Chapter seven
Managing resource and
transition
Timmons Model
of Entrepreneurship
This model was
developed by Jeffry Timmons, identifies three key components that an
entrepreneur needs to manage in order to start and grow a business:
opportunities, teams, and resources.
1.
Opportunities:
·
Entrepreneurship
begins with identifying and evaluating a viable market opportunity.
·
Timmons
emphasizes that opportunities are more crucial than the talent or competence of
the entrepreneur and the team.
·
Good ideas
become excellent when they add value, remain attractive, durable, and timely.
2.
Teams:
·
Once an
opportunity is identified, assembling a competent team is crucial to unlocking
its potential.
·
A lead
entrepreneur must gather the right people after identifying the opportunity and
obtaining required resources.
·
A good team can
lead to success, while a poorly formed team can waste a great idea.
3.
Resources:
·
Finding and
managing appropriate resources, both tangible and intangible, is essential for
success.
·
Tangible
resources include buildings, land, money, etc., while intangible resources
encompass knowledge, goodwill, and information.
·
Balancing
opportunities, teams, and resources is key to achieving business success.
The Timmons model emphasizes the interplay between these three factors and the need for creativity, communication, and leadership to bring the opportunity to a viable business model. The model recognizes that entrepreneurship is an evolutionary process, and changes in one factor can have a significant impact on the others.
New
Venture Expansion Strategies
Methods of Growth
1. Incremental Growth:
Expand product inventory or services without major operational changes.
2. Acquisition: Purchasing
another existing business, typically smaller in size.
3. Franchising: Offering
franchise ownership to entrepreneurs to replicate the business model.
4. Licensing: Granting
third parties the right to use intellectual property for a fee, common in
software products.
5. Distribution Agreements: Establishing
agreements with distributors or dealerships.
6. New Marketing Routes: Exploring
new marketing channels like catalogs.
7. Industry Cooperatives: Joining
cooperatives for operational savings in areas like advertising and purchasing.
8. Public Stock Offerings: Selling
shares to investors and the public.
9. Employee Stock Ownership Plans (ESOP):
Providing employees with shares as an incentive, fostering employee-owned
companies.
The Ansoff Matrix – Growth Strategy
The Ansoff Matrix is a
strategic-planning tool created by Igor Ansoff to help businesses devise growth
strategies. It focuses on two approaches: product growth and market growth. The matrix
outlines four generic growth strategies:
1.
Market penetration/consumption: This
strategy aims to increase market share by promoting existing products to current market segments.
v It involves using promotional methods, pricing
policies, and distribution expansion to encourage more product usage.
v Market penetration has low risk due to familiarity with the product and market.
2.
Market development: This
strategy involves selling existing products to new market segments. It requires
further market segmentation to identify new customers.
v Approaches include entering new geographical markets, utilizing different distribution channels, packaging products differently, or implementing varied pricing policies. Market development carries medium to high risk.
3.
Product development involves
introducing new products or modifying
existing ones
in existing markets. The goal is to enhance
product performance, quality, or presentation to attract the existing customer
base.
v For example, car manufacturers offer additional car parts to target existing customers. Product development entails medium to high risk.
4.
Diversification: This
high-risk strategy involves developing and marketing new products for new markets simultaneously.
v It includes two unknown factors: the creation of new
products and the targeting of unfamiliar markets. Diversification can be
categorized into two types: related and unrelated.
v Related diversification occurs within the same industry, while unrelated diversification involves entering completely new industries.
Diversification requires careful assessment of potential gains and risks.
Expansion issues
When a company
undergoes expansion, there are several common issues that can arise. These
issues include:
1.
Growing too fast: Rapid
growth can overwhelm a business owner who may struggle to keep up with
increasing demand. Effective research and long-range planning can help
alleviate the problems associated with rapid expansion.
2.
Recordkeeping and Other Infrastructure
Needs: As a business expands, it becomes essential to
establish or update systems for monitoring cash flow, tracking inventory and
deliveries, managing finances, and tracking human resources information.
Communication systems may also need to be upgraded to support various business
operations.
3.
Expansion Capital: Growing
businesses often require additional financing. It can be challenging to secure
expansion capital, but planning ahead and revising the business plan can help
in securing financing under favorable terms.
4.
Personnel Issues: Expanding
companies usually need to hire new personnel to meet the demands of increased
production, marketing, and administrative requirements. Careful hiring
practices are crucial during this sensitive period of expansion. Additionally,
business growth may trigger the departure of employees who are unable or
unwilling to adjust to the changing business environment.
5.
Customer Service: Maintaining
good customer service becomes challenging during periods of hectic growth.
Sufficient staffing levels are essential to guarantee that customers receive
the attention and service they need.
6.
Disagreements among Ownership: Ownership
arrangements that worked well in the early stages of a company's life may
become problematic as the business becomes more complex. Differences in vision
or contributions among owners can lead to disagreements and may require the
departure of one or more partners to establish a unified direction.
7.
Family Issues: Aggressive
business expansion often requires significant sacrifices of time and money from
the owner(s). As the company expands and the families of the co-founders
increase in size, there might be a tendency to allocate more time at home.
