts Payable and Accounts Receivable). Does the accounting software have all the basic accounting modules you'll need? All the bells and whistles of the software aren't relevant if the basics aren't covered. Will the nance software grow with your company? We look for accounting software that lets you grow and customize your system to t your individual business needs. Consider accounting software that oers a wide range of reports. You should be able to print at least one kind of report for every module. Reporting features are often built into each section, but it's better if you can create reports from anywhere in the program. Customizable reports save you time; look for accounting software that will let you set your own criteria. With detailed nancial reporting, you can analyze what is and isn't working for your business. Look for email and phone support; toll-free phone and live support, online help is a bonus. Online, we look for indexed help topics that can be searched easily. You'll want quick access for both technical help and accounting help for your software. Accounting software companies should have qualied people (both technicians and accountants) answering these tough questions.
Reporting Categories
Help Documentation
With the right accounting software, you will be able to manage your company books quickly and easily. (p. 188)
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CHAPTER 9.
9.9 Advanced reports and analyses
25
his setion disusses some of the more ommon reports prepred from n ounting system tht hveD over the yersD proven to e vlule tools for mnging usinessF
9.9.1 Cash ow forecasts
here is sying in usiness tht gsh is uingF yne of the worst things tht n hppen to ompny is to run short of sh unexpetedlyF his n mke it di0ult to py suppliers nd employees without surrying round to rise needed sh quiklyD nd when you must rise sh quikly you often (nd it di0ult nd expensive tskF fusiness owners re not lwys suessful in rising sh quikly nd in the worst sesD must go nkruptF his is why sh )ow forests re prepredF hey re esy to prepre nd n e quikly done using spredsheet progrmF hey n lso e prepred mnullyF ht sh )ow forest does is estimte sh inputs nd outputs over period of timeD usully t lest WH dys in order to give you ssurne tht your usiness will hve the sh neessry to meet its oligtions to othersF sf the sh )ow forest showsD for exmpleD tht you re in de(it position two months outD you will hve time to rise the neessry sh you need nd void sudden sh risisF gsh )ow forests re often prepred for longer periods of time s wellD depending on irumstnesF sn dditionD they re often prepred using vrious ssumptions out the future @eFgF generl eonomi onditionsD sles growthD inresed expensesD etAF es one uthorittive wesite sttesX
By knowing your cash position now and in the future, you can:
Make certain you have enough cash to purchase sucient inventory for seasonal cycles; Take advantage of discounts and special purchases; Properly plan equipment purchases for replacement or expansion; Prepare for adequate future nancing and determine the type of nancing term credit line, permanent working capital, or long-term debt). Show lenders your ability to plan and repay nancing.
26 you need (short
For a new or growing business, the cash ow projection can make the dierence between succeeding and failure. stagnation. For an ongoing business, it can make the dierence between growth and
repring sh )ow projetion is something like prepring your udget nd lning your hekook t the sme timeF nlike the inome sttementD sh )ow sttement dels only with tul sh trnsE tionsF hepreitionD nonEsh trnstionD does not pper on sh )ow sttementF von pyments @oth prinipl nd interestA will pper on your sh )ow sttement sine they require the outly of shF gsh is generted primrily y slesF fut in most usinessesD not ll sles re sh slesF iven if you hve retil usiness nd lrge perentge of your sles re shD it is likely tht you o'er redit @hrge ountsD hrge rdsD term pymentsD lywyD trde reditA to your ustomersF husD you need to hve mens of estimting when those redit sles will turn into shEinEhndF @A
9.9.2 Working capital analyses
orking pitl is ommonly de(ned s the funds usiness needs to support its norml opertionsF sn some wysD working pitl nlysis is similr to sh )ow forestD ut it di'ers in its fous on the operting yle of the usinessF uoting from the wesite intrepreneurFomD
25 This content is available online at <http://cnx.org/content/m35491/1.4/>. 26 http://www.smallbusinessnotes.com/operating/nmgmt/capital.html
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the operating cycle analyzes the accounts receivable, inventory and accounts payable cycles in terms of days. In other words, accounts receivable are analyzed by the average number of days it takes to collect an account. Inventory is analyzed by the average number of days it takes to turn over the sale of a product (from the point it comes in your door to the point it is converted to cash or an account receivable). Accounts payable are analyzed by the average number of days it takes to pay a supplier invoice.
Most businesses cannot nance the operating cycle (accounts receivable days + inventory days) with accounts payable nancing alone. Consequently, working capital nancing is needed. This shortfall is typically covered by the net prots generated internally or by externally borrowed funds or by a combination of the two.
Most businesses need short-term working capital loans at some point in their operations. For instance, retailers must nd working capital to fund seasonal inventory buildup between September and November for Christmas sales. But even a business that is not seasonal occasionally () experiences peak months when orders are unusually high. This creates a need for working capital to fund the resulting inventory and accounts receivable buildup.
e working pitl nlysis is prepred in mnner similr to wht we desried for sh )ow forest in tht ssumptions re mde out the impt on working pitl s result of tivities during the forest period in order to provide the usiness owner with ssurne tht dequte working pitl to support opertions will e generted y norml usiness opertionsF sf notD lterntive soures of working pitl must e lined upD nd the erlier suh need is reognizedD the etterF
9.9.2.1 Break-even analysis
e rek even nlysis is designed to show you how muh revenue must e generted to over your (xed nd vrile ostsF evenue elow the rekeven point mens the usiness is losing money nd revenue ove the rekeven point mens the usiness is pro(tleF vet us look t simple exmpleD one tht ssumes your usiness is selling only one produtF sn order to lulte the rekeven point you will need to know three thingsX
our (xed osts our vrile ost our unit selling prie
yne the rekeven point is pssed nd revenue ontinues to riseD your usiness will e pro(tleF his is why knowing your rekeven point in terms of unit sles is so importntF he wesite eoutFomXintrepreneurs ontins n esy to understnd formul for lulting your rekeven pointX
To conduct your breakeven analysis, take your xed costs, divided by your price minus your variable costs. As an equation, this is dened as:
Breakeven Point = Fixed Costs/(Unit Selling Price - Variable Costs)

This calculation will let you know how many units of a product you will need to sell to break even. Once you have reached that point, you have recovered all costs associated with producing your product (both variable and xed).
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CHAPTER 9.
Above the breakeven point, every additional unit sold increases prot by the amount of the unit contribution margin, which is dened as the amount each unit contributes to covering xed costs and increasing prots. As an equation, this is dened as:
Unit Contribution Margin = Sales Price - Variable Costs

Recording this information in a spreadsheet will allow you to easily make adjustments as costs change over time, as well as play with dierent price options and easily calculate the resulting breakeven point. You could use a program such as Excel's Goal Seek, if you wanted to give yourself a goal of a certain prot, say USD 1 million, and then work backwards to see how many units you would need to sell to hit that number. (This online tutorial Goal Seek.)().
27 will show you how to use
9.9.3 Protability analyses (e.g. by customer, product, region)
here re mny types of nlyses tht mngers prepre in order to gin deeper insight into the opertions of their usinessesF yne of the most importnt of these is pro(tility nlysesF wngersD knowD intuitivelyD tht some ustomers re more pro(tle thn othersD tht they mke more gross mrgins on some produts thn othersD nd if the usiness hs more thn just lol overgeD tht some geogrphil regions re more pro(tle thn othersF hile it is good to know suh things intuitivelyD it is etter to know them for sureF end knowing them for sure requires tht systemti nlyses e prepredF eording to ikipediD
Customer protability (CP) is the dierence between the revenues earned from and the costs associated with the customer relationship in a specied period.
Although CP is nothing more than the result of applying the business concept of prot to a customer relationship, measuring the protability of a rm's customers or customer groups can often deliver useful business insights.
Quite often a very small percentage of the rm's best customers will account for a large portion of rm prot. Although this is a natural consequence of variability in protability across customers, rms benet from knowing exactly who the best customers are and how much they contribute to rm prot.
At the other end of the distribution, rms sometimes nd that their worst customers actually cost more to serve than the revenue they deliver. These unprotable customers actually detract from overall rm protability. customers in the rst place (). The rm would be better o if they had never acquired these
he iggest hllenge in mesuring ustomer pro(tility is the ssignment of osts to ustomersF hile it is usully ler wht revenue eh ustomer genertedD it is often not ler t ll wht osts the (rm inurred serving eh ustomerF oD ountnts try nd develop some sort of resonle method of lloting (xed nd vrile osts to ustomersF e typil method is to nlyze eh ost nd try to determine the proportion ttriutle to eh ustomerF e simple nd lerEut exmple is sitution where store hs oth wlkEin nd onEline ustomersF he osts of renting nd mintining the physil store ould resonly e lloted to the ustomers who purhse goods in personD sed on the numer of visits or more likely on the mount
27 http://www.homeandlearn.co.uk/ME/mes8p4.html
IVQ of sles to eh ustomerF ynEline ustomers ould hve the osts of developing nd mintining the wesite lloted to themF ith this informtion in hndD ustomer pro(tility nlysis n e prepredF st is usully prepred in desending order y ustomer pro(tilityD s illustrted in ixhiit WFPX
Exhibit 9.2: Customer Protability Analysis
essume you re the owner of the resturnt supply ompny illustrted in the exhiitF ht kinds of useful informtion n you gther from n nlysis suh s thisc wny ompnies prepre similr type of nlysis t the gross mrgin level nd skip the step of trying to llote osts to individul ustomersF sn this seD ost of goods sold is sustituted for lloted osts in olumn three of ixhiit WFPD nd olumn four will show gross mrgin y ustomer insted of pro(tility y ustomerF por mny mngersD gross mrgin y ustomer gives them the essentil informtion they need without going through the dditionl step of trying to llote osts to ustomersD whih is louded y its inherent inuriesF
9.10 Budgets
9.10.1 Budgets
28
irlierD we disussed sh )ow forests nd how they re usedF en extension of the sh )ow forest onept is the operting udgetF wost orgniztions hve themF e udget is the (nnil expression of n orgniztion9s operting pln for period of timeD usully t lest yerF rior to the eginning of the yerD mngers prepre pln for wht they hope to omplish in the oming yer in terms of revenueD expensesD nd net pro(tF e more forml de(nition of udget isX
A
budget
is a nancial document used to project future income and expenses.
The budget-
ing process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses.
A budget may be prepared simply using paper and pencil, or on computer using a spreadsheet program like Excel, or with a nancial application like Quicken or QuickBooks.
28 This
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CHAPTER 9.
The process for preparing a monthly budget includes: Listing of all sources of monthly income Listing of all required, xed expenses, like rent/mortgage, utilities, phone Listing of other possible and variable expenses. (Biztaxlaw.about.com 2009)
henD s the yer unfoldsD tul inome nd expenses re posted to the ounting reordsD nd ompred to wht ws udgetedD nd vrine from udget for eh item udgeted @eFgF slesD selling expensesD dvertising ostsD etA is lultedF wngers responsile for the vrious inome nd expense items then exmine eh vrine ndD if it is sustntilD serh for n explntionF por exmpleD it is one thing if eletriity osts re PH per ent higher thn wht ws udgeted for one month euse workmen were using power tools to repir the roofF sn tht seD we n expet osts to return to norml when the repir work is ompletedF st is quite nother thing if osts re higher euse the eletri ompny rised its rtesF sn tht seD we n expet tht osts will e t lest PH per ent higher in the futureF
9.10.2 Forecasts
wost orgniztions tke udget vrine to dte into onsidertion eh monthD nd then prepre revised budget @or forecast A for the lne of the yerF his step is prtiulrly importnt if vrines to dte vry from the originl udget in mjor wyF por exmpleD if sles re less thn projeted euse mrket onditions re less fvorle thn ntiipted when the udget ws prepredD mngers my look for wys to inrese sles or redue expenses in order to void loss for the yerF
9.10.3 Scenarios
here re mny other forests tht mngers sk for in order to try nd ntiipte wht the future might hold so they n prepre ontingeny plns in se of unforeseen eventsF ixmples of unforeseen events tht my well 'et future outomes re the rrivl of new ompetitorD hnge in the overll eonomi outlook whih ould 'et osts ndGor revenues either positively or negtivelyD or even the rrivl of new ompny in nother line of usiness tht ould rise previling wge rtes in your regionF oD wht mngers like to do is to develop forests of slesD ostsD shD pro(tsD interest rtes nd the like using di'erent ssumptions whihD of ourseD result in di'erent outomesD some good nd some dF enother word for suh forests is scenariosF por exmpleD let us ssume tht forest of the inome sttement for usiness t the end of the yer ssumes tht sles will grow y V per ent over the previous yer nd osts will grow y T per entF e mnger might sk for n lterntive senrio where sles inrese y IP per ent nd osts inrese y W per ent nd nother senrio where sles derese y Q per ent nd osts inrese y I per entF he ll treet tournl hd story reently on how usinesses use senrios for plnning purE posesF uoting from itX
Each spring, executives at JDS Uniphase Corp. plan for three potential sales scenarios for the coming scal year, which begins in July. Last year, rattled by nancial-market turmoil, they included an extremely pessimistic sales outlook and outlined potential cost cuts.
The planning proved useful when the economy stalled and customers began delaying orders later in the year. We knew what levers to pull, says Dave Vellequette, chief nancial ocer at the Milpatis, Calif., maker of ber-optic telecommunications equipment.
The experience highlights the value of scenario planning, or preparing responses to imagined changes in conditions. It's not about predicting the future, says Peter Schwartz, a partner at Monitor Group, a Cambridge, Mass. Consulting rm. Scenario planning is a tool for learning and making better decisions. (p. 189).
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9.10.4 Sources of nancing for your organization
yne you hve your ounting system estlishedD you n tke your plns for the initil months nd yers of opertion of your orgniztionD nd prepre senrios of the (nnil results of opertions for your own pee of mind or s douments to disuss with potentil investorsF ueep in mind tht potentil investors re interested in something they ll the pth to pro(tility or PF sn other wordsD while they expet tht your orgniztion will not e pro(tle immeditelyD they will wnt some ssurne tht it will e pro(tle reltively soon efore they help you get strtedF hile potentil investors my like you s n individulD they wnt to e sure they will get return on their investmentF he wy you do this is to go over your usiness pln with themD inluding the (nnil nlyses tht shows them the pth to pro(tilityF hey will sk you questions to mke sure your ssumptions re resonleD so mke sure you do your homework in dvneD ntiipte their questionsD nd hve good nswers redy for themF he uthor of etion PFI disussed severl possile soures you n explore to otin the strtEup (nning you will needX
svings friends nd fmily miroE(nners governmentl support rter nk lons networking online network memerships
sf you hve een sving your money nd hve umulted enough to provide the funds you need to (nne your strtEupD this is the est wy for you to goF st n e di0ult to onvine third prties tht your strtEup is good investmentD ndD in some sesD you my hve to relinquish some degree of ownership @nd mngement ontrolA over your usiness to n investorF his n led to disgreements whihD if serious enoughD ould use your investor to demnd his or her money returned to them t n inonvenient timeF roweverD only smll perentge of entrepreneurs re fortunte enough to e le to fund their strtEup osts with personl fundsD so most re fored to seeking funding elsewhereF wny entrepreneurs in the D for exmple orrow from their redit rds or tke out higher mortgge on their homes to void hving to get funds from othersF hile this is ommonD it n result in personl (nnil disster if the strtEup filsF Friends and familyX esking friends nd fmilies to invest is nother ommon wy tht strtEups re fundedF yften the potentil entrepreneur is youngD energetiD nd hs good ide for strtEupD ut does not hve muh in the wy of personl svingsF priends nd fmily my e older nd hve some money set sideF hile your prentsD or other fmily memers should not risk ll of their retirement svings on your strtEupD they my e willing to risk smll perentge of it to help you outF ometimes friends your own ge re willing to work for little or no wges until your sh )ow turns positiveF he term swet equity is often used for this type of ontriution s the owner will often rewrd suh loylty with smll perentge ownership of the orgniztion in lieu of shF e vrition on this is barter or trdeF es mentioned in here29 D this is method y whih you ould provide needed servie suh s onsultingGmngement dvie in return for the resoures needed for your strt upF his needs to e ounted for in your ounting reords lsoF Networking, online networks, and memberships ll n e wys of meeting mngers who hve either suessfully lunhed strEup or who re in the proess of moving their orgniztion forwrd on the pth to pro(tilityF edding to some of the exmples given in here30 D you my wish to onsider your lol hmer of ommereD otry gluD or lol orgniztion omprised of entrepreneursF por exmpleD if your strtEup is loted in efriD the efri fusiness gommunities portl ould e good soure for you to lote networking opportunities in your ommunityF eording to their wesiteX
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CHAPTER 9.
The African continent is enjoying a period of unprecedented economic growth. The idea that business is the key to sustainable development in Africa is gaining ground rapidly worldwide.
Africa Business Communities is a portal website that brings the visitor into the heart of the African economy, by granting access to African entrepreneurs. Currently Africa Business Communities hosts 35 Africa business networks, in the future that will be hundreds. (African Business Communities 2009).
@s stted in here31 A re not usully ville to erlyEstge entrepreneurs unless you hve trk reord of previous suess ndGor the ssets to put up @s ollterlA suh s home you own in return for seuring the nk lonF Angel investors, venture capitalistsX enture pitlists re usully not interested in strtEupsF hey tend to invest in young ompnies fter they hve demonstrted tht they re lerly on pth to profE itility nd they need dditionl pitl to help them grow quiklyF engel investorsD on the other hndD re interested in strtEup ompnies ndD unlike venture pitlists who tend to seek ontrol of the orgniztionD ngel investors like to leve mngement of the orgniztion to its founder@sAF engel investors re lwys ville to provide dvie nd ounselD howeverF his n e extremely vlule to young entrepreneur s ngel investors re usully suessful entrepreneurs themselvesF por exmpleD reent rtile in fusiE ness eek mgzine desries h QHH million ngel investment (rm oEfounded y wr endreessenD of xetspe gommunitions fmeF xmed endreessen rorowitzD the (rm9s investors @in ddition to enE dreessen9s usiness prtner fen rorowitzA inlude prominent teh industry plyers inluding eid ro'mnD founder of the soil networking site vinkedsnD nd eter hielD former giy of the pyment servie ylF he rtile goes on to sy tht
Bank loans
Andreessen Horowitz is expected to concentrate on making investments in technology, with an emphasis on corporate services and Internet businesses that cater to consumers. Investors who have heard the rm's pitch say it is adopting a "super angel" strategy in which a modest-size venture rm invests morsels of money into many startups. declined. They want to sprinkle as many seeds in the ground as possible," says one investor who was approached to invest in the rm but
There's a twist though: While most super angels nance the rst round of a startup and work closely with the company to launch a product, the investor says Andreessen and Horowitz told him they intend to take a more hands-o approach: They'll invest in 70 or 80 companies with minimal involvement in most, and then double or triple down on the dozen or so winners that emerge. The strategy will allow Andreessen to back many more startups than the average venture rm, but with less control (p. 189).
sf you do the qoogle serh suggested in here32 you will (nd numer of orgniztions tht give smll lons to udding entrepreneurs in developing eonomiesF yne suh exmple is wiro(nning rtners in efriF rere is quote from their wesite where they desrie their progrmX
Micro-nancers
Micronancing Partners in Africa (MPA) develops sustainable businesses and economically viable communities. We work with community-based organizations to create and support funding systems that furnish small, collateral-free, low-interest business loans. Grants are given to organizations that provide business, health and nutrition classes.
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Very often, all that is required are loans as small as $20 to bring a business into full production. Realistic micronancing terms, comprehensive training and the development of a communitybased support network result in a high percentage of on-time repayments. This funding system provides the nancial basis for the provision of additional training, loans and business creation.
Ultimately, these thriving business communities provide the economic foundation for community development projects, including schools, health centers, power sources, etc.(p. 189)
he one spet of miro(nners is tht their lons re truly miroF hey my e too smll to e helpful in getting your usiness strtedF futD you never knowF wiro(nning orgniztions n e good ple to strtD nd if your needs exeed their norml limits they my e le to refer you to other soures of fundingF here my e miro(nning resoures ville through x progrmsD otryForg nd other souresF pinllyD governmental support is lso possiilityF es n exmpleD here is quote from wesite desriing government grnts ville to strtEups in the D long with some of the resons why the government is lloting federl funds to privte usiness strtEupsX
Economic development is very important for every country. The economic conditions are unpredictable and volatile and so every country needs all the help it can get to improve its overall standing. Businesses are the major contributors to the success of the economy and so the government is always willing to extend the needed nancial aid.
Some entrepreneurs are hesitant to get assistance from the government. The government has a huge fund allocation for the grants. grants.
But if you're one of
those entrepreneurs with capital problems, don't hesitate to ask for help from the government. If you want to know more about the government grants, you can simply log on to the internet and search for these entrepreneur
Before an entrepreneur decides to put up a business, he conducts a lot of studies to determine if the business is feasible or not. grants. If he can prove the feasibility of his business proposal, the government will immediately provide the needed capital assistance through the entrepreneur
If the working capital that you've raised from family, relatives, and friends are insucient, try to contact the local government and ask for the requirements in order to avail the government entrepreneur grant. You can either do this online or you can visit the physical oce of the local government of your state or country. (p. 189)
hoes your ountry hve progrm of ssistne for entrepreneursc
9.11 Chapter Summary
33
sn this hpter we disussed the importne of hving wellEdesigned ounting system for your orgniztion s well s the distintion etween (nnil nd mngeril ountingF hile oth (nnil nd mngeril ounting sttements nd reports re required nd importntD mngeril ounting sttements nd reports re more likely to ontin the kinds of informtion you will need to help mnge the opertions of your orgniztionF
33 This
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CHAPTER 9.
e explined the six di'erent types of ountsD their hrteristisD nd how they re used to rete detiled hrt of ounts whih is tilored to the spei( needs of your orgniztionF xext we overed the dvntges of the system of douleEentry ookkeeping nd howD together with ledgers nd other ounting reordsD it enhnes the ury of informtion mintined in n ounting systemD whether it is mnul or omputerEsedF xextD sine the ost of omputers nd softwre hs dropped to the point where even mny smll orgniE ztions n 'ord themD we overed some of the ounting softwre pkges tht re villeD their ostsD riteri for seletionD nd the dvntges of using themF pinllyD we disussed the ommon options for otining funds for your strtEup orgniztionD some of the pros nd ons of ehD nd the dvntge you will hve in pprohing lenders or investors with ounting reports tht demonstrte ler pth to pro(tilityF
9.12 Discussion Questions
34
ixplin the di'erene etween (nnil ounting nd mngeril ountingF hih one is most importnt to ownerGmngers of strtEup orgniztion nd whyc vist nd give exmples of the six si types of ountsF ht re the hrteristis of ehc hy is it importnt to hve hrt of ounts tht is tilored to prtiulr types of orgniztions rther thn one hrt of ounts tht pplies to ll types of orgniztionsc here n you (nd smple hrts of ounts tht pply to your type of orgniztionc ixplin the dvntges of douleEentry ookkeepingF ho you gree with qoethe9s desription of douleEentry ookkeeping s qoethe s 4one of the most eutiful disoveries of the humn spirit4c lese disuss the dvntges nd disdvntges of using omputer softwre pkges for your ountE ing systemF ht sort of di0ulty n you imgine the mnger of n orgniztion would e in if the orgniztion did not routinely prepre sh )ow forests nd working pitl nlysesc hy is it importnt for mngers to understnd the onept of rekEeven pointc lese give exmples of how informtion from ustomer pro(tility report ould e usedc hy is it importnt for n orgniztion to prepre nd use udget @or (nnil plnAc lese give exmples of lterntive senrios n orgniztion should prepre nd how they might e usedF
9.13 References
35
@eoutFomX intrepreneurs PHHWA httpXGGentrepreneursFoutFomGodGusinessplnGGrekevenFhtm36 D essed tuly SD PHHWF @eounting oftwre eview PHHWA httpXGGountingEsoftwreEreviewFtoptenreviewsFomG37 D essed tuly RD PHHWF @efrin fusiness gommunities PHHWA httpXGGwwwFfriusinessommunitiesFomG38 D essed tuly UD PHHWF @fiztxlwFoutFom PHHWA httpXGGiztxlwFoutFomGodGglossryGgGfudgetFhtm39 D essed tuly TD PHHWF
34 This content is available online at <http://cnx.org/content/m35495/1.4/>. 35 This content is available online at <http://cnx.org/content/m35496/1.4/>. 36 http://entrepreneurs.about.com/od/businessplan/a/breakeven.htm 37 http://accounting-software-review.toptenreviews.com/ 38 http://www.africabusinesscommunities.com/ 39 http://biztaxlaw.about.com/od/glossaryb/g/Budget.htm
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@fuhnn nd ispeseth PHHWA heveloping fed nd frekfst fusiness ln PHHWD xorth gentrl egionl ixtension ulition PUQD httpXGGweFesFuiuFeduGvistGpdfpusG8Fpdf40 D essed tune PPD PHHWF @fusinesstrtpessistneFom PHHWA httpXGGwwwFusinessstrtupssistneFomGEgovernmentE entrepreneurEgrnt!itsEesierEthenEyouEthinkFphp41 D essed tuly UD PHHWF @fusinesseekFom PHHWA httpXGGwwwFusinessweekFomGmgzineGontentGHWPVGRIQWHQPQPRHVQFhtm42 D essed tuly UD PHHWF @intrepreneurFom PHHWA httpXGGwwwFentrepreneurFomGmoneyGmoneymngementG(nnilnlysisGrtilePIWRHFhtml5 D essed tuly RD PHHWF @ixeutive glier PHHWA httpXGGwwwFexeutivelierFwsGsysEtmplGhistoryofountingG44 D essed tune PQD PHHWF @sef PHHWA httpXGGwwwFisForgG45 D essed tune PHD PHHWF @wiro(nning rtners in efri PHHWA httpXGGwwwFmiro(nningfriForgG46 D essed tuly UD PHHWF @mllusinessnotesFom PHHWA httpXGGwwwFsmllusinessnotesFomGopertingG(nmgmtG(nnilstmtsGshprojetionFhtm D essed tuly RD PHHWF @niversl eounting PHHWA httpXGGwwwFknowEountingFomGglossryGindexFphpctermlag8termidaWH48 essed tune PS PHHWF @ll treet tournl PHHWAF unD griD endulum is winging fk on enrio lnningD he ll treet tournlD tuly TD PHHWD pge fTF @ikipedi PHHWA httpXGGenFwikipediForgGwikiGpinnilounting49 D essed tune PHD PHHWF @ikipedi PHHWA httpXGGenFwikipediForgGwikiGwngerilounting50 D essed tune PHD PHHWF @ikipedi PHHWA httpXGGenFwikipediForgGwikiGghrtofounts51 D essed tune PHF PHHWF @ikipedi PHHWdA httpXGGenFwikipediForgGwikiGhouleEentryookkeepingsystem52 D essed tune PQD PHHWF @ikpedi PHHWeA httpXGGenFwikipediForgGwikiGgustomerpro(tility53 D essed tuly SD PHHWF
40 http://web.aces.uiuc.edu/vista/pdf_pubs/b&b.pdf 41 http://www.businessstartupassistance.com/a-government-entrepreneur-grantits-easier-then-you-think.php 42 http://www.businessweek.com/magazine/content/09_28/b4139032324083.htm 43 http://www.entrepreneur.com/money/moneymanagement/nancialanalysis/article21940.html#ixzz0KJKa21Vk&D 44 http://www.executivecaliber.ws/sys-tmpl/historyofaccounting/ 45 http://www.iasb.org/ 46 http://www.micronancingafrica.org/ 47 http://www.smallbusinessnotes.com/operating/nmgmt/nancialstmts/cashprojection.html 48 http://www.know-accounting.com/glossary/index.php?terml=g&termid=90 49 http://en.wikipedia.org/wiki/Financial_accounting 50 http://en.wikipedia.org/wiki/Managerial_accounting 51 http://en.wikipedia.org/wiki/Chart_of_accounts 52 http://en.wikipedia.org/wiki/Double-entry_bookkeeping_system 53 http://en.wikipedia.org/wiki/Customer_protability
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CHAPTER 9.
Chapter 10
Leveraging with information technology

10.1 Learning Objectives

1
he(ne the four omponents of n snformtion ystem sdentify how informtion systems n ssist strtEup nderstnd how to rete we presene for your orgniztion vern how to use informtion systems to gin ompetitive dvntge nderstnd how ompnies identify their informtion needs nd set priorities equire n ppreition of why it is importnt to mnge s risks
2
10.2 Introduction
his hpter explores how snformtion ystems @sA n e used to y mngers to etter develop their usiness ideD lunh nd sustin their usinessesF st will lso exmine how s forms the foundtion for opertions mngementD ustomer reltionship mngement nd (nnil nd mngeril ountingF hile you my e fmilir with the term this is the informtion ge it n men di'erent things to di'erent peopleF sn ris fmous ookD he orld is pltD @priedmn PHHSA homs priedmn explins how s hs hnged the wy the world worksF re lls the orld ide e qlol network for ollortion nd gives mny exmples of how mny forms of knowledge work n now e done nywhere in the worldD tht individuls from di'erent ountries n ollorte on projets without hving to trvel to distnt ities to meet eh other feEtoEfeD nd tht projets n e worked on y ontriutors from nywhere in the worldF ixmples of these three possiilities re listed elowD in order to give you etter ppreition for wht is possileX
unowledge work n e done nywhereF erhps the most ommon exmple of this is softwre deE velopmentF oftwre engineers in developing eonomies n develop progrms under ontrt from ompnies in the developed world t muh lower ostF unown s outsouringD this is e'etive euse universities in mny developing eonomies suh s sndiD ghinD frzilD nd istern iurope hve wellE trined progrmmers who re willing to work for wges ove the previling wge levels in their home ountriesD ut less thn wht trined progrmmer erns in developed ountryF gollegues n ollorte on projets without hving to trvel gret distnesF ideoonferening hs rehed the point where individuls n meet feEtoEfe over the snternet nd hve disussions reE lted to projet they re working on togetherF hese produts n rnge from very sophistited @nd expensiveA produts like giso9s elepresene onferening tool @giso PHHWA to reltively inexpensive @or even freeA softwre tools like kype @kype PHHWAF
1 This 2 This
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CHAPTER 10.
LEVERAGING WITH INFORMATION TECHNOLOGY
he est exmples of lrge numer of individuls ollorting on ommon projet is the soElled open movementsX ypen soure progrms like vinux nd others we disuss lter in this hpterD ypen ess to reserh journlsD nd the ypen idutionl esoures @yiA inititive whih provide free edutionl resoures over the snternet developed y volunteers from ll over the worldD of whih the textook you re reding from the qlol ext rojet is prime exmpleF
10.3 IS tools for the Start-Up Organization
fefore we egin our disussion of s tools for strtEup orgniztionD it is importnt to note tht it my not e neessry to use omputerEsed informtion system when you (rst go into usinessF ou my e le to stisfy your informtion proessing nd reordEkeeping needs with mnul systemsF roweverD s the prie of omputers drop you9re your usiness expndsD you my (nd it wiseD s mny smll usiness owners doD to invest in omputerEsed informtion systemsF wny people use snformtion ystems nd snformtion ehnology s if they ment the sme thingF hey re di'erentD nd it is importnt for you to understnd the di'erene etween themF es illustrted in ixhiit IHFID n snformtion ystem is omprised of two suEsystemsD oil suEsystem nd ehnology suEsystemF
Exhibit 10.1: An information system
he disussion of the four omponents of n snformtion ystems s well s ixhiit IHFI ove hs een extrted from nother ook in the qlol ext lirry @snformtion ystems4 PHHVAF
3 This content is available online at <http://cnx.org/content/m35512/1.4/>. 4 http://docs.globaltext.terry.uga.edu:8095/anonymous/webdav/Information%20Systems/Information%20Systems.pdf
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10.3.1 The technology sub-system
en informtion system my not need the use of omputers to mke the umultionD orgniztionD nd reporting of informtion esierD fsterD or more relileF sn your orgniztion erly stgesD you my (nd it simple enough to just keep pper reords nd ommunite feEtoEfe or y telephone rther thn use emilF roweverD modern orgniztions inresingly rely on informtion tehnology s the ore of their informtion systems nd prt of the reson is tht the ost of using omputers hs deresed s tehnology improvesF e de(ne informtion tehnology to inlude hrdwreD softwre nd teleommunition equipment tht is used to ptureD proessD store nd distriute informtionF rrdwre is the physil equipment"suh s personl omputerD lptopD portle omputing devieD nd even modern ell phone"used to proess informtionF oftwre is the set of oded instrutions @proE grmsA tht diret the hrdwre to perform the required tsksF e typil exmple is qoogle hos" word proessing progrm designed to instrut omputer to rete text doumentsF eleommunition systems re the networking equipment enling users nd devies to ommuniteF en exmple of teleommuniE tion system is telephone networkD whih llows two llers to intert y voie over distneF hese three elements"hrdwreD softwre nd teleommunition systems"omprise the tehnology omponent of n informtion systemF
10.3.2 The process sub-system
es disussed in ghpter UD proess is the set of steps employed to rry out spei( usiness or orE gniztionl tivityF sn other wordsD proess mps the set of tions tht n individulD group or n orgniztion must ent in order to omplete n tivityF gonsider the jo of groery store mnger nd the proess he engges in when restoking n inventory of goods for sleF he store mnger mustX hek the inventory of goods for sle nd identify the needed items ll individul suppliers for quottions nd possile delivery dtes ompre pries nd delivery dtes quoted mong severl suppliers for the sme goods selet one or more suppliers for eh of the needed items sed on the terms of the greement @eFgF vililityD qulityD deliveryA ll these suppliers nd ple the orders reeive the goods upon deliveryD heking the ury nd qulity of the shipped itemsY py the suppliers
xote tht there re multiple vile proesses tht n orgniztion n design to omplete the sme tivityF sn the se of the groery storeD the timing nd form of pyment n di'er drmtillyD from sh on delivery to diret trnsfer of the pyment to the supplier9s nk ount within three months of the purhseF he ritil insight here is tht the design of the proess must (t with the other omponents of the informtion system nd e djusted when hnges ourF st must lso meet the unique needs of the orgniztionF por exmpleD imgine the groery store mnger purhsing new softwre progrm tht enles her to get quottions from ll of the suppliers in the nery regions nd ple orders onlineF glerly the preeding proess would need to hnge drmtillyD nd the store mnger would need to e trined in the use of the new softwre progrm"in other wordsD hnges would lso 'et the people omponentF
10.3.3 People
he people omponent of n informtion system enompsses ll those individuls who re diretly involved with the systemF hese people inlude the mngers who de(ne the gols of the systemD nd the usersF he ritil insight here is tht the individuls involved in the informtion system ome to it with set of skillsD ttitudesD interestsD ises nd personl trits tht need to e tken into ount when the orgniztion designs the informtion systemF ery oftenD n informtion system fils euse the users do not hve enough skillsD or hve negtive ttitude towrd the systemF hereforeD there should e enough trining nd time for users to get used to the new systemF
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CHAPTER 10.
por exmpleD when implementing n utomted pyroll systemD trining on how to enter employees9 ount informtionD how to orret wrong entriesD nd how to deposit the slries into eh ount should e provided to the humn resoures st'F he ene(ts of the system should e ommunited to oth the humn resoures st' nd the employees in order to uild up positive ttitudes towrds the new systemF
10.3.4 Structure
he struture @or orgniztionl strutureA omponent of informtion systems refers to the reltionship mong the individuls in the people omponentF husD it enompsses hierrhil nd reporting struturesD nd rewrd systemsF wny of these issues re disussed in ghpter SF he struture omponent plys ritil role in n informtion systemD simply euse systems often fil when they re resisted y their intended usersF his n hppen euse individuls feel thretened y the new work systemD or euse of inherent humn resistne to hngeF hen designing new informtion system the orgniztion needs to e ogniznt of the urrent nd future rewrd system in order to rete inentives to seure its suessF
10.3.4.1 Relationships between the four components
et this point it should e ler how informtion systemsD while enled y sD re not synonymous with sF ih of the four omponents disussed ove n undermine the suess of n informtion system" the est softwre pplition will yield little result if users rejet it nd fil to dopt itF wore sutlyD the four omponents of informtion systems must work together for the systems to performF husD when the orgniztion deides to ring in new tehnology to support its opertionD the design tem must djust the existing proesses or develop new onesF he people involved must e trined to mke sure tht they n rry out the proessesF sf the skills of these individuls re suh tht they n9t perform the required tsks or e trined to do soD di'erent set of individuls need to e rought in to work with the systemF pinllyD the design tem must evlute whether the orgniztionl struture needs to e modi(ed s wellF xew positions my need to e reted for dditionl responsiilitiesD nd old jos my need to e elimintedF he trnsition from the old wy of doing things to the new system needs to e mngedD ensuring tht pproprite inentives nd rewrd struture is put in pleF
10.3.4.2 Some practical advice for start-ups
hon9t invest in s solutions unless until you n see tht they will provide you with rel ene(tsF hey will require n investment of vlule time nd money tht you ould perhps use more e'etively in other res of your usinessF snstlling s systems often tke longer nd ost more thn originlly estimtedF ou should hve some s skills ville to help you get over the rough spotsF ememer tht it is usully mistke to e one of the (rst to use new tehnologyF st n e riskyD nd it is even more importnt tht you hve ess to personnel with strong s skillsF
et the sme timeD it n e mistke to wit too long to gin usiness ene(ts from refully hosen s pplitionsD prtiulrly if your ompetition is tking dvntge of s for e0ienyD e'etivenessD nd innovtionF
10.4 Moving Forward With Information Systems
hen you deide it is time to move forwrd with leverging your orgniztion with informtion systemsD you will ppreite the e'ort spent on developing systems plnF he pln will stte the kind of hrdwreD softwreD nd ommunitions tehnologies you needD s well s the setors of your orgniztion whih should reeive your ttention (rstF
5 This
IWS wny smll orgniztions egin opertions with mnul systems to keep trk of their opertionsF hey my hve simple lists on pper for ustomerD vendorD nd employee informtion nd keep set of ounting reords on pper s wellF his ws the wy usiness informtion ws kept y ll orgniztionsD lrge nd smllD efore the dvent of omputersF hen gs eme villeD their ost ws suh tht the power of the omputer ws mde ville t low ost nd so todyD most orgniztions of ny size hve t lest one g or lptopF ou my well strt out with keeping reords mnullyD ut efore too longD you will ppreite how muh esier it is to keep reords on omputer nd how wellEdesigned softwre pplitions n provide you with vlule informtion quiklyD in mny di'erent wysD whenever you need itF yne issue you will need to ddress erly is your souring optionsD iFeF where will you otin your hrdwreD softwreD nd humn resoures to help you quire nd mnge the s resoures you needF sn ghpter VD we disussed the wys tht orgniztions prtner with other orgniztions to perform essentil usiness funtionsF st is very ommon for orgniztions to prtner with nother ompny to supply them with the speilized knowledge needed to quire the right omintion of hrdwreD softwreD nd ommunitions servies to meet the needs of the orgniztionF e will disuss these issues more lter in this hpter when we disuss the wys orgniztions develop systems plnF u0e it to sy t this pointD tht you will hve mny optionsX por exmpleX
ou n hire n s professionl if your needs require fullEtime employee for mnge your s proesses @nd if you n 'ord itAF yrgniztions tht don9t need fullEtime employee nd do not hve s exE pertise ville inEhouse on even prtEtime sis typilly mke rrngements for prtEtime support from n s onsulting (rmF ometimes the onsulting (rm is sole proprietorshipF ou n quire your own hrdwre @eFgF gsA or you n uy time on nother orgniztion9s hrdwre to run your softwre pplitionsF sn developed eonomiesD there re ompnies like qoogle nd emzon tht o'er soElled loud omputing serviesF hey hve developed so muh expertise in mnging server frms @iFeF dt entersA tht they now sell hrdwre pity on demnd to other ompniesF imilr options re ville in other prts of the worldF es with hrdwreD you hve similr options with softwreF p until reentlyD if you needed softwre pkge to do the ounting for your orgniztionD for exmpleD you hd to uy pkge nd instll it on your own omputerF xowD mny softwre pkges n e essed with simple snternet onnetion nd we rowserF he softwre pkge resides not on your omputerD ut on the vendor9s omputer @or perhps nother omputer in the loudsAF
ell of the options hve their dvntges nd disdvntges nd we disuss them lter in this hpterF hile it is ertinly possile for you to hire progrmmer nd hve him or her develop the softwre progrms your orgniztions needD it is rre when strtEup ompny needs to do this s there re so mny softwre progrms ville for you to use @nd some of them re freeAF sn ll likelihoodD you will egin to move your orgniztion into the informtion ge in one of two wysD either @IA quiring suite of ommonlyEused progrms designed for meeting the needs of oth individuls nd orgniztionsD or @PA quiring softwre progrms designed spei(lly to meet most needs of smll orgniztionF ih of these options is disussed elowX
10.4.1 Acquiring a suite of commonly-used programs
erhps the estEknown suite of ommonly used progrms is wirosoft y0eF e si version of y0eD wirosoft y0e tndrd PHHU inludes four progrmsX IF wirosoft ordD used for prepring douments PF wirosoft ixelD used for prepring spredsheets @most ommonly used for ounting nlyses ut lso useful for si reordEkeeping suh s ustomer lists or hekooksAF QF owerointD used for mking presenttionsD nd RF wirosoft yutlookD used for mnging emilF @wirosoft PHHWA
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CHAPTER 10.
here re severl other openEsoure options ville s wellD typilly t no ost to youF ome of these reX IF ypen y0e @ypeno0e PHHWA PF qoogle hos @qoogle PHHWA QF oho @oho PHHWA sn ddition to eing freeD the open soure options hve the ility to red nd write omputer (le formt omptile with the more widely used wirosoft produtsF
10.4.2 When to think about using database management software
es your usiness grows nd you need to keep urte reords on omputer eyond wht is resonle to do with spredsheet progrmD you should onsider dding dtse mngement softwreF uren tille pled good omprison of the fetures of dtse nd spredsheet softwre wesiteD gsolutionsF sn summryD she sttes thtX
As a general rule of thumb, databases should be used for data storage and spreadsheets should be used to analyze data. In a nutshell we use a database if...
the information is a large amount that would become unmanageable in spreadsheet form and is related to a particular subject. you want to maintain records for ongoing use. the information is subject to many changes (change of address, pricing changes, etc.). you want to generate reports based on the information.
Use a spreadsheet if...
you want to crunch numbers and perform automatic calculations. you want to track a simple list of data. you want to easily create charts and graphs of your data. you want to create "What-if" scenarios.
In most cases, using the combination of a database to store your business records and a spreadsheet to analyze selected information works best.(Stille 2009)
wirosoft9s widelyEused dtse mngement softwre is lled eggiD nd versions of wirosoft y0e tht use eggi re ville for purhseF wore informtion is ville on the wirosoft site @wirosoftAF yn the other hndD open soure dtse mngement softwre is lso ville t no ost to youF ou my wish to exmine one of the following open soure pkges to see if one of them meets your needsX
wyv @wyv PHHWA oho gretor @oho PHHWA

