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INSTITUTE OF STRATEGIC MANAGEMENT, NIGERIA

CORPERS PROGRAMME

LECTURE NOTES

ON

INVESTMENTSTRATEGIC INVESTMENT AND ENTREPRENEURSHIPHIP

By

BYASSOCIATE EXAMINATION
GOSPEL U OSADEBE-08032557002
The concept of Investment, Entrepreneurship, and their relationships
The purpose of this lecture is to understand what is investment and
entrepreneurship and how an entrepreneur can effectively invest and
manage investment profitably
Investment and Entrepreneurship-: Investment is the commitment of
current funds, and other scarce resources-financial, material, human,
time, knowledge, spiritual and relationship, most efficiently and
effectively in short and long-term assets (Current and Capital projects
investments) in anticipation of an expected flow of benefits over a
series of days or years. Hence, it is the commitment and utilization of
funds and other scarce resources in a project with the expectation of
returns.
It refers to economic activities designed to increase, improve
orimprove or maintain the productive quality of the existing stock
of capital. Most investments are characterized by a large up
frontupfront costs, cash flows for a specific time period and a salvage
value at the end of its useful life.
Thus, investments can be classified as follows:
New project/entrepreneurship,
Diversification
Replacement,
Modernization,
Expansion,
Research and development,
Cost reduction and
Social responsibility
Investments can be categorized on a number of different dimensions
as follows:-
Prerequisite, 2. Complementary, 3. Independent 4. Mutually exclusive
Other dimensions include the ability of the project to generate
revenues or reduce costs. The decision rules that analyze revenue

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generating projects attempt to evaluate whether the earning s or cash
flows from the projects justify the investment needed to implement
them. And when it comes to cost reduction projects, the decision rules
examines whether the reduction in costs justify the upfront investment
needed for the project.
These investments could be in financial assets such as savings deposit,
certificate of deposits, shares, treasury bills, bonds etc and in real
assets such as tangibles like building, Machinery, motor vehicle and
intangibles such as technical know howknowhow, technological
collaborations, patents and copyrights, RD etc. Investment has a
strategic dimension in organizations and individuals since it is the
bases for the survival, growth and profitability profitabilityof an
enterprise. It can take place under three conditions:-

1. Condition of certainty- sure of cash flow (free of Risk) e.g.


Treasury bill, Treasury bond, savings and fixed deposits etc.
Here, the bank or government guarantees the holder of these
instruments the payment of its face value plus interests.
Therefore, investments in these instruments are regarded as risk
free.
2. Condition of Uncertainty- uncertain Not sure of cash flow
(variable cash flow estimates in fixed tangible investments) e.g.
estimates of return on investments over its life. For example, the
cash flow of a typical new venture is subject to uncertainty.
3. Condition of Risk- variability of expected returns on investment.
Risk is a chance of loss. This is applicable to investment in shares
etc. Here, the risk is very high. This risk includes both systematic
and unsystematic.

On the hand, entrepreneurship is the process of managing an


investment by identifying investment opportunity, assembling
the required resources and applying the necessary knowledge to
optimize wealth.
The entrepreneurial processesprocess through which a new
venture is created involves the following activities which are
categorized into three parts or stages of asdevelopment as
under:-

Inception or Initiation
-Acquisition of motivations to embark on entrepreneurial
activities and skills through structured training and institutions.-
• Invention and value creation- creativity, ideation and
conceptualization, R& D
• Innovation- Need identification, opportunity analysis,
product development skills, product launching

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• Arbitrage, see-paging-Business research, scanning,
diagnosis and analysis agency linkages
• Intra-preneneurship- creativity and innovation, internal
competition, heuristic creative destruction, internal venturing,
product championship, organic growth, blue ocean strategies,
process and technological
• Exo-preneurship, Diversification and integration- product
Development/Business Development/ Activities linkages and
fitness
• Business Cooperation- Business Negotiation and
presentation, strategic Alliance, multi-country organization and
Global competition
• Business Internationalization- Diversity Entrepreneurship,
multi-country venturing, foreign alliances, Multi-country
organization and Global competition
• Change – strategy, Repositioning, Restructuring and Re-
engineering growth, wealth creation and change
( entrepreneurship leadership skills)

And -Identification and evaluation of opportunity through:-


 Opportunity assessment
 Creation and length of opportunity
 Real and perceived value of opportunity
 Risk and return of opportunity
 Opportunity versus personal skills and goals
 Competitive environment scanning
The idea phase is the creative step where the business concept is
established. Thought and the imagination are the creative seek source
and force of the mind that bring everything or beings into existence.

Both constitute the most vibrant, most irresistible force there is in the
universe. Idea is the crystallized and directed systems of related
thoughts, notions, impressions, imagination or convictions. Ideas rule
the world. The formation of ideas, from distinct thought process is
called Ideation. A concept is an organized system of ideas on a
particular field of knowledge or object. The process of forming
concepts is called conceptualization. Every value creation is the
outcome of thought, ideas and concepts.

SOURCES OF NEW BUSINESS IDEAS/VALUE CREATION INSIGHTS

(i) Environment change auditing

(ii) Value offers deficiencies auditing

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(iii) Consumers and potential consumer needs comments analysis

(iv) Analysis of distribution channels opinions

(v) Government and development agencies publications, regulations


and programmes

(vi) Research and development efforts.

IDEA GENERATION/VALUE CREATION STRATEGIES AND TECHNIQUES

Value creations generally involve one or a combination of four strategic


moves

(i) Gradual value improvement (value addition) upon existing


value offers (eg toothpaste with fluoride, automatic gear etc)

(ii) Radical reinvention of an existing value offer (old and new


volkswagon beetle car)

(iii) Creative synthesis of various competitive attributes or value


offers of different champions (VCD from CD and video, Nokia
1100 with phone and touch)

(iv) Innovative value creation which brings novel values in an


entirely new value – offer package.

Generally, value creation that create wealth involves developing and


providing solutions to identified societal problems/needs/value
demands in such a manner that also solves the creator’s own problems
or meets his own value demands. This is the concept of value
exchange – the buyer becomes the seller, and the seller becomes the
buyer.

The above value creation strategies require the understanding and


adept deployment of one or more of the following idea generation
techniques.

Personal Techniques

Possibility thinking analysis


Heuristic ideation (HIT) or creative imagination
Problem inventory analysis
Value maximization analysis techniques

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Checklist method (SCAMMPER)-substitute, combine, adapt, magnify
,modify, put , eliminate, rearrange, reverse
Free-word association approach
Attribute listing techniques
Scientific technique
Big dream and thinking approach
Parameter analysis techniques
Matrix charting method (W4H)

Group Techniques (Collective Genius Techniques)

Brainstorming session – Positive and Negative


Collective notebook method
Problem inventory analysis
Coordinated forced focus groups
Synectics (Strange – familiar – Strong) (Analogy Mechanisms)
Scientific

NURSING AND NURTURING IDEAS/VALUES

• Climb to and operate on the fourth plateau of your mind


• Develop a well – coordinated mind empowerment network
• Take every idea or concept very serious
• Don’t listen to dogma or what other people thought or think
about your idea
• Don’t be discouraged that others don’t see what you see
• Guide each idea jealously, discussing it only with your selected
‘Success Alliance’
• Understand, Refine and conceptualize your idea.

HOW TO CONCRETIZE IDEAS INTO CONCEPTS/VALUES

Every worthwhile idea can be transformed from its intangible state into
a tangible material value. The steps are;

 By Transcription – Write down your ideas


 Conceptualize and continuously refine your ideas
 By Transmutation – Transfer your mind energy and passion from
other areas to your ideas.
 Transplantation/Impartation – Transfer to the mind of success
allies
 Exchange your ideas for values you lack or need (Value
Exchange) (OPM PRINCIPLE)

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 Match your idea with present or potentials needs and
opportunities.

NEEDS IDENTIFICATION AND ANALYSIS (PRESENT OR POTENTIAL)

Needs represent unsatisfied value demands, constituting a problem to


be solved or desire to be met. They are identified by the analysis of
several causal factors.

o Deficiencies(Means gap) in existing value offers (improvement in


existing value offers or provision of complementary
product/services) or discovering and innovating faster / more
efficient or effective ways creating and delivering existing value
o Absence of product/service (Ends Gap) to satisfy existing needs
(innovation of new products/services) or discovering and
innovating new products and services to satisfy present needs
gaps
o Identification of gaps (distance or space gap) between
consumers and producers (agencies required) to bridge gap.
o Environmental change induced needs (Fourth Wave Economy of
Today) (Environment auditing and Business opportunities) . This
include : Time gap- discovering and closing the time gap
between present demand and future supplies that exist, Price
gap- discovering the price gap and acting to close the
gap( arbitrage) ,and Cost Gap- discovering low cost way for
offering existing value
o Life and business improvement or convenience induced needs
(air – conditioners, means of transportation, ICT)
o Scarce resources of life savings induced needs (life jackets,
Japanese cars)

IDENTIFICATION AND ANALYSIS OF OPPORTUNITIES

An opportunity is a conjunction of circumstances which provide an


opening for success or convenient time for making certain decisions or
taking actions possible and appropriate, with probability of success,
advantage or gratification.

• Value creation analysis of opportunity


• Analysis of risks and uncertainties versus return from opportunity
• Exploitation, capability analysis of opportunity
• Competitive situation analysis of opportunities
• Vision analysis of opportunity
• Value systems analysis of opportunities

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• Liberty analysis of opportunity

TRIANGLE FOR VALUE CREATION DECSIONS

Every genuine wealth creation begins with value creation

Value Opportunity
Idea Creation
Decisio
n

Needs

To embark on a particular value creation venture, and transform value


created to potential wealth, idea must meet opportunity that satisfies
present or potential societal needs. The triangle intersections of these
three represent the value creation decision point.

