INNOATION MANAGEMENT

UNIT I
INNOVATION

Innovation" comes from the Latin word "innovare" and stands for renewal. From an economic
point of view, innovation is something new that brings benefits for an organization or / and for
society. Innovation is both a necessary means and a desirable end for businesses in a fast moving
global economy. It is about managing a process that delivers either new products and services to
the customers, efficiently, effectively and faster than the competition, or about enhancing the
delivery of existing products and services by process improvement. It may be the search for and
the discovery, developed, improvement, adoption and commercialization of new processes,
new products and new organization structures and procedures. Generally innovation involves
managing a complex mix of procedures in a context that often conditions the way the end result
will be achieved.
Definition of innovation
The New Oxford Dictionary of English, 1998, p. 942: “Making changes to something established
by introducing something new.
Innovation is defined as, “the application of practical tools and techniques that make changes,
large and small, to products, processes, and services that results in the introduction of
something new for the organization that adds value to customers and contributes to the
knowledge store of the organization.”

Difference between innovation and invention

“Innovation,” occurs if someone improves on or makes a significant contribution to an existing
product, process or service. “Invention” on the other hand can be defined as the creation of a
product or introduction of a process for the first time
Innovation follows invention.

Innovation
It is the introduction of new product,
service or process into the
marketplace by making improvement to
existing one
It requires a broad set of marketing,
technical and strategic skills
Innovation focuses on the combination of
various products and services
Results into commercialization
Usually induced
Economic motive
Spread across the organization
Invention
It is the creation of new product, service
or process for the first time
It requires scientific skills
Invention is concerned with a single product
of service
May not be commercialized
It can be autonomous or induced
Can be for economic or noneconomic
motive
Usually restricted to R&D centre

Innovation Management., Dr.Prem Kumar.U., GKM Co-operative College of Management and Technology 1
Brings organizational change May bring few changes in
organization
Succeeds invention Precedes innovation

Innovation = Invention + creativity + exploitation

The smartphone, the car, the desktop computer these are inventions. Innovation is the continual
upgrade of inventions. So, moving a desktop from an Intel 286 to a 386, changing the size of a
smartphone screen, making changes in the old aged format of car to its modern version, these
are innovations.
Goals of innovation
• Improving quality
• Creation of new markets
• Extension of the product range
• Reducing labour cost
• Improving production process
• Reducing materials
• Reducing environmental damage
• Replacement of products/services
• Reducing energy consumption
• Conformance to regulations

Importance of Innovation

Innovation is important to organizations because of:

• Competitive pressures and the need to survive
• The management of a firm or enterprise. Managers have to implement change, new
processes and improvement in systems.
• The impact of innovation on organizational life.
Competitive pressure and the need to survive
Gary Hamel (1998), writing in the Sloan Management Review, suggests that only those companies
that are capable of recreating themselves and their industries in a profound way will be around a
decade hence. The warning is simple, innovate or perish!
Research in the fields of organisational management and marketing suggests that companies and
organizations that use the innovation process to differentiate their own products and services
from their competitors are twice as likely to be successful both strategically and financially.

The impact of innovation on the organisation

As with most complex relationships, innovation is more, ‘art than science’ and outcomes tend
to be both psychological and materialistic in nature. In any particular case, the ‘outcomes mix’
varies according to the nature of the innovation and the organisation undertaking it.

Outcomes from the innovation process

Tangible outcomes are outcomes which are observable and apparent. They include:

Innovation Management., Dr.Prem Kumar.U., GKM Co-operative College of Management and Technology 2
 a) Increased corporate success in measurable terms, such as the value of an organisation’s
shares, the general profitability and growth rate. The business tends to command a greater
market share by virtue of market penetration and the number of new products and
services that are made available to clients.
b) Greater efficiency. A more structured approach to product and service development, with
greater focus shown by both management and employees, increases the likelihood that
the organization will improve its practices and processes in a way that will deliver effective
changes and greater efficiency.
c) Happier, more flexible and more productive employees. Employees in innovative
organizations tend to feel more valued and to be more loyal to the organization, which
tends to result in more flexibility, higher productivity, less absenteeism and a lower
employee turnover rate.
d) A more modern, high-tech working environment. Innovative organizations tend to
modernize their employees’ working environment and employ new technology to enhance
the organisation’s effectiveness and efficiency. This has a positive impact on employee’s
morale.
e) Continuous improvement. When a product or service is innovative, the internal processes
and procedures, which support the delivery of the innovation, tend to be both innovative
and increasingly effective.
Intangible outcomes tend to be psychological in nature, at the level of beliefs and attitudes. They
often outweigh the tangible outcomes and can include the following:
a) Senior Managers tend to exhibit a high level of confidence in their own judgement. They
tend to be willing to take risks, to speculate and sometimes to think the unthinkable.
b) Employees tend to develop a profound interest in each other’s ideas and opinions. This
results from adopting an innovative attitude (i.e. one that is open, aware and questing for
new or novel solutions to both threats and opportunities).
c) An increase in team cohesion at project and organization level.
d) A change in leadership style. Innovative managers tend to exhibit a leadership style that is
founded on mentoring, encouraging and understanding.

