EBE Part 4

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EBE Part 4
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  1. Resources Three sorts
    • An entrepreneur must
    • attract resources to their ventures in order to pursue business opportunities.

    • In broad terms, there are three sorts of
    • resource that entrepreneurs can call upon to build their ventures (Assets,
    • Organisational processes, organisational learning)

    • - Financial resources: resources which
    • take the form of, or can be readily converted to, cash; Financial resources are
    • most liquid but not most productive cash itself does not create new value;

    • -  Human resources: people and the efforts,
    • knowledge, skill and insights they contribute to the success of the venture;

    • -    Operating resources: the facilities
    • which allow people to their jobs: such as buildings, vehicles, office
    • equipment, machinery and raw materials, etc
  2. In broad terms, there are three sorts ofresource that entrepreneurs can call upon to build their ventures
    (Assets,Organisational processes, organisational learning)

    - Financial resources: resources whichtake the form of, or can be readily converted to, cash; Financial resources: aremost liquid but not most productive cash itself does not create new value;

    -  Human resources: people and the efforts,knowledge, skill and insights they contribute to the success of the venture;

    -   Operating resources: the facilities which allow people to their jobs: such as buildings, vehicles, office equipment, machinery and raw materials, etc
  3. Resources
    Rescources are consumed: they are converted to the products which customers buy, and there is competition to get hold of resources.

    A number of businesses, entrepreneurial and otherwise, will be trying to acquire a particular resource; consequently, managers are willing to pay for resources. 

    Third, resources have a cost

    • Cost of a resource is determined by the
    • market created for that resource.

    • Resources with the potential to create a
    • lot of new value will be expensive. This cost is not the same as the value of
    • the resource to a particular business. Since the value of a resource lies in
    • the way a business will use it, how innovative and how hard it will make the
    • resource work.
  4. Asset swap
    directly exchange of a resource
  5. Liquidity:
    ease with which a particular resource can be converted into cash.
  6. Liquid resources
    are easily converted back, illiquid resources are converted back only with difficulty.
  7. To be competitive
    If an input is valuable other businesseswill eventually find a way to get a hold of it or something like it. To be competitive entrepreneurs shouldcombine resources in a unique and valuable way that is innovative. This willdeliver new value to the customer.
  8. Financial resources:
    • -   Cash in hand: Money to which the
    • business has immediate access

    • -   Overdraft facilities: A short-term loan
    • which the business can call upon

    -   Loans: Money provided by backers.

    • -   Outstanding debtors: Cash owed to the
    • business by individuals and firms.

    • -    Investment capital: Money provided by investors
    • in return for part-ownership or share in it.

    • -    Investment in other businesses: many
    • businesses hold investments in other businesses. If more than half of a company
    • is owned, then it becomes a subsidiary of the holding firm.
  9. All financial resources have a cost

    There are two forms:
    • -    The cost of capital: Cost encountered
    • when obtaining the money: it is direct charge faced for having a overdraft; the
    • interest on loans; the return expected by investors, and so forth.

    • -    Opportunity cost: The potential return
    • that is lost by not putting the money to some alternative use.
  10. Operating resources:
    • -   Premises: Buildings in which the
    • business operates.

    -   Motor vehicles

    -   Production machinery:

    -    Raw materials

    • -    Storage facilities: Premises and
    • equipment used to store finished goods.

    -    Office equipment


  11. In order to use an operating resource effictively
    it is important that entrepreneurs make themselves fully conversant with the technological aspects, legal issues and implications relating to their use.
  12. Human resources
    • -    Productive labour: physical products or
    •      service it offers.

    • -   Technical expertise:  contribution of           knowledge specific to the
    • product or service offered by the business

    • -    Provision of business services: a
    • contribution of expertise in general business services

    • -    Functional organisational skills: the
    • provision of decision-making insights and organising skills in functional areas
    • such as production, operations planning, market research and sales management;

    • -   Communication skills: offering skills in
    • communicating with, and gaining the commitment of, external organisation and
    • individuals.

    • -   Strategic and leadership skills:  the contribution of insight and direction for
    • the business as a whole ( vision->strategy->plan for action)
    • communicating this to the organisation and then leading the business in pursuit
    • of the vision.
  13. Human resources involves
    same decisions as operating resources: what will be needed, to what capacity, over what period, must the resource be in-house or can it be hired when needed?
  14. Organisational process and learning as resources
    • Resources must include the organisational
    • processes that manipulate and utilize assets.