An idea which does not exploit a particular opportunity and/or meet


identified need is only an exercise in ideological excellence without
pragmatic relevance; it leads to frustration and poverty.

An opportunity without an idea to exploit it, is a potential wealth never


achieved.

Needs which is not met by idea and opportunity is a cry in the


wilderness

COMPETITIVE VALUE CREATION PROCESS

Creating values that will exploit success opportunities and build


competitive advantage over others in this value surplus economy,
involve the following process;

(i) Apply the three crown auditing: Identify the three market
leaders in the industry you desire to operate or are presently
operating and identify three most powerful attributes that
endear customers to their products or services.

(ii) Research how you can marry all the three unique attributes
into one product or service. The value added to the new

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product or service must adequately address major problems
existing in previous products or services

(iii) Consciously break the boundaries between tangible and


intangible in your total value offer

(iv) Come up with a value offer and test run it


The idea is then researched and tested on a very limited scale in the
feasibility phase. The primary question to be answered in this phase
is: Does it work? A breadboard or laboratory model is generally
constructed, and it may be tested with one customer under controlled
conditions. A service would be structured and tested on a pilot basis
with one customer. Market research using secondary sources and
initial evaluations of the business economics are performed to assure
the attractiveness of continued investment of time and money.
In the verification phase, the prototype service or pilot models are
“quietly” field-tested. The primary question to be answered at this
phase is: “Now that we know that it works, does anyone in the
marketplace care?” This is the first commercial exposure to
customers, but the exposure is purposely limited to allow time to
improve the performance of the product or service. A key objective is
to gain an in-depth understanding of the customer’s needs and how
the product or service may be modified to better meet their needs.
During this phase, the venture begins to evolve into a business, and
key people are added to build the management team.
In the demonstration phase, the firm begins to scale up its operations
to prove that it has a business formula that can be replicated for
success. The product is refined for efficient, low cost production, and
pre-production lot sizes are produced to show that consistent,
acceptable units can be produced. An established selling approach is
applied to a broader set of customers, such as those in a wider
geographical area. The key management team demonstrates that it
has the ability to implement a plan that can address a wider, possibly
national market.

Start-up planning
 Defining business to embark upon by marching the market
needs (generic and strategic) with the value offer to exploit the
opportunity discovered while taking with into consideration the
threats and risks involved ( Business risks and environmental
threats)

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 Defining business directions and objectives: - vision, mission,
business value and philosophy, critical success factors, key success
factors
 And aligning self with the chosen business field. - This involves
discovering your purpose, strategic analysis, decisions and definitions.
PURPOSE: - (purpose is the identified class of values that a thing,
person or organization is made and equipped to create and offer to
meet identified class of needs and consumers. It is your creator who
determines your purpose on earth. God determines the class of needs
you are to meet. It is your duty to discover it via 5P’s- person (self
value, self concept, self image=identity), Personality (character traits,
structure, value, orientation, role orientation= Difference), Passion
(love, joy, burden, soft pots, desire= attraction, devotion), Possession
(talents, disposition, tendencies, originality, creativity = intelligence,)
Possibilities (instincts, hunches, intuition, light signal = potentials)
. Any other pursuit outside your purpose is either a misuse or abuse of
life and you cannot excel or become a champion in another man’s
field),
SITUATION: - the strategic analysis of personal (SWOT) the external
conditions can be favorable or unfavorable. Favorable conditions are
called opportunities while the unfavorable are called threats , your
current abilities are categorized into strength and weakness to arrive
at identifying strategic priority issues such as context, competences,
character, intelligences, capacity and ksf/csf/esf,
• SIGHT- setting strategic directions (written framework of
where you going and written framework of yourself, your value,
your projects, character and progress that will deliver your
purpose
• ( vision- become, picture and perception ;
• Mission-do, actions and projects ; Value- how, photograph
and belief ; objectives-milestones and
SELECTION: decisions through purposeful priority planning and how
through strategy implantation, implementation and improvement. This
entails focusing on directions through desire, commitment and
discipline. Thus not allowing any pressure to distract him/her through
opinion and enticement, occupation of best fit that will be used as
platform for excellent value offer, crafting grand strategies and
evaluation: consolidation if O versus W= Develop strength,
Growth if O versus S = exploit opportunities,
Turnaround if T versus W=exit branch and
Stabilization if T versus S= reinforce strength and finally selecting
winning strategic options or option for implantation and
implementation plan
 Business Model and Strategy: Business model describes how the
business will generate value while strategy describes how the business
will grow and continue to be a profitable venture through managing

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change situations, building competitive advantage and achieving
superior performance within the business environment.
 Business Plans (project overview, corporate information,
introduction (description of industry and business), mgt team, market,
production, financial, operation, sensitivity analysis, conclusive
inference.
 Strategic leadership by determining resources needed, existing
resources, identifying resources gaps and available suppliers; and
developing access to needed resources. Then, mobilizing support from
stakeholders, mobilizing support from competitor and alliances,
effective deployment of tangible resources (capacity) and processes
(capabilities), achieving organizational momentum and lead the
organization using inspirational leadership posture.

-Business planning
-Access to resources
-Final decisions

Early years/
-Market entry
In the commercialization phase, major investments are made to
achieve efficient, low-cost, full-scale production and for full-scale
market development. For some firms, the investment in manufacturing
plant and equipment can be many millions of Naira. The investment to
introduce the product or service to a wide set of potential customers,
such as spending for advertising or to build a national sales force, can
often be more than spending needed for manufacturing facilities. This
is especially true for service businesses or for computer software firms.
Hence, it is important to:-
Develop appropriate management style
Understand key variables for success-Superior and most attractive
value proposition and delivery in five areas (needs, opportunity,
change, advantage and sustainability)
Identify problems and potential problems – through synergy of co-
operation and co-option
Develop important control systems for resources deployed
Growth stage
Develop strategic orientations-six –eyed strategist using CARDSS
model (conditions, ability, result, destination, situation and strategy
Emphasis commitment to opportunity-DECOD
Commitment of resources-strategic entrepreneurship (innovation, intra
preneurship and strategy
Ways of controlling resources- via corporate integrity and social
responsibility

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Develop proper management structure-achieving distinctive and
monopolistic space advantage
-Firm management

Thus entrepreneurship It refers to an attempt to create value through


recognition of business or investment opportunity, the management of
risk-taking appropriate to the opportunity and through the
communication and management skills to mobilize human, financial
and material resources necessary to bring it to fruition.
Consequently, it involves an ability to have good /wrong hindsight,
insight and foresight, good/wrong judgment and recognition /non
recognition of maladjustment in the market to invest in the under
priced/overpriced and undercapitalized/ overpriced factors of
production , process and sells in the future to get reward in form of
profit /loss.

Hence, profit occurs when an entrepreneur saw more in form of


superior hindsight, insight foresight (wisdom gain from past,
present and future action/events), judgment and uncovered
maladjustment (that is an undervaluation of certain factors of
production) in the market; acted on this insight because the
market erred by underestimating the future rent or potential
value of factors.

While loss occurs when an entrepreneur has made a poor


estimate of future selling prices and revenues, which if driven
out of entrepreneurial role altogether returns to the job of
wage/salary earner. Thus we can say that losses are the
indication that the entrepreneur allocated factors of production
where they were overvalued as compared to the consumer’s
desire for their products. Whereas, profit indicate allocation of
factors where they had been undervalued as compared to the
consumers desires.

In general, every entrepreneur invests in a process because of


expectation of profit. This is because he/she believes that the market
has under priced and undercapitalized factors of production in relation
to their future rent .Therefore, entrepreneurial size of investment s is
no guarantee of a large/small profit or against grievous losses because
market is on respecter of past laurels, however successful. However
the factors that are responsible for high failure of organizations in
Nigeria are:
• Lack of competence- skills, knowledge and character
• Wrong staffing
• Poor leadership

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• Operating environment

What actually maximizes or rather optimizes the wealth of the investor


are the strategic entrepreneurial decisions, strategic managerial
planning, strategic leadership and governance of an enterprise. In
essence , Entrepreneurship drives investment

2SAVING. Saving and Investment-:


Saving is the deliberate preserving or putting funds aside for future
use, ege.g., emergency, investment. It is the disposable income minus
consumption expenditure. Hence, it refers to an increase in net worth
or wealth , earmarked for specific goals.
Saving reduces the demand for consumer’s goods and sets free
resources for investment. Hence, it precedes investments.

Therefore, the importance of saving lies in the fact that it makes


possible financial and real investments. Individuals, and corporate and
government institutions carry about saving.
Individual savings occurs when an individual deliberately determine his
/her net worth, manage his /her consumption in such a way that there
is a positive balance for savings.
This involves determining the
TOTAL REVENUES (salary and wages, interests received, financial gifts
etc),
deductingLess:
FIXED EXPENSESditures (House rent, NEPA bills, etc),
VARIABLE EXPENSESditures (food, clothing, dependants etc)
and OPTIONAL EXPENSES ditures (eat –outs, gifts, fads etc.
The balances are the wealthhen saved for investment and for
emergency.
For corporate organizations, the certain amounts from net profits are
transferred to reserves and reinvested to generate more value.
Government savings occurs in form reserves in foreign currencies
abroad.
The amount saved depends on the following:-
a. -The propensity to save (eagerness)
b.
c. -Total income
d.
e. -Means of income distribution

We can therefore say that saving is a prerequisite of investment, which


in turn generate income, which determines savings.

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On the hand, investment involves the use of some part or whole saving
by entrepreneur (individual, corporate and Government) in exchange
for future benefits on real and financial assets that will increase wealth.
Real assets are required for productive purposes. They are in form of:-
- Tangible real assets- plant, machinery, office etc.
- Intangible real assets – Technical know, patents and copyright,
technological collaborations.