Characteristics of an innovation include:

1. Timing
2. Radicalness
3. Speed

Timing
Timing can affect both the contribution and the relevance of an innovation. All companies have a
graveyard full of good products with poor timing. This may be the result of the development
process being complex. It may be a product “ahead of its time”. Sometimes luck plays a big part in
innovation. The fax is a classic example of a product which “took off” due to the UK's postal strike
A whole range of factors lead to the failure of many good ideas because of the impact of those
factors on “time to market”.
Degree of radicalness
Innovations can be classified as radical or incremental. Radical innovations tend to come about
through a clear approach and aim to create large scale change (for example, the introduction of

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the National Curriculum in state schools). Incremental innovations emerge in a more organic
fashion and create gradual, bit-by-bit change (for example, a programme of continuous
improvement in customer service). Radical solutions may well be an outcome of fundamental
research. For example, biomedical products, replacement limbs and designer materials are areas
where radical innovation is resulting from research. Often the theory has been known for a
considerable time before applications are developed. Foresight initiatives in many countries are
attempting to predict technology development, so as to help companies to spot new opportunities
(for example the UK's Department of trade and Industry's Innovation Unit). Technology Networks
are also being encouraged in many regions, bringing together universities, company research and
development, small and medium sized enterprises and inventors.
Speed of innovation
Speed of innovation can be critical. Speed affects the cost, quality and timing of the innovation
and ultimately its “competitiveness” and its success. Many organisations are not fast innovators,
and those that have established innovation speed as a competitive advantage have had to
overcome time-consuming policies and practices However, speeding up innovation is a complex
process.
Types of innovation
Innovation is broken down in to two dimensions -Technology and Market, which gives us the
following 4 types of innovation:

Incremental Innovation

Incremental Innovation is the most common form of innovation. It utilizes the existing technology
and increases value to the customer (features, design changes, etc.) within the existing
market. Almost all companies engage in incremental innovation in one form or another.

Examples include adding new features to existing products or services or even removing features
(value through simplification).

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Disruptive Innovation

Disruptive innovation, also known as stealth innovation, involves applying new technology or
processes to the company’s current market. It is stealthy (silent) in nature since newer
technology will often be inferior to existing market technology. This newer technology is often
more expensive, has fewer features, is harder to use, and is not as aesthetically pleasing. It is only
after a few iterations that the newer technology surpasses the old and disrupts all existing
companies.

Apple’s iPhone is an example of disruptive innovation. Prior to the iPhone, most popular phones
relied on buttons, keypads or scroll wheels for user input. The iPhone was the result of a
technological movement that was years in making, mostly iterated (repeated) by Palm Treo
phones and personal digital assistants (PDAs). Frequently you will find that it is not the first
mover who ends up disrupting the existing market. In order to disrupt the mobile phone market,
Apple had to cobble together an amazing touch screen that had a simple to use interface, and
provide users access to a large assortment of built-in and third-party mobile applications.

Architectural Innovation

Architectural innovation is simply taking the lessons, skills and overall technology and applying
them within a different market. This innovation is amazing at increasing new customers as long
as the new market is receptive. Most of the time, the risk involved in architectural innovation is
low due to the reliance and reintroduction of proven technology. Though most of the time it
requires tweaking (changes) to match the requirements of the new market.

In 1966, NASA’s Ames Research Centre attempted to improve the safety of aircraft cushions. They
succeeded by creating a new type of foam, which reacts to the pressure applied to it, yet magically
forms back to its original shape.

Radical innovation

Radical innovation is what we think of mostly when considering innovation. Radical innovations
tend to come about through a clear approach and aim to create large scale change It gives birth to
new industries (or swallows existing ones) and involves creating revolutionary technology. The
airplane, for example, was not the first mode of transportation, but it is revolutionary as it allowed
commercialized air travel to develop and prosper.