This, in turn, could affect their capacity to actively contribute to the
ongoing growth of the company.
8.
Transformation of Company Culture: As businesses grow, it can become challenging to
maintain the original values and culture. Owners must remain attentive to their
role in shaping company culture and communicating values to employees.
9.
Changing Role of Owner: With
growth, the owner's role needs to shift from being involved in day-to-day
operations to becoming a CEO who focuses on strategic thinking and planning.
Seeking expertise from professionals in areas like accounting and law may also
become necessary.
Choosing not to grow
Choosing not to grow a small business is a valid decision made by many entrepreneurs for various reasons. Some of the common reasons for choosing not to expand include:
1.
Satisfaction with Current Size: Small
business owners may find great satisfaction in the size and scale of their
operations as it allows them to work closely with customers and employees.
2.
Avoiding Complexity and Headaches:
Some business owners
prefers to avoid the challenges and headaches that come with managing a larger
organization.
3.
Work-Life Balance: Choosing
to limit growth allows business owners to maintain a better work-life balance.
4.
Lifestyle Choice: Some
entrepreneurs prioritize a certain lifestyle over business growth.
5.
Risk Aversion: Expansion
often involves taking on additional financial risks and uncertainties.
Business
Ethics and Social Responsibility
A. Corporate
social responsibility
CSR is a philosophy wherein a company's anticipated
actions encompass not only delivering a reliable product, setting a fair price
with reasonable profit margins, and providing equitable wages to employees but
also demonstrating care for the environment and addressing other social
concerns.
There are four main obligations within CSR:
1.
Economic Responsibility: The
primary obligation of a business is to make money. Without profits, a company
cannot sustain itself in a market economy. While there are exceptions like
nonprofit organizations, most businesses must generate profits to survive.
2.
Legal Responsibility: Businesses
have a responsibility to adhere to rules and regulations. Proponents of CSR
argue that this obligation should be seen as a proactive duty, where
organizations make genuine efforts to comply with both the letter and spirit of
the law.
3.
Ethical Responsibility: Companies
have an ethical responsibility to do what is right, even when not mandated by
laws. This obligation stems from viewing the business as a citizen in society,
with citizenship implying certain responsibilities. Ethical responsibilities go
beyond legal requirements and involve actions that benefit society as a whole.
B. Triple
bottom line
The Triple Bottom Line
(TBL) represents a distinctive form of corporate social responsibility,
advocating that corporate leaders evaluate their performance not only in
economic terms but also in social and environmental dimensions. The key tenet
of this concept lies in the separation of these three dimensions—economic,
social, and environmental—each requiring sustainable outcomes.
Sustainability Defined
At the crossroads of
ethics and economics, sustainability implies the long-term maintenance of
balance. It manifests in three interrelated facets: economic sustainability,
social sustainability, and environmental sustainability.
1. Economic Sustainability: Prioritizing
long-term financial stability over short-term profits. This entails creating
business plans focused on stable and prolonged action, discouraging high-risk
ventures that may yield quick gains but carry potential for collapse.
2. Social Sustainability: Advocating
for a balanced distribution of opportunities and wealth among society.
Acknowledging that extreme imbalances can lead to societal unrest, social
sustainability emphasizes the importance of spreading opportunities and wealth
to maintain long-term stability.
v Fair Trade Movement: An
embodiment of this ethical imperative, the fair trade movement urges
businesses, especially major producers in affluent nations, to ensure fair
compensation for suppliers in impoverished nations. This fosters a global
economic system that limits greed, resentment, and anger.
v Human Dignity in Work: Beyond
financial aspects, social sustainability recognizes the dignity inherent in all
work. It opposes the dehumanization often associated with certain professions,
promoting respect for workers.
v Community Relations: Corporations,
viewed as citizens in a community, are expected to maintain healthy
relationships with the people in that community, avoiding negative impacts on
public health.
3. Environmental Sustainability: Recognizing
the finite nature of natural resources, especially oil, clean air, and water.
Conservation of resources and the development of alternative energy sources are
paramount to ensure a quality of life for future generations.
v Responsibility for Pollution: Acknowledging
that our planet's resources are limited, environmental sustainability dictates
actions to facilitate the renewal of the natural world. This includes
recycling, cleaning up existing contamination, and limiting pollution to
preserve a habitable planet.
Cultural
Perspectives
A fundamental
distinction between Corporate Social Responsibility (CSR) and the Triple Bottom
Line lies in cultural nuances. CSR, more American in nature, envisions
businesses transforming the world for the better. In contrast, the TBL, with
its roots in European culture, is aligned with sustainability as a guiding
value, reflecting a cautious approach to change due to historical economic
decline relative to the United States.
In essence, the Triple
Bottom Line compels businesses to embody the role of a responsible citizen
within the community, emphasizing a commitment beyond mere profit generation.
The pursuit of economic, social, and environmental sustainability becomes a
collective responsibility, shaping a holistic approach to corporate
responsibility.
C.