Financial assets called securities are financial papers or instruments


such as shares and bonds or debentures. Therefore saving somehow
influences investment.

Determination of wealth creation for investments


1. Set a direction for achieving a wealth creation via establishment
of life vision, mission and core values( honor, courage,
commitment)
2. Identify priority issues in form of goals and objectives via long
term goals, intermediate goals and short term objectives
3. Outline strategies in form of budgeting via estimating your
revenues, fixed ,variable and optional expenses
4. Develop policies to give effect strategies through keeping
records of financial transactions and earnings. Organizing your
financials transaction into daily, weekly, monthly quarterly, half
and yearly. and categorizing all expenditures in fixed, variable,
optional, and then saving and investments
5. Developing procedure and rules to follow by tracking all incomes
and expenditures to ensure that budgets are not exceeded
unduly.
STEP IN PLANNING FOR FINANCIAL EMPOWERMENT
1. Deciding On Financial Priority Needs
2. Develop Milestones And Time Frame For Your Financial
Objectives And Goal
3. Develop A Plan To Achieve Your Financial Goals And
ObjectivesConsequently, we can say that entrepreneurship
drives both saving and investment.

3. Types and process of investment


a. Financial investments: These are made up of:
• Fixed income assets or securities such as savings, fixed
deposits .The holders of these securities receive both their
capital invested and interests. These securities therefore have
low risks and hence low returns.
• Debts instruments (corporate bonds, development bonds etc)
• Variable income assets such as equity stock or common stocks
stocks: These represent common stocks or equity stock issued

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by various businesses. The returns on these securities depend on
the profit performances of the issuer/firm. Investment in shares
is essentially a process of acquiring ownership interest in a
company. Shares are bought and sold on the floor of the Nigeria
n stock Exchange on a daily basis. This form of investment is
referred to as long term investment.
a. At period s of economic boom and rising profit performance,
common stocks attract windfall vice versa.
b. Shareholders have the right to share income on liquidation of the
company,
c. shareShare in the profits and control over the company through
their the voting rights.
d. Others are right to be consulted before dilution of ownership
interests,
e. right to transfer interests in the firm and;
f. theThe right to inspect the firm’s books.
• Hybrid securities – preference shares (participating) and
convertible debentures
These are securities that have features of fixed income and variable
income securities. It is fixed to the extent that holders received a
fixed amount of income based on the face value of the issue.
• In addition, derivatives, commonly called contingent claims such
as options forward and futures. They are tied to the performance
of its underlying asset. The value of a derivative security depend
directly on the value of the underlying assets-call and put
derived from common stock
Types of offers
Bond: is an instrument offered to the public with a specified interest
rate that is payable over a long period of time
Right Issue: when a company wants to raise more funds, it gives the
shareholder the opportunity to acquire more shares in proportion in the
number to the number of shares they own.
Bonus Issues: is an issue of shares by a company to his shareholders in
proportion to their holdings. It is made by capitalizing existing
reserves.
New issue: is a stock or bond sold by a corporation for the first time
Shares; is a unit of equity ownership in a corporation

Shares can be acquired through:


• Secondary market,
• Public offer,
• Right issue
• Bonus issue
Secondary market: this is a market where existing shares are bought
and sold on the floor of the Nigeria Stock Exchange. A scenario , where

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existing shares are exchange by both the buyer and the seller. A
stockbroker buys on behalf of a client or sells on behalf of a client on
the floor.
Public offer:
Is an invitation to the members of the public to subscribe to the shares
of a company. It is designed essentially to enlarge the share capital of
a company. It also gives the opportunity to the company to raise
additional capital or funds. If a company intends to engage in
expansion, such company can approach fund. Once allocation is made
the investor so allotted becomes a part owner of a company and poses
the rights enumerated earlier
Right Issue
Right issue on the other hand is an invitation to a shareholder to take a
proportion of its present holding right. Thus a shareholder will be
required to p-ay for the shares due to them. Right issue is also
designed to raise additional funds for the company to finance its
operation or expansion. Usually right is sold at a lower price in relation
in relation to the market price.
Bonus Issue
Another way an individual can acquire more shares in a company is
through is through bonus shares. It is designed for the existing
shareholder. However, bonus issue differs from the right issue in that
payment is not required for acquiring it. Bonus shares are issues free
to existing shareholder in relation to their holding. It falls into the
category of returns to investor. Companies oftentimes issue bonus to
their shareholder at the financial year. Bonuses are paid out of the
retained earnings for that year or the existing reserve of the company.
Types of returns to an investor
Returns to shareholders are basically threefold:
Dividend
Bonus and
Price Appreciation
Dividend
This is the cash payment to the shareholder by the way of returns on a
yearly basis. Dividend payment is made out of the profit of the
company for the year. Once a company declared profit, it may decide
to declare a dividend for the year, in proportion to an investor’s
holding. Dividend payment has been on the increase for good
companies over time
Bonus
Bonus constitutes a return to a shareholder. It is that proportion of
shares allocated to an investor free of any payment. The bonus history
of some of the companies revealed the return profile of share
investment over time. E.g. an investment of N500 into Unilever 25
years ago will give about N3million now by way of bonus alone
Price Appreciation

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The forces of demand and supply drives, the prices of an equity either
by drop in price or gain in price. Although at either case, the maximum
movement does not exceed 5% in a given daily transaction. However,
investors are bound to be at advantage over a long period of time as
the case has been. E.g. an investor who bought Mobil shares at N3 in
1991 with a selling price of N184.00 at the prevailing price. So is
applicable with other viable shares
Determinants of viable shares
The following are to be under studied, before one can conveniently
identified a viable stock:
Companies Director’s structure,
Management structure,
Companies Liquidity,
Asset Base,
Profit History,
Dividend/ bonus history
Some viable recommended shares;
Banking sector
Oil and Gas
Health sector
Insurance
and Other growth stocks
How to overcome hindrances in investment plans and goals
It has been generally observed that people are good in excuses which
are linked to the following: education, background, environment,
talent, location and economy.
However, whether you succeed or fail, it is no one’s doing because the
main force is you as a person. A wealthy person works very hard once
and continually receives income even beyond his life existence. The
following are the recommended strategies of making money and
creating fortunes;
i. Trading in your time for money
ii. Leveraging yourselves to earn income
iii. Investing to earn income
iv. Developing the right attitude towards risk
v. Expanding your earning capacity

ROLE OF CAPITAL MARKET IN ECONOMIC DEVELOPMENT OF NIGERIA


The capital market is an important part of efficient financial system
which deals in longer term debt instruments as well as equities. It
exists to reconcile the conflicting need of savers/ investors and public
traded securities.
The intermediation between the needs of firms and investors represent
the core function of the capital market which by extension enables
functioning market to facilitate risk diversification, provides means for

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improving corporate governance and incentives to seek information
about companies.
Capital market facilitates the transmission and implementation of
macroeconomic policies. It facilitates also the dispersion of business
ownership thus contributing to assets formation to the house hold
level.
Nigeria stock exchange
NSE was established in 1960 as the Lagos stock Exchange. In
December 1977, it became the Nigerian Stock Exchange with branches
in some major capital cities of the country. The head office was opened
in 1961 at Lagos. The branches of NSE have a trading floor and
transactions are done electronically.
The stock exchange is a place where listed securities such as Bond,
debenture, stock and shares are being bought and sold through the
dealing members (those that are licensed to operate in the floor of the
stock exchange)
The exchange started operation with 19 securities listed for trading.
Today we have well over 271 securities listed on the exchange, made
up of 17 government stock , 52 industrial loans stocks and 202 equity
ordinary shares with a total market capitalization of over N2.1 million
The operators of the NSE are stock brokerage firms issuing houses,
practicing corporate law firms, auditors and reporting accountants.
Trading system: The exchange has been operating an automated
trading system (ATS) since April27, 1999 with dealers trading through
a network of computers connected to a server. The ATS has facility for
remote trading and surveillance, many dealing member trade online
from their offices in Lagos, Abuja, Port Harcourt etc trading starts
10am and closes 12 noon
Pricing: prices of new issues are determined by issuing house/ stock
brokers while secondary market prices are made by stockbrokers only.
The market / quote process are published daily in the NSE daily official
list and newspapers.
Pricing and other direct control are determined by the regulatory
bodies, the security and exchange commission and the stock exchange
following the deregulation of the market in 1993.
CLEARING, DELIVERY AND SETTLEMENT
Clearing, settlement and deliver of transaction on the exchange are
done electronically by the central securities clearing system ltd. CSCS
is a subsidiary of the stock exchange. The CSCS ltd which is the
clearing house for all transaction was incorporated in 1992 as part of
the effort to make the Nigerian stock market more efficient and
investor friendly. The CSCS also offers custodian services. Transaction
cycle is T+3 (i.e., trading day+3 days for settlement)
REGULATION

18
Transaction on the exchange is regulated by the NSE as a self
regulatory organization and the SEC administers the investment and
securities Act.
FOREIGN INVESTMENT
The federal government in 1995 internationalized the capital market
with the abrogation of laws that constrained foreign participation in the
Nigerian capital market
ROLES OF THE PARTICIPATING BODIES ON THE NIGERIAN STOCK
EXCHANGE:
STOCK BROKERS: they are firms or authorized dealing persons who
buys and sells securities on behalf of investors for a commission called
brokerage fee.
ISSUING HOUSE: it is a dealing member that helps to prepare
prospectus, to sell new securities offered to the public by companies
and government
SEC: security and Exchange commission administers the investment
and securities act on the floor of Nigerian Stock Exchange. They act as
a regulatory institution of capital market.
• They determined the amount and time at which securities of a
company are to be sold to the public through public offer etc
• They supervise the stock market to ensure orderly fair and
equitable dealing in the stock exchange
• Auditing the account of companies and institutions that are
involved in the stock business
NSE:
• It is a central meeting place for members to buy and sell stock
and shares
• They place offer for subscriptions for dealing members
• They protect the interest of the investing public
INVESTORS; an investors is somebody that buys or sells stock. It is
equally a person or an institution that uses his savings to buy
securities
REGISTRAR: Is a keeper of records in respect of quoted stock
Conclusion
The returns on investment in shares are considerable higher than the
money market investment. To be able to invest in shares, a high
degree of discipline is required. It is a careful way of making money
work for you. Therefore, creating wealth is a deliberate act of any
individual to actualize certain level of wealth during his and her active
years.