The four different types of innovation mentioned here – Incremental, Disruptive, Architectural and
Radical – help illustrate the various ways that companies can innovate. There are more ways to
innovate than these four. The important thing is to find the type(s) that suit your company and
turn those into success.

Product Innovation
Product innovation involves creating new products or improved versions of existing products that
increase their uses. This innovation can be in the product's own functionality, or it can take the
form of new technology. For example, car manufacturers make one new car each year. Cell phone

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manufacturers tend to release a new version of their phones every few years. In doing so, the
manufacturer tries to introduce something unique.
Process Innovation
Process innovation is the application or introduction of a new technology or method for doing
something that helps an organization remain competitive and meet customer demands. Process
innovation happens when an organization solves an existing problem or performs an existing
business process in a radically different way that generates something highly beneficial to those
who perform the process, those who rely on the process or both. For example, the introduction of
a completely new sequence to an existing production process that speeds production by 100%,
thereby saving the organization money and time.
Innovation Strategy
An innovation strategy is a plan used by a company to encourage advancements in technology or
services, usually by investing money in research and development activities.
An innovation strategy is essential for companies that want to gain competitive advantage. An
effective innovation strategy should be inspiring and add something unique to the product or
service being developed. As a company, want to increase the value of a current product or create
something brand new that will draw the consumer in.
Absorptive capacity
Absorptive capacity is an organisation’s ability to identify, assimilate, transform, and use external
knowledge, research and practice. In other words, absorptive capacity is the measure of the rate
at which an organisation can learn and use scientific, technological or other knowledge that exists
outside of the organisation itself. It is a measure of an organisations ability to learn.

Factors of Innovation/Innovation Management

• Management Commitment to Innovation -Management commitment is one of the most

important success factors in innovation management. In the absence of corporate
management support, innovation leaders will waste their time fighting against windmills.
The commitment of all managers, from top to bottom, is the basis of the innovation
process..
• Strategic orientation - If the strategic orientation of innovation activities is lacking, there is
a lack of goal, path and orientation. This makes it difficult for those in charge of innovation
to assess where and what to look for, which innovation topics have priority and thus
difficult to make the right decisions.
Therefore, the innovation strategy must be defined on the basis of future trends,
opportunities, risks and challenges as well as the corporate strategy:
What is the purpose of innovation and what do we want to achieve in the future?
What is the contribution of innovation to corporate strategy?
What are our future topics and search fields?
• Clear responsibilities - The innovation process is a highly interdisciplinary process and
requires the involvement of many functional areas and employees in order to successfully
implement a new product or service idea. It is therefore necessary to clearly define what is
expected of the employees. Above all, it is also about defining the roles in the innovation

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 process. For example, the tasks of sales, production, purchasing, etc. in innovation projects
are clearly defined with regard to their contribution to the success of innovation.
In addition, the project roles are defined in individual innovation projects and must be
perceived with commitment. This includes, for example, the role of the project manager,
the project town councillor and the important project team members.
• Innovation culture - Innovations require completely different structures and cultures in
comparison to operative management and work. Operational -business is built on routine
and efficiency, while innovation is always about innovation. This requires different values
and attitudes, for example openness to try out new and new things, willingness to take
risks, thinking across borders, accepting mistakes and much more. Therefore, a company
must build up a positive innovation culture where innovations are welcome and
encouraged. Measures to promote a culture of innovation are implemented at various
levels:
Raising employee awareness of innovation, e. g. through communication measures.
Motivation, e. g. incentives for promoting innovation.
Empowerment of employees for innovation, e. g. training courses on creativity and the
innovation process.
Active involvement of employees, e. g. through innovation competitions.
Creation of spaces and structures for innovation, e. g. flat hierarchies, freedom and
resources.
• Change Management - The introduction of innovation management requires a change and
also the implementation of innovations themselves necessitate changes. These changes
can only become effective if they are supported by all employees themselves and if the
workforce itself actively changes. Therefore, change management itself is an extremely
important tool and belongs to the repertoire of every innovation manager. Innovations put
a company into continuous change and therefore it requires a conscious and constant
management of these changes in order to take all employees on the journey.
• Integration of all employees - Innovation is not something that only a limited, elitist circle
of employees does or is even boosted by the innovation manager. Innovation must be
actively initiated and supported by all employees. That is why the innovation manager
must involve all employees in a targeted manner. On the one hand, this includes
awareness-raising measures to inspire and motivate all employees for innovation, but also
structural measures for active involvement, such as pitching contests, innovation
competitions or classic idea management. Innovation must become a permanent
initiative that is supported and actively shaped by all employees.
• Co-operation - Co-operation is an essential success factor in innovation processes and
projects. Innovations always happen in interdisciplinary teams and require the cooperation
of many employees. It is important, however, that everyone pulls together and pursues a
common goal. Otherwise, different demands lead to silos, lack of cooperation and support
or problems at the interfaces, which in the end can seriously slow down an innovation
project or even cause it to fail. For this reason, a company must place great emphasis on
the fact that all employees pursue a common goal - on the one hand in terms of innovation
vision and, on the other hand, in the individual projects. Everyone must have the common,
great goal in mind and focus their energies on it. Only in this way can all innovation
potentials be used productively and facilitate the success of innovation.