yne of the previling issues with using open soure softwre rther thn softwre you purhse is the level of support you n expet from the softwre9s retorF sf you py for softwreD you hve right to expet exellent doumenttion nd supportF sf the softwre is freeD sometimes doumenttion nd support do not meet the sme stndrdsF wuh of the support you get is from the ommunity of usersF es of this writingD the worldwide ommunity for eggi is muh lrgerD nd there re mny ooks written out itF he open soure dtses re just s usefulD ut (nding informtion nd support n e more tedious proessF roweverD ording to the qrtner qroupD highlyErespeted tehnology reserh ompny sed in the D open soure dtse mngement softwre is eoming more ttrtiveF sn report relesed in xovemer PHHVD they mde the following oservtionsX
IWU huring PHHVD sine our lst note out openEsoure dtse mngement systems @hfwsAD we hve seen n inrese in the interest nd use of openEsoure hfw engines in prodution environmentF es this trend ontinues to gin speedD the ost ene(ts of using n openEsoure hfw is inresing nd the risk of using it is deresingF uey pindingsX
vower totl ost of ownership @gyAD ompred to ommeril hfwsD n e relized for nonEmissionE ritil pplitionsF here re lrge thirdEprty softwre vendors looking to ertify openEsoure hfws s pltform for existing pplitionsD inluding eF he mjor openEsoure hfw produts re now ville for instlltion s pkgeD without inE volving the soure odeD inluding tools to help support the hfw environmentF sf the tehnil pilities of the st' re strongD use of n openEsoure hfw in missionEritil environments is possile nowF
eommendtionsX
ypenEsoure hfw engines n e used tody for nonEmissionEritil pplitions with redued risk over severl yers goF ynly use n openEsoure hfw engine supplied y vendor who ontrols or prtiiptes in the engiE neering of the hfw nd lwys purhse susription support when used in prodution environmentsF sf open soure is prt of your overll s strtegyD pln for the use of openEsoure hfw engines in missionEritil environments in two to (ve yersF @qrtner PHHVA equiring softwre progrms designed spei(lly to meet most needs of smll orgniztion sn the sme wy tht y0e uites re ville whih n perform mny of the si informtion systems tsks of smll orgniztionD there re suites of progrms ville to perform spei( funtions like ountingD pyrollD ustomer reltionship mngementD inventory ontrol nd the likeF ell tht we disussed omputerEsed ounting systems in onsiderle detil in ghpter WF @interprise esoure lnning @iA systems re the nlogous softwre solutions for lrge nd mediumEsized ompniesFA ixmples of smll usiness suites inlude the followingX
wirosoft hs site devoted to softwre suite solutions for smll usinesses t httpXGGwwwFmirosoftFomGusinessGpeopleredyG6 xetuite @wwwFnetsuiteFom7 A xetuite is in tegory of softwre lled softwre s servie @AF sn the modelD the softwre resides on the servers of the softwre provider rther thn on the using orgniztion9s omputerF he dvntges of this model re tht users never hve to worry out softwre nd dt kups or softwre updtesF hese funtions re provided t the softwre ompny9s dt entersF ome models hrge users y the monthD others hrge them t vrile rteD sed on the numer of trnstions per month ndGor the size of their dtsesF he downside for some users with is tht the informtion is not kept inEhouseF elthough hosted solutions re onsidered very seureD some users worry out seurity nd privy issuesF he wesiteD wwwFPHPHsoftwreFom8 ompres severl smll usiness softwre suitesD nd hs links to the ompnies9 sitesF here re numer of open soure inititives for smll usiness softwre you my wish to investigteF yne suh exmple is xuple @httpXGGwwwFxtupleForgG9 AF e omprehensive list of options is ville t oureporge @wwwFsoureforgeFnet10 AF yur previous utions on the use of open soure softwre produts pply here s wellF
6 http://www.microsoft.com/business/peopleready/ 7 http://www.netsuite.com/ 8 http://www.2020software.com/ 9 http://www.xtuple.org/ 10 http://www.sourceforge.net/
IWV
CHAPTER 10.
10.4.3 Creating a web presence
rving we site is now onsidered s neessry s phone or fx numer even n emil ddress for orresponding with ustomersF ine the site will e re)etion of your orgniztionD its produt or servieD the most importnt step is to reserh nd plnF por most usinessD e site n serve s resoure for informtion nd to promote the orgniztionD its rndD nd the vlue of the produt or servies eing o'eredF fut mny timesD usinesses s well s individuls rete site for the ske of hving oneD without tking time to understnd wht ustomers nd the usiness expet from siteF hen you set down to rete your siteD onsider the following (rstY
heide on udgetF heide on nme @homin xme or vAF ghek httpXGGwwwFwhoisFom11 to see if the nme is lredy tkenF egister the nme @homin xme or vAF vogin to registrr like httpXGGwwwFgodddyFom12 nd follow their instrutions for registrtionF heide how the site will e designed nd mintined @who will hndle thisAc ht will e the ontent of the sitec heide on hosting ompny for the siteF here re hundredsD if not thousnds of hosting ompnies will host your wesite for s little s 6QFWS per monthF e simple qoogle serh will turn up mny ndidtes for you in your loleF o get n ppreition of the kinds of hosting servies tht re ville from Esed ompniesD go to httpXGGhostingreviewFom13 F heide whether you will hire someone to uild the site for you or if you wnt to use one of the mny templteEdriven softwre pkges to uild it yourselfF
pinding out wht kinds of informtion your ustomers wntD nd then designing nd developing your site to provide upEtoEdteD ongoing resoure mterils n help you etter position your produts or servies nd serve s redile goEto spotF e we site n go from simple oneEpge site with your nme nd mission sttement to site with multiple pges tht inlude onEline slesD newsletters nd disussion forumsF
10.5 Know What Your Customers Want
14
ememer tht your e site should e dynmi ommunition toolF sers tody re onditioned to use the e s whereEtoEturn resoureD where they expet upEtoEdte newsD informtion nd tips relted to your produt or serviesF sers will lso use the informtion provide to ompre you with othersD spei(lly your ompetitionF por youD it9s lso nother opportunity where you n promote your servies nd serve the ommunityF here9s nothing gined y hving e site tht posts dryD outEofEdte ontentF ueep pulse on wht kind of informtion out your produtGservies ustomers re looking forD nd how nd where they expet to (nd itF hon9t e too quik to list the res where you feel you9re strongest"rememer to put yourself in your ustomer9s shoes nd sk wht they wnt to skX ht9s in it for me @sspwA to visit this e sitec en e'etive site shouldX
eognize the needs of ll who will use your siteD vendorsD ustomers nd yes even employeesD nd diret eh to the ontent tht will interest them mostF fe esy to essD red nd use with wellEthoughtEout ontentD useful linksD eEmil ddresses or phone numersF rovide helpful informtion on how to keep ustomers oming k
wke your visitors feel on(dent out hoosing your orgniztion s provider for the produt or servies for whih they re lookingF
11 http://www.whois.com/ 12 http://www.godaddy.com/ 13 http://hostingreview.com/ 14 This content is available online
IWW
10.5.1 Give your customer a positive experience
unowing wht your ustomer wnts to see on your wesite is only hlf the hllengeF sn tody9s quik to (ndD instnt grti(tion environmentD your ustomers not only wnt to (nd informtion on your servies nd produt quiklyD the wnt to shre it nd hve positive ustomer experiene when the doF e positive experiene is one tht not only gives your ustomer their needed informtion ut oneD when your ustomer do ontt you vi we ht or internet phoneD they hve something positive to sy fterwrdsF his gives ustomers inredile ility to quikly nd esily in)uene others s well s providing instnt feedk into your ustomers uying ptterns nd feelings out your site nd ompnyF sf you n etter understnd your ustomerD their needs nd ojetives you will etter understnd how to mesure nd trk the voie of the ustomerF hyc his will foster etter ustomer reltionship nd will provide you with two outomesX @IA hving your ustomer extend your mrketing without dditionl ost nd @PA hving ustomer sed testimonies on their experienes tht will inrese your ompnies9 reputtion of the produts or servies you o'erF
10.5.1.1 Know the basics
hether you lredy hve site tht9s n o'shoot of urrent usiness you9ve done work withD or its stndElone site @rohurewreA"or whether you9re onsidering reting e siteD the informtion you provide is keyF vooking t some of the est known wesitesD severl sites stnd out for their informtionD retivityD usefulness nd esy of useF yne suh siteD video howEto site httpXGGwwwFhowstFomG15 D is gemF et one time or nother we hve ll tried to do things without reding the instrutionsF rowstFom not only ddresses thisD ut provides video s wellF he key elements of ny site re userEfriendlyD len pperne nd onsistently improving ontentF es you determine your needs for we siteD one of the importnt gols should e to llow your ustomers to ess your site nd void the timeEonsuming proess of sur(ng the e for similr produts or serviesF hey n visit your site nd e tken to usefulD informtive sitesF he hveEto9s of n e'etive siteX en introdution of your produts or serviesX wht is itD who uses it nd why to uy it fsi informtion up frontX ontt informtionD produt or servies informtionD etF visting of produts or serviesD grouped together y topiF xewsF ost the ltest informtion out how your orgniztion is hngingD how your produt or servies is eing epted or who is uying themF gonsider n eEnewsletter in hp form with tips reders n hold ontoF ertilesF ost in hp form n rtile y your mrketing or produt development tem on wht9s new or wht9s oming e ontt mehnism" wy for ustomers to sk questionD request informtionD register for wrrnty of your produt or serviesD gets your newsletter or get referrlF
he next lyer of your siteX here nd how to send ustomer informtion they9re seekingF rintleGdownlodle forms for trnsmittingF rodut G ervies tips nd toolsF rodut updtesF poming eventsD suh s industry or ompny seminrsD with n gend nd how to register or request informtionF gommunity outreh informtion tht shows how your orgniztion is helping memers of the omE munityF eriodi stisftion surveys tht poll ustomers
15 http://www.howcast.com/
PHH
CHAPTER 10.
he enhnedD speil ustomer lyer to your siteX
sswordEproteted forms sswordEproteted ustomer sensitive dt gredit grd inryption ersonl ht @iFeFD dte of irthD soil seurity numerD ontt infoD etFA inhned rtiles nd updtes peil progrms nd ommunitions
10.5.2 eMarket your website
egister your we site with serh enginesD some registrtion domin sites my hve this ville @hek their pges nd see if they do thisA nd wht it will ost you to hve your we site pulled to the front of the listF he more serh engines tht you register with the more the site will e displyed to those looking for produts or servies you o'erF xoteX numer of these site re fee sedD the more times your site omes up in serh the more it my ost youF et minimumD you should onsider registering your we pge with oth qoogle nd hoo @instrution with registering on these serh engines n e found on there respetive sitesAF foth of these sites s will s wxFom re the most ommonly used we serh engines sites glollyF sn this proessD when you view your we pgeD t the ottom you will see ox lled wetgs @wet tgs re text within the soure ode of we pgeF st provides informtion to serh engines out the ontent of spei( pge or siteA snformtionF his is where you put in key words or phrses tht the serh engines will pik up on when someone does serhF ixmplesX
pish toreX pishD presh terD pish poodD quppiesD engelD etF et toreX hogD gtD rmsterD hog poodD gt poodD etF gomputer toreX gomputerD rrd hiskD ghD rrd hriveD hhD etF
sf you re in usiness tht does not sell on the internetD you my wnt to hold o' on pying for this option s lol people will go to your site from dvertisingD word of mouth or lol we serhesF es noted erlierD hving we presene is very importnt prt of usiness todyF ou must mke sure to tke the time to pln nd design your site so tht it hs the professionl look nd ertin pnhe or style tht will help your usiness distinguish it from othersF e site tht not only will enourge visitors to returnD ut o'ers the informtion they re seeking the (rst time they visitF ith reful nd thoughtful plnning nd deision mking you n rete smll usiness site tht n nd will ompete with lrger ompnyD enhne your usiness nd inrese your mrgins nd pro(tsF
10.6 Using Information Technology Competitively

10.6.1 Competitive advantage
16
hen you re strting your usinessD very likely you will just e interested in sustituting omputerEsed informtion systems for keeping the si reords of your usiness nd prepring the reports you need to e n e'etive deisionEmkerF es your usiness growsD howeverD you should strt to think of the potentil ene(t of going eyond the sisD s lrger ompnies doD nd look for wys to use informtion systems for ompetitive dvntgeF wny people use the term tehnologyEenled innovtion to desrie this proessF ine it is never too erly for you to strt thinking out suh innovtionD we9ll over the topi nowF tust out ll usinesses hve ompetitors nd ustomers hve hoies s to whih usinesses they deide to ptronizeF por exmpleD youD s ustomerD my hve severl resturnts to hoose from if you wnt
16 This
PHI to uy melF ih resturntD thereforeD hs other resturnts s ompetitorsF e resturnt will try to o'er its ustomers etter mel t etter prie so tht their usiness is suessful in omprison with the ompetitionF his is wht is ment y gining ompetitive dvntgeF yf ourseD if resturnt is the only one in smll townD its owner does not hve to worry so muh out ompetition @unless someone else deides to open resturnt nd ompete for its ustomersF fusinesses tht n gin n dvntge over their ompetitors re the ones who will e suessful ndD s we sw in ghpter RD most smll usinesses tht strt up re doomed to filF oD ompetitive dvntge is importntF
10.6.2 Porter and competitive advantage
sn ghpter QD you were introdued to the ides of rofessor wihel orterD whose ides on how to hieve ompetitive dvntgeD (rst introdued in the IWVH9s17 hve stood the test of timeF ell tht orter9s model onsisted of three min tegoriesX
he (ve pores wodel hree qeneri trtegies he lue ghin

sn this setion we will disuss how the retive use of informtion tehnology nd ommunitions tehnologies @sA n help orgniztions gin ompetitive dvntgeF hese ides were (rst expressed in two seprte rrvrd fusiness eview rtiles18 F se s to lter the (ve fores in your fvorF he (ve fores re illustrted in ixhiit IHFPX
Exhibit 10.2: Porter's Five Forces Model Source
Source:http://en.wikipedia.org/wiki/Porter_5_forces_analysis
19
17 The information on Michael Porter 18 Cite McFarlane and Porter/Millar.
needs to be cited.
PHP
CHAPTER 10.
fuyer power n e redued y using s in wys tht tend to restrit uyers9 hoiesF e good exmple is the frequent )yer progrms tht re o'ered y most ommeril irlines round the worldF hen they enroll in the progrmD ir trvelers re wrded miles for every )ight they tke onD for exmpleD fritish eirwysF heir umulted miles re mintined y omputer systemF rvelers n otin tikets for free )ights one s ertin numer of miles hs een umulted in their ountF ht this does is to enourge trvelers to lwys use the sme irline so they n qulify for wrds more quiklyF prequent )yer progrmsD of ourseD hve to keep trk of lot of informtion on the tivities of thousnds of trvelers nd would not e possile to mnge without omputer systemsF en irline without frequent )yer progrm is t ompetitive disdvntge to irlines whih hve themF upplier power is high when usiness must rely on just few suppliersF por exmpleD if there is just one store in town whih stoks o0e suppliesD usinesses hve nowhere else to uy supplies they need nd my e fored to higher thn norml priesF yn the other hndD if lol usiness is onneted to the snternetD it n hoose from mny other suppliers nd possile (nd heper priesD even when the ost of shipping is onsideredF he thret of new entrnts n e redued when s is used to eret entry rriersF intry rriers re o'erings tht usiness must mke ville to its ustomers if it expets to do usiness in ertin setor simply euse most or ll of its ompetitors o'er ertin feture to their ustomersF en exmple is ew mhines o'ered y nksF ew mhines would not e possile without the use of omputers nd ommunitions networksF sf you hd to hoose etween nk tht o'ered ew mhines nd one tht did notD whih one would you hoosec wost likely the one with ew mhinesF ew mhines re this rrier to enter the nking setor in prtiulr loleF he thret of sustitute produts n usully e redued y using s to ind ustomers more losely to usiness nd rete wht is lled swithing ostsF his mens tht the s systems o'ered y usiness re so ppreited y the ustomer tht ustomers re relutnt to swith to sustitute produtF por exmpleD there re mny free open ontent softwre produts tht eqully ompetitive with the ostly rndsF ohoD qoogle hosD hinkfreeD re exmplesF yne of the resons mny g users don9t swith to them is tht they would hve to lern how to use new pkgeF iven though the free pkges re esy to lernD there is swithing ost involved tht inds users to wirosoft y0eX he time it would tke to lern even reltively simple pkge is enough of n ostle to mny users tht they onlude tht swithing is not worth the e'ortF he sntensity of sntrEsndustry gompetition n often e inresed y sEenled innovtionsF por exmpleD the glol reh of the snternet mens tht ompetitors for mny produts nd servies n e loted nywhere in the worldF por exmpleD tx ounting speilists my now (nd themselves ompeting with ounting speilists in lowEost ountriesF his is eoming ommon prtie s ompnies onlude tht s mkes it possile for mny forms of knowledge work to e performed nywhere in the worldF se s to reinfore your si strtegi positioningF
19 http://en.wikipedia.org/wiki/Porter_5_forces_analysis
PHQ
Exhibit 10.3: Porter's three generic strategies
Source: http://en.wikipedia.org/wiki/Porter_generic_strategies
20
orter suggests tht usiness nnot e ll things to ll peopleF st must hoose etween three generi strtegies es illustrted in ixhiit IHFQD usiness n hoose to e ost lederD it n pursue di'erentited strtegy for whih onsumers re willing to py moreD or it n trget segment of the mrket with either low ost or di'erentited strtegyF por exmpleD if we onsider rnds of utomoilesD the t trgets rod mrket for lowEpried rsD nd the uru trgets rod di'erentited mrket for lowEpried ll wheel drive rsF he wzd wit trgets segmented mrket for lowEpried sports rsD while olls oye trgets segmented @high priedA mrket for sednsF snformtion systems n ssist usiness in implementing one of orter9s three generi strtegies yD for exmpleD using s to rete opertionl e0ieniesD thus lowering mnufturing ostsF s n rete di'erentited model yD for exmpleD hving wesite tht permits ustomers to design personlized version of n utomoile nd order it onlineD muh the sme wy tht we n uy personl omputers onlineF
20 http://en.wikipedia.org/wiki/Porter_generic_strategies
PHR
CHAPTER 10.
Exhibit 10.4: Porter's value chain
Source: http://kookyplan.pbworks.com/f/ValueChain.png
21
es disussed in ghpter QD the lue ghin is grphil representtion of the proesses @or tivitiesA involved in most orgniztionsF enlysts use the vlue hin frmework to look for wys to stremline ostly tivities or dd vlue to ertin tivities through the use of sF es just one exmpleD n orgniztion ould use s to outsoure ll enter servie to lower ost lotion orD it ould use s to provide wellEdesigned wesite to o'er di'erentited experiene to ustomers who need to ontt the orgniztionD nd emody personlized ll enter servie for issues tht nnot e resolved y the ustomer just y using wesite feturesF
10.6.3 Identify your information systems needs
st is lmost lwys the se tht there re insu0ient resoures for n orgniztion to tke dvntge of ll of its opportunities to use s to otin usiness ene(tsF uh resoures n e in the form of personnel in n internl s heprtment or sh to hire outside onsultnts or othF feuse of thisD it is importnt tht orgniztions e sure they re using their sres resoures on s projets tht hve the gretest vlue to the orgniztionF e timeEtested wy of doing this is to hve proess for setting s development priorities tht re onsistent with nd ligned with orgniztionl prioritiesF sn the litertureD this is typilly lled trtegi lignmentF here re three generl pprohes tht orgniztions tke to setting priorities for snformtion ystems projetsF @ome prtitioners sy there is no suh thing s n s projetY there re only usiness projetsF uh perspetive emphsizes the importne of otining usiness ene(ts from n
21 http://kookyplan.pbworks.com/f/ValueChain.png
PHS investment in sAF he three generl pprohes to setting priorities @lso known s developing strtegi pln for the s funtionA reX IF rve the s heprtment set riorities PF rve grossEfuntionl teering gommittee set riorities QF gondut ystems lnning rojet ih of these pprohes is disussed in more detil in the following prgrphsF
10.6.3.1 Have the IS department set priorities
he person in hrge of the s funtionsD prtiulrly in lrger orgniztions is lled the ghief snformtion y0er or gsyF he gsy is responsile for new system developmentD systems opertionsD nd mintenne of existing systemsF sdellyD the gsy hs solid understnding of the orgniztion9s overll strtegy nd ttis s well s good understnding of s issuesF e ompetent gsy should e leD thereforeD to do good jo of setting priorities for the s funtionF ell too oftenD howeverD the gsy is more omfortle with tehnil issues nd undertkes projets tht re interesting from tehnil stndpointD ut o'er little in the wy of usiness ene(tsF yn the other hndD some gsys hve n insu0ient ommnd of tehnil issues nd therefore overlook opportunities to use s to mke their orgniztion more e0ientD e'etiveD nd innovtiveF pinding person with the right lend of usiness nd tehnil svvy hs proven to e di0ultD ndD thusD gsy hs ome to e knownD in some irles s greer is yverF
10.6.3.2 Have a cross-functional steering committee set priorities
wny orgniztions use rossEfuntionl steering ommittee disuss nd gree on overll priorities for the s funtionF ell mjor res of the ompny re representedD inludingD for exmpleD ountingD (nneD humn resouresD opertionsD nd sles nd mrketingF rving ll res involved provides some ssurne tht the orgniztions needs nd opportunities re ddressed in the proper priority sequeneF he shortomings of this pprohD in prtieD however is tht some heds of res my not e s supportive of s s they should eD nd the proess n eome omplited when orgniztionl politis interveneF por exmpleD the orgniztion9s est opportunity for otining usiness ene(ts ould lie with new informtion system to trk how well sles re performing in order to e sure tht ustomer demnds will e metD ut this opportunity is not understood or ppreited y the sles mngerF ithout the support from the sles mnger nd s projet in his or her re would e unlikely to sueedD so the orgniztion9s est opportunity is lostF yn the other hndD it ould e the se tht the opertions mnger is hs strong nd persusive personlityD nd y fore of rgument in steering ommittee meetings is le to onvine other s tht opertions projets should get the highest priorityF
10.6.3.3 Develop a formal plan for information systems
iven smll ompnies will get ene(t from tking reltively short to develop forml pln for the inE formtion systems funtionF sn ghpter ID nd elsewhere in this ookD we hve emphsized the vlue of hving forml usiness pln to guide the orgniztionF wny orgniztions tke their usiness pln down nother level nd hve forml plns for individul deprtmentsD suh s sles nd mrketingD opertionsD nd humn resouresF st is prtiulrly importnt to hve written pln for the snformtion ystems funtion s top mngement must e ssured tht the ene(ts of s re eing pplied in ordne with the overll gols of the orgniztionF s professionls ll the end result of n s plnning proess strtegi lignmentD whih simply mens tht the strtegi gols of the s funtion re ligned with the strtegi gols of the orgniztionF sn very smll orgniztion n informtion systems pln n e developed y one or two individulsF sn lrger orgniztionsD it is usully developed y projet temD sometimes with the ssistne of outside onsultntsF he importnt thing is tht resoures devoted to developing n informtion systems pln hve
PHT
CHAPTER 10.
knowledge of urrent nd emerging informtion nd ommunitions tehnologies s well s solid underE stnding of the orgniztion9s strtegi plnF hevelopment of forml pln usully involves interviewing mngers in eh orgniztionl unit to otin their perspetives on issues suh sX
he overll strtegi pln or diretion of the orgniztion lns of individul orgniztionl units developed in support of the orgniztion9s plnF sndustry trendsD ompetitors9 strtegies nd ommon prtiesF vegl nd regultory reordEkeeping nd reporting requirementsF gurrent prolems nd opportunities with opertionl proessesF snformtion needs for plnning nd deisionEmkingF
sdentifying usiness entities @eFgF ustomersD produtsD employeesD etA nd dt @iFeF ttriutesA required to desrie eh entityF yne this is doneD possile s projets n e determined y identifying nturl groupings of proess nd dt ndGor unmet informtion needs of mngersF ossile projets must then e rnked in priority sequeneF ehnil issues must e onsidered nextD euse the severl pplitions tht the orgniztion eventully uses often shre ommon tehnil pltform @eFgF gsD networked gsD etAF es we disussed erlier in this hpterD nother option is to dopt the softwre s servie @A pproh when it is ville nd ppropriteF ehnil issues my use ressessment of the priority sequene of possile projetsF por exmpleD it my e esier or more logil to instll the orgniztion9s (rst pplition whih uses dtse mngement softwre on smller projet to let personnel get fmilir with the softwre efore moving on to lrgerD more risky projetF wore detils on urrent tehniE l onept nd issues re ville in qlol ext9s snformtion ystems extD ghpter UD ville t httpXGGdosFgloltextFterryFugFeduXVHWSGnonymousGwedvGsnformtion7PHystemsGsnformtion7PHystemsFpdf22 ou my lso like to sn the tle of ontents of the s ext for dditionl redings s it overs mny of the topis we disuss here in muh greter detilF yne pln is greedD it is implementedF wost orgniztions (nd it useful to updte the pln t lest yerly s usiness nd tehnil issues n hnge quiklyF
10.7 What is IS Risk Management
23
he s risk is the usiness risk ssoited with the useD ownershipD opertionD involvementD in)uene nd doption of informtionGtehnology solutions @epplitionD rrdwreD xetwork nd eopleA within n orE gniztionF s risk onsists of sErelted events tht ould potentilly impt the usinessF st is lso the mngement of unertinty within the funtions of s so s to provide the orgniztion with ssurne thtX
the possiility of thret ourring is redued or minimizedD nd the imptD diret nd onsequentilD is redued or minimizedF
o provide this ssurneD threts must e identi(ed nd their impt on the orgniztion evluted so tht pproprite ontrol mesures n e e'eted to redue the possiility or frequeny of thret ourring nd to redue or minimize the impt on the usinessF snformtion is key usiness resoure whihD in order to e of vlueD must e orretD relevnt nd pplile to the usiness proess nd delivered in timelyD onsistent nd usle mnnerY it must e omplete nd urte nd provided through vi the est use of resoures @plnned or unplnnedAD nd if sensitive it must hve its on(dentility preservedF snformtion is the result of the omined pplition of dtD pplition systemsD tehnologyD filities nd peopleF s isk wngement ensures tht the threts to these resoures re identi(ed nd ontrolled so tht the requirements for informtion re metF
22 http://docs.globaltext.terry.uga.edu:8095/anonymous/webdav/Information%20Systems/Information%20Systems.pdf 23 This content is available online at <http://cnx.org/content/m35517/1.4/>.
PHU
10.7.1 Project management risks
hespite the ft tht sound system design nd instlltion methodologies hve een well known for dedesD the s profession is still plgued y trouled or filed projetsD olloquilly lled n yx in the dithF tudies like the ghos eports pulished y the tndish qroup over the yers hve doumented the extent of s projet suesses nd filuresF por exmpleD the ltest pulily ville reportD 4grey ummry PHHWD4 sttesX
"This year's results show a marked decrease in project success rates, with 32% of all projects succeeding which are delivered on time, on budget, with required features and functions" says Jim Johnson, chairman of The Standish Group, "44% were challenged which are late, over budget, and/or with less than the required features and functions and 24% failed which are cancelled prior to completion or delivered and never used."
4hese numers represent downtik in the suess rtes from the previous studyD s well s signi(nt inrese in the numer of filures4D sys tim grerD tndish qroup gsyD 4hey re low point in the lst (ve study periodsF his yer9s results represent the highest filure rte in over dede4 @tndish PHHWAF oD you hve to e wre of (gure like these efore you give the goEhed for n s projetF piled s projets n e disstrous to n orgniztionD even foring them to go out of usinessF ome of the resons s projets fil reX
en indequte understnding of wht funtions nd fetures @iFeF requirementsA the orgniztion needs in the new systemF st would e like trying to uild uilding efore its design hs een ompletedF oor projet plnningD tsk identi(tionD nd tsk estimtionF sully this mens tht essentil tsks hve een overlooked or underEestimted mening the projet9s time nd ost estimtes re too optimistiF vk of proper skills on the projet temF his would e like ssigning rpentry tsks to n eletriinF ome s professionls think they n do nything nd this is lmost lwys not trueF pilure to ddress prolems ndGor no projet hmpionF tust out every s projet hs prolemsF sf they re not delt with on timely sis they don9t go wy y themselvesD they just get worseF st is helpful in ddressing prolems if highlyEpled exeutive is hmpion of the projet nd n step in nd get prolems solved if the projet tem is strugglingF sndequte testingF ell too oftenD new system is put into opertion efore it hs een dequtely tested to e sure it hndles ll onditions it is likely to enounterF e system filure fter onversion n use norml usiness proesses @like epting ustomer ordersD for exmpleA to filF xo fllEk plnF fefore onverting to new systemD the projet tem should hve tested fllEk pln they n revert to in order to keep usiness proesses working while the new system is djustedF ixeutive hmpions should e wre tht s projet risks re ll too often known to the s profesE sionls ut re not lwys shred with othersF hereforeD you should lwys sk tht forml projet risk ssessment e done t the eginning of projet nd tht plns re in ple to keep risks t minimumF
10.7.2 Security risks
he iggest hllenge ompnies9 fe in tkling s seurity risks is the growing sophistition of hkers nd other yerEriminlsF yrgniztions must now ontend with rnge of hiEteh ttks orhestrted y wellEorgnizedD (nnillyEmotivted riminlsF hile lrge orgniztions often hve independent s seurity st'sD it is likely tht your strtEup n fous on just ouple of si itemsD suh sX
sdentifying the vlue of informtion stored on your omputer@sA nd mking sure tht ess to suh informtion is restrited to employees who need to use for legitimte usiness purposesF por exmpleD your ustomer dtse nd ustomer pro(tility nlyses should e proteted s you would not wnt suh informtion to fll into the hnds of ompetitor s the result of tions tken y disloyl employeeF
PHV
CHAPTER 10.
gomputers sometimes rek down @rshAF his is why it is importnt to hve proedure of king up ritil (les on dily sisD nd hve writtenD tested proedures to reover needed informtion from kup (les quiklyF yrgniztions hve gone out of usiness s result of filed omputer systems tht were not properly kedEupF
sf you hve wesiteD you will need to e sure tht it is dequtely proteted from oth internl nd externl thretsF e disuss snternet risks in the next setionF
10.7.3 Internet risks
gompnies onsidering we site or snternetEsed servies need to e wre of the vrious risks nd regE ultions tht my pply to these serviesF yver the pst few dedesD the snternet hs eome ritil to usinessesD oth s tool for ommuniting with other usinesses nd employees s well s mens for rehing ustomersF ih dy of the week nd every monthD there re new internet thretsF hese threts rnge from ttks on networks to the simple pssing of o'ensive mterils sent or reeived vi the internetF he risks nd prtiulr regultions tht pply my vry depending on the types of servies o'eredF por exmpleD snstitutions o'ering informtionl wesites need to e wre of the vrious onsumer ompline regultions tht my pply to the produts nd servies dvertised onlineF snformtion needs to e urte nd omplete to void potentil liilityF eurity of the wesite is lso n importnt onsidertionF gomE pnies nd some individuls trditionlly hve relied on physil seurity suh s loks nd sfes to protet their vitl usiness informtion now fe more insidious virtul thret from yerEriminls who use the snternet to rry out their ttks without ever setting foot in n estlishment or someone9s homeF wore often thn notD these rimes re onduted from outside the nited ttesF eurity mesures should protet the site from defement nd mliious odeF st is ler tht no single risk mngement strtegy n ompletely eliminte the risks ssoited with snternet use nd essF here is no one speil tehnology tht n mke n enterprise ompletely seureF xo mtter how muh money ompnies spend on yerEseurityD they my not e le to prevent disruptions used y orgnized ttkersF ome usinesses whose produts or servies diretly or indiretly impt the eonomy or the helthD welfre or sfety of the puli hve egun to use yer risk insurne progrms s mens of trnsferring risk nd providing for usiness ontinuityF
10.7.4 Summary of IS risk management
wnging s isk is dily deision mking proess imed t reduing the mount of losses nd threts to ompnyF st is proEtive pproh to reduing ones exposure to dtGinformtion loss nd ensuring the integrity of the pplitions used dyEtoEdyF en s seurity pln should inlude t minimum desription of the vrious seurity proesses for spei(ed pplitionsD proedurl nd tehnil requirementsD nd the orgniztionl struture to support the seurity proessesF e risk ssessment should e performed (rstF sdentifying risks provides guidne on where to fous the seurity requirementsF eurity requirements nd ontrols should re)et the usiness vlue of the informtion ssets involved nd the onsequene from filure of seurityF eurity mehnisms should e ost ene(il9D iFeFD not exeed the osts of riskF st should lso inlude wht is expetle for risk within the overll s seurity pln
10.8 Chapter Summary
24
wny people use snformtion ystems nd snformtion ehnology s if they ment the sme thingF hey re di'erentD nd it is importnt for you to understnd the di'erene etween themF es we illustrted in D n snformtion ystem is omprised of two suEsystemsD oil suEsystem nd ehnil suEsystemF he oil susystem hs two prtsX eople nd yrgniztionl trutureF he ehnil susystem lso hs two prtsX tehnology nd fusiness proessesF he reson it is importnt to understnd this is tht ll
24 This
PHW four prts of n snformtion system must work e'etively if the system is to meet the needs for whih it ws designed nd instlledF snformtion systems n e very powerful tools to help you run your orgniztionF yn the other hndD in strtEupD e sure you need the support of informtion systems efore you invest in themF st my e tht you n hndle your opertions mnully for time nd void the ost nd time investing in omputerEsed s requiresF sf you do deide to move forwrd with omputerEsed informtion systems it is wise to develop pln (rstD nd mke sure you re proeeding in n orderly mnnerF here re three generl pprohes to developing n s plnF ou will lso (nd tht you hve mny options ville for hrdwre nd softwreD nd the options n vry widely in initil purhse prie nd the kind of support provided y the vendorF sf you see vlue in hving wesite there re some generllyEepted priniples you should follow to mke your wesite e'etiveF wny orgniztions hve found wys to use s for ompetitive dvntgeF wihel orter9s frmeworksD the (ve fores modelD the three generi strtegiesD nd vlue hin hve proven to e useful tools in oming up with ides for innovtive informtion systemsF pinllyD when n orgniztion hs vlule informtion stored in omputersD it is exposed to risks from errors nd from vrious internl nd externl thretsF st is importnt for mngers to evlute the risks nd ome up with ostEe'etive mesures to e sure the orgniztion is dequtely proteted from loss or dmge to vlule informtionF
25
IF hesrie the four omponents of n informtion systemF hy is it importnt to onsider eh of them when designing nd instlling n informtion systemc PF nder wht irumstnes might it e wise for strtEup entrepreneur to postpone investing in omputerEsed informtion systems for the orgniztionc QF ht re the mjor options you hve for otining hrdwreD softwre nd support from s profesE sionlsc RF he(ne softwre suiteF ht re the dvntges of using softwre suite insted of numer of stndElone softwre pplitionsc SF hen should you onsider using dtse mngement softwre insted of spredsheetc TF hisuss the dvntges nd disdvntges of open soure softwre pplitions for strtEup orgniE ztion UF ht re the ojetives of esitec ho ene(ts the most from your orgniztion9s we presenec VF hen hving we presene wht is the single most importnt ojetivec ht is the gretest risk to wesitec WF qive t lest three exmples of orgniztions tht hve used s in innovtive wys to gin ompetitive dvntgeF por eh exmpleD whih of orter9s frmework elements does it illustrtec IHF ht re the three generl pprohes for setting n orgniztion9s s prioritiesc ht re the dvntges nd disdvntges of ehc IIF hy is importnt for strtEup entrepreneurs to py ttention to s risk mngementc IPF row do mngers deide how muh ttention nd resoures they should devote to s risk mngementc
10.10 References
26
@priedmn PHHSA priedmnD homsD he orld is plt Ist editionD prrrD trus nd qirouxD PHHSD sfx HEQUREPWPVVERF
25 This 26 This
PIH
CHAPTER 10.
@qrtner PHHVA peinergD honld he qrowing wturity of ypenEoure htse wngement ysE tems httpXGGmediprodutsFgrtnerFomGreprintsGsunmirosystemsGvolumeIGrtilePGrtilePFhtml27 eE essed tnury QID PHHWF @qoogle PHHWA httpXGGwwwFgoogleFomGintlGenGoptionsG28 @snformtion ystems PHHVA snformtion ystems PHHVD qlol extF @wirosoft PHHWA httpXGGstoreFmirosoftFomGmirosoftGy0eEuitesG29 @wyv PHHWA httpXGGwwwFmysqlFomG30 @ypeno0e PHHWA httpXGGwwwFopeno0eForgG31 @tndish PHHWA httpXGGwwwIFstndishgroupFomGnewsroomGhosPHHWFphp32 D essed tuly PUD PHHW @tille PHHWA httpXGGwwwFqisolutionsFomGdinfoIFhtm33 @oho PHHWA httpXGGzohoFomG34
27 http://mediaproducts.gartner.com/reprints/sunmicrosystems/volume1/article2/article2.html 28 http://www.google.com/intl/en/options/ 29 http://store.microsoft.com/microsoft/Oce-Suites/ 30 http://www.mysql.com/ 31 http://www.openoce.org/ 32 http://www1.standishgroup.com/newsroom/chaos_2009.php 33 http://www.qcisolutions.com/dbinfo1.htm 34 http://zoho.com/
Chapter 11
Competitive intelligence
1
et the onlusion of this hpterD you should e le toX
de(ne ompetition nd ompetitive intelligene di'erentite etween prllel produts nd sustitute produts stte the gols of ompetitive intelligene disuss puli soures of informtion for ompetitive intelligene understnd the role of industry struture in ompetitive intelligene omplete ompetitor nlysis
11.2 Introduction
ghnes re ompetition for your (rm9s produt is lredy well estlishedF yther (rms n e in diret ompetition with you when they o'er similr produt nd trget the sme ustomersF hey n e indiretly ompeting with you y o'ering similr produt or servieD ut trgeting di'erent demogrphiF gompetition n ome from oversesF gompetition n ome from nother (rm in the sme ityF gompetitors re ll round you whether you hoose to e wre of it or notF eognizing nd deling with ompetition is neessry to your usiness suessF ht every (rm is ompeting for re uyers or ustomersF gustomers re the (nl evlutor of your produtF sf they prefer your produt ove those of ompetitorsD you will reeive their usiness nd the sles whih will keep you in usinessF iven gret usiness ide will fil unless it ttrts uyersF
11.3 Denition
Competing rms o'er funtionlly interhngele produts to the sme uyersF Competition ours when ompeting (rms ttempt to ttrt uyers y o'ering produts with greter pereived ene(tF gommon ene(ts inlude prieD servieD reputtionD nd imgeD ut my inlude virtully nything else ssoited with produt tht the uyer vluesF e uyer9s pereptions of wht onstitutes ene(t my vry widely sed on the nture of the produtF ine the tions tken y one ompetitor to ttrt uyers re likely to 'et the performne of other ompetitorsD ompeting (rms re sid to e interdependentF
1 This 2 This 3 This
content is available online at <http://cnx.org/content/m35531/1.4/>. content is available online at <http://cnx.org/content/m35530/1.4/>. content is available online at <http://cnx.org/content/m35534/1.4/>.
PII
PIP
CHAPTER 11.
COMPETITIVE INTELLIGENCE
goke nd epsi re interdependentF en ttempt y epsi to ttrt uyers @inrese slesA through n dvertising mpign will derese the sles of gokeF goke my ounter this dvertising mpign with its own dvertising or it my elet to tke nother ompetitive tion suh s temporry redution in the prie of gokeF row goke hooses to ret to epsi will e sed on n nlysis of how the (rms hve ted in pst situtionsF he industry9s competitive dynamics is the ongoing series of ompetitive tions nd ompetitive responses tht tke ple s goke nd epsi ompete for ustomersF Competitive intelligence is the systemti olletion nd nlysis of pulily ville informtion out ompetitorsF sntelligene out ompetitors is key to understnding the tions they re urrently tking to ttrt uyersF gompetitive intelligene my lso llow the (rm to predit ompetitor9s future tions nd tke mesures to preempt or minimize the impt of those tionsF he ojetive of (rm9s ompetitive intelligene is to understnd its ompetitorsF
Exercise 11.1
st should e esy to envisge goke nd epsi s interdependent ompeting (rmsF gn you ome up with (ve more exmples of interdependent ompeting (rmsD eFgF rond nd oyotD foeing nd eirusDFFF
11.3.1 Why you have competitors (or how buyers have managed to survive without your product and why you need buyers more than buyers need you)
intrepreneurs ommonly underestimte the impt of ompetitionF intrepreneurs who do underestimte the impt of ompetition re filing to onsider the ft tht potentil uyers re urrently mnging without the entrepreneur9s produtF here re three rguments for why potentil uyers re mnging without the entrepreneur9s produt or servieX IF prllel produts exist in the mrket PF resonle sustitutes exist in the mrket QF prllel produts nd sustitutes do not existD ut the puli does not pereiveD or is not wreD of the ene(ts o'ered y the entrepreneur9s produt or servie
Parallel products re those tht re funtionlly interhngele with the entrepreneur9s produtsD
ut vry just enough on the produt9s pereived ene(ts to exist in the mrketpleF por exmpleD mny ommunities hve res where numer of resturnts exist in lose proximity to one notherF hese resturnts ll o'er the ustomer prepred melD ut my vry s to ntionlity or type of uisineD omplexity nd originlity of preprtionD level of servieD setingD nd other dimensions for whih the uying puli pereives ene(tF en entrepreneur opening new resturnt in proximity to existing resturnts my e o'ering heretofore unville ntionl uisineD ut the entrepreneur still hs mny ompetitorsF sn this mrket of prllel ompetitorsD the entrepreneur will e suessful only if uyers pereive tht the new resturnt o'ers desirle ene(ts tht re unville from existing resturntsF he new resturnt must generte enough sles to generte pro(tF sn relityD wht often hppens is tht the new resturnt will initilly generte strong trde s uyers try the resturnt9s novel o'eringsF roweverD in few months the new resturnt will fil unless it hs found the mens of o'ering mix of pereived ene(ts not ville in ompeting resturntsF his suggests tht the entrepreneur must lern enough out wht uyers or ustomers need or wnt nd enough out how ompetitors re ttempting to meet those needsD tht the entrepreneur n o'er enough pereived ene(ts to keep ustomers returning inde(nitelyF verning out uyers nd ompetitors is the role of ompetitive intelligeneF ustitutes often exist for the entrepreneur9s produtF Substitutes re produts tht (ll the sme funtion ut originte in di'erent industriesF fuyers my hve preferene for sustitute due to the sustitute9s greter pereived ene(tF por exmpleD the si onstrution mteril for houses vries gretly on geogrphi sisF ood housing tends to e fvored where wood is undnt nd reltively inexpensiveD nd similr rgument n e mde for the wood sustitutesD rik nd stoneF he entrepreneur is unlikely
PIQ to e more thn mrginlly suessful if sGhe ttempts to sell riks where wood remins undnt nd hepF Ghe my e mrginlly suessful euse wood housing often hs rik (xtures nd trimF roweverD in mrket where wood is eoming more ostly due to lk of undneD rik my eome n ttrtive sustitute for woodF nderstnding sustitutes ple in the mrket is the role of ompetitive intelligeneF erhps the most di0ult sitution for n entrepreneur exists where there urrently exists no funtionlly interhngele produtF st my pper tht omplete lk of ompetition would e to the entrepreneur9s dvntgeD ut this is seldom the seF sn those instnes where (rms o'ering similr produts n e found in other mrketsD the most likely explntion for lk of ompetitors is mrket tht will not sustin the (rmF he mrket my e too smllD or too sesonlD or the ustomer demogrphi my e skewedD etF he entrepreneur should proeed utiously when super(il inspetion suggests potentil mrket lking n estlished ompetitorF e more thorough investigtion will often revel filed ttempts to estlish mrket for the produtF his investigtion is one of the roles of ompetitive intelligeneF sn the rre instne where the entrepreneur hs disovered or invented unique produtD sGhe typilly fes truly dunting tskF otentil uyers must e eduted s to the existene nd ene(t of the new produtF iduting uyers nd estlishing mrket for new produt is expensiveF nfortuntely for the entrepreneurD it is often the followEon (rms tht re suessfulF sn the eletronis industryD the origintors of the personl omputerD video gme onsoleD nd personl dt ssistnt provided the infrstruture for suessful followEon (rmsD ut were unle to pitlize on their own innovtive produtsF
Exercise 11.2
e usiness tht fes oth prllel produts nd sustitutes is likely to hve di0ult time in the mrketpleF ixmple of usinesses tht hve oth prllels nd sustitutes inlude groery storesF rllels inlude groery stores with slightly vrying themesD wrehouse storesD eFgF m9s lu nd gostoD nd nturl food storesF ustitutes inlude speilty food storesD eFgF keriesD diry storesD nd uther shopsY resturntsY nd tkeEout shopsF xot surprisingly groery store pro(t mrgins re lowF ht other usinesses re hrterized y ompetition tht inludes oth prllel produt nd sustitutesc ss the verge pro(t mrgin for these usinesses lowD iFeF < S per ent of slesc
11.4 Importance and goals of competitive intelligence

