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Chapter3: What is business

The Big Picture
Business: to view it as a system of integrated actions designed to
ensure that an organization develops and grows a market for its goods
and/or services in a manner that creates organizational value (wealth)
on behalf of its stakeholders.
organizations must succeed in properly identifying solutions to needs
that the marketplace desires, and creating a mechanism for delivering
such solutions to the right customer, at the right place, at the right
time, for the right price. These integrated actions are categorized into
areas such as technology application, product engineering and design,
manufacturing and operations, marketing and sales, distribution, and
service. An efficient and effective operating platform can be assessed
against three fundamental characteristics: its commercial
endeavours, its employee interaction model, and its
organizational efficiency and structure
Commercial endeavours: refers to the markets the organization
serves, the products and services it offers, and the needs it professes
to meet in the marketplace. It reflects the results of understanding the
demand/supply relationships that exist in the marketplace and the
capacity and capability of each competitor within such a market to
deliver products/ services to its buyers. Understanding this
relationship, coupled with an understanding of the price/cost
requirements needed to produce goods and services, is what enables
the creation of a business system that delivers a profitable outcome to
the organization.
Employee interaction: refers to the value-creating skills that an
organization’s employees bring to the marketplace. The success of
many businesses lies with the specialized skills that exist within its
labour force. The leveraging of these skills in the production of goods
and/or the delivery of services is what enables a business to create
value and enables transactions to occur that will allow the firm to make
a profit.
Organizational efficiency and structure: is a reflection of the
complexities of the business activities that circulate within an
organization. It is reflective of the development of the infrastructure
and its related culture, which an organization creates, and the
transaction processes that it develops to service the marketplace it
targets. These three characteristics, when assessed jointly, result in an

ogy framework. Visionary leadership refers to the ability of managers to establish a direction for the organization based on the needs identified in the marketplace and the mission (reason for being) of the organization. and brand power. etc. knowledge. Key component. buildings. Assets: represent the infrastructure and resource base of the organization. Business: can most easily be thought of as mission-focused activities aimed at identifying the needs of a particular market. and of value (meaningful) to a targeted customer or customers.Translated into a strategic plan designed to guide the organization to fulfilling such needs while meeting its mission. process and infrastructure base (bricks and mortar. Business Model (System): is the operational platform or structure that a business uses to generate revenue and profit. and communication of goods and services that are sought after by the marketplace and valued by the customers being targeted. . Labour: refers to the human resource requirements of the business Capital: refers to the money needed by an organization to support asset-based expenditures. and the development of a solution to such needs through the acquisition or transformation of goods and services that can be delivered to the marketplace at a profit. meet operating cash requirements.understanding of a business system whose objective is the design. ecommerce.visionary leadership that a senior management team or business owner provides to the organization. ability. equipment and technol. This includes (but is not limited to) an organization’s land. distribution. and ingenuity of the organization’s key individuals—its owners or top-level managers. and to deliver a service that is felt to be unique. raw materials. or markets.role of the business owner or management is to sense an opportunity to create a product. .). Managerial acumen: refers to the foresight. production. and invest in the development of the new products or services that the organization desires to introduce into the marketplace. important. . drive. decision-making competency.

we are referring to the specific objectives an organization hopes to achieve during the planning cycle.3). If the business plan is competitive and executed properly. labour. which then enables the management team to define how and to what extent it can capitalize on its identified strategic opportunities in a manner that is superior to the competition it competes against on a day-to-day basis. from the sale of the product. A company has a competitive advantage when it can offer customers a product or service that has more value to them than similar products offered by other companies.. this revenue will exceed the expenses associated with producing or delivering the product/service. . and overall capacity. the business management team develops a business plan via a process called the business planning cycle (see Figure 1. thereby generating a profit for the firm. A 3C assessment means analyzing the resources available to the organization and the capabilities and competencies it possesses. which outlines its focus and methodology for using its resources to create valuable products and services that will create a unique position in the marketplace. and capital) By strategy. or revenue.pany’s product/service offering(s). This then enables the company to grow through competitive advantage: when it can offer customers a product or service that has more value to them than similar products offered by other companies. this unique position would be built around a competitive advantage. the company generates money.Vision or market opportunity is realized via the efficient and effective application of the other productive resources the organization possesses (assets. Assuming that the plan is executed in an efficient and effective manner. and customers are attracted to the com. Understanding its strategic opportunities and its capabilities.2 In an ideal situation. This defines the capacity of what the organization can and cannot do. competencies.