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Innovation Management

Innovation Management is based on the ideas of Austrian economist Joseph Schumpeter, who
identified in 1930s, an important factor in economic development. in his book "Capitalism,
Socialism and Democracy" first time fully developed the concept of creative destruction. It is the
systematic promotion of innovations in organizations and includes tasks of planning, organization,
management and control. Innovative management deals with all measures to promote innovation
in organizations and to generate benefits, for example:
• New products and services to conquer new markets.
• Improved products and services to stand out from the competition.
• Improve internal processes to strengthen the company from the inside or to save costs.
• Development of new business models to use new sources of income.

Innovation management is the process and concepts of innovation which describe innovative
models of innovation process, dimensions of creating innovations capability potential to
successfully create innovations outcome.
Innovation management is the process of combination of innovation and change management. It
includes product, business process, marketing and organizational innovation. Innovation
management provide opportunity to develop new ideas, processes or products in industry.
Creativity is the basis of innovation management, to change in services or business process,
Innovative ideas are the result of two consecutive stages, imitation and invention. innovation
management tools, trigger and deploy the creative capabilities of the work force.

Common innovation management tools are brainstorming, prototyping, product life cycle
management, facilitation, TRIZ, phase-gate models, project management, product line planning,
and portfolio management. The goal of innovation management is to create a suitable
encouraging innovation environment within organization. Innovation management allows an
organization, to create external or internal opportunities, for creativity to introduce new ideas,
processes, or products.

Introduction to Entrepreneurship

Entrepreneurship

The word “entrepreneur” is derived from the French verb “entreprendre”, which means ‘to
undertake’. This refers to those who “undertake” the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called “entrepreneurship”.
Entrepreneurship refers to all those activities which are to be carried out by a person to establish
and to run the business enterprises in accordance with the changing social, political and economic
environments. Entrepreneurship is the ability of entrepreneurs to assess the risks and establish
businesses which are risky but at the same time suits perfectly to the changing scenarios of the
economy.
Definition of Entrepreneurship
A.H.Cole - Entrepreneurship is the purposeful activity of an individual or a group of associated
individual, undertaken to initiate, maintain or aggrandize profit by production or distribution of
economic goods and services.

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Musselman and Jackson - Entrepreneurship is the investing and risking of time, money and effort
to start a business and make it successful.

Role of Entrepreneur (Role of Entrepreneur in Economic Development)

Entrepreneur plays a vital role in economic development. Entrepreneurs serve as the catalysts in
the process of industrialization and economic growth. The following are the important roles
played by the entrepreneurs.

1. Capital Formation:
Entrepreneurs mobilize the idle savings of the public through the issues of industrial securities.
Investment of public savings in industry results in productive utilization of national resources. Rate
of capital formation increases which is essential for rapid economic growth. Thus, an entrepreneur
is the creator of wealth.

2. Improvement in Per Capita Income:

Entrepreneurs locate and exploit opportunities. They convert the latent and idle resources like
land, labour and capital into national income and wealth in the form of goods and services. They
help to increase net national product and per capita income in the country, which are important
yardsticks for measuring economic growth.

3.Generation of Employment Entrepreneurs generate employment both directly and indirectly.

Directly, self-employment as an entrepreneur offers the best way for independent and honourable
life. Indirectly, by setting up large and small scale business units they offer jobs to millions. Thus,
entrepreneurship helps to reduce the unemployment problem in the country

4. Balanced Regional Development:

Entrepreneurs in the public and private sectors help to remove regional disparities in economic
development. They set up industries in backward areas to avail various concessions and subsidies
offered by the central and state governments.