11.4.1 Detecting competitive threats
heteting ompetitive threts is ruil to every usinessF wirosoft hs onerns with qoogle9s growing mrket shreF pord ttempts to void losing mrket shres to oyotF e lol supermrket is onerned with nother supermrket opening up in the re nd tking its ustomers wyF hen usinesses re le to detet ompetitive thretD they re etter equipped to hndle tht thretF teps my e tken to ensure tht the impt of the new thret is minimizedF gompetition is the e'ort of two or more (rmsD ting independentlyD to otin the usiness of uyer y o'ering the most fvorle ene(tsF gompetitive intelligene is the purposeful nd oordinted monitoring of ompetitorsD wherever nd whoever they my eD within spei( mrketpleF gompetitive intelligene llows the (rm to mke informed deisions out the outomes of its tions in the mrketpleF por exmple ompetitor eD through the snning of new uilding permits in the lol newspperD disovers tht ompetitor f hs tken out permit for the onstrution of new uilding on f9s propertyF prom this informtionD nd other legl souresD ompetitor e my drw some onlusions s to the purpose of ompetitor f9s new uilding nd tke tions designed to minimize the impt of f9s new uildingF he gol of ompetitive intelligene is to detet threts originting from ompetitors in ll their formsF
4 This
PIR
11.4.2 Eliminating or lessening surprises
CHAPTER 11.
e (rm needs to losely monitor the tions of its ompetitorsF heteting ompetitive threts erly llows the (rm to tke tions to mitigte the thretF gompetitive threts my ome from numer of di'erent souresD inluding new entrntsD sustitutesD ompetitorsD nd even suppliers in the form of prie inreseF por exmpleD if lol ompetitor is uilding new retil outlet tht will pitlize on the industry9s ltest trendsD the (rm will hve to deide whether to follow suitF erhps ompetitor hs trditionlly held mjor sle on prtiulr holidyD the (rm will need to deide whether to follow suitD or give up sles while its ompetitor holds the sleF
11.4.3 Enhancing competitive advantages by lessening reaction time
e (rm tht hs plnned for most ommon threts will e prepred to move quikly in the fe of thretF repredness llows the (rm to move pst its less well prepred ompetitors s they devote vlule time nd other resoures reting to the thretF hile ompetitors re retingD the (rm n move to inrese its ompetitive dvntge over the ompetitionF por exmpleD truking ompny might pln for n esltion in fuel priesF he truking ompny n do this in vrious wysD ut the most ommon is to uy ontrt tht gurntees the (rm the right to purhse fuel t (xed prie for some spei(ed period of timeF hould fuel pries inrese during the period the ontrt is in e'etD the truking (rm is proteted y its fuel ontrtsF he fuel ontrts in turn llow the truking (rm to honor existing quottions nd ontrts with its ustomersF fy honoring its quottions nd ontrts in the fe of eslting fuel pries the truking (rm9s reputtion nd good will with its ustomers inresesD furthering the truking (rm9s ompetitive dvntgeF
11.4.4 Finding new opportunities
ltimtelyD (rm must e le to grow in order to survive in the usiness worldF he ility to grow is only limited y the imgintion of the deision mkers of the ompnyF xew ides turned into ptents for new produtsD uying ompetitor in order to inrese mrket shre nd eonomies of sleD nd estlishing sles fore in neighoring ountry re just few of the wys tht ompny n ontinue to growF here re three priniple venues employed y usinesses to develop new opportunities for growthF IF pind wys to inrese the sles of existing produts to existing ustomersF fusinesses n omplish this gol y (nding new pplitions for the use of existing produts y urrent ustomersF his proess is known s market penetrationF PF Market development is the proess of (nding new ustomers for the (rm9s existing produtsF here re two hoies for mrket developmentD the (rm n look to new geogrphi mrkets or the (rm n turn to new demogrphi mrketF por exmpleD (rm tht sold exerise equipment tht trditionlly trgeted the IVEQR yerEold mle demogrphi might (nd tht they ould sell the sme equipment to ITEQP yerEold femle demogrphiF he only new ost the (rm would inur is the ost of mrketing existing produts to the new demogrphiF QF Product development is the proess of reting new produts for ustomersF rodut development is often omplished y sking ustomers wht types of produts would mke their jo esierF yne vile need is estlishedD the (rm n develop produt to meet tht needF ery few (rms n 'ord to stnd still for longF gompetitors re onstntly looking for opportunities nd those opportunities missed y your (rmD will not e missed y ll your ompetitorsF gompleny in tody9s usiness environment will quikly led to yers of dedited work eing usurped y ompetitorsF
PIS
11.5 Information collection methods
snformtion or dt on produtsD suppliersD ompetitorsD nd industries hs never een more villeF he snternet permits ess to informtion nd dt from wide rnge of souresF yftenD there is simply too muh dtD nd dt of duious qulityF hen essing dt the entrepreneur needs to evlute dt on its timelinessD soureD nd relevneF
11.5.1 Internet
snternet serh engines mke it possile to quikly ess informtion on seemingly ny sujetF nforE tuntelyD euse nyone n estlish nd then fil to mintin wesiteD snternet dt is often dtedD unrelileD nd of duious vlueF his ples urden on the entrepreneur to hek snternet dt refully efore using itF xonethelessD there is muh useful informtion to e found on the snternet t governmentD orgniztionD nd orporte wesitesF he informtion from these soures generlly onsists of relile fts nd (guresF prequentlyD these fts nd (gures will need to e mnipulted y the entrepreneur in order to e rendered in useful formF sn tody9s mrketD there re few produts nd servies tht re not rted y third prtyD eFgF onsumer orgniztionsD mgzinesD ommeril sellersD nd logsF roweverD the quli(tions nd imprtility of third prty rters my e questionleF he entrepreneur should not rely on single soure for produt reviews nd exerise due diligene y heking multiple soures for produt rtingsF he entrepreneur should er in mind tht hisGher (rm nd produts will eventully e rted on the snternet nd hek to see tht the (rm9s rting is fvorleF
11.5.2 Human intelligence
rumn intelligene n yield the most timely nd urte informtionD ut it is the most resoure intensive form of informtion to olletF rumn intelligene often tends to tke the form of opinion rther thn the fts nd (gures found in doumentsF his leves the entrepreneur in the position of evluting the verity of opinionsF vike produt reviewsD whih n lso e mtter of opinionD the entrepreneur should rely on multiple souresF he entrepreneur9s network should e the soure of hisGher humn intelligeneF he network n e ugmented y introdutions from network memers to others loser to the informtion ojetiveF rtiipnts in trde shows nd trde orgniztions re exellent soures of informtion s re suppliersD ustomersD nd employeesF
11.5.3 Fee based companies
pee sed ompniesD suh s rooversD vexisxexisD nd the redit reporting ompnies re in the usiness of olleting nd ompiling informtion on usinesses nd individulsF heir revenue is erned through the sle of the informtion they olletF por the most prtD they mke no ttempt to ssess the spei( vlidity of the informtion they sellF therD they tend to rely on the ft tht on vergeD their informtion is quite relileF he overll trend for fee sed informtion is tht reliility tends to inrese with prieF pee sed ompnies n e useful soure of informtion on ompetitors tht might not e otherwise villeF por exmpleD redit reports re ville for ompeting (rms nd redit reports n yield good del of informtion out (rm9s (nnil onditionF
11.5.4 Public documents
uli douments n e n exellent soure of informtion on ompetitorsF wny types of puli douments re ville over the snternetD while others my only e ville t reords o0esF por exmpleD uilding permits re typilly reported in newsppers nd n often e essed onlineD while uilding plns re usully ville only through visit to the puli plnning o0eF e visit to the plnning o0e my e
5 This
PIT
CHAPTER 11.
wrrnted if ompetitor is uilding new plntF he plns will yield good del out the projet from whih knowledgele ompetitor n dedue plnt nd wrehouse pityF imilrlyD the nnul report tht puli ompny (les with the government is nother exmple of doument tht my yield good del of informtion out ompetitorF here re numer of orgniztions tht re onerned with the olletion nd use of ompetitive dtF snternet sites with fous on ompetitive intelligene inludeX httpXGGioFomG6 httpXGGwwwFsipForgG7 httpXGGwwwFrintFomG8 httpXGGfuldFomG9
Exercise 11.3
elet pulily trded ompny of interest to youF sing the snternet s n ess pointD (nd the following for the previous yerX @IA nnul slesD @PA pro(ts s perentge of slesD eFgF pro(tsGslesD @QA numer of employeesD @RA sles per employeeD eFgF slesGemployeesD nd @SA est selling produt or servieF
11.6 The industry environment

11.6.1 What is an industry?
10
he term industry loosely refers to ny group of usinesses tht shre prtiulr type of ommeril enterpriseF his grouping of (rms is lso likely to generte pro(ts in similr mnnerD or t lest shre relted tivitiesF sn the usiness worldD it is ommon to her mngers disuss prtiulr industries s wholeD for exmpleD the utomoile industry9 or the mgzine industry9F sn more forml senseD the xorth emerin sndustry glssi(tion ystem @xesgD httpXGGwwwFensusFgovGepdGwwwGnisFhtml11 A de(nes hundreds of di'erent industriesF he xesg is ommonly used system to group usinessesF he xesg typilly identi(es n inE dustry with six digit odeD with eh dditionl digit nrrowing the de(nition of the industryF imilr lssi(tion systems inlude the snterntionl tndrd sndustril glssi(tion @ssgD httpXGGunsttsFunForgGunsdGrGregistryGregstFspcglaIU12 A from the nited xtions nd the qenE erl sndustril glssi(tion of ionomi etivities with the iuropen gommunities @xegiD httpXGGwwwFltkFseGrjIGnekodGneodeFhtm13 AF ht is gthered nd reported for the indusE try sed on the six digit odeF ht typilly reported inludes demogrphi mesures for the industry inluding employmentD numer of usinessD nd totl slesF ht is not reported for individul (rmsF wny di'erent genies nd usinesses use these tegories for sttistil studiesD usiness omprisonsD nd enhmrksF voting the industry for usiness through the xesg or similr lssi(tion sheme n e useful exerise in gthering ompetitive intelligeneF por exmpleD the verge numer of employees nd sles of (rms in the industry n e found nd from this informtion ritil enhmrks like sles per employee my e lultedF
6 http://cio.com/ 7 http://www.scip.org/ 8 http://www.brint.com/ 9 http://fuld.com/ 10 This content is available online at <http://cnx.org/content/m35546/1.4/>. 11 http://www.census.gov/epcd/www/naics.html 12 http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=17 13 http://www.ltck.se/PrjY1/nacekod/nacecode.htm
PIU
11.6.2 Industry structural characteristics
sndustries hve spei( strutures nd the entrepreneur needs to lern nd understnd the signi(ne of the struture for hisGher industryF sndustry struture inludes size mesuresD eFgF industry slesD numer of (rmsD nd numer of employeesF te of growth nd the industry growth urve re n importnt element of industry struture s is the extent to whih n industry is unionizedF here my e mny more elements of industry strutureF sndustry struture is one determinnt of ompetitionF por exmpleD ompetition in n industry omprised solely of union employers will e quite di'erent thn in n industry omprised of oth union nd nonEunion (rmsF gompetition is lso 'eted y the extent to whih the government is lrge uyerD or perhps the only uyerD s in the defense industryF
11.6.3 Concept of strategic groups
trtegi groups exist within most industriesF e strategic group is set of (rms within n industry tht employ similr prties in order to hieve omprle golsF en exmple of strtegi group within the food servie industry would e fstEfood hinsF he fstEfood hins di'erentite themselves from other resturnts y o'ering quikEservieD populr foodsD nd reltively low priesF ithin the sme industry we n (nd numer of other strtegi groups suh s fmily resturntsD vegetrin resturntsD nd o'ee housesF elthough fstEfood hins nd vegetrin resturnts oth omplish the sme purposeD iFeF providing prepred melD their trget udieneD their methods of mrketingD nd other methods of doing usiness re deidedly di'erentF gompetition etween (rms within strtegi group is more diret thn ompetition etween (rms loted in di'erent strtegi groupsF gompetitive rivlry mongst (rms in the sme strtegi group n e very intenseD espeilly sine they re usully ompeting for the sme ustomersF gonsider epsi nd goEgol versus fruit juieF epsi nd goEgol re ompeting for ol drinkersD nd they mrket their produts ompetitively ginst eh otherF elthough the ustomer ould just s esily hve glss of fruit juieD epsi nd goEgol re not ggressively mrketing ginst the juie industryF he fruit juie ustomer hs di'erent wnts nd needs thn the ol ustomerD so the two strtegi groups do not ompete diretly for the sme lienteleF
11.6.4 Key success factors in an industry
re res of ritil performne neessry for suess in spei( industryF e (rm nnot expet to e ompetitive in its industry without n understnding of the industry9s key suess ftorsF uey suess ftors re funtion of oth ustomer needs nd ompetitive pressuresF ups re typilly identi(ed y ompleting list in response to two questionsX
Key success factors (KSF)
IF ht do ustomers in my industry wntc PF row do suessful (rms survive the industry9s ompetitive pressuresc qroery tore up gustomer glenliness preshness eletionD inluding tkeEout gompetitive pries votion 8 prking ervie 8 plesnt experiene
Table 11.1
gompetition frgining power over suppliers xumer of lol ompetitors votion reltive to ompetitors
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CHAPTER 11.
he entrepreneur must e wre of the key suess ftors @upA in hisGher industryF esoures should e direted to tivities tht inrese ompetitiveness on up nd not wsted on tivities tht re not ritil to upsF
Exercise 11.4
ine we ll hve deided preferenesD it follows tht tle of ups onstruted y one person is likely to omitD or overstteD n industry9s upsF elet ommon type of usinessEindustry with whih you hve some fmilirityD eFgF )orl rrngementsD o'ee houseD or iyle slesF
Exercise 11.5
gonstrut tle of uey uess ptors y sking yourself the questionsX ht do ustomers in my usinessEindustry wntc row do suessful (rms survive the industry9s ompetitive pressuresc
Exercise 11.6
xow sk the questions of two other people who hve een ustomers of the usinessEindustryF ere you getting greement on your list of upsD or will you need to sk more people for their opinions to estlish ler list of upsc
11.7 Porter's 5 forces and the analysis of competitors
14
orter9s (ve foresD (rst overed in ghpter Q s methodology for ssessing industry ttrtivenessD plys n importnt role in ompetitor nlysisF he (ve fores perspetive of ompetitor nlysis views eh fore s determinnt of the level of ompetition in the industryF he level of ompetition in turn determines the (rm9s ility to operte pro(tly in the industryF
11.7.1 Bargaining power of buyers
e (rm9s uyers or ustomers hve vrying needs nd wntsF weeting ustomers9 needs represents ost to the (rmF hen the (rm n esily meet the ustomer9s needs the (rm9s ost is reltively lowF feuse the (rm n esily give the ustomer wht heGshe vluesD the (rm is in strong rgining position nd sles re likely to generte helthy pro(tsF hen the ustomer9s needs re not esily metD the ost to the (rm inresesF feuse the (rm9s produt is less ttrtive to the ustomerD the (rm must lower pries or tke other steps to entie the ustomer to mke purhseF nder these onditions the (rm9s pro(ts re likely to e lowF gonsequentlyD the (rm n e seen s lwys rgining with ustomers for the (rm9s potentil pro(tsF he (rm is in the strongest rgining position when it understnds its uyer9s needsF nderstnding uyer needs is the role of mrketing nd my e viewed s form of ompetitive intelligeneF fuyers re in prtiulrly strong rgining position when they n esily swith from the (rm9s produt to ompetitor9s equivlent produtF por exmpleD (rm tht hs mny ompetitors o'ering similr produt will hve ustomers with signi(nt rgining powerF sf the ustomer is not hppy with the produt o'ered y one (rmD they n simply hoose to go to nother (rm tht provides the sme itemF por this to e powerful rgining tool for the ustomerD the swith from one (rm to nother must e ostEe0ient nd esyF gonverselyD if (rm hs desirle produts nd ompeting produts re pereived s less desirleD ustomers will hve redued rgining powerF sf it is expensive or urdensome to swith produtsD ustomers will lso lose rgining powerF e good exmple of (rm in this oveted position is epple with their iod produtF hile other wQ plyers re on the mrketD none hve the mrket shre nd desirility enjoyed y iodF gustomers lmost lwys hve hoies nd they will vote for their hosen (rms with their purhsesF gustomers will vote ginst (rms y simply wlking wyF st is importnt to lne the needs of the ustomer with the gols of the (rmF
14 This
PIW
11.7.2 Bargaining power of suppliers
vike uyersD suppliers re ompeting for the (rm9s pro(tsF uppliers wnt to hrge the (rm more for inputs nd the (rm wnts to py the supplier less for those sme inputsF gonsequentlyD ompetitive intelligene extends to suppliers nd it is in the (rm9s interest to know s muh s possile out their suppliersF uppliers my o'er exlusive territoriesD (nningD dvertisingD displyD nd other inentives to the (rm to enourge the use or sle of the supplier9s produtF he (rm should evlute nd selet its suppliers refully in order to tke full dvntge of ny nd ll ost svings o'ered y suppliersF sn mny industries it is ommon for uyers to form oopertives in order to inrese their rgining power reltive to suppliersF he oopertiveD sometimes omprised of hundreds of smller (rmsD is le to use its omined uying power to rgin with suppliers for etter pries nd termsF por exmpleD in xorth emeriD uyer oopertives re quite visile in the retil hrdwre industry s represented y the eeD rrdwre rnkD nd rue lue hrdwre storesF hespite the potentilly ntgonisti reltionship etween the (rm nd its suppliersD suppliers often o'er ene(ts tht n improve the (rm9s ompetitive position in the industryF
11.7.3 Threat of new entrants
intrepreneurs represent the thret of new ompetitor for existing usinessesF st is normlly in the interest of existing (rms to prevent new ompetitors from eoming estlishedF gonsequentlyD it is in the est interest of the entrepreneur to lern s muh s possile out existing ompetitive usinesses so tht the entrepreneur n trget their weknessesF he entrepreneur should lso ttempt to lern enough out existing usinesses so tht heGshe n ntiipte nd ttempt to minimize the retlition from existing usinessesF etlition my tke mny forms from politil tions designed to dely or prevent the new usiness from opening to deep prie uts intended to fore the new usiness out of the mrketF
11.7.4 Threat of substitute products
intrepreneurs often seem unwre of the ompetitive thret posed y sustitute produtsF yne of the resons entrepreneurs my e unwre of sustitute produts is tht y de(nitionD sustitutes ome from nother industryF hespite ll the potentil wrningsD the retil nd reorded musi industries were hrdly prepred for the onsequenes when millions of ustomers swithed from gh purhses to downloded iunesF husD the entrepreneur needs to monitor not only hisGher own industry for potentil ompetitorsD ut lso must sn other industries tht pose potentil thretF
11.7.5 The intensity of competitive rivalry
he intensity of the rivlry mongst the (rms in given industry will hve n e'et on the pro(ts of ll (rms within tht industryF ithin n industryD when (rms re (erely ompetitiveD the ost of ompetition will inrese euse when one (rm tsD other (rms will feel the need to ountertF gosts for dvertising nd promotionsD pro(ts lost through prie redutionsD nd ompetitive rivlries ourring over the reserh nd development of new produts will erode the pro(ts of ompeting (rmsF he (rms within n industry re likely to e plgued y similr prolemsF yne ommon prolem tht entrepreneurs prefer to void is ssoited with industries with high (xed ostsF righ (xed osts re ommon in mnufturingD ommunitionsD nd trnsporttion industriesF hen produt is enumered y high (xed ostD the (rm will usully mke every e'ort to reover t lest portion of those (xed osts nd my resort to o'ering uyers rnge of inentivesD from drsti prie uts to retesD to move the produtF hese inentives re often met with swift ompetitive response on the prt of industry ompetitorsF hese ompetitive tions n drive ll pro(ts out of the industryF e prolem ompnyingD or similrD to high (xed osts n e found in mture industriesF hen industry growth slowsD ompetition typilly hets upF his ours euse the (rms within the slow growth
PPH
CHAPTER 11.
industry re ompeting for the sme pool of uyers nd often tht pool of uyers is in delineF eginD the ompetitive tions tken y (rms to ttrt this pool of uyers will drive pro(ts out of the industryF ivlry lso intensi(es when onsumers see little di'erentition etween the produts o'ered y (rms within n industryF por exmpleD few onsumers see the di'erene etween vrious rnds of kethup nd re likely to simply purhse the rnd tht hs the lower prieF hen onsumers see little di'erene etween produts within n industryD these produts eome known s ommoditiesF es expetedD rivlry etween kethup mkers reinz nd runt9s is intenseF righ (xed ostsD industry mturityD nd ommodityElike produts ontriute to highElevel of ompetition within n industryD ut there re often other ftors tht drive ompetitionF he entrepreneur needs to study nd understnd the industry nd if possileD void industries where the level of ompetition is high s this mens the pro(t potentil is lowF tillD the entrepreneur my identify n under served nihe or need tht the entrepreneur is uniquely quli(ed to (llD in whih se entry into the industry my e pro(tle for the entrepreneurF sn omprisonD (rms tht re highly di'erentited from their rivls often re not engged in strong ompetition euse these (rms know tht their produt is meeting need for their onsumer se nd their ustomers re going to return to ful(ll tht needF
11.8 Methods of evaluating competitors
15
11.8.1 Identifying competitors and their relative advantage
en understnding of the industry nd the key suess ftors for the industry llows the entrepreneur to ssess the performne of ompetitive (rmsF he proess strts with the identi(tion of ompetitorsF sn mny mrkets ompetitors will lredy e known to the entrepreneurF sn other mrketsD the numers nd identities of ompetitors my e less oviousF yperting under the ssumption tht the vst mjority of usinesses need to ommunite with the puliD the est ple to strt with ompetitor identi(tion is with diretories nd other o0il nd semiEo0il listingsF sn mny ountriesD nd for most mrketsD the usiness telephone diretory should e the strting pointF gity nd other diretories ontin dditionl informtion on ompetitorsD inluding ownershipD key employeesD nd the numer of employeesF ome produts will wrrnt n snternet serh s ompetition my prove to e regionlD ntionlD or even interntionlF efter ssemling list of ompetitors the entrepreneur should develop method for olleting informtion on hisGher most immedite ompetitorsD iFeF those ompetitors who will e ompeting for the sme ustomersF por smller usinessesD simply reting (le folder for eh immedite ompetitor should e su0ientF he entrepreneur will need to ollet more detiled informtion on hisGher most immedite ompetitorsF he entrepreneur should e prsimonious in hisGher pproh to olleting informtion nd one mens of eing prsimonious is to fous on informtion relted to the industry9s key suess ftors @upAF gompetitor informtion my ome from wide rnge of soures inluding visits to the ompetitor9s ple of opertionD wordEofEmouth from suppliers nd other third prtiesD ompetitor9s dvertisementsD newspper rhivesD snternet serhesD nd puli reordsF ine the est inditor of future performne is pst performneD the entrepreneur should py lose ttention to the longevity nd historil performne of ompetitorsF rving olleted informtionD the entrepreneur is in position to mke omprisons etween hisGher (rm nd the (rm9s immedite ompetitorsF e spredsheet or tle is ommonly employed for this ssessmentF elevnt informtion eyond key suess ftors is ommonly inluded in the omprison nd my inlude size mesuresD reputtionD geD lrgest ustomersD key suppliersD nd lmost nything else deemed relevnt to the ompetitive environmentF
15 This
PPI gompetitor enlysis

XYZ Industry, 123 Market
intrepreneur9s pirm uey uess ftor I uey uess ftor P uey uess ftor Q uey uess ftor R uey uess ftor S pirm9s ge wnger9s repE uttion wrket shreor rnking yther relevntE onsidertions
gompetitor e
gompetitor f
gompetitor g
gompetitor h
Table 11.2
he entrepreneur should py prtiulr ttention to the mngement pilities of his or her own (rm nd ompeting (rmsF he qulity nd the style of mngement will ply the mjor role in estlishing the ompetitive environmentF he methods for olleting informtion on mngement pility re similr to those used for olleting informtion on ompetitors"the (rm should rely on wordEofEmouthD the snternet @espeilly mngement rnking wesitesD suh s wwwFjoostFom16 AD trde pulitionsD ivi orgniztionD nd industry eventsF vistening to ompeting mngers will provide n invlule insight into the industry environmentF
Exercise 11.7
se the hrt ove to omplete nlysis for the (rm nd industry of your hoieF
11.9 Chapter summary

Competitive intelligence
17
is the systemti olletion nd nlysis of pulily ville informtion out n industry nd its ompetitorsF gompetitive intelligene permits the (rm toX @IA understnd the industry9s struture nd its potentil impt on the (rm9s performneD nd @PA industry ompetitors9 reltive position in the mrketpleF he judiious use of ompetitive intelligene llows the (rm to ntiipte ompetitors9 tions nd t to minimize the impt of those tionsF hrough the use of ompetitive intelligene the (rm will improve its performne in the mrketpleF
16 http://cnx.org/content/m35540/latest/www.joost.com 17 This content is available online at <http://cnx.org/content/m35552/1.4/>.
PPP
CHAPTER 11.
11.10 Reference
18
httpXGGwwwFensusFgovGepdGwwwGnisFhtml19 httpXGGwwwFIPmngeFomGmethodsporter(veforesFhtml20 hussugeD ierre nd fernrd qrretteD ill withell @PHHHAF verning from ompeting prtnersX outE omes nd durtions of sle nd link llines in iuropeD xorth emeri nd esiF Strategic Management JournalY PID PX WWEIPTF hvisonD veigh @PHHIAF wesuring ompetitive intelligene e'etivenessX snsights from the dvertising industryF Competitive Intelligence ReviewY olume IPD sssue RX PS ! QVF horfD ihrd gF nd homs rF fyers @PHHVAF Technology Ventures: From Idea to EnterpriseD Pnd editionF xew orkX wqrw rillF qrntD oert wF @PHHVAF Contemporary Strategy AnalysisD Tth editionF wldenD weX flkwell ulishingF tohnstonD vis @PHHUAF iodD wQ eessories ile ynF TWICE MagazineY perury IPX IPF inkertonD ihrd vF @IWWRAF gompetitive intelligene revisitedX e historyD nd ssessment of its use in mrketingF Competitive Intelligence ReviewD SD RX PQEQIF oungD qreg @IWWWAF trtegi vlue nlysis for ompetitive dvntgeF Competitive Intelligence ReviewD IHD PX SPETF
18 This content is available online at <http://cnx.org/content/m35550/1.4/>. 19 http://www.census.gov/epcd/www/naics.html 20 http://www.12manage.com/methods_porter_ve_forces.html
Chapter 12
Business ethics in a nutshell

12.1 What is ethics
1
ithis is the rnh of philosophy onerned with the mening of ll spets of humn ehviorF heoretil ithisD sometimes lled xormtive ithisD is out disovering nd delineting right from wrongY it is the onsidertion of how we develop the rules nd priniples @normsA y whih to judge nd guide meningful deisionEmkingF heoretil ithis is supremely intelletul in hrterD ndD eing rnh of philosophyD is lso rtionl in ntureF heoretil ithis is the rtionl re)etion on wht is rightD wht is wrongD wht is justD wht is unjustD wht is good nd wht is d in terms of humn ehviorF fusiness ethis is not hie)y theoretil in hrterF hough re)etive nd rtionl in prtD this is only prelude to the essentil tsk ehind usiness ethisF st is est understood s rnh of ethis lled pplied ethisX the disipline of pplying vlue to humn ehviorD reltionships nd onstrutsD nd the resulting meningF fusiness ethis is simply the prtie of this disipline within the ontext of the enterprise of reting welth @the fundmentl role of usinessAF here re three prts to the disipline of usiness ethisX personlD professionl nd orporteF ell three re intritely reltedD nd it is helpful to distinguish etween them euse eh rests on slightly di'erent ssumptions nd requires slightly di'erent fous in order to e understoodF e re looking t usiness ethis through trifol lensX lose up nd personlD intermedite nd professionlD nd on the grnd sle @utilizing oth frsighted nd peripherl visionA of the orportionF sn spite of some reent d pressD usiness exeutives re (rst nd foremost humn eingsF vike ll personsD they seek mening for their lives through reltionships nd enterpriseD nd they wnt their lives to mount to somethingF ine ethis is hie)y the disipline of meningD the usiness exeutiveD like ll other humn eingsD is engged in this disipline ll the timeD whether ogniznt of it or notF hereforeD we should egin y looking t how humns hve historilly pprohed the proess of mking meningful deisionsF rere re four ethil pprohes tht hve stood the test of timeF
12.1.1 Personal ethics: four ethical approaches
prom the erliest moments of reorded humn onsiousnessD the ethil disipline hs entiled four funE dmentl pprohesD often lled ethil deisionEmking frmeworksX tilitrin ithis @outome sedAD heontologil ithis @duty sedAD irtue ithis @virtue sedAD nd gommunitrin ithis @ommunity sedAF ih hs distintive point of deprture s well s distintive wys of doing the fundmentl ethil tsk of rising nd nswering questions of vlueF st is lso importnt to understnd tht ll four pprohes hve overlps s well s ommon elementsD suh sX
ImpartialityX weighting interests eqully