Stakeholder
Theory
Stakeholder theory,
articulated by scholars like Edward Freeman, stands as the antithesis of
corporate social responsibility (CSR).
v While CSR starts with the business and looks outward
to identify ethical obligations, stakeholder theory initiates from the world, identifying
individuals and groups affected by, or affecting, a company's actions.
v It poses questions about their legitimate claims,
rights, and the responsibilities they can impose on a particular business. In
essence, stakeholder theory
asserts that those touched by a corporation have both the right and
obligation to participate in directing it.
Application
of Stakeholder Theory
Illustrating this
theory with a practical example, consider a
factory producing industrial waste. From a CSR perspective, responsibility lies
with the factory owners to safely dispose of the waste. In contrast, a
stakeholder theorist begins with the community affected by potential
environmental damage, insisting on their right to clean air and water. Although
they may not own stock, they have a moral claim to participate in corporate
decision-making, effectively becoming something akin to shareholders due to the
impact on their lives.
Identifying
Stakeholders
The stakeholders
surrounding a business vary based on its nature. For instance, a
chemical-producing enterprise in a small town involves stakeholders with
diverse interests:
·
Company owners (reasonable profit)
·
Company workers (reasonable salaries)
·
Customers (quality products at fair prices)
·
Suppliers (fair prices for inputs)
·
Residents affected by workplace operations
·
Creditors
·
Government entities (regulation and fair taxation)
·
Local businesses catering to employees
·
Competing companies (fair competition for industry competitiveness)
While the outer limits
of stake holding are complex, practical stakeholder theory focuses on those
tangibly affected by a company's actions, forming an unbroken line from
corporate decisions to individual lives.
Stakeholder
Ethics in Action
Stakeholder ethics
posit that the purpose of a firm is to maximize profit defined not just in monetary terms but as human welfare.
v Corporate managers, therefore, must coordinate the
interests of all stakeholders, balancing conflicts and maximizing benefits
collectively over the medium and long term.
v This approach requires a shift from primarily
representing shareholders to the social task of engaging with various
stakeholders, recognizing their interests, and incorporating their input into
decision-making processes.
Transparency
and Stakeholder Participation
In the realm of
stakeholder ethics, transparency becomes crucial.
v Actively involving stakeholders in decision-making
necessitates ensuring they are well informed about the company's actions,
potential risks, and efforts to mitigate those risks.
v This emphasis on transparency aligns with the
theory's core principle that stakeholders should have a comprehensive
understanding of the factors affecting them, fostering a collaborative and informed
decision-making process.
Business Ethics Principles
In the realm of
business ethics, managers are obligated to adhere to universal ethical
principles that govern their conduct. These principles, grounded in ethical
values, articulate the standards for acceptable behavior in the professional
sphere. Here is a comprehensive list of ethical principles that encapsulate the
characteristics and values associated with ethical conduct:
1. Honesty: Ethical
executives are transparent and truthful in all dealings. They refrain from
deliberately misleading or deceiving others through misrepresentations,
overstatements, partial truths, selective omissions, or any other means.
2. Integrity: Demonstrating
personal integrity, ethical executives have the courage of their convictions.
They uphold principles even when faced with significant pressure, remaining
principled, honorable, and upright.
3. Promise-Keeping & Trustworthiness: Ethical executives are trustworthy and fulfill
promises. They provide relevant information, correct misapprehensions, and make
reasonable efforts to honor the letter and spirit of their commitments. They
avoid interpreting agreements in a technical or legalistic manner to justify
non-compliance.
4. Loyalty: Worthy
of trust, ethical executives demonstrate fidelity and loyalty to individuals
and institutions. They refrain from using confidential information for personal
advantage, avoid conflicts of interest, and provide reasonable notice when
transitioning to other employment.
5. Fairness: Ethical
executives are fair and just, avoiding arbitrary exercise of power. They
refrain from using offensive means to gain advantages and demonstrate a
commitment to justice, equal treatment, tolerance, and acceptance of diversity.
6. Concern for Others: Caring
and compassionate, ethical executives adhere to the Golden Rule, helping those
in need and striving to achieve business objectives with the least harm and the
greatest positive impact.
7. Respect for Others: Ethical executives respect the dignity, autonomy,
privacy, rights, and interests of all stakeholders. They treat all individuals
with equal respect and courtesy, irrespective of sex, race, or national origin.
8. Law Abiding: Ethical
executives abide by laws, rules, and regulations pertaining to their business
activities.
9. Commitment
to Excellence: ethical leaders actively pursue excellence in their
responsibilities, continuously work to enhance their skills, and remain
knowledgeable and prepared.
10. Leadership: Ethical
executives recognize the responsibilities and opportunities of their leadership
position. They serve as positive ethical role models and promote principled
reasoning and ethical decision-making.
11. Reputation
and Morale: Ethical executives protect and enhance the company's
reputation and employee morale. They avoid conduct that undermines respect and
take necessary actions to address inappropriate behavior.
12. Accountability: Ethical
executives accept personal accountability for the ethical quality of their
decisions and actions. They recognize their responsibility to themselves,
colleagues, companies, and communities.