Public sector steel plants and private sector industries by Modis, Tatas, Birlas are examples.

5. Improvement in Living Standards:

Entrepreneurs set up industries which remove scarcity of essential commodities and introduce
new products. Production of goods on mass scale and manufacture of handicrafts, etc., in the
small scale sector help to improve the standards of life of a common man. These offer goods at
lower costs and increase variety in consumption.

6. Economic Independence:
Entrepreneurship is essential for national self-reliance. Industrialists help to manufacture
indigenous substitutes of hitherto imported products thereby reducing dependence on foreign

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countries. Businessmen also export goods and services on a large scale and thereby earn the
scarce foreign exchange for the country.

Such import substitution and export promotion help to ensure the economic independence of the
country without which political independence has little meaning.

7. Backward and Forward Linkages:

An entrepreneur initiates change which has a chain reaction. Setting up of an enterprise has
several backward and forward linkages. For example- the establishment of a steel plant generates
several ancillary units and expands the demand for iron ore, coal, etc.
These are backward linkages. By increasing the supply of steel, the plant facilitates the growth of
machine building, tube making, utensil manufacturing and such other units.
8.Resource Mobilisation:

Resource mobilisation refers to all activities involved in securing new and additional resources for
the organisation. It also involves making better use of and maximising, existing resources. It is
also referred to as ‘New Business Development’. Resource include human resource, natural
resources and financial resources. Resource mobilisation efforts should align the organisational
mission, objectives and strategic plan.

9.National Self-reliance:

Self-reliance is a quality of depending on our-self for things instead of relying on others.

.Entrepreneur is try to bring self-reliance in his business. In order to bring national self-reliance,
the entrepreneur using the resources available within the country and employing the local people
in the organisation. It will improve the stability of the nation to stand independent without the
help of outsiders.

10. Reduces the concentration of wealth:

Entrepreneurs reduces the concentration of wealth in the hands of few. By mobilisation of

financial resources, and redistributing it to different employees in the society in the form for
salaries, wages etc., entrepreneurs are helping the people in the society to reallocating wealth
from haves to have nots.

Entrepreneurial Traits (Qualities required for an entrepreneur)

Entrepreneur is the person who gives reality to his visionary aspects. He can be any person who
works on his own terms and assumes risk to perceive profit in near future. Entrepreneurship is the
process of executing the concepts and ideas of an entrepreneur in the market through proper
planning.

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There are some skills possessed by entrepreneurs to make their venture successful, which are
cited below-

▪ Entrepreneurs are innovative, because of which they think out of the box by continuous
learning, questioning, and brainstorming their ideas.
▪ Hard work is the most common trait found in entrepreneurs. They work day in and day out to
give a platform to their concept. They do not get distracted from their target whatever is the
circumstance.
▪ Positivity is that trait in entrepreneurs which doesn’t let them disheartened from the initial
setbacks of their venture. A true entrepreneur does not see money as the motivation, instead
takes success as a motivation and money as the reward.
▪ Entrepreneurs are practical enough to judge market demands, that they can even modify
their product to customer satisfaction. Market requirement is their main focus to achieve
success.
▪ Entrepreneurs are always good at resource management be it personnel or monetary. They
know how to motivate their team to extract maximum productivity out of them by properly
communicating their vision and goals to them.
▪ Entrepreneurs are always enthusiastic about their ideas or plans in a way that they can
convince others to listen or look at their plan.
▪ Self-confidence is the most important aspect of entrepreneurs’ life, which comes through the
expertise and proper research in their work.
▪ Entrepreneurs possess risk taking capacity without which they cannot step forward in the
market, and the risk taking capacity comes from the confidence and know-how of the
mechanism which they are going to execute.

All of these skills can be learned as well as honed by the prospective entrepreneurs in the
following ways-
1. Never say die spirit is truly the first and foremost skill to be learnt. This can be achieved by
being an optimist and by always looking forward, even after failures.