    • Organisational learning develops
    • organisational processes that then control the use of assets. 
  15. Assets may be divided in to three categories
    -    Tangible assets: have physical form. (on the balance sheet)

    • -    Intangible assets: do not have physical
    • form, nonetheless valuable to the business. (patents, brand names) (not on the
    • balance sheet)

    • -    Intellectual assets: refer to specific
    • knowledge of technology or products held within the business that directly
    • informs its activities.
  16. A resource confers a competitive advantage
    if it fulfils three criteria:
    -    That resource can be used in some way to deliver value to buyers.

    -    That resource is unique to the venture.

    -    Competitors find it hard to imitate or            acquire that resource.
  17. Four types of resource can be distinguished
    on the basis that they can be copied or bought and sold (tradeable):
    • -    Tradeable resources: can be “packaged
    • up” and sold within a market

    • -    Non-tradeable resources: cannot be
    • detached from the firm using them and so cannot be traded

    -    Imitable resources: Can easily be copied

    • -    Inimitable resources: Not easy to copy
    • because of legal protection, or they take time to build up to they have causal
    • ambiguity and their link to performance is not clear.

    -    Commodity resources: tradable and can easily be copied (factory equipment and offices).

    -   Exchangeable resources: Cannot be traded but can easily be copied.

    -   Tradable resources: not easy to copy but can be traded freely.

    -    Competitive resources: Neither traded or nor copied.
  18. A brand is valuable only if
    competitors (often larger and better resourced) do not compete with their own brands strongly. A business is not being competitive when it converts input resources into outputs of higher value. It is being competitive only if it is creating more value than its competitors can do.
  19. Competitive advantage
    Competitive advantage is most securelybased on competitive assets that are difficult to trade and cannot be imitatedeasily.
  20. Profits must be considered in relation to two other factors:
    opportunity and risk.

     
  21. Opportunity
    True cost incurred when a resource is used is the value of the opportunity missed because the resource is used en so cannot be used in an alternative way.
  22. Risk
    No matter what return is anticipated there is always the possibility that some unforeseen event will lead to that return being lower customers find product less attractive marketing more expensive then was budgeted for.
  23. Portfolio:
    a collection of investments with different levels of risk and return, the objective is to reduce the overall risk for the portfolio.
  24. Risk occurs because
    resource must be committed to venture once money is converted it is either too difficult or too expensive to convert it back.
  25. If an entrepreneur identifies an opportunity and asks investors to back a venture there are two fundamental questions in the investors mind:
    -    How do returns anticipated compare with the alternative investments available?

    -   What will be the risk?
  26. Entrepreneurs stretch and leverage their
    resources to make them work harder in the face of resource-richer competitors

    Hamel and Prahalad(1993) ten processes
    describe the way that resources are worked.
    -   Convergence: Creation of a gap between resources and the aspirations of the venture that will act as a driver of competitive advantage

    -    Focus: create and maintain a competitive advantage

    • -   Extraction: using information as the
    • basis of learning about the opportuinities available.

    • -    Borrowing: Gaining information from all
    • available resources inside and outside the business.

    • -   Blending: Blending of skills in new and
    • valuable combinations.

    • -    Balancing: Excellence must be balanced
    • across all areas of the business.

    -    Recycling: Competitive advantage should be recycled around the whole venture.

    • -    Co-option: effectiveness with which the
    • entrepreneur draw other organisations into the venture.

    • -    Shielding: being aware of competitors
    • weaknesses, know how to use strengths of the venture to attack those
    • weaknesses.

    • -    Recovery: the venture’s overall agility
    • and its ability to turn information on market opportunities into profitable offerings.
  27. There are three types of metaphor:
    • -     Active metaphor: created consciously and explicitly as a strategy for developing understanding. (Use of ideas from
    • evolutionary biology to create a model of populations of organisations.)

    -     Dormant metaphor: clear when we think about them, but we do not often do so. (use of the word “organisation” or ” corporation”  itself)

    -     Extinct metaphor: deeply embedded in our thinking that we only rarely challenge them. ( to “see” an opportunity)
  28. Active metaphor
    • created consciously and explicitly as a strategy for developing understanding. (Use of ideas from evolutionary biology to create a model of populations of
    • organisations.)