1 This
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CHAPTER 12.
BUSINESS ETHICS IN A NUTSHELL
RationalityX ked y resons rtionl person would ept ConsistencyX stndrds pplied similrly to similr ses ReversibilityX stndrds tht pply no mtter who 4mkes4 the rules
hese re in sense the rules of the ethis gmeD no mtter with whih shool or pproh to ethis one feels most losely to identityF The Utilitarian approach is perhps the most fmilir nd esiest to understnd of ll pprohes to ethisF hether we think out it or notD most of us re doing utilitrin ethis muh of the timeD espeilly those of us in usinessF he tilitrin sks very importnt questionX 4row will my tions 'et othersc4 hey then ttempt to quntify the impt of their tions sed on some lest ommon denomintorD suh s hppinessD plesureD or welthF hereforeD tilitrins re lso lled onsequentilistsD euse they look to the onsequenes of their tions to determine whether ny prtiulr t is justi(edF 4he gretest good for the gretest numer4 is the motto of the tilitrin pprohF yf ourseD de(ning 4good4 hs een no esy tsk euse wht some people think of s goodD others think of s worthlessF hen usinessperson does ost ene(t nlysisD heGshe is prtiing tilitrin ethisF sn this seD the lest ommon denomintor is usully moneyF iverything from the ost of steel to the worth of humn life must e given dollr vlueD nd then one just does the mthF he pord into utomoile ws produt of just suh resoningF hirty yers goD exeutives t the pord wotor gompny resoned the ost of (xing the gsEtnk prolem with their into would ost more thn the ene(t of sving few humn livesF everl tnks did explodeD people diedD nd the ompny lost lwsuits when judge nd juries refused to ept these exeutives9 morl resoningF yne of the most fmilir uses of outomeEsed resoning is in legisltive ommittees in representtive demoriesF row mny onstituents will ene(t from tx redit nd how mny will e diminished is the question efore the evenue gommittee t tx reti(tion timeF epresenttive demories mke most deisions sed on the tilitrin priniple of the gretest good for the gretest numerF hemorti governments re nturlly mjoritrinD though in onstitutionl demories there re some things tht nnot e deided y doing the mth @dding up the votesAF ome questions should never e voted onF he founders of our ntion expressed this fundmentl onept with three wordsX ertin unlienle rightsF inter the Deontological EthicistsF smmnuel unt is the quintessentil deontologil @duty sedA ethil theoristF untD who lived in eighteenth entury russiD ws one of the most mzing intellets of ll timeD writing ooks on stronomyD philosophyD politis nd ethisF re one sidD wo things (ll the mind with ever new nd inresing dmirtion nd we FFF the strry hevens ove nd the morl lw withinF por unt there were some ethil verities s eternl s the strsF heontologil simply mens the study @or sieneA of dutyF unt did not elieve tht humns ould predit future onsequenes with ny sustntil degree of ertintyF ithil theory sed on guess out future onsequenes pplled himF ht he did elieve ws tht if we use our fility of resonD we n determine with ertinty our ethil dutyF es to whether or not doing our duty would mke things etter or worse @nd for whomAD unt ws gnostiF hutyEsed ethis is enormously importnt for @though onsistently ignored yA t lest two kinds of folksX politiins nd usiness peopleF st is lso the key to etter understnding of our responsiilities s memers of temsF ems @like work groups or politil mpign ommitteesA re nrrowly foused on hieving very lerly de(ned golsX winning the eletionD suessfully introduing new produtD or winning silot reF ometimes oh or oss will syD vookD just do whtever it tkesF ithillyD whtever it tkesD mens the ends justify the mensF his ws unt9s fundmentl ritiism of the tilitrinsF por untD there were some vlues @dutiesA tht ould never e sri(ed to the greter goodF re wroteX o t s to tret humnityD whether in thy own person or in tht of ny otherD in every se s n end withlD never s mens onlyF pellow tem memersD employeesD mpign st'sD ustomersD prtnersD etF re lwys to some extent mens to our vrious gols @endsAD ut they re lso personsF end personsD unt elievedD nnot e just usedD they must lso e respeted in their own rightD whether or not the gol is hievedF re lled this solute respet for persons gtegoril smpertiveF sn ny tem sitution the gol is ritilD ut treting tem memers with respet is impertiveF ems fll prt when tem memer feels used or used @treted s less importnt thn the overll gol itselfAF
PPS qret leders rry the doule urden of hieving worthwhile end without using those who sri(e to hieve the gol eing treted s merely expendle mensF ersons re never merely mens to n endF hey re ends in themselves3 e owe tht understnding to smmnuel untF st is one thing to understnd tht there re duties whih do not depend on onsequenesY it is quite nother to develop the hrter to t on those dutiesF his is where eristotle @QVREQPP fFgFA omes inF eristotle wrote the (rst systemti tretment of ethis in estern giviliztionX xiomhen ithisF ody we ll his pproh to ethis virtue ethicsF por eristotle nd other qreek thinkersD virtue ment the exellene of thingF he virtue of knife is to utY the virtue of physiin is to helY the virtue of lwyer is to seek justieF sn this senseD ithis eomes the disipline of disovering nd prtiing virtueF eristotle egins his thinking out ethis y skingD ht do people desirec re disovers the usul things" welthD honorD physil nd psyhologil seurity"ut he relizes tht these things re not ends in themselvesY they re mens to endsF he ultimte end for personD eristotle tughtD must e n end tht is selfEsu0ientD tht whih is lwys desirle in itself nd never for the ske of something elseF his end of ends eristotle designtes with the qreek word eudemoniD usully trnslted y the inglish word hppinessF fut hppiness does not do eristotle or his ethis justieF esD eudemoni mens hppinessD ut relly it mens so muh moreF he prolem is not with eristotle9s qreek word eudemoniD the prolem is in our inglish word hppinessF rppiness in inglish omes from the nient word hpD mening hneD s in hppenstneF hy re you smilingD we skD did you win the lotteryc por eristotle hppiness ws not something one quired y hneF rppiness ws the grnd work of livingY the very prtie of eing ll tht you n eF pul(llment nd )ourishing re fr etter words to trnslte the onept ontined in the qreek word eudemoniF por eristotleD this stte of virtue is hieved not y ident ut through intentD reson nd prtieF eristotle thought tht one disovers virtue y using the unique gift of humn resoningD tht isD through rtionl ontempltionF he unexmined life is not worth livingD sid ortes lmost IHH yers efore eristotleF vike eristotle nd eristotle9s teher ltoD ortes knew tht we humns need to engge our rins efore we open our mouths or spring into some deisive tionF por eristotleD the fous of tht rin work ws hie)y out how to lne etween the fers nd exesses in whih the humn ondition lwys oundsF fetween our fers @de(itsA nd exuernes @exessesA lies sweet spotD the golden menD lled virtueF et times of physil peril"sy in ig storm on smll silot" rew memer my e immoilized y fer nd unle to funtionD thus putting the lives of everyone on the silot in dngerF yr the opposite ould hppenF e devilEmyEre ttitude in the fe of rel dnger n s esily led to dissterF gourge is the virtue loted t the men etween owrdliness nd rshnessF etD identifying suh virtue nd mking tht virtue prt of one9s hrter re two quiet di'erent thingsF eristotle thus distinguishes etween intelletul virtue nd prtil virtueF rtil virtues re those developed y prtie nd re prt of person9s hrterD while intelletul virtue is simply the identi(tion nd understnding of virtueF rtie is how one lerns to del with ferY prtie is how one lerns to tell the truthY prtie is how one lerns to fe oth personl nd professionl on)itsF rtie is the genius of eristotle9s ontriution to the development of ethisF re showed tht virtues do not eome prt of our morl musle (er euse we elieve in themD or dvote themF snstedD virtues eome hrteristis of our selves y our exerising themF row does one lern to e rve in storm t sec tust do itF he ultimte gol ehind developing hrteristis of virtue is eudemoniD full )ourishing of our selfD true hppinessF rtitioners of the tudiEghristin trdition tend to think of ethis @or morlityA s the usiness of (guring out how to e good rther thn dF ht is not the true end of ethis so fr s eristotle ws onernedF he end is stte of ful(llmentY the ultimte gol is eoming who you truly re nd relizing the potentil you were orn with"eing t your est in every senseF tust s the virtue of the knife is to ut nd the virtue of the ot is to silD the virtue of the self is to eome the est of who it n eF his is hppiness @eudemoniAF tust s the wellEtrined thlete seeks to e in the zone @the stte of perfet performne hieved y prtieAD eristotle wrote out the truly virtuous life nd the pursuit of eudemoniF tust s perfetly trimmed silot glides through the wterD e'ortlessly in synh with the wves nd the windD the mn or womn in stte of eudemoni hs hieved
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CHAPTER 12.
the stte of erthly ful(llmentF ell three pprohes to ethis desried ove re priniplly foused on the individulX the singulr onsieneD rtionlly re)eting on the mening of duty or responsiilityD nd in the se of irtue ethisD the ethil thlete prtiing nd inulting the pity to hieve the stte of eudemoniF Communitarian Ethics hs quite di'erent point of deprtureX the ommunity @or temD or groupD or ompnyD or ultureA within whih the individul engges himGherself is the ritil ontext for ethil deisionEmkingF he gommunitrin sks the importnt questionD 4ht re the demnds @dutiesA tht the ommuE nity@iesA of whih s m prt mke on mec4 he ottish ethiists F hF oss @himself student of eristotleA foused his own ethil re)etions on the question ofD 4here do ethil duties ome fromc4 ris nswer ws tht they ome from reltionshipsF e know our duties towrd fellow humn eings y the nture nd qulity of our reltionships with themF he duties we owe ollegue in the workple is difE ferent from the duties we owe spouseY those duties re di'erent from the duties we owe our ountryF he gommunitrin sks us to look outwrdD nd to fe up to the duties of eing soil returesF e de(ne ourselvesD nd our responsiilitiesD y the ompny we keepF gommunitrins re quite ritil tody of the ttitude of so mny in our soiety whoD while dmnt out their individul rightsD re negligent of their soil dutiesF he me genertion hs reted need for new reed of ethiists who insist thtD from fmily nd neighorhood to ntion nd glol eosysE temD the ommunities in whih we live require us to ept sustntil responsiilitiesF invironmentlistsD neighorhood tivistsD feministsD nd glolists re some of the groups loosely identi(ed tody with the gommunitrin wovementF emiti itzioniD in Spirit of Community: Rights, Responsibilities and the Communitarian Agenda deE sried the priniples of this somewht disorgnized movementF itizioni9s thesis is tht we must py more ttention to ommon duties s opposed to individul rightsF yur neighorhoodsD he elievesD n gin e sfe from rime without turning our ountry into polie stteF yur fmilies n one gin )ourish without foring women to sty home nd not enter the workforeF yur shools n provideD 4essentil morl eduE tion4 without indotrinting young people or violting the pirst emendment9s prohiition of estlishing religionF he key to this soil trnsformtion is the ommunitrin elief in lning rights nd responsiilitiesX 4trong rights presume strong responsiilitiesF4 itzioni sttes the gommunitrin egendX
Correcting the current imbalance between rights and responsibilities requires a four-point agenda: a moratorium on the minting of most, if not all, new rights; reestablishing the link between rights and responsibilities; recognizing that some responsibilities do not entail rights; and, most carefully, adjusting some rights to the changed circumstances.
rereD if nothing elseD is frontl ttk on the viertrin mindset of our geF gommunitrinism is not newD t lest if one de(nes it s n pproh to ethis nd vlue referening signi(nt ommunities of meningF wost of the world9s gret religions re in this sense ommunitrinF st is from ommunity of fith tht the fithful develops sense of self nd responsiility @or in gonfuin thoughtD the extended fmily whih nurtures this developmentAF ithis nnot e seprted from the ethos of the religious or fmilil ommunityF he modern ommunitrin movement my or my not e religiously inlinedD yet it is lerly prt of trdition of ethil pproh s old s humn ssoitionF sn the ontext of temsD the ommunitrin pproh to ethis hs muh to ommend itselfF row muh of one9s personl gend is one willing to sri(e for the overll gol of winning silot rec nder wht onditions is one willing to let the vlues or ulture of the tem lter one9s own ethil inlintionsc o wht extent do the reltionships one hs with tem memers give rise to duties tht one is willing to honorc row willing is one to shre the redit when the tem sueedsc row willing is one to ept lme when the tem loosesc nder wht onditions would one rek with the temc sf oss is orret tht duties ome from reltionshipsD pying ttention to suh questions out the ompny we keep my e more thn soil oligtionY perhpsD our ethil dutyF here re two pervsive ethil pprohes not treted hereX ethil egoism nd he hivine smpertiveF ih hs rod nd dedited following nd eh is deeply prolemti to the ethil mturing of ny
PPU soietyF frie)yD nd with pejortive intentD here is wht these extremeD yet interestingly similr pprohes ssertF he ethil egoists sy tht ethis is mtter of doing wht feels right to the individul onsieneF sf one sksD 4hy did you do thtc4 he nswer isD 4feuse s felt like itF4 he pproh is often dressed up with sttements out eing true to yourselfX 4let your onsiene e your guide4D or 4do the right thing4F fut how does one know wht is true for the selfc row does one develop onsienec row is one to know tht doing wht is right @wht feels right to youA is the right thing to doc sf nothing elseD ethil egoism is onverstion stopper3 row does one ommunite to olleguesD friendsD hildren or ny other humn eing when the referene point of ehvior or ethil judgment is just out how one feels insidec row does ivil soiety emerge if we ivilins nnot delierte in ommonD understndle lnguge out our motivesD intentsD vluesD or dutiesc sn esseneD ethil egoism is the ethis of teengers reelling ginst eing nswerle to outside uthorityF o teengersD to enter the ethil dilogue is to tke the rdil risk of hving one9s vlues nd tions hllengedF epprentlyD there re mny of us who re just not grown up enough to risk tht3 fetter to repet the mntrX 4s did wht my onsiene dittedF tust s there is no possile meningful ethil dilogue with the ithil igoistD nor is there muh hope of retive enggement with hivine smperilistsF por this growing ommunityD ethis is the simple usiness of doing wht qod tells one to doF here is therefore no reson or need for disussionF he issue is onversionD not onverstionF sn onstitutionl demory like ours with fundmentl ommitment to 4the nonE estlishment of religion4D the hivine smperilist is stuk with di0ult dilemmX either to mke ll ethil inquiry 4personl4 @tht isD no soil or politil vlue deliertionAD or tke the ytollh pproh nd ring no stte into onformity with the reveled will of qodF hivine smperilists do not delierteF hey ditteD simply euse there is nothing to delierte outF qod hs spokenF st is in the ookF he )w in the hivine smperilists9 pproh is quite ler to everyody ut themX sf qod is goodD then re must revel only good lws nd rulesF his retes two lterntivesF he (rst is tht there is referene for 4good4 prt from the hivine itselfF he only otherD tht qod is undependleY tht qod is ritrryY surely this is uneptleF qod is not only goodD ut qod wills the goodF qod9s willD thenD eomes relity disoverle even prt from elief in prtiulr represented mnifesttion of qodF eligionD t its estD should understnd tht fith onfers no speil sttus of ethil insightF felieversD gnostisD nonEelievers nD nd doD ontriute to the ulture9s ontinuing struggle to understnd wht is goodD wht is justD wht is trueF ht is why demories @s opposed to sttes founded upon some 4hivine ight of uings4A surviveF A Postscript on Narrative EthicsF emong the professionsD prtiulrly mediineD lw nd ounselingD nrrtive hs eome powerful tool in developing ethil insights nd perspetiveF o tell story is to invite prtiiption from the hererD nd it is to lso mens of ommuniting the rihness nd omplexity of humn dilemmsF xrrtive ithis is simply dignosis through storyF sts ene(t over the four trditionl ethil pprohes is tht story invites oth ethil enggement nd ethil retivityF sn usinessD s in lwD gret del of tehing is done through the use of sesF his is nothing more or less thn using the pedgogy of nrrtive ethisF he nrrtive invites the herer into the omplexity of issues involved in personlD professionl nd orgniztionl dilemmsD nd provides rod through the omplexity to the simpliity on the other sideF yliver endell rolmesD n emerin jurist who wrote stunningly omprehensile deisionsD even in some of the most omplex ses imginleD hs fmous quoteX s would not give (g for simpliity this side of omplexityD ut s would give my life for the simpliity tht lies on the other side of omplexityF st is the role of nrrtive to led us through the thikets of overwhelming omplexityD to the lrity of enrihed simpliityF yf ourseD there re some people who ongenitlly n not stop to sk for diretions when lost in life9s thiketsF por themD storytelling is wste of timeF he mle mntrD just ut to the hse omes to mindF his my in prt explin why women @feminist like wrgret hetleyD for exmpleA hve suh fondness for nrrtiveF et ll stges of the ethil deisionEmking proessD nrrtive is useful tool of nlysis for exposing the ftsD on)itsD feelingsD nd vlues tht re the stu' of the humn predimentF
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CHAPTER 12.
12.2 Management: the meta profession
sn IWIP vouis h frndeis ddressed the grduting students of frown niversityF rdition ditted tht the grduting lss ws divided etween those reeiving lerned degrees in the professions of lwD mediine nd ministry from those in the skill sed disiplinesD suh s usiness mngementF he future upreme gourt justie did n interesting thing tht grdution dyX he turned wy from the professionl degree ndidtes towrd the usiness degree ndidtesD nd sidX ih ommenement seson we re told y the ollege reports the numer of grdutes who hve seleted the professions s their ouptions nd the numer of those who will enter usinessF he time hs ome for ndoning suh lssi(tionF fusiness should eD nd to some extent lredy isD one of the professionsF frndeis mined no words in de(ning wht professionlism ws ll outF st wsX
An occupation for which the necessary preliminary training is intellectual in character, involving knowledge and to some extent learning, as distinguished from mere skill; which is pursued largely for others, and not merely for one's own self; and in which the nancial return is not the accepted measure of success.
poken to lergyD physiins nd lwyers in IWIID these words would hve hd fmilir"if unheeded" ringF fut to usinessmenc frndeis9 intuition out the deisive hrter of usiness mngement for humn welfre hs een orne out ross the tortured yers of this pst enturyF ris rgumentD howeverD tht usiness mngement ws essentilly professionl in hrter is deted stillF he three hrteristis of professionlism ited y frndeis ddress detil the nture of the requisite responsiilityD nd re the rux of why it is still ontroversil to ll usiness mngement professionX
pirstF e profession is n ouption for whih the neessry preliminry trining is intelletul in hrterD involving knowledge nd to some extent lerningD s distinguished from mere skillF eondF st is n ouption whih is pursued lrgely for others nd not merely for one9s selfF hirdF st is n ouption in whih the mount of (nnil return is not the epted mesure of suessF
ithin frndeis9 three prdoxil pronounements lies the nswer to wht it mens to e professionl in usinessF
12.2.1 The paradox of skill
ell professions require unique skillsF hile demonstrted pro(ieny in prtiulr skills is neessry for dmission into professionD skill mstery lone is not su0ient to de(ne the professionlF sf it wereD surgeon would e simply plumer employed to mend humn pipes nd vlvesY lwyer simply rpenter rfting together legl words nd phrses into motionsD wills or ontrtsY teher simply n tor skilled t presenttion or leturingF hile the surgeon must e extrordinrily skilled in the rfts of inision nd suturingD while the lwyer must e dept t the rft of legl wordEsmithingD nd the teher mster of the prtil rts of ommunitionD suh skills re not the essene of who they re s professionlsD nor re they the e nd end ll of their prtiesF nderstnding this di'erene is the key to the lssi distintion etween trde nd professionF foth trdes nd professions require the prtie nd perfetion of signi(nt skillsD ut trde is omE pletely de(ned y its ommensurte skillY profession is notF es frndeis explinsX e profession is n ouption for whih the neessry preliminry trining is intelletul in hrter involving knowledgeD nd to some extent lerningD s distinguished from mere skillF s would dd tht it is not just in preliminry trining tht intelligene nd lerning re requiredD ut in ll spets of the prtie of the ontinuing professionl lifeF sn time when everyone wnts to e lled professionlD rel dnger lurks in frndeis9 distintionD n elitism @mere skill9AD snoeryD lss is tht is inpproprite oth to the trdesperson nd the
2 This
PPW professionlF yneD the trdes were soure of enormous pride nd distintionF hrough wedievl guilds revolution in humn worth nd work ws set in motion nd the foundtions of the industril nd tehnologil revolutions lidF hrough the guild strutureD the skills of trdes were pssed from genertion to genertionD nd the pride of ssoition with qulity nd integrity mintinedF fut the professions were something else entirelyF glled he verned rofessions s the widdle eges yielded to the enissneD the riesthoodD vwD nd wediine oviously required rigorous trining in prtiulr skillsD ut the pplition of these prtiulr skills required dimension of ommitment nd integrity not neessitted of trdeF he wisdom to ounsel humn eings in the midst of spiritulD emotionlD physil or legl risis neessrily requires more thn tehniqueF st requires lerned nd prtied wisdomX n ethiF st is one thing to entrust your throom to plumerD nother thing entirely to entrust your life to hert surgeonF hose willing to ssume the unique urdens of the spiritulD physilD nd legl re for humns in existentil need were designtedD or set prtD s lerned professionlsF es s write this hpterD s m in the proess of reovering from open hert surgeryF he experiene of putting my life in the hnds of physiin is vividF s m lso sitting in my home tht is eing extensively remodeledF s m fortunte to hve reltionship with two exellent personsX hikD my hert surgeon nd grigD the skilled onstrution rftsmn @rpenterD plumer nd eletriinA restoring our homeF foth re highly skilled nd wise menF hikD howeverD is integrl to the re nd ounseling tht guided me nd my fmily through my deision to go under the knifeF grig is full of sge wisdom out the puli nd foreign 'irs of our timesD ut in no sense is my life vulnerle to his lively nd wise insights tht we shre while he restores my kithen nd reples the edroom windowF ixtly three weeks go hikD st on the side of my ed in henverD golordo hospitl surrounded y twelve memers of my fmily nd tlked to me out the lterntives for deling with most unexpeted hert prolemF re showed me the very worrisome pitures of severl prtilly loked rteriesD nd told me thtD in his opinionD s hd no hoie ut to hve qudruple ypss surgeryF hik sid he would send my (le to nyone s wished for seond opinionD ut felt s should reh deision soonF wy kids sked ll sorts of nervous nd ring questions nd he responded openly nd fullyF xever hve s een with someone s oviously open nd trustworthy t time when so muh ws t stke for meF es s mde my deision to move forwrd with this personl ordelD s would lern from friends in the ommunity tht hik ws one of the most skilled surgeons in the ountryF ht ws ressuringF fut s lredy knew he ws professionlX person wise nd ring enough for me to trust my life toF
12.2.2 The paradox of the public pledge
e profession is literlly so lled profession euse the spirnt to the o0e is orlly sworn to spei( puli ommitments"heGshe professes pulily legl nd ethil oligtions unique to the votion of lwyerD physiinD ounselor or priestF he puli pledge is the portl ondition into the unique reltionships 'orded the votionF fe lerD it is not primrily privilege the professionl ssumesD rther it is fundmentlly selfEimposed urdensF xo one is fored to swer they will put nother9s interest ove their ownD yet this is the ondition of ll professionlismF here is tension etween profession9s puli responsiility nd its ommitment @lso mde pulilyA to the privteD vulnerle lientF frndies inludes oth in the oservtion thtD e profession is n ouption whih is pursued lrgely for others nd not merely for oneselfF he prdox of the other is the prdox of the puli pledgeF uite gret del is mde of the speil reltionship etween professionls their prishionersD ptientsD or lients"the sntity of the onfessionlD the dotor ptient reltionshipD or the lwyer lient reltionship" eh speilD privte nd proteted oth in lw nd ethisF hinking of the onfessionl oothD the exmE intion roomD nd the lwyer9s o0e the ide of uniquely proteted privyD of lmost sred speD emergesF essuredly the priestD dotor nd lwyer re sworn to hold sred the dislosures within this zone of professionlly proteted ommunitionF feing professionl mens nothing less thn willingly nd pulily 0rming tht the lient9sD ptient9s or prishioner9s interest shll ome efore one9s own interestsF por mny professionls the mtter stops with the pledgeX s swer the ptient9s interests omes (rstD end of disussionF et this ommitment to the vulnerle lient is only hlf the issueD s the usiness nd
PQH
CHAPTER 12.
professionl rises of our times illustrteF xot only is the priest sworn to re for prtiulr soulsD he is lso sworn to see to the re of the people of qodD the morl welfre of the prishD the slvtion of the worldF xot only is the dotor sworn to put the interest of the ptient ove his ownD ut the helth of the ptient9s fmilyD neighorhoodD nd the puli is lso his professionl oligtionF he lwyer is not simply employed to represent the prtiulr lientD ut lso sworn to e n o0er of the ourtF hile ountnts my e employed y erthur enderson to do the ooks for the inron gorportionD they lso re sworn to keep the interests of the puli unompromised @fter llD we ll the profession gerti(ed uli eountntsAF s know of no professionl omfortle with the tension inherent in this puli pledgeF xo one likes hrd hoiesY no one likes morl miguityY eh of us wishes to live in world where things n e redued to some lest ommon ethil denomintor @for exmpleD single dutyAF hen tehing usiness studentsD the mntr of wilton priedmn is the droning undertone of lmost every lss disussionX the usiness of usiness is usinessD the sole responsiility of the usiness exeutive is to inrese shreholder returnF etD the very essene of professionl responsiility is to ddress the di0ult nd unvoidle ethil tensions etween puli nd privte interest"the priest who hers the onfession of distured nd homiidl prishioner intent on killing yet ginY the lwyer who disovers tht lient hs misrepresented the fts of his seD nd is sking for ple to the ourt sed in lies nd distortionsY the dotor who is sked to presrie extrordinrily expensive tretments to ptient too illD or old to hve ny resonle hne of urtive ene(tY or the engineer who is told tht she is ound y on(dentility greementD in spite of her ertin onvition tht plneD ridgeD or spe shuttle is likely to fil nd potentilly use extensive loss of lifeF hese re not plot summries for rollywoodY in n in(nite vrietyD they re the stu' of professionl life in the omplex world of the twentyE(rst enturyF st is y designD nd not y identD tht professionls re thrust ontinully into suh roson hoie predimentsF he professionl9s puli pledge is n eptne of ethil urdens not inument on the rest of soietyF st is n knowledgment of the relity of humn existene where things do not ome out evenD where rel ethil insight must e exerised nd where enign outomes re fr from ssuredF omeone must live in the lnd etween the rok nd the hrd pleD nd those who do so re designted professionlF s think of professionls s the vlue erers for soietyD those prtiulrly urdened nd prtied to ddress the most di0ult nd sensitive humn ethil dilemmsF s do not men to imply tht usiness personD lwyerD dotorD psyhitristD or teher is etter in some morl sense thn nyone elseF snstedD tht they hve greed to ssume unique ethil urdenD to work t the trnstion point where issues of signi(nt humn vlue re on the lineF he professionl is sworn not to desert this postD to e there to ounselD re)et nd er with the humn ondition in the midst of trnsition nd risisF his isD to meD the essene of professionl prtie"the prtie of rising the vlue ontent of humn deisions nd hoiesF ht is the professionl9s sworn urdenD it is the very nture of the ethi tht de(nes who the professionl isF ell this sidD it stounds me tht nyone would wnt the title of professionlF fut to mke sure this point is underlinedD let us onsider the rdox of pyD perhps the most omplexing of ll to the usiness professionlF
12.2.3 The paradox of pay
s m wthing sports show on the evening newsF e lol sportsster is interviewing memer of the rrlem qloetrottersD who re in town for gmeF he interview goes something like thisX
Sports Guy: Al, I was surprised you never turned pro.
Al: What do you mean? I am a pro, I get paid pretty good for playing ball.
Sports Guy: Well yeah? But I meant you never tried out for the NBA.
Al: Oh, well I like playing for the Globetrotters better ...
PQI elmost everyone ssumes tht eing professionl mens getting pid @nd pid wellA for one9s workF here re professionls nd there re mteursD the former get pidD while the mteurs do it for the love of itF ellD noF yriginllyD the professions were too importnt to reeive wges in the usul senseF rofessionls were not pid for their workY instedD professionls reeived n honorriumD grtuity from the ommunity intended oth to honor nd disssoite the votion from the neessities of the mrketD to free the votion for the sel)ess tsk of ring for othersF hree dys efore my hert surgery s hppened to wth ixty winutes piee on rdiology group in gliforni whih ws presriing nd performing unneessry ypss surgery in order to inrese their prtie9s revenuesF st ws hillingF s thought of se we use in usiness shool out how ers some yers go pressured employees in their uto serviing division to inrese revenues y pushing unneeded ir (ltersD mu1ersD nd rek reEliningsD etF futD hert surgeons reEligning ethil responsiility due to mrket dependenyc s think the wedievl notion of honorri for professionls my mke lot of sense in this time of triumphnt pitlismF here re some vlues the mrket is not designed to ditteF s love to tese usiness students out the mtter of py nd the power of moneyF s skD gonsidering the oldest profession9 wht hd you rther e known forX doing it for moneyD or doing it for lovec sn the relm of love mkingD most us prefer to hve non mrket fores determine the dimensions of our intimte livesF vet us her it for true mteurs3 sn rel senseD professionls indeed do it for loveF st is di0ult to imgine ering the urden of physiinD lwyerD ounselorD or professor without hving deep nd e'usive pssion for wht one doesF rofessionls nnot leve their work t the o0eD euse wht they do is who they reF es s hve disoveredD tehing is the most rewrding thing s n think of doingF s do not just tehY s m teherF s m gld s m pid for my workD ut truth e known s would do it for freeF s wlk wy from lss where the students nd s hve relly lit it upD nd s do not even hve words to sy how good it feelsF s n desrie historilly nd intelletully wht professionl should eD ut even etterD s lso know wht it feels likeF xo mount of money n ompenste for tht feelingF gonsider the urdens of true professionlism tht skill lone is not su0ient to qulifyX one is pulily pledged to work on the unrelenting tension etween the welfre of the lient nd the good of the soietyY nd tht is not the riteri y whih suess will e judged"why would one hoose to turn proc s hve only one nswerX professions re rightly designted s votionsF e eome priestsD lwyersD physiinsD professors euse we nnot do nything elseY who we re nnot e hieved outside the relm of wht we re impelled to doF
12.3 Corporate social responsibility
he legl nd histori roots of the modern orportion reh well k into the eighteenth enturyD ut it ws in the sndustril evolution of the nineteenth entury tht this truly extrordinry form of humn orgniztion me into its own ndD the twentieth enturyD eme the dominnt eonomi fore on erthF gonsider its mzing hrteristis onentrtion of mngementD umultion of pitlD shielding of ownership from liilityD nd eing grnted legl existene not neessrily ounded y either spe or time"oth uiquitous nd eternl3 es wellD howeverD onsider its fersome prospets visEEvis its lk of ountilityD its de(it of demorti governneD its oftenEunivilized ompetitive enggement with ll other setors of soietyD not to mention its trnsendene of oth ntionl sovereignty nd legl jurisditionF end there you hve itF ss the rnsEntionl gorportion the nswer to the fundmentl issues of humn survivlD or the fundmentl thret to life itselfc sn shortD will the orportion of the twentyE(rst entury e orrupt oin roodD or virtuous heri' of xottinghmc gorportions re not nturl personsF gorportions re (titiousD orportions re juridil persons reted y lwF he point is thisX the ethil onsidertions one might use when deling with friendD ssoiteD or strngerD re signi(ntly di'erent when the sujet is the orportionF
3 This
PQP
CHAPTER 12.
qetting this stright is ritilly importnt to n dequte understnding of usiness ethisF eople" their ehvior nd the produts of their work nd intellet"re judged ethilly nd leglly sed hie)y on their intentionsF ithil nlysis of the ehvior of nturl persons egins with onsidertions of wht person ment y wht he or she didD sidD or produedF sn ontrstD ethil nlysis involving the entity we ll the orportion must forever egin nd end in lw nd puli poliyF ith referene to the politil eonomy tht rought forth the estF he legl entityD known s the orportionD ws reted to shield investors from liilities eyond the limit of their investment @ result tht neither sole proprietorships nor prtnerships ould omplishA with the legisltive intent of filitting the ggregtion of privte pitlF his legl experiment egun IWth entury hs sueeded spetulrlyF por people to surviveD they need physil nd emotionl nourishmentD nd fmilil nd soil supportF gorportions survive solely y their ility to return vlue to their shreholdersF reneD orportions re onsequentil rittersD tilitrin to the oreF e friend my forget lunh dte nd hurt your feelingsD ut when he sysD s9m relly sorryD s n9t elieve s forgotF ou syD rey s missed youD ut it9s yuF vet9s try gin next weekF hen ompny lunhes new produt nd if the IHH million dollr venture tnksD shreholders do not wnt to her out how sorry mngement is tht things did not work outD or tht mngement ment wellF st will do the giy no good to syD wy hert ws in the right pleF hen we tlk out the ethil riteri for judging the ehvior of orportions we spek not of intentD ut responsiilityX quite literllyD the pity to respondF gorporte ethis is the ethis of orporte soil responsiility @gAD not orporte personl responsiilityF he responsiility of orportion is shped y two relitiesX the oligtions reted y soiety through @IA lw nd puli poliy @legl responsiilitiesAD nd @PA the oligtions reted y orporte ultureD iFeF stkeholder @ustomersD employeesD neighorhoodsD nturl environmentsA oligtionsF he two overlp nd reinfore eh otherD ut their limits lie within the oundries of ompny9s tngile pitiesF gorporte ethis is relly out gining understnding of wht re lled mixed motivesF hen nturl persons hve mixed motives"you give hundred uks to the oper euse you wnt your ossD who supports the operD to think well of you"we somehow know tht this is not n unmiguously ludle tF fut when ompny tht mkes omputers gives IHH lptops to the puli shool systemD nd does so with the hope tht exposing hildren to their rnd of omputers will led to inresed sles"this doing good to do well is not only ludleD it is responsile"responsile oth to shreholders nd the stkeholdersF gorportions s mtter of ftD n only t with mixed motivesF fy lwD they re reted to serve the ottom line of returning welth to investorsF he lw sys orportions hve (duiry responsiility @(duiry a the highest stndrd of loylty nd trust owed y gents to priniplesA to their shreholdersD who re the legl owners of the orportionF o do goodD orportion must do wellF es usiness ethiistD s rgue the reverseX to do wellD orportion must do goodF eople hve onsienesD nd some would sy soulsY orportions hve neitherF gorportions re retures of lw nd puli poliyD they re ulturl retionsY s suhD they hve unique ultures of their ownF gorporte ethis is therefore relly out the retion of ulture of responsiility within the orportionF hr vynne yne of rrvrd niversity hs mde mjor ontriution to the understnding of g nd how it is hieved in her distintion etween ompline sed orgniztions nd integrity sed orgnizE tionsF sn relityD g is produt of oth ompline @legl nd regultory onstrintsA nd integrity @the internl ulture nd self regultory environmentAF his is undersored y new lws suh s rnesEyxley et of PHHP nd the lmost two dede old pederl entening quidelines @poliy guidelines estlished in prt to determining orporte riminl punishment in pederl gourtsAF Sarbanes Oxley is prtiulrly interesting given yne9s omplineGintegrity onstrutD in tht it requires oth integrity strutures @suh s orporte ord of ethisD nd internl protetions for whistlelowersA nd inreses (nes for violtion of ntiEtrust nd other federl sttutes regulting interEstte orporte ehviorF husD orportions re retures of lw nd poliy nd re regulted externllyF gorportions hve no onsiene per seD ut like ny soil system n develop guiding ultureD mintined through edution nd reinfored y the hits nd intertions of the people within the orportionF sn world of over six illion peopleD there is little lterntive to lrge nd omplex orgniztions designed to feedD houseD helD nd help meet si humn needsF he multintionl orportion is here to styY the
PQQ issues of how these ehemoths re guided nd ontrolled is fr from settledF row the humns who work nd mnge these orgniztions mintin their own integrity within the tilitrin ultures of the multintionl orportion is hpter of history we re only eginning to writeF he oil gontrt etween soiety nd the multintionl orportion tody is eing rdilly renegotiE tedF he sding ollpses of the hotomsD the inronD orldomD nd eldelphi sndlsD nd nowD the meltdown of pitl mrkets ross the gloe portends turulent future indeed for oth the orportion nd the usiness professionlF etD it is in suh times tht fundmentl hnges most often emergeF hose who dre to ride these urrents of hnge will emerge in new order of politil eonomyF
PQR
CHAPTER 12.
Chapter 13
Adding products and services

1
efter reding this hpterD you shouldX
understnd the strtegi importne of dding nd deleting produtsF understnd some methods whih n e pplied to ssist in this deisionEmking proess understnd some di'erent pprohes for generting new produt ides e fmilir with vrious wys of lssifying produts nd innovtions e le to disuss innovtions relted to usiness models know the si methods for evluting innovtions e le to disuss the relted topis of filed innovtion nd produt deletion
13.2 Introduction
he twentyE(rst entury mrketple is dynmi nd fst hngingF es resultD orgniztions re under pressure to evlute their existing produt line nd to mke ontinuous deisions out dding new produts or deleting existing produtsF por instneD the grph in ixhiit IQFI shows how n orgniztion must estlish series of suessful produtsD if tht orgniztion wnts to mintin onsistent strem of sles or else grow sles over timeF yne reson for this pttern is the produt life yleF es shown in the grphD no produt lsts foreverD nd sles levels n )utute drmtilly over timeF he ompny illustrted in ixhiit I hs mrketed V di'erent produts over timeF sn the pstD four of these produts hve een deleted @the produts leled s eD fD gD nd pAF es resultD the sles level in the most urrent period depends upon the suess of the remining four produtsF sf the (rm hs gol to inrese sles in the oming yersD then it is impertive for tht (rm to introdue new group of suessful produtsF yrgniztions invest lot of money to rete new produts tht perform e'etivelyF xonethelessD (rms often struggle to onvine people to inorporte these new produts into their routines @erts PHHVAF por exmpleD it took IV yers for mirowve ovens to gin eptne in qreee @ellisD tremershD nd in PHHQAF he ultimte suess of new produts depends on onsumers epting them @erts PHHVAF he term produt refers to oth goods nd serviesF e produt is nything tht n e o'ered to mrket to stisfy wnt or needF here re numer of wys to lssify produtsD nd those methods re disussed lter in the hpterF sn this hpterD we disuss the following topisX @A here do innovtions ome fromc @A produt tegoriesY @A snnovtion through usiness modelsY @dA ivluting innovtionsY @eA
1 This 2 This
PQS
PQT
CHAPTER 13.
ADDING PRODUCTS AND SERVICES
hen innovtion filsX deleting produtsY nd @fA hpter summryF sn the next two setionsD we rie)y disuss innovtions nd their originsF
Exhibit 13.1: Sales of individual products and total sales
13.3 Where does innovation come from?
e de(ne innovtion s n ide or produt tht is new to the sponsoring orgniztionF e disontinuous innovtion hs the potentil to lter existing onsumption ptternsD or else rete new onesF por exmpleD portle udio equipment hs evolved from the rdioD to the ssette tpe plyerD to the ompt disk plyers nd to the digitl udio plyerF et the extremeD disontinuous innovtion results in the retion of new generi tegory of produtsD suh s the q nvigtion systemF sn ontrstD ontinuous innovtions involve introduing new entrnt into n existing tegoryF gonE tinuous innovtions do not hllenge estlished ptterns of onsumption ehviorF e good exmple of this type of innovtion is the smrt phoneF por this produtD onsumers lredy know wht phone is nd how to operte itF prom this perspetiveD the opertion of smrt phone n e viewed s omintion of the funtions ssoited with moile phone nd the funtions of personl digitl ssistnt @heAF sn more reent o'eringD smrt phone omines the funtions of gs nd ws through pplying the softwre nd operting systems of ehF es resultD onsumers n ess their urrent knowledge out existing produts nd then esily grsp the smrt phone oneptF yn the one hndD the proess of innovtion is the life lood of n orgniztionF xew produt innovtions re responsile for employmentD eonomi growthD tehnologil proessD nd high stndrds of living @ouder IWVUAF sn mrketing ontextD innovtion is ruil for the development of suessful new produts @oth goods nd serviesAF yn the other hndD it is hllenge to develop nd evlute these innovtionsF sn riefD where do innovtive ides ome fromc e desrie (ve soures of innovtionX tehnil rekthroughsD nonE tehnil ide developmentD ides tht emerge from environmentsD serendipityD nd purposeful developmentF hese vrious strtegies re outlined in le I nd desried in more detil in the following setionF ehnil rekthroughs refer to produt innovtions tht result from tehnil developmentsF xew rnds tht hve emerged from this proess inlude wQ plyersD q nvigtion deviesD nd ell phonesF sn the long runD it is onsumers who deide how new tehnologies will e usedF por instneD quglielmo wroni reted the rdioEtelegrph so tht ships ould ommunite with eh other on the high ses in IVWRF roweverD other pplitions emergedD nd everydy uses eventully multipliedF por instneD in IWPID
3 This
PQU the diohk gorportion ws formed in foston to sell equipment to hm opertorsF he ompny took its nme from the smll wooden uilding for rdio equipment on shipsF es more fmilies dopted rdiosD it ws rel hllenge to develop ontentF iventullyD the dvertising usiness model ws retedD nd the funds tht were provided y dvertisers were used to sponsor the development of populr ontent @eFgF musiD drmti showsD vriety showsA @inkhn PHHSAF xonEtehnil development is nother pth to produt innovtionF his pproh involves (nding nihe in the mrket without mking rdil hnges to the si produt tegory @iFeF in terms of the underlying tehnologyAF fuild fer orkshop provides good exmple of this style of innovtionF nlike other onventionl stu'ed niml mnufturersD the fuild fer orkshop llows ustomers to hoose their er9s odyD soundD lothingD stu0ngD nd hertF por exmpleD ustomer n hooseD lowerEpried pper hert with their wishD or they n invest in higherEpried eletroni hertF efter ustomers mke hoiesD they then oserve the prodution proess in the shopF sn this wyD ustomers rete their own ustomE designed toyF his usiness model does not rely on developing new tehnologyF roweverD there is modi(ed prodution proessD s the stu0ng nd sewing mhine re loted in the retil storeF sdes tht emerge from environments refer to innovtions tht result from importing produts from other ulturesF qood exmples of this style of innovtion re lEmrt in ghin nd suie in the nited ttesF rditionllyD there were no lrgeEsle retil stores in esin ntionsD suh s tpnD uoreD ghin or sndiF snstedD smll retilers or momEndEpop stores domintedF vrgeEretil stores re now hieving suess in esin ntionsD through importing the ide of eonomies of sleD whihD in turn enle oneEstop shopping nd lower priesF imilrlyD suie hieved gret suess in the nd ghin through importing the ide of wrehouseEtype retil setting from iuropeF suie o'ers highEqulity furniture nd home interior produts for lower priesF gonsumer ssemly is often requiredF erendipity plys role in produt innovtionF he word serendipity derives from serendipD whih mens ri vnk in ersinF he firy tleD he hree rines of erendipD tells the story of three men who ontinuously disover something tht is ompletely unrelted to wht they originlly set out to (ndF husD the term serendipity desries sitution where one identlly disovers something fortunteD while looking for something else entirelyF por exmpleD peniillin ws disovered quite y ident when elexnder pleming disovered tht mold ontminting one of his experiments possessed powerful ntiteril propertiesF urposeful development ours when there is strong need for ertin goods or serviesF es desried y lto in he epuliX xeessity is the mother of inventionF sn other wordsD this type of innovtion ours when existing produt lines nnot stisfy urrent needs or urrent demndF es resultD orgniztions re willing invest onsiderle funds @eFgF in terms of reserh nd development or mrketing reserhA to rete suessful innovtionF e good exmple of purposeful development is the hevy investment tht phrmeutil (rms mke to disover new presription drugsF por inspirtionD phrmeutil sientists rely upon urrent developments in hemistryD physisD plnt iologyD nd folk heling methodsF sn some instnesD this kind of innovtion might result from mrketing reserhD where onsiderle demnd is forest in the mrketpleF oure of snnovtion ehnil rekthrough xonEtehnil ide development he(nition snnovtion tht results from tehE nil developmentF pinding nihe mrkets without mking rdil hnges to the E si produt tegoryF hoes not rely on new tehnologyF ixmples of snnovtion wQ plyersY q nvigtion systemY ireless snternet servie fuild er workshopY9 prozen yogurt stores
PQV sde from outer environment erendipity urposeful development
CHAPTER 13.
smporting ides from other ulE turesD plesD nd settings snnovtion through n identD when looking for something else snnovtion tht derives from hevy investmentD one strong demnd is reognized
Table 13.1
suie in the Y og or ekE wondo in estern ntions ErysY eniillin resription drugsY enils with ersers
X di'erent soures of innovtion
st is lso possile to rete new usiness modelF lEwrt is good exmple hereD s the retiler pplies the philosophy of low pries nd ost utting to every spet of its opertionsD inluding logistisD employee ompenstionD mngeril philosophyD pkgingD merhndisingD negotitions with suppliersD nd so forthF his mnner of innovtion is disussed in more detil in the setion whih followsD rodut gtegoriesF
13.3.1 Product categories
here re numer of wys to lssify produts @see le IQFP nd ixhiit IQFPAF por instneD produt n e lssi(ed y durility nd tngiilityF kged goods re tngile nd re onsumed in one or few usesD suh s in the se of eerD sopD or fuelF hurle goods re tngile nd survive mny usesF gonsumer exmples inlude furnitureD sD omputersD lothing nd utomoilesF eording to one onventionD durle good lsts more thn one yerF xonEdurle goods re tngileD ut they provide ene(ts for short timeF qood exmples inludeX gumD shving remD gsD tteriesD nd osmetisF here re lso ontrolled goods whih re often restrited y government tionD due to their potentil dnger or dditive ntureF qood exmples inludeX igrettesD loholD tooD (rermsD nd even some overEtheEounter drugsF fusinessEtoEusiness @fPfA produts refer to goods ought y individuls or orgniztions for further proessing or for use in doing usinessF ixmples in fPf inludeX uildingsD )our purhsed y ommeril kerD rude oilD steel for utomoile mnuftureD insurne poliies for ompny uildingsD nd usiness onsulting serviesF fusinessEtoEustomer @fPgA produts refer to goods tht individul ustomers purhse for personl nd fmily useD suh s pssenger rsD hirdryersD sD medil insurne poliiesD nd rpet lening servies for the homeF gonveniene produts re produts tht onsumers wnt to purhse frequentlyD immeditelyD nd with minimum of e'ortF ixmples here inludeX soft drinksD igrettesD fst foodsD newsppersD puli trnsE porttion nd ndy rsF hopping goods re purhsed only fter onsumers mke omprisons with ompeting goods sed on suh ttriutes s prieD qulityD styleD or olorF ixmples in this tegory inE ludeX wQ plyersD pssenger rsD lothingD furnitureD nd housesF peilty produts re produts with unique hrtersF fuyers often prize suh goods nd mke speil e'ort to otin themF ixmples in this group inlude olletle itemsD enggement ringsD vtion homesD yhtsD rt worksD luxury rsD nd speil onert tiketsF
PQW
Exhibit 13.2: Rough Classication of Products
gtegory xme qood ervie
he(nition e tngile physil entity en intngile result of the ppliE tion of humn nd mehnil e'orts to people or ojetsF roduts tht provide ene(t for long time nd re not used up when used oneF roduts tht provide ene(t for short timeF roduts tht need to e reguE lted due to their potentil dnE ger or dditive potentilF qoods ought y individuls or orgniztions for further proessE ing or for use in doing usinessF
ixmple leD eletronisD sodD ndy r rirutD dryEleningD grdening
hurle
eutomoileD houseD mhines
xonEdurle gontrolled qoods
wilkD lundry detergentsD tissue pper ooD loholD (rermsD phrE meutils plstis for r mnufturerD insurne pln for plnts
fusinessEtoEusiness
PRH gonsumer
CHAPTER 13.
he goods individul onsumers purhse for personl or fmily useF roduts tht onsumers wnt to purhse frequentlyD immediE telyD nd with minimum of efE fortF roduts purhsed only fter the onsumer hs mde omprE isons with ompeting goods on suh ses s prieD qulityD styleD or olorF roduts with unique hrterE iztions tht use the uyer to prize them nd mke speil efE fort to otin themF
Table 13.2
gnned soupD medil insurne
gonveniene
ghewing gumD eerD igrettesD fst food
hopping
D utomoileD house
peilty
vuxury sports rD jewelryD
X glssifying produts
13.4 Innovation through business models
e good usiness model is story tht explins how n enterprise is designed to work @wrgrett PHHPAF e usiness model identi(es soures of ompetitive dvntge nd desries the (rm9s pthwy to pro(tilE ity nd suessF prom mrketing perspetiveD the usiness model desries ustomers nd wht they vlueF prom mngeril perspetiveD the usiness model desries how n orgniztion mkes pro(tF ee ixhiit IQFQ @ixEstep modelAF sn this setionD we review some emerging models in the musi industryD in order to illustrte how suh models n serve s soure of innovtionF ht isD trditionl wy for orgniztions to remin pro(tle is to introdue series of relted goodsF es shown erlier in D the orgniztion introdues eight produts @leled e through rAF yver timeD the sles for produt e egin to delineD so the orgniztion is under onsiderle pressure to introdue new suessful produtsF sf represents the umultive sles for reord lelD then produt e might e hipEhop ghD while produt f is gh reted y rok rtistF sn this setion of the hpterD we present n lterntive soure of innovtion"the innovtion tht results from suE essfully introduing new usiness modelsF ell our exmples re derived from the musi industryD ut relted industries @eFgF (lmsD ooksA re undergoing similr trnsformtions nd reting similr opportunities for entrepreneursF
13.4.1 Examples of business models from the music industry
ine the lte IWWHsD the vilility of online musi hs used lot of onfusion in the mrketpleF rditionl usiness models re no longer pplile for explining the urrent usiness opportunitiesF he musi industry in the twentyE(rst entury provides lssi illustrtion of disruptive tehnologyD wherey new tehnologies drive out estlished tehnologies nd estlished wys of doing usinessF rereD we rie)y review eight usiness models in the musi industryF e distinguish mong these models vi (ve hrteristisX urrent implementtionD fesiilityD leglityD onsumer stisftionD nd reord lel stisftion @ee le QAF xote tht some of these models re urrently implementedD while others re speultive in ntureF
4 This
PRI
13.4.2 Traditional business model
sn this usiness modelD the rtists rete musi nd try to e signed y reord lelF efter the rtist is signed y reord lelD then tht orgniztion provides numer of serviesD inluding (nning musi reording nd produtionY orgnizing onert toursY produing nd selling merhndiseY mrketing the nd9s retionY promoting the nd through exposure on mss mediY nd moreF xextD the reord lel delivers the reorded musi to mnuftures who reprodue nd pkge the musiF he supply hin memers re in hrge of distriutionD inluding n e'ort to gin oopertion from key retil outletsF pinllyD the retilers mrket nd sell the pkged goods to the (nl onsumers @lterD mithD fmuerD qsserD nd lfrey PHHSY see ixhiit IQFQ @ixEstep modelAAF
Six-step model
Exhibit 13.3
13.4.3 Digital music stores
his model suggests tht the retilers move online nd o'er ontent diretly to onsumers through wesitesF his pproh is similr to the trditionl modelD ut there is n emphsis on the online delivery of ontent @lter et lFD PHHSAF emzon ws one of the (rst ompnies to implement this model in the IWWHsF ine the deut of this modelD two mjor modi(tions hve een mdeF pirstD onsumers n now purhse digitl downlods of the musiD rther thn reeiving physil produtD suh s ghsF his o'ers n intngile nd instntneous pproh to uying musiF he seond lrge modi(tion is lso relted to digitl downlodingD s users no longer hve to uy n entire ghF wny digitl musi stores o'er free smpling of eh song whih llows ustomers to preview trks tht they wnt to purhseF he epple9s iune store suessfully implements this model in the twentyE(rst enturyF
13.4.4 Open content
his model is derived from the enillry roduts nd ervies model tht the ferkmn enter formulted in PHHS @lter et lF PHHSAF yne min ssumption here is tht nothing n e done to stop the illegl shring of musiF sn order for the model to e suessfulD the ontent retorD reord ompniesD nd onsumers must enourge the use of peerEtoEpeer networkingF husD every musi downlod from this usiness model is free of hrgeF his model is di'erent in tht free (le shring is enourgedF roweverD there is onerted e'ort to (nd other soures of revenue @ferkmn genter PHHQAF yther soures of inome my inlude touringD selling nd prphernliD endorsementsD nd fn lusF his model is illegl under urrent lws in the nd mny other ountries s it violtes existing opyrightsF xote thtD in most ontextsD openEontent shring is legl s long the owner signs ontrt tht llows suh distriutionF here re on)iting viewpoints on the open ontent modelF yn one extremeD there people like vrs lrihD the hrummer for wetlliD who is outrged tht this ould even e n optionF eording to lrihD he rgument s her lotD tht musi should e freeD must then men the musiins should work for freeF xoody else works for freeD why should musiins @lrih nd wquinn PHHHAc yn the other extreme re
PRP
CHAPTER 13.
people who rgue tht opyrights re irrtionl sine they deny onsumers the right to use retive works nd su'ote the retivity of snternet users @vessig PHHRAF et (rst glneD the openEontent model ppers to e very rdilD s it di'ers so muh from other modelsF xonethelessD it hs gined onsiderle ttention in the lst few yersF his pproh is very stisfying for ustomersD ut is mjor thret for reord lels nd hnnel memersF
13.4.5 Artist-centered website hub
his usiness model uses one lrge wesite s dtse for musiF gontent retors ontt the wesite diretly nd set the prie of their musiF he wesite sets minimum downloding fee to over ostsY the fee is set on monthly sis @or on perEdownlod sisAF gustomers ess the wesite nd purhse ll the musi they wntD knowing tht the rtist reeives most of the pro(tF ome wesites re lredy implementing this modelF por instneD gh fy sells independent musi tht omes diretly from the rtistF ine this model uts out severl middlemenD gh fy lims tht rtists reeive h TEIP per lum versus the h IEP tht rtists typilly reeive through their reord lelsF here re urrently PRVDVWI rtists on gh fy nd over h VUDHSPDHVU dollrs hve gone diretly to the rtist sine the ompny opened for usiness in IWWV @re1inger PHHVAF
13.4.6 Artist's personal website
enother potentil model enourges users to ess the rtist9s personl wesites to purhse musiF his pproh llows the rtists to hve the most ontrol over their musiF he nd diohed tested this model during the deut of their seventh lum ynly in inowsF he nd liented themselves from their reord lelD iwsD nd o'ered the lum solely from their wesite diohedFomF gustomers who visited the site where llowed to deide wht they were willing to py for the lum @yngiel PHHUAF elthough this model is ttrtive for populr rtistsD it is potentilly troulesome for rtists who re not well knownF vesser known rtists hve gret di0ulty stnding out in rowded mrketF his model lso elimintes the reord lelF
13.4.7 Non-traditional record labels
gurrentlyD independent reord lels re sprouting up in unexpeted plesF sn PHHQD the grker frrel yld gountry tore reted n emerin oots reord lel lled gf musiD vtd @omero PHHQAF truksD the eternlly populr o'ee house lunhed their own reord lel in wrh of PHHUF heir pln involves signing rtists @eFgF ul wgrtneyA nd selling reords through truks stores @httpXGGwwwFstruksFomGAF
13.4.8 Tax-the-device model
his model follows the open ontent modelD in tht musi is provided free of hrge for musi downlodsF roweverD suh downlods re trkedD nd sles tx is pled on ll devies tht re sold to ply k downloded (lesF he money generted from txes is then used to py k rtistsF yf ourseD this model is speultive in ntureF et presentD there is not relile method for trking ll downlodsF sn dditionD devies sold outside of the would e di0ult to txF
13.4.9 Summary of new business models
e mjor purpose in desriing these musi usiness models is to illustrte how innovtions do not hve to e tied to the suess of new good or servieF therD n orgniztion n innovte y introduing new method of doing usinessD nd suh innovtion hs the potentil to turn the world upside down @ l qoogle or peookAF
PRQ wodel rditionl higitl stores musi gurrently imE plementedc xo es es es xo es es pesilec xot nymore es es es es es es gurrently legl or illeglc vegl vegl vegl sllegl vegl vegl vegl gonsumer stE isftion xo es es es es es es if used with other models c eord lel stisftion es es es xo xo xo xo to trdiE tionl reord lels xo
eerEtoEpeer tores ypen oure ertist entered wesite hu ertist9s perE sonl wesite xonE trditionl reord lles xEtheEdevie
xo
xot relly
Table 13.3
vegl
X wusi fusiness wodels