-they direct the positioning of the company within the marketplace. . of revenue or a reduction in overall profitability are key identifiers as to whether a given plan is working. Figure 1. measurable. and detail an implementation strategy that will enable them to achieve this desired position.ensure linkage with the vision and mission of the organization. or declining. and develop the required operational tactics that will ensure the plan is executed in a fashion that leads to growth and profitability. the management team needs to assess the success of the company in achieving the desired objectives. then the company will most likely not achieve the results anticipated and will need to redirect the current organizational effort in order to get back on track and achieve its revenue and profitability targets. and determine adjustments required in order to further grow the company within upcoming planning cycles. . ..orchestrate the creation of a business plan that will achieve the objectives formulated for the planning period.failure to meet the objectives of a planning cycle can be the result of poor positioning. poor operational execution.ment team must then allocate the resources and leverage the company’s capabilities in a man. - achievable within the given time frame that defines the planning cycle. The manage. If an organization does not achieve its objectives as a result of either poor positioning or poor execution of the strategies initiated. A flattening. Finally.ner that ensures the tactics designed to achieve the objective actually work and produce the desired results.6 illustrates a failure to grow the company to the desired position and meet its objectives during a planning cycle. Businesses need set objectives that will enable them to achieve a defined position in the marketplace. actionable.business’s grow by executing a series of planning cycles over time . objectives should be specific. or a combination of the two. and controllable (SMAC) by the firm’s management team.

out business plan in order to determine just how. and business system that will enable them to cover their operating costs and to employ strategies to fund the ongoing delivery of meaningful services. operating model. need to recognize the need for a well-thought. -These products/services are then sold to other businesses or to consumers to achieve a profit for the firm. The Fundamental Objectives of Business First objective: businesses utilize resources with the idea of transforming them into products and services. and communities they serve. 2nd Objective: As managers consider current and future business direction. -Making a profit on a monthly. an equally important objective to short-term profit must be considered - to achieve long-term growth and profitability. Profit is necessary in the immediate term for the business to pay its bills and reinvest in the future. Nevertheless. groups.for-profits still need a business plan. and when to compete. Small businesses.For-Profit Companies: are organizations whose overarching objective is profitability and wealth creation on behalf of their shareholders and not-for-profit organizations are those that are not in business to make a profit. where. as well. and annual basis is fundamental to ensuring the immediate survival of the firm. - demand for the products and services they currently offer will change/disappear - businesses are constantly searching for new markets and new opportunities to further grow the scope and focus of their organizations. not. . but rather seek to deliver services to the people. quarterly.

environmentally sustainable resource practices. ethics and environmentally sustainable business concepts and practices before personal gain when making decisions and when interacting with the marketplace. government. and operating processes. and so on. Ex apple ( growth via innovation) Third objective: social and environmental responsibility. - consumers are encouraging and demanding that businesses operate and act in a manner that demonstrates social responsibility with respect to product development. and other environmental and social codes of conduct are challenging businesses to position themselves as good corporate citizens in order to acquire and retain customers. and decisions. suppliers. .same fundamentals imply for the not for profit org event ho they don’t strive for profits. employees. resource consumption.meet societal needs that are not met by the fro profit org . or organizations that have a direct or indirect relation. truth in advertising.Green initiatives. - - make decisions that conform o highest ethical standards Put society. stakeholder . org.add new programs and services that meet the current community need .- immediate-term operating performance : based on the products and services a business offers today - However new products and services will need to be developed to ensure the organization remains healthy and continues to grow. and that can be impacted by its policies.high social responsibility. they do need to create operational surpluses and/or acquire external capital funding commitments that enable reinvestment in the organization to ensure it remains vibrant and responsive to community needs . Stakeholders :to individuals.need to assess services to remain meaningful to the customers and expand services where there is demand and capability to do so .ship with an organization. . Stakeholders could include customers. groups. actions.

most common way of comparing how well a specific company is performing is by measuring its profitability over a period of time. Profitability: measures how well a company is using its resources over a specific period of time to generate earnings relative to its competitors Probability analysis . service advantages. immediate period of time.. . .make decisions that enable all three of these responsibilities to be considered equally . .compared on a period-over-period basis.balance both short and longterm profability to obtain market position and sustainable operating performance. or human resource competency advantages . the level of pre-tax income it earned.nization undertook to finance its assets and operations. return on equity. . Total Revenue 2 Total Expenses 5 Profit.liquidity issues if focus too much on long term prof successful business model (system): is one that enables a company to meet the needs of the marketplace in a manner which is superior to that of its competitors. sales and marketing advantages.factors like as return on the capital invested. technological advantages. Profit: is the “bottom line” result an organization has realized for an identified. the financial leverage the orga. and so on.delivery of socially required programs and services that for-profit entities would choose not to deliver due to an absence of a profit opportunity.assessed over a period of time so that efficiency and effectiveness results . Such a model could be built around cost advantages. and in direct comparison with its industry competitors.

