September 27, 2013

Chapter 3: What is Business?

The Big Picture

An efficient and effective operating platform can be assessed against three fundamental
characteristics (Google as an example):
1. Commercial Endeavours (business system)- The markets that the organization serves,
the products/services it offers, and the needs it professes to meet in the marketplace
Generation of revenue and profits from market offerings point and click
2. Employee Interaction- The value creating skills an organizations employees bring to the
marketplace; the success of many businesses lies with the specialized skills that exist
within its labour force
Developers, engineers, and system designers with specialized skills employed
3. Organizational Efficiency and Structure- Reflection of the complexities of the business
activities that circulate within an organization
Formal framework set in place to manage + deliver products and services

What is Business?
A system if integrated mission based actions
Develop and grow markets for its goods and services
Create organizational value (wealth) on behalf of its stakeholders
Factors of Production/Fundamental Resource areas:
Assets- Infrastructure and resource base of the organization
Labour- Human resource requirements of the business
Capital- Money needed by an organization to support asset based expenditures, meet operating
cash requirements, and invest in development of new products/services which organization
desires to introduce into the marketplace
Managerial Acumen- Foresight, drive, knowledge, ability, decision making competency, and
ingenuity of the organizations key individuals; its owners/top level managers
Visionary Leadership- Ability of managers to establish a direction for the organization
based on the needs identified in the marketplace and the mission (reason for being) of
the organization ->Translated into strategic plan
= Business Model Composition- Operational platform/structure that a business uses to generate
revenue and profit
The role of the business manager/owner is to recognize, anticipate, and sense an opportunity to create
a product/service that is unique, important and of meaningful value to targeted customers:
Strategy and 3C Assessment:
Strategy- Specific objectives an organization hopes to achieve during the planning cycle
3c Assessment- Analyzing resources available to organization and the capabilities and
competencies it possesses; defines capacity of what organization can and cannot do -> enables
management team to define how and to what extent it can capitalize on its identified strategic
opportunities in manner that is superior to competition
= Business plan can then be developed via business planning cycle

September 27, 2013

Competitive Advantage- The advantage an organization has over its competitors that enables it
to generate more sales, achieve greater margins (on costs), achieve a lower cost base, and
attract/retain more customers
Identify and set objectives that will enable them to achieve defined position in marketplace
(SMAC): Specific, Measurable, Actionable, and Controllable but also achievable, allocate
resources, and assessment must be done
The failure to meet objectives of a planning cycle can be the result of poor positioning, poor
operational execution, or combination of the two
Both For-Profit Companies: Organizations whose overreaching objective is profitability and
wealth creation on behalf of their shareholders and stakeholders, and Not-for-ProfitOrganizations: Organizations whose overreaching objective is not profitability and wealth
creation but to deliver services to the people, groups, and communities that they serve via a
model of collective interest and social goal achievement, need competitive business models

The Fundamental Objectives of Business

1. Short Term Profit
Ensures immediate survival of the firm
Necessary to pay bills and reinvest in the future
2. Long Term Growth and Profitability
New products and services need to be developed to ensure the organization remains
healthy and continues to grow
3. Social and Environmental Responsibility
Customers want businesses to operate and act in a socially responsible manner with
respect to product development, resource consumption and operating processes
Too much emphasis on short term profitability may result in decisions that are detrimental to
long term market opportunities & fall short of social responsibility expectations; must be equal

The Business Model and Profitability

September 27, 2013

The Difference Between Profit and Profitability
Profit- The bottom line result an organization has realized for an identified, immediate period of
time; Total Revenue Total Expenses
Profitability- Measures how well a company is using its resources over a specific period of time
to generate earnings relative to its competitors
Measures factors such as capital invested, return on equity, financial leverage, etc
Assessed over period of time so efficiency and effectiveness results can be compared
Assessed also for comparisons among competitors
Stakeholders- Any person, company, or organization that owns at least one share of stock
Improving Profitability
Companies in marketplace are continually being challenged to develop new product
opportunities, meet evolving needs in emerging markets, and streamline operations, all in effort
to improve immediate and longer term profitability

Calculating A Value Proposition

Value Proposition- A statement that summarizes whom a g/s is geared toward and the benefits
the purchaser will realize as a result of using the product
Value Proposition = Service Benefits + Product Benefits + Brand Benefits + Cost Benefits +
Emotional Benefits
Companies develop value propositions for the purpose of communicating to customers how
their g/s are different and the important benefits which they offer

The Impact of Price

Purchasers will assess price/quality relationship of one businesss value proposition and
measure it against those of its competitors
The more unique/important, and value driven product is, the greater opportunity to
communicate to potential purchaser a value proposition which has positive price/quality
relationship, and which can be considered to be superior to those of your competitors

September 27, 2013

In developing value proposition, 5 questions must be assessed:

1. What is my cost base for producing and/or delivering g/s to marketplace, and how does this
compare to that of my main competitors
2. Do I have strong brand profile in market place than I can leverage as part of the benefit to
the customer when purchasing this product?
3. Are there emotional benefits that customer will attach to g/s offering? If so, how can I use
this to assist me in strengthening my value proposition
4. Are there unique service benefits I can incorporate into this value proposition that will assist
me in supporting potential and existing customers
5. ^ Can I create strong enough value proposition to enable me to compete against
competitors in market segment- portion of market that is deemed to possess unique
characteristics businesses can target in order to generate a preference for g/s

Understanding your Cost Base

Expenses to considered when setting price of g/s is key component of managing business
Asset Based Expenditure- Expenditures for the purchase of assets required by a firm in
order to support the companys business operations, and which contribute to the firms
ability to earn a profit (purchase of equipment or buildings)
Operating Expenditures- Expenses incurred as a result of a company performing its
normal business operations (salaries, raw materials, shipping costs)

The Business Decision Making

Landscape

Developing and managing business requires owners to:

Create vision of opportunity in marketplace
Confirm that market size of customers is large enough that, once commercialized, the
opportunity can enable organization to make profit and sustain this profitability for
anticipated planning cycle and beyond
Confirm that a position within the market is feasible, which will enable the company to
compete in a manner that is superior to its direct competition
Confirm that the market situation will stay constant long enough for the business plan
to be developed and executed
Confirm that business has resource base and capability to execute the strategy
Execute strategy in an efficient and effective manner achieving objectives
Strategy- Development of plans and decisions that will guide the direction of the firm and
determine its long term performance
Tactics- Immediate term actions which firm executes in order to meet the short-term objectives
set forth in current planning cycle

September 27, 2013

Management Reflection- Focus on

Business

Business is not only about producing and distributing g/s, it is about delivering value to
customers in a manner that meets their needs and desires
Need to make decisions in recognition of both immediate needs and longer term requirements
in order to protect and grow the general health of the organization
What worked in the past may not work in the future (Blockbuster)