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2. SWOT analysis of one’s own personality makes people aware about the shortcomings in their
behavioral pattern towards entrepreneurship, so that they can improve on their weaknesses
and threats.
3. Interpersonal skills set is a must have for an entrepreneur to be successful and these can be
learned and developed from external sources and can be improved with self-consciousness
also. Some interpersonal skills which are necessary for a successful entrepreneurship
are listening, communication, personal relations, delegation, motivation, and ethics.
4. Tremendous research and brainstorming ideas makes one abrupt of nook and corner of the
concept and gives self-confidence to the entrepreneur.
5. To be a successful entrepreneur, one must have the capability to take initiatives and possess
problem solving attitude which comes through self-motivation and requisite enthusiasm.
Difference between Entrepreneur and Entrepreneurship

Entrepreneur Entrepreneurship
Person Process
Visualizer Vision
Organiser Organisation
Decision Maker Decision Making
Innovator Innovation
Risk Bearer Risk Bearing
Motivator Motivation
Creator Creation
Leader Leadership
Manager Management
Initiator Institution
Administrator Administration
Technician Technology
Commicator Communication

Differences between entrepreneur and intrapreneur

Entrepreneur refers to a person who set up his own business with a new idea or concept.
Intrapreneur refers to an employee of the organization who is in charge of undertaking
innovations in product, service, process etc.

The differences between entrepreneur and intrapreneur are as follows:

Dependency
Entrepreneur: He is independent in his operations. He is fully independent. He does not work for
others and his own boss.
Intrapreneur: But, an intrapreneur is dependent on the entrepreneur, i.e., the owner. He depends
on corporate owner. He works for corporation under defined rules and regulations.

Core objective
Entrepreneur: To innovate something new of socio economic value
Intrapreneur: To increase competitive strength and market sustainability of the organization

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Capital/ Investment
Entrepreneur: He manages required capital himself. He raises fund for new business.
Intrapreneur: He does not need to manage required fund because corporation raises capital for
the business.
Developing Entrepreneurs

1. Creativity: “Creativity is the root of entrepreneurship.” -- Karndee Leopairote, Thammasat

University.
Creativity is the ability to see things differently and to provide solutions where there are
gaps. To build your creativity skills, intentionally try something new. Do something that
others won’t do.
2. Start a business.

There is nothing like real-world experience. Whether we run a business on part time or full-
time, we get the opportunity to grow our skills such as business planning, negotiation, sales
and marketing.
3. Stick with challenges.
“It’s not that I’m so smart, it’s just that I stay with problems longer.” -- Albert Einstein.
Every successful entrepreneur has learned to develop their perseverance (determination)
and to face risks. The life of an entrepreneur is never smooth sailing, and it takes guts to
keep going when people doubt your abilities. To build perseverance, create a goal or
challenge that is meaningful and don’t give yourself the to quit. Alternatively, give yourself a
deadline to aim towards.
4. Delay gratification (satisfaction)
Entrepreneurs have to get used to countless failures and almost zero rewards until they
finally hit the jackpot. To train yourself to be able to delay gratification, start small.
5. Manage own finances.
Understanding basic finance is essential in running our own company. we don’t have to be
an accountant, but we should at least be able to understand the basics around cash flow,
assets, and profit and loss.
Start by learning how to do our own taxes and manage our own budget and investments.
6. Volunteer to lead.
The ability to lead a team and stay organized is important when we become an
entrepreneur. We can start by looking for volunteer and leadership opportunities around
us. Volunteer to lead a Meetup group, start a fundraising project for our own favourite non-
profit organization or get involved with our local community board. By getting involved in
bigger roles, even if unpaid, we get to practice time management, organization, leadership
and teamwork skills.
7. Learn from a mentor.
The value of a mentor is priceless when it comes to building entrepreneurial skills. Rather
than make all the mistakes our-self, why not learn from someone else who has already
made them?

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 Mentors are not only great sounding boards for our ideas but they also can be fantastic
cheerleaders when the going gets tough. If we are lucky, we may find a mentor wiling to
train us for free
8. Work in sales.
In every business, sales play a vital role in the survival, sustainability and success of a
business. We can have the best product in the world but if we don’t know how to sell it, it is
worthless.
One of the easiest ways to learn how to sell is to get a sales role.
9. Get involved with other entrepreneurs.
Whether it’s attending entrepreneurial events, conferences, seminars or meetups; spending
time with other entrepreneurs will help you grow our own entrepreneurial skills.
If we have the time and guts, we can compete in an entrepreneur competition
10. Help others with their businesses.
Being an entrepreneur is about solving problems with the resources that we have. The more
we help others to solve problems with their own businesses, the more we own skills will
grow.
11. Keep learning.
“I am still learning.” -- Michaelangelo.
Keep our own learning and personal development active. There are so many courses online,
both free and paid, that teaches a variety of entrepreneurial skills.