    Examples:


    Let me compare thee to an artic day, sharp and bright, forever light...

    It's been a purple dinosaur of a day.You're looking pretty rabbit --

    what's up?'Metrosexual' is a modern word for an urban heterosexual male who is overly concerned with appearance.
  29. Dormant metaphor
    clear when we think about them, but we do not often do so.  (use of the word “organisation” or ” corporation”  itself)

    • Examples:
    • I was lost in thought. [How?]

    She flew at him. [Why? In anger? Love?]

    He was rattled. [Why? By what or whom?]
  30. Extinct metaphor:
    deeply embedded in our thinking that we only rarely challenge them.  ( to “see” an opportunity)

    Examples:

    To see an opportunity
  31. Conceptualisations of organisations
    -    The organisation as a co-ordinator of action

    -    The organisation as an independent agent

    -    The organisation as a network of contracts

    -    The organisation as a collection of resources

    -    The organisation as a system

    -    The organisation as a processor of information
  32. Conceptualisations of organisations
    -   The organisation as a co-ordinator of action

    • o  Differentiating tasks allows a group of people to achieve complex ends that individuals working on their own could not achieve.
    • o  An organisation is a framework
    • for co-ordinating task and has goals.
    • o  The organisation acts to align and direct the actions of individuals toward the achievement of goals.

    • -     The organisation as an independent agent
    • o  Act in its own right, takes
    • actions on its own behalf and has its own distinguishing properties.  Organisation having a strategy to pursue its goals, assets it owns and culture it adopts. Important because organisations created by entrepreneurs have an existence independent of their creators.

    • -    The organisation as a network of contracts
    • o  The contribution that each
    • individual will make to the organisation as a whole, and what they can expect
    • from the organisation in return.
    • o  Organisations are built on
    • trust and the nature of the contracts that holds the organisation together are
    • a major factor in defining its culture. Important because individuals do not
    • completely subsume their own interest to those of the organisation; rather, the
    • organisation is the means by which they pursue their own goals.

    • -    The organisation as a collection of resources
    • o  What makes a particular firm
    • unique is the combination of resources that comprise it. Innovation is finding
    • new combination of resources. The entrepreneur must be a effective manager of those resources.

    • -    The organisation as a system
    • o  A firm takes resource inputs
    • and attempts to convert them into outputs of higher value. The greater the
    • value, the more productive the system.

    • o  Important because it is what
    • the organisation does what matters.

    • -     The organisation as a processor of information
    • o  Information, properly used,
    • lead to knowledge, and knowledge can lead to competitive success. The
    • performance of the organisation is determined by the quality of the information it has. It not only uses information, but can constantly learn how to useinformation better. Innovation must be based on knowledge.
  33. Pursuit of opportunity: 
    Entrepreneurs use resources to achieve their aims in that they combine resources in a way which is innovative and offers new value to customers.
  34. Controlling resources, Direct action:
    • Directing specific actions the entrepreneur
    • is using others to undertake tasks that they would perform themself but lack
    • the time to do so.

    • (Figure 13.1 Page 271)
    • When the organisation is to complex then
    • the entrepreneur may concentrate be on controlling through procedures.

    • As in Figure 13.1 as it is ascended, their controls become less direct and immediate. The controls adopted, and the way they are
    • used. Will form the basis of the entrepreneurs’ leadership strategy.
  35. Strategy:
    A framework for thinking about, and guiding the actions of, individuals within the organisation. Directed toward the achievement of strategic goals, it will define the major areas of resource deployment.
  36. Vision:
    A picture of the better world the entrepreneur wishes to create. The vision is the thing that draws the entrepreneur forward and gives them direction. (It specifies an end, Not a means)
  37. Market
    • Market consists of a range of sellers
    • offering their goods to a number of buyers.

    • The seller has no obligation other than
    • supply and the buyer has no other obligation other than paying for it. The
    • relationship is short term (buyer being free to go to another supplier in the
    • future)
  38. Hierarchy (Figure 13.3)
    • Individuals supply a product, their labour,
    • to their organisation. Different parts of the hierarchy supply products and services to other parts and to the organisation as a whole. The relationship has a long term character based on both formal and informal criteria. A hierarchy represents a loss of economic freedom (they cannot “just” shop around for a better deal)

    The market and hierarchy are pure types lying at the opposite end of a spectrum of organisational types organisations in the real world lie somewhere in between.
  39. Network
    • More realistic model of how entrepreneurial
    • ventures actually operate than either of the pure types of the market and the
    • hierarchy.