19
b. Real investments: investments on short and fixed assets that
produce goods or services which when exchanged for value help in the
attainment of the business objectives. These include inventory,
machinery, building, patent etc. The common features include-:
 Large initial outlay
 Long term benefits and uncertainty about the benefits
f. Entrepreneurship; investment in this area of investment makes
the investor business .it may in form of : Micro-scale, medium,
and large –scale
It must be noted that all business is conceived in the mind of a person
along with a business plan ,while working towards retirement are
designed to enable one engage in business. The usual drawback and
complaints is capital
The following sources of capital are as follows; personal savings, love
money (relations and friends), soft loans (business angels and venture
capitalist), partnerships equity and banks

It is important to note that the two major variables used in measuring


investment performances are return and risk. Moreover, all investment
faces two categories of risks (systematic risks and unsystematic risks).

Investment process:
Due to the increasing complexities and changing environmental factors
facing individuals and business organizations, all investment decisions
processes are normally taken in the context of individual goals and
organization’s corporate strategy. This approach provides the
entrepreneur or organizations with a big picture to keep in mind at all
times as a guideline for effectively allocating corporate financial
resources. It will also sharpen the focus of the entrepreneur in terms of
improved quality of decision making.

Consequently, strategic management has emerged as a systematic


approach in properly positioning self, organizations and nation in the
complex environment by balancing multiple objectives. This is done
through:
. Superior strategic mind structure and strategic thinking
• Main focus on strategic issues and objectives
• Superior strategic formulation
• Excellent implantation, implementation and execution of the
chosen strategies
• Superior –Strategic leadership, governance and entrepreneurship
Hence, decisions are not only based on profitability but also on growth,
competition, and balance of products, total risk diversification,
managerial capability and flexibility. These reasons are that:

20
• Projects critical utility in the production of main products,
strategic importance of capturing the new products first and
adapting to the changing market environments.
• Technological developments, government’s policies, concessions
and organization’s internal environment affect investment
decisions.
• The strategic investment priorities of a firm such as production
equipments, expansion in existing lines where market potentials
are proven., investment in new projects while investment on the
other issues such as buildings, furniture, cars ,office etc are done
on the basis of availability of funds and immediate needs.

Hence, investments are not merely allocated resources based on


sophisticated and unsophisticated factors but also on strategic
considerations. However, investment decisions demand flexibility in
order to capture future opportunities by using strategic options
where applicable.

Therefore , firms may strategically accepts certain growth option


investments which may have negative or insignificant Net present
Value but may enable it to find opportunities in the future that add
considerable profitability .

Thus, investment planning and control includes the following


phases:

i. Identification of investment opportunities


Investment opportunity have to be identified or created: they do not
occur automatically. However, organizations use a variety of
methods to encourage project identification; some of them include
the following:
• Sponsoring studies for project identification
• Introducing formal project schemes
• Reviewing researches done in the country or abroad
• Conducting market surveys
• Deputing executives to international trade fairs for
identifying new products/technology
• Offering of incentives for generating project ideas. Once
the investment proposals have been identified and
submitted. They must be subjected for scrutiny in
accordance with the company policies.
It is important to note that opportunities arise from competitive
imperfections in the market due to changes in technology, consumers’

21
preferences, etc. Hence opportunities emerge independent of
entrepreneurial actions. It usually consists of the following:-
1. New idea or invention that may or may not lead to the
achievement of one or more economic ends that becomes
possible through ideas or inventions.
2. Beliefs about things favourable to the achievement of those ends
; and
3. Actions that implement those ends through specific or imagined
economic artifacts; e.g. goods and services, entities such as
firms, markets or institutions.

ii. Development of forecast s of benefit and costs(cash flow


estimates)
A cash flow represents the receipt (inflows) or payment (outflows) of
cash. Therefore, the net cash flow for any accounting period is the
difference between the cash inflows and outflows for the period. Net
profit, on the hand, represent s the net difference between accrued
revenue for a period and all expenses deemed apportionable to the
period. Thus the difference between net cash flow and accounting
profit arises from two sources:-
a. Net profit represent the residual income after all expenses
( including non-cash expenses)
b. Income flows may lead or lag behind cash flows –that is relevant
cash received or vice versa.
c.
Cash flows for the project should be estimated, although the future
is uncertain. The risk associated cash flows should be taken into
consideration. It requires the collection and analysis of all
qualitative and quantitative data, financial and non- financial in
nature. The estimates should include the total initial and operating
cash flows while adjusting for sales proceeds of existing assets
where applicable.
Hence, the process by which future cash flow areis adjusted to
reflect uncertainty and other factors is called discounting and the
magnitude of these factors is reflected in the discount rate.

For absolute estimates of cash flows for new projects:


CF=EBIT (1-T) + Dep-NWC-CAPEX.
Where :
Cf = Cash Flows
EBIT = Earning Before Interest and Taxes
(1-T) = Tax
Dep = Depreciation
NWC = Net Working Capital
CAPEX = capital Expenditure

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However, care should be taken to account only the relevant costs
and avoid irrelevant costs, which do not effect the decision to
accept or reject a project e.g. sunk costs.

iii. Project evaluation of the net benefit using quantitative such as


NPV, IRR, PI etc. where NPV= ∑CF0-CF1/(i+k)=0
Notation
CF0 = cash flow in time period zero (today); this is usually the cost of
the project and is a negative cash flow
CF 1, 2 …n = cash flow in period 1, 2 …n; for "normal" projects (to be
defined later), these are the positive cash flows the project is
expected to produce
NPV = Net Present Value
IRR = Internal Rate of Return
k = required rate of return for the project; this is the firm's WACC if the
project is of the same risk level as the firm's overall level of risk.
However, a firm cost of capital is not the same as project cost of
capital. This is because while firm’s cost of capital can be used as a
standard for establishing the required rate of return of the individual
investment, project costs of capital can include firm’s cost of capital
plus a premium or adjusted accordingly depending on the project

Decision Criteria
A. Payback Period
The payback period is defined as the number of years required to
recover a project's cost. The payback period provides an indication of a
project's risk and liquidity, because it shows how long the invested
capital will be "at risk." Payback period is more of a technique than a
specific formula. The payback period is the calculated as the number
of years required to "payback" the cost of the project.
Cash Flows
0 1 2 3
Conventional - + + +
invest.
Loan type of + - - -
flows
Non - + + -
conventional
invest
“ + - - +

In general it is the length of time required for the streams of cash


proceeds produced by an investment to equal the original cash outlay
required by the investment. Where the stream of income is not
consistent from year to year, the payback period must be determined
by adding up the proceeds expected in successive years until the total

23
the total is equal to the original outlay. However the decision must set
maximum payback period and reject all investment prospects for
which the payback period is greater than this maximum.

Decision Rule:
• Accept project if payback period < maximum acceptable
payback period.
• Reject project if payback period > maximum acceptable payback
period.

Example: XYZ Corporation is considering the following project. It is


the policy of XYZ for projects to have a payback period of 4 years or
less. Evaluate the project based on the payback method. Should XYZ
accept the project?
Year 0 1 2 3 4 5
Cash -10000 5000 2000 4000 1000 1000
Flow

The cost of the project is N10, 000. The payback period is the number
of years it takes for the project's cash flows (positive) to payback the
cost of the project. After year one, the project has paid back N5000 of
the N10000 cost. After year two, the project has paid back N7000 of
the N10000 cost. After year three, the project has paid a total of
N11000. The project's payback period lies between 2 to 3 years. To
payback the N10000 we only need N3000 of the N4000 that the
project is expected to generate in year three. If we assume that the
cash flows are paid evenly over the period, the payback period is 2.75
years (payback = year before full recovery + unrecovered cost at start
of year/cash flow for year = 2 + 3000/4000). The project should be
accepted since its payback period is less than the maximum
acceptable payback period.

Calculating the payback period is easy if the positive cash flows are
annuities. The payback period in this case is simply the cost divided
by the annual cash flow. For example , if the cost of a project is
N52,125 and the project is expected to generate annual cash flows of
N12,000 per year for eight years, the payback period is 4.34 years
(Payback period = 52125/12000).

Advantages:
• Easy to calculate and understand
• Provides andan indication of a project's risk and liquidity

Disadvantages:
• Ignores time value of money - to correct for this disadvantage
the discounted payback period can be used. The discounted

24
payback period is an improvement over the regular payback
method because the present value (discounted) of the project's
cash flows is used to calculate the payback period. The
discounted payback method considers the time value of money.
• Does not consider cash flows occurring after the payback period

B. Net Present Value


The net present value (NPV) method discounts all cash flows at the
project's cost of capital (required rate of return) and then sums those
cash flows. NPV gives a direct measure of the benefit in Naira of
undertaking the project. NPV can be considered a measure of the
project's profitability in Naira. NPV is also the amount of value ("value
added") the project will add to the firm. The project is accepted if the
NPV is positive. Positive NPV projects add value to the firm and
increases shareholder's wealth.
Thus the present value of an investment could be described as the
maximum amount a firm could pay for the opportunity of making the
investment without being financially worse off.