Dynamics of Small Business Environment

Small Business

A small scale enterprise, or, a small business, is one marked by a limited number of employees
and a limited flow of finances and materials. Small businesses surround us.
Small businesses are either services or retail operations like grocery stores, medical stores,
tradespeople, bakeries and small manufacturing units. Small businesses are independently
owned organisations that require less capital and less workforce and less or no machinery. These
businesses are ideally suited to operate on a small scale to serve a local community and to provide
profits to the company owners.
a small scale business is a business set up in which the financial commitment towards infrastructure
such as building & equipment, whether made as an owner or on rental or purchase basis, does not
surpass Rs. 1 crore. small business gains a special position in the industrial structure because of their
ability to utilise labour and create employment.
Types of Small Business
• Small-scale manufacturing industries.
• Handlooms and power loom.
• Khadi

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 • Agro-based industries.
• Tuition Centres.
• Photography.
• Breakfast joint
• Printing.
• Coir
• Sericulture

Nature of Small Business

The nature of small businesses can be classified as follows:

1. Shoestring Budget
A sole proprietor or a small group of people operate small businesses. These businesses often run on
‘shoestring budget’ meaning that small businesses function on a very tight budget.
2. Labour intensive
Small businesses are mostly labour intensive. Various types of small business largely rely on labour for
their functioning. The primary nature of small businesses is more involvement of physical work rather
than intellectual work. The lack of machinery makes the employees manage their operations
manually.
3. Community-based
Small businesses are started with the motive of satisfying the needs and demands of a local area or
community. These businesses demographically target few areas of concentration and are hence
community-based.
4. Indigenous technology
Due to small businesses being community focused and labour oriented they often thrive upon native
methods of operations. In India, there are many businesses in the rural sector that still use outdated
technology. This might give uniqueness to the products but hinders the development of the business.

Business Environment

Business Environment means a collection of all individuals, entities and other factors, which may
or may not be under the control of the organisation, but can affect its performance, profitability,
growth and even survival. Every business organisation operates in a distinctive environment, as it
cannot exist in isolation. Such an environment influence business and also gets affected by its
activities.

Components of Small Business Environment

The Business Environment is broadly classified, into two categories:

1. Internal Environment: The factors which exist within the organisation, imparting strength or
causing weakness to the organisation, comes under internal environment. It includes:
▪ Value System

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 ▪ Vision and Mission
▪ Objectives
▪ Corporate Culture
▪ Human Resources
▪ Labour Union
2. External Environment: External Environment consists of those factors which provide an
opportunity or pose threats to the business. It is further classified as:
▪ Micro Environment: The immediate periphery of the business that has a continuous and direct
impact on it is called Micro Environment. It includes suppliers, customers, competitors, market,
intermediaries, etc. which are specific to the business.
▪ Macro Environment: Macro Environment is one such environment that influences the
functioning and performance of every business organisation, in general. It comprises of the
demographic, socio-cultural, legal, political, technological, and global environment.
Causes of Small Business Failure
1. Financing Hurdles
A primary reason why small businesses fail is a lack of funding or working capital. In most instances
a business owner is intimately aware of how much money is needed to keep operations running
on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses, such
as rent and utilities; and ensuring that outside vendors are paid on time. However, owners of
failing companies are less in tune with how much revenue is generated by sales of products or
services. This disconnect leads to funding shortfalls that can quickly put a small business out of
operation.

Small companies in the start-up phase can face challenges in terms of obtaining financing in order
to bring a new product to market, fund an expansion, or pay for ongoing marketing costs.

To help a small business manage common financing hurdles, business owners should first establish
a realistic budget for company operations and be willing to provide some capital from their own
coffers during the start-up or expansion phase.

2. Pricing of products

A second reason is business owners who miss the mark on pricing products and services. To beat
out the competition in highly saturated industries, companies may price a product or service far
lower than similar offerings, with the intent to entice new customers. While the strategy is
successful in some cases, businesses that end up closing their doors are those that keep the price
of a product or service too low for too long. When the costs of production, marketing, and delivery
outweigh the revenue generated from new sales, small businesses have little choice but to close
down.