    A firm located within a network of relationships with other organisations and individuals. In this view the firm does not have a definite boundary. The firms merge into one another. The relationship will be established on the basis of market-led decisions. Formal contracts expectations and trust.

    A tight network: Relationships are established and the parties and the parties to them are largely satisfied with these relationship. (Hard to break in to)

    A loose network: Relationships are distant and easily modified.  (Easier to break into)
  40. Networks
    A tight network: Relationships are established and the parties and the parties to them are largely satisfied with these relationship. (Hard to break in to)

    A loose network: Relationships are distant and easily modified.  (Easier to break into)
  41. Transaction cost economics:
    some market exchange has transaction costs. If these costs become too high, then it may be better for the parties to work together within a organisational setting. (Locking their interest together) Entrepreneurs prefer this because there are no market uncertainties.
  42. Figure 13.4 shows how new firms enter a
    network.

    Managing the network will be crucial part
    of the strategy for the venture. In particular the entrepreneurs must make
    decisions in relation to the following questions:
    -   What is the existing network of relationships into which the new venture must break?

    -   What is the nature of the relationship that makes up the network? Is the network tight or loose? Are the relationships based on formal contracts or on trust?

    -   How can the new venture actually break into this network of relationships? (Who must be contacted? In what way? What must they be offered?)

    -    How can the network be used to provide support to the venture?

    -    What resources (capital, people, productive assets) will the network provide?

    -    How can risk be shared through the network?

    -    How can relationships in the network provide a basis for sustaining competitive advantage?
  43. The extended organisation and the hollow organisation
    • The extended organisation (Figure 13.5 page 278)
    • Uses the resources of other organisations
    • in its network to achieve its goals. Access to these resources is gained by
    • building long-term, supportive and mutually beneficial relationships.


    • The hollow organisation (Figure 13.6 page 279)
    • Exists not so much to do things itself but
    • to bring other organisations together. In effect is creates value by building a
    • network or making an existing one more efficient. The formal office is kept as
    • small as possible. The hollow organisation does not manufacture, distribute or
    • advertise goods or services. It simply exists to bring together the
    • organisations that perform these functions.
  44. The extended organisation (Figure 13.5 page 278)
    Uses the resources of other organisations in its network to achieve its goals. Access to these resources is gained by building long-term, supportive and mutually beneficial relationships
  45. The hollow organisation (Figure 13.6 page 279)
    Exists not so much to do things itself but to bring other organisations together. In effect is creates value by building a network or making an existing one more efficient. The formal office is kept as small as possible. The hollow organisation does not manufacture, distribute or advertise goods or services. It simply exists to bring together the organisations that perform these functions.
  46. Advantages of hollow and extended organisation
    -    They are easy to set up;

    -    The initial investment needed is small and entry costs are low;

    -    They allow the entrepreneur to concentrate on their core skills;

    -    They are flexible and can be easily modified;

    -    Fixed costs are minimised;

    -    They allow the entrepreneur access to the resources of other organisations;

    -    Growth is relatively easy to manage.
  47. If they want to be successful entrepreneurs
    must be quite sure of the strategy they are adopting. In particular they must
    be confident about:
    -    Where the business will be located in the value-addiction chain;

    -     The value they are adding, i.e. why customers will benefit from what the business has to offer;

    -     Why the product they are offering is different from what is already on offer;

    -     How they will manage the relationships on which the business will depend;

    -     How they will sustain those relationships in the face of competitors trying to break the relationships it has established.
  48. E-commerce: 
    The use of the internet as an adjunct to selling and promotional activities.
  49. E-business:
    The use of the internet to enhance the performance of the organisation’s entire operational stance. It goes beyond selling it is concerned with managing the business’s whole value-addition chain and creating an active, two way dialogues with the customer, not just sending a message to them.
  50. E-commerce vs E-business
    E-commerce: The use of the internet as an adjunct to selling and promotional activities.

    E-business: The use of the internet to enhance the performance of the organisation’s entire operational stance. It goes beyond selling it is concerned with managing the business’s whole value-addition chain and creating an active, two way dialogues with the customer, not just sending a message to them.

     

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