Aand qualitativeQualitative factors are such as urgency, strategy, and


environment .
Others include intuition, security and social consideration. The criterion
selected should be a true measure of the investment’s profitability and
should lead to the net increase in the company’s wealth (benefits
exceeding costs) adjusted for time value and risk. More so, the
opportunity cost of capital should be based on the risk nessriskiness of
cash flows, given, given as :as:
Discount rate = Risk free rate + Premium (market rate –Risk free rate
x Beta Estimates).
Risk free rate: Investors who buy assets have returns that they expect
to make over the time horizon that they will hold the asset. The actual
returns that they make over this holding period may by very different
from the expected returns, and this is where the risk comes in. Risk is
viewed in terms of the variance in actual returns around the expected
return. For an investment to be risk free in this environment, then, the
actual returns should always be equal to the expected return.
To illustrate, consider an investor with a 1-year time horizon buying a
1-yearTreasury bill (or any other default-free one-year bond) with a 5%
expected return. At the end of the 1-year holding period, the actual
return that this investor would have on this investment will always be
5%, which is equal to the expected return. The risk free rate is the
building block for estimating both the cost of equity and capital. Thus,
using a higher risk free rate, holding all else constant, will increase
discount rates and reduce present value in a discounted cash flow
valuation.
Conditions for risk free rate are as follow:-

25
The first is that there can be no default risk. Essentially, this rules out
any security issued by a private firm, since even the largest and safest
firms have some measure of default risk. The only securities that have
a chance of being risk free are government securities, not because
governments are better run than corporations, but because they
control the printing of currency. At least in nominal terms, they should
be able to fulfill their promises. Even this assumption, does not always
hold up, especially when governments refuse to honor claims made by
previous regimes and when they borrow in currencies other than their
own.
There is a second condition is that for an investment to have an actual
return equal to its expected return, there can be no reinvestment risk.
A six-month Treasury bill rate, while default free, will not be risk free:
there is the reinvestment risk of not knowing what the Treasury bill
rate will be in six months. Even a 5-year treasury bond is not risk free,
since the coupons on the bond will be reinvested at rates that cannot
be predicted today. The risk free rate for a five-year time horizon has
to be the expected return on a default-free (government) five-year
zero coupon bond. In summary, an investment can be risk free only if it
is issued by an entity with no default risk, and the specific instrument
used to derive the risk free rate will vary depending upon the period
over which you want the return to be guaranteed.
B is the measure of systematic risk (the ratio of covariance between
market return and the project‘s return to the market return variance,
given as:
Bj = Covarj, m/α²m
The assessment of risk is an important aspect of investment
evaluation. Four most important contributors of investment risk are
selling price, product demand, technological changes and government
policies. Other techniques used in the risk assessment include
sensitivity analysis, .risk adjusted rate, certainty equivalent Etc.
Again all projects evaluated based on the strategic need and
profitability should be ranked and subjected to organization’s priorities
for allocating resources since resources are not unlimited. Hence
appropriation of funds should be based on capital budget which has lay
down rules of authorization.

iv. Control of investments via reporting system; required to review


and monitor the performances of the investments periodically. .
Finally, there must be a reporting system in place to review and
monitor the performance of investment projects after completion
and during their life.
The follow-up comparison of the actual performance with original
estimates not only ensures better forecasting but also helps to
sharpen the technique for improving future forecasts.

26
24. Entrepreneurship – Meaning and scope
Entrepreneurship refers to the ability of a person to identify an
investment opportunity (tangible or intangible) that satisfied or fulfilled
an identified need in the market and risk resources (time, money,
intellect etc) to establish and operate the enterprise profitably. It
involves the process of using private initiative to transform a business
concept into a venture or to grow and diversify an existing venture or
enterprise with high growth potential.

According to Hisrich (2004), entrepreneurship is a process of creating


something different with value by devoting the necessary time and
effort, assuming the accompanying financial, psychic and social risks
and receiving the resultant rewards of monetary and personal
satisfaction.
It is therefore a process of:
• creating something of value(products or services)
• bringing it to the market place to satisfy an identified need or
exploit business opportunity,

• building a venture around it by devoting necessary scarce
resources ,assuming the related risks(financial, psychic and
social)
• In addition, receiving the rewards (financial, personal satisfaction
and independence)

Thus, for an entrepreneur to create value through strategic


entrepreneurship, he/she has to-
- Be effective in identifying opportunities not perceived by
others
- Be flexible and willing to take reasonable risks
- Have sufficient resources and capital ( access to finance)to
exploit identified opportunity
- Sustain a competitive advantage
- Have entrepreneurial capabilities- these includes :
intellectual capital, business mind set, ability to transfer
entrepreneurial competence to others and able to manage
human capital
On the hand, entrepreneurship is the process of managing an
investment by identifying investment opportunity, assembling the
required resources and applying the necessary knowledge to optimize
wealth.
The entrepreneurial process through which a new venture is created
involves the following activities which are categorized into three parts
or stages of development as under:-

27
Inception or Initiation
-Acquisition of motivations to embark on entrepreneurial activities and
skills through structured training and institutions on the following -
• Invention and value creation- creativity, ideation and
conceptualization, R&D
• Innovation- Need identification, opportunity analysis,
product development skills, product launching
• Arbitrage, see-paging-Business research, scanning,
diagnosis and analysis agency linkages
• Intra-preneneurship- creativity and innovation, internal
competition, heuristic creative destruction, internal
venturing, product championship, organic growth, blue
ocean strategies, process and technological
• Exo-preneurship, Diversification and integration- product
Development/Business Development/ Activities linkages
and fitness
• Business Cooperation- Business Negotiation and
presentation, strategic Alliance, multi-country organization
and Global competition
• Business Internationalization- Diversity Entrepreneurship,
multi-country venturing, foreign alliances, Multi-country
organization and Global competition
• Change – strategy, Repositioning, Restructuring and Re-
engineering growth, wealth creation and change
( entrepreneurship leadership skills)

And Identification and evaluation of opportunity through:-


 Opportunity assessment
 Creation and length of opportunity
 Real and perceived value of opportunity
 Risk and return of opportunity
 Opportunity versus personal skills and goals
 Competitive environment scanning
The idea phase is the creative step where the business concept is
established. Thought and the imagination are the creative seek source
and force of the mind that bring everything or beings into existence.
Both constitute the most vibrant, most irresistible force there is in the
universe. Idea is the crystallized and directed systems of related
thoughts, notions, impressions, imagination or convictions. Ideas rule
the world. The formation of ideas, from distinct thought process is
called Ideation. A concept is an organized system of ideas on a
particular field of knowledge or object. The process of forming
concepts is called conceptualization. Every value creation is the
outcome of thought, ideas and concepts.

28
SOURCES OF NEW BUSINESS IDEAS/VALUE CREATION INSIGHTS

(vii) Environment change auditing

(viii) Value offers deficiencies auditing

(ix) Consumers and potential consumer needs comments analysis

(x) Analysis of distribution channels opinions

(xi) Government and development agencies publications, regulations


and programmes

(xii) Research and development efforts.

IDEA GENERATION/VALUE CREATION STRATEGIES AND TECHNIQUES


Value creations generally involve one or a combination of four strategic
moves

(v) Gradual value improvement (value addition) upon existing


value offers (eg toothpaste with fluoride, automatic gear etc)

(vi) Radical reinvention of an existing value offer (old and new


volkswagon beetle car)

(vii) Creative synthesis of various competitive attributes or value


offers of different champions (VCD from CD and video, Nokia
1100 with phone and touch)

(viii) Innovative value creation which brings novel values in an


entirely new value – offer package.

Generally, value creation that create wealth involves developing and


providing solutions to identified societal problems/needs/value
demands in such a manner that also solves the creator’s own problems
or meets his own value demands. This is the concept of value
exchange – the buyer becomes the seller, and the seller becomes the
buyer.

NURSING AND NURTURING IDEAS/VALUES

• Climb to and operate on the fourth plateau of your mind


• Develop a well – coordinated mind empowerment network
• Take every idea or concept very serious

29
• Don’t listen to dogma or what other people thought or think
about your idea
• Don’t be discouraged that others don’t see what you see
• Guide each idea jealously, discussing it only with your selected
‘Success Alliance’
• Understand, Refine and conceptualize your idea.

HOW TO CONCRETIZE IDEAS INTO CONCEPTS/VALUES

Every worthwhile idea can be transformed from its intangible state into
a tangible material value. The steps are;

 By Transcription – Write down your ideas


 Conceptualize and continuously refine your ideas
 By Transmutation – Transfer your mind energy and passion from
other areas to your ideas.
 Transplantation/Impartation – Transfer to the mind of success
allies
 Exchange your ideas for values you lack or need (Value
Exchange) (OPM PRINCIPLE)
 Match your idea with present or potentials needs and
opportunities.

NEEDS IDENTIFICATION AND ANALYSIS (PRESENT OR POTENTIAL)

Needs represent unsatisfied value demands, constituting a problem to


be solved or desire to be met. They are identified by the analysis of
several causal factors.
o Deficiencies(Means gap) in existing value offers (improvement in
existing value offers or provision of complementary
product/services) or discovering and innovating faster / more
efficient or effective ways creating and delivering existing value
o Absence of product/service (Ends Gap) to satisfy existing needs
(innovation of new products/services) or discovering and
innovating new products and services to satisfy present needs
gaps
o Identification of gaps (distance or space gap) between
consumers and producers (agencies required) to bridge gap.
o Environmental change induced needs (Fourth Wave Economy of
Today) (Environment auditing and Business opportunities) . This
include : Time gap- discovering and closing the time gap
between present demand and future supplies that exist, Price
gap- discovering the price gap and acting to close the
gap( arbitrage) ,and Cost Gap- discovering low cost way for
offering existing value

30
o Life and business improvement or convenience induced needs
(air – conditioners, means of transportation, ICT)
o Scarce resources of life savings induced needs (life jackets,
Japanese cars)
IDENTIFICATION AND ANALYSIS OF OPPORTUNITIES
An opportunity is a conjunction of circumstances which provide an
opening for success or convenient time for making certain decisions or
taking actions possible and appropriate, with probability of success,
advantage or gratification.