The benefit of profitability analysis is that it levels the playing field between competitors.not driven by tangible or functional product benefits . and stream.line operations. all in an effort to improve immediate and longer-term profitability. but more with the perceived benefits the product or service offers. Improving probability - companies in the marketplace are continually being challenged to develop new product opportunities.challenge to improve profitability faces companies large and small . Value Proposition =Service Benefits + Product Benefits + Brand Benefits + Cost Benefits + Emotional Benefits Apple ipod>mp3 . or organization that owns at least one share of stock in a specific company.Broaden its offerings and expand product line Stockholders refers to any person. Creating a Value proposition Value proposition is a statement that summarizes whom a product or service is geared toward and the benefits the purchaser will realize as a result of using the product or service . company.enables a management team to determine whether the operation has improved in its ef.many of the reasons why products or services are purchased have little to do with the actual product itself. recognizing that some may be significantly larger than others.companies develop VP to communicate to customers on how their product different from the competing products in the market m the benefits they offer .. meet evolving needs in emerging markets.fective utilization of its assets and capital -focuses on comparisons among competitors within an industry to determine which organizations are the most effective in their utilization of resources -Competitors who are the most profitable over a period of time are generally the most attractive to investors for investment purposes. .

the greater the opportunity to communicate to the potential purchaser a value proposition that has a positive price/quality relationship and that is considered superior to those of your competitors. and value-driven your product is. .not always abt the lowest price but to understanding the desires of the market and offering a product that responds to those needs. important. .tangible product features (touch screen and other interfaces. the support services (such as iTunes).More unique. image). status. and the peer affiliation of owning an iPod make it the preferred choice. - The price/quality relationship is the relationship between what consumers are being asked to pay for a product and what they expect to receive (benefits).Product benefits. - important to offer the most attractive price/quality re-lationship for the target market segment. . the overall ease of use. video capabilities) along with the Brand benefits (Apple’s brand strength). The Impact of Price - price is also a key component in a potential purchaser’s assessment of an organization’s value proposition - Purchasers will assess the price/quality relationship of one business’s value proposition and measure it against those of its competitors. - benefits may be both tangible (product features) and intangible (emotional benefits. -It is also about recognizing that segments within the market will have different feelings as to how these needs can be met.

and how does this compare to that of my main competitor(s)? • Do I have a strong brand profile in the marketplace that I can leverage as part of the benefit to the customer when purchasing this product? • Are there emotional benefits that the customer will attach to this product/service offering? If so. has achieved sufficient size and scope to keep its costs of doing business in line with the competition.key is to recognize the qualitieand to match them against the segment of the market that will best respond. some ppl go for higher level of quality ex coach or Gucci allowing the influence of emotional and brand benefit to make decision . and then deliver the value proposition in a manner superior to the competition that is seeking the same market position and set of customers as you are. Five fundamental questions need to be assessed and will ultimately assist the management team of a business in determining how and where to compete in the marketplace.hand bag example” diff brands. Ex Tim hortons: strives to provide excellent service. These questions are as follows: • What is my cost base for producing and/or delivering this product/service to the market.place.. A key to its value proposition has been its ability to tap into the emotional affiliation of Canadians with what the company . how can I use this to assist me in strengthening my value proposition? • Are there unique service benefits I can incorporate into this value proposition that will assist me in supporting potential and existing customers? Can I create a strong market segmentation to compete? Market Segment is a portion of the market that is deemed to possess unique characteristics businesses can target in order to generate a preference for their products and/or services.

developing and managing a business requires its owners/managers to: •create a vision of the opportunity in the marketplace . it will need to adjust its value proposition and communication emphasis until its brand profile and emo. the purchase of raw materials. salaries/wages of employees. purchase of equipment or building(s). -costs must be recognized within their business plans and pricing strategies to ensure the costs of the operation and other related financial obligations are fully offset by the revenue generated by the business and that acceptable levels of profit are realized. It presents itself in its communications as being uniquely Canadian. population.stands for. Ex.S. ex. Business Decision making landscape .key for managing a business is understanding the expenses that must be considered when setting the price of a product or service offering Asset-based expenditures are those expenditures incurred in commencing a business operation or expanding its capacity. Operating expenditures are expenses incurred as a result of the normal business operations. and has been successful in reinforcing Canadian values and our way of life within its positioning message.tional benefit messaging can be redirected in a way that is attractive to the U. Not successful in US: to improve its success in the United States. This may include having to lower prices—and accept lower profits in Understanding Your Cost Base .

-the expenditure of money for new equipment. As managers. the hiring of new staff with specialized skills. life expectancy of product Tactics refers to the immediate. the opportunity can enable the organization to make a profit and sustain this profitability for the anticipated planning cycle and beyond •confirm that a position within the market is feasible.opportunity in the marketplace. The key is to ensure that the value you deliver to the customers you target via the products and services you offer exceeds that of your competitors.term actions which a firm executes in order to meet the short-term objectives set forth in the current planning cycle. in conducting business . or the manufacturing processes in developing a product or service. achieving the objectives set forth within the business plan created Strategy refers to the development of plans and decisions that will guide the direction of the firm and determine its long-term performance. which will enable the company to compete in a manner that is superior to its direct competition •confirm that the market situation will stay constant long enough for the business plan to be developed and executed •confirm that the business has the resource base and the capability to execute the strategy •execute the strategy in an efficient and effective manner. and at the right place for the right price Business is not about producing and distributing goods and services. It is about delivering value to customers in a manner that meets their wants and desires.vision of the company.•confirm that the market size of customers is large enough that. . -ensure that the right product reaches the right customer at the right time. once commercialized.

Managers need to make decisions in recognition of both immediate needs and longer-term requirements in order to protect and grow the general health of the organization. .we need to avoid the temptation to become pre.dominantly focused on short-term results.