5
13.5 Evaluating new products
hen n orgniztion dds new produtD there is oth potentil ene(t nd riskF es resultD orgniztions implement forml systems for evluting new produtsF sn prtiulrD there is onerted e'ort to forest projeted sles nd thus redue some of the (nnil riskF hile evluting new produtsD there is lso the possiility of generting innovtive ides tht n lter go through the testing proessF sde genertion is n essentil prt of mrketing strtegy nd is ritil to the suess of ompnyF hen suh produt ides move further long in the proessD key step is to rete prototype or working version of the new o'eringF eginD mrket testing is ruil t every stge in the development proessF rereD we rie)y disuss three min lterntives for evluting new dditions to the produt lineX lorE tory testsD expert evlutionsD nd ustomer evlutions @rn nd ruser IWWQAF ith respet to ustomer evlutionsD we distinguish etween entrlElotion tests nd homeEuse tests @grskD pox nd tout IWWSAF he lortory tests provide informtion regrding the performne of new produts in extreme settingsF por exmpleD new opy mhine n e tested t vrious work lodsD suh s numers of opies nd speed per minute to test the reltionship etween worklod nd pper jmF e disdvntge for the lortory test is tht it my not fully represent relElife onditionsF gonsumers re fmous for (ndings new wys to use produtsD nd they re not suh skillful opertors s l testersF ixpert evlutors n e used t ll phses of the new produt development proessF por instneD experts n e used to estimte whether or not new produt ide will e epted in the mrketple efore prototype even existsF ixperts lso ply role lter in the proessF por instneD new pssenger r n e tested y r expertD who provides @pulishedA review tht overs topis suh sX hndlingD omfortD ese of useD stylingD elertionD miles per gllonD nd so forthF ixpert evlution is reltively low in ostD s just few experts n provide estimtes out the ehviors of mny ustomersF et the sme timeD the smll numer of experts on eh projet my led to ised forestsF sn lter stges of developmentD ustomers n e reruited to evlute prototypesF here is n ttempt to test new produts under onditions tht re reltively lose to tul useF rereD we distinguish etween two types of ustomer evlutionsX entrlElotion evlution nd homeEuse evlutionF
5 This
PRR
CHAPTER 13.
gentrlElotion tests re onduted t designted lotions suh s shopping mllsD sporting eventsD nd ollege mpusesF rtiipnts re reruited y emilD telephoneD nd print dsF ypes of entrlElotion tests inludeX
hisrimintion testX onduted to determine the perentge of ustomers who n distinguish etween produt lterntivesF ired omprison testX respondents evlute pir of options nd then stte their preferene etween the optionsF ound roin testX ll possile produt pirs re evlutedD using formt where onsumers ompre two produts t timeF flind testX new produt is ompred to existing produtsF
nder the homeEuse testD ustomers re invited to use new produt s prt of their everydy lifeF he home use test is usully more expensive thn the entrlElotion evlutionD ut it is more relistiF opulr types of homeEuse tests inludeX
ired omprison testX prtiipnts evlute two produts in norml usge sitution nd provide evlutions for oth produtsF ingleEprodut homeEuse test @mondi testAX prtiipnts evlute one produt fter using tht produt for spei(ed time periodF rotoEmondi homeEuse testsX hyrid design where prtiipnts re sked to use ertin produt for spei( time period nd then evluteF xextD prtiipnts follow similr proedure for seond test produtF
13.6 When innovation fails: deleting products

13.6.1 Product failure
sn generlD produt fils when it does not meet the ojetives tht were estlished y the sponsoring orgniztionF pilure rtes vry y industryF por instneD filure rtes for new pkged goods rnge from US per ent to WH per ent @tlinmrketingFomAF hen onsidering innovtive new produtsD qourville @PHHSA estimtes tht pproximtely hlf of ll suh produts filF st often osts more to lunh n innovtion ntionlly thn to develop the good or servie in the (rst pleF sn the following setionD we desrie lEwrt9s filure s it tried to enter the qermn mrketF yur purpose is to use this one exmple to illustrte key resons tht new produts fil nd susequently must e deletedF ee le R for listing of mjor resons tht use produts to e deletedF le R inludes desription of IQ resons tht produts filF xote tht the lEwrt experiene in qermny provides onrete exmples for IH of these key resonsF sn the tleD the resons for produt deletion re divided into S groupsX @A wrket truture @wAY @A fusiness wodel @fwAY @A gulture @gAY @dA olitisGregultion @AX nd @eA rodut filure @pAF hese sme tegories re highlighted in the setions whih followF
13.6.2 Case, example of product failure: Wal-Mart in Germany, 1997 to 2006
lEwrt is the iggest food retiler in the world nd hs presene in severl ntionsF sn some ntions @eFgF the D gndD ghinAD lEwrt is gret suessF roweverD lEwrt hs filed in some ountries @eFgF qermnyD outh uoreAF pirstD we desrie lEwrt9s filure in iurope9s lrgest eonomyF eondD we use lEwrt9s experienes in qermny to illustrte some key priniples relted to produt filure nd produt deletion @see le RAF lEwrt9s experienes re lso n exmple of the importne to dpt to ulture when strting usiness in new ountryF he qermn groery industry
6 This
PRS here is (ere ompetition in the qermn groery industryD due to the inresing numer of disount supermrket hins @uwq PHHTAF es resultD there is low pro(tility in the food retil setorY pro(t mrgins rnge from HFS per ent to I per ent whih is one of the lowest pro(t mrgins in iurope @prnkfurter undshu PHHUAF fy ontrstD pro(t mrgins in qret fritin re S per entD in this sme setorF sn prtiulrD wetro is tough ompetitorD nd it lredy pplies some of lEwrt9s suessful strtegies @eFgF relted to eonomis of sle nd low priesAF yf ourseD lEwrt is interested in other metris eyond pro(t @eFgF shreholder welthD mrket shreAD utD s indited oveD pro(tility nd mrgins re of key onern to retilersF lEwrtX strtegi onept lEwrt is the world9s lrgest retiler with pproximtely TDSHH stores worldwide @fusiness PHHTAF he min feture of lEwrt9s usiness model is to ut osts @ontinuouslyA nd therefore o'er lower pries thn their ompetitorsF por instneD lEwrt hs introdued new logistil tehnologies suh s rdioEfrequeny identi(tion @pshA to optimize its logisti proessesF psh is n utomti identi(tion methodD relying on storing nd remotely retrieving dt using devies lled psh tgs or trnspondersF lEwrt tries to minimize lor osts y o'ering miniml helth re plnsF lEwrt pressures its suppliers to ut ostsD on ontinuous sisF sn riefD lEwrt9s mngers re onstntly seeking out wys to ut ostsD nd some of their suesses re pssed on to shoppersD in terms of lower priesF lEwrt9s entry into the germn mrket sn IWWUD lEwrt quired over PI stores from the supermrket hin ertkufF yne yer lterD lEwrt ought n dditionl UR stores from the supermrket hin sntersprF es resultD lEwrt eme the fourth iggest opertor of supermrkets in qermny @veensmittelzeitung PHHTAF he ojetive ws to expnd to SHH stores in qermnyF roweverD the numer of stores never exeeded the WS stores tht were originlly purhsed in the (rst two yersF lEwrt9s position in the mrketple deteriorted over the yersF sn PHHPD lEwrt hd some (nnil di0ulties due to low turnover whih resulted in the dismissl of some employeesF et the end of PHHTD lEwrt ws ought out y wetroD one of qermny9s lrgest retil groupsF pinllyD lEwrt left the qermn mrket with loss of one illion dollrs efore tx @wngerEwgzin PHHTAF wisEsteps in the germn mrket sn generlD there re (ve key issues relted to lEwrt9s ultimte withdrwl from qermnyX @ A mrket strutureY @A usiness model @these (rst two re disussed together hereAY A ulturl nd ommunitionY @dA politis nd regultionY nd @eA produtGservie filureF ih of these issues is disussed in turnF xote lso tht these (ve issues re highlighted in le IQFRF wrket struture nd usiness model e retiler tht wnts to follow lEwrt9s strtegy of low pries needs to expnd rpidlyF sn qermnyD there not enough pproprite lotions to support suh expnsion @see le IQFRAF es previously mentionedD lEwrt did not uild their own stores ut took over PI existing ertkuf supermrkets tht hd totlly di'erent usiness modelF he stores themselves were very smll nd hd limited rnge of goodsF e relted prolem is tht these stores were loted fr prtD whih resulted in high logistil ostsF hen entering new mrketD it is importnt to ntiipte ompetitors9 retionsF sn qermnyD lE wrt9s iggest ompetitorD wetroD wnted to expnd their storesY t the sme timeD wetro wnted to prevent lEwrt from exeuting their expnsion plns @enge PHHRAF wny timesD produt hs to e deleted euse the ompetition is too strongF ith the strtegy of ivery dy low priesD lEwrt is very suessful in the nited ttes nd lso in mny other ountriesF sn qermnyD there is extreme ompetition in the retil food setorF hereforeD the qermn ustomer is quite ustomed to the low pries tht re o'ered y numerous disount supermrket hinsF por this resonD lEwrt9s strtegy of o'ering low pries did not rete su0ient ompetitive dvntge @see le IQFRAF gulture nd ommunition hen produts re introduedD it is importnt to onsider ulturl ftorsF sn this seD orporte ulture plyed key roleF lEwrt9s top exeutives deided to operte the qermn lotions from their o0es in the nited uingdomF husD lEwrt9s orporte lnguge ws inglishF roweverD mny of the
PRT
CHAPTER 13.
older lEwrt mngers in qermny do not spek inglishF es resultD there were often rekdowns in ommunitionF ome mngers of the quired stores did not sty on fter the lEwrt quisitionF uey usiness onnetions were lostF es resultD severl key suppliers @eFgF edidsD msoniteD xikeA delined to work s suppliers for lEwrtF lEwrt did not just lose importnt suppliersY they lso lost n importnt prt of their rnge of goods @enge PHHRAF he sitution ould hve een improved y retining nd ommuniting e'etively with the qermn mngers who hd knowEhow out the lol mrket @see le RAF olitis nd regultion he mngers of lEwrt were not su0iently fmilir with the lws nd regultions in qermnyD s they violted them severl timesF yne of lEwrt9s fundmentl priniples is to sty union freeF roweverD in qermnyD unions hve powerful positionF hrough olletive rgining nd relted ttisD they n hve strong in)uene on politil deision mkingF erFdi is qermn union in the servie setorF ith PFR million memersD it is one of the lrgest independentD trde unions in the world @erFdi PHHVAF eording to the qermn gommeril godeD ll inorported ompnies re oligted to pulish (nnE il sttementD inluding pro(t nd loss sttementF hue to the ft tht lEwrt refused to pulish their (nnil sttements for the yers IWWW nd PHHHD erFdi sued in ourt of lwF lEwrt ws sentened to py (neF he overge of this lw suit in the qermn press led to negtive puli imge for lEwrtF efter the expnsion strtegy filed due to the lk of suitle store lotionsD lEwrt egn prie wr to drive smll ompetitors out of usinessF he intention ws to tke over the stores of the insolvent supermrket hins nd onvert them into lEwrt storesF yne prt of the prie wr ws to introdue privte lel lled mrt frnd nd sell most of these produts elow mnufturing ostsF he retion of mny ompetitors ws to derese their priesD whih led to pro(t setk for the entire industryF roweverD the pederl grtel y0e intereded nd stopped the prie wr euse there is lw in qermny tht enjoins ompnies from selling goods elow mnufturing osts on ontinuing sis @unorr nd erndt PHHQAF rodutG servie filure lEwrt plnned to introdue sophistited ustomer servie progrm whih thretened mny of its ompetitors euse qermn disount supermrket hins often do not provide good ustomer servieF hereforeD good ustomer servieD omined with low priesD ould hve een new mrket nihe in qermnyF yne prt of lEwrt9s ustomer servie progrm ws lled the ten foot ruleF ivery ten feetD servie employee o'ered some help to the ustomer @unorr nd erndt PHHQAF roweverD the ustomer retion ws rther negtiveD euse ustomers who normlly do their groery shopping in disount supermrket hins re used to selfEservieF hey do not neessrily expet to tlk with employeesF hereforeD the ten foot rule ws pereived s rther nnoying nd did not result in reputtion for providing good ustomer servieF lEwrt lso imported the ide of pling greeter t the entrne to the storeF eginD qermn ustomers were not used to this ustomD nd they did not dopt this servie with ny enthusismF gonlusion of lEwrt winiEse lEwrt tried to pply its suess formul in n unmodi(ed mnner to the qermn mrketF es resultD they didn9t hve su0ient knowledge out the mrket struture nd key ulturl G politil issuesF sn dditionD struturl ftors prevented lEwrt from fully implementing its suessful usiness modelF elsoD there were some instnes of produt or servie filureF he (nl outome ws tht lEwrt hd to ndon its o'erings in qermny esons for pilure ixmples of lEwrt in qermny
PRU snsu0ient demnd @w G fwA lEwrt9s low prie strtegy didn9t rete ny ompetitive dvntge sine mny qermn lol reE tilers were lredy using tht strtegyF lEwrt9s iggest ompetitorD wetroD took spei( ounterEmesures to prevent lEwrt from exeutE ing their expnsion plnF he pro(t mrgins in the qermn retil industry were lredy low efore lEwrt enteredF lE wrt ws not le to onvine qermn onsumers tht their pries were relly tht muh lower thn the ompetitionF xGe for lEwrt se xGe for lEwrt se lEwrt did not dpt well to the qermn orpoE rte ultureF wngers were not fmilir with qermn lws nd regultionsD so there were violtionsF sn generlD lEwrt9s ntiEunion poliies on)ited with the strong qermn unionF lEwrt lso tried to sell their produts elow mnufturing ostsD whih is illegl in qermnyF xGe for lEwrt se vnguge rrier etween inglishEspeking mnE gers nd older qermn usiness people who don9t spek inglishF here were not enough pproprite lotions for lEwrt stores ville in qermnyF tores were often loted fr prtF es resultD loE gistis osts were highF yne of lEwrt9s min suess ftors is to minimize ostsD ut this gol ws restrited y high logistil ostsF ome of lEwrt9s methods for providing servie were not epted y qermn ustomersF por inE stneD the ustomers did not like the onept of the greeterF
ixisting ompetitors re too strong @wA
pilure to develop nd ommunite unique selling propositions @A @fwA
nexpeted hnge in the environment" ionomi downturn gompeting new tehnology suessfully introdued ghnge in ulture @iFeF hnge in orporte ultureD hnge in onsumer tste or fshionA @gA ghnging stndrd of government regultions @A
he prie is too highD so tril is disourged oor promotionGommunition pln @gA
sn retilingD filure to seure ttrtive sites @wA rodut filure @pA
oor servie qulity"during or fter sles @pA
PRV
CHAPTER 13.
pilure to get orportion from key supplyEhin memers @fwA
everl key suppliers refused to supply goodsD for fer of trnishing their orporte imgeF
xotes for le RX he resons for deletion re divided into (ve tegories ording to the following legendXwX wrket strutureY fwX fusiness modelY gX gulture nd ommunitionY X olitis nd reguE ltionY pX rodut filure
Table 13.4
X rodut filureX exmples from lEmrt9s investment in qermny
xew produts improve people9s livesD hnge mrketsD nd 'et the everydy world round us @erts PHHVAF prom n orgniztionl point of viewD suessful new produts re essentil for the survivl of (rmF et the sme timeD n orgniztion must reognize when it is time to withdrw produt from the mrketF es shown in pigure ID this withdrwl my tke ple fter some yers of suess in the mrketpleF elterntivelyD suh produt deletion my our efore the produt is even lunhed @see the setion on ivluting snnovtionsAF ometimesD ler nd strightforwrd resons exist to explin why onsumers do not ept new produtF yther timesD ler nswer is missing @erts PHHVAF sn this hpterD we highlight mny of the key mngeril deisions ssoited with dding nd deleting produtsF e emphsize the importnt role of mrketing reserh nd mrketEsed insightsF
hisuss vrious wys to lssify innovtions nd produtsF hesrie how these lssi(tion shemes ontriute to mngeril knowledge nd desrie how they re relted to the proess of innovtionF sing informtion from the lEwrt se tht is disussed in the hpterD desrie some deisions tht mngement hndled wellF uppose tht you re in hrge of expnding lEwrt9s opertions to prneF hesrie some tions tht you would tke to inrese the proility of suess in tht ntionF our usiness prtner omes to you with new produt ideF pei(llyD she hs just returned from trip to the xetherlndsF fsed on her experienes thereD she wnts your ompny to strt exporting speilty eer @qulpemerA from the xetherlnds to the F our (rm hs spei( expertise terms of distriuting eer in the estern nited ttesD nd you hve some interest in your prtner9s ideF hesrie how you would evlute this ide of dding of qulpemer to your produt lineF e reporter from the xew ork imes sks you to forest whih method of distriuting populr musi will e the most populr in the yer PHIRF rite press relese on this topiF fe ertin to provide justi(tion for your preditionF hisuss (ve usiness models tht re populr for distriuting populr (lmsF redit whih of these models will e the most suessfulD (ve yers from nowF rovide onvining justi(tion for your preditionF our nephew is drummerD nd he hs just formed n lterntive rok ndF ris nd is just eginning to hieve some lol suess in ettleD shingtonF our nephew views you s new produt expertD so he sks your dvie out how to inrese the populrity nd pro(tility of his nd9s opertionsF wke (ve spei( reommendtions to help your nephew nd to justify your reputtion s n expertF le R provides desription of some resons tht new produts filF edd three more ftors to this listF hisuss some di'erent wys tht (rms try to develop innovtionsF por eh method tht you identifyD provide spei( exmple of produt tht ws developed following this pprohF
7 This 8 This
PRW
smgine tht you wnt to strt your own usinessF ht produt would sellc sn two prgrphsD desrie your usiness modelF
13.9 Case: Apples: Newton and Pippin
epple snF @formerly epple gomputer snFA ws founded in IWUT y teve tosD teve oznikD nd onld yneF teve tos is still very tive with the ompnyF epple hs long history of dding suessful new produts to its line upF roweverD in some inE stnesD epple produts hve filed in the mrketpleD ndD susequentlyD they were deletedF por instneD oth the hndEheld xewton nd the gming mhine ippin were dropped from the epple lineupF ee httpXGGwwwFforesFomGPHHVGIHGPWGppleEprodutE)opsEtehEpersonlExgIHQHppleFhtmlF sing this wesite nd othersD gther some informtion out the xewton nd the ippinF henD using the informtion from this hpter @eFgF see le IQFRAD disuss some resons tht xewton nd ippin filedF o wht extent did these two produts fil for the sme resonsc sdentify one of epple9s suessful produts @eFgF the ihoneD the iodA nd desrie how the produt mngers hve een le to void some of the prolems tht snk the xewton nd the ippinF
13.10 References
10
ertsD toep @PHHVAD issys on xew rodut edoption nd hi'usionD emsterdmX the pree niversityF ferkmn genter @PHHQAF 4gopyright nd higitl wedi in ostExpster orldD eserh uliE tion xoF PHHQEHSD qrtnerqP nd he ferkmn genter for snternet nd oiety t rrvrd vw hoolF httpXGGyerFlwFhrvrdFeduGpulitionsF fusiness @PHHTAX orld9s figgest etiler lEwrt gloses p hop in qermny httpXGGwwwFdwE worldFdeGdwGrtileGHDPIRRDPIIPURTDHHFhtml grskD wFD poxD F tFD nd toutD F qF @IWWSAF wrketing eserhX riniples nd epplitionsF iglewood gli'sD xtX rentie rllF prnkfurter undshu @PHHUAX inde einer ixpnsion httpXGGwwwFlexisnexisFdeGeE solutionsGdemiGdeGindexFhtmlD HVFHIFPHHVF qourvilleD tFF @PHHSAD he gurse of snnovtionX hy snnovtive xew roduts pilD ws orking per eriesD S @RAF qutowskiD qeorge @PHHTAD vessons to e verned from lmrt9s pilure in uoreD eeking elph @wy PRAD rtile IIIRIF httpXGGseekinglphFomGrtileGIIIRIElessonsEtoEeElernedEfromEwlmrtEsEfilureEinE koreEwmt re1ingerD wrk @PHHVAD ynline sndi wusi etiler equiredD higitl wedi ireD eugust SF unorrD eY erndtD eF @PHHQAX lEwrt in heutshlnd ! eine verfehlte snterntionlisierungsstrteE gieD inX unorrD eF et lF @rrsgFAX wterilien des issenshftsshwerpunktes qlolisierung der eltwirtshftD fnd PSD fremen PHHQF uwq @PHHTAX ttus quo und erspektiven im deutshen veensmitteleinzelhndel httpXGGwwwFkpmgFdeGlirryGpdfGHTHWHRttusquounderspektivenimdeutshenveensmitteleinzelhndelPHHT PHFIPFPHHUF veensmittelzeitung @PHHTAX lEwrt in heutshlnd ! ein erlik httpXGGwwwFlznetFdeGlinksGhotlinksGpgesGprotetedGshowSQTUWFhtmlD PHFIPFPHHUF vessigD vwrene @PHHRAD pree gultureX row fig wedi ses ehnology nd the vw to vok hown gulture nd gontrol gretivityF xew orkX he enguin ressF wngerEwgzin @PHHTAX wetro u ernimmt lEwrt heutshlnd httpXGGwwwFmngermgzinFdeGunternehmenGrtikelGHDPVPVDRPVWTHDHHFhtmlD PHFIPFPHHUF
9 This 10 This
PSH
CHAPTER 13.
wrgettD tF @PHHPAF ht wngement ssX row it orks nd hy st9s iveryone9s fusinessF xew orkX pree ressF ressdstruksFom @PHHUAD ul wgrtney pirst ertist igned to xew rer wusi velD ettleD wrh PID httpXGGwwwFstruksFomGoutusGpressdesFspcidaUSW omeroD eF @PHHQAD grker frrel yld gountry tore gretes xew emeriE n oots eord velF etrieved ytoer ID PHHVD from orld wusi gentrlX httpXGGworldmusientrlForgGrtileFphpGPHHQIIIRIURUSRRUI engeD uF @PHHRAX her pll lEwrtX snstitutionelle qrenzen o konomisher qlolisierungF httpXGGwwwFwisoFunidortmundFdeGisGdienstGdeGtextonlyGontentGRGRPGpdfGpEsozHRFpdfDPIFIPFPHHU lterD hFD mithD wFD fmuerD hFD qsserD FD nd lfreyD tF @PHHSD tuly UAF gontent nd gonE trolX essessing the smpt of oliy ghoies on otentil ynline fusiness wodels in the wusi nd pilm sndustriesF etrieved eptemer ID PHHVD from he ferkmn genter for snternet nd oietyX httpXGGyerFlwFhrvrdFeduG ouderD F iF @IWVUAF wnging new produt innovtionsF vexingtonD weX hFgF reth nd gompnyF ellisD qerryD tephn tremershD nd iF in @PHHQAD he snterntionl keo' of xew rodutsX he ole of ionomisD gultureD nd gountry snnovtivenessD wrketing ieneD PP @PAD IVVEPHVF yrngielD tF @PHHUAD diohed sysX y wht you wntF etrieved eugust ISD PHHVD from ime intertinmentX httpXGGwwwFtimeFomGtimeGrtsGrtileGHDVSWWDITTTWUQDHHFhtml lrihD vFD nd wquinnD F @PHHHD tuly IAF vrs lrihD oger wquinn estify fefore ente tudiiry gommittee on hownloding wusi on the snternetF @hF ugenD snterviewerA gxxF rnD qF vF nd ruserD tF F @IWWQAF hesign nd wrketing of xew roduts @Pnd edFAF iglewood gli'sD xtX rentie rllF erdi @PHHVA httpXGGinterntionlFverdiFdeGverFdifremdsprhigGwsistverFdiE eineeinfuehrungufenglish inkhnD qeorge wF @PHHSAD fusiness wodelsD edvertisingD nd imerging ehnologyD emerin edemy of edvertising xewsletterD I @xoF RAD RESFedding produts nd servies
Chapter 14
International business for the entrepreneur

14.1 Introduction
1
sn wstujD remote re in the ghitrl distrit of kistn9s xorth est prontier rovineD youngD reently divored womn with three hildren fered tht she would not e le to mke ends meetF rdition held tht women should not work outside the homeD further ompliting her e'orts to generte inomeF xeverthelessD in IWWVD she pplied to the eg uhn url upport rogrmme @euA for trining in sewingF oon fter her ourseD she took out n eu lonD whih inluded usiness triningD to uy sewing mhineF he then set up usiness stithing nd selling redyEmde lothesF es with ll euew lonsD the redit pkge inluded two types of miroEinsurneX sF IHH @h IFTHA for lon insurne tht pid the outstnding lne in se of her deth or permnent disilityD nd nother poliy tht would ensure sF IHDHHH ene(t for funerlErelted osts in se of her identl dethF he miroEinsurne shielded the womn9s hildren from det should she hve su'ered deth or disilityF
Exhibit 14.1: The credit package included two types of micro-insurance that has shielded the woman's
children from debt should she have suered debt and injury.
1 This
PSI
PSP
CHAPTER 14.
INTERNATIONAL BUSINESS FOR THE ENTREPRENEUR
he hs tken severl other lons for mhinery nd mterilF ih time she hs pid k her lon in full nd on timeF rer monthly inome hs risen over sixEfold from s IHHH @h ITA to sF UHHH @h IPHA in four yers @PHHHEPHHRAF he hs een le to send her three hildren to privte shoolD extend her one room houseD nd set up shop ner the homeF rygiene nd helth hve improved thnks to etter food nd the instlltion of proper toiletF es of PHHRD she hd sved over s QHDHHH @h SHHAF erhps most importntlyD she hs gone eyond susistene to help those who re less fortunte thn herselfF he hs hired six employees nd onduts sewing lsses for other women in the ommunityF sn PHHRD in reognition of her e'ortsD wsF hhir ws the reipient of the top prize in the nited xtions qlol intrepreneurship ewrd for kistnF por wsF hhirD gloliztion n ply n importnt role in her usinessF ith the suess of her sewing ompny in her home ountryD kistnD she now hs the opportunity to expnd into new mrketsD prtner with nother ompnyD nd ontinue to grow her ompny s wholeF gonverselyD gloliztion hs negtive implitions for her ompny s well tht inlude inresed ompetitionD nd the risk of ulturl issues tht would led to her ompny not sueeding in new mrketF es n upEndEoming entrepreneurD wsF hhir must tke into onsidertion ll ftors of gloliztion s she ontinues to operte her usinessF por more informtion out this seD nd others like itD visit the eg uhn egeny for wiro(nne wesite httpXGGwwwFkdnForgF
14.2 Globalization: opportunities and threats to developing country business

2
14.2.1 Globalization: opportunities and threats to developing country business
o sueed in usiness todyD it is ritil to understnd the hnging glol usiness world nd the enviE ronment in whih usiness opertesF xot only re entrepreneurs fed with the internl ftors 'eting their usinessD they must lso understnd the externl environment in whih they operteF sn the nited ttes nd estern iuropeD gloliztion hs een highly ontroversil nd sprked protests driven y fers of outsouring josD eding uthority to interntionl orgniztions nd delining lor nd environmentl stndrdsF iews of gloliztion in lower inome ountriesD howeverD re more positiveF e reent ew survey found tht there ws more enthusism for foreign trde nd investment in less industriE lized ountries thn in industrilized onesF sn suEhrn efriD ST7 of respondents thoughtD growing glol trde nd usiness ties re very good for my ountry @hollrD PHHQAF sn developing ountries in esiD QU7 hd positive view of gloliztionD while only PV7 of respondents in the nited ttes nd estern iurope hd suh view @hollrD PHHQAF his setion disusses the onept of gloliztion nd its positive nd negtive implitions for developing ountry usinessF his hpter will utilize exmples of lrge orportionsD s these (rms inorporte ll neessry spets required to run suessful usinessF
14.2.1.1 What is globalization?
qloliztion is di0ult to de(ne euse it hs mny dimensions"eonomiD politilD ulturl nd enviE ronmentlF he fous here is on the eonomi dimension of gloliztionF ionomi gloliztion refers to the quikly rising shre of eonomi tivity in the world tht seems to e tking ple etween people in di'erent ountries @orld fnk frie(ng perD PHHIAF wore spei(llyD eonomi gloliztion is the result of the inresing integrtion of eonomies round the worldD prtiulrly through trde nd (nnil )ows nd the movement of people nd knowledge ross interntionl orders @swp sssue friefD PHHHAF
2 This
PSQ
14.2.1.2 Case: United States Domestic Automaker, Ford
xowhere re the e'ets of gloliztion seen more drstilly thn in the utomoile industryD espeilly for the nited ttes fig Q utomkersX qenerl wotorsD ghryslerD nd pordF pord9s history dtes k to the wodel reted y renry pordD with the gol of uilding r for every fmilyF odyD pord is in dire ompetition with not only their domesti ompetitorsD ut lso now foreign r mnufturers suh s oyotD olkswgen nd ryundiF et the urrent peD the utomotive mrket is pprohing SHGSH split etween nited ttes nd oversesEsed ontrol of the mrketF es resultD pord is hllenged to onstntly reevlute nd revmp its mrket strtegyF his is evidentD s pord deided tht it ws more ostEe'etive to uy existing networks thn to strt from srthD y ringing tgurD olvoD wzdD eston wrtin nd vnd over under its ontrolF roweverD pord hs reently deided to sell its stke in oth tgur nd vnd over to the sndin utomkerD tD nd my divest other divisions s wellF odyD pord fes numer of importnt questionsF es the gloliztion of the uto industry ontinuesD how should pord mrket its vehilesc ht trget mrkets should pord ppel toc row n it ontinue to improve prodution nd qulity nd dhere to the needs of even more demnding ustomersc endD how should pord position itselfD s ompnyD in the fe of formidle ompetitionc hile the future of pord is unertinD one thing is lerD gloliztion will ontinue to 'et the wy domesti nd foreign ompnies do usinessF
Exhibit 14.2: Global Market Share, 2007-2008 (Edmunds.com, 2007) As this gure suggests, the Big
Three must adapt to changes in the market and globalization factors to remain key players in the automotive market. At one point in 2007, for the rst time in history, US automaker's share of their home market fell below 50 percent.
14.2.1.3 Elements of economic globalization
he growth in rossEorder eonomi tivities tkes (ve prinipl formsX @IA interntionl trdeY @PA foreign diret investmentY @QA pitl mrket )owsY @RA migrtion @movement of lorAY nd @SA di'usion of tehnology @tiglitzD PHHQAF International tradeX en inresing shre of spending on goods nd servies is devoted to imports nd n inresing shre of wht ountries produe is sold s exportsF fetween IWWH nd PHHID the perentge of
PSR
CHAPTER 14.
exports nd imports in totl eonomi output @qhA rose from QPFQ per ent to QUFW per ent in industrilized ountriesD nd from QQFV per ent to RVFW per ent in low nd middleEinome ountries @orld frie(ng perD PHHIAF sn the IWVHsD out PH per ent of industrilized ountries9 exports went to less industrilized ountriesY todyD this shre hs risen to out PS per entD nd it ppers likely to exeed QQ per ent y PHIH @ureshiD IWWTAF he importne of snterntionl trde lies t the root of ountry9s eonomyF sn the onstnt hnging usiness mrketD ountries re now more interdependent thn ever on their prtners for exportingD importingD therey keeping the home ountry9s eonomy )ot nd helthyF por exmpleD ghin9s eonomy is hevily dependent on the exporttion of goods to the nited ttesD nd the nited ttes ustomer se who will uy these produtsF Foreign Direct Investment (FDI)X eording to the nited xtionsD phs is de(ned s investment mde to quire lsting interest in enterprises operting outside of the eonomy of the investorF hiret investment in onstruting prodution filitiesD is distinguished from portfolio investmentD whih n tke the form of shortEterm pitl )ows @eFgF lonsAD or longEterm pitl )ows @eFgF ondsA @tiglitzD PHHQAF ine IWVHD glol )ows of foreign diret investment hve more thn douled reltive to qh @orld frie(ng perD PHHIAF Capital market owsX sn mny ountriesD prtiulrly in the developed worldD investors hve inresE ingly diversi(ed their portfolios to inlude foreign (nnil ssetsD suh s interntionl ondsD stoks or mutul fundsD nd orrowers hve inresingly turned to foreign soures of funds @orld frie(ngD perD PHHIAF gpitl mrket )ows lso inlude remittnes from migrtionD whih typilly )ow from industrilized to less industrilized ountriesF sn esseneD the entrepreneur hs numer of soures for funding usinessF MigrationX hether it is physiins who emigrte from sndi nd kistn to qret fritin or sesonl frm workers emigrting from wexio to the nited ttesD lor is inresingly moileF wigrtion n ene(t developing eonomies when migrnts who quired edution nd knowEhow rod return home to estlish new enterprisesF roweverD migrtion n lso hurt the eonomy through rin drinD the loss of skilled workers who re essentil for eonomi growth @tiglitzD PHHQAF Diusion of technologyX snnovtions in teleommunitionsD informtion tehnologyD nd omputing hve lowered ommunition osts nd filitted the rossEorder )ow of idesD inluding tehnil knowledge s well s more fundmentl onepts suh s demory nd free mrkets @tiglitzD PHHQAF he rpid growth nd doption of informtion tehnologyD howeverD is not evenly distriuted round the world"this gp etween the informtion tehnology is often referred to s the digitl divideF es resultD for less industrilized ountries this mens it is more di0ult to dvne their usinesses without the tehnil system nd knowledge in ple suh s the snternetD dt trkingD nd tehnil resoures lredy existing in mny industrilized ountriesF
14.2.1.4 Negative eects of globalization for developing country business
gritis of glol eonomi integrtion wrn tht @tkinsD PHHPD usufD PHHIAX
the growth of interntionl trde is exerting inome inequlitiesD oth etween nd within indusE trilized nd less industrilized ntions glol ommere is inresingly dominted y trnsntionl orportions whih seek to mximize pro(ts without regrd for the development needs of individul ountries or the lol popultions protetionist poliies in industrilized ountries prevent mny produers in the hird orld from essing export mrketsY the volume nd voltility of pitl )ows inreses the risks of nking nd urreny risesD espeilly in ountries with wek (nnil institutions ompetition mong developing ountries to ttrt foreign investment leds to re to the ottom in whih ountries dngerously lower environmentl stndrds ulturl uniqueness is lost in fvor of homogeniztion nd universl ulture tht drws hevily from emerin ulture
PSS gritis of eonomi integrtion often point to vtin emeri s n exmple where inresed openness to interntionl trde hd negtive eonomi e'etF wny governments in vtin emeri @eFgF eruA lierE lized imports fr more rpidly thn in other regionsF sn muh of vtin emeriD import lierliztion hs een redited with inresing the numer of people living elow the h 6I dy poverty line nd hs perpetuted lredy existing inequlities @tkinsD PHHPAF
14.2.1.5 Positive eects of globalization for developing country business
gonverselyD gloliztion n rete new opportunitiesD new idesD nd open new mrkets tht n enE trepreneur my hve not hd in their home ountryF es resultD there re numer of positives ssoited with gloliztionX
it retes greter opportunities for (rms in less industrilized ountries to tp into more nd lrger mrkets round the world this n led to more ess to pitl )owsD tehnologyD humn pitlD heper imports nd lrger export mrkets it llows usinesses in less industrilized ountries to eome prt of interntionl prodution networks nd supply hins tht re the min onduits of trde
por exmpleD the experiene of the ist esin eonomies demonstrtes the positive e'et of gloliztion on eonomi growth nd shows tht t lest under some irumstnes gloliztion dereses povertyF he spetulr growth in ist esiD whih inresed qh per pit y eightfold nd rised millions of people out of povertyD ws sed lrgely on gloliztion"exportEled growth nd losing the tehnology gp with industrilized ountries @tiglitzD PHHQAF qenerllyD eonomies tht glolize hve higher growth rtes thn nonEglolizers @fhgwti nd rinivsnD PHHPAF elsoD the role of developing ountry (rms in the vlue hin is eoming inresingly sophistited s these (rms expnd eyond mnufturing into serviesF por exmpleD it is now ommonple for usinesses in industrilized ountries to outsoure funtions suh s dt proessingD ustomer servie nd reding xE rys to sndi nd other less industrilized ountries @fhgwti et lD PHHRAF edvned teleommunitions nd the snternet re filitting the trnsfer of these servie jos from industrilized to less industrilized nd mking it esier nd heper for less industrilized ountry (rms to enter glol mrketsF sn ddition to ringing in pitlD outsouring helps prevent rin drin euse skilled workers my hoose to remin in their home ountry rther thn hving to migrte to n industrilized ountry to (nd workF purtherD some of the llegtions mde y ritis of gloliztion re very muh in dispute"for exmpleD tht gloliztion neessrily leds to growing inome inequlity or hrm to the environmentF hile there re some ountries in whih eonomi integrtion hs led to inresed inequlity"ghinD for instne"there is no worldwide trend @hollrD PHHQAF ith regrd to the environmentD interntionl trde nd foreign diret investment n provide less industrilized ountries with the inentive to doptD nd the ess toD new tehnologies tht my e more eologilly sound @orld fnk frie(ng perD PHHIAF rnsntionl orpoE rtions my lso help the environment y exporting higher stndrds nd est prties to less industrilized ountriesF
PST
CHAPTER 14.
Exhibit 14.3: The fortune at the bottom of the pyramid (Prahalad and Stuart)
14.2.1.6 Globalization and the small business entrepreneur
es the se in the eginning of this hpter demonstrtes there re eonomiD soilD nd politil ftors n entrepreneur fes when estlishing their usinessF his hpter will utilize this seD nd mny others like itD to show how usiness leders like wsF hhir n inorporte the topis overed in the following pges into their usinessF
14.3 Harnessing technology for global business success
yver the lst dedeD the snternet hs revolutionized the wy ompnies do usinessF por n entrepreneurD the snternet is gret tool for doing usiness oth interntionlly nd domestillyF snformtion out ompetitorsD mrket trendsD nd glol industries is lso esily essile nd n help determine the pth tht n orgniztion tkesF
3 This
PSU
Exhibit 14.4: Technology has become a critical aspect of a company's operating environment
14.3.1 Types of technology