• Value creation analysis of opportunity


• Analysis of risks and uncertainties versus return from opportunity
• Exploitation, capability analysis of opportunity
• Competitive situation analysis of opportunities
• Vision analysis of opportunity
• Value systems analysis of opportunities
• Liberty analysis of opportunity
TRIANGLE FOR VALUE CREATION DECSIONS
Every genuine wealth creation begins with value creation

Value
Idea Creation
Decisio Opportunity
n

Need

To embark on a particular value creation venture, and transform value


created to potential wealth, idea must meet opportunity that satisfies
present or potential societal needs. The triangle intersections of these
three represent the value creation decision point.

An idea which does not exploit a particular opportunity and/or meet


identified need is only an exercise in ideological excellence without
pragmatic relevance; it leads to frustration and poverty.

An opportunity without an idea to exploit it, is a potential wealth never


achieved.

Needs which is not met by idea and opportunity is a cry in the


wilderness

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COMPETITIVE VALUE CREATION PROCESS
Creating values that will exploit success opportunities and build
competitive advantage over others in this value surplus economy,
involve the following process;

(v) Apply the three crown auditing: Identify the three market
leaders in the industry you desire to operate or are presently
operating and identify three most powerful attributes that
endear customers to their products or services.

(vi) Research how you can marry all the three unique attributes
into one product or service. The value added to the new
product or service must adequately address major problems
existing in previous products or services

(vii) Consciously break the boundaries between tangible and


intangible in your total value offer

(viii) Come up with a value offer and test run it


The idea is then researched and tested on a very limited scale in the
feasibility phase. The primary question to be answered in this phase
is: Does it work? A breadboard or laboratory model is generally
constructed, and it may be tested with one customer under controlled
conditions. A service would be structured and tested on a pilot basis
with one customer. Market research using secondary sources and
initial evaluations of the business economics are performed to assure
the attractiveness of continued investment of time and money.
In the verification phase, the prototype service or pilot models are
“quietly” field-tested. The primary question to be answered at this
phase is: “Now that we know that it works, does anyone in the
marketplace care?” This is the first commercial exposure to
customers, but the exposure is purposely limited to allow time to
improve the performance of the product or service. A key objective is
to gain an in-depth understanding of the customer’s needs and how
the product or service may be modified to better meet their needs.
During this phase, the venture begins to evolve into a business, and
key people are added to build the management team.
In the demonstration phase, the firm begins to scale up its operations
to prove that it has a business formula that can be replicated for
success. The product is refined for efficient, low cost production, and
pre-production lot sizes are produced to show that consistent,
acceptable units can be produced. An established selling approach is
applied to a broader set of customers, such as those in a wider
geographical area. The key management team demonstrates that it

32
has the ability to implement a plan that can address a wider, possibly
national market.
Start-up planning
 Defining business to embark upon by marching the market needs
(generic and strategic) with the value offer to exploit the
opportunity discovered while taking with into consideration the
threats and risks involved ( Business risks and environmental
threats)
 Defining business directions and objectives: - vision, mission,
business value and philosophy, critical success factors, key success
factors
 And aligning self with the chosen business field. - This involves
discovering your purpose, strategic analysis, decisions and
definitions.
PURPOSE: - (purpose is the identified class of values that a thing,
person or organization is made and equipped to create and offer to
meet identified class of needs and consumers. It is your creator who
determines your purpose on earth. God determines the class of needs
you are to meet. It is your duty to discover it via 5P’s- person (self
value, self concept, self image=identity), Personality (character traits,
structure, value, orientation, role orientation= Difference), Passion
(love, joy, burden, soft pots, desire= attraction, devotion), Possession
(talents, disposition, tendencies, originality, creativity = intelligence,)
Possibilities (instincts, hunches, intuition, light signal = potentials)
Any other pursuit outside your purpose is either a misuse or abuse of
life and you cannot excel or become a champion in another man’s
field),
SITUATION: - the strategic analysis of personal (SWOT) the external
conditions can be favorable or unfavorable. Favorable conditions are
called opportunities while the unfavorable are called threats , your
current abilities are categorized into strength and weakness to arrive
at identifying strategic priority issues such as context, competences,
character, intelligences, capacity and KSF/CSF/ESF,
SELECTION: decisions through purposeful priority planning and how
through strategy implantation, implementation and improvement. This
entails focusing on directions through desire, commitment and
discipline. Thus not allowing any pressure to distract him/her through
opinion and enticement, occupation of best fit that will be used as
platform for excellent value offer, crafting grand strategies and
evaluation: consolidation if O versus W= Develop strength,
Growth if O versus S = exploit opportunities,
Turnaround if T versus W=exit branch and
Stabilization if T versus S= reinforce strength and finally selecting
winning strategic options or option for implantation and
implementation plan

33
 Business Model and Strategy: Business model describes how the
business will generate value while strategy describes how the
business will grow and continue to be a profitable venture through
managing change situations, building competitive advantage and
achieving superior performance within the business environment.
 Business Plans (project overview, corporate information,
introduction (description of industry and business), mgt team,
market, production, financial, operation, sensitivity analysis,
conclusive inference.
 Strategic leadership by determining resources needed, existing
resources, identifying resources gaps and available suppliers; and
developing access to needed resources. Then, mobilizing support
from stakeholders, mobilizing support from competitor and
alliances, effective deployment of tangible resources (capacity) and
processes (capabilities), achieving organizational momentum and
lead the organization using inspirational leadership posture.

Early years/Market entry


In the commercialization phase, major investments are made to
achieve efficient, low-cost, full-scale production and for full-scale
market development. For some firms, the investment in manufacturing
plant and equipment can be many millions of Naira. The investment to
introduce the product or service to a wide set of potential customers,
such as spending for advertising or to build a national sales force, can
often be more than spending needed for manufacturing facilities. This
is especially true for service businesses or for computer software firms.
Thus entrepreneurship refers to an attempt to create value through
recognition of business or investment opportunity, the management of
risk-taking appropriate to the opportunity and through the
communication and management skills to mobilize human, financial
and material resources necessary to bring it to fruition.
Consequently, it involves an ability to have good /wrong hindsight,
insight and foresight, good/wrong judgment and recognition /non
recognition of maladjustment in the market to invest in the under
priced/overpriced and undercapitalized/ overpriced factors of
production , process and sells in the future to get reward in form of
profit /loss.

Hence, profit occurs when an entrepreneur saw more in form of


superior hindsight, insight foresight (wisdom gain from past, present
and future action/events), judgment and uncovered maladjustment
(that is an undervaluation of certain factors of production) in the
market; acted on this insight because the market erred by
underestimating the future rent or potential value of factors.

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While loss occurs when an entrepreneur has made a poor estimate of
future selling prices and revenues, which if driven out of
entrepreneurial role altogether returns to the job of wage/salary
earner. Thus we can say that losses are the indication that the
entrepreneur allocated factors of production where they were
overvalued as compared to the consumer’s desire for their products.
Whereas, profit indicate allocation of factors where they had been
undervalued as compared to the consumers desires.
In general, every entrepreneur invests in a process because of
expectation of profit. This is because he/she believes that the market
has under priced and undercapitalized factors of production in relation
to their future rent .Therefore, entrepreneurial size of investments is
no guarantee of a large/small profit or against grievous losses because
market is on respecter of past laurels, however successful. However
the factors that are responsible for high failure of organizations in
Nigeria are:
• Lack of competence- skills, knowledge and character
• Wrong staffing
• Poor leadership
Operating environment

The scope strategic entrepreneurship entails


1. Taking entrepreneurial actions using a strategic perspective
2. Engaging in simultaneous opportunity seeking and competitive
advantage seeking behaviors
3. Designing and implementing entrepreneurial strategies to create
wealth
4. It can be taken by individual, corporate and Government

5. The Entrepreneur- Orientation, Competence, Traits and Roles


The Entrepreneur is an individual who:
• Innovates new value offers (products/services) to meet needs,
• Creates(new processes) opportunities and wealth,
• Transform situations (open new markets) and develops venture
(organize new industries).
Hence, if we look at what differentiate successful entrepreneurs
from the unsuccessful ones, the following constitute the special
orientations and roles of the successful entrepreneurs:
• Opportunity identification (creating and exploiting
opportunities)

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• Propensity for change and growth – They are generally anti-
equilibrium, anti-status quo and have transformation instinct.
• Indulge in Intrapreneurship- seeks value innovations, internal
competition and creative destruction, self induced
entrepreneurial behaviour
• Establishing new business ventures- Always engage in turning
opportunities into business.
• Engage in Strategic alliances and networking events.
Dramatic changes are the global environment shows suggests that
successful entrepreneurs are those who are able to find a real niche in
the market that offers enough of margin to meet their needs and
aspirations.
Most successful entrepreneurs carefully assess their idea to make
certain that it has an adequate market and enough profit margins
before they even launch their venture. Again, they must be able to
master three strategies:
Develop a clear vision
Manage cash creatively
Be able to persuade others to commit to the venture using social skills

Competences of an Entrepreneur-: Competence is an underlying


characteristic of a person, which leads to effective or superior
performance. It is made of one’s knowledge, skill, and
charactermotive, attitudes, etc that isare peculiar to that person.
. Value creativity and innovation-(spot and develop opportunity)
• Environmental analysis- (auditing and futurology)
• Direction and goal setting skills-( vision, mission, values, goal ,
ability , skills)
• Change management skills-(initiative and proactive orientations).
• Negotiation skills-(win win )
• Competing in global marketplace
• Innovation and product development-( cognitive and analytical
thinking)
• Business development and venturing skills-(ability to lead ,
control, monitor, organize and develop venture)
• Strategic alliances and networking skills-(relationship building
and use of contacts and connections)
• Other competencies include:

Decision making and problem solving,


Project management,

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Human relation and communication
Marketing management,
Financial management,
Organization and management andmanagement and
ICT management

Traits-These qualities are as follows:


• Innovativeness and creativity.-High intelligence and
conceptual ability and uses feedback, and moderate risk
taking
• Strategic Planning-Good business planning skills, goal setting
and future oriented with proactive leadership qualities.
• Managerial discipline and competence: This implies effective
application of resources, initiative and personal responsibility.
• Business tact.-ability to organize
• Positive human relations.-exudes drive, energy and self –
confidence and emotional stability.
• High achievement drive.- displays originality and is task –
oriented with strong desire to achieve objectives.