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 3. Inadequate Management

Another common reason small businesses fail is lack of business judgement on the part of the
management team or business owner. In some instances a business owner is the only senior-level
person within a company, especially when a business is in its first year or two of operation. While
said owner may have the skills necessary to create and sell a viable product or service, they often
lack the attributes of a strong manager and don't have the time to successfully oversee other
employees. Without a dedicated management team, a business owner has greater potential to
mismanage certain aspects of the business, whether it be finances, hiring, or marketing.

Smart business owners outsource the activities they do not perform well or have little time to
successfully carry through. A strong management team is one of the first additions a small
business needs to continue operations well into the future. It is important for business owners to
feel comfortable with the level of understanding each manager has regarding the business’
operations, current and future employees, and products or services.

4. Ineffective Business Planning

Small businesses often overlook the importance of effective business planning prior to opening
their doors. A sound business plan should include, at minimum: a clear description of the business;
current and future employee and management needs; opportunities and threats within the
broader market; capital needs, including projected cash flow and various budgets; marketing
initiatives; and competitor analysis.

Business owners who fail to address the needs of the business through a well-laid-out plan before
operations begin are setting up their companies for serious challenges. Similarly, a business that
does not regularly review an initial business plan—or one that is not prepared to adapt to changes
in the market or industry—meets potentially insurmountable obstacles throughout the course of
its lifetime.

5. Marketing Mishaps

Business owners often fail to prepare for the marketing needs of a company in terms of capital
required, prospect reach, and accurate conversion-ratio projections. When companies
underestimate the total cost of early marketing campaigns, it can be difficult to secure financing or
redirect capital from other business departments to make up for the shortfall. Because marketing
is a crucial aspect of any early-stage business, it is necessary for companies to ensure that they
have established realistic budgets for current and future marketing needs.

Similarly, having realistic projections in terms of target audience reach and sales conversion ratios
is critical to marketing campaign success. Businesses that do not understand these aspects of

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sound marketing strategies are more likely to fail than companies that take the time to create and
implement cost-effective, successful campaigns.

6. Underestimating Administrative Tasks

When we were planning the company, maybe we imagined happy customers, smart marketing,
and of course, plenty of cash. Large masses of running a business revolve around administrative
tasks.

From inventory management to managing employees to all the bookkeeping and accounting
involved in the endless quest to meet thd financing goals and turn a profit, administrative
responsibilities can easily eat up your entire day.

Success factors for Small Business

1.An innovative business idea

If we want to survive, especially in a competitive industry, we need to determine what sets you
apart from the other available options. Clever marketing or an exciting technology alone won't
guarantee the target customers. We have to offer real value and/or a new experience to
customers.

2.The right talent

The long-term success of your business requires that you assemble the right talent to build a
brand. Our team is the company's backbone, and one cancerous person can completely derail the
progress. Whether we are building an on-site team or a remote workforce, one thing remains the
same -- the right talent matched with the same vision will greatly improve the chances of success.

Building a business requires a tremendous amount of work during the start-up phase. Long hours
and the up-and-down roller coaster ride is much more enjoyable when the entire team is willing to
push hard to accomplish goals and hit milestones together.

3.Personal Network

Building a personal network of like-minded entrepreneurs has several benefits. It gives you a
sounding board for when you have questions or want advice, which is a huge help, especially in
the early stages of a business. As our network grows, so our resources will also grow.

Every business, from a large law firm to a small single member start-up, can benefit from having a
strong network. As we are in more comfortable networking, our network's size and ability help us
to solve problems and make wise business decisions.

4.Hard work

The hard work makes the business successful. Once we are in the circle of business hard work and
risk bearing will result in success of the business. Tie the ropes of the willingness to work hard and

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don’t be hesitant towards the goal of business. The potential entrepreneurs now have taken their
effort to build the business by undertaking rigid tasks in their business.

5.Sell each unit at a profit.

Evaluate each and every product that we sell and determine if we are selling them profitably. If
not, we may need to identify how to make its current sales profitable, whether by reducing your
costs for that product or increasing its price..

6.Continue to reduce overhead costs.

A lower overhead should be a continuing objective for our business. We can cut costs by
evaluating our insurance needs, reducing your reliance on outside consultants and service
providers, or cutting down unnecessary supplies and equipment.

7.Create and maintain the highest level of customer satisfaction.

A very important success factor needed to sustain our business is to provide the best service to
your customers. Satisfied customers are more likely to come back to us. Better yet, give our
customers more than they expect.

8.Other factors

• Industry
• Creativity in Management
• Employees
• Leadership Qualities
• Education and experience

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