Internet
he snternet is one of the most ost e'etive wys to promote produts nd servies round the worldF xo other dvertising medium rehes s mny people s the snternetF sing speilized softwre nd other toolsD it is now esier thn ever to uild nd run suessful wesite without high level of omputer skillsF ypil informtion found on ompny9s wesite inludes desription of the (rmD pro(le of the mngement temD produts nd servies o'eredD nd the wy ustomers n ontt the ompnyF
Phone, Fax and SMS
gompnies in less industrilized ountries my not hve vile ess to the snternet due to lk of infrstrutureF por entrepreneurs fing this issueD phoneD fx nd w text messges re lterntive wys in whih to do usinessF hoing usiness vi phone nd fx is not di0ultF gompnies n send mrketing mterils or reeive orders vi fxF he use of phone for mrketing nd sles options is lso very usefulF gold lls for mrketing re still e'etiveY likewise orders n e mde nd reeived over the telephoneF ending nd reeiving w text messges is rpidly eoming fesile lterntive nd llows for immedite ommunitionF
14.3.2 Technology for the business entrepreneur
here re multiple wys to implement nd leverge tehnology into usinessF sf wsF hhir hooses to do thisD there re inexpensive lterntives with growing ene(ts for her nd her ompnyF fy using new tehniques to run nd estlish her usinessD wsF hhir would e le to ompete on greter sle with ompnies in her industryF
PSV
CHAPTER 14.
14.4 Doing business across cultures

14.4.1 Doing business across cultures
hile mny similrities exist mong usinessesD there re dynmis tht must e tken into onsidertion in n inresingly glol environmentD suh s multiulturl employees nd vrying experienes in ountries outside tht of the usinessF st is essentil to tke these di'erenes seriously nd not ssume tht individuls hve similr vluesF
14.4.1.1 Host country research and cultural implications
gulturl issues n e divided into two tegoriesD expliit nd impliitF ixpliit ulture issues re relted to hrteristis tht one n see or pereiveF smpliit ulture issuesD on the other hndD re relted to ttitudes nd vluesD symolized in the (gure elowF
Exhibit 14.5: The Onion Metaphor of Culture (Ulijn and Fayolle, 2004)
ixpliit ulture exists on the outer lyer nd is the oservle relity of the lngugeD foodD uildingsD housesD monumentsD griultureD shrinesD mrketsD fshions nd rtF hese produts re visile in people9s ehviorsD lothesD foodD musi nd theterF he middle lyers inlude normsD vluesD nd ttitudes ut re not diretly visileF xorms re the mutul sense group hs of wht is right nd wrong tht n develop on forml level suh s written lwD or
4 This
PSW on n informl level suh s soil ontrolF lues determine good from dD nd re losely relted to the idels shred y groupF e vlue in one ulture my di'er vstly from tht of notherD nd therefore these di'erenes must e studied nd tken into onsidertion when doing usiness ross ulturesF
14.4.1.2 Cross-culture training
he retion of stle nd helthy workple mde up of people of vrying ulturl kgrounds is mtter of inresing importne in the glol usiness environmentF imployers must tke into onsidertion the impt ulturl diversity n hve on oth the homogeneity of the workple nd potentil legl implitions for improper disrimintionF he ojetive of trining progrms is to foster the four hrteristis of preprednessD sensitivityD pE tieneD nd )exiility in mngers nd other personnel @gzinkot et lD PHHSAF wethods of trining my rnge from ftul preprtion involving ooks nd letures to experientil trining involving simultions nd (eld experieneF ome topis to e ddressed in trining might eD ut re not limited toX
omfort levels of trinees9 with people of di'erent kground impt of trinees9 ehviors on others understnding stereotypes trnsforming knowledge into empthy emring diversity s soure of strength lerning new lnguge
fusinesses with diverse ulturl kgrounds must mintin n environment suited for every onstituent so tht the ojetives of the usiness n e e0iently metF snstlling ulturl diversity trining progrms n help omplish this y de(ning wht ulturl intelligene isD tehing employees to ept nd work e'etively with others from di'erent ulturl kgroundsD nd tking dvntge of dvie from those who hve rossEulturl experieneF
14.4.1.3 Cultural classication
gultures n either e distinguished ording to desriptive hrteristis or they n e roken up into vlue tegoriesD whih re essentilly dimensions of ntionl ultureF
14.4.1.4 Hofstede's Five dimensions of national culture
qeert rofstedeD leding expert in ulturl vlues lssi(tionD developed model of (ve dimensions of nturl ulture tht help to explin si vlue di'erenes in ultureF he model distinguishes ultures ording to the following (ve di'erent dimensionsX
ower distne sndividulismGolletivism wsulinityGfemininity nertinty voidne vongEterm orienttion
PTH
CHAPTER 14.
Exhibit 14.6: Hofstede's ve cultural dimensions
14.4.1.5 Hofstede's 5 Cultural Dimensions
he ower histne sndex @hsA fouses on the degree of equlityD or inequlityD etween people in the ountry9s soietyF he sndividulism @shA fouses on the degree the soiety reinfores individul or olleE tiveD hievement nd interpersonl reltionshipsF he wsulinity @weA fouses on the degree the soiety reinforesD or does not reinforeD the trditionl msuline work role model of mle hievementD ontrolD nd powerF he nertinty evoidne sndex @esA fouses on the level of tolerne for unertinty nd miguity within the soietyF hese dimensions re mesured on sle from H to IHHD inlude US ountries or regionsD nd sores re determined y high or low rnkings within eh tegoryF gulturl vlues determine the wy people think nd ehveF snterntionl mrketers must understnd mny sutle di'erenes tht my 'et the wy their mrketing is mde nd pereived in foreign mrketsF yne medium in whih mny suh di'erenes reside is lngugeF feuse lnguge is re)etion of ultureD some words nnot e rossEulturlly trnsltedD whih implies tht it is often etter to hve lol opywritE ers write nd trnslte mrketing nd dvertising ontent to void ulturl misunderstndingsF feuse of this phenomenonD glol dvertisingD whih is min omponent of glol mrketingD often relies on symol reognition to onvey mening in their dsD insted of wordsF he pproh to disussing ultureD s it reltes to glol mrketingD in most textooks is threeEpronged pprohF pirstD the onept of ulture is de(nedD seondD the vrious omponents of ulture re identi(edD nd thirdD vivid exmples of ulturl di'erenes re providedF he dire onsequenes of (rms not tking these di'erenes into ount re invrily desriedD s dherene to lol ulture is onsidered one of the most importntD if not the most importntD omponents of suess in interntionl mrketing @rofstedeD IWWTAF
PTI
14.4.1.6 Ethical considerations
wngers of usinesses tht ondut opertions in n inresingly glol environment fe dilemm when seleting nd pplying ethis to deisions in rossEulturl settingsF elthough ethil vlues my e similr ross ultures in mny sesD the pplition of those vlues to ertin situtions my vryF ithis n e desried s the siene of humn dutyF st is upon the ethil stndrds of person tht judges whether or not n tion is right or wrongF fefore ompny does usiness ross ordersD it must (rst deide wht its motivtion is regrding ethil ondutD whih will determine wht kind of ehvior is to e expeted from employeesF
14.5 Political and legal risk in international business
olitil nd legl risks re two very importnt spets of running usiness of whih n entrepreneur should e wreF pilure to reognize these risks nd djust ordingly ould potentilly hinder the performne of the overll usinessF
14.5.1 What is political risk?
olitil risk is generlly de(ned s the risk to usiness interests resulting from politil instility or politil hngeF olitil risk exists in every ountry round the gloe nd vries in mgnitude nd type from ountry to ountryF olitil risks my rise from poliy hnges y governments to hnge ontrols imposed on exhnge rtes nd interest rtes @frlett et lD PHHRAF woreoverD politil risk my e used y tions of legitimte governments suh s ontrols on priesD outputsD tivitiesD nd urreny nd remittne restritionsF olitil risk my lso result from events outside of government ontrols suh s wrD revolutionD terrorismD lor strikesD nd extortionF olitil risk n dversely 'et ll spets of interntionl usiness from the right to export or import goods to the right to own or operte usinessF eyx @wwwFonFomAD for exmpleD tegorizes risk sed on eonomiY exhnge trnsferY strikeD riotD or ivil ommotionY wrY terrorismY sovereign nonEpymentY legl nd regultoryY politil interfereneY nd supply hin vulnerilityF
14.5.2 How to evaluate your level of political risk
14.5.2.1 Forms of investment and risk
por (rm onsidering new foreign mrketD there re three rod tegories of interntionl usinessX trdeD interntionl liensing of tehnology nd intelletul propertyD nd foreign diret investmentF e ompny developing usiness pln my hve di'erent elements of ll three tegories depending on the type of produt or servieF he hoie of entry depends on the (rm9s experieneD the nture of its produt or serviesD pitl resouresD nd the mount of risk it9s willing to onsider @h'er et lD PHHSAF he risk etween these three tegories of mrket entry vries signi(ntly with trde rnked the lest risky if the ompny does not hve o0es overses nd does not keep inventories thereF yn the other side of the spetrum is diret foreign investmentD whih generlly rings the gretest eonomi exposure nd thus the gretest risk to the ompnyF
14.5.2.2 Protection from political risk
gompnies n redue their exposure to politil risk y reful plnning nd monitoring politil developE mentsF he ompny should hve deep understnding of domesti nd interntionl 'irs for the ountry they re onsidering enteringF he ompny should know how politilly stle the ountry isD strength of its institutionsD existene of ny politil or religious on)itsD ethni ompositionD nd minority rightsF
5 This
PTP
CHAPTER 14.
he ountry9s stnding in the interntionl ren should lso e prt of the onsidertionY this inludes its reltions with neighorsD order disputesD memership in interntionl orgniztionsD nd reognition of interntionl lwF sf the ompny does not hve the resoures to ondut suh reserh nd nlysisD it my (nd suh informtion t their foreign emssiesD interntionl hmers of ommereD politil risk onsulting (rmsD insurne ompniesD nd from interntionl usinessmen fmilir with prtiulr reE gionF sn some ountriesD the governments will estlish genies to help privte usinesses grow oversesF qovernments my lso o'er politil risk insurne to promote exports or eonomi developmentF rivte usinesses my lso purhse politil risk insurne from insurne ompnies speilized in interntionl usinessF snsurne ompnies o'ering politil risk insurne will generlly provide overge ginst inonE vertiilityD exproprition nd politil violeneD inluding ivil strife @ mll fusiness edministrtionAF greful plnning nd vigilne should e prt of ny ompny9s preprtion for developing n interntionl preseneF
14.5.2.3 Government policy changes and trade relations
e government mkes hnges in poliies tht hve n impt on interntionl usinessF wny resons my use governments to hnge their poliies towrd foreign enterprisesF righ unemploymentD widespred povertyD ntionlisti pressureD nd politil unrest re just few of the resons tht n led to hnges in poliyF ghnges in poliies n impose more restritions on foreign ompnies to operte or limit their ess to (nning nd trdeF sn some sesD hnges in poliy my e fvorle to foreign usinesses s wellF o solve domesti prolemsD governments often use trde reltionsF rde s politil tool my use n interntionl usiness to e ught in trde wr or emrgo @h'er et lD PHHSAF es resultD interntionl usiness n experiene frequent hnge in regultions nd poliiesD whih n dd dditionl osts of doing usiness oversesF sn n e'ort to promote etter employment reltionships etween employers nd employeesD nd estlish striter guidelines for imployment prtiesD the eoples epuli of ghin @gA pssed new employment ontrt lw in tune PHHU whih eme e'etive on tnury ID PHHVF his elert provides highlights of the new lw nd the e'et it will hve on employees9 rights nd their employer9s legl liilityF
14.5.1 Introduction
14.1: China establishes a new employment contract law for 2008 (www.aon.com)
yn tune PWD PHHU t the PVth session of the stnding ommittee of the IHth xtionl eople9s gongressD new employment ontrt lw ws dopted whih took tke e'et on I tury PHHVF his lw requires ll employers to enter into ontrts with their employees within QH dys of fullE time employment nd sets out guidelines for their implementtionF fy inorporting new legl provisions with existing lws from the urrent g lor lwD the ommittee hopes to meet three min ojetivesX @IA to lrify the employment ontrt system y lerly identifying oth the employer nd the employee litigtion rights nd duties @PA provide protetion of n employee9s legitimte rights nd interests nd @QA onstrut nd develop hrmoniousGstle work reltionsF ell regultions tht 'et employees suh s ompenstionD work hoursD restD leveD work sfety nd hygieneD insurneD ene(tsD employee triningD work disipline or work quot mngement must e pproved y the employee representtive ongress or y ll the employees nd determined with trde union @to e estlished y ll employersA or employee representtivesF ulesD regultions nd deisions hving diret ering on employees shll e mde puli or e ommunited to the employees y the employerF he lor dministrtion uthorities of eople9s qovernments t the ounty level nd oveD together with the trde union nd enterprise representtives will estlish omprehensive triEprtite mehnism for the oordintion of employment reltionshipsF he trde union will lso ssist employees with employment ontrts in ordne with the lwF
PTQ
14.5.2 Increased Legal Liability
imployers gertin rtiles in the new lw will estlish inresed legl liility nd possile riminl hrges for employers whose tions use n employee to su'er hrmD suh sX IF en employer9s internl rules or regultions violte the lwsF PF en employment ontrt is not delivered to n employee or lks ny of the mndtory luses whih the lw requiresF QF en employee9s resident sh rdsD (les or ontrt ppers re retined y n employer illeglly or the employer ollets n unrequired (nnil gurntee from n employeeF RF en employer uses violene or threts to ompel n employee to workD orders them to perform dngerous opertions or provides n unsfe or polluted environment resulting in hrmF SF en employer onduts usiness without the required legl quli(tionsF TF en employer termintes ontrt in violtion of the lwF imployees imployees tht terminte ontrt in violtion of the vw or reh ny on(dentility oligE tions or ompetition restritions stipulted in the ontrt n e held lile for dmges sustined y the other prtyF toint viility for imployersGimployees ndGor hird rties
sf n employer hires n employee whose ontrt with nother employer hs not yet een terminted or endedD using the other employer to su'er lossD it shll e jointly nd severlly lile with the employee for dmgesF e st0ng (rm tht violtes the lw my e sujet to (nes nd hve their usiness liense revokedF sf the employee@sA they pled su'ers hrm s resultD oth the st0ng (rm nd ompny tht epted the employee shll e jointly nd severlly lile for dmgesF e ontrtor hiring employees in violtion of the lw who su'er hrm will result in joint liility for the orgniztion tht employed suh ontrtor nd the ontrtorF xegligene on the prt of lor dministrtion uthority to t in ordne with the lw will lso result in them ering liilityF
enlties for n imployer9s xonEgompline ithin the new lw there re (nnil penlties for nonEompline with the terms of emE ployerGemployee ontrt guidelinesD whih inlude filure to onlude written ontrt within the QH dy periodD setting n illegl protionry periodD illeglly retining n employee9s resident sh rd or other ppersD etF en employer tht fils to py n employee his slryD pys elow the lol minimum wge rteD fils to py overtime or termintes ontrt without pying the employee severne or without use will lso py vrying dmges s stipulted in the new lwF
14.5.3 Summary
he new employment ontrt lw will enhne employees9 rights in striving for etter employment terms nd working onditionsF hereforeD ll ompniesD inluding foreign ompnies who hve invested in lol susidiry or representtive o0es in the g should reEexmine their lol nd mster diretors9 nd o0ers9 liility poliiesD s well s ny employer9s liility exposures nd relevnt lol or glol poliiesF elthough the level of ompline nd the degree to whih the new lw will e enfored is not yet knownD it is importnt to e fully prepred for I tnury PHHVD not only y reviewing ll employment ontrtsD employee hndooks nd internl guidelinesD ut lso y tking stok of ny suontrting greements or the use of st0ng ompnies nd their poliiesF
PTR
14.5.4 Questions
CHAPTER 14.
row n the estlishment of ghin9s new employment ontrt ene(t other ountries tht re looking to institute new lw like this onec row would this 'et ountries trding with ghin todyc row will this new employment ontrt 'et ompnies doing usiness in ghinc
14.6 Global marketing: Assessing potential markets overseas

14.6.1 What is legal risk?
vegl risk is the risk rising from filure to omply with sttutory or regultory oligtions @httpXGGwwwF0eFgovAF qenerllyD ll lws in the host ountry will pply to n entrepreneur9s lol usiness opertionsF ixmples inlude (ling proeduresD employment lwD environmentl lwD tx lwD nd ownership requirementsF he orld fnk hs rther extensive ountry usiness lw lirry whih n e essed from their wesiteF his n e helpful in the initil phses of onsidering the legl rmi(tions of diret investment in given ountryF wny ountries limit foreign ownership of ssets nd leglly fore foreign ompnies into joint venture with lol prtner in order to do usiness thereF olndD for exmpleD limits foreign ownership of frmlnd nd will ontinue to do so for nother dede under greements with the i @hdkD PHHRAF st is importnt to rememer tht while doing usiness outside of the home ountry ertin home ountry lws will still pplyF epplile lws di'er from ountry to ountryD ut one ommon extension is employment lwF he extent of jurisdition eyond ntionl oundries vries widelyF sn ntiEtrust for instneD the nited ttes lw overs only situtions where the violtion 'ets the D @mening tht it does not mtter where the t using the violtion took pleAD while the i onsiders only where the ntitrust o'ense ws implemented @h'er et lFD PHHSD pgs TSUETTRAF sn order to minimize exposure to legl risks rising from onfusion nd exess ostD ompny should seek legl dvie if possileF sn mking suh rrngementsD written ontrts should e usedF his n minimize onfusion in se of litigtionF
14.6.2 Political and legal risk for the small business entrepreneur
hile wsF hhir my e ustomed to ertin set of rules nd regultions in her home ountry of kistnD she must ntiipte new nd other lws when exploring the possiility of expnding interntionllyF hile wsF hhir nd her smll usiness of running sewing ompny fes di'erent politil nd legl risk thn those of lrger ompnyD she is still lile nd must understnd the lws nd regultions tht she my fe in ny ountryF
14.6.3 Global marketing: assessing potential markets overseas
14.6.3.1 Case: Toyota has a vehicle for every market
ih mrket hs unique ulturl hrteristis nd ontextul irumstnes tht must e onsideredF por exmpleD in the nited ttes rods tend to e wideY highwys n ommodte rod rry of vehiles with high numer of lnesD nd people demnd mix of rs sed on their needsF gonverselyD in iurope rods tend to e nrrowD nd the mrket demnds smllerD more fuelEe0ient vehilesF hereforeD while oyot Runner tends to sell extremely well in the nited ttesD it would not e very populr model in iurope for these very resonsF es resultD oyot invests illions of dollrs every yer into mrket reserh nd mrket development to mke sure they meet the needs nd wnts of its ustomersD in eh spei(
6 This
PTS ountry tht they sell their vehiles inF his hs led to oyot9s suess in the utomotive mrketD s our erlier se suggestedF ith their 5I selling sednD oyot gmryD wide rry of hyrid modelsD truks nd s to meet the nited ttes onstntlyEhnging expettionsD oyot isD rgulyD the strongest plyer in the utomotive industryF
14.6.3.2 What is global marketing?
yne of the inevitle questions tht surfes onerning glol mrketing isX how does glol mrketing truly di'er from domesti mrketingD if t llc here hs historilly een muh disussion over ommonlities nd di'erenes etween glol nd domesti mrketingD ut the three most ommon points of view upon whih sholrs gree re the followingF pirstD ll mrketing is out the formultion nd implementtion of the si poliies known s the R 9sX rodutD rieD leD nd romotionF eondD interntionl mrketingD unlike domesti mrketingD is understood to e rried out ross ordersF hirdD interntionl mrketing is not synonymous with interntionl trde @erryD IWWHAF erhps the est wy to distinguish etween the two is simply to fous on the textook de(nition of interntionl mrketingF yne omprehensive de(nition sttes thtD interntionl mrketing mens identifying needs nd wnts of ustomers in di'erent mrkets nd ulturesD providing produtsD serviesD tehnologiesD nd ides to give the (rm ompetitive mrketing dvntgeD ommuniting informtion out these produts nd servies nd distriuting nd exhnging them interntionlly through one or omintion of foreign mrket entry modes @frdleyD PHHSAF
14.6.3.3 The 4 P'S of the Marketing Mix (NetMBA, 2008)
Exhibit 14.7: The 4 P's: Product, Price, Place and Promotion are aspects of the marketing mix that
are generally controllable
es the following tle demonstrtesD mny deisions 'et the mrketing mix @xetwfeD PHHVAX
PTT
CHAPTER 14.
PTU rodut heisions frnd xme puntionlity tyling ulity fety kging epirs nd upport rrnty eessories nd servies le heisions histriution ghnnels wrket overge @inlusiveD seletiveD or exlusive distriutionA snventory wngement rehousing yrder proessing everse logistis
Table 14.1
rie heisions riing strtegy @prie skimmingD prie penetrtionD etFA olume disounting nd wholesle priing esonl priing fundling rie )exiility rie disrimintion
romotions heisions ushD ull trtegies edvertising ersonl elling les romotions uli eltions nd uliity
X ell of these issues must e reonsidered in eh mrketF he mrketing mix will ppropritely vry s di'erent irumstnes ditteF
14.6.3.4 Importance of culture on markets
feuse interntionl mrketing is losely orrelted to the ultures in whih (rm wishes to sell its produtD ulture itself must e nlyzed to understnd the est wy to integrte into oth existing nd emerging foreign mrketsF here re (ve essentil res within whih ulture must e ontinully studied in order to hieve suess in deling with ulture s it 'ets interntionl mrketingF hese re @inD PHHVAX
ulture impts on mrketing @interntionl versus domestiA rossEulturl dimensions of mrketing reserh rossEulturl spets of mrketing mix @produtsD prieD promotionD nd pleA rossEulturl mrketing edution nd professionl trining nd rossEulturl prtie in eletroni mrketing grossEulturl mrketing ours when onsumer9s ulture di'ers from tht of the mrE keter9s own ultureF
note:
gonsumer ehvior diverges ross ountry lines with inresed welthD gloliztionD nd tehnologyY it does not onverge @he wooijD PHHSAF his simple ft proves the importne of ulture knowledge in rossEulturl mrketing endevorsF sn ftD the importne of rossEulturl study hs inspired de(nition seprte from tht of interntionl mrketingF grossEulturl mrketing is de(ned s the strtegi proess of mrketing mong onsumers whose ulture di'ers from tht of the mrketer9s own ulture t lest in one of the fundmentl ulturl spetsD suh s lngugeD religionD soil norms nd vluesD edutionD nd the living style @inD PHHVAF e stndrdized mrketing model utilizes the sme funtions in ll mrketsF gonverselyD ustomized mrketing strtegy dheres to the needs nd wnts of prtiulr trget mrketF
PTV
CHAPTER 14.
14.6.3.5 Global brandingcreation of a marketing strategy
en importnt deision tht interntionl mrketers must mke is whether to utilize stndrdized mrketingD treting ll mrkets in the sme mnnerD or ustomized mrketingD dhering to lol ustoms nd trditions for greter e'etivenessF his is n importnt distintion when nlyzing the retionD pereptionD nd trends in glol rndingF sn most ountries nd ulturesD mrketers do not ompete with individul produtsD ut rther with ompeting rnds mrketsF wny writers hve resoned tht stndrdized pproh to interntionl mrkets is the most desirle strtegyF he min rguments inlude tht sles will inrese when ompny n mrket onsistent produt imge ross di'erent geogrphil mrketsD nd tht ost n e redued through the formultion nd implementtion of single stndrdized mrketing plnF till others rgue tht euse few mrkets re omprle ross ountry linesD it is neessry to dpt the mrketing mix to ensure tht su0ient ustomiztion exists to stisfy onsumer needs in eh mrketF edditionllyD not ll ompnies re le to dopt stndrdized strtegy s its ppropriteness vries from industry to industryF yne must rememer tht even within mrkets there is gret diversity of ehvior nd tsteF sn the fe of intensely inresing ompetition nd gloliztionD studies show tht people inresingly prefer rnds with roots in their ntionl or regionl trditionF his would indite tht most (rms should len towrds mrketing ustomiztion in order to stisfy the inresingly ntionlisti onsumption tendenies of their onsumers @frdleyD PHHSAF
14.6.3.6 Global marketing and the small business entrepreneur
hile mrketing the produts of the highly suessful sewing ompny tht wsF hhir hs strted in kistn my not e something tht she is looking to do todyD it is ritil for herD nd smll usinesses like the one she hs set upD to understnd wht it would tke to mrket to ompletely di'erent set of lientsD in new ountryF gompnies like oyot nd goEgol hve reted dominnt rnd ross the world with their glol rnding nd positioning strtegiesD nd s result hve sustined tremendous (nnil ene(ts from doing soF
14.7 Global nance: initial considerations

14.7.1 Global nance: initial considerations
es the glol eonomy hs eome more integrtedD every ompny nd individul is 'eted y the deE velopments of the mrkets nd the eonomies of ountries other thn their ownF intrepreneurs willing to venture into the glol (nnil mrketple my (nd lowerEost (nning lterntives thn re ville in their home ountryF hey my lso wnt to otin (nning in the lol mrkets they hoose to serveF es resultD with onstnt eonomi hngesD nd )ututions in the mrketpleD long with trde rriers eing lowered round the worldD the entrepreneurs of tomorrow nnot limit their (nne knowledge to just their home ountryD ut n e open to looking t lterntive soures to fund their usiness opertionsF inE trepreneurs will (nd tht understnding the funtioning of the glol (nnil mrketple is key element of their knowledge nd skill seD nd key spet of furthering their usinessF
14.7.1.1 International currency market Exchange rates
he prie of one ountry9s urreny in units of nother ountry9s urreny is known s foreign urreny exhnge rteF ixhnge rtes n e quoted in two wysF yne wyD known s diret quoteD is to stte the numer of domesti units of urreny per one unit of foreign urrenyF sf n exhnge rte is n indiret quoteD the exhnge rte is stted s the numer of foreign units per one unit of domesti urreny @feenhkkerD PHHIAF
7 This
PTW
por ompny trding dollrs @6A for wiss prns @grpA hiret uote sndiret uote 6HFUSGgrp grpIFPSG6
Table 14.2
14.7.1.2 Foreign exchange market
he foreign exhnge @porexA mrket is the mehnismD whih filittes the purhse nd the sle of foreign urreniesF he porex is (nnil mrket where the prtiipnts exhnge one monetry unit for nother urrenyF he mrket opertes ontinuouslyD PR hours dyD euse (nnil enter is lwys open somewhere in the worldF he interonnetion of the mrkets mkes ontinuous trding possile @grrdE frvoD PHHQAF he foreign exhnge mrket is generlly divided into (ve si urreny mrkets sed on priing proedures ruling the exhngeD the time to mturityD the degree of freedom villeD the onvertiility of urreniesD nd how the urrenies re quoted @grrdEfrvoD PHHQAF sn dditionD the foreign exhnge mrket is one of the most trded nd liquid instruments in the (nnil worldD nd serves s rometer of roder (nnil mrket onditions nd risk ppetiteF
14.7.1.3 Introduction to currency risk
is the potentil onsequene from n dverse movement in foreign exhnge rtes @goyleD PHHHAF yrgniztions re exposed to urreny risk when involvedD diretly or indiretlyD in interntionl trde nd (nneF gurreny risk rises euse exhnge rtes re voltile in the short nd the longEterm nd the future movements of exhnge rtes nnot e preditedF gompnies will s result su'er losses due to dverse exhnge rte movements when exposed to foreign urrenies @goyleD PHHHAF Hedging is the term used to desrie the tions tht redue or eliminte n exposure to risk @goyleD PHHHAF gommon wys of hedging urreny risk involveX
Currency risk
trnsferring the risk to your trding prtner y pling the trnstion in your domesti urreny struturlly hedging your risk y o' setting inome ginst expenditure in the sme urreny purhsing derivtives in the foreign exhnge mrket @goyleD PHHHA
14.7.1.4 Introduction to derivatives
e (nnil derivtive is (nnil instrument where the prie is derived from the vlue of n underlying sset often used to mnge risk exposureF here re three lsses of derivtivesF puturesX e futures ontrt is ommitment to exhnge spei(ed mount of one sset for spei(ed mount of nother sset t spei(ed time in the future @futlerD PHHQAF yptionsX en options ontrt gives the option holder the right to uy or sell n underlying sset t spei(ed prie nd on spei(ed dte @futlerD PHHQAF wpsX e swp is n greement to exhnge two liilities @or ssetsA ndD fter prerrnged length of timeD to reEexhnge the liilities @or ssetsA @futlerD PHHQAF
Financial derivatives are a very complex system of agreements. It is wise to consult a banking professional for advice on how to implement.
PUH
CHAPTER 14.
14.7.1.5 International accounting standards board
he snterntionl eounting tndrds gommittee @segA poundtionD formed in wrh PHHID is the prent ody of the snterntionl eounting tndrds ford @sefAF he sefD formed on epril ID PHHID hs ssumed ounting stndrdEsetting responsiilities from its predeessor odyD the seg @snterntionl eounting tndrd fordsX eout sD nFdFAF he ojetives of the sef reX
o developD in the puli interestD single set of high qulityD understndle nd enforele glol ounting stndrds o help prtiipnts in the world9s pitl mrkets nd other users mke eonomi deisions y hving ess to high qulityD trnsprentD nd omprle informtion o promote the use nd vigorous pplition of those stndrds o ring out onvergene of ntionl ounting stndrds nd interntionl ounting stndrds to high qulity solutions @russeyD PHHSAF
Exhibit 14.8: The way the IASB functions (www.iasb.org)
Even though the IASB standards are not enforced internationally at this time, the standards are quickly being processed. Therefore, a company looking to go international should abide by IASB standards.
PUI
14.7.1.6 Global nance and the small business entrepreneur
ith the eg uhn url upport rogrmme @euA miroElonD wsF hhir hs egun to venture into the glol (nnil mrketpleF hile the funding from the lon ws su0ient for wsF hhir9s smll usiness t the timeD upon expnsionD she will require dditionl soures of pitlF nderstnding the home ountry9s (nnil systemD nd the lterntive funding soures ville rodD is key element of furthering her sewing ompnyF
14.8 Organizational structure and human resource management

14.8.1 Organizational structure and human resources management
yne of the fundmentl hllenges fing ompnies of ll sizes is determining how to orgnize nd st' their opertionsF his tsk eomes even more omplex when ompny deides to do usiness ross ntionl ordersF e smll usiness owner my strt out s the only employee in his or her ompnyF sn this se orgniztion nd st0ng simply involves the e0ient llotion of the owner9s time nd ttention to the vrious tsks ssoited with the usinessF es the ompny growsD more employees will proly e hiredF hen this oursD it is useful to expliitly look t how tsks n e lloted ross employees in systemti wyF es the ompny grows still lrgerD it is often useful to egin orgnizing the ompny into deprtmentsF sn mny sesD ompny9s erly moves overses involve reting to n pprently rndom or unexpeted overses usiness opportunityF et (rstD suh usiness my e onduted nywhere in the orgniztion on n d ho sisF es ompny extends its opertions oversesD it tkes on dditionl omplexity s deisions hve to e mde whih ddress glol nd lol produt designD lol responsiveness to individul mrketsD rossEorder (nningD etF es the interntionl side of the usiness growsD mny ompnies onlude tht reorgniztion of some type n etter hndle the urrent interntionl usiness demndsD nd etter position the ompny to tke full dvntge of interntionl opportunities s they riseF sn the following setionD severl ommon interntionl orgniztion strutures re rie)y desriedF
14.8.1.1 International division
erhps the simplest strt for mny orgniztions is to dopt wht is known s n interntionl divisionF ith the ddition of n interntionl divisionD the domesti orgniztion my remin reltively unhnged while n dditionl side struture is ddedF his dditionl struture @in ollortion with the domesti strutureA tkes on the responsiility for virtully ll interntionl usinessF his struture ssumes tht there re skills ssoited with doing usiness overses tht will trnsend the typil usiness linesF wrket ssessmentsD ompline with exportGimport regultionsD rrnging shippingD identi(tion of lol repreE senttivesD estlishment of dedited sles o0esD prodution filitiesD etF re ll exmples of tsks often ssigned to the interntionl divisionF Advantages X he interntionl division is e'etive in onsolidting interntionl tivity under one re of responsiilityF uh division develops interntionl expertise tht n serve ll res of the orgniztionF his elimintes the need for every prt of the orgniztion to mster the ins nd outs of doing usiness overses @this n sometimes e quite omplexAF Disadvantages X yn the other hndD the existene of n interntionl division enourges the orgniztion to pproh their usiness in n rti(illy dihotomous mnnerF rt of the usiness orgniztion fouses primrily on the home ountry mrketD while the interntionl division serves the rest of the worldF sn most orgniztions suh struture lends itself to ontinuing preouption with the home ountry mrketF es ompny eomes more serious out overses usinessD it often (nds it useful to dopt more sophistited glol strutureF pour exmples of suh orgniztions re inluded elowF
8 This
PUP
CHAPTER 14.
14.8.1.2 Global functional structure
e glol funtionl struture is often dopted y ompnies with very limited produt sopeF e giy will oversee numer of usiness funtions tht hve een identi(ed s ritil to usiness opertionsF feuse the produt mix is singulr or limitedD the giy n oordinte the work of the funtions nd ring the resoures of eh to er on the produt lineF sn this seD the giy serves s the ommon denomintor etween the funtionsF Advantages X sn mny orgniztionsD the primry soures of expertise re funtionlly sedF hereforeD eonomies of sle n e hieved y grouping these resoures y funtionF sn the se of humn resouresD for instneD entrl humn resoures funtion n serve s onsultnt to ll prts of the orgniztion on issues suh s py nd performne evlutionF his elimintes the redundny ourring when multiple prts of the orgniztion ttempt to develop suh progrms on their ownF e funtionl orgniztion lso enles the orgniztion to stndrdize poliiesD prties nd proedures tht n e rried out throughout the orgniztionF Disadvantages X he primry fous on usiness funtionl tivityD often distrts orgniztions from speE i( produt requirementsD ustomer needsD nd geogrphi idiosynrsiesF ith the top of the orgniztion serving s ommon denomintor nd riter etween the funtionsD strtegies my not re)et relities on the ground s deisions re mde without the ene(t of lose intertion with ustomers nd deep understnding of lol irumstnesF
Exhibit 14.9: A global structure
14.8.1.3 Product structure
e glol produt struture is often hosen in ompnies with n rry of diverse produt linesF ih produt line is ssigned to its own orgniztion unit so tht deisionEmking is foused on the produt hrteristi nd the ustomers who will e trgetedF sn mny sesD the produt unit will hve its own funtionl orgniztion"in esseneD operting s stnd lone usiness in the ontext of the lrger orgniztionF sn mny sesD produt unit will e mnged with full pro(t nd loss responsiilityF Advantages X he min dvntge of produt struture is tht it fouses ttention nd resoures towrd single produt nd the ustomers towrd whih tht produt is trgetedF heisions re optimized for the suess of the produt nd distrtions re minimizedF Disadvantages X edundnies often exist ross produt orgniztions s funtionl responsiilities re
PUQ duplited under eh produt orgniztionF ionomies of sle nd sope re more di0ult to hieve s this orgniztion struture enourges less oopertion nd oordintion ross the produt unitsF
Exhibit 14.10: A product structure
14.8.1.4 Area/geographic structure:
en re struture is often hosen y ompnies who wnt to emphsize geogrphilly spei( strtegies nd fous deisionEmking on lol needsF yrgniztions my e divided up into regionl nd ountry strutures where ountry mngers operte rther utonomous usinesses supported y n rry of lol funtionsF sn this seD the ountry orgniztion often opertes s firly selfEontined usiness with sustntil lol uthority s well s pro(t nd loss responsiilityF Advantages X he ountry orgniztion is ple of sensing nd understnding lol onditions nd is le to formulte strtegies whih e'etively meet the needs of lol stkeholdersF oliies in res suh s humn resoure mngement n e tilored to meet the needs nd expettions of lol employeesD produt mix nd design n e optimized for lol onditionsD nd the orgniztion n respond more quikly to hnging irumstnes on the groundF Disadvantages X he disdvntges of the re struture re similr to those of the produt strutureF ionomies of sle will e hrder to hieve s di'erent lolities develop nd implement very di'erent produt strtegies on one hndD nd invest resoures in developing lol funtionl expertise nd e'ort whih my well e duplited unneessrily ross geogrphi unitsF
PUR
CHAPTER 14.
Exhibit 14.11: Area/geographic structure
14.8.1.5 Matrix structure:
e mtrix struture is often dopted in orgniztions tht would like to optimize deisions ross multiple orgniztion dimensionsF sn other wordsD they would like to hieve eonomies of sle where ppropriteD ut do not wnt to lose the ility to respond to produtGustomer nd geogrphi needs more e'etivelyF e mtrix orgniztion simultneously utilizes two or more dimensions @produtD geogrphiD funtionD etFA to orgnize the ompny9s workF sn this seD two or more dimensions my hve diret links to the hed of the orgniztion @see ixhiit IRFIA nd key individuls throughout the orgniztion my tully report to more thn one dimensionF es n e seen in ixhiit IRFID the ornge juie produt mnger reports to the hed of the orgniztionD s does the hed of the (nne funtionF sn this exmpleD the (nne o0er in the ornge juie produt group reports to two individulsX the hed of (nne nd the hed of the ornge juie groupF et the sme timeD geogrphi dimension my require tht the funtion nd produt heds intert s oequls with ny numer of ountry mngers or regionl heds s wellF Advantages X he mtrix llows funtionl e0ienies to e hieved while lso llowing for the mngeE ment of disrete produt linesF rodut mngers remin foused on spei( ustomer nd produt issuesD yet n tp into the speilized support systems o'ered y strong funtionsF here geogrphi dimenE sion is inluded in the strutureD ountry mngers or other lol personnel n devote their ttention to the development of lotion spei( strtegiesF gommunition nd informtion shring my e filitted through the multiple dimensionsF Disadvantages X he mtrix is omplex nd often involves dditionl oordintion ostsF gonfusion nd miguity my result from multiple reporting reltionships s single individul my reeive on)iting diretion from their vrious supervisorsF
PUS
Exhibit
oothpste xorth emeri outh emeri iurope esi