Roles- These are in areas of the following;


• Stimulate of the Nation’s dormant resources- buying, selling and
investment.
• Employment –providing both direct employment and as means of
self –employment.
• Rural-Urban migration: reduce the incidence of urban migration.
• Skill acquisition –providing opportunity for skill acquisition
needed for managerial supervisory and technical work force.
• Stimulation of rural resources- helping to resuscitate and utilize
the abundant human and material resources abandoned in the
rural areas.
• Income generation and redistribution: generate and redistribute
incomes for citizenry through their economic activities.
• Enhance better standard of living through effective demand for
goods and services.
• Foster large-scale production –assisting in the supply of needed
raw material to bigger companies.
• Facilitate the formation of capital and mobilization of savings for
investment.

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• Encourage the development of indigenous technology through
innovations and inventions.

6. Types of entrepreneurship
Individual Entrepreneurship involves attempt at new venture
creation or expansion of existing business by an individual, team
organizational. These include:
a. a. Marginal firms or artisans
b. that directly provide products or services in the market to earn
income. These businesses do not require much capital outlay and
do not return much income, subsistence nature, owned and
managed by single individuals with little or no education but
sometimes due to unemployment to complement their incomes
,e.g. : block molding, barbing, tailoring, bakery .
c. b. Professional ventures or managers
d. that adopt a more structured approach to building an organization
on the lines of a little big business. These businesses are usually
small; require more capital outlay but large amount of professional
knowledge. They are owned and managed by highly educated
professionals with high social awareness and acceptance. These are
medical clinics, accounting firms, management consultancies and
law firms.
e. c. Mass producers or promoters, who deal, often, start, grow and
sell several different businesses in pursuit of personal wealth. They
do not necessarily produce complex products or services. They take
advantage of the high economies of scale involved in large
production in the establishment and operation of the venture. This
type of enterprises usually established by the bold, educated and
socially aware personality located at a place or may be
geographically decentralized. These are soft drink producers,
breweries, banks, Insurance, High technology firms, Diversifiers,
speculators, etc
Thus, individual entrepreneurship comprises of individual venturing
and individual intra-preneurship. And intrapreneurshipIntrapreneurship
is entrepreneurship within an existing individual organization or
government by promoting internal creativity and innovation, internal
competition, internal entrepreneurial environment, strategic
behaviourbehavior and establishing strategic business units.

Corporate Entrepreneurship is a process whereby an individuals and


groups within an existing organization engage in developing
innovation, promoting entrepreneurship culture and creating new
venture. It is the sum of an organization’s intra-preneuring and
venturing efforts.
Corporate entrepreneurship is dividedis divided into:

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1. Corporate innovation – Innovation is a continuous process
and not a singular event. Therefore , to maximize the
benefit therefromthere from , there must be :
 Cross functional integration
 Strategic Project and team
 Horizontal organizational
 Shared values and vision
 Effective communication system
 Effective budgeting and strategic allocation of resources
According to Institute of Strategic management ,Nigeria “ Innovation is
the entrepreneurial process of creating new resources and capability or
adding value to existing ones and positioning the outcome for strategic
competitiveness and financial success” This can be in form of product,
service, process, organizational, management , production, technology
and commercial /market innovations. Hence , the degrees of
innovation includes; invention, creative value addition, adaptive
imitation and pure imitation .Thus , every innovation involves :
 Response to identified need or opportunity
 A creative effort that results novelty
 The need for further changes or improvement
Corporate intra-preneurship – This is the integrated process of
implanting entrepreneurship inside an existing organization, through:
Promoting an entrepreneurial environment and culture- It will be
recalled that the traditional corporate environment and culture usually
have guiding directives such as: adhere to policies and instructions
given, do not make any mistakes nor fail, do not take the initiative but
wait for instructions , stay within your turf and protect your backside,
and so on. More so, traditional companies are hierarchical, with
established procedures, reporting systems, lines of decisions, authority
and responsibility, defined instructions and control mechanisms. This
restrictive environment does not promote creativity, flexibility and
independence or risk taking. Conversely , an
intrapreneurshipIntrapreneurship environment culture is guided by the
following principles: develop visions, goals and plans; reward
suggestion, trial and error, experiment; create and develop new things
regardless of area; long term horizon volunteer program encouraged
and taking responsibility and ownership. Again, an
intrapreneurialentrepreneurial climate has a horizontal / flat
organizational structure; tasks are viewed as fun and there are
networking teamwork, sponsors and mentors, established atmosphere
of trust and counseling.
Creative obsolescence or destroying- This a process whereby the firm’s
corporate strategy ,support internal evaluation of existing products
and processes, ad creatively destroying or obsolescing and replacing

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them with new ones for the purpose of discovering and exploiting new
opportunities.
Autonomous strategic behaviourbehavior- This a bottom-up process in
which product champions( an organizational member with
entrepreneurial vision of a new product, and who seek to create
support for its commercialization) pursue new ideas, by means of
which they develop and co-ordinate the commercialization of a product
until it achieves success in the market place.
Induced strategic behaviourbehavior- This is top-down process
whereby the firm’s current strategy and structure, foster product
innovation that are also associated closely with that strategy and
structure.
In addition, corporate venturing- This is the means whereby
established organizations grow and expand by creating new
businesses in response to identified market needs and opportunities.
Thus, the development of new business takes the form of:
independent venturing (identifying market needs and opportunities
and independently developing businesses to meet and exploit them)
buying innovation( invest in the buying of proprietary rights, including
patents rights of various kinds of innovations) ;
And strategic alliances (these are partnership between firms whereby
their capacities, capabilities and competencies are combined to pursue
common strategic objectives) It normally takes form of merger,
acquisition, networking, joint venturing, venture capital etc..... Firms
that encourage intrapreneurshipIntrapreneurship are:-
risk takersrisk takers,
committedCommitted to innovation,
proactivepProactive in creating opportunities rather than waiting to
respond to opportunities created by others.

Government entrepreneurship is the process by which government


help their scientists commercialize their technologies and inventions,
assist citizen to think, learn and practice entrepreneurship and
devoting resources to promoting community, regional and international
entrepreneurships.

7. Process of Business development


Entrepreneurship process involves the followinBusiness development
involves a number of important things to growing/running a
business, such as:
1. Securing financing.
2. Generating and executing deals - could be sales agreements, supply
or purchasing agreements, or things like entering into partnerships,
licenses or collaborations.

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3. Development and execution of a business model.
4. The management of these tasks throughout the process.
Business development connotes evaluating a business and realizing its full potential using
such tools as marketing, sales, information management and customer care. Business
development is a broad term applied to the process of strengthening ties with existing
clients as well as cultivating customers in other sectors of the consumer market. In order
to accomplish this goal, business development normally crosses the traditional barriers
between sales, marketing, customer care, operations and management in order to promote
this process of expansion on more than one level. It focuses on identifying business
opportunities in the marketplace. The goal is to generate profit by creating businesses to
exploit market and business opportunities. It comprises a number of techiniques designed
to create and grow economic enterprises. These includes but not limited to concept and
brand development, assessment of market and target markets, developing access to
needed resources, intelligence gathering on customers and competitors , generating leads
for possible sales, follow up sales activity, formal proposal writing and business model
designs.
Processes are as follows:-
Establish market development aims and targets ( objectives and goals)
Identify target markets, sectors and niches
assess existing sales orgg:

Defining the business


Business is all about creating customers. It involves matching
customers (market segment) generic and strategic needs, taking into
consideration of the market threats (competitions) and risks including
the net opportunities that exist thereof and matching them with the
value offer, with the active support of the entrepreneur’s
character/personality, competencies and motivations.
Defining Directions and objectives
This includes the following:
Defining vision- what to be or become.
Mission – what to do in order to achieve the vision, these activities
propel the entrepreneur to his vision
Business value and philosophy- what values, systems and behaviors
will ensure that vision and mission achieved.
Defining critical success factors- the limited number of areas in your
business which results, if they are satisfactory, will ensure successful
competitive performance for the organizations. e.g. strategic planning,
networking, product and people development, defining your target
markets and the value of your services, marketing and sales,
relationships and alliances, systems and processes, customer service,
financing and cash flow, technology etc.

Defining key success factors- this includes :

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customer requirement,
competitive factors that must met,
regulations/industry standards in the business,
Resource required implementing competitive strategy and technical
requirement to build competitive position.
- Aligning self and the chosen business field - Focusing on the business
in which your have the competence.