Table 14.3
op
yrnge tuie
ftteries
X wtrix truture
14.8.1.6 Beyond the matrix:
ih of the ove orgniztionl hoies lerly o'ers dvntges nd disdvntgesF hile some type of hierrhy exists t the hert of most orgniztion designsD mny orgniztions re (nding tht the typil pyrmid shped orgniztion no longer meets their needsF hey re looking for options tht llow greter )exiility nd responsivenessF uh orgniztions my legitimize informl relE tionships etween vrious orgniztionl prts nd levelsF hey my rely more on tems s oordinting mehnisms nd they my tively enourge ollortion nd shring ross usiness unitsF uessful glol orgniztions in the PIst entury will lne hierrhil ontrol @whih remins ritil in most orgniztionsA on one hndD with less rigidityD more )exiility nd emphsis on individul empowerment on the otherF
14.8.1.7 Stang choices in a globally far-ung company
t0ng hoies in frE)ung glol ompny re more omplex s wellF sssues of ostD ulturl svvyD fmilirity with lol onditionsD lnguge skillD fmily issuesD nd more must ll e onsidered refully s st0ng deisions re mdeF sn ddition to mny of the stndrd humn resoures hllenges tht inevitly riseD determining where employees will e soured from represents one of the most importnt deisions fing ompnies s they set up opertions rodF sn generlD employees my ome from ny of the following souresX the hedqurters @homeA ountryD the host @lolA ountryD or third ountry @neither homeD nor hostAF hese hoies re outlined rie)y elowF Ethnocentric stang involves st0ng overses positions with home ountry personnelF hese expE trites re usully ssigned to firly senior or tehnil positions in the overses orgniztionF en exmple of this st0ng hoie would e when tpnese ompny sets up n o0e in the nited ttes nd sends tpnese exeutive from their hedqurters in okyo to st' the new o0e in ghigoF edvntgesX rome ountry st'D when sent oversesD re fmilir with the home ountry opertions nd ultureF feuse of thisD they my e le to etter ommunite with hedqurtersD ess needed resouresD nd tp into homeEountry networkF sn dditionD the home ountry my know these people well from pst ollortion tht n led to high levels of trust nd on(dene etween the prtiesF pmilirity with the ompny often mens tht these individuls ring speil ompnyEspei( expertise long with themD s well s tehnil skills nd knowledge relted to the ompny9s produt o'eringF hey my lso ring generl tehnilD or mngeril skills tht my e in short supply in the host ountryF ithnoentri st0ng o'ers the dditionl ene(t of uilding glol mindset mong the home ountry workforeF hose individuls who re sent overses s exptrites will often return home with more glolized perspetiveF hisdvntgesX rome ountry employees re expensiveF wny ompnies estimte tht sending n exptrite overses osts out PES times their nnul slryF his mens tht sending n exeutive nd their fmily overses n ost hundreds of thousnds of dollrs or more per yerF he home ountry employee is usully less fmilir with the lol ulture nd employment onditionsD nd the employee nd the fmily my (nd it hrd to dpt to the new lol living nd working onditionsF sn ftD ording to widely
PUT
CHAPTER 14.
ited reserhD filure of the spouse nd of the fmily to dpt to lol ulturl di'erenes re two of the most frequent resons tht n employee ssigned to n overses post will fil to omplete their ssignmentF ithnoentri st0ng prties re lso sometimes ritiized for preventing tlented lol employees from (lling the positions held y exptritesF Polycentric stang involves hiring lol personnel to (ll needed overses positionsF por exmpleD under this modelD outh efrin ompny setting up n o0e in frzil would hire frzilin to (ll n open positionF edvntgesX e polyentri st0ng strtegy is muh less expensive thn the ethnoentri modelF eloE tion osts re usully muh lower nd stndrd ompenstion pkge onsistent with the lol mrket is usully su0ientF vol employees re usully more fmilir with the lol ulture nd lnguge nd my hve ess to networks nd reltionships with lol stkeholdersF hisdvntgesX lent is often short in host ountriesF vk of fmilirity with the home ountry onE ditionsD ulture nd lnguge my eome rrier to e'etive ommunition with the hedqurters st'F vk of fmilirity with hedqurters opertions my mke it di0ult for the lol st' to ess needed resoures nd ssistneF Geocentric stang involves st0ng lotion without regrd for the employees9 ple of originF gomE pnies simply sn their glol workfore for the est quli(ed ndidte to (ll positionF sn this modelD ghinese ompny might (ll position in their wexio o0e with n employee from the nited uingdomF edvntgesX he geoentri model o'ers the most employment )exiility nd hoie to the ompnyF he ompny n serh the entire glol workfore to (nd the most quli(ed ndidte for ertin positionF ypportunities for rossEulturl development re extended to ompny employees no mtter whih ountry they ome fromF he dditionl glol intertion tking ple n foster temwork ross ountries nd etter rossEorder understnding of ompny opertionsF e dre of glolly svvy employees with experiene in multiple ompny lotions n e powerful sset s the ompny ontinues to seek dditionl overses opportunitiesF hisdvntgesX qeoentri st0ng n e s expensive s ethnoentri st0ng prtiesF imployees nd fmilies often hve to e reloted ross ountry oundries nd long distnesF qeoentrilly pled employees my e unfmilir with lol prtiesF Regiocentric stang involves st0ng within glol regionF sn this seD uoren ompny might (ll position in stly with pnish employeeF edvntgesX woves re often mde over shorter distnes s employees re relotedF gulturl nd linguisti di'erenes my e less pronounedF imployees gin the ene(ts of rossEulturl experiene s they work outside their home ountryF hisdvntgesX gosts of relotion often remin firly highF hile rossEulturl perspetive is uiltD truly glol perspetive my still e lkingF st is lso importnt to note tht ulturl nd lnguge di'erenes will often e signi(nt ftors even within regionF ell of the ove models hve strengths nd weknesses whih must e seriously onsideredF sn most ompnies with multiple employees in overses lotions mixed strtegy will often mke the most sense oth in terms of e0ieny nd e'etivenessF e few selet positions my est e (lled with either home ountry or third ountry ntionls while the vst mjority of employment positions re usully (lled y lol employeesF feuse rossEulturl di'erene will e enountered in lmost ny overses st0ng on(gurtionD signi(nt investment in rossEulturl skills trining will e extremely vluleF
14.8.1.8 Trends and challenges in a global HR environment
r leders in the PIst entury will e hllenged to ddress numer of issues to ensure vilility of skilled st'D regrdless of whih st0ng option the wxg pursuesF es the glol environment ontinues to developD wxgs re hllenged to ddress the shortge in glol skills nd rossEulturl ommunition rriersF he suessful wxg will e le to dpt to the hnging environment y glolizing their r systems nd funtionD nd glolizing the workfore mindsetF hese e'orts must lso e ligned with usiness nd orgniztionl ojetives nd will require r professionls to dopt new wy of thinking to identify nd implement new wys of getting work doneF
PUU r systems in the wxg must e ligned with glol usiness impertives oth in terms of py nd performne systemsF es the numer of overses trnsfers inresesD wxgs must look to develop generl poliies nd ompenstion pkges rther thn negotiting these on seEyEse sis in order to otin e0ieny nd onsisteny of proessF ystems must lso e in ple for suession plnning on lol level s well s glol levelF gurrently mny wxgs re not operting n e'etive exptrite pipelineD either not sending the most e'etive individuls to host ountries or filing the reptrite them e'etivelyF he trend towrds inresing reline on integrted systems should ontriute to etter ess ross orders nd regions to etter serve exptrite relotion nd usiness deisionsF enother opportunity for wxgs in regrds to reting glol workfore will e to stndrdize nd revisit urrent exptrite ompenstion pkges to inlude soft ene(tsF ntil nowD individuls hve often not een willing to tke positions rod euse the inentives re solely (nnilF ristorillyD systems hve not een in ple to reptrite smoothly the individul nd fmily following ompletion of their overses ssignmentF wny employees (nd themselves out of their home r systemD nd therefore re not mde wre of possily entiing jo opportunities t homeF his n e improved gretly simply y reting lignment nd ommunition etween the home nd interntionl r deprtmentF
14.9 Corporate Social Responsibility and sustainable development in the global environment
9
he topis surrounding gorporte oil esponsiility @gA hve eome more omplex due to the gloE liztion of the eonomy nd the issues tht rise from ompnies ompeting in interntionl mrketsF gompnies re mnufturing goodsD hiring lol lorD utilizing rw mterils nd resoures extrted from the environment in interntionl lotionsF his heightened wreness of g nd sustinle development hs een endorsed y n inresed responsiveness to ethilD soilD environmentl nd other glol issuesF sn reent yersD ompnies hve een the enter of sndls regrding ounting prtiesD dmges to the environmentD indequte tretment of employees nd workers nd the e'et of its produts on the soietyF por exmpleD in tnury PHHWD the ghirmn of one of sndi9s lrgest tehnology ompniesD tym gomputer ervies vtdFD sid he frited key (nnil resultsD inluding (titious sh lne of more thn h I illion @hethD PHHWAF gses like thisD nd others suh s inron gorportion nd orldom in the nited ttesD prompt onerns out orporte governne nd ounting stndrds glollyF purtherD orporte frud puts into question one of the fundmentl resons of why shreholders invest in puli ompniesD the need for trnsprenyF es resultD ompnies re responding to inresed puli expettions of responsiility nd inorporting the onept of g into their operting plns nd strtegyF
9 This
PUV
CHAPTER 14.
Exhibit 14.12: Corporate Social Responsibility (CSR) is a concept whereby companies integrate ethical,
social, environmental, and other global issues into their business operations and in their interaction with their stakeholders (employees, customers, shareholders, investors, local communities, government), all on a voluntary basis
Source :
industryplayer.com
14.9.1 Corporate Social Responsibility and sustainable development dened
rditionllyD g hs een de(ned s the orportion9s responsiility to omply with the lws nd responE siilities to its shreholdersF his onept of g hs evolved to inlude the orgniztion9s responsiility for its impt on di'erent stkeholders suh s employeesD ustomersD investorsD lol ommunitiesD nd governmentF e roder onept is tht g involves the ommitment on the prt of the ompny to dopt ehvior tht will result in the improvement of the qulity of life of its stkeholders while ontriuting to the eonomi development of its usinessF o improve the welfre of its ommunityD the ompny my tke on rod environmentl nd soil endevorsF he orld fusiness gounil for ustinle hevelopment de(nes g s the ontinuing ommitment y usiness to ehve ethilly nd ontriute to eonomi development while improving the qulity of life of the workfore nd their fmilies s well s of the lol ommunity nd soiety t lrge @wsdForgAF his de(nition outlines the role of enterprises s tive prtners in the ommunities in whih they operteD rther thn the more trditionl view of enterprise s seprteD selfEregultingD pro(tEmking entityF g ositives nd xegtives wilton priedmnD in his ookD Capitalism and FreedomD rgues thtX
There is one and only one social responsibility of businessto use its resources and engage in activities designed to increase its prots so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.
tokholder welth mximiztion ommnds tht orporte mngement should ggressively seek to mximize stokholder returns y working to inrese shre pries nd to ontinully grow the dividends pid to shreholders @gzinkotD PHHSAF gonverselyD ording to rofessor erhie fF grrollX
PUW
Corporate social responsibility involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive. To be socially responsible then means that protability and obedience to the law are foremost conditions when discussing the rm's ethics and the extent to which it supports the society in which it exists with contributions of money, time and talent (Carroll,1983).
grroll9s g model ontins four tegories of orporte responsiility orgnized from most to lest importntF eording to grrollD the history of usiness suggests n erly emphsis on the eonomi nd then legl spets nd lter onern for the ethil nd disretionry spets @grrollD IWUWAF ionomi oligtions reD thereforeD seen to e moderted y ethil responsiilities or soil expettions nd normsF hisretionry responsiilities go eyond ethil responsiilities nd inlude philnthropi mesuresF sn IWWID grroll presented his g model s pyrmidD nd suggested tht lthough the omponents re not mutully exlusiveD it helps the mnger to see tht the di'erent types of oligtions re in onstnt tension with one nother @grrollD IWUWAF
Exhibit 14.13:
Carroll's CSR Pyramid:
A three-dimensional conceptual model of corporate social
performance.
here is no indition tht g @orporte welth mximiztionA nd pro(tility @stokholder welth mximiztionA re mutully exlusive @gzinkotD PHHSAF gorporte welth mximiztion suggests tht omE pnies onsider nd lne shortEterm gols ginst longEterm soietl gols of ontinued employmentD ommunity itizenship nd puli welfre needs @gzinkotD PHHSAF he suessful multintionl enterprises of the oming entury will e those tht (nd the unique lne etween (nnil ojetives nd gF g nd ustined hevelopment inititives here re numer of projets nd inititives tht re shping the gols nd priniples of orporte soil responsiility nd sustinle developmentD suh sX
yigh @Organization for Economic Cooperation and DevelopmentA is n interntionl orgniztion with QS industrilized ountries s prtiipntsD whih ount for UT per ent of the world trdeF he themes tht this orgniztion ddresses inlude environmentlD humn rightsD lor issuesD nd informtion dislosureF
PVH
CHAPTER 14.
UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human RightsF
he ompletion of these norms ws possile through disussions with unionsD usinessD nd xqysF he norms inlude lri(tion of orporte soil responsiilities of ompnies in ountries where they operteD nd lso refer to humn rights in the workpleF svy @International Labor OrganizationA nd its riprtite helrtion fouses on the soil spets of the tivities of multintionl enterprisesD inluding employment retion in the developing ountries @qoverning fody of snterntionl vor y0eD PHRth sessionAF he priniples estlished y this orgniztion re dopted voluntrilyD nd thus its reh is limited sine nonEompline nnot e sntionedF nited xtions9 qlol gompt ws estlished in IWWW y nited xtions9 eretry uo( ennn s voluntry interntionl inititiveF rtiipnt ompnies re sked to demonstrte their support to ten di'erent interntionl priniples of humn nd lor rightsD ntiEorruption nd environmentl protetionD to seek solutions to the hllenges of gloliztion nd promote responsile orporte itizenshipF he inititive hs more thn PDSHH usiness prtiipnts from WH ountries round the worldF Kyoto Protocol ws greed on in IWWU to redue greenhouse gs emissions y PHIPF e totl of IWTV ountries nd the iig hve rti(ed the protool @envroliteryForgD PHHUAF
14.9.2 CSR and corporate strategy
e distintion must e mde etween hrity nd gF ghrity refers to ompny9s e'orts to donte money or resoures to n orgniztion or useD promoting nd llowing employees to volunteer in the ommunityD nd the estlishment or endorsement of foundtionsF gonverselyD g is onept tht involves ompny tking into onsidertion the di'erent stkeholders involved when mking usiness deisionF he yrgniztion for ionomi goopertion nd hevelopment identi(ed g to e n integrl prt of ompny9s vlue system nd strtegy @intrnetFsreuropeForgAF por ompny to fully integrte gD top mngement must integrte soil responsiility into the strtegi level of the deisionEmking proess in order to develop frmework for eonomi deisions mde t di'erent levels of the orgniztion9s hierrhyF he prolem tht ompny will enounter if g is not integrted into the orgniztion strtegy is tht mngement nd employees ould ypss soil responsiility onsidertions nd g eomes personl ethis rther thn gF o dopt g strtegy the orgniztion needs to tke the following stepsX
he(ne g for their prtiulr usinessF nderstnd motivtions underlying its ommitmentF istlish poliies nd gols to hieve gF istlish mesures to monitor their omplishments in g @srForgAF
14.10 Case: Built to Last by Jim Collins
10
row importnt is gorporte oil esponsiility @gA s ore vlue for the top ompnies in the worldc sn the ook Built to LastD y tim gollins the results of sixEyer reserh projet into wht mkes enduring gret ompnies is outlinedF gollins listed IV ompnies identi(ed s visionries Fe visionry ompny is de(ned s one tht is leder in its industryD is widely dmired y knowledgele usinesspeopleD mde n imprint on the worldD hd multiple genertions of giy9sD hd multiple produtGservie life ylesD nd ws founded efore IWSHF he list of IV inluded ompnies suh s pordD qenerl iletriD tohnson 8 tohnsonD onyD nd lEmrtF prom IWPT through IWWH these ompnies outperformed the generl stok mrket y (fteen timesF
10 This
PVI e key ttriute of the (ndings is tht ll of these highly pro(tle ompnies hve sound soil vlues nd g is n importnt omponent of their suessF his study shows the relevne of g nd the importne of strong ore vlues for suessful orgniztionF
14.10.1 Successful Implementation of CSR and Sustainable Development
etr k golomi worked with smll reyling ompny in golomi to develop tehnology they nmed ioplkF he tehnology utilizes IHH per ent of the residuls of tetr pk rton pkges to otin the mteril tht n e used in the prodution of roofs nd hipordsF ith this tehnologyD etr k hs uilt PR houses for lowEinome fmilies to dteF his ompny did not only tke into onsidertion environmentl issues in the reyling of wste from pkgesY ut it lso worked with lol reyler to produe this tehnologyF edditionllyD this inititive reted josD developed knowledge in lol usinessesD nd helped fmilies in the ommunity who proly would not hve hd ess to homeF ih house ws uilt using I million pkges nd onsisted of P edroomsD I throomD I kithenD nd living roomF he houses were lso provided with eletriity nd wterF etr k golomi is urrently working with the government to oordinte this e'ort nd is still uilding houses tht re periodilly wrded to low inome people of the ommunity @tetrpkFomAF
14.10.2 CSR, Sustainable Development, and the Future of Businesses
eter hrukerD in his rtileD he xew wening of gorporte oil esponsiilityD explined tht the proper soil responsiility of usiness is to tme the drgon tht is to turn soil prolem into eonomi opportunity nd eonomi ene(tD into produtive pityD into humn ompeteneD into wellEpid josD nd into welth @ferkhoutDPHHUAF es evidened in the se of etr k golomiD ompny with g nd sustinle development ligned into its strtegy n e e'etive in working with its ommunity to solve soil prolemF sn this seD etr k golomi ws le to utilize wste tht impted the environmentY worked with the government to oordinte e'orts to improve the welfre nd the qulity of life of its ommunityY worked with ompnies in the ommunity to develop knowledge nd new tehnologiesY nd rete new jos nd lterntiveD environmentlly friendly new soures of mterilF eording to the orld fusiness gounil for ustinle hevelopmentD fy PHSHD VS7 of the world9s popultion of some nine illion people will e in @less industrilizedA ountriesF sf these people re not y then engged in the mrketpleD usiness nnot prosper nd the ene(ts of glol mrket will not existF glerly it is in our mutul interest to help soieties shift to more sustinle pthF gompnies will inresingly e lled upon to prtiipte to ddress hllenges of soil nd environmentl rootsD oth lolly nd glollyF ustinle development usiness opportunities exist everywhere nd in ll formsF uh opportunities inlude reylingD reduingD nd reusingF smproved e0ieniesD iotehnologyD nd minituriztion re other idesF snnovtive ledership in life equlity issues is eoming more nd more of trend todyF st is no dout tht unique eonomi nd environmentl needs exist in industril nd less industrilized ountriesF g opportunities nd hllenges inlude promoting good lor prties nd diversityD supporting helth nd edution progrms in the ommunityF here re few limits in the design nd implementtion of soilly responsile inititives for ompnyF
14.10.3 CSR and the small business entrepreneur
por smll usiness entrepreneurD like wsF hhirD her ompny pro(ts from its reltionship with the ommunityF sts stkeholdersD whih inlude ustomersD the lol ommunityD nd the governmentD re ll ritil spets to the ompny9s growth in the futureF es resultD wsF hhir must onsider soil nd environmentl impts of her deisionsD in ddition to the wys tht they will mke n eonomi impt to her usinessF
PVP
CHAPTER 14.
11
his hpter presents the types of glol hllenges tht wsF hhir9s usiness ould e presented with in the futureF es she hs done so e'etively in her home ountryD interntionlly wsF hhir hs the opportunity to grow her ompnyD nd even present her model to other smll entrepreneurs to integrte into their usinessesF st is importnt to note howeverD tht the issues disussed only egin to present the ommon hllenges mong new entrepreneursF his is just n introdutory strt into the journey of extending smll usiness into newD interntionl mrketsF
14.12 References
12
eg uhn egeny for wiro(nneF PHHVD ville t httpXGGwwwFkdnForgGkmseFspF eyx qlol isk elertF ghin istlishes xew imployment gontrt vw for PHHVF eyxD PHHUD ville t wwwFonFomGoutGpulitionsGglolrisklertGgrPHHUEotEHIFjsp eyx qroupD snF olitil nd ionomi isk wpF eon qlol gorporte wrketing nd gommuniE tionsD PHHUD ville t httpXGGwwwFonFomGGoutGpulitionsGpdfGissuesGPHHU8iiskwpFpdfF essessing qloliztionF orld fnk frie(ng persD PHHID ville t httpXGGwwwIFworldnkForgGeonomipoliyGgloliztionGissuesriefsFhtmlF frtlettD ghristopher eFD nd umntrD qhoshlD nd firkinshwD tulinFrnsntionl wngementD pourth iditionF wqrw rillX srwinD PHHRF feenhkkerD renriF he qlol ionomy nd snterntionl pinningF uorum fooksD PHHIF ferkhoutD omF gorporte qinsF elterntives tournlD PHHSF fhgwtiD tgdishD ervind ngriy nd FxF rinivsnF he wuddles yver yutsouringF tournl of ionomi erspetivesD pll PHHRD WQEIIRF fhgwtiD tgdish nd FxF rinivsnF rde nd overty in the oor gountriesF emerin ionomi eview pers 8 roeedingsD wy PHHPF frdleyD prnkF snterntionl wrketing trtegyF rentie rllD orontoD pifth iditionF PHHSF fusiness oil esponsiilityF PHHUD ville t wwwFsrForgF grrdEfrvoD prnisoF wnging qlol pinne in the higitl ionomyF reger ulishersD PHHPF grrollD erhieF e hree himensionl goneptul wodel of gorporte oil erformneF edemy of wngement eviewD IWUWF grrollD erhieF gorporte oil esponsiilityX ill sndustry espond to gutEfks in oil rogrm pundingc itl peehes of the hyD RWD THRETHVDIWVQF gollinsD timF fuilt to vstF rrperfusinessX Ist iditionD ytoer PTD IWWRF gorporte oil esponsiilityF ville t wwwFindustryplyerFomF goyleD frinF redging gurreny ixposureF qlenlke ulishingD PHHHF goyleD frinF sntrodution to gurreny iskF qlenlke ulishingD PHHHF g iuropeF PHHUD ville t wwwFintrnetFsreuropeForgF gX weeting ghnging ixpettionsF IWWWD ville t wwwFwsdForgF gzinkotD wihel nd wo'ettD wihel nd onkinenD slkkF snterntionl fusinessF homson outhE westernX Uth iditionD PHHSD TPF gzinkotD wihelD nd ivoliD ietr nd onkinenD slkkF snterntionl fusiness ! Tth iditionF he hryden ressD PHHPF hdkD gsimirF he se for foreign ownership of frmlnd in olndF gto tournlD olF PRD xoF QD pll PHHRD ville t httpXGGwwwFtoForgGpusGjournlGjPRnQGjPRnQETFpdf
11 This 12 This
PVQ he wooijD wriekeF qlol wrketing nd edvertisingF nderstnding gulturl rdoxesF ge ulitionX eond iditionD PHHSF hollrD hvidF he oor vike qloliztionF leqlolD tune PQD PHHQD ville t httpXGGyleglolFyleFeduGrtileFprintcidaIWQRF idmunds euto yserverF e ristori er for ehile lesF PHHUD ville t httpXGGwwwFutooserverFomGPHHVGHIGPHHUEEhistoriEyerEforEusEvehileEslesFhtmlF invironmentl vitery gounilF PHHUD ville t wwwFenviroliteryForgF pederl pinnil snstitutions ixmintion gounil @ppsigAF vegl iskF eville t httpXGGwwwF0eFgovG0einfoseGookletsGetilGretilHQeFhtmlF priedmnD wiltonF he oil esponsiility of fusiness is to inrese its ro(tsF xew ork imes wgzineD IWUHF qloliztionX hret or ypportunityc snterntionl wonetry pund sssue friefD epril IPD PHHH @orE reted tnury PHHPAD ville t httpXGGwwwFimfForgGexternlGnpGexrG iGPHHHGHRIPHHFhtmF rofstedeD qeertF gultures nd yrgniztionsX oftwre of the windX snterulturl goopertion nd sts smportne for urvivlF wqrwErillD IWWTF russeyD oger nd yngD eudrF snterntionl pinnil eporting tndrds hesk efereneF tohn iley 8 onsD PHHSF snterntionl eounting tndrds fordX eout sF ville t wwwFisForgGeoutCsGeoutCsFhtmF uutzD qerhrdF ke your fusiness qlolF row to hevelop snterntionl wrketsF intrepreneur ressD PHHRF vwsonD tF helivering on trtegyF petrEtournl of the wgD tune PHHTF xetwfeXfusiness unowledge genterF he wrketing wixX he R 9s of wrketingF PHHVD ville t httpXGGwwwFnetmFomGmrketingGmixF erryD enne gF ertileY snterntionl versus homesti wrketingX pour goneptul erspetivesF iuE ropen tournl of wrketingD IWWHD RIESRF rhldD gFuF nd turt vF rrtF he portune t the fottom of the yrmidF trtegy C fusinessD ville t httpXGGwwwFstrtegyEusinessFomGpressGrtileG IISIVcpgall8tidaPQHF ureshiD iF qloliztionX xew ypportunitiesD ough ghllengesF pinne 8 hevelopmentD wrh IWWTD QHEQQF h'erD ihrdD nd irleD feverley nd egustiD piliertoF snterntionl fusiness vw nd its inviE ronmentX Tth editionF est vegl tudies in fusinessD homson gorpD PHHSF hethD xirj nd ngeD tkie nd enndD qeetF gorporte ndl hkes sndiF ll treet tournlD eEID PHHWF tiglitzD toseph iF qloliztion nd the qrowth in imerging wrkets nd the xew ionomyF tournl of oliy wodeling PSD PHHQD SHSESPRF inD oert qungD hF hF ertileY wrketing in the PIst genturyX grossEulturl sssuesF PHHVD ville t wwwFstudyoversesFomGmeriGusedGrossulturlFhtmF etr kF PHHUD ville t wwwFtetrpkFomF lijnD tn nd pyolleD ellineF owrd goopertion etween iuropen trt psX he position of the prenhD huthD nd qermn intrepreneuril nd snnovtive ingineerF sn errene frown 8 tn lijn @idsFAD intrepreneurshipD snnovtionD nd gultureD PHREPQPD PHHRF gheltenhmX idwrd idgrF tkinsD uevinF wking qloliztion ork for the oorF pinne 8 hevelopmentD wrh PHHPD ville t httpXGGwwwFimfForgGexternlGpusGftGfnddGPHHPGHQG wtkinsFhtmF ildD usn illisF F ester9s xew orld vw hitionryF iley ulishingD PHHTF usufD hhidF qloliztion nd the ghllenge for heveloping gounE triesF orld fnk hevelopment eserh qroupD tune PHHID ville t httpXGGwwwIFworldnkForgGeonomipoliyGgloliztionGdoumentsGwpsPITVFpdfF wore referenes futlerD uirtF wultintionl pinneF outhEestern gollege uD PHHQF
PVR
CHAPTER 14.
wultintionl pinne provides onise tretment of the investment nd (nnil deisions fing the multintionl orportionF he text provides frmework for evluting the opportunitiesD osts nd risks of multintionl opertions so reders n see eyond the lger nd terminology to generl priniplesF st is distinguished y its logil orgniztionD superior pedgogyD nd lerD nonEtehnil writing styleF st inludes the trditionl interntionl (nne topis of foreign exhngeD urreny nd derivtives mrketsD urreny risk @trnstionD operting nd trnsltionA mngementD ountry riskD txtionD pitl strutureD ost of pitlD nd interntionl portfolio diversi(tionF st lso hs unique hpters on multintionl tresury mngementD options on rel ssetsD orporte governneD sset priingD nd interntionl portfolio mngementF woyerD ghrlesD wquinD tmesD nd uretlowD illimF gontemporry pinnil wngementF homsn outhwesternXIHth iditionD PHHTF pousing on shreholder welth mximiztionD interntionl spets of (nnil mngementD ethisD nd the impt of the snternetD this introdutory textook oversX determinnts of vlueY pitl investment deisionsY the ost of pitlD pitl strutureD nd dividend poliyY ndD working pitl mngement nd (nnil forestingF opis like lese (nningD (nning with derivtivesD interntionl (nnil mngeE mentD nd orporte restruturing re lso disussedF en enlosed gh provides ess to ompnion we siteF he uthors re sholrs of mngement nd investment onsultntsF orld fnkF hoing fusinessX ionomy nkingsF PHHUF eville t httpXGGwwwFdoingusinessForgGionomynkingsG he hoing fusiness projet provides ojetive mesures of usiness regultions nd their enforement ross IVI eonomies nd seleted ities t the suntionl nd regionl levelF
Chapter 15
Growth strategies for start-ups

15.1 Learning objectives and overview
15.1.1 Learning objectives
1
de(ne wht onstitutes growth (rm desrie the prolems of growth nd growth strtegies desrie growth mistkes nd solutions
15.1.2 Overview
sn this hpter we investigte possile strtegies for the growth of strtEup (rmsF pirstD we desrie growth s phenomenon nd si prolem for suh (rmsF sn prtiulr we nlyze the prolem from the viewpoint of new strtEups whih pln from the outset to grow lrger quiklyF e then exmine di'erent growth strtegies whih (rms n pursueF sn the seond prt of the hpter we present the most wellEknown mistkes mde y strtEups during the growth phseD nd suggest wys to orret or"even etter"void themF o onludeD we provide reommendtions for how entrepreneurs n pro(t est from growthF sn this hpter we refer most often to (rms with produts ut the strtegies nd pitflls reviewed here lso pply to servie ompniesF
15.2 Denition and models

15.2.1 Denition and statistics
e strt y de(ning wht we men y growth nd growthEoriented (rmsF griteri suh s growth in the numer of employeesD or sles growth re generlly used y reserhersF he uufmnn genter for intrepreneuril vedershipD leding institute of entrepreneuril reserh in the eD for exmpleD de(nes highEgrowth (rms s eing those with over QH per ent growth in sles or over PH per ent growth in the numer of employees for eh of the three preeding yersF yther reserhers @iegelGwwilln IWWQA de(ne strong growth s over PS per ent growth per nnum over threeEyer periodF he numer of highEgrowth (rms is no dout limitedF iven in the eD only S per ent of (rms eh yer re estimted to tke on extr st' @fF extonGfowmnEpton IWWID pF IPAF roweverD these fstEgrowing (rms hve disproportionte signi(ne for the inrese in the numer of josF sn the eD for exmpleD it is estimted tht only IPEIS per ent of ll usinesses re responsile for IHH per ent of the employment growth in the eonomy @fF extonGfowmnEpton IWWID pF IHAF eserh studies in qermny hve
1 This 2 This
PVS
PVT
CHAPTER 15.
GROWTH STRATEGIES FOR START-UPS
lso shown tht usinesses with SH to PSH employees reorded the gretest inrese in employment @fF uu hlhornGissdorf PHHIAF snterntionl omprtive dt n e found in the qlol intrepreneurship wonitor @qiwAF fsed on survey of ll strtEups from IWWWD the qiw presented the shre of highEgrowth strtEups @see ixhiit IAF @fF ternerg PHHHAF
Exhibit 15.1:
Source :
Countries in comparison: Share of high-growth start-ups compared to total start-ups.
Sternberg 2000)
15.2.2 Growth models
sn the (eld of entrepreneurship reserhD life yle models re often used to desrie the entrepreneuril proessF hese models re lso used in reserh into growth prolemsF uznjin nd hrzin @IWVHAD for exmpleD developed fourEphse growth modelD nd identi(ed the typil growth prolems of fstEgrowing (rms in eh phseF hse ID gonept nd developmentX pous on the invention nd development of servie or produtF win prolemsX
developing the ide testing prototype (nding investment support for the ide
hse PD gommeriliztionX heveloping the produt for introdution to the mrketF win prolemsX
setting up the orgniztion nd prodution solving tehnil prolems mrket entry