Crafting effective strategy and business model-This include the


following;
Defining and understanding strategy, strategic posture and intents
Crafting grand strategy (growth strategy)
Crafting winning strategy
Business success model- the chosen arrangement of revenue and costs
that will ensure profitability, survival and growth. This involves how the
business will make money
4. Developing effective Business Plan –
The content should include:
Project overview
Corporate information
Introduction –(description of industry and business)
Management Team
Marketing plan
Production plan
Financial plan
Operational plan
Financial projection
Sensitivity analysis
Conclusive inference

5. Building the winning capacity and capability business venture.

Capacity is totality of strategy supportive tangible resources and


infrastructure (financial, human, physical, technology, etc)
Capability is arrangement of internal structures, systems, processes,
corporate culture that will deliver satisfactory values to customers.
These are;
Organization structure- agile, responsive and resilient
Strategic staffing –by weakness and by job of best fit
Core competences-competitive advantage
Internal policies, value chains, processes, systems
Corporate culture and commitment
Commitment to excellence and continuous improvement
Executive support system

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6. Effective strategic leadership – This involves the following:
* Mobilizing support from stakeholders
* Mobilizing support from competitors (co-option)
* Effective deployment of capacity and capabilities
* Achieving organizational momentum
* Inspirational leadership

7. Administrative management- This involves the following:


* At formation- being sole administrator/ Entrepreneur as total
delegation can be dangerous.
* At growth stage – with designed organization structure, totally
delegate administration and managerial leadership will ensure that
vision and mission achieved.

8. Business Planning
Meaning and role of a business plan.

Business plan is a totality of other plans: feasibility studies, Business


model, and Strategic plan, marketing plan, financial plan,
operational /production plan and human capital plans. It is a complete
description of a business and its plan for the next 1-3years subject to
minor adjustments on occasional basis. It accomplishes four basic
objectives:
identifies the nature and the context of the business
presents the approach the entrepreneur plans to take to exploit the
opportunity
identifies the factors that will determine whether the venture will be
successful
serves as tool for raising financial capital
It focuses on the viability of a business idea by analyzing the market
plan and establishing realistic financial projections. Its main purpose is
to inform its readers that the business is feasible and will achieve its
goals and objectives despite its industry threats and envisaged
environmental risks factors.
Finally, it addresses the following questions.
Where does the business want to be?
Where is the business now?
How can the business gets where it wants to be from where it is now?
(bridging the Gap)

The role of a business plan is to:


• Serve as a framework for decision or for securing
support/approval.

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• Explain the business to others in other to inform, motivate
and involve.
• Identify critical resources and strategies.
• Gain deeper understanding of business operation.
• Ascertain the funding needs and attract fund suppliers.
• Provide benchmark against which to compare and monitor
performance.
• Stimulate change and become building block for next plan.

Scope and value of a business plan


Business plan is a document that convincingly demonstrates that a
business can sell enough of its products or services to make a
satisfactory to make profit and be attractive to potential backers. It is
prepared when:
• A Business is starting out or engaging in a new business.
• A Business is involves in a major change which may include
additional investment.
• An existing business wants to clarify its direction, identify success
factors, and minimize inherent risks and threats.
• The plan normally reveals the following:
What the business does or what it hopes to deal on.
Depicts relevant information about the customer especially what it
intend to do, when to do it, how to it and why doing it.
• Finally, depending on the scope of a particular business, it
includes the following:
What the business plan needs to achieve.
The content of the plan:
Summary-prepared only after the plan has been completed. It
should explain if the plan is to establish, expand or consolidate
a new or existing business
Give brief description of the business idea
Give details of the Product or Service
Indicate to whom the product or Service will be sold
Show the first year’s estimated sales and net profit
Show the finances required as follows:

Capital Assets

Tangible fixed xx

Intangible fixed xx

Working capital xx

Total xx

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Liabilties

Equity xx

Funds Rrqd( additional) xx

Total xx

Give details of the people involved in the setting up and


running the business

Provide details of how the organization will be constituted


eg.sole trader etc

The business and its products

Market and competition

Sales

Management and personnel

Operation

Financial performance

SWOT Analysis.T

Thhee value of business plan is as follows:;

Ascertaining the feasibility of the business


Identifying the initial cash needs to commence business.
Identifying customers, competitors and exploit opportunities and
minimize risks.
Ascertaining the extent of business strength and weaknesses and the
impacts of external environment
Identifying strategies to achieve business goals and objectives
Pinpointing and discovering other specific areas not envisaged

Why Business plans fail

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The following are the reasons why it fails to achieve its goals and
objectives.
• Exclusion of successful companies in the competitive analysis
• Over-emphasis on partnership with well -known companies
• Focusing too much on the future without equivalent tactical
plan to achieve objectives
• Not tailoring management team biographies to the venture
development phases
• Asking the investors to sign no disclosure agreement thereby
indicating that there is no entry barrier
• Indiscriminate incorporating investor’s feedback into the
business plan
• Stressing first mover advantage in the market
• Focusing too much on the venture’s proprietary technology
• Presenting large, generic market size
• Making financial projection too impressive, that differs
significantly from the regular accounting designs.


9. Negotiating Skills
Negotiation drives all human interactions. It comes up almost all the
time in our business and personal relationships. It is the management
of conflicts of interests. It is a situation where to a considerable each
side is unaware of the other side’s position. They may guess
intelligently but precise details are not known. Hence negotiating skills
enable one to avoid and reduce conflicts and achieve ones objectives
using a win win solution strategies. It is a two –way affair.
The pressure is always on the either of the parties to compromise.
Winning is a perception and by constantly servicing that, the other
party is convinced that he has won without having to make any
concession.
Win win solution is a creative way of winning at the negotiation while
leaving the other party with the feeling of winning as well.
Some of the ways of creating that perception includes;
a. Not jumping at the first offer
b. Asking for more than you expect to get
c. Flinching at the other side’s proposal
d. Avoid confrontation
e. playing reluctant buyer or seller game

f. Using the vise gambit


g. Using higher authority and good guy/bad buy tactics

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h. Never offering to split the difference
I. Setting aside impasse issue
l. Always asking for a trade off
k. Positioning the other side for easy acceptance.

Personal characteristics of a good Negotiator


Courage to probe for more information
- Question anything the other party says
- Challenge what they know of the other side
- Ask tough questions and watches responses
- Ask the same questions several times to ensure consistent
answers
- Gather enough information about the other party by listening,
asking questions and checking out.
Patience to outlast the other Negotiator
- Develop patience as a virtue
- Do not allow pressure to bully them
Courage to ask for more
- Overstates their demand
- Make a super low offer when buying and initial proposal so high
when selling to bracket their real objectives
Integrity to press for a win –win solution
- look for ways to make concessions to the other side that do not
take away their position
- Do not take advantage of a weekendweakened opponent
Willingness to be a good listener
- Concentrates on what the other is saying
- Summarize the conclusion of their opponent first and ask for the
support of their own conclusion
However when facing a difficult party – usually behind your opponent
attacks or gambits lies anger, hostility, fear and distrust, you will need
to step back – do not react, collect yourself and see the situation
objectively.
Remember that your opponent is hoping to play on your anger, fear
and guilt. He/she may want you to lose control of your emotions so
that you cannot negotiate effectively.
Hence, the first thing to do is to suspend your natural reaction and
control your behaviour. Then try to understand the game or unethical
gambit he/she is play. The next thing is to buy yourself some time to
enable you think on how to disarm, change the game, build a bridge
and bring he/she to his /her senses not on knees.
It is important to note that you will to understand your game in
order to enable you develop the appropriate strategies of
achieving your objectives.

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10. Innovation and Product Development
Invention is the act of creating or developing a new product or process
or bringing something new into being. Thus, technical criteria are used
to determine the success of an invention.
Innovation is the process of creating a commercial product from an
invention or bringing something into use. Thus, commercial criteria are
used to determine the success of an innovation
Imitation is the adoption of an innovation by smaller firms. Products
based on imitation often are offered at lower prices but with features.
Consequently, an innovation is any good ,good, service, or idea that is
perceived by someone as new. It may have a long history but as long
as a person who sees it as new. The five characteristics of innovation
are-
- Relative advantage-the degree to which the innovation appears
superior to existing products
- Compatibility- the degree to which the innovation matches the
values and experiences of the adopters
- Complexity – the degree to which the innovation is relatively
difficult to understand or use
- Divisibility- the degree to which the innovation can be tried on a
limited basis.
- Communicability – the degree to which the beneficial results of
use are observable or describable to others
A product idea is a possible product a company might offer to the
market but a product concept is an elaborated version of the idea
expressed in consumer terms. Thus, customers buy product concepts.
This relates to the following questions:
• Who will use the products?
• What primary benefit should the product provide?
• When will people consume the product?
Product concept defines its competition in the market and has to turn
into brand concept to become distinctive. The product is presented
symbolically or physically to the target market or consumers and
getting their reactions. A new product does not have to be a high
technology breakthrough to be successful but it must provide customer
satisfaction.
Following a successful concept test, a strategic plan will be developed
for the introducing the product into the market. The plan will consist of
three parts:

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• Description of the target market’s size, structure, and
behaviour; the planned product positioning; and sales, market
share and profit goals desired
• The planned price, distribution strategy and marketing budget
for the first year.
• The long –run sales and profit goals and marketing strategy
over time.
This is followed by the evaluation of the business attractiveness.
This involves preparation of sales, cost and profit projections to
determine whether the product will satisfy company objectives.
The next stage is the product development, which involves product
designs, process designs, packaging designs and decisions to make or
purchase various products components. This also includes product
specification, which describes what the product will do rather how it
should be designed, based on customer test results.
The final stage is market testing and subsequent commercialization. In
commercializing the product, market entry timing is critical. A decision
must be made either to be first entry, parallel entry or late entry.

Thank you

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