hse QD qrowthX he fstEgrowth phse is hrterized y its fous on the mrketF win prolemsX
PVU
roduing lrger quntities qurnteeing qulity ixpnding mrket shre ersonnel prolems
hse RD tilityX sn this phse the fous lies on onsolidting the mrket position with the initil produtD nd developing further produtsF win prolemX
imultneously mnging the mrket entry of new produts without losing the ompetitive dvntges of older produtsF
elthough life phse models like these n help the deisionEmking proess in reserh nd prtieD they lso hve their pitfllsF sn review of suh modelsD exton nd fowmnGpton @IWWIA wrned tht eonomi phenomen nnot lwys e ompred to iologil phenomen @life ylesAF pirm growth does not lwys develop through the phses of suh models in strightforwrdD liner wyD for exmpleF rtiulrly in fstEgrowing industries involving tehnologil hngeD growth is more hoti thn orderedF woreoverD wellE known growth models with ellEshpedD onveD or plteu struture re only useful s idel referene ptterns for tul growth proessesF fuilding on this ritiismD govin nd levin @IWWUA suggest nother growth model from the omplexity mngement perspetiveF his model emphsizes tht growth ours through ertin mrket ftors in omintion with internl ompetenes nd resouresF he min prolem for entrepreneurs is overoming the inresing orgniztionl nd externl omplexityF sn the following setions of this hpter we will de(ne possile strtegies for strtEup growthF ee ixhiit ISFP elowF
Exhibit 15.2: The complexity management growth model
PVV
CHAPTER 15.
sndustril hnge is often triggered y tehnologil hngesD for whih there re mny exmplesX the sustitution of digitl tehnologies in whole rnge of nlog produtsD from o0e equipment to telephonesD nd the snternet s ommunition mediumF ehnologil hnges like this enle strtEup (rms develE oping new tehnologies nd introduing them to the mrket to tke over the positions of their estlished ompetitorsF e seond tlyst for industril trnsformtions is hnge in onsumer ehviorF he inresing tehnoE logil ompetene of ustomersD for exmpleD hs enled the growth of diret omputer sellers like hellF gustomers re prepred to get informtion out even highEtehnology produts from the snternet nd order them online insted of sking for dvie in shopF heregultion or lierliztion n lso e reson for industril trnsformtion nd hngeF sn reent yers industry deregultion hs reted opportunities for strtEup (rms nd growth opportunities in generl in vrious industriesD suh s the ir tr0D teleommunitionsD or (nnil servie setorsF ghnges in tehnologiesD ustomer preferenesD or regultions o'er opportunities for trnsformtion nd hngeD ut it is up to entrepreneurs to mke use of themF et the eginning of trnsformtion periodD (rms must experiment with di'erent strtegies to tp the growth potentil of the industry situtionF e hve seen mny di'erent suh experiments with snternet tehnologies in the lst few yersF wny of them me to nothingD ut severl suessful usiness models hve survivedF e hve lredy given the exmple of hell s suessful diret provider of gs vi the snternetF purther exmples re ompny eutoEfyEel9s sle of rs to trditionl r delers vi the snternetD or iEfyD the snternet utioneersF e period of experimenttion is followed y stiliztion phseF sn the litertureD innovtion mngement reserhers tlk out dominnt designsF e dominnt design stilizes prtiulr industry strutureD nd the positions of ompetitorsF here is generlly onsolidtion phse in the industryD nd filed experiments led to ertin (rms disppering from the industryF roweverD suessful usiness models n men even fster growth for the survivorsD s they n tke over shres of the mrket from other ompetitorsF
15.2.3 Growth through buying out other companies
he entrepreneurship mngement literture generlly refers to internl growthF roweverD smllD fstE growing ompnies lso hve the possiility of growing y quisitionF hese opportunities hve eome even more frequent in reent yers due to the inresing vilility of venture pitlD nd of pitl reE soures from initil puli o'erings @sysAF en quisition strtegy for fstEgrowing strtEup n ring mny dvntgesF pirst of llD just like lrge (rmsD smll (rms n try to otin synergies y mens of omplementry resoures from oughtEout (rmsF les growth s result of uying out (rms in the sme industry ould e rendered more e0ient y omined resoures nd the quisition of ompetent employeesF en quisition strtegy n lso e pursued to enle growth in new geogrphi mrketsF woreoverD the opportunity for expnsion vi quisition is prtiulrly ttrtive in other ountriesD where it n e di0ult to estlish new usinessesF uh strtegy n lso o'er the opportunity to go into relted diversi(tionD iFeF strtEup (rm n quire other produts or servies whih re relted to its originl onesF ynergy e'ets nd redued or shred overheds n lso e gined hereF pirms n lso integrte vertilly through quisitionD iFeF y uying out suppliers or ustomers to proess more steps in the vlue hin inEhouseF ertil integrtion n sometimes ring dvntges of ost or di'erentitionF gost dvntges n rise either through uying or uilding up heper distriution hnnels @forwrd integrtionAD or hep inputs @kwrd integrtionAF edvntges of di'erentition n e otined y distriution hnnels or inputs whih stnd out from those of ompetitors @fF orter IWWPAF sf the (rm to e tken over is lredy suessfulD the tkeEover n provide dditionl (nnil resouresF e further gin from n quisition my e dditionl quli(ed personnel who might lso e le to strengthen the originl (rmF wore ustomers n e wonD or quired more heply thn if they hve to e found using onventionl mrketing methodsF he quisition of other (rms n lso e hne to gin tehnologil knowEhowD or even new tehnologies in the form of ptentsF
PVW
15.2.4 Growth through cooperation
e oopertion strtegy strikes lne etween internl growth nd growth from the quisition of other ompniesF everl studies in the e hve proved tht fstEgrowing strtEups sometimes use oopertion with other smll (rmsD nd sometimes with lrgeD estlished (rmsF his oopertion is of vrious typesF viensing is typil strtegy in the ioteh industryD for exmpleF mll ioteh strtEups generlly do not hve the neessry omplementry resoures @fF eee IWVTA to rry new drugs through ll the test phses nd then to mrket themF uh (rms often sell lienses to estlished phrmeutil (rms @the dnger of this strtegy will e delt with sndequte or inorret mrketingA yther oopertion strtegiesD suh s eserh nd hevelopment oopertionD or outsouring produtionD re possileF goopertion strtegies re pursued more frequently where there re networks of strtEups @fF vehner PHHIAF elthough new (rms n gin the omplementry resoures they lk through oopertionD they still need si ompetenes in root tehnologies nd key funtionsF sn study of highEteh strtEups in the eD wqee et lF @IWWSA showed tht the strtEups whih grew fstest were those whih pursued oopertion strtegies to uild on strengthsD nd not to ompenste for weknessesF
15.2.5 Stopping growth by selling the rm
en quisition n e regrded s growth strtegyD ut the sle of ompny leds to hlt in growthF uh sle does not neessrily hve to e desried s lossD howeverF yn the ontrryD trde sle"when strtEup sells itself to nother (rm"n e seen s the suessful end of the entrepreneuril proessF e (rm hs the possiility of ontinuing to grow s prt of nother (rmD or the founders n use the sles revenue to pursue other tivitiesF here re mny exmples of soElled seril entrepreneursF hese entrepreneurs hve founded severl new ompniesD helped them to growD nd then sold them in order to pursue other tivitiesF he est exmple of this is tim glrk from ilion lleyF re is urrently working on strting his fourth nd (fth ompniesD oth in the snternet (eldF rior to this he generted severl illion h for himself nd his ollegues with three very suessful highEteh strtEupsX ilion qrphisD xetspeD nd relthionF glrk reognized long time go tht he is est t ontrolling the growth phse of strtEupD ut is too imptient to mnge mture orgniztion professionllyF re tries to hoose the right time to sell new (rms to ompetitors whih re etter t deling with the mturity phse @fF ghong et lF PHHHAF
15.2.6 Growth through innovation
imes of tehnologil hnge re n opportunity for strtEups to growF xew (rms tht use tehnologil hnges to introdue new produts or servies s mrket leders n gin ompetitive dvntges quiklyF roweverD tehnologil innovtions like these must e le to e protetedD or they will not lstF he new (rms must lso possess or quire the neessry omplementry resoures for the produts nd the mrketing of them @fF eee IWVTAF gertin types of innovtion re espeilly dvntgeous for strtEupsF sn his ookD The Innovator's DilemmaD ghristensen @IWWUA di'erentites etween sustining tehnologies nd disruptive tehnologiesF ustining tehnologies improve existing produtEmrket strutures nd re generlly introdued most e'eE tively y estlished (rmsF hisruptive tehnologiesD on the other hndD whih enle new pplitions for new ustomer segmentsD tend to e developed nd mrketed y strtEupsF ghristensen tkes the exmple of the omputer hrd drive industry to show how strtEups hve very often seen suessful growth over twentyEyer period s spinEo's of estlished (rmsF imilr developments n e seen in other setorsF sn the next prt of this hpterD we nlyze the most frequent growth mistkes in strtEupsF
PWH
CHAPTER 15.
15.3 Growth problems
15.3.1 Management mistakes
yf ourseD strtEups often mke mngement mistkes in pursuing growthF e lssi (rst mistke is in the hoie of produt or servie"ndGor even worseD mrket"with no potentil for growthF he only sfegurd ginst this mistke is to ondut reful mrket nd ompetitor nlysis @ee ghpter IQA to estimte the totl mrket potentilF his nlysis must e omplemented y the hoie of strtegy for pturing the mrket with whih n ssumed mrket potentil n e developedD tking into ount the given (nnil restritionsF e seond mistke is the filure to hoose one of the forementioned growth strtegies erly onF e third mistke is to not reruit ompetent nd professionl st' to implement the plnned strtegiesF e fourth mistke is not to lign produtEmrket growth strtegies with the (rm9s other strtegiesD espeilly (nneD rD nd orgniztionl strtegiesF e (fth mistke is to hoose the wrong (nne modelF rereD n lmost lssi mistke is for (rms to re(nne longEterm (xed pitl with shortEterm returnsD or with shortEterm revolving lonsF e sixth mistke is to fore growthF sf growth ours too rpidlyD the (rm is in dnger of losing sight of the risks involved in the individul tivities of the vlue hinD even when this growth n e (nnedF rereD ontinuous development is etter thn errti growth @fF rutzshenreuter PHHIAD euse it enles mngement to (ll the gps in their knowledgeF e will go into severl of these mngement mistkes in more detil in the followingF
15.3.2 Incompatibility of growth strategies and organizational structure
he growth of strtEups must e plnnedD nd supported y one or more of the ove mentioned strtegiesF st is signi(nt growth mistke to do without plnning nd strtegi developmentF roweverD even when these mistkes re voidedD nd growth strtegies existD mngers tend to overlook the ft tht there is onnetion etween the hosen strtegy nd the prtiulr orgniztionl struture of the strtEupF his oversight is serious impediment to growthF pirms whih re still smll nd striving to grow should hoose tem struturesD orD if neessryD tight entrliztion s struture for their orgniztion so tht they n hndle knowledge mngementD nd deision oordintion nd implementtion etterF he lk of tem mngement nd networking in the strtEup nd onsolidtion phses hinders growthD s the experiene of strtEups from ilion lley hs shownF sf growth is hieved y inresing sles volumeD strtEups n defer the djustment of the originl orgniztionl struture until deision de(itsD suh s delys in deisionEmkingD egin to surfeF sn growing ompniesD mintining the sme tem strutures nd mngement generlly leds to loss of oordintionF st lso postpones the retion of ler orporte strutureF sf the distriution of responsiility in the strtE up is unlerD or if the sme tem mngement hs een ontinued despite growthD prolems will rise due to lk of oordintionF hereforeD the distriution of ompetenes nd responsiility must e hievedD depending on the strtegies the strtEup pursuesF sf tem strutures impede this euse they re too slowD they must e repled y hierrhil struturesF hi'erent strtegies my e neessry if the ompny pursues diversi(tion strtegies y expnding into new mrketsD or ringing out new produts y expnding the vlue hinD or into new networksF roweverD this requires good knowledge of the industry or industries in whih the strtEup wishes to diversifyF sn this seD more deentrlized orgniztionl struture with di'erentD reltively utonomous deprtments is dvisleF roweverD deprtment deentrliztion mkes oordintion essentilF ome of the lssi mistkes mde y young (rms re either to wit too long efore deentrlizingD deentrlizing too soonD ndGor filing to oordinte the new deprtmentsF ih of these mistkesD or omintionD n hve restriting e'et on the growth of (rmD nd in the worst se n even inrese the risk of young (rm9s going nkruptF
3 This
PWI
15.3.3 Inadequate or incorrect marketing, cooperation, nance, or HR strategies
qrowth is lso t risk if strtEups fil to develop strtegi plnningD mrketingD (nningD risk mngementD r mngementD orgniztionD or poliies for interntionliztionF qrowth mistkes mde in regrd to mrketingD (nningD nd r mngement re prtiulrly seriousF wny of the following issues hve een introdued in previous hptersF he (rst group of )wed growth strtegies is mrketing strtegiesF trtEups re prtiulrly suseptile to onentrting on developing tehnil or sienti( produt further nd developing new produtsD ut not pying enough ttention to mrketingF wrketing plns nd their extrpoltion re prerequisite for voiding growth mistkesF sf (rm does not ondut mrket reserhD identify ustomer preferenesD generte new ustomer wishesD or segment or pture the mrketD it will not growF trtEups n only (nd out whether or not they n hieve or hve lredy hieved dominnt position in the mrket y onduting systemti mrket reserhF sf they lredy hve dominnt positionD they ould try to push ompetitors out of the mrket or prevent them from entering it in the (rst pleF hepending on the (nnil resoures villeD eFgF fter suessful syD it ould even mke sense to uy out ompetitors nd grow in this fshionF e seond group tht n hinder growth is oopertion strtegiesD suh s when strtEup eomes overly dependent on more estlished ompny s senior prtnerD for exmpleD when smll ioteh (rm depends on lrge phrmeutil ompny to mrket its produtsF sf lrger estlished ompnies relly ommit themselves to their junior prtners nd re suessfulD then oopertion often ends up with the senior prtner tking over the strtEupF his only ensures the growth of the senior prtnerF rnsferring lienses to lrger (rms efore produt is fully developed is lso dngerous"this is prtiulr prolem for ioteh strtEups if the government hs not yet pproved new drugF roweverD wht is muh more ommon is opportunisti ehvior y the senior prtnerD where it is pid well y the junior prtner for its mrketing tivitiesD ut then it does not in ft ggressively mrket the junior prtner9s produtsF uh )wed mrketing strtegy is lso huge hindrne to growthF e third group of )wed growth strtegies onerns the (nning of growthF sn the initil phses of the life yle of strtEupsD growth n srely e (nned out of their pro(tsD nor n it generlly e (nned lone y the founders9 equityF trtEups in prtiulr re often underpitlizedF he only lterntive tht remins is seeking outside pitlF o (nne growth strtegies strtEups sometimes orrow longEterm det whih is to e pid k with interest from the revenues from implementing the strtegyF vikewiseD some strtEups redeem lons nd interest pyments stepEyEstep over long period y tking out revolvingD shortEterm lonsF foth (nnil strtegies jeoprdize growth onsiderlyD or even hinder it ompletely if the (rm does not generte the plnned revenuesD or if no new shortEterm lons re ville to py o' prt of the longEterm lon t the right timeF sn dditionD strtEups with high growth potentil in ertin industriesD n trde prtil ownership in their (rms for venture pitlF trtEups n lso mke nother growth mistke in (nning y lunhing their sys on the stok mrket too soon nd simply using this revenue to repy det or venture pitl nd reple it with equity from the pitl mrketF ht is even more serious fter n sy is when (rms mke the growth mistke of merely inresing their sh mngement or rndomly uying out other (rmsD rther thn using their sy funds to (nne wise growth strtegiesF he fourth group of relted usiness strtegies where serious mistkes n e mde is rumn esoure strtegiesF sn mny ses the founders nd employees of strtEups re in their thirtiesD nd sometimes only in their twentiesD nd re frequently highly quli(ed university or ollege grdutes @fF prnkGypitz PHHID pF RSRAF he homogeneity of the ge distriution of mngers nd employees often leds to strtEups quiring new personnel from the sme ge groupF roweverD homogeneous ge distriution my led to deline in motivtion s employees ge t the sme timeF trtEups must therefore e prtiulrly reful to hieve heterogeneous ge distriution in their personnelF hey must lso ttempt to quire older employees with experiene in the industry nd with mngement ompetenes from other suessful ompniesF st n e of gret vlue to quire more senior mngers who enjoy the new hllenge of working for strtEup efore they retireF vk of loylty in their personnel should led strtEups to think out how to retin their prtiulrly tlented employeesF sf strtEups fil to onsider these pointsD ostles to growth re mtter
PWP
CHAPTER 15.
of ourseF wuh more importntD howeverD is developing the knowledge nd ompetenes of the entire st' dependE ing on the strtEup9s hosen growth strtegyF he knowledge nd ompetenes neessry for formulting nd implementing the growth strtegies must e forest s prt of qulittive rumn esoure plnningD nd then provided y rumn esoure development or y quiring externl personnel @fF hrumm PHHHAF sf this does not hppenD strtEups fe growth rrier whih is hrd to overomeF he filure to impleE ment strtegyEoriented r development nd uild up nd mintin internlized motivtion of the employees through ttrtive work nd working onditions is rrier to growth whih is often overlookedF
15.3.4 Inadequate or incorrect internal accounting
ell (rmsD whether young or mtureD need ost ounting systems whih n report osts nd"s fr s they re spei(lly ttriutle"revenues per ost unitD ost enterD nd deprtmentF st is importnt tht strtE ups estlish systems for unit ost ountingD ost enter ountingD nd rekeven nlysis @fF herrer IWWWA in order to e le to ssess eonomi ine0ienies nd soures of loss y mens of trgetGtul omprisons nd pro(t mrginsF sf the ompetition is (ereD (rms should lso estlish trget osting to e le to undermine ompetitors y djusting prie poliyF hoing without ny kind of ost ounting leds not only to the ft tht soures of loss remin undisE overedD ut lso tht pro(t potentils sty hidden s wellF foth of these points represent possile growth risksF trtEups must therefore void this risk y estlishing ost nd pro(t ountingD nd rekeven nlysis s quikly s possileF
15.3.5 Dependence on third parties
wny strtEupD survivlD nd growth strtegies led lmost inevitly to the dependene of new (rms on third prtiesF his uses no prolem s long s the interests of ll people nd (rms involved re reltively equl ndGor omptileF hependene on third prties funtioning s investorsD liensorsD prtnersD prinipl ustomers in the sles mrketD or single suppliers does not neessrily led to growth rriersF roweverD dependene is disdvntge if there re diverging interestsD or if the prtners ehve opportunistillyF sn this seD the growth of the strtEup is inhiited nd the (rm is fored to (ght the opportunisti ehvior of the prtnersF por the strtEup these defense tivities inur trnstion osts whih rise in the preprtion phse of prtnership nd in the onlusion of oopertion ontrtsD nd re dded to lter y trnstion osts rising from ontrollingD nd orreting errorsF roweverD the older the (rm eomesD dependene on third prties should e reduedF he dependene on liensors should e ompensted for y the (rm9s own reserh nd developmentF he dependene on outside investorsD on the other hndD is generlly unvoidleD ut it n e put to positive use y rising risk pitl y pro(t shring with investors to rete homogeneity of interestsF es shown oveD dependene on third prties n rise when (rm mrkets its produtsF st nD howeverD lso rise in the quisition of preliminry produtsD or in (nningF st is t its highest in (rm networksF trtEups must therefore sk themselves repetedly whether these dependenies seure their existene nd survivlD or whether they re endngering their growthF es long s the (rm9s survivl is seured y suppliers or ustomers through strtegi dependeniesD for instne within network of ooperting (rmsD the strtEup n pro(tF sf suh dependenies howeverD endnger the suess nd growth of the (rmD the strtEup must try to extrite itself y uilding up its own sles or supply hnnelsF romogeneity of interests must lso e tken into ount when uilding n externl network in order to minimize trnstion osts whih stunt growthF
15.3.6 Acculturation problems when buying companies
qrowth s result of quiring ompnies in the supply hinD or diversifying into other setors not only retes the potentil for mistkes due to indequte knowledge of the industryD ut y insu0ient ulturE tion of the ompnies quiredF ivery ompny develops its own ulture from the moment it is foundedF
PWQ his is mnifested in the founders9 vlue system in regrd to their employeesD ustomersD suppliersD sponsorsD nd other prtnersF pounders will lwys try to trnsfer their vlue system onto their employees nd thus form their ehvior ompletely or t lest prtlyF gompny ulture is lso mnifested in desired forms of ehviorD ritulsD nd epted proesses of nlyzing nd solving proesses prtied y the founders whih they in turn would like their employees to implementF gommuniting these vlues nd forms of ehvior is prt of the mngement proessF sf other ompnies re quired in the ourse of plnned growth proessesD the ompny lso tkes on their foreign (rm ulturesF he onfronttion etween two or more inomptile (rm ultures mkes ulturtion essentilF he di'erent ultures must e dpted to eh otherD or the growth of the entire ompny nd its individul deprtments due to synergy e'ets is t stkeF here re three di'erent ulturtion strtegies to hoose fromF sn the se of usurptionD the mnE gement from the ought out (rm is repled y the mngement tem of the (rm tht ought it outF his model is generlly expensiveD ut n e implemented reltively quiklyF sn the se of dpttionD the uying nd ought out (rm@sA get to know nd understnd eh other9s ultures in order to hnge nd dpt them step y stepF his model is muh slower thn usurptionD ut lso heperF he synthesis model onsists of onsiously giving up the old (rm ulture nd reting new oneF his model mkes sense if the quisition mens tht the mrkets nd thus mrketEoriented strtegies hngeD or the ntionl orienttion of the strtEup n e expnded to n interntionl oneF hoing without ulturtion strtegies not only stunts growthD ut lso inreses the risk of nkruptyF
gompny growth must e plnned y oth old nd young (rmsF st requires the hoie of one or more of the ove mentioned strtegies to promote growthF rodut nd proess innovtionsD the di'erentition of produts nd mrketsD the use of mrket nihesD nd networking with other ompnies re importnt strtegies for strtEupsF qrowth long the supply hin is speil se in vertil networking strtegiesF fuying out entire ompnies is lso suitle s growth strtegyD ut it presupposes the vilility of su0ient pitlD nd the solution of ulturtion prolemsF qrowth n e seriously thretened y the mngement mistkes disussed oveD ut lso promoted y growth strtegies tht re well implementedF
15.5 References, and further literature
ghongD wFvF et lF @PHHHAX he ilion lley idgeD tnfordD geF ppF IPHEIPIF govinD tFqF nd levinD hFF @IWWUAX righ qrowth rnsitionsF heoretil erspetives nd uggested hiretionsF snX extonD hFvD nd milorD FFD IWWUF ppF WWEIPSF ghristensenD gFwF @IWWUAX he snnovtor9s hilemmF fostonF hrummD rns tu rgen @PHHHAX ersonlwirtshftF RF eu)F ferlin uswF prnkD iF nd ypitzD gF @PHHIAX snternetEtrtEps"iin neuer ettewerer unter den pilternlgen fu r rumnkpitlF eitshrift fu r fetrieswirtshft UIF tgFX RSQERTWF rutzshenreuterD F @PHHIAX hstumsstrtegienF iinstz von wngementEkpzitten zur ertE steigerungF iesdenF uznjinD FuF nd hrzinD F @IWWHAX e stgeEontingent model of design nd growth for tehnologyE sed new venturesF tournl of fusiness enturing @SAX IQUEISHF uu hlhornD qF nd issdorfD pF @PHHIAX tomotor wittelstndF smpulse wrz PHHIEHSEPVX PHEPUF vehnerD gF @PHHHAX he gompetitiveness of pirm xetworksF prnkfurt uswF wqeeD tFiFD howlingD wFtF nd wegginsonD FvF @IWWSAX goopertive strtegy nd new venture perforE mneF he role of usiness strtegy nd mngement experieneF snX trtegi wngement tournl IT@UAX STSESVHF
4 This 5 This
PWR
CHAPTER 15.
orterD wF @IWWPAX ettewersvorteileF QF eu)F prnkfurtGwinF orterD wFiF nd ivkinD tFF @PHHHAX sndustry rnsformtionF rrvrd fusiness hoolF ulishing xWEUHIEHHVD tuly IHF herrerD qF @IWWWAX uostenrehnungF QF eu)F tuttgrtF extonD hFvF nd fowmnEptonD xFfF @IWWIAX intrepreneurshipX gretivity nd qrowthF xew orkF extonD hFvF nd milorD FF @IWWUAX intrepreneurship PHHHF hoverF iegelD FD iegelD iF nd wwillnD sF @IWWQAX ghrteristis distinguishing high growth venturesF tournl of fusiness enturing V@PAX ITWEIVHF ternergD F @PHHHAX intrepreneurship in heutshlnd"hs qru ndungsgeshehen im interntionlen ergleihX vndereriht heutshlnd zum qlol intrepreneurship wonitorF ferlinF eeeD hFtF @IWVTAX ro(ting from tehnologil innovtionX smplitions for integrtionD ollortionD liensingD nd puli poliyF eserh oliy ISX PVSEQHSF ilsevier iene ulishers fFF @xorthErollndAF
15.5.1 About the chapter author
rofessor wihel howling is rofessor for snnovtion nd ehnology wngement t the niversity of egensurgF re reeived his hh in fusiness edministrtion from the niversity of exs t eustin in IWVVF ris reserh interests inlude the strtegi mngement of tehnologyD espeilly in the teleommunitions industryD high tehnology entrepreneurshipD nd the reltionships etween tehnologyD puli poliy nd eonomi developmentF
15.5.2 About the chapter editor
rofessor rns tu rgen hrumm is retired rofessor of fusiness edministrtion with fous on rumn esoure wngement nd yrgniztion heoryF re reeived his dotorte t the pree niversity of ferlin nd his rilittion t the niversity of the rlndF rnslted nd reprinted with permission from howlingGhrumm qru ndungsmngement @intrepreneurE shipA pringer erlgD PHHQF
INDEX
PWS
Index of Keywords and Terms

re listed y the setion with tht keyword @pge numers re in prenthesesAF ueywords do not neessrily pper in the text of the pgeF hey re merely ssoited with tht setionF Ex. pplesD IFI @IA Terms re referened y the pge they pper onF Ex. pplesD I
Keywords
B flne heetD IUQ
udgetD IVQ usinessD IFI@IAD IFP@QAD IFQ@SAD IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD PFI@QQAD PFP@QRAD PFQ@QVAD PFR@QWAD RFI@SWAD RFP@SWAD RFQ@THAD RFR@TQAD RFS@TTAD RFT@TUAD RFU@TVAD RFV@UHAD RFW@UHAD SFI@UIAD SFP@UIAD SFQ@UPAD SFR@USAD SFS@UUAD SFT@VHAD SFU@VPAD SFV@VRAD SFW@VVAD SFII@WUAD SFIP@IHPAD SFIQ@IHPAD SFIR@IHPAD TFI@IHWAD TFP@IHWAD TFQ@IIHAD TFR@IIQAD TFS@IIVAD TFT@IPRAD TFU@IPWAD TFV@IPWAD UFI@IQIAD UFP@IQIAD UFQ@IQQAD UFR@IQRAD UFS@IQWAD UFT@IRHAD UFU@IRRAD UFV@IRUAD VFI@ISIAD VFP@ISIAD VFQ@ISRAD VFR@ISTAD VFS@ITHAD VFT@ITTAD VFU@ITTAD VFV@ITUAD WFI@ITWAD WFP@ITWAD WFQ@ITWAD WFR@IUIAD WFS@IUPAD WFT@IUQAD WFU@IUSAD WFV@IUTAD WFW@IVHAD WFIH@IVQAD WFII@IVUAD WFIP@IVVAD WFIQ@IVVAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWAD IIFI@PIIAD IIFP@PIIAD IIFQ@PIIAD IIFR@PIQAD IIFS@PISAD IIFT@PITAD IIFU@PIVAD IIFV@PPHAD IIFW@PPIAD IIFIH@PPPAD IPFI@PPQAD IPFP@PPVAD IPFQ@PQIAD IQFI@PQSAD IQFP@PQSAD IQFQ@PQTAD IQFR@PRHAD IQFS@PRQAD IQFT@PRRAD IQFU@PRVAD IQFV@PRVAD IQFW@PRWAD IQFIH@PRWAD IRFI@PSIAD IRFP@PSPAD IRFQ@PSTAD IRFR@PSVAD IRFS@PTIAD IRFT@PTRAD IRFU@PTVAD IRFV@PUIAD IRFW@PUUAD IRFIH@PVHAD IRFII@PVPAD IRFIP@PVPAD ISFI@PVSAD ISFP@PVSAD ISFQ@PWHAD ISFR@PWQAD ISFS@PWQA usiness modelsD QFI@RIAD QFP@RIAD QFQ@RRAD QFR@RSAD QFS@RTAD QFT@RUAD QFU@RWAD
QFV@SRAD QFW@STAD QFIH@SUAD QFII@SVA

C grroll9s g yrmidD IRFW@PUUA
ompnyD IFI@IAD IFP@QAD IFQ@SAD IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWA ompetitionD IIFI@PIIAD IIFP@PIIAD IIFQ@PIIAD IIFR@PIQAD IIFS@PISAD IIFT@PITAD IIFU@PIVAD IIFV@PPHAD IIFW@PPIAD IIFIH@PPPA gorporte soil responsiilityD IRFW@PUUA IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD QFI@RIAD QFP@RIAD QFQ@RRAD QFR@RSAD QFS@RTAD QFT@RUAD QFU@RWAD QFV@SRAD QFW@STAD QFIH@SUAD QFII@SVAD SFI@UIAD SFP@UIAD SFQ@UPAD SFR@USAD SFS@UUAD SFT@VHAD SFU@VPAD SFV@VRAD SFW@VVAD SFII@WUAD SFIP@IHPAD SFIQ@IHPAD SFIR@IHPAD TFI@IHWAD TFP@IHWAD TFQ@IIHAD TFR@IIQAD TFS@IIVAD TFT@IPRAD TFU@IPWAD TFV@IPWAD UFI@IQIAD UFP@IQIAD UFQ@IQQAD UFR@IQRAD UFS@IQWAD UFT@IRHAD UFU@IRRAD UFV@IRUAD WFI@ITWAD WFP@ITWAD WFQ@ITWAD WFR@IUIAD WFS@IUPAD WFT@IUQAD WFU@IUSAD WFV@IUTAD WFW@IVHAD WFIH@IVQAD WFII@IVUAD WFIP@IVVAD WFIQ@IVVAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWAD IPFI@PPQAD IPFP@PPVAD IPFQ@PQIAD IQFI@PQSAD IQFP@PQSAD IQFQ@PQTAD IQFR@PRHAD IQFS@PRQAD IQFT@PRRAD IQFU@PRVAD IQFV@PRVAD IQFW@PRWAD IQFIH@PRWAD IRFI@PSIAD IRFP@PSPAD IRFQ@PSTAD IRFR@PSVAD
E entrepreneurD IFI@IAD IFP@QAD IFQ@SAD
PWT IRFS@PTIAD IRFT@PTRAD IRFU@PTVAD IRFV@PUIAD IRFW@PUUAD IRFIH@PVHAD IRFII@PVPAD IRFIP@PVPA entrepreneurshipD PFI@QQAD PFP@QRAD PFQ@QVAD PFR@QWAD RFI@SWAD RFP@SWAD RFQ@THAD RFR@TQAD RFS@TTAD RFT@TUAD RFU@TVAD RFV@UHAD RFW@UHAD VFI@ISIAD VFP@ISIAD VFQ@ISRAD VFR@ISTAD VFS@ITHAD VFT@ITTAD VFU@ITTAD VFV@ITUAD IIFI@PIIAD IIFP@PIIAD IIFQ@PIIAD IIFR@PIQAD IIFS@PISAD IIFT@PITAD IIFU@PIVAD IIFV@PPHAD IIFW@PPIAD IIFIH@PPPAD ISFI@PVSAD ISFP@PVSAD ISFQ@PWHAD ISFR@PWQAD ISFS@PWQA ethisD IPFI@PPQAD IPFP@PPVAD IPFQ@PQIA externl reltionshipsD VFI@ISIAD VFP@ISIAD VFQ@ISRAD VFR@ISTAD VFS@ITHAD VFT@ITTAD VFU@ITTAD VFV@ITUA
F (nneD WFI@ITWAD WFP@ITWAD WFQ@ITWAD
INDEX
IIFW@PPIAD IIFIH@PPPAD IPFI@PPQAD IPFP@PPVAD IPFQ@PQIAD IQFI@PQSAD IQFP@PQSAD IQFQ@PQTAD IQFR@PRHAD IQFS@PRQAD IQFT@PRRAD IQFU@PRVAD IQFV@PRVAD IQFW@PRWAD IQFIH@PRWAD IRFI@PSIAD IRFP@PSPAD IRFQ@PSTAD IRFR@PSVAD IRFS@PTIAD IRFT@PTRAD IRFU@PTVAD IRFV@PUIAD IRFW@PUUAD IRFIH@PVHAD IRFII@PVPAD IRFIP@PVPAD ISFI@PVSAD ISFP@PVSAD ISFQ@PWHAD ISFR@PWQAD ISFS@PWQA growth strtegiesD ISFI@PVSAD ISFP@PVSAD ISFQ@PWHAD ISFR@PWQAD ISFS@PWQA
I
WFR@IUIAD WFS@IUPAD WFT@IUQAD WFU@IUSAD WFV@IUTAD WFW@IVHAD WFIH@IVQAD WFII@IVUAD WFIP@IVVAD WFIQ@IVVA TFR@IIQAD TFS@IIVAD TFT@IPRAD TFU@IPWAD TFV@IPWA glol text projetD IFI@IAD IFP@QAD IFQ@SAD IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD PFI@QQAD PFP@QRAD PFQ@QVAD PFR@QWAD QFI@RIAD QFP@RIAD QFQ@RRAD QFR@RSAD QFS@RTAD QFT@RUAD QFU@RWAD QFV@SRAD QFW@STAD QFIH@SUAD QFII@SVAD RFI@SWAD RFP@SWAD RFQ@THAD RFR@TQAD RFS@TTAD RFT@TUAD RFU@TVAD RFV@UHAD RFW@UHAD TFI@IHWAD TFP@IHWAD TFQ@IIHAD TFR@IIQAD TFS@IIVAD TFT@IPRAD TFU@IPWAD TFV@IPWAD UFI@IQIAD UFP@IQIAD UFQ@IQQAD UFR@IQRAD UFS@IQWAD UFT@IRHAD UFU@IRRAD UFV@IRUAD VFI@ISIAD VFP@ISIAD VFQ@ISRAD VFR@ISTAD VFS@ITHAD VFT@ITTAD VFU@ITTAD VFV@ITUAD WFI@ITWAD WFP@ITWAD WFQ@ITWAD WFR@IUIAD WFS@IUPAD WFT@IUQAD WFU@IUSAD WFV@IUTAD WFW@IVHAD WFIH@IVQAD WFII@IVUAD WFIP@IVVAD WFIQ@IVVAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWAD IIFI@PIIAD IIFP@PIIAD IIFQ@PIIAD IIFR@PIQAD IIFS@PISAD IIFT@PITAD IIFU@PIVAD IIFV@PPHAD
G glolD TFI@IHWAD TFP@IHWAD TFQ@IIHAD
snome ttementD IUQ intelligeneD IIFI@PIIAD IIFP@PIIAD IIFQ@PIIAD IIFR@PIQAD IIFS@PISAD IIFT@PITAD IIFU@PIVAD IIFV@PPHAD IIFW@PPIAD IIFIH@PPPA interntionlD IRFI@PSIAD IRFP@PSPAD IRFQ@PSTAD IRFR@PSVAD IRFS@PTIAD IRFT@PTRAD IRFU@PTVAD IRFV@PUIAD IRFW@PUUAD IRFIH@PVHAD IRFII@PVPAD IRFIP@PVPA RFR@TQAD RFS@TTAD RFT@TUAD RFU@TVAD RFV@UHAD RFW@UHA ledgerD IUT
L ledershipD RFI@SWAD RFP@SWAD RFQ@THAD
M mngementD SFI@UIAD SFP@UIAD SFQ@UPAD
SFR@USAD SFS@UUAD SFT@VHAD SFU@VPAD SFV@VRAD SFW@VVAD SFII@WUAD SFIP@IHPAD SFIQ@IHPAD SFIR@IHPAD UFI@IQIAD UFP@IQIAD UFQ@IQQAD UFR@IQRAD UFS@IQWAD UFT@IRHAD UFU@IRRAD UFV@IRUAD VFI@ISIAD VFP@ISIAD VFQ@ISRAD VFR@ISTAD VFS@ITHAD VFT@ITTAD VFU@ITTAD VFV@ITUA mrketingD QFI@RIAD QFP@RIAD QFQ@RRAD QFR@RSAD QFS@RTAD QFT@RUAD QFU@RWAD QFV@SRAD QFW@STAD QFIH@SUAD QFII@SVAD TFI@IHWAD TFP@IHWAD TFQ@IIHAD TFR@IIQAD TFS@IIVAD TFT@IPRAD TFU@IPWAD TFV@IPWA mentorD IFI@IAD IFP@QAD IFQ@SAD IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWA UFR@IQRAD UFS@IQWAD UFT@IRHAD UFU@IRRAD
O opertionsD UFI@IQIAD UFP@IQIAD UFQ@IQQAD
INDEX
PWU IQFR@PRHAD IQFS@PRQAD IQFT@PRRAD IQFU@PRVAD IQFV@PRVAD IQFW@PRWAD IQFIH@PRWA strtEupD IFI@IAD IFP@QAD IFQ@SAD IFR@VAD IFS@IHAD IFT@IIAD IFU@IRAD IFV@IUAD IFW@PHAD IFIH@PIAD IFII@PRAD IFIP@PSAD IFIQ@PTAD IHFI@IWIAD IHFP@IWIAD IHFQ@IWPAD IHFR@IWRAD IHFS@IWVAD IHFT@PHHAD IHFU@PHTAD IHFV@PHVAD IHFW@PHWAD IHFIH@PHWAD ISFI@PVSAD ISFP@PVSAD ISFQ@PWHAD ISFR@PWQAD ISFS@PWQA
T temD SFI@UIAD SFP@UIAD SFQ@UPAD SFR@USAD
UFV@IRUA orgniztionD RFI@SWAD RFP@SWAD RFQ@THAD RFR@TQAD RFS@TTAD RFT@TUAD RFU@TVAD RFV@UHAD RFW@UHAD WFI@ITWAD WFP@ITWAD WFQ@ITWAD WFR@IUIAD WFS@IUPAD WFT@IUQAD WFU@IUSAD WFV@IUTAD WFW@IVHAD WFIH@IVQAD WFII@IVUAD WFIP@IVVAD WFIQ@IVVA
P produtsD IQFI@PQSAD IQFP@PQSAD IQFQ@PQTAD
IQFR@PRHAD IQFS@PRQAD IQFT@PRRAD IQFU@PRVAD IQFV@PRVAD IQFW@PRWAD IQFIH@PRWA
seletionD SFI@UIAD SFP@UIAD SFQ@UPAD SFR@USAD SFS@UUAD SFT@VHAD SFU@VPAD SFV@VRAD SFW@VVAD SFII@WUAD SFIP@IHPAD SFIQ@IHPAD SFIR@IHPA serviesD IQFI@PQSAD IQFP@PQSAD IQFQ@PQTAD
SFS@UUAD SFT@VHAD SFU@VPAD SFV@VRAD SFW@VVAD SFII@WUAD SFIP@IHPAD SFIQ@IHPAD SFIR@IHPA
PWV
ATTRIBUTIONS
Attributions
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ATTRIBUTIONS
PWW
woduleX 4tkeholdersX the onnetive rim on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQIQGIFRG gesX IREIU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ithisX the uthenti rim on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQIRGIFRG gesX IUEIW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertionsX the logistil rim on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQITGIFRG gesX PHEPI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4xew produtX the tngile rim on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQPIGIFRG gesX PIEPQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4vet the fruits of your lor lossomX the new produtGservie lunh event pln4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQIWGIFRG gesX PREPS gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4uli reltionsX the senstionl rim on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQQPGIFRG gesX PSEPT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wentor insightsX the here the uer weets the od spokes on the wheel4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQPPGIFRG gesX PTEQI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
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ATTRIBUTIONS
ATTRIBUTIONS
QHI
woduleX 4fusiness models nd mrketingX uess ftors4 sed here sX 4uess ftors4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQRRGIFRG gesX RRERS gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketingX gonsumer mrketing models4 sed here sX 4gonsumer mrketing models4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQRTGIFRG gesX RSERT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketing E he mrketing model4 sed here sX 4he mrketing model4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQRWGIFRG gesX RTERU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketing E sdentifying mrket needs4 sed here sX 4sdentifying mrket needs4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQSIGIFRG gesX RUERW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketing E fusiness to usiness mrketing models4 sed here sX 4fusiness to usiness mrketing models4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQSTGIFRG gesX RWESR gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketingX ghpter summry4 sed here sX 4ghpter summry4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQSUGIFRG gesX SREST gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
QHP
ATTRIBUTIONS
woduleX 4fusiness models nd mrketingX wrket reserh to determine the potentil mrket for funerl servies in wonterreyD wexio4 sed here sX 4wrket reserh to determine the potentil mrket for funerl servies in wonterreyD wexio4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSTRRGIFRG gesX STESU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketingX hisussion questions4 sed here sX 4hisussion questions4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQTQGIFSG geX SU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness models nd mrketingX eferenes4 sed here sX 4eferenes4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQSWGIFRG geX SV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4row to orgnize nd led n entrepreneuril venture E verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQTRGIFRG geX SW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4row to orgnize nd led n entrepreneuril venture E sntrodution4 sed here sX 4sntrodution4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQTWGIFRG gesX SWETH gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4row to orgnize nd led n entrepreneuril venture E yrgniztionl issues4 sed here sX 4yrgniztionl issues4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQTSGIFRG gesX THETP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
QHQ
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QHR woduleX 4eleting nd mnging your temX verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQVUGIFRG geX UI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
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ATTRIBUTIONS
QHS
woduleX 4eleting nd mnging your tem E eligning employee reer development with orgniztionl growth4 sed here sX 4eligning employee reer development with orgniztionl growth4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSQWWGIFRG gesX VPEVR gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your tem E erformne pprisl4 sed here sX 4erformne pprisl4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRHVGIFRG gesX VREVV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your tem E hetermining se py4 sed here sX 4hetermining se py4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRHTGIFRG gesX VVEWR gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your temX weningful jo design4 sed here sX 4weningful jo design4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRHPGIFRG gesX WREWU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your tem E ermintion4 sed here sX 4ermintion4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRIQGIFRG gesX WUEIHP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your tem E hisussion questions4 sed here sX 4hisussion questions4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRIIGIFRG geX IHP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
QHT woduleX 4eleting nd mnging your tem E ixerise4 sed here sX 4ixerise4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRIRGIFRG geX IHP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4eleting nd mnging your tem E eferenes4 sed here sX 4eferenes4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRIUGIFRG gesX IHPEIHU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRIVGIFRG geX IHW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX he(ning mrketing4 sed here sX 4he(ning mrketing4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRPRGIFRG gesX IHWEIIH gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
woduleX 4wrketing on glol sleX he role of mrketing in the (rmX sis for lssi(tion4 sed here sX 4he role of mrketing in the (rmX sis for lssi(tion4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRPPGIFRG gesX IIHEIIQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX he(ning interntionl mrketing4 sed here sX 4he(ning interntionl mrketing4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRPTGIFRG gesX IIQEIIV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
QHU
woduleX 4wrketing on glol sleX he interntionl mrketing pln4 sed here sX 4he interntionl mrketing pln4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRPWGIFRG gesX IIVEIPQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX he interntionl mrketing environment4 sed here sX 4he interntionl mrketing environment4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRQPGIFRG gesX IPREIPV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX hisussion question4 sed here sX 4hisussion question4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRQSGIFRG geX IPW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4wrketing on glol sleX eferenes4 sed here sX 4eferenes4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRQTGIFRG geX IPW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRQUGIFRG geX IQI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX ht is opertions mngementc4 sed here sX 4ht is opertions mngementc4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRRHGIFSG gesX IQIEIQQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
QHV woduleX 4ypertions mngementX he inputGoutput trnsformtion model4 sed here sX 4he inputGoutput trnsformtion model4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRQWGIFRG gesX IQQEIQR gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX ypertions deisions4 sed here sX 4ypertions deisions4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRRRGIFRG gesX IQREIQW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX ghpter summry4 sed here sX 4ghpter summry4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRRQGIFRG geX IQW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX peil topiX otl ulity wngement4 sed here sX 4peil topiX otl ulity wngement4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRRUGIFRG gesX IRHEIRQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX peil topiX supply hin mngement4 sed here sX 4peil topiX supply hin mngement4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRTIGIFRG gesX IRREIRU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4ypertions mngementX peil topiX justEinEtime nd len systems4 sed here sX 4peil topiX justEinEtime nd len systems4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRRVGIFRG gesX IRUEISH gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
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ATTRIBUTIONS
QHW
woduleX 4euring nd mnging externl reltionshipsX verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRTPGIFRG geX ISI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX sntrodution to externl reltionships4 sed here sX 4sntrodution to externl reltionships4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRSQGIFRG gesX ISIEISQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX wrketing exhnges nd prtnerships4 sed here sX 4wrketing exhnges nd prtnerships4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRSUGIFRG gesX ISREIST gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX ghoosing the right reltionship4 sed here sX 4ghoosing the right reltionship4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRTRGIFRG gesX ISTEITH gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX trtegies for externl reltionships4 sed here sX 4trtegies for externl reltionships4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRTWGIFRG gesX ITHEITT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX ghpter summry4 sed here sX 4ghpter summry4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRUPGIFQG geX ITT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
QIH woduleX 4euring nd mnging externl reltionshipsX ixerises4 sed here sX 4ixerises4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRUSGIFRG geX ITT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4euring nd mnging externl reltionshipsX eferenes4 sed here sX 4eferenes4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRTSGIFRG geX ITU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E verning yjetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWUGIFRG geX ITW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
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woduleX 4pinnil nd mngeril ountingY (nning your orgniztionX sntrodution4 sed here sX 4sntrodution4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRUTGIFRG geX ITW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E hy n ounting system is importnt4 sed here sX 4hy n ounting system is importnt4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRUWGIFRG gesX ITWEIUI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E fsi types of ounts4 sed here sX 4fsi types of ounts4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRVIGIFRG gesX IUIEIUP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
QII
woduleX 4pinning our yrgniztion E ghrt of ounts4 sed here sX 4ghrt of ounts4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRVTGIFRG gesX IUPEIUQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E fsi (nnil sttements4 sed here sX 4fsi (nnil sttements4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRVUGIFRG gesX IUQEIUS gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E e short history of ounting nd douleEentry ookkeeping4 sed here sX 4e short history of ounting nd douleEentry ookkeeping4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRVVGIFRG gesX IUSEIUT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E vedgers4 sed here sX 4vedgers4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRVWGIFRG gesX IUTEIUW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E edvned reports nd nlyses4 sed here sX 4edvned reports nd nlyses4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWIGIFRG gesX IVHEIVQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E fudgets4 sed here sX 4fudgets4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWPGIFRG gesX IVQEIVU gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
QIP woduleX 4pinning our yrgniztion E ghpter ummry4 sed here sX 4ghpter ummry4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWRGIFRG gesX IVUEIVV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E hisussion uestions4 sed here sX 4hisussion uestions4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWSGIFRG geX IVV gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4pinning our yrgniztion E eferenes4 sed here sX 4eferenes4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWTGIFRG gesX IVVEIVW gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4veverging with informtion tehnologyX verning yjetives4 sed here sX 4verning yjetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSHHGIFRG geX IWI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4veverging with informtion tehnologyX sntrodution4 sed here sX 4sntrodution4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSRWWGIFRG gesX IWIEIWP gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
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ATTRIBUTIONS
QIQ
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ATTRIBUTIONS
QIS
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QIT woduleX 4fusiness ethis in nutshellX wngementX the met profession4 sed here sX 4wngementX the met profession4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSSQGIFRG gesX PPVEPQI gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4fusiness ethis in nutshellX gorporte soil responsiility4 sed here sX 4gorporte soil responsiility4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSSTGIFRG gesX PQIEPQQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4edding produts nd serviesX verning ojetives4 sed here sX 4verning ojetives4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSSUGIFRG geX PQS gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4edding produts nd serviesX sntrodution4 sed here sX 4sntrodution4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSTRGIFRG gesX PQSEPQT gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4edding produts nd serviesX here does innovtion ome fromc4 sed here sX 4here does innovtion ome fromc4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSURGIFSG gesX PQTEPRH gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG woduleX 4edding produts nd serviesX snnovtion through usiness models4 sed here sX 4snnovtion through usiness models4 fyX qlol ext rojet vX httpXGGnxForgGontentGmQSSTVGIFRG gesX PRHEPRQ gopyrightX qlol ext rojet vienseX httpXGGretiveommonsForgGliensesGyGQFHG
ATTRIBUTIONS
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QIU
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Business Fundamentals

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Business Fundamentals

By: Global Text Project

By: Global Text Project

Online: < http://cnx.org/content/col11227/1.4/ >

3 Business models and marketing:an overview

5 Selecting and managing your team

6 Marketing on a global scale

8 Securing and managing external relationships

9 Financial and managerial accounting; nancing your organization

14 International business for the entrepreneur

Exhibit 1.1: Striking gold

Image created by:

MBA Candidate at Pepperdine

University Class of 2009

content is available online at <http://cnx.org/content/m35298/1.4/>.

Dedication: In Memory of Nancy Wachs who believed in everyone's Startup time!

1.1.1 Are entrepreneurs born or made?

1.1: "The Mindset of an Entrepreneur"

delves deeply into he mind of n entrepreneurF

1.2 The business eco-system: The business eco-system

2008. All Rights

4 http://www.Mentorography.com 5 This content is available online at

Exhibit 1.2: Business eco-system wheel

Wheel with permission from Mentorography, Inc.

All Rights Reserved.

Exhibit 1.3: Rising sun

Image created by:

MBA Candidate at Pepperdine

University Class of 2009

1.2: Stop and Go Signs for Accessing Market Opportunity Matrix

mrket opportunity in greter detilF

1.4 Sales: the essential rim of the wheel

Exhibit 1.5: The Business Eco-System Wheel and sales

1.4.1.1 What will I sell?

1.4.1.2 Places for inspiration

etion IHFI ontins more mteril on (nning your usinessF

1.5 Strategy: the tactical rim on the wheel

content is available online at <http://cnx.org/content/m35317/1.4/>.

TFI oth ontin more informtion in setting your strtegyF

1.6 Branding will make your blossoms bloom!

Exhibit 1.6: Mid day

Image created by:

MBA Candidate at Pepperdine

University Class of 2009

19 http://www.Mentorography.com 20 This content is available online at

1.6.1 Branding: The memorable rim on the wheel

All Rights Reserved.

Branding that Works, page 79.

Blog Back 4: Brand Identity Blog BackX frinstorm the development

http://www.wipo.int/madrid/en/ (<http://www.wipo.int/madrid/en/>) (Accessed January 11, 2009).

28 http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf 29 World Intellectual Property Organization, Madrid Agreement Concerning

(<http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf>) (Accessed January 11, 2009).

(<http://www.uspto.gov/web/trademarks/tmog/20081230_OG.pdf>) (Accessed December 24, 2008).

1.7 Stakeholders: the connective rim on the wheel

uary 12, 2009. Reprinted with permission from Mentorography, Inc.

2009. All Rights Reserved.

Exhibit 1.8: Mid Day (Adapted)

Image created by:

MBA Candidate at Pepperdine

University Class of 2009

1.8 Ethics: the authentic rim on the wheel

(<http://www.grupobimbo.com/display.php?section=6>) (Accessed December 28, 2009).

1.9 Operations: the logistical rim on the wheel

1.10 New product: the tangible rim on the wheel

9 Financial and managerial accounting; nancing your organization

delves deeply into he mind of n entrepreneurF

1.2: Stop and Go Signs for Accessing Market Opportunity Matrix

28 http://www.wipo.int/export/sites/www/treaties/en/documents/pdf/madrid_marks.pdf 29 World Intellectual Property Organization, Madrid Agreement Concerning

1.4: New Venture Instructional Manual to Operational Excellence

1.5: Checklist for a New Product Launch Event

the Where the Rubber Meets the Road